DCIT, New Delhi V. M/s. MMTC Ltd., New Delhi

ITA 4187/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86661 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 22-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 19-09-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: GUNJAN PRASHAD
• Keywords: Capital asset; Business income; Double taxation relief; Earning of tax free income; Additional evidence; Question of law; Wholly owned subsidiary; Revised return; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E: NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER, AND SHRI C.M. GARG, JUDICIAL MEMBER ITA NO. 42 65/DEL/2010 ASSESSMENT YE AR 2006-07 M/S. MMTC LTD. VS. ADDL. CIT, SCOPE COMPLEX, CORE-1, RANGE-5, 7 INSTITUTIONAL AREA, LODHI ROAD, C.R. BUILDING, NEW DELHI. NEW DELHI. (PAN AAACM1433E) (APPELLANT) (RESPONDENT) AN D ITA NO. 44 95/DEL/2010 ASSESSMENT YE AR 2006-07 ASSTT. CIT, VS. M/S. MMTC LTD. CIRCLE-5(1), NEW DELHI. SCOPE COMPLEX, CORE-1, 7 INSTITUTIONAL AREA, LODHI ROAD, NEW DELHI. (PAN AAACM1433E) (APPELLANT) (RESPONDENT) AND ITA NO. 389 1/DEL/2011 ASSESSMENT YE AR 2007-08 M/S. MMTC LTD. VS. DCIT, SCOPE COMPLEX, CORE-1, RANGE-5, 7 INSTITUTIONAL AREA, LODHI ROAD, C.R. BUILDING, NEW DELHI. NEW DELHI. (PAN AAACM1433E) (APPELLANT) (RESPONDENT) AND ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 2 ITA NO. 4187 /DEL/2011 ASSESSMENT YE AR 2007-08 DCIT, VS . M/S. MMTC LTD. CIRCLE-5(1), ROOM NO. 409A, SCOPE COMPLEX, CORE-1, C.R. BUILDING, I.P. ESTATE, 7 INSTITUTIONAL AREA, NEW DELHI. LODHI ROAD, NEW DELHI. (PAN AAACM1433E) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY V OHRA, SHRI ROHIT JAIN, ADVOCATE, MS. DEEPA SHREE RAO, CA RESPONDENT BY : SHRI GUNJAN PRASHAD, CIT, DR ORDER PER S.V. MEHROTRA, ACCOUNTANT MEMBER THE REVENUE AND ASSESSEE ARE IN CROSS APPEALS AGAIN ST THE COMMON ORDER OF LD. CIT (A) DATED 5 TH AUGUST, 2010 PASSED FOR THE ASSTT. YEARS 2006-07, 2007-08. SINCE THE COMMON ISSUES ARE INVOLVED IN TH ESE APPEALS WE HEARD THEM TOGETHER AND DEEM IT APPROPRIATE TO DISPOSE OFF TH EM BY THIS COMMON ORDER. ITA NO. 4265/DEL/2010 AND ITA NO. 4495/DEL/2010 ASSTT. YEAR 2006-07 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY IS A PUBLIC LIMITED COMPANY AND DEALS WITH VARIOUS METALS/MINERALS, NON FERROUS METALS, FERTILIZERS, AGRO PRODUCTS, GENERAL TRADING AND OTHER COMMODITIE S IN BULK. ITS MAIN ACTIVITIES ARE IMPORT AND EXPORT OF VARIOUS BULK COMMODITIES S UCH AS MINERALS , IRON, ORE, GOLD, AGRO, FERTILIZERS, COAL AND HYDROCARBONS, NON FERROUS METALS. THE ASSESESE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME O F RS. 1,56,41,84,500/- WHICH ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 3 WAS REVISED TO RS. 1,52,83,87,626/-. THE ASSESSMENT WAS COMPLETED AT TOTAL INCOME OF RS. 1,58,39,19,146/- AFTER MAKING DISALL OWANCE U/S 14A, RS. 2,86,93,520/- , DISALLOWANCE OF LICENCE FEE RS. 5 L ACS, ADDITION ON ACCOUNT OF DUTY ENTITLEMENT PASSBOOK CREDIT RS. 2,63,38,000/-. THE ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) WHO PARTLY ALLOWED THE ASSESSEES APPEAL. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A) BOTH ASSESSEE AND DEPA RTMENT ARE IN APPEAL BEFORE US. 3. LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE PETITION FILED BY ASSESSEE FOR ADMISSION OF ADDITIONAL GROUND OF APPEAL UNDER RULE 11 OF THE INCOME TAX APPELLATE RULES 1963 WHICH READS AS UNDER :- 1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING CREDIT FOR CORPORATE TAXES PAID BY MMTC TRANSNATION AL PTE. LTD. (MTPL), SINGAPORE, TO THE EXTENT OF DIVIDENDS RECEIVED BY A PPELLANT FROM MTPL IN INDIA. 