TaxTMI 
TaxTMI 
2019 (4) TMI 1923
X X X X Extracts X X X X
X X X X Extracts X X X X
....ared by the appellant in the return of income for the relevant assessment year. 1.2 That the Dispute Resolution Panel ('DRP') erred on facts and in law in affirming the draft assessment order by passing a cryptic and non-speaking order, without judiciously considering the entire material and the submissions/ objections filed by the appellant." 3. At the time of hearing, the Authorized Representative of the assessee submitted that this ground of appeal is general in nature and do not require separate adjudication by us. Therefore, the same is dismissed. 4. Ground No. 2 of the appeal of the assessee reads as under: "2. That the assessing officer/ DRP erred on facts and in law in reducing the deduction claimed by the appellant under section 80-1A of the Act from Rs. 4,19,30,71,772 to Rs. 2,52,62,31,398. 2.1 That the assessing officer/ DRP erred on facts and in law in holding that the rate at which power was supplied by appellant to State Electricity Board ('SEB'), i.e. Rs. 2.3336 per unit, was the market rate of power for purposes of computation of deduction under section 80IA of the Act." 5. The Assessing Officer observed that from the perusal of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsferred to eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of transfer, then, for the purpose of the deduction under this section, the profit and gains of such eligible business shall be computed as if the transfer, in either case, has been made at the market value of such goods or services as on that date. Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner herein before, specified, presents exceptional difficulties the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. 6. He further observed that it may be pointed out that the explanation only requires to find out the price at which the goods would ordinarily fetch in the open market. Here the word ordinarily is most important i.e. to the extent the market is available, in ordinary situation, the market price has to be worked out. If the extraordinary situations are there and the 'open market' is not that open, if c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ryana High Court. 10. He also observed that it is also respectfully submitted that in the assessment year 2001-02 the Department could not bring the entire picture before the higher judicial authorities. The whole issue needs to be considered from an overall perspective. As to market value of electricity supplied is concerned, it postulates a market and if a market is not there, a notional market has to be presumed. Under 'The Electricity (Supply) Act 1948, the generation of electricity is not permitted except by the Board or the licensee and further surplus power from its captive consumption could be sold to the Board only. The Board has been defined under section 5 of The Electricity (Supply) Act 1948. Thus the surplus power could only be sold to either the Board of same State Govt. or the Board of other State Governments. Thus, there, will be as many buyer as the number of State Electricity Board are there. Thus, it would be wrong to say that there is no open market. Of, course, it is true that boards are only buyers in the country. Now a question of law arises that if the political system/polity of the nation/enactment by Central Legislature is as herein above in India, wher....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ry are incurring huge business losses. 15. Further, when the assessee company took the business decision to set up the power plant, it knew that it had to operate in a market governed by Electricity Supply Act 1948, and all the financial appraisal reports would reflect the sale of excess power to SEB at the rates fixed. Still the assessee company had taken business decision to setup the power plant. 16. In the light of above, the deduction u/s 80IA was proposed to be allowed at Rs. 2,52,62,31,398/- in the draft order dated 28.03.2013. 17. It was observed by the DRP that the issue at stake was the subject matter of intense judicial litigation. The judgement of Hon'ble P & H High Court in case of the assessee for A.Y. 2001-02 is based on the order of same High Court in case of assessee for A.Y. 2000-01 in which relief is allowed to the assessee by making observation as under: "At the very outset, we may record that counsel for the revenue has very fairly stated that Question No.3 stands covered against the revenue and we held as such accordingly." 18. It was observed by the DRP that on inquiry, the assessee could not explain by which order the above said question....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... refer Pg. 216-260 of PB Vol. 1) Decision of the Tribunal in the Assessee's own case for assessment year 2002-03 and 2005-06 (Kindly refer Pg. 840-870 of PB Vol. III) 24. On the other hand, the Departmental Representative relied on the orders of the Lower authorities. 25. We find that the issue is covered in favour of the assessee by the order of this Bench of the Tribunal in the case of the assessee itself in AY 2001-02 reported in 16 SOT 509 (Del) where it was held as under:- "12. We have carefully considered the submissions of both the parties on this aspect. The crux of the dispute before us relates to the manner of computing profits of the undertakings of the assessee engaged in generation of power for the purposes of relief under Section 80-IA of the Act. The difference between the assessee and the revenue is with regard to the determination of the market value of power so as to record the income accrued to the assessee on supplies made to its own manufacturing units. As noted earlier, in this case, the assessee has utilized the power generated for its captive consumption by way of supplies to its other manufacturing units and also for sale to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion; the price or value of the article established or shown by sales, public or private, in the ordinary way of business; the fair value of the property as between one who desires to purchase and one who desires to sell; the current price. Similarly, in the case of Orchard v. Simpson (1857) 2 CBNS 299, the phrase "market value" in a contract for the sale of goods has been understood to mean the price in the market to an ordinary consumer, irrespective of the particular contract. Similarly, in Law Lexicon by P. Ramanatha Aiyar, with reference to U. S. v. Certain : Property in Borough of Manhattan, City County and State of New York, CANY, 403 F.2d800, 802, it has been explained that the market value of an article or piece of property is the price which it might be expected to bring if offered for sale in a fair market; not the price which might be obtained on a sale at public auction or a sale forced by the necessities of the owner, but such a price as would be fixed by negotiation and mutual agreement, after ample time to find a purchaser, as between a vendor who is will (but not compelled) to sell and a purchaser who desires to buy but is not compelled to take the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....supply power to the Electricity Board is also liable to be determined in accordance with the statutory requirements. In this context it can be safely deduced that determination of tariff between the assessee and the Board can be said to be an exercise between a buyer and seller neither in a competitive environment and nor in the ordinary course of trade and business. It is an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the buying tariff in terms of preset statutory guidelines. Therefore, the price determined in such a scenario cannot be equated with a situation where the price is determined in the normal course of trade and competition. Therefore, the price determined as per the Power Purchase Agreement cannot be equated with market value as understood in common parlance. We see no reason for not holding so for the purposes of Section 80-IA(8) also. 17. In this background, we may make a gainful reference to the decision of the Hon'ble Calcutta High Court in the case of CAIT Vs Manmatha Nath Mukherjee, which has been relied on by the assessee before us. The issue before the Hon'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e affirmative. This is for the reason that the assessee as an industrial consumer is also buying power from the Board and the Board supplies such power at the rate of Rs. 3.72 per unit to its consumers. This is the price at which the consumers are able to procure the power. We may consider hypothetical situation as well. Had the assessee not been saddled with restrictions of supplying surplus power to the State Electricity Board, it would have supplied power to the ultimate consumers at rates similar to those of the Board or such other competitive rates, meaning thereby that price received by the assessee would be in the vicinity of Rs. 3.72 per unit i.e. charged by the Board from its industrial consumers/users. Thus, under the given circumstances, it would be in the fitness of things to hold that the consideration recorded by the assessee's undertaking generating electric power for transfer of power for captive consumption at the rate of Rs. 3.72 per unit corresponds to the market value of power. Therefore, on this aspect, we uphold the stand of the assessee and set aside order of the Commissioner (Appeals) and direct the assessing officer to allow relief to the assessee under....