Petronet LNG Ltd., New Delhi v. Addl. CIT, New Delhi

ITA 5232/DEL/2015 | 2011-2012
Pronouncement Date: 18-03-2021 | Result: Partly Allowed

Appeal Details

RSA Number 523220114 RSA 2015
Assessee PAN AAACP8148D
Bench Delhi
Appeal Number ITA 5232/DEL/2015
Duration Of Justice 5 year(s) 6 month(s) 28 day(s)
Appellant Petronet LNG Ltd., New Delhi
Respondent Addl. CIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 18-03-2021
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 18-03-2021
Assessment Year 2011-2012
Appeal Filed On 20-08-2015
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SH. SUDHANSHU SRIVASTAVA JUDICIAL MEMBER DR. B. R. R. KUMAR ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 5230/DEL/2015 : ASSTT. YEAR : 2009-10 ITA NO. 5231/DEL/2015 : ASSTT. YEAR : 2010-11 ITA NO. 5232/DEL/2015 : ASSTT. YEAR : 2011-12 PETRONET LNG LTD. FIRST FLOOR WORLD TRADE CENTRE BABAR ROAD BARAKHAMBA LANE NEW DELHI-110001 VS DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-19(2) NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAACP8148D ITA NO. 4902/DEL/2015 : ASSTT. YEAR : 2009-10 ITA NO. 4903/DEL/2015 : ASSTT. YEAR : 2010-11 ITA NO. 4904/DEL/2015 : ASSTT. YEAR : 2011-12 DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-19(2) NEW DELHI VS PETRONET LNG LTD. FIRST FLOOR WORLD TRADE CENTRE BABAR ROAD BARAKHAMBA LANE NEW DELHI-110001 (APPELLANT) (RESPONDENT) PAN NO. AAACP8148D ASSESSEE BY : SH. VISHAL KALRA ADV. REVENUE BY : SH. H. K. CHOUDHARY CIT DR DATE OF HEAR ING: 27 . 0 1 .20 2 1 DATE OF PRONOUNCEMENT: 18 .03 .20 2 1 ORDER PER BENCH: THE PRESENT APPEALS HAVE BEEN FILED BY THE ASSESSE E AND THE REVENUE AGAINST THE ORDERS OF THE LD. CIT(A)-7 NEW DELHI DATED 29.05.2015. ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 2 ITA NOS. 5230 5231 & 5232/DEL/2015 (ASSESSEES APPEAL) 2. IN ITA NO. 5230/DEL/2015 FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN ARBITRARILY SUSTAINING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT MADE BY THE ASSESSING OFFICER (AO) BY APPLYING THE PROVISIONS OF RULE 8D(2)(III) OF THE INCOME TAX RULES 1962 (THE RULES) ALLEGING THAT CERTAIN EXPENDITURE WOULD HAVE TO BE INCURRED BY THE APPELLANT TO EARN THE EXEMPT INCOME. 1.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN NOT ACCEPTING THE CLAIM OF THE APPELLANT THAT ONLY EXPENDITURE OF RS.2 30 000 CAN BE SAID TO BE INCURRED FOR EARNING THE DIVIDEND INCOME AND IN THE ABSENCE OF ANY NEXUS EXISTING BETWEEN THE DIVIDEND EARNED AND OTHER EXPENDITURE CLAIMED BY THE APPELLANT DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS NOT WARRANTED. 1.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE MADE BY THE AO APPLYING SUB-RULE (2) OF RULE 8D OF THE RULES WITHOUT RECORDING ANY COGENT REASON REGARDING HIS DISSATISFACTION ON DISALLOWANCE OF RS.2 30 000/- SUO-MOTO COMPUTED BY THE APPELLANT AND OFFERED FOR TAXATION AS REQUIRED BY SECTION 14A OF THE ACT READ WITH SUB- RULE (1) OF RULE 8D OF THE RULES. 1.3 THAT WITHOUT PREJUDICE TO THE ABOVE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE COMPUTATION OF THE AO WHEREIN INVESTMENTS HELD BY THE APPELLANT IN SHARES OF INDIA LNG TRANSPORT COMPANY (NO. 3) LIMITED MALTA HAS BEEN INCLUDED WHILE COMPUTING THE AVERAGE OF VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 3 NOT FORM PART OF THE TOTAL INCOME FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES. 1.4 THAT WITHOUT PREJUDICE TO THE ABOVE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT CONSIDERING THE ALLOCATION OF DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT TOWARDS PORT POWER AND REGASIFICATION UNDERTAKINGS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO HAS ERRED IN CHARGING INTEREST UNDER SECTION 234C OF THE ACT. 3. IN ITA NO. 5231/DEL/2015 FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN ARBITRARILY SUSTAINING THE DISALLOWANCE UNDER SECTION 14A OF TH E ACT MADE BY THE ASSESSING OFFICER (AO) BY APPLYING THE PROVISIONS OF RULE 8D(2)(III) OF THE INCOME TAX RULES 1962 (THE RULES) ALLEGING THAT CERTAIN EXPENDITURE WOULD HAVE TO BE INCURRED BY TH E APPELLANT TO EARN THE EXEMPT INCOME. 1.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN NOT ACCEPTING T HE CLAIM OF THE APPELLANT THAT NO EXPENDITURE WAS INCURRED FOR EARNING THE DIVIDEND INCOME AND IN ABSENCE OF ANY NEXUS EXISTING BETWEEN THE DIVIDEND EARNED AND OTHER EXPENDITURE CLAIMED BY THE APPELLANT DISALLOWANCE UNDER SECTION 14A OF THE AC T WAS NOT WARRANTED. 1.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE MADE BY THE AO APPLYING SUB-RULE (2) OF RULE 8D OF THE RULES WITHOUT RECORDING ANY COGEN T REASON REGARDING HIS DISSATISFACTION ON THE CLAIM O F THE APPELLANT THAT NO EXPENDITURE WAS INCURRED IN EARNING THE DIVIDEND INCOME AS REQUIRED BY SECTION 14A OF THE ACT READ WITH SUB-RULE (1) OF RULE 8D OF THE RULES. ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 4 1.3 THAT WITHOUT PREJUDICE TO THE ABOVE THE CIT(A ) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE COMPUTATION OF THE AO WHEREIN INVESTMENTS HELD BY THE APPELLANT IN CENTRAL GOVERNMENT SECURITIES AND SHARES OF INDIA LNG TRANSPORT COMPANY (NO. 3) LIMITED MALTA HAS BEEN INCLUDED WHILE COMPUTING THE AVERAGE OF VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES. 1.4 THAT WITHOUT PREJUDICE TO THE ABOVE THE CIT(A ) HAS ERRED ON FACTS AND IN LAW IN NOT CONSIDERING TH E ALLOCATION OF DISALLOWANCE MADE UNDER SECTION 14A O F THE ACT TOWARDS PORT POWER AND REGASIFICATION UNDERTAKINGS. 4. IN ITA NO. 5232/DEL/2015 FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN ARBITRARILY SUSTAINING THE DISALLOWANCE UNDER SECTION 14A OF TH E ACT MADE BY THE ASSESSING OFFICER (AO) BY APPLYING THE PROVISIONS OF RULE 8D(2)(III) OF THE INCOME TAX RULES 1962 (THE RULES) ALLEGING THAT CERTAIN EXPENDITURE WOULD HAVE TO BE INCURRED BY TH E APPELLANT TO EARN THE EXEMPT INCOME. 1.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN NOT ACCEPTING T HE CLAIM OF THE APPELLANT THAT ONLY EXPENDITURE OF RS 3 69 800 CAN BE SAID TO BE INCURRED FOR EARNING THE DIVIDEND INCOME AND IN THE ABSENCE OF ANY NEXUS EXISTING BETWEEN THE DIVIDEND EARNED AND OTHER EXPENDITURE CLAIMED BY THE APPELLANT DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS NOT WARRANTED. 1.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE MADE BY THE AO APPLYING SUB-RULE (2) OF RULE 8D OF THE RULES WITHOUT RECORDING ANY COGEN T REASON REGARDING HIS DISSATISFACTION ON THE SUO-MO TO DISALLOWANCE OF RS 3 69 800 MADE BY THE APPELLANT IN THE RETURN OF INCOME AS REQUIRED BY SECTION 14A ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 5 OF THE ACT READ WITH SUB-RULE (1) OF RULE 8D OF THE RULES. 1.3 THAT WITHOUT PREJUDICE TO THE ABOVE THE CIT(A ) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE COMPUTATION OF THE AO WHEREIN INVESTMENTS HELD BY THE APPELLANT IN SHARES OF INDIA LNG TRANSPORT COMPANY (NO. 3) LIMITED MALTA HAS BEEN INCLUDED WHILE COMPUTING THE AVERAGE OF VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART O F THE TOTAL INCOME FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES. 1.4 THAT WITHOUT PREJUDICE TO THE ABOVE THE CIT(A ) HAS ERRED ON FACTS AND IN LAW IN NOT CONSIDERING TH E ALLOCATION OF DISALLOWANCE MADE UNDER SECTION 14A O F THE ACT TOWARDS PORT POWER AND REGASIFICATION UNDERTAKINGS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN ARBITRARILY UPHOLDING THE DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF CORPORATE SOCIAL RESPONSIBILITY (CSR) AMOUNTING TO RS 51 05 000 INCURRED BY THE APPELLANT UNDER SECTION 37 OF THE ACT ALLEGING TH AT THE SAME HAS NOT BEEN INCURRED FOR THE PURPOSES OF BUSINESS. 2.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN NOT ACCEPTING T HE CONTENTION OF THE APPELLANT THAT UNDERTAKING PUBLIC WELFARE ACTIVITIES AND SOCIO-ECONOMIC DEVELOPMENT ACTIVITIES IS ONE OF THE BUSINESS OBJECTS OF THE APPELLANT AND IS CLEARLY ARTICULATED IN ITS MEMORANDUM OF ASSOCIATION AND FORMS AN INTEGRAL PART OF ITS BUSINESS OPERATIONS. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO HAS ERRED IN CHARGING INTEREST UNDER SECTION 234C OF THE ACT. ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 6 ITA NOS. 4902 4903 & 4904/DEL/2015 (REVENUES APPE AL) 5. IN ITA NO. 4902/DEL/2015 FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE: 1. I. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE ID. CIT(A) HAS ERRED IN DISALLOWING THE DISALLOWANCE OF RS. 1 09 65 21 389/- MADE BY ASSESSING OFFICER BY IGNORING THE PROVISION OF SUB SECTION 5 OF SECTION 801A OF THE INCOME TAX ACT 1961. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE ID C1T(A) HAS ERRED IN DISALLOWING THE DISALLOWANCE OF RS. 10 29 12 855/- MADE BY ASSESSING OFFICER BY IGNORING THE PROVISIONS OF SECTION 80IA(4)(IV)(A) OF THE INCOME TAX ACT 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE ID C1T(A) HAS ERRED IN LAW AND ON THE FAC TS IN DELETING THE DISALLOWANCE OF RS. 7 91 95 087/- UNDER RULE 8D(2)(II) BY IGNORING THE MANDATORY PROVISIONS OF RULE 8D W.R.S. 14A OF THE INCOME TAX ACT 1961. 6. IN ITA NO. 4903/DEL/2015 FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DISALLOWING THE DISALLOWANCE OF RS.33 31 00 400/- MADE BY ASSESSING OFFICER BY IGNORING THE PROVISION OF SUB SECTION 5 OF SECTION 801A OF THE INCOME TAX ACT 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN DELETING THE DISALLOWANCE OF RS. 1287.32 LAKHS UNDE R RULE 8D(2)(II) BY IGNORING THE MANDATORY PROVISIONS OF RULE 8D W.R.S. 14A OF THE INCOME TAX ACT 1961. ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 7 7. IN ITA NO. 4904/DEL/2015 FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE ID. CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION OF RS.55 78 92 170/- INSTEAD OF ON THE ELIGIBLE PROFIT OF RS.39 66.06.865/- WORKED OUT BY ASSESSING OFFICER THEREBY DELETING THE ADDITION OF RS. 16 12 85 305/- BY IGNORING THE PROVISION OF SUB SECTION 5 OF SECTION 801A OF THE INCOME TAX ACT 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE ID CIT(A) HAS ERRED IN LAW IN DELETING THE DISALLOWANCE OF RS. 469.01 LAKHS UNDER RULE 8D(2)(II) BY IGNORING THE MANDATORY PROVISIONS OF RULE 8D W.R.S. 14A OF THE INCOME TAX ACT 1961. 