4. LD. COUNSEL POINTED OUT THAT MMTC TRANSNAT IONAL PTE. LTD. (MTPL), A COMPANY INCORPORATED UNDER THE LAWS OF SINGAPORE IS A 100% SUBSIDIARY OF THE ASSESSEE. HE POINTED OUT THAT DURING THE RELEVANT P REVIOUS YEAR THE ASSESSEE RECEIVED DIVIDEND OF RS. 95,89,454/- FROM MTPL, SIN GAPORE. IN TERMS OF ARTICLE 25(2) OF THE INDIA-SINGAPORE DTAA READ WITH SECTION 90(2) OF THE INCOME TAX ACT 1961, THE ASSESSEE WAS ENTITLED FOR CREDIT FOR CORPORATE TAX PAID IN SINGAPORE AS INDIAN HOLDING COMPANY HELD MORE THAN 25% OF SHA RE CAPITAL OF THE SINGAPORE COMPANY. THIS CREDIT IS CALLED UNDERLYING TAX CREDIT. HE POINTED OUT ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 4 THAT ASSESESE TREATED THE DIVIDENDS RECEIVED FROM M TPL, SINGAPORE AS ITS BUSINESS INCOME. HOWEVER, NO SEPARATE TAX CREDIT WA S TAKEN IN TERMS OF THE AFORESAID ARTICLE 25 (2) OF THE INDIA-SINGAPORE DTA A. THEREFORE, VIDE THE ADDITIONAL GROUND OF APPEAL RAISED BY ASSESSEE, THE ASSESSEE IS SEEKING A DIRECTION TO THE AO TO ALLOW CREDIT OF TAX PAID AS PER ARTICLE 25(2) OF THE INDIA- SINGAPORE DTAA. LD. COUNSEL POINTED OUT THAT THE AD DITIONAL GROUND IS BEING RAISED BY THE ASSESSEE ON BEING ADVISED OF CORRECT LEGAL POSITION AND THE OMISSION TO RAISE THIS GROUND WAS NEITHER WILLFUL N OR DELIBERATE. LD. COUNSEL SUBMITTED THAT THE ADJUDICATION OF THE AFORESAID AD DITIONAL GROUND OF APPEAL MAY INVOLVE CERTAIN NEW FACTS BUT THAT DOES NOT BAR IN ADMITTING AND ADJUDICATING THE ADDITIONAL GROUND WHICH GOES TO THE ROOT OF DETERMI NATION OF CORRECT TAX LIABILITY OF THE ASSESSEE. IN SUPPORT OF HIS SUBMISSIONS HE R ELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF DCM BENETTO N INDIA LTD. VS. CIT : 173 TAXMAN 283 WHEREIN IT WAS OBSERVED AS UNDER :- 9. LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON CIT VS. KERALA STATE CO-OPERATIVE MARKETING FEDERATION LTD. (1992) 193 ITR 6241 (KER.) WHEREIN IT HAS BEEN HELD BY THE KERALA HIGH COURT THAT IN THE EVENT RELEVANT FACTS ARE NOT ON RECORD, THE TRIBUNA L CAN ALWAYS REMAND THE MATTER TO THE FILE OF THE ASSESSING OFFI CER TO INVESTIGATE AND DETERMINE THE FACTS. IT IS SUBMITTED THAT THE TRIBUNAL OUGHT TO HAVE REMANDED THE MATTER TO THE FILE OF THE ASSESSING OF FICER RATHER THAN DECLINE TO PERMIT THE ASSESSEE TO RAISE THE ADDITIONAL GROU ND. 10. FOLLOWING THE VIEW EXPRESSED BY THE KERALA HI GH COURT, WITH WHICH WE HAVE NO REASON TO DISAGREE, PARTICULARLY SINCE IT R ELIES UPON A DECISION OF THE MADRAS HIGH COURT IN CED V. P BRAHADEESWARAN (1987 ) 163 ITR 6802, WHICH IN TURN RELIES UPON THREE DECISIONS OF THE SU PREME COURT IN CIT VS. MCMILAN AND CO. (1958) 33 ITR 182: HUKUMCHAND MILLS LTD. VS. CIT (1967) ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 5 63 ITR 232 AND CIT VS. MAHALAKSHMI TEXTILE MILLS LT D. (1967) 66 ITR 710, WE ANSWER THE QUESTION OF LAW IN THE AFFIRMATIVE, I N FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND REMAND THE MATTER TO TH E FILE OF THE ASSESSING OFFICER TO DETERMINE THE CLAIM OF THE ASSESSEE ON M ERITS. 5. LD. COUNSEL ALSO RELIED ON THE DECISION OF H ONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. KERALA STATE CO-OPERATIVE MARKETING FEDERATION LTD. 193 ITR 624 WHEREIN IT HAS BEEN HELD AS UNDER :- FOLLOWING THE DECISIONS OF THE SUPREME COURT CITED ABOVE AND AGREEING WITH THE VIEW EXPRESSED BY THE MADRAS HIGH COURT IN BRAHADEESWARAN;S CASE (1987) 163 ITR 680, WE HOLD T HAT AN APPELLANT BEFORE THE TRIBUNAL COULD RAISE ANY NEW O R ADDITIONAL POINT FOR THE FIRST TIME IN APPEAL BEFORE THE TRIBU NAL EVEN THOUGH IT HAD NOT BEEN RAISED IN ANY FORM EITHER BEFORE THE A SSESSING AUTHORITY OR BEFORE THE COMMISSIONER OF INCOME-TAX( APPEALS). WE FURTHER HOLD THAT WHEN ONCE ANY SUCH NEW OR ADDITIO NAL GROUND IS RAISED