Income Tax Appellate Tribunal - Delhi
M/S. Indian Farmers Fertiliser ... vs Acit, New Delhi on 19 March, 2018
In the Income-Tax Appellate Tribunal,
Delhi Bench 'C', New Delhi
Before : Shri Bhavnesh Saini, Judicial Member And
Shri L.P. Sahu, Accountant Member
ITA No. 4951/Del./2016
Assessment Year: 2011-12
Indian Farmers Fertilizers vs. ACIT, Circle 31(1),
Cooperative Ltd., IFFCO Sadan, C-1, New Delhi.
District Centre, Saket, New Delhi
(PAN- AAAAI0050M)
(Appellant) (Respondent)
Assessee by Sh. IRA Kapoor, CA
Revenue by Smt. Simran Bhullar, CIT/DR
Date of Hearing 15.01.2018
Date of Pronouncement 19.03.2018
ORDER
Per L.P. Sahu, A.M.:
This is an appeal filed by the assessee against the order u/s. 263 of the IT Act, 1961 of Principal Commissioner of Income-tax-11, New Delhi for the assessment year 2011-12. The assessee has filed following concise grounds of appeal :
1. In law and on the facts and circumstances of the case, the learned Principal C.I.T. erred in assuming jurisdiction u/s.263 of the I.T. Act, whereas the mandatory conditions for assuming such jurisdiction were completely absent thus resulting in the order passed being bad in law.
2. On the facts and in the circumstances of the case, the learned Pr. CIT erred in recording a finding that on the issue of tax credit on dividend as per Article-25(4) of the DTAA, the assessment order reflects lack of inquiry and non-application of mind.ITA No. 4951/Del./2016 2
3. On the facts and in the circumstances of the case, the learned Pr. CIT erred in directing the Assessing Officer to examine the applicability of the Proviso to section 36(1)(iii) of the I.T. Act regarding capitalization of interest expenditure, whereas such component of interest expenditure was already capitalized and disclosed in the Annual Accounts which were duly examined by the Assessing Officer during the course of the scrutiny assessment proceedings.
4. On the facts and in the circumstances of the case, the learned Pr. CIT erred in observing that part of the interest expenditure may pertain to investment not connected with the business of the assessee-society and consequently such interest may not be deductible u/s.36(1)(iii) of the I.T. Act whereas the Assessing Officer had already examined this issue and made disallowance of interest u/s.14A of the I.T. Act read with Rule 8D of the I.T. Rules, which disallowance is subject matter of appeal pending before the Hon'ble ITAT.
2. The brief facts of the case are that the assessee filed return of income declaring an income of Rs.1275.42 crores and odds on 29.09.2011. The Assessing Officer issued detailed questionnaire to the assessee. In response, the assessee filed replies of all the queries made therein. After considering the submissions of the assessee, the Assessing Officer made additions on dividend income received from OMIFCO, Oman of Rs.144.67 crores and odds and disallowance u/s. 14A of Rs.20.49 crores. He, therefore, assessed income at Rs.1440.67 crores vide assessment order dated 27.03.2017. Later on, the assessment was examined by the Principal Commissioner and he concluded that the assessment made by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of Revenue. Accordingly, he issued show cause notice u/s. 263 of the IT Act, which reads as under :
Show cause notice u/s 263 of the Income Tax Act, 1961 for the A.Y. 2011-12-Reg. The assessment records of M/s Indian Farmers Fertiliser Cooperative Limited for the A.Y. 2011-12 were called for and examined. The Assessing Officer framed assessment on 27.03.2014(the actual date of order should be 27.03.2015). The AO ITA No. 4951/Del./2016 3 conducted hearings effectively from 13.03.2015 to 26.03.2015. The AO made the following additions:-
Net taxable income as shown in return Rs. 1275,42,22,424/- Add:
(a) Dividend income received from OMIFCO, Oman Rs.144,75,81,978/-
(b) Disallowance u/s 14A r.w.r. 8D(2)(ii) Rs.20,48,90,000/-
Taxable income Rs.1440,66,94,402/-
2. The AO also allowed rebate u/s 90 on account of deduction as per DTAA with OMAN of Rs. 17,37,09,837/-.
3. The AO issued questionnaire vide letter No. 117 dated 20.02.2015. As regards the dividend income, the AO vide point No. 26, 27 & 28 asked the following questions;-
"26. In respect of any income covered in DTAA, please furnish detailed note with copy of respective agreement and also give reasons for changing your earlier stand of ont the income covered in DTAA.
27. Give reasons for claiming dividend Income received from OMIFCO as exempt income not claiming relief u/s 90 of the Income Tax Act. 1961.
