ACIT, NEW DELHI V. M/S. NIIT TECHNOLOGIES LTD., NEW DELHI

ITA 3718/DEL/2017

AI Insights

The case involves cross-appeals by the Revenue and the assessee, Coforge Limited (formerly NIIT Technologies Ltd.), against the order of the Commissioner of Income-Tax (Appeals)-33, New Delhi. The appeals pertain to the assessment year 2011-12 and involve issues related to transfer pricing adjustments and disallowances under Sections 10B and 14A of the Income Tax Act, 1961. The Tribunal examined the functional comparability of M/s. Global Procurement Consultants Ltd. in the context of transfer pricing and the appropriateness of disallowances made under Section 14A in relation to expenses incurred for earning exempt income. The Tribunal's decision emphasized the need for a thorough examination of functional comparability in transfer pricing and the specific application of disallowances under Section 14A when computing book profits under Section 115JB.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126182 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2011-2012
• Other Referred Cases: Rampgreen Solutions (P.) Ltd. v. CIT, Outotec India Pvt. Ltd. v. DCIT, H & M Mauritz India Pvt. Ltd. v. DCIT, CIT vs. JDS Apparels (P.) Ltd, CIT vs. Larsen & Toubro Ltd., DCIT vs. Kotak Securities Ltd., ESRI India Technologies Ltd. v. ACIT, Make My Trip India Pvt. Ltd. v. PCIT, ACIT vs. Jet Airways (India) Ltd, DCIT vs. Laqshya-Media (P) Ltd., Efftronics Systems (P.) Ltd. v. ACIT, ACIT vs. Japyee Sports International Ltd, Coforge Ltd vs. ACIT
• Laws Referred To: Income-Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: REVENUE FURTHER; APPELLANT ASSESSEE; RESPONDENTASSESSEE; RESPONDENTASSESSEE; APPELLANT ASSESSEE; APPELLANT ASSESSEE; APPELLANT ASSESSEE; APPELLANT ASSESSEE; APPELLANT ASSESSEE; APPELLANT ASSESSEE; S.K. JADHAV; RS.; BY HOLDING
• Assessee Lawyers: ROHIT JAIN; SOMYA JAIN; ITA NOS.; DEL
• Keywords: Transfer pricing; International transaction; Question of law; Capital Gains; TDS; Rectification of order; Earning of tax free income; Wholly owned subsidiary; Rule 8D; CHAPTER IV; Reinsurance; Grounds of appeal; Special Bench; Principal; Satisfaction; Dismissed; Administrative Support; Disallowance of expense; Judgment; Guarantee commission; HRA; Commissioner; Separate books of accounts; Commissioner of Income Tax; Economic Adjustment; AMP; Transfer; Transactions; Departmental appeal; Managerial services; Comparability Analysis; Exempt; Deleted; Services rendered; Admission; Department; Affirmed; Explanation; Not pressed; Services; Section 143(2)
• Section: 144; 142(1); 143(2); 153; 22; 13; 14A; 115JB; 40(a)(ia); 10B; 92C; 92D; 20; 14A read with Rule 8D

Judgement Text

" INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “H”: NEW DELHI BEFORE SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER AND SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA No. 3718/DEL/2017 Assessment Year: 2011-12 ACIT Circle 18(2), New Delhi Vs. Coforge Limited, (Erstwhile known as NIIT Technologies Ltd.), 8, Balaji Estate, Ist Floor, Guru Ravidas Marg, Kalkaji, New Delhi PAN No. AAACN0332P (Appellant) (Respondent) ITA No. 4109/DEL/2017 Assessment Year: 2011-12 Coforge Limited, (Erstwhile known as NIIT Technologies Ltd.), 8, Balaji Estate, Ist Floor, Guru Ravidas Marg, Kalkaji, New Delhi PAN No. AAACN0332P Vs. ACIT Circle 18(2), New Delhi (Appellant) (Respondent) O R D E R PER VIMAL KUMAR, JUDICIAL MEMBER: The cross-appeals filed by the Revenue and Assessee are against order dated 31.03.2017 passed by the Learned Assessee by: Shri Rohit Jain, Adv. & Ms. Somya Jain, CA Department by: Shri S.K. Jadhav, CIT DR Date of Hearing: 25.02.2025 Date of pronouncement: 23.04.2025 ITA Nos.3718 & 4109/Del/2017 2 Commissioner of Income-Tax(Appeals)-33, New Delhi (hereinafter referred as ‘Ld. CIT(A))’ arising out of assessment order dated 18.05.2015 of the DCIT, Circle 18(2), New Delhi (hereinafter referred as ‘Ld. A.O.’) under Sections 143(3)/144C(3)(b) of the Income-Tax Act, 1961 (hereinafter referred as “the Act”) for assessment year 2011-12. 2. Brief facts of the case are that the assessee filed e-return declaring net taxable income of Rs.33,35,98,190/- on 30.11.2011. The return was revised on 31.03.2013 at an income of Rs.33,18,78,020/-. The case was selected through CASS. Notice under Section 143(2) of the Act dated 16.08.2012 was issued. Notice under Section 142(1) along with detailed questionnaire was issued on 30.04.2013. Shri A.K. Sood and Shri Rupesh Goyal, CAs and authorised representatives of the assessee company attended proceedings and filed necessary details/documents. The draft assessment order under Section 143(3)/144C(1) of the Act was passed on 12.03.2015 and served on assessee on 26.03.2015. The period for conveying acceptance of assessment order or filing objections under Section 144C(2) of the Act expired on 25.04.2015. Vide letter dated 06.04.2015, the assessee informed that it intended to file appeal before the Ld. ITA Nos.3718 & 4109/Del/2017 3 CIT(A) against the draft assessment order. The assessee requested that final assessment order under Section 144C(3)(b) of the Act may be passed. The limitation for passing the final assessment order under Section 144C(3)(b) was up to 31.05.2015. The assessee was engaged in the business of software development and services and declared income under the head ‘business and profession’, ‘capital gains’ and ‘income from other sources’. The assessee has entered into international transactions with its associated enterprises and filed a report in Form No. 3CEB. Ld. A.O. vide order dated 18.05.2015, made additions of Rs.13,25,239/- for transfer pricing adjustments, Rs.11,79,63,204/- for denying disallowance under Section 10B, Rs.3,21,394/- for denying disallowance under Section 14A and Rs.12,51,739/- for rationalisation of tax. 3. Against assessment order dated 18.05.2015, the assessee preferred appeal before the Ld. CIT(A) which was partly allowed vide order dated 31.03.2017. 