Alaknanda Hydro Power Company Limited, ... vs Assessee

ITA No.1573/Hyd/2014 : Assessment year 2010-11

M/s. Alaknanda Hydro Power V/s. Dy. Commissioner of Income-tax Co. Limited, Secunderabad. Circle 1(1), Hyderabad (PAN - AAFCA 2081 B)

(Appellant) (Respondent)

Appellant by : Shri A.Siva Kumar

Respondent by : Smt. Amisha S.Gupt, DR

Date of Hearing 15.6.2015 Date of Pronouncement 19.6.2015

ORDER

Per Saktijit Dey, Judicial Member :

Instant appeal of the assessee is against the order dated 24.6.2014 of learned Commissioner of Income-tax(Appeals) II, Hyderabad for the assessment year 2010-11.

1.1 There is a delay of 22 days in filing the appeal. Assessee has filed a petition seeking condonation of delay supported by an affidavit. Learned D.R. has no objection if delay is condoned. On perusing the statements made in the delay condonation petition and affidavit, we are satisfied that there was sufficient cause for belated ling of appeal. Hence, we condone the delay of 22 days and admit the appeal for hearing on merit.

2. The only effective ground raised by the assessee reads as under-

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Limited, Secunderabad.

"1. ....

2. The Commissioner of Income-tax(Appeals) grossly erred in holding that interest of Rs.2,41,59,811/- is not entitled to be capitalised and will not be entitled to depreciation thereon in subsequent years when such issue is not there before her.

3. ......"

3. Briefly the facts relating to the issue in dispute are : The assessee a company is engaged in the business of setting up a 330 MW power plant at Srinagar, Uttaranchal. For the year under consideration, the assessee filed its return of income on 15.10.2010 declaring total income of Rs.75,49,010 comprising of interest income of Rs.74,95,703 and short term capital gain on sale of mutual fund units of Rs.53,302. During the assessment proceedings, it was noticed by the Assessing Officer from the information available on record that the assessee has received an amount of Rs.1,96,54,978 as income during the relevant previous year, which has been claimed as exempt from tax. The Assessing Officer observed that as per the provisions of S.14A read with Rule 8D of the Income-tax Act and Rules, expenditure incurred for earning such exempt income is required to be disallowed. Accordingly, in terms of Rule 8D of the Income-tax Rules, the Assessing Officer disallowed an amount of Rs.2,41,59,811 and added it back to the income of the assessee for the year under consideration.

4. Being aggrieved of such disallowance, assessee preferred appeal before the learned CIT(A). In the course of hearing of appeal, the assessee contended that all the expenditure incurred were treated as preoperative and were capitalized to various assets, since no business activity has either commenced and the assessee has not claimed reimbursement of any expenditure. It was submitted that since certain loans availed by the assessee could not be utilised immediately, a portion of the amount was invested in mutual funds on which dividends were received. It was submitted that since the assessee during the year has not claimed any expenditure and no Profit and Loss Account was drawn up, no disallowance can be made under S.14A read 3 ITA No.1573/Hyd/2014 M/s. Alaknanda Hydro Power Co.

Limited, Secunderabad.

with Rule 8D. The learned CIT(A), after considering the submissions of the assessee held as under-

"4.4. The details on record are carefully considered. It is an admitted fact that certain loans were availed by the assessee and as the loans could not be utilised immediately, the funds were invested in mutual funds, on which dividends of Rs.1,96,54,878/- were received. Therefore, the Assessing Officer was correct in disallowing expenditure u/s. 14A r.w. Rule 8D. However, since the business has not yet commenced, the setting up of Hydro Electric Project is still on, the disallowance made by the Assessing Officer will not result in taxablee income. However, the assessee will not be entitled to capitalise the amount of Rs.2,41,51,811/- and will not be entitled to depreciation thereon in subsequent years. Therefore, this ground of appeal is partly allowed."

Aggrieved by the above order of the learned CIT(A), assessee is in second appeal before us.

5. The learned Authorised Representative submitted before us that the assessee has neither claimed any expenditure the year nor has capitalized the interest expenditure. It was submitted that on the other hand, the assessee has reduced an amount of Rs.74,95,703 being interest earned on fixed deposits as well as an amount of Rs.53,304 being short term capital gains on sale of mutual fund units, while showing the expenditure in the Balance Sheet. Thus it was submitted that since the actual interest amount considered for capitalizing in future is not Rs.2,41,51,811, the direction of the learned CIT(A) not to capitalize the said amount is improper.

4 ITA No.1573/Hyd/2014 M/s. Alaknanda Hydro Power Co.

Limited, Secunderabad.

6. The Learned Departmental Representative submitted before us that the assessee has never taken a plea either before the Assessing Officer or before the learned CIT(A) that he has set off an amount of Rs.75,49,010 shown as income from other sources as well as short term capital gains against the interest expenditure. Thus, it was submitted that since such fact has been brought to notice for the first time before the Tribunal, it has to be verified by the Assessing Officer.

7. We have considered the submissions of the parties and perused the orders of the Revenue authorities and relevant material on record. The Assessing Officer has disallowed an amount of Rs.2,41,51,811 under S.14A read with Rule 8D as expenditure incurred towards earning of exempt income. However, as can be seen from the finding of the learned CIT(A), though she has upheld the view of the Assessing Officer in disallowing expenditure incurred towards earning of interest income under S.14A read with Rule 8D, but at the same time she has held that such disallowance would not result in taxable income. As far as the decision of the learned CIT(A) upholding the disallowance of interest expenditure under S.14A read with Rule 8D is concerned, the assessee has not challenged the same before us. Therefore, the disallowance made under S.14A read with rule 8D becomes final. The only dispute raised by the assessee before us is whether the CIT(A) is correct in directing that the assessee will not be entitled to capitalize the amount of Rs.2,41,51,811 in future and also will not be eligible for depreciation on such amount. In our view, once the expenditure claimed is disallowed, the same cannot be capitalized by the assessee. Therefore, we do not see any serious infirmity in the irections of learned CIT(A) in this regard. However, it is seen from the record that the expenditure shown by the assessee in the balance sheet under the head 'Applications of Fund' is after reduction of the shown of Rs.75,49,010. Therefore, expenditure disallowed under 14A read with Rule 8D which cannot be capitalized must be reduced by that 5 ITA No.1573/Hyd/2014 M/s. Alaknanda Hydro Power Co.

Limited, Secunderabad.

amount. In the aforesaid facts and circumstances, we modify the order of the learned CIT(A) by directing the Assessing Officer to requantify the amount to be disallowed by taking into consideration income shown by the assessee of Rs.75,49,010. The assessee's appeal is accordingly allowed to that extent.

8. In the result, assessee's appeal is partly allowed.

Pronounced in the court on 19th June, 2015

Sd/- Sd/-

(B.Ramakotaiah) (Saktijit Dey) Accountant Member Judicial Member

Dt/- 19th June, 2015

Copy forwarded to:

1. M/s. Alaknanda Hydro Power Co. Limited,

156-159 Paigah House, S.P.Road, Secunderabad.

2. Dy. Commissioner of Income-tax Circle 1(1), Hyderabad

3. Commissioner of Income-tax(Appeals) II, Hyderabad

4. Commissioner of Income-tax I Hyderabad

5. Departmental Representative, ITAT, Hyderabad.

B.V.S