28. Also explain as to the condition of carrying on business in OMAN through PE and the holding in respect of which the dividends are paid is effectively connected with such permanent establishments; and article 11(4) of the DTAA is applicable in your case."
4. The assessee filed reply vide letter dated 27.02.2015 but no reply was given on the issue of dividend from OMAN. The assessee gave a further reply dated 13.03.2015 wherein reply was given as per Annexure-A in respect of item No. 26, 27 & 28 questionnaire of the Do dated 20.02.2015. The submissions are almost same as the A.Y. 2011-12.
5. The AO did not accept the contention of the assessee and taxed the divider income. The AO did not apply his mind as where the assessee has not paid any tax in OMAN and there should not be any question of giving credit of Rs. 17,37,09,83/-.
6. The AO did not apply his mind in regard to section 90 which authorizes governments to enter into an agreement for avoidance of double taxation.
7. The Government issued a notification No. SO 563(E) dated 23.09.1997 which is reproduced as under :
"WHEREAS the annexed agreement between the Government of the Sultanate of Oman and the Government of the Republic of India for the Avoidance o» Double Taxation and the Prevention of Fiscal Evasion with respect to tazes cm income has entered into force ITA No. 4951/Del./2016 4 on the 3rd June, 1997 after the notification S both the Contracting States to each other of the completion of the proceeding required by their laws for bringing into force of the said agreement m accordance with paragraph I of Article 29 of the said agreement:
Now, therefore, in exercise of powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby directs that all the provisions of the said agreement shall be given effect to throughout the territory of India."
The perusal of the notification shows that the agreement has been entered into in exercising powers conferred by section 90 of the IT Act, 1961. The relevant part of section 90 is reproduced as under:-
90. Agreement with foreign countries or specified territories.-
(1) The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India,--
(a}For the granting of relief in respect of--
(i) income on which have been paid both income-tax under this Act and income-tax in that country or specified territory, as the case may be, or
(ii)income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or
(b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be, or
8. Section 90 clearly mentions that the relief is to be granted in respect of income on which have been paid both income tax under this Act and income tax and income tax in that country or specified territory, as the case may be. The section 90(1)(a)(ii) is in regard to the income tax chargeable under this Act and under the corresponding law in force in that country and moreover, income tax should be chargeable in the Act of either country.
9. From the perusal of record it is found that the assessee has claimed tax credit even though no tax has been paid in either country.
10. The Central Government derives its authority to enter into agreement for avoidance of double taxation from section 90 of the IT Act. The primary objective is not to tax the same income in both the countries. The AO failed to notice this bare provision of section 90 that the assessee should have paid the taxes. In the present case there is no dispute that the assessee has not paid any tax on the dividend income.
ITA No. 4951/Del./2016 511. The assessee has placed reliance on Article 25(4) of the Double Taxation Agreement. It refers to the tax incentive granted under the law of the Contracting State and which are designed to promote economic development.
12. The "tax incentive" has not been defined in the Double Taxation Agreement. Therefore we have to go to Article 3(2) which reads as under;-
As regards the application of this Agreement by a Contracting State, any term not defined therein shad, unless the context otherwise requires, have the meaning which it has under the law of that Contracting State concerning the taxes to which this Agreement applies,"
13. As per Article 3(2) the meaning of expression "tax incentive" has to be taken from meaning given in the IT Act. Even in the IT Act, the term "tax incentive" has not been defined. The AO did not notice the primary condition of Article 25(4) that tax incentive should be designed to promote economic development The AO simply accepted the version of the assessee and did not apply his mind as to the veracity of the statement given by the assessee. The AO did not notice what are the tax incentives which are designed to promote economic development. In the present case, the dividend income has been made exempt under Article 8(bis) under the OMANI Companies Income Tax Law. This would be a mere assumption that such exemption is designed to promote economic development. The AO failed to notice this vital Difference.
14. The AO failed to examine the fact as whether Article 25(4) of the Double Taxation Agreement has been fully complied with by the assessee. It cannot be presumed that the exemption granted under Article 8(bis) is meant for economic development. There has to strict interpretation of the Statute. Article 8(bis) does not indicate that the exemption is designed for economic development.