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ked out by the Assessee on the basis of the price that it paid to TPC for purchase of power continues to be the best basis even after the order of MERC and therefore the same has to be accepted as was done in the past and as approved by the ITAT in Assesssee's case. We therefore dismiss ground No.4 of the revenue." 7. Counsel for the assessee pointed out that the judgment of the Tribunal in case of Reliance Infrastructure Ltd. (supra) was carried in appeal by the revenue before the High Court in Income Tax Appeal No.2180 of 2011, such appeal was dismissed making following observations:- "6. As far as question (d), namely, the claim relating to purchase price from Tata Power Company is concerned and that was for the deduction under Section 80IA, the ITAT in paragraph 21 onwards has noted the factual findings and also referred to the order of the Maharashtra Electricity Regulatory Authority (for short "MERC"). Paragraph 36 set outs as to how the claim arose. The claim has been considered in the light of Section 80IA and particularly proviso and explanation thereto. The Tribunal eventually held that till the Assessment Year 2005-2006, the Revenue considered the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ligible 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 Rs. 4.51 was computed as the reasonable value of the electricity generated by eligible unit of assessee. This amount included Rs. 4.17 per unit which was the cost of electricity generation and Rs. 0.34 per unit which was duty paid by the assessee to GEB for such power generation. Thus the sum of Rs. 4.51 per unit only represented the cost of electricity generation to the assessee. In Section 80IA(8) of the Act what is required to be ascertained is the market value of the goods transferred by the eligible business, when such transfer is by eligible business to another non eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not correspond to market value of such goods. Term "Market Value" is further explained in explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. To our mind sum of Rs. 4.51 per unit of electricity only represented cost of electricity generat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessing officer/ DRP grossly erred in not appreciating that: (a) aforesaid deduction claimed by the appellant was mere enhancement of the deduction claimed under section 80IB of the Act in the return of income; and (b) the assessing officer was, in any case, duty bound to suo motu allow the said deduction, even if the appellant had not claimed the same in the return of income or during the assessment proceedings. 3.3 Without prejudice, that, in any case, the DRP grossly erred on facts and in law in not admitting and considering on merits deduction claimed by the appellant under section 80IB of the Act, by treating the same as fresh claim." 30. The Assessing Officer observed that Ld. Members of the DRP heard arguments of the authorized representative of the assessee and observed that they are misplaced. The DRP observed that the decision of the Hon'ble Supreme Court in the case of M/s Goetze India Limited v/s C.I.T. reported in 284 ITR 324(SC), is the law of the land and the A.O.'s action being fundamentally based on the said decision of the Hon'ble Supreme Court, calls for no interference. The DRP also observed that assessee had ample opportunities to claim....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../s 254 of the Act to permit a new claim. c. The Hon'ble Jurisdictional High Court in the case of CIT v. Ramco International [2011] 332 ITR 306 (P&H), after discussing the decision of Goetze India (supra), upheld the Tribunal's decision which had, interalia, upheld the decision of CIT(Appeals) allowing the Assessee to claim the benefit of Section 80-IB through Form 10CCB and other documents which were furnished before the AO during the course of assessment proceedings. The Hon'ble High Court, while considering the following substantial question, decided the issue (at para 5) in favor of the Assessee. d. The judgment of Goetze India (supra) was noted by the Mumbai Bench of the Tribunal in the case of Chicago Pneumatic India Ltd. v DCIT: 15 SOT 252. In that case, the assessee revised the claims for deduction u/s 80HH and 80-I of the Act during the course of assessment proceedings without filing a revised return. The Tribunal considered Circular no. 14(XL-35) of 1955 [Pg. 271 to 273 of PB-1], as well as the decision of the Supreme Court in the case of Goetze India (supra) and held as under: "the A.O. may grant reliefs/refunds suomotu or can do so on being poi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee has undergone any change whatsoever." 38. Further, reliance in this regard, was also placed on the following decisions wherein it has been held that the decision of the Supreme Court in the case of Goetze India (supra) is not applicable to cases where the assessee merely seeks to enhance its existing claim: CIT vs Arvind Mills Ltd.: ITA No. 1407 of 2011 (Guj.) CIT vs M/s. Pruthvi Brokers & Shareholders: ITA NO. 3908 OF 2010 (Bom.) JCIT vs Hero Honda Finlease Ltd.: 115 TTJ 752 (Del. ITAT) (Third Member) 39. Furthermore, it was contended that a claim which is admissible in appellate proceedings should be allowed in assessment proceedings as well, in order to avoid a multiplicity of proceedings and avoid complexities. For this reliance was placed on the following decisions:- Chicago Pneumatic India Ltd. v DCIT: 15 SOT 252 (Mum. ITAT) Kisan Discretionary Family Trust v ACIT: 113 TTJ 918 (Ahmedabad ITAT) Oman International Bank SAOG vs ACIT: ITA No.1981/Mum/2001 (Mum. ITAT) 40. It was also argued that there is no bar/ prohibition on the power of an Appellate Authority to consider fres....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her, the Authorized Representative placed reliance on Article 265 of the Constitution of India, according to which no tax can be imposed/ collected by the State, otherwise than by authority of law. In the present case, it was submitted that, the assessee was eligible for deduction u/s 80IB of the Act on merits. The said deduction was inadvertently not claimed in original or revised return of income. However, the same was duly claimed by the assessee in assessment proceedings vide letter dated 28.03.2012, submitted before the AO. The claim of deduction was duly supported by the report of the Chartered Accountant in Form No. 10CCB, certifying the claim of deduction. Since allowability is not disputed by the AO, denial of the deduction under Section 80IB of the Act by applying the decision in the case of Geotze India is not permitted and is against the spirit of Article 265 of the Constitution of India. 46. It was therefore prayed that in view of the above, the action of the AO in not considering the claim made by assessee during the assessment proceedings, without appreciating that the same in the true spirit of the law, is illegal land unsustainable. The AO should, therefore, be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on which had, inter alia, upheld the decision of CIT(Appeals) allowing the Assessee to claim the benefit of Section 80-IB though Form 10CCB and other documents which were furnished before the AO during the course of assessment proceedings. The Hon'ble High Court, while considering the following substantial question, decided the issue in favour of the Assessee: "1.Whether, on the facts and in the circumstances of the case and in law, the ITmzAT was right in law in allowing assessee's claim for deduction u/s 80-IB, which the assessee had neither claimed in the return of income nor through a revised return of income? 2. Whether on the facts and in the circumstances of the case, the decision of ITAT is not contrary to the law as spell out by the Hon'ble Supreme Court in Goetze (India) Limited v. CIT 284 ITR 323 (SC) and Additional Commissioner of Income-tax v. Gurjargravures (P.) Ltd. 111 ITR 1 (SC)?" ........................................ "5. In view of the finding that the assessee was not making any fresh claim and had duly furnished the documents and submitted Form for claim u/s 80-IB, there was no requirement for filing any revised ret....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, the orders of the IT authorities and the rival contentions. The precise difference between the two learned Members is regarding the question whether the CIT(A) ought to have first decided the question of entertainability of the assessee's higher claim of depreciation by a letter and not by a revised return, before deciding the merits of the claim. In Goetze (India) Ltd. v. CIT [2006] 284 ITR 323/157 Taxman 1 (SC), the Supreme Court held that the assessee can make a claim for deduction, which has not been claimed in the return, only by filing a revised return within the time allowed. In the same decision, it was made clear that the power of the Tribunal to admit an additional ground under s. 254 is not affected by its decision. It was however clarified that the case was concerned with only the power of the assessing authority and not the appellate authority. Under s. 250(5), the CIT(A) has the power to allow the appellant to go into any ground of appeal not specified in the grounds of appeal if he satisfied that the omission of the ground from the form of appeal was not wilful and unreasonable. Dealing with such a power, the Bombay High Court in Prabhu Steel Industries (P) Lt....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Hon'ble Delhi ITAT in the case of JCIT vs Hero Honda Finlease Ltd.: 115 TTJ 752 (Del. ITAT) (Third Member) (supra) and the decision of ITO vs. Efextra Esolutions Pvt. Ltd. [ITA No. 313/Del/2012]. In the present case, it is seen that in the original as well as revised returns of income filed by the assessee, the assessee has claimed deduction u/s 80IB of the Act. In fact in notes to account no. 7, the Assessee has mentioned about the eligibility of deduction u/s 80IB in respect of Rail Universal Beam Mill. Similarly, in notes to account no. 6, the assessee had mentioned about eligibility of deduction u/s 80IB for Ferro Chrome Unit (SAF) which was not also claimed at the time of filing of return of income or revised return of income, however, deduction on the said unit (SAF) was claimed by the assessee during the course of assessment and the same has been allowed by the AO. It is pertinent to note here that there is no justification for the AO to treat the deduction claimed in respect of Ferro Chrome Unit (SAF) and Rail Universal Beam Unit, differently by allowing deduction claimed in respect of one unit and denying it in respect of another, when admittedly facts are identi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Act, as was held in the case of Nath Brothers Exim International (Supra). In the said case the assessee in the return for the assessment year 200708 had not claimed any exemption under Section 10B of the Act. This deduction was claimed for the first time in the revised return. On being denied this claim, constitutional vires of Sub-section 5 to Section 80A, as inserted by Finance Act, 2009 and 4th proviso of Section 10B (1) of the Act, were challenged. The challenge was rejected by the Division Bench of this Court holding that the amendment made cannot be faulted and quashed on the ground that it was discriminatory, arbitrary, unreasonable and violative of Article 14, observing that it was within the legislative domain to prescribe the limitation period and also stipulate that the assessee to claim deduction must file returns during the limitation period, so as to enable the Department to take up these cases for scrutiny assessment. Plea of arbitrariness was rejected. The decision and ratio is distinguishable as the respondent-assessee had claimed deduction under Section 10A of the Act in the return of income filed within the limitation period. It was, therefore, not a new claim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee reads as under: "4. That the assessing officer/ DRP erred on facts and in law in not holding that incentive/ subsidy in the form of exemption from sales tax, entry tax and electricity duty, amounting to Rs. 120,74,28,854 was in the nature of capital receipt not liable to tax. 4.1 That the assessing officer/ DRP erred on facts and in law in holding that the appellant was unable to link the subsidy/ incentive with any particular 'scheme of subsidy' issued by the State Government. 4.2 That the assessing officer/ DRP erred on facts and in law in holding that the aforesaid incentive/ subsidy was provided to aid day-to-day running of the business and was not in the nature of capital receipt. 4.3 That the assessing officer/ DRP erred on facts and in law in holding that since no amount was actually received by the appellant in the form of incentive/ subsidy, any hypothetical/ notional figure could not be treated as incentive/ subsidy and allowed as reduction from the taxable income. 4.4 That the assessing officer/ DRP erred on facts and in law in holding that the appellant was taking double benefit of electricity duty by claiming deduction ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... i. 1.5 lac Ton capacity Rotary Kiln for manufacturing sponge iron setup in 2000-01; ii. Captive Power Plant. iii. 5 lac Ton capacity Universal Beam/ Rail Mill setup in financial year 2003-04. 1.1 The then Government of Madhya Pradesh, vide notifications dated 24.4.2000 (Pg. 1094-1095 of the Additional Evidence filed), exempted the assessee from payment of Central Sales tax and Entry tax involving investment of Rs. 1000 crores or more and from payment of Electricity duty vide notification dated 29.07.2000. In the month of November 2000, a new state of 'Chattisgarh' was carved out of part of State of Madhya Pradesh and the 'Raigarh' unit became a part of Chattisgarh. The state of Chattisgarh also endorsed the exemptions granted by the State of Madhya Pradesh. 1.1. Apart from the aforesaid, from financial year 2005-06 onwards the appellant had set up a new industrial unit No. IIIin the State of Chhattisgarh for which the appellant was granted incentives in the form of exemption from payment of entry tax and electricity duty under the Industrial Policy (2004-2009) issued by the Government of Chattisgarh (hereinafter referred to as `Industrial Pol....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee to then Chief Minister of Madhya Pradesh / senior officials of Madhya Pradesh State Industrial Development Corporation during July 1998 to Nov. 1999 for formulation of special incentive package for the assesse 1063-1080 111. Copy of letters written by assessee to then Chief Minister and Government official post issue of specific notifications dated 24.04.2000 granting exemption to the assessee 1081-1082 112. Copy of letter dated 17.05.2002 by assessee to Secretary Energy, Chhatisgarh requesting for grant of exemption from electricity duty for 15 years as against 10 year granted vide notification dated 29.07.2000. 1083-1084 113. Notification issued by Government of Chhatishgarh for granting duty exemption for a period of 15 years 1085-1086 114. Copy of Memorandum of Understanding dated 21.05.2001 entered into between assessee and Government of Chhattisgarh whereby the incentives / benefits given by the Government of Madhya Pradesh have been approved / adopted by the Chhattishgarh Government. 1087-1091 115. Copy of letter dated 02.05.2002 issued b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the decisions of the Tribunal are only in the context of Unit II and are not at all in the context of Unit III, which was set up subsequently in the State of Chhattisgarh. Therefore, the Ld. AR submitted that the eligibility of the Appellant to claim exemption in respect of Unit III may kindly be considered independent of the decision of the Tribunal in the context of other units. However, it is seen that the general principle is the same as regards taxation and determination of subsidy as revenue receipt vis-à-vis capital receipt and thus, we are inclined to follow the order of ITAT as adjudicated in Assessee's own case for earlier year." 56. Facts being identical, respectfully following the precedent we confirm the order of the AO and dismiss the ground no. 4 of appeal of the assessee. 57. Ground No. 5 of the appeal of the assessee reads as under: "5. That the assessing officer/ DRP erred on facts and in law in not allowing deduction in respect of write back of an amount of Rs. 3,92,93,000, consistent with the finding in the earlier assessment years that deduction is not allowable in respect of deferment of employee compensation expenditure incurred on acco....