4. Being aggrieved, the Revenue and Assessee filed present cross-appeals. ITA Nos.3718 & 4109/Del/2017 4 5. The Revenue in ITA No.3718/Del/2017, took grounds as under: “1. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in directing exclusion of M/s Global Procurement Consultants. Limited as a comparable even when the entity was functionally comparable to the assessee? 2. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in directing exclusion of M/s Global Procurement Consultants Limited as comparable by ignoring international guideline by OECD and United Nations on application of Transactional Net Margin Method (TNMM) which stipulates that strict comparability standard was not required under the TNMM? 3. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowance of Rs. 11,79,63,204 us 10B of the Income Tax Act, 1961 (the Act) without considering the findings of the Assessing Officer the AO) in assessment order that the assessee had failed to maintain separate books of account for the respective units alleged to be eligible for deduction u/s 10B of the Act? 4. Whether on facts and in circumstances of the case the Ld. CIT(A) is legally justified in deleting disallowance of Rs.12,51,739/- u/s. 10B of the Act without considering the fact that the profits of units alleged to be eligible for deduction u/s. 10B of the Act was computed without any basis from composite accounts of all the undertaking and the eligible profit was highly disproportionate as compared to the total profit earned by the assessee during the year and also by ignoring the fact that the assessee failed to explain the basis of appropriation of profits? 5. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowance of Rs 12,51,739/- u/s. 4(a)(ia) of the Act on account of non- deduction of TDS on \"Bank Guarantee Expenses” by ignoring the contents of Notification no. 56/2012 of the CBDT in this regard issued vile F. No. 275/53/2012-11 (B)/ ITA Nos.3718 & 4109/Del/2017 5 SO 3069 (E) dated 31.12.2012 and also by ignoring the fact that the said notification had come into force w.e.f. 1 January, 2013? 6. That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal.” 6. Appellant/assessee in ITA No.4109/Del/2017, pleaded following grounds: GROUND 1: TRANSFER PRICING ADJUSTMENT OF RS.8,36,619 U/S 92CA(3) OF THE ACT. 1 The Ld Commissioner of Income Tax (Appeals)-33, New Delhi ('CIT (A)') has erred on facts and in law, in enhancing the income of the Appellant by Rs. 836,619/- by holding that the international transaction pertaining to provision of corporate support services ('CSS') with Associated Enterprises ('AEs\") does not satisfy the arm's length principle envisaged under the Income-tax Act, 1961 ('the Act'). In doing so the Ld. CIT(A) has grossly erred in: 1.1. disregarding the ALP as determined by the Appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Rules as well as updated margins submitted by the Appellant, and in particular modifying/ rejecting the filters applied by the Appellant, 1.2. rejecting the comparability analysis undertaken by the Appellant in the TP documentation and conducting a fresh comparability analysis based on application of certain erroneous, additional, revised filters in determining the ALP, 1.3. rejecting the comparables selected by the Appellant companies on arbitrary frivolous/inconsistent grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed; ITA Nos.3718 & 4109/Del/2017 6 14. including certain companies in the final set that are not comparable to the Appellant 1.4.1. in terms of functions performed, assets employed and risks assumed; 1.4.2 having abnormal margins/volatile margins without appreciating the fact that such abnormal/volatile margins are due to certain abnormal conditions like business restructuring, super normal growth in revenue not profits etc. 1.5 disregarding relevant judicial pronouncements while making addition account TP adjustment; and 1.6 committing number of factual errors for the purpose of computation of mark-up of certain comparable companies as proposed by Ld TPO and also ignoring the applicability of necessary economic adjustments in the computation of arm's length price 1.7. That the above grounds are mutually exclusive and without prejudice to each other. 2. The Appellant prays that addition u/s 92C of the Act be deleted. GROUND II: DISALLOWANCE OF EXPENDITURE OF RS. 3,21,394/-UNDER SECTION 14A R.W.R. 8D OF THE ACT. 1. On the facts and circumstances of the case an in law, the Ld. CIT(A) erred in upholding the action of the Dy. Commissioner of Income Tax, Circle-18 (2), New Delhi (the AO') of making a further disallowance of Rs. 3,21,394/- u/s 14A of the Act by invoking the formula prescribed in Rule 8D of the Income Tax Rules, 1962. 2. The Appellant prays that the aforesaid disallowance of Rs. 3,21,394/- u/s 14A be deleted. GROUND III: ADDITION OF EXPENDITURE DISALLOWED U/S. 14A OF RS.3,21,394/-WHILE COMPUTING THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT. ITA Nos.3718 & 4109/Del/2017 7 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of making addition of expenditure disallowed u/s. 14A of Rs. 3,21,394/- while computing book profits under section 115JB of the Act. 2. The Appellant prays that the aforesaid addition of Rs. 3,21,394/- to the book profits computed u/s. 115JB be deleted. 