TMI Blog2017 (4) TMI 1489X X X X Extracts X X X X X X X X Extracts X X X X ..... #39; after thrusting depreciation upon the appellant in the earlier years - HELD THAT:- No infirmity in the order of CIT(A) for directing the AO to allow depreciation by taking WDV of assets as on 01/04/2008, in so far as CIT(A) had followed the orders of Tribunal and Supreme Court in the case of Mahindra Mills [ 2000 (3) TMI 3 - SUPREME COURT] Deduction u/s.80IA on power generation undertaking by adopting price which the industrial consumers paid during the year under consideration for electricity purchased from State Power Distribution Agency - AO has restricted the claim of deduction u/s.80IA by taking 16% return on capital base as per the parameters prescribed by the Regulatory Authorities i.e. State Electricity Board for procuring the electricity - HELD THAT:- We found that exactly similar issue has been considered by the Tribunal in assessee s own case for the assessment year 2006-07 wherein issue has been decided in favour of the assessee. As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal in assessee s own case, we do not find any infirmity in the order of CIT(A) for allowing assessee s claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances during the year under consideration are same, we confirm the action of lower authorities for disallowance of depreciation in the A.Y. 2007-08, 2008-09 2009-10. Disallowance of depreciation of jetties - HELD THAT:- We hold that the assessee is entitled for depreciation at the rate as applicable on the cost incurred for construction of jetty at Dahej. Disallowance being Professional fees paid to various companies as being non-genuine - HELD THAT:- From the record we found that during the subjected year assessee has availed the services of Shri S. K. Gupta and paid the professional fees and also reimbursed expenses to his companies. The payments towards professional services charges and reimbursement of expenses were contended to be genuine and incurred for business purposes, hence, the same was claimed as deduction u/s 37 of the Act. We found that identical issue has been decided by Tribunal in favour of the assessee in preceding year i.e. A Y 2006-07 wherein the ITAT has deleted the disallowance. International transaction as defined u/s. 92B - CIT(A) in confirming the order of the AO in treating the non funded guarantee given by the assessee to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest and restrict the disallowance under Rule 8D (2)(iii) to the extent 0.5% of average value of investment which have yielded dividend during the year under consideration which works out to ₹ 3.37 crores. We direct accordingly. Reduction of profits of the business of the undertaking while computing deduction under section 10B being recoveries of various expenses incurred and charged to Profit and Loss Account of the Undertaking - HELD THAT:- We found that a sum credited under the head miscellaneous recoveries are received for Purging, Degassing Charges for Railway wagons tankers of IOCL, BPCL and HPCL and recovery of cost on account of infrastructures facilities provided to GAlL and others. Further a detailed working of per-unit cost incurred for purging and degassing and recoveries made from IOCL, BPCL and HPCL was also filed. The recoveries from the above oil companies were on account of cleaning expenses paid to contractors. The cost incurred has been debited to P L account, which are recovered from IOCL, BPCL HPCL and shown as other income in the P L account of the undertaking. The other income though recovered from the above parties and shown as income in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essional fees paid to various companies on the plea of non-genuine. Addition was also made on account of non-funded guarantee given by assessee to bank of America for giving loans to its associated concern. Addition was also made in respect of interest free loans and advances given to subsidiary. Sales Tax incentives received from Government was also added by AO treating the same as revenue receipt. 5. By the impugned order, CIT(A) deleted the addition made on account of notional Sales Tax which has been treated by the AO as revenue receipt. Partial relief was given on account of claim of depreciation by directing the AO to adopt WDV as on 01/04/2008. Assessee s claim for deduction u/s.80IA was also allowed by the CIT(A). Addition made u/s.40(a)(ia) on account of non-deduction of tax u/s.195 was also deleted by CIT(A). By the impugned order CIT(A) restricted the guarantee commission @0.575% in place of 2.60% of non-funded guarantee given by assessee for advancing loans to its associated concern. 6. Against the above order of CIT(A) for the assessment year 2007-08 both assessee and revenue are in further appeal before us. 7. Grounds taken by assessee in the A.Y.2007-08 read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The CIT(A) erred in confirming the disallowance of depreciation of ₹ 55,35,000/- in respect of jetties constructed by the appellant and used for the purpose of its business. The CIT(A) has confirmed the order of AO wherein he failed to appreciate that since the jetty was constructed by the appellant at its own cost and was used for the purpose of its business, depreciation as per law was allowable. The appellant prays that depreciation on the jetties of ₹ 55,35,000/- as claimed by it be allowed. 5. The CIT(A) erred in confirming the disallowance of an amount of ₹ 5,45,40,000/- being Professional fees paid to various companies as being non-genuine. The Appellant submits that the CIT(A) confirmed the order of AO wherein he has misguided himself in appreciating the evidence gathered and holding the payment of professional fees as non-genuine. The appellant submits the Professional Fees has been paid to various companies for rendering services duly supported by documentary evidences and therefore the claim for deduction of such payment should be allowed. 6. a. The CIT(A) erred in confirming the addition made by the A.O. of ₹ 48,82,456/- while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not deciding the issue on merits in view of provisions of section 80IA of the Income tax Act, 1961. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that section 801A(8) has clearly defined that Market Value means the price of goods/services would fetch, if these were sold by the unit/undertaking in the open market subject to statutory regulations, if any and the assessee had clearly violated this section 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing an amount of ₹ 4,83,25,200/- u/s. 40(a)(ia) of the IT Act, by holding that no tax was withheld U/s. 195 of the IT Act without appreciation the fact that no tax was deducted at source U/s. 194 of the IT Act. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting guarantee commission at the rate of ₹ 0.575% in place of ₹ 2.50% of non funded guarantee given by the assessee for advancing loan to its associate concerns. 7. The appellant therefore, prayed that the order of the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ratio of the decision of the Supreme Court in Sahney Steel Press -Works Ltd's case (supra). On a careful reading of the order of the. Tribunal in the case of Reliance Industries Ltd. (Supra), it appears to us that the ratio of the judgment in Sahney Steel Press Works Ltd s case (supra) has been correctly interpreted and appreciated by the Bench (Para.28) The Scheme framed by the Government of Maharashtra in 1979 and formulated by its Resolution dated 5-1-1980 has been analysed in detail by the Tribunal in its order in RlL for the assessment year 1985-86 which we have already referred to an extensor. On an analysis of the Scheme, the Tribunal has come to, the conclusion that the thrust of the Scheme is that the assessee would become entitled for the sales tax- incentive even before the commencement of/he production, which implies that the object of the incentive is to fund a part of the cost of the setting up of the factory in the notified backward area. 'The Tribunal has, at more than-one place, stated in the thrust of the Maharashtra Scheme was a industrial development of the backward districts as well as generation of employment thus establishing a direct nexus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of facilitating the assessee to set up an industry in Patalganga, Raigad District, which is a notified area, The actual disbursement took place after the assessee commenced production, but, according to the Tribunal, it was only a mode of disbursement and had nothing to do with the object for which the subsidy was given. Thus, it was found that the Tribunal did notice The crucial observations of the Supreme Court Sahney Steel Press Works Ltd.'s case (supra) which gave primacy to the object of the subsidy over the fact that it was given after the commencement of production. (para 30). The Tribunal s observations made on the. basis of the observations of the Supreme. Court in Sahney Steel Press Works Ltd. 's case (supra) also show that the Tribunal was alive to the. distinction between the character of the subsidy given with the object of promoting industrial growth in a particular area' under the subsidy given' conditional upon the commencement of production and after actual commencement of production..In our opinion also it is not correct to understand the judgement as laying down the broad proposition that wherever the subsidy is given after the commenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y. 2003 04 to A.V, 2006-07 has been rejected by my Ld. Predecessors for the reasons that the CBDT circular no, 496 dated 25.09.1987 clarified the position regarding applicability of the provisions of Section 43B only to Sales Tax. Deferral Scheme. This circular did not apply to the Sales Tax exemption scheme availed of by the Appellant. Therefore, the alternate claim made by the appellant seeking deduction under section 43B is rejected. 