ACIT, NEW DELHI vs. M/S. ACB INDIA LTD.,, NEW DELHI

O R D E R PER PRASHANT MAHARISHI, A. M. 1. These six appeals of the same assessee are on similar grounds and facts and therefore, they are disposed of by this common order.

ITA No. 5310/Del/2016 (Revenue) CO No. 338/Del/2016 (Assessee) Assessment Year 2011-12 ACIT Vs ACB India Ltd 5011, 5012/Del/2016 CO No. 338, 339, 340/Del/2016 Assessment Year 2011-12 to 2013-14 2. This appeal is filed by the ld Asst Commissioner of Income Tax (Central Circle-17, New Delhi(the ld AO) against the order of ld CIT(A)-27, New Delhi (ld CIT(A)) dated 29.07.2016. 3. The revenue has raised the following grounds of appeal in ITA No. 5310/Del/2016 for the Assessment Year 2011-12:-

1. On the facts and circumstances of the case, the CIT(A) has erred in restricting the disallowance u/s 14A to Rs.1,644/- only while holding that the AO had correctly disallowed 0.5% of average value of investment.

2. On the facts and circumstances of the case, the CIT(A) has erred in law in working out the average value of investment which yielded the exempt income to Rs.3,28800,/- as against the amount of Rs, 78,11,71,066/- worked out by the AO.

3. On the facts and circumstances of the case, the CIT(A) has erred in law in allowing the deduction of Rs. 36,45,96,741/- u/s 80IB of the Act in respect of 100% profit of thermal power plant in the absence of any Form No. 10CCB being filed by the assessee evidencing such claim.

4. On the facts and circumstances of the case, the CIT(A) has erred in law in allowing the deduction u/s 80IB of the Act in respect of 100% profit of thermal power plant considering that the Form No. 10CCB was neither filed before the AO nor before the CIT(A).”

4. The assessee has raised the following grounds of appeal in CO No. 338/Del/2016 for the Assessment Year 2011-12:- “1) That the Ld. CIT(A) has rightly restricted the adjustment u/s 14A r.w. Rule 8D of the Act to Rs. 1,644 as it is in line with judicial pronouncements of jurisdictional High Court. 2) That in computing the disallowance on a without prejudice basis, the Ld. CIT(A) had rightly considered only those investments which yielded exempt income as against all investments considered by the learned AO. 3) That the Ld. CIT(A) has rightly allowed the deduction claimed by the respondent company u/s 80IB of the Act, as the respondent company had submitted necessary documentation along with the required Form 10CCB before the Assessing Officer as well as before the Hon’ble CIT(A). 4) That the order of Ld. C.I.T.(A) is correct in law and on facts of the case, and in accordance with the provisions of the Act.”

5. The brief fact shows that assessee is a company engaged in the business of designed coal preparation, transportation, loading of coal and related Page | 2 ACIT Vs ACB India Ltd 5011, 5012/Del/2016 CO No. 338, 339, 340/Del/2016 Assessment Year 2011-12 to 2013-14 activities. Search, seizure and survey u/s 132 and 133A of the Act were conducted on 12.04.2012 in case of assessee along with the other cases of Aryan Sainik Group. Consequent to that notice u/s 153A was issued on 09.10.2013 which was complied by the assessee by filing return on 26.08.2014 at Rs. 1452111350/-. During the assessment proceedings it was noted that assessee has claimed deduction u/s 80(IA) of Rs. 364596741/- on thermal power sale and the deduction was worked by the Auditor in Form No. 10CCB was Rs. 190311405/-. Therefore, the ld Assessing Officer disallowed the claim in excess of the certificate of the auditor of Rs. 1742853336/-. Further, the ld Assessing Officer noted that assessee company has failed to disallow any expenditure u/s 14A of the Act and therefore, he applied Rule 8D @0.5% of average value of investment was worked out at Rs. 3905855/- for disallowance. Consequently, assessment order u/s 153A of the Act read with section 143(3) of the Act was passed on 31.03.2016 at Rs. 3200370540/- against income declared of Rs. 1452111350/-. The assessee aggrieved with the order of the ld AO preferred an appeal before the ld CIT(A).

