ITAT Allows Subsidiary Investment Write-Off as Business Loss as Investment Was Made for Commercial Expediency

Britannia Industries Ltd. Vs DCIT (ITAT Kolkata)

Double Disallowance Deleted Because Amount Was Already Added Back in Income Tax Return; Broken-Period Interest Not Taxable Because Debentures Were Sold Before Interest Became Due; ITAT Grants Relief on Broken-Period Interest Because Same Income Was Taxed Through Capital Gains; DTAA Claim on Dividend Distribution Sent Back for Verification Because Key Shareholder Documents Were Missing.

In this batch of appeals, the Income Tax Appellate Tribunal (ITAT), Kolkata, considered multiple issues arising for Assessment Years (AYs) 2016-17, 2020-21, and 2021-22.

For AY 2020-21, the primary issue concerned a write-off of ₹16 crore representing diminution in the value of investment in a wholly owned subsidiary. The assessee had already added back this amount while filing its return of income. During assessment proceedings, it additionally claimed that the write-off should be allowed as a business loss. The Assessing Officer (AO) rejected the claim and again added the amount to the returned income, resulting in a double disallowance. The Commissioner (Appeals) accepted the assessee’s contention that the investment in the subsidiary was made for business purposes and constituted a business asset. Since the subsidiary became commercially unviable and the investment turned worthless, the write-off was held to be a business loss allowable under section 28. The Tribunal found that the AO had indeed made a double disallowance because the amount had already been added back in the return. It directed the AO to delete the duplicate addition and thereafter allow the deduction of ₹16 crore as permitted by the Commissioner (Appeals).

The second issue related to broken-period interest of ₹3.77 crore on debentures of Tata Capital Ltd. The assessee had credited this accrued but not due interest to its profit and loss account for FY 2019-20 and offered it to tax. Subsequently, the debentures were sold before the interest became due, and the accumulated interest formed part of the sale consideration, resulting in capital gains that were offered to tax in AY 2021-22. The assessee argued that taxing the broken-period interest separately in AY 2020-21 would amount to double taxation. The AO rejected the claim because it had not been made in the return of income. The Tribunal held that a bona fide claim could be raised during appellate proceedings. On merits, it found that the interest never became due to the assessee and was ultimately reflected in the capital gains already offered to tax. Therefore, the Tribunal directed the AO to exclude the broken-period interest from the computation of business income.

Another issue concerned the applicability of Double Taxation Avoidance Agreement (DTAA) rates to dividends distributed to non-resident shareholders. The assessee contended that dividend distribution should be taxed at the beneficial rates available under the relevant DTAAs rather than under section 115-O. The AO did not examine the claim, and the Commissioner (Appeals) directed verification. Before the Tribunal, it was noted that essential factual details such as Tax Residency Certificates (TRCs), permanent establishment declarations, financial records, and other supporting documents of non-resident shareholders were not on record. The Tribunal held that without such facts, the claim could not be properly adjudicated. It also noted ongoing legal uncertainty regarding the interaction between Dividend Distribution Tax (DDT) and DTAA benefits, including a recent Bombay High Court reference of the issue to a larger bench. Consequently, the matter was remanded to the AO for fresh examination after obtaining all relevant documents and facts. The ground was partly allowed for statistical purposes.

For AY 2016-17, the only issue involved the same DTAA claim regarding dividend distribution to non-residents. Since the facts and arguments were identical to those for AY 2020-21, the Tribunal followed its earlier reasoning and restored the matter to the AO for fresh adjudication.

As a result, the appeals for AYs 2016-17 and 2020-21 were partly allowed for statistical purposes, while the appeal for AY 2021-22 was dismissed.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

These are appeals filed by the assessee against the orders of the Commissioner of Income-tax (Appeals) (hereinafter referred to as “the Ld. CIT(A)”), u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) dated 27.11.2025, 26.11.2025 & 26.11.2025 for the AYs 2016-17, 2020-21 & 2022-23 respectively. As the facts and circumstances are similar in all the appeals and relate to the same assessee , we first take up ITA no. 302/KOL/2026 for AY 2020-21 as lead case and decide the issue accordingly as under.

2. ITA No. 302/KOL/2026 – AY 2020-21:

The issue raised in Ground Nos. 1 & 2 relate to the double addition in respect of diminution in value of investment of subsidiary written off amounting to Rs.16,00,00,000/-.

