TMI Blog2019 (4) TMI 1923X X X X Extracts X X X X X X X X Extracts X X X X ..... n the fitness of things to hold that the consideration recorded by the assessee s undertaking generating electric power for transfer of power for captive consumption at the rate of ₹ 3.72 per unit corresponds to the market value of power. Also see M/S RELIANCE INDUSTRIES LTD. [ 2019 (2) TMI 178 - BOMBAY HIGH COURT] - Decided in favour of assessee. Deduction allowable under section 80IB being profit derived from Rail Universal Beam Mill - HELD THAT:- AO has not examined the quantum of deduction allowable under section 80IB being profit derived from Rail Universal Beam Mill we direct the AO to allow deduction under section 80IB in respect of income derived from that unit after verification of the eligible amount as per law. Needless to mention that the AO before determining the eligible amount of deduction shall allow reasonable opportunity of hearing to the assessee. Thus, the ground no.3 of the appeal of the assessee is treated as allowed. Nature of receipt - incentive/ subsidy in the form of exemption from sales tax, entry tax and electricity duty - revenue or capital receipt - HELD THAT:- This is a repetitive year issue and in all fairness, it may be pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the decision of ABHISHEK INDUSTRIES LTD. [ 2015 (2) TMI 672 - PUNJAB AND HARYANA HIGH COURT] and KAPSONS ASSOCIATES [ 2015 (8) TMI 1277 - PUNJAB AND HARYANA HIGH COURT] . In the instant case on perusal of the impugned order of assessment we notice that no such satisfaction was arrived at by the AO. In the circumstances disallowance under section 14A of the Act of ₹ 21.54 crores in place of ₹ 2,65,715/- claimed by the assessee in the Return Income is bad in law and unsustainable - Decided in favour of assessee. Depreciation on alleged non-functional units - AO disallowed depreciation in respect of 2 generator sets on the ground that those generator sets were not used during the relevant previous year - HELD THAT:- The assessee explained before the AO that the 2 generator sets were kept standby for use in the business of generation of electricity so that the continuity of the business is not affected. We find that no material has been brought on record to controvert the plausible explanation of the assessee. It is an established position of law that the asset which have been kept ready for use in business but could not be used for any reason the same is treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of aviation expenses - Whether aircraft expenses were incurred by the appellant wholly and exclusively for business purposes? - HELD THAT:- Tribunal in the case of the assessee company itself in the AY 2001-02 has held that travelling expenses incurred to meet customers and prospective customers is allowable as business deduction. In respect of expense of ₹ 4,10,606/- it was explained that the expenditure was incurred in connection with the above journey and all are supported by bills and vouchers. These are incidental expenses like airport duty and taxes and hotel charges for stay of pilot etc. DR could not controvert the submission of the assessee. Thus, we find that the expenses were incurred by the company out of commercial expediency. We therefore delete the disallowance. Disallowance of foreign travel expenses holding the same to be non-business expenditure - addition on the ground that the purpose of the related travel was not furnished and therefore the commercial expedi - hncy of the said expenditure was not established - HELD THAT:- As assessee has filed copies of invoices and details of expenses and contended that these documents were filed before the AO to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided by the assessee. Therefore, we are unable to adjudicate the issue completely. Hence, we have no other alternative but to remand the matter back to the file of the AO to adjudicate the issue afresh. Transfer Pricing Adjustment on guarantee issued on behalf of the AE - Addition on the ground that no commission has been charged by the appellant for providing corporate guarantee to the lenders on behalf of its Associated Enterprises - HELD THAT:- The amendment made to Section 92B by the Finance Act 2012 is prospective in operation and accordingly applicable in the Assessment Year 2013-14 and subsequent years, and not applicable in the impugned assessment year which is the Assessment Year 2009-10. We, therefore, hold that the issuance of corporate guarantee cannot be considered as an international transaction for the year under consideration. Therefore, the addition made is deleted. Thus, this ground of appeal of the assessee is allowed. Not allowing MAT credit under Section 115JAA - HELD THAT:- As assessee claimed that MAT Credit as eligible under section 115JAA of the Act has not been allowed to the assessee company. We therefore direct the AO to verify the claim of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee submitted that this ground of appeal is general in nature and do not require separate adjudication by us. Therefore, the same is dismissed. 4. Ground No. 2 of the appeal of the assessee reads as under: 2. That the assessing officer/ DRP erred on facts and in law in reducing the deduction claimed by the appellant under section 80-1A of the Act from ₹ 4,19,30,71,772 to ₹ 2,52,62,31,398. 2.1 That the assessing officer/ DRP erred on facts and in law in holding that the rate at which power was supplied by appellant to State Electricity Board ( SEB ), i.e. ₹ 2.3336 per unit, was the market rate of power for purposes of computation of deduction under section 80IA of the Act. 5. The Assessing Officer observed that from the perusal of the information placed on record by the assessee, it is observed that the assessee has taken rate of power in case of supply to its units @ 3.9227 per unit on the logic that the same rate is charged by SEB for supplying power to the Industrial consumers. However, the power supplied by electricity board to the Industrial consumers includes the cost due to losses in transmission and distribution which are quite high in ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et 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 herein before, specified, presents exceptional difficulties the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. 6. He further observed that it may be pointed out that the explanation only requires to find out the price at which the goods would ordinarily fetch in the open market. Here the word ordinarily is most important i.e. to the extent the market is available, in ordinary situation, the market price has to be worked out. If the extraordinary situations are there and the open market is not that open, if compared with the developed countries, and open market is lesser open, it would not mean that the market value is not there. 7. He opined that, it would have to depend what price is available to an independent undertaking having sole business of power generating. It is commonly known that India is a power deficient country. As per the Electricity Act, 2003, Central Electricity Authority (CEA) has been established for technical c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 2001-02 the Department could not bring the entire picture before the higher judicial authorities. The whole issue needs to be considered from an overall perspective. As to market value of electricity supplied is concerned, it postulates a market and if a market is not there, a notional market has to be presumed. Under The Electricity (Supply) Act 1948, the generation of electricity is not permitted except by the Board or the licensee and further surplus power from its captive consumption could be sold to the Board only. The Board has been defined under section 5 of The Electricity (Supply) Act 1948. Thus the surplus power could only be sold to either the Board of same State Govt. or the Board of other State Governments. Thus, there, will be as many buyer as the number of State Electricity Board are there. Thus, it would be wrong to say that there is no open market. Of, course, it is true that boards are only buyers in the country. Now a question of law arises that if the political system/polity of the nation/enactment by Central Legislature is as herein above in India, whereby the only market consists of the Boards, would it mean that there would be no market. In my opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company can be easily understood. It is also a fact that most of the Power Distribution Boards in our country are incurring huge business losses. 15. Further, when the assessee company took the business decision to set up the power plant, it knew that it had to operate in a market governed by Electricity Supply Act 1948, and all the financial appraisal reports would reflect the sale of excess power to SEB at the rates fixed. Still the assessee company had taken business decision to setup the power plant. 16. In the light of above, the deduction u/s 80IA was proposed to be allowed at ₹ 2,52,62,31,398/- in the draft order dated 28.03.2013. 