3. I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE ID CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS. 27.58 705/- TREATING THE NOTIFICATI ON NO 56/2012 DATED 31-12-2012 EFFECTIVE FROM 01-01- 2013 FOR THE DEDUCTION OF TAX PAYMENT TO INDIA BANK UNDER THE INCOME TAX ACT 1961 AS MERELY A CLARIFICATORY IN NATURE. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE ID CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS. 8 90 700/- AND RS.27 58 705/- BY ACCEPTING THE PLEA OF THE ASSESSEE THAT THE SAID AMOUNT NOT CHARGED TO PROFIT AND LOSS ACCOUNT WITHOUT GIVING T HE ASSESSING OFFICER AN OPPORTUNITY TO REBUT THE SAME. 8. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF OPERATION OF PORT PURCHASE OF LNG ETC HAVING PORT AT DAHEJ IN GUJARAT. THE PORT UNDERTAKING OF THE ASSESSEE COMME NCED OPERATIONS FROM THE F.Y. 2004-05. IN THE FIRST YEAR OF OPERATION THE ASSESSEE INCURRED SUBSTANTIAL LOSSES. IN A.Y.'S 2006-07 2007-08 & 2008-09 THE ASSESSEE MADE PROFITS AND TH E PROFITS ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 8 WERE SET OFF AGAINST THE LOSSES. IN THE RELEVANT A. Y. 2009-10 THE ASSESSEE ALSO HAD PROFITS AND CLAIMED A DEDUCTI ON U/S 80IA. ITA NO. 4902/DEL/2015 (REVENUES APPEAL): DISALLOWANCE U/S 80IA: 9. THE AO DISALLOWED DEDUCTION CLAIMED STATING THAT THE ASSESSEE DOES NOT HAVE ANY PROFITS AVAILABLE FOR CL AIMING DEDUCTION. THE BUSINESS LOSSES/DEPRECATION OF EARLI ER YEARS WHICH HAVE BEEN SET OFF AGAINST THE INCOME HAVE BEE N NOTIONALLY BROUGHT FORWARD AND SET OFF AGAINST THE PROFITS FOR THE RELEVANT ASSESSMENT YEAR THEREBY REDUCING THE PROFI TS. 10. THE ASSESSEE STATED THAT FOR THE PURPOSE OF COM PUTING DEDUCTION U/S 80IA UNABSORBED DEPRECIATION OF EARL IER YEARS ALREADY SET OFF AGAINST INCOME OF THE ASSESSEE IN T HE PRECEDING YEARS SHOULD NOT BE NOTIONALLY BROUGHT FORWARDED AN D SET OFF U/S 80IA(5) FOR DETERMINING CLAIM OF DEDUCTION. 11. THE LD. CIT (A) DELETED THE ADDITION ON THE GRO UNDS THAT THE ACTION OF THE ASSESSING OFFICER TO BRING LOSSES AGAIN NOTIONALLY CANNOT BE ACCEPTED. 12. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. 13. THE PROFITS AND THE BROUGHT FORWARD AND CARRIED FORWARD LOSSES FROM A.Y. 2005-06 TILL THE CURRENT ASSESSMEN T YEAR AS PER THE AO ARE GIVEN BELOW: ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 9 ASSESSMENT YEARS PORT UNIT 2006-07 B/F LOSSES TAXABLE PROFITS FOR A.Y06-07 CARRY FORWARD BALANCE LOSSES TO AY 07-08 (310 09 69 047) 6 86 05 536 (303 23 63 511) DEDUCTION U/S 80IA NIL 2007-08 B/F LOSSES TAXABLE PROFITS FOR A.Y 07-08 CARRY FORWARD BALANCE LOSSES TO AY 08-09 (303 23 63 511) 54 39 28 860 (248 84 34 651) DEDUCTION U/S 80IA NIL 2008-09 B/F LOSSES TAXABLE PROFITS FOR A.Y 08-09 CARRY FORWARD BALANCE LOSSES TO AY 09-10 (248 84 34 651) 89 75 27 557 (159 09 07 094) DEDUCTION U/S 80IA NIL 2009-10 B/F LOSSES TAXABLE PROFITS FOR A.Y 09-10 CARRY FORWARD BALANCE LOSSES TO AY 10-11 (159 09 07 094) 109 65 21 389 (49 43 85 705) DEDUCTION U/S 80IA 109 65 21 389 14. SIMILAR IS THE CASE FOR THE PROFITS OF THE POWE R UNIT. THE GROUNDS BEFORE US PERTAIN TO DEDUCTION U/S 80IA. HE NCE THERE IS NO NEED TO DWELL INTO THE ISSUE OF PRODUCTION/ G ENERATION OF POWER PER SE. 15. THE CLAIM OF THE ASSESSEE IN THE CURRENT YEAR L EADS THE EXAMINATION OF TWO ISSUES. A. WHETHER THE ASSESSEE IS ENTITLED TO CONSIDER THE Y EAR-4 OF THE OPERATION AS THE INITIAL ASSESSMENT YEAR FOR COMPUTATION OF DEDUCTION UNDER ELIGIBLE BUSINESS OR NOT. B. WHETHER THE REVENUE WAS RIGHT IN NOTIONALLY CARRYIN G FORWARD THE LOSSES AND UNABSORBED DEPRECIATION OF T HE ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 10 EARLIER YEARS TO BE TAKEN INTO CONSIDERATION FOR CO MPUTING DEDUCTION U/S 80IA. C. WHETHER THE BROUGHT FORWARD LOSSES NEEDS TO BE SET OFF AGAINST THE PROFITS EARNED DURING THE YEAR BEFORE C LAIMING THE DEDUCTION U/S 80IA OR NOT. 16. WITH REGARD TO THE ISSUE MENTIONED AT POINT (A. ) ABOVE WE HAVE PERUSED THE PROVISIONS OF SECTION 80IA(5) WHIC H ARE AS UNDER: (5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHE R PROVISION OF THIS ACT THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH THE PROVISIONS OF SUBSEC TION (1) APPLY SHALL FOR THE PURPOSES OF DETERMINING TH E QUANTUM OF DEDUCTION UNDER THAT SUBSECTION FOR THE ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE. 17. OWING TO THE NON-SPECIFICITY OF THE INITIAL AS SESSMENT YEAR WHICH LEAD TO CONFLICTING INTERPRETATIONS CB DT HAS CLARIFIED AS TO WHAT CONSTITUTES INITIAL ASSESSMENT YEAR WITH REFERENCE TO SECTION 80IA(5) VIDE CIRCULAR NO. 1 OF 2016 DATED 15.02.2016. SINCE THE CIRCULAR IS CLARIFICATORY IN NATURE IT IS TREATED AS APPLICABLE FROM THE YEAR THE STATUTE CA ME INTO FORCE. ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 11 CIRCULAR NO. 1 /2016 GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES NORTH BLOCK NEW DELHI THE 15 TH FEBRUARY 2016 SUBJECT: CLARIFICATION OF THE TERM INITIAL ASSESSMENT YEAR IN SECTION 80IA (5) OF THE INCOME-TAX ACT 1 961 SECTION 80IA OF THE INCOME-TAX ACT 1961 (ACT) A S SUBSTITUTED BY THE FINANCE ACT 1999 WITH EFFECT FROM 01.04.2000 PROV IDES FOR DEDUCTION OF AN AMOUNT EQUAL TO 100 % OF THE PROFITS AND GAINS DERI VED BY AN UNDERTAKING OR ENTERPRISE FROM AN ELIGIBLE BUSINESS (AS REFERRED T O IN SUB-SECTION (4) OF THAT SECTION) IN ACCORDANCE WITH THE PRESCRIBED PROVISIO NS. SUB-SECTION (2J OF SECTION 80IA FURTHER PROVIDES THAT THE AFORESAID DEDUCTION CAN BE CLAIMED BY THE ASSESSEE AT HIS OPTION FOR ANY TEN CONSECUTIVE AS SESSMENT YEARS OUT OF FIFTEEN YEARS (TWENTY YEARS IN CERTAIN CASES) BEGINNING FRO M THE YEAR IN WHICH THE UNDERTAKING COMMENCES OPERATION BEGINS DEVELOPMENT OR STARTS PROVIDING SERVICES ETC. AS STIPULATED THEREIN. SUB-SECTION (5 ) OF SECTION 80IA FURTHER PROVIDES AS UNDER:- 'NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PR OVISION OF THIS ACT THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH THE PROVISIONS OF SUB-SECTION (1) APPLY SHALL FOR THE PURPOSES OF DETERMINING TH E QUANTUM OF DEDUCTION UNDER THAT SUB-SECTION FOR THE ASSESSMENT YEAR IMMEDIATEL Y SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YE AR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE. IN THE ABOVE SUB-SECTION WHICH PRESCRIBES THE MANNER OF DETERMINING THE QUANTUM OF DEDUCTION A REFERENCE HAS BEEN MADE TO THE TERM INITIAL ASSESSMENT YEAR. IT HAS BEEN REPRESENTED THAT SOME ASSESSING OFFICERS A RE INTERPRETING THE TERM INITIAL ASSESSMENT YEAR AS THE YEAR IN WHICH THE ELIGIBLE BUSINESS/ MANUFACTURING ACTIVITY HAD COMMENCED AND ARE CONSIDERING SUCH FIRST YEAR OF COMMENCEMENT/OPERATION ETC. ITSELF AS THE F IRST YEAR FOR GRANTING DEDUCTION IGNORING THE CLEAR MANDATE PROVIDED UNDE R SUB-SECTION (2) WHICH ALLOWS A CHOICE TO THE ASSESSEE FOR DECIDING THE YEAR FROM W HICH IT DESIRES TO CLAIM DEDUCTION OUT OF THE APPLICABLE SLAB OF FIFTEEN (OR TWENTY) YEARS. ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 12 THE MATTER HAS BEEN EXAMINED BY THE BOARD. IT IS ABUNDANTLY CLEAR FROM SUB-SECTION (2) THAT AN ASSESSEE WHO IS ELIGIBLE TO CLAIM DEDUCTION U/S 80IA HAS THE OPTION TO CHOOSE THE INITIAL/ FIRST YEAR FROM W HICH IT MAY DESIRE THE CLAIM OF DEDUCTION FOR TEN CONSECUTIVE YEARS OUT OF A SLAB OF FIFTEEN ( OR TWENTY) YEARS AS PRESCRIBED UNDER THAT SUB-SECTION. IT IS HEREBY CLARIFIED THAT ONCE SUCH INITIAL ASSESSMENT YEAR HAS BEEN OPTED FOR BY THE ASSESSEE HE SHALL BE ENTITLED TO CLAIM DEDUCTION U/S 80IA FOR TEN CONSECUTIVE YEARS BEGINN ING FROM THE YEAR IN RESPECT OF WHICH HE HAS EXERCISED SUCH OPTION SUBJECT TO THE FULFILLMENT OF CONDITIONS PRESCRIBED IN THE SECTION. HENCE THE TERM INITIAL ASSESSMENT YEAR WOULD MEAN THE FIRST YEAR OPTED FOR BY THE ASSESSEE FOR CLAIMI NG DEDUCTION U/S 80IA. HOWEVER THE TOTAL NUMBER OF YEARS FOR CLAIMING DEDUCTION SH OULD NOT TRANSGRESS THE PRESCRIBED SLAB OF FIFTEEN OR TWENTY YEARS AS TH E CASE MAY BE AND THE PERIOD OF CLAIM SHOULD BE AVAILED IN CONTINUITY. THE ASSESSING OFFICERS ARE THEREFORE DIRECTED TO ALLOW DEDUCTION U/S 80IA IN ACCORDANCE WITH THIS CLARIFICATION AND AFTE R BEING SATISFIED THAT ALL THE PRESCRIBED CONDITIONS APPLICABLE IN A PARTICULAR CASE ARE DULY SATISFIED. PENDING LITIGATION ON ALLOWABILITY OF DEDUCTION U/S 80 IA S HALL ALSO NOT BE PURSUED TO THE EXTENT IT RELATES TO INTERPRETING INITIAL ASSESSME NT YEAR AS MENTIONED IN SUB- SECTION (5) OF THAT SECTION FOR WHICH THE STANDING COUNSELS/D.R.S BE SUITABLY INSTRUCTED. THE ABOVE BE BROUGHT TO THE NOTICE OF ALL ASSESSING OFFICERS CON CERNED. SD/- (DEEPSHIKHA SHARMA) DIRECTOR TO THE GOVERNMENT OF INDIA (F.NO. 200/31/2015-ITA-I) 18. STRAIGHT TO THE ISSUE- TAKING INTO CONSIDERATIO N THE ABOVE CIRCULAR OF THE CBDT WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM THE DEDUCTION FROM THE ASSESSMENT YEAR 2009-1 0 AS THE INITIAL ASSESSMENT YEAR U/S 80IA(5) EVEN THOUGH THIS IS THE FOURTH YEAR OF OPERATION OF THE ACTIVITIES U/S 80IA . WE CLARIFY THAT THE INITIAL ASSESSMENT YEAR FOR THE CLAIM O F DEDUCTION NEED NOT BE THE FIRST YEAR OF THE COMMENCEMENT O F OPERATIONS OF THE ASSESSEE. ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 13 19. THE SECOND ISSUE IS TO BE EXAMINED IS B. WHETHER THE REVENUE WAS RIGHT IN NOTIONALLY CARR YING FORWARD THE LOSSES AND UNABSORBED DEPRECIATION OF T HE EARLIER YEARS TO BE TAKEN INTO CONSIDERATION FOR CO MPUTING DEDUCTION U/S 80IA. 20. IN THE INSTANT CASE THE AO HAS CALCULATED THE PROFITS AVAILABLE FOR THE YEAR AFTER SETTING OFF THE BROUGH T FORWARD LOSSES FROM THE ASSESSMENT YEARS 2006-07 TO 2008-09 . THE ASSESSING OFFICER HAS COMPUTED THE LOSSES AGAINST T HE PROFITS OF THE SIMILAR UNIT YEAR WISE. THE MOOT ARGUMENT OF TH E LD. COUNSEL FOR THE ASSESSEE WAS THAT THE BROUGHT FORWA RD LOSSES AND DEPRECIATION OF THE ASSESSEE HAVE ALREADY BEEN SET OFF AGAINST THE TOTAL PROFITS EARNED HITHERTO IN THE PR EVIOUS ASSESSMENT YEARS. IT WAS ARGUED THAT THE LOSSES AND DEPRECIATION CANNOT BE RECOMPUTED NOTIONALLY. 