12. We had considered rival contentions and found that this issue has already been decided by the Tribunal in assessee s own case in the assessment years 2003-04 to 2006-07, wherein Notional Sales Tax was treated as capital receipt not liable to tax. Relevant observation of Tribunal is contained at Page 5 para 6.5. Precise observation of Tribunal are as under: 6.5. We have considered submissions of the representatives of the parties and the orders of authorities below as well as earlier order of ITAT dated 28.5.2012 (supra). We consider to reproduce paras 4.2 to 4.7 of earlier order which are as under : 4.2 The assessee claimed deduction of notional sales tax of ₹ 1024,34,61,999/- as capital receipt which was received under various s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held in the nature of capital receipt not liable to tax. The ld. CIT(A) accepted the above contention of the assessee and held that the claim for deduction of notional sales tax of ₹ 1024,34,61,999/- should be allowed as deduction as it is in the nature of capital receipt not liable to tax. 4.4 The assessee has also taken an alternative submission before the ld. CIT(A) that if the amount of subsidy is regarded as revenue receipt then such sales tax incentives received should be allowed as a deduction under section 43B of the Act while computing the total income of the assessee. It is relevant to state that the ld. CIT(A) has stated that the main contention of the assessee regarding notional sales tax being capital receipt not liable to tax has been allowed, it is not considered necessary to go into the alternative plea of the assessee claiming notional sales tax as deductible under section 43B of the Act. He has also stated that a similar alternative plea taken by the assessee in A.Y 2001-02 had been rejected by his predecessor for the reason that CBDT Circular No.496 dated 25/9/1987 clarified the position regarding applicability of the provisions ofsection 43B only to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration are same, respectfully following the order of the Tribunal in assessee s own case vis- -vis decision of the Special Bench in case of Reliance Industries Ltd., 88 ITD 273, Shree Balaji Alloys Ltd., 138 DTR 36(SC), Rasoi Ltd., 335 ITR 438(CAL), Bougainvillea Multiples Entertainment Centre (P) Ltd., 373 ITR 014(Delhi), Kirloskar Oil Engines Ltd., 364 ITR 88 (Bom) and Associated Cement Cos. Ltd., ITA No.7594 7644/M/04, we do not find any infirmity in the order of CIT(A) for treating the same as capital receipt. Accordingly ground no.1 of revenue s appeal stand dismissed. 14. The assessee in its return of income has claimed depreciation on fixed assets at ₹ 35,29,64,19,750/- The AO has allowed depreciation at ₹ 3267,34,84,564/- as against the claim of ₹ 3529,64,19,750/- by taking WDV after considering the depreciation thrust upon the assessee in earlier years by the department. 15. By the impugned order CIT(A) directed the AO to allow depreciation as claimed by the assessee as against the depreciation allowed by the AO at ₹ 3267.35 crores by directing the AO to adopt the WDV as on 01/04/2008. The precise observation of CIT(A) is as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'of asset 'concept from assessment year 1988-89, the ratio had laid down by the Supreme Court still holds good. The claim for depreciation is optional and can be allowed only if claimed by the assessee. The Hon'ble ITAT has further referred to the Explanation -5 inserted in Section 32 of the IT.Act by Finance Act, 2001 with effect from 1/4/2002 and have observed that the Explanation-5 has been prospective in its effect; the principle laid down by the Supreme Court holds good and applies to all the years prior to introduction of said explanation. The various judgements relied upon by the appellant clearly support the appellant's stand to the effect that the claim for depreciation cannot be forced upon the appellant if not claimed while computing total income. Respectfully following the various decisions relied upon by the appellant, I hold that the depreciation of ₹ 4,83,08,34,782/- cannot be thrust upon the appellant and the claim for deduction u/s. 80lA/80lB shall be allowed without reducing the profit by the amount of depreciation . ii. In this year, the issue relates to the amount of WDV to be taken on 01.04.2006. Following the decision in the appellant& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reduced WDV. Thus, the ld. CIT(A) stated that the said issue had been considered in the assessee's own case in the preceding years including assessment years 2001-02 and 2002-03 and view has been taken that the claim for depreciation cannot be thrust upon the assessee and the issue was decided in favour of assessee. The ld. CIT(A) directed the AO to adopt WDV of the assets as on 1.4.2002 on the basis of effect given to the order of ld. CIT(A) for the preceding assessment year and allow depreciation accordingly. Hence, this appeal filed by the department. 19.2 At the time of hearing, ld. DR relied on the order of AO. Whereas, ld.AR submitted that the said issue was considered by the Tribunal in the assessee's own case in assessment year 2002-03 and the Tribunal vide order dated 28.5.2012 confirmed the order of ld. CIT(A) stating that WDV as on 31.3.2001 had to be taken for considering the depreciation to be allowed to the assessee in the assessment year 2002- 03 as the claim for depreciation prior to insertion of Explanation 5 to section 32(1) of the Act inserted with effect from 1.4.2002 as applicable from assessment year 2002-03, the claim for depreciation was optio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of any other business carried on by the assessee or where any goods (or services) held for the purpose of any other business carried on by the assessee are transferred to the eligible business and, in either case the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods (or services) as on' the date of the transfer, then for the purposes of the deduction under this' section, the profits and gains of such eligible business shall be computed as if the transfer, in either case had been made at the market value of such goods (or services) as on that date. Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents. exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. (Explanation - For the purposes of this sub-section; market value , in relation: to any goods 'or services, 'means the price that such goods or services would ordinarily fetch in the open market.) A perusa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et value of the goods as on the date of the transfer. It is important to note that for giving a finding that a particular value did not correspond to the market value, the market value has to be found out. Hence, the section pre-supposes that there is another value attached to the said goods which would represent the market value of the goods. I find that there is nothing brought on record to show as to how the price recorded in the Books does not correspond to the market value of goods, when sold in the open market, especially in the light of the reasons given by the 'assessee that such price corresponded to the market value of the goods. I find that the Assessing Officer has rejected the value recorded by the eligible business by merely holding that the market value cannot be the purchase value of electricity but the price of the electricity which the assessee can fetch in the open market. There being no open market for electricity during the period under review, the regulatory bodies fixed the price of electricity. He has further held that the tariff fixed for sale by the State. Power Distribution Agency for industrial consumers could not be called as market price as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price that such goods would ordinarily fetch in the open 'market as this is the regulated rate fixed by the Government. It is also seen that the Assessing Officer has taken 16% return on capital base to work out the profits of the eligible business of the. assessee eligible for deduction u/s, 80IA of the IT.Act, 1961. 