7. Learned Authorised Representative for Revenue submitted that Ld. CIT(A) erred in directing exclusion of M/s. Global Procurement Consultants Ltd. as a comparable when the entity was functionally comparable to the assessee. The exclusion of M/s. Global Procurement Consultants Ltd. as comparable was by ignoring international guidelines by OECD and United Nations on application of Transaction Net Margin Method which stipulate that comparability standard was not required. Ld. CIT(A) erred in deleting disallowance of Rs.11,79,63,204/- without considering the findings of Ld. AO that assessee failed to maintain separate books of accounts for the respective unit alleged to be eligible for deduction under Section 10B of the Act. Ld. CIT(A) erred in deleting disallowance of Rs.12,51,739 without considering the fact that the profits of the units alleged to be eligible for deduction under Section 10B of the Act was computed without any basis from composite accounts of all the undertaking and the eligible profit was highly disproportionate as compared to the ITA Nos.3718 & 4109/Del/2017 8 total profit earned by the assessee during the year and also by ignoring the fact that the assessee failed to explain the basis of appropriation of profits. 8. Learned Authorised Representative for Revenue further submitted that Ld. CIT(A) erred in deleting the disallowance of Rs.12,51,739/- under Section 40(a)(ia) of the Act on account of non-deduction of TDS on ‘Bank Guarantee Expenses’ by ignoring the contents of Notification no.56/2012 of the CBDT in this regard issued vide F.No.275/53/2012-IT(B)/SO(R) dated 31.12.2012 and also by ignoring the fact that the said notification had come into force w.e.f. Ist January, 2013. 9. Learned Authorised Representative for appellant/assessee submitted that the action of the Ld. CIT(A) in directing exclusion of Global from the comparable list is justified for the following reasons: \"•The assessee provides certain centralized corporate services like accounting, legal, IT/Network support, HR, marketing, MIS, internal audit support etc. to its various AEs. These services (Corporate Service Segment) are in the nature of routine back-end administrative support services. The assessee does not assume any significant risk in performing these support services for the AEs. •As against the activities of the assessee, Global is functionally different and thus not an appropriate comparable. On perusal of audit report for financial year ITA Nos.3718 & 4109/Del/2017 9 2010-11, it is observed that Global has undertaken valuation consultancy and financial advisory services. The said company is admittedly providing comprehensive range of procurement related advisory services and inter-linked for projects in India and abroad. •Global is merely rendering services to government bodies and international organizations in the field of power, water resources, transportation industry such as economic, textile, mining, cement, leather, health education, environment, InfoTech etc. •The relevant information on services along with extracts of audit report is placed at pages 64-67 of paper book. In view of the aforesaid, Global cannot be regarded as mere support service provider as it is a full risk-taking entrepreneur consulting company, which is diagonally different from the assessee. Functionally different companies cannot be treated as comparable [refer Rampgreen Solutions (P.) Ltd. v. CIT: 377 ITR 533 (Del.)] •Even as per approach adopted by the TPO, one comparable (CSS Technology Ltd), as included by the assessee, was rejected on the basis of classification in prowess software. If the said approach is accepted, Global shall also be excluded from the comparable list as its classification is also different from that of the assessee company. •The aforesaid comparable (Global) has been directed to be excluded by Delhi Bench of the Tribunal in the case of Outotec India Pvt. Ltd. v. DCIT: ITA No.320/Del/2016 (refer pages 151-173 of CLPB) and Bangalore Bench of the Tribunal in the case of H & M Mauritz India Pvt. Ltd. v. DCIT: IT (TP) A No.282(Bang) 2015 (refer pages 174- 188 of CLPB), as being functionally different.” 10. Learned Authorised Representative for respondent-assessee submitted that the issue of disallowance of deduction under Section 10-B of the Act is covered in favour of the assessee by ITA Nos.3718 & 4109/Del/2017 10 orders of the Delhi Bench of the Tribunal in assessee’s own case for following years: Assessment year 2006-07 in ITA No.3076/Del/2012 (refer pages 431-457 of the PB); & Assessment years 2007-08 and 2008-09 in ITA No.5491 and 5492/Del/2012 respectively (refer pages 27-83 @ 57 onwards of CLPB). Orders of ITAT for assessment years 2006-07 to 2008-09 were affirmed by the Hon'ble Delhi High Court vide order dated 29.08.2024 [refer pages 248-259 of CLPB]. 11. Learned Authorised Representative for respondent-assessee submitted that the action of the Ld. CIT(A) in deleting aforesaid disallowance under Section 40(a)(ia) of the Act calls for being upheld for the following reasons: 11.1 Obligation to withhold tax on payments made to residents arises only if such payments fall under any specific provision relating to TDS contained in Chapter XVII-B of the Act. However, bank charges paid to the banks is not get covered under any of such provisions, nor the same has been pointed out by the assessing officer. 11.2 For application of section 194H of the Act, the following conditions must, inter alia, exist: ITA Nos.3718 & 4109/Del/2017 11 (a) there must be a transaction between principal and agent, i.e., the payer must be principal and the payee must be the agent; and (b) such transaction must be for services rendered or for any services in the course of buying or selling of goods. 11.3 Further, tax under section 194H of the Act is required to be deducted at source either at the time of 'payment' of commission or brokerage or at the time of 'credit' of such amount in the books of the payer, whichever is earlier. Thus, the section stipulates a pre-condition that there must either be ‘actual payment’ of amount in the form of “commission” or “brokerage” or ‘credit’ of such amount in the books of payer, for the applicability of section 194H of the Act. 11.4 Existence of principal – agent relationship is sine qua non for invoking Section 194H of the Act. 11.5 Reliance in this regard is placed on the following decisions wherein it has been held that provisions of section 194H of the Act do not apply in case where there exists no principal-agent relationship between the payer and payee: • SRL Ranbaxy Ltd. v. ACIT: 143 TTJ 265 (Del. Trib.) •Foster's India (P.) Ltd. v. ITO: 29 SOT 32 (Pune) (URO) •Ajmer Zila Dugdh Utpadak Sangh Ltd. v. ITO: 34 SOT 216 (Jaipur Trib.) ITA Nos.3718 & 4109/Del/2017 12 11.6 In present case, there is no principal agent relationship between the bank issuing the bank guarantee and the assessee. Where there is a principal agent relationship, the recipient of the income must act on behalf of the principal. 