Ircon International Ltd., New Delhi V. Addl.CIT, Special Range- 4, New Delhi

ITA 127/DEL/2019

AI Insights

The case involves two appeals filed by M/s. Ircon International Ltd. and the Addl. CIT, Special Range-04, New Delhi, against the order passed by the Commissioner of Income Tax (Appeals)-35, New Delhi. The appeals pertain to the assessment year 2015-16 and involve various issues including the denial of deduction under section 80IA, disallowance of provisions for maintenance, taxation of global income from Malaysia and Sri Lanka, and disallowances related to advances written off and delayed deposit of provident fund contributions. The Tribunal's decision was influenced by previous judgments in the assessee's own case and the principles laid down in the DTAA.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 115620 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 24-01-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 08-01-2019
• Other Referred Cases: CIT vs. AIMIL Ltd., Apollo Tyres vs CIT, Bank of Tokyo-Mitsubishi UFJ Ltd vs ADIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Residential status; Double taxation relief; Principle of natural justice; Earning of tax free income; TDS
• Section: 43B; 143(3); 14A; 115JB; 80IA; 143(2); 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI (DELHI BENCH ‘C’ : NEW DELHI) BEFORE SH. SHAMIM YAHYA, ACCOUNTANT MEMBER AND SH. ANUBHAV SHARMA, JUDICIAL MEMBER ITA No. 127/Del/2019, A.Y. 2015-16 M/s. Ircon International Ltd. C-4, Distt.-Centre, Saket New Delhi-110017 PAN : AAACI0684H Vs. Addl. Commissioner of Income Tax, Special Range-04, New Delhi (APPELLANT) (RESPONDENT) ITA No. 1507/Del/2019, A.Y. 2015-16 Addl. CIT, Special Range-04, New Delhi Vs. M/s. Ircon International Ltd. C-4, Distt.-Centre, Saket New Delhi-110017 PAN : AAACI0684H (APPELLANT) (RESPONDENT) Assessee by Dr. Rakesh Gupta, Adv. & Sh. Somil Agarwal, Adv. Revenue by Mohd. Gayasuddin Ansari, CIT( DR) Date of hearing: 25.01.2023 Date of Pronouncement: 20.04.2023 ORDER PER ANUBHAV SHARMA, JM: Two appeals have been filed by the Assessee and Revenue respectively against order dated 27.11.2018 passed in appeal no. 53/2017- ITA No. 127./Del/2019 M/s. Ircon International Ltd. 2 18 for assessment year 2015-16, by the Commissioner of Income Tax (Appeals)-35, New Delhi (hereinafter referred to as the First Appellate Authority or in short ‘Ld. F.A.A.’) in regard to the appeal before it arising out of assessment order dated 28.12.2017 u/s 143(3) of I.T. Act, 1961 (hereinafter referred to as ‘the Act’) passed by ACIT, Special Range-4, New Delhi (hereinafter referred as Ld. Assessing officer or in short Ld. AO). 2. The facts of the case that the assessee filed return of income declaring an income of Rs. 341,15,89,440/- on 18.11.2015. The case was selected for scrutiny on the basis of parameter Manual Compulsory Guidelines of CBDT issued vide Instruction No. 04/2016 dated 13.07.2016 and accordingly notice u/s 143(2) of I. T. Act, 1961 was issued. 2.1 The assessee company is a Government of India undertaking and is engaged in the execution of civil engineering, electrical turnkey contracts in India as well as abroad. In the P&L account, the assessee company has declared a profit of Rs. 844,28,48,066/-. 2.2 During the year under consideration Ld. AO examined a claim of deduction u/s 80IA of the Act, in regard to the work of contractor for the projects undertaken by the assessee company and was of the view that the contract agreement with the Rail Coach Factory, Rae Bareli, for setting of rail coach factory at Lal Ganj, Rae Bareli, the assessee was merely providing work contracts and assessee was not developer of such infrastructure facilities, therefore, denied deduction of Rs. 90,68,76,022/- u/s 80IA and added back the same to the total income of assessee. Ld. CIT(A) by making relevant observations on page no. 24-29 of the order deleted the addition following the Tribunal’s order in assessee’s own case for 2000-01. ITA No. 127./Del/2019 M/s. Ircon International Ltd. 3 2.3 Further a disallowance was made for the provision of maintenance to the extent of Rs. 23,23,98,275/-. Ld. AO considered that the provisions for maintenance expenses were neither ascertained liability nor the quantum has any scientific basis accordingly, the addition was added back to the income of assessee. Ld. CIT(A) while dealing with the issue on page no. 41-43 of the order has deleted the addition on the basis of findings in favour of the assessee from the Tribunal for A.Y. 2001-02 and his own decision for A.Y. 2012-13. 2.4 The Ld. AO had further made an addition of Rs. 366,46,46,944/- of global income earned from Malaysia and Sri Lanka with reasoning that as per existing DTAA, India has adopted credit method. Ld. CIT(A) on page no. 52-54 has considered the matter on the basis of decision of ITAT in asessee’s own case for 2000-01 and his own decision for A.Y. 2013-14 and 2014-15. Ld. CIT(A) has sustained the addition under the normal provision however addition under the MAT was deleted. 2.5 Ld. AO had made an addition on account of delay in deposit of provident fund contribution of the employees beyond the due date of deposit under the relevant Act. Ld. CIT(A) dealing with the issue on page no. 69-70 has deleted the addition by following judgment of Hon’ble Delhi High Court in CIT vs. AIMIL Ltd. 35 DTR 68 (Del). 