TMI Blog2016 (11) TMI 1360X X X X Extracts X X X X X X X X Extracts X X X X ..... ember) And J. S. Reddy (Accountant Member) For the Appellant : Vijay Ranjan, Advocate, Vartik R. Choksi and Ms. Ira R. Kapoor, Chartered Accountants For the Respondent : A. K. Saroha, Commissioner of Income-tax (Departmental Representative) ORDER H. S. Sidhu (Judicial Member) 1. The assessee has filed this appeal against the order dated March 29, 2016, passed by the Principal Commissioner of Income-tax-11, Delhi, under section 263 of the Income-tax Act, 1961, relevant to the assessment year 2010-11. 2. The assessee has raised 11 grounds which are repetitive in nature, but it has filed concise grounds of appeal as detailed below : 1. In law and on the facts and circumstances of the case, the learned Principal Commissioner of Income-tax erred in assuming jurisdiction under section 263 of the Income-tax Act, whereas the mandatory conditions for assuming such jurisdiction were completely absent thus resulting in the order passed being bad in law. 2. In law and on the facts and circumstances of the case, the learned Principal Commissioner of Income-tax erred in his observation in the order that the issue of tax credit on dividend as per article25(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OMIFCO is purchased by the Government of India under a long-term agreement. 3.1 The assessee-society has established a branch office in Oman to oversee its investment in OMIFCO and to facilitate rendering of personnel placement and technical services to M/s. OMIFCO. The branch office is independently registered as a foreign company branch under the Omani laws and it is an accepted position by the Income-tax Department that the said branch office constitutes permanent establishment (PE) in Oman in terms of article 5 of Double Taxation Avoidance Agreement (DTAA) between India and Oman. The said branch office maintains its own books of account and files returns of income as per the local Income-tax law of Oman. 4. In this case the assessee has originally filed the return of income for the assessment year 2010-11 on October 13, 2010, declaring a total income of ₹ 723,16,22,035. Subsequently revised return of income was filed on October 14, 2011, declaring income of ₹ 577,15,94,117. The main reason for the variation in the total income as per the original return and revised return of income was that dividend income received by the appellant-society's Branch in Oma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, by virtue of the provisions of article 25(4) of the Double Taxation Avoidance Agreement read with section 90(1)(a)(ii) of the Income-tax Act, the Assessing Officer, after thoroughly examining the issues and after full application of mind allowed credit for the aforesaid tax which would have been payable in Oman but for the exemption granted. 7. Subsequent to the completion of the assessment the learned Principal Commissioner of Income-tax-11, Delhi issued a show-cause notice dated December 22, 2015, under section 263 of the Income-tax Act. For ready reference, the contents of the show-cause notice are reproduced below : The assessment records of M/s. Indian Farmers Fertiliser Co- operative Ltd. for the assessment year 2010-11 were called for and examined. The Assessing Officer framed assessment on February 28, 2014. The Assessing Officer computed the income of the assessee as under :- Net taxable income as shown in revised return ₹ 577,15,94,117 Add : (a) Dividend income received from OMIFCO, Oman (para 3) ₹ 144,11,73,150 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be allowed if the Department taxes the dividend income. The assessee submitted that the decision of the honourable Supreme Court in Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) would be applicable for allowing the tax credit. 7. The Assessing Officer did not accept the contention of the asses see and taxed the dividend income. The Assessing Officer 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 ₹ 41,52,45,771. 8. The Assessing Officer did not apply his mind in regard to section 90 which authorises the two Governments to enter into an agreement for avoidance of double taxation. 9. The Government issued a Notification No. G. S. R. No. 563(E), dated September 23, 1997, which is reproduced as under ([1997] 228 ITR (St.) 21) :- 'Whereas the annexed agreement between the Government of the Sultanate of Oman and the Government of the Republic of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income has entered into force on the 3rd June, 1997 after the notification by both the Contracting States t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axes. In the present case there is no dispute that the assessee has not paid any tax on the dividend income. 13. The assessee has placed reliance on article 25(4) of the Double Taxation Avoidance Agreement. It refers to the tax incentive granted under the law of the contracting State and which are designed to promote economic development. 14. The 'tax incentive' has not been defined in the Double Taxation Avoidance Agreement. Therefore we have to go to article 3(2) which reads as under (page 24 of 228 ITR (St.)) :- 'As regards the application of this agreement by a Contracting State, any term not defined therein shall, 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.' 15. As per article 3(2) the meaning of expression 'tax incentive' has to be taken from meaning given in the Income-tax Act. Even in the Income-tax Act, the term 'tax incentive' has not been defined. The Assessing Officer did not notice the primary condition of article 25(4) that tax incentive should be designed to promote economic development. The Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to be capitalised under section 36(1)(iii) proviso. The Assessing Officer did not make any further inquiry as to whether the calculation made by the assessee, if any, is correct or not. 18. The assessee has attached annexure E as major additions to fixed assets in the assessment year 2010-11. The total amount is ₹ 37.67 crores. The Assessing Officer has not made any inquiry as regards the interest component which would be liable to be capitalised as per section 36(1)(iii) proviso. 19. The assessee has shown loans and advances under schedule 11 (43rd annual report) of ₹ 27 crores. The Assessing Officer has not asked for the purpose of such advances as to 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(1)(iii) proviso would come into operation. No such queries have been raised by the Assessing Officer nor any explanation given by the assessee. 