ACIT,, NEW DELHI vs. M/S KRISHAK BHARATI COOPERATIVE LTD.,, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “D” BENCH: NEW DELHI

(THROUGH VIDEO CONFERENCING)

BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER & SHRI KUL BHARAT, JUDICIAL MEMBER

ITA Nos.2972 & 2973/Del/2017 [Assessment Years : 2010-11 & 2011-12] ACIT, vs Krishak Bharti Cooperative Ltd., Circle-30(1), A-60, Kailash Colony, New Delhi. New Delhi-110048. PAN-AAAAK0203G APPELLANT RESPONDENT

ITA Nos.2341 & 2342/Del/2017 [Assessment Years : 2010-11 & 2011-12] Krishak Bharti Cooperative Ltd., vs ACIT, A-60, Kailash Colony, Circle-30(1), New Delhi-110048. New Delhi. PAN-AAAAK0203G APPELLANT RESPONDENT Appellant by Shri KVSR Krishna Respondent by Shri Lakshminaryan, Sr.DR Date of Hearing 25.10.2021 Date of Pronouncement 29.12.2021

ORDER PER KUL BHARAT, JM : These four appeals filed by the Revenue pertaining to assessment years

2010-11 & 2011-12 are directed against the orders of Ld. CIT(A)-10, New Delhi

dated 31.03.2014 and 17.04.2015 respectively and the assessee also filed

appeals pertaining to assessment years 2010-11 & 2011-12 against the orders

of Ld. CIT(A)-10, New Delhi dated 31.03.2014 and 17.04.2015 respectively.

Since the identical grounds have been raised in all these appeals filed by the

Revenue and the assessee, all the appeals are taken up for hearing together

and are being disposed off by way of the consolidated order for the sake of

brevity.

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

to Assessment Year 2010-11. The Revenue has raised following grounds in

this appeal:-

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

assessee's own case without giving any reasons of his own other than the reference of Hon'ble Tribunal's decision wherein the Hon'ble ITAT has erred in allowing the appeals of the assessee and quashed the orders passed by the learned PCIT u/s 263 of the IT Act without appreciating the facts and cogent findings given by the PCIT in his order u/s 263 of the Act. 4. On the facts and circumstances of the case, the Ld. CIT(A) has erred in relying upon the decision of the Hon'ble ITAT in assessee's own case for the AY 2010-11 and 2011-12 against which the department has filed an appeal before the Hon'ble High Court of Delhi. 5. On the facts and circumstances of the case, the Ld. CIT(A) has erred in relying upon the decision of the Hon'ble ITAT in assessee's own case for the AY 2010-11 without appreciating the fact that foreign tax credit is allowable only when tax has been actually paid in a foreign country (Oman) and the benefit of para-4 of article 25 of Indo- Oman DTAA is not available to assessee in view of the absence of any credible evidence to establish that mere non-taxation of dividend income in Oman can be construed to mean 'tax incentive designed to promote economic development' as required under article 25(4) of Indo -Oman DTAA. 6. "On the facts and circumstances of the case, the Ld. CIT(A) has erred in relying upon the order of Hon'ble ITAT which is not in consonance with the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Infosys Technologies Ltd., 341 ITR 293 wherein the Hon'ble High Court has dealt with issue of tax credit in DTAA between Canada and Thailand and decided the issue in favour of revenue holding that CIT has rightly invoked section 263 of the Income Tax Act, 1961. 7. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in following the decision of the Hon'ble ITAT in assessee's

3 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

own case wherein it was observed that the issue was consistently examined starting from A. Y. 2006-07 and the AO in A. Y. 2009-10 acted in consonance with the consistent view adopted by the Department itself whereas the principle of res- judicata is not applicable in income tax proceedings as held by the Apex court in the case of Joint Family of Udayan Chinu Bhai vs. CIT, 63 ITR 416(SC) and in the case of M.M. Ipoh vs. CIT, 67 ITR 106(SC) and new facts such as legal value of letter interpreting DT AA were expounded by CIT." 8. "On the facts and in the circumstances of the case, the Ld. CIT(A) did not consider the ratio of judgement of Hon'ble Supreme Court in the case of Tarulata Shyam, 108 ITR 345 wherein in was that held that there is no scope importing into the statute words which are not there." 9. "The Appellant reserves the right to raise any further and additional grounds of appeal at the item of hearing oral arguments including reliance on additional case laws;." 10. "The appellant craves leave to add, alter or amend any of the grounds of appeal before or during the course of hearing of the appeal." It is prayed that the order of the Ld. CIT (Appeals)-10, New Delhi being contrary to the facts on record and the settled position of law, be set aside and that of the Assessing officer be restored.” 3. Facts giving rise to the present appeal are that the assessee electronically

filed its return of income at Rs.1,45,28,50,930/- on 24.09.2010 and the same

was processed u/s 143(1) of the Income Tax Act, 1961 (‘the Act’).

Subsequently, the case was selected for scrutiny assessment and the

assessment u/s 143(3) of the Act was framed vide order dated 27.02.2014.

4 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

The Assessing Officer (“AO”) noticed that the assessee during the year under

consideration had claimed an amount of Rs.38,43,091/- on account of

‘Amortization of lease hold land’. He further observed that on this issue the

disallowance had been made in Assessment Years 2005-06, 2006-07, 2007-08,

2008-09, 2009-10. The AO observed that the appeal filed by the assessee on

this issue has been dismissed by Hon’ble Delhi High Court and addition made

by the AO has been sustained. Therefore, the AO made this addition. The AO

further observed that as per computation of income, an amount of

Rs.26,57,03,250/- had been reduced from the taxable income claiming

exemption u/s 10(34) of the Act being dividend received from domestic

company alongwith other deduction. The AO observed that in the case of the

assessee for Assessment Years 2005-06, 2006-07, 2007-08, 2008-09, 2009-10,

the expenditure regarding interest, employee’s remuneration and benefit of

employees of Finance, account/investment incurred in relation to the income

were disallowed as per section 14A of the Act. The Assessing Officer applying

Rule 8D of the Income tax Rules, 1962 (“the Rules”) made disallowance of

Rs.8,63,35,560/- and added the same into the income of the assessee. Thus,

the AO assessed the net taxable income at Rs.1,54,30,29,580/- against the

income declared at Rs.1,45,28,50,930/-.