Capitalization of Interest u/s 36(1)(iii) proviso/Disallowance of interest u/s 36(1)(m)
15. The perusal of Balance sheet for the A.Y, 2011-12(as given 43rd Annual report) shows that the assessee has shown loan funds of Rs. 11,352.94 crores. The total of the balance sheet is Rs. 16,737.31 crores. This means the assessee is having only 29.68% own funds. The perusal of the balance sheet further shows the capital work in progress of Rs. 441.68 crores. The assessee has not shown any figure of interest pertaining to capital work in progress. The schedule 6(43rd Annual Report) showing capital work in progress does not show any interest component. The AO did not make any inquiry as regards the application of section 36(1)(iii) proviso. As per para 13 of significant accounting rules, the assessee has mentioned that borrowing costs that are attributable to the acquisition or contract of qualifying asset are capitalized as per the cost of such assets. But the assessee has not given any detail about interest component in the capital work in progress which is to be calculated for the period beginning from the date on which the capital was borrowed for acquisition of the asset till the date of which such asset was first put to use. The AO ITA No. 4951/Del./2016 6 did not make any inquiry or raised any query for calculating the interest to be capitalized u/s 36(1)(iii) proviso. The AO did not make any further inquiry as whether the calculation made by the assessee, if any, is correct or not.
16. The assessee has shown details of fixed assets in schedule 5 of 43rd annual report. The total addition to the fixed assets under the gross block is Rs. 356.46 crores. The AO has not made any Inquiry as regards the interest component which would be liable to be capitalized as per section 36(1)(iii) proviso.
17. The assessee has shown Loans & Advances under schedule II(43rd Annual Report) of Rs. 3807.86 crores. The AO has not asked for the purpose of such advances as whether these are for business purpose or not/whether some of the advances are meant for acquisition of capital asset. If that is so, then section 36(l)(iii) proviso would come into operation. No such queries have been raised by the AO nor any explanation given by the assessee. The AO has also not considered the disallowance of interest u/s 36(1)(iii) in respect of advances which might have been for non-business purpose, following the ratio of decision of the Hon'ble Punjab & Haryana High Court in the case of Abhishek Industries, 286ITR 1.
18. In schedule 20(Para l)(43rd Annual Report), under the head 'Capital Commitments' -the-assessee has shown estimated value of contracts(net of advances) to be executed capital account and not provided for amount to Rs. 436.36 crores. Again the assessee has not mentioned the element of interest pertaining to these contracts. The AO has not raised any query as regards the interest component and the application of section 36(1)(iii) proviso.
19. The assessee has shown investment of Rs, 5157.19 crores and the detail is given under schedule 7(43rd Annual Report). Schedule 7(43rd Annual Report) shows that the assessee has made long term investments. Although the assessee is having borrowed funds to the extent of 70.32% yet the AO has not raised any query as regards the interest component attributable to such investments and how it is allowable under the business head i.e. u/s 36(1)(iii). The assessee has not established any nexus as regards the utilization of funds from own sources or funds on which interest is paid by the assessee.
Revenue loss on sale of funds
20. The assessee has filed a reply vide letter dated 26.03.2015 before the AO. Vide para 9 the assessee has claimed loss on sale of Fertiliser Bonds. It has been mentioned that the subsidy receivable has been duly offered to tax in the year of accrual as per the accounting policy of the society. The AO did not ask for the details in which year and what amount of subsidy has been offered to tax so as to verify the claim of loss on sale of Fertiliser Bonds.
Long Term Capital Gain
21. The assessee has shown in the computation of income as per Annexure-C the long term capita! gain. No further particulars have been given by the assessee or asked by the AO as what has been sold by the assessee.
ITA No. 4951/Del./2016 722. Rental Income:
The assessee has shown rental income of Rs. 16.24 crores as per schedule 14(43rd Annual report). In the statement of total taxable income, the assessee has shown rental income under the head Income from house property. It appears that assessee is having income on account of communication towers rented to telecom companies like Bharti Airtel and M/s BSNL If that is the case, then the case of the assessee would not fall under the head Income from House Property as these communication towers cannot be called as buildings or lands appurtenant thereto. No enquiry has been made by AO on this aspect.
23. Ongoing through the Annual report it is found that the assessee has following associates:-
(i) IFFCO-Tokio Genera! Insurance Company Ltd.
(ii) Oman India Fertiliser Company S.A.O.C.
(iii) Jordan India Fertiliser Company, L.L.C,
(iv) IFFCO Chhattisgarh Power Ltd. :
(v) IFFCO Kisan Sanchar Ltd,
(vi) IFFCO Kisan SEZ Ltd.
(vii) Industries Chimiques Du Senegal
(viii) Kisan International Trading, FZE
(ix) National Commodity & Derivatives Exchange Ltd.
(x) National Collateral Management Services Ltd.
(xi) Indian Potash Limited
(xii) IFFCO Kisan Bazar & Logistics Ltd.
(xiii) Indian Farm Forestry Development Cooperative Ltd.
(xiv) IFFCO Foundation
(xv) Cooperative Rural Development Trust (xvi) IFFCO Kisan Sewa Trust (xvii) Grow Max Agri Corp.
(xviii) Aria Chemicals (Orissa) Ltd.