BEFORE THE TRIBUNAL, THEY ARE DUTY BOUND TO ENTERTAIN THAT GROUND AND RENDER A DECISION THEREON EITHER THEMSEL VES OR BY REMANDING THE MATTER IF FURTHER INVESTIGATION INTO THE FACTS IS NECESSITATED. THE APPELLATE TRIBUNAL PERMITTED THE ASSESSEE TO RA ISE THE ADDITIONAL GROUND CLAIMING DEDUCTION OF THE AMOUNT ACCRUED AS PER THE KERALA GENERAL SALES TAX ACT TOWARDS PURCHASE T AX FOR PEPER. ACCEPTING THE CONTENTION OF THE ASSESSEE THAT IT WA S OMITTED TO BE CLAIMED BEFORE THE INCOME TAX OFFICER, THE ASSESSEE WAS ALSO FOUND ENTITLED TO CLAIM THE SAME SINCE THAT IS A ST ATUTORY LIABILITY WHICH ACCRUED DURING THE YEAR IN QUESTION. A CONTEN TION WAS ALSO RAISED BEFORE THE TRIBUNAL THAT THE SAME LIABILITY WAS ALLOWED IN A SUBSEQUENT ASSESSMENT YEAR. IT WAS FOR THESE REASON S THAT THE TRIBUNAL PERMITTED THE ASSESSEE TO RAISE THE ADDITI ONAL GROUND AND REMITTED THE MATTER TO THE FILE OF THE COMMISSIONER OF INCOME-TAX (APPEALS) TO LOOK INTO THE MATTER AFRESH AND DECIDE THE SAME ACCORDING TO LAW. IN VIEW OF THE LEGAL POSITION ENUNCIATED ABOVE, THE TRIBUNAL WAS RIGHT IN PERMITTING THE ASSESSEE TO RAISE AN ADDITI ONAL GROUND. THE JURISDICTION CONFERRED ON THE TRIBUNAL HAS BEEN PRO PERLY EXERCISED IN THE PRESENT CASE AND NO ERROR OF LAW HAS BEEN CO MMITTED BY THE ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 6 TRIBUNAL. THIS QUESTION ALSO HAS TO BE ANSWERED IN FAVOUR OF THE ASSESSEE. 6. LD. CIT(DR) VEHEMENTLY OPPOSED THE ADMISSIO N OF THIS ADDITIONAL GROUND. HE SUBMITTED THAT ASSESSEE IS A LISTED COMPANY AND SUBSTANTIAL GOVT. HOLDING IS THERE. THE COMPANY IS ADVISED BY SR. CHARTERED ACCO UNTANTS AND ADVOCATES IN TAX MATTERS AND, THEREFORE, IT CANNOT BE SAID THAT THE OMISSION ON THE PART OF ASSESSEE WAS ON ACCOUNT OF INADVERTENT MISTAKE. HE POINTED OUT THAT CLAIM WAS NOT ADVANCED IN THE RETURN FILED AND NEITHER BEFORE THE AO NOR BEFORE LD. CIT(A). LD. CIT (DR) SUBMITTED THAT THERE IS NO DATE ON THE PETITION FOR ADMISSION OF ADDITIONAL EVIDENCE. HE FURTHER POINTED OUT THAT LD . CIT(DR) HAD WRITTEN A LETTER TO AO ON 20 TH OCTOBER, 2011 SEEKING A REPORT ON THIS PETITION AN D, THEREFORE, IT IS CLEAR THAT THE PETITION FOR ADMISSION OF ADDITIONAL GROUND HAD BEEN FILED AFTER ABOUT ONE YEAR OF THE FILING OF APPEAL. LD. CIT(DR) REFERRED TO SECTION 253(4) AND POINTED OUT THAT ONLY 30 DAYS TIME HAS BEEN ALLOWED FOR FLING A CROSS OBJECTION AFTER THE RECEIPT OF APPEAL MEMO. LD. CIT(DR) FURTH ER REFERRED TO THE DECISION OF HONBLE P & H HIGH COURT IN THE CASE OF CIT VS. SA BUILDERS 93 DTR 256 AND POINTED OUT THAT SCOPE OF SECTION 254 HAS BEEN CONS IDERED IN PARA 12 OF THIS DECISION. HE POINTED OUT THAT IN THE PRESENT CASE FACTUAL FOUNDATION HAS NOT BEEN LAID DOWN BEFORE THE AO AND RELEVANT FACTS ARE NOT ON RECORD. THEREFORE, THIS GROUND SHOULD NOT BE ADMITTED. LD. COUNSEL IN THE REJOINDER SUBMITTED THAT THERE IS NO MALAFIDE IN FILING THE GROUND . LD. COU NSEL REFERRED TO PAPER BOOK ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 7 PAGE NO. 17 WHEREIN THE DETAILS OF INVESTMENTS MADE IN SUBSIDIARY COMPANY ARE CONTAINED TO DEMONSTRATE THAT ASSESSEE WAS HOLDING 1461502 EQUITY SHARES IN THE SUBSIDIARY COMPANY. HE SUBMITTED THAT THE DETAI LS OF DIVIDEND RECEIVED ARE ALSO ON RECORD. THEREFORE, ONLY CREDIT OF TAXES PAI D OUTSIDE INDIAN ON THE DIVIDEND INCOME OF ASSESSEEE HAS TO BE ALLOWED. HE SUBMITTED THAT AO HAS TO APPLY CORRECT PROVISIONS TO FACTS. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS A ND HAVE PERUSED THE RECORD OF APPEAL. IT IS WELL SETTLED LAW THAT A LEGAL CLAIM C AN BE ADVANCED AT ANY STAGE OF PROCEEDING. THEREFORE, WE ARE NOT INCLINED TO ACCEP T THE SUBMISSION OF THE LD. CIT(DR) TO REJECT THE GROUND TAKEN BY ASSESSEE ON T HE GROUND OF LACHES. THERE IS NO QUARREL WITH THE SUBMISSIONS OF LD. CIT(DR) T HAT IF THE RELEVANT FACTS ARE NOT THERE ON RECORD THEN THE ADDITIONAL GROUND SHOU LD NOT BE ADMITTED. HOWEVER, IF THE BASIC FACTS ARE THERE ON RECORD AND THOSE FA CTS HAVE ONLY TO BE SUPPLEMENTED BY OBTAINING SOME FURTHER INFORMATION IN THAT RESPECT THEN IN ORDER TO DETERMINE THE CORRECT TAX LIABILITY OF ASS ESSEE AND TO ADVANCE THE CAUSE OF SUBSTANTIAL JUSTICE, THE ADDITIONAL GROUND RAISE D BY ASSESSEE SHOULD BE ADMITTED. THE ASSESSING OFFICER, AS A QUASI-JUDICIA L AUTHORITY, IS ALSO REQUIRED TO DETERMINE THE CORRECT TAX LIABILITY OF ASSESSEE. IN THE PRESENT CASE THE BASIC FACTS NECESSARY FOR ADJUDICATION OF ADDITIONAL GROUND ARE ALREADY ON RECORD AND AT BEST THE AO IS TO VERIFY THOSE FACTS AND APPLY THE CORRE CT PROVISIONS OF DTAA TO THE FACTS. WE, THEREFORE, ADMIT THE GROUND RAISED BY TH E ASSESSEE AND RESTORE THE ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 8 MATTER TO THE FILE OF THE AO FOR ALLOWING THE CREDI T OF TAXES PAID IN SINGAPORE ON THE DIVIDEND INCOME AS PER THE PROVISIONS OF DTAA I N ACCORDANCE WITH LAW. 8. IN THE RESULT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ADMITTED AND ALLOWED FOR STATISTICAL PURPOSES. GROUNDS RAISED BY THE ASSESEE IN ITS APPEAL READS AS UNDER :- 2. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF AO IN DISALLOWING AN AMOUNT OF RS. 1,01,98,457/- U/S 14A TOWARDS EXPENSES FOR EARNING TAX FREE IN TEREST INCOME FROM UTI 2.1 WITHOUT PREJUDICE, RULE 8D WAS INSER TED IN THE IT RULES BY INCOME TAX (FIFTH AMENDMENT) RULES 2008, W .E.F. 24/03/2008 AND AS SUCH COULD NOT BE APPLIED TO AY 2006-07 . 2.2 THE APPELLANT HAS NOT MADE ANY INVES TMENTS IN TAX-FREE INSTRUMENTS DURING THE YEAR. 2.3.THE APPELLANT HAD HARDLY INCURRED AN Y EXPENDITURE ATTRIBUTABLE TO EARNING TAX FREE INTEREST INCOME F ROM UTI. 3. THAT THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE THE RS. 1,01,98,457/- COMPLETELY IGNO RING HIS PREDECESSORS ORDER DATED 19.3.2009 FOR ASSTT. YEAR 1995-96 IN A PPEAL NO. 207/-4-05 IN WHICH SUCH DISALLOWANCE WAS RESTRICTED TO RS. 1 LA KH ONLY. GROUNDS RAISED BY DEPARTMENT READS AS UNDER :- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED CIT(APPEALS), HAS ERRED IN RESTRICTING THE ADDITION OF RS. 1,01,98,458/- AS AGAINST RS. 2,86,93,520/- MADE BY THE AO U/S 14A OF THE I.T. ACT. 2.1 THE LD. CIT(A) IGNORED THE FACT THAT THE DIS ALLOWANCE U/S 14A WAS CORRECTLY MADE BY THE AO IN ACCORDANCE WIT H THE PROVISIONS OF RULES 1962. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS. 2,63,38,000/- MADE BY THE AO ON ACCOUNT OF NON CREDITING OF SUM RECEIV ED AS DEPB CREDIT. 3.1 THE LD. CIT(A) IGNORED THE FACT THAT THE A DDITION HAS BEEN CORRECTLY MADE ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 9 BY THE AO IN ACCORDANCE WITH PROVISIONS OF SECTION 28(III)(D) OF THE I.T. ACT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS. 5,00,000/- MADE BY THE AO BY TREATING THE PAYMENT TO CERC AS ANNUAL LI CENSE FEES AS CAPITAL EXPENDITURE. 4.1 THE LD. CIT(A) IGNORED THE FACT THAT THE ASS ESEE SHALL BE DERIVING LONG TERM BENEFIT BY OBTAINING LICENSE AND ALSO THE FACT THAT THE ASSET IN QUESTION HAS YET TO BECOME OPERATIONAL. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN DIRECTING THE AO T O ALLOW CLAIM OF THE ASSESEE OF RS. 1,92,58,404/- ON ACCOUNT OF WAIVER PENAL TY FOR ASTT. YEAR 1988-89 AND ASSTT. YEAR 2000-02. 