2.6 Ld. AO has taken into account the fact that during the year assessee has earned tax free income of Rs. 19,22,69,510/- and assessee disallowed an amount of Rs. 4.96 lakhs u/s 14A. Ld. AO after taking into account the investment activity during the year concluded as follows in para no. 37 :- “37. On perusal of the documents available on record and having regard to the accounts of the assessee. I am not satisfied with the correctness of the claim of the assessee. The assessee has made substantial fresh investments during the year as the investments as on 31.3.2014 were Rs. 494.22 crore and against this, investments ITA No. 127./Del/2019 M/s. Ircon International Ltd. 4 as on 31.3,2015 are Rs. 737.21 crores. The amount disallowed by the assessee is not commensurate to the exempt income earned as well as investments being handled by the company. The assessee itself has stated that the decisions of making investments are taken by investment committee. This indicates that there is a well prescribed manner in which investment related matters arc handled in the company. In such a scenario, it cannot be accepted that the assessee incurred only Rs. 4.96 lakhs in earning exempt income. The earning of exempt income is not in a nature of passive activity having no input In fact, in present situation making of investment, maintaining or continuing investment and lime of exit from investment are well informed and well informed and well coordinated management decisions involving not only inputs from various sources but also acumen of senior management functionaries. Therefore, cost is inbuilt into even so called “passive” investment. There are incidental expenditure of collection, telephone, follow up etc. in addition to application of mind, time and energy by the management & concerned persons.” “ 2.6.1 Accordingly, proceeded to make a disallowance of Rs. 3,02,90,000/- as per calculations u/s 14A r.w.r 8D. Ld. AO has taken the average of value investment appearing in the balance sheet of the assessee on the first day and the last day of the previous year, at Rs. 615.72 crores and thus he calculated the disallowance at 0.5 % of Rs. 6,15,72,00,000/-, at Rs. 3,07,86,000/- and further adjusting suo moto disallowance of 4,96,000/-, made a disallowance of Rs. 3,02,90,000/-. 2.6.2 Ld. CIT(A) has sustained the addition u/s 14A with relevant findings of page no. 54-58 by restricting the addition to 1.50 crores on the basis of the submissions of the assessee and further directed that no addition shall be made on account of disallowance made u/s 14A r.w.r. 8D under the provisions of MAT. 2.7 Lastly the Ld. AO has made a disallowance of Rs. 96,95,365/- against the advances written off by the assessee as they were never booked as revenue in P&L account in any earlier year. Ld. AO made following relevant findings in para no. 42 as follows :- ITA No. 127./Del/2019 M/s. Ircon International Ltd. 5 “42. The submissions filed by the assessee have been examined. It may be mentioned that advances written off by the assessee were never booked as revenue in P&L account in any earlier year. These appear to advances to some parties which have been written off by the assessee during the year, it may also be mentioned that the nature of 'advances written off’ is different from 'bad debts written off because in the case of bad debts, the amount have been shown as receipts in the earlier years. However, the same is not the case with advances and these are not allowable expenditure under the provision of Income Tax Act. Further, the assessee has not filed any details or nature of advances written off during the year. Accordingly, same is being disallowed and added back to the income of the assessee. I am satisfied that the assessee has furnished inaccurate particulars of income and accordingly penalty proceedings u/s 27 I (I )(c) are being initiated separately. (Addition : Rs. 96,95,365/-)” 2.7.1 The Ld. CIT(A) dealing with the issue of advances written off has recorded findings at page no. 58-61 while allowing the ground partly in favour of the assessee observing that the amount of Rs. 29.23 lacs was actually receivable from M/s. PGCIL but categorized under advance. This amount was withheld by the client on account of rebate for dismantled material. Ld. CIT(A) considered that this amount of Rs. 29.23 lacs originated by crediting the revenue, therefore same cannot be considered as capital expenditure and accordingly out of total disallowance of Rs. 96,95,365/- deleted to the extent of Rs.29.23 lakhs and confirmed Rs. 67,72,365/-. 3. Assessee is in appeal before tribunal raising following grounds : 1. (a)That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in treating the foreign income of Rs.366,46,46,944/- as taxable in India whereas this income is not taxable in India in any manner and more so when assessee is following exemption method and paid taxes on the said income ITA No. 127./Del/2019 M/s. Ircon International Ltd. 6 under the tax laws of the Host Country as per the provisions of Double Taxation Avoidance agreement and impugned addition is illegal and is based on incorrect facts and findings and without considering and appreciating the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds and without observing the principles of natural justice. l(b)That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in treating the global income of Rs.366,46,46,944/- taxable in India is beyond jurisdiction, illegal, bad in law and against the facts and circumstances of the case. 2.(a) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on the facts in not deleting the entire disallowance of Rs. 3,02,90,000/- made by the Ld. AO u/s 14A r.w.r. 8D and has erred in sustaining the same to the extent of Rs. 1,45,04,000/- and that too by recording incorrect facts and findings and without observing the principles of natural justice. 