TMI Blog2019 (11) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... ified by the fact that the assessee, itself, has assigned a rating of Baa1 / BBB+ to its AE while benchmarking the transactions. The said rating represents lower medium investment grade rating. Therefore, the determination of ALP merely on the basis of LIBOR, in our considered opinion, would not be justified. During the course of proceedings before Ld. TPO, the assessee had arrived at mean spread of 243.83 basis points over LIBOR which is evident from page nos. 5-6 of Ld. TPO s order. The computation of the same has nowhere been disputed by the revenue. Applying LIBOR + spread-over, ALP interest has been worked out to be ₹ 1,64,13,241/-. We are of the considered opinion that this spread over as computed by the assessee was undisputed, quite fair and reasonable and the same was to be accepted. Accordingly, we confirm the ALP rate of LIBOR + 2.4383% as computed by the assessee in the alternative submissions made before Ld. TPO. The impugned order stand modified to that extent. The Ld. TPO / Ld. AO is directed to recompute the income of the assessee in terms of our direction. Disallowance u/s 14A - HELD THAT:- The undisputed position, as in AY 2011-12, that emerges is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T.(TP) No.2316/Mum/2017 - - - Dated:- 7-11-2019 - Shri Pawan Singh, JM And Shri Manoj Kumar Aggarwal, AM For the Assessee : S/Shri Rishabh Shah Rakesh Joshi- Ld. ARs For the Revenue : Shri Akhtar H.Ansari- Ld.DR ORDER PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1.1 Aforesaid appeal by revenue for Assessment Year [AY] 2011-12 and by assessee for [AY] 2012-13 contest the orders of lower authorities on certain grounds of appeal. Since common issues are involved, we proceed to dispose-off the same by way of this common order for the sake of convenience brevity. First, we take up revenue s appeal IT (TP) No. 2452/Mum/2017 for AY 2011-12. Revenue s Appeal IT (TP) No. 2452/Mum/2017 for AY 2011-12 1.2 The revenue contest the order of Ld. Commissioner of Income Tax (Appeals)-56 Mumbai [CIT(A)], Appeal No. CIT(A)-56/ACIT(C)(C)- 46/2016-17/87-J dated 26/12/2016 on following grounds of appeal: - 1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the AO/TPO to work out the ALP o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Transfer Pricing Grounds which are related with determination of Arm s Length Price [ALP] of certain international transactions as carried out by the assessee with its Associated Enterprises [AE]. Ground No. 5 is related with disallowance u/s 14A whereas Ground No. 6 is related with allowance of deprecation on certain capital expenditure incurred by the assessee in earlier years. 2.1 The relevant facts are that the assessee being resident corporate assessee is stated to be engaged in the business of power generation and operation maintenance of power plants. The company is stated to be working for power solutions in the states of Karnataka, Maharashtra, Rajasthan and Himachal Pardesh. The assessee was assessed for AY 2011-12 u/s 143(3) r.w.s. 144C(3) of the Income Tax Act on 17/04/2014 wherein the income of the assessee was determined at ₹ 79.16 Crores under normal provisions after certain adjustments / disallowances as against Nil income filed by the assessee on 29/11/2011 after claiming deduction u/s 80-IA for ₹ 886.49 Crores. The Book Profits u/s 115JB were computed at ₹ 1166.18 Crores after disallowance u/s 14A for ₹ 76.78 Cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earning any dividend income. The attention was also drawn to the fact that the assessee did not earn any exempt income during the year and therefore, no disallowance u/s 14A was called for as held by Tribunal in assessee s own case for AY 2010- 11. Reliance was placed on several judicial pronouncements to support the same, which has already been enumerated on page-44 of the appellate order. 