11.7 In the instant case, the bank does not act on behalf of the assessee for rendering any kind of service. The contract of guarantee therefore, it is submitted, does not give any rise to principal-agent relationship between the assessee and the bank and, therefore, the consideration received by the bank on account of guarantee commission cannot, it is submitted, be reckoned as commission as contemplated under section 194H of the Act. 11.8 Moreover, guarantee commission charged by the bank is not even, it is submitted, in the nature of commission, as may be understood in common parlance, so as to attract levy of TDS provisions under section 194H of the Act, as explained hereunder: “When a bank issues the bank guarantee on behalf of the assessee, it accepts the commitment of making payment of a specified amount, on demand, to the beneficiary, and it is in consideration of this commitment, the bank charges a fees which is generally termed as 'bank guarantee commission'. Although the fee charged by bank is termed as 'guarantee commission', but it is not, it is respectfully submitted, in the ITA Nos.3718 & 4109/Del/2017 13 nature of 'commission' in the context of the section 194H of the Act. The aforesaid transaction, it is respectfully submitted, is not a transaction of payment of any form of commission, but is in the nature of fees charged by the bank for giving the guarantee”. 12. Hon'ble High Court of Delhi in the case of CIT vs. JDS Apparels (P.) Ltd: 370 ITR 454 (refer pages 190-196 of CLPB), has held that the amount charged by bank as a fee for rendering banking services to its client could not be treated as a commission or brokerage under section 194H. 13. Hon’ble High Court of Bombay in CIT vs. Larsen & Toubro Ltd. 260 Taxman 271 has held that the so-called bank guarantee commission in not in the nature of commission paid to an agent but is in the nature of bank charges for providing one of the banking services and hence, the requirement of section 194H would not arise. Attention was also invited to the decision of the Mumbai Bench of the Tribunal in the case of DCIT vs. Kotak Securities Ltd.: 50 SOT 158 (refer pages 210-215 of CLPB), wherein it was held that when bank issues bank guarantee on behalf of assessee, there is no principal-agent relationship between bank and assessee and, therefore, assessee is not required to deduct tax at source under section 194H from payment of bank guarantee commission made to bank. ITA Nos.3718 & 4109/Del/2017 14 14. Further again in support of the similar issue, reliance was placed on the decision of Delhi Bench of the Tribunal in the case of ESRI India Technologies Ltd. (formerly NIIT GIS Ltd.) v. ACIT: ITA No.2513/Del/2017 (refer pages 216-223 of CLPB), wherein similar issue of disallowance of bank guarantee commission under section 40(a)(ia) of the Act has been decided in favour of the assessee. It has been held by the Tribunal that no tax was required to be withheld by the assessee on bank guarantee commission. Likewise, it has been held in the following decisions: •PCIT v. Make My Trip India Pvt. Ltd.: ITA No.136/Del/2019 (Del.); •DCIT v. PRL Projects & Infrastructure Ltd.: ITA No.5010/Del/2015 (Del Trib.) (refer •ACIT v. Jet Airways (India) Ltd: ITA No.5264/Mum/2012 (Mum Trib.) •DCIT v. Laqshya-Media (P) Ltd.: 160 ITD 35 (Mum Trib.) •Efftronics Systems (P.) Ltd.: ITA No. 188 and 216 of 2015 (Vizag Trib.) • ACIT v. Japyee Sports International Ltd: ITA No. 4279 to 4281/Del/2015 (Del Trib.) 15. From examination of record, in the light of aforesaid contentions, it is crystal clear that departmental ground nos. 1 to 3 relate to issue of Transfer Pricing Adjustment exclusion of ITA Nos.3718 & 4109/Del/2017 15 comparable, namely, Global Procurement Consultants Ltd. while applying Transactional Net Margin Method (TNMM) for benchmarking corporate support services provided whereby the assessee to its Associated Enterprises (AE). The comparable was included by the TPO which was directed to be excluded by the Ld. CIT(A) with observations “I find the activity of providing procurement services to Government Department is very different in nature as compared to providing corporate managerial services to own overseas subsidiaries.” On perusal of Extracts of Audit Report for financial year 2010-11 [pages 64-67 of paper books filed by the assessee, it is observed that Global has undertaken valuation consultancy and financial advisory services. The company is admittedly providing comprehensive range of procurement related advisory services and inter-linked for projects in India and abroad. Global Procurement Consultants Ltd. cannot be regarded as mere support service provider as it is a Full risk taking entrepreneur consulting company which is diagonally different from the assessee. Even approach adopted by the TPO, one comparable as included by the assessee was rejected on basis of classification in prowess software if the said approach is accepted, Global shall also be excluded from the ITA Nos.3718 & 4109/Del/2017 16 comparable list as its classification is also different from that of the assessee company. Considering the aforesaid, Global being functionally different from the assessee, the same has rightly been directed to be excluded from the final comparable list by the Ld. CIT(A). Therefore, ground nos. 1 and 2 of departmental appeal are dismissed. 