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... holders'. Once grants are issued by the Assessee to its employees under the ESOS, in so far as the assessee is concerned, the liability crystallizes in as much as the option to exercise such grant is with the employees on which the Assessee has no control. Since such liability towards employee compensation, on the grant of option, can be estimated with reasonable certainty, a liability towards the said compensation definitely arises on the grant of option. 62. Furthermore, the expenditure incurred is towards employee compensation and the said expense is merely discharged by grant of options and subsequent issuance of shares under ESOS. By virtue of ESOS, the employee is remunerated to the extent of difference between the issue price and the market value of shares, which represents the benefits to the employees. The issue of shares is only a mode/manner of remunerating the employee. The expenditure is thus incurred and the same has been claimed in the earlier assessment years. That, consistent with the said approach, the Appellant for the year under consideration has written back an amount of Rs. 3,92,93,000/- to the Profit & Loss account as income because only a few options wer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and hence not chargeable to tax in the hands of company. The Finance Act, 2012 has inserted clause (viib) of section 56(2) w.e.f. 1.4.2013 providing that: 'where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares', then such excess share premium shall be charged to tax under the head 'Income from other sources'. But for that, the amount of share premium has always been understood and accepted as a capital receipt. If a company issues shares to the public or the existing shareholders at less than the otherwise prevailing premium due to market sentiment or otherwise, such short receipt of premium would be a case of a receipt of a lower amount on capital account. It is so because the object of issuing such shares at a lower price is nowhere directly connected with the earning of income. It is in such like situation that the contention of the learned Departmental Representative would properly fit ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the company. The substance of this transaction is disbursing compensation to the employees for their services, for which the form of issuing shares at a discounted premium is adopted. 9.2.7 Now we espouse the second part of the submission of the ld. DR in this regard. He canvassed a view that an expenditure denotes "paying out or away" and unless the money goes out from the assessee, there can be no expenditure so as to qualify for deduction u/s 37. Sub-section (1) of the section provides that any expenditure (not being expenditure in the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". To put it differently, an expenditure must be laid out or expended wholly and exclusively for the purpose of business so as to be eligible for deduction u/s 37(1). There is absolutely no doubt that section 37(1) talks of granting deduction for an 'expenditure', and the Hon'ble Supreme Court in In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot, had therein answered the said issue in affirmative and concluded that the same was allowable as an expenditure under section 37(1) in the hands of the assessee. 67. Hence, in view of the direct Special Bench decision on this issue, deduction of the claim should be allowed u/s 37 of the Act for the year under consideration. Needless to say that if the Assessee succeeds in its appeals of earlier AYs, then this amount shall be taxable in this year. However, if Assessee fails in the appeals of the earlier years, then this amount added back cannot be treated as income and hence shall not be taxable in this year. With these directions, this ground of appeal should be allowed. 68. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The claim of the assessee is it has credited Rs. 3,92,93,000/- in the profit and loss account as write back on account of employee stock option scheme (ESOS). The assessee further claimed that when provision was made on account of ESOS in earlier years by way of debit to its profit and loss account the said amount was not allowed as deduction to the assessee in the assessment of earlie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....come-tax Rules, 1962. 71. Further, the Assessing Officer observed that the assessee has made investment in shares and has earned dividend income of Rs. 90.14 crore which is exempt. The assessee has not given any basis as to suo moto disallowance of Rs. 2,65,715/- made by the assessee u/s 14A of the Act. Therefore, he was not satisfied with the correctness of claim made by the assessee. 72. The Assessing Officer further observed that as per details given by the assessee, the payments have been made on various dates. However, the source of the same has not been provided. For example, the assessee had made payment of Rs. 19 crore on 17.03.2006 and another payment of Rs. 19 crore on 17.03.2006. The assessee has not given details as to where this money came from. 73. The Assessing Officer observed that instead of giving specific details as to what was source of said money with respect to statement of bank account from where the said payment has been made and description of entries responsible for building up of the balance from which particular payment was made, the assessee gave general description. 74. The Assessing Officer further observed that the assessee has given vagu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing Officer ('AO') without recording required satisfaction on "having regard to the accounts of the Assessee, as placed before him, it is not possible to be generate the requisite satisfaction with regard to the correctness of the claim of the Assessee", had invoked and applied Rule 8D as a mandatory provision applicable in all cases of exempt income. Action of the AO was contrary to law, and therefore, there is no merit in the present appeal." 78. The Ld. Authorized Representative of the assessee further contended that even in the preceding assessment year 2008-09 in the order passed u/s 143(3), the AO accepted the suo moto disallowance of Rs. 1,37,568/-, which was made on similar basis and there is no change in the investment in this year. As regards purported interest expenditure, the Ld. AR contended that it is a settled legal position that in the event the Assessee has own funds, the same would be taken to have been used for making investment, and therefore, no disallowance on account of interest expenditure ought to be made, especially when the available funds exceed the quantum of investment yielding exempt income. It was submitted that as against the total investment of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to the accounts of the Assessee, as placed before him, it is not possible to be generate the requisite satisfaction with regard to the correctness of the claim of the Assessee", had invoked and applied Rule 8D as a mandatory provision applicable in all cases of exempt income. Action of the AO was contrary to law, and therefore, there is no merit in the present appeal." 80. This issue was discussed in detail in HT Media vs. CIT [399 ITR 576] wherein Delhi High Court held that- "30. Rule 8D(1) states more or less what Section 14 A (2) of the Act states. It requires the AO to first examine the accounts of the Assessee and then record that he is not satisfied with (a) the correctness of the Assessee's claim of expenditure or (b) the claim made by the assessee that no expenditure has been incurred. Unless this stage is crossed i.e. the stage of the AO recording that he is not satisfied with the clam of the Assessee in the manner indicated i.e. after examining the Assessee's accounts, the question of applying the formula under Rule 8D (2) does not arise. That this is a mandatory pre-requisite for applying Rule 8D (2) is fairly well-settled." 81. The same has also....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lure by Assessing Officer to comply with mandatory requirement of section 14A(2) read with rule 8D(1)(a) to record his satisfaction as required thereunder, then question of applying rule 8D(2)(iii) does not arise; and secondly, where Assessing Officer had failed to establish any direct nexus between investments made by assessee and interest expenditure incurred, then it not correct to remand the matter concerning deletion of disallowance of interest under clause (ii) of rule 8D(2) to Assessing Officer for fresh determination. Accordingly, on the facts of the present case disallowance of Rs. 71,122/- made by the Assessing Officer is directed to be deleted. Accordingly, the appeal of the assessee is allowed." 82. On the other hand, the ld. Departmental Representative relied on the orders of the lower authorities. 83. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case the assessee company earned dividend income of Rs. 90.14 crores which is exempt income and includible in the total income. Against the said income the assessee Suo-moto disallowed expenses to the tune of Rs. 2,65,715/- in the re....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for depreciation claimed under the provisions of the Act." 85. The Assessing Officer observed that during the year, the assessee has claimed depreciation on non-functional units A, B & C. The assessee was required to explain as to why depreciation on non-functional Units should not be disallowed. The assessee submitted that Part-A consist of 2 DG Sets of capacity 3.5 MW/hour. These are stand by DG sets maintained by the assessee for generation of electricity in case need arises. During the assessment year 2009-10, the assessee has claimed only depreciation of Rs. 0.42 crore. It has been held in various judgments that the user of the asset should be understood in wide sense so as to embrace passive as well as active user. An asset can be said to be in use when it is kept ready for use. If a machinery is kept ready for use at any moment in a particular factory, under an express agreement, from which taxable profits are earned, the machinery can be said to be "used" for the purpose of business which earns profits, although in fact it has not worked during the year. 86. It was further submitted that part-B&C are two waste Head Recovery Boilers of capacity 35 Tons each for steam ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....O: 2013 (3) TMI 434 CIT vs. OswalWoollen Mills Limited: 206 CTR 141 (P&H) CIT vs. Norplex Oak India : 198 Taxman 470 (Cal) CIT vs. Premier Industries (India) Ltd.: 323 ITR 672 (MP) CIT vs. Panacea Biotech Ltd.: 324 ITR 311 (Del.) CIT vs. Yamaha Motor India Pvt. Ltd. (2010) 328 ITR 297 (Del) ACIT v. Chennai Petroleum Corporation Ltd.: 126 TTJ 865 (Chennai) (ITAT) 91. It was further submitted by AR that assets of Part A of non-functional units were kept as standby assets for the purpose of smooth functioning of business of the Assessee. It is, however, to be noted that the units of the Assessee were kept ready for use since the same were meant to be used in case of an exigency. The units were meant to be operational to avoid any disruption arising in case of any failure, which itself corroborates that the units were ready to use or else the whole purpose of meeting an emergency stands defeated. The AO has also stated that when they visited the premises during the course of survey, they did not find it. The Ld. AR explained this and said that the survey was conducted in 2013 and it was then th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppellant towards employee welfare expenses under section 40A(9) of the Act. 8.1 That the assessing officer/ DRP erred on facts and in law in holding that the aforesaid expenses were in no way linked to business expediency and were disallowable under section 40A(9) of the Act. 8.2 That the assessing officer/ DRP failed to appreciate that the provisions of section 40A(9) of the Act were not applicable to the aforesaid expenditure incurred by the appellant." 95. The Assessing Officer observed that while computing the income in the original return, the assessee has itself disallowed Rs. 54,03,885/- u/s 40A(9) of the Income-tax Act, 1961. However in the revised return the expenses have been claimed as deduction. The assessee was required to show cause addition of Rs. 54,03,885/- should not be made. The assessee filed written reply as under:- "As regarding your query relating to sum paid by the assessee as employer of Rs. 5403885/- towards employee welfare scheme, it is submit that during the previous year the employer has contributed Rs. 54,03,885/- towards welfare of employee i.e. towards providing financial assistance to the needy employee/his family in c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee the DRP rejected the objections of the assessee by observing as under:- "The Assessing Officer disallowed the expenditure of Rs. 54,03,885/- placing reliance on 40A(9) of the Act. The contribution by the assessee to the employee's welfare schemes, was indeed, not in consonance with the prescriptions of the above provision." 99. Therefore, the sum of Rs. 54,03,885/- was disallowed and added back to the income of the assessee by the AO. 100. We find that the AR reiterated the submissions made before the lower authorities. We find that Rs. 54,03,885/- was disallowed by the AO by invoking provisions of section 40A(9) of the Act. The opinion of the AO is also supported by the opinion of the Tax Auditor of the assessee. The ld. AR of the assesse has brought no material before us to show that the amount in question was not hit by the provisions of section 40A(9) of the Act. In the circumstances we do not find any good reason to interfere with the order of the AO. Thus the ground no. 8 of the appeal of the assessee is dismissed. 101. Ground No. 9 of the appeal of the assessee reads as under: "9. That the assessing officer/ DRP erred on facts and in law....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssions filed during the FBT proceedings, it has been submitted by the assessee that total lease payments of Rs. 2,16,91,034/- has been made which constitutes Rs. 32,97,554/- towards finance charges and Rs. 1,83,93,480/- towards capital cost. In view of the same, Rs. 1,83,93,480/- was proposed to be treated as capital expenditure and added back to the income of the assessee. 106. The D.R.P. rejected the objections raised by the assessee observing that the matter is pending adjudication with higher appellate authorities and therefore, the objection is not accepted. 107. Therefore, the Assessing Officer treated, the sum of Rs. 1,83,93,480/- as capital expenditure and added back to the income of the assessee. 108. The Assessing Officer further observed that since, the department is treating this transaction as purchase, the depreciation on the same could be allowed provided assessee accepts the departmental stand and makes a claim of depreciation. The same would be allowed u/s 154, promptly. 109. On the other hand, the ld. Departmental Representative relied on the orders of the lower authorities. 110. We have heard the rival submissions and perused the orders of the lowe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....8 2 Paid to Sanjeev Toward Flight Exp Bills 4,10,606/- 17 to 19.03.2009 113. The assessee was required to prove the genuineness of journey and complete details of clients with whom the meeting was held and the transactions entered into. The assessee furnished written reply, which is as under:- "Hiring charges of Helicopter from Dehradun-Delhi- Rs. 240833/-Please find attached the bill as Annexure-5. Please note that these expenses have been incurred towards hire charges for visit to customers site in U.P. Various payments to Sanjeev Totaling Rs. 3,90,906/- in various dates between 16 March, to 19th March, 2009 - Please note that Mr. Sanjeev is a cashier and these payments have been made to Mr. Sanjeev for reimbursement of various petty cash expenses incurred by the pilots during flights like statutory payment of duties, hotel bills, fooding bills, charges paid to Air India, Medical Kit etc. Please find attached the sample copies of bills as Annexure-ii." 114. The Assessing Officer observed that the reply of the assessee has been considered carefully and is found to be not tenable. The assessee could not furnish complete details of clients and tra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee, by furnishing requisite invoice for Delhi - Dehradun - Delhi travel and copy of sample invoices in respect of reimbursements made by Sanjeev which is placed at Page No. 603-606 and 607-610 of Paper book Vol. 2. When the evidences, invoices and vouchers have been duly submitted, there was no reason to disallow this expenditure specially considering the fact that the Assessee has been able to support this claim with enough material on record and the Assessing Officer had only made an ad hoc disallowance. Thus, the Assessing Officer be directed to delete this addition. 119. The ld. Departmental Representative relied on the orders of the lower authorities. 120. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The AO disallowed Rs. 6,34,582/- out of expenses claimed by the assessee under the head Aircraft expenses. The said disallowance is comprised of two elements namely Rs. 2,23,606/- for helicopter hire charges for visits on Delhi to Dehradun and Rs. 4,10,606/- for reimbursement of miscellaneous expenses incurred by pilot like payment of statutory duties and hotel charges etc. The AO disallowed helicopt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essing Officer observed that from the perusal of the Profit & Loss Account filed alongwith the return, it was noticed that the assessee claimed foreign travelling expenses of Rs. 8,87,25,778/-. From the examination of the said details, it was noticed that the assessee has debited of Rs. 38,48,859/- on account of Plane hire on 22.07.2008. On being required to explain as to how the expenses were incidental to business, the assessee's counsel replied that that plane hire charges of Rs. 38,48,859/- were incurred by the assessee for exploring raw material from Mines at overseas location at Bolivia. 123. Further besides the above, the assessee has claimed other expenses on account of journey performed by the Directors and other employees as detailed below:- 17.07.2008 Air ticket bill of Sh. Rana & Family Rs. 970958/- 19.11.2008 Foreign expense, Singapore Rs. 353464/- 23.07.2008 Sh. Naveen Jindal Rs. 992549/- 124. These are only some of the instances. The assessee could not furnish the copies of the Tickets and bill issued by the travelling agent on the ground that the same are not traceable. Accordingly, the assessee was specifically....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Aluminum Corporation of India Ltd. Vs CIT 86 ITR 11, wherein, it was held that for allowing any expenditure there must be commercial expediency. In view of the above discussion, it is clear that - firstly these are personal expenses, which remain to be verifiable in the absence of any bills and vouchers and secondly the tour expenses are not in any way incidental to business of the assessee and hence these are not at all allowable. 128. Keeping in view, the above facts and circumstances of the case, a sum of Rs. 61,65,830/- was proposed to be disallowed out of foreign traveling expenses being not incurred wholly and exclusively for business purposes. 129. The D.R.P. rejected the objections observing that the foreign travel expenses for Rs. 61,65,830/- comprised of Air tickets of Sri Rana & Family, Airfare for exploring raw material, visits to Singapore and traveling expenses of Sri Naveen Jindal, MD. However, the details of the correspondences, prior to undertaking the missions abroad, itineraries, details of meetings, negotiations, and outcomes of all such meetings were not made available. 130. Hence, the AO disallowed sum of Rs. 61,65,830/- and added back to the incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o submitted that the entire travelling expenses were incurred for various business purposes, including meeting with customers, vendors, procurement of goods and services, market research conclaves, seminars, etc. and on account of commercial expediency. There is no discussion in the assessment order in relation to reasoning of disallowance of travelling expenses claimed by the Assessee, nor is there any discussion on the voluminous documents submitted by the Assessee. 136. It was submitted that, in the following decision the Courts/Tribunals have held that expenses incurred in relation to setting up of a new unit by an existing business is allowable deduction if the new unit constitutes the same business. Setabganj Sugar Mills Ltd. Vs. CIT: 41 ITR 272 (SC) CIT Vs. Prithvi Insurance Co. Ltd. : 63 ITR 632 (SC) L.M.Chhabda & Sons Vs. CIT: 65 ITR 639 (SC) Produce Exchange Corporation Ltd. Vs. CIT: 77 ITR 739 (SC) B .R.Ltd. Vs. V.P.Gupta CIT Bombay: 113 ITR 647 (SC) Veecumsees Vs. CIT 220 ITR 185 (SC) DCIT, Baroda Vs. Gujarat Alkialier & Chemicals Pvt. Ltd.: 299 ITR 85 (SC) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the orders of the lower authorities and materials available on record. We find that the AO has disallowed Rs. 61,65,830/- out of Foreign travel expenses mainly on the ground that the purpose of the related travel was not furnished and therefore the commercial expediency of the said expenditure was not established. On the other hand the assessee has filed copies of invoices and details of expenses at page nos. 611 to 670 of volume 2 of the paper book and contended that these documents were filed before the AO to show business connection of the expenditure in question. However, the AO has not considered the same. The Ld. DR could not controvert the above submission of the assessee. In the circumstances in our considered opinion it shall be in the interest of the justice to restore this issue back to the file of the AO for adjudication afresh after taking into consideration the said documents by passing a speaking order. Needless to mention that the AO shall allow reasonable opportunity of hearing to the assessee before adjudicating the issue afresh. Therefore, the ground no. 11 of the appeal is allowed for statistical purposes 143. Ground No. 12 of the appeal of the assessee rea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,026/-, Gifts for guests, Diwali gifts for VIP's, Fire work done, Diwali gifts from anop Chand Jewellers, Diwali gifts from Mishri Lai Chand, Diwali gifts (sweets & Watch) - Please note that these are all Diwali gifts which are given to Bankers, customers, suppliers, employees and various other stake holders in the company etc. on the occasion of Diwali." Gifts for Press reporters - Various press conferences need to be held and these are customary gifts given to all news agencies which attend press conference." 146. The Assessing Officer observed that reply of the assessee has been considered carefully and is not tenable. The assessee could not furnish the necessary details like complete narration of these expenses, details of beneficiaries. The assessee could not furnish the name and addresses of the person to whom the gifts were distributed. The assessee's factory premises are located at Raipur and Raigarh. The Registered Office of the assessee is situated at Hisar and Delhi. The shooting range is being set up at Sonepat. So-the business utility of setting up shooting range at Sonepat is not established. The assessee could not prove the genuineness of these ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....buted to the attendees, costs of which were claimed as business promotion expenses. 152. On the other hand, the ld. Departmental Representative relied on the orders of the lower authorities. 153. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The AO on verification of sale promotion expenses found that expenditure to the tune of Rs. 77,33,850/- was not for the purposes of the business. Therefore he disallowed the same. We find that Rs. 21,66,605/- was incurred for making gift to bankers customers ,etc. on the occasion of festival of diwali. Such expenditure were incurred to build relationship with business associate for promotion of business. Similarly customary gifts to press reporters attending the business press conference of the assessee was incurred out of commercial expediency. Keeping in view the volume of business of the assessee diwali gift of Rs. 21,66,605/- and gift of Rs. 87,400/- to the press reporters can be held to have incurred out of commercial expediency. In respect of expense of Rs. 2,66,373/- incurred for civil construction of shooting range and shooting equipment it is observed that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g that the interest charged by the appellant at 8% p.a. is higher than the interest charged by banks on external commercial borrowings from the appellant in a range of I.63%-3.72% and the transaction of receipt of interest is to be considered being at arm's length rate. 13.5 That the assessing officer/TPO erred on facts and in law in disregarding the fact that the loan was advanced by the appellant to its associated enterprise in foreign denominated currency and accordingly, loan available in the international market with interest rate computed considering Libor rates shall he applied for benchmarking. 13.6 That the assessing officer/TPO erred on facts and in law in considering the average Prime Lending Rate of SBI as the arms length rate of interest without appreciating that such rate is applicable on loans availed in India in domestic currency. 13.7 That the assessing officer/TPO erred on facts and in law in not appreciating that the credit of the appellant is `AA+' and since the associated enterprise is a wholly, owned subsidiary of appellant, the same credit rating shall apply to its associated enterprise also. 13.8 That the assessing off....
X X X X Extracts X X X X
X X X X Extracts X X X X
....- is directed to be made. 157. The TPO calculated arm's length price of the interest @ 16% per annum as under: Name of the AE Loan amt. Rate of interest charged Arm's Length rate of interest Amount of interest charged Arm's Length amt. of interest Shortfall being adjustment u/s 92CA Jindal Steel & Power (Mauritius) Ltd. 4140706500 8% 16% 181645581 363291162 181645581 Jindal Minerals & Metals Africa Ltd. 462131785 8% 16% 28994334 57988668 28994334 158. Hence, the Arm's Length/value of interest receivable on loans outstanding in the name of AE's determined at Rs. 42,12,79,830/- against Rs. 21,06,39,195/- received by the assessee. 159. The DRP has held that considering the facts of the case, the TPO has held that the interest rate of 16% p.a. is considered as reasonable in this case. The TPO has applied the CUP method to determine the arm's length price of transaction of provision of loan by the assessee to its AE. The average PLR of the SBI during the financial year 2008-09 was 12.75%. Applying a markup of 325 basis points, the TPO has adopted the rea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lant for determining the arms length price of interest on loan applying CUP method and instead computed the rate of interest of 11.33% p.a. on the basis of average Prime Lending Rate of interest offered by State Bank of India. The TPO further, added a markup of 395 bps on account of adjustment for security and transaction cost, on the PLR of SBI. The TPO accordingly applied the rate of 16% and computed an adjustment of Rs. 21,06,39,195/-. 165. The Authorized Representative of the assessee submitted that Rule 10B(1)(a) of the Income-tax Rules provides that Comparable Uncontrolled Price Method compares the price charged for property or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction in comparable circumstances. 166. Generally, internal comparables available in case of an Appellant are to be preferred for the purpose of benchmarking of international transactions even in the case where any of the prescribed method is applied, instead of relying on external comparables, as provided in Paragraph 3.26 of the OECD Guidelines. The revised OECD Transfer Pricing Guidelines issued on 22nd ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... from 1.63% to 3.72% p.a. 169. The TPO, however, disregarded such internal CUP provided by the Appellant by way of ECB loans. It is submitted that the TPO did not appreciate that the Appellant has also taken ECB loan on 15.12.2005, 19.06.2006 and 26.03.2007 for a cumulative sum of USD 170 million and JPY 12184 million at the rate of interest ranging from 1.63% to 3.72% p.a.. No reason, whatsoever has been given by the TPO for disregarding the internal CUP applied by the Appellant. 170. The Hon'ble Delhi High Court in case of Sony Ericsson Mobile Communications India (P.) Ltd. vs. CIT (374 ITR 118 (Del)) has held that an internal comparable is more dependable and reliable and is to be used, when data for the same is available. 171. It was argued that the Appellant has, though justified the said international transaction of receipt of interest on the aforesaid loan of USD 8,12,70,000 to Jindal Steel & Power (Mauritius) Limited and USD 90,70,300 to Jindal Minerals & Metals Africa Ltd by way of interest paid on ECBs taken from various banks, internationally the external commercial borrowings are available at much lower rate which are charged with reference to the London Inter ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cing guidelines issued on 22.07.2010 internal comparable data for benchmarking analysis should be preferred over external benchmark. The issue was decided by the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P.) Ltd. Vs CIT reported in 374 ITR 118 (Del.) that internal comparable was more dependable and reliable and should be used where data for the same is available. Further, the Hon'ble High Court in the case of CIT Vs Cotton Naturals I. P. Ld. Reported in 276 CTR 445 (Del.) held that PLR rate was not applicable and LIBOR rate was to be applied when the loan was in foreign currency. Hence, the TPO/AO was not justified in applying PLR rate of State Bank of India in determining the ALP of foreign currency loan given by the assessee to its two Associated Enterprises. Further, the Chennai Bench of Tribunal in the case of Siva Industries and Holdings Ltd. Vs ACIT in ITA No. 2148/MDS./2018 held that once the transaction between the appellant and the Associated Enterprises was in foreign currency and was an international transaction than it should be looked upon by applying commercial principle in regard to international transaction. It was argued tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cast upon a shareholder, being the holding company, and not a service rendered to the AE. 14.3 That the assessing officer/TPO erred on facts and in law in not appreciating that corporate guarantee issued by the assessee was purely on the commercial consideration in anticipation of significant benefit in the form of profit income in the later years. 14.4 Without prejudice, the assessing officer/TPO erred on facts and in law in not appreciating that the appellant has himself paid commission at the rate of 0.125% p.a. on bank guarantee issued by Yes Bank, and accordingly without prejudice, the adjustment proposed on this account shall be restricted to 0.125% p.a. applying CUP method. 14.5 Without prejudice, the assessing officer/TPO erred on facts and in law in charging a markup of 200 bps on the average rate of commission charged by various banks on account of adjustment for lending business risk and single customer1 risk without providing cogent reasons and on the basis of conjecture and surmises. 14.6 That the DRP erred on facts and in law in summarily upholding the Transfer Pricing adjustment made by the TPO in the order passed under section 92....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n lieu of its commitment for performing the tender taken. It is the case of the Assessee that it has extended this support in capacity of a shareholder's activity as the subsidiaries are strategic investment. Further, corporate guarantee has been provided to guard its investment in the group companies for various business and economic reasons. It is to safeguard its own interest. The Appellant was awarded the contract by the Government of Bolivia and hence it is the Appellant's own obligation which is only being executed via Jindal Steel, Bolivia. 185. The Appellant did not incur any costs/expenses on account of issue of such guarantees and accordingly, took the view that it is not an international transaction in terms of Section 92B(1) of the Income Tax Act. The TPO in his order, however, has rejected this holding that the Appellant and the AEs are separate legal entity and accordingly, the transaction of issue of performance guarantee is required to be demonstrated to be at arm's length price. The TPO imputed notional commission income at the rate of 2.71% p.a. plus a mark-up of 200 basis points on the basis of data obtained from State Bank of India u/s 133(6) of the Act, hold....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Soft Ltd. Vs. DCIT ITA No. 1903/Hyd/11 Hyderabad ITAT 267 - 288 of the TP CLC 7. Reliance Industries Ltd. Vs. Addl. CIT ITA No.885/Mum/2009 Mumbai ITAT 289 - 370 of the TP CLC 8. Micro Ink Ltd Vs. ACIT ITA 2873/Ahd/10 Ahmadaba d ITAT 371 - 430 of the TP CLC (relevant pg. 387-419) 9. Manugraph India Ltd. Vs. DCIT I.T.A. No.2631/Mum/2015 Mumbai ITAT 431 - 486 of the TP CLC (relevant pg. 444) 190. In view of the aforesaid, it is submitted that the transaction of issue of corporate guarantee is not required to be benchmarked under section 92(1) of the Income Tax Act and hence, notional income proposed to be imputed is liable to be dropped. 191. Further, Guarantee provided by the Appellant was part of the procedural compliance for availing the banking facilities i.e. loan by the subsidiaries and was given by Appellant for its own commercial expediency and for the overall benefit of the Appellant and the group. The corporate guarantee was provided by the Appellant as it is having shareholding interest in the subsidiaries. Reliance was placed on the following case laws: Marico Ltd. vs. ACIT ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o be regarded as a shareholder activity which is enjoyed by the AEs just being a part of the group. Hence, the question of determining an arm's length price does not arise. As a business practice, guarantees to subsidiaries formed especially for purposes of acquisition or holding investments are typically provided by the parent company as part of the shareholder activity. 198. The Appellant has provided guarantees to its AEs only to provide assurance and comfort to the third parties, it is in the ordinary course of business. Shareholders sometimes have to make commitments to regulatory authorities with respect to the health of an affiliate in order to get permission to acquire an affiliate. In these cases, it seems reasonable to conclude that the guarantee confers no real benefit on the affiliate; rather, the shareholder is the true beneficiary because the guarantee enables it to acquire its investment. It is incidental to the parent's participation as a shareholder in the subsidiary. In the present case, pursuant to the obligation of the Appellant, as the awardee of the tender, to perform in accordance with the tender, the guarantee was given and hence the AE cannot be charged ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....17] 88 taxmann.com 264 (Jaipur - Trib.) 204. Without prejudice to our arguments, it was submitted that the said transaction of corporate guarantee cannot be benchmarked separately and the corporate guarantee provided by the Appellant is different from the bank guarantee provided by other banks, it is submitted that the Appellant has paid bank guarantee fees at a much lower rate of 0.10%-0.125% p.a. to Yes Bank Limited on issue of foreign guarantee. 205. The TPO in the impugned order has allegedly added an ad-hoc markup of 200 bps on the average rate of commission of 2.71% p.a. charged by various banks as per information sought under section 133(6). 206. Since, the TPO has considered the highest rate of commission that would have been charged by the bank from a company having BBB or unrated rating, the credit risk has already been factored in such rates. Further, since the TPO has considered the highest rate of commission charged by the banks without taking into account the credit worthiness and market reputation of the Appellant, a markup on account of risk adjustment is unwarranted and liable to be reduced from the arms length rate of interest so determined. 207. Furth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e views on the matter and so long as there is no binding decision of any other Higher Forum taking a contrary view, the one which is favourable to the assessee has to be adopted even though other Benches have taken a different view. We, therefore, hold that the Explanation to Section 92B cannot be applied retrospectively and for the years under consideration the assessee having not incurred any costs in providing corporate guarantee it would not constitute "International Transaction" within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect." 210. Similar finding was given in the case of Rusabh Diamonds vs. ACIT ([2016] 68 taxmann.com 141 (Mumbai - Trib.)) wherein it was held as follows:- "38. Well, if the 2012 amendment does not add anything or expand the scope of international transaction defined under section 92B, assuming that it indeed does not- as learned Departmental Representative contends, this provision has already been judicially interpreted, and the matter rests there unless it is reversed by a higher judicial forum. However, if the 2012 amendment does increase the scope of international transaction under s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 92B which increases the scope of international transaction, has to be necessarily treated as effective prospectively from the assessment year 2013-14 though stated to be clarifcatory and stated to be effective from 1st April 2002. We have also gone through other Coordinate Bench decisions in case of Gitanjali Exports Corporation (supra) and Siro Clinpharm Private limited (supra) where similar view has been taken. The decision of Hon'ble Bombay High Court in case of Patni Computer Systems Ltd. has been rightly analysed by the Coordinate Bench in Rushabh Diamonds (supra) and it was held that "rather than answering this question on merits, and with the consent of both the parties, Their Lordships sent the matter back for fresh consideration of the Tribunal" and to this extent, the decision of the Coordinate Bench in case of Ameriprise India Pvt Ltd which has equally relied on the said decision of the Bombay High Court is distinguishable. In light of the same, following the decision of the Coordinate Bench in Rushabh Diamonds and in absence of any contrary higher authority on the subject, we agree with the contention raised by the ld. AR that such amendment by way of an explana....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the Explanation to Section 92B cannot be applied retrospectively and for the years under consideration the assessee having not incurred any costs in providing corporate guarantee it would not constitute "International Transaction" within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect." 214. Further, the Mumbai Bench of the Tribunal in the case of Rusabh Diamonds vs. ACIT ([2016] 68 taxmann.com 141 has held as follows:- "38. Well, if the 2012 amendment does not add anything or expand the scope of international transaction defined under section 92B, assuming that it indeed does not- as learned Departmental Representative contends, this provision has already been judicially interpreted, and the matter rests there unless it is reversed by a higher judicial forum. However, if the 2012 amendment does increase the scope of international transaction under section 92B, as is our considered view, there is no way it could be implemented for the period prior to this law coming on the statute i.e. 28th May 2012. The law is well settled. It does not expect anyone to perform an impossibility. Reiterating this settled legal pos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oordinate Bench decisions in case of Gitanjali Exports Corporation (supra) and Siro Clinpharm Private limited (supra) where similar view has been taken. The decision of Hon'ble Bombay High Court in case of Patni Computer Systems Ltd. has been rightly analysed by the Coordinate Bench in Rushabh Diamonds (supra) and it was held that "rather than answering this question on merits, and with the consent of both the parties, Their Lordships sent the matter back for fresh consideration of the Tribunal" and to this extent, the decision of the Coordinate Bench in case of Ameriprise India Pvt Ltd which has equally relied on the said decision of the Bombay High Court is distinguishable. In light of the same, following the decision of the Coordinate Bench in Rushabh Diamonds and in absence of any contrary higher authority on the subject, we agree with the contention raised by the ld. AR that such amendment by way of an explanation to section 92B is an amendment to a substantive law as it has resulted in enhancement of the scope of international transactions as envisaged u/s 92B of the Act. Accordingly, the subject transaction if at all, it has to be considered as an international ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve held above, it has to be considered as an international transaction from AY 2013-14 onwards and for the years under consideration being AY 200708, 2008-09 and 2009-10, the same will thus not qualify as an international transaction." 217. Respectfully, following the decisions quoted above we hold has held that the amendment made to Section 92B by the Finance Act 2012 is prospective in operation and accordingly applicable in the Assessment Year 2013-14 and subsequent years, and not applicable in the impugned assessment year which is the Assessment Year 2009-10. We, therefore, hold that the issuance of corporate guarantee cannot be considered as an international transaction for the year under consideration. Therefore, the addition made of Rs. 2,16,00,060/- is deleted. Thus, this ground of appeal of the assessee is allowed. 218. Ground No. 15 of the appeal of the assessee reads as under: "15. That the Assessing Officer/DRP erred on facts and in law in not allowing MAT credit under Section 115JAA of the Act. 219. We have heard the rival submission and perused the orders of the lower authorities and materials available on record. The Ld. AR of the assessee claimed th....