DCIT (LTU), NEW DELHI vs. M/S. DALMIA BHARAT SUGAR & INDUSTRIES LTD., NEW DELHI

M/s Dalmia Bharat Sugar & Industries Limited

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B” NEW DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER AND SHRI M BALAGANESH, ACCOUNTANT MEMBER आ.अ.सं/.I.T.A Nos.4317/Del/2014 िनधा�रणवष�/Assessment Year:2008-09 बनाम DCIT (LTU) Dalmia Cement (Bharat)Ltd. NBCC Plaza, Pushp Vihar, Vs. (Now known as M/s Dalmia Sector-III, New Delhi. Bharat Sugar & Industries Ltd.) 11th & 12th Floors, Hansalaya, 15, Barakhamba Road, New Delhi. PAN No. AAACD2281K अपीलाथ� Appellant ��यथ�/Respondent आ.अ.सं/.I.T.A Nos.4338/Del/2014 िनधा�रणवष�/Assessment Year:2008-09 बनाम Dalmia Cement (Bharat)Ltd. DCIT (LTU) (Now known as M/s Dalmia Bharat Vs. NBCC Plaza, Pushp Sugar & Industries Ltd.) Vihar, 11th & 12th Floors, Sector-III, New Delhi. Hansalaya, 15, Barakhamba Road, New Delhi. PAN No. AAACD2281K अपीलाथ� Appellant ��यथ�/Respondent आ.अ.सं/.I.T.A Nos.4447/Del/2014 िनधा�रणवष�/Assessment Year:2009-10 बनाम DCIT (LTU) Dalmia Cement (Bharat)Ltd. NBCC Plaza, Pushp Vihar, Vs. (Now known as M/s Dalmia Sector-III, New Delhi. Bharat Sugar & Industries Ltd.) 11th & 12th Floors, Hansalaya, 15, Barakhamba Road, New Delhi. PAN No. AAACD2281K अपीलाथ� Appellant ��यथ�/Respondent

M/s Dalmia Bharat Sugar & Industries Limited

आ.अ.सं/.I.T.A Nos.4393/Del/2014 िनधा�रणवष�/Assessment Year:2009-10 बनाम Dalmia Cement (Bharat)Ltd. DCIT (LTU) (Now known as M/s Dalmia Bharat NBCC Plaza, Pushp Vs. Sugar & Industries Ltd.) Vihar, 11th & 12th Floors, Sector-III, New Delhi. Hansalaya, 15, Barakhamba Road, New Delhi. PAN No. AAACD2281K अपीलाथ� Appellant ��यथ�/Respondent आ.अ.सं/.I.T.A Nos.4572/Del/2014 िनधा�रणवष�/Assessment Year:2010-11 बनाम DCIT (LTU) Dalmia Cement (Bharat)Ltd. NBCC Plaza, Pushp Vihar, Vs. (Now known as M/s Dalmia Sector-III, New Delhi. Bharat Sugar & Industries Ltd.) 11th & 12th Floors, Hansalaya, 15, Barakhamba Road, New Delhi. PAN No. AAACD2281K अपीलाथ� Appellant ��यथ�/Respondent आ.अ.सं/.I.T.A Nos.4394/Del/2014 िनधा�रणवष�/Assessment Year:2010-11 बनाम Dalmia Cement (Bharat)Ltd. DCIT (LTU) (Now known as M/s Dalmia Bharat Vs. NBCC Plaza, Pushp Sugar & Industries Ltd.) Vihar, 11th & 12th Floors, Sector-III, New Delhi. Hansalaya, 15, Barakhamba Road, New Delhi. PAN No. AAACD2281K अपीलाथ� Appellant ��यथ�/Respondent &

M/s Dalmia Bharat Sugar & Industries Limited

आ.अ.सं/.I.T.A Nos.5677/Del/2016 िनधा�रणवष�/Assessment Year:2011-12 बनाम DCIT (LTU) Dalmia Cement (Bharat)Ltd. NBCC Plaza, Pushp Vihar, (Now known as M/s Dalmia Vs. Sector-III, New Delhi. Bharat Sugar & Industries Ltd.) 11th & 12th Floors, Hansalaya, 15, Barakhamba Road, New Delhi. PAN No. AAACD2281K अपीलाथ� Appellant ��यथ�/Respondent आ.अ.सं/.I.T.A Nos.5019/Del/2016 िनधा�रणवष�/Assessment Year:2011-12 बनाम Dalmia Cement (Bharat)Ltd. DCIT (LTU) (Now known as M/s Dalmia Bharat Vs. NBCC Plaza, Pushp Sugar & Industries Ltd.) Vihar, 11th & 12th Floors, Sector-III, New Delhi. Hansalaya, 15, Barakhamba Road, New Delhi. PAN No. AAACD2281K अपीलाथ� Appellant ��यथ�/Respondent

Assessee by Shri R.M. Mehta, CA Revenue by Shri T. James Singson, CIT DR & Shri Vivek Kumar Upadhyay, Sr.DR सुनवाईक�तारीख/ Date of hearing: 23.08.2023 14.11.2023 उ�ोषणाक�तारीख/Pronouncement on आदेश /O R D E R PER C.N. PRASAD, J.M.

All these appeals are filed by the Revenue and Assessee for the assessment years 2008-09 to 2011-12 against different orders of the Ld. Commissioner of Income Tax (Appeals).