20. The assessee in schedule 20 (43rd annual report), paragraph 1 has mentioned that estimated value of contracts (net of advances) to be executed on capital account and not provided for amount to ₹ 436.36 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he annual report it is found that the assessee has following associates :- (i) IFFCO-Tokio General Insurance Co. Ltd. (ii) Oman India Fertiliser Co. S.A.O.C. (iii) Jordan India Fertiliser Co., 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 and Derivatives Exchange Ltd. (x) National Collateral Management Services Ltd. (xi) Indian Potash Ltd. (xii) IFFCO Kisan Bazar and Logistics Ltd. (xiii) Indian Farm Forestry Development Co-operative Ltd. (xiv) IFFCO Foundation (xv) Co-operative Rural Development Trust (xvi) IFFCO Kisan Sewa Trust (xvii) GrowMax Agri Corp. (xviii) Aria Chemicals (Orissa) Ltd. 3. The assessee has shown dividend income from OMIFCO Oman, Indian Potash Ltd. The Assessing Officer has not made any inquiry as regards the income which might have been received or due to the assessee from associates as mentioned above. The assessee has also not attached any documents as regards the balance-sheet, profit and loss account, etc., of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IP. That the assessee-company had also capitalised interest of ₹ 7.08 crores following a consistent accounting policy, as disclosed at page 258 of the paper book, in the audited financial statements from year to year. Further the assessee has also stated that detailed material was called for and submitted before the Assessing Officer. The assessee has also cited several case law supporting its contention that on merits no disallowance under section 36(1)(iii) is called for. 10. Vide his impugned order under section 263 of the Income-tax Act, 1961, the learned Principal Commissioner of Income-tax rejected the various submissions made before him. The relevant portion of the finding of the Principal Commissioner of Income-tax with respect to the claim for allowing tax credit for deemed tax paid on dividend income in Oman is reproduced hereunder : 2. I have carefully considered the submissions of the assessee. The main issue in regard to the claim of the tax credit even though the assessee has not paid any tax in Oman. The assessee has relied upon article 25(4) of the Double Taxation Avoidance Agreement. 21. In my opinion, the Assessing Officer did not make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... economic development. It was the wisdom of both the countries who entered into the Double Taxation Avoidance Agreement that the article 25(4) would give tax benefit only when the tax incentive has been designed for economic development. We cannot by any stretch of imagination interpret these words as pointing towards general exemption. The assessee sought a clarification from the Oman Officers whereas it was a matter to be decided by both the countries as it is relating to the Double Taxation Avoidance Agreement which was entered into by both the countries. That means the issue has to be decided not by one country but by both the countries as the Double Taxation Avoidance Agreement is entered into by two countries. There could have been certain schemes which are designed for economic development. The interpretation of the words 'designed for economic development' could not be brushed aside by simple saying that any investment is for economic development. Even if we agree that the contention of the assessee, the basic requirement designed for economic development has not been fulfilled. The assessee has to demonstrate that certain investments were designed for economic devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e economic development in Oman in the Indian Investors should be able to obtain relief in India under article 25(4) of the Agreement for Avoidance of Double Taxation in India. 30. In the opinion of the Revenue it is just an opinion from an officer of the Oman in regard to interpretation of article 8(bis) and cannot take the form of a statute until and unless the officer is authorised or derives authority from the Omani tax law. 31.1 On perusal of Omani tax law, it is found that the Secretary General for taxation does not derive any authority for issuing such letter that has the sanctity of a law for interpreting a particular article. Article 4(Bis) has a reference of the Secretary General. As per article 2(6)(Bis) a Secretary General means the Secretary General for taxation at the Ministry of Finance which is mentioned in article 4(Bis) of the law . . . 38. The honourable Income-tax Appellate Tribunal has given relief primarily on the basis of the letter issued by Secretary General vide letter dated December 11, 2000. It has been perhaps misinterpreted to be issued by the Sultanate of Oman. With due respect to the honourable Income-tax Appellate Tribunal, the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by quoting any article of Omani tax law from which the Secretary General would derive the authority. In the legal jurisprudence this is one of the requirements to show its authority under the Law. 41. In my opinion the matter is unambiguous. However, in view of circumstances of the case justify, the matter is resorted to the file of the Assessing Officer in exercise of my power under section 263 that says that 'pass such order thereon as the circumstances of the case justify' with following observations : 'The Assessing Officer would refer the matter to the concerned authorities who are responsible for entering into the Double Taxation Avoidance Agreement. The Assessing Officer, through proper channel, would write a letter to the officers of the Department perhaps FTD who may request the Omani Government as regards the interpretation of article 25(4) of the Double Taxation Avoidance Agreement with particular emphasis on the word designed for economic development. The Assessing Officer would narrate all the facts and also send a copy of the order under section 263 passed by me wherein I have made certain observations as regards the interpretation. It is quit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axation and Prevention of Fiscal Evasion with Oman, and the judicial pronouncements in support of the society's claim as to non-taxability of the same in India. A copy of the Double Taxation Avoidance Agreement and the commercial registration certificate issued by the Government of Oman was also enclosed for perusal of the assessing authority. The issue was also discussed with the learned Assessing Officer in substantive details during the course of the hearing. 3.1.4 Further, in subsequent hearing on February 20, 2014, the learned Assessing Officer specifically expressed disinclination to accept the society's claim for exemption and enquired about substantiating the alternative claim of credit for taxes deemed to have been paid in Oman under article 25 of the Double Taxation Avoidance Agreement on the lines of the earlier years (from financial year 2005- 06 to the financial year 2008-09). 3.1.5 Accordingly, the society made alternative submissions vide its letter dated February 26, 2014 (copy enclosed as annexure II) in support of its claim for tax credit under article 25(4) of the Double Taxation Avoidance Agreement read with section 90(1)(a)(ii) of the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage now that the learned Assessing Officer has not applied his mind on the merits of the issue. It is incorrect to state that the Assessing Officer has simply accepted the version of the assessee . It is trite that the only authority competent to comment/clarify on the objective of the tax exemption given by the Omani tax law can be the Omani tax authorities only. By believing the objective of the tax incentive as stated in the assessment order issued by the Omani tax authorities, the Assessing Officer has believed the Omani tax authorities and not the assessee alone as claimed in the show-cause notice. By believing the Omani tax authorities, the learned Assessing Officer has taken a perfectly legal view of allowing the tax credit on a combined reading of article 25(2) and 25(4). By taking the only legally plausible view, the order cannot be termed as erroneous in the eyes of the law to fall within the scope of the revisionary power under section 263. 