5.1 THE LD. CIT(A) IGNORED THE FACT THAT THE ASS ESEE DID NOT FILE REVISED RETURN TO CLAIM THE DEDUCTION IN QUESTION AN D ALSO THE FACT THAT THE CLAIM WAS CORRECTLY REJECTED BY THE AO APPLYING TH E RATIO OF THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF CIT VS. GO ETZE (INDIA) LTD. 9. BRIEF FACTS APROPOS GROUND NOS. 2 TO 2.3 RAI SED BY ASSESSEE AND GROUND NOS. 2 AND 2.1 RAISED BY DEPARTMENT ARE THAT ASSESS EE HAD RECEIVED TAX FREE INTEREST FROM UTI RS. 3,56,45,467/-. THE AO APPLIE D THE PROVISION OF SECTION 14A READ WITH RULE 8D OF IT RULES, 1962 AND DETERMINED THE DISALLOWANCE U/S 14A AT RS. 2,86,93,520/-. LD. CIT(A) AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, CONFIRMED THE DISALLOWANCE AT RS. 10198458/-, INTER ALIA, OBSERVING THAT SINCE THIS DISALLOWANCE WAS MADE STRICTLY IN ACCORDANCE W ITH THE PROVISIONS OF RULE 8D (2) (III) OF THE INCOME TAX RULES, 1962, NO INTERFE RENCE IN THIS BEHALF IS CALLED FOR. THE DEPARTMENT IS ALSO AGGRIEVED WITH THIS FINDING OF LD. CIT(A) AND HAS TAKEN FOLLOWING GROUND OF APPEAL. ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 10 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. ADMITTEDLY FOR THE ASSTT. Y EAR UNDER CONSIDERATION RULE 8D WAS NOT APPLICABLE AND THE AO WAS REQUIRED TO MA KE THE DISALLOWANCE U/S 14A AFTER RECORDING HIS SATISFACTION REGARDING EXP ENDITURE BEING INCURRED FOR THE EARNING OF EXEMPT INCOME ON REASONABLE BASIS AS PER THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. 347 ITR 272. LD. CIT DR POINTED OUT THAT AS REGARDS THE DELETION OF ADDI TION ON THE GROUND OF INTEREST DISALLOWANCE, LD. CIT(A) HAS ACCEPTED THE SUBMISSIO NS OF ASSESSEE REGARDING INVESTMENTS IN THE TAX FREE SECURITIES OUT OF OWN/S URPLUS FUND WITHOUT ANY REMAND REPORT BEING CALLED FOR FROM THE AO. LD. CO UNSEL REFERRED TO THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSTT. Y EAR 1993-94 TO SUBMIT THAT TRIBUNAL HAS CONSIDERED THIS ISSUE WITH REFERENCE T O SECTION 80M AND, THEREFORE, NO DISALLOWANCE IS CALLED FOR IN REGARD TO INTERES T EXPENDITURE. BE THAT AS IT MAY, AO AS WELL AS LD. CIT(A), BOTH HAVE CONFIRMED THE DISALLOWANCE APPLYING RULE 8D. THEREFORE, THE ORDER OF LD. CIT(A) CANNOT BE SUSTAINED. THE ISSUE, THEREFORE, IS RESTORED BACK TO THE FILE OF THE AO FOR DECIDING THE ISSUE DENOVO IN ACCORDANCE WITH THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT (SUPRA) AND ALSO AFTER TAKI NG INTO CONSIDERATION THE DECISION IN ITS OWN CASE FOR ASSTT. YEAR 1993-94. 11. IN THE RESULT THIS GROUND OF ASSESSEE AS WELL AS GROUNDS RAISED BY DEPARTMENT ON THIS ISSUE ARE ALLOWED FOR STATISTICA L PURPOSES. ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 11 GROUND NO. 3 OF DEPARTMENTAL APPEAL READS AS UNDER :- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2,63,38,000/- MADE BY THE AO ON ACCOUNT OF NON CREDITING OF SUM RECE IVED AS DEPB CREDIT. 12. BRIEF FACTS APROPOS GROUND NO. 3 ARE THAT AO N OTICED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD RECEIVED DEPB CREDIT OF RS. 2,63,38,000/- BUT HAD NOT SHOWN AS ITS INCOME. THE AO OBSERVED TH AT ASSESSEE IN ITS REPLY SUBMITTED THAT THE DETAILS OF DEPB CREDIT OF RS. 2, 63,38,000/- AS ON 31.3.2006 REPRESENTS DUTY ENTITLEMENT PASSBOOK WHICH IS AVAIL ABLE FOR IMPORTS AT CHEAPER / LOWER RATES OF CUSTOM DUTY AS A CONSEQUENCE TO EXPO RT OUT OF INDIA. THE ASSESSEE SUBMITTED THAT DEPB CREDITS ARE SOLD IN TH E OPEN MARKET AND THE RECEIPT OUT OF THIS AUCTION IS TRANSFERRED TO THEIR ASSOCIATES NINL KEEPING 3% AS PROFIT. IN SUPPORT OF ITS CONTENTION THE ASSESSEE S UBMITTED THAT DURING FINANCIAL YEAR 2005-06 AGAINST THE TOTAL DEPB CREDITS AVAILAB LE OF RS. 2,88,83,615/-, IT HAD REALIZED RS. 2,73,56,574/- BY WAY OF SALE OF DE PB AND 97% OF THE REALIZATION OF DEPB WAS PASSED ON TO NINL. (THE ASSOCIATE ON WH OSE BEHALF THE EXPORTS OF PIG IRON WERE MADE IN TERMS OF CONTRACT BETWEEN MMT