DCIT, NEW DELHI vs. M/S. IFCI, NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ―C ‖: NEW DELHI BEFORE MS SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No Assessment Year 2934/Del /2010 2002-03 U/s 143(3) 1359/Del/2011 2002-03 u/s 147 rws 143(3) The Deputy Commissioner of IFCI LIMITED Vs. Income Tax IFCI Towers Circle – 11(1) 61 Nehru Place C R Building New Delhi I P Estate PAN: AAACT0668G New Delhi

(Appellant) (Respondent)

ITA/ Co No Assessment Year 262 Del 2010 2002-03 In ITA No 2934/Del/2010 123/Del/2011 2002-03 In ITA No 1359 Del 2011

IFCI LIMITED The Deputy Commissioner Vs. IFCI Towers of Income Tax 61 Nehru Place Circle – 11(1) New Delhi C R Building PAN: AAACT0668G I P Estate New Delhi

(Appellant) (Respondent)

For Assessee Shri saurav Sood Adv Shri Shashank Sharma Adv Ms Subhashree Rao Adv Page 1 of 29

For Revenue Shri Samar Bhadra CIT DR Date of Hearing 21-08-2020 Date of pronouncement 31/08/2020

O R D E R Per Prashant Maharishi AM 01 These are the two appeals of the ld AO and cross objection of the assessee for the same assessment year. One appeal of the learned assessing officer and cross objection of the assessee is in the original proceedings u/s 143 (3) of the act and one appeal of the learned assessing officer and cross objection of the assessee are pertaining to reopened assessment for the same assessment year. 02 ITA number 2934/Del/2010 filed by the learned Deputy Commissioner of Income Tax, Circle – 11 (1), New Delhi (the learned AO) against the order of the Commissioner of Income Tax (Appeals) – V , New Delhi dated 2/3/2010 wherein the appeal of the assessee against the order of the learned assessing officer passed u/s 143 (3) of The Income Tax Act, 1961 passed on 24th of March 2005 was partly allowed. 03 The learned assessing officer aggrieved with the above order has preferred following grounds of appeal:- 1) The order of the learned CIT – A is wrong, perverse, illegal and against the provisions of law, liable to be set-aside. 2) On the facts and circumstances of the case and in law, the learned CIT – A has erred in deleting the disallowance of ₹ 7,563,020 on account of long-term capital loss on write-off of investment.

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3) On the facts and circumstances of the case and in law, the learned CIT (A) has erred in deleting the addition is u/s 35D 4) on the facts and circumstances of the case and in law, the learned CIT (A) has erred in deleting the disallowance of ₹ 183,016,734 on account of depreciation on plant and machinery 5) on the facts and circumstances of the case and in law, the learned CIT (A) has erred in deleting the addition of ₹ 4,822,965 on account of redemption premium on bonds 6) on the facts and circumstances of the case and in law, the learned and CIT (A) has erred in deleting the disallowance of ₹ 42,172,192 claimed as bond issue expenses 7) on the facts and circumstances of the case and in law, the learned CIT (A) has erred in deleting the disallowance of ₹ 3,887,672 on account of benevolent reserve fund 8) on the facts and circumstances of the case and in law, the learned CIT (A) has erred in deleting the disallowance of ₹ 472,549,460 made u/s 10 (23G) comprising of ₹ 433,449,485 as interest income from loans and advances to infrastructure companies and ₹ 39,100,474 for establishment and administrative expenses 9) on the facts and in the circumstances of the case and in law, the learned CIT (A) has erred in deleting the disallowance of ₹ 1,533,979,773 u/s 14 A comprising of Rs. 1,528,160,134 on account to cost of borrowings

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and Rs. 6,019,639 on account of administrative expenses 10) on the facts and the circumstances of the case and in law, the learned CIT A) has erred in deleting the disallowance of bad debts of ₹ 535 Crores 11) the appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing 04 Assessee has raised following grounds of cross objections:- 1) that the CIT (A) erred on facts and in law in not allowing the claim of the appellant amounting to Rs 472,549,960 u/s 10 (23G) of the income tax act 1961 2) that the CIT (A) order facts and in law in directing the assessing officer to allow the claim of the appellant only in respect of the companies which are approved under the said Section without appreciating that the said approval is not at all required in respect of investments made prior to 1 June 1998 3) without prejudice, that the CIT (A) erred in directing the assessing officer to allow the claim of the appellant only in respect of investments where the appellant is able to produce proof of exemption within one year from the date of the order. 05 Brief facts of the case shows that the assessee company is engaged in the business of leasing and finance and it finances projects in the form of rupees loan, foreign loans, underwriting and subscribing to the capital issues. 06 Assessee filed its return of income on 31st of October 2000 to declaring a total loss of ₹ 2,628,646,300, which was revised on 9/10/2003 where the total loss return was Rs. 270,88,49,818. The case of the assessee was selected for scrutiny and assessment u/s 143 (3) of the act was passed on 24th of March 2005 wherein Page 4 of 29