21. IN THIS CONTEXT WE HAVE GONE THROUGH THE SECTI ON 80-IA(5) OF THE ACT WHICH IS AS UNDER: (5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHE R PROVISION OF THIS ACT THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH THE PROVISIONS OF SUB- SECTION (1) APPLY SHALL FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTION UNDER THAT SUB-SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO T HE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE. 22. THIS SECTION DOESNT PROVIDE FOR NOTIONAL LOSSE S OR CARRY FORWARD THEREOF. THE PROVISIONS OF SECTION 80IA SUB -SECTION (5) ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 14 AND SUB-SECTION (7) TO (12) SO FAR AS MAY BE APPLY TO THE ELIGIBLE BUSINESS UNDER THE SECTION 80IB ALSO. CONS IDERING THAT THE INITIAL ASSESSMENT YEAR FOR THE PURPOSE OF SECT ION 80IA DIFFERENT FROM THE INITIAL COMMENCEMENT YEAR LEAD T O A FICTION OF SETTING OFF OF THE BROUGHT FORWARD LOSS OF THE EL IGIBLE BUSINESS. 23. THIS ISSUE HAS BEEN EXAMINED BY THE ITAT AHMADA BAD IN ACIT VS GOLDMINE SHARES & FINANCE (P.) LTD. [2008] 113 ITD 209 (AHM.) WHEREIN IT WAS HELD THAT THE SECTION IS A LEGAL FICTION AND THOUGH LOSSES WERE SET OFF AGAINST OTHE R SOURCES INCOME THEY ARE TO BE ASSUMED AS NOT SET OFF IN ABSENCE OF EXISTENCE OF ANOTHER SOURCE AND FOR COMPUTING THE PROFIT AND GAINS F OR THE PURPOSES OF DETERMINATION OF THE QUANTUM OF DEDUCTION ONE HAS TO ONCE AGAIN NOTIONALLY BRING BACK ALREADY SET OFF LOSSES ETC. AND SET OFF THE SAME AGAINST THE PROFITS AND GAINS IN A YEAR IN THE DEDUCTI ON IS CLAIMED. THIS VIEW IS SUPPORTED IN THE CASE OF ITO VS. SICGIL INDIA (P.) LTD. [2009] 119 ITD 184 (CHENNAI) WHICH GAVE A FINDING THAT IN VIEW OF THE SPECIFIC PROVISIONS OF SECTION 80-IA(5) OF THE INCOME-TAX ACT 19 61 THE PROFIT FROM THE ELIGIBLE BUSINESS FOR THE PURPOSE OF DETERMINATIO N OF THE QUANTUM OF DEDUCTION UNDER SECTION 80-IA OF THE ACT HAS TO BE COMPU TED AFTER DEDUCTION OF THE NOTIONAL BROUGHT FORWARD LOSSES AND DE PRECIATION OF ELIGIBLE BUSINESS EVEN THOUGH THEY HAVE BEEN ALLOWED SET OFF AGAINST OTHER INCOME IN EARLIER YEARS .(ACK-INPUTS FROM OPEN ARTICLE ROBIN RAWAL ADDL.CI T) 24. SUBSEQUENT TO CLARIFICATION BY THE CIRCULAR OF THE CBDT SINCE THE INITIAL YEAR OF DEDUCTION IS ALLOWED TO BE DIFFERENT FROM THE INITIAL YEAR OF COMMENCEMENT THE PROFITS HAVE TO BE COMPUTED FROM THE INITIAL YEAR OF DEDUCTION ON STANDALONE BASIS FOR EACH ELIGIBLE UNIT. WHILE DOING SO THE CARRIED FORWARD LOSSES OF THE ELIGIBLE UNIT WHICH HAVE ALREADY BEEN SET OFF ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 15 AGAINST REGULAR PROFITS CANNOT BE BROUGHT AGAIN IN DE TERMINATION OF PROFITS ELIGIBLE FOR DEDUCTION. THE LOSS OF THE YEAR COMMENCING FROM THE INITIAL ASSESSMENT YEAR ALONE IS TO BE CARRIED FORWARD AND SET OFF AGAINST THE PROFITS. SINCE THE PROVISION ALLOWS THE BENEFIT TO FU RTHER 10 YEARS DOWN THE LINE ONE NEED NOT LOOK BEHIND TO SEE WHAT HAS HA PPENED IN THE YEARS EARLIER TO THE CLAIM OF DEDUCTION. SIMILAR VIEW HAS BE EN EXPRESSED BY THE CO-ORDINATE BENCH OF ITAT OF MADRAS IN THE CASE OF MOHA N BREWERIES V. ACIT 116 ITD 241. 25. IN THE CASE OF VS MILLS PVT. LTD. VS ACIT THE HONB LE APEX COURT HELD THAT THE CUMULATIVE CONSIDERATION OF THE PRINCIPLE S SET OUT IN THE CASE WHEREIN ADMITTEDLY THE ENTIRE DEPRECIATION ALLOWANCE AND DEVELOPMENT REBATE FOR THE PAST ASSESSMENT YEARS WERE FULLY SET OFF AG AINST THE TOTAL INCOME OF THE ASSESSEE FOR THOSE ASSESSMENT YEARS AND NO FURT HER DEPRECIATION ALLOWANCE OR DEVELOPMENT REBATE REMAIN U NABSORBED THEN NOTHING COULD BE DEDUCTED IN RESPECT OF THE SET OFF WHIL E DETERMINING THE DEDUCTION U/S 80I OF THE ACT. 26. WITH REGARD TO THE DEDUCTION WE ARE GUIDED BY T HE PROVISIONS OF SECTION 80IA (1) AND (4) WHICH IS REPRODUCED AS UNDER: (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES AN Y PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (4) (SUCH BUSINESS BEING HERE INAFTER REFERRED TO AS THE ELIGIBLE BUSINESS) THERE SHALL IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION BE ALLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE A DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECU TIVE ASSESSMENT YEARS. ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 16 (2) THE DEDUCTION SPECIFIED IN SUB-SECTION (1) MAY AT THE OPTION OF THE ASSESSEE BE CLAIMED BY HIM FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE ANY INFRASTR UCTURE FACILITY OR STARTS PROVIDING TELECOMMUNICATION SERVICE OR DEVELOPS AN INDUSTRIAL PARK OR DEVELOPS A SPECIAL ECONOMIC ZONE REFERRED TO IN CLAUSE (III) OF SUB- SECTION (4) OR GENERATES POWER OR COMMENCES TRANSMISSION OR DISTRIBUTION OF POWER OR UNDERTAKES SUBSTANTIAL RENOVATION AND MODE RNISATION OF THE EXISTING TRANSMISSION OR DISTRIBUTION LINES : PROVIDED THAT WHERE THE ASSESSEE DEVELOPS OR OPERATES AND MAINTAIN S OR DEVELOPS OPERATES AND MAINTAINS ANY INFRASTRUCTURE FACI LITY REFERRED TO IN CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THE EXPLANATIO N TO CLAUSE (I) OF SUB-SECTION (4) THE PROVISIONS OF THIS SUB-SECTION SHALL HA VE EFFECT AS IF FOR THE WORDS 'FIFTEEN YEARS' THE WORDS 'TWENTY YEARS' HAD BEEN SUBSTITUTED. (2A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTION ( 1) OR SUB-SECTION (2) THE DEDUCTION IN COMPUTING THE TOTAL INCOME OF A N UNDERTAKING PROVIDING TELECOMMUNICATION SERVICES SPECIFIED IN CLAUSE (II) OF SUB- SECTION (4) SHALL BE HUNDRED PER CENT OF THE PROFITS A ND GAINS OF THE ELIGIBLE BUSINESS FOR THE FIRST FIVE ASSESSMENT YEARS COMMEN CING AT ANY TIME DURING THE PERIODS AS SPECIFIED IN SUB-SECTION (2) A ND THEREAFTER THIRTY PER CENT OF SUCH PROFITS AND GAINS FOR FURTHER FIVE ASSESSMENT YEARS. (3) THIS SECTION APPLIES TO AN UNDERTAKING REFERRED TO IN CLAUSE (II) OR CLAUSE (IV) OF SUB-SECTION (4) WHICH FULFILS ALL THE FOLLO WING CONDITIONS NAMELY : (I) IT IS NOT FORMED BY SPLITTING UP OR THE RECONST RUCTION OF A BUSINESS ALREADY IN EXISTENCE : ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 17 PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RESPECT OF AN U NDERTAKING WHICH IS FORMED AS A RESULT OF THE RE-ESTABLISHMENT RECO NSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH UNDERTA KING AS IS REFERRED TO IN SECTION 33B IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN THAT SECTION; (II) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSIN ESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE: PROVIDED THAT NOTHING CONTAINED IN THIS SUB-SECTION SHALL APPLY IN THE CASE OF TRANSFER EITHER IN WHOLE OR IN PART OF MACHINERY OR PLANT PREVIOUSLY USED BY A STATE ELECTRICITY BOARD REFERRED TO IN CLAUSE (7) OF SECTION 2 OF THE ELECTRICITY ACT 2003 (36 OF 2003) WHETHER OR NO T SUCH TRANSFER IS IN PURSUANCE OF THE SPLITTING UP OR RECONSTRUCTION OR REORG ANISATION OF THE BOARD UNDER PART XIII OF THAT ACT. EXPLANATION 1.FOR THE PURPOSES OF CLAUSE (II) ANY MAC HINERY OR PLANT WHICH WAS USED OUTSIDE INDIA BY ANY PERSON OTHER THAN TH E ASSESSEE SHALL NOT BE REGARDED AS MACHINERY OR PLANT PREVIOUSLY USED F OR ANY PURPOSE IF THE FOLLOWING CONDITIONS ARE FULFILLED NAMELY : (A) SUCH MACHINERY OR PLANT WAS NOT AT ANY TIME PREV IOUS TO THE DATE OF THE INSTALLATION BY THE ASSESSEE USED IN INDIA; (B) SUCH MACHINERY OR PLANT IS IMPORTED INTO INDIA FR OM ANY COUNTRY OUTSIDE INDIA; AND (C) NO DEDUCTION ON ACCOUNT OF DEPRECIATION IN RESPECT OF SUCH MACHINERY OR PLANT HAS BEEN ALLOWED OR IS ALLOWABLE UNDER THE PROVISIONS OF THIS ACT IN COMPUTING THE TOTAL INCOME OF ANY PERSON FOR ANY PERIO D PRIOR TO THE DATE OF THE INSTALLATION OF MACHINERY OR PLANT BY THE ASSESSE E. ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 18 EXPLANATION 2. WHERE IN THE CASE OF AN UNDERTAKING ANY MACHINERY OR PLANT OR ANY PART THEREOF PREVIOUSLY USED FOR ANY PUR POSE IS TRANSFERRED TO A NEW BUSINESS AND THE TOTAL VALUE OF THE MACHINERY O R PLANT OR PART SO TRANSFERRED DOES NOT EXCEED TWENTY PER CENT OF THE TOTA L VALUE OF THE MACHINERY OR PLANT USED IN THE BUSINESS THEN FOR THE PURPOSES OF CLAUSE (II) OF THIS SUB-SECTION THE CONDITION SPECIFIED THEREIN SHALL BE DEEMED TO HAVE BEEN COMPLIED WITH. (4) THIS SECTION APPLIES TO (I) ANY ENTERPRISE CARRYING ON THE BUSINESS OF (I) DE VELOPING OR (II) OPERATING AND MAINTAINING OR (III) DEVELOPING OPER ATING AND MAINTAINING ANY INFRASTRUCTURE FACILITY WHICH FULFILS ALL THE FOLLO WING CONDITIONS NAMELY : (A) IT IS OWNED BY A COMPANY REGISTERED IN INDIA OR BY A CONSORTIUM OF SUCH COMPANIES OR BY AN AUTHORITY OR A BOARD OR A CORPO RATION OR ANY OTHER BODY ESTABLISHED OR CONSTITUTED UNDER ANY CENTRA L OR STATE ACT; (B) IT HAS ENTERED INTO AN AGREEMENT WITH THE CENTR AL GOVERNMENT OR A STATE GOVERNMENT OR A LOCAL AUTHORITY OR ANY OTHER ST ATUTORY BODY FOR (I) DEVELOPING OR (II) OPERATING AND MAINTAINING OR (II I) DEVELOPING OPERATING AND MAINTAINING A NEW INFRASTRUCTURE FACILITY; (C) IT HAS STARTED OR STARTS OPERATING AND MAINTAINING THE INFRASTRUCTURE FACILITY ON OR AFTER THE 1ST DAY OF APRIL 1995: PROVIDED THAT WHERE AN INFRASTRUCTURE FACILITY IS TRANSFERRED ON OR AFTER THE 1ST DAY OF APRIL 1999 BY AN ENTERPRISE WHICH DEVE LOPED SUCH INFRASTRUCTURE FACILITY (HEREAFTER REFERRED TO IN THI S SECTION AS THE TRANSFEROR ENTERPRISE) TO ANOTHER ENTERPRISE (HEREAFTER IN THIS SE CTION REFERRED TO AS THE TRANSFEREE ENTERPRISE) FOR THE PURPOSE OF OPERATIN G AND MAINTAINING THE INFRASTRUCTURE FACILITY ON ITS BEHALF IN ACCORDANCE WI TH THE AGREEMENT WITH THE CENTRAL GOVERNMENT STATE GOVERNMENT LOCAL AUTHORITY OR ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 19 STATUTORY BODY THE PROVISIONS OF THIS SECTION SHALL APPL Y TO THE TRANSFEREE ENTERPRISE AS IF IT WERE THE ENTERPRISE TO WHICH THIS C LAUSE APPLIES AND THE DEDUCTION FROM PROFITS AND GAINS WOULD BE AVAILABLE TO SUCH TRANSFEREE ENTERPRISE FOR THE UNEXPIRED PERIOD DURING WHICH THE TRANSFEROR ENTERPRISE WOULD HAVE BEEN ENTITLED TO THE DEDUCTION IF THE TR ANSFER HAD NOT TAKEN PLACE: PROVIDED FURTHER THAT NOTHING CONTAINED IN THIS SECTION SHALL APPLY TO ANY ENTERPRISE WHICH STARTS THE DEVELOPMENT OR OPERATION A ND MAINTENANCE OF THE INFRASTRUCTURE FACILITY ON OR AFTER THE 1ST DAY OF APRIL 2017. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE 'INFRASTRUCT URE FACILITY' MEANS (A) A ROAD INCLUDING TOLL ROAD A BRIDGE OR A RAIL SYSTEM; (B) A HIGHWAY PROJECT INCLUDING HOUSING OR OTHER ACTI VITIES BEING AN INTEGRAL PART OF THE HIGHWAY PROJECT; (C) A WATER SUPPLY PROJECT WATER TREATMENT SYSTEM I RRIGATION PROJECT SANITATION AND SEWERAGE SYSTEM OR SOLID WASTE MANAGEMENT SYSTEM; (D) A PORT AIRPORT INLAND WATERWAY INLAND PORT OR NAVIGATIONAL CHANNEL IN THE SEA; (II) ANY UNDERTAKING WHICH HAS STARTED OR STARTS PROVI DING TELECOMMUNICATION SERVICES WHETHER BASIC OR CELLULAR IN CLUDING RADIO PAGING DOMESTIC SATELLITE SERVICE NETWORK OF TRUNKING BROADBAND NETWORK AND INTERNET SERVICES ON OR AFTER THE 1ST DAY OF APRIL 1995 BUT ON OR BEFORE THE 31ST DAY OF MARCH 2005. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE 'DOMESTIC SA TELLITE' MEANS A SATELLITE OWNED AND OPERATED BY AN INDIAN COMPANY FOR PROVIDING TELECOMMUNICATION SERVICE; ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 20 (III) ANY UNDERTAKING WHICH DEVELOPS DEVELOPS AND OP ERATES OR MAINTAINS AND OPERATES AN INDUSTRIAL PARK OR SPECIAL ECONOMIC ZON E NOTIFIED BY THE CENTRAL GOVERNMENT IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THAT GOVERNMENT FOR THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL 1997 AND ENDING ON THE 31ST DAY OF MARCH 2006: PROVIDED THAT IN A CASE WHERE AN UNDERTAKING DEVELOPS AN INDU STRIAL PARK ON OR AFTER THE 1ST DAY OF APRIL 1999 OR A SPECIAL E CONOMIC ZONE ON OR AFTER THE 1ST DAY OF APRIL 2001 AND TRANSFERS THE OPE RATION AND MAINTENANCE OF SUCH INDUSTRIAL PARK OR SUCH SPECIAL ECONOM IC ZONE AS THE CASE MAY BE TO ANOTHER UNDERTAKING (HEREAFTER IN THI S SECTION REFERRED TO AS THE TRANSFEREE UNDERTAKING) THE DEDUCTION UNDER SUB -SECTION (1) SHALL BE ALLOWED TO SUCH TRANSFEREE UNDERTAKING FOR THE REMA INING PERIOD IN THE TEN CONSECUTIVE ASSESSMENT YEARS AS IF THE OPERATION AND M AINTENANCE WERE NOT SO TRANSFERRED TO THE TRANSFEREE UNDERTAKING : PROVIDED FURTHER THAT IN THE CASE OF ANY UNDERTAKING WHICH DEVELOPS DEVELOPS AND OPERATES OR MAINTAINS AND OPERATES AN INDU STRIAL PARK THE PROVISIONS OF THIS CLAUSE SHALL HAVE EFFECT AS IF FOR THE FIGURES LETTERS AND WORDS '31ST DAY OF MARCH 2006' THE FIGURES LETTERS A ND WORDS '31ST DAY OF MARCH 2011' HAD BEEN SUBSTITUTED; (IV) AN UNDERTAKING WHICH (A) IS SET UP IN ANY PART OF INDIA FOR THE GENERATIO N OR GENERATION AND DISTRIBUTION OF POWER IF IT BEGINS TO GENERATE POWER AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL 1993 AND E NDING ON THE 31ST DAY OF MARCH 2017; (B) STARTS TRANSMISSION OR DISTRIBUTION BY LAYING A NET WORK OF NEW TRANSMISSION OR DISTRIBUTION LINES AT ANY TIME DURING T HE PERIOD BEGINNING ON THE 1ST DAY OF APRIL 1999 AND ENDING ON THE 31ST DAY OF MARCH 2017: ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 21 PROVIDED THAT THE DEDUCTION UNDER THIS SECTION TO AN UNDERTAKING UNDER SUB-CLAUSE (B) SHALL BE ALLOWED ONLY IN RELATION TO TH E PROFITS DERIVED FROM LAYING OF SUCH NETWORK OF NEW LINES FOR TRANSMISSION OR DISTRIBUTION; (C) UNDERTAKES SUBSTANTIAL RENOVATION AND MODERNISATIO N OF THE EXISTING NETWORK OF TRANSMISSION OR DISTRIBUTION LINES AT ANY TI ME DURING THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL 2004 AND ENDING O N THE 31ST DAY OF MARCH 2017. EXPLANATION.FOR THE PURPOSES OF THIS SUB-CLAUSE 'SUBS TANTIAL RENOVATION AND MODERNISATION' MEANS AN INCREASE IN THE PLANT AND M ACHINERY IN THE NETWORK OF TRANSMISSION OR DISTRIBUTION LINES BY AT LE AST FIFTY PER CENT OF THE BOOK VALUE OF SUCH PLANT AND MACHINERY AS ON THE 1ST DAY OF APRIL 2004; (V) AN UNDERTAKING OWNED BY AN INDIAN COMPANY AND SE T UP FOR RECONSTRUCTION OR REVIVAL OF A POWER GENERATING PLANT IF (A) SUCH INDIAN COMPANY IS FORMED BEFORE THE 30TH DAY OF NOVEMBER 2005 WITH MAJORITY EQUITY PARTICIPATION BY PUBLIC SECT OR COMPANIES FOR THE PURPOSES OF ENFORCING THE SECURITY INTEREST OF THE LENDER S TO THE COMPANY OWNING THE POWER GENERATING PLANT AND SUCH INDIAN COMP ANY IS NOTIFIED BEFORE THE 31ST DAY OF DECEMBER 2005 BY THE CENTRAL GOVERNMENT FOR THE PURPOSES OF THIS CLAUSE; (B) SUCH UNDERTAKING BEGINS TO GENERATE OR TRANSMIT O R DISTRIBUTE POWER BEFORE THE 31ST DAY OF MARCH 2011; (VI) [***] 27. VARIOUS OTHER JUDGMENTS HAVE BEEN PERUSED WITH REG ARD TO THE DEDUCTION VIS--VIS SET OFF OF LOSSES. TO MENTION A FEW 28. THE ITAT BANGALORE IN THE CASE OF ANIL LAD VS DCI T [2011] HELD THAT LOSS AND DEPRECIATION OF ELIGIBLE UNIT PRIOR TO INITI AL ASSESSMENT YEAR IF ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 22 SET-OFF AGAINST OTHER INCOME THEN IT IS NOT TO BE NOTI ONALLY CARRIED FORWARD. THE FACTS OF THE CASE WERE THAT IN AY 2006-07 THE ASSESSEE INSTALLED A WINDMILL THE PROFITS OF WHICH WERE ELIGIBLE FOR 100% DEDUCTION UNDER SECTION 80-IA. OWING TO DEPRECIATION AND LOSS THE ASSESSE E DID NOT CLAIM S. 80-IA DEDUCTION IN AY 2006-07 & 2007- 08 AND SET-O FF THE LOSS AND DEPRECIATION AGAINST OTHER INCOME. IN AY 2008-09 THE ASSESSEE EARNED PROFITS FROM THE WINDMILL AND CLAIMED DEDUCTION UNDER SECTION 80-IA. THE AO & CIT (A) RELIED ON THE SPECIAL BENCH DECISION IN AC IT VS. GOLD MINES SHARES & FINANCE 116 TTJ (AHD) (SB) 705 AND HELD THAT IN VIEW OF SECTION 80IA(5) THE LOSS AND UNABSORBED DEPRECIATION OF THE EL IGIBLE UNIT THOUGH SET-OFF AGAINST THE OTHER INCOME HAD TO BE NOTIONALL Y CARRIED FORWARD FOR SET-OFF AGAINST THE PROFITS OF THE ELIGIBLE UNDERTAKI NG. ALLOWING THE APPEAL THE ITAT HELD THAT THOUGH IN GOLD MINES SHARES & FIN ANCE 116 TTJ (AHD) (SB) 705 IT WAS HELD THAT IN VIEW OF SECTION 80IA(5) THE ELIGIBLE UNIT HAD TO BE TREATED AS THE ONLY SOURCE OF INCOME AND THE PRO FITS HAD TO BE COMPUTED AFTER DEDUCTION OF THE NOTIONALLY BROUGHT FO RWARD LOSSES AND DEPRECIATION OF THE ELIGIBLE BUSINESS EVEN THOUGH THEY WERE IN FACT SET-OFF AGAINST OTHER INCOME IN THE EARLIER YEARS 29. THE HONBLE COURT OF MADRAS IN THE CASE OF VS MILLS PVT. LTD. VS ACIT 340 ITR 477 HELD THAT THE ELIGIBLE BUSINESS WAS THE ONL Y SOURCE OF INCOME DURING THE PREVIOUS YEAR RELEVANT TO INITIAL ASSESSMENT YEAR AND EVERY SUBSEQUENT ASSESSMENT YEARS WHEN THE ASSESSEE EXERCISES THE OP TION THE ONLY LOSSES OF THE YEARS BEGINNING FROM INITIAL ASSESS MENT YEAR ALONE ARE TO BE BROUGHT FORWARD AND NO LOSSES OF EARLIER YEA RS WHICH WERE ALREADY SET OFF AGAINST THE INCOME OF THE ASSESSEE. LOOKIN G FORWARD TO A PERIOD OF TEN YEARS FROM THE INITIAL ASSESSMENT IS CONTE MPLATED. IT DOES NOT ALLOW THE REVENUE TO LOOK BACKWARD AND FIND OUT IF THERE IS ANY LOSS OF EARLIER YEARS AND BRING FORWARD NOTIONALLY EVEN THOU GH THE SAME WERE SET OFF AGAINST OTHER INCOME OF THE ASSESSEE AND THE SET OFF A GAINST THE ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 23 CURRENT INCOME OF THE ELIGIBLE BUSINESS. ONCE THE SET OFF IS TAKEN PLACE IN EARLIER YEAR AGAINST THE OTHER INCOME OF THE ASSESSEE TH E REVENUE CANNOT REWORK THE SET OFF AMOUNT AND BRING IT NOTIONALLY. 30. IN THE PRESENT CASE THERE IS NO DISPUTE THAT T HE LOSSES INCURRED BY THE ASSESSEE WERE ALREADY BEEN SET OFF AND ADJUSTED AGAINST THE PROFITS OF THE EARLIER YEARS. DURING TH E RELEVANT ASSESSMENT YEAR THE ASSESSEE HAS EXERCISED THE OPT ION OF CLAIMING DEDUCTION U/S 80IA. THERE IS NO UNABSORBED DEPRECIATION OR LOSS OF THE ELIGIBLE UNDERTAKING AN D THE SAME WERE ALREADY ABSORBED IN THE EARLIER YEARS. THERE I S A POSITIVE PROFIT DURING THE YEAR. THE ASSESSING OFFICERS CAL CULATION OF TREATING THE EACH UNIT INDEPENDENTLY AND SETTING OF F THE PROFITS AGAINST THE LOSSES OF THE UNIT WHICH HAVE ALREADY B EEN SET OFF AGAINST BY THE PROFITS OF THE ASSESSEE IN THE EARLI ER YEARS CANNOT BE HELD TO BE LEGALLY VALID. THE SET OFF OF THE LOSSES AS PRESENTED BY THE LD. AR IS AS UNDER: 2005 - 06 3 100 969 047 689 870 548 3 014 357 554 6 805 197 149 2006 - 07 68 605 536 55 752 510 2 171 418 084 2 184 271 109 6 805 197 149 2 184 268 109 4 620 929 040 2007 - 08 543 928 860 22 570 463 3 690 462 244 4 256 961 567 4 620 929 040 4 256 961 567 363 967 473 2008 - 09 897 527 557 81 147 825 5 709 774 904 6 688 450 286 363 967 473 363 967 473 31. THE AO IS DIRECTED TO VERIFY THE SAME FOR ACCUR ACY OF THE FIGURES FROM THE RETURNS FILED FOR THE EARLIER ASSE SSMENT YEARS. THE APPEAL THE REVENUE ON THIS ISSUE IS DISMISSED. 32. THE THIRD ISSUE IS TO BE EXAMINED IS C. WHETHER THE BROUGHT FORWARD LOSSES NEED TO BE SE T OFF AGAINST THE PROFITS EARNED DURING THE YEAR BEFORE C LAIMING THE DEDUCTION U/S 80IA OR NOT. 33. IN VIEW OF THE DISCUSSION ABOVE ON A CONCURREN T READING OF WHAT CONSTITUTES ON INITIAL ASSESSMENT YEAR AND THE PROVISION ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 24 FOR BROUGHT FORWARD OF LOSSES THE EVENTUAL CONCLUS ION DERIVES FROM SUCH READING IS THAT IN CASE THE ASSESSEE HAS EXISTING BROUGHT FORWARD LOSSES WHICH WERE EITHER COULD NOT BE SET OFF AGAINST THE PROFITS AND IF THE ASSESSEE CONSIDERS A NY YEAR AS THE INITIAL ASSESSMENT YEAR FOR THE BENEFIT OF SECTION 80IA IN SUCH CASES THE ELIGIBLE PROFITS WOULD BE DETERMINED ONL Y AFTER SETTING OFF OF THE LOSSES/ UNABSORBED DEPRECIATION CARRIED FORWARD IN THE YEAR THE DEDUCTION IS CLAIMED. 