2015 (1) TMI 1489 - AT - Income Tax

Admission of additional ground raised - disallowing credit for corporate taxes paid by MTPL Singapore, to the extent of dividends received by appellant from MTPL in India - As pointed out that in the present case factual foundation has not been laid down before the AO and relevant facts are not on record, thus this ground should not be admitted - HELD THAT - It is well settled law that a legal claim can be advanced at any stage of proceeding - we are not inclined to accept the submission of the CIT(DR) to reject the ground taken by assessee on the ground of laches. There is no quarrel with the submissions of Ld. CIT(DR) that if the relevant facts are not there on record then the additional ground should not be admitted - if the basic facts are there on record and those facts have only to be supplemented by obtaining some further information in that respect then in order to determine the correct tax liability of assessee and to advance the cause of substantial justice, the additional ground raised by assessee should be admitted. In the present case the basic facts necessary for adjudication of additional ground are already on record and at best the AO is to verify those facts and apply the correct provisions of DTAA to the facts. We, therefore, admit the ground raised by the assessee and restore the matter to the file of the AO for allowing the credit of taxes paid in Singapore on the dividend income as per the provisions of DTAA in accordance with law. Additional ground raised by the assessee is admitted and allowed for statistical purposes. Disallowance u/s 14A r.w.r. 8D - Necessity of recording AO's satisfaction regarding expenditure being incurred for the earning of exempt income on reasonable basis - HELD THAT - AO as well as Ld. CIT(A), both have confirmed the disallowance applying Rule 8D. Therefore, the order of Ld. CIT(A) cannot be sustained. The issue, therefore, is restored back to the file of the AO for deciding the issue denovo in accordance with the decision in the case of Maxopp Investment Ltd. 2011 (11) TMI 267 - DELHI HIGH COURT and also after taking into consideration the decision in its own case for asstt. Year 1993-94. Addition on account of non crediting of sum received as DEPB credit - HELD THAT - AO in the body of order talks of addition of Rs. 2,73,56,574/- whereas in computation makes addition of Rs. 2,63,38,000/-. Both these additions have different import. Therefore, he needs to clarify the correct amount which he intends to add. We further notice that assessee has returned 3% profit in the year in which the DEPB is sold/auctioned and 97% of the profit is transferred to NINL as per agreement. This was rightly done in view of overriding title in favour of NINL over proceeds of sale/auction of DEPB. Nature of expenses - expenditure towards annual fees of license issued by Central Electricity Regulatory Commission (CERC) for the period 1.4.2005 to 31.3. 2006 - AO treated this expenditure as capital expenditure on the ground that the same related to activity which was ready to become operational and pertained to an independent activity - CIT(A) deleted this disallowance taking into consideration the fact that the payment was towards annual license fee for trading in electricity - HELD THAT - The facts as noted by Ld. CIT(A) have not been controverted by the department. It is not disputed that the activity carried out by the assessee resulted into generation and sale of electricity therefore the licence fee paid for trading in electricity was in revenue s field. We, therefore, confirm the order of the Ld. CIT(A) on this issue. Penalty u/s 273(2)(a) - CIT(A) noted that inadvertently the assessee company did not claim it as deduction in the computation of total income for the asstt. year under consideration - HELD THAT - The department has not controverted the facts as recorded by the Ld. CIT(A) . There can be no quarrel with the observation of Ld. CIT(A) that while the payment of penalty, if debited to the profit and loss account is to be disallowed and added back to the computation of total income, the refund thereof, if credited to the profit and loss account, has to be allowed as a deduction in the computation. We, therefore, confirm the order of Ld. CIT(A).

Issues Involved:
1. Admission of additional ground for tax credit under India-Singapore DTAA.
2. Disallowance under Section 14A for expenses incurred to earn tax-free income.
3. Addition of DEPB credit to the total income.
4. Treatment of annual license fee as capital or revenue expenditure.
5. Deduction claim for waiver of penalty.

Detailed Analysis:

1. Admission of Additional Ground for Tax Credit Under India-Singapore DTAA
The assessee sought to admit an additional ground for credit of corporate taxes paid by its subsidiary in Singapore against dividends received in India, as per Article 25(2) of the India-Singapore DTAA. The Tribunal admitted the additional ground, emphasizing that a legal claim can be advanced at any stage. The Tribunal remanded the matter to the AO to verify the facts and apply the correct provisions of the DTAA.

2. Disallowance Under Section 14A for Expenses Incurred to Earn Tax-Free Income
The assessee contested the disallowance of Rs. 1,01,98,457/- under Section 14A for expenses related to earning tax-free income from UTI. The AO applied Rule 8D, which was not applicable for the assessment year in question. The Tribunal restored the issue to the AO to reassess the disallowance as per the decision of the Delhi High Court in Maxopp Investment Ltd. vs. CIT, considering the assessee's own case for the assessment year 1993-94.

3. Addition of DEPB Credit to the Total Income
The AO added Rs. 2,63,38,000/- received as DEPB credit to the assessee's income, which the assessee contested, stating that 97% of the DEPB credit was passed to its associate NINL. The Tribunal noted discrepancies in the AO's figures and remanded the matter for clarification and reconsideration, acknowledging the overriding title in favor of NINL.

4. Treatment of Annual License Fee as Capital or Revenue Expenditure
The AO treated the annual license fee of Rs. 5 lacs paid to CERC as capital expenditure, which the assessee claimed as revenue expenditure. The Tribunal upheld the CIT(A)'s decision to treat the fee as revenue expenditure, noting that it did not result in the acquisition of a capital asset or enduring benefit and was related to the generation and sale of electricity.

5. Deduction Claim for Waiver of Penalty
The assessee claimed a deduction of Rs. 1,92,58,404/- for the waiver of penalties for earlier years, which the AO rejected based on the Goetze (India) Ltd. decision. The Tribunal upheld the CIT(A)'s decision to allow the deduction, noting that the penalty was previously disallowed and added back, and the refund should be allowed as a deduction when credited to the profit and loss account.

Conclusion:
The Tribunal admitted the additional ground for tax credit under the India-Singapore DTAA, remanded the disallowance under Section 14A for reassessment, and required clarification on the DEPB credit addition. It upheld the treatment of the annual license fee as revenue expenditure and allowed the deduction for the waiver of penalties. The appeals for the assessment years 2006-07 and 2007-08 were allowed for statistical purposes.

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