2.2.3 The learned first appellate authority, after considering the same, concurred with the submissions that Ld. AO applied Rule 8D automatically without verifying the genuineness of the assessee s claim in respect of expenses incurred in relation to exempt income. The learned first appellate authority also concurred with the submissions that investments made in subsidiary companies were to facilitate and promote business interest of the assessee and therefore, the expenditure incurred on this account, would be deductible business expenses. Lastly, noticing that no exempt income was earned by the assessee during the year under consideration and therefore, no disallowance would be called for as held by the Tribunal in assessee s own case for AY 2010-11. Similar view was taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration. In such a case, no disallowance would be attracted in the hands of the assessee. The aforesaid proposition is duly fortified by catena of judicial pronouncements, few of which could be enumerated in the following manner: - No. Case Law Judicial Authority Citation 1. CIT Vs. Holcim India P. Ltd. Hon ble Delhi High Court 111 DTR 158 2. Cheminvest Ltd Vs CIT Hon ble Delhi High Court 378 ITR 33 3. PCIT Vs IL FS Energy Dev. Co. Ltd. Hon ble Delhi High Court 84 Taxmann.com 186 4. PCIT Vs Empire Package Pvt. Ltd. Hon ble Punja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he department s appeal against the order of Tribunal for AY 2006-07 has already been dismissed by Hon ble Bombay High Court in ITA No.1468 of 2013 dated 30/04/2015. Noticing the same, the Tribunal in AY 2008-09 vide ITA No. 1334/Mum/2015 order dated 02/06/2017 held that no adjustment u/s 115JB would be warranted on account of disallowance u/s 14A. Similar is the view of the Tribunal in AY 2010-11 vide ITA No. 1336/Mum/2015 order dated 22/07/2016. Nothing on record would suggest any change in material facts and nothing has been demonstrated before us to establish that the aforesaid ruling is not applicable to the facts of the present case. Keeping in view the consistent view of the Tribunal, no infirmity could be found in the impugned order on the issue of adjustment of disallowance u/s 14A while computing Book Profits u/s 115JB. Accordingly, ground No. 5, to that extent, stands dismissed. 2.7 So far as the issue of depreciation on capital payment made to M/s Gremach Infrastructure Equipments Projects Ltd., for execution of certain projects, is concerned, we find that appellate authority provided relief to the assessee by relying upon the order of its predecesso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.9.2 The assessee explained that non-residents who wished to invest in South Africa by means of loan capital needs approval from South African Reserve Bank particularly with reference to intended repayment dates and interest rates. The Reserve Bank will not agree to interest rates in excess of prime rate being charged by non-resident shareholders on loans to the South African subsidiaries but loans from non-residents other than shareholder may be allowed to carry interest at prime +2%. The relevant extracts of the regulations were provided to Learned TPO. It was submitted that intra-group loan advanced to Mauritius Entity was ultimately utilized in South Africa since JSWEMML further advanced the said loan to JSW Energy South Africa Ltd. [JSWENRSAL] and in view of the South African Reserve Bank regulation, the Mauritius entity would not be able to charge any interest more than LIBOR from South African Entity. In the aforesaid background, it was submitted that the intra group transaction was to acquire the asset is South Africa and therefore, transaction was at Arm s Length Price as prescribed in the Indian Regulations. In nutshell, it was submitted that due to regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee for benchmarking, Ld. TPO concluded that the search process was not proper and was required to be rejected. The argument that the loans were advanced from internal accruals was also rejected since the assessee, in the opinion of Ld. TPO, failed to prove nexus between interest free funds available with the assessee vis- -vis loans advanced to its AE. 2.9.6 The Ld. TPO also came to a conclusion that interest on outbound loan was not to be benchmarked with LIBOR since no company would like to advance loans outside India without security as the interest rate in India would be higher than those prevailing in the developed country. Therefore, the rates prevailing in India would be an appropriate benchmark to determine the ALP of loans advanced by Indian entities. Although the assessee placed reliance on certain judicial pronouncements for the submission that LIBOR would be appropriate benchmark rate, however Ld. TPO opined that certain vital aspects remained to be considered in the cited decisions. Rather reliance was placed on the decision of Tribunal rendered in Aurionpro Solutions Ltd. [ITA No 7872/Mum/2011] for the conclusion that lending should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch outbound loan transactions. The list of other decisions which