Ld.CIT(A), who after considering the submissions, partly allowed the appeal.

Thereby, Ld.CIT(A) restricted the disallowance u/s 14A of the Act to

Rs.50,75,526/- and sustained the rest of the additions.

5 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

before this Tribunal.

restricting the disallowance made u/s 14A of the Act to the extent of

Rs.50,75,526/-.

restricting the disallowance as made u/s 14A of the Act. He strongly supported

the assessment order.

submissions and supported the order of Ld.CIT(A). However, he submitted that

the assessee has also challenged the finding of Ld.CIT(A) in cross appeal. He

contended that Ld.CIT(A) was not justified in confirming the disallowances in

respect of interest expenditure. He further submitted that the investment was

made out of interest free funds available with the assessee. He submitted that

the law is clear in this regard there is no ambiguity under the law. He

contended that the primary requirement for making disallowance u/s 14A is

that the AO is required to record his satisfaction having regard to the accounts

of the assessee, regarding correctness of the claim of the assessee, in respect of

the expenditure in relation to income which does not form part of the total

income. He submitted that no such satisfaction is recorded by the AO.

6 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

on records and gone through the orders of the authorities below. We find that

Ld.CIT(A) has given finding on facts by observing as under:-

3.2. “I have carefully considered the submissions of Ld. AR, judicial pronouncements relied upon by them and assessment order passed by the AO. As per assessment order, AO has mentioned that assessee has claimed exemption u/s 10(34) being dividend received from domestic company i.e., Gujarat State Energy Generation Ltd. amounting to Rs.1,64,90,006/-. However, against the above exempt income, AO calculated the disallowance to the extent of Rs.8,63,35,560/- by invoking the provisions of Section 14A read with Rule 8D(2)(ii)and Rule 8D2(iii). AO has calculated the disallowance under Rule 8D2(ii) of Rs.2,10,88,802/- in respect of interest of Rs.5,18,30,831/- and disallowance under Rule 8D2(iii) being average value of investment was made at Rs.6,52,46,758/- being one half per cent of the average value of investment Rs.13,04,93,51,500/-. 3.2.1. Assessment order further reveals that AO placed reliance in the case of assessee for A.Y. 2005-06 to 2008-09 wherein expenditure regarding interest, employees remuneration and benefit of employees of finance, account/investment incurred in relation to these income were disallowed as per Section 14A of the IT Act. Accordingly, AO asked the assessee to explain as to why provisions of Section 14A be not applied in respect of expenses incurred for earning the exempt income and disallowance be not made as per Rule 8D. During the course of assessment proceedings, appellant provided schedule of investment indicating therein the dividend income earned during assessment year under consideration and treatment under Rule 8D, which has also been provided during the appellate proceedings and the same is reproduced above (Para 4.2) in the submissions of the Ld. AR.

7 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

3.2.2. I have perused the submissions of the Ld. AR with regard to above issue and schedule of investment, as discussed above. From the Schedule of Investment, it is noted that assessee has received dividend of Rs.1,64,90,006/- from Gujarat State Energy Generation Ltd.(GSEG) with regard to equity investment made by the appellant. Further, it has been claimed that no expenditure has been incurred to earn the above dividend income and Rule 8D can be invoked only when interest expenditure is actually incurred for making the equity investment in GSEG. It has been explained that appellant society had invested additional equity investment from its own sources. Ld. AR have also provided separate details of interest expenditure incurred on working capital requirement indicating the nexus of the interest expenditure and it has been claimed that no interest expenditure has been incurred for making additional equity investment in GSEG. 3.2.9. Apart from the above, from the schedule of investment, it is noted that assessee has also shown dividend income of Rs.143,83,99,800/- with regard to equity investment in OMIFCO. In respect of this dividend income, it has been claimed that this dividend income has been treated as taxable in the return and claimed deemed tax credit. Further, it has been clarified that same is claimed as exempt income in view of the provisions of DTAA As far as applicability of Rule 80 with regard to this dividend income is concerned, it has been explained that as this income is earned in Oman by the branch/PE of the appellant society, no expenditure is incurred to earn this income and hence investment is not to be included for the working of disallowance as per Rule 8D. At this juncture, it is pertinent to mention that whether the dividend income from OMIFCO-OMAN is entitled for relief u/s 90 of the Income Tax Act 1961 under the Indo-Oman Double Taxation Treaty has been a subject matter of revision u/s 263 of the Income Tax Act 1961 by the Pr. Commissioner of Income Tax, Delhi-10 for the AY. 2010-11 and 2011-12. The Pr.CIT-10 vide order dated 2.11.2015 for AY. 2010-11 and Order 8 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