3.1.8 It is pertinent to note that even after the amendment to section 263 by the Finance Act, 2015, Explanation 2 clearly says that the order is deemed to be erroneous if the order is passed allowing any relief without inquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer. (iii) The Delhi High Court in CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi) (page 179) : . . . Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of 'lack of inquiry' that such a course of action would be open. (iv) Bombay High Court-CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom) (page 115) : Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and deter mines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und of article 25(4), section 90 which governs the power of the Central Government to enter into agreement with another country is analysed below. 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 (c) for exchange of information for the prevention of evasion or avoidance of Income-tax chargeable under this Act or under the corresponding law in force in that country or specified territory, as the case may be, or investigation of cases of such e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of an exemption granted in respect of any particular source of income, but by taking into consideration the totality of the provisions of the Income-tax law that prevails in either of the Contracting States (see in this connection K. V. AL. M. Ramanathan Chettiar v. CIT [1973] 88 ITR 169 (SC)). Merely because, at a given time, there may be an exemption from Income-tax in respect of any particular head of income, it cannot be contended that the taxable entity is not liable to taxation. They urge that upon a proper construction of the provisions of Mauritian Income-tax Act it is clear that the FIIs incorporated under Mauritius laws are liable to taxation ; therefore, they are 'residents' in Mauritius within the meaning of the DTAC. For the appellants reliance is placed on the judgment of this court in Wallace Flour Mills Company Ltd. v. CCE [1989] 4 SCC 592, a case under the Central Excise Act. This court held that though the taxable event for levy of excise duty is the manufacture or production, the realisation of the duty may be postponed for administrative convenience to the date of removal of the goods from the factory. It was held that excisable goods do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... country (say S) for foreign investors are not rendered ineffective in the hands of the foreign investor by home country (of the foreign investor) denying the credit for the taxes foregone but not actually paid in the country S. The relevant paragraphs of the UN Model Tax Convention Commentary are reproduced below for ease of reference : The effectiveness of the tax incentive measures introduced by most developing countries thus depends on the interrelationship between the tax systems of the developing countries and those of the capital-exporting countries from which the investment originates. It is of primary importance to developing countries to ensure that the tax incentive measures shall not be made ineffective by taxation in the capital exporting countries using the foreign tax credit system. This undesirable result is to some extent avoided in bilateral treaties through a tax-sparing credit, by which a developed country grants a credit not only for the tax paid but also for the tax spared by incentive legislation in the developing country . . . While the exemption method of providing relief for double taxation eliminates the undesirable effects of the residence c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry C. J. that the words 'are to be given their general meaning, general to lawyer and layman alike . . . the meaning of the diplomat rather than the lawyer. (see Francis Bennion, Statutory Interpretation, page 461 (Butter worths, 1992, second edition)) An important principle which needs to be kept in mind in the interpretation of the provisions of an international treaty, including one for double taxation relief, is that treaties are negotiated and entered into at a political level and have several considerations as their bases. Commenting on this aspect of the matter, David R. Davis in Principles of International Double Taxation Relief (see David R. Davis, Principles of International Double Taxation Relief, page 4 (London, Sweet and Maxwell, 1985)), points out that the main func tion of a Double Taxation Avoidance Treaty should be seen in the context of aiding commercial relations between treaty partners and as being essentially a bargain between two treaty countries as to the division of tax revenues between them in respect of income falling to be taxed in both jurisdictions . . . . The significance of the above observations is to appreciate that the primary ration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon the taxable income of any company which accrues or arises in Oman or is deemed by the Secretary General to so accrue or arise in respect of . . . any income from any other source. Article 8 (bis) inserted by Royal Decree 68/00 effective from 2000 : The tax shall not apply to the dividends received by the company from the shares, portions or stock it owns in the capital of any other company. (ii) A combined reading of the above provisions clearly show that the charge on the income of the permanent establishment is governed by article 8 read with article 2(4) and 2(17). However in the year 2000, article 8(bis) was added to exempt dividends received by the company including the society's permanent establishment. If the amendment had not taken place, the dividend income accrued/earned in Oman would have been taxed in Oman since the society's permanent establishment is included in the definition of company under article 2(24). The very purpose of giving the exemption is to carve out an exception from the charging section. If there was no charge in the first place, there would have been no need to insert 8 (bis) to grant the exemption. The charge does not go away me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ential for economic development were given tax exemption, tax was payable by recipients of dividends from these companies. -This implied that the investors had a tax cost in their hands resulting in negative impact on investments thus adversely affecting the objective of economic development -To obliterate the above cited negative effect, the exemption is now granted in the hands of recipients' too so that the Government of Oman would achieve its main objective of promoting economic development by attracting investments . It is trite that the only authority competent to comment on the rationale of any tax incentive provision in a country's tax law is the authorities/Legislature/judiciary of that country alone. There is no scope for the other country's tax authorities (India in the instant case) to second guess the objectives especially in the light of clear cut clarification given in the above cited letter. Such an attempt would clearly fall foul of the mandate of article 25(4) entered consciously by the Governments of both the countries and has to be repelled. 