16. Ground nos. 3 and 4 of revenue’s appeal is regarding disallowance of deduction under Section 10B of the Act. The issue is covered in favour of assessee by the order of Delhi Bench of the Tribunal for AYs 2006-07, 2007-08 and 2008-09. 17. The orders of Tribunal for AY 2006-07 to 2008-09 were affirmed by Hon’ble Delhi High Court’s decision vide order dated 29.08.2024. Therefore, ground of appeal nos. 3 and 4 being covered in favour of assessee by the order of the Tribunal for assessment years 2006-07 to 2008-09 affirmed by Hon’ble High Court of Delhi is dismissed. 18. Departmental ground no. 5 regarding disallowance under Section 40(a)(ia) of the Act, Ld. CIT(A) deleted the disallowance due to non-fulfilment of fundamental conditions prescribed in ITA Nos.3718 & 4109/Del/2017 17 section 194H of the Act. There is non-existence of Principal-Agent relationship and guarantee commission not in the nature of commission so as to attract provisions of section 194H of the Act. Hon'ble Delhi High Court in the case of CIT vs. JDS Apparels (P) Ltd.’s case (supra) has held that the amount charged by Bank as a fee for rendering banking services to its client could not be treated as a commission or brokerage under Section 194H. Resultantly, ground of appeal no. 5 of the department is dismissed. 19. Regarding ITA No,.4109/Del/2017, the Learned Authorised Representative for the appellant/assessee submitted that the assessee has filed an application dated 22.12.2020 for admission of additional grounds of appeal which (legal in nature) be admitted and taken into consideration. 20. Additional grounds are as under: “Re: Ground II 3. That on facts and circumstances of the case, the disallowance of Rs. 14,19,500 (including suo-motu disallowance) computed/ made under section 14A of the Act read with Rule 8D of the Rules is erroneous. 4. That on the facts and circumstances of the case, disallowance under section 14A of the Act should be directed to be restricted to Rs. 44,500, being 1/2% of average investment resulting in earning of dividend income. ITA Nos.3718 & 4109/Del/2017 18 5. That on the facts and circumstances of the case, the lower authorities erred in not considering only investments actually resulting in exempt income for the purpose of computing disallowance under section 14A of the Act read with rule 8D\" Re: Ground III 3. \"That on facts and circumstances of the case, the disallowance of Rs. 14,19,500/- (including suo-motu disallowance) computed/made under section 14A of the Act read with Rule 8D could not have been imported while computing book profit under section 115JB of the Act. ” 21. Learned Authorised Representative for the appellant/assessee submitted that while giving effect to the order passed by the Ld. CIT(A), the Ld. Assessing Officer/TPO vide order dated 26.04.2017 computed adjustment of Rs.8,36,619. The said adjustment was reduced to nil vide rectification order dated 09.11.2017 passed by TPO under Section 154/92C(5) of the Act (at pages 148-150 of Paper Book). So ground no.1 of the appeal regarding TP adjustment of Rs.8,36,619/- is not pressed. Therefore, ground no.1 of the appeal of assessee is dismissed being not pressed. 22. Learned Authorised Representative for appellant/assessee submitted that Ground no. II of appeal of additional ground of appeal are regarding disallowance under Section 14A of the Act. ITA Nos.3718 & 4109/Del/2017 19 The assessee received dividend income amounting to Rs.12,09,83,596/- from investment held in shares of NIIT GIS Ltd (now known as ESRI India Technologies Ltd)., a wholly owned subsidiary of the assessee in the year under consideration, which was claimed as exempt under section 10(34) of the Act (refer pages 2, 153 of the paper book). The assessee, in the return of income, on a conservative basis, suo-motu, disallowed expenditure to the extent of Rs.10,98,106/- being proportionate cost (20%) of running the investment operations (Treasury Department) of the assessee, arrived at on the basis of time spent by the investment/treasury team (refer pages 2, 151, 153, 26 of the paper book). Ld. AO enhanced disallowance of expenses to the tune of Rs.14,19,500/- under section 14A of the Act, being the amount computed as per method provided in Rule 8D of the Income-tax Rules, 1962 (\"the Rules\") [Rule 8D(2)(iii)], on the presumption that expenses must have been incurred towards earning of aforesaid exempt dividend income. Since the assessee had made suo-motu disallowance of Rs.10,98,106 in the return of income, the net additional disallowance was restricted to Rs.3,21,394/-. Aforesaid disallowance as confirmed by the CIT(A) ITA Nos.3718 & 4109/Del/2017 20 [including suo-motu disallowance] without judicious appreciation of the facts and correct position of law, is liable to be deleted. 23. Learned Authorised Representative for appellant/assessee submitted that the assessee had suo-motu, calculated higher disallowance under section 14A of the Act read with Rule 8D of the Rules in return of income. There is no estoppel against law, and it is always open to the assessee to resile from the position taken under misconception of law [refer NTPC: 229 ITR 383 (SC), CIT vs. Bharat General Reinsurance Co. Ltd.: 81 ITR 303 (Del.), SAIL DSP VR Employees Association 1998 V. UOI: 262 ITR 638 (Cal.), Pt. Sheo Nath Prasad Sharma vs. CIT: 66 ITR 647 (All), Indo Java & Co. vs. ITO: 30 ITD 161 (Del SB)]. Accordingly, the assessee can, notwithstanding suo-motu disallowance made, raise ground seeking correct computation of disallowance under section 14A of the Act. So, an application for admission of additional ground dated 22.12.2020 before the Hon'ble Bench to canvass the aforesaid proposition. Since the additional grounds raise purely legal issues and the facts in relation to the same are already available on record, the assessee