M/s Dalmia Bharat Sugar & Industries Limited

the AY 2008-09. The grounds of appeal of the Revenue are as

under:

5.1 On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition of Rs.28,04,91,224/- made by AO on account of disallowance of power charges paid to M/s KPPL on the basis of acceptance of the report of income tax inspector Tricny (submitted in the course of enquiries got conducted by him during the course of appellate proceedings for AY 2007-08) without affording opportunity to the AO.

M/s Dalmia Bharat Sugar & Industries Limited

6.1 On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in reducing the addition of Rs.21,59,00,000/- to Rs.4,34,43,268/- made by AO u/s 115JB on account of disallowance u/s 14A r.w. Rule 8D.” The grounds raised by the Assessee in its appeal are as under: 1. “That on facts and in circumstances of the case, the Ld.CIT(Appeals) has erred in partially upholding the action of the AO in making the disallowance u/s 14A of the Income Tax Act, 1961 despite the fact that the AO has not recorded his satisfaction on the amount of suo-moto disallowance made by the appellant which as per law he was required to do. 2. That on facts and in circumstances of the case, the Ld.CIT(Appeals) has erred in holding that the suo-moto disallowance of Rs.20,00,000/- made by the appellant company u/s 14A of the Income Tax Act, 1961 in its return of income is without any reasonable basis.

(i) Entire amount of interest paid by the assessee company in an amount of Rs.112,91,43,235/- has been incurred on the term loans and other borrowings made by the assessee company for the purpose of its business of manufacture of

M/s Dalmia Bharat Sugar & Industries Limited

commodities and no portion of the same was to be disallowed.

(ii) The AO has not brought anything on record to support his contention that borrowed funds of the company had been diverted for purposes of making investments in shares and securities and thus certain amount of interest is liable to be disallowed u/s 14A of the Income Tax Act, 1961; and

(iii) Investment in unquoted equity shares of subsidiary companies, which are made for purpose of strategic investment, and investment in equity shares of other companies on which no dividend was received also needs to be excluded while computing disallowance under Rule 8D read with Section 14A of the Act; and

M/s Dalmia Bharat Sugar & Industries Limited

regard to deletion of addition made on account of disallowance of

remuneration paid to various fields/sales organizers while

completing the assessment by the Assessing Officer.

outset submits that all the grounds of appeal of the Revenue are

decided by the Tribunal in assessee’s own case in the earlier

assessment years and the copies of the orders of the Tribunal are

placed in the paper book. The Ld. Counsel inviting our attention to

the decision of the Tribunal in assessee’s own case for the AY 2007-

08 in ITA No.4166/Del/2014 dated 03.08.2021 which is the order for

immediately preceding assessment year, submits that ground no.1 is

decided in assessee’s favour in para 62 page 35 of the order. The

Ld. DR fairly submits that the issue has been decided in favour of

the assessee in earlier assessment year.

below and the order of the Tribunal in assessee’s own case for the

AY 2007-08 and find that the issue has been decided in favour of the

assessee by dismissing the ground of Revenue, observing as under:

“62. We first deal with the appeal of the Ld. Assessing Officer. Ground no.1 is with respect to the disallowance

M/s Dalmia Bharat Sugar & Industries Limited

of Rs.9,447,701/- of remuneration paid to various field sales organizers. This issue is identical to ground no.1 of the appeal of the Ld. Assessing Officer for AY 2006-07 wherein we have confirmed the order of the Ld.CIT(A) deleting the above disallowance wherein the Ld.CIT(A) relied upon the order of the coordinate bench in assessee’s own case for earlier years and the Ld. Departmental Representative could not point out any major difference in the facts and circumstances of the case. Therefore, for the similar reasons we dismiss the ground no.1 of the appeal of the Ld.AO.” 6. Following the order of the Tribunal in assessee’s own case for

the earlier assessment years, we dismissed ground no.1 of grounds

of appeal of the Revenue.

respect of deletion of addition on account of disallowance of

temple maintenance and puja expenses as well as amount paid to

staff recreation clubs. We find that the issues in these two grounds

were also decided in favour of the assessee by the Tribunal in para

63 page 35 of the Tribunal as under:

“63. Ground no.2 and 3 are with respect to the deletion of the disallowance by the Ld.CIT(A) with respect to the temple maintenance and Pooja expenses as well as amount paid to staff recreation clubs. This is identical to ground no.2 raised by the assessee for AY 2006-07 wherein the Ld.CIT(A) deleted the above disallowance relying upon the decision of the coordinate bench in assessee’s own case for earlier years. There are no changes in the facts and circumstances of the case pointed out before us. As the issue is squarely covered in favour of the assessee by the decision of the coordinate

M/s Dalmia Bharat Sugar & Industries Limited

bench which is been relied upon by the Ld.CIT(A), we do not find any infirmity in his order in deleting the above disallowance. Accordingly, ground nos. 2 & 3 of the appeal are dismissed.” 8. Facts being identical following the said order, we dismissed

ground no. 2 & 3 of grounds of appeal of the Revenue.

of deletion of addition made on account of disallowance of

deduction claimed u/s 80IA of the Act. On going through the order

of the Tribunal, we find that identical issue has been decided in

favour of the assessee at para 64 page 36 of the Tribunal, wherein

the Tribunal held as under:

“64. Ground no.4 of the appeal of the assessee is with respect to the allowance of deduction u/s 80IA of the Income Tax Act of Rs.84,941,000/- disallowed by the Ld. Assessing Officer but allowed by the Ld.CIT(A) following the decision of the coordinate bench in assessee’s own case in AY 2006-07. This ground is identical to the ground no.3 of the appeal of the Ld. Assessing Officer for AY 2006-07. While deciding this issue for AY 2006-07 we found that the Ld.CIT(A) allowed the claim of the assessee made on the decision of the coordinate bench in assessee’s own case, similar is the fact in this year in this ground. As the issue squarely covered in favour of the assessee by the decision of the coordinate bench in assessee’s own case, respectfully following the same we direct the Ld. Assessing Officer to allow the claim of the assessee u/s 80IA of the Income Tax Act, we confirm the order of the Ld.CIT(A) and dismiss ground no.4 of the appeal.”