3. The facts in brief are that, the assessee company had provided for diminution in value of investment held in wholly owned subsidiary company , M/s Ganges Valley Foods Pvt. Ltd. [in short `GVFPL1 amounting to Rs.16,00,00,000/- in the Profit & Loss Account. While filing the return of income, the assessee had disallowed and added back the said amount to the total income, which is verifiable from the computation of total income placed at Pages 1 to 5 of paper book. Later on, in the course of assessment, the assessee vide letter dated 09.12.2021 raised a fresh claim that the write-off of Rs.16,00,00,000/- in relation to investment made in GVFPL was an allowable business loss, by relying on the decisions of the Hon’ble Bombay High Court in the case of CIT Vs Colgate Palmolive India Ltd (370 ITR 728) and Hon’ble Madras High Court in the case of CIT vs TIIC Ltd. (88 com 528). The assessee also furnished a revised computation of income incorporating this additional claim vide rejoinder dated 30.03.2023. However , the ld. AO while dealing with this claim mistakenly observed that, the assessee had claimed the amount of Rs.16,00,00,000/- in the return of income. The ld. AO therefore for the said reasons discussed in the assessment order dated 12.09.2023 disallowed and added back the impugned sum to the total income.

4. In the appellate proceedings, the assessee assailed the action of the ld. AO on two fronts viz., (a) deletion of double disallowance made by the ld. AO of Rs.16,00,00,000/- and (b) allowance of the fresh claim raised in the course of assessment. The assessee claimed that, the impugned amount was already added in the computation of income drawn up while filing the return of income and therefore the separate addition made by the ld. AO to the returned income for arriving at the assessed income, resulted in double disallowance. The assessee further claimed that, it should be allowed deduction for Rs.16,00,00,000/- being the amount written off in respect of the investment held in wholly owned subsidiary from its returned income on merits. The ld. CIT(A) allowed the claim for deduction of investment written off in relation to wholly owned subsidiary, by observing as under:-

“The appellant has strongly contended that the investment in GVFPL was made out of commercial expediency and was integrally connected with the appellant’s business. Therefore, the investment constitutes a business asset. Once the business of the subsidiary turned enviable and the investment became worthless, the write-off constitutes a business loss allowable under section 28. The appellant relied on several decisions of High Courts and Tribunals including Colgate Palmolive (I) Ltd., Balmer Lawrie & Co. Ltd., WBIDC Ltd., and TIIC Ltd., wherein it has been held that investments made in subsidiaries for business purposes constitute business assets and losses arising from such investments on becoming worthless are allowable as business losses.

The legal question is whether the write-off represents a capital loss or a business loss. The distinction depends on the purpose and nature of investment. If investment in a subsidiary is made for furtherance of business objectives, for achieving operational synergy, or pursuant to commercial expediency, then such investment assumes the character of business asset. Judicial authorities have repeatedly held that where investment in a subsidiary is driven by business purposes and commercial expediency, the loss incurred due to erosion of such investment is a business loss. These decisions establish that business loss need not necessarily arise from sale of asset; even write-off of irrecoverable business asset is allowable.

In the present case, the appellant has provided detailed submissions showingthat the subsidiary was set up exclusively to support its business operations. The investment was not made for earning capital appreciation but for business growth. Once the subsidiary’s operations became unsustainable, the investment became commercially worthless. The erosion of net worth and closure of business operations are documented. The write-off thus represents a genuine commercial loss, incidental to business. The AO’s view that a loss can arise only upon sale of shares is inconsistent with established legal principles. Business loss under section 28 is not confined to realized losses; it includes losses incidental to business such as write-off of irrecoverable business advances, investments made out of business expediency and assets that become commercially worthless. The judicial precedents cited by the appellant fully support this proposition. There is no allegation by the AO that the investment was bogus or unrelated to business. The only objection of AO relates to absence of sale, which is not a valid ground to deny business loss.

