ACIT, CIRCLE- 31(1), NEW DELHI vs. IFFCO LTD., NEW DELHI

Appellant by Shri Gurmel Singh, Sr.DR Respondent by Shri Tarandeep Singh, CA Date of hearing 06.01.2021 Date of pronouncement 06.01.2021 ORDER PER O.P. KANT, AM:

This appeal has been filed by the Revenue being aggrieved against the order dated 21/09/2017 passed by the Ld. CIT(Appeals)-31, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2007-08, raising following grounds: 1. On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of an amount of Rs.835.9 lakhs (910.16 – 74.26) lakhs made by the Assessing Officer u/s 14A, as the assessee has claimed deduction of expenses in relating to income which is exempt from tax.

before or during the course of appellate proceedings before the Hon’ble ITAT.

2. Briefly stated facts of the case are that this is a second- round proceeding. Originally, the order of assessment dated 24/12/2010 was passed by the Assessing Officer under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) making a disallowance under section 14A of the Act ₹ 4,21,43,45,000/- invoking provisions of Rule 8D of Income-tax Rules, 1962 (in short ‘the Rules’). The matter traveled to Income Tax Appellate Tribunal (in short ‘the Tribunal’). The Tribunal in its order dated 24/09/2014 passed in & 2320/Del./2012, observing that the Assessing Officer was not having benefit of the decision of the Hon’ble Jurisdictional High Court in the case of Maxopp investment Vs CIT (2012) 347 ITR 272 (Del), and therefore, restored the matter back to the Assessing Officer for passing a speaking order in accordance with law. The relevant finding of the Tribunal is reproduced as under: “2. The Ld. AR inviting attention to the grounds raised in assessee’s appeal submitted that the ground which he would be relying upon is Ground No-3 and the other grounds may be treated as arguments in support of the said ground. In the facts of the present case it was a common stand of the parties that the issue has to go back to the AO as his satisfaction in terms of the decision of the Jurisdictional High Court in the case of Maxopp Investment. Vs CIT [2012] 347 ITR 272 (Del) has not been recorded. The Ld. AR submitted that in the circumstances, Ground Nos.-13 & 14 raised would become infructuous.

3. We have heard the rival submissions and perused the material available on record. The issue it is seen has been discussed by the AO in page 11-15 of his order and the CIT(A) relying upon the past history of the assessee considered the same in para 7 to para 7.3 of his order. A perusal of the same shows that the benefit of the decision of the Jurisdictional High Court in the case of Maxopp Investment was not available to the AO. In view of the same, considering the request of the parties on record we deem it appropriate to restore the issue back to the file of the AO with the direction to pass a speaking order considering the mandate of the Hon’ble High Court in Maxopp Investment. Needless to say that before passing of the order he shall give a reasonable opportunity to the assessee of being heard. The decision it is seen is fortified by the decision of the Delhi High Court in the case of assessee itself wherein their Lordships clarified their earlier order dated 02.02.2012 in their order dated 17.04.2012 by stating that the necessary working and computation of the deduction u/s 14A of the Income Tax Act, 1961 and the appeal effect has to be given/undertaken by the AO following Maxopp Investment Ltd. vs CIT in ITA No-687/2009. Accordingly the AO in view of the above direction shall pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard.”

2.1 Consequently, the Assessing Officer in assessment order passed on 31/03/2015 made disallowance on proportionate basis under section 14A of the Act, amounting to ₹ 9,10,16,000/-. The working of the disallowance made by the AO is summarized as under:

A. Total Revenue Rs.1132877.00 lakhs B. Expenses incurred by the Rs.83163.00 lakhs assessee (relatable to earning dividend income) C. Exempt Dividend Income Rs.12398.56

Disallowance B X C A Thus: 83163 X 12398.56 = 910.16 lakhs 1132877 The Disallowance made by the AO is 910.16 lakhs.

2.2 While working out the above disallowance, the Assessing Officer has included dividend income of ₹ 113,86,96,340/- from its joint-venture OMIFCO-OMAN in exempted income. Dividend income from co-operative societies, for which deduction under section 80P(2)(d) of the Act is available to the assessee, was not included in dividend income for disallowance in view of the decision of the Hon’ble Delhi High Court in the assessee’s case in ITA No. 444/2011. 2.3 On further appeal, the Ld. CIT(A) excluded the dividend income from overseas joint-venture OMIFCO-OMAN for the purpose of computation of disallowance in terms of section 14A of the Act. The computation of disallowance of ₹ 74.26 lakhs by the Learned CIT(A) is as follows: A Total revenue Rs. 1132877.00 Lakhs B Common Expenses incurred Rs. 83163.00 Lakhs relatable to both exempted and non-exempted income C Exempted dividend income Rs. 10,11,59,945/- Disallowance = B XC A = 83163 lakhs X 1011.59945 lakhs 1132877 lakhs = Rs. 74.26 lakhs. 2.4 The details of common expenses amounting to 831.63 crores has been reproduced by the Ld. CIT(A) in para 4.3.3 of the impugned order. 2.5 Against the relief allowed by the Ld. CIT(A), the Revenue is in appeal before the Tribunal raising the grounds as reproduced above.

“The submission of assessee is considered in light of the facts of the case. From the assessment record of the assessee it is pursued that the dividend and also long term capital gain which suffers DDT / STT are fully exempt in the hands of taxpayer. The assessee has received dividend income of Rs. 113,86,96,340/- from its overseas joint venture OMIFCO-Oman. As regard, the dividend income from joint venture with OMIFCO, Oman, the assessee is effectively not paying any tax on this income either in the source country or in India. As per the Oman Tax Laws, any PE (Permanent Establishment) in Oman which is supported by foreign company or establishment becomes taxable entity under Oman tax laws. Flowever, the article 8(bis) exempts the taxation of dividend income of companies in Oman. In subsequent year also, the dividend income received from overseas joint venture OMIFCO Oman has been shown in the Income-tax return of PE in Oman, but no tax has actually been paid on the amount of such dividend in view of the exemption provided in accordance to the article 8 (bis) of the Income-tax Law in Oman. Effectively, dividend from OMIFCO, Oman is exempt in the hands of assessee in view of the DTAA agreement. It is admitted that the assessee is entitled to claim relief U/s 90 of the Income-tax Act, 1961 read with DTAA with Oman @ 30% on dividend income received by PE from OMIFCO-Oman. The net effect is that the income whatever & whenever accrue, will be exempt or the assessee shall not be required to pay any tax on this income. The tax infact is not required to be paid in reality either in Oman or in India. In Sultanate of Oman, the tax on dividend applicable at the rate of 30% is exempt as per article 8(bis) of Oman Income-tax Law provision whereas in India, the dividend amount is effectively not taxed on account of the relief claimed by assessee U/s 90 of the Income-tax Act, 1961. Infact, as per DTAA and also applicable taxation provision in Oman, the assessee is not only required to not to pay any tax on the dividend income received from OMIFCO Oman but also is entitle to claim the credit and also refund on account of such tax payable on this dividend. Infact, it is immaterial as to what rate of tax is applicable on dividend from OMIFCO in Oman since the assessee is entitled to claim relief U/s 90 of the Income-tax Act, 1961 which is in accordance to the provision of the DTAA, the refund is also allowable to assessee. But this confirm that in effect, no tax has been paid by the assessee on the dividend income received from OMIFCO, Oman and for all purpose, this dividend is exempt from tax.”

4.1 The Ld. CIT(A) in the impugned order has followed finding of his predecessor in assessment year 2006-07, wherein he held that investment in assessee’s PE in Oman was held taxable by him in India and, therefore, it was not in the category of the exempt income investment to be considered for computation of the disallowance under section 14A of the Act. The predecessor of Ld. CIT(A) also considered his decision for assessment years 2008-09 and 2009-10 and directed the Assessing Officer to re- compute the disallowance under section 14A of the Act by excluding the dividend income from OMIFCO-Oman. 4.2 Before us, the learned Counsel of the assessee has drawn our attention to the order of the Tribunal in the case of the assessee for assessment years 2008-09 in and 3012/Del/2013, wherein the Tribunal has decided to exclude the investment in OMIFCO-Oman for the purpose of the computing disallowance in terms of Rule 8D(2)(iii) of the Rules. The relevant finding is reproduced as under:

“5.7 It is the contention of the assessee that the investment which has not yielded income during the year should not be included for the purpose of disallowance under Rule 8D(2)(iii). On this issue i.e. whether the provisions of section 14A can be invoked and disallowance of expenditure be made even if there was no dividend income, there is a plethora of case laws directly on the issue in favour of the assessee. The Hon’ble Punjab & Haryana High Court in CIT, Faridabad Vs. M/s. Lakhani Marketing Inc., in made reference to the two earlier decisions of the same Court in CIT Vs. Hero Cycles Limited, 323 ITR 518 and CIT Vs. Winsome Textile Industries Limited, 319 ITR 204 to hold that Section 14A cannot be invoked when no exempt income was earned. The Hon’ble Gujarat High Court in CIT Vs. Corrtech Energy Pvt. Limited, 223 Taxman 130 and the Hon’ble Allahabad High Court in CIT (II), Kanpur Vs. M/s. Shivam Motors Pvt. Limited in ITA No. 88 of 2014 also held the same view. The Hon’ble Delhi High Court in CIT Vs. Holcim India Pvt. Limited in ITA Nos. 486 and 299/2014 have referred to the aforesaid judgments of the Hon’ble Punjab & Haryana High Court and Allahabad High court and have also held a similar view. Therefore, the contention of the assessee that the average investments to be taken into account for application for Rule 8D would only be those investments which have actually yielded exempt income ought to succeed. It is the assessee’s submission that the following investment should be excluded while computing the disallowance under rule 14A viz. (1) investments on which no dividend income has been earned, (2) foreign investment in OMIFCO, Oman and (3) investments in cooperative societies. As far as the exclusion of investments on which no dividend income has been earned is concerned the issue is covered in favour of the assessee by the various judgments of the different Hon’ble High Courts as discussed aforesaid. As far as the issue of investment in OMIFCO, Oman is concerned, it is seen that the dividend received by the assessee from OMIFCO, Oman is chargeable to tax in India under the head “Income from other sources” and forms part of the total income. It is seen that the same is included in the taxable income in the computation of income filed by the assessee and is available on paper-book. Thereafter, rebate of tax has been allowed to the assessee from the total taxes in terms of section 90(2) of the Income Tax Act read with Article 25 of the Indo Oman, DTAA and thus, the dividend earned can be said to be exempt from tax and, therefore, the provisions of Section 14A would not be attracted in this case also. As far as the dividend earned on investments made in cooperatives is concerned, it is seen that the Hon’ble Delhi High Court in the case of CIT vs. KRIBHCO 349 ITR 618 has held that disallowance u/s 14A could be made only in respect of those exempt income falling under chapter III and could not be applied in the situation where the income though included in the computation of income was excluded because of other deductions contained in other provisions of the Act. The Hon’ble Delhi High court has held that no disallowance could be made against income which was not specifically exempt under the Act and for this reason the income from investment in cooperative societies also needs to be excluded.

4.3 Though the above decision is in respect of computation in terms of Rule 8D of the Rules, which is effective from assessment year 2008-09 and not in the instant assessment year, but in view of the ratio that dividend income from M/s OMIFCO-Oman is not in the nature of the exempted income, respectfully following the finding of the Tribunal, we uphold the finding of the Ld. CIT(A) of computing disallowance under section 14A of the Act after excluding the dividend income from M/s OMIFCO-Oman. We do not find any infirmity in the order of the Learned CIT(A) on the issue in dispute, and accordingly, we uphold the same. The ground of the appeal of the Revenue is accordingly dismissed.