2(b)That in any case and in any view of the matter, action of Ld. CIT(A) in sustaining the action of Ld. AO in making disallowance of Rs. 1,45,04,000/-, is bad in law and against the facts and circumstances of the case. 2. (a) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not deleting the entire disallowance of Rs.96,95,565/- made by Ld. AO on account of advance written off and has erred in sustaining the same to the extent of Rs.67,72,365/- and that too by recording incorrect facts and findings and without observing the principle of natural justice. 3. (b) That in any case and in any view of the matter, action of Ld. CIT(A) in sustaining the action of Ld. AO in making disallowance of Rs. 67,72, 365/- on account of advance written off, is bad in law and against the facts and circumstances of the case. 2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts of the case in not reversing the action of Ld. AO in charging interest u/s 234A, 234B, 234C and 234D of the Act. 3. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.” 4. Revenue is in appeal before tribunal raising following grounds : ITA No. 127./Del/2019 M/s. Ircon International Ltd. 7 “1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was correct in allowing the deduction u/s 80IA amounting to Rs.90,68,76,022/- by rejecting the view of the AO that the agreement entered into by the assessee is of work-contract nature and, accordingly, it is not eligible for deduction u/s 80IA. 2. 2.1 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was correct in deleting the addition of Rs.23,23,98,275/- made on the account of Provisions for Maintenance by holding the said expenditure as being similar to after-sales service/warranty expenditure. 2.2 Without prejudice to the above, whether the Ld CIT(A) was correct in holding that the amount of Rs.23,23,98,275/- claimed on account of Provision for maintenance is not liable to be added in computing the book profits of the assessee u/s 115 JB of the Act. 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was correct in excluding income from Malaysiya and Sri Lanka amounting to Rs.366,46,46,944/- from net profits of the assessee company for working out of book profits u/s 115 JB of Income Tax Act, 1961. 4. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in deleting the addition made by the AO in respect of delayed payment of the Employee’s contribution to the Provident Fund and ESI, not appreciating that the Employees contribution to PF & ESI is governed by the provisions of section 2(24) read with section 36(l)(va) and not by section 43B of the Income Tax Act, 19961(‘the Act’)” 4. Heard and perused the record. The submissions on both sides were primarily on the basis of previous year judgments in assessee’s own case by Tribunal. A chart of issues with relevant orders of Co-ordinate Benches is filed as paper book. 5. As with regard to Appeal of assessee, ITA No. 127/Del/2019 ITA No. 127./Del/2019 M/s. Ircon International Ltd. 8 the grounds are decided as follows; 6.1 Ground no. 1; Ld. CIT(A) has dealt with the ground no1 from para no. 4.5 onwards and benefited the assessee with conclusions made in para no. 4.5.3.2 on the basis of findings in assessee’s own case for A.Y. 2012-13. Further the matter of fact is that vide order dated 28/1/2022, a co-ordinate Bench dealing with the issues for A.Y. 2006-07 to 2013-14 in ITA No 2401 and Ors, has followed the findings in case of assessee for A.Y. 2000-01, with following relevant observations in para no. 10 to 14 :- “Income through PE & 115 JB: 10. The assessee computed the income /profits in accordance with the provisions o f DTAA with UK, Bangladesh and Malaysia to Rs .12,26 ,84,700/-. The AO disallowed Rs.2,75,600/- on account o f corporate office expenses which have not been ITA No. 2401 & Ors M/s. Ircon International Ltd. 9 deducted by the assessee while computing profit from foreign entities. 11. The ld . CIT(A) enhanced this amount to the tune of the total amounts earned from the foreign projects . 12. The ld . CIT(A) while enhancing held that the assessee is a resident of India and due to the state of residency the India has inherent right to tax global income of an assessee as per provisions of section 5 of the IT Act. Sub-clause-(c) of Clause- (1) to section 5 provides that total income of any previous year of a person who is a resident includes all income from whatever source derived which accrues or arises to him outside India during such year. As per provisions of the Act the appellant is a resident assessee of India and because of this income from all sources derived by the appellant within India or outside India has to be included in its total income for taxation purposes in India. Due to state of residency, India has inherent right to tax the global income of the appellant as per provisions of section5. As per India’s existing DTAA’s, India has adopted credit method whereby the global income of a resident tax payer is considered which includes income accruing or arising outside India as well, even though on such income a more beneficial tax treatment under the tax laws of host country ITA No. 127./Del/2019 M/s. Ircon International Ltd. 9 may have been available. Under this system once the assessee has paid tax under the tax laws of host country, the credit for the tax payments in the host countries is given against the global income of the assessee under Indian Income Tax Act, which