24, The assessee has shown dividend income from OMIFCO OMAN, Indian Limited. The AO has not made any inquiry as regards the income which might have received or due to the assessee from associates as mentioned above. The assessee also not attached any documents as regards the balance sheet, P&L A/c etc. of associates where the assessee is having interest. For example, the assessee has simply dividend income form OMIFCO OMAN but no other document has been asked by the A.O. or given by the assessee. The assessee would be taxable on the global income irrespective of the associates from which the assessee derives income. The assessee may be eligible for any kind of allowance as per Double Taxation Agreement if any with any other country.
25. In view of the above, I am of the opinion that the order passed by the Assessing Officer u/s 143(3) of the I.T. Act, 1961 is erroneous in so far as it is prejudicial to the interest of the revenue. You are given an opportunity of being heard and show cause ITA No. 4951/Del./2016 8 as to why the impugned order be not enhanced/modified or set-aside for fresh assessment u/s 263 of the I.T. Act, 1961. Your case is fixed for hearing on 11.01.2016 at 11:30 am."
3. The assessee appeared before him and made written submissions vide letter dated 17.05.2016. The ld. Pr. CIT after considering the submissions of the assessee, directed the Assessing Officer to make the assessment de novo in view of the following observations :
9. I have carefully considered the submissions of the assessee. Similar issues had arisen in the case of the assessee for the A.Y. 2010-11.
10. A detailed order was passed on 29.03.2016 u/s 263.
11. The AO is directed to follow the order passed u/s 263 for the A.Y. 2010-11 even for the A.Y. 2011-12
12. It may be mentioned that on the issue of tax credit the assessee had relied upon two letters dated 06.08.2000 and 11.12,2000 before the Hon'ble ITAT in the case of KRIBHCO. The assessee had also relied upon the decision of the Hon'ble ITAT in the case of M/s KRIBHCO for advancing his arguments in the case of M/s IFFCO.
13. In the similar case i.e. M/s KRIBHCO, the Hon'ble ITAT has given relief to the assessee on the issue of tax credit deemed to be paid in Oman and quashed the proceedings u/s 263. The Department is not accepting the decision of the Hon'ble ITAT in the case of M/s KRIBHCO and the CCIT-1 & CCIT-2 has already authorized the PClT to file appeal before the Hon' ble Delhi High Court.
14. It may be noted that the assessee was specifically asked vide this office letter dated 14.07.2016(reproduced above in para 6 to show whether these letters were before the AO on the basis on which the Hon'ble ITAT has given the relief.
15. The assessee filed reply vide letter dated 27.07.2016 wherein it was admitted by the assessee that these letters were not before the AO. The assessee has simply stated that even if the letters issued by Secretary- General of Taxation are ignored for a moment, the claim of the society for tax credit falls within the four corners of ArticIe-25(4) w.r.s. 90(1)(a)(ii). This means these letters were not before the AO.
This itself shows the lack of inquiry on part of the AO and falls within the assumption of jurisdiction u/s 263.
16. In the result, the matter is restored back to the file of the AO for making the assessment de novo in view of the observations given above and also the order u/ s ITA No. 4951/Del./2016 9 263 in the case of the assessee for the A.Y. 2010-11. The assessee may be given sufficient opportunity before finalizing the order."
Aggrieved by the above order, the assessee is in appeal before the Tribunal.
4. The ld. AR submitted that the jurisdiction assumed by the ld. Pr. CIT to revise the assessment u/s. 263 is not in conformity with law. The issues, on which the ld. Pr. CIT has assumed jurisdiction u/s. 263, have been properly dealt with by the Assessing Officer. He also submitted that the assessment was revised u/s. 263. He also submitted that the assessment was revised u/s. 263 on the similar issues in the assessment year 2010-11, which stood quashed by the ITAT and the order of ITAT stood confirmed by Hon'ble High Court. He also submitted a written synopsis which reads as under :
1. This appeal has been filed by the appellant society against the order dated 9.8.2016 passed u/s.263 of the Income Tax Act, 1961 by the Ld. Principal CIT, Delhi-11. It may kindly be noted that the facts & circumstances leading to passing of the aforesaid order by the ld. Principal CIT are identical as for the A.Y. 2010-11. For the A.Y. 2010-11 also, in identical facts the Ld. PCIT passed order u/s.263 of the IT Act which has been the subject matter of appeal before this Hon'ble Tribunal and the said appeal has been decided in appellant's favour by the Tribunal's order dated 19th September, 2016 in ITA No.2487/ Del/2016. The Hon'ble Tribunal after considering the factual and the legal position in great detail, quashed the order passed by the Ld.PCIT u/s.263 of the IT Act. The fact that under similar facts order u/s.263 was passed for A.Y. 2010-11 is even admitted and acknowledged by the Ld.PCIT while passing the impugned order for the A.Y. 2011-12. Kind reference is invited to the operative findings of the Ld. PCIT at paras 9 to 11 of his order, which are reproduced below for ready reference:-
"9. I have carefully considered the submissions of the assessee. Similar issues had arisen in the case of the assessee for the A.Y.2010-11.