After carefully evaluating the entire factual background, the detailed submissions of the appellant and the judicial principles governing losses arising from investments made out of commercial expediency, I am satisfied that the investment in the wholly-owned subsidiary was not in the nature of a passive capital asset but was intrinsically a business asset, created and maintained solely for advancing the appellant’s commercial interests. The subsidiary was established to support the appellant’s core manufacturing operations, and the funds infused represented strategic business investment rather than capital deployment for independent returns. Once the subsidiary’s business became commercially enviable, its net worth was completely eroded, and the investment became irrecoverable, the appellant suffered a real and irreversible loss directly connected to its business. Judicial authorities have consistently held that where an investment is driven by business considerations, the loss arising upon its becoming worthless retains the character of a business loss under section 28, irrespective of whether there is an actual sale or realization event. Applying these settled principles to the facts of the present case, the write-off represents a genuine commercial loss arising in the normal course of business, and denial of such loss would be contrary to the doctrine of commercial expediency. I therefore find no justification for sustaining the disallowance. Accordingly, the addition of Rs. 16,00,00,000/- is deleted.”

5. The ld. AR for the assessee contended that, though the ld. CIT(A) had allowed the deduction claimed in respect of write off of investment in subsidiary, but there was no explicit direction issued therein to delete the double disallowance made by the ld. AO and thereafter allow the deduction from the returned income of the assessee. Per contra, the ld. DR for the Revenue urged that the impugned issue be set aside to the ld. AO for verification.

6. We have heard the rival submissions and perused the material placed before us. It is observed from the records placed before us that, the assessee had disallowed the impugned write-off of its investment in GVFPL in the return of income. We find that, the total income of Rs.18,30,80,75,012/- reported in the return of income was computed after disallowing and adding back the impugned amount of Rs.16,00,00,000/-. It is observed that, the ld. AO had started the computation of assessable income from the figure of total income of Rs.18,30,80,75,012/- returned by the assessee (which included disallowance of Rs.16,00,00,000/-) and thereafter again disallowed the impugned sum of Rs.16,00,00,000/- taking the assessable income to Rs.18,46,80,75,012/-. By doing so, the AO has disallowed the impugned sum once again, despite the same having already been added back by the assessee. In other word ordinarily speaking, when the ld. AO did not find merit in the additional claim raised by the assessee and had rejected the same, no variance was required to the total income. It is noted that, though the ld. CIT(A) had allowed this additional claim raised by the assessee but he failed to adjudicate the ground raised by the assessee separately objecting to the double addition made by the ld. AO. Having regard to the material placed before us, we are inclined to accept this claim of the assessee and direct the ld. AO to delete the impugned addition of Rs.16,00,00,000/- made to the returned income, as it amounts to double disallowance. It is clarified that, the ld. AO shall firstly delete the disallowance made to the returned income and thereafter allow deduction of Rs.16,00,00,000/- in respect of write off for investment in subsidiary, as allowed by the ld. CIT(A) in the appellate order. This ground is accordingly allowed.

7. The issue raised in Ground No. 3 & 4 relate to the exclusion of broken period interest in relation to debentures.

8. The facts in brief are that, the assessee had credited interest income of Rs.3,76,98,701/- in the Profit & Loss Account for the relevant FY 2019-20 towards interest on debentures of M/s Tata Capital Limited which had accrued but not fallen due at the end of the year. The said broken period interest formed part of the ‘Interest Income’ of Rs.168.67 crores credited in P&L A/c and offered to tax in the return of income for AY 2020-21. In the course of assessment, the assessee submitted that, it had inadvertently omitted to exclude the said notional interest of Rs.3,76,98,701/- from the computation of total income for AY 2020-21 and requested the ld. AO to exclude the same while assessing the final taxable income. It was also explained by the assessee that, these debentures were later on sold in the succeeding FY 2020-21 before the interest fell due and therefore it did not ultimately realize the interest from these debentures. It was also shown to the ld. AO that, the sale consideration of Rs.2,08,91,39,262/- inter alia included the accumulated broken period interest of Rs.3,76,98,701/- and that the aggregate capital gain of Rs.8,64,00,503/- offered to tax in AY 2021-22 on account of these debentures comprised of accumulated broken period interest, whose details as furnished before the ld. AO is noted as under:-

9. The assessee thus submitted that, the notional accrued broken period interest upto 31.03.2020 formed part of the capital gains on sale of debentures offered to tax in subsequent AY 2021-22 and therefore, if such sum is not excluded from the computation of business income for relevant AY 2020-21, then it would amount to taxing the same item of income twice viz., firstly by way of notional interest income in AY 2020-21 and secondly by way of realized capital gains in AY 2021-22. We note that that though the ld. AO acknowledged the impugned claim that the assessee had sold these debentures before the interest fell due in the subsequent year, according to him, the assessee ought to have been vigilant enough to exclude the broken period interest by revising the return of income. Relying upon the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd (284 ITR 323), the ld. AO rejected the claim as it was not made in the return of income. In the appellate proceedings, the ld. CIT(A) has simply directed the ld. AO to consider the impugned issue in accordance with law.