16% return on capital base in Notification No. 251(E) dt. 30/3/1992 is only an exercise for fixation, of tariff. It is 'one 'of the parameters 'out of many which is required to be taken into consideration for fixing the tariff in relation' to the' rate at which the Independent Power 'Producers sell their power to the - State Distribution Agency. Hence, 16% return on capital base 'alone' would not be relevant while computing the profits of the eligible business under the Act. To sum up under Sec. 80IA(8), the following conditions are required to be satisfied:- a) Any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee. b) The' consideration if any for such transfer as recorded in the accounts of the eligible business does not correspond to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09. Further, as per the explanation to Sec. 80A(6), the market value means the price that such goods or services would fetch if these were sold by the undertaking or unit or 'enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any. In the present case, the AO has not brought any material on record to show that the goods supplied by the undertaking were at a price higher than what it was required to supply as a result of any statutory or regulatory restrictions or as to what should have been the rate at which it was required to supply the goods as a result of any statutory or regulatory restrictions. In the case of Reliance Infrastructure Ltd (Supra) Hon'ble jurisdictional Mumbai, Tribunal has held that the price that the unit paid to TPC for purchase of power would be the best basis for working out the profits of the business of generation of power even after the order MERC. In this case, the assessee, other than using power generated from its own captive generating units, was also purchasing power from TPC. In the case of Jindal Steel Power Ltd. reported in 16 SOT 509 (Del), Hon 'ble Tribunal has held as follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket value of power. The AO is directed to allow relief to the assessee under s.'80IA as claimed: It is pertinent to note that the assessee is not supplying electricity to the State Electricity Board or to any other power distribution agency. In the case of West Coast Paper Mills Ltd. reported in 1000 TT] 833 (Mum), the Hon'ble Tribunal has held as follows: Having held that the assessee is entitled for the deduction available under s. 80-IA, the next question is what should be the price attributable to the power generated and consumed by the assesses, The answer to the question is readily available in sub.s(8) of s.80-IA, which reads as below: 80-IA(8) Where any goods held for the purpose of eligible profits are' transferred to any other business carried on by the assessee, or where any goods held for the purposes of any 'other business'. carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods as on the date of transfer, then for the purposes of the deduction und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the profits of 'the' eligible-business, eligible for deduction u/s. 80IA. However, if the' rate charged. by the suppliers is the same as the rate adopted for sale' by the 'captive power generating units of the assessee, such rate' adopted should be accepted for' the purpose of working out the deduction u/s. 80IA. Subject to the above, this ground of appeal filed by the assessee is allowed. The facts of the case are similar and issue involved is identical. Accordingly in view of the facts of the case and keeping in view the principles of judicial consistency, it -Is directed that. the Assessing Officer will examine correctness of the-rate taken (₹ 4.799 per unit) and if it is found that the rate charged by the suppliers is lower than the rate adopted for sale by the captive power generating units of the assessee, such rate would be taken by the Assessing Officer for computing the profits of the eligible business, eligible for deduction u/s. 80IA. However, if the rate charged by the suppliers is the same as the rate adopted for sale by the captive power generating units of the assessee, such rate adopted should be accepted for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icity Act came into force on 10.06.2003. 24. It is therefore necessary to see what is the effect of the Electricity Act 2003 and its impact on and regulation of tariffs. The Preamble to The Electricity Act 2003 states as follows: An Act to consolidate the laws relating to generation, transmission, distribution, trading and use of electricity and generally for taking measures conducive to development of electricity industry, promoting competition therein, protecting interest of consumers and supply of electricity to all areas, rationalization of electricity tariff, ensuring transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, constitution of Central Electricity Authority, Regulatory Commissions and establishment of Appellate Tribunal and for matters connected therewith or incidental thereto . 25. A look at the Statement of Objects and Reasons annexed to the bill, para 4 would indicate that the Act seeks to encourage private sector participation in generating, transmission and distribution of electricity and promoting competition and providing for newer concepts like power trading and open access. A copy of the statement of O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [flat no licence shall be required under [his Act for supply of electricity generated from a captive generating plant to any licencee in accordance with the provisions of this Act and the rules and regulations made thereunder and to any consumer subject to the regulations made under subsection (2) of section 42. (2) Every person, who has constructed a captive generating plant and maintains and operates such plant, shall have the right to open access for the purposes of carrying electricity from his captive generating plant to the destination of his use: Provided that such open access shall be subject to availability of adequate transmission facility and such availability of transmission facility shall be determined by the Central Transmission Utility or the State Transmission Utility, as the case may be: Provided further that any dispute regarding the availability of transmission facility shall be adjudicated upon by the Appropriate Commission. (Emphasis Supplied) 30. Section 9 is a non-obstante clause and permits any person to construct, maintain or operate a Captive Generation plant and dedicated transmissions lines. A bare perusal of section 9(1) would indicate that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating electricity and consuming it there is no obligation and no duty to either obtain a licence to set up a plant or transmit electricity which is self consumed. 35. The Calcutta High Court in page 11 has held the rate at which electricity was purchased from Andhra State Electricity Board by the paper unit of the assessee can by no means be the market rate at which the power plant of the assessee could have sold its production in the open market. In the open market the buyer would obviously be a distribution company or a company engaged in generation and distribution. Therefore the rate which is sold to any such company can only be the market rate contemplated by the section . In other words, according to the Calcutta High Court, the regulated selling price by a third party to the assessee cannot form the selling price by a Captive Generation plant. Whilst this is the absolutely correct and true, it is wholly irrelevant in context of Electricity Act, 2003. In a much as under the Electricity Act 2003, when the Captive Generation plant notionally sells electricity to itself, there is no regulation in respect of market price. In this connection, the decision of Supreme Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n each case, to represent a reasonable profit. 36. The revenue argued that Rule 7(2)(a) ought to be followed and according to the assessee, Rule 7(2)(b) was the correct rule to be followed. The Supreme Court rejected the argument of the assessee that Rule 7(2)(b) ought to be followed. It held at page 438 as follows: We are unable to uphold this argument. 'Market' in the context of rule 7 does not mean an open market where buyers and sellers get together for the purpose of purchase and sale of goods. The assessee-company regularly, year after year, in the ordinary course of business bought sugarcane from registered and unregistered ryots. Whether the purchase was at a price controlled by the Sugarcane Control Order or not is quite immaterial. There was a price at which sugarcane could ordinarily be purchased by the assessee for the purpose of its own business. The price paid by the assessee was the market price. It is by now well-settled that market does not have to be one open place of business where buyer and seller congregate (Emphasis Supplied). 37. According to the Supreme Court, it is not necessary that there must be an actual market where buyers and consum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's case, there is only a single buyer for the electricity generated by the Captive Generation Power which is the assessee himself. Just as in Thiru Arooran Sugars Ltd. v. CIT, the sugarcane produced by Thiru Arooran Sugars categorically confirms that there was only a single buyer viz. manufacturing unit of Thiru Arooran Sugars, the Supreme Court there stated that because manufacturing unit also bought from other growers, the price at which they obtain sugar cane should be adopted as market price. Applying this principle to the facts of the assessee's case, the assessee also buys electricity from other supplier viz Gujarat Electricity Board (GEB). It is not relevant whether that price was controlled or not. If the price at which the GEB supplied as controlled then that would be the market price vis-a-vis the assessee. Accordingly, the price charged by GEB should be adopted as market price. Therefore, the decision of Supreme Court in Thriu Arooran Sugars completely covers the situation of the assessee. 40. The Supreme Court at page 441 has stated as under: These are the principles universally applied to find out the price at which the goods are ordinarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heeling and distribution of losses. The Calcutta High Court concluded at page 12 as under: The rate at which electricity can be supplied to a consumer by the distribution licensee and the rate at which the generating companies can sell electricity to the distribution licensee are governed respectively by Sections 61 and 62 of the Electricity Act 2003. There is tariff regulatory commission which fixes both the rates for sale and purchase of electricity by the distribution licensee. There are provisions in Section 62 so that the generating companies can recover expected revenue on the basis of the tariff fixed by the commission. There are similarly provisions in Section 61 so that the distribution licensee can derive reasonable return. There is thus an in-built mechanism to ensure permissible profit both to the generating companies and the distribution licensees..... 