has also affirmed the said view, as relied upon by assessee during appellate proceedings, has also been tabulated on page nos. 18-19 of the appellate order. Concurring with assessee s submissions, Ld. CIT(A) allowed assessee s ground by observing as under: - I have considered the submissions of the assessee, the views of the AO in the assessment order and the material on record. It is apparent from the above that the end use of intra-group loan was to acquire the asset company in South Africa and it is clearly evident that the JSWEMML was not able to charge the interest more than LIBOR from JSW South Africa Ltd. (JSWENRSAL), which had a direct impact on the interest repayment capability of JSWEMML to JSWEL of not more than LIBOR. Further, the assessee submitted that with respect to cross border transactions, the interest rate is determined by using foreign currency rate (LIBOR/EURIBOR) and the same has been upheld as an appropriate benchmarking rate in variolous judicial decisions which have been mentioned above. Thus, considering the above view taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved that there could not be different parameters to benchmark outbound and inbound loans. The Hon ble Bombay High Court in CIT V/s Tata Autocomp Systems Ltd. [56 Taxmann.com 206] has concluded the issue as under: - 7. We find that the impugned order of the Tribunal inter alia has followed the decisions of the Bombay Bench of the Tribunal in cases of VVF Ltd. v. Dy. CIT [IT Appeal No. 673 (Mum.) of 2006] and Dy. CIT v. Tech Mahindra Ltd . [2011] 12 taxmann.com 132/46 SOT 141 (Mum.) (URO) to reach the conclusion that ALP in the case of loans advanced to Associate Enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. Mr. Suresh Kumar the learned counsel for the revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in VVF Ltd . ( supra ) and Tech Mahindra Ltd . ( supra ) on the above issue. No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. ( supra ) and Tech Mahindra Ltd . ( supra ) . The Revenue not having fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions made before Ld. TPO. The impugned order stand modified to that extent. The Ld. TPO / Ld. AO is directed to recompute the income of the assessee in terms of our direction. Accordingly, Ground Nos. 1 2 stands dismissed. Ground No.3 stand allowed. Ground No. 4 stands partly allowed. 2.15 The appeal of the revenue stands partly allowed in terms of our above order. Assessee s Appeal for AY 2012-13; IT(TP) No. 2316/Mum/2017 3.1 The assessment for this year was framed on 30/01/2017 u/s 143(3) r.w.s. 144C(13) pursuant to the directions of Ld. Dispute Resolution Panel-1, Mumbai [DRP] u/s 144C(5) dated 23/12/2016. The final assessment order was passed by Ld. Deputy Commissioner of Income Tax-Central Circle 8(3), Mumbai [AO]. Aggrieved by certain additions / adjustments in the final assessment order, the assessee is before us with following grounds of appeal: - 1) In the facts and circumstances of the case and in law, the Hon'ble DRP erred in confirming the action of Learned Assessing Officer in making an upward adjustment of ₹ 12,22,63,704/- on account of interest receivable on lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble DRP erred in confirming the action of Learned Assessing Officer in making addition, as computed u/s 14A, while computing book profit for the purpose of MAT u/s 115JB, without appreciating the fact that the appellant had not earned any exempt income, during the year under consideration, which was credited to its Profit Loss account. 11) In the facts of the case and in law, the Learned Assessing Officer erred in charging interest u/s 234C on the assessed income. 12) In the facts of the case the Learned Assessing Officer erred in not granting credit of TDS of ₹ 534630/- to the appellant. As evident from grounds of appeal, Ground Nos. 1 2 are related with Transfer Pricing Adjustments. Ground Nos. 3 to 5 are related with issue of deduction u/s 80-IA. Ground Nos. 6 to 10 are related with disallowance u/s 14A while computing income under normal provisions as well as while computing book profits u/s 115JB. Ground No.11 contest levy of interest u/s 234C. The same being mandatory and consequential in nature, would not require any interference on our part. In Ground No.12, the assessee is aggrieved by non-gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The Learned DRP, inter-alia, relying upon CBDT circular No. 05/2014 dated 11/02/2014, held that disallowance would be called for even if no