dated 29 Oct. 2015 for AY. 2011-12 has withdrawn the tax credit allowed to the assessee by the AO. The appellant filed appeal before the Hon'ble ITAT. The Hon'ble ITAT in ITA NO.6785 and 6786/0el/2015 vide order dated 9th March 2016 has allowed the deemed tax credit in respect of dividend income from Oman i.e. tax relief as claimed by the assessee. In other words the order of the AO was restored by the ITAT and the action of Id. PCIT u/s 263 was held to be without jurisdiction and on merits not sustainable in law. The relevant portion of the order of ITAT is reproduced below: "18. With regard to allowing credit for deemed dividend tax which would have been payable in Oman, we have gone through the relevant provisions of the DTAA between the Republic of India and the Sultanate of Oman read with section 90 of the I. T. Act clause (4) of Article 25 of DTAA lays down that the tax payable shall be' deemed to include the tax which would have been payable but for the tax incentive granted under the laws of the contracting State and which are designed to promote economic developments. Thus, the crucial issue to be examined is whether the dividend income was granted exemption in Oman with the purpose of promoting economic development. The exemption has been granted under Article 8(bis) of the Omani Tax Laws. The said provision has been clarified and explained vide letter dated 11.12.2000 issued by the Sultanate of Oman, Ministry of Finance, Secretariat General for Taxation, Muscat. The text of this letter has already been reproduced (supra). From this letter, the following points emerge:- (a) Under Article-8 of the Omani Tax Laws, dividend forms part of gross income chargeable to tax. (b)As a result, investors in tax exempt companies that undertake activities considered essential for the country's economic development suffered a tax cost which had the negative impact.

9 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

(c) The Company Income-tax Law of 1981 was therefore amended by Royal Decree No. 68/2000 by insertion of a new Article 8 [bis]. (d) Thereby the Government of Oman would achieve its main objective of promoting economic development by attracting investments. (e) Tax would be payable on dividend income if not for the tax exemption provided under Article 8 (bis), (f) As the introduction of Article 8(bis) is to promote economic developments in Oman, the Indian investors should be able to obtain relief in India under Article 25(4) of the Agreement for Avoidance of Double Taxation. 19. From the above clarifications there remains no doubt regarding the purpose of granting exemption to dividend income. The interpretation of Omani Tax Laws can be clarified only by the highest tax authorities of Oman and such interpretation given by them must be adopted in India. Further, in the tax assessments made in Oman in respect of the PE of the assessee-society t is clearly mentioned that the dividend income which is included in the gross total income is, however, exempt in accordance with Article 8(bis) and such exemption is granted with the objective of promoting economic developments within Oman by attracting investments. In view of the facts stated above, we are of the considered view that on merits also the assessee-society is entitled to tax credit in respect of deemed dividend tax which would have been payable in Oman. Therefore, we hold that on merits also the learned PCIT was not justified in directing the Assessing Officer to withdraw the aforesaid tax credit. Further such credit was allowed by the Assessing Officer during several preceding assessment years and, therefore, when there is no change in the facts and the relevant provisions of law,

10 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

following the well settled principle of consistency of approach, as emerging from a chain of decisions referred to above, credit for deemed dividend tax is clearly allowable in respect of the assessment year under appeal." Therefore, from the above decision of the ITAT, the appellant's case that the dividend income received from OMIFCO is forming part of the total income and only the claim for relief is allowed is confirmed by the ITAT in favour of the assessee, Therefore, the provisions of section 14A cannot apply to the dividend income from OMIFCO which is part of the total income. 3.2.4 The appellant has relied on the following case laws for the proposition that the investment which do not yield tax free income should not be considered for the purpose of disallowance and consequently, no investments which have not yielded any tax free income should form part of the Rule 80 computation. The decision relied upon the assessee are: 1. ACB India Ltd. v. ACIT - ITA NO.615/2014 by the Hon'ble Delhi High Court decided on 24th March 2015. 2. Cheminvest Ltd. V CIT (2015) ITA NO.749/2014 dated 2.9.2015 3. CIT v. Holcim India P. Ltd. (2014) 90 CCH 81 (Del) 4. CIT v. Shivam Motors 230 Taxman 63 (All) [ITA 88 of 2014 dated 5.5.2014] 5. CIT v. Cortech Energy Pvt. Ltd. 372 ITR 97 (Guj) [ITA NO.239/2014 dated 24.3.2014] 6. CIT v. Lakhani Marketing Ltd.(2014) 272 CTR 265 (P&H) [ITA NO.970/2008 dated 02.04.2014] 3.2.5 In the nutshell, it has been concluded that no dividend income has been received during the assessment year under consideration in respect of investments mentioned at serial no. 1,2,5,7,8,9 and11 of the above table Further, in respect of interest income from fertilizers company Govt. of 11 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

India Special Bonds (SI.No.10) and dividend income from NAFED (SI. No.6), it has been explained that these incomes have been offered for tax and they are not claimed as exempt income. Accordingly, the investments in the table corresponding to the serial no. mentioned above are to be excluded while applying Rule 80 of the income-tax rules for the purpose of computing the disallowance u/s 14A. 3.2.6 Further, Ld. AR has relied upon the judicial pronouncement of the jurisdictional Delhi High Court in the appellant's own case pertaining to A.Y. 2006-07 in ITA No.444/2011 decided on 18/07/2012 relating dividend income of RS.15,011 /- from NAFED, which is included in the total income and only deduction u/s 80P(2)(d) has been claimed under Chapter VIA, wherein the Hon'ble Delhi High Court has held as under: "28. At this stage, we may refer to the decision of Delhi High Court in CIT vs. Dalmia Cement (Bharat) Ltd., (1980) 126 ITR 736, approved in Second ITO versus Stumpp, Schuele & Somappa Pvt. Ltd. (1991) 187 ITR 108 (SC). In this case, the High Court was examining Rule 4 of Second Schedule to the Companies (Profits) Surtax Act, 1964 and whether deductions under Chapter VIA were part of income not included in the total income computed under the Act. The said Rule 4 was as under:- "Where a part of the income, profits and gains of a company is not includible in its total income as computed under the Income-tax Act, its capital shall be the sum ascertained in accordance with rules 1, 2 and 3, diminished by an amount which bears to that sum the same proportion as the amount of the aforesaid income, profits and gains bears to the total amount of its income, profits and gains." 29. The contention of the Revenue was that deductions once allowed under the said Section ceased to be part of profits included in the total income. This contention was rejected after recording the six substantive reasons given by the Karnataka High Court in Stumpp,