45. This conclusion is indisputable as applicable to licenced generating companies selling in the market but has no application to a 'captive generating plant' as much as there is no tariff fixed by Tariff Regulation Commission for self-consumption. Therefore, the open market for sale of electricity by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore distribution licensees, the Appropriate Commission may, for promoting competition among distribution licensees, fix only maximum ceiling of tariff for retail sale of electricity. 47. On perusal of the above, it can be observed that section 62 of the Electricity Act 2003 authorizes commission to determine tariff for (1) Generating company supplying to distribution licensee, (2) Transmission of Electricity (3) Wheeling of electricity (4) Retail sales of electricity. 48. Thus captive power plant and its users are not covered under the four categories mentioned in section 62(1) above. Hence for supply of power by a captive power plant to the captive users or to open access consumers, it is not required to get the tariff approved by the commission as stated in section 86(1 )(a) of the Electricity Act, 2003. 49. Therefore, the decision of the Calcutta High Court cannot be applied to the acts of the assessee in as much as it was delivered in respect of A Y 2002-03 for which the Electricity Act 2003 did not apply and also for the reason that the Honourable Court has not considered the provisions of sections 8, 9, 42 and 2(g) of the Electricity Act, 2003. Further th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me and decision of Chattisgarh and Madras High Court and various benches of Tribunals and assessee's own case for the earlier year. 55. Furthermore the Supreme Court has endorsed the view that where there is a conflict between two High Courts the view in favour of the assessee must be adopted. There are several decision which have taken the same view, in cases with similar facts viz:-. 1. CIT v. Vegetable Products Ltd - 88 ITR 192 (SC) 2. Pradeep J Mehta v. CIT Ahmedabad - 169 Taxman 454 (SC) 3. CIT v. Naga Hills Tea Co. Ltd - 89 ITR 236 (SC) In view of the above discussion, the Calcutta High Court can have no application to the assessee s case. 56. In view of the above, we respectfully follow the order of the Tribunal in assessee s own case and confirm the order of CIT(A). 57. In the course of assessment AO made addition u/s.14A r.w.r. 8D. Facts in brief are that during the A.Y. 2007-08, dividend income of ₹ 107.81 crores was claimed by assessee as exempt u/s.10(34) of the Act. Investment in the shares, which yielded the dividend income were made out of net owned funds. The learned AO has disallowed estimated expenditure of ₹ 69.16 crores under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r consideration, the assessee has earned interest income of ₹ 88.01 crores which is exempt u/s 10(23G) of the Act and ₹ 22.44 crores being dividend income exempt u/s 10(34) of the Act aggregating to ₹ 110.45 crores, we restrict disallowance to 1% of the said exempt income which works out to ₹ 1,10,45,000/- for the purpose of computing the total income under the normal provisions of Act. In regard to disallowance u/s 14A for computing the book profit u/s 115JB of the Act, we have held hereinabove in para 9.7 that while computing the book profit u/s 115JB of the Act, the provisions of section 14A cannot be imported and therefore no disallowance u/s 14A of the Act can be considered while computing the book profit u/s 115JB of the Act. 61.5 In view of above ground No.2 of the appeal of assessee is allowed in part by restricting the disallowance to ₹ 1,10,45,000/- u/s 14A of the Act while computing total taxable income under the normal provisions of Act but no disallowance under section 14A be considered while computing the book profit u/s 115JB of the Act. 60. The learned AR submitted that the AO has not identified any expenditure which is directly i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 753 of 2016) (ii) CIT vs HDFC Bank Limited [ITA 330/2012 Bom HC] (iii) CIT Vs. Reliance Utilities Power Ltd reported in 313 ITR 340 [Bombay HC] (iv) CIT vs GUJARAT STATE FERTILIZERS CHEMICALS LTD [ITA 82 of 2013] 64. Respectfully following the above decisions, we direct AO to delete disallowance of interest. 65. With regard to disallowance under Rule 8D (2)(iii) we found that the Rule 8D is not applicable in the A.Y. 2007-08. Tribunal in the A.Y. 2006-07 restricted the disallowance at 1% of exempt income after considering the dlsallowances made in the preceding assessment years. In view of earlier orders of ITAT for A.Y. 2006-07 on similar facts and circumstances when rule 8D was not applicable, we direct the AO to restrict the disallowance u/s. 14A of the Act out of administrative expenses to the extent of 1% of exempt Income for the purpose of computation of income under normal provisions of Act in so far as Rule 8D is not applicable to A.Y. 2007-08 under consideration. We direct accordingly. 66. AO has also disallowed depreciation of ₹ 14.19 lakhs on the capitalised value of goods purchased from Durga Iron and Steel and Surajbhan Rajkumar Pvt. Ltd. By ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p of the jetty was to be with GMB although, the cost of building and jetty was made by the assessee. In the said case also, the assessee was required to pay landing and shipping fees (known as wharfage charges) @ 20% of the actual landing and shipping fees specified in the schedule of port charges. The balance 80% was required to be set-off against the capital investment i.e., the cost of the construction of jetties. After the capital investment was recovered through such set-off, the assessee was required to pay landing and shipping fees at normal rate. The agreement was to remain in force for a period of 25 years or till such time such aggregate of the rebate obtained by the assessee in wharfage charges equaled the amount of construction of the jetties, whichever is earlier. The assessee spent ₹ 14,25,63,02,471, and treated the same as intangible asset under section 32(1) of the Act on the reasoning that it was license and also represent business and commercial right on which the assessee claimed depreciation @ 25%. The Assessing Officer did not agree with the assessee and disallowed the claim. The first appellate authority also confirmed the action of the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll points are considered together, in our view, the expenditure in question give rise to acquisition of licence or other business or commercial right which are really in the nature of intangible asset and are fully covered within the meaning of section 32(1) of the Act. In the light of the above discussion, the contention of the assessee that the said expenditure is to be treated as an intangible asset, and therefore, the assets are entitled for appropriate depreciation by treating the said expenditure as part of the block of intangible asset is fair, reasonable and in accordance with the amendment provisions of law in this regard. 88. We observe that the terms of agreement of the assessee before us are similar to the terms of agreement which was considered in the case of Reliance Ports Terminals Ltd. (supra) and entered into with GMB. The benefit which the assessee before us is entitled to get on account of construction of jetty are similar to the case considered by the Tribunal, vide its order dated 26th November 2007 (supra). The learned Departmental Representative, during the course of his submissions, has not pointed out any distinguished facts in the case before us v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29/05/2015, wherein the ITAT has deleted the disallowance following the decision of DCIT Vs. M/s. Link Engineers Pvt Ltd (ITA No.968 2248/Del/2011). 74. As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal, we direct the AO to delete the disallowance of professional fee paid to various companies. 75. In ground No.6a, assessee is aggrieved by the action of CIT(A) confirming the addition made by AO of ₹ 48,82,456/- while determining the arm's length price in respect of commission paid to its associate enterprise Reliance Netherlands at ₹ 54.32 lakhs as against ₹ 103.15 lakhs paid by the assessee. 76. At the outset, learned AR fairly agreed that issue has been decided by the Tribunal in assessee s own case for the assessment year 2004-05 against assessee after having observation at page 54. Respectfully following the order of Tribunal in assessee s own case, we do not find any infirmity in the order of CIT(A) for confirming the addition in the A.Y.2007-08 2008-09. 77. In Ground No.6b, assessee is aggrieved by the action of CIT(A) in confirming the order of the AO in treating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 92B of the Act. 52.3 TPO did not accept above contention of the assessee. He stated that providing guarantee to its associated enterprises by assessee is a clear evidence of benefit being provided. That if Trevira GmbH had requested any bank or third party to provide such guarantee for its loans, it would have had to pay guarantee fee/commission. 52.4 The assessee cited an instance where it itself had paid guarantee commission of 0.25% per annum to ICICI in respect of guarantee provided to it. Without prejudice to the above contention, the assessee submitted to TPO that the same rate may be applied in the instant case also, as the above comparable relates to assessee's own loan transaction within India with the ICICI Bank, Mumbai. 