exempt income was earned by the assessee during the year. Aggrieved, the assessee is under appeal before us. 3.3.2 The undisputed position, as in AY 2011-12, that emerges is the fact that no exempt income has been earned by the assessee during the year under consideration. Facts being pari-materia the same, our observations and conclusions as given for AY 2011-12 in revenue s appeal, shall mutatis-mutandis apply to this year also. Accordingly, the additional disallowance of ₹ 1033.95 Lacs as made by Ld. AO in the final assessment order while computing income under normal provisions stand deleted. Also, the adjustment of ₹ 1047.22 Lacs as made by Ld. AO, while computing Book Profits u/s 115JB, stand deleted. Accordingly, Ground Nos. 6,7,9 10 stands allowed while Ground No. 8 becomes infructuous. Deduction u/s 80-IA (Ground Nos. 3 to 5) 3.4.1 Upon perusal of assessee s computation of income, it transpired that the assessee claimed 100% deduction u/s 80- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that merger, as per the order of Hon ble Bombay High Court was effective from 01/04/2008. At that point of time, JSWEVL was in the process of setting up 2x300 MW Power Plants at Vijaynagar. It was the assessee who, after merger, finally set up and commenced the Unit SBU-2 by installing new Plant Machinery which were not used earlier for any purposes. The attention was further drawn to the fact that one of the said undertaking of erstwhile JSWEVL got commissioning approval from Government of Karnataka, Electrical Inspectorate (CEIG) vide approval letter dated 18/07/2009 and the other undertaking got such approval only on 19/09/2009. Therefore, without having such commissioning approval from CEIG, the power plants of erstwhile JSWEVL would not have commenced power generation. The attention was also drawn to the fact that although the assessee was eligible to claim deduction to the extent of ₹ 41.98 Crores ₹ 153.64 Crores against SBU-1 SBU-2 respectively, however, the assessee could claim deduction only to the extent of ₹ 86.53 Crores due to inadequacy of profits in the year under consideration. It was pleaded that as per the statutory provisions, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for passing on the benefit for someone who had not taken these risks and had only acquired the eligible undertaking much later when these risks had reduced. Hence, a new subsection (12A) has been inserted in sub-section 80IA so as to provide that the provisions of sub-section (12) shall not apply to any undertaking or enterprise which is transferred in a scheme of amalgamation or demerger after 31.03.2007. Thus, if an undertaking or an enterprise is transferred in a scheme of amalgamation or demerger after 31.03.2007, the benefit of deduction u/s 80IA will not be available to the amalgamated or demerged undertaking or enterprise. There is no dispute to the fact that the demerger of the new unit is after 31.03.2007. There is also no dispute to the fact that the initial investment and entrepreneurial risk was taken by JSWEVL. The assessee has also not contested the fact that this unit was an eligible unit when the demerger took place. Its only objection is that the unit was not entitled to the deduction at the time when the demerger took place and, hence, it will not be impacted by sub-section (12A) of Section 80IA of the I.T. Act, 1961. We do not agree to such co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 01/09/2009, the copies of which were duly furnished to the lower authorities. The said fact of commencement of power plant at SBU-II stood fortified by the copy of report for April,2010 issued by Government of India, Ministry of Power. In the light of the said factual matrix, it would be apparent that there was no existing eligible undertaking on the date of merger as referred to in Section 80-IA(12) as well as Section 80-IA(12A). In the said background, it has been submitted that Circular No.3/2008 explaining the amendment of Section 80-IA(12A) would have no application since the said circular postulates existence of an undertaking which has started claiming deduction u/s 80-IA, which is not the case here since neither the assessee nor the merged entity was an eligible undertaking entitled to claim the said deduction. Since the undertaking i.e. power plants were set up only during July, 2009 and September, 2009 and came into existence after that period, there was no eligible unit at the time of merger and therefore, the assessee was entitled to claim the deduction. 