includes the overseas income as well. The appellant has claimed that it has permanent establishment in the foreign countries from where the project income have been derived and with India has entered into double taxation avoidance ITA No. 2401 & Ors M/s. Ircon International Ltd. 10 agreement. The appellant has opted for application of DTAA u/s 90(2). The character o f the income earned by the appellant is 'income from business' . Article- 7 of relevant DTAA's which are applicable in the appellant's case are similarly worded . In these DTAAs, i t has been provided that the profit of an enterprise of contracting state shall be taxable only in that state unless the enterprise carries on business in other contracting state through a permanent establishment situated therein . I f the enterprise carries on business as aforesaid, the profits of the enterprises may be taxed in the other Contracting State but only so much of them as is attributable directly or indirectly to that permanent establishment. This Article-7 of the all relevant DTAA is consisting of two parts, i .e., one is that the profit o f an enterprise o f a contracting state shall be taxable only in that state; and, the second part is that when the enterprise carries on business in the other contracting state through a permanent establishment. In that si tuation , the profits of enterprise may be taxed in the other contracting state but only so much of them as is attributable to that permanent establishment. Thus, the first part of the Article gives exclusive right to the taxation of business income to the state of residency as the phrase used as 'shall be taxable only'. The second part of this article 7 of the relevant DTAA provides right to taxation of the state of residency as well as to the other contracting state wherein the permanent establishment si tuated . Thus, the Article 7 provides that in such a situation, the state o f the residents does not have exclusive right to tax but it has inherent right to tax such income. The article also provides that the state of the source has also right to tax the business income . It is a non-exclusive right in case there exist a permanent establishment. The phrase used 'may be taxed'. Therefore, the combined reading of the sentences o f Article 7 of ITA No. 127./Del/2019 M/s. Ircon International Ltd. 10 relevant DTAA means that the ITA No. 2401 & Ors M/s. Ircon International Ltd. 11 state of source has non-exclusive right to tax business income attributable to permanent establishment . In view of this, such income may be taxed as per the domestic laws. This nonexclusive right of state of source does not extinguish the inherent right o f state of residency to tax global income of its residents. In the circumstances, where the state o f the residents o f the taxpayer has given up its inherent right to tax the global income, in such situation, the phrase used in Article 7 of the DTAA is 'shall be taxable only'. Since in all the DTAA applicable in the case of appellant the phrase used is 'may be taxed', therefore , inherent right of taxation o f global business income in India is not lost. The fiscal domicile of the appellant had to be decided in view of the provisions o f Treaty . Appellant's contention that its foreign income is taxable income in foreign countries and it cannot be taxed in India is an untenable contention . It is a fallacious view taken by the appellant by wrong interpretation o f Article 7 of relevant DTAA. In the sphere of international taxation, there are two fundamental systems o f taxation, one is based on residency of the taxpayer and the other is based on the source of the income. In the international arena, most of the countries follow the residency based taxation system. According to this system, a country can tax its residents on the global income of the taxpayer while the non-residents are taxed only on the income sourced inside the country. The provisions of section 5 as enumerated above give a scope of a total income o f the assessee who is resident of India. As per these provisions, the income of the resident taxable in India includes all income from whatever source derived which is received or is deemed to be received in India in such year by or on behalf of such person or accrues or arises or is deemed to accrue or arise in India during such year or accrues or arises to him outside India during such year . Thus, the scope of the total income in the case o f a resident also extended to the income accrues or arises to him outside India during such year. Under the source based system, a country can tax a person whether resident or non- resident, only on income sourced inside the country . Had all the countries in the world following source based taxation system then the problem of double taxation would not have arisen . However, under the resident based system , there ITA No. 127./Del/2019 M/s. Ircon International Ltd. 11 arises a situation of double taxation because countries where the taxpayer is a resident then it will have to pay tax on its global income. To avoid the double taxation , two rules are devised in the DTAA's, i .e ., one is by way of providing Distributive Rules under which taxing rights allocated between contracting state with respect to various kinds of income; and the second rule is to put state of residence under an obligation to give either credit for taxes paid in the source state or to exempt the income which is taxed in source state . The taxation law in India follows the credit method for reliving the burden o f double taxation. Therefore , appellant ought to have included the overseas income against which credit for taxes paid overseas should have been availed . Therefore , the income received from foreign projects of Rs. 12,26,84,796/- required to be included for taxation purposes under normal provisions of the IT Act and credit for taxes paid in the host countries i .e. Malaysia of Malaysian Ringgets of 2 ,783,105 .90 after converting the same in Indian Rupees as on 31.03.2006 should be allowed . Accordingly, the income to the extent o f Rs .12,26,84 ,796/-has been enhanced. 