the total income of the assessee was determined at ₹ 2,119,479,597/– . Out of which the business loss/ depreciation of earlier years was set of to that extent. The learned assessing officer made several additions and disallowance to the income of the assessee. 07 Against this order the assessee preferred an appeal before the learned CIT – (A) - V , New Delhi. He passed an order on 2/3/2010 wherein the appeal of the assessee was partly allowed. For all the additions which have been deleted by the learned CIT – A, the learned assessing officer has preferred this appeal and on the issue of claim of the assessee u/s 10 (23G) of the act assessee has preferred cross objection. All these additions on disallowance would be discussed at the time of dealing with each ground of appeal of the AO and cross objection of the assessee. 08 Before that, it is also necessary to bring on record that the learned assessing officer has passed an order u/s 154 of the income tax act on 15th of May 2009 wherein assessee pointed out certain mistakes apparent from record as per its application dated 29th of April 2005. As per that order the learned assessing officer found that there is a mistake apparent on record with respect to the addition of Rs 2,556,340,099/– consequently the income was assessed at revised total loss of ₹ 418,379,435. 09 Coming to the appeal of the learned assessing officer, the first ground of appeal is general in nature and therefore it is dismissed. 10 Ground number 2 is against the disallowance deleted of ₹ 7,563, 020/- because of long-term capital loss on write off investment. The fact shows that Assessee Company revalued units of a mutual fund at the end of the year and claimed the indexed value of loss on revaluation amounting to ₹ 7,563,020 as capital loss. Assessee computed long-term capital loss of ₹ 7,563,020 and has set off this loss against the long-term capital gain on sale of shares Page 5 of 29

of Rs. 179,96,396/- resulting in a long-term capital gain of Rs. 140,33,376/- . The write off of shares was done as these had become irrecoverable and since there was no transfer of any capital asset, AO held that there was no capital loss incurred by the assessee on this write off of shares. Therefore he disallowed a long- term capital loss to the extent of ₹ 7,563,020/–. The learned CIT – A allowed the claim of the assessee partly holding that loss on revaluation of units of Rs 4988753/– is allowable to the assessee as a normal business expenditure u/s 37 (1) of the act as the assessee is showing the income or loss from such assets in the form of stock in trade every year consistently. 11 Supporting the order of the learned assessing officer, the learned departmental representative stated that assessee has claimed capital loss without transferring any of the shares. He further submitted that if there is no transfer of a capital asset, there cannot be any capital gain or loss arising to the assessee. He further submitted that the learned CIT – A has wrongly allowed the claim of the assessee u/s 37 (1) of the act even if there is no expenditure incurred by the assessee. He submitted that no such claim was made before the assessing officer. 12 The learned authorised representative supported the order of the learned CIT – A and stated that assessee is providing financial assistance to industrial and service concerns for the new projects as also for expansion, diversification and modernization. The assessee finances in the form of rupees loan, foreign loan, under writing and subscription to capital issues through direct subscription or conversion of loan in the event of default. The shares are acquired in the course of normal business activity of financial assistance being carried on by the assessee and any profit and loss on sale thereof is offered for taxation under the head income from business and profession. He further submitted that Page 6 of 29

that the profit on redemption of these units has been offered to tax in subsequent years. Therefore, even if the loss is not allowed as the capital loss the same was rightly allowed by the learned CIT – A as a normal business loss in view of the factual position stated. He further supported the order of the learned CIT – A relying on the decision of the honourable madras High Court in 273 ITR 510 and 291 ITR 144. He therefore submitted that though learned CIT A has held that there is no capital loss incurred by the assessee but has rightly allowed the claim of the assessee u/s 37 (1) of the act or u/s 29 of the income tax act. He submitted that the profit and loss of the banking business is required to be computed after valuing the inventory as is investment et cetera at its cost or market value whichever is less. 13 We have carefully considered the rival contention and perused the orders of the lower authority. So far as the capital loss is concerned the identical issue has been decided by us in the appeal of the assessee for assessment year 2001 – 02 wherein we have held that when there is no transfer of a capital asset, there cannot be any capital loss or gain arising to the assessee. Consequently, we uphold the order of the learned assessing officer that the capital loss cannot be allowed to the assessee. However before the learned CIT – A assessee has raised another alternative argument that if the loss is not allowed as a capital loss, same (without indexation) may be allowed as a business loss in view of the diminution in the value of the inventory. The learned CIT – A has allowed the above claim of the assessee. Looking to the nature of the business of the assessee, of financing, the amount of securities that it held, as investment in securities and shares is part of the stock or trading assets of the assessee. Such trading assets or stock required to be valued at the end of the year at the cost or market value whichever is less. In the present case, the actual diminution in the value of Page 7 of 29

