TaxTMI 
TaxTMI 
2018 (4) TMI 695
X X X X Extracts X X X X
X X X X Extracts X X X X
....s lack of inquiry and non-application of mind. 3. On the facts and in the circumstances of the case, the learned Pr. CIT erred in directing the Assessing Officer to examine the applicability of the Proviso to section 36(1)(iii) of the I.T. Act regarding capitalization of interest expenditure, whereas such component of interest expenditure was already capitalized and disclosed in the Annual Accounts which were duly examined by the Assessing Officer during the course of the scrutiny assessment proceedings. 4. On the facts and in the circumstances of the case, the learned Pr. CIT erred in observing that part of the interest expenditure may pertain to investment not connected with the business of the assessee-society and consequently such interest may not be deductible u/s.36(1)(iii) of the I.T. Act whereas the Assessing Officer had already examined this issue and made disallowance of interest u/s.14A of the I.T. Act read with Rule 8D of the I.T. Rules, which disallowance is subject matter of appeal pending before the Hon'ble ITAT. 2. The brief facts of the case are that the assessee filed return of income declaring an income of Rs. 1275.42 crores and odds on 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er dated 27.02.2015 but no reply was given on the issue of dividend from OMAN. The assessee gave a further reply dated 13.03.2015 wherein reply was given as per Annexure-A in respect of item No. 26, 27 & 28 questionnaire of the Do dated 20.02.2015. The submissions are almost same as the A.Y. 2011-12. 5. The AO did not accept the contention of the assessee and taxed the divider income. The AO did not apply his mind as where the assessee has not paid any tax in OMAN and there should not be any question of giving credit of Rs. 17,37,09,83/-. 6. The AO did not apply his mind in regard to section 90 which authorizes governments to enter into an agreement for avoidance of double taxation. 7. The Government issued a notification No. SO 563(E) dated 23.09.1997 which is reproduced as under : "WHEREAS the annexed agreement between the Government of the Sultanate of Oman and the Government of the Republic of India for the Avoidance o» Double Taxation and the Prevention of Fiscal Evasion with respect to tazes cm income has entered into force on the 3rd June, 1997 after the notification S both the Contracting States to each other of the completion of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....spute that the assessee has not paid any tax on the dividend income. 11. The assessee has placed reliance on Article 25(4) of the Double Taxation Agreement. It refers to the tax incentive granted under the law of the Contracting State and which are designed to promote economic development. 12. The "tax incentive" has not been defined in the Double Taxation Agreement. Therefore we have to go to Article 3(2) which reads as under;- As regards the application of this Agreement by a Contracting State, any term not defined therein shad, unless the context otherwise requires, have the meaning which it has under the law of that Contracting State concerning the taxes to which this Agreement applies," 13. As per Article 3(2) the meaning of expression "tax incentive" has to be taken from meaning given in the IT Act. Even in the IT Act, the term "tax incentive" has not been defined. The AO did not notice the primary condition of Article 25(4) that tax incentive should be designed to promote economic development The AO simply accepted the version of the assessee and did not apply his mind as to the veracity of the statement given by the assessee. The AO did n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss block is Rs. 356.46 crores. The AO has not made any Inquiry as regards the interest component which would be liable to be capitalized as per section 36(1)(iii) proviso. 17. The assessee has shown Loans & Advances under schedule II(43rd Annual Report) of Rs. 3807.86 crores. The AO has not asked for the purpose of such advances as whether these are for business purpose or not/whether some of the advances are meant for acquisition of capital asset. If that is so, then section 36(l)(iii) proviso would come into operation. No such queries have been raised by the AO nor any explanation given by the assessee. The AO has also not considered the disallowance of interest u/s 36(1)(iii) in respect of advances which might have been for non-business purpose, following the ratio of decision of the Hon'ble Punjab & Haryana High Court in the case of Abhishek Industries, 286ITR 1. 18. In schedule 20(Para l)(43rd Annual Report), under the head 'Capital Commitments' -the-assessee has shown estimated value of contracts(net of advances) to be executed capital account and not provided for amount to Rs. 436.36 crores. Again the assessee has not mentioned the element of in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... India Fertiliser Company, L.L.C, (iv) IFFCO Chhattisgarh Power Ltd. : (v) IFFCO Kisan Sanchar Ltd, (vi) IFFCO Kisan SEZ Ltd. (vii) Industries Chimiques Du Senegal (viii) Kisan International Trading, FZE (ix) National Commodity & Derivatives Exchange Ltd. (x) National Collateral Management Services Ltd. (xi) Indian Potash Limited (xii) IFFCO Kisan Bazar & Logistics Ltd. (xiii) Indian Farm Forestry Development Cooperative Ltd. (xiv) IFFCO Foundation (xv) Cooperative Rural Development Trust (xvi) IFFCO Kisan Sewa Trust (xvii) Grow Max Agri Corp. (xviii) Aria Chemicals (Orissa) Ltd. 24, The assessee has shown dividend income from OMIFCO OMAN, Indian Limited. The AO has not made any inquiry as regards the income which might have received or due to the assessee from associates as mentioned above. The assessee also not attached any documents as regards the balance sheet, P&L A/c etc. of associates where the assessee is having interest. For example, the assessee has simply dividend income form OMIFCO OMAN but no other document has been asked by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tted by the assessee that these letters were not before the AO. The assessee has simply stated that even if the letters issued by Secretary- General of Taxation are ignored for a moment, the claim of the society for tax credit falls within the four corners of ArticIe-25(4) w.r.s. 90(1)(a)(ii). This means these letters were not before the AO. This itself shows the lack of inquiry on part of the AO and falls within the assumption of jurisdiction u/s 263. 16. In the result, the matter is restored back to the file of the AO for making the assessment de novo in view of the observations given above and also the order u/ s 263 in the case of the assessee for the A.Y. 2010-11. The assessee may be given sufficient opportunity before finalizing the order." Aggrieved by the above order, the assessee is in appeal before the Tribunal. 4. The ld. AR submitted that the jurisdiction assumed by the ld. Pr. CIT to revise the assessment u/s. 263 is not in conformity with law. The issues, on which the ld. Pr. CIT has assumed jurisdiction u/s. 263, have been properly dealt with by the Assessing Officer. He also submitted that the assessment was revised u/s. 263. He also submitted that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed that as per his office letter dated 14.7.2016, the assessee was asked whether the aforesaid two letters were available before the Assessing Officer, on the basis of which the Hon. ITAT has given the relief. The Ld. PCIT has then, at para 15 briefly referred to the assessee's reply dated 27.7.2016 and he has observed that the assessee admitted that these letters were not before the Assessing Officer, but that even if these letters issued by the Secretary General for Taxation, Sultanate of Oman are ignored, the claim of the assessee society for tax credit is allowable under Article 25(4) of the DTAA between India and Oman and the provisions of section 90(1)(a)(ii) of the Income Tax Act. The Ld. PCIT abruptly concluded that when these two letters were not before the Assessing Officer, this itself shows lack of enquiry on the part of the Assessing Officer for invoking jurisdiction u/s.263. 3. It may be mentioned here that since the passing of the order u/s. 263 by the Ld. PCIT, the appellant's appeal on identical issues for the A.Y.2010-11 has been decided by this Hon. Tribunal vide his order dated 19.9.2016 in ITA No.2487/Del/2016. In this order this Hon. Tribunal has considered....
X X X X Extracts X X X X
X X X X Extracts X X X X
....position and perfectly plausible conclusion on the admissibility of the Tax Credit Claim of the Society. Hence, it is respectfully submitted that the suggestion at para 3 of the SCN to the effect there was lack of enquiry merely because the letters of the SGT were not before the A.O. is fallacious both on the legal ground as well as on Merits." 3.2 In this letter the factual and the legal position was fully explained in detail relying on several cases and a copy of this reply is placed at pages 313-322 of the paper-book. 3.3 In this connection, it is significant to note that during the course of hearing before this Hon'ble Tribunal of the appeal for the A.Y. 2010-11 the very some contentions were raised by the Ld. CIT(DR) as highlighted in the second show cause notice issued by the Ld. PCIT (kind reference is invited to para 13 of the Hon'ble Tribunal's order). Copy of the full order has been compiled on pages 29 to 103 of the paper-book. Para 13 of the Tribunal's order reproduces the contentions raised by the Ld. CIT(DR), to the effect that copies of letters dated 6.8.2000 and 11.12.2000 issued by the Secretary General for Taxation, Sultanate of Oman were neither asked by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s invoked his jurisdiction u/s.263 of the Act are the same as for the A.Y. 2010-11 in assessee's own case. There is no dispute about this and even the Ld. PCIT had admitted that the facts are identical and, therefore, he has merely directed the Assessing Officer to follow his order for A.Y. 2010-11. In this circumstance, the Hon'ble Tribunal is bound to follow its own order for A.Y. 2010-11 when admittedly the facts and circumstances, the provisions of law and the legal position continue to be identical. Kind reference is invited to the following judgments:- (i) HDFC Bank Ltd. vs. DCIT 283 ITR 529 (Bom) (ii) Affection Investments Ltd. vs. ACIT 222 CTR 387 (Guj) (iii) CIT vs. Synchems (I) Ltd. 384 ITR 498 (Bom) 6. Moreover, at this juncture we would also like to inform your honours that the Department had preferred an appeal before the Hon'ble Delhi High Court against the Hon'ble Income Tax Appellate Tribunal's Order for immediately preceding Assessment Year 2010-11 where Hon'ble Delhi H.C vide order dated 02.08.17 has dismissed the departmental appeal affirming the Hon'ble Tribunal's Order and deciding the matter in favor of assessee. Similarly in case....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e capitalization of interest in terms of the proviso to Section 36 (1)(iii)of the Act. 5. The case of the Revenue is that the order of the AO, for the AY in question, was erroneous and prejudicial to the interest of the Revenue and, therefore, in terms of Section 263 of the Act and, more particularly, in view of the Explanation-2 inserted in the said provision with effect from 1st June, 2015, the Pr CIT was justified in passing the order dated 29th March, 2016 under Section 263 of the Act. 6. This Court has heard the submissions of Mr. Ashok K. Manchanda, learned Senior Standing Counsel for the Revenue and Mr. Vaibhav Kulkarni, learned counsel for the Respondent/Assessee and has perused the record. 7. As regards the issue concerning the Assessee having claimed tax credit on account of deemed dividend taxable in Oman, the categorical findings of the ITAT is that the Revenue had consistently permitted the Assessee to avail tax credit on the deemed dividend during AYs 2006-07 to 2009-10. The ITAT after going through the entire record came to the following conclusion that "in respect of the current assessment year i.e. AY 2010-11 which is the subject matter o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the AO. It is only after such an elaborate exercise that it was concluded by the ITAT in the impugned order as under: "16. We have carefully considered the submissions and arguments made by the learned counsel of the assessee as well as the learned CJT(O.R.) and heard both the parties at length. We find that the Assessing Officer had made detailed inquiries and examined the entire block of fixed assets. A brief note on capital work in progress was also filed and queries regarding the manner in which the depreciation was claimed was also raised. Further the assessee is following a settled accounting policy/principle for capitalization of expenses including interest expenses to both the fixed assets as well as capital work in progress. This method was forming part of the audited financial statements which were filed before the Assessing Officer as well. We also find that the free reserves were also more than sufficient to cover up the investment in fixed assets/capital work in progress. Further the assessee society has generated sufficient internal cash flows to meet with the cost of fixed assets as well as capital work in progress. In spite of this fact the assessee has ca....