6. Before the ld CIT(A) assessee submitted that u/s 80(IA) that deduction of Rs. 364596741/- was claimed by the assessee for Assessment Year 2011- 12, however, the ld Assessing Officer has taken the figure for Assessment Year 2012-13 and therefore, there is gross error in the order of AO. The ld CIT(A) examined the form No. 10CCB for Assessment Year 2011-12 and 2012-13 and noted that for AY 2012-13 the deduction claimed is Rs. 190311405/- and AY 2011-12 it is Rs. 364596741/-. She therefore, directed the AO to allow the deduction of Rs. 364596741/-. With respect to disallowance u/s 14A it was noted that appellant company has earned dividend of Rs. 47950/- during the year and has not incurred any expenditure. The ld CIT(A) after considering the written submission of the assessee, restricted the disallowance u/s 14A to Rs. 1644/- only holding that average value of investment should consider only the value of investments from which the exempt income has been earned. She therefore, noted that the dividend is received from Indian Overseas Bank Page | 3 ACIT Vs ACB India Ltd 5011, 5012/Del/2016 CO No. 338, 339, 340/Del/2016 Assessment Year 2011-12 to 2013-14 of Rs. 47950/- only. Therefore, to that extent only 0.5% on that investment expenses can be disallowed. So the total investment made in Indian Overseas Bank was of Rs. 328800/- and therefore, disallowance @0.5% thereof of Rs. 1644/- was confirmed. Aggrieved by the order both the patties have preferred appeal before us.

7. First taking up the appeal of the revenue where, as per ground No. 1 disallowance deleted u/s 14A by the ld CIT(A) is contested. Further, the assessee also challenged in the cross objection the ground of the revenue raising two grounds which are supportive in nature.

8. The ld Departmental Representative vehemently contested that there is no provision u/s 14A or under Rule 8D to restrict the disallowance only on investment which have yielded exempt income.

9. The ld AR supported the order of the ld CIT(A) and submitted that the disallowance needs to be restricted to the extent of investment which has yielded exempt income only. Even otherwise he submitted that there is a meager income earned by the assessee which is exempt compared to be overall income. He submitted that as such the issue is now covered by the decision of the Hon'ble Delhi High Court in assessee’s group concern wherein, it has been held that the average value of investment is required to be taken only on those investment of which income is not the part of the total income. He therefore, submitted that the above issue is now covered in favour of the assessee.

10. We have carefully considered the rival contentions and also perused the orders of the lower authorities. Hon'ble Delhi High Court in ITA No. 615/2014 in case of ACB India Ltd Vs. ACIT for Assessment Year 2008-09 dated 24.03.2015 has held that the value of investment for working out average value of investment only those investment are required to be taken, income from which is not part of the total income. In the present case the ld CIT(A) has exactly done so by taking only the investment of Indian Overseas Bank of Rs. 328800/- out of which dividend of Rs. 47950/- has been earned and restricted the disallowance to the extent of 0.5% thereof at Rs. 1644/-. Further, with respect to the interest, total Page | 4 ACIT Vs ACB India Ltd 5011, 5012/Del/2016 CO No. 338, 339, 340/Del/2016 Assessment Year 2011-12 to 2013-14 shareholder fund available without interest is Rs. 1200 crore whereas the amount of investment in Indian Overseas Bank was only Rs. 3.28 lacs therefore, there cannot be any disallowance on account of interest expenditure. Therefore, respectfully following the decision of the Hon'ble Delhi High Court we dismiss ground No. 1 and 2 of the appeal of the revenue and allow ground No. 1 and 2 of the cross objection filed by the assessee as they are supporting the order of the ld CIT(A).

11. Ground No. 3 and 4 of the appeal of the revenue are with respect to allowing the deduction of Rs. 364596741/- u/s 80IB of the Act in respect of profit of thermal power plant despite there being allegedly no form no 10CCB evidencing such claim to that extent was available.

