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TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 922
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.... On the facts and in the circumstances of the case and in Law, the Ld. CIT (Appeals) has erred in upholding the disallowance of Rs. 20,89,469/- u/s 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules 1962. 2. On the facts and in the circumstances of the case and in Law, the Ld. CIT . (Appeals) has erred in not appreciating that the assessee company is having | substantial interest free funds in the form of share capital and reserve & surplus for making investments to earn incomes which are exempt under Income Tax I Act, 1961. 3. On the facts and in the circumstances of the case and in Law, the Ld. CIT (Appeals) has erred in upholding the addition of Rs. l,29i25r650/- being done by the AO on account of treating the interest income earned by The Cooperative Electrical Society, Sircila, on special reserve fund created and maintained by it out of the interest forgone by the appellant company, as the income of the appellant company. 4. On the facts and in the circumstances of the case and in Law, the Ld. CIT (Appeals) has erred in upholding the addition of Rs. 79,74,627/- being done by the AO on account of treating the interest income earned by other various Coop....
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....he company raises fund by way of issue of priority and non-priority sector bonds, infrastructure bond, loan from LIC and other banks and those funds are then deployed for financing power projects. For the year under consideration ,the assessee filed return of income on 13/10/2010 declaring total income of Rs. 2038,74,20,592/-, which was revised further on 30/03/2012 to Rs. 2038,64,69,164/- after claiming deduction under section 36(1)(viia) and 36(1)(vii) of the Income-tax Act, 1961 (in short 'the Act'). The case was selected for the scrutiny and notice under section 143(2) of the Act was issued and complied with. The assessment under section 143(3) of the Act was completed on 28/02/2013 after making certain additions/disallowances to the returned income. Aggrieved, the assessee filed appeal before the Ld. CIT(A), who partly allowed the appeal vide impugned order dated 11/07/2014. Aggrieved with the finding of the Ld. CIT(A), both the assessee as well as the Revenue are in appeal before the Tribunal raising the grounds as reproduced above. 4. The ground No. 1 of the appeal of the assessee relates to disallowances of provision for post-retirement medical expenses amounting to Rs. 4,....
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....on actuarial valuation in accordance with the post retirement medical scheme. The Id CIT(A) allowed the above claim holding that such provision is accrued liability and not contingent in nature. He relied upon the decision of the coordinate bench in Bokaro Power Supply Co. Ltd Vs. DCIT (4921/ Del/2010). Similar view has been taken by the Hon'ble Delhi High Court that where the provision has been created on the basis of actuarial calculation on a scientific basis the liability is not contingent but definite. We do not find any infirmity in the order of the Id CIT(A) in deleting the above disallowance. In view of this ground No. 1 of the appeal is dismissed." 4.5 Thus, respectfully following the above finding of the Tribunal, the finding of the Ld. CIT(A) on the issue in dispute is upheld and the ground no. 1 of the appeal of the Revenue is dismissed. 5. The ground No. 1 and 2 of the appeal of the assessee are related to disallowances under section 14A of the Act of Rs. 20,89,469/- sustained by the Ld. CIT(A) out of the addition of Rs. 62,91,445 made by the Assessing Officer. The ground No. 2 and 2.1 of the appeal of the Revenue are related to deleting addition of Rs. 42,01,9....
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.... above, I will now examine the computation u/r 8D challenged by the appellant. (i) Regarding the disallowance u/r 8D(2)(i) of Management Fees (Rs. 40,77,822/-) and Trusteeship Fee (Rs. 1,24,155/-), held to be incurred in relation to the dividend income of Rs. 5,89,451/- earned from the investment in SIB Venture Capital fund, I find that during the year no fresh investments were made in the said fund and the said dividend income has been earned on the opening investments in the said SIB fund. Further, I find that the said amount of Rs. 40,77,822/- towards Management Fees & further amount of Rs. 1,24,155/- towards Trusteeship fees have been charged by the investment broker, as annual charges towards maintaining the SIB fund. Out of this, total income of Rs. 71,67,983/- consisting of Long Term Capital Gain of Rs. 65,78,532/- and dividend income of Rs. 5,89,451/- was earned during the year. The appellant, as per the detailed statement of the said investment broker, had received an amount of Rs. 3,33,08,659/- as disinvestment proceeds, Rs. 5,89,451/- as dividend income and income of subsequent years received in advance of Rs. 8,64,615/- aggregating to Rs. 3,47,62,725/-. After deductin....
