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TMI Blog2017 (4) TMI 1489X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Textiles, Generation & Distribution of Power and Operation of Jetties and related infrastructure, Retail Marketing and Petroleum Products and Investment. During the course of scrutiny assessment, AO made disallowance u/s.14A. The depreciation on capital value of goods purchased from Durga Iron & Steel Ltd., and Surajbhan Rajkumar Pvt. Ltd., was also disallowed. Claim of deduction u/s.80IA was also declined by AO. AO also disallowed professional 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apitalized value of goods purchased from Durga Iron & Steel Ltd. and Surajbhan Rajkumar Pvt. Ltd. in A.Y. 2003-2004. The Appellants submits that the cost of the goods purchased from the above parties were capitalised as plant and machinery in A.Y. 2003-04 and were used during the year under consideration and hence depreciation u/s. 32 of the I.T. Act on such capitalised value of the goods is allowable. 4. The CIT(A) erred in confirming the disallowance of depreciation of Rs. 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 Rs. 55,35,000/- as claimed by it be allowed. 5. The CIT(A) erred in confirming the disallowance of an amount of Rs. 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 ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been treated as revenue receipt by the A.O. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing depreciation as claimed by assessee at Rs. 35,29,64,19,750/- against the deprecation allowed by the A.O. at Rs. 32,67,34,84,564/- by directing to adopt the WDV of the assets as on 01-04-2008. 3. On the 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant, In the decision of Hon'ble Special Bench of Mumbai ITAT in Appellant's own case for AY. 19~6-87 (88 ITD273) (S.B.) it was held that: "The question for consideration is whether the Tribunal in the case of Reliance Industries Ltd. (Supra) had correctly appreciated and interpreted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of setting up the industry and the subsidy given after the industry commences of production and conditional upon the commencement of production. Factually, the Tribunal found that the assessee's case which fell under the Maharashtra scheme, was a case where the subsidy was given for the purpose 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Sales tax being capital in nature not liable to tax has 'been allowed as above, it is not considered necessary to go into the alternative plea of the Appellant claiming the Notional Sales Tax as deductible U/S 43B. However, it may be pointed out that similar alternative plea taken in A.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 authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited (supra) which had taken a contrary view that the subsidy is revenue receipt. It was contended that in subsequent assessment years ITAT has allowed similar claim of the assessee and even in the just preceding assessment year 2001-02 the claim for deduction of notional sales tax was 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary to go into the alternative plea of the assessee claiming the notional sales tax is deductible under section 43B of the Act. Therefore, ground No.1 of the appeal taken by the assessee is rejected. 13. As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal in assessee's own case vis-à-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 Rs. 35,29,64,19,750/- The AO has allowed depreciation at Rs. 3267,34,84,564/- as against the claim of Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al has come to a conclusion that the depreciation can be allowed only when the claim for such deduction is made by the assessee, Moreover, the Hon'ble Tribunal has further observed that even after omission of section 34 and introduction of block '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 Rs. 4,83,08,34,782/- cannot be thrust upon the appellant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f depreciation mandatory. Ld. CIT(A) has stated that in the earlier years, the assessee did not claim any depreciation on the said plants/units. Hence, it was eligible for the claim of depreciation on the original WDV and not on 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A(8)reads as follows: "Where any goods (or services) held for the 'purposes of the eligible business are transferred to 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 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. (Expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I find that the Assessing Officer has assumed the power u/s. 80IA(B) without bringing any material on record to show that the price recorded in the books by the eligible business did not correspond to the market 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 992. The normative parameters have been fixed by the Government, which is required to be followed by all, and no deviation in fixing the tariff is allowed Hence, even here, the rate cannot be taken to be the "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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10) was inserted by the Finance (No.2) ct, 2009 and was made operational w.r.e.f 01/04/2001 while sec. 80A(6) was also inserted by the Finance (No.2) Act, 2009 and was made operational w.r.e.f 01/04/2009. 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 powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the consideration recorded by the assessee's undertaking generating electric power for transfer power for captive "consumption at' the rate of Rs. 3.72 per unit corresponds to the market 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 trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e suppliers is lower than the role 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 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 (Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating companies. The decision therefore cannot hold the field for A Y 2007-08, 2008-09 and 2009-10 as these Assessment years are years after the Electricity 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 distr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt through the grid shall be regulated in the same manner as the generating station of a generating company. Provided further [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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egulation of intra department consumption by any person generating electricity. In other words, for a person generating 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grown; and (iii) such amount as the Assessing Officer finds, having regard to all the circumstances in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a willing seller are expected to transact business. Applying, this principle of the facts of 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price would be different from the selling price of electricity on account of wheeling 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of distribution of electricity in the same area by two or more 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt which are earlier in point of time 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 Rs. 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 Rs. 69 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration, the assessee has earned interest income of Rs. 88.01 crores which is exempt u/s 10(23G) of the Act and Rs. 22.44 crores being dividend income exempt u/s 10(34) of the Act aggregating to Rs. 110.45 crores, we restrict disallowance to 1% of the said exempt income which works out to Rs. 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 Rs. 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 incurred in relation to the ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 14.19 lakhs on the capitalised value of goods purchased from Durga Iron and Steel and Surajbhan Rajkumar Pvt. Ltd. By the impugned order CIT(A) confirmed the same. 67. At the outset, learned AR fairly conceded that the issue has been decided against assessee by Tribunal in the assessment year 2006-07. As the facts and circumstances during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 Officer. Further, the Commissioner (Appeals) held that the expenditure to be allowed proportionately over a period of 25 years. Being aggrieved, the assessee filed appeal before the Tribunal. The Tribunal, after considering the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 viz-a-viz in the above case of Reliance Ports and Terminals Ltd. (supra). We observe that the decision in above case squarely apply to the facts of the case before us. Therefore, respectfully following the earlier order of the Tribunal dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 Rs. 48,82,456/- while determining the arm's length price in respect of commission paid to its associate enterprise Reliance Netherlands at Rs. 54.32 lakhs as against Rs. 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 the non funded guarantee given by the assessee to the Bank of America for giving loan to its associated concern Trivera Gmbh as international transaction. It was pleaded by learned AR that above transaction does not fall within the definition of international transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de 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 stated that assessee's contention that 0.25% guarantee fee should be applied cannot be accepted as it does not factor in certain essential variables such as place of the loan transaction and the normal range of guarantee fee charged there, the I.T.A. No.4475/Mum/2007 66 and 7 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviding 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 Industries Ltd., 0.60% 6 12.03.2005 Standard Chartered Bank Reliance Industries Ltd., 0.25% 7 27.04.2005 Bank of America Reliance Industries Ltd., 0.25% 8 18.12.2004 HSBC Reliance Industries Ltd., 0.25% 9 05.02.2008 Bank of America Trevira GmbH 0.50% 10 06.02.2008 Commerzbank Trevira GmbH 0.65% 52.6 It was also contended in the alternative that guarantee commission in the given set of facts cannot be considered more than 0.25% p.a. which is comparable with the rates prevailing in the market in similar kind of guarantees given by bank. 52.7 Ld. CIT(A) considered the submissions of the assessee and vide paragraph 15.6.7 has directed the AO to take rate of 0.38% as guarantee commission payable and thus restricted the addition to Rs. 1,71,30,400/- and g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he guarantee commission could be considered at the lowest rate paid by assessee i.e. 0.25% and Rule 10B(1)(a) does not permit for taking the average rate while applying CUP method for making any adjustment on account of transactions with associated enterprises. Ld. AR submitted that rate of guarantee of 2.5% as considered by TPO is in respect of the parties where both are outside India and relates to furnishing guarantee in case of a finance company. He submitted that charging of guarantee commission depends on various factors. Ld. AR submitted that business strategy should be taken into consideration while making any Transfer Pricing adjustment in respect of such transaction. Hence, said rate of 2.5% is not comparable and the ld. CIT(A) should have taken the rate of guarantee commission at 0.25% as ALP which is comparable for similar kind of guarantee given by bank in India. 