12 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

Schuele & Somappa Pvt. Ltd. vs. Second ITO (1976) 102 ITR 320, upheld by Division Bench vide decision reported as Second ITO vs. Stumpp, Schuele & Somappa Put. Ltd. (1977) 106 ITR 399. The said six reasons recorded in Dalmia Cement (Bharat) Ltd. (supra) are:- "(a) Any amount in respect of which deduction is claimed under any of the provisions in sections 80C to 80 V is already included in the gross total income of the assessee and, therefore, cannot be stated to be not includible in the income of the assessee. (b) The expression" not includible" means not capable of being included. It cannot refer to an amount which already formed part of the total income. It refers to the classes of income, which Chap. III directs, " shall not be included" in the total income of the assessee. (c) The concept of deductions by way of expenses, rebates, allowances, etc., under Chaps. IV & VI-A is totally different from that of non inclusion. (d) Form No. 1 prescribed by r. 5, while giving instances of the items contemplated under r. 4, refers to agricultural income and foreign income of a non-resident which fall in Chap. III. (e) The history of the legislation showed that some of the items now included in Chap. VI-A were previously in Chap. VII (e.g., s. 80J corresponding to s.84) and did not affect the capital computation for surtax purposes. (f) Logically, the argument of the revenue would mean that even deductions permitted under Chap. IV should be taken into account for r. 4 and the capital reduced correspondingly. This result is certainly not intended." 30. While dealing with the detailed arguments raised by the Revenue, the Division Bench of this Court observed that broadly

13 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

speaking the figure of total income is arrived at, as per the Act, in four stages. Firstly, the income of the resident assessee is computed by including all incomes, profits and gains arising in India or outside. Similarly income of resident but not ordinary resident or non-resident, are computed in accordance with Section 5 Chapter II, which forms the basis of Charge. Secondly, Chapter III with the heading "incomes not included in the total income", comprises of Section 10to 13 and these incomes are not included in total income but some exemptions are only partial and not total. Thirdly, even in case of income, profit and gains included for arriving at the total income, the entire income is not liable to tax. Deductions as stipulated in Chapter W can apply, e.g. Sections 34, 35A and 35B etc. Even in Chapter VI, deductions for set off or carry forward of loss is allowed. Fourthly and lastly, certain deductions were permissible under Chapter VII and Chapter VIII and which had been substantial or partly replaced and were placed under Chapter VIA. These were deductions which were reduced from the income computed in accordance with the earlier provisions/Chapters of the Act. These deductions were made in the computation of total income and, therefore, definition of "gross total income", which was/is arrived at without reference to the deduction allowable under Chapter VIA, was introduced. The deductions available under Chapter VIA were either wholly or partly reduced from the "gross total income". Contention of the Revenue that once deduction stands allowed, the "income" in view of the deduction ceases to be a part of the total income, was rejected by the Division Bench of this Court in Dalmia Cement (Bharat) Ltd. (supra), for the following additional reasons:- (1) The word "part" used in the Rule was to describe income fulfilling the description i.e. the category or class of the income. In other words it should indicate an identifiable section, category or class of

14 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

income rather than mere portion or amount of such income. The question raised should be "whether this income was included" and not "whether any deduction was allowed". The use of the word "part" contemplates a type of income which by its very nature does not form part of the total income. The word "includible" supports that reference to the general nature and class of income rather than factual inclusion. (2) It is not the actual quantification of the income which matters but whether or not income was excluded from the total income. It is the class of income rather than the amount which would determine whether or not the said class of income forms part of the total income. Incomes of the categories referred to in Chapter VIA were to be taken into account as a part of total income and they do form part of the gross total income which was the first step in the process. Accordingly, even after the deduction allowable under Chapter VIA, they form a part of the total income and do not get excluded merely because deduction is allowed. (3) The Legislature had enacted Section 80C to 80U in Chapter VIA, as a measure of relief from taxable liability. It incorporates and allowes deductions. The income from these "sources" was included in the income, but subjected to deduction. Qualification would vary from Section to Section. Further in some cases the deduction was full and in some cases it was partial but this was not material and it did not mean that if an amount was deducted it did not form part of the total income. Thus, the income on which the deduction is allowed forms a part of the total income, though not included in the amount or quantum on which tax is paid. 31. It can be urged (though it was not specifically argued by the Revenue) that in case of complete or entire deduction of the gross amount, Section 14A will be applicable, and section 14A will not apply in case only the net

15 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

amount (as stipulated in several Sections in Chapter VIA of the Act) is allowable as a deduction. There will be a fallacy in this argument. Even were partial or net amount is to be allowed as a deduction, the figure can be minus or in a loss. Logically, as a squiter, it will follow that in case the assessee has a negative/minus figure as per the computation made any of the provisions of Chapter VIA, the expenditure incurred cannot allowable under Section 37of the Act, in view of Section 14A. The said position cannot be accepted. Income will include negative income or a loss. The corollary is that the entire income is included under the provisions of the Act by firstly including the entire receipts or incomes as stipulated in the charging section but after excluding the income stipulated in Chapter III. Thereafter, total income is computed under the Act by applying provisions of Chapter IV, V and VI. From this income, deductions are permitted and allowed in terms of Chapter VIA. Deductions do not mean that deduction allowed has the effect that the income, on which deduction is allowed, ceases to be part of the total income. This is not the scheme, effect and purport of the Act. The expression "income which does not form part of the total income" refers to the nature, character or type of income and not the quantum. 32. Section 14A states that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred in relation to the income which does not form part of the total income under this Act. It does not state that income which is entitled to deduction under Chapter VIA has to be excluded for the purpose of the said Section. The words "do not form part of the total income under this Act" is significant and important. As noticed above, before allowing deduction under Chapter VIA we have to compute the income and include the same in the total income. In this manner, the income which qualifies for deductions under Sections 80C to 80U has to be first included in the total income of the assessee. It, therefore, becomes part of the income, which is subjected to tax. Thereafter, deduction is to be allowed in accordance with