17. It was observed by the DRP that the issue at stake was the subject matter of intense judicial litigation. The judgement of Hon ble P H High Court in case of the assessee for A.Y. 2001-02 is based on the order of same High Court in case of assessee for A.Y. 2000-01 in which relief is allowed to the assessee by making observation as under: At the very outset, we may record that counsel for the revenue has very fairly stated that Question No.3 stands covered against the revenue and we held as such accordingly. 18. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Decision of the Tribunal in the Assessee s own case for assessment year 2004-05 (Kindly refer Pg. 216-260 of PB Vol. 1) Decision of the Tribunal in the Assessee s own case for assessment year 2002-03 and 2005-06 (Kindly refer Pg. 840-870 of PB Vol. III) 24. On the other hand, the Departmental Representative relied on the orders of the Lower authorities. 25. We find that the issue is covered in favour of the assessee by the order of this Bench of the Tribunal in the case of the assessee itself in AY 2001-02 reported in 16 SOT 509 (Del) where it was held as under:- 12. We have carefully considered the submissions of both the parties on this aspect. The crux of the dispute before us relates to the manner of computing profits of the undertakings of the assessee engaged in generation of power for the purposes of relief under Section 80-IA of the Act. The difference between the assessee and the revenue is with regard to the determination of the market value of power so as to record the income accrued to the assessee on supplies made to its own manufacturing units. As noted earlier, in this case, the assessee has utilized the power generated for its captive consumption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market in the usual and ordinary course of lawful trade and competition; the price or value of the article established or shown by sales, public or private, in the ordinary way of business; the fair value of the property as between one who desires to purchase and one who desires to sell; the current price. Similarly, in the case of Orchard v. Simpson (1857) 2 CBNS 299, the phrase market value in a contract for the sale of goods has been understood to mean the price in the market to an ordinary consumer, irrespective of the particular contract. Similarly, in Law Lexicon by P. Ramanatha Aiyar, with reference to U. S. v. Certain : Property in Borough of Manhattan, City County and State of New York, CANY, 403 F.2d800, 802, it has been explained that the market value of an article or piece of property is the price which it might be expected to bring if offered for sale in a fair market; not the price which might be obtained on a sale at public auction or a sale forced by the necessities of the owner, but such a price as would be fixed by negotiation and mutual agreement, after ample time to find a purchaser, as between a vendor who is will (but not compelled) to sell and a purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tariff at which a power generating unit can supply power to the Electricity Board is also liable to be determined in accordance with the statutory requirements. In this context it can be safely deduced that determination of tariff between the assessee and the Board can be said to be an exercise between a buyer and seller neither in a competitive environment and nor in the ordinary course of trade and business. It is an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the buying tariff in terms of preset statutory guidelines. Therefore, the price determined in such a scenario cannot be equated with a situation where the price is determined in the normal course of trade and competition. Therefore, the price determined as per the Power Purchase Agreement cannot be equated with market value as understood in common parlance. We see no reason for not holding so for the purposes of Section 80-IA(8) also. 17. In this background, we may make a gainful reference to the decision of the Hon'ble Calcutta High Court in the case of CAIT Vs Manmatha Nath Mukherjee, which has been relied on by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, to our mind, is in the affirmative. This is for the reason that the assessee as an industrial consumer is also buying power from the Board and the Board supplies such power at the rate of ₹ 3.72 per unit to its consumers. This is the price at which the consumers are able to procure the power. We may consider hypothetical situation as well. Had the assessee not been saddled with restrictions of supplying surplus power to the State Electricity Board, it would have supplied power to the ultimate consumers at rates similar to those of the Board or such other competitive rates, meaning thereby that price received by the assessee would be in the vicinity of ₹ 3.72 per unit i.e. charged by the Board from its industrial consumers/users. Thus, under the given circumstances, it would be in the fitness of things to hold that the consideration recorded by the assessee's undertaking generating electric power for transfer of power for captive consumption at the rate of ₹ 3.72 per unit corresponds to the market value of power. Therefore, on this aspect, we uphold the stand of the assessee and set aside order of the Commissioner (Appeals) and direct the assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of power worked out by the Assessee on the basis of the price that it paid to TPC for purchase of power continues to be the best basis even after the order of MERC and therefore the same has to be accepted as was done in the past and as approved by the ITAT in Assesssee's case. We therefore dismiss ground No.4 of the revenue. 7. Counsel for the assessee pointed out that the judgment of the Tribunal in case of Reliance Infrastructure Ltd. (supra) was carried in appeal by the revenue before the High Court in Income Tax Appeal No.2180 of 2011, such appeal was dismissed making following observations:- 6. As far as question (d), namely, the claim relating to purchase price from Tata Power Company is concerned and that was for the deduction under Section 80IA, the ITAT in paragraph 21 onwards has noted the factual findings and also referred to the order of the Maharashtra Electricity Regulatory Authority (for short MERC ). Paragraph 36 set outs as to how the claim arose. The claim has been considered in the light of Section 80IA and particularly proviso and explanation thereto. The Tribunal eventually held that till the Assessment Year 2005-2006, the Revenue considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplied through its non eligible unit only worked out cost of such electricity generation. In fact CIT (Appeals) in terms recorded that ₹ 4.51 was computed as the reasonable value of the electricity generated by eligible unit of assessee. This amount included ₹ 4.17 per unit which was the cost of electricity generation and ₹ 0.34 per unit which was duty paid by the assessee to GEB for such power generation. Thus the sum of ₹ 4.51 per unit only represented the cost of electricity generation to the assessee. In Section 80IA(8) of the Act what is required to be ascertained is the market value of the goods transferred by the eligible business, when such transfer is by eligible business to another non eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not correspond to market value of such goods. Term Market Value is further explained in explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. To our mind sum of ₹ 4.51 per unit of electricity only represented cost of electricity generation to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g officer/ DRP grossly erred in not appreciating that: (a) aforesaid deduction claimed by the appellant was mere enhancement of the deduction claimed under section 80IB of the Act in the return of income; and (b) the assessing officer was, in any case, duty bound to suo motu allow the said deduction, even if the appellant had not claimed the same in the return of income or during the assessment proceedings. 3.3 Without prejudice, that, in any case, the DRP grossly erred on facts and in law in not admitting and considering on merits deduction claimed by the appellant under section 80IB of the Act, by treating the same as fresh claim. 