52.9 On the other hand, ld. DR while supporting the order of TPO submitted that the transaction of giving guarantee by the assessee to its Associate Enterprise is "International Transaction" and the same was not benchmarked by the assessee. He referred the amendment made by the Finance Act, 2012 with retrosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion arises as to what should be the rate of guarantee commission at ALP. Ld. CIT(A) has given the details of guarantee commissions charged by bank in India for giving non-funded guarantees to third party and it varies from 0.25% to 0.6% per annum. On the other hand, TPO has compared the rate bearing risk at 2.5% by considering an external comparables of a finance company. However, it is a fact that while applying the external comparables, the TPO has not brought out any thing on record that under which terms and conditions and circumstances the said public company has charged 2.5% rate of guarantee commission for providing guarantee on behalf of the Finance Company. The charging of a guarantee commission depends upon transaction to transaction and mutual understanding between the parties. There may be a case where bank may not charge any guarantee commission, depending upon it's evaluation of relationship with a particular client. Therefore, universal application of rate of 2.5% for guarantee commission cannot be considered a market rate as it largely depends upon the terms and conditions on which loan has been given, risk undertaken, relationship between bank and the client ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. 82. In view of the above discussion, respectfully following the order of the Tribunal consistently taking the view to restrict guarantee commission at 0.385%, we direct the AO to restrict the addition on account of guarantee commission to 0.385% in the A.Y. 2007-08, 2008-09 & 2009-10. We direct accordingly. 83. In Ground No.6c, assessee is also aggrieved by the action of CIT(A) in confirming the arm's length price in respect of non-funded guarantee given by the assessee for advancing loans to its associated concerns to the extent of Rs. 2,14,98,100/- being 0.575% of the guarantee amount. 84. As discussed above, the Tribunal in the assessment year 2005-06 and 2006-07 have restricted the addition at Rs. 0.38%. Respectfully following the order of the Tribunal, we direct the AO to restrict the addition on account of non-funded guarantee to 0.38% in all the years under consideration. 85. In Ground No.6d, assessee is aggrieved by the action of CIT(A) in confirming arm's length price in respect of an amount of Rs. 13,52,01,303/- being interest payment referable to interest free loans and advances given to its subsidiary companies. 86. Relevant facts giving rise to above grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest in FY 2006-07 without deduction of withholding tax u/s 195 of the Income tax Act, 1961. Accordingly, the ITO TDS held that the assessee had failed to comply with the provisions of section 195 of the act by not deducting and remitting the withholding tax. 91. Learned AR placed on record the order of the Tribunal in assessee's own case in ITA No.4595/Mum/2010 dated 08/06/2012 wherein the appeal of the revenue on this ground was dismissed after having the following observation. 3. The relevant facts as culled from the order of CIT(A) are that M/s Reliance Industries Ltd. had raised foreign currency loans of USD 100 million through the issue of 10.5% Foreign Currency notes lead managed by Merrill Llynch & Morgan Stanley for the purpose of financing the import of capital goods and services. All payments made under the loan agreement are net of taxes. ECB loan were raised and the approval from Government of India was obtained for taking the loans through following letters. Sl. No. Letter No. and Dated Amount (USD) Million F. No.6(50)/93-ECS, dated 19.07.1995 and subsequent letter dated 22.09.1995 and 15.02.1996 (Loan Key No.1995145) 150 F.No.6(358)/95-EC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not in dispute inasmuch as it is also not in dispute that on the identical issue in the case of Reliance Industries Ltd V/s Dy. Director of Income Tax (IT) 2(1) ITA No.516/Mum/2002 dated 8.2.2005; (2005) 98 TTJ (Mum); (2005) 3 SOT 501(Mum.), the Tribunal has decided the matter in favour of the assessee vide finding recorded in paragraphs 13 to 22 of the report which are reproduced as under : "13. We have carefully heard the submissions of both the sides at length and thoroughly examined the factual as well as legal aspect of the issue raised before us on proper perusal of the material placed before us. The appellant was aggrieved and the issue arises from an order passed u/s. 195(2) of IT Act dated 13/2/02, relevant portion already reproduced supra, through which the assessee was directed to remit the interest only after deducting with holding tax @ 20%. In fact the appellant has moved an application seeking a "No Objection Certificate" in respect of remittance of interest of US $ 1,05,902.78 to M/s. Deutsche Bank, AG London without deduction of with holding tax at source. This request was rejected by the concerned authority i.e Dy.Director of Income Tax (International Taxation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 327(SC) it was held that, "language of section 248 is wide enough to cover any order passed u/s.195". In an another decision Hon'ble Karnataka High Court in the case of ACIT vs. Motor Industries Co., 249 ITR 141 