16 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

and subject to the fulfillment of the conditions of the respective provisions. This is also subject to Section 80AB and 80A(1) and (2). Chapter VIA does not postulate or state that the incomes which qualify for the said deduction will be excluded and not form part of the total income. They form part of the total income but are allowed as a deduction and reduced. 33. It is clear from the aforesaid reasoning that the decisions in the case of Distributors (Baroda) Private Limited and Cambay Electric Supply Industrial Co. Ltd (supra) have proceeded on the specific language of the said Sections, whereas in the other decisions Stumpp Schuele and Somappa Private Limited and South Indian Bank (supra) and those of the High Courts mentioned above have gone on the general principle relating deductions allowed and whether a deduction once allowed has the effect that the income on which deduction ceases to be part of the total income. It has been uniformly and consistently held that in the absence of express language to the contrary, deduction if allowed does not mean that the said income ceases to be part of the total income. 34. In view of the aforesaid position, we answer the questions of law mentioned above in affirmative, i.e., against the appellant-Revenue and in favour of the respondent-assessee. In the facts of the present case, there will be no order as to costs." On the basis of above decision, it has been claimed that provisions of Section 14A are not applicable in respect of income on which Chapter VIA deductions have been claimed. 3.2.7 Apart from the above, it has been contended before the undersigned that appellant society does not have any department or staff exclusively dealing with the investments. No expenditure has been incurred by the appellant as dividend has been received directly into the bank a/c through the ECS mandate. Hence, it has been claimed that there is no expenditure debited in the P&L A/c relating to tax free income.

17 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

3.2.8 Further, from the assessment order, it is noted that the details of interest expenditure of Rs.5,18,30,831/- was also provided by the appellant to the AO wherein it was claimed that short term loans/overdraft facility was availed by the appellant society to meet its working capital requirement with regard to payment for gas suppliers, wages, cost of inputs, railway freight, transportation charges, purchase of spares, etc. It has also been explained these loans/overdraft facilities were obtained from ICICI Bank, State Bank of Bikaner & Jaipur, HDFC Bank, Yes Bank, Canara Bank, Vijaya Bank, State Bank of Saurashtra only and no unsecured loans were taken from any individual or any other institution other than these banks and loans were availed of for a limited period of time. Similar detail has also been furnished during the appellate proceedings. Complete detail in respect of interest expenditure of Rs. 5,18,30,831/- indicating the purpose and period of overdraft is mentioned in tabular statement reproduced above in the submissions supra (Para 4.2). 3.2.9 I have gone through the submissions and the case laws referred by the appellant. The ratio of the decisions referred above, namely that no disallowance of expenditure can be made u/s 14A if there is no exempt income earned by the appellant would also equally apply in a situation where the investments do not yield any tax free income in the previous year. Therefore the computation under rule 80 will be made in respect of investments yielding tax free income in the previous year. The only investment which has yielded tax free dividend income is in respect of investment made in Gujarat State Energy Generation Limited (GSEGL). The opening investment made in the said company is 72.75 crores and the closing investment made is Rs.86.68 crores. This investment has yielded tax free dividend income of Rs.1,64,90,006/-. The appellant has claimed this income as exempt u/s 10(34) of the Income Tax Act, 1961 being dividend from domestic company. Therefore, the provisions of section 14A

18 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

in so far as expenditure relatable to the earning of dividend income would apply. 3.2.10. It is pertinent to reproduce the relevant rule 8D(2) which is as below :- Rule 8D (2) "(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- i. the amount of expenditure directly relating to income which does not form part of total income; ii, in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely:- B A x C

Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; iii. an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of th total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year." 3.2.11. The above formula has to be applied in respect of investment, GSEG income from which does not or shall not form part of the total 19 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

income. Accordingly applying the rule to the appellant's case the disallowance under section 14A is calculated as under:-

(i) the amount of expenditure directly relating to Nil income which does not form part of total income (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or 5,18,30, 831x receipt, an - amount computed in accordance 76,71,50,000/3207,19,36,000/- with the following formula, namely:- = Rs. 12,39,776/- (A) Ax B/C Where A = amount of expenditure by way of Rs.5,18,30,831/- interest other than the amount of interest included in clause (i) incurred during the previous year; B = the average of value of investment, income Average Rs. 76,71,50,000/- from which does not or shall not form part of (Rs. 72,75,00,000/- GSEG the total income, as appearing in the balance as on 01.04.2009 and Rs. sheet of the assessee, on the first day and the 80,68,00,000/- as on last day of the previous year; 31.03.2010) C = the average of total assets as appearing Average Rs. in the balance sheet of the assessee, on the 3207,19,36,000/- (Rs. first day and the last day of the previous 31,54,34,73,000/- as on year; 31.03.2009 and Rs. 3260,03,99,000/- as on 31.03.2010)

(iii) an amount equal to one-half per cent of the 0.5% of 76,71,50,000/- average of the value of investment, income =Rs. 38,35,750/- (B) from which does not, or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year."