M/s Dalmia Bharat Sugar & Industries Limited

reject ground no. 4 of grounds of appeal of the Revenue.

respect of deletion of addition made on account of disallowance of

power charges paid to M/s KPPL. We find that this issue was also

decided in assessee’s favour by the Tribunal in para 65 at page 36 of

the order observing as under:

“65. Ground nos. 5 & 5.1 with respect to the deletion of the disallowance of power charges paid by the assessee to Messer’s Keshav Power Ltd. amounting to Rs.273,742,954/-. Now the argument of the Ld.AR is that the Ld.CIT(A) has accepted the report of the income tax inspector without affording any approach and the Ld.AO in the matter. We find that the issue is identical to the issue in the case of the assessee for AY 2006-07 wherein we have held that the assessee has paid power charges to Keshav Power Ltd. based on the validly executed power purchase agreement. The assessee has also shown that in earlier years the consumption of power purchased from Keshav Power Ltd. has resulted into substantial benefit to the assessee. It is also demonstrated that the rates paid to Keshav Power Ltd. are comparable and beneficial to the assessee. The issue has been decided in the favour of the assessee for AY 2006-07 and the Ld. DR fairly agreed that there is no change in the facts and circumstances of the case. This ground of appeal is identical to ground no.2 of the appeal of the assessee wherein we have held that the power charges paid by the assessee to Keshav Power Ltd. are allowable as deduction to the assessee. In view of this we do not find any reason to deviate from our decision for AY 2006-07. Accordingly, ground no.5 of the appeal of the Ld.AO is dismissed.”

M/s Dalmia Bharat Sugar & Industries Limited

assessee’s own case, we sustain the order of the Ld.CIT(A) and

reject ground no.5 and 5.1 of grounds of appeal of the Revenue.

partly deletion of disallowance made u/s 14A read with Rule 8D

while computing the income under normal provisions of the Act as

well as while computing the book profits u/s 115JB of the Act. The

assessee in its appeal in grounds 1 to 5 of the grounds of appeal also

challenged the order of the Ld. CIT(Appeals) in partly sustaining the

disallowance made u/s 14A read with Rule 8D while computing the

income under normal provisions of the Act as well as book profits

u/s 115JB of the Act.

decision of the Hon’ble Supreme Court in the case of South Indian

Bank Ltd. Vs. CIT (438 ITR 31) submits that if investments in

securities/shares etc. are made out of common funds and if such

interest free common funds available with assessee are more than

the investments made no disallowance u/s 14A is warranted. Ld.

Counsel for the assessee referring to balance sheet as on 31.03.2008

submits that the assessee has share capital, reserve and surplus to

the extent of Rs.11,471.43 million as against the investments of 11

M/s Dalmia Bharat Sugar & Industries Limited

Rs.6,138.27 million and, therefore, since the assesse has interest

free surplus funds much more than the investments, the

presumption is that the investments are met out of interest free

funds available with the assessee and applying the ratio of the

decision of the Hon’ble Supreme Court in the case of South Indian

Bank Ltd. Vs. CIT (supra) there cannot be any disallowance u/s 14A

of the Act.

below and the decision of the Hon’ble Supreme Court. We find

considerable force in the submissions of the Ld. Counsel for the

assessee. In the case of South Indian Bank Ltd. Vs. CIT (supra) the

Hon’ble Supreme Court held as under:

“14. We have heard Mr. S. Ganesh, Mr. S.K. Bagaria, Mr. Jehangir Mistri and Mr. Joseph Markose, learned Senior Counsel appearing for the appellants. Also heard Mr. Vikramjit Banerjee, learned Additional Solicitor General and Mr. Arijit Prasad, learned Senior Counsel on behalf of the respondent/Revenue. 15. The appellants argue that the investments made in bonds and shares should be considered to have been made out of interest free funds which were substantially more than the investment made and therefore the interest paid by the assessee on its deposits and other borrowings, should not be considered to be expenditure incurred in relation to tax free income on bonds and

M/s Dalmia Bharat Sugar & Industries Limited

shares and as a corollary, there should be no disallowance under Section 14A of the Act. On the other hand, the counsel for the revenue refers to the reasoning of the CIT(A) and of the High Court to project their case. 16. As can be seen, the contention on behalf of the assessee was rejected by the CIT(A) as also by the High Court primarily on the ground that the assessee had not kept their interest free funds in separate account and as such had purchased the bonds/shares from mixed account. This is how a proportionate amount of the interest paid on the borrowings/deposits, was considered to have been incurred to earn the tax-free income on bonds/shares and such proportionate amount was disallowed applying Section 14A of the Act. 17. In a situation where the assessee has mixed fund (made up partly of interest free funds and partly of interest- bearing funds) and payment is made out of that mixed fund, the investment must be considered to have been made out of the interest free fund. To put it another way, in respect of payment made out of mixed fund, it is the assessee who has such right of appropriation and also the right to assert from what part of the fund a particular investment is made and it may not be permissible for the Revenue to make an estimation of a proportionate figure. For accepting such a proposition, it would be helpful to refer to the decision of the Bombay High Court in Pr. CIT v. Bombay Dyeing and Mfg. Co. Ltd2 where the answer was in favour of the assessee on the question, whether the Tribunal was justified in deleting the disallowance under Section 80M of the Act on the presumption that when the funds available to the assessee were both interest free and loans, the investments made would be out of the interest free funds available with the assessee, provided the interest free funds were sufficient to meet the investments. The resultant SLP of the Revenue challenging the Bombay High Court judgment was dismissed both on merit and on delay by this Court. The merit of the above proposition of law of the Bombay High Court would now be appreciated in the following discussion. 13