C LTD. AND NEETACHAL ISPAT NIGAM LTD. THE ASSESSEE REFERRED TO ARTICLE 7 PARA 7.8 OF THE AGREEMENT BETWEEN MMTC AND NINL WHICH HAS BEEN REPRODUCED IN THE ASSE SSMENT ORDER. THE AO IN THE BODY OF THE ORDER CONCLUDED THAT THE ADDITION O F RS. 2,73,56,574/- IS TO BE ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 12 MADE TO THE TOTAL INCOME OF ASSESSEE. HOWEVER IN TH E ASSTT. ORDER THE ADDITION HAS BEEN MADE OF RS. 2,63,38,000/-. BEFORE LD. CIT (A) THE ASSESSEE POINTED OUT THAT SIMILAR ADDITION OF RS. 11,27,43,0000/- WAS MA DE IN ASSTT. YEAR 2005-06 BUT WAS DELETED BY LD. CIT(A) UNDER IDENTICAL FACTS. AC CORDINGLY, LD. CIT(A) DELETED THE ADDITION IN THIS YEAR ALSO. 13. LD. CIT (DR) SUBMITTED THAT 97% OF DEPB CR EDITS WAS TO BE PASSED ON TO THE ASSOCIATES ON WHOSE BEHALF THE EXPORTS HAD BEEN MADE. HE SUBMITTED THAT THIS WAS PRIMARILY APPLICATION OF INCOME AND NO OVE RRIDING TITLE WAS THERE IN FAVOUR OF NINL. LD. DR POINTED OUT THAT ASSESSEE I S FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE THE INCOME ON ACCOUNT O F DEPB CREDIT WAS TO BE ACCOUNTED FOR ON ACCRUAL BASIS AND COULD NOT BE AC COUNTED FOR ON CASH BASIS. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSE E IS NOT FOLLOWING CASH SYSTEM OF ACCOUNTING. THE INCOME IS ACCOUNTED FOR I N THE YEAR IN WHICH PROFIT IS REALIZED ON SALE/AUCTION OF DEPB CREDIT AVAILABLE T O ASSESSEE. NO CHANGE HAS TAKEN PLACE IN SUBSEQUENT YEARS IN REGARD TO RECOGN ITION OF DEPB CREDIT. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS A ND HAVE PERUSED THE RECORD OF THE CASE. AS NOTED EARLIER, THE AO IN THE BODY OF O RDER TALKS OF ADDITION OF RS. 2,73,56,574/- WHEREAS IN COMPUTATION MAKES ADDITION OF RS. 2,63,38,000/-. BOTH THESE ADDITIONS HAVE DIFFERENT IMPORT. THEREFORE, H E NEEDS TO CLARIFY THE CORRECT AMOUNT WHICH HE INTENDS TO ADD. WE FURTHER NOTICE T HAT ASSESEE HAS RETURNED 3% PROFIT IN THE YEAR IN WHICH THE DEPB IS SOLD/AUCT IONED AND 97% OF THE PROFIT ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 13 IS TRANSFERRED TO NINL AS PER AGREEMENT. THIS WAS R IGHTLY DONE IN VIEW OF OVERRIDING TITLE IN FAVOUR OF NINL OVER PROCEEDS OF SALE/AUCTION OF DEPB. 15. WITH THESE OBSERVATIONS THE MATTER IS RESTORE D BACK TO THE FILE OF THE AO FOR RECONSIDERATION OF THIS ISSUE. 16. FACTS APROPOS GROUND NO. 4 ARE THAT ASSESSEE HAD CLAIMED AN AMOUNT OF RS. 5 LACS AS EXPENDITURE TOWARDS ANNUAL FEES OF LI CENSE ISSUED BY CENTRAL ELECTRICITY REGULATORY COMMISSION (CERC) FOR THE PE RIOD 1.4.2005 TO 31.3. 2006. THE AO REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY T HE SAID EXPENSES BE NOT DISALLOWED. THE ASSESSEE REPLIED AS UNDER :- THE SUBMISSIONS OF THE ASSESSEE ON THIS ISSUE HAS BEEN CONSIDERED AND SINCE THE LICENSE EXPENDITURE INCURRED BY THE ASSES SEE IS ACTUALLY AN EXPENDITURE OF A CAPITAL IN NATURE AND MOREOVER, IT RELATES TO AN ACTIVITY WHICH IS YET TO BECOME OPERATIONAL AND SINCE IT ALS O PERTAINS TO AN INDEPENDENT ACTIVITY ALTOGETHER, THE EXPENDITURE CL AIMED BY THE ASSESSEE COMPANY AS REVENUE EXPENSES IS NOT ALLOWABLE. HOWEV ER, THE ASSESSEE IS ALLOWED TO CAPITALIZE THE SAME TOWARDS THE WINDMILL PROJECT. AS THE LICENCE FEES PAID FOR A NEW UNIT BEING WINDMILL UNIT WHICH HAS NOT BECOME OPERATIONAL, THE SAME BEING PREOPERATIVE EXPENDITUR E IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. ACC ORDINGLY, RS. 5 LACS IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE. ACCORDINGLY, RS. 5 LACS IS DISALLOWED AND ADDED BAC K TO THE TOTAL INCOME OF THE ASSESSEE. 