may be, permitted to raise the additional ground at this stage [refer K.C. Khazanchi v. ITAT: CW No.2164/99 (Del.) @ pages 7-10 of CLPB]. ITA Nos.3718 & 4109/Del/2017 21 24. Learned Authorised Representative for appellant/assessee submitted that no disallowance, over and above the suo-motu disallowance made under section 14A of the Act could have been made by the Ld. AO since no satisfaction as to whether - (a) any expense of relatable to earning of exempt income; or (b) suo-motu disallowance made by the assessee was incorrect, was recorded before applying Rule 8D of the Rules. Reliance in this regard is placed on the following decisions, wherein the disallowance made in the assessment order by simply applying the formula provided in Rule 8D of the Rules, without recording a proper recording of satisfaction has been held to be unsustainable: • Hero Cycles (P.) Ltd vs. CIT: 379 ITR 347 (SC) • Godrej & Boyce Manufacturing Co. Ltd vs DCIT: 394 ITR 449 (SC) (refer pages 84-97 of CLPB) • Maxopp Investment Ltd vs CIT: 402 ITR 640 (SC) • H.T. Media Ltd. v. PCIT: 399 ITR 576 (Del) (refer pages 98-113 of CLPB) • Eicher Motors Ltd v. CIT: 398 ITR 51 (Del) • PCIT vs. U.K. Paints (India) (P.) Ltd.: 392 ITR 552 (Del.) Bench • CIT v. Abhishek Industries Ltd.: 380 ITR 652 (P&H) • CIT vs. I.P. Support Services India (P) Ltd: 378 ITR 240 (Del) • Joint Investments (P.) Ltd. v. CIT: 372 ITR 694 (Del) ITA Nos.3718 & 4109/Del/2017 22 • CIT v. Taikisha Engg. India Ltd.: 370 ITR 338 (Del.) • ACIT v. MMTC Ltd: ITA No.724/Del/2014 (Del Trib.) • ATS Infrastructure Ltd. v. ACIT: ITA.No.3080/Del/2017 (Del Trib.) • Indica Industries Pvt. Ltd. v. ITO: ITA No. 4831/Del/2017 (Del Trib.) 25. Learned Authorised Representative for appellant/assessee submitted that no disallowance under section 14A of the Act is called for in the case of the assessee. The issue of satisfaction was decided against the assessee by the Tribunal vide order dated 28.01.2020 in ITA Nos. 5524 and 5525/Del/2013 for the assessment years 2007-08 and 2008-09 respectively. On appeal against the aforesaid order dated 28.01.2020, the Hon'ble Delhi High Court was pleased to delete the disallowance made de-hors any valid satisfaction recorded by the assessing officer [Coforge Ltd vs. ACIT: 436 ITR 546 (Del.)]. The findings of the Court are reproduced as under: “13. Therefore, what emerges is, if the assessee claims a certain amount of expenditure was incurred by him to earn the income which does not form part of the total income, the AO is required to examine the accounts, and thus, satisfy himself as to the correctness of the claim made by the assessee about the expenditure incurred in that regard. It is when an AO is not satisfied as to the correctness of the claim made by the assessee, about the expenditure said to have ITA Nos.3718 & 4109/Del/2017 23 been incurred by him on such income which does not form part of the total income under the Act, he then proceeds to determine the amount of expenditure, by following such method as is prescribed, i.e., Rule 8D of the Rules. 13.1 This methodology, as envisaged under Rule 8D of the Rules, is required to be followed even where the assessee claims that no expenditure was incurred by him concerning income which does not form part of the total income under the Act. 13.2 The approach of the Tribunal has been that, since a disallowance was made, it follows logically, that the AO was not satisfied. This, according to us, is not what is envisaged under the provisions of Section 144 of the Act. The satisfaction has to be arrived at by the AO having regard to the assessee's accounts and not otherwise. Concededly, there is nothing in the record to suggest that the AO examined the accounts from this perspective. 13.3 Furthermore, in our view, because the appellant/assessee had itself offered an amount which could be disallowed under section 14A of the Act, the onus shifted onto the revenue to ascertain, after examination of the accounts, as to whether or not the appellant's/assessee's claim was correct. It is only after the aforesaid exercise was conducted, could the AO have taken recourse to the prescribed method i.e. Rule 8D of the Rules, for determining the expenditure, which, according to him, needed to be disallowed under section 14Aof the Act\" (emphasis supplied)” 26. Learned Authorised Representative for appellant/assessee submitted that the assessing officer has not recorded any dis- satisfaction with the suo-motu disallowance made by the assessee. The disallowance has been made by the assessing officer simply by applying the provisions of Rule 8D without ITA Nos.3718 & 4109/Del/2017 24 pointing out any error in the computation made by the assessee. So, in absence of valid satisfaction, which is sine-qua-non for making (disallowance under section 14A of the Act, the disallowance made in the assessment order is without jurisdiction and calls for being deleted. Re: Disallowance to be computed only qua dividend yielding investments 27. Learned Authorised Representative for appellant/assessee in the alternate, submitted that disallowance under section 14A of the Act should be computed only qua investments yielding exempt income. The jurisdictional High Court in the case of ACB India Ltd. v. ACIT: 374 ITR 108 (refer pages 16-18 of CLPB) held that for the purpose of computing disallowance under section 14A of the Act, instead of taking into account total investment, only such investments which yielded exempt dividend income during the year are required to be considered for the purpose of disallowance. To the similar effect are the following decisions: • PCIT v. Caraf Builders & Constructions (P.) Ltd.: 414 ITR122 (Del) - Department's SLP dismissed in 268 Taxman 317 (refer pages 19-25, 26 of CLPB) • REI Agro Ltd vs. DCIT: 144 ITD 141 (Kol. Trib.) - Department appeal dismissed in CIT v. REI Agro Ltd.: I.T.A.T No.220 of 2013 (Cal. HC) • ACIT v. Vireet Investment (P.) Ltd.: 165 ITD 27 (Del) (SB) ITA Nos.3718 & 4109/Del/2017 25 • Religare Securities Ltd v.ACIT: 2282/Del/2013 (Del Trib.) 27.1 Emphatic reliance is placed on the decision of the Delhi Bench of the Tribunal in the case of Religare Enterprises Ltd. v. DCIT: 1549/Del/2014 (refer pages 11-15 of CLPB) wherein identical additional ground(s) raised on disallowance under section 14A of the Act (despite suo-motu disallowance made in return) was admitted and allowed in favour of the assessee. 27.2 Reliance is also placed on the decision of the Delhi Bench of the Tribunal in assessee's own case in ITA Nos. 5524/Del/2013 and 5525/Del/2013 (refer pages 27-83 of CLPB) for assessment years 2007-08 and 2008-09 respectively, wherein following the decision of the Delhi High Court in the case of ACB India Ltd. (supra), the Tribunal held that only investments yielding exempt income must be considered for the purpose of making disallowance towards administrative expenses under section 14A read with Rule 8D(2)(iii) of the Rules. 27.3 The disallowance under section 14A of the Act may kindly be directed to be restricted to Rs 44,500/- of the Act read with Rule 8D (2) (iii), considering investments actually yielding dividend income during the relevant year [being 0.5% of ITA Nos.3718 & 4109/Del/2017 26 investment value of Rs.89,00,000/- in NIT GIS Ltd.(now known as ESRI India Technologies Ltd). 28. The Learned Authorised Representative for appellant/assessee submitted that ground no.2 of additional ground of appeal regarding disallowance under Section 14A while computing book profit under Section 115JB of the Act in assessment order, the Ld. AO further added a sum of Rs.3,21,394/-, being additional disallowance computed under Section 14A, to the book profits under Section 115JB of the Act. The said action was affirmed by the Ld. CIT(A) by upholding the adjustment in view of clause (f) of Explanation 1 to section 115JB of the Act. The disallowance of Rs.14,19,500/- (including suo- motu disallowance) made under section 14A read with Rule 8D of the Rules cannot be imported into aforesaid clause (f) to Explanation 1 to section 115JB of the Act. Section 14A contained in Chapter IV of the Act begins with the phrase \"For the purposes of computing the total income under this Chapter.......\". Being so, section 14A has application only for the purposes of Chapter-IV. Income under the normal provisions of the Act is computed under the five heads specified in section 14 of the Act. Provisions relating to computation of income under different heads are ITA Nos.3718 & 4109/Del/2017 27 contained in sections 14 to 59 forming part of Chapter IV of the Act. 28.1 In other words, the said Chapter provides for computation of income of an assessee under the normal provisions of the Act. As a necessary corollary, provisions of section 14A cannot be extended to any Chapter, other than Chapter IV of the Act, i.e., while computing income under the normal provisions. 28.2 Section 115JB finds place under Chapter XII-B of the Act. Being so, provisions of section 14A contained in Chapter IV cannot be imported and incorporated under section 115JB more so when clause (f) to Explanation 1 to the said section contains no reference to section 14A of the Act. 28.3 Further, disallowance made in terms of Rule 8D of the Rules do not have any co-relation to amounts actually debited to the profit and loss account, which is necessary to enhance the book profits under Explanation 1 to section 115JB of the Act. 28.4 Emphatic reliance in this regard is placed on the decision of the Delhi High Court in the case of PCIT vs Bhushan Steel Ltd: ITA No. 593/2015, dated 29.09.2015 (refer pages 114-118 of CLPB), wherein, the Court upheld the decision of the Tribunal ITA Nos.3718 & 4109/Del/2017 28 that disallowance under section 14A read with Rule 8D could not be added while computing book profits as per section 115JB of the Act and declined to frame question of law. Relevant extract of the said judgment is reproduced hereunder: \"7. Question No.6 concerns deletion of addition of Rs.89,00,000 made by the AO for computation of the income for the purposes of Minimum Alternate Tax (\"MAT\") under Section 115 JB of the Act. This pertained to the expenditure incurred for earning exempt income under Section 14A read with Rule 8D. The ITAT has rightly held that this being in the nature of disallowance, and with Explanation 115JB not specifically mentioning Section 144 of the Act, the addition of Rs.89.00,000/- was not justified. The view taken by the ITAT cannot be faulted with. It is consistent with the decision in Apollo Tyres Ltd. v. Commissioner of income Tax (2002) 255 ITR 273 (SC) which held that \"the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115J.\" The Court declines to frame a question on the above issue.\" 28.5 Further, the Special Bench of the Delhi Tribunal in the case of ACIT vs. Vireet Investments (P.) Ltd: 165 ITD 27 (Del Trib.) (refer pages 119-150 of CLPB), inter alia, placing reliance on the judgment of Delhi High Court in the case of Bhushan Steel Ltd. (supra), likewise held that computation under clause (f) of Explanation 1 to section 115JB(2) of the Act is to be made ITA Nos.3718 & 4109/Del/2017 29 without resorting to computation as contemplated under section 14A read with rule 8D of the Rules. 