13. The ld . CIT(A) has also held that this amount is required to be taxed both under normal provisions and MAT provisions. This issue has been adjudicated by the Tribunal in ITA No .2596/Del/2004 for the A .Y . 2000-01 and also in ITA No .1825/Del/2005 dated 31.10.2019 and allowed in favour o f the assessee. The relevant part o f the order of the Tribunal is as under: “22 .2 The Assessing Officer held that adjustment can be made only as provided in Explanation to section 115J as decided by the Hon’ble Supreme Court in the case o f Apollo tyres Vs CIT (2002) 255 ITR 273 (SC). According to him , exclusion of DTAA is not provided in tha t explanation. The Ld . CIT(A) confirmed the action of the Assessing Officer . 22 .3 Before us the Ld . Counsel of the assessee submitted that issue in dispute is covered in the favour o f the assessee by the decision o f the Tribunal in the case o f the assessee for assessment year 2000- 01 , wherein it is held that when such income is not to be taxed as per DTAA , it cannot be brought to tax indirectly under the deeming fiction under section 115JB o f the Ac t. 22 .4 The Ld . DR , on the other hand relied on the order of ITA No. 127./Del/2019 M/s. Ircon International Ltd. 12 the lower authorities . 22 .5 We have heard rival submission and perused the relevant material on record. The Tribunal in ITA No. 2596/Del/2004 in the case o f the assessee for assessment year 2000-01 has adjudicated on the identical is sue in dispute involved as under: “9 . We considered the above heard the rival submissions made by the parties in respec t of Ground No.7 and it is seen that income earned from permanent es tablishment in foreign countries is liable to be excluded from the computation o f book pro fit in view o f the decision in the case o f the bank o f Tokyo-Mitsubishi UFJ Ltd vs . ADIT 152 1TD 796 (Del .), which has been af firmed by Hon’ble High ITA No. 2401 & Ors M/s. Ircon International Ltd. 14 Court o f Delhi . When such income is not to be taxed as per DTAA , it cannot be brought to tax indirectly under the deeming fiction under sec tion115JA . Accordingly , this ground of appeal is decided in favor o f the appellant .” 22 .6 The issue in dispute involved in the present ground o f the appeal , being identical to the issue adjudicated by the Tribunal (supra) above, respect fully following the finding of the Tribunal (supra), we direct the Assessing Officer to exclude the income which is subject matter o f dispute under this ground of the appeal from the ambit o f the computation of book profit under section 115JB o f the Ac t. The ground o f the appeal is according allowed.” 14. Following the orders of the Co-ordinate Benches of the Tribunal, the appeal of the assessee on this ground is allowed." Ld. DR could not distinguish on the same, therefore following the aforesaid findings of co-ordinate bench, the ground is decided in favour of assessee. 7. Ground no. 2; Ld. CIT(A) has dealt with the issue in para no. 4.6 onwards and issued directions to the Ld. AO in para no. 4.6.3.1 as follows :- “4.6.3.1. The submissions of the appellant, case laws cited and the assessment order have been considered. I have considered the observations made by the AO while making the ITA No. 127./Del/2019 M/s. Ircon International Ltd. 13 disallowance under rule 8D (2) (iii) r.w.s 14A of the Act. During the course of appellate proceedings the AR argued that the case of appellant is covered with the decision of the Jurisdictional Delhi High Court in the case of M/s. ACB India Vs. ACIT, where Hon'ble High Court held that the disallowance u/s 14A cannot be more than 0.5% on the average of the investments made on which the appellant received the dividend income. In the present case, the appellant has submitted the details of the dividend received and also worked out the disallowance following the decision of the Hon'ble Delhi High Court, which works out to Rs.1.50 crores. I also find that Ld. CIT(A)-39,New Delhi, while allowing the appeal of the assessee on this ground has followed the above judgment. Respectfully following the judgment of the Hon'ble Delhi High Court the addition made by the AO is restricted to Rs.1.50 crores. The AO shall further allow the addition made by the Appellant itself i.e. Rs.4.96laes and thus, the addition shall be restricted to Rs. 1,45,04,000/- only. This ground of appeal is partly allowed.” 7.1 However, the issue in regard to assessee, has been dealt by a co-ordinate bench as ITA no. 1400/Del/2018 for A.Y. 2014-15 and has made following observations in para no. 24 to 29 which are squarely applicable on facts:- “24. The details of the investment of the assessee are as under : Pa r t i c u l a r s Ba l a n c e a s o n 3 1 - 0 3 - 2 0 1 4 (R s . i n c r o r e s ) Balance as on 31-03- 2013 (Rs. in crores) N o n C u r r e n t In v e s t m e n t 1 9 1 . 1 9 1 1 6 . 2 7 (r e f e r s c h e d u l e 1 2 o f Ba l a n c e s h e e t P B 5 3 4 ) C u r r e n t I n v e s t m e n t s ( r e f e r s c h e d u l e 1 6 o f b a l a n c e s h e e t PB 5 3 8 ) 1 7 6 . 