has also entertained this argument that where an assessee was denying the very liability to deduct tax, the Tribunal was justified in entertaining the appeal in respect of the liability u/s.195 of IT Act and appeals relating to levy of interest. These two decisions are sufficient and suffice to state that the first appellate authority as well as the Tribunal both are competent to decide this issue being duly authorized by the above cited provision of IT Act. 15. Now, we have to answer the first question about the jurisdiction of this Tribunal keeping in view the order of Hon'ble Delhi High Court and the SLP decided by the Hon'ble Apex Court. On careful reading of the order of the Delhi High Court it is implicit that the Court was aware of the fact that vide an order u/s.195(2) dated 13/2/02 the application of the assessee had been rejected. Further the Hon'ble Court was also aware that an appeal had been preferred by the appellant against the said rejection before the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Court has not shown its concern with the merits of the decision. On a conjoint reading of the two paras it is amply clear that the matter was left open to be decided by quasi-judicial authorities after taking into account the merits of the decision of withdrawal of exemption challenged before the Hon'ble Court. So we have to act upon accordingly and following the direction of the Hon'ble Court hereby we are authorized as well as empowered to decide this appeal. 16. At this juncture, even after deciding the issue of jurisdiction whether lies with the Tribunal, or not, in above para, still we deem it proper to consider a step further that whether the Tribunal has jurisdiction to look into the question as whether the decision of the Central Government and withdrawal of exemption was correct. In this connection an argument was placed before us that an Act is the supreme considering the hierarchical levels i.e the supreme is the Act then comes the rule made there under, next is the position of notification and the last is letters or approvals. It was argued with supporting case laws that the rules must be sub-servient to the provisions of the section enacted in a statute. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting it and in the light and spirit of the parent or enabling statute. It cannot be postulated that the right of delegation can be unlimited in its scope..................................................... All rules or forms which are creatures of such rules, prescribed for the purpose of effectuating the policy of the statute, must be read in the light of the statutory provisions in the main enactment under which they are made and therefore, such rules or forms cannot contradict or create an irreconcilable position resulting in an anomalous situation. The primary and the only object of the income-tax Act is to tax, tax and tax the income. If the legislature in its wisdom grants a concession and by creating a concession a reciprocal right or privilege is vested in a assessee, such a reciprocal right cannot be wildly dealt with so as to negate its usefulness by making a rule which cannot be reconciled with the main statutory provision. The object of the subordinate legislature is to carry out the statutory provisions effectively and not to neutralize or contradict them. The rules made under the rule-making power should strictly conform with the intendment of the main provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Civil Procedure Code." (vi) CIT vs. Sirpur Paper Mills, 237 ITR 41(SC), as per the head notes relevant observation of the Hon'ble Court is as follows. "The section states that the deduction shall be wholly allowed. It permits the Board to specify conditions but these conditions cannot have the effect of curtailing the scope of the deduction granted by the section. The amplitude of the deduction permitted by the section cannot be cut down under the guise of imposing a "condition". In fact, this is not a condition but an impermissible attempt to rewrite the section. The last condition imposed by the said notification is that the deduction shall be spread out equally over a period of five years commencing with the assessment year relating to the previous year in which the amount was paid. This too is n "condition" but a provision super added to the section which does not contemplate any such distribution of the deduction. Under the section the deduction is available in the assessment year relating to the previous year in which the payment was made and it must be so granted. The second and third conditions aforesaid are not valid". 17. The purpose of above discussion by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m sources outside India, thirdly the loan agreement must be approved by the Central Government having regard to the need for industrial development in India and lastly the rate of interest payable on the said loan should not exceed the rate approved by the Central Government having regard to the terms of the loan and its repayment. While considering the arguments of ld. A.R. Supra, we have examined the procedure adopted by the appellant as well as the prescribed authority before approving the loan. The company has raised foreign currency loan in the past as an External Commercial Borrowings (ECB). In this regard several correspondence has been made with the Government of India and the loan was approved by the Director (ECB), Department of Economic Affairs, Ministry of Finance, North Block, New Delhi. As far as the approval of loan and the sanctioning of agreement is concerned the same is not in dispute and it is an admitted fact supported by several correspondence and letters written may back since 1993 onwards. There is a reference of such correspondence in the above paras of this order and the paper book contains the copies of all those letters and approvals. To finance its proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was directed to deduct tax @ 20%. The pertinent question which is to be answered is whether it was justifiable on the part of the Dy.Director (ECB) to change the rules in midway when the entire scheme was near to its completion and the appellant company had sought permission of pre-payment. The plea before us is that once the Government had granted the approval and there was no change in the conditions prescribed then it is functous officio. It was pleaded that once a loan agreement was approved them it was obligatory in law to grant exemption to such interest which became payable as a result of a loan agreement. It is also stressed before us that not only the exemption was withdrawn but in the mid way a condition of end use of ECB proceeds was arbitrarily and illogically imposed. Arguments in this regard was that there was no such condition of specific end use of ECB proceeds in the provisions of the statute. As there was no such condition laid down in the statute itself, then a rule or any such direction should not be imposed which happened to be in contradiction of the main governing section, in this regard several case laws were cited. The provision of the statute provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the end use of the money borrowed. The term used in that section is "having regard to the need for industrial development in India", in contrast to the phrase used in other section wherein the utilization as well as the purpose is mentioned and also directed the end use of the monies borrowed. So we can safely state that by imposing a condition by Dy. Director (ECB) during the progress of the scheme was like changing the rules of the game in mid way and the change of the rule was in respect of a game already played to alter its outcome. A retrospective or ex-post facto change in such a manner is an arbitrary approach having no legal sanctity. 20. Nevertheless, on merits as well it was argued that the funds were rightly utilized as prescribed under the scheme. While discussing the arguments of ld. A.R in above paras we have noticed that an explanation was offered about the utilization of ECB. In these paras we have noted that ld. A.R has referred certain letters addressed to the Dy. Director (ECB) giving details of the utilization of ECB. For the same of brevity there is no need to reiterate again the submissions in this regard. On page-40 of the compilation there is a letter date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it was designated in rupees would not detract from the position that it was in effect foreign exchange. It was contended that the assessee instead of remitting the entire amount to the foreign reinsurers and then receiving remittance in foreign currency from the said reinsurers the commission due to it, entered into an agreement with the foreign reinsurers, that while remitting the reinsurance premium, the assessee would retain the fee due to it for the technical services rendered. The Supreme Court upheld the contention of the assessee and held that two way traffic was unnecessary. To insist on a formal remittance to the foreign reinsurers first and thereafter to receive the commission from the foreign reinsurer would be an empty formality and a meaningless ritual. The statement of remittance having been filed with the Reserve Bank of India, in effect the income was received in convertible foreign exchange in a lawful and permissible manner. 21. On relying upon these decisions the alternate plea as made before us is that even assuming that end user restriction could have been imposed by the Central Government ex-post facto even then the appellant company had in fact invested o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted and not that an appeal against the said judgment was dismissed by the Supreme Court affirming the view of the High Court, nor does it mean that the judgment of High Court has been approved by the Supreme Court on merits as indicated by the Hon'ble Apex Court, case laws relied upon are J.K. Charitable Trust vs. WTO 222 ITR 523(All) and CIT (A) vs. Quality, 224 ITR 77 (Pat). Both the Hon'ble Courts have expressed that it is open to the appellant company to challenge the same in appropriate proceedings if permissible in law. Following the view expressed by Their Lordship in the said judgment the appellant company has thereafter approached the quasi judicial and judicial authorities step by step. All such attempts of redressal remained unsuccessful so the issue has now reached upto the stage of second appeal i.e before us. In other words, an order u/s. 195(2) was passed which was challenged by invoking the provisions of section 248 before the first appellate authority i.e ld. CIT (A) and on rejection of appeal the matter was carried further, so the jurisdiction of the Tribunal does lie to adjudicate upon this appeal. An ancillary issue of withdrawal of exemption was raised an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2003. 9. We further find that the above decision of the Tribunal has been consistently followed by the Coordinate Benches of the Tribunal in (i) Assistant Director of Income Tax (IT) 3(1) V/s Reliance Industries Ltd in ITA No.901/Mum/2008, (AY-2003-04) dated 29.9.2009; (ii) Assistant Director of Income Tax (IT) 2(2) V/s Reliance Industries Ltd in ITA Nos.5407 & 5408/Mum/2007, (AY-2003-04) dated 15.4.2009 and iii) Reliance Industries Ltd V/s Dy. Director of Income Tax (IT) 2(1) in ITA Nos.5966, 5967 & 5968/Mum/2002 & ITA No.4118/2003, dated 23.3.2006. We further find that the Revenue has challenged the above orders of the Tribunal before the Hon'ble Jurisdictional High Court and the High Court has also dismissed the Revenue's Notice of Motion vide decision dated 20.6.2011. 10. The Hon'ble Supreme Court in Radhasoami Satsang V/s CIT (1992) 193 ITR 321(SC) has held (head note, page 322): ITA No : 4595/Mum/2010 19 "Strictly speaking, res judicata does not apply to income tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores and 0.5 percent of average value of investment, i.e. proportionate administrative and other expenses of Rs. 79.17 crores computed by the AO u/s.14A of the Act r.w.r. 8D of the Income tax Rules, as against Rs. 3,30,60,894/- computed and disallowed by the appellant, being expenditure in relation to the income exempt u/s.10(34) of the Act while computing income under the normal provisions of the Act (section 28 to 42 of the Act). The appellant submits that an expenditure of Rs. 3,30,60,894/- has been incurred in relation to earning exempt dividend income and therefore the disallowance of the estimated expenditure ought to be restricted to Rs. 3,30,60,894/- under normal computation of income. b. The CIT (A) erred in confirming the action of the AO in disallowing expenditure u/s.14A of the Act r.w.r. 8D 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the AO w.r,t. determining the arm's length price of the guarantee commission, in respect of non-funded guarantee provided to Reliance Europe Ltd, UK @ 2.50%p.a. instead of 0.30% p.a. adopted by the Appellant. 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 determining the arm's length price of the guarantee commission, in respect of non-funded guarantee provided to Trevira Gmbh, Germany @0.575% p.a. instead of 0.30% p.a. adopted by the Appellant. 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. d. The CIT(A) erred in determining the arm's length price of interest, (in respect of interest free loans and advances given to its subsidiary companies) @ LlBOR + 150 basis points (if average matur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of jetties constructed by the assessee without appreciating the fact of the case. 7. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing of Rs. 6,08,48,652/- out of the lease rent/gas transportation charges paid in respect of all pipeline utilized for the purpose of its business without appreciating the facts of the case. 8. On the facts and 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 2.5% of non funded guarantee given by the assessee for advancing loan to its associate concerns regarding guarantee given to Trevira GmbH Germany on account of transfer pricing adjustments. 9. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition on account of guarantee commission which is made by the A.O. at 2.5% of non funded guarantee given by the assessee for advancing loan to its associate concerns regarding guarantee given to Recorn (Malaysia) SDN BHD on account of transfer pricing adjustments. 10. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing to accept the transfer pricing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les, Generation & Distribution of Power, Operation of Jetties and related Infrastructure, Retail Marketing of Petroleum Products, Fabrication and Investments. No part of interest is allocable toward earning of exempt income as the interest expenses have been incurred for business purposes only. The AO has not identified any expenditure which is directly relatable to the earning of dividend income. We also found that assessee's own funds are far in excess of the investment made in exempt income giving securities which is evident from the audited accounts of the assessee wherein the own funds are Rs. 81,448.60 Cr as against the exempt income giving securities of Rs. 17,219.01 Cr. Therefore, no interest expense can be attributable for making disallowance U/S 14A r.w. Rule 8D of the I.T. Act. 99. From the record we found that the total interest free own funds of the assessee as on 31/03/2008 are as under:- Particulars 31.03.2008 Rs in Crore Own Funds: Shareholder Funds (Share Capital + Reserves) (Refer page 5 of the paper book): 81,448.60 Less: Investment (Refer page 42 of the assessment order) 17,219.01 Excess of own Fund 64,229.59 100. From the above table it is clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e I.T. Rules only those investment have to be considered on which the assessee has received the dividend. 106. In view of the above average of value of investment, income from which does not or shall not form part of the total income" has to be considered and not all the investments as done by the AO. We rely on the judgment of Hon'ble Delhi High Court in the case of ACB India Limited [TS-176- HC-2015-Del]. If only investments on which dividend was received were to be considered, then the disallowance in respect of administrative expenses by applying the provisions of under rule 8D(2)(iii) of the IT. Act @ 0.5% of the value of investments would work out to Rs. 3.37 crore. Accordingly, we direct AO to restrict disallowance of other expenses to Rs. 3.37 crores. 107. In view of the above, we delete the disallowance made on account of 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 Rs. 3.37 crores. We direct accordingly. 108. In ground No.3, assessee is aggrieved for disallowance of depreciation of capitalized value of goods purchased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above parties and shown as income in the P&L account of the undertaking goes to reduce expenses and increase export profits eligible for deduction u/s.10B of the IT Act,1961. 112. Further more recovery of Rs. 5,85,70,473/- for cost incurred on Infrastructure facilities provided to GAlL (India) Limited and others, was towards reimbursement of expenses incurred for providing these facilities. The same was debited to P&L account. The reimbursement of the same by GAlL goes to reduce the cost incurred by the assessee. 113. In view of the above discussion, we restore the matter back to the file of the AO for finding out the exact nature of income and for deciding the issue afresh as per law. 114. Ground No.5 relates to disallowance of professional fees paid to various parties on the plea that these parties have not rendered services to the assessee. 115. Rival contentions have been heard and record perused. 116. Brief facts relating to the issue are that the assessee had availed the services of AVNI LIASIOING SERVICES(Proprietor - Shri Vijay Kumar Gupta), ARNAV LIASIONING & COORDINATION (Proprietor - Shri Anish Kumar Gupta) for liasioning and coordination services. Liasioning a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authorities include Police, Transportation Dept., District Administration, Octroi Dept., Municipal Corporation, Electricity Dept, Fire Fighting Dept. etc. and various other business agencies with whom liasioning is required for smooth functioning of the Retail Stores and obtaining various approvals required for running the stores. The expenditure are incurred in the normal course of business and wholly and exclusively for the purpose of running the business; therefore, the disallowance made by the AO shall be deleted. 118. The AR further submitted that all the payments concerning the above services rendered by these parties were made by A/c. Payee Cheque and were duly supported by bills and vouchers. The above two parties have confirmed that they have rendered the liasioning and coordination services to the assessee and incurred expenses which have been reimbursed. 119. Learned AR placed on record the orders passed Delhi IT AT in the case of above parties in appeal nos. 117 - 119IDel/13 for A.Y. 2007-08 to 2009-10 (Shri Vijay Kumar Gupta) wherein the ITAT has restored the matter back to the file of AO for fresh adjudication after providing due and proper opportunity to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neither a loan to the assessee nor a gift. He has not kept this amount in his pocket. If the Assessing Officer has any doubt that these expenses are not genuine expenditure then they are to be examined in the hands of the payer. It is to be seen in the case of Reliance Industries as to for what purpose these expenses have been incurred and if they are not for business purposes then they can be disallowed in the hands of Reliance Industries. The other angle could be that if Reliance Industries denies that these expenditures do not pertain to it then its genuineness could be examined in the hands of the assessee. In that case, if it is proved that these are not business expenditure, assessee has received this money and kept in his pocket, only then, it can be assessed in the hands of the assessee. We also find that in assessment year 2008-09, learned Assessing Officer has observed that these amounts are to be added in the income of the assessee on protective basis. Therefore, learned Assessing Officer has misguided himself in examining this issue in the hands of the assessee. Learned Assessing Officer can examine veracity of assessee's claims with regard to the balance amount i.e. t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in assessment year 2007-08. The assessee had incurred a sum of Rs. 276,98,340. In its confirmation, Reliance Industries has confirmed that this much amount was towards reimbursement of expenditure. Learned Assessing Officer has made analysis of these expenses under various heads and thereafter he made an addition of Rs. 274,76,043 which represents reimbursement of expenditure. Learned Assessing Officer is of the opinion that these expenses are for non-business purposes. Apart from this amount, learned Assessing Officer has made addition of Rs. 2,02,476. This is an expense which was payable by the assessee. Similarly, in assessment year 2008-09, Reliance Industries has paid Rs. 255,77,109 and the reimbursement of expenses out of this amount is of Rs. 249,03,984. Learned Assessing Officer has observed that the expenditure were for non-business purposes. He also assessed the income on protective basis with regard to the receipts from M/s. Reliance Industries. Learned Assessing Officer further made an addition of Rs. 7,99,012 which is challenged by the assessee in ground No.3. This amount represents TDS credit claimed by the assessee at Rs. 6,19,012 plus Rs. 1,80,000 i.e. consultanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous manner. We find that the confirmations have not been verified by the lower authorities. We further find that the ld. CIT(A) has passed the order without providing the assessee due opportunity of being heard. On the basis of foregoing discussion and careful perusal of the operative part of the ld. CIT(A)'s conclusion, it is amply clear that the ld. CIT(A) has decided the issue in haste by passing a cryptic order which is not sustainable. We further note that the ld. CIT(A) has also not properly considered the submissions and facts of the case and simply followed the AO's conclusion and dismissed the appeals of the assessee. We further note that the ld. CIT(A) too has not given due opportunity of being heard to the assessee. The ld. DR has supported the order of the ld. CIT(A). However, he raised no serious objection if the appeal is restored to the file of AO for fresh adjudication of first appeal. Therefore, in the interest of justice, we deem it fit to restore the grounds of appeal raised by the assessee in all the three appeals to the file of the AO for fresh adjudication. Needless to mention that the AO shall provide due and proper opportunity of being heard to the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation 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. 128. We have considered rival contentions. The facts and circumstances are same as discussed by us in ground No.2 of department's appeal for A.Y.2007-08. Following the same reasoning, AO is directed accordingly. 129. Ground No. 3 & 4 of department's appeal refers to not deciding the issue on merits in view of provisions of section 80lA of the Income Tax Act, 1961 wherein it is 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. 130. We have considered rival contentions. As the facts and circumstances are same as discussed by us in ground No.3 & 4 of department's appeal for the A.Y.2007-08, the grounds raised by revenue are dismissed. 131. This is with reference to disallowance u/s.14A read with Rule 8D have already been discussed by us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LTU, Mumbai {hereinafter referred to as CIT(A)} erred in confirming the action of the Addl. Commissioner of Income tax -L TU, Mumbai (hereinafter referred to as AO) in re-opening of the assessment by invoking the provisions of section 147 read with section 148 of the Income-tax Act, 1961. The Appellant submits that the notice u/s.148 for re-opening the assessment is bad in law, illegal, ultra-virus, in excess of and/or in want of jurisdiction and otherwise void. 2 The CIT(A) erred in confirming the action of the AO in disallowing an amount of Rs. 83,75,235/- being Professional Fees Paid to various parties by 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 duly supported by documentary evidences and therefore ought to have been allowed u/s.37 of the Act. 3 The CIT(A) erred in confirming the action of the AO in reducing the profits of the business of the undertaking while computing deduction under section 10B of the Act by an amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s alternative plea that there is a deemed payment of sales tax and therefore the amount of Rs. 679,97,97,429/- is allowable as per the provisions of Section 438 of the Income-tax Act, 1961. The Appellant submits that there is a deemed payment of Sales tax which is allowable u/s.438 of the Act and the CIT(A) ought to have given a decision on this issue in favour of the Appellant. 2. a. The CIT(A) erred in confirming the disallowance of Rs. 87.85 crores i.e. out of interest expenditure at Rs. 5.02 crores and proportionate administrative and other expenses of Rs. 82.82 crores u/s.14A of the Act r.w.r. 8D of the Income tax Rules, as against Rs. 3,45,01,874/- computed and disallowed by the appellant, being expenditure in relation to the income exempt u/s.1 0(34) of the Actwhile computing income under the normal provisions of the Act (section 28 to 42 of the Act). The appellant submits that an expenditure of Rs. 3,45,01,874/- has been incurred in relation to earning exempt dividend income and therefore the disallowance of the estimated expenditure ought to be restricted to Rs. 3,45,01,874/- under normal computation of income. b. The CIT(A) erred in confirming the disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of its business. The CIT(A) 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 Rs. 39,99,2401- as claimed by it be allowed. 6. a. The CIT(A) erred in confirming the order of the AO w.r.t. determining and treating the non-funded guarantee given by the Appellant to the various banks for giving loan to its AE's as international transaction within the meaning of Section 92B of the Income Tax Act. The Appellant submits that the above transaction does not fall within the definition of "International Transaction" as defined u/s.92B of the Act and hence the addition made by the AO as confirmed by CIT(A) shall be deleted. b. The CIT(A) erred in determining the arm's length price of the guarantee commission, in respect of non-funded guarantee provided to 3 AE's, i.e. M/s. Recron Malaysia SdnBhd, M/s. Reliance Industries (Middle East) DMCC ('M/s. RIME'), and M/s. Reliance Europe Ltd, UK @ 0.575% p.a. instead of 0.30% p.a. adopted by the Appellant. The Appellant submits th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition of sales tax incentives/ subsidy of Rs. 679,97,97,429/- holding it as being capital in nature. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing depreciation as claimed by assessee holding that the claim of depreciation for the year was optional in nature. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to adopt the rate followed by the assessee for working out deduction u/ s 80lA, without appreciating that the AO has correctly worked out the profit on the basis of return on capital. 4. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing of Rs. 3,46,45,OS3/- being the principal component of the lease rent paid on leased pipelines without appreciating that the assessee had capitalized the assets and had claimed only finance charges in its accounts. 5. On the facts and circumstances of the case and in law, the Ld. CJT(A) erred in allowing expenses of Rs. 35,32,00,000/- arising out of mark to market transaction in foreign exchange derivates without appreciating the facts of the case. 6. On the facts and circumstances of the case and in law, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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