10. Heard both the parties. The first question for our consideration is, whether the additional claim raised by the assessee seeking exclusion of broken period interest in the course of assessment, is admissible in absence of such claim being raised in the return of income. For this, we refer to the decision rendered by the Hon’ble jurisdictional Calcutta High Court in the assessee’s own case as reported in 396 ITR 677. In the decided case the Hon’ble Court after considering the decision of Hon’ble Supreme Court in the case Goetze (India) Ltd (supra) and Addl. CIT v. Gurjargravures (P.) Ltd. (111 ITR 1) has held that the appellate authority has the power to entertain new claim if the grounds raised are bonafide. Thus, in principle, we agree that the assessee is legally entitled to raise this claim before us.

11. Now coming to the merits of this claim, the undisputed facts are that, the assessee had credited a sum of Rs.3,76,98,701/-in P&L A/c for the year ended 31.03.2020 on accrual basis towards the interest which had accrued but which had not fallen due upon the debentures of Tata Capital Ltd. It is observed that these debentures were sold on 14.08.2020 before the interest fell due on 30.09.2020and therefore the assessee had realized capital gains on the sale of the debentures while no interest income ultimately arose to the assessee. The ld. AR showed to us that the appreciation in the value of the debentures of Rs.8,64,00,503/-realized by way of capital gains was commensurate with the interest income that had accrued by the date of sale of such debentures. As such, the capital gains of Rs.8,64,00,503/-so offered to tax by the assessee in the immediately succeeding AY 2021-22 comprised of the broken period interest of Rs.3,76,98,701/- so accrued by the assessee from the date of acquisition of these debentures upto 31.03.2020 and further broken period interest of Rs.4,87,01,802/- from 01.04.2020 upto date of sale i.e. 14.08.2020. On these given facts, we find merit in the plea of the assessee that the impugned broken period interest never ultimately fell due to the assessee and therefore could not be legally taxed in the relevant year, particularly when the same had been later on realized by way of capital gains upon sale of debentures, which had been offered to tax.

12. It was also brought to our notice that the remaining broken period interest of Rs.4,87,01,802/- relating to the same debentures pertaining to the period 01.04.2020 upto the date of sale (before interest fell due) was similarly credited in P&L A/c in FY 2020-21. Since the assessee had sold the debentures in the same year before interest fell due, the assessee had excluded the same in the computation of income for AY 2021-22. It is seen that, the ld. AO vide show cause notice dated 15.12.2022 had required the assessee to explain as to why the broken period interest of Rs. 4,87,01,802/- relating to the debentures of Tata Capital Ltd sold during FY 2020-21 should not be taxed as income in AY 2021-22 which was vide reply dated 19.12.2022 explaining that, the broken period interest was notional in nature and therefore not taxable as income. It was also explained to the ld. AO that, the said broken period interest inter alia formed part of the sale consideration and the consequent capital gains offered to tax on account of these debentures as is seen in table above and therefore taxing the broken period interest would result in double addition. We fmd that, the assessment for AY 2021-22 was concluded u/s 143(3) of the Act vide order dated 27.12.2022 wherein the foregoing explanation regarding the exclusion of broken period interest (which did not ultimately fall due) was accepted by the ld. AO. We also observe that, this claim is also supported by the decisions of Hon’ble High Courts in the cases of CIT vs City Union Bank Ltd. [2014] 51 taxmann.com 542 (Madras), DIT (IT) vs Credit Suisse First Boston (Cyprus) Ltd [2012] 23 taxmann.com 424 (Bombay), CIT vs Federal Bank Ltd. [2008] 170 Taxman 238 (Kerala). According to us therefore, the claim of the assessee seeking exclusion of broken period interest of Rs.3,76,98,701/- is justified and the ld. AO is directed to deduct the same from the computation of business income. These grounds are therefore allowed.

13. The issue raised in Ground No. 5 relates to taxability of dividend distribution of non-residents as per rate provided in the agreement for avoidance of double taxation between India &UK / Singapore.

