IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCE) ITA NO.135/DEL./2018 (ASSESSMENT YEAR : 2013-14) M/S. HCL COMNET LTD., VS. DCIT, CIRCLE 11 (1), 806, SIDDHARTH, 96, NEHRU PLACE, NEW DELHI. NEW DELHI 110 019. (PAN : AAACH9667H) ITA NO.136/DEL./2018 (ASSESSMENT YEAR : 2013-14) ITA NO.137/DEL./2018 (ASSESSMENT YEAR : 2014-15) M/S. HCL COMNET SYSTEMS & SERVICES LTD., VS. DCIT, 806, SIDDHARTH, 96, NEHRU PLACE, CIRCLE 11(1), NEW DELHI 110 019. NEW DELHI. (PAN : AAACH3130M) ITA NO.385/DEL./2018 (ASSESSMENT YEAR : 2013-14) ITA NO.100/DEL./2018 (ASSESSMENT YEAR : 2014-15) DCIT, VS. M/S. HCL COMNET SYSTEMS & SERVICES LTD., CIRCLE 11(1), 806, SIDDHARTH, 96, NEHRU PLACE, NEW DELHI. NEW DELHI 110 019. (PAN : AAACH3130M) (APPELLANT) (RESPONDENT) ITA NOS.135, 136 & 137/DEL./2018 ITA NOS.385 & 100/DEL./2018 2 ASSESSEE BY : SHRI ADITYA VOHRA, ADVOCATE SHRI ARPIT GOYAL, CA REVENUE BY : MS. ANIMA BARANWAL, SENIOR DR DATE OF HEARING : 17.08.2021 DATE OF ORDER : 25.08.2021 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : SINCE COMMON QUESTIONS OF FACTS AND LAW HAVE BEEN R AISED IN THE AFORESAID APPEALS/CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE, THE SAME ARE BEING DISPOSED OFF BY WAY OF COMPOSITE ORDER TO AVOID REPETITION OF DISCUSSION. 2. APPELLANT, M/S. HCL COMNET LIMITED (HEREINAFTER REFERRED TO AS THE ASSESSEE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 12.10.2017 PASSED BY THE C OMMISSIONER OF INCOME-TAX (APPEALS)-35, NEW DELHI QUA THE ASSES SMENT YEAR 2013-14 ON THE GROUNDS INTER ALIA THAT :- ITA NO.135/DEL/2018 (AY 2013-14) (ASSESSEES APPEAL) 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ['CIT (A)'] ERRED IN UPHOLDING ADDITION OF RS.38,48,495 MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE INCOME-T AX ACT, 1961 ('THE ACT') READ WITH RULE 8D(2)(III) OF THE INCOME -TAX RULES, 1962 ('THE RULES'), WITHOUT POINTING OUT ANY ERROR IN COMPUTATION OF EXPENSES INCURRED FOR EARNING THE TA X FREE INCOME DISALLOWED BY THE APPELLANT. ITA NOS.135, 136 & 137/DEL./2018 ITA NOS.385 & 100/DEL./2018 3 1.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN NOT HOLDING THAT NO DISALL OWANCE COULD BE MADE UNDER SECTION 14A OF THE ACT, WITHOUT RECORDING SATISFACTION REACHING FINDING AS TO NEXUS OF ANY EX PENDITURE INCURRED DURING THE YEAR WITH INVESTMENTS MADE OR E XEMPT INCOME EARNED NOR POINTING OUT AN ERROR IN THE COMP UTATION OF DISALLOWANCE UNDER SECTION 14A OF THE ACT MADE BY T HE APPELLANT. 1.2 WITHOUT PREJUDICE, THAT ON THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN NOT HOL DING THAT INVESTMENTS ON WHICH NO EXEMPT INCOME WAS EARNED WE RE NOT REQUIRED TO BE TAKEN INTO ACCOUNT FOR COMPUTING DIS ALLOWANCE AS PER FORMULA PRESCRIBED UNDER SUB-RULE (2)(III) O F RULE 8D OF THE RULES.' 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN NOT ALLOWING CREDIT OF TAX DEDUCTED AT SOURCE ('TDS') AMOUNTING TO RS.27,75,487, ON THE GR OUND THAT THE SAME PERTAINED TO DEFERRED REVENUE, NOT OFFERED TO TAX IN ENTIRETY BY THE APPELLANT IN THE SUBJECT ASSESSMENT YEAR. 2.1 WITHOUT PREJUDICE, THAT ON THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DISALLO WING CREDIT OF ENTIRE AMOUNT OF TDS AMOUNTING TO RS.27,75,487 RELA TING TO DEFERRED REVENUE AND IN NOT ALLOWING CREDIT OF TDS ON PROPORTIONATE BASIS, AS SPECIFIED UNDER RULE 3'7BA( 3)(II) OF THE INCOME-TAX RULES, 1962. 