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....of Rs. 21 Crores is out of the grant received from USAID, which is evidently without any interest liability. The appellant has also the share capital of Rs.ll Crores and has shown profit for the current year. At the same time, I find that the appellant is a finance company, which is engaged in financing Rural Electrical projects and has claimed interest expenses of a significant amount of Rs. 697.80 crores. Evidently, in the own admission of appellant, no separate books of account for taxable and non-taxable streams of income have been maintained by the appellant. However, the mainstay of the plea of the appellant was that being a PSE, it was prohibited by the Central Government from making any investment out of the borrowed funds and in this regard, reliance was placed on DPE, O.M. dated 31.08.2007, which lifted the said prohibition only in case of Navratna and mini-Navratna companies. 6.6 On careful consideration of the said O.M. dated 31.8.2007, I find that the only effect of the said O.M. was removal of prohibition on making investment out of surplus fund in public and private sector Mutual Funds, in respect of only Navratna and Miniratna CPSEs, which were allowed making inve....
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....273/- deserves to be deleted. With respect to 0.5% of average value of investment the Id AR did not submit any explanation. Therefore, the AO is directed to restrict the disallowance u/s 14A to the extent of 0.5% of the average value of the investment as provided under Rule 8D. Accordingly, ground No.1 of the appeal is partly allowed. 6.2 As the identical issue of investment out of interest-free funds available exist in the year under consideration, thus respectfully following the finding of the Tribunal, the disallowance for indirect interest expenses under rule 8D(2)(ii) amounting to Rs. 14,64,536/- is deleted. 6.3 On the issue of 0.5% of average investment, the Tribunal (supra) has upheld the disallowance under rule 8D(2)(iii), thus respectfully, following the finding, the disallowance in the year under consideration of Rs. 6,24,445/- is sustained. 6.4 Accordingly, the ground Nos.1 & 2 of the appeal of the assessee are partly allowed. 7. The ground No. 3, 3.1 and 3.2 of the appeal of the Revenue against deletion of addition of Rs. 2,34,25,620/- out of total addition of Rs. 4,43,25,896/- and ground No. 4 of the appeal of the assessee against upholding addition of Rs. 79,74,62....
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....sions have been carefully considered but are not found to be tenable for the following reasons as given in the Assessment: 1. The ITAT after discussing the various facts at length, had arrived at the conclusion that the ownership of the special funds remained with the petitioner and the interest income in respect of these funds as also the interest on the FDs made out of the special funds had also accrued to the petitioner and not to the co-operative society. 2. The contention that the co-operatives are the legal and beneficial owners of the funds is not correct. The fact that for the first five years the amount required to be set apart as special fund was exactly equivalent to the interest at the prescribed rate payable to the petitioner corporation, coupled with the fact that the corporation exercised full control over the operation and utilization of the special fund, clearly shows that the creation of special funds is a just a mechanism for regulating the utilization of the amounts which are payable by way of interest to the petitioner corporation, without in any way passing on the ownership rights of the amount to the cooperatives from which the interest is due to the peti....
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....s as income of the assessee, the Assessing Officer computed the addition of Rs. 4,43,25,897/- with society wise details mentioned on the page 25 and 26 of the assessment order. 7.5 On further appeal, the Ld. CIT(A) considered the submission of the assessee and made a detailed discussion from para 6.8 to 6.12.4 of the impugned order. The Ld. CIT(A) concluded that ownership of the corpus fund created by the co-operative societies continue to lie with those societies and the assessee had only a supervisory capacity as far as utilization of the said corpus fund was concerned. The Ld. CIT(A) observed that these societies are free to take necessary decisions to use the funds within the objective laid down. He observed that the FDRs created out of the corpus funds were in the control of the said co-operative societies and that said amount was lying in their bank account, to be withdrawn by them only for the purposes specified in the rules. In view of the observation, the Ld. CIT(A) held that the interest in question on those FDRs accrued to those said co-operative societies, belong to those societies only and cannot be treated as interest income of the assessee company. 7.6 The assessee....
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....ding, both the assessee and the Revenue are in appeal. 7.8 On the grounds of appeal of the Revenue, the Ld. DR supported the order of the Assessing Officer. According to Ld. DR, the coordinate bench of the Tribunal, Hyderabad in the case of Siricilla society has clearly held that interest income accrued on the fixed deposits made out of the special fund should be taxed in the hand of the assessee, however, the Ld. CIT(A) has ignored the said direction of the Tribunal while allowing the interest income in case of societies other than Siricilla Society. She further submitted that other than Sricilla societies have claimed the said interest income as deduction under section 80P of the Act and, thus, by way of the diversion of the income to societies, no tax is being paid on such interest income either by the society or by the assessee. The learned DR also filed copy of the decision of the Tribunal, Hyderabad bench in the case of Siricilla Society. The Ld. DR submitted that the question of law on this issue has also been admitted by the Hon'ble Delhi High Court in ITA 927/2018. Whereas the Ld. Counsel of the assessee supported the order of the Ld. CIT(A) and submitted that issue in d....
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....e. In view of the submission of the Ld. counsel and in the interest of Justice, we feel it appropriate to restore this issue to the file of the Ld. Assessing Officer with the direction to the assessee to produce all necessary evidence in support of its claim in respect of the societies concerned for verification of the Assessing Officer. It is needless to mention that the assessee shall be afforded adequate and reasonable opportunity of being heard. 8.1 The ground No. 4 of the appeal of the assessee is accordingly allowed for statistical purposes. 9. The ground No. 3 of the appeal of the assessee relates to addition of Rs. 1,29,25,650/- sustained by the Ld. CIT(A) treating the interest income earned by the Cooperative Electric Society, Siricila on the special reserve fund as income of the assessee. 9.1 Before us, the Ld. counsel submitted that, though in principle the Ld. CIT(A) agreed that the interest on FDR made out of the special reserve fund maintained by the co-operative societies should be assessed in the hand of those respective societies and not in the hands of the assessee, however in the case of Siricila Society, the Ld. CIT(A) has followed the decision of the Tribuna....
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....iety which has been forgone by the assessee as the income of the appellant. The above addition has been confirmed by the Id CIT(A) holding that decision of the coordinate bench binds him. Similar is the situation with us. If the assessee is agreed with the order of the ITAT Hyderabad Bench decision which has rendered certain findings, the assessee should have challenged the same before Hon'ble High Court. Apparently, it was not done. In this circumstances, we do not have any authority to say anything on the correctness of that decision, it binds us judicially. Further, when on examination of the rules and the all other criteria related to the creation of special reserve fund and its control the coordinate bench has held that interest has accrued in the hands of the appellant. Before us except reiterating the same facts the Id AR has not produced any other evidence or any evidence of decision of the higher forum where the order of the coordinate bench is challenged by the assessee. In this circumstances we also respectfully following the decision of the coordinate bench based on which reopening has been initiated, we also confirm the addition of Rs. 9070673/-. Accordingly, groun....
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....) has erred in deleting the addition of Rs. 2,43,17,621/- made by AO on actual payment towards post retirement medical expenses. 2 On the facts and circumstances of the case and in law Ld. CIT (A) has erred in deleting the addition of Rs. 43,58,712/- made by AO u/s14A of the IT Act read with Rule 8D of IT Rules 1962. 3. On the facts and circumstances of the case and in law Ld. CIT(A) has erred in deleting the addition of Rs. 3,13,05,370/- made by AO on account of interest accrued to various cooperative societies but taxable in the hands of the assessee i.e. M/s REC Ltd. 4. On the facts and circumstances of the case and in law Ld. CIT(A) has erred in allowing re computation of deduction u/s 36 (1) (viii) and 36 (1) (vii a) (c). 5. The appellant craves leave to, add to, alter, amend or vary from the above grounds of appeal at or before the time of hearing. 12. The issue involved in ground No. 1 and 1.1 of the present appeal of the Revenue, are identical to ground No. 1 of the appeal of the Revenue having ITA No. 5060/Del/2014 for assessment year 2010-11, which we have already dismissed. Thus, to have consistency in our decision, the grounds No. 1 and 1.1 of the present appea....