34. THIS RATIO APPLIES TO GROUND NOS. 1 & 2 OF THE DEPARTMENTAL APPEAL FOR THE ASSESSMENT YEARS 2009-10 2010-11 AN D GROUND NO. 1 FOR THE ASSESSMENT YEAR 2011-12. DEDUCTION U/S 14A: THE APPEAL OF THE REVENUE ON RULE 8D(2)(II) THE APPEAL OF THE ASSESSEE ON RULE 8D(2)(III) 35. DURING THE YEAR THE ASSESSEE HAS EARNED DIVIDE ND INCOME OF RS.29 86 43 660/-(AMOUNT VARIES FROM YEAR TO YEA R) FROM INVESTMENT IN MUTUAL FUNDS. THE DIVIDEND INCOME EAR NED WAS CLAIMED AS EXEMPT FROM TAX U/S 10(34) OF THE ACT. T HE ASSESSEE ARGUED THAT THEY HAVE NOT INCURRED ANY EXPENDITURE DURING THE ASSESSMENT YEAR IN CONNECTION WITH EARNING OF SAID DIVIDEND INCOME. THE ASSESSEE HAS OFFERED AN AMOUNT OF RS.2 30 000/- U/S 14A OF THE ACT FOR TAXATION DURING THE COURSE O F ASSESSMENT PROCEEDINGS. THE AO DISALLOWED AN AMOUNT OF RS.10 0 4 84 577/- U/S 14A OF THE ACT APPLYING THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES 1962. THE LD. CIT (A) CONFIRMED T HE ADDITION TO THE TUNE OF RS.2 12 89 490/- UNDER RULE 8D(2)(II I) AND ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 25 DELETED THE AMOUNT OF RS.7 91 95 087/- MADE UNDER R ULE 8D(2)(II). 36. AGGRIEVED BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL IN THIS ISSUE. 37. DURING THE HEARING BEFORE US THE LD. AR RELIED ON SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND A LSO ON THE LETTER DATED 22 ND SEPTEMBER 2011 (PB 121) WHEREIN IT WAS SUBMITTED THAT THE ASSESSEE HAS NOT INCURRED ANY EX PENDITURE IN CONNECTION WITH THE EARNING OF DIVIDEND INCOME WHIC H IS EXEMPT FROM TAX UNDER THE PROVISIONS OF THE ACT. THE ASSES SEE HAS ALSO OFFERED AN AMOUNT OF RS.2 30 000/- FOR DISALLOWANCE WHICH WAS BASED ON THIRD PARTY QUOTATION RECEIVED ON CHARGES OF AN EXTERNAL ADVISOR ATTRIBUTING 5 TO 10% OF THE SALAR Y COST OF THE EMPLOYEES WHO MAY HAVE INTERACTED WITH THE SUBJECT MATTER. FURTHER REPLIES HAVE BEEN GIVEN TO THE REVENUE WHI LE LETTER DATED 29.11.2011 (PB 183) AND 07.12.2011 (PB 190). THE ASSESSEE HAS ALSO GIVEN THE COMPUTATION IN ACCORDAN CE WITH SECTION 14A. (PB 188) THE LD. AR ARGUED THAT THE AO DID NOT NOTE ANY SATISFACTION IN RESPECT OF DISALLOWANCE MA DE U/S 14A R.W. RULE 8D(II). HE RELIED ON THE VARIOUS CASE LAW S: CIT VS SYNTEX INDUSTRIES LTD. (2017) 82 TAXMANN.COM 171 (GUJ.) INDIAN SUGAR EXIM CORPORATION LTD. (2012) 206 TAXMANN.COM 242 (DEL.) CIT VS MICROLABS LTD. (2017) 79 TAXMANN.COM 365 (KAR.) GUJARAT FLUROCHEMICALS LTD. VS DCIT (2018) TAXMANN.COM 10 (AHD.) ULTRATECH CEMENT LTD. VS ACIT (2017) 88 TAXMANN.COM 907 (MUM. TRIB.) ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 26 AXIS BANK LTD. VS ACIT (2017) 79 TAXMANN.COM 187 (AHD. TRIB.) ACIT VS A.U. FINANCIERS INDIA LTD. (2019) 175 ITD 245 (JAIPUR) GOYAL & CO. (CONST.) PVT. LTD. VS DCIT (2020) 180 ITD 280 (AHD.) 38. THE LD. AR FURTHER ARGUED THAT THE DIVIDEND INC OME EARNED WAS FROM DEBT ORIENTED MUTUAL FUNDS WHICH ARE AKIN TO FIXED DEPOSITS OF THE BANK NOT REQUIRING ANY CONSTANT MON ITORING OR ANALYSIS OF INVESTMENT PORTFOLIO UNLIKE EQUITY ORIE NTED FUNDS. THE LD. AR RELIED ON VARIOUS CASE LAWS AS MENTIONED BELOW: CIT VS WALFORT SHARE & STOCK BROKERS (P) LTD. (2010 ) 326 ITR 1 (SC) GODREJ & BOYCE MANUFACTURING COMPANY LTD. (2017) 394 ITR 449 (SC) HT MEDIA LTD. VS PR. CIT (2017) 85 TAXMANN.COM 113 (DEL.) CIT OM PRAKASH KHAITAN (2015) 376 ITR 390 (DEL.) ACIT VS EICHER LTD. (2007) 101 TTJ 369 (DEL.) MARUTI UDGYOG LTD. VS DCIT (2005) 92 ITD 119 (DEL.) CIT VS HERO CYCLES (2010) 323 ITR 518 (P&H) DCIT VS NESTLE INDIA LTD. IN ITA NO. 2020/DEL/2014 39. THE LD. AR FURTHER ARGUED THAT THE ASSESSEE HAS NOT EARNED ANY DIVIDEND FROM CERTAIN INVESTMENTS WHICH MAY NOT BE TAKEN INTO CONSIDERATION WHILE COMPUTING THE DISALLOWANCE . 40. ON THE OTHER HAND THE LD. DR TOTALLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER ON ALL ASPECTS. 41. THESE FACTS ON RECORD AND THE ARGUMENTS OF BOTH THE PARTIES CULMINATE IN: WHETHER THE ASSESSING OFFICER HAVE RECORDED ANY COG ENT REASON FOR HIS DISSATISFACTION OR NOT. ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 27 WHETHER THE LD. CIT (A) WAS CORRECT IN DELETING THE AMOUNT OF RS.7 91 95 087/- UNDER RULE 8D(2)(II) OR NOT. WHETHER THE LD. CIT (A) WAS CORRECT IN CONFIRMING THE AMOUNT OF RS.2 12 89 490/- UNDER RULE 8D(2)(III) OR NOT. Q-1) WHETHER THE ASSESSING OFFICER HAVE RECORDED AN Y COGENT REASON FOR HIS DISSATISFACTION OR NOT. 42. WITH REGARD TO THE SATISFACTION OF THE AO WE H AVE GONE THROUGH THE ORDER OF THE ASSESSING OFFICER PERTAINI NG TO DISALLOWANCE OF EXPENSES U/S 14A WHICH IS AS UNDER: 32. A PERUSAL OF ASSESSEE'S BALANCE SHEET REVEALS THAT ASSESSEE HAD INVESTMENT OF RS. 30 426.21 LACS IN SH ARES AND MUTUAL FUNDS AND HAS RECEIVED DIVIDEND INCOME OF RS . 2986.44 LACS ON IT. ASSESSEE WAS ASKED TO EXPLAIN WHY EXPEN SES IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTA L INCOME MAY NOT BE DISALLOWED AS PER PROVISIONS OF SECTION 14A OF THE ACT. THE ASSESSEE VIDE ITS REPLY FILED ON 13.09.2011 SUB MITTED THAT THE COMPANY DID NOT INCUR ANY EXPENDITURE IN CONNEC TION WITH EARNING DIVIDEND INCOME AND THEREFORE NO DISALLOWA NCE WAS MADE BY IT U/S 14A OF THE ACT. THE ASSESSEE FURTHER SUBMITTED THAT IT HAD NOT APPOINTED ANY SPECIFIC EMPLOYEES FO R THE PURPOSE OF MAKING INVESTMENT DECISION AND MANAGING THE INVESTMENT PORTFOLIO. THE ASSESSEES REPLY DT. 29.1 1.2011 IN THIS REGARD IS RE-PRODUCED BELOW- OUR DETAILED SUBMISSIONS DATED 13 SEPTEMBER 2011 THAT PLL HAS NOT INCURRED ANY EXPENDITURE IN CONNECTION WITH THE EARNING OF DIVIDEND WHICH IS EXEMPT FROM TAX UNDER THE ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 28 PROVISIONS OF THE ACT AND ACCORDINGLY NO DISALLOWA NCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RUL ES IS WARRANTED IN THE INSTANT CASE. OUR SUBMISSIONS DATED 22 SEPTEMBER 2011 OFFERING SUO- MOTO DISALLOWANCE OF RS 230 000 UNDER SECTION 14A O F THE ACT TO BUY PEACE OF MIND HAVING REGARD TO THE UNWAR RANTED LITIGATION ON THE SIMILAR ISSUE BY THE REVENUE AUTH ORITIES. 33. ASSESSEE'S REPLY IS DULY CONSIDERED. ASSESSEE HAS MADE INVESTMENT TO THE TUNE OF RS.54731.74 LACS AND HAS EARNED INCOME ON IT OF RS. 1862.94 LACS WHICH DOES NOT FOR M PART OF TOTAL INCOME. ASSESSEE SUBMISSION THAT IT HAS NOT EMPLOYED ANY SPECIFIC PERSON TO TAKE INVESTMENT DECISIONS OR TO MANAGE SUCH INVESTMENTS MAY BE CORRECT BUT IT CANNOT BE ACCEPTE D THAT IN THE PROCESS OF MAKING DECISION FOR SUCH HUGE INVEST MENTS NONE OF ITS SENIOR MANAGERIAL PERSON WAS INVOLVED AND IT HAS NOT USED ITS OFFICIAL MACHINERY FOR SUPERVISION AND MANAGEME NT OF ITS INVESTMENT PORTFOLIO. INVESTMENTS ARE NOT AUTOMATIC ACTIVITIES WHICH DO NOT REQUIRE ANY HUMAN DECISION OR SUPERVIS ION. THESE DECISIONS ARE VERY IMPORTANT DECISION AND ARE TAKEN AT THE HIGHEST LEVEL OF MANAGEMENT. INVESTMENT REQUIRES CO NSTANT SUPERVISION. ASSESSEE HAS TO PROPERLY ACCOUNT FOR V ARIOUS INVESTMENTS AS WELL AS RESULTANT INCOME FROM IT. AL L THESE ACTIVITIES REQUIRE USE OF ITS MANPOWER AND OFFICIAL MACHINERY. IN VIEW OF THIS IT IS NOT ACCEPTABLE THAT NO EXPENDIT URE WAS INCURRED IN THIS REGARD. SINCE USE OF OFFICIAL MAC HINERY CANNOT BE DENIED; PART OF EXPENSES SHOULD HAVE BEEN APPORT IONED TO THE INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME . THUS I AM NOT SATISFIED WITH THE CORRECTNESS OF ASSESSEE'S CLAIM THAT ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 29 NO EXPENDITURE WAS INCURRED FOR MAKING INVESTMENT O R FOR EARNING EXEMPT INCOME. 43. ON GOING THROUGH THE ASSESSMENT ORDER WE FIND THAT THE ASSESSING OFFICER HAS DULY EXAMINED THE ISSUE IN DE TAIL. HAVING NOT SATISFIED THE FACT THAT THE ASSESSEE HAS NOT DI SALLOWED ANY AMOUNT FOR EARNING TAX FREE INCOME OF RS.10.4 CR. THE AO HAS ENQUIRED INTO AND ADEQUATE OPPORTUNITY WAS ACCORDED TO THE ASSESSEE TO REPLY AS TO HOW THE CONTENTION OF THE A SSESSEE IS ACCEPTABLE. THE ASSESSEE REPLIED ON 13.09.2011 ON 22.09.2011 AND ON 29.11.2011 AND THE DELIBERATIONS WENT ON DUR ING HEARING SHOW THE APPLICATION OF MIND OF THE AO WITH REGARD TO THE DISSATISFACTION AS PER THE PROVISIONS OF SECTION 14 A. THE ASSESSING OFFICER HAS GIVEN REASONING AT PARA 33 OF THE ASSESSMENT ORDER WHICH HAS BEEN REPRODUCED ABOVE AS TO HOW AND WHY THE ASSESSEES CONTENTION IS NOT ACCEPTABLE . RELYING ON THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PUNJAB TRACTORS VS CIT IN ITA NO. 458 OF 2015 DA TED 03.02.2017 WE HOLD THAT IT IS NOT NECESSARY FOR THE ASSESSING OFFICER TO DECIDE THE EXTENT OR QUANTUM OF THE INCO RRECT CLAIM. HOWEVER HE HAS TO CORRECTLY CONCLUDE AND SATISFIED THAT THE CLAIM OF THE ASSESSEE IS INCORRECT. IT IS NECESSARY FOR THE ASSESSING OFFICER TO RIGHTLY COME TO THE CONCLUSION THAT THE CLAIM OF THE ASSESSEE IS INCORRECT. 44. THE HONBLE CHIEF JUSTICE HELD THAT THE LANGUAG E OF SECTION 14(2) IS IS NOT SATISFIED WITH THE CORRECT NESS OF THE CLAIM AND NOT REASONABLY DOUBTS IT OR HAS REASO N TO DOUBT THE CORRECTNESS OF THE CLAIM. ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 30 45. THE RELEVANT EXTRACT OF THE DECISION OF THE HON' BLE DELHI HIGH COURT IN THE CASE OF INDIA BULLS FINANCIAL SERVICES VS DCIT ITA NO. 470 OF 2016 DATED 21.11.2016 IS REPRODUCED AS UNDE R: '7. UNDOUBTEDLY THE LANGUAGE OF SECTION 14A PRESUPPO SES THAT THE AO HAS TO ADDUCE SOME REASONS IF HE IS NOT SATISFIED WI TH THE AMOUNT OFFERED BY WAY OF DISALLOWANCE BY THE ASSESSEE . AT THE SAME TIME SECTION 14A (2) AS INDEED RULE 8D(I) LE AVE THE AO EQUALLY WITH NO CHOICE IN THE MATTER INASMUCH AS TH E STATUTE IN BOTH THESE PROVISIONS MANDATES THAT THE PARTI CULAR METHODOLOGY ENACTED SHOULD BE FOLLOWED. IN OTHER WORD S THE AO IS UNDER A MANDATE TO APPLY THE FORMULAE AS IT WER E UNDER RULE 8D BECAUSE OF SECTION 14A(2). IF IN A GIVEN CASE THEREFORE THE AO IS CONFRONTED WITH A FIGURE WHICH PRIMA FACIE IS NOT IN ACCORD WITH WHAT SHOULD APPROXIMATELY BE THE FIGURE ON A FAIR WORKING OUT OF THE PROVISIONS HE I S BUT BOUND TO REJECT IT. IN SUCH CIRCUMSTANCES THE AO ORDINARILY WOULD EXPRESS HIS OPINION BY REJECTING THE DISALLOWANCE OFFERED AND THEN PROCEED TO WORK OUT THE METHODOLOGY ENACTED.' 46. THE HONBLE COURT WITH REGARD TO THE SATISFACTI ON OF THE AO AS PER SECTION 14(2) AND (3) HELD THAT LAW DOESN T ENVISAGE EXPRESS RECORDING OF SATISFACTION. IT HELD THAT IF THE AO EXAMINE THE ISSUE WITH REGARD TO THE PROVISIONS OF SECTION 14A RULE 8D AND HAVING HELD DELIBERATIONS WITH THE ASSESSEE AS TO THE DISALLOWANCE AND NOT EXPRESSLY RECORDING DISSATISFA CTION WOULD PER SE DOESNT AMOUNT TO NON-RECORDING OF SATISFACTION. 