M/s Dalmia Bharat Sugar & Industries Limited

M/s Dalmia Bharat Sugar & Industries Limited

assessee’s case. On perusal of the balance sheet as on 31.03.2008,

we see that the assessee was having share capital/reserve and

surplus to the extent of Rs.11,471.43 million as against investments

of Rs.6,138.27 million. Therefore, since the assessee was having

sufficient interest free funds to meet the investments no

disallowance is warranted u/s 14A read with Rule 8D(2)(ii) while

computing the income under the normal provisions of the I.T. Act.

has not recorded any satisfaction for not agreeing with the

apportionment of expenditure made by the assessee in respect of

earning dividend income, wherein the assessee suo moto disallowed

Rs.20 lakhs in its computation of income. Ld. Counsel therefore

submits that in the absence of recording of satisfaction by the AO in

not accepting the suo moto disallowance there cannot be any

disallowance u/s 14A of the Act. Reliance was placed on the

decision of the Hon’ble Supreme Court in the case of Maxopp

Investment Ltd. Vs. CIT (402 ITR 640). A perusal of the assessment

order shows that even though AO notes that the assessee has made

suo moto disallowance of Rs.20 lakhs he has not recorded any

dissatisfaction on the suo moto disallowance made by the assessee

M/s Dalmia Bharat Sugar & Industries Limited

in its return of income. It is evident from the assessment order that

the assessee explained how it has calculated the expenditure

relatable to earning dividend income i.e. 20 lakhs and made suo

moto disallowance. However, without recording any satisfaction by

the AO as to how the suo moto disallowance made by the AO is

insufficient or inadequate to meet the expenditure attributable for

earning dividend income the AO proceeded to apply Rule 8D,

placing reliance on the decision of the Spl. Bench of ITAT Delhi in

the case of Chem Invest Ltd. Vs. ITO.

Hon’ble Supreme Court held as under:

“41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, the Court made it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO.” 20. The ratio of this decision applies to the facts of the case of

the assessee for the assessment year under consideration. Thus,

following the said decision, we hold that there cannot be any

M/s Dalmia Bharat Sugar & Industries Limited

disallowance u/s 14A read with Rule 8D while computing the income

under normal provisions of the Act by the AO in the absence of

recording any satisfaction as to why the suo moto disallowance

made by the assessee is incorrect. Ground nos. 1 to 4 of assessee’s

appeal are allowed and ground no.6 of Revenue’s appeal is

dismissed.

computing the book profits u/s 115JB of the Act, we find that the

issue is squarely covered by the decision of the Hon’ble Spl. Bench

of Delhi Tribunal in the case of ACIT Vs. Vireet Investments Pvt.

Ltd. (165 ITD 27), wherein it has been held that the computation

under clause (f) of Explanation 1 to section 115JB(2) is to be made

without resorting to the computation as contemplated u/s 14A read

with Rule 8D of the Income Tax Rules, 1962. Thus, respectfully

following the Spl. Bench decision, we restore the issue of

disallowance u/s 14A while computing the book profits u/s 115JB to

the AO with a direction to decide the issue afresh in the light of the

decision of the Spl. Bench of Delhi Tribunal in the case of ACIT Vs.

Vireet Investments Pvt. Ltd. (supra). Ground no.5 of assessee’s

appeal and ground no.6.1 of Revenue’s appeal are allowed for

statistical purpose.

M/s Dalmia Bharat Sugar & Industries Limited

respect of disallowance of expenditure incurred on advertisement in

newspapers requesting the Debenture warrant holders to convert

their warrants to equity shares of the company, whether such

expenditure is capital or Revenue in nature.

noticed that there is increase in paid up capital of the assessee

during the current assessment year and the assessee was required

to furnish details and also the expenses incurred. The assessee

submitted that it had incurred Rs.5,15,725/- on account of

advertisement, postage expenses in the process of converting the

warrants to share capital. The AO disallowed Rs.5,15,725/- treating

the said expenditure as capital expenditure holding that the said

amount has been incurred on increase in share capital. Before the

Ld.CIT(A) the assessee contended that during the financial year

2001 the assessee had issued debentures along with convertible

warrants. It was contended that the holders of the warrants were

entitled to their warrants converted into equity shares on the expiry

period of 7 years from the date of allotment thereof i.e. 11.09.2001

or earlier at the decision of the board by giving two months notice

by way of public advertisement in newspapers. Therefore, it was

M/s Dalmia Bharat Sugar & Industries Limited

contended that as per the terms of such offer the company decided

to call upon the warrant holders to subscribe for the equity shares

of the company and in that process Rs.5,06,011/- was incurred on

advertisement in newspapers and Rs.9,714/- was incurred towards

expenditure on postage for dispatch of the share certificates, post

the conversion of warrants into equity shares of the company.