10. A detailed order was passed on 29.03.2016 u/s.263.
11. The AO is directed to follow the order passed u/s.263 of the A.Y. 2010-11 even for the A.Y. 2011-12."
2. Thereafter at para 12 of his order, the Ld. PCIT has observed that on the issue of allowing tax credit on dividend income, the assessee relied upon two letters dated 6.8.2000 and 11.12.2000 before the Hon. ITAT in the case of KRIBHCO and ITA No. 4951/Del./2016 10 further that the assessee also relied upon the decision of the Hon. ITAT in the case of KRIBHCO. The Ld. PCIT thereafter observed that in the case of KRIBHCO the Hon. ITAT allowed the assessee's appeal, but "the Department is not accepting the decision of the Hon. ITAT in the case of M/s. KRIBHCO and the CCIT-1 and CCIT-2 has already authorized the Ld. PCIT to file appeal before the Hon. Delhi High Court." Thereafter, at para 14 of his order, the Ld. PCIT observed that as per his office letter dated 14.7.2016, the assessee was asked whether the aforesaid two letters were available before the Assessing Officer, on the basis of which the Hon. ITAT has given the relief. The Ld. PCIT has then, at para 15 briefly referred to the assessee's reply dated 27.7.2016 and he has observed that the assessee admitted that these letters were not before the Assessing Officer, but that even if these letters issued by the Secretary General for Taxation, Sultanate of Oman are ignored, the claim of the assessee society for tax credit is allowable under Article 25(4) of the DTAA between India and Oman and the provisions of section 90(1)(a)(ii) of the Income Tax Act. The Ld. PCIT abruptly concluded that when these two letters were not before the Assessing Officer, this itself shows lack of enquiry on the part of the Assessing Officer for invoking jurisdiction u/s.263.
3. It may be mentioned here that since the passing of the order u/s. 263 by the Ld. PCIT, the appellant's appeal on identical issues for the A.Y.2010-11 has been decided by this Hon. Tribunal vide his order dated 19.9.2016 in ITA No.2487/Del/2016. In this order this Hon. Tribunal has considered the factual and the legal position in great detail and has quashed the order passed by the Ld. PCIT u/s. 263 for the A.Y. 2010-11 on all the issues.
3.1 As mentioned above, the Ld. PCIT has already admitted that the facts and circumstances prevailing in the A.Y. 2011-12 are same as in the A.Y. 2010-11 with the result that he has directed the Assessing Officer to follow his order u/s. 263 for A.Y. 2010-11. An additional point highlighted by the Ld. PCIT in the present order is that during the course of hearing u/s.263 he issued a letter dated 14.7.2016 wherein the assessee was specifically asked to reply as to whether copies of letters dated 6.8.2000 and 11.12.2000 issued by the Secretary General for Taxation were before the Assessing Officer during the assessment proceedings. In response to this letter the appellant society filed a reply dated 27.7.2016 and para 1 of this reply is reproduced below for ready reference:-
"1. Letters of the the Secretary General of Taxation, Sultanate of Oman dated 6th August, 2000 and 11th December, 2000:
As already stated in our earlier submissions, the following was on record before the Ld. A.O. at the time of the Scrutiny Assessment u/s.143(3):
i. Article 25(4) of the Double Taxation Avoidance Agreement with Oman mandating grant of Tax Credit for taxes deemed to have been in the Country of Source (i.e. Oman) and Section 90(1)(a)(ii) of the ITA No. 4951/Del./2016 11 Income Tax Act authorizing the Central Government to enter into DTAA for promotion of mutual economic relations, trade and investments.
ii. Assessment Order issued by the Oman Tax Authorities which also mentioned that the Tax Exemption in Oman is granted with the objective of promoting economic development within Oman by attracting Investments.
iii. Reference to Preamble of Royal Decree 68 of 2000 which stated the objective of the amendment in tax law to be "exigencies of Public Good".
iv. Past 5 years Scrutiny Assessment Record of the Society where the claim of Tax Credit has been allowed after enquiries and discussion in the Assessment Orders right from AY 2006-07 to 2010-11.
v. Discussion during the Assessment hearings on the luminescent nexus between Dividend Exemption and flow of Investments on the one hand and Investments and Economic Development on the other hand.