3.2.8 Without prejudice to the above, it is submitted that though each assessment year is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the letters issued by the Secretariat General of Taxation of Oman regarding the purpose for which exemption was granted to dividend income. He opined that the appellant-society is trying to give a shape of law to the letters issued by the Administrative Officer. He further stated that there should be some provision in the Omani Tax decree authorising an officer to issue clarifications about the tax laws. The learned Principal Commissioner of Income-tax has mentioned that in the relevant section 8(Bis) of the Omani tax law, there is no reference that exemption to dividend income was designed for economic development. The learned Principal Commissioner of Income-tax further conveyed that mere investment in a company to earn dividend income does not result into economic development. The learned Principal Commissioner of Income-tax also referred to the order dated March 9, 2016, passed by the honourable Income-tax Appellate Tribunal, Delhi Bench in the case of KRIBHCO. In this order the honourable Tribunal quashed the order passed by the learned Principal Commissioner of Income-tax under section 263 in similar facts and circumstances. The learned Principal Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the honourable Tribunal has also recorded an unambiguous finding that the order passed under section 263 is also bad in law on the following two grounds : 1. There was full application of mind on the part of the Assessing Officer at the time of original assessment and he has adopted a view which is a possible view and therefore, having regard to the established position of law, the Principal Commissioner of Income- tax cannot invoke his jurisdiction under section 263 merely to substitute his view in place of the view adopted by the Assessing Officer. 2. The order passed under section 263 is also contrary to the well established principle of consistency of approach in the absence of change in the facts or the provision of law. It was observed by the honourable Tribunal that during the preceding years, in scrutiny assessments passed by the Department, after full application of mind and after detailed discussion in the orders, the Department has been allowing credit for deemed dividend tax. It is respectfully submitted that the case of the assessee-society is covered by the order of the honourable Tribunal in the case of KRIBHCO on all issues, factually as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not 'acceptable' to the Department-in itself an objectionable phrase-and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws.' Obviously, the Commissioner of Income-tax (Appeals) not only committed judicial impropriety but also erred in law in refusing to follow the order of the Appellate Tribunal. Even where he may have some reservations about the correctness of the decision of the Tribunal, he had to follow the order . . . (b) The Bombay High Court-Bank of Baroda v. H.C. Shrivat sava [2002] 256 ITR 385 (Bom) (page 390) : At this juncture, we cannot resist observing that the judgment delivered by the Income-tax Tribunal was very much binding on the Assessing Officer. The Assessing Officer was bound to follow the judgments in its true letter and spirit. It was necessary for the judicial unity and discipline that all the autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal, it is clear that the Income- tax Appellate Tribunal has considered the letter/document of H.E the SGT in the context of article 6(3) and has concluded the letters to be a sufficient aid to interpret the intent of the dividend exemption. One may or may not agree with the conclusion of the Income-tax Appellate Tribunal but it would be wholly fallacious to presume that the Income- tax Appellate Tribunal has not considered the validity/legality of the letter. In this regard, it may be useful to refer to the following observations of the Income-tax Appellate Tribunal-Hyderabad in the case of Liquors India Ltd. (I. T. A. Nos. 352/Hyd/2013) : Further, we make it clear that neither the Commissioner of Income-tax/Commissioner of Income-tax (Appeals) nor the Tribunal cannot scrutinise the earlier order of the Tribunal, sentence by sentence merely to find out whether all the facts have been set out in detail by the Tribunal or whether some incidental fact which appears on the record has not been noticed by the Tribunal in its judgment. If the authority, on a fair reading of the judgment of the Tribunal, finds that it has taken into account all relevant material and has not tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2000 which was replied by HE the Secretary General for Taxation, Ministry of Finance, Oman, vide letters dated August 6, 2000, and December 11, 2000. In the absence of any cogent material, there was and is absolutely no basis for us or any Indian Authority to doubt the Authority of the Secretary General for Taxation, Ministry of Finance, Oman, to issue such a letter. Can it be reasonably expected that as an investor, we will first ask the Oman Government to amend its laws authorising the SGT to specifically issue clarification/letter to us before we rely on such a clarification ? If that be so, going a step further, an investor may even have to wait till the other country's judiciary also affirms the validity of such a provision before it takes the investment decision ? Is this a reasonable/fair expectation ? (ii) Your kind attention is drawn to article 3 of the Omani tax law (submitted as annexure-IV in the reply dated January 11, 2016) which states that the The Secretary General shall be responsible for the execution of this law . . . . Execution in itself has wide connotations and the power to issue clarifications can be reasonably construed to be included in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f. As stated earlier, we have to gather the same from the internal and external aids to construction like the explanatory memorandum, the object clause of the Finance Bill, the Minister's Speech, etc. Similarly, just because article 8(bis) does not contain the reference to economic Development, it cannot be presumed that the said exemption is not designed for economic development. (ii) Further, it is a basic principle of construction of statutes that the statute has to be read as a whole in its context. Context includes the previous State of law, the preamble, object sought to be achieved, mischief sought to be remedied. (Union of India v. Elphinstone Spinning and Weaving Co. Ltd., AIR 2001 SC 724 (Constitution Bench). Prior to insertion of article 8(bis) (Previous State of law), the Investors in Oman suffered a tax cost on the returns from their investment if the investee companies income was exempt from tax. The SGT in its letter dated August 6, 2000 and December 11, 2000 (annexures V and VII to our reply dated January 11, 2016) reiterates this factual position and in the letter of December 11, 2000, goes on to say that : We refer to your