17. AO TREATED THIS EXPENDITURE AS CAPITAL EX PENDITURE ON THE GROUND THAT THE SAME RELATED TO ACTIVITY WHICH WAS READY TO BEC OME OPERATIONAL AND PERTAINED TO AN INDEPENDENT ACTIVITY. LD. CIT(A) DE LETED THIS DISALLOWANCE TAKING INTO CONSIDERATION THE FACT THAT THE PAYMENT OF RS. 5 LACS WAS TOWARDS ANNUAL LICENSE FEE FOR TRADING IN ELECTRICITY. HE ACCEPTED THE ASSESEE;S CONTENTION THAT ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 14 THIS PAYMENT HAD NEITHER RESULTED INTO ACQUISITION OF ANY CAPITAL ASSET NOR EVEN THE BENEFIT OF ENDURING NATURE HAD BEEN OBTAINED B Y THE ASSESSEE COMPANY. HE ALSO TOOK NOTE OF THE FACT THAT THE ACTIVITY OF GEN ERATION AND SALE OF ELECTRICITY BEING GENERATED WITH THE HELP OF 25 WINDMILLS AT GA JENDRAGADH, BANGALORE WAS NOT AN INDEPENDENT ACTIVITY AS IT WAS CONTROLLED BY THE SAME MANAGEMENT AND THERE WAS ALSO INTERLACING OF FUNDS. 18. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH T HE PARTIES AND HAVE PERUSED THE RECORD. THE FACTS AS NOTED BY LD. CIT(A) HAVE N OT BEEN CONTROVERTED BY THE DEPARTMENT. IT IS NOT DISPUTED THAT THE ACTIVITY CA RRIED OUT BY THE ASSESSEE RESULTED INTO GENERATION AND SALE OF ELECTRICITY TH EREFORE THE LICENCE FEE PAID FOR TRADING IN ELECTRICITY WAS IN REVENUES FIELD. WE, THEREFORE, CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 19. IN THE RESULT GROUND NO. 4 AND 4.1 ARE DI SMISSED. 20. BRIEF FACTS APROPOS GROUND NO. 5 AND 5.1 A RE THAT IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESEE MADE A CLAIM OF DEDUCTION OF RS. 1,92,58,404/-. THE AO, FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/S. GOETZE (I) LTD. VS. CIT DID NOT ENTERTAIN THE ASSESSEES C LAIM AS ASSESSEE HAD NOT FILED ANY REVISED RETURN. BEFORE LD. CTI(A) THE ASSESSEE CHALLENGED THE ACTION OF THE AO IN NOT GRANTING RELIEF / DEDUCTION OF RS. 1,92, 58,404/- ON ACCOUNT OF REVERSAL OF INCOME TAX LIABILITY. LD. CIT(A) NOTICED THAT AS SESSEE HAD MADE A CLAIM FOR DEDUCTION OF RS. 19258404/- BEING WAIVER OF PENALTY U/S 273(2)(A) PERTAINING TO ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 15 ASSTT. YEAR 1989-90 AND ASSTT. YEAR 2001-02. THE AS SESSEE S CASE WAS THAT PENALTY IN QUESTION WAS DISALLOWED AND ADDED BACK T O THE COMPUTATION FOR ASSTT. YEAR 2001-02 AND 2002-03 AT THE TIME OF IMPOSITION OF PENALTY FOR ASSTT. YEARS 1988-89 AND 2001-02. THE PENALTY FOR THE AFORESAID ASSTT. YEARS WERE DELETED BY THE ITAT IN TERMS OF ORDER DATED 14 TH DECEMBER, 2004 AND, THEREFORE, THE TOTAL AMOUNT OF RS. 1,92,58,404/- WAS CREDITED TO THE PRO FIT AND LOSS ACCOUNT FOR FINANCIAL YEAR 2005-06 AS MISCELLANEOUS RECEIPTS . LD. CIT(A) NOTED THAT INADVERTENTLY THE ASSESSEE COMPANY DID NOT CLAIM IT AS DEDUCTION IN THE COMPUTATION OF TOTAL INCOME FOR THE ASSTT. YEAR UND ER CONSIDERATION. LD. CTI(A), AFTER CONSIDERING THE ASSESSEES SUBMISSIONS AND TA KING NOTE OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/S. GOETZE ( INDIA) LTD. VS. CIT WHEREIN IT WAS, INTERALIA , OBSERVED THAT THE SAID DECISION DI D NOT IMPINGE ON THE POWER OF TRIBUNAL IN ENTERTAINING THE CLAIM FOR DEDUCTION A DVANCED BEFORE IT, CONCLUDED IN PARA 6.6. AS UNDER :- 6.6. I HAVE ANALYZED THE FACTS OF THE PRESENT CA SE IN THE LIGHT OF THE PARAMETERS LAID DOWN BY THE HONBLE DELHI HIGH COUR T IN THE CASE OF CIT VS. JAI PARABOLIC SPRINGS LTD. AND THE OBSERVATIONS MADE BY THE HONBLE APEX COURT IN THE CASE OF JUTE CORPORATION OF INDIA LTD. VS. CIT AND THE INSTRUCTIONS GIVEN BY THE CENTRAL BOARD OF DIRECT T AX ON MATTERS PERTAINING TO ASSESSMENTS. ON CONSIDERATION, I FIND THAT THE D EDUCTION ON ACCOUNT OF PENALTY WAS UNDISPUTEDLY ALLOWABLE TO THE APPELLANT COMPANY AS NEITHER THE PAYMENT OF INCOME TAX PENALTY/OTHER LIABILITY I S AN ADMISSIBLE CLAIM NOR THE REFUND THEREOF IS ASSESSABLE. THEREFORE, WH ILE THE PAYMENT OF PENALTY, IF DEBITED TO THE PROFIT AND LOSS ACCOUNT IS TO BE DISALLOWED AND ADDED BACK TO THE COMPUTATION OF TOTAL INCOME, THE REFUND THEREOF IF CREDITED TO THE P&L A/C, HAS TO BE ALLOWED AS A DED UCTION IN THE COMPUTATION. THEREFORE, IN MY VIEW, IT WILL BE UNJU STIFIED IF SUCH APPARENT MISTAKE IN THE ASSESSMENT ORDER IS NOT RECTIFIED IN THE APPEAL PROCEEDINGS. ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 16 AS STATED EARLIER, THE PENALTY IMPOSED FOR THE ASST T. YEAR 1988-89 AND 2001-02 WAS DULY DISALLOWED AND ADDED BACK IN THE Y EARS OF PAYMENT. THEREFORE, THE SAME HAS TO BE ALLOWED AS A DEDUCTIO N IN THE YEAR OF REFUND AS THE SAME HAS BEEN OFFERED BY THE APPELLAN T AS MISCELLANEOUS RECEIPTS IN THE P & L A/C. ACCORDINGLY, THE AO IS D IRECTED TO ALLOW DEDUCTION OF 19258404 TO THE APPELLANT COMPANY. 21. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE DEPARTMENT HAS NOT CONTROVE RTED THE FACTS AS RECORDED BY THE LD. CIT(A) . THERE CAN BE NO QUARREL WITH TH E OBSERVATION OF LD. CIT(A) THAT WHILE THE PAYMENT OF PENALTY, IF DEBITED TO TH E PROFIT AND LOSS ACCOUNT IS TO BE DISALLOWED AND ADDED BACK TO THE COMPUTATION OF TOTAL INCOME, THE REFUND THEREOF, IF CREDITED TO THE PROFIT AND LOSS ACCOUNT , HAS TO BE ALLOWED AS A DEDUCTION IN THE COMPUTATION. WE, THEREFORE, CONFIR M THE ORDER OF LD. CIT(A). 22. IN THE RESULT GROUND NO. 5 AND 5.1 ARE DI SMISSED. ITA NO. 3891/DEL/2011 ASSTT. YEAR 2007-08 23. GROUNDS RAISED BY THE ASSESSEE READ AS UN DER :- 2. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN CIRCU MSTANCES OF THE CASE AND IN LAW IS SUSTAINING DISALLOWANCE @ 10% OF THE EXEMPT INCOME BEING INTEREST ON UTI BONDS OF AMOUNTING TO RS. 3,56,64,468/- U/S 14A OF THE INCOME TAX ACT, 1961. 2.1 WITHOUT PREJUDICE THAT NO DISALLOWANCE U/S 14 A IS CALLED FOR, THE DISALLOWANCE AT 10% OF THE EXEMPT INCOME AS SUS TAINED BY THE LD. CIT(A) IS HIGHLY EXCESSIVE, UNJUST AND UNREASON ABLE. ITA NO. 4187/DEL/2011 ASSTT. YEAR 2007-08 ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 17 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN RESTRICTING THE A DDITION TO 10% OF THE EXEMPTED INCOME DISCLOSED BY THE ASSESSEE AS AGAINS T THE ADDITION OF RS. 2,83,19,079/- MADE BY THE AO U/S 14A OF THE I.T. AC T. 2.1 THE LD. CIT(A) IGNORED THE FACT THAT THE DIS ALLOWANCE U/S 14A WAS CORRECTLY MADE BY THE AO IN ACCORDANCE WITH THE PRO VISIONS OF RULE 8D OF IT RULES 1962 AND GIVEN THE FACT THAT ON DATE OF MA KING ASSESSMENT WHEN THE PROCEEDINGS FORMULA OF COMPUTING DISALLOWANCE I S THERE IN THE FORM OF RULE 8D THE ACTION OF THE AO WAS JUSTIFIED IN RELY ING ON RULE 8D FOR COMPUTING DISALLOWANCE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDI TION OF RS. 88,90,000/- MADE BY THE AO ON ACCOUNT OF CREDITING OF SUM RECEI VED AS DEPB CREDIT. 24. THIS ISSUE IS IDENTICAL TO GROUNDS TAKEN IN ASSTT. YEAR 2006-07 ON THE ISSUE OF DEDUCTION U/S 14A BY THE ASSESSEE AND DEPARTMENT AND GROUNDS RAISED BY DEPARTMENT ON DEPB ISSUE. THEREFORE, FOR THE REASON S GIVEN IN ASSTT. YEAR 2006- 07, THE GROUNDS RAISED BY BOTH THE ASSESSEE AS WELL AS DEPARTMENT IN ASSTT. YEAR 2007-08 ARE ALLOWED FOR STATISTICAL PURPOSES. 25. IN THE RESULT THE ASSESSEES APPEAL FOR ASSTT. YEARS 2006-07 IS ALLOWED FOR STATISTICAL PURPOSE AND DEPARTMENTS APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. FOR ASSTT. YEARS 2007-08 THE ASSESSEES AS WELL AS DEPARTMENTS APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30/1/2015. SD/- SD/- (C.M. GARG) ( S .V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE 30 TH JANUARY, 2015 VEENA ITA NOS. 4265,4495, /DEL/2010 & ITA NOS. 3891, 4187/DEL/2011 18 COPY OF ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER DEPUTY REGISTRAR, ITAT