Total disallowance worked out to Rs. 50,75,526/- (A+B)

3.2.12. Therefore, the disallowance u/s 14A r.w.r. 8D is restricted to Rs. 50,75,526/-. The appellant would therefore would get a relief of Rs.8,12,60,034/- out of the total disallowance made by the Assessing Officer of Rs.8,63,35,560/-.”

the Revenue. Moreover, Ld.CIT(A) has followed the decision of the Tribunal

rendered in ITA Nos.6785 & 6786/Del/2015 dated 09.03.2016 for AYs 2010-11

& 2011-12. Further, Ld. CIT(A) has also followed the judgement of the Hon’ble 20 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

Delhi High Court in assessee’s own case on this issue. Therefore, we do not

see an infirmity in the finding of Ld.CIT(A) that the provision of section 14A of

the Act, cannot apply to the dividend income from OMIFCO which is part of the

total income. The Grounds raised by the Revenue are devoid of any merit

hence, rejected.

to Assessment Year 2010-11. The assessee has raised following grounds in

this appeal:-

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

disallowance of Rs.38,43,091/- being amortization of lease payment.

submitted that the issue has been decided against the assessee by the Hon’ble

Jurisdictional High Court and the Co-ordinate Bench of this Tribunal.

on record and gone through the orders of the authorities below. We find that

Ld.CIT(A) has given finding on facts by observing as under:-

3.1. “I have carefully considered the submissions of the Ld. ARs, judicial pronouncements relied upon by them and assessment order of the Assessing Officer. The disallowance on account of amortization of lease rent has been made by the Assessing Officer in respect of the four properties namely Land at Noida, Land at Vishakhapatnam, Land at Tuticorin and Land at Haryana and Madhya Pradesh (referred in the assessment order and submissions of the Ld. AR, mentioned supra). With regard to Land at Noida in respect of which assessee is claiming amortization of lease rent, the issue is covered one as in the A.Y. 2004-05, 22 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

similar disallowance was made by the Assessing Officer and the issue has travelled up to Hon'ble Delhi High Court. Hon'ble Delhi High Court has decided the above issue in its order in ITA No. 205/2010 dated 12.07.2012, which was decided in favour of the revenue and as far as merits of the case is concerned, the Hon'ble Delhi High Court has made the following observations: 14. In the present case, what is apparent is that the lessee (assessee) paid a substantial amount (Rs.2.53 crores) in 1989 at the time of entering into the transaction. it was a precondition for securing possession; the amount was one time consideration in terms of the lease condition. In addition, the lessee has to pay 2.5% of the said amount as annual rent, which is subject to increase periodically. No doubt, the assessee argues that the annual rent is depressed, and does not reflect the market rent. However, there is no material to support this submission. Nor is there any material to support the argument that the amount of Rs.2,53 crore paid over 23 years ago did not ITA 205/10,163, 1215 & 1216/2011 page 17 constitute the true and real consideration for creating an interest in the property. We also notice that the terms of the lease agreement stipulated that the registration and stamp duty and charges were borne by the lesee (assessee). In this background, the restrictions imposed on the lessee, i.e. enjoining it not to transfer for a particular period, and granting liberty to transfer the right subject to certain conditions, and other restrictions regarding land use, are consistent with the nature of interest created, i.e. lease hold rights. The court is also conscious of the fact that the tenure of the lease is quite substantial, and virtually creates ownership rights in favour of the lessee, who is at liberty to construct upon the plot. Exclusive possession was handed over to the assessee at the time of creation of the lease. Having regard to all these factors this court is un- persuaded by the assesses’ submission that the amount of Rs.2.53

23 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

crores paid in 1989 had to be treated as advance rent, which could be amortized annually, in equal installments, as is urged on its behalf.” 3.1.1. Further, it is pertinent to mention here that in the previous assessment year i.e. 2008-09 has also the same issue was involved and assessee filed appeal before the Hon'ble ITAT against the order of the Ld.CIT(A) and the same has been decided by the Hon'ble D- Bench, Delhi ITAT in ITA No. 2304/Del/2012 dated 17.04.2013. Hon'ble Delhi ITA also relied upon the order of Hon'ble Delhi High Court as referred above and held in para 8 of the order that, "8. Respectfully following the same, we dismiss this ground of assessee." 3.1.2 During the course of appellate proceedings, Ld. AR has placed reliance on the judicial pronouncements, discussed above, namely Madras Industrial Investment Cooperation Ltd. vs. CIT., CIT vs. Gemini Arts P. Ltd. and JCIT vs. Sun Pharmaceuticals Ind. Ltd. and on the basis of ratio of these decisions, it is being claimed that the claim of amortization expenses towards lease premium in respect of properties in question is allowable one. 3.1.3 Considering the above factual matrix of the case, as discussed above, I am of the view that the issue under consideration has already been decided by the jurisdictional Hon'ble Delhi High Court in respect of A.Y. 2004-05, which is binding in nature since the facts of the case in the instant assessment year are exactly similar. Further, even in respect of A.Y. 2008-09, the issue has been decided against the appellant by the Hon'ble ITAT relying upon the above order of the Hon'ble Delhi High Court. 3.1.4 Therefore, in view of settled factual and legal position and as a matter of rule of consistency, I upheld the addition made by the Assessing Officer in respect of Land at Noida in respect of which amortization has been Claimed of Rs.6, 17,364/-.