0 1 6 4 . 9 5 To t a l 3 6 7 . 2 0 1 8 1 . 2 2 Average investment = (367.2 = 181.22)/2= 274.21 Cr. 25. The AO noticed that assessee declared tax free income amounting to Rs. 17,82,35,102 /- and itself disallowed a sum of Rs.2.52 lakhs u/s 14A of the Act. During the course of assessment ITA No. 127./Del/2019 M/s. Ircon International Ltd. 14 proceedings, the assessee informed the AO that no interest was paid on investments made on which assessee earned the exempt income. 26. The assessee contended that it has itself disallowed about 10% of the expenses on salary etc paid to the team consisting of manager (finance) and Asst. Manager considering the time involved by these persons in this activity apart from their routine work. According to AO substantial fresh investment was made in the year ending as on 31.03.2014 and there was increase in investment during the year by an amount of Rs. 198.93 crores. Thus according to AO the amount claimed to have disallowed by the assessee was not commensurate to the exempt income. In his view there were also incidental expenditure of collection, telephone follow up etc. 27. Accordingly invoking the provisions of clause (iii) of Rule 8D(2), the AO made a disallowance of Rs. 1,94,86,000/- after considering the disallowance made by the assessee itself amounting to Rs. 2.52 lakhs. 28. Dur i ng the course of appe ll at e proc eedi ngs, it was ar gued be for e Id. CIT(A ) t hat the cas e of as s essee is cov er ed wi th the dec is i on of the Jur is di ctional Delhi High Cour t in t he case of M/ s ACB India Vs . ACIT, wher e Hon' bl e High Cour t he ld t hat the disal lowanc e u/s 14A cannot be mor e than 0.5 % on t he aver age of t he i nves t me nts made on whi ch the as s es s ee r e cei ve d t he di vide nd i ncome . Id. CI T(A) hel d t hat i n the pr es ent cas e , t he ass es s ee has submit ted the de tai ls of t he di vi dend r ec ei ved and al s o wor ke d out the dis allowance following t he de ci s ion of the Hon'bl e De lhi High Court , whi ch wor ks out t o Rs. 137.105 Lac s . The I d. CIT (A ) fol lowi ng the j udgment of t he Hon' bl e Del hi High Court re s tri cted the amount t o Rs . 137. 105 l acs and det er mi ned at Rs. 134.585 l acs owi ng to the di sal lowanc e of Rs . 2.52 l akhs made by t he ass e ss e e. 29. Plac ing r eliance on t he judgment of t he Hon' bl e j uri sdic tional High Cour t, kee ping i n vi ew, t he av er age i nves t me nts , t he di s all owanc e of Rs . 134. 585 lacs ( Rs . 137.105 - Rs. 2,5 lac s ) made by the Re ve nue u/ r 8D (2)(i i i ) by c ons ider i ng 0. 5% of the ave rage inv estment of Rs . 271.21 Cr . i s he r eby s us tained. ” No distinguishing facts appear, accordingly following the ITA No. 127./Del/2019 M/s. Ircon International Ltd. 15 aforesaid, the addition is sustained. 8. Ground no. 3; The Ld. CIT(A) in para no. 4.7 onwards has dealt with the issue and made relevant findings in para no. 4.7.3.1 and 3.2 as follows :- “4.7.3.1 The submission of the appellant/case laws cited and the assessment order have been considered. During the course of appellate proceedings on specific enquiry made from the appellant with regard to details of disallowances made, I find that the amount of Rs.29.23/- lakhs- are actually receivable/debtors from M/s PGCL but categorized under advance. This amount was withheld by the client from the revenue on account of rebate for dismantled material to be allowed as per the contract. The amount written off is revenue in nature since it was originated by crediting to revenue basically consisted of the value of material not returned by sub - contractor. 4.7.3.2 Since the amount due from M/s PGCIL Rs.29.23 lakhs was originated by crediting the revenue (i.e. profit and loss account), same cannot be considered as capital expenditure. Hence out of the total disallowance of Rs.96,95,365/-, disallowance amounting to Rs.29.23 lakhs is deleted and remaining disallowance amounting to Rs.67,72,365/- is confirmed. This ground is partly allowed.” 8.1 However, as submitted for Assessee in assessee’s own case the issue has been dealt with ITA No. 1400/Del/2018 for A.Y. 2014- 15 which following relevant findings in para no. 18 to 20 :- “18. This ground relates to disallowance made by the AO amounting to Rs.8,26,887/- on account of advance written off. On the ground that, no details regarding advances written off has been filed by the assessee before the AO. 19. The Id. CIT(A) held that the expenditure was already allowed in the year in which the material was purchased and the same cannot be allowed twice when the same has been returned by the sub-contractor. 20. On going through the facts, we decline to interfere with the ratio of the Id. CIT(A). The appeal of the assessee on this ground is dismissed. ITA No. 127./Del/2019 M/s. Ircon International Ltd. 16 8.2 Then in ITA no 2401 and Ors decided on 28/1/2022 for AY 2006-07 to 2013-14, the issue was disposed of with following findings; “Advances Written off: 52. This ground relates to disallowance made by the AO amounting to Rs .60,00,000/- on account of advance written of f. On the ground that, no details regarding advances written off has been filed by the assessee before the AO . 