3. APPELLANT, M/S. HCL COMNET SYSTEMS & SERVICES LT D. LIMITED (HEREINAFTER REFERRED TO AS THE ASSESSEE) BY FILING THE PRESENTS APPEAL SOUGHT TO SET ASIDE THE IMPUGNED OR DERS BOTH DATED 12.10.2017 PASSED BY THE COMMISSIONER OF INCOME-T AX (APPEALS)-35, NEW DELHI QUA THE ASSESSMENT YEARS 20 13-14 & 2014-15 ON THE IDENTICAL GROUNDS EXCEPT THE DIFFERE NCE OF AMOUNT OF ADDITION/DISALLOWANCE INTER ALIA THAT :- ITA NOS.136/DEL/2018 & 137/DEL/2018 (AYS 2013-14 & 2014-15) (ASSESSEES APPEALS) 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ['CIT (A)'] ITA NOS.135, 136 & 137/DEL./2018 ITA NOS.385 & 100/DEL./2018 4 ERRED IN NOT ALLOWING CREDIT OF TAX DEDUCTED AT SOU RCE ('TDS') (AMOUNTING TO RS.2,00,000/- & RS.2,14,814/- FOR AYS 2013-14 & 2014-14 RESPECTIVELY) ON DEFERRED REVENUE HOLDING H AT THE SAME WOULD BE ALLOWED IN THE RELEVANT ASSESSMENT YEAR IN WHICH CORRESPONDING REVENUE IS OFFERED FOR TAXATION . 1.1 WITHOUT PREJUDICE, THAT ON THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DISALLO WING CREDIT OF ENTIRE AMOUNT OF TDS (AMOUNTING TO RS.2,00,000/- & RS.2,14,814/- FOR AYS 2013-14 & 2014-14 RESPECTIVEL Y) RELATING TO DEFERRED REVENUE AND IN NOT ALLOWING CREDIT OF T DS ON PROPORTIONATE BASIS, AS PER RULE 37BA(3)(II) OF THE INCOME-TAX RULES, 1962. 4. APPELLANT, DCIT, CIRCLE 11 (1), NEW DELHI (HEREI NAFTER REFERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEALS SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 12.10.2017 PASSE D BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-35, NEW DELHI QUA THE ASSESSMENT YEARS 2013-14 & 2014-15 ON THE GROUNDS I NTER ALIA THAT:- ITA NO.385/DEL/2018 (AY 2013-14) (REVENUES APPEAL) 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF CASE A ND IN LAW, THE LD. CIT (A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO BY DISALLOWANCE OF RS.3,14,11,091/- ON ACCOUNT OF LICENSE FEE PAID TO DEPARTMENT OF TELECOM (DOT). ITA NO.100/DEL/2018 (AY 2014-15) (REVENUES APPEAL) 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF CASE A ND IN LAW, THE LD. CIT (A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO BY DISALLOWANCE OF RS.3,50,95,924/- ON ACCOUNT OF LICENSE FEE PAID TO DEPARTMENT OF TELECOM (DOT). 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF CASE A ND IN LAW, THE LD. CIT (A) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF ITA NOS.135, 136 & 137/DEL./2018 ITA NOS.385 & 100/DEL./2018 5 RS.2,20,383/- BY DISALLOWANCE OF THIS AMOUNT ON ACC OUNT OF PRINCIPAL PORTION OF LEASE OBLIGATION. 5. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : ASSESSEE COMPANY WAS ENGA GED IN THE BUSINESS OF TRADING OF NETWORKING EQUIPMENT, INSTAL LATION AND MAINTENANCE OF SUCH EQUIPMENT AND CREATION, MAINTEN ANCE AND OPERATION OF NETWORKS. ASSESSING OFFICER (AO) BY I NVOKING THE PROVISIONS CONTAINED UNDER SECTION 14A OF THE INCOM E-TAX ACT, 1961 (FOR SHORT THE ACT) READ WITH RULE 8D OF TH E INCOME-TAX RULES, 1962 (FOR SHORT THE RULES) MADE ADDITION O F RS.38,48,495/- IN ADDITION TO THE SUO MOTU DISALLOWANCE OF RS.1,12 ,136/- MADE BY THE ASSESSEE ON THE GROUND THAT EXEMPT INCOME HAS B EEN EARNED BUT DISALLOWANCE HAS NOT BEEN MADE CORRECTLY IN ITA NO. 135/DEL/2018 FOR AY 2013-14 IN CASE OF HCL COMNET LTD. 6. AO ALSO DISALLOWED CREDIT OF TAX DEDUCTED AT SOU RCE AMOUNTING TO RS.27,75,487/-, RS.2,00,000/- & RS.2,1 4,814/- ON THE GROUND THAT THE SAME PERTAINED TO DEFERRED REVENUE AND WAS LIABLE TO TAX IN ENTIRETY IN ITA NO.135/DEL/2018 FOR AY 20 13-14 IN CASE OF HCL COMNET LTD., IN ITA NO.136/DEL/2018 FOR AY 2 013-14 & IN ITA NO.137/DEL/2018 FOR AY 2014-15 IN CASE OF HC L COMNET SYSTEMS & SERVICES LTD. RESPECTIVELY. ITA NOS.135, 136 & 137/DEL./2018 ITA NOS.385 & 100/DEL./2018 6 7. AO ALSO MADE ADDITION OF RS.3,14,11,091/- & RS.3,50,95,924/- BY WAY OF DISALLOWANCE ON ACCOUNT OF LICENCE FEE PAID TO THE DEPARTMENT OF TELECOMMUNICATION (DOT) I N ITA NOS.385/DEL/2018 & 100/DEL/2018 FOR AYS 2013-14 & 2014-15 RESPECTIVELY IN CASE OF HCL COMNET SYSTEMS & SERVIC ES LTD.. 8. AO ALSO MADE DISALLOWANCE OF RS.2,20,383/- ON AC COUNT OF PRINCIPAL PORTION OF LEASE OBLIGATION IN ITA NO.100 /DEL/2018 FOR AY 2014-15 IN CASE OF HCL COMNET SYSTEMS & SERVICES LTD.. 9. AO THEREBY FRAMED THE ASSESSMENT U/S 143(3) OF T HE ACT AT THE TOTAL INCOME OF RS.70,66,57,990/- FOR AY 2013-1 4 IN CASE OF HCL COMENT LTD. AND RS.9,84,54,930/- & RS.3,64,24,3 00/- FOR AYS 2013-14 & 2014-15 RESPECTIVELY IN CASE OF HCL C OMNET SYSTEMS & SERVICES LTD.. 10. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT (A) BY WAY OF FILING APPEALS IN AYS 2013-14 & 2014-15 IN CASE OF BOTH THE ASSESSMENT ORDER WHO HAS PARTLY ALLOWED THE SAME. FEELING AGGRIEVED BY THE ORDER PASSED BY THE LD. CIT (A), B OTH THE ASSESSEES AND REVENUE HAVE COME UP BEFORE THE TRIBU NAL BY WAY OF FILING THE PRESENT APPEALS. 11. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE S OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ITA NOS.135, 136 & 137/DEL./2018 ITA NOS.385 & 100/DEL./2018 7 ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUNDS NO.1, 1.1 & 1.2 OF ITA NO.135/DEL/2018 FOR AY 2013-14 (ASSESSEES APPEAL) 12. AO BY INVOKING THE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D MADE THE DISALLOWANCE OF RS.38,48,495/-, CO MPUTED AS UNDER :- CLAUSE PARTICULARS AMOUNT I. II. A. B. C. EXPENDITURE DIRECTLY RELATED TO EXEMPT INCOME DISALLOWANCE OF INTEREST EXPENDITURE 0 INTEREST EXPENDITURE INCURRED DURING THE YEAR AVERAGE VALUE OF INVESTMENT AVERAGE OF TOTAL ASSETS DISALLOWANCE = A*B/C (1038658620+545593586)/2 (8579578136+9034092663)/2 792126103 8806835400 0 III. AGGREGATE OF OPENING AND CLOSING VALUE OF INVESTMENT (AVERAGE VALUE OF INVESTMENT) % OF ABOVE AS PER RULE 8D VALUE OF INVESTMENT TOTAL FOR 31.03.2012 & 31.03.2011 AVERAGE VALUE OF INVESTMENT 0.5% OF ABOVE 792126103 39,60,631 TOTAL DISALLOWANCE (AGGREGATE OF (I), (II) & (III) 39,60,631 LESS : ALREADY DISALLOWED BY THE ASSESSEE 1,12,136 AMOUNT TO BE DISALLOWED 38,48,497 13. UNDISPUTEDLY, THE ASSESSEE HAS EARNED EXEMPT DI VIDEND INCOME OF