52.5 TPO has stated that assessee has submitted only a comparable in which ICICI Bank, Mumbai granted loan to RIL which is a well established company with well established credentials in India. That the assessee's Associated Enterprises (AE) is based in Germany. That the details with regard to risk profile and the credit profile of its AE, Trevira GmbH with regard to the said loan transaction has not been submitted. Thus, TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso furnished details regarding guarantee commission charged by bank in India for giving non funded guarantees and it varies from 0.25% to 0.6%, the details thereof are given by ld. CIT(A) in table at page 43 of its impugned order as under : S. No. Document date Name of Bank providing guarantee Name of Company Guarantee fees/commission payable 1 13.01.2005 HSBC Reliance Industries Ltd., 0.25% 2 06.08.2007 HDFC Bank Ltd., Reliance Industries Ltd., 0.35% 3 04.10.2007 ICICI Bank Ltd., Reliance Gas Transportation Infrastructure Ltd., 0.25% 4 10.12.2007 Canara Bank Reliance Gas Transportation Infrastructure Ltd., 0.50% 5 11.12.2007 ABN AMRO Bank Reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke the rate of 0.38% as guarantee commission payable by the appellant. The addition is thus restricted to ₹ 1,71,30,400/- and the appellant gets a relief of ₹ 9,55,69,600/- (11,27,00,000 - 1,71,30,400). Being aggrieved the assessee as well as department, both are have raised this issue in their respective appeal before the Tribunal. 52.8 On behalf of the assessee, the ld. AR submitted that the assessee had given guarantee to the bank for the loan given to its associated enterprises because of business interest. Ld. AR submitted that the assessee has given guarantee to the bank I.T.A. No.4475/Mum/2007 68 and 7 other appeals and thus transaction is between the assessee and the bank, and it is unrelated party. It is not a transaction between the assessee and its associated enterprises and thus, cannot be termed as international transaction under section 92B of the Act. During the course of hearing the attention of the ld. AR was drawn to the amendment made by Finance Act, 2012 with retrospective effect from 1.4.2002 by way of Explanation to Section 92B whereby guarantee commission is now considered to be international transaction , the ld. AR submitted that if an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged any commission. In this regard, the assessee firstly contended that providing of guarantee by the assessee to the bank on behalf of its AE does not constitute an international transaction and the said transaction is between the assessee company and the bank, who are unrelated parties and not between the two associated enterprises. We are of the considered view that the above contention of the ld. AR has rightly been rejected by authorities below and particularly in view of the amendment made by Finance Act, 2012 with retrospective effect from 1.4.2002 by way of Explanation -(i) (c) of section 92B to include guarantee in the Expression international transaction . Therefore, the contention of the ld. AR that providing of guarantee to the bank on behalf of its AE does not fall in the definition of international transaction has no merits. We agree with TPO that there is a benefit to assessee's AE by providing of guarantee by the assessee for the loan taken from bank by Trevira GmbH. The assessee has undertaken a risk on behalf of its AE, which in any case, of third party consideration, the same would not have been undertaken or would have charged a consideration for i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .38%. Hence, we uphold the order of ld. CIT(A) to charge guarantee commission at the rate of 0.38% being ALP for the guarantee given by the assessee to Bank of America on behalf of its AE Trevira GmbH. In view of above, we reject Ground No.9 of the appeal taken by assessee as well as Ground No.6 of the appeal taken by the department. 81. Similarly in the assessment year 2006-07, the Tribunal observed as under:- 64.3 We have considered the above submissions of ld. Representatives of the parties and orders of authorities below. We agree with the ld. Representatives of the parties that similar issue has been considered by the Tribunal in preceding assessment year i.e. assessment year 2005-06 in paras 52.2 to 52.12 hereinabove. Since the facts and the issue in this assessment year i.e assessment year 2006-07 are identical to assessment year 2005-06, we for the reasons mentioned in paras 52.10 to 52.12 hereinabove uphold the order of ld. CIT(A) to charge guarantee commission at the rate of 0.385% being ALP for the guarantee given by the assessee to Bank of America on behalf of its AE Trivera GmbH. Hence Ground No.5 of the appeal taken by assessee as also Ground No.5 of the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 87. Contention of learned AR was that loans and advances given to the subsidiary companies are out of its own funds are given for furthering the business interest of the assessee and hence no disallowance is called for. 88. We have considered rival contentions and gone through the orders of lower authorities. We found in the case of Taurian Iron Steel Co. Pvt. Ltd., v/s. ADCIT (ITA No.5920/Mum/2012) similar adjustment has been restricted at LIBOR + 1.50%. In the case of Golawal Diamonds v/s. ACIT (ITA No. 518/Mum/2014) also adjustment has been restricted at LIBOR + 1.50%. Respectfully following the verdicts laid down by Tribunal in these cases under similar facts and circumstances, we direct the AO to restrict adjustment at LIBOR + 1.50%. We direct accordingly. 89. In Ground No.5 of the department appeal, the department is aggrieved by action of CIT(A) for allowing an amount of ₹ 4,83,25,200/- u/s. 40(a)(ia) of the Act, by holding that no tax was withheld U/s. 195 of the Act. 90. Brief facts of the case are that during the year under consideration the Income tax Officer (IT) TDS Range-2, Mumbai had passed an order u/s.201 (1) r.w.s. 201(1A) dated 25.10.2007 hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant was required to pay interest of USD 10,98,300 to DB Services Tennessee Inc. vide debt service invoice dtd. 23/1/2007. Approval for the above referred ECB was obtained from the Government of India, Ministry of Finance, Department of Economic Affairs (GOI) vide their letter dt.30/07/1996. Appellant made remittance of above mentioned interest without deduction of tax at source. The AO did not agree and after considering the appellant s contention, held that the tax was required to be deducted at source. The AO computed the tax to be deducted at ₹ 1,32,89,430/- and held appellant to be liable for default u/s.201 and further levied interest u/s.201(A), for the default in remittance, of ₹ 11,96,049/- for the delay of nine months. 4. Before the CIT(A), the assessee submitted that this issue has been examined by the ITAT in the assessee s own case in ITA Nos.5966, 5967, 5968/Mum/2002 vide order dated 23-3-2006 and ITA No.s 5407 5408/Mum/2007, vide order dated 15-4-2009. Learned CIT(A) after analyzing the issue in detail and the decision of the ITAT as have been relied upon, allowed the assessee s appeal. 5. We have carefully considered the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jamnagar. To resolve this issue it is in the interest of justice to first of all streamline the question to be answered by us which according to us are as follows: (1) What is the implication of Hon ble Delhi High Court decision as well as the SLP filed before the Hon ble Apex Court on the jurisdiction of the Tribunal.? (2) What is the scope of Section 10(15)(iv)(f) and whether the exemption was rightly withdrawn considering the utilization of ECB and merits of the case? (3) Whether the A.O was right in directing the assessee to deduct withholding tax @ 20% vide an order u/s.195(2) of IT Act 14. Even before we proceed to answer the above questions it is pertinent to examine the contents of section 248 of IT Act, which according to both the parties is the only section under which an appeal lies against such-direction as made in the impugned order u/s.195 of IT Act. The section 248 reads as follows: Appeal by person denying liability to deduct tax: 248. Any person having in accordance with the provisions of section 195 and 200 deducted and paid tax in respect of any sum chargeable under the Act, other than interest, who denies his liability to make such deduction may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir quasi-judicial power. Merely communicating the impugned judgment to the effect that such exemption had been withdrawn is communication of a foundation of fact. If, according to the petitioner, the order of the quasi judicial authority suffers from any illegality they could have carried the matter high up. So the Hon ble Court has viewed that the quasi-judicial authorities cannot be denuded of their quasi judicial power. Mere communication of withdrawal of exemption, according to the view expressed was a foundation of fact to be adjudicated by quasi-judicial authority to determine whether such an order suffers from any illegality. After expressing this view the Hon ble Court has concluded as follows vide placitum C and D on page 160. There cannot be any doubt whatsoever that the assessing authority and the appellate authority are quasi-judicial authorities. By reason of the order impugned in the writ petition the Central Government has in no way curtailed the power of a judicial or quasijudicial authority (c) It is well known that the jurisdiction of judicial review of this court is limited. Having regard to the facts and circumstances, we do not find that there ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y held that the full effect of the provision has to be given in preference to supporting legislature such as rules, notifications, approvals etc. Some of the decisions in this regard are worth quoting as follows: (i) CIT vs. Abdul Hussein Essaji Arsiwalla, 69 ITR 38 (Bom) wherein the Hon ble Court at page-44 has observed as under: It is a cardinal principle of interpretation that it is this main statute which will govern the rules made under the rule making power given under the Act and not view versa. If the interpretation of the provision of the statute is clear, a rule framed under the rule making power given under the statute cannot affect it. It is well-settled that rules must be interpreted in the light of the section under which it is made and no exercise of the rule-making power can affect or derogate from the full operative effect of the provisions of the statue. (ii) CIT vs. Taj Mahal Hotel, 82 ITR 44(SC), wherein vide para-49 the Hon b;e Court has observed as under: It has been rightly observed that the Rules meant only for the purpose of carrying out the provisions of the Act and they could not take was what was conferred by the Act or whittle down its ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, i.e of s 10(2). (iv) CIT vs. Hyderabad Asbestos Cement products Ltd, 172 ITR 762(AP) wherein the Hon ble Court at page No.775 776 has observed as under: Learned Counsel for the assessee invited our attention to the decision of the Supreme Court in CIT vs. S. Chenniappa Mudaliar (1969), 74 ITR 41. Relying on this decision, learned counsel represented that if the notification should be held to be inconsistent in any manner, it should given way to the statutory provisions contained in section 36(1)(iv) of the Act and, therefore, it is not strictly necessary for this court to strike down conditions Nos. 2 and 3 of the notification in question ... In all these cases, the courts were dealing with the constitutional validity of the provisions as opposed to the validity of subordinate legislation with reference to the provisions of the Act itself. Learned standing counsel does fairly admit that the Supreme Court decision referred to above does provide that even in a reference proceeding, if the subordinate legislation is held to be in excess of the power conferred, it could be ignored and the matter decided keeping in mind the provisions of the Act which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t conferred by the statute. With the result we hereby agree with the contentions of ld. A.R that the ITAT has both the power and duty to deal with such rules or notification and decide whether the same are in agreement with the main provisions of the statute. In view of above discussion, in the present appeal, now we have to decide the validity of the withdrawal of exemption as has been done by the subordinate competent authority. For this purpose first of all we have to examine the language of the relevant section and its scope as well as its application. 18. The section under with exemption is granted is section 10(15)(iv)(f) of IT Act, reads as follows: Income not included in total income 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included (15) . (iv) Interest payable --- (f) by an industrial undertaking in India on any money borrowed by it in foreign currency from sources outside India under a loan agreement approved by the Central Government having regard to the need for industrial development in India, to the extent to which such interest d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation was given in respect of the said unutilized ECB that there were letters of credit to the tune of US$224.88 million. So at that time it was mentioned that the conditions were satisfied as the entire amount of ECB obtained for Hazira Phase-II Project was either utilized in the Project or kept for Forex commitment. On page 15 of the compilation placed on record there is a detailed working of the amount utilized and also kept for Forex commitment. Subsequently a request was made to grant permission to pre-pay/ buy back to 20% of outstanding ECB per year. A proposal was made to the concerned Ministry in the year 1998. In response to this proposal of buy back of ECB a show cause was issued by the Ministry of Finance on 12/4/99. After prolonged correspondence between the appellant company and the Ministry there was a proposal from Dy.Director ECB for withdrawal of tax exemption granted u/s.10(15)(iv)(f). The main objection of the appellant in this regard is that the concerned authorities have arbitrarily decided to withdraw the exemption though there was no withdrawal as far as the approval of loan and agreement was concerned. The basic objection of the appellant company is that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the end used of money borrowed and specifically directed to be in respect of the purchase outside India or raw material or capital plant and machinery . So the end use in the said section is categorically specified. Few more sections have also been quoted in support of this argument, therein also the phrase was distinctly used. Another example cited of the phraseology used in section 10(15) (iv) (e) wherein the language used is, where the moneys are borrowed either for the purpose of advancing loan to industrial undertakings in India for purchase outside India or raw material or capital plant and for the purpose of importing any goods . So the section clearly laid down the purpose of utilization of monies borrowed. Thus the arguments before us is that the purpose of utilization of ECB is missing in the statute, therefore, imposition of such condition through a letter by Dy. Director (ECB) was illegal and against the intention of the legislature. 19. We have examined the several connected provisions referred supra and also the case laws in this regard and arrived at the conclusion that the Revenue Authorities have to act upon in the light of the statute and the provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r ld. A.R, the expenditure incurred on item for which ECB was proposed which had been made from the appellant s own resources incurred upto 22/11/95. So it was argued that it was very much within the knowledge of the concerned authority about the fungibility of funds. The said mixed method of utilization of funds was in a way accepted by the Ministry in the past. As far as the concept of fungibility of funds is concerned this is not a new concept and it is approved by several judicial authorities. We have persued the precedents cited in this regard in the light of the prevailing circumstances of the appeal in hand. In one of the case of Woolcombers of India Ltd 134 ITR 219 (cal) the concept of fungibility was considered and it was held that the profits were sufficient to meet the advance tax liability as the profits were deposited in the overdraft account, so the taxes were not paid out of overdraft but out of the profits of the relevant year. An another case of Hon ble Supreme Court has also been cited, decided in the case of J.B. Boda CO., 2323 ITR 271, wherein Their Lordship have expressed that, A two way traffic is unnecessary. To insist on a formal remittance first and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e borrower i.e the appellant company. If there was a mistake, for arguments, if at all the committed by the borrower even then the lender cannot be punished by withdrawal of exemption. This view of ours gets fortified by a decision of Hon ble Apex Court in the case of CIT vs. Chotatingrai Tea Estate Pvt. Ltd. Others, 258 ITR 259. 22. After an elobrate discussion made herein above we deem it proper to summarize the gist of those elongated paras. First of all we want to observe that if the bureaucracy or executive is acting in an unjustifiable manner then the only course left to a citizen is to approach the judiciary for legitimate redressal. This is what exactly had been done in this appeal by the appellant company. At first the company had tried to convince the authorities concerned i.e Dy. Director (ECB) about the utility of foreign currency loan already approved, but on failure knocked the door of the judiciary by filing a writ to Hon ble Delhi High Court. Special Leave Petition has also been filed, however, the Hon ble Apex Court vide an order dated 31/5/02 has observed as follows: Be that as it may, since the issue of utilization or pre-payment of the ECBs is not befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l within the knowledge of the concerned authority could not be retracted. As the facts indicates retrospectively the mode of utilization of the funds could not be altered. Rather the sanctioning authority has not checked at that very point of time when according to them, if at all, there was mis-utilization of ECB borrowings. On the contrary the claim of the assessee was that the utilization was in accordance with the scheme though by the process of fungible funds, the obligations were satisfied and the conditions were fulfilled. So according to us, at that stage, it was catastrophic to withdraw the exemption already granted u/s.10(15)(iv)(f). Due to the withdrawal of the exemption the impugned order u/s.195(2), now under dispute was passed directing to deduct with holding tax @ 20%. To arrive at a logical conclusion first we hold that, considering the totality of the facts, circumstances, conditions of the scheme, evidences of utility of the funds and the legal matrix of the case, the withdrawal of exemption was unwarranted. Consequent there upon we also hold that the appellant company was not liable to deduct withholding tax @ 20% in respect of the interest payment of US $ 1,05,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal filed by the department. Hence, the grounds taken by the revenue are dismissed. 7. In the result, the appeal filed by the department is dismissed 92. As the facts and circumstances during the year under consideration are same, respectfully following the order of Tribunal in assessee s own case, we do not find any infirmity in the order of CIT(A) allowing amount u/s.40(a)(ia) of IT Act. 93. In Ground No.6, Revenue is aggrieved by the action of CIT(A) restricting the guarantee commission @0.575% in place of 2.5% of non-funded guarantee given by assessee for advancing loan to its associated concerns. 94. We found that on this issue both assessee and revenue are in appeal and the Tribunal in its order for assessment year 2006-07 at para 64.3 have restricted the disallowance to 0.38%. We had already discussed the issue at para 64.3 hereinabove. Accordingly AO is directed to restrict the same to 0.38% Grounds taken by assessee in ITA NO.796/Mum/2013 (A.Y.2008-09) reads as under: 1. The learned Commissioner of Income-tax - (Appeals - 15) {hereinafter referred to as CIT(A)} erred in rejecting the Appellant's alternative plea that there is a deemed payment of sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) erred in confirming the reduction of profits of the business of the undertaking while computing deduction under section 10B of the Act by an amount of ₹ 7,56,20,473/- being recoveries of various expenses incurred and charged to Profit and Loss Account of the undertaking. The appellant submits that the other income of ₹ 7,56,20,473/- represents recoveries of expenses incurred and debited to Profit Loss Account of the undertaking and therefore the same has been rightly included in the profit of the business of the undertaking while computing deduction under section 10B of the Act. 5. The CIT(A) erred in confirming the disallowance made by the AO of ₹ 6,79,77,588/- being Professional Fees Paid to various parties, holding that the parties have not rendered any services to the appellant and the appellant has not been able to establish the nature of consultancy services rendered by these parties. The appellant submits the Professional Fees has been paid to various parties for rendering Liasioning services in the normal course of business and ought to have been allowed u/s.37 of the Act. 6. a. The CIT(A) erred in confirming the addition made by the A.O. o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) erred in deleting the notional sales tax of ₹ 11,33,25,21,847/- which has been treated as revenue receipt by the A.O. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing depreciation as claimed by assessee at ₹ 32,28,00,18,444/- against the depreciation allowed at ₹ 30,12,64,26,001/- by directing to adopt the WDV of the assets as on 01/04/2007 and thereby disallowing ₹ 2,15,35,92,443/- being depreciation on plants at Hazira, Patalganga Cracker Unit at Hazira, Oil Gas division , SBM Refinery and Polypropylene and Paraxylene complex at Jamnagar and also erred in allowing consequential change of the claim of deduction u/s.80IA U/s.80IB of the IT. Act. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not deciding the issue on merits in view of provisions of section 80lA of the Income Tax Act, 1961. 4. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that section 80IA(8) of the IT. Act. has clearly defined that market value means the price the goods/services would fetch if these were sold by the unit/undertaking in the op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of ₹ 11,33,25,21,847/- claimed u/s.43B. The facts and circumstances of the case are parametria to what we have decided in ground No.1 of assessee s and department s appeal for the A.Y.2007-08 hereinabove. AO is directed accordingly. 97. In ground No.2, assessee has alleged disallowance of ₹ 101.93 crores u/s.14A read with Rule 8D. Facts in brief are that during the year under consideration assessee has received dividend of ₹ 17.62 crores and same is claimed exempt u/s 10(34)/(35) of the I.T. Act in its computation of total income. The assessee had identified the expenditure of ₹ 3,30,60,894/- being salary, administrative and IT cost of employees working in the treasury department and disallowed the same u/s.14A of the Act being expenditure relatable for earning the exempt income. The AO however did not accept the disallowance made by the assessee and determined an amount of ₹ 101.93 crores being expenditure relatable for earning the exempt income u/s.14A of the Act r. w. Rule 8D of the IT Rules, i.e. proportionate disallowance out of interest on borrowed funds of ₹ 22.76 crores and ₹ 79.17 crores being 0.5% of the average value of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture. 101. Respectfully following the decision of Bombay High Court in case of Reliance Utiities (supra) of HDFC Bank (supra), we direct AO to delete disallowance of interest so made. 102. From the record, we found that the investments in the subsidiary companies have been made for strategic purpose of having controlling interest therein, and there was no intention of earning exempt income therefrom for the purposes of calculating the disallowance under Rule 8D(2)(ii) and 8D(2)(iii) of the IT. Rules only those investment has to be considered on which the assessee has received the dividend for this purpose reliance can be placed on the decision of Hon'ble Delhi High Court in the case of ACB India Limited [TS-176-HC-201S-Del). 103. It was argued by learned AR that exempt income is ₹ 17.62/- crore only whereas the disallowance made by the AO is ₹ 101.93 crores, which is far in excess of exempt income earned by the assessee. The disallowance u/s 14A of the IT. Act cannot exceed the exempt income. For this purpose reliance was placed on the judgment of Hon 'ble Delhi High Court in the case of JOINT INVESTMENTS PVT LTD vs CIT [TS-92-HC-20I5-Del). 104. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 7,56,20,473/- being recoveries of various expenses incurred and charged to Profit and Loss Account of the Undertaking. 110. We have considered rival contentions and found from record that the assessee in the return of income had claimed exemption u/s.l0B of the Income tax Act with reference to Refinery and Petrochemicals Undertaking. While computing the deduction u/s.10B of the Act, other income of ₹ 98S,83, 198/- was considered as part of the eligible profit as the same was derived from the business of export. However the AO in the assessment order has excluded the amount of other income of ₹ 985,83,198/- while computing deduction u/s.l0B of the Act by observing that the nature of these receipts clearly indicates that they are not derived from the export of goods by Export Oriented Unit. Further, relying on the Supreme Court judgement in the case of Liberty India (317 ITR 218) wherein it has been held that the other income cannot be considered as income derived from the export of goods, the AO excluded the other income while computing the deduction u/s.l0B of the Act. The action of the AO has been upheld by the CIT(A). 111. We had verified the detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid services which was debited to Profit and Loss account under professional fees. All the payments concerning the above services rendered by these companies were made by Alc. Payee Cheques. The AO however, disallowed the amount of ₹ 6,79,77,588/- being reimbursement of expenses and professional fees paid by the assessee, on the basis that no services were rendered by above parties to the assessee. The disallowance made by the AO has been confirmed by the CIT(A). 117. It was contended by learned AR that the AO has made the disallowance just on the basis of the letter received from Income tax Officer, Ward 37(1), New Delhi. The assessee has furnished the details of professional services rendered by the above parties, and the bills given by them for rendering the services. The assessee also submitted that the aforesaid two parties have rendered liasioning and coordination services like maintaining cordial relationship with various agencies and departments, Delhi being capital of the country there are various offices located at Delhi where lot of procedural work is required. The liasioning and coordination services are required for keeping good relationship with these o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. AR submitted that the issues involved in all these three appeals stand covered vide order of this Tribunal in the case of assessee s sons Shri Anish Kumar Gupta and Shri Ashish Kumar Gupta in ITA Nos. 120 121/Del/2013 for A.Ys 2007-08 and 2008-09, a copy of which has been furnished on record. The ld. AR further submitted that neither the ld. CIT(A) nor the AO was justified in coming to a haste and arbitrary conclusion without appreciating the facts and circumstances of the case and without verifying the confirmations of the assessee of the assessee placed on record. The ld. AR contended that he has no objection if the matter is restored to the file of the AO for fresh adjudication and prayed that the AO may be directed to verify the confirmations before passing order. 3.On careful consideration of above submissions, at the outset, from the copy of the order of the Tribunal dated 9.1.2014, passed in the cases of Shri Anish Kumar Gupta and Shri Ashish Kumar Gupta in ITA Nos. 120 to 121/Del/2013 and 112 to 114/Del/2013 for ay 2007-08 to 2009-10 [supra] as relied upon by the ld. AR of the present assessee, we observe that in the appeal of Shri Anish Kumar Gupta, the issue is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pages 53 and 63 of the paper book. We have gone through these documents. This issue is also set aside to the file of the Assessing Officer for readjudication. Learned Assessing Officer shall keep in mind that similar additions are deleted by Learned CIT(Appeals) in assessment year 2006-07 and ITAT has affirmed the order of Learned CIT(Appeals). He shall also keep in mind that in the case of Anish Gupta, he himself made addition on protective basis. 14. Now, we take the remaining grounds of appeal in the case of Ashish Kumar Gupta. The ground No.5 in assessment year 2007-08 is connected with Ground No.2. In this ground, assessee has pleaded that Learned CIT(Appeals) has erred in confirming the addition of ₹ 1,53488. The brief facts of the case are that according to the Assessing Officer, assessee had shown advance of ₹ 114,76,588 while he has furnished the details by way of cash received from the agriculturalist at ₹ 113,23,100. The Assessing Officer has made the addition of this amount under sec. 68 of the Act. He treated the balance amount i.e. difference between these two at ₹ 1,53,488 as unexplained on the ground that assessee has neither given the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ₹ 255,77,109 minus ₹ 7,99,012. 17. In assessment year 2009-10, Assessing Officer has again made an addition of ₹ 46,08,774. The assessee had received a sum of ₹ 49,00,004 from Reliance Industries and out of this amount, a sum of ₹ 45,03,104 was towards the reimbursement of expenditure. The Assessing Officer has made an assessment of ₹ 46,08,774 on protective basis. He worked out this amount by debiting a sum of ₹ 1,80,000 claimed by the assessee as consultancy charges from the total amount paid by the Reliance Industries Ltd. in this year. 18. The facts are similar to that of Shri Anish Kumar Gupta as discussed in the foregoing paragraphs of this order. Learned Assessing Officer in two assessment years i.e. 2008-09 and 2009-10 himself has observed that the alleged receipts from the Reliance Industries is to be assessed on protective basis in the hands of the assessee, then how he can made addition on substantive basis in assessment year 2007-08. We have set aside this also to the file of the Assessing Officer for readjudication in the case of his brother. Following our observations in para 13, we allow these grounds also and set asi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g recorded by the Tribunal in the hands of the recipients Vijay Kumar Gupta and Anish Kumar Gupta, we restore the matter back to the file of AO for deciding afresh the allowability of professional fees paid by assessee. 122. Ground No.6 pertains to addition made in respect of commission paid to its associated enterprises by determining the arm s length price at ₹ 26,18,980/- as against ₹ 43,64,968/-. We have already considered this issue in the A.Y.2007-08 while deciding ground No.6(a) hereinabove, as the facts and circumstances are same. We confirm the addition made by the lower authorities. 123. Ground No.6(b) and (c) pertain to addition made on account of arm s length price of guarantee commission in respect of non-funded guarantee provided to AE. We have considered rival contentions. This issue has been decided by us in ground No. 6(c) of assessee s appeal for the A.Y.2007-08. As the facts and circumstances are same, respectfully following the reasoning given hereinabove in the A.Y.2007-08, disallowance is restricted to 0.385%. We direct accordingly. 124. Ground No. 6(d) pertains to determining the arm's length price of interest, (in respect of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 132. Ground No.6 refers to decline of depreciation in respect of jetties we have already considered in length this issue in the A.Y.2007-08 while deciding ground No.4 of assessee s appeal. As the facts and circumstances are the same, following the same reasoning, we dismiss the ground raised by the Revenue. 133. Ground No. 6 relates to the disallowance of part of the lease rent of ₹ 6,08,48,652/-, being portion of lease rent held to be repayment of principal. The disallowance has been made in respect of the two pipelines, i.e. Hazira-Dahej pipeline and Dahej-Baroda pipeline, following the reasoning adopted in the assessments for AY s 2003-04 and 2004-05. 134. We have considered rival contentions and found that this issue was decided in favour of the assessee by ITAT Mumbai in the case of Indian Petrochemicals Corp. Ltd. a company merged with the assessee company vide its order in ITA Nos. 1426/Ahd/2009 3921/Mum/2009 for A Y 2005-06 and IT No.4005/Mum/2013 for A Y 2006-07 vide order dated 18.11.2015. As the facts and circumstances are identical; therefore, the disallowance deleted by the CIT(A) deserves to be confirmed. 135. Ground No. 8 9 of Revenue s appeal re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit and Loss Account of the undertaking. The appellant submits that the other income of ₹ 11, 17,23,864/- represents recoveries of expenses incurred and debited to Profit Loss Account of the undertaking and therefore the same has been rightly included in the profit of the business of the undertaking while computing deduction under section 10B of the Act. 4. The appellant reserves the right to add, amend, alter or vary all or any of the above grounds of appeal as they or their representatives may think fit. 139. In this appeal, assessee is aggrieved for reopening of assessment as well as merit of the addition so made. It was contended by learned AR that notices u/s.148 is bad in law for want of jurisdiction. After going through the reasons recorded for reopening, we do not find any infirmity in the order of lower authorities for reopening of assessment. 140. In ground No.2, assessee is aggrieved for disallowance of ₹ 83,75,235/- being Professional Fees Paid to various parties by holding that the parties have not rendered any services to the assessee and the assessee has not been able to establish the nature of consultancy services rendered by these parties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.14A of the Act r.w.r. 80 of the Income tax Rules, as against ₹ 50,384/- disallowed by the appellant, being expenditure incurred in relation to the income exempt u/s. 10(34/35) of the Act while computing book profit u/s.115JB of the Act. The appellant submits that an expenditure of ₹ 50,384/- has been worked out as incurred in relation to earning exempt dividend income and further the provisions of Section 14A of the Act r.w.r. 8D is not-applicable while computing book profits u/s. 115JB of the Act, therefore the disallowance of the estimated expenditure ought to be restricted to ₹ 50,384/- for computing book profit u/s. 115JB of the Act. c. The CIT (A) erred in confirming the action of the AO in disallowing expenditure u/s.14A of the Act r.w.r. 80 of the Income tax Rules, i) without recording satisfaction on the correctness of expenditure disallowed by the appellant with regards to the accounts of the appellant. ii) with reference to investments in shares of subsidiary companies which are made for strategic purpose. iii) with reference to investments in shares and securities which have not given rise to exempted income. d. In the alternative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Appellant submits that the guarantee commission rate, adopted by the appellant @0.30% p.a. is comparable with guarantee commission rates prevailing in the market for similar kind of guarantees given by banks, for which comparable cases were furnished by the appellant. c. The CIT(A) erred in confirming the action of the AO in determining the arms length price at ₹ 29,61,74,7231- being interest chargeable in respect of interest free loan of USD 70,000,000 (equivalent to ₹ 3,55,04,00,000) and Euro 12,946,245 (equivalent to ₹ 81,91,00,000), advanced to its AE i.e. M/s. RIME DMCC, UAE. d. The CIT(A) erred in confirming the action of the AO in computing an arms length interest on the aforesaid loan of USD 70,000,000 (equivalent to ₹ 3,55,04,00,000) which was converted into 5% Non-cumulative compulsory convertible preference shares of the AE, allotted to the appellant, as on 31st March 2009, which was duly substantiated by share certificate issued by the AE. Further, the balance loan of Euro 12,946,245 (equivalent to ₹ 81,91,00,000) was advance to the AE for furthering the business interest of the appellant by enabling to expand itself in interna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the case. 6. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to adopt the rate of 0.575% as the ALP of the guarantee commission without appreciating the facts of the case. 7. The appellant prays that the order of the ld. CIT(A) on the above ground be set aside and that of the Assessing Officer restored. 8. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 144. All the above grounds are similar to the grounds raised in the A.Y. 2007-08 and 2008-09 which we have elaborately discussed hereinabove. Following the same reasoning, we direct the AO to follow the same. In Ground No.2, assessee is aggrieved for disallowance u/s.14A r.w.R.8D. We found that assessee was having sufficient interest free funds during this year also. Following the reasoning given by us in the A.Y. 2008-09, we direct for deleting the disallowance of interest. With regard to disallowance under Rule 8D(2)(iii), AO is directed to follow the procedure given in the A.Y. 2008-09 for excluding investment made for strategic purposes and also to exclude the investment income from which does not form part of to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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