53. The ld . CIT(A) allowed an amount of Rs.22 ,80,890/- pertains to TDS credit which could not be availed and written off and confirmed an amount of Rs.31,44,974/- spent on account of expenditure incurred by the assessee in connection with the joint venture . This amount pertains to the expenses incurred by the assessee for the Joint Venture wherein the expenses had to be irrecoverably written off. This is a sunk cost to the assessee which has been spent from the accounts of the assessee. Hence , the amount is eligible to be written off and to be claimed. In the result, the appeal of the assessee on this ground is allowed”. 8.3 The Previous year orders as reproduced above do not benefit the assessee as the issues were dealt on the basis of facts for said years. In the case in hand Ld. CIT(A) has taken note of the facts submitted during appeal with regard to amount due from M/s PGCIL of Rs.29.23 lakhs and there is nothing to show that any other amount was booked as revenue. The order of Ld. CIT(A) requires no interference. 9. As with regard to Appeal of Revenue ITA No. 1507/Del/2019, the grounds raised are adjudicated as follows :- 9.1 Ground no. 1 – This arises from the deletion of addition u/s 80IA of the Act by the Ld. AO treating the agreement entered into by assessee as the work contract in assessee’s own case for A.Y. ITA No. 127./Del/2019 M/s. Ircon International Ltd. 17 2000-01. The issue has been examined threadbare in previous years holding that assessee is entitled to claim deduction u/s 80IA and Ld. CIT(A) has merely followed the same. Ld. DR is unable to cite any contrary on facts and law. Thus by following the Tribunal’s order in favour of the assessee, Ld. CIT(A) has committed no error requiring interference. The ground is decided against the assessee. 9.2. Ground no. 2 :- It can be observed that this issue has also been examined at the level of Tribunal repeatedly and lately while determining appeal of the assessee for A.Y. 2014-15 in ITA no. 1400/Del/2018 with following relevant findings in para no. 9 to 14:- “9. The as s ess ee has c hall enge d di sal l owanc e of pr ovisi on f or mainte nance for t he proj ec t exe cut ed by the as s es s ee amount ing to Rs . 105,96, 46, 297/- The As s es si ng Off ic er has he ld t hat thi s prov is ion has bee n made on es t imate d bas is and unas c er tai ned li abil i ty. The asse ss e e submit te d that it has to mai ntai n or r e pair the def ect s in the pr ojec ts ex ecut ed by it dur ing the de fe ct liabi lity pe riod as s peci fi ed i n t he cont ract agr ee ment . The as se s see cl aimed that thes e are mandatory ex pens es and pr ovisi on has be en made on t he bas is of its past ex per ie nce and on sc ienti fi c bas i s, t her efor e, such pr ovisi on is an allowabl e expenditure. 10. It was submi t ted that the pr ovisi on for mai nte nance ex pendi tur e i s pr ovided to cov er t he company' s ex pendi tur e t o l iabi li ty towards def ec t r ect if i cati on and/or mai nte nance incur r ed by t he company af t er compl et ion of the contr act. Such prov isi on is made t aking int o account cont r act ual pr ovisi ons, oper ating t urnov er for the y ear, ty pe of pr ojec t, per i od of mai nte nance , cont r actual obli gations of the s ubcont rac tors and ot her r el ev ant fac tors , if any. As pe r the agr ee me nt wi th the cl ient, the c ompany i s l iabl e to mai nt ain the wor ks exe cut ed by i t e ven aft er the proje cts are compl et ed and handed ov er to t he c li ent s , f or a per i od of 12 or 24 mont hs from the dat e of c ompl etion. Duri ng this ITA No. 127./Del/2019 M/s. Ircon International Ltd. 18 per iod, all the defec ts ar e to be r ec ti fi ed fr e e of cost ev en though the Company has alre ady handed over comple te d proje ct t o the cl ient. The t otal proj ect cos t i. e. c ontr ac t r ec ei pts, have al re ady be en r ece iv ed fr om the c li ent i n r e spe ct of t he said pr ojec ts befor e handing ov er the same to the cl ient and no s epar at e cons i der ation is rece iv able . Dur i ng the year an amount of Rs .2, 27,42, 328/ - has bee n provi ded for non-DTAA pr oje ct and Rs . 7,18, 000/- f or DTAA pr ojec ts . 11. The ld. CIT(A) de l et ed the addit ion hol ding that the as s ess ee has bee n claimi ng that provi s ion for mai nte nance has be en made taking into acc ount cont ractual pr ovis ion, ope rating turnov er of t he ye ar, t ype of proj ect per iod of maint enanc e and othe r re le vant factor s. It was hel d by t he ld. CIT (A) that as per cont ract agr ee me nt the as se ss e e i s l iabl e to pr ovide fr ee of c ost maint enanc e to the c li ent s for the pe r iod me nti oned in the agre ement . At the t ime of c ompl et ion of the contrac t, li abi li ty aris es in t he hands of the ass es s ee company to provide f re e mai nte nance to t he vari ous contrac te es for the per iod s pec if ied in the agr e eme nt. Thi s l iabil ity ar is es at t he ti me of the c omple tion of t he proj ec t it s el f and obvious ly t he expe ndit ur e re quir ed can only be es ti mat ed on the bas is of pas t ex per ience , natur e of the cont r act, t ype of the pr oje ct and tur nover of the asse s se e in t hat parti cul ar year . The ld. CIT (A) hel d that t he ass es see cl aimed t hat es ti mat e has be en made on bes t e s ti mat ed bas is bas ed upon t he ex per ience i n the constr uct ion indust ry and t her ef or e, the obj ect ion of t he As s es si ng Of fi ce r t hat t he liabili ty has not ari s en dur ing the year as it has be en quanti fi ed on es ti mat ed bas is i s not cor re ct. 12. It i s als o a f act not dis pute d by t he As s es si ng Off ic er in the as s es s ment order t hat all along t he pr ovis ion f or mai ntenance of ex pens es have bee n al lowed to the asse s se e company ex ce pt the di sall owanc es made i n A. Y. 1985-86 and 1995- 96. ITA No. 127./Del/2019 M/s. Ircon International Ltd. 19 13. We fi nd t hat the same matt er of pr ovi s ion for mai nte nance stands adjudi cat ed by the Co-or dinate Benc h of t he Tr ibunal. The as ses s ee has be en pr ovidi ng for ex pens es to be i ncur r ed on demobil izat ion, mai nte nanc e and othe r ex pens es s ince by i nce pti on of t he Company. The same has bee n all owe d by the Depar tment all al ong exc ept in the Ass e ss ment Y ear s 1985-86, 1995-96 & 2001- 02, 2002-03, 2003-04, 2004-05 and 2005-06. In thes e ye ars , the A. O. disal lowe d the afores ai d prov isi ons. Fur the r, in appeal befor e the Ld. CIT(A), i n t he as se ss ment year 1985-86, 1995-96 and 2001-02 and 2002-03, t hes e we r e al lowed on the basis of the afor esai d judi ci al analy sis . 