Therefore, it was contended that it was only routine expenditure

and is in Revenue in nature. However, the Ld.CIT(A) upheld the

action of the AO in so far as the advertisement expenditure of

Rs.5,06,011/- as capital in nature and allowed the postage expenses

of Rs.9,714/- as Revenue expenditure. Before us, the Ld. Counsel

for the assessee reiterated the submissions made before the lower

authorities. Ld. DR strongly supported the orders of the Ld.CIT(A).

below. In this case the debenture warrants were issued in the year

2001 and these warrants were converted into equity shares during

the assessment year under consideration i.e. 2008-09. The assessee

incurred expenditure of Rs.5,06,011/- towards advertisement in

newspapers for conversion of warrants to equity share capital. This

expenditure is related to the process of increase in share capital by

conversion of debenture warrants to shares. The ld.CIT(A) following

M/s Dalmia Bharat Sugar & Industries Limited

the decision of the Hon’ble Supreme Court in the case of CIT Vs.

Broke Bond India Ltd. (225 ITR 798) held that such expenditure is

capital in nature. The Hon’ble Supreme Court in the case of CIT Vs.

Broke Bond India Ltd. (supra) held that the expenditure incurred by

a company in connection with issue of shares with a view to

increase a share capital is directly related to the expansion of

capital base of the company and expenditure is capital expenditure.

In the circumstances, we hold that the Ld.CIT(A) has rightly applied

the ratio of the decision of the Hon’ble Supreme Court in the case

of Broke Bond India Ltd. Vs. CIT (supra) in holding that the

advertisement expenditure is capital in nature. Thus, we sustain

the order of the Ld.CIT(A) and reject the ground no.6 of grounds of

appeal of the assessee.

deduction on account of payment to AP TRANCO in connection with

laying of transmission towers and lines this ground is not emanating

either from the assessment order or from Ld.CIT(Appeals) order for

the assessment year under consideration i.e. 2008-09. Therefore,

there is no need for adjudication of this ground for the AY 2008-09.

assessee are partly allowed as indicated above. 20

M/s Dalmia Bharat Sugar & Industries Limited

ITA No.4447/Del/2014 (AY 2009-10 - Revenue’s appeal) & ITA

No.4393/Del/2014 (AY 2009-10 – Assessee’s appeal)

assessee for the AY 2009-10. The grounds of appeal of the Revenue

are as under:

5.1 On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition of Rs.26,85,48,223/- made by AO on account of disallowance of power charges paid to M/s KPPL on the basis of acceptance of the report of income tax inspector Tricny 21

M/s Dalmia Bharat Sugar & Industries Limited

(submitted in the course of enquiries got conducted by him during the course of appellate proceedings for AY 2007-08) without affording opportunity to the AO.

6.1 On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in reducing the addition of Rs.26,39,00,000/- to Rs.6,29,49,703/- /- made by AO u/s 115JB on account of disallowance u/s 14A r.w. Rule 8D.

M/s Dalmia Bharat Sugar & Industries Limited

(i) Entire amount of interest paid by the assessee company in an amount of Rs.142,13,562/- has been incurred on the term loans and other borrowings made by the assessee company for the purposes of its business of manufacture of commodities and no portion of the same was to be disallowed.

(ii) The Assessing Officer has not brought anything on record to support his contention that borrowed funds of the company had been diverted for purposes of making investments in shares and securities and thus certain amount of interest is liable to be disallowed u/s 14A of the I.T. Act.

(iii) Investment in unquoted equity shares of subsidiary companies, which are made for purpose of strategic investment, and investment in equity shares of other companies on which no dividend was received also needs to be excluded while computing disallowance under Rule 8D read with Section 14A of the Act. 5. That on the facts and in the circumstances of the case, the Ld.CIT(A) has erred in confirming the disallowance of Rs.5,99,49,703/- u/s 14A for the purpose of computation of book profit u/s 115JB of the Act.

M/s Dalmia Bharat Sugar & Industries Limited

was crystallized in FY 2007-08 relevant to AY 2008-09 and which cannot be allowed in the current year but should have been claimed in AY 2008-09.” 28. The ground nos. 1 to 4 of grounds of appeal of the assessee

and ground no.6 of grounds of appeal of the Revenue are in respect

of disallowance made u/s 14A read with Rule 8D while computing

the income under normal provisions of the IT Act. These grounds

are similar to ground nos. 1 to 4 of assessee’s appeal and ground

no.6 of Revenue’s appeal for the AY 2008-09. While disposing off

the appeal for the AY 2008-09, we have held that since the share

capital and reserve and surplus are more than the investments there

cannot be any disallowance u/s 14A read with Rule 8D(2)(ii).

Further we have also held that in the absence of recording any

satisfaction by the AO in not accepting the suo moto disallowance

made by the assessee there cannot be any disallowance u/s 14A

read with Rule 8D of the Act in view of the decision of the Hon’ble

Supreme Court in the case of Maxopp Investments P. Ltd. (402 ITR

640). As the facts are similar for the assessment year under

consideration the decision taken therein shall apply mutatis-

mutandis to the appeal for the AY 2009-10. Ground nos. 1 to 4 of

the assessee’s appeal are allowed and ground no.6 of the Revenue’s

appeal is dismissed.