47. THE RELEVANT EXTRACT IS AS UNDER: '8. IN THIS INSTANCE THE ELABORATE ANALYSIS CARRIED OUT B Y THE AO - AS INDEED THE THREE IMPORTANT STEPS INDICATED BY H IM IN THE ORDER SHOWS THAT ALL THESE ELEMENTS WERE PRESENT IN HIS MIND THAT HE DID NOT EXPRESSLY RECORD HIS DISSATISFACTION IN THESE CIRCUMSTANCES WOULD NOT PER SE JUSTIFY THIS COURT IN CONCLUDING THAT HE WAS NOT SATISFIED OR DID NOT RECORD COG ENT REASONS FOR HIS DISSATISFACTION TO REJECT THE AO'S CONCLUSIO N. TO ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 31 INSIST THAT THE AO SHOULD PAY SUCH LIP SERVICE REGARDLE SS OF THE SUBSTANTIAL COMPLIANCE WITH THE PROVISIONS WOULD IN FACT DESTROY THE MANDATE OF SECTION 14A. 48. IN THE INSTANT CASE THE AO CANNOT BE FAULTED F OR NOT BEING SATISFIED WITH THE CLAIM OF THE ASSESSEE. THE AO IS JUSTIFIED IN PRESUMING THAT THE ASSESSEE HAS INCURR ED EXPENDITURE TOWARDS ADMINISTRATIVE ACTIVITIES NECES SARY TO EARN THE EXEMPT INCOME. ONCE THE INFERENCE OF THE AO IS FOUND TO BE CORRECT THE PROVISIONS OF RULE 8D SETS IN. OWING T O THE DECISIONS OF THE HONBLE COURTS AND THE FACTS OF TH E INSTANT CASE WE HOLD THAT THE ASSESSING OFFICER HAS RIGHTL Y NOT SATISFIED WITH THE CONTENTIONS OF THE ASSESSEE AND THE DISALL OWANCE. Q.2) WHETHER THE LD. CIT (A) WAS CORRECT IN DELETIN G THE AMOUNT OF RS.7 91 95 087/- UNDER RULE 8D(2)(II) OR NOT? 49. THE AO DISALLOWED RS.7 91 95 087/- UNDER RULE 8 D(2)(II). THE LD. CIT (A) DELETED THE ADDITION HOWEVER NO RE ASONS HAVE BEEN GIVEN. 50. WE HAVE GONE THROUGH THE ARGUMENTS AND SUBMISSI ONS OF BOTH THE PARTIES. WE FIND THAT AS PER THE PAGE NO. 190 OF THE PAPER BOOK VIDE LETTER DATED 07.12.2011 THE ASSESS EE SUBMITTED THAT THEY DID NOT INVEST ANY PART OF THE BORROWER FUNDS IN THE MUTUAL FUNDS AND THERE WAS NO DIVIDEND INCOME EARNED ON BORROWED FUNDS. THIS FACT HAS NOT BEEN DI SPUTED BY THE REVENUE AUTHORITIES. IN THIS CONTEXT THE RELEV ANT PROVISIONS ARE HEREBY PERUSED. 51. THE PROVISIONS OF THE RULE 8D(2)(II) ARE AS UND ER: ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 32 (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS NAMELY: (I) ............. (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA NAMELY:- A B C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR; B = THE AVERAGE OF VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; 52. FROM THE ABOVE PROVISIONS WE HOLD THAT IN THE ABSENCE OF INCURRING OF ANY EXPENDITURE OF INTEREST BY THE ASS ESSEE TO ANY PARTY ON ACCOUNT OF INTEREST WITH REGARD TO THE AMO UNTS INVESTED WE HOLD THAT THE PROVISIONS OF SECTION 8D (2)(II) CANNOT BE ATTRACTED. HENCE WE HEREBY DECLINE TO IN TERFERE WITH THE ACTION OF THE LD. CIT (A). Q.3) WHETHER THE LD. CIT (A) WAS CORRECT IN CONFIRM ING THE AMOUNT OF RS.2 12 89 490/- UNDER RULE 8D(2)(III) OR NOT? ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 33 53. THE ASSESSING OFFICER DISALLOWED RS.2 12 89 490 /- UNDER RULE 8D(2)(III) AND THE SAME HAS BEEN CONFIRMED BY THE LD. CIT (A). THE ASSESSING OFFICER HAS DISALLOWED % OF THE AVERAGE OF THE VALUE OF INVESTMENT INCOME FROM WHICH DID NOT FORM PART OF THE TOTAL INCOME. THE LD. AR ARGUED THAT SINCE THE ASSESSING OFFICER HAS NOT RECORDED SATISFACTION NO DISALLOWA NCE OUGHT TO HAVE BEEN MADE AND THERE WAS NO NEXUS OF THE EXPEND ITURE WITH THE CORRESPONDING INCOME HAS BEEN ESTABLISHED BY THE REVENUE. 54. IN THE PRECEDING PARAS THE ISSUE OF SATISFACTIO N HAS ALREADY BEEN ADJUDICATED. HENCE THE PROVISIONS RULE 8D(2)( II) AND 8D(2)(III) SETS IN MOTION. WE HAVE ALREADY ADJUDICA TED ON THE FACTS OF APPLICABILITY OF RULE 8D(2)(II) WHEREIN IT WAS HELD THAT THE PROVISIONS HAVE NOT BEEN ATTRACTED WITH REGARD TO THE ASSESSEE ON THE SPECIFIC FACTS OF THE CASE. 55. WITH REGARD TO RULE 8D(2)(III) THE PROVISIONS READ AS UNDER: (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS NAMELY: (I) ............. (II) ............ (III) AN AMOUNT EQUAL TO ONE-HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 34 56. IN THIS ASPECT WE ARE GUIDED BY THE JUDGMENTS OF THE HONBLE JURISDICTIONAL HIGH COURT AND THE HONBLE A PEX COURT QUOTED BY THE LD. CIT (A) WITH REGARD TO SECTION 14 A AND THE DISALLOWANCES THEREOF. (A) THE MANDATE OF SECTION 14A IS TO PREVENT CLAI MS FOR DEDUCTION OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE; (B) SECTION 14A(1) IS ENACTED TO ENSURE THAT ONLY EXPENSES INCURRED IN RESPECT OF EARNING TAXABLE INCOME ARE ALLOWED; (D) THE BASIC PRINCIPLE OF TAXATION IS TO TAX NET INCOME. THIS PRINCIPLE APPLIES EVEN FOR THE PURPOSE S OF SECTION 14A AND EXPENSES TOWARDS NON-TAXABLE INCOME MUST BE EXCLUDED; (E) ONCE A PROXIMATE CAUSE FOR DISALLOWANCE IS ESTABLISHED - WHICH IS THE RELATIONSHIP OF THE EXPENDITURE WITH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME - A DISALLOWANCE HAS TO BE EFFECTE D. ALL EXPENDITURE INCURRED IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE PROVISIONS OF THE ACT HAS TO BE DISALLOWED UNDER SECTION 14A. INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS BROADLY ADVERTED TO AS EXEMPT INCOM E AS AN ABBREVIATED APPELLATION.' (F) SUB-SECTION (2) OF SECTION 14A OF THE SAID ACT REFERS TO THE METHOD OF DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOM E. (G) THE EXPRESSION USED IS - 'SUCH METHOD AS MAY BE PRESCRIBED'. WE HAVE ALREADY MENTIONED ABOVE THAT B Y VIRTUE OF NOTIFICATION NO.45/2008 DATED 24/03/2008 THE CENTRAL BOARD OF DIRECT TAXES INTRODUCED RULE 8 D IN THE SAID RULES. (H) THE SAID RULE 8D ALSO MAKES IT DEAR THAT WHERE THE AO HAVING REGARD TO THE ACCOUNTS OF THE ASSESS EE OF A PREVIOUS YEAR IS NOT SATISFIED WITH (A) THE ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 35 CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSESSEE THA T NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INC OME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT FOR SUCH PREVIOUS YEAR THE AO SHALL DETERMINE THE AMOUNT OF THE EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SU B- RULE (2) OF RULE 8D. (I) RULE 8D(1) PLACES THE PROVISIONS OF SECTION 14A (2) AND (3) IN THE CORRECT PERSPECTIVE. (J) THE CONDITION PRECEDENT FOR THE AO TO DETERMINE THE AMOUNT OF EXPENDITURE IS THAT THE AO MUST RECOR D DISSATISFACTION WITH THE CORRECTNESS OF THE CLAIM O F EXPENDITURE MADE BY THE ASSESSEE OR WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED. (K) IT IS ONLY WHEN THIS CONDITION PRECEDENT IS SAT ISFIED THAT THE AO IS REQUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDABLE IN TOTAL INCOME IN THE MANNER INDICATED IN SUB-RULE (2 ) OF RULE 8D. (L) DETERMINATION OF THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 80 WOULD COME INTO PLAY WHEN THE AO REJECTS THE CLAIM OF THE ASSESSEE IN THIS REGARD. (M) THE METHOD FOR DETERMINING THE EXPENDITURE IN RELATION TO EXEMPT INCOME HAS THREE COMPONENTS. THE FIRST COMPONENT BEING THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PA RT OF THE TOTAL INCOME. THE SECOND COMPONENT BEING COMPUTED ON THE BASIS OF THE FORMULA GIVEN THEREIN IN A CASE WHERE THE ASSESSEE INCURS EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO A NY PARTICULAR INCOME OR RECEIPT. THE FORMULA ESSENTIAL LY APPORTIONS THE AMOUNT OF EXPENDITURE BY WAY OF INTEREST [OTHER THAN THE AMOUNT OF INTEREST INCLUDE D IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR IN THE RATIO OF THE AVERAGE VALUE OF INVESTMENT INCOME FR OM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 36 INCOME TO THE AVERAGE OF THE TOTAL ASSETS OF THE ASSESSEE. THE THIRD COMPONENT IS AN ARTIFICIAL FIGU RE - ONE HALF PERCENT OF THE AVERAGE VALUE OF THE INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. 57. DURING THE YEAR THE ASSESSEE HAS RECEIVED RS.2 9.86 CR. AND CLAIMED THAT NO EXPENDITURE HAS BEEN INCURRED F OR EARNING THIS INCOME. DURING THE ASSESSMENT PROCEEDINGS BEFO RE THE AO THE ASSESSEE HAS OFFERED RS.2 30 000/- AS APPROXIMA TE EXPENDITURE INCURRED. AS PER THE SETTLED POSITION A ND ON THE FACTS OF THE CASE AS MENTIONED ABOVE THE PROVISION S OF RULE 8D(2)(III) ARE INVITED TO THE FACTS OF THE CASE. HE NCE THE ACTION OF THE AO DETERMINING OF PERCENTAGE OF THE AVERAGE INVESTMENTS FOR DISALLOWANCE AS PER RULE 8D(2)(III) CANNOT BE F AULTED WITH. 58. THE ASSESSEE HAS SUBMITTED THE COMPUTATION BEFO RE THE AO AS ANNEXURE-A TO LETTER DATED 29.11.2011 WHICH IS A S UNDER: COMPUTATION IN ACCORDANCE WITH SECTION 14A OF THE I NCOME TAX ACT 1961 READ WITH RULE 8D OF THE INCOME TAX RU LES 1962 AMOUNT AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME - (SEE NOTE 1) INTEREST EXPENDITURE - (SEE NOTE 2) 1/2% OF AVERAGE OF THE VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT FORM PART OF TOTAL INCOME 21 289 490 (SEE NOTE 3) TOTAL 21 289 490 1 NOTES NO DIRECT EXPENDITURE IS INCURRED ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 37 RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. 2 EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT IS NIL 3 AVERAGE VALUE OF INVESTMENTS INVESTMENTS AS ON 01.04.2009 INVESTMENTS AS ON 31.03.2010 AVERAGE OF ABOVE 1/2 % OF ABOVE 5 473 174 534 3 042 621 639 8 515 796 173 4 257 898 087 21 289 490 59. UNDER THE FACTS AND CIRCUMSTANCES OF THE INSTAN T CASE THE ACTION OF THE REVENUE AUTHORITIES DISALLOWING AN AM OUNT OF RS. 2 12 89 490/- IS HEREBY SUSTAINED. 60. DURING THE ARGUMENTS THE LD. AR HAS TAKEN A PL EA THAT THE AVERAGE INVESTMENTS INCLUDED IN ADANI PETORNET (DAH EJ) PORT PVT. LTD. OF RS.2660.50 LACS AND RS.0.13 LACS IN IN DIA LNG TRANSPORT LTD. MALTA WHICH HAVE NOT YIELDED ANY EX EMPT INCOME DURING THE ASSESSMENT YEAR. THE DETAILS HAVE BEEN G IVEN AT PAGE NO. 247 OF THE PAPER BOOK WHICH IS SCHEDULE 6 OF THE BALANCE SHEET UNDER THE HEAD INVESTMENTS WHICH HA VE BEEN DULY PERUSED. 