14. The facts in brief are that , the assessee had declared and paid dividend to all its shareholders including the non-residents at the rates set out in Section 115-0 of the Act. In the course of assessment, the assessee has claimed that the dividend distributed during the year to the non-resident shareholders is liable to be taxed as per the beneficial rates set out in DTAA as opposed to the provisions of Section 1150 of the Act. The assessee is found to have furnished the details of dividends declared to non-residents vide letter dated 09.12.2021, copy of which is placed at Pages 28 to 38 of paper book. It is observed that, the ld. AO did not take cognizance of this claim while passing the impugned assessment order. In the appellate proceedings also, the ld. CIT(A) did not specifically adjudicate this claim and set aside the same to the ld. AO with the direction to verify the relevant documents and provide appropriate relief as per law.

15. The ld. AR appearing for the assessee contended that the impugned issue was squarely covered in their favour by the judgment of the Hon’ble Bombay High Court in the case of Colorcon Asia Pvt Ltd Vs JCIT (181 com 301) and ITAT, Delhi in the case of Mitsui Kinzoku Components India (P) Ltd Vs DCIT (183 taxmann.com 659).

16. Per contra, the ld. DR relied on the decision rendered by this Tribunal in assessee’s own case for AY 2014-15 in ITA No.2644/Kol/2018 dated 25.10.2023 dismissing identical claim. He further submitted that, the assessee had not furnished any details or documents in relation to the non-resident shareholders before any of the lower authorities and therefore unless all the facts were brought on record, the impugned claim cannot be entertained.

17. We have heard the rival submissions and perused the material placed before us. It is by now settled in law that, the assessee is permitted to raise fresh claim before the lower authorities, provided the relevant facts and details are already available on record. In the present case, we find that, though the assessee has raised the impugned claim that the dividend distribution of non-residents is to be charged as per rates provided in the agreement for avoidance of double taxation with the respective countries, but we find that, no specific details of the non-resident shareholders viz., their TRCs, no PE declarations, financials, details of income-tax filings in the respective foreign countries etc. have been placed on record. In absence of these factual details, whether at all the provisions of DTAA would apply in the instant case or not, is not verifiable. It is also required to be seen as to what accounting and tax treatment was meted out by the non­resident shareholders in their respective accounts, in absence of which this claim cannot be adjudicated upon. Moreover, going by assessee’s logic, the burden of DDT falls on the shareholders and that the non-resident shareholders are seeking to avail benefit of DTAAs in relation to dividend income derived from the assessee. In such a scenario, the AO is also required to ascertain to whom the refund, if any applicable, is to be issued i.e. the assessee or the shareholder. It is seen that none of the relevant facts have been brought on record before the lower authorities and therefore in the fitness of the matters, the impugned issue deserves to be remanded back to the ld. AO for proper verification.

18. Before parting on this issue, it was also brought to our notice by the ld. DR that, this Tribunal in assessee’s own case for AY 2014-15 (supra) following the Special bench of the Tribunal in the case of DCIT vs. Total Oil India Pvt. Ltd. (supra) had rejected similar claim raised by the assessee and held that, the dividend distributed by the assessee during the year is liable to be taxed as per the provision of Section 1150 of the Act, irrespective of the fact whether such dividend is distributed to resident or non- residents. The ld. AR however pointed out that, the Hon’ble Bombay High Court in the case of Colorcon Asia Pvt Ltd (supra) has overruled the said judgment of the Special Bench (supra) and therefore the decision rendered in assessee’s own case for AY 2014-15 (supra) had been rendered per incuria. We however find that recently the Hon’ble Bombay High Court in the case of Foseco India Ltd. Vs ACIT (ITA No.1123 of 2025) dated 27.04.2026 has doubted the correctness of the decision rendered in the case of Colorcon Asia Pvt Ltd (supra) and has referred the issue to Larger Bench, by observing as under:-