the above investment is ₹ 4,988,753 however assessee indexed it and made the loss of ₹ 7,563,020/- . The learned CIT – A has allowed the devaluation loss of ₹ 4,988,753 only. In view of this we do not find any infirmity in the order of the learned CIT – A. Accordingly ground number 2 of the appeal of the learned AO is dismissed. 14 Ground number 3 of the appeal is with respect to the deleting the disallowance u/s 35D of the act wherein 1/10 of the share issue expenses claimed by the assessee disallowed by the learned assessing officer are deleted by the learned CIT – A. The brief facts show that during the year assessee has claimed amount of Rs 23997000/– u/s 35D of the act. The learned assessing officer held that since the assessee company is a financial institution and not an industrial undertaking, therefore, the company is not eligible for any deduction u/s 35D of the expenses incurred by it. On appeal before the learned CIT – A , he allowed the claim of the assessee following the decision of the coordinate bench in assessee’s own case for earlier years. 15 The learned departmental representative vehemently submitted that the issue is whether the assessee is a financial institution or and industrial undertaking. If it is an industrial undertaking it is not eligible for deduction u/s 35D of the act. He further submitted that the decision on which relied by the learned CIT – A in 181 ITR 59 did not discuss the above issue with respect to the industrial undertaking. He further submitted that in the earlier orders of the coordinate bench in assessee’s own case though decided the issue in favour of the assessee, however, whether the assessee is an industrial undertaking or a financial institution was not at all considered. Therefore, there is a change in the facts and hence, that decision does not apply.

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16 The learned authorised representative relied upon the order of the learned CIT – A. He further relied on the principle of consistency and submitted that the claim of the assessee must be allowed. 17 We have carefully considered the rival contention and perused the orders of the lower authorities. We have also considered the decision of the coordinate bench in assessee’s own case. The assessee claimed the expenses incurred on issue of shares in 1993-94 when the assessee changed from a statutory corporation to a limited company. This issue has been decided by us in the case of the assessee for assessment year 2001 – 02 wherein we have held that the assessee is not an industrial undertaking and therefore is not eligible for deduction u/s 35D of the act. The learned authorised representative could not show us any reason that why the assessee should be considered as an industrial undertaking when written submission of the assessee itself says that it is a financial institution. Therefore following the decision for that year we reverse the order of the learned CIT – A and uphold the order of the learned assessing officer confirming that assessee is not an industrial undertaking and therefore is not eligible for deduction u/s 35D of the act. Accordingly ground number 3 of the appeal is allowed 18 Ground number 4 of the appeal of AO is against the disallowance of ₹ 183,016,734/– deleted by the learned CIT – A being depreciation on plant and machinery leased out. The learned assessing officer disallowed the above claim relying on his order for assessment year 1995 – 96 stating that the business of the leasing carried on by the assessee is in fact in the nature of hire purchase, finance business and therefore assessee is not eligible for allowance of depreciation thereon. The learned CIT – A allowed the claim of the assessee relying on the decision of the honourable

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Supreme Court in case of CIT versus Shaan finance private limited 231 ITR 308. Therefore, AO is in appeal. 19 The learned DR supported the order of the AO and submitted that identical issue has been argued in appeal of the assessee for assessment year 1999 – 2000 and 2000-2001. He reiterated the same argument. 20 The learned authorised representative vehemently supported the order of the learned CIT – A and reiterated his arguments which were made in appeal of the assessee for assessment year 99 – 2000 and 2000 – 2001. 21 We have carefully considered the rival contention and perused the orders of the lower authorities. We have decided the identical issue in assessment year 1999 – 2000 and 2000 – 2001 in ITA number 1201/del/2005 and 1200/del/2005 filed by the assessee of the even date wherein we have held that assessee is the owner of the assets leased out to 3rd parties. This was based on our finding in that year that the assets are owned by the assessee as shown in the balance-sheet of the assessee, lease rental is also shown in the profit and loss account as income and the parties to whom the assets are leased out has given a certificate that they have not claimed depreciation on this and the owner of the asset is the assessee. No contrary material produced by ld AO. Therefore for the same reason we do not find any infirmity in the order of the learned CIT – A. Ground number 4 of appeal is dismissed. 22 Ground number 5 of appeal is against the deletion of the addition of ₹ 4,822,965 on account of redemption premium on bonds. Both the parties agreed that this ground is similar to the ground number 5 of the appeal of the AO for assessment year 2001 – 02 in ITA number 2205/del/2005. Ld AR submitted that this appeal is also argued together and their arguments on the facts of the case remain the same. Page 10 of 29

23 We have carefully considered the rival contention and perused the order of the lower authorities. We find that this issue is identical to the ground number 5 of the appeal of the learned assessing officer in ITA number 2205/Del/2005 for assessment year 2001 – 02 wherein we have deleted the above disallowance confirming the order of the learned CIT – A following the decision of the honourable Supreme Court in case of Madras industrial investment Corp Ltd in 91 taxman 340 (SC). As there is no change in the facts and circumstances of the case, for the reasons given by therein, we dismiss this ground of appeal and confirm the order of the learned CIT – A. 24 Ground number 6 of the appeal is with respect to the deletion of the disallowance of ₹ 42,172,192 claimed by the assessee as Bond issue expenditure. In the computation of the total income the assessee has claimed deferred revenue expenditure of ₹ 42,172,192/– on account of bond issue expenses. The assessee has explained that assessee is a financial institution and routinely borrowed funds in the furtherance of its business. During the financial year relevant to assessment year 2002 – 03 assessee has raised funds of Rs 2141 crores in furtherance of business. For this reason the assessee incurred the above expenditure. It was submitted that it is not a capital but a borrowing. Therefore, any expenditure incurred for further borrowings by the assessee from the market is allowable to it as a revenue expenditure. The learned assessing officer held the same to be capital expenditure stating that assessee has derived benefit of enduring nature by borrowing. On appeal before the learned CIT – A the above disallowance was deleted. Therefore, AO is in appeal. 25 The learned departmental representative supported the order of the learned assessing officer.