letter dated December 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs should be able to obtain relief in India under article 25(4) of the agreement for Avoidance of Double Taxation in India. All other matters covered in our letter No. FT/13/92/, dated August 6, 2000 remain unchanged. It is an accepted position of interpretation that if there is some doubt about the interpretation of a particular provision of law, the competent authority to clarify that provision is only the Government of that particular country. The Income-tax Department of India has no locus standi in this matter. Also, the preamble to Royal Decree 68 of 2000 (submitted as annexure VI to our reply dated January 11, 2016) issued by the Sultanate of Oman (which inserted article 8 (bis)) states that the amendments have been done in exigencies of public good . In law, the preamble to a statute is a well-recognised internal aid to construction/interpretation of the statute. In accordance with the exigencies of public good means a demand for the economic good of the public. Public good corresponds to national needs and self-interest of a country. In a fiscal statute, amendment for public good clearly implies amendment through tax incentives to foster economic Developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany and dividend pay out ratios, the post tax returns for the investor would be higher in a country which grants the dividend exemption (like article 8 (bis) of Omani tax law) than a country which does not grant an exemption. Hence, the nexus between the dividend exemption and economic development is luminescent and cannot be brushed aside. Even if for a moment the explicit letters of HE the SGT and the assessment orders in Oman are ignored, the only reasonable interpretation as to the intent of the dividend exemption can be as an incentive aimed as an economic development measure only. (ii) It is not true that general exemption cannot be for a specific purpose. There is no legal/factual basis for such an observation. In tax laws, each and every incentive provision has a purpose. Tax incentives include exemptions, deductions, tax credits, etc. The words economic development have a very wide connotation and cannot be given a restricted meaning to confine it to only some sectors of the economy. When the intent is to incentives foreign investment in all the sectors of the economy, a general dividend exemption can be given as a tax incentive across all sectors. Such an exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was lack of inquiry and non- application of mind. From the above, it may kindly be seen that the learned Principal Commissioner of Income-tax has proposed to treat the assessment order as erroneous and prejudicial on the ground that the Assessing Officer did not make any verification/inquiry regarding the legal value of the letters issued by the Secretary General of Taxation. In this regard, it is submitted that the Assessing Officer has considered this issue on merits in great detail in a scrutiny assessment order passed by him and he has further followed consistent view taken by the Department starting from the assessment year 2006-07 onwards in scrutiny assessment completed. The Assessing Officer has further taken note of the assessments made in the case of the permanent establishment of the appellant-company wherein also it is unambiguously recorded that exemption has been granted to dividend income for the purpose of economic development. Therefore, no fault can be found in the approach of the Assessing Officer. At paragraph 23 the learned Principal Commissioner of Income-tax has observed that the issue as to whether exemption has been granted for the purpose of eco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceed on the footing that the section is constitutionally valid. The challenge being only to the exercise of the power emanating from the section, we are of the view that section 90 enables the Central Government to enter into a DTAC with the foreign Government. When the requisite notification has been issued thereunder, the provisions of sub-section (2) of section 90 spring into operation and an assessee who is covered by the provisions of the DTAC is entitled to seek benefits thereunder, even if the provisions of the DTAC are inconsistent with the provisions of the Income-tax Act, 1961. We are at a loss to understand as to how the aforesaid observation of the honourable Supreme Court supports the view taken by the learned Principal Commissioner of Income-tax. As a matter of fact these observations are in assessee's favour. At paragraph 27 the learned Principal Commissioner of Income-tax has further observed that at paragraph 4 of the letter dated August 6, 2000, it is mentioned that exemption was granted initially for a period of five years and this period may be extended for a further period of five years. We are again at loss to understand what is the relevance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that this is a complete misreading of the Omani tax law especially article 3 of Royal Decree 47 which specifically states that the The Secretary General shall be responsible for the execution of this law . .. . Execution in itself has wide connotations and the power to issue clarifications can be reasonably construed to be included in this power/responsibility itself as in the absence of suitable clarifications, if the intent of some provisions remain uncertain and the investor is unable to calculate the impact of such incentives on the post tax returns on its investments, the incentive provisions would not achieve their purpose thus hindering the effective execution of the law. Your honour would appreciate that execution of tax law is not just collection of Revenues but also ensuring that the legislative purpose behind the incentive/exemption provisions of encouraging investment is clarified to all prospective investors. Hence, in the absence it is unfair and disingenuous to treat the letter of HS SGT dated December 11, 2000, as unauthorised in law . 8.10 At paragraph 34 the learned Principal Commissioner of Income-tax has relied on the honourable Supreme Court decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of Taxation, Oman is competent to issue a clarification or not. There can be no quarrel about the principle of jurisprudence laid down by the honourable Supreme Court in the above case but how it supports the view adopted by the learned Principal Commissioner of Income-tax is not clear. 8.11 At para 36, the learned Principal Commissioner of Income-tax has averred that what the words designed for economic development are explicit there is no room for something implicit . With due respect, we are at a loss to understand what is implicit when the clarification issued by HE the SGT is amply clear and explicit that the amendment to exempt dividends in Oman's Domestic Law was done with the specific objective of reducing the tax cost for the investors so that they are encouraged to invest resulting in furtherance of the aim of economic development of Oman. Further, even if for a moment the clarification issued by HE the SGT is ignored, the scope of economic development as used in article 25(4) is so wide that any fiscal incentive aimed at investment promotion directly through lesser taxes/exemption on dividends can have no objective other than economic development. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been officially issued by the Secretary General of Taxation, Oman on the letterheads of the Ministry of Finance, Sultanate of Oman . Obviously, the sovereign head of the State, i.e., the Sultan of Oman is not supposed to put his personal signature to such letters of clarification. The Secretary General of Taxation, Oman is the highest authority appointed for execution and for issuing various notifications, forms and documents and he draws authority from the sovereign State of the Sultanate of Oman. It is most humbly and without any disrespect submitted that the learned Principal Commissioner of Income-tax is not supposed to assume that a higher appellate authority has misinterpreted the letter issued by the Secretary General of Oman. 8.10 Again at paragraph 40 of the order the learned Principal Commissioner of Income-tax has repeated that the honourable Tribunal perhaps presumed that the letter was issued by the Sultanate of Oman and that the honourable Tribunal did not consider that the interpretation has to be with reference to the words used in the Act/ Double Taxation Avoidance Agreement. The learned Principal Commissioner of Income-tax has even suggested that the Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of Revenue or in favour of the assessee. Pending any communication from the concerned authorities, the view may be that the assessee is not entitled for tax credit. The process should be started in the month of April itself so that necessary communication could come in time as the assessment has to be framed under section 143(3)/263 within the time limited. It is respectfully submitted that the learned Principal Commissioner of Income-tax has exceeded his powers under section 263 of the Income-tax Act while giving the aforesaid directions to the Assessing Officer. He has directed the Assessing Officer to address a letter to the concerned Department perhaps F. T. D. who may request the Omani Government regarding the interpretation of article 25(4) of the Double Taxation Avoidance Agreement. The Assessing Officer has also been directed to send a copy of the learned Principal Commissioner of Income-tax's order passed under section 263. He has further observed that it is quite possible that both the Governments, i.e., India and Oman may reach at a conclusion that may be in favour of Revenue or in favour of assessee. He has further observed that pending any communica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the Commissioner of Income-tax has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. This distinction must be kept in mind by the Commissioner of Income-tax while exercising jurisdiction under section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interests of the Revenue, exercise of jurisdiction under the said section is not sustainable. . . . The jurisdictional precondition stipulated is that the Commissioner of Income-tax must come to the conclusion that the order is erroneous and is unsustain able in law. 12. In the backdrop of the above facts, the learned counsel of the assessee further submitted that the case of the assessee-society is squarely covered by the order of the honourable Income-tax Appellate Tribunal in the case of Krishak Bharti Co-operative Ltd. v. Asst. CIT [2016] 67 taxmann.com 138 (Delhi-Trib). The said decision is also furnished before us from page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee also had a branch office in Oman to oversee its investment in the joint venture company and it constituted permanent establishment (PE) in Oman in terms of India-Oman Double Taxation Avoidance Agreement. The assessee filed its return of income on September 24, 2010, for relevant assessment year 2010-11. Later on the case was selected for scrutiny and while completing assessment, the Assessing Officer allowed tax credit of ₹ 41.53 crores with respect to dividend income of ₹ 134.41 crores received by assessee from OMIFCO which was exempt in Oman by virtue of article 8(bis) of Omanian Tax Laws. The said dividend income was simultaneously brought to the charge of tax in the assessment as per the Indian Tax Laws. However, subsequently, the Commissioner of Income-tax (CIT) was of view that as the assessee did not pay any tax in Oman owing to exemption, no foreign tax credit was available to it. It was observed that article 25(4) requires that in order to claim credit, tax should have been payable in Oman if not for the tax incentives granted in Oman to promote economic development. The Commissioner opined that exemption granted by Oman cannot be treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the facts and the relevant provisions of law, following the well settled principle of consistency of approach, credit for deemed dividend tax is clearly allowable in respect of the assessment year under appeal. (Para 19) . . . In view of the above, the impugned order passed by the Commissioner under section 263 is without jurisdiction and not sustainable in law. Accordingly, the said order is hereby quashed and as a result, the assessee's appeal stands allowed. (Para 21) Since the facts and circumstances pertaining to the assessment year 2011-12, the grounds of appeal raised by the assessee- society and the arguments and submissions on behalf of the assessee as well as on behalf of the Department are identical and same. Therefore, for the assessment year 2011-12 also the impugned order of the Commissioner is quashed. Similarly, on merits also the Commissioner is not justified in giving directions to the Assessing Officer for withdrawal of tax credit in respect of deemed dividend tax as well as addition with regard to the undistributed profits reflected in the books of the permanent establishment (Para 22) In the result, both the appeals filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d perused the records available with us. Before proceeding to the merits of the case, it would be necessary on our part to examine whether the Assessing Officer had taken up an arbitrary and unreasonable view without making any inquiries or not. It is seen from the assessment orders under section 143(3) for the assessment years 2008-09 to 2009-10 that the Revenue had consistently adopted the view that the assessee is entitled to tax credit on the deemed dividend which would have been payable in Oman. The Revenue had taken a conscious view after considering the provisions of the Omani tax laws, section 90 of the Income-tax Act, article 25 of the Double Taxation Avoidance Agreement and the clarifications issued by the Royal Decree of the Omani Government. Copies of the assessment orders for the assessment years 2007-08 to 2009-10 have been placed before us from pages 495 to 558 of the paper book. On perusal of the same, it is seen that the Revenue has, after thoroughly examining the issues on hand and examining the provisions, considered the dividend income as exempt. Further, in respect of the current assessment year, i.e., assessment year 2010-11 which is subject matter of revision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment years, the Commissioner could have had no occasion to have recourse to the revisional powers under section 263 of the Act on the fundamental aspects of the transactions in issue on which a view had been taken and not shown to have been challenged. 