RS.4,23,49,389/- FROM INVESTMENT MADE IN DEBT ORIENTED ITA NOS.135, 136 & 137/DEL./2018 ITA NOS.385 & 100/DEL./2018 8 MUTUAL FUND DURING THE YEAR UNDER ASSESSMENT AND MA DE SUO MOTU DISALLOWANCE OF RS.1,12,136/- BY ALLOCATING PROPORT IONATE EXPENSES AND HAS GIVEN COMPLETE COMPUTATION ALLOCATING PROPO RTIONATE EXPENSES IN THE RATIO OF EXEMPT INCOME TO THE TAXAB LE INCOME, AVAILABLE AT PAGE 34 OF THE PAPER BOOK. 14. LD. AR FOR THE ASSESSEE CHALLENGING THE IMPUGNE D DISALLOWANCE CONTENDED THAT AO WITHOUT RECORDING HI S SATISFACTION AS TO WHY SUO MOTU DISALLOWANCE MADE BY THE ASSESSE E IS NOT JUSTIFIED, MECHANICALLY APPLIED RULE 8D OF THE RULE S AND SECTION 14(2) OF THE ACT. 15. WE HAVE PERUSED THE COMPUTATION MADE BY THE ASS ESSEE FOR THE PURPOSE OF DISALLOWANCE, AVAILABLE AT PAGE 34 O F THE PAPER BOOK, WHICH IS BY WAY OF ALLOCATING PROPORTIONATE E XPENSES IN THE RATIO OF EXEMPT INCOME TO TAXABLE INCOME RECEIVED F ROM FIXED DEPOSITS AND INCOME FROM OTHER GROUP COMPANIES. HO WEVER, LD. AO HAS MECHANICALLY INVOKED THE PROVISIONS CONTAINE D UNDER RULE 8D OF THE RULES WITHOUT RECORDING HIS SATISFACTION THAT SUO MOTU DISALLOWANCE OF RS.1,12,136/- MADE BY THE ASSESSEE IS NOT CORRECT. 16. IT IS SETTLED PRINCIPLE OF LAW THAT GENERIC DIS SATISFACTION AS TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITHOU T ASSIGNING ANY REASON IS NOT A VALID SATISFACTION WHICH IS MANDATO RY UNDER SECTION 14A(2) OF THE ACT, AS HAS BEEN HELD BY HONBLE SUPR EME COURT IN ITA NOS.135, 136 & 137/DEL./2018 ITA NOS.385 & 100/DEL./2018 9 CASE OF MAXOPP INVESTMENTS LTD. VS. CIT (2018) 402 ITR 640 (SC) AND HONBLE DELHI HIGH COURT IN CASE OF HT MED IA LTD. VS. PR.CIT 199 ITR 576 (DEL.). SO, WHEN AUDITED FINANCIALS OF THE ASSESSEE COMPANY HAVE OTHERWISE BEEN ACCEPTED BY TH E AO, MECHANICAL APPLICATION OF RULE 8D TO REJECT THE SUO MOTU DISALLOWANCE U/S 14A OF THE ACT BY THE ASSESSEE IS NOT SUSTAINABLE IN THE EYES OF LAW. 17. IDENTICAL ISSUE HAS BEEN DECIDED BY THE COORDIN ATE BENCH OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN ITA NO.1113/DEL/2017 FOR AY 2012-13 ORDER DATED 04.09.2020 IN ASSESSEE S OWN CASE BY RETURNING FOLLOWING FINDINGS :- 6. UNDISPUTEDLY, ASSESSEE COMPANY HAS MADE INVEST MENT OF RS.54,55,93,586/- IN THE SHARES AND MUTUAL FUNDS AN D EARNED DIVIDEND INCOME OF RS.6,07,08,212/- ON THE SAME. I T IS ALSO NOT IN DISPUTE THAT THE ASSESSEE COMPANY HAS SUO MOTO MADE DISALLOWANCE OF RS.3,46,466/- IN ORDER TO EARN THE DIVIDEND INCOME. IT IS ALSO NOT IN DISPUTE THAT NO INTEREST COST HAS BEEN ATTRIBUTED TO THE INVESTMENT IN QUESTION AS THE SAM E HAS BEEN FUNDED OUT OF INTEREST FREE LOANS RECEIVED FROM ITS HOLDING COMPANY. IT IS ALSO NOT IN DISPUTE THAT THE ENTIRE INVESTMENTS IN QUESTION WERE MADE IN DEBT ORIENTED MUTUAL FUNDS. 