Based on the above, the Ld. A.O. came to a position and perfectly plausible conclusion on the admissibility of the Tax Credit Claim of the Society. Hence, it is respectfully submitted that the suggestion at para 3 of the SCN to the effect there was lack of enquiry merely because the letters of the SGT were not before the A.O. is fallacious both on the legal ground as well as on Merits."
3.2 In this letter the factual and the legal position was fully explained in detail relying on several cases and a copy of this reply is placed at pages 313-322 of the paper-book.
3.3 In this connection, it is significant to note that during the course of hearing before this Hon'ble Tribunal of the appeal for the A.Y. 2010-11 the very some contentions were raised by the Ld. CIT(DR) as highlighted in the second show cause notice issued by the Ld. PCIT (kind reference is invited to para 13 of the Hon'ble Tribunal's order). Copy of the full order has been compiled on pages 29 to 103 of the paper-book. Para 13 of the Tribunal's order reproduces the contentions raised by the Ld. CIT(DR), to the effect that copies of letters dated 6.8.2000 and 11.12.2000 issued by the Secretary General for Taxation, Sultanate of Oman were neither asked by the A.O. nor produced by the assessee, and that these letters were filed for the first time by the assessee before the Ld. PCIT. On this basis it was argued by the Ld. CIT(DR) that this amounts to lack of enquiry on the part of the A.O. which renders his assessment order erroneous and ITA No. 4951/Del./2016 12 prejudicial to the interest of the Revenue within the meaning of section 263 of the I.T. Act.
4. The Hon'ble Tribunal has dealt with these submissions in detail at para 14 onwards. The Hon'ble Tribunal recorded its findings at para 14.2, relevant part of which is reproduced below for ready reference:-
"Further, as discussed above, we have no hesitation in holding that the order passed by the learned Pr. CIT is bad in law for the following reasons:
(a) That, detailed inquiries were made by the Assessing Officer at the time of the original assessment proceedings with regard to the tax credit on deemed dividend which would have been payable in Oman but for the exemption granted the assessee had filed detailed replies in response to the query which were duly considered by the Assessing Officer before allowing tax credit.
(b) That, such credit was allowed by the Revenue for all the earlier years i.e. 2006-07 to 2009-10, therefore, we have no hesitation in holding that there was complete application of mind on the part of the Assessing Officer and that the Assessing Officer has adopted a view consistent with the preceding years and, therefore, the Assessing Officer having taken a plausible view after full application of mind, the view of the learned Pr. CIT cannot substitute his view by assuming jurisdiction u/s.263 of the Act."
4.1 From the above, it is clear that the Hon'ble Tribunal while deciding similar appeal for the immediately preceding assessment year has already considered the effect of non-availability of the two letters before the Assessing Officer. However, it has been held that proper enquiries were made by the Assessing Officer and after considering all the facts and the provisions of Article 25 of the DTAA r.w.s. 90 of the Income Tax Act, and also having regard to the view that in the preceding assessment years on identical facts the Department has consistently adopted a view that the assessee is entitled to tax credit on dividend earned by it in Oman.
5. It is respectfully submitted that the relevant issues on which the Ld. Pr.CIT has invoked his jurisdiction u/s.263 of the Act are the same as for the A.Y. 2010-11 in assessee's own case. There is no dispute about this and even the Ld. PCIT had admitted that the facts are identical and, therefore, he has merely directed the Assessing Officer to follow his order for A.Y. 2010-11. In this circumstance, the Hon'ble Tribunal is bound to follow its own order for A.Y. 2010-11 when admittedly the facts and circumstances, the provisions of law and the legal position continue to be identical. Kind reference is invited to the following judgments:-
ITA No. 4951/Del./2016 13 (i) HDFC Bank Ltd. vs. DCIT 283 ITR 529 (Bom)
(ii) Affection Investments Ltd. vs. ACIT 222 CTR 387 (Guj)
(iii) CIT vs. Synchems (I) Ltd. 384 ITR 498 (Bom)
6. Moreover, at this juncture we would also like to inform your honours that the Department had preferred an appeal before the Hon'ble Delhi High Court against the Hon'ble Income Tax Appellate Tribunal's Order for immediately preceding Assessment Year 2010-11 where Hon'ble Delhi H.C vide order dated 02.08.17 has dismissed the departmental appeal affirming the Hon'ble Tribunal's Order and deciding the matter in favor of assessee. Similarly in case of KRIBCHO as well department had preferred an appeal before the Hon'ble Delhi H.C where also the Hon'ble Delhi H.C vide its order dated 21.04.17 affirmed the order of Hon'ble ITAT and decided the matter in favor of assessee. It may therefore be appreciated that in the assessee's own case as well as in the case of the KRIBCHO on identical facts the issues raised by the Ld. Pr.CIT stands decided in the assessee's favor.