28.6 To the similar effect are the following decisions wherein it has been held that disallowance under section 14A cannot be imputed while making addition to book profits in terms of clause (f) of Explanation to section 115JB of the Act: • Pepsico India Holdings Pvt. Ltd. vs. DCIT: ITA No. 4077/Del/2015 (Del Trib.) • Kamat Hotels (India) Ltd. v. ACIT: [2018] 89 taxmann.com 225 (Mum Trib) • Quippo Telecom Infrastructure Ltd v. ACIT: ITA No.4931/Del/2010 (Del Trib.) • Shriram Capital Ltd v. DCIT (ITA. Nos.512 &513/Mds/2015) (Chennai Trib.) • Scope Private Ltd. v. ACIT: ITA No. 8934/Mum./2010 (Mum Trib.) • Reliance Industrial Infrastructure Ltd. v. ACIT: ITA Nos. 69 & 70/Mum/2009 (Mum Trib.) • JCIT v. Reliance Capital Ltd.: ITA No. 3037/Mum/2008(Mum Trib.) • Bengal Finance and Investment (P) Ltd. v. CIT: ITA No. 5620/Mum/2010 (Mum Trib.) • Nahar Capital And Financial v. ACIT: ITA No. 1120/Chd/2011 (Mum Trib.) • ACIT vs. Spray Engineering Devices Ltd: (2012) 53 SOT 70 (Chd.) (URO.) • Cadila Healthcare Ltd. v. ACIT: 21 Taxmann.com 483 (Ahd. Trib.) ITA Nos.3718 & 4109/Del/2017 30 28.7 In view of the aforesaid, there is no warrant to make any upward adjustment under section 14A read with Rule 8D while computing 'book profit as per Explanation 1 to section 115JB of the Act. Being so, the adjustment made by the assessing officer as confirmed by the CIT(A) (including suo-motu addition by the assessee) calls for being reversed. 28.8 Without prejudice, the aforesaid addition to book profits shall be restricted to revised quantum of disallowance to be upheld, if any, under section 14A of the Act by this Hon'ble Tribunal. 29. Learned Authorised Representative for the Department, relied on the orders of Ld. AO and Ld. CIT(A). 30. From examination of record, in the light of aforesaid rival contentions, it is crystal clear that ground of appeal no.2 of additional ground nos. 3 to 5 are regarding disallowance under Section 14A read with Rule 8D. The assessee had suo moto calculated higher disallowance under Section 14A if the Act read with Rule 8D in the return of income. The assessee in return of income on a conservative basis suo moto disallowed expenses to ITA Nos.3718 & 4109/Del/2017 31 the extent of Rs.10,98,106/- being proportionate cost of 20% amounting investment operation. The Assessing Officer enhanced disallowance/expenses to the tune of Rs.4,19,500/- under Section 14A of the Act. Since, the assessee had made disallowance of Rs.10,98,106/-, the net additional disallowance was restricted to Rs.3,21,394/-. Ld. AO had not recorded satisfaction as to whether any expenses of relatable to earning of exempt income or suo moto disallowance made by the assessee was incorrect before applying Rule 8D. As per the ratio of judgment in Maxopp Investment Ltd. vs. DCIT 394 ITR 449 (SC), the disallowance is not sustainable. 30.1 In assessee’s case, Hon'ble Delhi High Court in order dated 28.01.2020, the Hon'ble Delhi High Court deleted disallowance made in the case of de-hors any valid satisfaction recorded by the Ld. AO. Accordingly, ground of appeal nos. 3 to 5 and additional ground nos. 2 are allowed. 31. Ground no.2 and additional ground no. 3, are with respect to disallowance under Section 14A of the Act while computing book profit under Section 115 JB of the Act amounting to Rs.14,19,500/-. ITA Nos.3718 & 4109/Del/2017 32 31.1 Section 115JB finds place under Chapter XII-B of the Act. Being so, provisions of section 14A contained in Chapter IV cannot be imported and incorporated under section 115JB more so when clause (f) to Explanation 1 to the said section contains no reference to section 14A of the Act. 31.2 Further, disallowance made in terms of Rule 8D of the Rules do not have any co-relation to amounts actually debited to the profit and loss account, which is necessary to enhance the book profits under Explanation 1 to section 115JB of the Act. 31.3 Hon’ble High Court of Delhi in the case of PCIT vs Bhushan Steel Ltd: ITA No. 593/2015, dated 29.09.2015 (refer pages 114- 118 of CLPB), upheld the decision of the Tribunal that disallowance under section 14A read with Rule 8D could not be added while computing book profits as per section 115JB of the Act and declined to frame question of law. Relevant extract of the said judgment is reproduced hereunder: \"7. Question No.6 concerns deletion of addition of Rs.89,00,000/- made by the AO for computation of the income for the purposes of Minimum Alternate Tax (\"MAT\") under Section 115 JB of the Act. This pertained to the expenditure incurred for earning exempt income under Section 14A read with Rule 8D. The ITAT has rightly held that this being in the nature of disallowance, and with Explanation 115.JB not specifically mentioning Section 14A ITA Nos.3718 & 4109/Del/2017 33 of the Act, the addition of Rs.89,00,000 was not justified. The view taken by the ITAT cannot be faulted with. It is consistent with the decision in Apollo Tyres Ltd. v. Commissioner of income Tax (2002) 255 ITR 273 (SC) which held that \"the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115J. “The Court declines to frame a question on the above issue”. 31.4 Further, the Special Bench of the Delhi Tribunal in the case of ACIT vs. Vireet Investments (P.) Ltd: 165 ITD 27 (Del Trib.) (refer pages 119-150 of CLPB), inter alia, placing reliance on the judgment of Delhi High Court in the case of Bhushan Steel Ltd. (supra), likewise held that computation under clause (f) of Explanation 1 to section 115JB(2) of the Act is to be made without resorting to computation as contemplated under section 14A read with rule 8D of the Rules. 31.5 In view of the aforesaid material facts and law, there is no warrant to make any upward adjustment under section 14A read with Rule 8D while computing 'book profit' as per Explanation 1 to section 115JB of the Act. Being so, the adjustment made by the assessing officer as confirmed by the CIT(A) (including suo- motu addition by the assessee) calls for being reversed. ITA Nos.3718 & 4109/Del/2017 34 Accordingly, ground nos.2 and additional ground no.3 are allowed. 32. In the result, ITA No.3718/Del/2017 filed by the Revenue is dismissed and ITA No.4109/Del/2017 filed by the appellant/assessee is allowed. Order pronounced in the open court on 23/04/2025. Sd/- Sd/- (RAMIT KOCHAR) (VIMAL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 23/04/2025 Mohan Lal Copy forwarded to - 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "