TMI Blog2020 (12) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... ef following earlier orders of ITAT. He had noted that it was held that the claim for depreciation cannot be thrust upon the assessee. AOhas consistently rejected the claim of the assessee based on the stand taken at assessment stage in earlier year. CIT(A) noted that current year issue is consequential. Accordingly, following earlier orders of ITAT in assessee s own case, he decided the issue in favour of the assessee. It is not the case that earlier years decision of ITAT has been reversed by Hon'ble High Court. DR also did not dispute that this issue is covered in favour of the assessee. Hence, we uphold the order of learned CIT(A). The Revenue s ground is dismissed. Disallowance u/s. 14A of the I.T. Act read with Rule 8D(2)(iii) - CIT-A restricting addition to 5% by taking average value of investment which have yielded dividend during the year under consideration and also under the provisions of Sec. 115JB - HELD THAT:- We find that the direction of learned CIT(A) is in consonance with earlier year ITAT order as regards disallowance u/s 14A is concerned. Hence, in this regard, we uphold the order of CIT(A). As regards importing disallowance u/s 14A to Section 115JB of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order passed by learned CIT(A) on this issue. Transfer pricing adjustment in respect of debts receivable from AE - HELD THAT:- CIT(A) has decided the issue by referring to earlier years order in assessee s own case correctly wherein the arm s length rate of interest in respect of delayed realization of receivable was determined at Libor plus 1.05%. CIT(A) deleted the adjustment done by TPO, by holding that benchmarking done by assessee is accepted. - Since the ITAT has already accepted the interest charged at the rate Libor plus 125 bps for delayed payment in earlier years, we do not find any reason to interfere with the delayed realization of receivable at Libor plus 1.50%. Accordingly, we uphold the order of learned CIT(A) deleting the addition. TP Adjustment on interest on investment in preference stock of associated enterprises - HELD THAT:- We note that as submitted no fresh investment is made during the year. That the shares were allotted in earlier years. The new issue raised by Revenue on the theory of preponderance are not sustainable as nothing has been cogently brought on record. As pointed out by the learned Counsel of the assessee the examples mentioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has taken exactly this view. On the facts and circumstances of the case it cannot be said that the expenditure incurred by the assessee is not relating to corporate social responsibility. Another reason for adverse inference by the authorities below for disallowance under section 37(1) is that assessee has incurred these expenditures through trusts. We find that there is no bar in the act in this regard. No cogent case has been made out that these expenditures are not covered under the statutory obligation under section 135 of the companies Act. It is also not the case that relevant authorities in this regard have rejected them as not meeting the statutory obligation u/s. 135 of the Companies Act. Moreover, AO has himself noted that he has verified the respective document and found them to be correct in connection with allowance under section 80G of the Act. Hence, the veracity is not in doubt. Accordingly we set aside the orders of authorities below and allow the ground raised by the assessee. Exempt u/s.10(15)(iv)(h) - under normal provisions of the Act as well as for the purposes of sec. 115JB - HELD THAT:- The claim of the assessee is that the above said interest income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 5,35,215/-on the capitalized value of goods purchased from Durga Iron Steel Ltd. and Surajbhan Rajkumar Pvt. Ltd. in A.Y. 2003-2004. The Appellants submits that the cost of the goods purchased from the above parties were capitalised as plant and machinery in A.Y. 2003-04 and were used during the year under consideration and hence depreciation u/s. 32 of the Act on such capitalised value of the goods is allowable. 3. The CIT(A) erred in remanding back the appellant's claim of depreciation on office equipment's @ 15%, to the file of the assessing officer for verifying the correctness of classification vis-a-vis the law. The appellant submits that it had submitted complete details of additions to the assets viz. office equipment's which are in the nature of Plant Machinery and hence the depreciation u/s.32 of the I T Act ought to have been allowed @ 15%. 4. The CIT(A) erred in confirming the disallowance of deduction u/s 80IB(9) of the Act of ₹ 698,07,88,5197- in respect of Refinery SEZ Undertaking by holding that once claim u/s 10AA of the Act has been made on profits of Refinery SEZ Undertaking, no deduction u/s 80IB(9) of the Act be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and in law, the learned CIT(A) erred in confirming the action of AO of not demonstrating the motive of the Appellant to shift profits outside of India by manipulating the prices charged in its international transaction, either at the stage of invoking or initiating the assessment or at the stage of framing the assessment; 7.4 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the learned AO in not demonstrating that the course of business between the Appellant and the closely connected person was so arranged that it produces to the Appellant more than ordinary profits which might be expected to arise in its eligible business; 7.5 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the learned AO in not demonstrating the motive of the Appellant, to carry out transactions between an eligible business and other business, to reduce the taxable profits by manipulating the prices of its Specified Domestic transactions, either at the stage of invoking or initiating the assessment or at the stage of framing the assessment. : 8 Guarantee Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e action of the learned AO in rejecting the economic analysis or the benchmarking analysis of the Appellant, on the application of internal Comparable Uncontrolled Price Method by the Appellant, without providing any cogent reasons; 10.4 On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the action of the learned AO in accepting the economic analysis of the learned TPO without providing cogent reasons and specifically: The learned AO and CIT(A) failed to appreciate that the turnover of the comparable company is more than 10 times that of the tested transaction; The learned AO and CIT(A) failed to appreciate that the level of market of the comparable transaction adopted by the learned TPO, is different as compared with the level of market in which appellant (manufacturing units) operate; The learned AO and CIT(A) erred by relying on non-contemporaneous data, order dated 29 April 2014, to determine the arm's length rate. 11. Each of the above Grounds of Appeal are without prejudice to each other. The Appellant craves leave to add, amend, delete, rectify, substitute, modify, or otherwise, all or any of the aforesaid grounds or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r against arriving at arm's length price. 10. On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in relying the agreement between the AE and Khurdish government as it would only serve as evidence for cost incurred and there is no binding bilateral treaty between India and Iraq for not charging mark up on cost. 11. On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in deleting the mark up on the cost without appreciating the fact that it would lead to base erosion for India. 12. On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in not appreciating the fact that no party would render support services to an unrelated party at cost without mark up, the concept being very basis of transfer pricing. 13. On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in deleting the addition of ₹ 39,77,60,683/- in respect of debts receivable from AE made by the TPO by holding that recharacterisation of such transaction is not permissible under the law even when the TPO had not recharacterised the debtors as loan and held the same as receivable. 14. On the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k of AEs in spite of the fact that AEs are loss making and are not declaring dividends, which no unrelated third party would do so at arm's length which is the very essence of transfer pricing. 22. On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in not appreciating the fact that assessee which is bound to earn income at fixed coupon rate on preference stock has not received any income in this regard with huge investment which will not be the case in any third party scenario as envisaged in section 92F(ii). 23. On the facts and circumstances of the case and law, the Ld. CIT(A) has failed to see the fact even when the AE- RGBV had profits of ₹ 33,31,606/- euro in FY 2009-10, the mandatory fixed income at the coupon rate of 5% on the preference stock was not paid to the assessee. 24. On the facts and circumstances of the case and law, the Ld. CIT(A) has failed to see the fact even when the AF- RIME had profits of 11,494,125 UAE Dirhams, 5188402 UAE Dirhams and the 742,069 dollars during calendar year 2007, 2008 and 2010 respectively, assessee has not received the fixed 5% coupon rat income. 25. On the facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33. On the facts and circumstances of the case and law, the Ld. CIT(A) has failed to show as to how assessee followed yield spread method correctly for impugned AY. 34. On the facts and circumstances of the case and law, the Ld. CIT(A) has failed to give any reason for rejecting the CUP rate adopted by the TPO. 35. On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in including the comparable M/s Allsec Technologies Ltd. without appreciating the fact that company is loss making in earlier years as well as in subsequent year. 36. On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in excluding the comparable M/s Axis Integrated Systems Limited without appreciating the fact that Business Support Services and Management Services are highly skill-based services and by no stretch of imagination BSS and MSS can be treated as low-end services. 37. On the facts and circumstances of the case ld. CIT(A) has erred in including comparable M/s. Empire Industries Ltd. without appreciating that comparable is functionally dissimilar. 38. On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt dated 09.10.2012. The appellant submits that CIT(A) ought to have allowed weighted deduction u/s. 35(l)(ii) of the Act while computing total income under the normal provisions. 5. The learned CIT(A) Mumbai erred in allowing the deduction in respect of export profits of SEZ unit u/s 10AA of the Act with reference to the income computed under the head 'profits and gains of business or profession' of the SEZ unit instead of 'gross profits and gains' of SEZ unit, as interpreted by Supreme Court in the recent judgement in the case of Vijay Industries. The Apex court while interpreting the provisions of section 80HH relevant to AY 1979-80 and 1980-81 has held that phrase profits and gains means gross profits of the business i.e. before computing income as specified in section 30 to 43D of the Act in para (18) and (19) as under:- It is most humbly submitted that the concept 'profits and gains' is a wider concept than the concept of 'income'. The profits and gains/loss are arrived at after making actual expenses incurred from the figure of sales by the assesses. It does not include any depreciation and investment allowance, as admittedly thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us. 10. At the outset, learned Counsel of the assessee submitted that this issue is covered in favour of the assessee by a catena of decisions of ITAT in assessee s own case as well as several other decisions. He further referred that ITAT Special Bench in assessee s own case reported in 88 ITD 273 decided the issue in favour of assessee. 11. Learned Departmental Representative on the other hand could not dispute the above said proposition. The ITAT in assessee s own case in a number of orders for preceding years has decided the issue in favour of the assessee and the same order has not been reversed by Hon'ble Jurisdictional High Court. Accordingly, we follow the doctrine of stare-decisis and uphold the order of learned CIT(A). Hence, Revenue s appeal on this issue stands dismissed. 12. Apropos ground No. 2 is relating to allowance of depreciation as claimed by the assessee by holding that the claim of depreciation for the year was optional in nature. 13. This ground of appeal pertains to restricting the allowance of depreciation to ₹ 64,47,59,69,037/- as against the assessee's claim of ₹ 65,18,82,98,4587- and disallowing ₹ 71,23,29,421/- ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the assessee has option not to claim depreciation does not arise for adjudication for this year. In earlier years, this issue has been decided in favour of the Appellant. In this year, the issue relates to the amount of WDV to be taken as on 01.04.2012. Following the decisions of my predecessors in the Appellant's case in the preceding years and also the decision of the Hon'ble ITAT upto AY 2009-10, the AO is directed to adopt the WDV of the assets as on 01.04.2012 on the basis of effects given to the orders of CIT(A) for the preceding years. The Appellant has worked out the amount of depreciation allowable on the basis of these orders at ₹ 6518,82,98458/-. Similar issue was decided by my predecessors in favour of the appellant. Consequently following the earlier year s decision of my predecessors this ground of appeal 2(a) is therefore, allowed. Since Ground no. 2(b) is not pressed by the appellant (as stated above), the same is disposed off. 15. Against the above order, Revenue is in appeal before us. 16. At the outset, learned Counsel of the assessee submitted that this issue is squarely covered in favour of the assessee by decision of ITAT in ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of CIT Vs. Reliance Utilities and Power Ltd. (313 ITR 340) for the proposition that when assessee s own fund far more exceeded investments made on which exempt income has been earned no disallowance for interest is to be done. So learned CIT(A) directed for deletion of addition on this account. 22. As regards disallowance for other expenses learned CIT(A) referred to several judgements relied upon by the assessee and directed that disallowance should be computed @ 0.5% by taking average value of those investments which have yielded dividend during the year under consideration or the expenses disallowed by the assessee whichever is higher, both in normal provisions as well as book profit u/s. 115JB of the Act. Learned CIT(A) also noted that identical issue was similarly decided by the ITAT in earlier years. 23. Against this order, Revenue is in appeal before us. 24. Learned Counsel of the assessee in this regard has submitted that the issue is covered in favour of the assessee by earlier year orders of the ITAT. He also referred to following further case laws :- Pr.CIT Vs. Bhushan Steel (Delhi High Court) Bengal Finance Investment Vs. ACIT (Mumbai) Vireet I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores being the abortive cost of wells incurred in contract areas other than KGD while computing deduction u/s.80IB(9) of the Act in respect of KGD undertaking. 29. Upon assessee s appeal learned CIT(A) decided the issue in favour of the assessee by observing that similar issue has been allowed to the assessee in the immediately preceding assessment year i.e. A.Y. 2012-13. The learned CIT(A) held as under :- 13.3 Decision I have considered the facts of the case and the submissions made by the assessee. The issue for consideration is whether cost of abortive/unsuccessful blocks (other independent undertakings) are be reduced while computing the profits of a successful block (KGD in the assessee's case which is independent undertaking) for the purpose of claiming deduction u/s 80-IB(9). The assessee was engaged in the business of exploration and production of mineral oil. The assessee was awarded 30contract areas under separate production sharing contracts (PSC) signed with the Government of India. The above contract areas were awarded on bidding in separate auction for each contract area. There is no dispute that for the purpose of claiming deduction u/s.80IB(9) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this issue learned Counsel of the assessee submitted that the issue is covered in favour of the assessee by the ITAT on this issue for A.Y. 2011-12 to 2012-13 as under :- 107. We have heard rival contentions on this issue. We have noticed earlier that the Ld CIT(A) has decided this issue in favour of the assessee by holding that each contract is a separate undertaking and hence the expenses relating to aborted blocks of different contracts cannot be reduced from the profit from sale of mineral oil obtained from another contract. The operative portion of CIT(A) on this issue are extracted below:- 49. Decision: I have considered the facts of the case and the submissions made by assessee. The issue for consideration is whether cost of abortive/ unsuccessful blocks (other independent undertakings) are be reduced while computing the profits of a successful block (KGD in the assessee's case which is independent undertaking) for the purpose of claiming deduction u/s 80-IB(9). The assessee was engaged in the business of exploration and production of mineral oil. The assessee was awarded 31 contract areas under separate production sharing contracts (PSC) signed with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed. 108. We notice that the article/clause 17.2.2 of PSC allows deduction of expenses relating to aborted blocks against the profit arising from other blocks. In our view, the assessee was right in contending that the article/ clause 17.2.2 was concerned with the computation of income at entity level in terms of sec. 42 of the Act. The article/clause 17.2.5 of PSC states that all other provisions of Income tax Act shall apply. The PSC does not deal with the deduction given u/s 80IB(9) of the Act and hence the provisions of the Act shall apply. Hence the deduction u/s 80IB(9) of the Act has to be computed in terms of sec. 80IB of the Act. Sec. 80IB(13) of the Act provides that the provisions of sec. 80IA(5) shall apply and under the provisions of sec. 80IA(5) of the Act, the profits and gains of eligible business, for the purposes of sec. 80IB, shall be computed as if such eligible business were the only source of income of the assessee. In view of these provisions, the deduction u/s 80IB(9) has to be computed after ascertaining profits and gains of eligible business in terms of sec. 80IA(5) of the Act. Hence there is no scope to adjust expenses relating to other undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a separate Petroleum Tax Guide would be in place to facilitate the investors. This Petroleum Tax Guide is a compilation of the laws relating to Income Tax, Custom Duties, Central Excise and other laws, as applicable to activities connected with prospecting for or extraction and production of petroleum in the upstream sector under PSC entered into on or after 1st January 1999. Paragraph 5 of the guide deals with the Income Tax provisions in relation to PSC participants. Subparagraph 5 (11) reads as under:- Under Section 80-IA of the Income Tax Act, 1961, PSC Participants who begin Commercial Production of Petroleum in any part of India on or after 1st April 1997 shall be entitled to claim deduction of 100% of their profits and gains derived from such business for initial seven years commencing from the first year of Commercial Production. The term Commercial Production is defined as under in the Petroleum Tax Guide :- Commercial Production means production of Petroleum (excluding any production for testing purposes) from a field and delivery of the same at the relevant delivery point under a programme of regular production and sale. The date of commencement of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of mineral oil on or after 1st day of April, 1997: [Provided that the provisions of this clause shall not apply to blocks licensed under a contract awarded after the 31st day of March, 2011 under the New Exploration Licencing Policy announced by the Government of India vide Resolution No. O-19018/22/95-ONG.DO.VL, dated the 10th February, 1999 or in pursuance of any law for the time being in force or by the Central or a State Government in any other manner;] (iii) is engaged in refining of mineral oil and begins such refining on or after the 1st day of October, 1998 3 [but not later than the 31st day of March, 2012]; As can be observed from the above, deduction under 80IB(9)(ii) is available to an undertaking which is located in any part of India and has begun or begins commercial production of mineral oil on or after the 1st day of April, 1997 . The undertaking namely KGD6 block belonging to the assessee company, is located in India i.e. at Tallerevu Mandal, East Godavari District, Gadimoga - 533 463, Andhra Pradesh, India and has begun commercial production of mineral oil after the 1st day of April, 1997 i.e. on 01.05.2009. Hence the assessee company duly ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On 12.04.2000 the assessee alongwith M/s Niko Resources Limited entered into a PSC with the Government of India [ GOI ] for obtaining a Petroleum Mining Lease in respect of Development area specified therein namely Block KG-DWN-98/3 (KGD) for extraction and exploration of mineral oil i.e. 'Petroleum'. Although the term 'mineral oil' is defined in section 42, 44BB and 293A of the Act, the same is not defined in Section 80-IB of the Act. When one refers to following statutes dealing with mineral oil, petroleum and natural gas etc, natural gas is treated as a part of 'mineral oil' viz: a) The Oilfields (Regulation Development) Act, 1948 b) The Mines and Minerals (Development and Regulation) Act, 1959 c) The Oil industry (development) Act, 1974 d) The Regulation for foreign direct investment in India e) Notification issued (No GSR 304(E) dated March 31, 1983 for extending the applicability of the Act to the continental shelf of India f) New Exploration Licensing Policy g) Petroleum Tax Guide published by the Ministry of Petroleum and Natural Gas, Government of India The issue whether natural gas is a mineral oil and is eligible for deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round no. 7 is relating to the decision of the AO in restricting the deduction u/s 80IB(9) of the Act to the proportionate profit relating to sale of Crude oil. We noticed earlier that the AO did not allow deduction on the profit arising on sale of Natural gas and condensate by holding that the natural gas shall not fall under the category of Mineral Oil for allowing deduction u/s 80IB(9) of the Act. The Ld. CIT(A), however, held that the mineral oil shall include natural gas also and accordingly directed the AO. The revenue is aggrieved by the said decision of Ld. CIT(A). 110. We heard the parties on this issue and perused the record. We notice that the question as to whether natural gas shall fall under mineral oil or not was examined by the Ahmedabad bench of ITAT in the case of NIKO Resources Ltd vs. DCIT (22 DTR 225) and it has been held that the natural gas shall fall under mineral oil in terms of sec. 80IB(9) of the Act. The said decision of Tribunal has since been affirmed by Hon ble Gujarat High Court in the same case reported in 374 ITR 369. 111. The AO had taken support of sub-clause (iv) inserted in sec. 80IB(9) by Finance (No. 2) Act, 2009 w.e.f. 1.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts ('PSC) with foreign government for the exploration and development of petroleum in the contract area (as defined in the PSC). In relation to the exploration and development of petroleum contract executed by AE, the Appellant has rendered support services for drilling operations. Pursuant to the various service agreement entered between the Appellant and the AE, in relation to international blocks, the Appellant had undertaken the following transaction with the AE during FY 2012-13 :- Particulars Amount (in USD) Amount (in Rs.) Provision of support services to AE for drilling operations 30,89,554 16,74,39,458 The Appellant has submitted copies of specimen service agreements entered with REP DMCC for all the international blocks, a statement which provides the details of invoice raised on REP DMCC towards provision of support services for drilling operations, alongwith copy of the invoices, before the TPO and this office. It is also submitted that as per the PSC entered by the AE, the cost of professional and administrative services and scientific or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10B(2)(d) of I T Rules, the Learned CIT(A) has deleted the impugned addition. Before us, the Ld A.R also placed reliance on the following decisions, wherein the PSC entered with foreign governments were given due importance:- (a) Bharti Airtel Limited (ITA No.5636/Del/2011)(Delhi Trib.) (b) Cotton Naturals (I) Pvt. Ltd (ITA No.233/2014)(Delhi HC) Under these set of facts, we do not find any reason to interfere with the decision taken by Ld CIT(A) on this issue. Referring to this, the ITAT held as under :- We have heard both the counsel on this issue. We notice that the assessee has collected for the supply of materials and equipments and also for providing services in accordance with the PSC entered with foreign governments. Said decision of assessee is supported by the provisions of Rule 10B(2)(d) of the I.T. Rules. We further noticed that the TPO did not bring any other comparable to prove that the amount charged by the assessee is not at arm s length. Instead, he had simply marked up the transactions by 12.50%. Following the same, we uphold the order passed by learned CIT(A) on this issue. 44. Since it has not been disputed by the Revenue that facts are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facility provided in the normal course of business and determined the ALP rate of interest at 6.51% p.a., by adopting the Appellant's weighted cost of total borrowings @ 3.51% p.a. plus an arbitrary mark-up of 3% p.a. for various factors such as currency risk, entity risk and country specific risk. Thus, the TPO made adjustment as under: Name of AE Transaction value (INR) ALP (INR) TP Adjustment RIL USA 22,74,23,850 62,51,84,533 39,77,60,683 47. On this issue learned CIT(A) has decided the issue by referring to earlier years order in assessee s own case, wherein the arm s length rate of interest in respect of delayed realization of receivable was determined at Libor plus 1.05%. Therefore learned CIT(A) deleted the adjustment done by TPO, by holding that benchmarking done by assessee is accepted. 48. Learned Counsel of the assessee submitted that the addition is to be deleted following the ITAT order in assessee s own case for A.Y. 2010-11 to 2012-13 and it is a covered issue. It is further submitted that ground No. 14 to 19 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 RIME DMCC 3,54,156 35,41,56,000 0 2,90,720 2,90,72,00,000 63,436 6,34,36,000 3 RGBV 6,60,77,27,511 6,60,77,275 0 68,08,96,400 68,06,964 5,92,70,31,111 5,92,70,311 4 RNBV 1,99,000 1,44,200 0 1,99,000 1,44,200 0 0 The Appellant submitted that no fresh investment was made during the FY 2012-13 and that the respective AEs had issued and allotted corresponding preference shares prior to 31 March 2012. Thus, there was no amount outstanding with the AEs as share application money on 31 March 2012, against which the AEs had not issued preference shares. The Appellant also submitted that as per the terms of the issue, the Class A shares issued by the AEs M/s. RGBV and M/s. RNBV has a tenure of 10 years. These Class A shares can be converted into equity sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mittance and close of the year. The very foundation of impugned ALP adjustment is devoid of any legal substance. That AE s making profits in a particular year do not pertain to this year. That each year is separate for the purpose of transfer pricing. He further referred to Hon'ble Bombay High Court decision in the case of M/s. Aegis Ltd. (ITA No. 1248 of 2016) and ITAT decision in Pr. CIT Vs. Auto Components Pvt. Ltd. ( ITA No. 1213/Mum/2014) 54. It is noted that that this Tribunal in assessee s own case in A.Y. 2010-11 to 2012-13 has decided the identical issue as under :- 48. We heard the parties on this issue and perused the record. The Ld D.R strongly supported the order passed by AO, while the Ld A.R supported the order passed by Ld CIT(A). We notice that the Ld CIT(A) has followed the decision rendered by Hon ble jurisdictional High Court in the case of Besix Kier Dabhol (supra) in order to hold that re-characterisation of transaction is not permissible. In the case of Bharti Airtel Ltd (supra), the Delhi ITAT has held that it is not open to the TPO to recharacterise transaction under Income tax Act, unless it is found to be sham or bogus. It was further held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned judgment, deleted the addition by observing that the TPO had re-characterised the transaction of subscription of shares into advancing of unsecured loans. The Tribunal did not accept such conclusion, inter-alia on the grounds that the TPO cannot disregard the apparent transaction and substitute the same without any material of exceptional circumstances pointing out that the assessee had tried to conceal the real transaction or that the transaction in question was sham. The Tribunal observed that the TPO cannot question the commercial expediency of the assessee entered into such transaction. 3. We are broadly in agreement with the view of the Tribunal. The facts on record would suggest that the assessee had entered into a transaction of purchase and sale of shares of an AE. Nothing is brought on record by the Revenue to suggest that the transaction was sham. In absence of any material on record, the TPO could not have treated such transaction as a loan and charged interest thereon on notional basis. No question of law arises. 56. Furthermore, we note that as submitted no fresh investment is made during the year. That the shares were allotted in earlier years. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efer to the learned CIT(A) order as under :- I have carefully perused the order of the TPO and the submissions made by the Appellant during the course of the Appellate proceedings. I have also perused the orders of Tribunal and the then CIT (A) for earlier years, it is relevant to highlight that there are two types of guarantees- Short term and Long term. Short term guarantees The Appellant adopted yield spread approach for the first time in AY 2011- 12, it has been accepted by the then CIT (A) by a speaking order for AY 2011- 12 which has been followed in appellate order for AY 2012-13. Yield spread approach is internationally accepted methodology for benchmarking the guarantee commission. The contentions of the TPO in respect of rejection of quotes obtained by the Appellant to find out the differential interest is not found to be acceptable considering the Jurisdictional Tribunal decisions in case of Gulf Energy Maritime. Following the orders of AY 2011-12 and AY 2012-13, the benchmarking done by the Appellant by following the yield spread approach in AY 2013-14 in respect of short term guarantee is accepted. It is further seen that in the orders of the IT AT in Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Appellant based on quotes for the year are held to be at ALP. Thus, the appeal of the Appellant on this issue is partly allowed. 60. Against this order, the Revenue is in appeal. 61. Learned Counsel of the assessee stated that the issue is covered in favour of the assessee by the ITAT decision in assessee s own case for A.Y. 2011-12 and A.Y. 2012-13 and the facts are identical. He submitted that issue has further been clarified in M.A. order for A.Y. 2011-12 2012-13. It is further submitted that yield spread approach adopted considering letter of bank issued for F.Y. 2012-13, hence ground No. 30 to 33 is infructuous. In this connection assessee has also drawn support from the following decisions of Hon'ble Bombay High Court :- CIT Vs. Glenmark Pharmaceuticals Ltd. (ITA No. 1302 of 2014) CIT Vs. M/S Everest Kento Cylinders Ltd. (ITA No. 1165 of 2013) 62. It has been further submitted that Hon'ble Bombay High Court decision in the case of Glenmark Pharmaceuticals Ltd. (supra) has been upheld by Hon'ble Apex Court in CIT Vs. Glenmark Pharmaceuticals Ltd. It has further been submitted that Hon'ble Bombay High Court in the case of Everest K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest saving approach. 65. Thus from the above decision it is amply clear that the assessee yield base approach has been upheld by the ITAT. Further the yield based approach is adopted considering the letter of bank issued for year 2012-13. Hence, the objections of the Revenue are not sustainable. Accordingly, we uphold the order of learned CIT(A). 66. The Revenue s ground No. 35,36 37are related to ground No. 9 in assessee s appeal. We are dealing with these grounds in ground No. 9 of the assessee dealt with in assessee s appeal. Assessee s appeal: 67. Domestic Issue 68. Ground No.1: 1. The learned Commissioner of Income-tax - (Appeals - 57) {hereinafter referred to as CIT(A)} erred in rejecting the Appellant's alternative plea that there is a deemed payment of sales tax and therefore the amount of ₹ 266,72,89,043/- is allowable as per the provisions of Section 43B of the Income-tax Act, 1961 The Appellant submits that there is a deemed payment of Sales tax which is allowable u/s.43B of the Act and the CIT(A) ought to have given a decision on this issue in favour of the Appellant. 69. At the outset, the Ld. Counsel of the assessee fairly ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther submits that the CIT(A) has wrongly interpreted the provisions of the Act and misplaced reliance on various judicial pronouncements which are distinguishable in law and on facts. 75. At the outset, the Ld. Counsel of the assessee submitted that this ground is covered in favour of the assessee by the ITAT order in assessee s own case for A.Y. 2011-12 to 2012-13. 76. Brief facts on this case and A.O. s observation are as under: This ground of appeal pertains to disallowance of deduction u/s.80IB(9) of the Act of ₹ 6,98,07,88,519/- in respect of Refinery SEZ Unit. The assessee company is engaged in the business of extraction of natural resources including Petroleum and gas, refining of petroleum products, etc. The Company has set up a refinery at Motikhavdi, P. O. Digvijaygram, Jamnagar- 361130 in the Special Economic Zone (SEZ) area for refining of mineral oil. The refinery commenced commercia! production on 01/04/2009. During the year under consideration, the appellant earned profit and gains of ₹ 7530,26,45,346/- (after making adjustment towards Depreciation as per Income Tax Act, 1961, profit/loss on sale of assets and disallowance u/s 43B) from its ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO on the above issue vide its letter no. RIL/ASPRQ/12-13/13, which was not accepted by the AO. The AO has disallowed the assessee's claim of deduction u/s 80IB(9) of the Act of ₹ 698,07,58,520/-, discussed this issue in para 13 of the assessment order. The conclusion of the AO is as under: 13.9 However the assessee has sought to make a claim of further deduction of ₹ 698,07,88,520/- (vide Form No.10CCB) u/s.80IB(9) of the Act, probably by having misconceived notion that profits of undertaking to the extent of ₹ 6832,18,56,826/-only have been claimed and allowed as deduction u/s.10AA of the Act, and the balance (₹ 7530,26,45,346 MINUS ₹ 6832,18,56,826/-) can further be claimed u/s.80IB(9) of the Act Whereas the fact remains that entire profits of ₹ 7530,26,45,346/- have been claimed and allowed for deduction u/s.10AA, and accordingly no further deduction under any other sections of the Act can be allowed or entertained in respect of the profits of the unit of ₹ 7530,26,45,346/-. 13.10 For the reasons mentioned above in detail, I am of the view that deduction U/s.10AA as claimed by assessee and computed on the basis of entire pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r enterprise, as the case may be. The provisions of sec. 80A(4) uses the expression where any amount of profits . of undertaking .....is claimed and allowed as deduction under any of those provisions for any assessment year... deduction in respect of, and to the extent of, such profits shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking... . The expressions any amount of profits... , claimed and allowed and deduction in respect of and to the extent of such profits are, in our view, crucial words that need to be understood while interpreting this provision. The expression any amount of profits.... , in our view, would also mean a portion of profit . The expression claimed and allowed , in our view, would mean that the deduction actually allowed on the portion of profit. The expression in respect of and to the extent of such profits , in our view, would mean the portion of profit so allowed as deduction (under sec. 10A or 10AA or 10B or 10BA or any provisions of Chapter VI under the heading C-deductions in respect of certain incomes ) is not eligible for deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profits and gains of the eligible undertaking or unit or enterprise or business, as the case may be. Even if Section 10A/Section 10B are construed as exemption provisions, sub-section (4) of Section 80A cannot defeat such construction. The sole object of the sub-section is to ensure that double benefit does not result to an assessee in respect of the same income, once under Section 10A or Section 10B or under any of the provisions of Chapter-VIA and again under any other provisions of the Act. The Hon'ble Delhi High Court has explained that the objective of sec. 80A(4) of the Act is to ensure that double benefit does not result to an assessee in respect of same income. 78. The decision rendered by Hon'ble Karnataka High Court in the case of Sasken Communication Technologies Ltd (supra) is with regard to the deduction claimed u/s. 10A/10AA and u/s 80HHE of the Act. Both these deductions are related to income derived on export of computer software. The question that was considered was - whether the export turnover considered for deduction u/s. 10A/10AA can be included in the total turnover for computing deduction u/s 80HHE of the Act. However the facts of the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4379.13 crores. The difference between the two figures was ₹ 657.22 crores. The assessee claimed deduction of ₹ 421,39 crores u/s 80IB(9) of the Act, which was over and above the amount of ₹ 4379.13 crores claimed u/s.10AA of the Act. The amount of deduction of ₹ 421.38 crores u/s. 80IB(9) of the Act was arrived at by the assessee as under: Profit from Refinery in SEZ - 5036.35 crores Less: Set off brought forward - 4614.96 crores 421.39 crores The assessee was constrained to restrict the deduction u/s. 80IB(9) of the Act to ₹ 421.39 crores on account of the specific provisions contained in sec. 80IA(5), which mandates that the quantum of deduction u/s.80IB of the Act shall be computed as if such eligible business were the only source of income of the assessee. Since the Act provided different methodologies to compute deduction u/s.10AA and u/s.80IB(9) of the Act, the assessee was required to adopt different parameters for computing deduction. 81. In view of the foregoing discussions, we are of the view that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Ramanand Sagar vs DCIT 256 ITR 134 and referred that in that case assessee has not been able to discharge the onus cast to substantiate that the expenditure was laid out only and exclusively for the business . He observed that it was also noted that assessee has paid the sums to various trusts and claimed that they have performed the CSR activities on assessee s behalf. The assessing officer took adverse inference that the trusts execute activities that are meant for public at large and not specific to any individual or corporate et cetera. Accordingly he concluded that the sums are not incurred for the purpose of business under section 37(1). However the assessing officer allowed 50% of the expenditure under section 80 G of the act by holding that he has considered the respective documents and verified and found them correct. 84. Upon assessee s appeal learned CIT appeals referred to the order of assessing officer and agreed that the expenditure was not incurred wholly and exclusively for the purpose of business to be allowable under section 37 of the IT Act. 85. Against this order, the assessee is in appeal before us. 86. We have heard both the Counsel and perused the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d voluntarily, i.e. without there being any legal or contractual obligation to incur the same, those expenses do not cease to be deductible in nature. In other words, it is not necessary that every expense that could be allowed as a deduction should be such as a hardnosed, and perhaps devoid of senses of compassion, businessman alone would incur in furtherance of his business pursuits. 19. ..............This disallowance is restricted to the expenses incurred by the assessee under a statutory obligation under section 135 of Companies Act 2013, and there is thus now a line of demarcation between the expenses incurred by the assessee on discharging corporate social responsibility under such a statutory obligation and under a voluntary assumption of responsibility. As for the former, the disallowance under Explanation 2 to Section 37(1) comes into play, but, as for latter, there is no such disabling provision as long as the expenses, even in discharge of corporate social responsibility on voluntary basis, can be said to be wholly and exclusively for the purposes of business . There is no dispute that the expenses in question are not incurred under the aforesaid statutory obligatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussed in the assessment order that the assessee has paid the above sum to various trusts and claimed that the trusts have performed CST activities on assessees behalf. It is seen that these trusts are separate legal entities with their own trust deeds etc and are required to perform their activities commensurating the deal. These trust as such execute their activities that art meant for public at large and are not specific to any individual or corporate etc, Assessee has failed to produce any contract, agreement etc which can establish that the payment made by assessee was utilised by them on activities which are directly related to assessee's business. The onus of proof to substantiate the claim, that the expense were laid out wholly and exclusively for the business purpose, is upon the appellant. Since the appellant had failed to establish that the payments made by it were directly related to the appellant's business, the same was rightly disallowed by the AO. Accordingly, this ground of appeal is dismissed. 89. From the above it is evident that ITAT in the case of Jindal Power (Supra) has clearly held that CSR expenditure are allowable under section 37(1)of the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on u/s 10(15)(iv)(h) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) in respect of interest amounting to ₹ 112,26,74,490/- on Tax Free Bonds while computing total income under the Normal Provisions of the Act and Book Profit u/s 115JB of the Act The appellant submits that CIT(A) ought to have allowed exemption u/s 10(15)(iv)(h) of the Act while computing total income under the normal provisions of the Act and book profit u/s 115JB of the Act. 92. The learned counsel of the assessee submits that this issue is covered in favour of the assessee by ITAT decision in assessee s own case for assessment year 2003-04 and 2012-13. 93. We note that identical ground was dealt with by the ITAT in assessee s own case in its order for assessment year 10-11 to 12-13 as under: 142. The next issue urged by the assessee in Additional Ground no. 1 relates to the exemption u/s.10(15)(iv)(h) of the Act claimed by the assessee on the interest income of ₹ 21.79 crores earned on tax free bonds. The ld. AR submitted that the assessee has inadvertently failed to claim exemption of the above said income in the return of income as well as before the tax authorities. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Alok Industries Limited (supra), in a subsequent decision for A.Ys. 2006-07 to 2011-12 dated 16.07.2020, this tribunal has adjudicated the same issue as under: 5. Another common issue raised in these appeals is that learned CIT(A) erred in directing the Assessing Officer to exclude the interest subsidy while calculating the income under Section 115 JB of the Act. 6. This issue relates to the treatment of subsidy received under TUF for the purpose of computation of book profit under Section 115JB of the Act. The Assessing Officer having noted that the aforesaid sum was duly credited in the Profit and Loss Account of the assessee, has included the same in the computation of book profit. The learned CIT(A) by referring to ITAT order in assessee's own case has directed that the said sum should be excluded while computing the income under Section 115JB of the Act. Against this order, Revenue has filed appeal before us. 7. We have heard both the Counsel and perused the records. Learned counsel of the assessee submitted that the issue is decided in favour of the assessee by the ITAT decisions in assessee's own case, as referred above. 8. Per contra, learned Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38 ITR 94 (Bom) Furthermore, we note that Hon'ble Supreme Court in the case of ACIT vs. Saurashtra Kutch Stock Exchange Ltd., 305 ITR 227 (SC) has expounded that non-consideration of jurisdictional High Court decision can render a decision of the Tribunal suffering from mistake apparent from record. 13. Furthermore, we note that honourable Supreme Court in the case of Kapurchand Shrimal vs. CIT, 131 ITR 451 (SC) had expounded that it is the duty of the appellate authority to correct the errors in the orders of the authorities below and remit the matter, with or without directions for their consideration, unless prohibited by law. 14. Considering this present issue on the conspectus of aforesaid discussion and case laws, in our considered opinion, this issue needs to be remitted to the file of learned CIT(A). The learned CIT(A) is directed to consider this issue de novo after taking into account the aforesaid Hon'ble Jurisdictional High Court decisions. Needless to add, the assessee should be granted adequate opportunity of being heard. 98. When confronted in this regard, the learned counsel of the assessee referred to the honourable High Court decisions in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. 101. On this issue the subject matter is whether for the purpose of computation of book profit under section 115 JB disallowance under section 14A have to be taken into account or not. The learned counsel of the assessee this regard has referred to ITAT decision in assessee s own case. We note that this issue is covered in favour of the assessee by the decision of honourable Bombay High Court in the case of Commissioner of income tax vs Bengal finance and investment private limited, wherein the honourable High Court by the order dated 5/1/18 held that disallowance under section 14A cannot be added under section 115JB. Respectfully following the precedent from honourable jurisdictional High Court, we decide this issue in favour of the assessee. 102. Additional ground No. 4 The learned CIT(A) Mumbai erred in not allowing weighted deduction u/s. 35(l)(ii) of the Act while computing total income under the normal provisions, in respect of amount of ₹ 42,36,570/- contributed to Indian Institute of Technology, Mumbai vide receipt dated 09.10.2012. The appellant submits that CIT(A) ought to have allowed weighted deduction u/s. 35(l)(ii) of the Act while computing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncept 'profits and gains' is a wider concept than the concept of 'income'. The profits and gains/loss are arrived at after making actual expenses incurred from the figure of sales by the assesses. It does not include any depreciation and investment allowance, as admittedly these are not the expenses actually incurred by the assessee. However, the term 'income' does take into consideration the deductions on account of depreciation and investment allowance. Therefore, the term profits and gains are not synonymous with the term 'income'..... Reading of Section 80HH along with Section 80A would clearly signify that such a deduction has to be of gross profits and gains, i.e., before computing the income as specified in Sections 30 to 43D of the Act. 106. Thus, it has been urged by the assessee by way of the additional ground that the ld. CIT(A), Mumbai erred in allowing the deduction in respect of export profits of SEZ units u/s.10AA of the Act with reference to the income computed under the head profits and gains of business or profession of the SEZ unit instead of gross profit and gains of SEZ unit as interpreted by the Hon ble Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed hereunder:- 80HH. Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, he allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof. The assessee in that case claimed deduction on gross profits (without depreciation and investment allowance) of the undertaking stating that profits and gains is not the same as income , whereas revenue claimed that deduction is allowable only on net profits as computed under sections 28 to 43D of the Act. The full bench of the Apex court reproduced the reference order dated 5-11-2014 (referring the matter to full bench) highlighting the observation of Rajasthan High court as under: It is most humbly submitted that the concept 'profits and gains' is a wider concept than the concept of 'income'. The profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same would not apply to AY 1979-80 and 1980-81. Finally, the Apex Court allowed the appeal of the assessee holding that the phrase profits and gains means gross profits of the business in (19) as under: 19) Reading of Section 80HH along with Section 80A would clearly signify that such a deduction has to be of gross profits and gains, i.e., before computing the income as specified in Sections 30 to 43D of the Act. The appellant submits that the wording profits and gains used in section 80HH is pari materia with the wording in section 1OAA and, hence, the ratio laid down by the Hon'ble Apex Court in the case of Vijay Industries squarely applies to the case of the assessee. Section 1OAA of the Act, reads as under: Section 10AA of the Income-tax Act provides for tax incentive in respect of profits and gains of a unit set up in a SEZ as under: Special Provisions in respect of newly established Units in Special Economic Zones 10AA (1) Subject to the provisions of this section, in computing the total income of an assessee, being an entrepreneur as referred to in clause 0) of section 2 of the Special Economic Zones Act, 2005, from his Unit, who begins to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded in Chapter VIA under the heading C- deduction in respect of certain income'. It is not applicable to section 10AA as the said section does not come within Part 'C' of Chapter VI-A of the Act. The appellant submits that section 80AB was inserted by the Finance (No2) Act 1980 w.e.f 01 04.1981. Further section 10A was originally inserted w.e.f 01 .04.1981 by the Finance Act 1981. The legislature in its wisdom has not made 80AB applicable to section 10A/10AA/113A5/10B of the Act, even though the said section provide for deduction to be granted to an assessee. Therefore, the appellant submits that section 80AB cannot be applied in the present case to determine the amount of deduction to be allowed under section 10AA of the Act. The appellant submits that as section 80AB is not applicable to section 10AA, the interpretation given by the Supreme Court to the term profits and gains must be applied to section 10AA as well. It is further submitted that a deeming fiction should be given a stricter interpretation. Moreover, the Apex Court in Vijay Industries (supra) has held that provision of this section is not clarificatory in nature. (5). The appellant submits that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, while in the case of Vijay industries, the issue is deduction under section 80HH falling under chapter VIA of the Act .However the appellant contends that the language of section 80HH is parimateria with the language used in section 10AA.This argument is totally fallacious and the crucial points of departure in the language used in these two sections and the difference in applicability of the provisions of these two section subsequent to the decision in the case of Vijay Industries are discussed hereunder based on the language used in the act, case laws etc. iii) The decision in the case of Vijay Industries Ltd. is rendered on the allowability of deduction u/s. 80HH of the Act, overruling the apex court decision in the case of Motilal Pesticides [243 ITR 26 (SC)]. The decision in the case of Motilal Pesticides (in respect of section 80HH) was rendered in turn relying on the decision in the case of Distributors Baroda Pvt. Ltd. vs. Union of India (1985) AIR 1585 (SC) dated 1/7/1985. The subject matter of discussion in the case of Distributors Baroda Pvt. Ltd. was Sec. 80M and in this decision, the earlier decision on Sec. 80M in the case of Cloth Traders vs. Addl. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the language of Sec. 80HH and the language of Sec. 10AA are identical and, therefore, the decision is applicable to Sec. 10AA also pertaining to deduction provisions . v) The first contention of the Appellant is that the decision rendered by the Hon'ble apex court in the case of Vijay Industries Ltd. pertaining to deduction allowable u/s. 80HH is applicable to Sec.10AA also. The assessment year in the case of the appellant is AY 2013-14. The relevant section 10AA, 80HH and also section 801A as applicable to the year under consideration needs to be discussed. In this connection, firstly, the relevant part of Sec. 80HH is reproduced as under: 80HH. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof Same provision was there in AY 1979-80/ 1980-81 also which was the year under consideration in the case of Vijay Industries. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he undertaking and not from the profits and gains . This is a very important departure from the language used in the case of section 80HH. In this connection it is worthwhile to note that that similar words as in Sec. 10AA have been used in Sec.801A of the Act applicable for the year under consideration, relevant part of which is reproduced hereunder: 80-IA. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years. Thus, in Sec.801A also, the deduction is allowable only from the profits and gains derived from the undertaking. It is also to be noted that Sec. 801A has been referred in many sub-sections of Sec. 10AA for applicability of the various provisions, which essentially is because of the fact that both the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in computing the quantum of deduction under section 80-IA of the Act is wholly misplaced. 35. The question then to be considered is, whether on a plain reading of Section 801A read with other relevant provisions in Chapter V/-A, can it be said that the quantum of deduction allowable under Section 80/A depends upon the assessee claiming or not claiming current depreciation ? To be specific, the question is, whether the choice, if any, vested in the assessee in claiming or not claiming current depreciation has any bearing in determining the quantum of deduction allowable under Section 80/A of the Act? 36. In our opinion, the above question is no longer res-integra. The Apex Court in the case of M/s.Liberty India V/s. Commissioner of Income Tax reported in 2009 (12) SCALE 51, held as under : 13 Before analyzing Section 80-/B, as a prefatory note, it needs to be mentioned that the 1961 Act broadly provides for two types of tax incentives, namely, investment linked incentives and profit linked incentives. Chapter VI-A which provides for incentives in the form of tax deductions essentially belong to the category of profit linked incentives . Therefore, when Section 80-IA/80- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e within first degree source as the said incentives flow from Incentive Schemes enacted by the Government of India or from Section 75 of the Customs Act, 1962. Hence, according to the Department, in the present cases, the first degree source is the incentive scheme/ provisions of the Customs Act. In this connection, Department places heavy reliance on the judgment of this Court in Sterling Food (supra). Therefore, in the present cases, in which we are required to examine the eligible business of an industrial undertaking, we need to trace the source of the profits to manufacture (see CIT v. Kirloskar Oil Engines Ltd., reported in [1986] 157 ITR 762) 15. Continuing our analysis of Sections 80- IA/80-IB it may be mentioned that sub-section (13) of Section 80-lB provides for applicability of the provisions of sub-section (5) and sub-sections (7) to (12) to Section 80-IA, so for as may be, applicable to the eligible business under Section 804B. Therefore, at the outset, we stated that one needs to read Sections 801, 80-IA and 80-lB as having a common Scheme. On perusal of sub-section (5) of Section 80- IA, it is noticed that it provides for manner of computation of profits of an eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguage of Sec. 10AA is parimateria with Sec. 801A of the Act (and not section 80HH)and therefore decision in the case of Vijay Industries is not applicable as the deduction is now allowable from the profits and gains profits and gain derived from the undertaking in the case of 10AA/801A for the year under consideration, unlike from profits and gains as in section 80HH. Moreover, relying on the decision in the case of Plastiblends India Ltd. (supra) on the issue of derived from the undertaking , the ground raised by the Appellant is not maintainable and is liable to he dismissed, at the threshold. viii) Further the scenario is also completely changed after insertion of section 80AB w.e.f 1/4/1981, and, therefore also the appellant's argument is not acceptable. As regards section 80 AB, it is also worthwhile to note that the decision in the cases of Distributors Baroda, Motilal Pesticides and Vijay Industries, the assessment years involved were 1979-80 and 1980-81. As discussed earlier in Chapter VIA, there is a paradigm shift with the introduction of Sec. 80AB of the Act (pertaining to sections other than Sec.80M) with effect from 01/04/1981). The Hon'ble apex cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretation needs to be done strictly as held in the case of Commissioner of Customs (Import) vs. Dilip Kumar and company Others (SC) Civil appeal number 3327 OF 2007 dated 30/7/2018 and in case of ambiguity the same needs to be interpreted in favour of revenue. 111. The rejoinder of the learned Counsel of the assessee in this regard with respect to the arguments raised by the ld. DR are as under:- Further, the Learned DR made the following submissions: a. The decision in the case of Vijay Industries is rendered in the context of section 80HH r.w.s 80AB, which is a deduction section under Chapter VI-A and therefore cannot be applied to section 10AA. b. The provisions of section 80AB are pari-materia with the Explanation below section 1OAA(1). c. The Explanation below section 10AA being clarificatory in nature, will apply retrospectively and, hence, deduction u/s 10AA for AY 2013-14 will be computed only w.r.t the amount of income as computed in accordance with the provisions of the Act. d. The depreciation is compulsory as per Explanation 5 to section 32 and hence ought to be applied while computing profits u/s 10AA. The appellant submits that the arguments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a to the provisions of section 80AB, then relying on the Apex Court decision, wherein it was held that the provisions of section 80AB cannot held to be retrospective in nature, the Explanation below 10AA(1) also cannot be applied retrospectively as it is an amendment of substantive nature. Explanation 5 to section 32 The appellant submits that while computing the income under the heard profits and gains of business of the assessee, depreciation u/s 32 of the Act has been computed and, hence, Explanation 5 to section 32 is complied with. However, relying on the aforesaid Apex Court decision, while quantifying the amount of the deduction u/s. 10AA in respect both Refinery SEZ and PP SEZ , the term profits and gains' would mean gross revenue receipts less actual expenses i.e excluding depreciation and investment allowance, etc as the same are not actual expense and hence need to be excluded. The appellant submits that the Hon ble Apex Court has provided the interpretation of the wording profits and gains for the purpose of section 80HH. As the wording of section 1OAA is para materia to the wording in section 80HH, the ratio laid down by the Apex Court would apply wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Government has entered into an agreement with such assessee for such business, has before the end of the previous year- (a) deposited with the State Bank of India any amount or amounts in an account (hereafter in this section referred to as the special account) maintained by the assessee with that Bank in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) approved in this behalf by the Government of India in the Ministry of Petroleum and Natural Gas: or (b) deposited any amount in an account (hereafter in this section referred to as the Site Restoration Account) opened by the assessee in accordance with, and for the purposes specified in, a scheme framed by the Ministry referred to in clause (a) (hereafter in this section referred to as the deposit scheme), the assessee shall, subject to the provisions of this section, be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under section 12) of- (i) a sum equal to the amount or the aggregate of the amounts so deposited; or (ii) a sum equal to twenty per cent of the profits of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng effect to the provisions of the section 10AA and the deduction under section IOAA in no case shall exceed the said total income. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent assessment years. [Clause 7] Hence as long as the assessee has a positive total income the deduction under section 10AA must be granted. It does not deal with the method by which the deduction is to be computed. 113. The assessee has made further submission that in alternative and without prejudice to the above arguments, the assessee submits that 100% profit and gains derived from export appearing in Section 10AA(1)(i) of the Act should be interpreted as 100% of profits and gains based on commercial principles. Thus, without prejudice to the aforesaid submission and arguments, in arriving at the commercial profit of the SEZ unit eligible for deduction 10AA of the Act, depreciation charged in the books as per the Companies Act 1956 may be deducted, instead of the depreciation allowance as computed u/s.32 of the Income Tax Act. 114. The ld. counsel of the assessee contends that Hon'ble Apex Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puting the deduction whether it is to be available out of 'income' as computed under the Act or out of 'profits and gains', without deducting therefrom 'depreciation' and 'investment allowance'. Language of sub-section (1) of Section 80HH will have to be seen, in order to comprehend the aforesaid issue. It reads: 80HH. Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof. 3. As can be seen from the above, this Section grants deduction from profits and gains to an undertaking engaged in manufacturing or in the business of the hotel. The deduction is admissible at the rate of 20% of the profits and gains of undertaking for 10 assessment years. Certain conditions are to be ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have come up before this Bench. 6. In order to appreciate the controversy, we would have to go through certain provisions of the Act in order to understand broadly the scheme of taxation on the income of assessees. 7. Section 4 of the Act is a charging Section which makes total income of the previous year of every person chargeable to tax at the rates which may be specified from time to time. The said Section, thus, imposes income tax upon a person in respect of his income. Of course, income is to be charged at the rate or rates fixed for the year by the Annual Finance Act. Also the levy is to be on the total income of the assessable entity, computed in accordance with the provisions of the Act. Section 5 lays down the scope of the total income. While computing the total income, certain incomes are exempted which are not to be included and these are mentioned in Section 10 of the Act. 8. Section 14 of the Act is the next provision which is relevant for these appeals. It is the first provision in Chapter IV which is titled 'computation of total income' and, obviously, contains the provision for computation of total income. Section 14 enumerates different heads of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided is in respect of deposits under National Savings Scheme or payment to a deferred annuity plan purpose is to encourage the assessees to make deposits under these Schemes. Likewise, under Section 80CCC, deduction is given in respect of contribution to certain Pension funds. The deductions are also given, inter alia, for donations for scientific research or rural development, to newly established industrial undertakings or hotel business in backward areas, small scale industrial undertakings, housing projects, export business, businesses earning convertible foreign exchange etc. 10. It is in the aforesaid scheme, one has to consider whether deductions under Section 80HH, which falls under Chapter VIA, is to be given after applying the provisions for computation of income as mentioned in Chapter IV of the Act. Once, we examine the matter keeping in view the aforesaid nature of scheme, answer becomes obvious. Chapter VIA, is a stand alone chapter dehors Chapter IV. Therefore, provisions relating to various kinds of deductions mentioned therein have to be construed independent of Chapter IV of the Act. Another pertinent aspect which is to be borne in mind is that conceptually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Vibha Datta Makhija, learned senior counsel who appeared for the Revenue. She argues that the judgment in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) noted in the Reference Order, is on Section 80E of the Act which has no bearing in the instant case that pertains to Section 80HH. She also submits that legislative intent would be clear from the fact that decision in Cloth Traders (P) Ltd. v. Addl. CIT [1979] 118 ITR 243/1 Taxman 335 (SC) led to the insertion of Section 80AB in the Act. The purpose, therefore, was to take away the effect of the judgment in Cloth Traders (P.) Ltd's. case (supra) According to her, Section 80AB makes it clear that deductions to be made is with reference to Income included in the Gross Total Income under the heading 'C Deduction in respect of certain incomes'. It also makes it clear that the amount of income of that nature is to be computed in accordance with the provisions of the Act (before making any deduction under this Chapter). That alone shall be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his Gross Total Income. 14. Her submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpretation. Parliament, by Section 12 of Finance (No.2) Act, 1980, introduced in the Income Tax Act, 1961, Section 80-AA with retrospective effect from April 1, 1968, that is, the date when Section 80-M was originally enacted, providing that the deduction required to be allowed under Section 80- M in respect of inter-corporate dividends shall be computed with reference to the income by way of such dividends as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) and not with reference to the gross amount of such dividends . It is the validity of this new Section 80-AA which is challenged in the present writ petition. But we may make it clear that what is challenged is not the prospective operation of Section 80-AA. That would clearly be unexceptionable because the Legislature can always impose a new tax burden or enhance an existing tax liability with prospective effect. But the complaint of the assessee was against retrospective effect being given to Section 80-AA, because that would have the effect of enhancing the tax burden on the assessee by setting at naught the interpretation placed on Section 80- M by the decision in Cloth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expression gross total income contained in Section 80-B(5), it has to be held that for the purpose of making deduction under Section 80-P it is necessary to first determine the gross total income in accordance with the other provisions of the Act. This means that for the purposes of the present case the gross total income must be determined by setting off against the income the business losses of the earlier years as required under Section 72 of the Act....... 12. Having regard to the law as laid down by this Court in Distributors (Baroda) (P) Ltd. [(1986) 1 SCC 43 : 1986 SCC (Tax) 159 : (1985) 155 ITR 120] and H.H. Sir Rama Varma [1994 Supp (1) SCC 473 : (1994) 205 ITR 433] , it must be held that before considering the matter of deduction under Section 80-P(2) the Income Tax Officer had rightly set off the carried-forward losses of the earlier years in accordance with Section 72 of the Act and on finding that the said losses exceeded the income, he rightly did not allow any deduction under Section 80-P(2) and the Appellate Assistant Commissioner as well as the Tribunal and the High Court were in error in taking a contrary view. 13. The principle of statutory constructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t correctly felt that it was bound by the judgment of this Court. 2. Motilal Pesticides(I) Pvt. Limited (Supra) is a Judgment of this Court which affirmed the Judgment of the Delhi High Court concerning the interpretation of the very same Section 80-HH of the Income Tax Act. The assessment years also happened to be the same assessment years as involved in these appeals. 3. The question of law set out by this Court is, whether, on the facts and circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to deduction under Section 80-HH of the Income Tax Act, 1961 on the gross profit of ₹ 34,30,035 (Liquid Section) but on the net income 3 there from for Assessment Year 1979-80? 4. Thereafter, this Court set out Section 80-HH in para 2 and Section 80-M in para 3 of the Judgment. It will be noticed that whereas Section 80-HH uses the expression any profits and gains derived from , Section 80-M uses the expression any income . Section 80-M was held, in the Cloth Traders (P) Ltd. Vs. CIT (1979) 3 SCC 538, to mean that for the purpose of that Section, deduction is to be allowed on the gross total income and not on net income. This was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and gains is the same expression used in section 80-E. 7. The finding in paragraph 4 in Motilal Pesticides (supra) that the language of Section 80-HH and Section 80-M is the same is, with respect, prima facie, incorrect. Conceptually, any income and profits and gains are different under the Income Tax Act. (See Section 80-M read with Sections 80-AA AB, Section 80-T which speak of any income and Section 28 which speaks of income from profits and gains showing thereby that conceptually the two expressions are understood as distinct in law). 8. In paragraph 5 of the judgment in Motilal Pesticides(Supra), Shri Ramamurthi, learned senior counsel appearing for the appellant submitted that both Cloth Traders and Distributors (Baroda) were cases which pertained to Section 80-M only and this Court had no occasion to consider the application of Section 80-AB with 6 reference to Section 80-HH of the Act. The Court in repelling this contention referred to another decision in H.H. Sir Rama Varma v. CIT [1994] Supp(1) SCC 473, which judgment dealt with the then newly enacted Section 80-AA and 80-AB. Both these sections again are relatable to deductions made under Section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned above, Sections 80C to 80U contain different subject matters and also specify particular percentage of deductions for a particular period. Significantly, Section 80A itself uses the expression 'from his gross total income' as it states that deduction is to be allowed to an assessee 'from his gross total income'. Moreover, different provisions from Sections 80C to 80U, while mentioning the percentage at which and for which period a particular deduction is allowable, also specifies as to how such a deduction is to be worked out, namely, specific percentage of deduction of which component. These sections provide different parameters. Insofar as Section 80HH is concerned, it specifically mentions that deduction @ 20% of 'profits and gains'. 19. Reading of Section 80HH along with Section 80A would clearly signify that such a deduction has to be of gross profits and gains, i.e., before computing the income as specified in Sections 30 to 43D of the Act. It is correctly pointed out by Division Bench in the reference order that in Motilal Pesticides (I.) (P.) Ltd. case (supra), the Court followed the judgment rendered in the Cloth Traders (P) Ltd. case (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l have no application to the instant case. 22. As a result, all these appeals are allowed. 116. A reading of the above said makes it clear that while expounding upon the provisions of section 80 HH, the Hon'ble Court was considering as to whether while computing the deduction whether it is to be available out of income as computed under the act or out of profit and gains without deducting therefrom depreciation u/s. 32 and investment allowance u/s. 32AB of the Act. 117. After elaborating upon the language of the section and the arguments of the parties honourable court in paragraph 17 of the above order noted that subsection 1 of section 80 HH allows a deduction from such profits and gains of an amount equal to 20% thereof in computing the total income of the assessee. Further Hon ble Apex Court observed that the so far as deduction admissible under this provision is concerned it is from the profits and gains. That in this context the 1st question would be; what meaning is to be assigned to the expression profits and gains. 118. After reproducing the reference order in this regard honourable supreme court expounded that the scheme of the act insofar as assessment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt significantly brought out difference between computation of income i.e. profit which becomes the net income under the head profits and gains of business and profession in contradiction to profit and gains with reference to which the deduction is to be allowed. The exposition that emerges from the above said order is that the profit and gains of business with reference to which the assessee is eligible to get the deduction is to be computed before deduction of the depreciation and investment allowance as per the income tax act. 121. Now by way of this additional ground the assessee contends that it had been granted deduction under section 10 AA on the profit which is the net income under the head profits and gains of business after the depreciation as per Income Tax Act, and in view of the above said exposition it deserves that the deduction be granted with reference to profit and gain as expounded in the above said decision. 122. Now in this regard assessee s contention is that provisions of section 80HH and section 10AA are pari materia. This has been disputed by the Revenue. 123. The provisions of section 80 HH reads as under :- Deduction in respect of profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the splitting up, or the reconstruction, of a business already in existence; (iii) the hotel is for the time being approved for the purposes of this subsection by the Central Government. (4) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of each of the ten assessment years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or the business of the hotel starts functioning: Provided that,- (i) in the case of an industrial undertaking which has begun to manufacture or produce articles, and (ii) in the case of the business of a hotel which has started functioning, after the 31st day of December, 1970, but before the 1st day of April, 1973, this sub-section shall have effect as if the reference to ten assessment years were a reference to ten assessment years as reduced by the number of assessment years which expired before the 1st day of April, 1974. (5) Where the assessee is a person other than a company or a co-operative society, the deduction under sub-section (1) shall not be admissible unless the accounts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of profits as may be reasonably deemed to have been derived there from. (8) [***] (9) In a case where the assessee is entitled also to the deduction under section 80-I or section 80J in relation to the profits and gains of an industrial undertaking or the business of a hotel to which this section applies, effect shall first be given to the provisions of this section. (9A) Where a deduction in relation to the profits and gains of a small-scale industrial undertaking to which section 80HHA applies is claimed and allowed under that section for any assessment year, deduction in relation to such profits and gains shall not be allowed under this section for the same or any other assessment year. (10) Nothing contained in this section shall apply in relation to any undertaking engaged in mining. (11) For the purposes of this section, backward area means such area as the Central Government may, having regard to the stage of development of that area, by notification in the Official Gazette, specify in this behalf : Provided that any notification under this sub-section may be issued so as to have retrospective effect to a date not earlier than the 1st day of April, 1983. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid, for the purposes of the business of the undertaking other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India; (b) the particulars, as may be specified by the Central Board of Direct Taxes in this behalf, under clause (b) of sub-section (1B) of section 10A have been furnished by the assessee in respect of machinery or plant along with the return of income for the assessment year relevant to the previous year in which such plant or machinery was first put to use. (3) Where any amount credited to the Special Economic Zone Re-investment Reserve Account under clause (ii) of sub-section (1),- (a) has been utilised for any purpose other than those referred to in subsection (2), the amount so utilised; or (b) has not been utilised before the expiry of the period specified in subclause (i) of clause (a) of sub-section (2), the amount not so utilised, shall be deemed to be the profits,- (i) in a case referred to in clause (a), in the year in which the amount was so utilised; or (ii) in a case referred to in clause (b), in the year immediately following the period of three year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy in existence: Provided that this condition shall not apply in respect of any undertaking, being the Unit, which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii) it is not formed by the transfer to a new business, of machinery or plant previously used for any purpose. Explanation.-The provisions of Explanations 1 and 2 to sub-section (3) of section 80-IA shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (5) Where any undertaking being the Unit which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another undertaking, being the Unit in a scheme of amalgamation or demerger,- (a) no deduction shall be admissible under this section to the amalgamating or the demerged Unit, being the company for the previous year in which the amalgamation or the demerger takes place; and (b) the provisions of this section shall, as they woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses, if any, incurred in foreign exchange in rendering of services (including computer software) outside India; (ii) export in relation to the Special Economic Zones means taking goods or providing services out of India from a Special Economic Zone by land, sea, air, or by any other mode, whether physical or otherwise; (iii) manufacture shall have the same meaning as assigned to it in clause (r) of section 2 of the Special Economic Zones Act, 2005; (iv) relevant assessment year means any assessment year falling within a period of fifteen consecutive assessment years referred to in this section; (v) Special Economic Zone and Unit shall have the same meanings as assigned to them under clauses (za) and (zc) of section 2 of the Special Economic Zones Act, 2005. Explanation 2.-For the removal of doubts, it is hereby declared that the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India. 125. In this regard we note that section 80HH with which the honourable Supreme Court was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this act, before giving effect to the provisions of this section and the deduction under this section shall not exceed such total income of the assessee . 131. In this regard it is noted that the provisions of section 80 AB are pari matereia with the provisions of this explanation. Section 80 AB reads as under: Deductions to be made with reference to the income included in the gross total income. 80AB. Where any deduction is required to be made or allowed under any section included in this Chapter under the heading C.-Deductions in respect of certain incomes in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. 132. This section was introduced by Finance Act 1980 with effect fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AB. That the legislature in its wisdom has not made 80AB applicable to section 10A/10AA/10B/10BA/ 10C of the Act, even though the said sections provide for deduction to be granted to an assessee. Secondly, deduction under section 10AA of the Act (prior to the amendment made by Finance Act 2017 by way of insertion of Explanation) was to be given at the stage of computing the gross total income of the eligible undertaking under Chapter IV of the Act i.e. prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. This has been held by the Supreme Court in the case of CTT v. Yokogawa India Ltd 391 ITR 274 (SC) in the context of section 10A of the Act. Plastiblends India deals with a situation of computation of deduction under Chapter VIA of the Act i.e. after computing the gross total income of the eligible undertaking under Chapter IV of the Act. 135. The other submission of the learned departmental representative is that section 10 AA is a part of chapter 3 and is essentially an exemption section. This the learned departmental representative himself contradicts by submitting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial profit exposition (without adjustment u/s. 32 and 32AB) of Hon'ble Supreme Court in the case of Vijay Industries (supra). Undoubtedly the catena of decisions referred by learned Counsel of the assessee is supportive of this proposition. Transfer pricing issues : 138. Ground No. 7 7. Reference to the Transfer Pricing Officer ('TPO') under section 92CA of the Act. 7.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of Assessing Officer ('AO') in making a reference of the Appellant's case to the TPO, without applying his mind and without recording his satisfaction, thereby making the entire process of referring the matter to the TPO as invalid; 7.2 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the learned AO in not stating reasons to show that any of the conditions mentioned in clauses (a) to (d) of Section 920(3) of the Act were satisfied before making an adjustment to the total income of the Appellant; 7.3 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act. 8.2 The learned CIT(A) erred in determining the ALP of guarantee commission at 0.38% p.a. in case of short term guarantees given by the Appellant on behalf of its Associated Enterprises instead of 0.30% determined by the Appellant for the period of January to March 2013 even after accepting the yield spread approach adopted by the Appellant 144. Ground No. 8.1 is not pressed by learned counsel of the assessee. In ground No. 8.2, the assessee submits that the same is covered in favour of the assessee by earlier decision of the ITAT including the order in the Miscellaneous application. That under the yield spread approach the guarantee commission cannot be static and it would keep changing on the basis of interest spread. That rate of commission was 0.3% of the period 1 January 2013 to 31 January 2013. We note that this has already been dealt by us in the revenues appeal here in above. 145. Ground No. 9 9. Availing of Business Support Services ('BSS') from RCITPL: 9.1 On the facts and in the circumstances of the case and in law, the learned AO erred in making and the learned CIT(A) erred in determining the arm's length mark-up of 8.20% on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use notice proposing to use the following comparable companies:- Sr. No. Name of Comparable Company OP/OE(%) 1 BVG India Limited. 24.08 2 Axis Integrated Systems Limited. 36.30 3 Asian Business Exhibition Conferences Limited. 12.09 4 HGS Business Services Private Limited. 14.52 Average 21.75 149. The assessee vide letter dated 18 October 2016 gave reply to the show cause notice of the TPO, objecting to the comparables selected by the TPO. The TPO determined the arm's length margin of 18.09% on cost and proposed an transfer pricing adjustment of INR 13,93,47,074/-. The comparables relied upon by the learned TPO are as under: Sr. No. Name of comparable company NCP (%) 1 BVG India Limited 24.08 2 Asian Business E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sinesses are in the areas of Document Management, Medical Transcription, Data Conversion and Registry Share Transfer. The TPO has not discussed. So no opinion can be given. Neilsoft Limited The Company, along with its subsidiaries in USA, Germany and branch located in UK provides Software engineering services to its clients. The Company provides solutions across a range of engineering segments. The TPO has not discussed. So no opinion can be given. Goldmine Advertising Limited The company is engaged in service-oriented activities. Its revenue comprises of Space Media, Radio Advertising etc. The TPO has not discussed. So no opinion can be given. BVG India Limited BVG India Limited is engaged in providing and undertaking facility management, mechanised, housekeeping, transportation, plant relocations, attendant services and labour supply. It also undertakes various projects for garden development, slum rehabilitation, landscaping, beautification projects, engineering and other contracts. Three reportable segments are: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer Pricing studies to determine the ALP of transaction. Therefore, if an assessee mistakenly includes and/or excludes a company from the list of comparables it is not irrevocable or irreversible. The learned counsel of the assessee also submits that assessee is aggrieved that learned CIT (A) erred in confirming the action of the assessing officer in cherry picking the non-comparable company namely Asian Business Exhibition and Conference Ltd. It is the submission that this comparable is to be rejected as the employee cost total operational cost ratio is only 12.83% and that of the assessee's 66.6%. That low cost of the employees cost implies that company would not be providing services by employing its own sources and is following a different business model. Hence, the same is functionally not comparable. Further, the learned counsel of the assessee submits that from the website it is observed that the company is engaged in the business of exhibitions such as trade fair organizer, networking events, conferences, activation, road shows, digital and publications entail completely different set off employee skills and are not comparable. 154. As regards the revenues grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case and in law, the learned AO erred in making and the learned CIT(A) erred in confirming the transfer pricing adjustment of INR 32,45,02,729 in relation to the transaction of inter-unit transfer of Power from the Captive Power Plant ('CPP') to Other Manufacturing Division ('OMD') by computing the arm's length rate at INR 6.155 per KHW without considering INR 6.45 per KHW as determined by the Appellant; 10.2 On the facts and in the circumstances of the case and in law, the learned AO erred in reducing and the learned CIT(A) erred in confirming the reduction of deduction by INR 17,52,72,214 claimed under section 80IA of the Act; 10.3 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the learned AO in rejecting the economic analysis or the benchmarking analysis of the Appellant, on the application of internal Comparable Uncontrolled Price Method by the Appellant, without providing any cogent reasons; 10.4 On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the action of the learned AO in accepting the economic analysis of the learned TPO without prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RIL Hazira Complex 1,48,71,16,083 STG II Hazira RIL Hazira Complex 82,51,56,395 CPP II Gandhar Complex RIL Gandhar/Dahej Complex 3,17,29,70,085 The power units have supplied power to other manufacturing units of RIL @ 6.45 per KWH. The TPO held that this transaction was reported as specified domestic transaction under Section 92BA(iii) r.w.s 80-1A(8) of the Act. The assessee has benchmarked the above transaction on application of CUP method as MAM and adopting an internal comparable where by the electricity rate at which the Power was sold by Dakshin Gujarat Vij Company Limited ('DGVCL') to the Manufacturing Division. The DMD unit pays to third Party i.e. DGVCL at the rate of INR 6.45 KHW. Hence, the transaction is at arm's length. 161. The learned TPO issued show-cause notice (SRN) dated 14 October 2016 as to why the profitability or the deduction claimed by the aforesaid CPP should not be restricted to the profits/rate -computation prescribed in the Notification No. I-7/145(160)/2008-CERC dated 19 January 2009 issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rived at ALP of ₹ 6.155 per KWH and made adjustments accordingly. Detailed submissions of the appellant has been reproduced by the AO in the asst. order. The submission during appellate proceedings is also reproduced above. The TPO has discussed provision of section 92BA, 92K, 10B(2) and 80IA (B) of IT act 1961 in para 3,3.3 in his order. The TPO in para 3.3.8 contended that the power generating units should be noted as the tested party and should be tested against similar comparable with similar FAR. The power generating units do not conduct any distributing activity and therefore cannot be compared with the price charged by the distributing company DGVCL to the end customer. Therefore for fulfilling the object of 80IA through the mechanism of TP provisions the transaction should be benchmarked as done by the TPO. Reliance is also placed on the decision in the case of CIT Vs ITC Ltd 64 taxmann. Com 214 (Cal) in appeal No. 425 of 2006 dt. 1.06.2015 wherein the amended provisions of sec 80IA(8) was considered. The facts are similar. The appellant has also relied on the decisions in the case of Pr. CIT Vs Gujarat Alkaline and Chemicals, CIT Vs Shah Alloys (whereon the SLP of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pricing officer has applied rate at which power generating unit is selling to power distribution which will then sell to the end consumer. Hence the level of market is different. 173. It is further contended that rate which electricity is supplied by GEB to the end consumer is to be considered as the market rate at which the captive power plant can sell power to other unit. 174. Upon careful consideration we find that for the purpose of 80IA(8), the rate of electricity as taken by the assessee has been consistently approved by the ITAT and Hon ble Jurisdictional High Court also. We may refer here the provisions of section 80IA(8):- Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. 80-IA. (8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment extracted extensively from the order of CIT (Appeals) and independent reasons for confirming the same. In such order CIT (Appeals) had placed reliance on an earlier judgment of the Tribunal in case of Reliance Infrastructure Limited Vs. Addl. CIT, Range 1(1), Learned counsel for the assessee had placed on record a copy of the judgment of the Tribunal in case of Reliance Infrastructure limited. In such judgment an identical issue came up for consideration. The Tribunal by detailed judgment had held and observed as under:- 44. In the given facts and circumstances of the case, we are of the view that the profits of the business of generation 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. 7. Counsel for the assessee pointed out that the judgment of the Tribunal in case of Reliance Infrastructure limited (supra) was carried in appeal by the revenue before the High Court in Income Tax Appeal No.2180 of 2011, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a supplier. it should have been compared with the market 10. Gujarat High Court in case of Principal Commissioner of Income-Tax Vs. Gujarat Alkalies and Chemicals Ltd. also had occasion to examine such an issue. It referred to earlier order in case of Asst. CIT Vs. Pragati Glass Works Pvt. Ltd.2 in which following observations were made:- 7. To our mind, Tribunal has committed no error. Assessing Officer and CIT(Appeals) while adopting ₹ 4.51 per unit as the value of electricity generated by eligible unit of assessee and supplied 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 eligibl ..... 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