7. WHEN WE EXAMINE THE IMPUGNED ORDER PASSED BY THE AO AS WELL AS LD. CIT (A), THEY HAVE HARPED UPON INBUI LT COST INCURRED ON THE INVESTMENT IN QUESTION VIZ. INCIDEN TAL EXPENDITURE OF COLLECTION, TELEPHONE, FOLLOW-UP, ET C. BUT ASSESSEE COMPANY HAS COME UP WITH SPECIFIC WORKING THAT ON T HE SPECIFIC INVESTMENT, IT HAS INCURRED EXPENSES TO THE TUNE OF RS.3,46,466/-. AO AS WELL AS LD. CIT (A) WITHOUT CALLING DETAIL AN D EXPLANATION OF THE WORKING FOR MAKING SUO MOTO DISALLOWANCES PR OCEEDED TO INVOKE THE PROVISIONS CONTAINED UNDER SECTION 14A R EAD WITH RULE 8D. THERE IS NO VALID SATISFACTION RECORDED BY THE AO THAT WORKING FOR MAKING SUO MOTO DISALLOWANCE MADE BY TH E ASSESSEE COMPANY IS FAULTY RATHER PROCEEDED TO MAKE DISALLOW ANCE UNDER RULE 8D 3 @ 0.5% OF AVERAGE VALUE OF INVESTMENT. ITA NOS.135, 136 & 137/DEL./2018 ITA NOS.385 & 100/DEL./2018 10 8. HONBLE DELHI HIGH COURT IN THE IDENTICAL SITUAT ION IN THE CASE OF HT MEDIA LTD. VS. PR. CIT 199 ITR 576 (DEL. ) HELD THAT RECORDING OF SATISFACTION BY THE AO BEFORE INVOKING PROVISIONS CONTAINED UNDER SECTION 14A READ WITH RULE 8D IS A SINE QUA NON. OPERATIVE PART OF THE AFORESAID JUDGMENT IS EX TRACTED FOR READY PROPOSAL AS UNDER :- 30. RULE 8 D (1) STATES MORE OR LESS WHAT SECTION 14 A (2) OF THE ACT STATES. IT REQUIRES THE AO TO FIRST EXAMINE THE ACCOUNTS OF THE ASSESSEE AND THEN RECORD THAT H E IS NOT SATISFIED WITH (A) THE CORRECTNESS OF THE ASSES SEE'S CLAIM OF EXPENDITURE OR (B) THE CLAIM MADE BY THE A SSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED. UNLESS THIS STAGE IS CROSSED I.E. THE STAGE OF THE AO RECORDING THAT HE IS NOT SATISFIED WITH THE CLAM OF THE ASSESSEE IN THE MANN ER INDICATED I.E. AFTER EXAMINING THE ASSESSEE'S ACCOU NTS, THE QUESTION OF APPLYING THE FORMULA UNDER RULE 8D (2) DOES NOT ARISE. THAT THIS IS A MANDATORY PRE-REQUISITE F OR APPLYING RULE 8D (2) IS FAIRLY WELL-SETTLED. 9. HONBLE SUPREME COURT IN CASE OF MAXOPP INVESTME NT LTD. VS. CIT 347 ITR 272 ALSO HELD THAT SATISFACTIO N OF THE AO IS MANDATORY THAT SUO MOTO DISALLOWANCE MADE UNDER SEC TION 14A WAS NOT CORRECT BY RETURNING FOLLOWING FINDINGS :- 41) HAVING REGARD TO THE LANGUAGE OF SECTION 14A( 2) OF THE ACT, READ WITH RULE 8D OF THE RULES, WE ALSO MAKE IT CLEAR THAT BEFORE APPLYING THE THEORY OF APPORTI ONMENT, THE AO NEEDS TO RECORD SATISFACTION THAT HAVING REG ARD TO THE KIND OF THE ASSESSEE, SUO MOTO DISALLOWANCE UND ER SECTION 14A WAS NOT CORRECT. IT WILL BE IN THOSE CA SES WHERE THE ASSESSEE IN HIS RETURN HAS HIMSELF APPORT IONED BUT THE AO WAS NOT ACCEPTING THE SAID APPORTIONMENT . IN THAT EVENTUALITY, IT WILL HAVE TO RECORD ITS SATISF ACTION TO THIS EFFECT. FURTHER, WHILE RECORDING SUCH A SATISF ACTION, NATURE OF LOAN TAKEN BY THE ASSESSEE FOR PURCHASING THE SHARES/MAKING THE INVESTMENT IN SHARES IS TO BE EXA MINED BY THE AO. 10. FOLLOWING THE AFORESAID DECISIONS RENDERED BY T HE HONBLE SUPREME COURT AND HONBLE HIGH COURT OF DEL HI, WE ARE OF THE CONSIDERED VIEW THAT WHEN THE ASSESSEE C OMPANY, WITH ITS AUDITED ACCOUNTS, HAVE COME UP WITH SPECIFIC CO MPUTATION THAT IN ORDER TO EARN THE DIVIDEND INCOME OF RS.6,0 7,08,212/- THEY HAVE INCURRED AMOUNT OF RS.3,46,466/- AND SUO MOTO DISALLOWED THE SAME, AO WAS NOT EMPOWERED TO INVOKE THE PROVIS IONS CONTAINED UNDER SECTION 14A READ WITH RULE 8D IN A MECHANICAL MANNER WITHOUT RECORDING HIS SATISFACTION THAT WORK ING GIVEN BY ASSESSEE COMPANY IS NOT CORRECT. ITA NOS.135, 136 & 137/DEL./2018 ITA NOS.385 & 100/DEL./2018 11 11. AO HAS MERELY RECORDED THAT, I AM NOT SATISFIE D WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. NO REAS ONS AS TO HOW AND WHY HE HAS NOT GOT SATISFIED WITH THE CORRECTNE SS OF THE CLAIM OF THE ASSESSEE. SO, WE ARE OF THE CONSIDERED VIEW THAT AO AS WELL AS LD. CIT (A) HAVE ERRED IN MAKING/CONFIRMING FURT HER DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OV ER AND ABOVE THE DISALLOWANCE OF RS.3,46,466/- MADE BY THE ASSESSEE, HENCE DISALLOWANCE OF RS.21,23,629/- MADE BY THE AO AND CONFIRMED BY THE LD. CIT (A) IS HEREBY ORDERED TO B E DELETED. SO, GROUNDS NO.1, 1.1 & 1.2 ARE ALLOWED. 18. SO, WE ARE OF THE CONSIDERED VIEW THAT THE DISA LLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT (A) ON THE BASIS OF INVALID SATISFACTION AS TO THE CORRECTNESS OF THE C LAIM OF THE ASSESSEE IS NOT SUSTAINABLE, HENCE ORDERED TO BE DELETED. C ONSEQUENTLY, GROUNDS NO.1, 1.1 & 1.2 OF ITA NO.135/DEL/2018 FOR AY 2013- 14 IN CASE OF HCL COMNET LTD. ARE DETERMINED IN ITS FAVOUR. GROUNDS NO.2 & 2.1 OF ITA NO.135/DEL/2018 FOR AY 2013-14 (ASSESSEES APPEAL HCL COMNET LTD.) GROUNDS NO.1 & 1.1 OF ITA NO.136/DEL/2018 FOR AY 2013-14 ITA NO.137/DEL/2018 FOR AY 2014-15 (ASSESSEES APPEAL HCL COMNET SYSTEMS & SERVICES LTD.) 19. ASSESSEE COMPANY BEING ENGAGED IN THE BUSINESS OF TRADING OF NETWORKING EQUIPMENT, INSTALLATION AND MAINTENAN CE OF SUCH EQUIPMENTS AND CREATION, MAINTENANCE & OPERATION OF NETWORKS HAS DEFERRED SOME PART OF ITS REVENUE TO THE SUBSEQUENT FINANCIALS YEARS ITA NOS.135, 136 & 137/DEL./2018 ITA NOS.385 & 100/DEL./2018 12 AND REVENUE BEING DEFERRED IN EARLIER FINANCIAL YEA RS IS BOOKED AS REVENUE IN THE RELEVANT FINANCIAL YEAR FOR THE PURP OSE OF ANNUAL MAINTENANCE CONTRACTS (AMCS) ON PERCENTAGE COMPLETI ON METHOD. CUSTOMERS OF THE ASSESSEE DEDUCTED AND DEPOSITED TA X AT SOURCE ON THE ENTIRE AMOUNT OF AMCS IN THE FIRST YEAR ITSELF FOR WHICH THE ASSESSEE HAS ALSO CLAIMED CREDIT OF THE ENTIRE AMOU NT OF TDS IN THE FIRST YEAR ALSO AND CORRESPONDING INCOME IS OFFERED TO TAX OVER THE PERIOD OF THE AMCS FOR 3 4YEARS. 20. HOWEVER, AO/CIT (A) HAVE NOT ALLOWED THE CREDIT OF TDS AMOUNT TO THE TUNE OF RS.27,75,487/- FOR AY 2013-14 IN CASE OF HCL COMNET LTD. AND RS.2,00,000/- & RS.2,14,814/- F OR AYS 2013-14 & 2014-15 RESPECTIVELY IN CASE OF HCL COMEN T SYSTEMS & SERVICES LTD. ON THE GROUND THAT CORRESPONDING IN COME HAS NOT BEEN OFFERED FOR TAX BY THE ASSESSEE IN THE SAID YE ARS. 21. LD. AR FOR THE ASSESSEE CHALLENGING THE IMPUGNE D DISALLOWANCE CONTENDED THAT TDS CREDIT IS TO BE ALL OWED PROPORTIONATELY ACROSS THOSE YEARS IN WHICH INCOME WAS ASSESSABLE TO TAX AND THIS ISSUE HAS ALREADY BEEN DECIDED BY T HE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2011-12 BEARING ITA NO.3221/DEL/2017 ORDER DATED 31.12.2019 . 22. WE HAVE PERUSED THE ORDER PASSED BY THE TRIBUNA L IN ASSESSEES OWN CASE FOR AY 2012-13 (SUPRA) WHEREIN THE IDENTICAL ITA NOS.135, 136 & 137/DEL./2018 ITA NOS.385 & 100/DEL./2018 13 ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY RETURNING FOLLOWING FINDINGS :- 23. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. WE -FIND THAT SECTION 199 (3) OF THE ACT GIVES POWER TO THE BOARD TO MAKE SUCH RULES FOR THE PURPOSES OF GIVING CREDIT IN RESPECT OF TAX DEDUCTE D OR TAX PAID IN TERMS OF PROVISIONS OF THE ACT AND ALSO A. Y FOR WHICH SUCH CREDIT MAY BE GIVEN. RULE 37BA(3)(II) PR OVIDES THAT WHERE TAX HAS BEEN DEDUCTED AT SOURCE AND PAID TO CENTRAL GOVERNMENT AND INCOME IS SUSTAINABLE OVER A NUMBER OF YEARS, CREDIT FOR TAX DEDUCTED AT SOURCE SHALL BE ALLOWED ACROSS THOSE YEARS IN SAME PROPORTION IN WH ICH INCOME IS ASSESSABLE TO TAX. WE, ACCORDINGLY, DIRE CT THE ASSESSING OFFICER TO GIVE PROPORTIONATE CREDIT OF T DS FOR THE INCOME DECLARED DURING THE YEAR UNDER CONSIDERATION . WITH THESE DIRECTIONS, GROUND NO. 3 IS ALLOWED. 23. SO, FOLLOWING THE DECISION RENDERED BY THE COOR DINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT ASSESSEE IS ENTITLED FOR CREDI T OF TAX DEDUCTED AT SOURCE ON PROPORTIONATE BASIS FOR THE INCOME DEC LARED DURING THE YEAR UNDER CONSIDERATION AS PER RULE 37BA(3)(II) OF THE RULES. CONSEQUENTLY, GROUNDS NO.2 & 2.1 OF ITA NO.135/DEL/ 2018 FOR AY 2013-14 IN CASE OF HCL COMNET LTD. AND GROUNDS N O.1 & 1.1 OF ITA NOS.136/DEL/2018 & 137/DEL/2018 FOR AYS 2013 -14 IN CASE OF HCL COMNET SYSTEMS & SERVICES LTD. ARE DETE RMINED IN FAVOUR OF THE ASSESSEE. ITA NOS.135, 136 & 137/DEL./2018 ITA NOS.385 & 100/DEL./2018 14 GROUND NO.1 OF ITA NO.385/DEL/2018 (REVENUES APPEAL) ITA NO.100/DEL/2018 (REVENUES APPEAL) 24. ASSESSEE COMPANY CLAIMED TO HAVE PAID LICENCE F EE OF RS.6.36 CRORES & RS.3,50,95,924/- FOR AYS 2013-14 & 2014-15 RESPECTIVELY TO THE DEPARTMENT OF TELECOMMUNICATION (DOT) FOR GRANT OF LICENCE TO OPERATE AND PROVIDE SERVICES WH ICH HAS BEEN DISALLOWED BY THE AO ON THE GROUND THAT THE SAID LI CENCE FEE PAID BY THE ASSESSEE DURING THE YEARS IS TO BE AMORTIZED IN ACCORDANCE WITH SECTION 35ABB OF THE ACT AND AFTER AMORTIZATIO N DISALLOWED AN AMOUNT OF RS.3,14,11,091/- & RS.3,50,95,924/- IN AYS 2013-14 & 2014-15 RESPECTIVELY. 25. HOWEVER, LD. CIT (A) BY RELYING UPON THE DECISION RENDERED BY THE TRIBUNAL IN AYS 2006-07 TO 2008-09 PASSED IN ASSESSEES OWN CASE DELETED THE DISALLOWANCE, WHICH IS UNDER CHALLENGE BEFORE THE TRIBUNAL. 26. WE HAVE PERUSED THE ORDERS PASSED BY THE COORDI NATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AYS 2006-07 TO 2011- 12 WHEREIN IDENTICAL ISSUE HAS BEEN CONSISTENTLY DECI DED IN FAVOUR OF THE ASSESSEE BY DIRECTING THE AO TO DELETE THE A DDITION MADE ON ACCOUNT OF CAPITALIZATION OF LICENCE FEE PAID TO TH E DOT. ITA NOS.135, 136 & 137/DEL./2018 ITA NOS.385 & 100/DEL./2018 15 27. IT IS ALSO BROUGHT ON RECORD BY THE LD. AR FOR THE ASSESSEE THAT THE APPEAL FILED BY THE REVENUE FOR AYS 2009-1 0 & 2010-11 ON THIS ISSUE IN HONBLE DELHI HIGH COURT HAS ALSO BEEN DISMISSED BY FOLLOWING THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN CASE OF CIT VS. BHARTI HEXACOM LTD. 221 TAXMAN 3 23 (DELHI) WHEREIN IT IS HELD THAT, LICENCE FEE PAID AS PER NTP 1999 POLICY ON A PERIODIC BASIS WAS HELD TO BE REVENUE EXPENDITURE . 