M/s Dalmia Bharat Sugar & Industries Limited

and ground no.6.1 of grounds of appeal of the Revenue are similar

to ground no.5 and ground no.6.1 of Revenue’s appeal for the AY

2008-09. In respect of these grounds while disposing of this appeal

for the AY 2008-09, we have held that the issue is decided by Delhi

ITAT Spl. Bench in the case of Vireet Investments P. ltd. (supra) and

we have restored the issue to the file of the AO to decide in the

light of the decision of Spl. Bench. The decision taken therein shall

apply mutatis-mutandis. Ground no.5 of grounds of appeal of the

assessee and ground no.6.1 of Revenue’s appeal are allowed for

statistical purpose.

ground nos.1 to 5 of the appeal for the AY 2008-09. These grounds

i.e. 1 to 5 for AY 2008-09 have been decided in favour of the

assessee while disposing of the appeal for the AY 2008-09 following

the decision of the Tribunal in assessee’s own case for the AY 2007-

mutatis-mutandis to the grounds raised by the Revenue for the

appeal for AY 2009-10 also. Ground nos. 1 to 5 of grounds of appeal

of the Revenue for AY 2009-10 are dismissed.

M/s Dalmia Bharat Sugar & Industries Limited

of deletion of addition on account of disallowance of expenditure in

relation to laying of transmission towers and lines treating the same

as capital expenditure.

noticed that the assessee debited expenditure of Rs.6,54,59,535/-

to profit and loss account on account of laying transmission towers

and lines from sub-station to plant site of the assessee. The

assessee was required to explain as to why the said expenditure

incurred should be allowed as Revenue expenditure. The assessee

submitted that it had expanded its cement manufacturing capacity

by setting up a cement plant at Village Chinnalor Mela District

Kadapa, Andhra Pradesh and Village Govind Puram, district Ariyalur

in Tamil Nadu. The assessee submitted that accordingly it had

applied for HT Electrical connection with Electricity Department in

order to obtain electricity to run its plant. The assessee submitted

that it had made payments to AP TRANSCO for supply of electrical

energy and the payments comprises of development charges and

line laying charges. Thus, the assessee contended that it had

incurred Rs.6,97,83,185/- as development charges/laying

transmission lines and towers for extending EHT supply for

M/s Dalmia Bharat Sugar & Industries Limited

expansion of existing cement business of the company. The

assessee also contended that the said expenditure though has been

capitalized in the books it has been claimed as Revenue expenditure

in the computation of income for the reason that by incurring the

said expenditure the company has not created any new asset nor

received any new enduring benefit. It was also contended that the

company does not have any ownership on the said assets and the

expenditure was pre forced incurred in connection with business to

be run from these plants and the expenditure is in the nature of

Revenue for expansion of existing business and therefore is Revenue

expenditure allowable u/s 37(1) of the Act. Assessee placed

reliance on the decision of the Hon’ble Supreme Court in the case

of Kedarnath Jute Manufacturing Co. Ltd. Vs. CIT (82 ITR 363) for

the proposition that the accounting treatment in the books of

account would made no difference to make its claim in as much as

the claim is allowable as Revenue expenditure. Reliance was also

placed on the decision of the Hon’ble Delhi High Court in the case

of CIT Vs. Saw Pipes Ltd. (300 ITR 34). However, the AO did not

accept the claim of the assessee. The AO placing reliance on the

decision of the Mumbai Bench in the case of Aditya Birla Nuvo Ltd.

M/s Dalmia Bharat Sugar & Industries Limited

Vs. ACIT (12 taxman.com 25) treated the expenditure incurred by

the assessee as capital in nature.

assessee to the extent of Rs.6,54,59,535/-.

submissions made before the lower authorities. The Ld. Counsel

further submitted as under:

M/s Dalmia Bharat Sugar & Industries Limited

M/s Dalmia Bharat Sugar & Industries Limited

M/s Dalmia Bharat Sugar & Industries Limited

below. The Ld.CIT(A) considering the submissions of the Assessee

and the averments in the assessment order partly allowed the claim

in favour of the assessee following the decision of the Delhi High

Court in the case of CIT Vs. Saw Pipes Ltd. (supra) observing as

under:

“7.5 Regarding the Ground No.7(a), relating to expenditure incurred on laying transmission line and tower, I find that the appellant company is already engaged in the business of manufacturing of cement. During the year it had applied for electricity connection for supply of high tension power to its plants under construction at Kadapa and Ariyalur. Evidently, in terms of the guidelines of AP TRANSCO and TNEB, the assets created through such expenditure were not to be the property of the appellant company. The appellant company was in the same business of manufacturing of cement and the underlying objective for setting up new plants at Kadapa and Ariyalur was to ensure expansion of its existing business. Under the circumstances, the facts of the case of the appellant are not different from the case of CIT vs. Saw Pipes Ltd. (Supra), and CIT vs. Dart Mfg. India Pvt. Ltd. (Supra), in which the judicial High 31

M/s Dalmia Bharat Sugar & Industries Limited

Court had clearly held that the expenditure incurred on expansion of business is revenue in nature. I do not agree with the contention of the AO that the facts in the appellant's case are materially different from Saw Pipes Ltd. case. 7.5.2 Regarding the revised enhanced claim, which was filed before the Ld. AO of Rs. 6,97,83,185/- against the claim of Rs.6,54,59,535/- made in the return of income, I find that the Ld. AO had taken no cognizance of the same in the impugned order. Therefore, the revised claim was not examined on merit. Keeping in view the decision of Hon'ble Supreme Court in the case of CIT vs. NTPC Ltd. 229 ITR 383 (SC), as an appellate authority, I admit the revised claim under this head for due consideration on merit, for rendering natural justice to the appellant. The Ld. Counsel furnished before me the details of expenses incurred for laying the transmission lines, which were paid to AP TRANSCO and TNEB, I find the appellant had made a claim of Rs.6.54 Crores in respect of the payment that were made during the current year only. The appellant had incurred an amount of Rs.43,23,650/- in the immediately preceding previous year, which is shown as opening balance in the current year. The appellant has pleaded that since the aforesaid amount of Rs. Rs.43,23,650/- was in the nature of advance, the same was allowable in the current year, the year in which liability for such expenses had crystallized. 7.5.3 On careful consideration of the agreement of the appellant with AP TRANSCO and TNEB, I find that the appellant was required to make payment in terms of the said agreement, which required it to make payment of aforesaid amount of Rs. Rs.43,23,650/- to the contractor for AP TRANSCO towards spare parts and supervision charges'. As the entire work of laying the transmission lines was to be executed by the AP TRANSCO / TNEB and the appellant had no role in the said civil construction, it cannot be held that such liability could have been crystallized only when the transmission line started operation. As I have separately held that the expenses incurred on laying on transmission lines were revenue in nature, following the decision in the case of Saw Pipe 32

M/s Dalmia Bharat Sugar & Industries Limited

Ltd. (Supra), such liability could have been allowed in the year in which it had crystallized and cannot be carried forward and added to the expenditure incurred during the current year. On perusal of the appellant's agreement with AP TRANSCO, it is evident that the liability had crystallized in the immediately previous year when the appellant was required to pay charges for spare parts and supervision charge to the contractor to the AP TRANSCO. Since the appellant follows mercantile 'system of accounting', such liability had clearly crystallized in the FY 2007-08 itself and therefore, the appellant could have made such claim in the AY 2008-09. However, for the current year, such a liability is 'prior period expenditure' in nature, which cannot be allowed in the current year. The appellant's plea that the payment was made to the contractor of TNEB and not to the AP TRANSCO is of no relevance in ascertaining the nature. In view of this, the claim of the appellant to allow enhance claim of Rs. 6,97,83,185/- is not acceptable. As I have already allowed this ground in favour of the appellant, the appellant gets relief of Rs.6,54,59,535/- only, which is the amount of addition made by the AO on this ground.” 37. On careful perusal of the order of the Ld.CIT(A), we observe

that the claim of the assessee for the expenditure in respect of

laying transmission line and tower was allowed as Revenue

expenditure following the decision of the Delhi High Court in the

case of CIT Vs. Saw Pipes Ltd. (supra) and the decision in the case

of CIT Vs. Dot Manufacturing India Pvt. Ltd.

in the business of manufacturing pipes and had three running units.

M/s Dalmia Bharat Sugar & Industries Limited

The assessee incurred service charges of Rs.52 lakhs to the

electricity board for running service line for the purpose of the

fourth unit in the process of expansion of business. The assessee

claimed this amount as Revenue expenditure whereas the AO held

that the benefit derived by the assessee was of enduring nature and

therefore was a capital expenditure. The Hon’ble Delhi High Court

held as under:

“10. Our attention has been drawn to Hindustan Times Ltd. v. CIT [1980] 122 ITR 977 , which is a decision rendered by a Division Bench of this Court. In that case, the assessed was getting supplies of direct current from the Municipal Committee to work its machines in its business premises. The cables were replaced at the instance of the assessed by alternating current and for this purpose, the assessed had paid some amount to the Municipal Committee being the cost of laying cables which belonged to the Municipal Committee. The Tribunal held that the expenditure incurred was of a capital nature but this view was upset by this Court. The Division Bench was of the view that the word "enduring" has a special significance. It adopted the view expressed by the House of Lords in IRC v. Canon Co. (1968) 45 Tax Cases 18 (HL), at p. 74 that what matters is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be capital in nature. "If the advantage consists merely in facilitating the assessed's trading operations or enabling the management and conduct of the assessed's business to be carried on more efficiently and profitably, leaving the fixed capital untouched, the expenditure will be on revenue account even though the advantage may endure for an indefinite future." 11. Insofar as the present case is concerned, we find that the decision of this Court is clearly applicable to the 34

M/s Dalmia Bharat Sugar & Industries Limited

facts of the case. The admitted position is that the service lines did not belong to the assessed but belonged to MSEB and were laid so as to enable the assessed to conduct its business more efficiently, which may perhaps be an enduring advantage, but intended to enable the assessed to carry on its business more efficiently and profitably leaving the fixed capital untouched. 12. Reference has also been made to CIT v. Excel Industries Ltd. [1980] 122 ITR 995 (Bom) wherein the same principle was adopted and it was held that though the service lines were laid for the benefit of the assessed being the property of the Gujarat Electricity Board, that did not mean that the assessed had acquired any capital asset or an enduring benefit or advantage and the object of making the payment was purely one of commercial expediency. On this basis, it was held that the payment made to the Gujarat Electricity Board towards the cost of laying the overhead service lines constituted revenue expenditure and was an allowable deduction. 13. Our attention has also been drawn to CIT v. Madras Auto Service (P) Ltd. [1998] 233 ITR 468, wherein the Supreme Court summarized the law as laid down in Assam Bengal Cement Co. Ltd. v. CIT in the following words: “1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment. 2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade.... If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether.

M/s Dalmia Bharat Sugar & Industries Limited

M/s Dalmia Bharat Sugar & Industries Limited

sense that it was a composite business of the assessed that of running a jewellery business and that of running a business of exhibition of cinematographic films. 17. Similarly, in CIT v. Modi Industries Ltd. (No.3) [1993] 200 ITR 341 (Delhi) , the assessed was carrying on the manufacture of various commodities like sugar, vanaspati, soaps, paints and varnish, torch and lantern, etc. It started manufacturing a new commodity, that is, special alloy wire and billets. This was held by this Court to be an extension of the same business because there was a common fund utilized by the assessed and what was done by the assessed was only to start manufacturing a new item altogether. It was held to be an extension of the existing business and not the start of a new business.” 39. The ratio of the decision applies to the facts of the assessee’s

case, thus, we sustain the order of the Ld. CIT(Appeals) and reject

ground no.7 of Revenue’s appeal.

payment made to AP TRANSCO for the purpose of laying service

lines, we observe that the Ld.CIT(A) held that the said expenditure

was crystallized in the FY 2007-08 relevant to the AY 2008-09 and,

therefore, cannot be allowed as deduction in the current

assessment year i.e. 2009-10. Since, we have held that the said

expenditure is Revenue expenditure allowable as deduction u/s

37(1) of the Act the claim of the assessee for deduction of this

amount should be considered in the AY 2008-09 as the liability is

held to be crystallized in the said assessment year. Thus, we direct 37

M/s Dalmia Bharat Sugar & Industries Limited

the AO to consider the claim of the assessee in the AY 2008-09.

Ground no.6 of appeal of the assessee is allowed for statistical

purpose.

Revenue in respect of deletion of disallowance of depreciation on

UPS and printers, we find that the issue is covered in favour of the

assessee by the Hon’ble Delhi High Court in the case of CIT Vs. BSES

Yamuna Powers Ltd. which decision was applied by the Ld.CIT(A) in

holding that claim for depreciation allowance at 60% on UPS &

printers is held to be justified. We see no infirmity in the order

passed by the Ld.CIT(A). Ground no.8 of grounds of appeal of the

Revenue is dismissed.

ITA No.4572/Del/2014 (AY 2010-11 – Revenue’s appeal) & ITA

No.4394/Del/2014 (AY 2010-11 – Assessee’s appeal)

M/s Dalmia Bharat Sugar & Industries Limited

5.1 On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition of Rs.27,80,81,494/- made by AO on account of disallowance of power charges paid to M/s KPPL on the basis of acceptance of the report of income tax inspector Tricny (submitted in the course of enquiries got conducted by him during the course of appellate proceedings for AY 2007-08) without affording opportunity to the AO.

M/s Dalmia Bharat Sugar & Industries Limited

(i) Entire amount of interest paid by the assessee company in an amount of Rs.166,35,10,812/- has been incurred on the term loans and other borrowings made by the assessee company for the purposes of its business of manufacture of commodities and no portion of the same was to be disallowed.

M/s Dalmia Bharat Sugar & Industries Limited

(ii) The Assessing Officer has not brought anything on record to support his contention that borrowed funds of the company had been diverted for purposes of making investments in shares and securities and thus certain amount of interest is liable to be disallowed u/s 14A of the I.T. Act.

(iii) Investment in unquoted equity shares of subsidiary companies, which are made for purpose of strategic investment, and investment in equity shares of other companies on which no dividend was received also needs to be excluded while computing disallowance under Rule 8D read with Section 14A of the Act.

identical to the grounds 1 to 5.1 for AY 2009-10 and facts being

identical, the decision taken therein shall apply mutatis – mutandis

to the appeal for AY 2010-11.

to ground no.8 for AY 2009-10. Facts being identical, decision taken

therein shall apply mutatis – mutandis to the appeal for AY 2010-11.

5 of assessee’s appeal are identical to ground nos.6 and 6.1 of

Revenue’s appeal and ground nos.1 to 5 of assessee’s appeal for AY

M/s Dalmia Bharat Sugar & Industries Limited

2009-10 and facts being identical the decision taken therein shall

apply mutatis – mutandis to the AY 2010-11.

ITA No.5677/Del/2016 (AY 2011-12 – Revenue’s appeal) & ITA

No.5019/Del/2016 (AY 2011-12 – Assessee’s appeal)

M/s Dalmia Bharat Sugar & Industries Limited

the appellant were far in excess of investments in shares/mutual funds. (B) That the Ld.CIT(A) has grossly erred in law in not accepting the contentions of the appellant that the strategic investments made in subsidiary companies and in shares of companies from which no dividend was received are to be excluded while computing the value of average investment under Rule 8D(2)(ii). (C) Without prejudice to above, the Ld.CIT(A) has erred in law in holding that disallowance u/s 14A should be higher of Rs.18 lacs, disallowance made in the tax return by the appellant or amount computed after giving relief in the CIT(A) order. 2. That any relief due to the company in consequence of the foregoing grounds.

nos.2, 3 and 4 for AY 2009-10. Facts being identical, decision taken

therein shall apply mutatis – mutandis to the appeal for AY 2011-12.

no.1 of grounds of appeal of the assessee are identical to ground

nos.6 of Revenue’s appeal and ground nos.1 to 4 of assessee’s

appeal for AY 2009-10. Facts being identical the decision taken

therein shall apply mutatis – mutandis to the AY 2011-12. We order

accordingly.

M/s Dalmia Bharat Sugar & Industries Limited

11 and appeals of the assessee for AY 2009-10 to 2010-11 are partly

allowed as indicated above. The appeal of the Revenue for AY

2011-12 is dismissed and the appeal of the assessee for AY 2011-12

is allowed.

Order pronounced in the open court on 14.11.2023

Sd/- Sd/- (M BALAGANESH) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 14.11.2023 *Kavita Arora, Sr. P.S. Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order

Assistant Registrar, ITAT: Delhi Benches-Delhi