ACIT Vs ACB India Ltd 5011, 5012/Del/2016 CO No. 338, 339, 340/Del/2016 Assessment Year 2011-12 to 2013-14 ITA No. 5311/Del/2016 CO No. 339/Del/2016 Assessment Year 2012-13 15. This appeal is filed by the revenue against the order of CIT(A)-27, New Delhi dated 29.07.2016 for AY 2012-13, wherein the disallowance u/s 14A made by the ld Assessing Officer of Rs. 30093510/- is restricted to Rs. 1644/- only. The assessee has filed a cross objection which is supportive in nature.

2. On the facts and circumstances of the case, the ld CIT(A) has erred in law in working out the average value of investment which yielded the exempt income to Rs. 328800/- as against the amount of Rs. 60187837/- worked out by the AO.”

2. That in computing the disallowance on a without prejudice basis, the ld CIT(A) had rightly considered only those investments which yielded exempt income as against all investments considered by the ld AO.

3. That the order of the ld CIT(A) is correct in law and on facts of the case and in accordance with the provisions of the Act.”

18. Both the parties submitted that issue is identical to the facts of the case of the assessee for AY 2011-12, exempt that in the present dividend income earned is Rs. 3197179/-. Therefore, they submitted that their arguments remain the same.

19. We have carefully considered the rival contentions and also perused the orders of the lower authorities. In the current year assessee has received exempt income of Rs. 3197179/- i.e Rs. 3128679/- from M/s. Global Coal Page | 6 ACIT Vs ACB India Ltd 5011, 5012/Del/2016 CO No. 338, 339, 340/Del/2016 Assessment Year 2011-12 to 2013-14 and Mining Company Pvt. Ltd stated to be a strategic investment and Rs. 68500/- from Indian Overseas Bank Ltd. While working out the average value of investment for disallowance @0.5% on account of administrative expenses the ld Assessing Officer has taken all the investments whereas, the claim of the assessee is that only investments which yielded tax free income other than strategic investment is required to be considered. The ld CIT(A) has held that the ld AO has correctly disallowed 0.5% of average value of investment, however, the value of investment to be considered for disallowance should be the non-strategic investments which has yielded the tax-free income during the assessment year 2012- 13. She further held that during the year the investment in Indian Overseas Bank of Rs. 328800/- has yield tax free income. Therefore, she restricted the disallowance u/s 14A @0.5% of the amount of investment of Rs. 328800/- to Rs. 1644/- only.

20. The identical issue has been decided by us in assessee’s own case for AY 2011-12 while adjudicating ground no. 1 and 2 of the appeal of the revenue wherein, following the decision of Hon'ble Delhi High Court in ITA No. 615/2014 in case of ACB India Ltd Vs. ACIT for Assessment Year 2008-09 dated 24.03.2015 has held that the value of investment for working out average value of investment only those investment are required to be taken, income from which is not part of the total income. In the present case the ld CIT(A) has exactly done so by taking only the investment of Indian Overseas of Rs. 328800/- out of which exempt dividend income of Rs. 47950/- has been earned and restricted the disallowance to the extent of 0.5% thereof at Rs. 1644/-. Further, with respect to the investment in M/s. Global Coal and Mining Ltd it was submitted that same is strategic investment in the similar line of business in a group company and where the investment is not made to earn capital gain or dividend same also required to be excluded from the average value of investment. For the purpose of interest disallowance it was appreciated that total interest free share-holders funds available are of Rs. 1352 crores where the investment is only Rs. 12.47 crores. Therefore, Page | 7 ACIT Vs ACB India Ltd 5011, 5012/Del/2016 CO No. 338, 339, 340/Del/2016 Assessment Year 2011-12 to 2013-14 there cannot be any disallowance on account of interest expenditure as assessee has interest free funds available much more than the amount of investment made in securities earning tax free income. In the present case the ld CIT(A) held that investment in group companies Global Coal and Mining companies was made for control over management and business growth of the company. Therefore, no disallowance can be made on such investment. Furthermore, the above view is also supported by the decision of the Hon'ble Delhi High Court in case of CIT Vs. Holcim India Pvt. Ltd 486/2014 dated 05.09.2014. Further, it was also held in Eicher Goodearth Ltd Vs. CIT 378 ITR 28. The above view was also confirmed in Cheminvest Ltd Vs. CIT 378 ITR 33 in para No. 18-19. The revenue could not show that above investment is not in Group Company and not a strategic investment. In view of this we do not find any infirmity in the order of the ld CIT(A) in restricting the disallowance u/s 14A with on investments other than strategic investments from which the tax free dividend income is received. Accordingly, ground No. 1 and 2 of the appeal of the revenue are dismissed and similarly the Cross objection of the assessee is supportive in nature and same is allowed.