7. In the factual and legal position explained above, it is respectfully prayed that the Ld. Pr. CIT has wrongly invoked jurisdiction u/s.263 of the Income Tax Act and the impugned order passed by him may kindly be quashed.
5. On the other hand, the ld. DR submitted that the Pr. CIT has rightly invoked the jurisdiction u/s. 263. It is apparent from the order of Assessing Officer that the assessment order is erroneous and prejudicial to the interest of Revenue. The Assessing Officer has not examined in depth the issues pointed out by the ld. Pr. CIT. He strongly relies on the impugned order and submitted that the impugned order does not call for any interference.
6. After hearing both the sides and perusing the materials available on record, we observe that in the assessment year 2010-11, the Pr. CIT made revision of assessment u/s. 263 of the Act on the similar issues, which are involved in this year also. The ITAT quashed the proceedings u/s. 263 for that year and the Hon'ble Delhi High Court also dismissed the appeal of the ITA No. 4951/Del./2016 14 Revenue against this order of Tribunal. The relevant findings recorded by Hon'ble High Court read as under :
3. Although, in the memorandum of appeal, the Revenue has urged as many as 21 questions of law, only one question arises for consideration. The first and the central question pertains to the exercise of jurisdiction by the Principal Commissioner of Income Tax ('Pr CIT) under Section 263 of the Act by the order dated 29th March, 2016 restoring the assessment for the AY in question to the file of the Assessing Officer ('AO') for making a de novo assessment.
4. The Pr CIT sought to order a de novo assessment on two issues. One pertained to the tax credit claimed by the Respondent/Assessee in respect of the dividend income received by its branch in Oman from Fertilizer Company SAOC ('OMIFCO') under the laws of Oman. The other question concerned the capitalization of interest in terms of the proviso to Section 36 (1)(iii)of the Act.
5. The case of the Revenue is that the order of the AO, for the AY in question, was erroneous and prejudicial to the interest of the Revenue and, therefore, in terms of Section 263 of the Act and, more particularly, in view of the Explanation-2 inserted in the said provision with effect from 1st June, 2015, the Pr CIT was justified in passing the order dated 29th March, 2016 under Section 263 of the Act.
6. This Court has heard the submissions of Mr. Ashok K. Manchanda, learned Senior Standing Counsel for the Revenue and Mr. Vaibhav Kulkarni, learned counsel for the Respondent/Assessee and has perused the record.
7. As regards the issue concerning the Assessee having claimed tax credit on account of deemed dividend taxable in Oman, the categorical findings of the ITAT is that the Revenue had consistently permitted the Assessee to avail tax credit on the deemed dividend during AYs 2006-07 to 2009-10. The ITAT after going through the entire record came to the following conclusion that "in respect of the current assessment year i.e. AY 2010-11 which is the subject matter of revision and appeal before us the Assessing Officer has adopted the same view in consonance with the view adopted in the past years and for which detailed queries and inquiries were raised and conducted by the Assessing Officer." The ITAT perused the queries raised by the AO and the reply given thereto by the Assessee, in respect of the dividend income received from OMIFCO. Therefore, the contention of the Revenue that no adequate enquiries in respect of the above issue were made was held to be 'completely misplaced'.
8. Further, on this very issue, the finding of the ITAT in para 14.2 of the impugned order reads as under:
"(a) That, detailed inquiries were made by the Assessing Officer at the time of the original assessment proceedings with regard to the tax credit on deemed dividend ITA No. 4951/Del./2016 15 which would have been payable in Oman but for the exemption granted the assessee had filed detailed replies in response to the query which were duly considered by the Assessing Officer before allowing tax credit.
(b) That, such credit was allowed by the Revenue for all the earlier years i.e. A.Ys.2006- 07 to 2009-'10, therefore, we have no hesitation in holding that there was complete application of mind on the part of the Assessing Officer and that the Assessing Officer has adopted a view consistent with the preceding years and, therefore, the Assessing Officer having taken a plausible view after full application of mind, the view of the learned Pro CIT cannot substitute his view by assuming jurisdiction u/s.263 of the Act."
9. The Court, therefore, is not prepared to accept the plea of the Revenue that in respect of the above issue, the Pr CIT was justified in exercising the power under Section 263 of the Act.