14.2 Respectfully following the findings of the honourable jurisdictional High Court, the learned Principal Commissioner of Income-tax has erred in assuming jurisdiction under section 263 of the Income-tax Act. Accordingly, the learned Principal Commissioner of Income-tax could have no occasion to have recourse to the revisional powers under section 263 on the very fundamental issue that a consistent view has to be adopted after detailed inquiries by the Revenue for all the earlier years, i.e., the assessment years 2006-07 to 2009-10. Further, as discussed above, we have no hesitation in holding that the order passed by the learned Principal Commissioner of Income-tax 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 exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as recourse to one of the two courses possible in law or where there are two views possible and the Commissioner does not agree with the view taken by the Assessing Officer which has resulted in a loss. (vi) There is no requirement of issuance of a notice before commencing proceedings under section 263. What is required is adherence to the principles of natural justice by granting to the asses see an opportunity of being heard before passing an order under section 263. (vii) If the Assessing Officer acts in accordance with law his order cannot be termed as erroneous by the Commissioner, simply because according to him, the order should have been written 'more elaborately'. Recourse cannot be had to section 263 to substitute the view of the Assessing Officer with that of the Commissioner. (viii) The exercise of statutory power under section 263 of the Act is dependent on existence of objective facts ascertained from prima facie material on record. The evaluation of such material should show that tax which was lawfully exigible was not imposed. 14.4 Respectfully following the above decision of the honourable High Court we have no recourse but to hold that the order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nomic development by attracting investments. (e) Tax would be payable on dividend income if not for the tax exemption provided under article 8(bis). (f) As the introduction of article 8(bis) is to promote economic developments in Oman, the Indian investors should be able to obtain relief in India under article 25(4) of the Agreement for Avoidance of Double Taxation. 19. From the above clarifications there remains no doubt regarding the purpose of granting exemption to dividend income. The interpretation of Omani tax laws can be clarified only by the highest tax authorities of Oman and such interpretation given by them must be adopted in India. Further, in the tax assessments made in Oman in respect of the permanent establishment of the assessee-society it is clearly mentioned that the dividend income which is included in the gross total income is, however, exempt in accordance with article 8(bis) and such exemption is granted with the objective of promoting economic developments within Oman by attracting investments. In view of the facts stated above, we are of the considered view that on merits also the assessee-society is entitled to tax credit in respect of deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquires the asset and also put to use. The interest would start from the date of payment. 68. The assessee has not placed on record any such kind of calculation either for 36(1)(iii) proviso or for its investments as regards the allocation of interest is concerned. 69. The Assessing Officer has not applied his mind on this aspect. Simply calling for certain details does not mean that the Assessing Officer has made a particular inquiry which has a bearing on the tax law. Even now the assessee has not given the date-wise calculation as required under section 36(1)(iii) proviso or date-wise investments which could show that the assessee has utilised only the own funds. 70. If the assessee is giving figures based on the balance-sheet, then it is abundantly clear that the assessee is having mixed pool of funds. Effectively the assessee is required primarily to utilise funds for its basic business. The assessee has also demonstrated that the investments are strategic in nature and has a link with its business and those companies where investments have been made are also in the similar business. It may be true that the investments are strategic yet these remain long-term i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat necessarily takes substantial period of time to get ready for intended use. All other borrowing costs are recognised as an expense in the period of which they are incurred. 15.2 Reference was also made to page 237 of the paper book comprising of the balance-sheet and detailed break-up of the gross block of the addition made to the fixed assets. The learned counsel also pointed out that the internal cash flows as well as profit before depreciation was sufficient enough to meet with the addition in the fixed assets. The learned counsel of the assessee also pointed out that the borrowing cost of ₹ 7.08 crores in respect of the qualifying assets have been capitalised during the year. In this respect he drew our attention to page 258 of the paper book, i.e., Schedule-20-Note No. (v). 15.3 The Assessing Officer also relied upon the synopsis filed vide pages 72 to 214 of the paper book. Relevant part of the synopsis filed is reproduced hereunder for ready reference : 11.15 With regard to the various observations made by the learned Principal Commissioner of Income-tax referred to above, it is humbly submitted with due respect that all these observations are merely o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally gone down and there has been no accretion whatsoever. (d) At page 90 of the annual report containing the profit and loss account for the financial year 2009-10 the total interest expenditure is debited at ₹ 764.98 crores as against the total expenditure of ₹ 1023.20 crores for the preceding financial year which show that the total interest expenditure has substantially reduced during the present year. (e) At page 102 of the annual report details of loans and advances given by the assessee are reflected in schedule 11. This shows that the total quantum of such loans and advances as on March 31, 2010 stands at ₹ 3376.87 crores as against preceding year's ₹ 5464.77 crores. Thus, the loans and advances have substantially reduced. (f) At page 110 of the report containing schedule 20 under Sr. No. (iv) it is mentioned that borrowing cost amounting to ₹ 7.08 crores in respect of qualifying assets has been capitalised during the year. This shows that the relevant component of interest expenditure pertaining to capital asset has already been capitalised by the appellant-society and thus there is no basis for the assumption of the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal. From the facts noted hereinabove, it is apparent that the Tribunal has based its conclusion on the concurrent findings of fact recorded by it upon appreciation of the evidence on record. It is not the case of the revenue that the Tribunal, while appreciating the evidence on record has taken into consideration any irrelevant material, or that any relevant material has been ignored. Under the circumstances, in the absence of any perversity being pointed out in the concurred findings of fact recorded by the Tribunal, no question of law, much less, any substantial question of law can be said to arise out of the impugned order so as to warrant interference. The appeal, therefore, fails and is accordingly dismissed. (Para 7).' (emphasis supplied) In the above case the honourable Gujarat High Court held that it is the onus of the Revenue to establish that interest bearing funds were diverted for non-business purposes. (ii) CIT v. Ram Kishan Verma [2015] 64 taxmann.com 358 (Raj) The catch-note of this case is reproduced below for ready reference : 'Section 36(1)(iii) of the Income-tax Act, 1961-Interest on borrowed capital (Interest free lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer, however made disallowance under section 36(1)(iii) by applying 15 per cent. rate of interest. The Commissioner (Appeals) upheld the disallowance. On assessee's appeal : Held-I The assessee has share capital of ₹ 15.25 crores along with reserves and surplus amounting to ₹ 19.48 crores thereby totalling shareholders fund to the tune of ₹ 35.73 crores. Even if the debit balance of profit and loss account of ₹ 3.93 crores and the liability of ₹ 24.43 crores towards interest payable not debited to profit and loss account is considered, still there is excess of share capital and reserves to the extent of ₹ 7.37 crores [35.73 crores 28.36 crores (3.93 crores + 24.43 crores)]. As against this excess of shareholders' fund of ₹ 7.37 crores, the assessee advanced interest-free loans to its sister concerns amounting to ₹ 50.29 lakhs. (Para 4) From the decision of the jurisdictional High Court in the case of CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom) ; [2009] 178 Taxman 135 (Bom), it is manifest that if the assessee has interest-free funds as well as interest bearing funds at its d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire discussion of application of section 14A of the Act could be understood. However, when both the Commissioner (Appeals) and the Tribunal had noted that the assessee had sufficient funds available with it, which were more than the amount it invested for earning the dividend income, the authorities had correctly set aside the order of disallowance under section 14A of the Act in respect of interest expenditure. When the very basis for employing section 14A of the Act on the factual matrix was lacking, the disallowance to the extent of 10 per cent. of the dividend income was not permissible. When it transpired from the record that the asses see's own funds were higher than the investment made by it and with nothing to indicate that the borrowed funds were utilised for the purpose of investment in shares and for earning dividends, the Tribunal committed no error. As far as the other administrative expenses were concerned, to put an end to the entire dispute the assessee agreed to a disallowance of ₹ 5 lakhs. This was reasonable.' (emphasis supplied) (vii) CIT v. Torrent Power Ltd. [2014] 363 ITR 474 (Guj) The relevant part of the headnote of this case is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .' (empha sis supplied) (ix) CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom) ; [2009] 178 Taxman 135 (Bom) The relevant part of the headnote of this case is reproduced below for ready reference : 'Held, dismissing the appeal, that if there were funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption was established considering the finding of fact both by the Commissioner (Appeals) and the Tribunal. The interest was deductible. East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 627 (SC) and Woolcombers of India Ltd. v. CIT [1982] 134 ITR 219 (Cal) relied on.' (emphasis1 supplied) (a) The Bombay High Court-CIT v. HDFC Bank Ltd. [2014] 366 ITR 505 (Bom) (page 522) : 'In the present case, undisputedly the assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in the tax-free securities. In view of this factual position, as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra) was rendered in the context of section 36(1)(iii) of the Act, it was consciously applied by this court while interpreting section 14A of the Act in HDFC Bank Ltd. (supra) . . .' The above ratio has also been recently followed by the Karnataka High Court in the case of CIT v. Microlabs Ltd. reported at [2016] 383 ITR 490 (Karn). The consistent view held in the above cases is that if the investments made by the assessee are adequately covered by own funds the presumption would be that no borrowed funds have been diverted for making these investments and further that the onus is on the Revenue to establish nexus between the borrowed funds and the investments made by the assessee. Even if, for the sake of argument, it is assumed that two interpretations on this issue are possible, it is a settled principle that the interpretation which favours the assessee must be adopted. This principle was explained by the honourable Supreme Court in the landmark decision in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC). Again in the case of Manish Maheshwari v. Asst. CIT [2007] 289 ITR 341 (SC) the honourable Supreme Court observed that where two interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned order passed by the learned Principal Commissioner of Income-tax under section 263 on this issue may kindly be held as bad in law and quashed. 15.4 Against the aforesaid contentions of the assessee's counsel, the learned Departmental representative has filed the following further submissions during the course of the hearing : 6. On the issue of 36(1)(iii) and 36(1) proviso, there is case of non- enquiry and non-application of mind. Authorised representative could not point-out any material to indicate the contrary. The attempt to say that the provisions of sections 36(1) and 14A are mutually exclusive and the Assessing Officer has discussed issue of 14A, does not prove case of application of mind and any enquiry (much less adequate enquiry). 7. In case of scrutiny the need for calling balance-sheet/profit and loss account, etc., of associate concerns and making reconciliation/ verification cannot be over-emphasised. Any Assessing Officer being a rational person, being informed of the nuances of tax laws is expected to do so. 8. Reliance is placed upon the judgment of the honourable Income-tax Appellate Tribunal Delhi in the case of NIIT v. CIT [2015] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 capitalised a sum of ₹ 7.09 crores in the books of account. The learned Principal Commissioner of Income-tax has also not disputed that the total investments were merely 10 per cent. 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 free funds generated or available with the assessee. In this respect, reliance 16. was placed on the decision of the Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom). 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 Principal Commissioner of Income-tax 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 capitalisation of interes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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