24 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

3.1.5. I have considered the submissions of the Ld. ARs with regard to claim of amortization in respect of Land at Vishakhapatnam, at Tuticorin and at Haryana and Madhya Pradesh amounting to Rs.12,87,346/-, 18,22,770/- and Rs.1,15,611/- respectively, which has been rejected by the Assessing Officer. It is noted that Ld. ARs are trying to distinguish the factual matrix of the case in respect of above lands on the grounds that period of lease is 30 years which has expired and appellant is entitled to Claim the same as deduction. It is further being claimed that appellant is paying nominal rent of Rs.1 per sq. mtr. In respect of Port of Vishakapatnam and in the Tuticorin Port Trust, the annual rent payable is only Rs.1/- per square meter. It is also being claimed that the vacant possession of the land is to be given back to the respective authorities on completion of the lease period Inter alia claiming that no ownership rights are given to the appellant and land was for limited purpose to enable carry on the business only. 3.1.6 From the perusal of copy of lease deeds in respect of above two lands, it is noted that both the lease are renewable. It is also a fact that all the charges - the registration and stamp duty with regard to entering into the above lease, were borne by the appellant. Though, some restrictions have been imposed on the lessee but overall it is noted that liberty has been granted to transfer the rights subject to certain conditions and other restrictions, which are consistent with the nature of interest created i.e., lease hold rights similar as in the case of Noida land. Therefore, considering the order of the Hon'ble Delhi High Court exactly on the same issue in respect of A.Y. 2004-05, relevant portion of which is reproduced above, the addition made by the AO is upheld. Thus, Ground No.1 to 4 are dismissed for the reasons mentioned above and addition of Rs.38,43,091/- is upheld.” 16. Ld. Counsel for the assessee could not dispute the fact that the issue has

been decided against the assessee by the Hon’ble Delhi High Court in the

25 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

assessee’s own case in ITA No.205/2010 dated 12.07.2012. Therefore,

respectfully following the judgement of the Hon’ble Delhi High Court, we do not

see any infirmity in the finding of ld.CIT(A), the same is hereby affirmed. Thus,

Ground Nos. 1 & 2 raised by the assessee are rejected.

r.w. Rule 8D of the income Tax Rules, 1962 (“the Rules”) of Rs.50,75,526/-.

Ld.CIT(A). Ld. Counsel for the assessee submitted that Ld.CIT(A) was not

justified in making the disallowance in respect of the interest expenditure. He

submitted that before Ld.CIT(A), it was demonstrated that no expenditure was

incurred on making additional equity investment in Gujarat State Energy

Generation Ltd. Therefore, he submitted that authorities below were not

justified in making the addition.

dispute with regard to the fact that the assessee has received exempt income

in the form of dividend of Gujarat State Energy Generation Ltd. Moreover, the

assessee is not maintaining separate accounts therefore, the authorities below

were justified in making the disallowances.

on record and gone through the orders of the authorities below. The

contention of the assessee is that the assessee had sufficient interest free funds

which were used for making additional equity investment in the shares in

Gujarat State Energy Generation Ltd. Further, it is contended that the AO has 26 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

not recorded his satisfaction regarding the expenditure sought to be disallowed

is related to earning of exempt income. It is contended that in the absence of

recording such satisfaction, the addition made, cannot be sustained. We find

that the AO in para 4.5 of the assessment order has given a finding in respect

of payment of interest free funds as under:-

4.5. “As per P&L A/c, an amount of Rs. 518.31 lakhs has been claimed during the year as payment of interest. As per printed balance sheet, the assessee has shown total investment of Rs.120,341.79 lakhs as at 31.03.2009 and Rs. 140645.23 lakhs as at 31.03.2010. The investment made by assessee as appearing in schedule 4 is quoted below:-

S.No. Name of Investment Amount as on Amount as on 31.03.2009 31.03.2010 1. Equity Investment in Nagarjuna 10,00,00,000/- 10,00,00,000/- Fertilizers and Chemicals Ltd. 2. Equity Investment in Indian Commodity Nil 5,00,00,000/- Exchange Limited 3. Equity Investment in OMIFCO 3,28,53,45,590/- 3,28,53,45,590/- 4. Equity Investment in Gujarat State 72,75,00,000/- 80,68,00,000/- Energy Generation Ltd. 5. Equity Investment in Kribhco Nil 1,05,00,00,000/- Infrastructure Limited 6. Equity Investment in NAFED (cooperative) 20,00,000/- 20,00,000/- 7. Equity Investment in Kribhco Shyam 6,35,28,34,131/- 7,20,28,76,991/- Fertilizers Co.Ltd. 8. Equity Investment in Cooperative Bank of 5,00,000/- 5,00,000/- India 9. Equity Investment in Urvarak Videsh 5,00,020/- 15,00,020/- Limited 10. Fertilizer Companies Government of India 1,56,55,00,000/- 1,56,55,00,000/- Special Bonds 11. Equity Shares in Karnataka State 100/- (Rupees One Nil Cooperative Apex Bank Ltd. Hundred only) Total 12,03,41,79,841/- 14,06,45,22,601/-

Whereas the total investment made by assessee in quoted and unquoted shares /bonds amounts to Rs. 140654.22 lakhs as on 31.03.2010, the assessee in his reply dated 25.11.2013 has only included the amount of Rs. 8068.00 lakhs invested in the equity shares of Gujarat State Energy Generation Ltd., on the ground that exemption U/s 10(34) of the Income-tax Act, 1961 has been claimed on the dividend income of Rs.