28. SO, FOLLOWING THE DECISION RENDERED BY COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AYS 2006-07 TO 2011-12 AND DECISION RENDERED BY HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE FOR AYS 2009-10 & 2010-11 , WE ARE OF THE CONSIDERED VIEW THAT LD. CIT (A) HAS RIGHTLY DELETED THE ADDIT ION, HENCE FINDING NO INFIRMITY OR ILLEGALITY IN THE IMPUGNED FINDINGS , GROUND NO.1 OF ITA NOS.385/DEL/2018 & 100/DEL/2018 FOR AYS 2013-14 & 2014-15 RESPECTIVELY ARE DETERMINED AGAINST THE REV ENUE. GROUND NO.2 OF ITA NO.100/DEL/2018 (REVENUES APPEAL) 29. ASSESSEE COMPANY CLAIMED TO HAVE TAKEN CERTAIN VEHICLES ON FINANCE LEASE AND LEASE RENTAL PAID BY THE ASSESSEE COMPANY COMPRISED TO INTEREST PORTION AND PRINCIPAL PORTION OUT OF WHICH PRINCIPAL PORTION OF LEASE RENTAL AMOUNTED TO RS.2, 20,383/-. AO DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE RA THER ALLOWED ITA NOS.135, 136 & 137/DEL./2018 ITA NOS.385 & 100/DEL./2018 16 DEPRECIATION @ 15% ON THE PRINCIPAL PORTION OF THE LEASE RENTAL DURING THE YEAR UNDER CONSIDERATION. 30. HOWEVER, LD. CIT (A) BY RELYING UPON THE DECISI ON RENDERED BY LD. CIT(A) IN THE PRECEDING YEARS I.E. AYS 2008- 909 TO 2010-11, WHICH HAS BEEN ACCEPTED BY THE REVENUE HAVING NOT B EEN FURTHER CHALLENGED, DELETED THE ADDITION MADE BY THE AO. 31. PERUSAL OF THE ORDER PASSED BY THE AO SHOWS THA T THE AO PROCEEDED ON THE BASIS OF SURMISE THAT THE VEHICLES ARE OWNED BY THE ASSESSEE COMPANY WHICH IS FACTUALLY INCORRECT A S IS EVIDENT FORM REGISTRATION CERTIFICATE, AVAILABLE AT PAGE 12 7 OF THE PAPER BOOK. IN THE REGISTRATION CERTIFICATE, ASSESSEE CO MPANY IS REFERRED AS THE LESSEE AND ORIX AUTO IS REFERRED AS THE LESS OR. MERELY MENTIONING THE NAME OF THE ASSESSEE COMPANY AS THE LESSEE DOES NOT CONSTRUE OWNERSHIP IN FAVOUR OF THE ASSESSEE AS HAS BEEN HELD BY HONBLE SUPREME COURT IN CASE OF ICDS LTD. VS. CIT 350 ITR 527 (SC) . IT IS A BASIC PRINCIPLE OF LAW THAT ONLY LESSOR IS THE OWNER OF THE LEASED PROPERTY IN CASE OF FINANCES AN D DEPRECIATION IS ALLOWABLE TO THE LESSOR ONLY AND NOT THE LESSEE. 32. FURTHERMORE, LEASE AGREEMENT ENTERED INTO BETWE EN THE ASSESSEE COMPANY AND LESSOR OF THE VEHICLES ITSELF PROVIDES THAT OWNERSHIP OF THE VEHICLES WILL NOT BE TRANSFERRED T O THE LESSEE DURING THE SUBSISTENCE OF THE LEASE AS IS EVIDENT F ROM LEASE ITA NOS.135, 136 & 137/DEL./2018 ITA NOS.385 & 100/DEL./2018 17 AGREEMENT DATED 24.04.2008, AVAILABLE AT PAGES 128 TO 141 OF THE PAPER BOOK. 33. IN VIEW OF THE AFORE-DISCUSSED UNDISPUTED FACTS , WE ARE OF THE CONSIDERED VIEW THAT LD. CIT (A) HAS RIGHTLY DECIDE D THE ISSUE IN FAVOUR OF THE ASSESSEE. SO, FINDING NO INFIRMITY O R ILLEGALITY IN THE IMPUGNED FINDINGS, GROUND NO.2 OF ITA NO.100/DEL/20 18 FOR AY 2014-15 IS DETERMINED AGAINST THE REVENUE. 34. RESULTANTLY, ALL THE APPEALS BEARING ITA NOS.13 5/DEL/2018, 136/DEL/2018 & 137/DEL/2018 FILED BY THE ASSESSEE A RE ALLOWED AND THE APPEALS BEARING ITA NOS.385/DEL/2018 & 100/ DEL/2018 FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 25 TH DAY OF AUGUST , 2021. SD/- SD/- (ANIL CHATURVEDI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 25 TH DAY OF AUGUST, 2021 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-35, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.