61. THE HONBLE DELHI HIGH COURT IN THE CASE OF PCI T VS. HT MEDIA IN ITA 281/2019 & CM APPL. 14304/2019 VIDE OR DER DATED 29.03.2019 HELD THAT THE QUESTION URGED BY THE REVENUE IN ITS APPEAL IS WITH RESPECT TO THE CORRECTNESS OF THE RE MAND MADE BY THE ITAT IN ITS IMPUGNED ORDER; THE REMAND WAS ON T WO ASPECTS I.E. THE CALCULATION OF AVERAGE INVESTMENTS (CONFIN ED TO THE ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 38 INCOME GENERATING PART THEREOF) AND THE EXCLUSION O F TAX EXEMPT INCOME DERIVED FROM STRATEGIC INVESTMENTS. THE OBSERVATION OF THE ITAT ON THE LATTER ASPECT I .E. EXCLUSION OF TAX EXEMPT INCOME DERIVED FROM A STRATEGIC INVESTMENTS IS NOT A CORRECT VIEW IN THE LIGHT OF THE DECISION OF THE SUPREME COURT IN MAXOPP INVESTMENT LTD. VS. COMMISSIONER OF INCOME TAX (2018) 402 ITR 640. ACCORDINGLY THE OBSERVATIONS OF THE ITAT ON THIS A SPECT ARE SET ASIDE. HOWEVER ITS OBSERVATIONS WITH RESPECT TO THE CALCULATION OF DISALLOWANCE UNDER SECTION 14A BEING CONFINED TO INVESTMENTS THAT DERIVED TAX EXEMPT INC OME ARE VALID IN THE LIGHT OF THE DIVISION BENCH RULING IN ACB I NDIA LTD. V. ACIT (2015) 374 ITR 108 (DEL). 62. THUS THE HONBLE JURISDICTIONAL HIGH COURT REI TERATED THAT THE DISALLOWANCE SHOULD BE CONFINED TO THE INVESTME NTS YIELDING EXEMPT INCOME. HENCE THE GROUND OF THE ASSESSEE ON THIS ASPECT IS ACCEPTED. THE REVENUE IS HEREBY DIRECTED TO RE- COMPUTE THE DISALLOWANCE TAKING INTO ACCOUNT ONLY T HOSE INVESTMENTS THAT HAVE YIELDED EXEMPT INCOME. A.Y. 2011-12 (REVENUE) TDS PAYMENT: 63. THE REVENUE RAISED OBJECTION AGAINST THE DELETI ON IN RESPECT OF DISALLOWANCE U/S 40(A)(IA) ON THE GROUND THAT NO TDS WAS DEDUCTED ON THE GUARANTEE COMMISSION PAID TO TH E BANK. 64. DURING THE YEAR THE ASSESSEE HAD INCURRED A SUM OF RS.18 68 005/- TOWARDS CHARGES FOR ISSUING BANK GUA RANTEE. ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 39 65. THE AO QUOTED NOTIFICATION OF THE CBDT DATED 31 .12.2012. FURTHER THE AO QUOTED SECTION 194A AND STATED THAT TDS WAS REQUIRED TO BE DEDUCTED ON PAYMENTS TO BANK. 66. THE SAID NOTIFICATION NO. 56/2012 DATED 31.12.2 012 IS QUOTED BELOW: 'SECTION 197A OF THE INCOME-TAX ACT 1961 - DEDUCTI ON OF TAX AT SOURCE - NO DEDUCTION IN CERTAIN CASES - SPECIFI ED PAYMENT UNDER SECTION 197A(1F). IN EXERCISE OF THE POWERS CONFERRED BY SUB-SECTION (1F) OF SECTION 197A OF THE INCOME-TAX ACT 1961 (43 OF 196 1) THE CENTRAL GOVERNMENT HEREBY NOTIFIES THAT NO DEDUCTIO N OF TAX UNDER CHAPTER XVII OF THE SAID ACT SHALL BE MADE ON THE PAYMENTS OF THE NATURE SPECIFIED BELOW (IN CASE SU CH PAYMENT IS MADE BY A PERSON TO A BANK LISTED IN THE SECOND SCHEDULE TO THE RESERVE BANK OF INDIA ACT 1934 (2 OF 1934) EXCLUDING A FOREIGN BANK NAMELY:- (I) BANK GUARANTEE COMMISSION; (II) CASH MANAGEMENT SERVICE CHARGES; (III) DEPOSITORY CHARGES ON MAINTENANCE OF DEMAT ACCOUNTS; (IV) CHARGES FOR WAREHOUSING SERVICES FOR COMMODIT IES; (V) UNDERWRITING SERVICE CHARGES; (VI) CLEARING CHARGES (MICR CHARGES); (VII) CREDIT CARD OR DEBIT CARD COMMISSION FOR TRA NSACTION BETWEEN THE MERCHANT ESTABLISHMENT AND ACQUIRER BAN K. THIS NOTIFICATION SHALL COME INTO FORCE FROM THE 1 ST DAY OF JANUARY 2013. ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 40 67. THE NOTIFICATION CLARIFIES THAT NO TAX WILL BE DEDUCTED AT SOURCE W.E.F. 01.01.2013. THIS CANNOT IMPLY THAT DE DUCTION OF TAX WILL BE DONE PRIOR TO 01.01.2013. THIS IS A CLA RIFICATORY NOTIFICATION. THE CLARIFICATIONS ISSUED BY THE BOAR D PERTAIN TO THE STATUTE IN FORCE FROM THE DATE OF INSERTION. CI RCULARS CANNOT BE TREATED AS AMENDMENTS WHICH GENERALLY HAVE A PRO SPECTIVE EFFECT UNLESS SPECIFIED AS RETROSPECTIVE. 68. IN OUR VIEW THE ASSESSEE WAS NOT REQUIRED TO DE DUCT TDS ON BANK GUARANTEE COMMISSION AS THERE IS A CONSPICU OUS ABSENCE OF PRINCIPLE - AGENT RELATIONSHIP ENVISAGED UNDER SECTION 194H. THERE IS NO PRINCIPLE- AGENT RELATION SHIP BETWEEN A BANK AND ITS CUSTOMERS. FURTHER THE AMOUNT CHARG ED BY A BANK NOT IN THE NATURE OF A COMMISSION AS PER ACT. 69. THE ASSESSEE HAS SUBMITTED BEFORE THE LD. CIT ( A) THAT RS.8 90 700/- WAS NOT CHARGED IN THE P&L ACCOUNT. I N VIEW OF THE ABOVE DISCUSSION WE DECLINE TO INTERFERE WITH THE REASONED ACTION OF THE LD. CIT (A) IN DELETING THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER U/S 40(A)(IA). A.Y. 2011-12 (ASSESSEE) DISALLOWANCE ON ACCOUNT OF CSR: 70. THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS.51 05 000/-WHICH IT STATED WAS A BUSINESS EXPEND ITURE INCURRED FOR WELFARE ACTIVITIES. THE EXPENDITURE IN CURRED IS AS UNDER: PARTICULARS AMOUNT (RS. IN LACS) MEDICAL RELIEF CAMP IN U.P. 46.49 EDUCATION PROMOTION : SET OF 1.00 ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 41 COMPUTER LAB AFFORESTATION DRIVE: BRAHMAVETTA SHREE DEVARAHA HANS BABA TRUST 2.50 CHATRALAYA ALL INDIA MOVEMENT (AIM) FOR SEVA 1.00 OTHERS 0.06 GRAND TOTAL 51.05 71. THE AO DISALLOWED THE EXPENDITURE CLAIMED STATI NG IT WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 72. THE LD. CIT (A) SUPPORTED THE ORDER OF THE ASSE SSING OFFICER HOLDING THAT THE CORPORATE SOCIAL RESPONSIB ILITY EXPENDITURE IS AN APPLICATION OF INCOME. AN APPLICA TION OF INCOME IS NOT AN ALLOWABLE DEDUCTION FOR COMPUTING TAXABLE INCOME OF ANY COMPANY. IT WAS NOT INCURRED FOR THE PURPOSE OF BUSINESS. RELIANCE WAS PLACED ON THE FOLLOWING DECI SIONS BY THE LD. CIT (A): SRI VENKATA SATYANCRAYANA RICE MILLS CONTRACTORS CO . VS. CIT (223 ITR 101) SC. CIT & ANR. VS. INFOSYS TECHNOLOGIES LTD. (2014) 360 ITR 714. KRISHNA SAHAKARI SAKHAR KARKHANA LTD. V. CIT (229 ITR 577). SURAT ELECTRICITY CO. LTD. VS. ACIT 125 ITD 227 (AHD.). ADDL. CIT VS. RAJASTHAN SPINNING AND WEAVING MILLS 274 ITR 463 (RAJ.) MEHSANA DISTRICT COOPERATIVE MILK PRODUCERS UNION LTD. 205 ITR 601 (GUJ.) 73. THE LD. CIT (A) RELIED THAT THE COURTS HAVE HEL D THAT CONTRIBUTIONS MADE BY THE ASSESSEE WHICH ARE DIRECT LY CONNECTED OR RELATED WITH THE CARRYING ON OF THE B USINESS OR ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 42 WHICH RESULTS IN BENEFIT TO THE BUSINESS SHOWED BE REGARDED AS ALLOWABLE U/S 37(1) BUT NOT THE EXPENSES INCURRED F OR CSR. 74. THE LD. CIT (A) HELD THAT IN THIS REGARD NEITH ER SPECIFIC PROVISIONS NOR ANY CIRCULAR PROVIDES FOR ALLOWING C ORPORATE SOCIAL RESPONSIBILITY EXPENDITURE AS AN ALLOWABLE B USINESS EXPENDITURE. 75. BEFORE US THE LD. AR ARGUED THAT THE REVENUE HA S NOT DISPUTED THE GENUINENESS OF THE CLAIM OF CSR EXPEND ITURE AND ONLY THE DISPUTE IS WITH REGARD TO ITS ALLOWABILITY AND THE ALLEGATION THAT IT IS APPLICATION OF INCOME. IT WAS ARGUED THAT THE EXPLANATION 2 TO SECTION 37 WAS INSERTED W.E.F. 01.04.2015 HENCE NOT APPLICABLE TO THE INSTANT ASSESSMENT YEAR . 76. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. 77. AS PER SECTION 37: '37. GENERAL(1) ANY EXPENDITURE (NOT BEING EXPENDI TURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSES) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE AL LOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PRO FITS AND GAINS OF BUSINESS OR PROFESSION'. 'EXPLANATION 1. FOR THE REMOVAL OF DOUBTS IT IS H EREBY DECLARED THAT ANY EXPENDITURE INCURRED ....... NO D EDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDIT URE.' ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 43 EXPLANATION 2 FOR REMOVAL OF DOUBTS IT IS HEREBY DECLARED THAT FOR THE PURPOSES OF SUB-SECTION (1) ANY EXPEN DITURE INCURRED BY AN ASSESSEE ON THE ACTIVITIES RELATING TO CORPORATE SOCIAL RESPONSIBILITY REFERRED TO IN SECTION 135 OF THE COMPANIES ACT 2013 (18 OF 2013) SHALL NOT BE DEEMED TO BE AN EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOS ES OF THE BUSINESS OR PROFESSION. EXPLANATION 2 TO THE PROVISION INSERTED BY FINANCE (NO.2) ACT W.E.F. 01.04.2015. THE PROVISION 37(1) WAS INSERTED W.E.F. 01.04.2015. 78. WE HAVE ALSO GONE THROUGH THE PROVISIONS OF SEC TION 135 COMPANIES ACT 2013 DEALING WITH CSR. THE SAME ARE AS UNDER: 135. CORPORATE SOCIAL RESPONSIBILITY (1) EVERY COMPANY HAVING NET WORTH OF RUPEES FIVE H UNDRED CRORE OR MORE OR TURNOVER OF RUPEES ONE THOUSAND CRORE OR M ORE OR A NET PROFIT OF RUPEES FIVE CRORE OR MORE DURING ANY FINA NCIAL YEAR SHALL CONSTITUTE A CORPORATE SOCIAL RESPONSIBILITY COMMIT TEE OF THE BOARD CONSISTING OF THREE OR MORE DIRECTORS OUT OF WHICH AT LEAST ONE DIRECTOR SHALL BE AN INDEPENDENT DIRECTOR. (2) THE BOARD'S REPORT UNDER SUB-SECTION (3) OF SEC TION 134 SHALL DISCLOSE THE COMPOSITION OF THE CORPORATE SOCIAL RE SPONSIBILITY COMMITTEE. (3) THE CORPORATE SOCIAL RESPONSIBILITY COMMITTEE S HALL (A) FORMULATE AND RECOMMEND TO THE BOARD A CORPORA TE SOCIAL RESPONSIBILITY POLICY WHICH SHALL INDICATE THE ACTI VITIES TO BE UNDERTAKEN BY THE COMPANY AS SPECIFIED IN SCHEDULE VII; ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 44 (B) RECOMMEND THE AMOUNT OF EXPENDITURE TO BE INCUR RED ON THE ACTIVITIES REFERRED TO IN CLAUSE (A); AND (C) MONITOR THE CORPORATE SOCIAL RESPONSIBILITY POL ICY OF THE COMPANY FROM TIME TO TIME. (4) THE BOARD OF EVERY COMPANY REFERRED TO IN SUB-S ECTION (1) SHALL (A) AFTER TAKING INTO ACCOUNT THE RECOMMENDATIONS M ADE BY THE CORPORATE SOCIAL RESPONSIBILITY COMMITTEE APPROVE THE CORPORATE SOCIAL RESPONSIBILITY POLICY FOR THE COMPANY AND DI SCLOSE CONTENTS OF SUCH POLICY IN ITS REPORT AND ALSO PLACE IT ON THE COMPANY'S WEBSITE IF ANY IN SUCH MANNER AS MAY BE PRESCRIBED; AND (B ) ENSURE THAT THE ACTIVITIES AS ARE INCLUDED IN CORPORATE SOCIAL RESP ONSIBILITY POLICY OF THE COMPANY ARE UNDERTAKEN BY THE COMPANY. (5) THE BOARD OF EVERY COMPANY REFERRED TO IN SUB-S ECTION (1) SHALL ENSURE THAT THE COMPANY SPENDS IN EVERY FINANCIAL YEAR AT LEAST TWO PER CENT. OF THE AVERAGE NET PROFITS OF THE COMPANY MADE DURING THE THREE IMMEDIATELY PRECEDING FINANCIAL YEARS IN PUR SUANCE OF ITS CORPORATE SOCIAL RESPONSIBILITY POLICY: PROVIDED THAT THE COMPANY SHALL GIVE PREFERENCE TO THE LOCAL AREA AND AREAS AROUND IT WHERE IT OPERATES FOR SPENDING THE AMOUNT EARMARKED FOR CORPORATE SOCIAL RESPONSIBILITY ACTIV ITIES: PROVIDED FURTHER THAT IF THE COMPANY FAILS TO SPEND SUCH AMOUNT THE BOARD SHALL IN ITS REPORT MADE UNDER CLAUSE (O) OF SUB-SECTION (3) OF SECTION 134 SPECIFY THE REASONS FOR NOT SPENDING T HE AMOUNT. EXPLANATION.FOR THE PURPOSES OF THIS SECTION AVER AGE NET PROFIT SHALL BE CALCULATED IN ACCORDANCE WITH THE PROVISIO NS OF SECTION 198. ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 45 79. THE COMPANIES ACT MANDATES EXPENDITURE OF 2% OF AVERAGE NET PROFIT OF THE FINANCIAL YEAR TO BE SPEN T ON CSR ACTIVITIES. THE EXPENDITURE BY CORPORATE ON CSR ACT IVITIES ARE NOT ALLOWED AS DEDUCTION FROM THE PROFIT OF THE COM PANY. THE EXPENDITURE ON CSR IS CONSIDERED AS APPROPRIATION O F PROFIT. 80. WE HAVE GONE THROUGH THE EXTRACT FROM BUDGET MEMORANDUM *CSR EXPENDITURE BEING AN APPLICATION OF INCOME IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF CARRYING ON BUSINESS IF SUCH EXPENSES ARE ALLOWED AS TAX DEDUCTION THIS WOULD RESULT IN SUBSIDIZING OF AROU ND ONE THIRD OF SUCH EXPENSES BY GOVERNMENT BY WAY OF TAX EXPEND ITURE.. *IT IS PROPOSED TO CLARIFY THAT FOR THE PURPOSE OF SECTION 37(1) ANY EXPENDITUREIN SECTION 135 OF THE COMPANIES ACT 2013 SHALL NOT BE ALLOWED AS DEDUCTION UNDER SECTION 37. HOWEVER THE CSR EXPENDITURE WHICH IS OF THE NATURE DESCRIBE D IN SECTIONS 30 TO 36 OF THE INCOME TAX ACT 1961 SHALL BE ALLOWED DEDUCTION UNDER SECTION 37(1) NOTE: ANY EXPENDITURE QUALIFYING AS CSR EXPENDITURE UNDER PROVISIONS OF SECTION 135 OF THE COMPANIES ACT 201 3 WHICH OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 OF THE IN COME TAX ACT 1961 SHALL BE ALLOWED AS DEDUCTION. 81. THUS THE EXPENDITURE ON CSR ACTIVITIES IS NON- DEDUCTIBLE FOR TAX PURPOSES UNLESS FALLING WITHIN PROVISIONS O F SECTIONS 30 TO 36 OF THE INCOME TAX ACT 1961. 82. THE EXPENDITURE INCURRED BY THE ASSESSEE IS IN NO WAY CONNECTED WITH THE BUSINESS OF THE ASSESSEE OR EARN ING OF THE INCOME. AS PER SECTION 37 THEREFORE THE EXPENDITURE HAS NOT ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 46 BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF THE BUSINESS AND CANNOT BE ALLOWED AS A DEDUCTION. WE H AVE ALSO GONE THROUGH THE ARGUMENTS OF THE ASSESSEE THAT THE EXPLANATION IS PROSPECTIVE IN NATURE. SINCE WE ARE OF THE VIEW THAT THE EXPLANATIONS ARE ONLY WITH REGARD TO THE M AIN PROVISIONS OF THE ACT THE EXPLANATION ARE BROUGHT IN TO PACT THE PROVISIONS AND TO AVOID ANY CONFUSION IN INTERPRETA TION. THE EFFECT OF THE EXPLANATION SHALL BE FROM THE DATE OF INSERTION OF THE PROVISION. THE EXPLANATIONS GIVES CLARITY TO TH E STATUTE AS IT IS AND AS IT WAS MEANT TO BE. 83. HENCE KEEPING IN VIEW THE CLEAR PROVISIONS OF THE SECTION 37(1) EXPLANATION THEREOF SECTION 135 OF THE COMP ANIES ACT AND KEEPING IN VIEW THE FACT THAT THE CSR EXPENSES ARE A CHARGE ON THE PROFITS AND THE EXPENSES INCURRED BY THE ASSESSEE ARE NOT EXPENDITURE ALLOWED AS PER SECTIONS 30 TO 3 6 WE DISMISS THE APPEAL OF THE ASSESSEE ON THIS GROUND. THE ADDITION OF RS.51 05 000/- IS HEREBY CONFIRMED. ADDITIONAL GROUNDS: 84. THE ASSESSEE HAS FILED APPLICATION UNDER RULE 1 1 OF THE INCOME TAX(APPELLATE TRIBUNAL) RULES 1963 FOR ADMI SSION OF ADDITIONAL GROUNDS OF APPEAL ON 09.10.2020. THE ADD ITIONAL GROUNDS READ AS UNDER: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE EDUCATION (SHEC) ON INCOME TAX AND FRINGE BENEFIT TAX IS AN ALLOWABLE EXPENDITURE FOR COMPUTING TOTAL INCOME AS PER THE PROVISIONS OF THE INCOME TAX ACT 1961 (ACT). ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 47 85. THE LD. AR RELIED ON THE JUDGMENT OF HONBLE AP EX COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS CIT (1998) 229 ITR 383. ADMISSION OF THE ADDITIONAL GROUND HAS BEEN OPPOSED IN PRINCIPLE BY THE LD. DR. THE RELEVANT PORTION OF THE SAID JUDGMENT IS AS UNDER: 5. UNDER SECTION 254 OF THE INCOME-TAX ACT THE APPELLATE TRIBUNAL MAY AFTER GIVING BOTH THE PARTIES TO THE A PPEAL AN OPPORTUNITY OF BEING HEARD PASS SUCH ORDERS THEREON AS IT THINKS FIT. THE POWER OF THE TRIBUNAL IN DEALING WIT H APPEALS IS THUS EXPRESSED IN THE WIDEST POSSIBLE TERMS. THE PURPOSE O F THE ASSESSMENT PROCEEDINGS BEFORE THE TAXING AUTHORITIES I S TO ASSESS CORRECTLY THE TAX LIABILITY OF AN ASSESSEE IN ACCORDANCE WITH LAW. IF FOR EXAMPLE AS A RESULT OF A J UDICIAL DECISION GIVEN WHILE THE APPEAL IS PENDING BEFORE THE TRIBUNAL IT IS FOUND THAT A NON-TAXABLE ITEM IS TAXE D OR A PERMISSIBLE DEDUCTION IS DENIED WE DO NOT SEE ANY REASO N WHY THE ASSESSEE SHOULD BE PREVENTED FROM RAISING THAT QUESTION BEFORE THE TRIBUNAL FOR THE FIRST TIME SO L ONG AS THE RELEVANT FACTS ARE ON RECORD IN RESPECT OF THAT ITEM. WE DO NOT SEE ANY REASON TO RESTRICT THE POWER OF THE TRIBUNA L UNDER SECTION 254 ONLY TO DECIDE THE GROUNDS WHICH ARISE FROM THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPE ALS). BOTH THE ASSESSEE AS WELL AS THE DEPARTMENT HAVE A RIGHT TO FILE AN APPEAL/CROSS-OBJECTIONS BEFORE THE TRIBUNAL. W E FAIL TO SEE WHY THE TRIBUNAL SHOULD BE PREVENTED FROM CONSIDER ING QUESTIONS OF LAW ARISING IN ASSESSMENT PROCEEDINGS ALTHOUGH NOT RAISED EARLIER. 6. IN THE CASE OF JUTE CORPORATION OF INDIA LTD. V. C .I.T. THIS COURT WHILE DEALING WITH THE POWERS OF THE APPELLAT E ASSISTANT COMMISSIONER OBSERVED THAT AN APPELLATE AUTHO RITY HAS ALL THE POWERS WHICH THE ORIGINAL AUTHORITY MAY HA VE IN DECIDING THE QUESTION BEFORE IT SUBJECT TO THE RESTRICTI ONS OR LIMITATIONS IF ANY PRESCRIBED BY THE STATUTORY PROV ISIONS. IN THE ABSENCE OF ANY STATUTORY PROVISION THE APPELLATE AUTHORITY IS VESTED WITH ALL THE PLENARY POWERS WHICH T HE SUBORDINATE AUTHORITY MAY HAVE IN THE MATTER. THERE IS NO GOOD REASON TO JUSTIFY CURTAILMENT OF THE POWER OF TH E APPELLATE ASSISTANT COMMISSIONER IN ENTERTAINING AN ADDITIONAL GROUND RAISED BY THE ASSESSEE IN SEEKING MODIFICATION OF THE ORDER OF ASSESSMENT PASSED BY THE INCOME-TAX OFFICER. THIS COURT FURTHER OBSERVED THAT TH ERE MAY BE SEVERAL FACTORS JUSTIFYING THE RAISING OF A NEW P LEA IN ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 48 AN APPEAL AND EACH CASE HAS TO BE CONSIDERED ON ITS OWN FACTS. THE APPELLATE ASSISTANT COMMISSIONER MUST BE SATISFIED THAT THE GROUND RAISED WAS BONA FIDE AND THAT THE SAME COULD NOT HAVE BEEN RAISED EARLIER FOR GOOD REASON S. THE APPELLATE ASSISTANT COMMISSIONER SHOULD EXERCISE HIS DISCRETION IN PERMITTING OR NOT PERMITTING THE ASSESSEE T O RAISE AN ADDITIONAL GROUND IN ACCORDANCE WITH LAW AND REASON. THE SAME OBSERVATIONS WOULD APPLY TO APPEALS BEFORE THE TRIBUNAL ALSO. 7. THE VIEW THAT THE TRIBUNAL IS CONFINED ONLY TO ISS UES ARISING OUT OF THE APPEAL BEFORE THE COMMISSIONER OF INCOME- TAX (APPEALS) TAKES TOO NARROW A VIEW OF THE POWERS OF THE APPELLATE TRIBUNAL [VIDE E.G. C.I.T V. ANAND PRA SAD (DELHI) C.I.T. V. KARAMCHAND PREMCHAND P. LTD. AND C.I.T. V. CELLULOSE PRODUCTS OF INDIA LTD. . UNDOUBTEDLY THE TR IBUNAL WILL HAVE THE DISCRETION TO ALLOW OR NOT ALLOW A NEW GROUND TO BE RAISED. BUT WHERE THE TRIBUNAL IS ONLY REQUIRED TO CONSIDER A QUESTION OF LAW ARISING FROM THE FACTS WHICH ARE ON RE CORD IN THE ASSESSMENT PROCEEDINGS WE FAIL TO SEE WHY SUCH A QUESTION SHOULD NOT BE ALLOWED TO BE RAISED WHEN IT IS NECESSARY TO CONSIDER THAT QUESTION IN ORDER TO CORRECTLY ASSESS THE TAX LIABILITY OF AN ASSESSEE. 8. THE REFRAMED QUESTION THEREFORE IS ANSWERED IN T HE AFFIRMATIVE I.E. THE TRIBUNAL HAS JURISDICTION TO EX AMINE A QUESTION OF LAW WHICH ARISES FROM THE FACTS AS FOUND BY TH E AUTHORITIES BELOW AND HAVING A BEARING ON THE TAX LI ABILITY OF THE ASSESSEE. WE REMAND THE PROCEEDINGS TO THE TRIBUNAL F OR CONSIDERATION OF THE NEW GROUNDS RAISED BY THE ASSESSEE ON THE MERITS. 86. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF THE HONBLE APEX COURT THE ADDITIONAL GROUNDS TAKEN UP BY THE ASSESSEE A RE HEREBY ADMITTED. 87. WITH REGARD TO THE ISSUE OF EDUCATION CESS TA KEN UP BY THE LD. AR WE FIND THAT THIS ISSUE HAS BEEN ADJUDI CATED IN THE FOLLOWING CASES: CHAMBAL FERTILISERS AND CHEMICALS LTD. VS JCIT IN I TA NO.52/2018 DATED 31.07.2018 (RAJ. HC) ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 49 ITC VS ACIT IN ITA NO. 685/KOL/2014 DATED 27.11.201 8 PEERLESS GENERAL FINANCE & INVESTMENT CO. LTD. VS D CIT IN ITA NO.937 & 938/KOL/2018 DATED 24.03.2019 DCIT VS M/S. AGRAWAL COAL CORPORATION PVT. LTD ITA NOS. 801 TO 803/INDORE/2018. ATLAS COPCO INDIA LTD. VS ACIT IN ITA NO. 736/PUNE/2011 TATA AUTOCOMP HENDRICKSON VS DCIT IN ITA NO. 2486/PUNE/2017 SYMANTEC SOFTWARE INDIA PVT. LTD. VS DCIT IN ITA NO . 1824/PUNE/2018 SICPA INDIA PVT. LTD. VS ACIT IN ITA NO. 704/KOL/20 15 PHILIPS INDIA LTD. VS ACIT IN ITA NO. 2612/KOL/2019 DCIT VS THE PEERLESS GENERAL FINANCE & INVESTMENT & CO. LTD. IN ITA NO. 1469/KOL/2019. ACIT VS ITC INFOTECH IN ITA NO. 220/KOL/2017 RECKITT BENCKISER INDIA PVT. LTD. VS DCIT (2020) 11 7 TAXMANN.COM 519 (KOL.) CRYSTAL CROP. PROTECTION PVT. LTD. VS JCIT IN ITA N O. 1539/DEL/2016 MIDLAND CREDIT MANAGEMENT INDIA VS ACIT IN ITA NO. 3892/DEL/2017 VOLTAS LTD. VS ACIT IN ITA NO. 6612/MUM/2018 SESA GOA LTD. VS JCIT (2020) 117 TAXMANN.COM 96 (BOM.) 88. NO CONTRARY JUDGMENTS HAVE BEEN BROUGHT BEFORE US. HENCE KEEPING IN VIEW THE PROVISIONS OF THE ACT PERTAINING T O SECTION 40(A)(II) AND SECTION 115JB CIRCULAR OF THE CBDT NO. 91/58/66- ITJ(19) THE ORDERS OF CO-ORDINATE BENCHES OF ITAT AND JUDICIAL PRO NOUNCEMENTS OF THE HONBLE HIGH COURT OF BOMBAY AND HONBLE HIGH COURT OF RAJASTHAN WE HEREBY DIRECT THE REVENUE TO ALLOW THE CLAIM OF DEDUCT ION OF THE EDUCATION CESS AND FBT AS PER THE PROVISIONS OF SECTION 37 OF TH E INCOME TAX ACT. ITA NOS. 5230 5231 & 5232/DEL/2015 & ITA NOS. 4902 4903 & 4904/DEL/2015 PETRONET LNG LTD. 50 89. TO CONCLUDE ON THE ISSUE OF SECTION 80IA APPEAL OF THE ASSESSE E IS ALLOWED. ON THE ISSUE OF RULE 8D(2)(II) APPEAL OF THE REVEN UE IS DISMISSED. ON THE ISSUE OF RULE 8D(2)(III) APPEAL OF THE ASS ESSEE IS DISMISSED. ON THE ISSUE OF EXEMPT INCOME YIELDING INVESTMENTS APPEAL OF THE ASSESSEE IS ALLOWED. ON THE ISSUE OF TDS APPEAL OF THE ASSESSEE IS ALLO WED. ON THE ISSUE OF CSR APPEAL OF THE ASSESSEE IS DISM ISSED. ON THE ISSUE OF EDUCATION CESS THE APPEAL OF THE A SSESSEE IS ALLOWED. 90. AS A RESULT THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/03/2021. SD/- SD/- (SUDHANSHU SRIVASTAVA) (DR. B. R. R. KUMAR) JUDICIAL MEMBER ACC OUNTANT MEMBER DATED: 18/03/2021 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR