TaxTMI 
TaxTMI 
2022 (1) TMI 927
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....sment Year 2010-11. The Revenue has raised following grounds in this appeal:- 1. "On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in restricting disallowance of Rs. 8,63,35,560/- made by the AO u/s 14A read with rule 8D vide order u/s 143(3) to Rs. 50,75,526/- by observing that the provisions of section 14A would not apply to the dividend income received by the assessee from OMIFCO, Oman, as the same is part of total income." 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in allowing relief to exclude such investments which did not yield any income for the purpose of computation of disallowance u/s 14A by overlooking the provisions of section 14A read with rule 8D(2) of IT Rules. The relevant portion of Rule 8D(2) is reproduced below: "The average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee on the first day and the last day of the previous year." It is evident that the words used are "does not or shall not form part of the total income." This clearly specifies that al....
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....s of the case, the Ld. CIT(A) has erred in following the decision of the Hon'ble ITAT in assessee's own case wherein it was observed that the issue was consistently examined starting from A. Y. 2006-07 and the AO in A. Y. 2009-10 acted in consonance with the consistent view adopted by the Department itself whereas the principle of res- judicata is not applicable in income tax proceedings as held by the Apex court in the case of Joint Family of Udayan Chinu Bhai vs. CIT, 63 ITR 416(SC) and in the case of M.M. Ipoh vs. CIT, 67 ITR 106(SC) and new facts such as legal value of letter interpreting DT AA were expounded by CIT." 8. "On the facts and in the circumstances of the case, the Ld. CIT(A) did not consider the ratio of judgement of Hon'ble Supreme Court in the case of Tarulata Shyam, 108 ITR 345 wherein in was that held that there is no scope importing into the statute words which are not there." 9. "The Appellant reserves the right to raise any further and additional grounds of appeal at the item of hearing oral arguments including reliance on additional case laws;." 10. "The appellant craves leave to add, alter or amend any of the grounds o....
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.... effective ground in the Revenue's appeal is against the restricting the disallowance made u/s 14A of the Act to the extent of Rs. 50,75,526/-. 7. Ld. Sr DR vehemently argued that Ld.CIT(A) was not justified in restricting the disallowance as made u/s 14A of the Act. He strongly supported the assessment order. 8. On the contrary, Ld. Counsel for the assessee opposed these submissions and supported the order of Ld.CIT(A). However, he submitted that the assessee has also challenged the finding of Ld.CIT(A) in cross appeal. He contended that Ld.CIT(A) was not justified in confirming the disallowances in respect of interest expenditure. He further submitted that the investment was made out of interest free funds available with the assessee. He submitted that the law is clear in this regard there is no ambiguity under the law. He contended that the primary requirement for making disallowance u/s 14A is that the AO is required to record his satisfaction having regard to the accounts of the assessee, regarding correctness of the claim of the assessee, in respect of the expenditure in relation to income which does not form part of the total income. He submitted that no such satisfact....
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....e above dividend income and Rule 8D can be invoked only when interest expenditure is actually incurred for making the equity investment in GSEG. It has been explained that appellant society had invested additional equity investment from its own sources. Ld. AR have also provided separate details of interest expenditure incurred on working capital requirement indicating the nexus of the interest expenditure and it has been claimed that no interest expenditure has been incurred for making additional equity investment in GSEG. 3.2.9. Apart from the above, from the schedule of investment, it is noted that assessee has also shown dividend income of Rs. 143,83,99,800/- with regard to equity investment in OMIFCO. In respect of this dividend income, it has been claimed that this dividend income has been treated as taxable in the return and claimed deemed tax credit. Further, it has been clarified that same is claimed as exempt income in view of the provisions of DTAA As far as applicability of Rule 80 with regard to this dividend income is concerned, it has been explained that as this income is earned in Oman by the branch/PE of the appellant society, no expenditure is incurred to....
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....nomic development suffered a tax cost which had the negative impact. (c) The Company Income-tax Law of 1981 was therefore amended by Royal Decree No. 68/2000 by insertion of a new Article 8 [bis]. (d) Thereby the Government of Oman would achieve its main objective of promoting economic development by attracting investments. (e) Tax would be payable on dividend income if not for the tax exemption provided under Article 8 (bis), (f) As the introduction of Article 8(bis) is to promote economic developments in Oman, the Indian investors should be able to obtain relief in India under Article 25(4) of the Agreement for Avoidance of Double Taxation. 19. From the above clarifications there remains no doubt regarding the purpose of granting exemption to dividend income. The interpretation of Omani Tax Laws can be clarified only by the highest tax authorities of Oman and such interpretation given by them must be adopted in India. Further, in the tax assessments made in Oman in respect of the PE of the assessee-society t is clearly mentioned that the dividend income which is included in the gross total income is, however, exempt in accordance with Article 8....
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....e table Further, in respect of interest income from fertilizers company Govt. of India Special Bonds (SI.No.10) and dividend income from NAFED (SI. No.6), it has been explained that these incomes have been offered for tax and they are not claimed as exempt income. Accordingly, the investments in the table corresponding to the serial no. mentioned above are to be excluded while applying Rule 80 of the income-tax rules for the purpose of computing the disallowance u/s 14A. 3.2.6 Further, Ld. AR has relied upon the judicial pronouncement of the jurisdictional Delhi High Court in the appellant's own case pertaining to A.Y. 2006-07 in ITA No.444/2011 decided on 18/07/2012 relating dividend income of Rs. 15,011 /- from NAFED, which is included in the total income and only deduction u/s 80P(2)(d) has been claimed under Chapter VIA, wherein the Hon'ble Delhi High Court has held as under: "28. At this stage, we may refer to the decision of Delhi High Court in CIT vs. Dalmia Cement (Bharat) Ltd., (1980) 126 ITR 736, approved in Second ITO versus Stumpp, Schuele & Somappa Pvt. Ltd. (1991) 187 ITR 108 (SC). In this case, the High Court was examining Rule 4 of Second S....
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....en into account for r. 4 and the capital reduced correspondingly. This result is certainly not intended." 30. While dealing with the detailed arguments raised by the Revenue, the Division Bench of this Court observed that broadly speaking the figure of total income is arrived at, as per the Act, in four stages. Firstly, the income of the resident assessee is computed by including all incomes, profits and gains arising in India or outside. Similarly income of resident but not ordinary resident or non-resident, are computed in accordance with Section 5 Chapter II, which forms the basis of Charge. Secondly, Chapter III with the heading "incomes not included in the total income", comprises of Section 10to 13 and these incomes are not included in total income but some exemptions are only partial and not total. Thirdly, even in case of income, profit and gains included for arriving at the total income, the entire income is not liable to tax. Deductions as stipulated in Chapter W can apply, e.g. Sections 34, 35A and 35B etc. Even in Chapter VI, deductions for set off or carry forward of loss is allowed. Fourthly and lastly, certain deductions were permissible under Chapter VII an....
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....Further in some cases the deduction was full and in some cases it was partial but this was not material and it did not mean that if an amount was deducted it did not form part of the total income. Thus, the income on which the deduction is allowed forms a part of the total income, though not included in the amount or quantum on which tax is paid. 31. It can be urged (though it was not specifically argued by the Revenue) that in case of complete or entire deduction of the gross amount, Section 14A will be applicable, and section 14A will not apply in case only the net amount (as stipulated in several Sections in Chapter VIA of the Act) is allowable as a deduction. There will be a fallacy in this argument. Even were partial or net amount is to be allowed as a deduction, the figure can be minus or in a loss. Logically, as a squiter, it will follow that in case the assessee has a negative/minus figure as per the computation made any of the provisions of Chapter VIA, the expenditure incurred cannot allowable under Section 37of the Act, in view of Section 14A. The said position cannot be accepted. Income will include negative income or a loss. The corollary is that the entire in....
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....ting deductions allowed and whether a deduction once allowed has the effect that the income on which deduction ceases to be part of the total income. It has been uniformly and consistently held that in the absence of express language to the contrary, deduction if allowed does not mean that the said income ceases to be part of the total income. 34. In view of the aforesaid position, we answer the questions of law mentioned above in affirmative, i.e., against the appellant-Revenue and in favour of the respondent-assessee. In the facts of the present case, there will be no order as to costs." On the basis of above decision, it has been claimed that provisions of Section 14A are not applicable in respect of income on which Chapter VIA deductions have been claimed. 3.2.7 Apart from the above, it has been contended before the undersigned that appellant society does not have any department or staff exclusively dealing with the investments. No expenditure has been incurred by the appellant as dividend has been received directly into the bank a/c through the ECS mandate. Hence, it has been claimed that there is no expenditure debited in the P&L A/c relating to tax....
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....all be the aggregate of following amounts, namely:- i. the amount of expenditure directly relating to income which does not form part of total income; ii, in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely:- B A x C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; iii. an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of th total income, as appearing in the balance sheet of the assessee, on th....
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..... Further, Ld. CIT(A) has also followed the judgement of the Hon'ble Delhi High Court in assessee's own case on this issue. Therefore, we do not see an infirmity in the finding of Ld.CIT(A) that the provision of section 14A of the Act, cannot apply to the dividend income from OMIFCO which is part of the total income. The Grounds raised by the Revenue are devoid of any merit hence, rejected. 11. In the result, the appeal of the Revenue is dismissed. 12. Now, we take up assessee's appeal in ITA No.2341/Del/2017 pertaining to Assessment Year 2010-11. The assessee has raised following grounds in this appeal:- 1. "The ld. CIT(A) erred in law and on facts in confirming the disallowance of Rs. 38,43,091/- being amortization of lease payment. These are allowable business expenditure for determining the taxable income and should have been allowed. 2. The appellant contends that amortization of these expenses over the period of the lease is revenue expenditure and is in the nature of rent paid for the use of land. It is not in the nature of capital expenditure as the assessee does not get any legal title or any right over the land. 3. The ld. CIT(A) has erred....
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....ed 12.07.2012, which was decided in favour of the revenue and as far as merits of the case is concerned, the Hon'ble Delhi High Court has made the following observations: 14. In the present case, what is apparent is that the lessee (assessee) paid a substantial amount (Rs. 2.53 crores) in 1989 at the time of entering into the transaction. it was a precondition for securing possession; the amount was one time consideration in terms of the lease condition. In addition, the lessee has to pay 2.5% of the said amount as annual rent, which is subject to increase periodically. No doubt, the assessee argues that the annual rent is depressed, and does not reflect the market rent. However, there is no material to support this submission. Nor is there any material to support the argument that the amount of Rs. 2,53 crore paid over 23 years ago did not ITA 205/10,163, 1215 & 1216/2011 page 17 constitute the true and real consideration for creating an interest in the property. We also notice that the terms of the lease agreement stipulated that the registration and stamp duty and charges were borne by the lesee (assessee). In this background, the restrictions imposed on the lessee,....
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....gal position and as a matter of rule of consistency, I upheld the addition made by the Assessing Officer in respect of Land at Noida in respect of which amortization has been Claimed of Rs. 6, 17,364/-. 3.1.5. I have considered the submissions of the Ld. ARs with regard to claim of amortization in respect of Land at Vishakhapatnam, at Tuticorin and at Haryana and Madhya Pradesh amounting to Rs. 12,87,346/-, 18,22,770/- and Rs. 1,15,611/- respectively, which has been rejected by the Assessing Officer. It is noted that Ld. ARs are trying to distinguish the factual matrix of the case in respect of above lands on the grounds that period of lease is 30 years which has expired and appellant is entitled to Claim the same as deduction. It is further being claimed that appellant is paying nominal rent of Rs. 1 per sq. mtr. In respect of Port of Vishakapatnam and in the Tuticorin Port Trust, the annual rent payable is only Rs. 1/- per square meter. It is also being claimed that the vacant possession of the land is to be given back to the respective authorities on completion of the lease period Inter alia claiming that no ownership rights are given to the appellant and land was for l....
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.... 20. We have heard the rival submissions and perused the material available on record and gone through the orders of the authorities below. The contention of the assessee is that the assessee had sufficient interest free funds which were used for making additional equity investment in the shares in Gujarat State Energy Generation Ltd. Further, it is contended that the AO has not recorded his satisfaction regarding the expenditure sought to be disallowed is related to earning of exempt income. It is contended that in the absence of recording such satisfaction, the addition made, cannot be sustained. We find that the AO in para 4.5 of the assessment order has given a finding in respect of payment of interest free funds as under:- 4.5. "As per P&L A/c, an amount of Rs. 518.31 lakhs has been claimed during the year as payment of interest. As per printed balance sheet, the assessee has shown total investment of Rs. 120,341.79 lakhs as at 31.03.2009 and Rs. 140645.23 lakhs as at 31.03.2010. The investment made by assessee as appearing in schedule 4 is quoted below:- S.No. Name of Investment Amount as on 31.03.2009 Amount as on 31.03.2010 1. Equity Investment i....
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....mechanically invoked by the AO without establishing such nexus. He further submitted that the assessee had demonstrated before the authorities below that the assessee was having sufficient interest free fund available to make investment wherefrom it had earned exempt income. We find merit on this contention of the Ld. Counsel for the assessee. The law is wellsettled that the section 14A would come into play, where the AO gives a clear finding regarding expenditure incurred for earning of income. Where the assessee is able to demonstrate that the investment was made out of own interest free fund in such cases, no disallowance would be called for regarding interest expenditure. Therefore, in the absence of clear finding by AO and disallowance on the basis of guess work cannot be sustained. Hence, we direct the AO to delete the disallowance. These grounds of assessee's appeal are allowed. 21. In the result, appeal of assessee in ITA No.2341/Del/2017 is partly allowed. 22. Now, we take up Revenue's appeal in ITA No.2973/Del/2017 pertaining to Assessment Year 2011-12. The Revenue has raised following grounds in this appeal:- 1. "On the facts and in the circumstances of th....
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....n assessee's own case for the AY 2010-11 without appreciating the fact that foreign tax credit is allowable only when tax has been actually paid in a foreign country (Oman) and the benefit of para-4 of article 25 of Indo-Oman DTAA is not available to assessee in view of the absence of any credible evidence to establish that mere non-taxation of dividend income in Oman can be construed to mean 'tax incentive designed to promote economic development' as required under article 25(4) of lndo -Oman DTAA. 6. "On the facts and circumstances of the case, the Ld. CIT(A) has erred in relying upon the order of Hon'ble ITAT which is not in consonance with the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Infosys Technologies Ltd., 341 ITR 293 wherein the Hon'ble High Court has dealt with issue of tax credit in DTAA between Canada and Thailand and decided the issue in favour of revenue holding that CIT has rightly invoked section 263 of the Income Tax Act, 1961." 7. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in following the decision of the Hon'ble ITAT in assessee's own case where....
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....re as the assessee does not get any legal title or any right over the land. 3. The ld. CIT(A) has erred in law and on facts in confirming the disallowance of Rs. 65,72,285/- u/s 14A r.w.r. 8D of the Income Tax Rule 1962. The disallowance is wrong and bad in law and should be deleted. 4. The ld. CIT(A) has failed to appreciate that the AO has not brought on record any material to show nexus between expenditure and earning of exempt income. No disallowance u/s 14A r.w.r. 8D can be made. 5. The CIT(A) has failed to appreciate that Rule 8D can be invoked only when the A.O. from the books of accounts is able to demonstrate that some expenditure has been incurred for earning tax free income. Rule 8D has been mechanically invoked by A.O. without establishing such nexus. Consequently, the disallowance u/s 14A r.w.r. 8D of Rs. 65,72,285/- should be deleted. 6. The above grounds are independent and without prejudice to one and another. 7. The appellant also prays to add, amend, alter or forgo any of the grounds at the time of hearing." 25. Ground Nos. 3 & 4 are identical to the Ground Nos. 1 & 2 of the assessee's appeal in Assessment Year 2010-....