Co No. 340/Del/2016 Assessment Year 2013-14:-

2. On the facts and circumstances of the case, the ld CIT(A) has erred in law in working out the average value of investment which yielded the exempt income to Rs. 328800/- as against the amount of Rs. 7840074937/- worked out by the AO.”

2. That in computing the disallowance on a without prejudice basis, the ld CIT(A) had rightly considered only those investments which yielded exempt income as against all investments considered by the ld AO.

3. That the order of the ld CIT(A) is correct in law and on facts of the case and in accordance with the provisions of the Act.”

24. Both the parties submitted that issue is identical to the facts of the case of the assessee for AY 2012-13, except that in the present dividend income earned is Rs. 119888978/-. Therefore, they submitted that their arguments remains the same.

25. We have carefully considered the rival contentions and also perused the orders of the lower authorities. In the current year assessee has received exempt income of Rs. 3128679/-. While working out the average value of investment for disallowance @0.5% on account of administrative expenses the ld Assessing Officer has taken all the investments whereas, the claim of the assessee is that only non-strategic investments which yielded tax free income is required to be considered. The ld CIT(A) has held that the ld AO has correctly disallowed 0.5% of average value of investment, however, the value of investment to be considered for disallowance should be the investments which has yielded the income during the assessment year 2013-14. She further held that during the year the non-strategic investment in Indian Overseas Bank which of Rs. 328800/- has yield tax free income. Therefore, she restricted the ACIT Vs ACB India Ltd 5011, 5012/Del/2016 CO No. 338, 339, 340/Del/2016 Assessment Year 2011-12 to 2013-14 disallowance u/s 14A @0.5% of the amount of investment of Rs. 328800/- to Rs. 1644/- only.

26. The identical issue has been decided by us in assessee’s own case for AY 2012-13. While adjudicating ground No. 1 and 2 of the appeal of the revenue, we following the decision of Hon'ble Delhi High Court in ITA No. 615/2014 in case of ACB India Ltd Vs. ACIT for Assessment Year 2008-09 dated 24.03.2015 has held that the value of investment for working out average value of investment only those investment are required to be taken income from which is part of the total income. In the present case the ld CIT(A) has exactly done so by taking only the investment of Indian Overseas Bank of Rs. 328800/- out of which dividend of Rs. 61650/- has been earned and restricted the disallowance to the extent of 0.5% thereof at Rs. 1644/-. Further, with respect to the investment in M/s. Global Coal and Mining Ltd and Spectrum Coal and Power Ltd where from dividend of Rs. 3128679/- and Rs. 116698649/- were received respectively. It was submitted that same is strategic investment in the similar line of business in a group company and where the investment is not made to earn capital gain or dividend same also required to be excluded from the average value of investment. For the purpose of interest disallowance it was appreciated that total shareholders’ funds available Rs. 1600 crores where the investment is only Rs. 20.92 crores. Therefore, there cannot be any disallowance on account of interest expenditure as assessee has interest free funds available much more than the amount of investment made in securities earning tax free income. In the present case the ld CIT(A) held that investment in group companies Global Coal and Mining companies was made for control over management and business growth of the company. Therefore, no disallowance can be made on such investment. Furthermore, the above view is also supported by the decision of the Hon'ble Delhi High Court in case of CIT Vs. Holcim India Pvt. Ltd 486/2014 dated 05.09.2014. Further, it was also held in Eicher Goodearth Ltd Vs. CIT 378 ITR 28. The above view was also confirmed in Cheminvest Ltd Vs. CIT 378 ITR 33 in para No. 18-19. The revenue could Page | 10