30. The Assessing Officer observed that Ld. Members of the DRP heard arguments of the authorized representative of the assessee and observed that they are misplaced. The DRP observed that the decision of the Hon'ble Supreme Court in the case of M/s Goetze India Limited v/s C.I.T. reported in 284 ITR 324(SC), is the law of the land and the A.O.'s action being fundamentally based on the said decision of the Hon'ble Supreme Court, calls for no interference. The DRP also observed that assessee had ample opportunities to claim the deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a new claim. c. The Hon ble Jurisdictional High Court in the case of CIT v. Ramco International [2011] 332 ITR 306 (P H), after discussing the decision of Goetze India (supra), upheld the Tribunal s decision which had, interalia, upheld the decision of CIT(Appeals) allowing the Assessee to claim the benefit of Section 80-IB through Form 10CCB and other documents which were furnished before the AO during the course of assessment proceedings. The Hon ble High Court, while considering the following substantial question, decided the issue (at para 5) in favor of the Assessee. d. The judgment of Goetze India (supra) was noted by the Mumbai Bench of the Tribunal in the case of Chicago Pneumatic India Ltd. v DCIT: 15 SOT 252. In that case, the assessee revised the claims for deduction u/s 80HH and 80-I of the Act during the course of assessment proceedings without filing a revised return. The Tribunal considered Circular no. 14(XL-35) of 1955 [Pg. 271 to 273 of PB-1], as well as the decision of the Supreme Court in the case of Goetze India (supra) and held as under: the A.O. may grant reliefs/refunds suomotu or can do so on being pointed out by the assessee in the course of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , reliance in this regard, was also placed on the following decisions wherein it has been held that the decision of the Supreme Court in the case of Goetze India (supra) is not applicable to cases where the assessee merely seeks to enhance its existing claim: CIT vs Arvind Mills Ltd.: ITA No. 1407 of 2011 (Guj.) CIT vs M/s. Pruthvi Brokers Shareholders: ITA NO. 3908 OF 2010 (Bom.) JCIT vs Hero Honda Finlease Ltd.: 115 TTJ 752 (Del. ITAT) (Third Member) 39. Furthermore, it was contended that a claim which is admissible in appellate proceedings should be allowed in assessment proceedings as well, in order to avoid a multiplicity of proceedings and avoid complexities. For this reliance was placed on the following decisions:- Chicago Pneumatic India Ltd. v DCIT: 15 SOT 252 (Mum. ITAT) Kisan Discretionary Family Trust v ACIT: 113 TTJ 918 (Ahmedabad ITAT) Oman International Bank SAOG vs ACIT: ITA No.1981/Mum/2001 (Mum. ITAT) 40. It was also argued that there is no bar/ prohibition on the power of an Appellate Authority to consider fresh claim made by the assessee for which reliance was placed on the following decisions :- Franco-Indian Pharmaceuticals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it was submitted that, the assessee was eligible for deduction u/s 80IB of the Act on merits. The said deduction was inadvertently not claimed in original or revised return of income. However, the same was duly claimed by the assessee in assessment proceedings vide letter dated 28.03.2012, submitted before the AO. The claim of deduction was duly supported by the report of the Chartered Accountant in Form No. 10CCB, certifying the claim of deduction. Since allowability is not disputed by the AO, denial of the deduction under Section 80IB of the Act by applying the decision in the case of Geotze India is not permitted and is against the spirit of Article 265 of the Constitution of India. 46. It was therefore prayed that in view of the above, the action of the AO in not considering the claim made by assessee during the assessment proceedings, without appreciating that the same in the true spirit of the law, is illegal land unsustainable. The AO should, therefore, be directed to allow deduction u/s 80IB of the Act, as claimed by the assessee. 47. The ld. Departmental Representative relied on the order of the lower authorities and insisted that the Supreme Court decision has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment proceedings. The Hon ble High Court, while considering the following substantial question, decided the issue in favour of the Assessee: 1.Whether, on the facts and in the circumstances of the case and in law, the ITmzAT was right in law in allowing assessee's claim for deduction u/s 80-IB, which the assessee had neither claimed in the return of income nor through a revised return of income? 2. Whether on the facts and in the circumstances of the case, the decision of ITAT is not contrary to the law as spell out by the Hon'ble Supreme Court in Goetze (India) Limited v. CIT 284 ITR 323 (SC) and Additional Commissioner of Income-tax v. Gurjargravures (P.) Ltd. 111 ITR 1 (SC)? ........................................ 5. In view of the finding that the assessee was not making any fresh claim and had duly furnished the documents and submitted Form for claim u/s 80-IB, there was no requirement for filing any revised return. The judgment relied upon was not applicable. Reliance in this regard is further placed on the decision of the Mumbai Bench of the Tribunal in Oman International Bank SAOG vs ACIT: ITA No.1981/Mum/2001. On further appeal, the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a letter and not by a revised return, before deciding the merits of the claim. In Goetze (India) Ltd. v. CIT [2006] 284 ITR 323/157 Taxman 1 (SC), the Supreme Court held that the assessee can make a claim for deduction, which has not been claimed in the return, only by filing a revised return within the time allowed. In the same decision, it was made clear that the power of the Tribunal to admit an additional ground under s. 254 is not affected by its decision. It was however clarified that the case was concerned with only the power of the assessing authority and not the appellate authority. Under s. 250(5), the CIT(A) has the power to allow the appellant to go into any ground of appeal not specified in the grounds of appeal if he satisfied that the omission of the ground from the form of appeal was not wilful and unreasonable. Dealing with such a power, the Bombay High Court in Prabhu Steel Industries (P) Ltd. (supra), held that where a claim for special deduction was made by the assessee not in his return but in the course of the assessment proceedings and the ITO failed to consider the same, it was open to the AAC to entertain the claim. In CIT v. Kanpur Coal Syndicate [1964] 53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the assessee, the assessee has claimed deduction u/s 80IB of the Act. In fact in notes to account no. 7, the Assessee has mentioned about the eligibility of deduction u/s 80IB in respect of Rail Universal Beam Mill. Similarly, in notes to account no. 6, the assessee had mentioned about eligibility of deduction u/s 80IB for Ferro Chrome Unit (SAF) which was not also claimed at the time of filing of return of income or revised return of income, however, deduction on the said unit (SAF) was claimed by the assessee during the course of assessment and the same has been allowed by the AO. It is pertinent to note here that there is no justification for the AO to treat the deduction claimed in respect of Ferro Chrome Unit (SAF) and Rail Universal Beam Unit, differently by allowing deduction claimed in respect of one unit and denying it in respect of another, when admittedly facts are identical. This can be seen from para 4.2 of the draft assessment order, which has been placed before us. Even otherwise, allowability of the claim is not doubted nor disputed by the Assessing Officer. Report of Chartered Accountant in Form No. 10CCB for this unit has also been placed on record, a cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sub-section 5 to Section 80A, as inserted by Finance Act, 2009 and 4th proviso of Section 10B (1) of the Act, were challenged. The challenge was rejected by the Division Bench of this Court holding that the amendment made cannot be faulted and quashed on the ground that it was discriminatory, arbitrary, unreasonable and violative of Article 14, observing that it was within the legislative domain to prescribe the limitation period and also stipulate that the assessee to claim deduction must file returns during the limitation period, so as to enable the Department to take up these cases for scrutiny assessment. Plea of arbitrariness was rejected. The decision and ratio is distinguishable as the respondent-assessee had claimed deduction under Section 10A of the Act in the return of income filed within the limitation period. It was, therefore, not a new claim. Question of revision of deduction was not the issue and question raised and answered in Nath Brothers Exim International (supra). 22. Our attention was, however, drawn to the observations of the Division Bench that the objective behind the amendment was to defeat multiple claims of deduction and ensure better compliance. Cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in law in holding that the appellant was unable to link the subsidy/ incentive with any particular scheme of subsidy issued by the State Government. 4.2 That the assessing officer/ DRP erred on facts and in law in holding that the aforesaid incentive/ subsidy was provided to aid day-to-day running of the business and was not in the nature of capital receipt. 4.3 That the assessing officer/ DRP erred on facts and in law in holding that since no amount was actually received by the appellant in the form of incentive/ subsidy, any hypothetical/ notional figure could not be treated as incentive/ subsidy and allowed as reduction from the taxable income. 4.4 That the assessing officer/ DRP erred on facts and in law in holding that the appellant was taking double benefit of electricity duty by claiming deduction of incentive/ subsidy and also not deducting the same from profits while computing deduction under section 80IA of the Act. 51. The Assessing Officer observed that in view of the claim of the assessee regarding reduction of profit by way of appropriation of taxable profit by an amount of ₹ 50,03,98,228/- towards sales-tax subsidy/capital Reserve and also of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m payment of Central Sales tax and Entry tax involving investment of ₹ 1000 crores or more and from payment of Electricity duty vide notification dated 29.07.2000. In the month of November 2000, a new state of Chattisgarh was carved out of part of State of Madhya Pradesh and the Raigarh unit became a part of Chattisgarh. The state of Chattisgarh also endorsed the exemptions granted by the State of Madhya Pradesh. 1.1. Apart from the aforesaid, from financial year 2005-06 onwards the appellant had set up a new industrial unit No. IIIin the State of Chhattisgarh for which the appellant was granted incentives in the form of exemption from payment of entry tax and electricity duty under the Industrial Policy (2004 2009) issued by the Government of Chattisgarh (hereinafter referred to as `Industrial Policy, 2004 ). 1.2. Thus, under the aforementioned scheme, during the relevant previous year, the Appellant availed exemption on account of sales tax, entry tax and electricity duty aggregating to ₹ 120,74,28,254 (50,03,98,228 + 39,35,77,228 + 31,34,53,398). The said incentives/ subsidies were claimed as capital receipts and accordingly, were not offered to tax in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Madhya Pradesh State Industrial Development Corporation during July 1998 to Nov. 1999 for formulation of special incentive package for the assesse 1063-1080 111. Copy of letters written by assessee to then Chief Minister and Government official post issue of specific notifications dated 24.04.2000 granting exemption to the assessee 1081-1082 112. Copy of letter dated 17.05.2002 by assessee to Secretary Energy, Chhatisgarh requesting for grant of exemption from electricity duty for 15 years as against 10 year granted vide notification dated 29.07.2000. 1083-1084 113. Notification issued by Government of Chhatishgarh for granting duty exemption for a period of 15 years 1085-1086 114. Copy of Memorandum of Understanding dated 21.05.2001 entered into between assessee and Government of Chhattisgarh whereby the incentives / benefits given by the Government of Madhya Pradesh have been a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the records that this is a repetitive year issue and in all fairness, it may be pointed out that this issue of treatment of subsidy as capital or revenue receipt has been decided against the Appellant by the Hon ble Delhi Bench of the Tribunal in appellant s own case for assessment year 2004-05 in ITA No. 3319/ Del/ 2008 and also in the decision of the Assessee for AY 2008-09 wherein the aforementioned additional evidence has been admitted and thereafter this issue has been decided against the Assessee. Tribunal has held that:- 1.5 The Ld. AR also stated that the decisions of the Tribunal are only in the context of Unit II and are not at all in the context of Unit III, which was set up subsequently in the State of Chhattisgarh. Therefore, the Ld. AR submitted that the eligibility of the Appellant to claim exemption in respect of Unit III may kindly be considered independent of the decision of the Tribunal in the context of other units. However, it is seen that the general principle is the same as regards taxation and determination of subsidy as revenue receipt vis- -vis capital receipt and thus, we are inclined to follow the order of ITAT as adjudicated in Assessee s own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be reduced from the assessed income because in those years the assessee is claiming deduction (without any out-going from the profit) over and above normal income and department is just rejecting such claim. Hence, there is no addition in those years. 61. Before us, the Ld. Authorized Representative submitted that an ESOS scheme is an employee compensation scheme, intending to inculcate a sense of belongingness and instill a feeling of ownership in the employees to create partnership with the employees, for transition from being mere employees to stake holders . Once grants are issued by the Assessee to its employees under the ESOS, in so far as the assessee is concerned, the liability crystallizes in as much as the option to exercise such grant is with the employees on which the Assessee has no control. Since such liability towards employee compensation, on the grant of option, can be estimated with reasonable certainty, a liability towards the said compensation definitely arises on the grant of option. 62. Furthermore, the expenditure incurred is towards employee compensation and the said expense is merely discharged by grant of options and subsequent issuance of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue/Department and thereafter concluded that this is an allowable expense u/s 37 of the Act. It was held as under: 9.2.5 The core of the arguments of the ld. DR in this regard is two-fold. First, that it is not an expenditure in itself and secondly, it is a short capital receipt or at the most a sort of capital expenditure. In our considered opinion both the legs of this contention are legally unsustainable. 9.2.6 There is no doubt that the amount of share premium is otherwise a capital receipt and hence not chargeable to tax in the hands of company. The Finance Act, 2012 has inserted clause (viib) of section 56(2) w.e.f. 1.4.2013 providing that: 'where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares', then such excess share premium shall be charged to tax under the head 'Income from other sources'. But for that, the amount of share premium has always been understood and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensating the employees for their services and is a part of their remuneration. Thus, the contention of the ld. DR that by issuing shares to employees at a discounted premium, the company got a lower capital receipt, is bereft of an force. The sole object of issuing shares to employees at a discounted premium is to compensate them for the continuity of their services to the company. By no stretch of imagination, we can describe such discount as either a short capital receipt or a capital expenditure. It is nothing but the employees cost incurred by the company. The substance of this transaction is disbursing compensation to the employees for their services, for which the form of issuing shares at a discounted premium is adopted. 9.2.7 Now we espouse the second part of the submission of the ld. DR in this regard. He canvassed a view that an expenditure denotes paying out or away and unless the money goes out from the assessee, there can be no expenditure so as to qualify for deduction u/s 37. Sub-section (1) of the section provides that any expenditure (not being expenditure in the nature described in sections 30 to 36 and not being in the nature of capital expenditure or person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed price on a future date in lieu of their services, which is nothing but an expenditure u/s 37(1) of the Act. 66. It was submitted that following the, Mumbai Tribunal decision in DCIT vs. Kotak Mahindra Bank Ltd. [2018] 89 taxmann.com 223(Mum), the 'Special Bench' of the Tribunal in the case of Biocon Ltd. v. Dy. CIT (LTU) [2013] 144 ITD 21/35 taxmann.com 335 (Bang.) after deliberating at length on the issue as to whether the assessee was entitled to claim the discount on ESOS as an expenditure under section 37(1), or not, had therein answered the said issue in affirmative and concluded that the same was allowable as an expenditure under section 37(1) in the hands of the assessee. 67. Hence, in view of the direct Special Bench decision on this issue, deduction of the claim should be allowed u/s 37 of the Act for the year under consideration. Needless to say that if the Assessee succeeds in its appeals of earlier AYs, then this amount shall be taxable in this year. However, if Assessee fails in the appeals of the earlier years, then this amount added back cannot be treated as income and hence shall not be taxable in this year. With these directions, this ground of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03.2010, it was noticed that the assessee has shown other investments at ₹ 1233 crore on which dividend income has been earned. Since, the dividend income is exempt u/s 10(33)/(34) of the Income-tax Act, 1961 and not includable in the total income, expenses corresponding to the said investment are not allowable u/s 14A of the Act. Assessee was, therefore, asked to show cause as to why the expenses attributable to the aforesaid investment should not be disallowed as per the provisions of Section 14A of the Act r.w.r. 8D of the Income-tax Rules, 1962. 71. Further, the Assessing Officer observed that the assessee has made investment in shares and has earned dividend income of ₹ 90.14 crore which is exempt. The assessee has not given any basis as to suo moto disallowance of ₹ 2,65,715/- made by the assessee u/s 14A of the Act. Therefore, he was not satisfied with the correctness of claim made by the assessee. 72. The Assessing Officer further observed that as per details given by the assessee, the payments have been made on various dates. However, the source of the same has not been provided. For example, the assessee had made payment of ₹ 19 crore on 17.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O has not recorded any specific satisfaction in the entire assessment order as to the incorrectness of the suo moto disallowance made by the Assessee in its books of accounts and stated that this issue is covered in favour of the Assessee in various judgments such as Godrej and Boyce Manufacturing Co vs. CIT [394 ITR 449] and HT Media vs. CIT [399 ITR 576] and a recent decision of the Hon ble Delhi High Court in the case of PCIT v. Hindustan Clean Energy Ltd. [ITA No. 268 of 2018]. , the Hon ble Court has held as under: In the present case, however, the Assessing Officer ( AO ) without recording required satisfaction on having regard to the accounts of the Assessee, as placed before him, it is not possible to be generate the requisite satisfaction with regard to the correctness of the claim of the Assessee , had invoked and applied Rule 8D as a mandatory provision applicable in all cases of exempt income. Action of the AO was contrary to law, and therefore, there is no merit in the present appeal. 78. The Ld. Authorized Representative of the assessee further contended that even in the preceding assessment year 2008-09 in the order passed u/s 143(3), the AO accepted the suo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been able to bring any adverse material or facts on record. No specific reason as to why disallowance made is coming out of the order. In the assessment order, the AO has not dealt with the suo moto disallowance made by the Assessee, or as to why it was incorrect. This issue is now covered in favour of the Assessee by Delhi High Court in the case of PCIT v. Hindustan Clean Energy Ltd. [ITA No. 268 of 2018] wherein the Court has held as under: In the present case, however, the Assessing Oficer ( AO ) without recording required satisfaction on having regard to the accounts of the Assessee, as placed before him, it is not possible to be generate the requisite satisfaction with regard to the correctness of the claim of the Assessee , had invoked and applied Rule 8D as a mandatory provision applicable in all cases of exempt income. Action of the AO was contrary to law, and therefore, there is no merit in the present appeal. 80. This issue was discussed in detail in HT Media vs. CIT [399 ITR 576] wherein Delhi High Court held that- 30. Rule 8D(1) states more or less what Section 14 A (2) of the Act states. It requires the AO to first examine the accounts of the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, in view of the principle laid down by the Hon'ble Delhi High Court in the case of H.T. Media Ltd. v. Pr. CIT [2017] 85 taxmann.com 113 (Delhi), the Assessing Officer cannot proceed to make disallowance under section 14A. The Hon'ble Jurisdictional High Court has once again reiterated that it is mandatory and incumbent upon the Assessing Officer to record such satisfaction and in the absence of such 'satisfaction' no disallowance can be made under section 14A. The Hon'ble High Court concluded that; firstly, where there was a failure by Assessing Officer to comply with mandatory requirement of section 14A(2) read with rule 8D(1)(a) to record his satisfaction as required thereunder, then question of applying rule 8D(2)(iii) does not arise; and secondly, where Assessing Officer had failed to establish any direct nexus between investments made by assessee and interest expenditure incurred, then it not correct to remand the matter concerning deletion of disallowance of interest under clause (ii) of rule 8D(2) to Assessing Officer for fresh determination. Accordingly, on the facts of the present case disallowance of ₹ 71,122/- made by the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in law in disallowing the aforesaid claim of depreciation without appreciating that the said claim had consistently been allowed by the Revenue in assessment orders passed for preceding assessment years. 7.4 Without prejudice, the assessing officer erred on facts in disallowing ₹ 42 lacs in respect of depreciation on non-functional. units, without appreciating that the said amount represents depreciation under the Companies Act, 1956, which was suo Motu disallowed by the appellant in the return of income, and disallowance, if any, could have been made for depreciation claimed under the provisions of the Act. 85. The Assessing Officer observed that during the year, the assessee has claimed depreciation on non-functional units A, B C. The assessee was required to explain as to why depreciation on non-functional Units should not be disallowed. The assessee submitted that Part-A consist of 2 DG Sets of capacity 3.5 MW/hour. These are stand by DG sets maintained by the assessee for generation of electricity in case need arises. During the assessment year 2009-10, the assessee has claimed only depreciation of ₹ 0.42 crore. It has been held in various judgments tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80) 123 ITR 404 (Del) CIT vs. Vayithri Plantations Ltd. (1981) 128 ITR 675 (Mad) CIT vs. G.N. Agrawal (Individual): 217 ITR 250 (Bom.) CIT vs. India Tea Timber Trading Co. 221 ITR 857(Gau) CIT vs. Geo Tech Construction Corpn: 244 ITR 452 (Ker.) CIT vs. Refrigeration and Allied Industries Ltd. (2001) 247 ITR 12 (Del) CIT V. Swarup Vegetable Products India Limited: 277 ITR 60 (All.) ReflexionsNarayani Impex (P) Ltd. v. ITO: 2013 (3) TMI 434 CIT vs. OswalWoollen Mills Limited: 206 CTR 141 (P H) CIT vs. Norplex Oak India : 198 Taxman 470 (Cal) CIT vs. Premier Industries (India) Ltd.: 323 ITR 672 (MP) CIT vs. Panacea Biotech Ltd.: 324 ITR 311 (Del.) CIT vs. Yamaha Motor India Pvt. Ltd. (2010) 328 ITR 297 (Del) ACIT v. Chennai Petroleum Corporation Ltd.: 126 TTJ 865 (Chennai) (ITAT) 91. It was further submitted by AR that assets of Part A of non-functional units were kept as standby assets for the purpose of smooth functioning of business of the Assessee. It is, however, to be noted that the units of the Assessee were kept ready for use since the same were meant to be used in case of an exigency. The units were meant to be operatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the decision in the case of CIT vs. Nahar Exports Ltd. 163 Taxman 518 (P H). We therefore delete the disallowance of depreciation of ₹ 42 lacs and allow this ground of appeal of the assessee. 94. Ground No. 8 of the appeal of the assessee reads as under: 8. That the assessing officer/ DRP erred on facts and in law in disallowing a sum of ₹ 54,03,885 incurred by the appellant towards employee welfare expenses under section 40A(9) of the Act. 8.1 That the assessing officer/ DRP erred on facts and in law in holding that the aforesaid expenses were in no way linked to business expediency and were disallowable under section 40A(9) of the Act. 8.2 That the assessing officer/ DRP failed to appreciate that the provisions of section 40A(9) of the Act were not applicable to the aforesaid expenditure incurred by the appellant. 95. The Assessing Officer observed that while computing the income in the original return, the assessee has itself disallowed ₹ 54,03,885/- u/s 40A(9) of the Income-tax Act, 1961. However in the revised return the expenses have been claimed as deduction. The assessee was required to show cause addition of ₹ 54,03,885/- shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he statutory Auditor has already applied his mind and segregated expenses of ₹ 54,03,885/- (out of total of such expenses of ₹ 1,55,50,361/-) as-disallowable u/s 40A(9) of the Income-tax Act, 1961 as these are not basically related to business exigencies. In fact, the assessee has furnished minimal details before the Assessing Officer. It is understood that sufficient details were available before the statutory auditor and statutory Auditor has reached logical conclusion after applying his mind as well as provisions of law. Therefore, the Assessing Officer inclined to go with the opinion of the statutory Auditor and a sum of ₹ 54,03,885/- was proposed to be disallowed u/s 40A(9) of the Income-tax Act, 1961. 98. The Assessing Officer also observed that in respect of the objections of the assessee the DRP rejected the objections of the assessee by observing as under:- The Assessing Officer disallowed the expenditure of ₹ 54,03,885/- placing reliance on 40A(9) of the Act. The contribution by the assessee to the employee s welfare schemes, was indeed, not in consonance with the prescriptions of the above provision. 99. Therefore, the sum of ₹ 54 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sor and owner of the Aircraft and the assessee company. JSPL is the lessee. In the clause 21 of the Agreement termed as End of Lease purchase option, the lessee has been given right to purchase the Aircraft but subject to conditions specified. As per Annexure-E of the Rental Agreement, final rental schedule has been drawn for 84 months giving the breakup of monthly rental split into interest and principal. 104. This is a finance lease and assessee has got the aircraft financed by GE Capital Services India private Limited. Therefore, amount of interests alone can be said to be incurred for business and allowance under the Income-tax is restricted to the same. Amount of principal cannot be allowed as deduction as it relates to the principal amount which is a capital expense. 105. In the submissions filed during the FBT proceedings, it has been submitted by the assessee that total lease payments of ₹ 2,16,91,034/- has been made which constitutes ₹ 32,97,554/- towards finance charges and ₹ 1,83,93,480/- towards capital cost. In view of the same, ₹ 1,83,93,480/- was proposed to be treated as capital expenditure and added back to the income of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,34,582 out of a ircraft expenses incurred by the appellant during the relevant assessment year without providing any cogent reasons for doing so. 10.1 That the assessing officer/ DRP erred on facts of the case and in law in making the aforesaid disallowance without appreciating that the aircraft expenses were incurred by the appellant wholly and exclusively for business purposes. 112. The Assessing Officer observed that during the year, the assessee has claimed aviation expenses of ₹ 4,08,02,454/- in the Profit and loss account. The assessee furnished details of the aviation expenses. From a perusal of details, it is noticed that the assessee has claimed the following journey expenditure:- Sr. No. Particulars Amount Date 1 Hiring of Helicopter -Badaun-Delhi 223976/- 26.08.2008 2 Paid to Sanjeev Toward Flight Exp Bills 4,10,606/- 17 to 19.03.2009 113. The assessee was required to prove the genuineness of journey and complete details of clients w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd even an iota of evidence to substantiate that the journeys were for non-business purposes. The Ld. AR submitted that ad-hoc disallowance is not permitted in law. The Ld. AR also submitted that the Assessing Officer has not brought on record any evidence to rebut the Assessee s contention that the trips were conducted wholly and exclusively for the purpose of the business. 118. It was further submitted that the above issue, in principle, stands decided in favour of the Assessee by the decision of the Delhi Bench I of the Tribunal in assessee s own case bearing ITA Nos. 3257/Del/05 and 3485/Del/05 for the assessment year 2001-02, wherein the Tribunal has held that expenses for trips to meet customers and/or prospective customers were directed to be allowed by the Tribunal. The assessee has filed in the Paper book the details at Page No. 596-602 of Paper book Vol. 2. The Assessing Officer made the addition with respect to only two expenses and the proof for the same has been duly submitted by the Assessee, by furnishing requisite invoice for Delhi Dehradun Delhi travel and copy of sample invoices in respect of reimbursements made by Sanjeev which is placed at Page No. 603- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing Rs:61,65,830/- (₹ 38.48,859 + ₹ 23,16,971) out of foreign travel expenses incurred by the appellant, holding the same to be non-business expenditure. 11.1 That the assessing officer/ DRP erred on facts and in law in not appreciating that expenditure of ₹ 38,48,859 incurred for exploring raw-material from overseas mines was incurred wholly and exclusively for purpose of business. 11.2 That the assessing officer/ DRP erred on facts and in law in holding that exploration of raw materials at Bolivia was new business or expansion of the existing business and hence expenditure incurred was not for the existing business. 11.3 That the assessing officer/ DRP erred on facts and in law in disallowing other foreign travel expenses of ₹ 21,16,971 holding that the said expenses were not incurred for business purposes. 11.4 That the DRP erred in alleging that the appellant failed to file necessary details to establish that the aforesaid expenses were incurred for business purposes. 122. The Assessing Officer observed that from the perusal of the Profit Loss Account filed alongwith the return, it was noticed that the assessee claimed foreign travell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve journey. The expenses on account of travel of family members can not at all be said to be incurred for business purpose. The assessee has admittedly failed to prove the genuineness of his claim; as the assessee is not having any bill or supporting vouchers in respect of the expenses claimed. The expenses incurred for exploration of raw materials at Bolivia cannot be said to be incurred for existing business and are at best related to new business set up or expansion of business. 127. The Assessing Officer further observed that even on merits, the claim of the assessee is not maintainable as the same has not been shown to have any nexus with the business carried out by the assessee and it has not been proved that it was expended wholly and exclusively for the purpose of such business and, therefore, the same are still not allowable u/s 37(1) of the Act. The Hon'ble Apex Court has held in the case of Vijay Laxmi sugar Mills Ltd. Vs CIT (1991) 191 ITR 641 that where there is no nexus between the business and expenditure, the expenditure is not allowable. In this regard, he drew support from the judgement of the Hon'ble Supreme Court, delivered in the case of Aluminum Cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Sh. Naveen Jindal dated 23.07.2008 9,92,549/- Total: 61,65,830/- 133. In support of the genuineness of the above claim, the Ld. AR submitted that the Assessee submitted before the AO that the plane hiring charges were incurred for the exploration of raw materials from mines at overseas location at Bolivia. Further, the Assessee submitted that foreign travelling expenses of Sh. Jindal were with the senior management team of the company, for the business purposes of the company, like exploration sources for continuous supply of raw materials like coal, iron ore, exploration of new customers at various locations, meeting with various suppliers, attending international business / economic summits, etc. 134. Further, the Ld. Authorized Representative also submitted copies of invoices, internal authorization forms, statements of expenses etc. are placed at Pg. 611-670 of Volume-2of Paper Book in order to prove the genuineness of the claims. The assessee also submitted a short note which is placed at page nos. 662-664 of Volume-2of the Paper Book on the said claim. However, ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the expenditure so incurred is, in its entirety, allowable as business deduction. 139. Even assuming that such expenditure was incurred for expansion of the existing business, since the said activity was undertaken under the control and supervision of the existing management and out of the existing available funds of the assessee, the expenses incurred were still allowable as deduction. Reliance was placed on following decisions: Indorama Synthetics Ltd. : 333 ITR 18 (Delhi) CIT Vs. Vardhman Spinning General Mills : 176 Taxman 157 (P H) 140. It was therefore submitted that the expenditure incurred was allowable as business deduction. 141. It was submitted that in any case, the Assessing Officer cannot put himself in the armchair of a businessman to decide the justification of incurring or not incurring any particular expenditure. So long as the expenditure incurred is for business purposes, the same is allowable as business deduction in view of the following High Court decisions: CIT v. Dalmia Cement (P.) Ltd: 254 ITR 377 (Del.) CIT V. Bharti Televentures Ltd: 331 ITR 502 (Del.) D H Secheron Electrodes Pvt. Ltd. vs. CIT: 149 ITR 400 (MP). 142. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IP 329606/- 24.10.2008 5 Purchase from Anoop Chand Jewelers 999025/- 12.11.2008 6 Mishri Lai la Chand 446732/- 12.11.2008 7 Anoop Chand Trilok Chand 954188/- 30.11.2008 8 Expenses on Diwali for Pardeep office 234599/- 31.12.2008 9 Gift for office guest 365620/- 31.03.2009 10 Shooting equipment vidya Devi Jindal School, Hisar 100000/- 28.08.2008 11 Platinum support Ent Odissa 500000/- 15.10.2008 12 Beli Ram Tara chand 1204026/ 03.11.2008 13 Faquir Chand Sons - 748800/- 03.11.2008 14 Civil work of shooting Range at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Even during present proceeding, the assessee did not provide necessary details to prove that the expenses were with reference to genuine need of the business. 148. Therefore, a disallowance of ₹ 77,33,850/- was made out of business promotion expenses, and added to the taxable income of the assessee. 149. The Authorized Representative argued that during the year under consideration, the Assessee had debited, inter alia, business expenditure in the profit and loss account on account of business promotion expenses. In the Assessment Order, the AO has proceeded to doubt the genuineness and business expediency of the said expenditures and thus an amount of ₹ 77,33,850/- has been disallowed. 150. That in response to the AO s queries, the Assessee submitted details of various business promotion expenses undertaken by it, and also submitted sample invoices, in order to prove the genuineness thereof. However, the AO has not referred to even a single sample invoice that has been produced by the Assessee. Regarding the business expediency of the expenses, the Ld. AR submitted that the business promotion expenses can be broadly divided into the following heads: Diwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of beneficiary the commercial expediency of the same could not be established. We therefore delete the disallowance of ₹ 24,32,973/- out of total disallowance of ₹ 77,33,850/- and confirm the disallowance of balance amount of ₹ 55,00,877/-. Thus, this ground no.12 of the appeal of the assessee is partly allowed. 154. Ground No. 13 of the appeal of the assessee reads as under: 13. That the assessing officer erred on facts and in law in making an adjustment of ₹ 21,06,39,195 to the arm's length price of the 'international transactions' of interest received from loan advanced to associated enterprise, on the basis of the order passed under section 92CA(3) of the Income-tax Act, 1961 ( the Act ), by the TPO. 13.1 That the assessing officer/ TPO erred on facts and in law in computing the arms length rate of interest charged on the international transaction of loan extended to\ the AE's, viz., Jindal Steel Power (Mauritius) Ltd. and Jindal Minerals Metals Africa Ltd., at the rate of 16% p.a. as against 8% p.a. charged by the appellant based on conjectures and surmises and by incorrect determination of arm's length price under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in law in not appreciating that even considering the yield on bonds issued by unrelated Indian companies in Indian currency having an yield of 2.917%-6.877%, no adjustment is warranted on this account. 13.10 That the assessing officer/TPO erred on facts and in law in not appreciating that the loan advanced by the appellant is for expanding its business in new horizons and having regard to the economic substance of the transaction, the said transaction shall be considered in the nature of quasi equity and accordingly shall not he benchmarked applying rates applicable on commercial loan loans provided by banks. 13.11 Without prejudice, the assessing officer/TPO erred on facts and in law in further adding a markup of 325 bps in the PLR rate of SBI, on account of adjustment for security and single customer risk, without appreciating that the appellant itself is the holding company of its associated enterprise and accordingly posses the charge of all assets of its associated enterprise. 13.12 That the DRP erred on facts and in law in summarily upholding the Transfer Pricing adjustment made by the TPO in the order passed under section 92eA(3) of the Act in respect of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... %. Applying a markup of 325 basis points, the TPO has adopted the reasonable rate of interest at 16% against 17.24% mentioned in the show cause. The arm s length price/value of interest receivable on loans outstanding in the name of the AE s has been determined at ₹ 42,12,79,830/- against ₹ 21,06,39,195/- received by the assessee. Accordingly, the TPO has determined the TP adjustment of ₹ 21,06,39,195/- on account of interest from loan advanced to associated enterprise. 160. The DRP therefore held that the TPO is right in making the above adjustment. The TPO has given elaborate and sufficient reasons to make this addition. The use of CUP as the most appropriate method in the facts and circumstances of the case is also justified. 161. Hence, the Assessing Officer made addition of ₹ 23,22,39,255/-to the income of the assessee. 162. Before us, the Authorized Representative of the assessee submitted the Appellant had granted loan amounting to USD 8,12,70,000 to Jindal Steel Power (Mauritius) Limited and USD 90,70,300 to Jindal Minerals Metals Africa Limited, who are the Associated Enterprises (AEs) of the Appellant. Interest is charged on the loan a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraph 3.26 of the OECD Guidelines. The revised OECD Transfer Pricing Guidelines issued on 22nd July, 2010, too, provide for use of internal comparable data for benchmarking analysis in preference over the external benchmark. The Benches of the Tribunal consistently held that the Rule itself provides that while undertaking a benchmarking analysis, internal comparable uncontrolled transactions is to be preferred over the external comparable uncontrolled transactions. 167. Reliance in this regard was placed on the recent decision of Chennai Bench of Tribunal in the case of VVF LTD Vs DCIT [ITA No. 673/Mum/06], wherein, it was held as under: We have noted that as was also noted by the Transfer Pricing Officer himself at page 3 of his order the Appellant has borrowed foreign currency loans in US Dollars and for the purposes of investing in subsidiaries abroad, from ICICI Bank at the rate of LIBOR + 3% The Appellant has also filed a letter from Bank of India stating that during March 2002, we had been charging spreads of 150 bps to 300 bps over LIBOR in respect of foreign currency loans based on financial position and credit rating of the borrower . As for the LIBOR rate, as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings are available at much lower rate which are charged with reference to the London Inter Banking Offered Rate (LIBOR).In the instant case loan is given in USD and there is no dispute on the same. 172. It was submitted that, in the case of export credit in foreign currency, the RBI has also given directions wherein it is specifically mentioned that the LIBOR rate was to be applied. Since, the above transaction of lending loan in foreign currency to a foreign entity is also an international transaction, as per the RBI guidelines, only the LIBOR rates can be applied. 173. Hon ble Delhi High Court in the case of CIT vs. Cotton Naturals I. P. Ltd. Reported in 276 CTR 445 (Del) has held that PLR rate is not applicable and LIBOR rate is to be applied when the loan is in foreign currency. 174. The Authorized Representative of the assessee also relied on the decision of Chennai Bench of the Tribunal in the case of Siva Industries and Holdings Ltd. vs. ACIT [ITA No. 2148/Mds/2148], wherein, the Tribunal held that, once the transaction between the Appellant and the associated enterprise is in foreign currency and the transaction is an international transaction, then the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked upon by applying commercial principle in regard to international transaction. It was argued that since the assessee has charged higher interest rate of 8% than the LIBOR rate, therefore, the transaction of the assessee was at Arm s Length. 177. It was also submitted that the assessee during the same period has taken loan from Financial Institution through External Commercial Borrowing at interest rate of 1.63% to 3.72% per annum and therefore, the interest rate of 8% charged by the assessee from its two Associated Enterprises was at Arm s Length and hence, no addition on that account was warranted. 178. We find that the rate which should be adopted by the TPO/AO for benchmarking the loan transactions with the assessee s Associated Enterprises should be the LIBOR rate and not the PLR rate as adopted in the instant case in view of the decision of Hon ble Delhi High Court in CIT Vs Cotton Naturals I. P. Ltd. (supra). The assessee has also submitted that it has made external commercial borrowings at interest rate ranging from 1.63% to 3.72% per annum. The assessee has not provided us the details of external commercial borrowings and that the loans advanced by the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustment made by the TPO in the order passed under section 92CA(3) of the Act in respect of corporate guarantee issued to the lenders on behalf of the associated enterprise of ₹ 2,16,00,060 without recording reasoned finding. 180. The Assessing Officer observed that the assessee company has given a Bank Guarantee worth ₹ 18 Million $ on behalf of the AE Jindal Steel. The above transaction is an independent class of international transaction and the same is included in definition of international transaction as per amendment made u/s 92B of the Act. Hence, it was proposed to charge arm s length price of providing the services by the assessee in the shape of Bank Guarantee by considering the rates prevalent in independent transaction. Hence, in order to determine arm s length price in relation to international transactions the case was referred to Transfer Pricing Officer after obtaining the prior approval of CIT, Hisar. 181. The TPO determined the rate to be charged by the assessee from its Associated Enterprises for corporate Guarantee as under: Sr. No. Details of Bank Guarantee Value of Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The TPO in his order, however, has rejected this holding that the Appellant and the AEs are separate legal entity and accordingly, the transaction of issue of performance guarantee is required to be demonstrated to be at arm s length price. The TPO imputed notional commission income at the rate of 2.71% p.a. plus a mark-up of 200 basis points on the basis of data obtained from State Bank of India u/s 133(6) of the Act, holding that such transactions are independent transactions and shall be benchmarked applying CUP method. 186. Section 92(1) of the Act provides for computation of income arising from an international transaction having regard to the arm s length price. Explanation to section 92(1) of the Act further clarifies that allowance of any expense or interest arising from an international transaction shall also be determined having regard to the arm s length price. 187. Further, sub-section (2) of section 92 of the Act provides for application of arm s length test in respect of mutual agreement or arrangement . The pre-condition for invoking arm s length test as provided in sub-section (2) of section 92 of the Act that the two or more associated enterprises must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 371 430 of the TP CLC (relevant pg. 387-419) 9. Manugraph India Ltd. Vs. DCIT I.T.A. No.2631/Mum/2015 Mumbai ITAT 431 486 of the TP CLC (relevant pg. 444) 190. In view of the aforesaid, it is submitted that the transaction of issue of corporate guarantee is not required to be benchmarked under section 92(1) of the Income Tax Act and hence, notional income proposed to be imputed is liable to be dropped. 191. Further, Guarantee provided by the Appellant was part of the procedural compliance for availing the banking facilities i.e. loan by the subsidiaries and was given by Appellant for its own commercial expediency and for the overall benefit of the Appellant and the group. The corporate guarantee was provided by the Appellant as it is having shareholding interest in the subsidiaries. Reliance was placed on the following case laws: Marico Ltd. vs. ACIT [2016] 70 taxmann.com 214 (Mumbai Tribunal) Micro Ink Ltd vs. ACIT (ITA 2873/Ahd/10) Manugraph India Ltd. vs. DCIT (I.T.A. No.2631/Mum/2015) Tega industries Ltd vs. DCIT 192. The reliance was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing investments are typically provided by the parent company as part of the shareholder activity. 198. The Appellant has provided guarantees to its AEs only to provide assurance and comfort to the third parties, it is in the ordinary course of business. Shareholders sometimes have to make commitments to regulatory authorities with respect to the health of an affiliate in order to get permission to acquire an affiliate. In these cases, it seems reasonable to conclude that the guarantee confers no real benefit on the affiliate; rather, the shareholder is the true beneficiary because the guarantee enables it to acquire its investment. It is incidental to the parent s participation as a shareholder in the subsidiary. In the present case, pursuant to the obligation of the Appellant, as the awardee of the tender, to perform in accordance with the tender, the guarantee was given and hence the AE cannot be charged with commission for an obligation of the Appellant. 199. The Chennai bench of the Tribunal in the case of Mascon Global Ltd. vs. ACIT in ITA No. 2205/Mds/2010 has appreciated the concept of shareholder services and held that no benchmarking is required where transaction aro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant has paid bank guarantee fees at a much lower rate of 0.10%-0.125% p.a. to Yes Bank Limited on issue of foreign guarantee. 205. The TPO in the impugned order has allegedly added an ad-hoc markup of 200 bps on the average rate of commission of 2.71% p.a. charged by various banks as per information sought under section 133(6). 206. Since, the TPO has considered the highest rate of commission that would have been charged by the bank from a company having BBB or unrated rating, the credit risk has already been factored in such rates. Further, since the TPO has considered the highest rate of commission charged by the banks without taking into account the credit worthiness and market reputation of the Appellant, a markup on account of risk adjustment is unwarranted and liable to be reduced from the arms length rate of interest so determined. 207. Further, it was submitted that rate of 0.27% should be applied. For this reliance was placed on the decision of the Tribunal in case of Lanco Infratech Limited [TS-328-ITAT2017(HYD)-TP]. It was submitted that the Tribunal following Asian Paints decision, adopted 0.27% as arm s length commission rate for the corporate guarant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the years under consideration the assessee having not incurred any costs in providing corporate guarantee it would not constitute International Transaction within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect. 210. Similar finding was given in the case of Rusabh Diamonds vs. ACIT ([2016] 68 taxmann.com 141 (Mumbai - Trib.)) wherein it was held as follows:- 38. Well, if the 2012 amendment does not add anything or expand the scope of international transaction defined under section 92B, assuming that it indeed does not- as learned Departmental Representative contends, this provision has already been judicially interpreted, and the matter rests there unless it is reversed by a higher judicial forum. However, if the 2012 amendment does increase the scope of international transaction under section 92B, as is our considered view, there is no way it could be implemented for the period prior to this law coming on the statute i.e. 28th May 2012. The law is well settled. It does not expect anyone to perform an impossibility. Reiterating this settled legal position, Hon'ble Supreme Court has, in the case of Krishnaswamy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clinpharm Private limited (supra) where similar view has been taken. The decision of Hon'ble Bombay High Court in case of Patni Computer Systems Ltd. has been rightly analysed by the Coordinate Bench in Rushabh Diamonds (supra) and it was held that rather than answering this question on merits, and with the consent of both the parties, Their Lordships sent the matter back for fresh consideration of the Tribunal and to this extent, the decision of the Coordinate Bench in case of Ameriprise India Pvt Ltd which has equally relied on the said decision of the Bombay High Court is distinguishable. In light of the same, following the decision of the Coordinate Bench in Rushabh Diamonds and in absence of any contrary higher authority on the subject, we agree with the contention raised by the ld. AR that such amendment by way of an explanation to section 92B is an amendment to a substantive law as it has resulted in enhancement of the scope of international transactions as envisaged u/s 92B of the Act. Accordingly, the subject transaction if at all, it has to be considered as an international transaction in light of decision in case of Kusum Healthcare (supra), which it is not, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, the Mumbai Bench of the Tribunal in the case of Rusabh Diamonds vs. ACIT ([2016] 68 taxmann.com 141 has held as follows:- 38. Well, if the 2012 amendment does not add anything or expand the scope of international transaction defined under section 92B, assuming that it indeed does not- as learned Departmental Representative contends, this provision has already been judicially interpreted, and the matter rests there unless it is reversed by a higher judicial forum. However, if the 2012 amendment does increase the scope of international transaction under section 92B, as is our considered view, there is no way it could be implemented for the period prior to this law coming on the statute i.e. 28th May 2012. The law is well settled. It does not expect anyone to perform an impossibility. Reiterating this settled legal position, Hon'ble Supreme Court has, in the case of Krishnaswamy S. Pd. v. Union of India [2006] 281 ITR 305/151 Taxman 286, observed as follows: The other relevant maxim is, lex non cogit ad impossibilia-the law does not compel a man to do what he cannot possibly perform. The law itself and its administration is understood to disclaim as it does in its ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, and with the consent of both the parties, Their Lordships sent the matter back for fresh consideration of the Tribunal and to this extent, the decision of the Coordinate Bench in case of Ameriprise India Pvt Ltd which has equally relied on the said decision of the Bombay High Court is distinguishable. In light of the same, following the decision of the Coordinate Bench in Rushabh Diamonds and in absence of any contrary higher authority on the subject, we agree with the contention raised by the ld. AR that such amendment by way of an explanation to section 92B is an amendment to a substantive law as it has resulted in enhancement of the scope of international transactions as envisaged u/s 92B of the Act. Accordingly, the subject transaction if at all, it has to be considered as an international transaction in light of decision in case of Kusum Healthcare (supra), which it is not, in the facts of the present case, as we have held above, it has to be considered as an international transaction from AY 2013-14 onwards and for the years under consideration being AY 200708, 2008-09 and 2009-10, the same will thus not qualify as an international transaction. 216. Still, further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and accordingly applicable in the Assessment Year 2013-14 and subsequent years, and not applicable in the impugned assessment year which is the Assessment Year 2009-10. We, therefore, hold that the issuance of corporate guarantee cannot be considered as an international transaction for the year under consideration. Therefore, the addition made of ₹ 2,16,00,060/- is deleted. Thus, this ground of appeal of the assessee is allowed. 218. Ground No. 15 of the appeal of the assessee reads as under: 15. That the Assessing Officer/DRP erred on facts and in law in not allowing MAT credit under Section 115JAA of the Act. 219. We have heard the rival submission and perused the orders of the lower authorities and materials available on record. The Ld. AR of the assessee claimed that MAT Credit as eligible under section 115JAA of the Act has not been allowed to the assessee company. We therefore direct the AO to verify the claim of the assessee as per record and allow credit under section 115JAA of the Act as allowable as per law. 220. Ground No. 16 of the appeal of the assessee reads as under: 16. That the Assessing Officer/DRP erred on facts and in law in charging in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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