27 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

1,64,90,006/- received from this domestic company. The issue was then discussed at length with Ld. Representative of the assessee.” 20.1. However, the Assessing Officer disallowed the claim by applying Rule 8D

r.w.s 14A of the Act. The question now arises for consideration is whether

under the facts of the present case, the AO was justified in invoking the

provision of Rule 8D of the Rules. Ld. Counsel for the assessee contended that

the AO has not brought on record any material to show nexus between the

expenditure incurred and earning of the exempt income. Further, it is also

stated that the authorities below failed to appreciate that Rule 8D r.w.s.14A of

the Act can be invoked only when the AO from the books of accounts of

assessee placed before him is able to demonstrate that the expenditure sought

to be disallowed, has been incurred for earning tax free income. It is stated that

Rule 8D has been mechanically invoked by the AO without establishing such

nexus. He further submitted that the assessee had demonstrated before the

authorities below that the assessee was having sufficient interest free fund

available to make investment wherefrom it had earned exempt income. We find

merit on this contention of the Ld. Counsel for the assessee. The law is well-

settled that the section 14A would come into play, where the AO gives a clear

finding regarding expenditure incurred for earning of income. Where the

assessee is able to demonstrate that the investment was made out of own

interest free fund in such cases, no disallowance would be called for regarding

interest expenditure. Therefore, in the absence of clear finding by AO and

disallowance on the basis of guess work cannot be sustained. Hence, we direct

28 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

the AO to delete the disallowance. These grounds of assessee’s appeal are

allowed.

allowed.

to Assessment Year 2011-12. The Revenue has raised following grounds in

this appeal:-

29 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

during the year should also be considered for arriving at the average of investment." 3. "On the facts and in the circumstances of the case, the Ld. CIT has erred in restricting the aforesaid addition made by the AO by simply following the decision of the Hon'ble ITAT in ITA No. 6785 & 6786/Del/2015 dated 09.03.2016 for AYs 2010-11 & 2011-12 in assessee's own case without giving any reasons of his own other than the reference of Hon'ble Tribunal's decision wherein the Hon'ble ITAT has erred in allowing the appeals of the assessee and quashed the orders passed by the learned PCIT u/s 263 of the IT Act without appreciating the facts and cogent findings given by the PCIT in his order u/s 263 of the Act. 4. "On the facts and circumstances of the case, the Ld. CIT(A) has erred in relying upon the decision of the Hon'ble ITAT in assessee's own case for the AY 2010-11 and 2011-12 against which the department has filed an appeal before the Hon'ble High Court of Delhi" 5. "On the facts and circumstances of the case, the Ld. CIT(A) has erred in relying upon the decision of the Hon'ble ITAT in assessee's own case for the AY 2010-11 without appreciating the fact that foreign tax credit is allowable only when tax has been actually paid in a foreign country (Oman) and the benefit of para-4 of article 25 of Indo-Oman DTAA is not available to assessee in view of the absence of any credible evidence to establish that mere non-taxation of dividend income in Oman can be construed to mean 'tax incentive designed to promote economic development' as required under article 25(4) of lndo -Oman DTAA. 6. "On the facts and circumstances of the case, the Ld. CIT(A) has erred in relying upon the order of Hon'ble ITAT which is not in consonance with the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Infosys Technologies Ltd., 341 ITR 293 wherein the Hon'ble High Court has dealt with issue of tax credit in DTAA between Canada and Thailand

30 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

and decided the issue in favour of revenue holding that CIT has rightly invoked section 263 of the Income Tax Act, 1961." 7. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in following the decision of the Hon'ble ITAT in assessee's own case wherein it was observed that the issue was consistently examined starting from A.Y. 2006-07 and the AO in A.Y. 2009-10 acted in consonance with the consistent view adopted by the Department itself whereas the principle of res- judicata is not applicable in income tax proceedings as held by the Apex court in the case of Joint Family of Udayan Chinu Bhai vs. CIT, 63 ITR 416(SC) and in the case of M.M. Ipoh vs. CIT, 67 ITR 106(SC) and new facts such as legal value of letter interpreting DTAA were expounded by CIT." 8. "On the facts and in the circumstances of the case,' the Ld. CIT(A) did not consider the ratio of judgement of Hon'ble Supreme Court in the case of Tarulata Shyam, 108 ITR 345 wherein in was that held that there is no scope importing into the statute words which are not there." 9. "The Appellant reserves the right to raise any further and additional grounds of appeal at the item of hearing oral arguments including reliance on additional case laws;." 10. "The appellant craves leave to. add, alter or amend any of the grounds of appeal before or during the course of hearing of the appeal." It is prayed that the order of the Ld. CIT (Appeals)-10, New Delhi being contrary to the facts on record and the settled position of law, be set aside and that of the Assessing officer be restored.” 23. The facts and grounds are identical as were in ITA No.2972/Del/2017

pertaining to Assessment Year 2010-11. The Ld. Representatives of the parties

have adopted the same arguments as were in ITA No.2972/Del/2017

[Assessment Year 2010-11]. We, therefore taking the consistent view, hereby

31 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

dismiss the grounds raised by the Revenue. Thus, appeal filed by the Revenue

is dismissed as well in ITA No.2973/Del/2017.

to Assessment Year 2011-12. The assessee has raised following grounds in

this appeal:-

32 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

assessee’s appeal in Assessment Year 2010-11.

as were in ITA No.2341/Del/2017. No change into facts and circumstances

was pointed by Ld.AR for the assessee. Therefore, taking a consistent view,

Ground Nos. 1 & 2 of the assessee’s appeal are dismissed.

assessee’s appeal for Assessment Year 2010-11 in ITA No.2341/Del/2017.

as were in ITA No.2341/Del/2017.

Revenue. No change into facts and circumstances was pointed by Ld.AR for

the assessee. Therefore, taking a consistent view, Ground Nos. 3 to 5 of the

assessee’s appeal are allowed.

partly allowed.

33 | P a g e

ITA Nos.2972 & 2973/Del/2017 and 2341 & 2342/Del/2017

2973/Del/2017 are dismissed and both appeals of the assessee in ITA

Nos.2341 & 2342/Del/2017 are partly allowed.

Order pronounced in the open Court on 29th December, 2021.

Sd/- Sd/-

(ANIL CHATURVEDI) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER

*Amit Kumar*