10. As regards the issue concerning the capitalization of interest, the Court finds again that the ITAT took note of the fact that detailed enquires were made by the AO in regard to the major additions to the fixed assets, capital work in progress, the manner in which the depreciation was claimed and the details of both secured as well as unsecured loans. The audited financial statements of the Assessee were also compiled, for the earlier AYs including the AY in question, and placed before the AO. The ITAT also took note of the Significant Accounting Policies in the Auditor's Report and the synopsis filed before the AO. It is only after such an elaborate exercise that it was concluded by the ITAT in the impugned order as under:
"16. We have carefully considered the submissions and arguments made by the learned counsel of the assessee as well as the learned CJT(O.R.) and heard both the parties at length. We find that the Assessing Officer had made detailed inquiries and examined the entire block of fixed assets. A brief note on capital work in progress was also filed and queries regarding the manner in which the depreciation was claimed was also raised. Further the assessee is following a settled accounting policy/principle for capitalization of expenses including interest expenses to both the fixed assets as well as capital work in progress. This method was forming part of the audited financial statements which were filed before the Assessing Officer as well. We also find that the free reserves were also more than sufficient to cover up the investment in fixed assets/capital work in progress. Further the assessee society has generated sufficient internal cash flows to meet with the cost of fixed assets as well as capital work in progress. In spite of this fact the assessee has capitalized a sum of Rs.7.09 crores in the books of accounts. The learned Pr. CIT has also not disputed that the total investments were merely 10% of the interest-free funds available with the assessee society. We also find that a consistent view has taken by all the judicial authorities that in the event of availability of interest-free funds a presumption would be that investments would be out of interest assessee. In this respect, reliance was placed on the decision of the Bombay High Court in the case of CIT v. Reliance Utility and Power Ltd. 313 1TR340.ITA No. 4951/Del./2016 16
16.1 In light of the above discussions as well as factual matrix, we have no hesitation in holding that the order passed by the learned Pr. CIT is bad in law for the following reasons: -
(a) That, as discussed above, detailed inquiries were made by the Assessing Officer with regard to the capitalization of interest to fixed assets as well as capital work in progress.
(b) That, even on the facts of the case the assessee had sufficient interest-free funds to meet with -the capital expenditure and, therefore, following the ratio of the decision of the Hon'ble Bombay High Court in Reliance Utility and Power Ltd. (supra), no disallowance u/s.36(l)(iii) is called for.
(c) That, the assessee had already discharged its onus of proving non-
diversion of funds borrowed for working capital towards capital work in progress and fixed assets by submitting a certificate of an independent statutory auditor and proved availability of own funds and internal accruals which was not rebutted by Ld. Pr.ClT."
11. Lastly, it was urged by Mr. Manchanda that the ITAT failed to note the changed position as a result of the insertion of Explanation-2 in Section 263 of the Act with effect from 1st June, 2015. However, on this aspect, the ITAT has specifically held in para 17 of the impugned order as under:
"17. Before concluding we would also like to deal with the recent insertion, of Explanation 2 to Section 263 of the Act. We have already held above that in respect of both the issues i.e. allowing credit of deemed taxes paid on dividend in Oman as well as capitalization of interest u/s 36 (1) (iii) detailed enquiries as well as verification have been made by the AO. Further it is also not the case of the Ld. Pr. CIT that the order is not in accordance with any instruction direction issued by the Board or is not in accordance with any decision of Hon'ble Delhi High Court or the Apex Court of India. Accordingly the order passed by the AO cannot be regarded as deemed to be erroneous or prejudicial to the interest of the Revenue under Explanation 2 of the Act."
12. For the above reasons, this Court is of the considered view that no substantial question of law arises for consideration from the impugned order of the ITAT. The appeal is, accordingly, dismissed but in the circumstances, with no orders as to costs."
7. We further observe that almost all the issues on which show cause notice was issued u/s. 263, stood examined by the Assessing Officer by issuing the questionnaire with respect thereto in the assessment proceedings u/s. 143(3) of the Act. The issues raised by the first appellate authority also stood ITA No. 4951/Del./2016 17 resolved by ITAT in appeal for A.Y. 2010-11, which stood affirmed by Hon'ble jurisdictional High Court vide their decision, as reproduced above. Therefore, respectfully following the decision of Hon'ble jurisdictional High court in the case of assessee itself for A.Y. 2010-11, we do not find any good reason to sustain the decision reached by learned Pr. CIT passed u/s. 263 of the IT Act. As a result, the appeal of the assessee deserves to be allowed.
8. In the result, the appeal is allowed.
Order pronounced in the open court on 19th March, 2018
Sd/- Sd/-
(Bhavnesh Saini) (L.P. Sahu)
Judicial member Accountant Member
Dated: 19th March, 2018
*aks*
Copy of order forwarded to:
(1) The appellant (2) The respondent
(3) Commissioner (4) CIT(A)
(5) Departmental Representative (6) Guard File
By order
Assistant Registrar
Income Tax Appellate Tribunal
Delhi Benches, New Delhi