“35. On the aforesaid conspectus, the question which has arisen for consideration in the present proceedings is whether the DDT payable by the appellant under the provisions of Section 115-0 would be required to be held,merely on the legislative history of the provisions of Section 115-0 read with Section 10(34), to be a tax on the dividend income of the shareholder and not an additional tax by the company declaring the dividend. This more particularly on a plain purport of the said provision under Section 115-0 begins with a non-obstante clause “Notwithstanding anything contained in any other provisions of this Act and subject to the provisions of this section”, stipulates that “in addition to the income-tax chargeable” in respect of the total income of a domestic company, for any assessment year, “any amount declared, distributed or paid” by such company by way of dividend (whether interim or otherwise), whether out of current or accumulated profits shall be charged to additional income-tax (referred to as tax on distributed profits) in the manner a provided in the said provision and more particularly Section 115-0(3), providing for “The principal officer of the domestic company and the company” shall be liable to pay the tax on distributed profits, to the credit of the Central Government within fourteen days from the date of declaration of any dividend, distribution of any dividend, payment of any dividend, whichever is earliest. Further, in our opinion the Division Bench of this Court in Godrej & Boyce Mfg. Co. Ltd. (supra), has categorically held that payment of tax by domestic company under Section 115-0(1) was an additional income-tax on profits declared, distributed or paid being, is a charge on a component of the profits of the company. Thus, it is the company which is chargeable to tax, on its profits as a distinct taxable entity and it pays tax in discharge of its own liability and not on behalf of or as an agent for its shareholders. It was also categorically held that in the hands of the shareholder as the recipient of dividend, income by way of dividend does not form part of the total income by virtue of the provisions of Section 10(33). This is the clear view of the Division Bench as seen from the conclusions/operative part of the decision of the Division Bench in Godrej & Boyce Mfg. Co. Ltd. (supra). Such view of the Division Bench was accepted and/or not disturbed by the Supreme Court, as the Supreme Court considering the provisions of Section 115-0 and other relevant provisions, categorically held that sub-sections (4) and (5) of Section 115-0 of the IT Act made it very clear that the benefit of such payments cannot be claimed either by the dividend paying company or by the recipient assessee except when 115-0 was not to be applied. The Supreme Court also held that tax paid by the dividend paying company under Section 115-0 is to be understood not to be on behalf of the recipient assessee, the provisions of Section 57 would enable the assessee to claim deduction of expenditure incurred to earn the income on which such tax is paid, and that such a position in law would be wholly incongruous in view of Section 10(33) of the Act.

36. It thus appears to us that the Division Bench in Colorcon Asia Pvt. Ltd. (supra) has made observations which in our respectful view appear to be contrary to the view taken by the Division Bench of this Court in Godrej & Boyce Mfg. Co. Ltd. (supra) as also confirmed by the Supreme Court. In fact the arguments of Mr. Venkataraman, learned Additional Solicitor General is that the decision in Colorcon Asia Pvt. Ltd. (supra) in such view of the matter is per incuriam, i.e., the same being contrary to the provisions of Section 1150 of the IT Act, which stands interpreted by the Supreme Court in Godrej & Boyce Pvt. Ltd. (supra).

37. Further, Mr. Venkataraman also drawing our attention to the decision ofthe Division Bench of this Court in Small Industries Development Bank of India vs. Central Board of Direct Taxes and Anr.9 has submitted that the view taken by the Division Bench in M/s. Colorcon Asia Pvt. Ltd. (supra) is also contrary to this decision of the Division Bench. Even in such case, the Division Bench of this Court has held that the tax under sub­section (1) of Section 115-0 of the IT Act is on the company’s profits and more specifically on that part of the profits which is declared, distributed or paid by way of dividend. It was held that such charge is not on income by way of dividend in the shareholder’s hands and hence the additional income-tax payable on profits of a domestic company under Section 115-0 of the Act is not a tax on dividend. It was also held that thus the amount distributed or paid by way of dividend falls in the category of income, profits or gains derived. The following observations as made by the Division Bench are required to be noted, which read thus:

38. Thus, another Division Bench has given similar meaning and interpretation to Section 115-0, which has been completely overlooked by the Division Bench in deciding M/s. Colorcon Asia Pvt. Ltd. (supra) is Mr. Venkataraman’s submission. We find much substance in the contentions as urged by Mr. Venkataraman.

39. In the aforesaid circumstances, we are of the clear view that there is a cleavage of opinion considering the view taken by the Division Bench in the case of M/s. Colorcon Asia Pvt. Ltd. (supra) and the view taken by the Division Bench in Godrej & Boyce Pvt. Ltd. (supra) (as confirmed by the Supreme Court), as also similar view taken by another Division Bench in Small Industries Development Bank of India (supra).

40. In our respectful opinion, in these circumstances, the following questions of law are required to be answered by the Larger Bench:

(i) Whether the decision of the Division Bench in M/s. Colorcon Asia Pvt. Ltd. vs. The Joint Commissioner of Income Tax, Panji Goa and Ors. (Tax Appeal No. 5/2024 decided on 28 November, 2025) lays down the correct position in law when it holds that, Dividend Distribution Tax (DDT) is a tax paid by the Company, on dividend income of the shareholder, entitling the shareholder of the benefit of the provisions of Double Taxation Avoidance Agreement (DTAA) between India and UK?