14. Sinc e, the dec isi on of the l d. CIT (A) i s bas ed on the de ci sion of the ear l ie r y ear s whi ch s tands uphel d, we dec li ne to i nt er fe re wit h t he order of the ld. CIT(A) on thi s i ss ue .” Again Ld. DR has failed to bring anything on record to distinguish the aforesaid findings accordingly, the ground raised is decided against the revenue. 9.3 Ground no. 3 ; Again the issue has been examined in previous years at the level of the Tribunal and for A.Y. 2014-15 the issue has been considered and decided in favour of the assessee with following relevant findings in para no. 15 to 17 reproduced as under : “15. The i s sue has be en ex tensi ve ly di s cus s ed at par a no. 10 to 14 in t he orde r of t he ITAT ITA No.2401/ De l/ 2013 A. Y. 2006-07 vide or de r dat ed 23.01.2022. 16. Thi s is sue has be en adjudic ate d by the Tr i bunal in ITA No.2596/ De l/2004 for the A.Y . 2000- 01 and als o in I TA No.1825/De l/ 2005 dat ed 31.10.2019 and all owe d in fav our of the ass es s ee . The re le vant part of the orde r of the Tr i bunal i s as under : ITA No. 127./Del/2019 M/s. Ircon International Ltd. 20 “22. 2 The As s essing Of fi ce r hel d t hat adj ust me nt can be made only as pr ov ided in Ex planation to s ect ion 115J as dec ide d by the Hon’ble Supr eme Court in the c ase of Apol lo t yr es Vs CIT (2002 ) 255 ITR 273 (SC ). Ac cor ding t o hi m, ex cl usi on of DTAA is not prov ided i n that ex planat ion. The Ld. CIT (A ) conf ir me d the ac tion of the As se ssi ng Of fi cer . 22.3 Bef ore us the Ld. Couns el of the as s es se e s ubmi tt ed t hat i ss ue i n di sput e is cove re d i n t he fav our of the as se ss e e by t he de ci si on of t he Tr i bunal i n t he cas e of the as s es s ee f or as s es s me nt ye ar 2000-01, wher ei n it is held t hat whe n s uch inc ome is not t o be tax ed as pe r DTAA, i t cannot be br ought to tax i ndir e ctl y under the de eming fi ct ion under se ct ion 115J B of the Act . 22.4 The Ld. DR, on the other hand r el ie d on t he or der of the l ower authori ti es. 22.5 We have hear d ri val s ubmi s si on and per us ed the r el ev ant mat eri al on r ec ord. The Tr ibunal i n ITA No. 2596/ De l/ 2004 in the cas e of t he as s ess ee for as se ss ment year 2000-01 has adjudi cat ed on t he ide nti cal is s ue in di sput e invol ved as under : “9. We cons ider ed the above he ard t he r iv al s ubmi ss ions made by the part i es in r e spe ct of Gr ound No.7 and i t is s e en that income ear ned f rom per mane nt e s tablis hme nt i n f ore ign c ountr i es is li able to be ex cl uded f rom the c omput ati on of book pr ofit in v ie w of the de ci sion i n t he cas e of the bank of Toky o-M its ubishi UFJ Lt d v s. ADIT 152 1TD 796 (De l. ), which has be en af fi rmed by Hon’ ble High Court of Del hi. When such i ncome is not to be tax ed as per DTAA, it cannot be br ought to t ax i ndir ec tl y under t he deeming fi ct ion under s ec ti on115JA. Acc or dingl y, t his gr ound of appeal is decided in fav or of the appe llant. ” 22.6 The is sue in di s pute invol ved in the pr es e nt gr ound of t he appe al, being i dentic al to the is s ue adjudi cat ed by the Tr ibunal (s upr a ) above , r es pect f ull y fol lowi ng t he f indi ng of t he Tr i bunal (s upr a), we dir ect the As s es s ing Of fi ce r to ex cl ude ITA No. 127./Del/2019 M/s. Ircon International Ltd. 21 the inc ome whi ch i s subj ec t matt er of dis put e under thi s gr ound of the appeal fr om the ambit of t he computat ion of book pr of it under se ct ion 115JB of the Act . The ground of the appeal is ac cor ding all owed. ” 17. Fol lowing the or de rs of the Co-or dinat e Benc hes of t he Tri bunal, the appeal of the Reve nue on thi s ground is di s mi ss e d and that of the ass es see is all owed. ” 9. 3.1 Ld. DR has faile d to make an y a r gu ment on fac ts or la w t o dist ingui sh, ac cordi ngl y foll owi ng t he c o-ordi nat e bench dec is i on on the is s ue, t he ground is de cided aga inst t he re venue. 10. Ground no. 4 : - It i s pe rtinent to me nti on t hat Ld. AR ca ndidl y a cc e pte d tha t aft er j udgme nt of Hon’bl e Supre me Court of Indi a in Che ckm at Ser vi ce s Pvt . Lt d. (2022) 143 t axm an. com 178 (SC), the i ssue i s now c overe d i n favour of t he Reve nue. In the light of s a me thi s ground i s deci ded in fa vour of t he Revenue. 11. Consequently, the appeal of As s es s ee and of Reve nu e are allow ed par tly. Order pronounced in the open court on 20 th April, 2023. Sd/- Sd/- (SHAMIM YAHYA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:-20.04.2023 *Binita, SR.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT ITA No. 127./Del/2019 M/s. Ircon International Ltd. 22 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI