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TMI Blog2019 (4) TMI 1923X X X X Extracts X X X X X X X X Extracts X X X X ..... evant assessment year. 1.2 That the Dispute Resolution Panel ('DRP') erred on facts and in law in affirming the draft assessment order by passing a cryptic and non-speaking order, without judiciously considering the entire material and the submissions/ objections filed by the appellant." 3. At the time of hearing, the Authorized Representative of the 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 Rs. 4,19,30,71,772 to Rs. 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. Rs. 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer 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 transfer, then, for the purpose of the deduction under this section, the profit and gains of such eligible business shall be computed as if the transfer, in either case, has 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 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 mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 opinion, the answer is in negative in view of exposition as f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tricity 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 Rs. 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 observed by the DRP that on inquiry, the assessee could not explain by which order the above said question no.3 is covered against the revenue. Further, it has been noted that SLP is pending in Hon'ble Supreme Court on the issue involved. 19. The DRP has noted that the assessee is not allowed to sell the surplu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by way of supplies to its other manufacturing units and also for sale to the State Electricity Board. The dispute essentially relates to the mechanism of Section 80-IA(8) of the Act. Section 80-IA(8) provides that where an assessee, which is eligible for Section 80IA benefits, transfers its goods or services to a business other than the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (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 purchaser who desires to buy but is not compelled to take the particular article or piece of property. 15. Therefore, from the aforesaid, it can be deduced that market value is an expression which denotes a price arrived at between the buyer and the seller in the open market wherein the transactions take place in the normal course of trading and competiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 before us. The issue before the Hon'ble Calcutta High Court was in the context of the Bengal Agricultural Income Tax Act, 1944. Shorn of other details, the question considered by the Hon'ble High Court, relevant for the present, was whether the procurement rate of paddy offered by the State could be considered to be the market value of paddy. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 Rs. 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 to allow relief to the assessee under Section 80-IA as claimed. Assessee succeeds on this ground." 26. It is also seen that against this decision, the Department preferred an appeal before the Hon'ble Punjab & Haryana High Court which was dismissed vide order dated 02.09.2008 in ITA No. 53 of 2008 copy of which is placed at page no. 159 of the paper book volume 1 filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 rate at which the power was purchased by the Assessee from Tata Power Company as market value. There is nothing brought on record as to how the rate determined by the MERC is the true market value. The Assessee gave explanation that the rates determined by the MERC do not reflect the correct market rate. The finding is that the mode of computation and deduction under Section 80IA requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power generation. Thus the sum of Rs. 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 Rs. 4.51 per unit of electricity only represented cost of electricity generation to the assessee and not the market value thereof. It is not in dispute that the GEB charged Rs. 5 per unit for supplying electricity to other industries including non eligible unit of the assessee itself. Tribunal therefore, while adopting the said base figure and excluding excise duty therefrom to work out Rs. 4.90 as the market value of the electricity generated by the assessee, to our mind, committed no error. It can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 deduction in the original return as well as in the revised return, but, the assessee, at no point of time, made any effort in the direction. 31. The Assessing Officer observed that the Ld. DRP also found that the CBDT's circular relied upon by the assessee was also not of much assistance because the case under discussion was not a simple case of ignorance on the part of the assessee which is a limited company, undergoing assessment proceedings for the las ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessment proceedings for which assessee has not filed revised return, although, as per law, the assessee is required to file the revised return". e. That from the facts of Goetze India (supra)it is inferred that it was a case of 'fresh claim' whereas the assessee case is of the 'enhancement of its existing claim'. Hence, the decision of Goetze India (supra) is not applicable at all. 35. It is submitted that by way of revised computation of income filed along with lett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (P.) Ltd. v. Income-tax Officer [2010] 195 TAXMAN 30 (MUM.) (MAG) Hon'ble Delhi ITAT in the case of JCIT vs Hero Honda Finlease Ltd.: 115 TTJ 752 (Del. ITAT) CIT vs Jai Parabolic Springs Ltd.: 306 ITR 42 (Del. HC) CIT vs Ramco International: 332 ITR 306 (P&H). CIT vs Pruthvi Brokers and Shareholders (P) Ltd.: 208 Taxman 498 (Bom.) CIT vs Arvind Mills LTD: ITA No. 1407 of 2011 (Guj.) Aishwarya Rai vs DCIT: ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 been rightly applied by the Assessing Officer and the same should be followed. 48. After considering the rival submissions and perusing the materials on record we find that the assessee before the Assessing Officer had categorically submitted that in the relevant assessment year, the said unit earned profits of Rs. 77,81,08,987/- which were eligible for deduction u/s 80IB of the Act. The said deduction was, inadvertently, not claimed by assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances 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 Tribunal upheld the claim of the assessee by holding as under: "We have heard both the parties on this issue. The impugned amount claimed by the assessee is not a deduction but it is an expenditure. It is not the case of the revenue that these expenditures are not allowable in the regular course of business of the assessee. The claim is supported by the audit report. Therefore, we are of the opinion, that Ld. CIT(A)has rightly granted relief to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision. 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 ITR 225 (SC), it was held by the Supreme Court that the powers of the CIT(A) sitting in appeal over an assessment were plenary and co-terminus with those of the AO and that he can do what the ITO can do and also direct him to do what he has failed to do. In the light of the law laid down in this judgment by the Supreme Court, it was open to the CIT(A) to consider the assessee's claim on merits by virtue of his co-extensive power over the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, 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 copy of which is in the Paper book before us also. In this regard, we also wish to consider a recent Delhi High Court judgment wherein on identical facts Hon'ble High Court of Delhi in the case of Pr. Commissioner of Income Tax vs. Oracle(OFSS) BPO Services ITA 593/2018 - Judgment dated 17th January, 2019 while adjudicating the identical facts as involved in the facts of the present case Hon'ble High Court held that Amendment to 80A (5) of the Act does not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. Certainly, the amended provisions ensure better compliance of the statutory provisions. Reference to the expression "multiple claims of deduction" would be with reference to the stipulation that deduction should be claimed under a particular provision and it cannot be shifted and treated as deduction claimed under the other provision. Language of Sub-section 5 to Section 80A does not state that the deduction once claimed under a particular section cannot be cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally 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 Rs. 50,03,98,228/- towards sales-tax subsidy/capital Reserve and also of reduction at the time of computation of income at Rs. 39,35,77,228/- and Rs. 31,34,53,398/- in respect of so called Entry-tax and Electricity Duty subsidy in lieu of tax exemptions are disallowed. Thus, addition of Rs. 1,20,74,28,854/- (50,03,98,228/- + 39,35,77,228/- + 31,34,53,398/-) is made to the income for the purpose of arriving at assessed income. 52. The Assessing Officer noted that the upto the assessment year 2007-08, the assessee company has been claiming deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 Rs. 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 return of income for relevant assessment year. 1.3. It is the case of the Assessee that exemption on account of sales tax, entry tax and electricity duty aggregating to Rs. 120,74,28,854/-.in respect of industrial unit at Raigarh, Madhya Pradesh is a capital receipt not liable to tax and should, therefore, be directed to be excluded from the total income of the assessee for the assessment year under consideration. In this regard, Ld. AR placed reliance on a number of judgments, including few Supreme Court judgments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government of Madhya Pradesh have been approved / adopted by the Chhattishgarh Government. 1087-1091 115. Copy of letter dated 02.05.2002 issued by Department of Commerce and Industry, Government of Chattisgarh approving the incentive / subsidies granted vide notification dated 24.04.2000 issued by the earlier Government of Madhya Pradesh. 1092 116. Copy of letter dated 11.11.2004 issued by Commercial Tax Department, Raigarh certifying investment of Rs. 1027 crores by the assessee till the year 2003-04. 1093 117. Copy of notice issued by the Commercial Tax Department in March 2013 for F.Y.2008-09 requiring the assessee to show cause as to why the Central Sales Tax may not be recovered for non-fulfillment of conditions in Notification No. (40) dated 24.04.2000. 1094-1095 118. Copy of reply dated 07.05.2013 filed by the assessee in response to aforesaid notice issued by Commercial Tax Department 1096-1098 119. Copy of order dated 25.09.2013 passed by the Commercial Tax Department dropping aforesaid proceedings. 1099 120. Copy of notice issued by the Commercial Tax Department in March 2013 for F.Y.2008-09 requiring the assessee to sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sation expenditure incurred on account of provision of Employee Stock Option Scheme ('ESOS') to employees. 5.1 That the DRP grossly erred on facts and in law in not allowing aforesaid deduction by holding that the said issue stands decided in favour of Revenue by the order of the CIT(A) in the preceding assessment years, without appreciating that the said observation actually supports the appellant's aforesaid claim of deduction." 58. The Authorized Representative of the assessee submitted that ESOS expenditure has been disallowed in the earlier assessment years and during the current assessment year the assessee has written back Rs. 3,92,93,000/- on account of Employee Stock Option Scheme (ESOS). The assessee has not accepted the disallowances made in earlier years and has filed appeal in the matter. Since, the issue is pending before the appellate authority, no action is taken on this issue in the current year. 59. It was submitted that the DRP rejected the objections of the assessee by observing as under:- "The DRP considered the facts of the case carefully. It was noticed that in the earlier assessment years, such amount clamed as deduction by the assessee was not allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... options were exercised by the employee against which shares were allotted and balance options were lapsed/withdrawn during the period. 63. Ld. Authorized Representative, during the course of the hearing, submitted that expense incurred on account of discount on ESOS is an allowable expenditure in law. Reliance in this regard is placed on the following case laws: Biocon Ltd. vs. DCIT [2013] 144 ITD 21(Bangalore - Trib.) (SB) DCIT v. Kotak Mahindra Bank Ltd. [2018] 168 ITD 529 (Mumbai - Trib.) Lemon Tree Hotels Ltd. v. Addl. CIT - ITA No. 4588/DEL/2013 Religare Commodities Ltd. v. ACIT and Ors. - ITA No. 2283/DEL/2013 64. It was further submitted that, without prejudice, the AO/DRP have erred on facts and in law in not allowing deduction in respect of written back amount in this year consistent with the finding in the earlier assessment years that deduction is not allowable in respect of deferment of employee compensation expenditure. That, while disallowing the deduction, the stand of the Revenue in earlier assessment years to not allow deduction on account of discount on ESOP, actually supports the claim of the assessee for allowing deduction in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m claiming any deduction towards discounted premium. It is quite basic that the object of issuing shares can never be lost sight of. Having seen the rationale and modus operandi of the ESOP, it becomes out-and-out clear that when a company undertakes to issue shares to its employees at a discounted premium on a future date, the primary object of this exercise is not to raise share capital but to earn profit by securing the consistent and concentrated efforts of its dedicated employees during the vesting period. Such discount is construed, both by the employees and company, as nothing but a part of package of remuneration. In other words, such discounted premium on shares is a substitute to giving direct incentive in cash for availing the services of the employees. There is no difference in two situations viz., one, when the company issues shares to public at market price and a part of the premium is given to the employees in lieu of their services and two, when the shares are directly issued to employees at a reduced rate. In both the situations, the employees stand compensated for their effort. If under the first situation, the company, say, on receipt of premium amounting to Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed 'expenditure' to mean what is 'paid out or away' and is something which has gone irretrievably. However, it is pertinent to note that this section does not restrict paying out of expenditure in cash alone. Section 43 contains the definition of certain terms relevant to income from profits of business or profession covering sections 28 to 41. Section 37 obviously falls under Chapter IV-D. Sub-section (2) of section 43 defines "paid" to mean: "actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head 'profits and gains of business or profession'." When we read the definition of the word "paid" u/s 43(2) in juxtaposition to section 37(1), the position which emerges is that it is not only paying of expenditure but also incurring of the expenditure which entails deduction u/s 37(1) subject to the fulfilment of other conditions. At this juncture, it is imperative to note that the word 'expenditure' has not been defined in the Act. However, sec. 2(h) of the Expenditure Act, 1957 defines 'expenditure' as : 'Any sum of money or money's worth spent or disbursed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not allowed as deduction when its provision was made in the year of provision then write back of the very same amount in the subsequent year cannot be included in the total income of the subsequent year. We therefore set aside the orders of the lower authorities on this issue and restore the matter back to the file of the AO for adjudication afresh in light of the above observation. The AO shall verify whether the amount written back this year was allowed as deduction or not in the year in which provision for the same was made by the assessee. Further, the assessee has submitted before us that the disallowance made in earlier years when provision was made is challenged in appeal and the appeal is pending before the appellate authority. We would like to clarify here that if after appeal the assessee is allowed deduction in the year of provision in the appeal then while giving effect to that order the AO shall bring the corresponding amount of write back in the year under consideration to tax .Thus, this ground no. 5 of the appeal of the assessee is treated as allowed. 69. Ground No. 6 of the appeal of the assessee reads as under: "6. That the assessing officer/ DRP erred on facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he investment is Rs. 1233 Cr. The assessee is shying away from giving specific details, probably, for fear of detection of fact that actually, the payment has been made from general pool of funds which does include borrowed fund, on which interest is being paid. Since, the assessee has not kept any such details in its books of account, no option but to conclude that claim of the assessee regarding corresponding expenses is inaccurate and unreliable. Since, specific data/calculation for arriving at accurate expenditure incurred to earn the exempt income which is not forming part of 'total income' is not available as per books of account, the method prescribed under Rule 8 is the only option. 75. The Assessing Officer observed that as per Section 14A(2) of the Act, the Assessing Officer shall determine the expenditure incurred in relation to such income which does not form part of total income and the provisions of Sub-section (2) shall also apply in relation to a case where an assessee claims no expenditure has been incurred by him in relation to exempt income. 76. The Assessing Officer also observed that the DRP rejected the objections of the assessee by observing that once the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bay High Court in the case of CIT v. HDFC Bank Ltd. Reported in 366 ITR 505 (Bom) and Reliance Utilities Ltd vs. CIT reported in 313 ITR 340 (Bom) has held that there is presumption that the investments are made from self owned funds unless the contrary is proved. Moreover, on the peculiar facts of the present case, it will kindly be appreciated that the Assessee Company promoted Jindal Power Limited (JPL) to build 1000 MW Power Project in Raigarh District in the State of Chattisgarh considering the increasing requirement of power in the Assessee's steel manufacturing activities. Thus the business of the assessee company and JPL is linked and assessee company acquired a definite business advantage or benefit from such investment and so the dividend yield on such investment is not the sole benefit earned from such investment, however, the same is on account of commercial expediency. Lastly and without prejudice to the above, the Assessee submits that the AO has erred in application of Rule 8D of the Rules, with regard to calculation of the average value of investment prescribed in the formulae. In this regard, the Assessee places reliance on the decision of the Hon'ble Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e view has also been taken by Punjab and Haryana High Court. Applying this Delhi Bench of the Tribunal in the case of Associated Law Advisers vs. ITO - [2017] 87 taxmann.com 148 (Delhi - Trib.) has held that- "16. We have heard the rival submissions and also perused the relevant find given in the impugned order. The assessee before the Assessing Officer had categorically submitted that the looking to the nature of expenditure debited in the profit & loss account as well as pointed from other details like bank statements and balance sheet that no expenditure whatsoever has been incurred for earning of income by way of dividends which very paltry sum. It was further submitted that the income in respect of units of mutual funds and gross amount of income has been offered for taxation. After such a claim, under the provisions of sub section (2) & (3) of section 14, it was incumbent upon the Assessing Officer having regard to the accounts of the assessee and the nature of expenses debited, to examine the correctness of the claim that whether any expenditure in relation to the exempt income has been incurred or not. If the Assessing Officer fails to satisfy himself in this regard, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A read with rule 8D at Rs. 21.54 crores. We find that the condition precedent for invoking provisions of rule 8D is that the AO must record a satisfaction that the amount of disallowance claimed in the return of income is not correct. Without recording such a satisfaction the AO cannot invoke provisions of Rule 8D. Above view finds support from the decision of the Hon'ble Jurisdictional High Court in the case of COMMISSIONER OF INCOME TAX-I vs. ABHISHEK INDUSTRIES LTD. Reported in 360 ITR 652 and COMMISSIONER OF INCOME-TAX vs. KAPSONS ASSOCIATES reported in 381 ITR 204. 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 Rs. 21.54 crores in place of Rs. 2,65,715/- claimed by the assessee in the Return Income is bad in law and unsustainable. We therefore delete the same and direct the AO to restrict the disallowance under section 14A of the act to Rs. 2,65,715/-. Thus, this ground no. 6 of the appeal of the assessee is allowed. 84. Ground No. 7 of the appeal of the assessee reads as under: "7. That the assessing officer/ DRP erred on fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively from transfer of steam generated in boilers of these power plants. Therefore, it was submitted that Part-A, B & C are functional/operational Units and depreciation should be allowed accordingly. 87. The Assessing Officer after considering the reply of the assessee observed that the assessee could not show that two DG sets which are called Part-A were used even for a single day. In facts, assessee has also filed the same reply in the last so many years. It goes to show that the assets were not in use for so many years. 88. The Assessing Officer further observed that the DRP rejected the objections of the assessee observing that the assessee was required to prove before the Assessing Officer that the machinery of the non-functional units was ready for use as the same was in the nature of standby asset to avoid disruptions in business operation. In absence of the same, the Assessing Officer was not misdirected in disallowing depreciation. 89. Therefore, the Assessing Officer disallowed Rs. 42 lacs on account of depreciation on assets of non-functional unit Part-A. 90. It was submitted by the AR that the expression "used for the purposes of the business" has been judiciall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record of the AO. Furthermore, this issue has been adjudicated in a number of cases whereby it has been held that depreciation is allowable even on account of passive use/ready to use assets. The jurisdictional High Court in the case of CIT vs. Nahar Exports Ltd. 163 Taxman 518 (P&H) reiterated that even where the machinery is kept ready for use, depreciation is admissible under Section 32 of the Act. Hon'ble High Court in the case of CIT v. Pepsu Road Transport Corpn: 253 ITR 303 held that depreciation claimed by a transport undertaking on spare engines kept in store for use in the case of need, could not be disallowed on the ground that the same were not used by assessee. Hence, following these two direct jurisdictional High Court decisions, depreciation should be allowed to the Assessee." 92. The Departmental Representative relied on the orders of the Lower authorities. 93. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The AO disallowed depreciation of Rs. 42 lacs in respect of 2 generator sets on the ground that those generator sets were not used during the relevant previous year. The assessee explained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under section 40A(9) of the Income-tax Act, 1961. 87. After considering the submissions of the assessee the AO observed that it is found to be not tenable. The Auditor in his Tax Audit Report in Form No.3CD in column 17(g) has made the following observations:- "Any sum paid by the assessee as an employer not allowable under section 40A(9) - Annexure-j (reproduced below) :- Employer's contribution made to employees Welfare Scheme:- Raigarh 4072542.71 Delhi 260708.50 Raipur 245732.73 Tensa 115574.70 Tamnar 66613.00 B argil 32546.00 Angul 317297.73 Total: 5403885.37 96. The Assessing Officer there after observed that Assessee did not submit any further details or supporting evidence. Whatever is on record shows that the payments have nothing to do with the business exigencies, like the assessee has debited Rs. 75,000/- with the following narration:- S.No. Name of the employee Designation Claim for Amount disease 1 S.S.M Lakra Officer Self 75,000/- Artificial insemination 97. The Assessing Officer observed that there cannot be any connection between the 'Artificial insemination' and the business of the assessee company. The statutory Audi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years and therefore, there was no reason to deviate from the accepted position during the year under consideration. 9.3 Without prejudice, the assessing officer/ DRP erred on facts and in law in not allowing depreciation on the total cost/ value of the assets taken on lease, consistent with the finding that the capital assets were acquired by the appellant on finance lease." 102. The Assessing Officer observed that during the previous year 2004-05, the company has taken an aircraft on lease from GE capital services India, the lease payment excluding finance charges have not been debited to Profit & Loss Account as per the provisions of AS-19 issued by the ICAI. The finance charges debited to the Profit & Loss Account have been initially added to the income for the purpose of computation of tax and deduction of lease rental including the financial charges in the cumulative sum of Rs. 1,16,91034/- has been claimed as an expenses as per the provisions of the Act. 103. The assessee has filed a copy of the Aircraft lease Agreement during the assessment proceedings, wherein GE Capital Series India is the Lessor and owner of the Aircraft and the assessee company. JSPL is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt made by the assessee was comprised of two elements i.e. a part towards the Capital cost of the asset and the other part for interest. The AO worked out the interest component at Rs. 32,97,554/- and allowed the same . The balance payment was considered as Capital Expenditure . The AO further stated that depreciation in respect of the Cost of Capital Asset shall be allowed to the assessee if the assessee moves 154 Petition. We find that the Ld. AR could not bring any material before us to controvert the finding of the AO. In the circumstances we find no good reason to interfere with the order of the AO. However, we find force in the contention of the Ld. AR that depreciation ought to have been allowed to the assessee in respect of cost of the Asset. We therefore direct the AO to allow depreciation as per law in respect of cost of Asset. Thus this ground of appeal of the assessee is treated as partly allowed. 111. Ground No. 10 of the appeal of the assessee reads as under: "10. That the assessing officer/ DRP erred on facts of the case and in law in disallowing Rs. 6,34,582 out of a ircraft expenses incurred by the appellant during the relevant assessment year without providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prove the business utility of the above expenditure. 115. The D.R.P. rejected the objections of the assessee by observing that 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. 116. Therefore, the Assessing Officer disallowed Rs. 6,34,582/- and added to the income of the assessee. 117. The Authorized Representative of the assessee submitted that on a perusal of the details of expenditure incurred on air journeys, it will be kindly appreciated that all the journeys were related to the business of the assessee and the Assessing Officer disallowed the expenditure incurred on an ad-hoc basis, by randomly picking some of the journeys made and holding that they were not made for business purposes without bringing on record 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Rs. 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. The Ld. 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 of Rs. 6,34,582/-. Thus, this ground of appeal is allowed. 121. Ground No. 11 of the appeal of the assessee reads as under: "11. That the assessing officer/ DRP erred on facts and in law in disallowing Rs:61,65,830/- (Rs. 38.48,859 + Rs. 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 Rs. 38,48,859 incurred for exploring raw-material from overseas mines was incurred wholly and exclusively for purpose of business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vel of Mr. Naveen Jindal, EVC & MD, in most of the cases are with, senior management team of the company, for the business purpose of the assessee like exploring sources for continuous supply of raw material like coal, iron ore; exploration of new customers at various locations; meeting with various supplier; attending international business /economic summits etc." 126. The Assessing Officer observed that the assessee has not furnished any supporting evidence as to what was the outcome of the visit; the details of clients whom contacted and the transactions conducted on account of the above 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officials of the Assessee for business purposes. 132. The details of the disallowed amount are: S. No. Expenditure Amount (in Rs.) 1. Hiring cost of plane hired in Bolivia dated 22.07.2008 38,48,859/- 2. Air Ticket bill of Sh. Rana & Family dated 17.07.2008 9,70,958/- 3. Foreign expenses, Singapore ated 19.11.2008 3,53,464/- 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 expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion/extension of the existing business is allowable revenue expenditure. 138. In the present case, as stated above, expenses were, it is reiterated, incurred merely to explore possibility of raw material from mines located at Bolivia, which were required for the existing business of the assessee. Thus, 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 incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se for VIP 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 Sonipat 166373/- 21.02.2009 145. The assessee was required to furnish specific details of the beneficiaries and to prove the genuineness and business exigencies of the above expenditure. In response to this, the assessee furnished written reply which as under:- "Diwali gifts of Rs. 5,51,800/- & Rs. 10,50,600/- - Please note that these expenses have been incurred on Diwali Gifts which are given to bankers, Customers etc. on the occasion of Diwali. Please find attached the details of the payments made as Annexure-2." Civil work- of Shooting Range - Rs, 166373/- - Please find attached the bill as Anneuxre-3. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed. 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: Diwali gifts / expenses, Civil work for shooting range, gifts for conferences / events. Before the AO, the Assessee made detailed submissions on all these heads, and the commercial expediency of the same. 151. Regarding Diwali gifts, it was submitted that these gifts were given to bankers, customers, VIP etc., on the occasion of Diwali and included costs towards, sweets, fire crackers, gifts etc., details of which were also submitted before the AO. Regarding Civil work for shooting range, it was submitted before the AO that the these expenses were incurred to providing sports facilities for employees and various other stake holders in the Assessee company, invoice for which was also submitted before the AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.1 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 the Transfer Pricing regulations. 13.2 That the assessing officer / TPO erred on facts and in law in appropriately determining the arm's length rate of interest in respect of international transaction of loan extended to the AE applying CUP method by comparing the aforesaid Prime Lending Rate (PLR) of SBI for the previous year 2008-09 at 12.75%with a mark-up of 325 base point as the benchmark for determining the arm's length rate of interest in respect of international transaction extended in foreign currency. 13.3 That the assessing officer / TPO erred on facts and in law in not appreciating that 'considering the comparable uncontrolled benchmark, placed on record by the appellant, the international transaction of loan extended to the AE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 international transaction of loan advanced to the associated enterprise of Rs. 21,06,39,195 without recording reasoned finding." 155. The Assessing Officer observed that during the preceding years, JSPL has granted loan amounting to Rs. 4,14,07,06,500 to Jindal Steel & Power (Mauritius)Ltd. and Rs. 46,71,31,785 to Jindal Minerals & Metals Africa Limited. JSPL has granted these loans for business purposes and it is charging interest @8% annually. Accordingly, in the relevant financial year, JSPL received interest amounting to Rs. 18,16,45,581/- and Rs. 2,89,94,354/- on loan granted to Jindal Steel & Power (Mauritius) Limited and Jindal Mineral Metal Africa Limited respectively. 156. Regarding the reference made u/s 92CA(1), Transfer Pricing Officer, has passed orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived interest amounting to Rs. 18,16,45,581/- on loan granted to Jindal Steel & Power (Mauritius) Limited and Rs. 2,89,94,334/- on loan granted to Jindal Minerals & Metals Africa Limited. 163. In the TP Study, the Appellant has benchmarked the said transactions applying CUP method and concluded that the aforesaid transaction is at arm's length as the Appellant has availed external commercial borrowings from financial institutions at a rate of interest ranging from 1.63% to 3.72% p.a. but extended loan to Jindal Steel & Power (Mauritius) Limited and Jindal Minerals & Metals Africa Limited at higher rate, i.e. 8% p.a. In case of JSPL, comparable transaction was available where JSPL has availed external commercial borrowing from financial institutions, at a rate of interest ranging from 1.63% to 3.72% P.A. Considering that the international transaction of receipt of interest by JSPL at 8% was higher than compared to comparable uncontrolled prices for similar uncontrolled transactions, the 'international transaction' of interest received was considered to be at arm's length applying Comparable Uncontrolled Price method. 164. The TPO disregarded the benchmarking analysis undertaken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . On the given facts, in our considered view, it would be appropriate to accept internal CUP, i.e. the rate at which the Appellant has resorted to foreign exchange borrowings from the ICICI, as arms length price under CUP method. The fact, as brought on record by the authorities below that this loan from ICICI bank was not used for the purposes of remittance to subsidiaries as interest free loans has no bearing for the purposes of computing ALP of interest free loan. The financial position and credit rating of the subsidiaries will be broadly the same as the holding company, and, therefore, the precise rate at which the ICICI Bank has advanced the foreign currency loans to the Appellant company can be adopted at arms length price of interest free loans advanced by the Appellant company to its foreign subsidiaries." 168. In the present case, the Appellant has appropriately justified the said international transaction of receipt of interest on the aforesaid loan of USD 8,12,70,000 advanced to Jindal Steel &Power (Mauritius) Limited and USD 90,70,300 to Jindal Minerals & Metals Africa Limited by way of interest paid on ECBs taken from various banks at the rate of interest ranging fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 175. It was submitted that since the Appellant has charged a higher rate of 8% than the applicable LIBOR rate, no adjustment was required to be made on account of the arms length price of receipt of interest. 176. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the assessee granted loan of USD 8,12,70,000 to Jindal Steel & Power (Mauritius) Ltd. And of USD 90,70,300 to Jindal Minerals & Metals Africa Ltd. Who are the Associated Enterprises of the assessee during the year under consideration. On these loans, the assessee charged interest @ 8% per annum and received Rs. 18,16,45,581/- from M/s Jindal Steel & Power (Mauritius) Ltd. And Rs. 2,89,94,334/- from Jindal Minerals & Metals Africa Ltd. The assessee benchmarked this transaction of loan by applying CUP methods. According to the assessee, as per Rule 10B(1)(a) of Income Tax Rules, CUP method compares the price charged for property or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction. As per the revised OECD transfer pricing guidelines issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also not been provided 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 after examination in line with the discussions made hereinabove. Thus, the ground of appeal is allowed for statistical purposes. 179. Ground No. 14 of the appeal of the assessee reads as under: Transfer Pricing Adjustment on guarantee issued on behalf of the AE "14. That the assessing officer / TPO erred on facts and in law in making an addition of Rs. 2,16,00,060 allegedly 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. 14.1 That the assessing officer /. TPO erred on facts and in law in imputing the commission at the rate of 2.71% p.a. plus a mark-up of 200 bps, allegedly on the basis of data obtained from various banks u/s 133(6) of the Act. 14.2 That the assessing officer/TPO erred on facts and in law in disregarding the fact that guarantee was issued by the assessee pursuant to an obligation cast upon a shareholder, being the holding company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( refer Annex.1) 4.71 2,16,00,060 182. Arm's Length Price of providing the services in the form of bank guarantee is determined as under: ALP of Corporate guarantee Charges Rs. 2,16,00,060/- Corporate Guarantee charges received Nil Shortfall being adjustment u/s 92CA Rs. 2,16,00,060/- 183. The Assessing Officer observed that the facts involved for this issue are that the Appellant during the year has given performance guarantee to ICICI bank for an amount of USD 9 Million on behalf of Jindal Steel, Bolivia, pursuant to facility agreement dated 15th December 2007. 184. The Appellant for the purpose of extending its business operations across the globe has entered into agreement with the Government of Bolivia for setting up steel, pellet, sponge iron & power plant in South America. Pursuant to tender issued by the Government of Bolivia for 'subscription contract mining production of steel mutun'. The Appellant during the year has given corporate guarantee to ICICI bank for an amount of USD 9 million on behalf of Jindal Steel, Bolivia, in lieu of its commitment for performing the tender taken. It is the case of the Assessee that it has extended this support in capacity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost and income, it cannot be subjected to benchmarking under transfer pricing provision of the Act as it falls within the purview of the definition of "international transaction" as mentioned in Section 92B(1) of the Act. 189. In the following cases too, it has been held that Corporate Guarantee is outside the purview of Transfer Pricing: 1. Siro Clinpharm Pvt. Ltd. Vs. DCIT ITA. No. 2618/Mum/2014 Mumbai ITAT 1 - 56 of the TP CLC (relevant pg. 11) 2. Marico Ltd. Vs. ACIT ITA No. 8713 & 8858/Mum/2011 [2016] 70 taxmann.com 214 (Mumbai - Trib.) Mumbai ITAT 57 - 76 of the TP CLC (relevant pg. 66-70) 3. Videocon Industries Ltd. Vs. ACIT I.T.A. No.1728-1729/MUM/2014 Mumbai ITAT 77 - 136 of the TP CLC 4. Bharti Airtel Limited Vs. Addl. CIT I.T.A. No.: 5816/Del/2012 New Delhi ITAT 137 - 194 of the TP CLC (relevant pg. 153-162) 5. Redington (India) Limited Vs. JCIT ITA No.619/Mds/2014 Chennai ITAT 195 - 266 of the TP CLC 6. Four Soft Ltd. Vs. DCIT ITA No. 1903/Hyd/11 Hyderabad ITAT 267 - 288 of the TP CLC 7. Reliance Industries Ltd. Vs. Addl. CIT ITA No.885/Mum/2009 Mumbai ITAT 289 - 370 of the TP CLC 8. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the international transaction. 195. Furthermore, it must be appreciated that transfer pricing determination is not primarily undertaken to re-write the character and nature of the transaction (Circular no. 14 of 2001). The object is not to tax any notional income. The law of transfer pricing does not artificially broaden, expand or deviate from the concept of "real income". The aim is not to unnecessarily broaden the tax base and tax notional income. 196. It was argued that it was the primary obligation of the Appellant which was only executed through its subsidiaries. The objective was also to have synergy in the international operations, having global footprint, making presence felt worldwide. It was driven by commercial consideration with anticipation of significant benefit in the form of profit/ income in the later years. 197. It submitted that provision of guarantee is to be regarded as a shareholder activity which is enjoyed by the AEs just being a part of the group. Hence, the question of determining an arm's length price does not arise. As a business practice, guarantees to subsidiaries formed especially for purposes of acquisition or holding investments are typica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial risk of liquidating the underlying securities and meeting the financial commitments under the guarantee, the guarantees issued by the corporates for their subsidiaries are rarely, if at all, backed by any underlying security and the risk is entirely entrepreneurial. The motivation or trigger for issuance of such guarantees is not the kind for consideration for which a banker gives the guarantee as motivational issue is maximization of gains for the recipient entity and thus the MNE group as a whole. 203. It was submitted that Amendment to Section 92B is prospective in nature and placed reliance on the following decisions:- CIT vs. Vatika Township (P.) Ltd. (367 ITR 466(SC)) DIT v. New Skies Satellite BV [2016] 382 ITR 114/68 Rusabh Diamonds vs. ACIT [2016] 48 ITR(T) 707- Mumbai KGK Enterprises vs. ACIT ([2017] 88 taxmann.com 264 (Jaipur - Trib.) 204. Without prejudice to our arguments, it was submitted that the said transaction of corporate guarantee cannot be benchmarked separately and the corporate guarantee provided by the Appellant is different from the bank guarantee provided by other banks, it is submitted that the Appellant has paid ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n seeking the tax-payers to organize their affairs in a manner compliant with the norms set- out. In short, it is an anti abuse legislation which tells you as to what is the acceptable behaviour but it does not trigger levy of tax in a retrospective manner because no party can be asked to do an impossibility. Analyzing further the Bench observed that though Explanation to Section 92B is stated to be c1arificatory, it has to be necessarily treated as effective from the A.Y. 2013- 2014 and in this regard, relied upon the observations of the Hon'ble Delhi High Court in the case of Skies Satellite. We have also analyzed the case law relied upon by the Ld. D.R. and also the provisions of the Act. In our considered opinion, the view taken by the Delhi Bench of ITAT in the case of Bharati Airtel Ltd. (supra) is one of the possible views on the matter and so long as there is no binding decision of any other Higher Forum taking a contrary view, the one which is favourable to the assessee has to be adopted even though other Benches have taken a different view. We, therefore, hold that the Explanation to Section 92B cannot be applied retrospectively and for the years under consideration t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside the scope of 'international transaction', cannot be said to be retrospective in effect. The fact that it is stated to be retrospective, in the light of the aforesaid guidance of Hon'ble Delhi High Court, would not alter the situation, and it can only be treated as prospective in effect i.e. with effect from 1st April 2012 onwards." 211. A similar view has been taken by Jaipur ITAT in the case of KGK Enterprises vs. ACIT ([2017] 88 taxmann.com 264 (Jaipur - Trib.) wherein the Court held that- "50. We find that the Coordinate Bench in Rushabh Diamonds (supra) has examined at length the effect of the amendment brought in by the Finance Act 2012, considered the decision of the Hon'ble Delhi High Court in case of New Skies Satellite BV and has held that explanation to Section 92B which increases the scope of international transaction, has to be necessarily treated as effective prospectively from the assessment year 2013-14 though stated to be clarifcatory and stated to be effective from 1st April 2002. We have also gone through other Coordinate Bench decisions in case of Gitanjali Exports Corporation (supra) and Siro Clinpharm Private limited (supra) where si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possibility. Analyzing further the Bench observed that though Explanation to Section 92B is stated to be c1arificatory, it has to be necessarily treated as effective from the A.Y. 2013- 2014 and in this regard, relied upon the observations of the Hon'ble Delhi High Court in the case of Skies Satellite. We have also analyzed the case law relied upon by the Ld. D.R. and also the provisions of the Act. In our considered opinion, the view taken by the Delhi Bench of ITAT in the case of Bharati Airtel Ltd. (supra) is one of the possible views on the matter and so long as there is no binding decision of any other Higher Forum taking a contrary view, the one which is favourable to the assessee has to be adopted even though other Benches have taken a different view. We, therefore, hold that the Explanation to Section 92B cannot be applied retrospectively and 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." 214. Further, the Mumbai Bench of the Tribunal in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . with effect from 1st April 2012 onwards." 215. A similar view has been taken by Jaipur ITAT in the case of KGK Enterprises vs. ACIT ([2017] 88 taxmann.com 264 (Jaipur - Trib.) wherein the Court held that- "50. We find that the Coordinate Bench in Rushabh Diamonds (supra) has examined at length the effect of the amendment brought in by the Finance Act 2012, considered the decision of the Hon'ble Delhi High Court in case of New Skies Satellite BV and has held that explanation to Section 92B which increases the scope of international transaction, has to be necessarily treated as effective prospectively from the assessment year 2013-14 though stated to be clarifcatory and stated to be effective from 1st April 2002. We have also gone through other Coordinate Bench decisions in case of Gitanjali Exports Corporation (supra) and Siro 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 Lord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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." 217. Respectfully, following the decisions quoted above we hold has 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady on record. Furthermore, the Assessee submitted that this has been allowed by the Assessing Officer himself in AY 2014-15 and AY 2015-16 and the issue on merits stands covered by various Tribunal and High Court judgments. 224. The Ld. Departmental Representative stated that this is a new ground being raised in Tribunal for the first time and hence should not be adjudicated as this claim was not before the lower authorities. He therefore prayed that the additional grounds may not be admitted. 225. After hearing the rival submissions and perusing the materials on record, we find that the issue raised in the additional grounds of appeal are legal issues which can be admitted in view of the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT(Supra). We therefore admit the same. 226. As these additional grounds were not adjudicated by the lower authorities, we therefore restore the same to the file of the AO for adjudicating the same. Thus, both the additional grounds of appeal are allowed for statistical purposes. 227. In the result, the appeal of the assessee is partly allowed. (Order Pronounced in the Court on 29th day of April, 2019 at ..... 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