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26 The learned authorised representative supported the order of the learned CIT – A and submitted that he has deleted the addition/disallowance relying on the decision of the honourable Supreme Court in case of India cement Ltd versus CIT (1966) 60 ITR 52. 27 We have carefully considered the rival contention and perused the orders of the lower authorities. The assessee claimed deduction in respect of expenses incurred on issue of bonds since they pertained to raising of money which is stock in trade of the assessee and was revenue in nature. Following the decisions of the Honourable Supreme Court of India in India Cements Ltd vs CIT (1966) 60 ITR 52(SC) and judgment of the Honourable High Court of Madras in Lakshmi Vilas Bank vs CIT (2006) 284 ITR 93 the CIT(A) has rightly allowed the deduction. In view of this the order of the learned CIT – A is confirmed on this ground and ground of appeal is dismissed. 28 Ground number 7 is against the deletion of disallowance of ₹ 3,837,672 on account of claim of deduction of amount withdrawn from benevolent reserve fund. The fact shows that the assessee has established the benevolent reserve fund for meeting the cost of feasibility studies project reports et cetera. The assessee has created a reserve fund. Out of these reserve fund, whatever is the expenditure incurred by the assessee is debited to that reserve. The debit amount was claimed by the assessee in the computation of total income as allowable expenditure. The learned assessing officer disallowed the same holding that as the expenditure incurred on the activities is not directly made from profit and loss account but from a reserve fund created out of profits transferred from the appropriation account from year to year. Therefore he stated that it is not allowable u/s 37 (1) of the act. On appeal before the learned CIT – A the claim of the assessee was allowed. Page 12 of 29

29 The learned departmental representative reiterated the same arguments as advanced by the learned assessing officer in the assessment order. 30 The learned authorised representative supported the order of the learned CIT – A. 31 We have carefully considered the rival contention and perused the orders of the lower authorities. The assessee claimed certain expenses incurred by it as part of its obligation under the Benevolent Reserve Fund which was established when the assessee was a statutory corporation. The Ld. AO vide order dated 24.03.2005 made disallowances of Rs. 38,87,672/- on account of expenses out of Benevolent Reserve Fund. It was observed by the Ld. AO that the amount was not directly debited to P&L Account but routed through Reserve Fund. The Industrial Financial Corporation Act (IFCI), 1948, provides for creation of Benevolent Reserve Fund for the enlisted purposes as per Section 32B of the IFCI Act, 1948. It is stated in Section 32B of the IFCI Act, 1948, that: 32B. Benevolent reserve fund. 1. The Corporation shall establish a special fund, to be called the benevolent reserve fund. 2. To the benevolent reserve fund shall be credited a. any part of the annual profit which may, from time to time, be allocated to the fund; b. all amounts received for the purposes of the fund by way of loans, gifts, grants, donations or benefactions from Government or any other source; c. income or profits from investments made from the fund; d. income accruing or arising to the fund by way of interest or otherwise. 3. The benevolent reserve fund shall be used by the Corporation Page 13 of 29

a. for meeting the cost of feasibility studies, project reports, market and techno-economic surveys and such other purposes which, in the opinion of the Corporation, may promote the development of industries; b. in the field of development banking and in financial and industrial management i. for undertaking and promoting research; ii. for training in India or abroad of personnel of financial institutions; and iii. for creating chairs in universities, academic institutions and research foundations; c. for assisting projects promoted by technologists and new entrepreneurs i.by sub sidising the normal lending rate of interest of the Corporation in respect of loans or advances sanctioned to them; ii.by providing technical and managerial assistance to projects promoted by them especially in less industrially developed regions; d. for rendering any assistance that may be ancillary or incidental to the aforementioned purposes.]

32 In the case at hand, the Assessee created Benevolent Reserve Fund as per the aforementioned provision and utilised the same to pay certain amount to Institute of Entrepreneurship Development, U.P, reimbursed certain amount to IDBBI towards sharing of costs of EDPs, reimbursed to UNI of Mumbai towards expenditure for IFCI Chair reimbursed NCAER towards salary & allowances for IFCI Chair and etc. It can be clearly seen that the funds were utilised towards purposes specified under regulatory provisions of the fund. Nature of expenses incurred and utilisation of the Benevolent Reserve Fund is not in dispute The expenditure out of Benevolent Reserve Fund was done in accordance of the statutory provision and the same did not lead to any sort of capital outlay. The creation and utilisation of the finds was as per Section 32B of Page 14 of 29

the IFCI Act, 1948. In assessee’s own case for assessment year A.Y. 1974-75, I.T.A. No. 1065./79 whereby the Benevolent Reserve Fund expenditure were allowed by the coordinate bench vide order dated 06.01.1979 in favour of the assessee. In our view order of the coordinate bench will hold good and will be applicable to the Assessee as the only change since A.Y. 1974-75 to A.Y. 2002-03 is incorporation of the Assessee into a company by way of The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993, and the Benevolent Reserve Fund created was transferred through Section 4(2) of the Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993. Moreover, it is pertinent to mention that the as per Section 6 of the Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993, the deduction claimed for expenditure out of Benevolent Reserve Fund shall continue. Therefore, in the light of the aforesaid provision, we do not find any infirmity in the order of the learned CIT – A in deleting the disallowance of Rs. 38,87,672/. Accordingly ground number 7 of the appeal is dismissed. 33 The ground number 8 is with respect to the disallowance deleted u/s 10 (23G) of the act. During the year assessee has claimed exemption u/s 10 (23G) of the act amounting to Rs 1 764008386/–. The learned assessing officer asked the assessee to give proof of exemption to the various interest payer to the assessee. The assessee submitted a detailed chart where the various companies which are covered u/s 80 IA of the income tax act and what is the nature of income. However the learned assessing officer disbelieved in absence of notifications and computed the exemption u/s 10 (20 3G) of the act as Under:- serial particulars amount in rupees number

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Total income claimed u/s 10 (23) 361,83,90,597 1 (G) Less disallowed as assessee has 176,40,08,660 2 not given the supporting evidences Balance income eligible for 185,43,81,937 3 exemption u/s 10 (20 3G) (A) Average outstanding for the year 10080570000 4 (B) Average cost of borrowings for the 12.14 % 5 year ended on 31st of March 2002 © Interest cost incurred to on 122,37,81,198 6 infrastructure income (B*C) (D Balance (A minus D) E 63,06,00,739 7 Total establishment and 49,83,90,000 8 administrative expenses (F) Total income (G) 2,248,64,90,000 9 Proportionate establishment and 4,11,00,475 10 administrative expenses ( F*A/G) [H] That infrastructure income exempt 58,95,00,264 11 u/s 10 (23G) (E-H)

34 Thus the learned assessing officer restricted the claim of the assessee Under that Section of Rs 1,062,050,224 was restricted to ₹ 589,500,264. 35 On appeal before the learned CIT – A with respect to the companies for which no proof was adduced by the assessee , he directed to allow the claim of the assessee in respect of the companies for the

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which the relevant proof of the exemptions are produced within a period of one year from the date of his order. With respect to the expenditure allocated by the assessee of Rs 41,100,475 against only Rs 20 lakhs are allocated by the assessee, following the order of his predecessor in assessment year 98 – 99 he restricted the proportionate establishment and administrative expenses to the extent of ₹ 20 lakhs only and directed to delete RS 3,91,00,474. 36 The learned departmental representative supported the order of the learned assessing officer. 37 The learned authorised representative supported the order of the learned CIT – A. 38 On careful consideration of the orders of the lower authorities and details produced before us , we find that the learned CIT – A has given an opportunity to the assessee to produce the evidence of the companies which are engaged in the infrastructure business and finance made to them is eligible for deduction u/s 10 (23G) of the act by producing relevant notifications for that year. The learned CIT – A has noted that out of the disallowance in respect of 14 infrastructure companies there are only two cases where the loan has been sanctioned or disbursed after 1 June 1998, i.e. date from which the amendment was inserted by the finance act 1998 requiring approval of the government in form of notifications. He also held that post amendment, notification in respect of each company is required to be produced for claiming exemption u/s 10 (23G) of the act. Therefore, he allowed a further opportunity of the assessee of one year from the date of his order to produce the necessary notification. Further, with respect to the allocation of the expenditure , he noted that for assessment year 1998 – 1999 when the disallowance of establishment expenditure was of ₹ 2 crores but the learned CIT – A restricted to ₹ 20 lakhs as per order dated 28th of January 2002 and revenue has not further agitated Page 17 of 29

that issue, therefore, he restricted the disallowance of allocation of administrative expenditure to the extent of ₹ 20 lakhs only. In view of the above facts, we do not find any infirmity in the order of the learned CIT – A as he has set aside the issue partially to the file of the assessing officer with a direction to the assessee to produce the relevant certificates/notifications within one year from the date of his order and for restricting the proportionate allocation of administrative and establishment expenditure, he followed the order of the learned CIT – A in earlier years in assessee’s own case which has not been challenged by the learned AO before the higher forum. In view of this, ground number 8 of appeal is dismissed. 39 Ground number 9 is with respect to the disallowance u/s 14 A of the income tax act. The assessee has earned exempt dividend income of ₹ 271,595,658. The learned assessing officer noted that average investment in shares during the financial year 2001 – 02 is Rs 12,587,810,000 and the cost of borrowing is 12.14%, ₹ 1,528,160,134 , the proportionate interest cost attributable to earning of the dividend income. He further found that assessee has incurred the administrative expenditure of Rs. 49,83,90,000 on the total receipts of Rs 22,486,490,000 wherein the dividend income is only Rs 271,595,658, therefore he worked out the proportionate administrative expenses disallowance of ₹ 6,019,639. He therefore disallowed Rs 1,534,179,773 u/s 14 A of the act. As the assessee has already disallowed a sum of ₹ 2 lakhs, the net disallowance was made. On appeal before the learned CIT – A, he held that interest free funds available with the assessee are more than the subscription to the shares in an assisted concern. He noted that assessee has interest free funds available of ₹ 1224.70 crores whereas the investment in shares is only of ₹ 90.57 crores. Therefore relying on the decision of the honourable Bombay High Page 18 of 29

Court in case of Reliance Utilities And Power Ltd (2009) 313 ITR 340, he deleted the disallowance on account of interest. Further with respect to the disallowance of expenditure following the decision of the CIT – A in assessee’s own case for assessment year 1998 – 1999, he restricted the disallowance to ₹ 10 lakhs. Accordingly he deleted the addition of Rs 153,29,79,773 made by the learned assessing officer u/s 14 A of the act. 40 The learned departmental representative vehemently supported the order of the learned assessing officer whereas the learned authorised representative supported the order of the learned CIT – A and reiterated all the arguments that were raised before him. 41 We have carefully considered the rival contention and perused the orders of the lower authorities. The disallowance u/s 14 A of the income tax act with respect to the interest expenditure has been deleted by the learned CIT – A holding that assessee has more interest refunds available with it then compared to the amount invested in the securities which are yielding tax free dividend income in the form of equity shares. The learned CIT – A followed the decision of the honourable Bombay High Court in case of Reliance Utilities And Power Ltd (supra). Further, with respect to the expenditure incurred by the assessee, he restricted the disallowance to ₹ 10 lakhs made, relying on the order in assessee’s own case for preceeding years by the learned CIT – A which has not been disputed by the assessee or revenue before the higher appellate forums. Therefore we confirm the finding of the learned CIT – A in deleting the disallowance u/s 14 A of the income tax act made by the learned assessing officer in restricting it to the extent of ₹ 10 lakhs only. In view of this, the ground number 9 of the appeal of the AO is dismissed. 42 Ground number 10 is with respect to the disallowance deleted by the learned CIT – A of ₹ 535 crores on account of bad debts. In Page 19 of 29

assessment year 2001 – 02, above disallowance was made by the learned assessing officer holding that it is not pertaining to assessment year 2001 – 02. Therefore, by way of a letter on 11th of March 2005 the assessee submitted that the same should be allowed in assessment year 2002 – 03. The learned assessing officer did not entertain the claim of the assessee. Therefore, before the CIT appeal, for this year, the assessee raised the above claim that it should be allowed to the assessee in this year. Now before us this ground does not survive in view of our decision in ground number 4 of the appeal of the assessee for assessment year 2001 – 02 in ITA number 2120/del/2005 wherein we have held that this amount is allowable to the assessee in assessment year 2001 – 02. Therefore, above ground has now become infructuous, hence, dismissed. 43 In the result appeal number 2934/Del/2010 filed by the learned assessing officer for assessment year 2002 – 03 is partly allowed. 44 Now we come to the cross objection filed by the assessee in CO number 262/Del/2010 for assessment year 2002 – 03 wherein the first ground of appeal is general with respect to the claim of the assessee of ₹ 47,25,49,960 u/s 10 (23G) of the income tax act. Ground number 1.1 is against direction of the learned CIT – A to the assessee to produce the relevant notification with respect to the companies from whom interest income is received. Section 10(23G) of the Income-tax Act, 1961 was inserted by the Finance (No.2) Act, 1996, w.e.f. 1-4-1997. This clause exempts income by way of dividend, interest and long-term capital gains arising out of investments made in an enterprise engaged in the business of developing, maintaining and operating an infrastructure facility. The exemption is available subject to fulfilment of various conditions as contained in the section read with rule 2E of the Income-tax Rules, 1962. By way of Circular : No. 780, dated 4-10- Page 20 of 29

1999 it was amended that in order to avail of exemption of interest on long-term finance, by infrastructure capital company/fund, the enterprise engaged in business of development, maintaining and operating an infrastructure facility should have been approved for that particular assessment year in respect of which exemption is claimed. In this connection, it is clarified that an enterprise is required to take approval under section 10(23G) of the Act for all the assessment years during which the long-term finance is repaid and interest on long-term finance shall be exempt in the hand of infrastructure capital company/fund for only those assessment years in which the enterprise is approved under section 10(23G) for all the investments made after 01.06.1998. Thus , to claim exemption of income from interest, the Assessee was required to provide for notification issued by the Board to the infrastructure capital company to whom the Assessee has extended loan. Claim of the assessee is that it applies only if the loan is extended after 01.06.1998 and if the loan is given prior to that date there is no requirement of notification. It is pertinent to mention that the Ld. CIT(A) allowed the exemption under Section 10(23G) of the Act in favour of the Assessee in the case at hand and while doing so the Ld. CIT(A) observed that, “since the assessee is following up the matter with respective companies, I direct to allow the claim of the assessee in respect of the companies for which relevant proof for exemption are produced within a period of 1 year from the date of this order.”

45 Further Finance (No. 2) Act, 1998 - Circular No. 772, Dated 23-12- 1998 provides as Under:-

Rationalisation of clause (23G) of section 10

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10.1 In recognition of the vital role played by the infrastructure in the development of economy, the Finance (No. 2) Act, 1996 with effect from 1-4-1997, inserted section 10(23G) of the Income-tax Act to provide tax exemption to any 'infrastructure capital fund' or 'infrastructure capital company' in respect of income by way of dividends, interest and long term capital gains derived from investment in the form of shares or long term finance in an enterprise carrying on the business of developing maintaining and operating an infrastructure facility. This provision came in to effect from the assessment year 1997-98. 10.2 Since no safeguards had been provided to ensure that the tax free funds raised by companies were invested in infrastructure development, it was not possible to ascertain, whether the purpose for which the section was introduced, viz., the development of infrastructure facility, was being achieved or not. To serve this purpose, the provisions of section 10(23G) have been amended by Finance (No. 2) Act, 1998 to provide, inter alia, that the exemption under this clause shall be available only in respect of the investments in an enterprise,— (i) which is wholly engaged in the business of developing, maintaining and operating an infrastructure facility; and (ii) which has been approved by the Central Government on an application made by it in accordance with the rules made in this behalf and which satisfies the specific conditions. 10.3 The amended provisions would apply only in respect of investment made on or after 1-6-1998. Doubts had been expressed in different quarters about the continuance of exemption available under section 10(23G) in respect of investments made prior to 1-6-1998 for assessment year

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1999-2000 and onwards. The Central Board of Direct Taxes have clarified by way of a press release that the exemption available under the provisions of section 10(23G), prior to its amendment by the Act, will continue to govern the investments made prior to 1-6-1998. The Rules and Forms in this regard have since been notified vide Notification No. S.O. 897(E), dated 12th October, 1998. 10.4 The definition of "infrastructure facility" in this clause has also been amended so as to include a project for housing which fulfils the conditions specified in sub-section (4F) of section 80-IA. 10.5 The amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. 46 Therefore, it is mandatory for the assessee to show the notification if any income respect of such investment claimed as exempt under this Section irrespective of whether loan is made prior to 1 June 1998 or thereafter. In view of this, we do not find any infirmity in the order of the learned CIT – A on this aspect. Accordingly the cross objection number 1 of the assessee is dismissed. 47 In view of this, cross objection number 262/Del/2010 filed by the assessee for assessment year 2002 – 03 is dismissed. 48 In the result ITA number 2934/del/2010 for assessment year 2002 – 03 filed by the learned assessing officer is partly allowed and cross objection filed by the assessee in CO number 262/Del/2010 for the same assessment year is dismissed. ITA NUMBER 1359/DELHI/2011 (BY THE LEARNED AO) AND CROSS OBJECTION NUMBER 123/DELHI/2011 (BY THE ASSESSEE) ASSESSMENT YEAR 2002 – 03 APPEALS AGAINST THE ORDER U/S 143 (3) READ WITH SECTION 147 OF THE INCOME TAX ACT. 49 ITA number 1359/Del/2011 is filed by the learned Deputy Commissioner of income tax for assessment year 2002 – 03 against Page 23 of 29

the order of the Commissioner of income tax (appeals) – XI dated 31st of December 2010 wherein appeal filed by the assessee against the order of the learned assessing officer passed u/s 143 (3) read with Section 147 of the income tax act was upheld so far the reopening was concerned and on the merits the addition of Rs. 102,54,671 being addition on account of speculation loss and disallowance u/s 43B are deleted. 50 Therefore the learned assessing officer aggrieved with the order of the learned CIT – A has raised the solitary ground of appeal that the learned Commissioner of income tax (appeals) has erred in deleting the addition of Rs. 102,54,671 on account of loss on shares. 51 Assessee has also raised the solitary ground in the cross objection that the learned Commissioner of income tax appeals has erred in upholding the action of the learned assessing officer in making the assessment u/s 148 despite the fact that the issue and the assessments were already examined in the proceedings u/s 147 were initiated merely on change of opinion on the same facts and circumstances. 52 As the facts stated earlier, the assessee filed its return of income on 31st of October 2000 to declaring loss of ₹ 2,628,646,300/–. It was revised on 9/10/2003 declaring loss of ₹ 4,708,849,818/–. The assessment u/s 143 (3) of the was passed on 24th of March 2005. Subsequently notice u/s 148 of the act was issued on 30 March 2007. 53 The reasons for reopening as inferred from assessment as well as appellate order is that assessee has claimed loss on sale of shares of Rs 1,02,54,671. According to the learned AO same is a speculation loss which was allowed as a regular capital loss to the assessee. Further there was some delay in payment of contribution to pension trust, which was paid after the due date however all the Page 24 of 29

payments were made within the same accounting year and much earlier than the due date for filing of the return of income. The learned AO said that it is this allowable u/s 43B of the act. 54 Consequent to reopening, the learned assessing officer noted that assessee company has claimed loss on sale of shares of ₹ 1 0254671/–. The assessee was questioned that loss on sale of shares should not be treated as speculation loss in view of explanation to Section 73 of the act. Assessee submitted that it is the finance company which is the main business of the company consisting of the purchase and sale of the shares of other companies and therefore explanation to Section 73 does not apply to the assessee. However the learned assessing officer rejected the explanation of the assessee and stated that the case of the assessee is fully covered by explanation to Section 73 of the act. Therefore he held that loss on sale of or writing of the investment is a speculation loss and not allowable. With respect to the claim of the employees contribution of ₹ 8,126,396 to the pension trust fund which was paid after the due date the assessee explained that the same is not covered u/s 36 (1)(va) of the act. The learned assessing officer rejected the same as the details on the record were not complete and clear. Consequently, he passed an order u/s 143 (3) read with Section 147 of the income tax act making the about to addition and determining the total income of the assessee at Rs 2,137,960,664/–. This income was set off against the carried forward losses and total income was determined at Rs Nil. 55 Assessee challenged the order of the learned assessing officer before the learned CIT – A on the issue of the reopening of the assessment as well as on the merits. 56 On the reopening of the assessment the learned Commissioner appeals decided the issue against the assessee whereas on the merits of the addition he deleted both the additions. Page 25 of 29

57 Now we first come to the cross objection of the assessee which is challenging the jurisdiction u/s 147 of the income tax act of the assessing officer. 58 We have heard the parties on this issue. The reassessment proceedings were initiated on the reason that loss on shares, which was claimed to as business loss, was not allowable since it was a loss on account of speculation. The assessee explained that it was an entity engaged in granting of loans and advances being a financial institution. However, the Assessing Officer did not allow the expenditure. On appeal to CIT(A), while the addition was deleted, the CIT(A) upheld the reopening of the assessment stating that the specific fact had not been discussed in the assessment order under Section 143(3). 59 Ld. AO had during the original assessment proceedings, vide questionnaire dated 01.03.2005 had categorically in Point No. 19 asked the assessee to furnish complete details of profits on sale of investment. In reply to said question vide letter dated 14.03.2005, the assessee had categorically mentioned that the necessary details are given on page 156-163 of the Annexure IV & IV-A of the original return. It is pertinent to mention that aforesaid annexures consisted of details of only losses/shares written off, on which reassessment was opened. No other amount was mentioned in the said annexures which would have required due diligence on the part of Ld. AO to reckon the losses amount. Thus, reopening of assessment on the ground of speculation loss was a mere change of opinion and on the basis of material already available on record. Hence, the reopening of assessment is merely based on appreciation of the same material which was used by the learned assessing officer at the time of original assessment. No new tangible material coming into the possession of the AO was also shown. In view of the above facts, it is merely the reappreciation of Page 26 of 29

the existing facts on which the assessing officer has already applied its mind originally in the original assessment order, and therefore having a change of opinion on the same set of facts, reopened the assessment already concluded without having any tangible material in his hands. In view of this we find that the reopening is not valid. Hence we allow the cross objection of the assessee and quash reopening of assessment proceedings. Accordingly cross objection filed by the assessee is allowed. 60 As we have already held that the reopening of the assessment is bad, allowing the cross objections of the assessee, however for the completeness of the subject , we also say that the additions deleted by the learned CIT – A on the merits of the case challenged by the learned assessing officer are also not valid. 61 On the issue of applicability of explanation to Section 73 of the income tax act and whether the loss shown by the assessee is a speculation loss or not, the learned Commissioner of income tax has recorded that income from dividends and on investment operation received by the assessee is of ₹ 16.06 crore out of the total income of ₹ 22.18 crore is. Thus approximately 72.42% of the income is derived from the operation that is lending operation and of equity shares. On these facts, he held that Section 73 does not apply for an assessee who is engaged in the business of granting loans and advances. We do not find any reason to not to agree with the order of the learned CIT – A. The learned departmental representative also could not show us that how the explanation to Section 73 would be applicable in the case of the assessee. In view of this the solitary ground of appeal of the learned AO is dismissed. 62 In the result, cross objection of the assessee is allowed and appeal of the learned assessing officer is dismissed.

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63 Accordingly all the four appeals for assessment year 2002 – 03 of the original assessment as well as the reopened assessment are disposed of. Order pronounced in the open court on 31/08/2020 . -Sd/- -Sd/- (SUCHITRA KAMBLE) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 31/08/2020 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi

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