3.4.7 The Ld.AR has further pleaded that the deduction u/s 80-IA has been claimed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bay High Court w.e.f. 01/04/2008. It is also undisputed fact that the assessee was major shareholder (to the extent of 74%) in the merged entity and the said entity was assessee s subsidiary. Further, out of total estimated cost of ₹ 1,860 Crores, the assessee had expanded more than 35% of the total cost, which is evident from the fact that, on the date of merger, Capital WIP stood at ₹ 1129.16 Crores which would strengthen the fact that the assessee not only made major investment but also undertook entrepreneurial risk. 3.4.12 Undisputedly, the units under consideration were at the construction stage only when the merger took place which is evident from fact that the approval to both the units was granted by Government of Karnataka (CEIG) only during the month of July, 2009 and September, 2009. This is further fortified by the fact that, upon completion of plant, the assessee started claiming deduction against the same, for the first time, starting from AY 2010-11. This is also supported by the fact that substantial investments were made by the assessee post-merger. The aforesaid facts would lead us to conclude that, at the time of merger, neither asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of deduction right from the Assessment Year 2004-05 u/s. 80IA of the Act consequently it cannot be denied deduction for the subsequent years. In as much as restraint of section 80IA(3) cannot be considered for every year of claim of deduction but can be considered only in the year of formation of business. In the case on hand since the Assessing Officer examined the issue thoroughly, called for various details in the initial Assessment Year being Assessment Year 2010-11 and allowed the claim of the assessee even during the current Assessment Year i.e. subsequent to 2010-11, the same cannot be revised unless there is change in facts or change in law. 3.4.14 Keeping in view the aforesaid facts and circumstances and following the ratio laid down by coordinate bench of the Tribunal in cited decision in assessee s own case, we hold that the assessee was entitled to claim deduction u/s 80-IA with respect to unit SBU-II. Accordingly, we direct lower authorities to grant the same to the assessee and recompute its income, as per law. Ground Nos. 3 to 5 stands allowed. 3.5 TDS Credit (Ground No.12) The assessee is aggrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bps 163.8 bps on loans advanced in AYs 2011-12 2012-13 respectively which gave ALP interest of ₹ 491.07 Lacs. After adjusting the interest of ₹ 81.15 Lacs already offered by the assessee, net TP adjustment was worked out to be ₹ 409.91 Lacs. 3.7.2 The Ld. TPO held that Bloomberg database rates were to be preferred over PLR based rates since the former provide LIBOR rate based on geographical location of both the lender and the borrower. Using the said database, learned TPO arrived at following rates: - No. Assessment Year Floating Rate of Interest Fixed Rate of Interest 1. 2011-12 LIBOR+332 bps 6.54% 2. 2012-13 LIBOR+575 bps 8.34% Since the assessee had charged interest but the same was not received from its AE, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 2011-12, we have upheld the working made by assessee, taking the same view, we upheld the workings made by the assessee during proceedings before learned TPO. Accordingly, we direct lower authorities to accept alternative TP adjustment of ₹ 491.07 Lacs as worked out by the assessee during proceedings before Ld. TPO based on LIBOR + spread of 243.88 bps / 163.8 bps for AYs 2011-12 2012-13 respectively. The interest already charged by the assessee would be adjusted from the same and the net amount shall be the amount of TP adjustment for the impugned AY. Ground No.1 stand partly allowed. Recovery of Expenses 3.8.1 The second TP adjustment stem from the fact that during FY 2010-11, the assessee was considering acquisition of an overseas thirdparty entity namely CIC Energy. For the said purpose, the assessee incorporated its overseas subsidiary i.e. JSW Energy Natural Resources (BVI) Ltd. [JENRL] which was to acquire CIC Energy. During FY 2010- 11, the assessee engaged various third-party consultants / experts to perform legal, financial and operations level due diligence in respect of proposed acquisition. Such third-party consultants / e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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