(ii) Considering the decision of the Supreme Court in Godrej & Boyce Pvt. Ltd. (supra), whether the decision of the Division Bench in M/s. Colorcon Asia Pvt. Ltd. (supra) is per incuriam ?

41. Registry to place the proceedings before the Hon’ble the Chief Justice for constitution of a Larger Bench to answer the aforesaid questions.”

19. For the reasons discussed above, we are inclined to remand back this issue back to the file of the ld. AO to firstly call for relevant details and documents from the assessee, as discussed above, and thereafter decide the same de novo, in accordance with law. This ground is therefore partly allowed for statistical purposes.

20. In the result, the appeal in ITA No. 302/KOL/2026 is partly allowed for statistical purpose.

21. The issue involved in Ground Nos. 1 & 2 of this appeal relates to taxability of dividend distribution of non-residents as per rate provided in the agreement for avoidance of double taxation between India & U.K / Singapore.

22. We observe the facts involved in this ground and the arguments made by both the parties are similar to AY 2020-21. Since we have decided the similar issue in Ground No. 5 of ITA No.302/Kol/2026 for AY 2020-21 setting aside the issue back to the file of the ld. AO for de novo consideration, therefore our findings/decision would, mutatis mutandis, apply to this appeal as well. Consequently, these grounds are also partly allowed for statistical purposes.

23. In the result, the appeal in ITA No. 301/KOL/2026 is partly allowed for statistical purpose.

ITA No. 303/KOL/2026 – AY 2021-22

24. The sole effective issue raised in this appeal relates to the initiation of penalty proceedings u/s 270A of the Act.

25. The ld. AR submitted that, there was no variation made by the AO to the total income earlier assessed u/s 143(1) of the Act and the total income assessed in the impugned order passed u/s 143(3) of the Act dated 27.12.2022 and therefore according to him, the purported quantum of under-reported income, as defined in Section 270A(10) stood at NIL. He brought to our notice that, the only variation made by the ld. AO was to the computation of long-term capital gains which was fully offset by the losses brought forward from the earlier years and thus there was no change in the final assessable income. According to him, the quantification of under-reporting of income did not envisage such a situation involving reduction of brought forward losses. According to him therefore, in absence of any under-reported income, as defined in Section 270A(10), the initiation of penalty proceedings was invalid. It was pointed out by this Bench at the time of hearing that this ground being raised was pre-mature, but the ld. AR insisted that this ground was validly raised because this aspect was pointed out to the ld. AO in the course of the assessment, and he had explicitly refuted the same by holding that the initiation of penalty in case of any addition was mandatory and that the AO was necessarily bound to levy the same. The ld. AR thus urged that, if this ground is not decided at this stage, then the AO would necessarily levy penalty in light of the findings recorded in the assessment order.

26. The ld. DR appearing for the Revenue emphasized that this ground raised by the assessee was premature as no penalty had been levied upon the assessee yet and that the assessee was free to raise these contentions in the course of penalty proceedings which is separate and independent in nature.

27. We have heard the rival submissions of both the parties. Though at first blush we find the arguments of the ld. AR to be attractive, but having considered the gamut of facts on record, we find that this ground raised by the assessee is premature at this stage and therefore we refrain from entertaining the same.

28. Having held so above, and in fairness of the matters, it is clarified that, levy of penalty is discretionary in nature and whether to levy the same or not, depends on facts and circumstances of each case. The ld. AO should necessarily consider the submissions and contentions of the assessee objectively before deciding whether or not to levy the same. In the present case therefore, the ld. AO shall conduct the penalty proceedings, if pending, uninfluenced by any observations made in the assessment order. Needless to say, the assessee shall be free to raise any and all contentions, which it deems fit, in the penalty proceedings including those raised before us. With these observations, the appeal of the assessee is dismissed.

29. In the result, the appeal in ITA No. 302/KOL/2026 is dismissed.

30. To sum up, the appeals of the assessee for AYs 2016-17 & 2020-21 are partly allowed for statistical purpose and the appeal for AY 2021-22 is dismissed.

Order is pronounced in the open court on 18^th May, 2026