AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (10) TMI 827
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....bruary. 2021) passed by the learned Commissioner of Income-tax (Appeals) 57, Mumbai (hereinafter referred to as the 'learned CIT(A)'] under section 250(6) of the Income-tax Act, 1961 ('the Act'), the present appeal is being preferred on the following grounds which, it is prayed, may be considered without prejudice to one another. On the facts and in the circumstances of the case and in law, the learned CIT(A) Disallowance u/s 14A 1. erred in directing the AO to compute the disallowance under section 14A of the Act, by invoking the provisions of Rule 8D of the Income tax Rules, while computing income under normal provisions of the Act without recording any satisfaction for rejection of the disallowance computed by the appellant under section 14A of the Act. 2. erred in directing to make the disallowance u/s 14A being higher of 0.5% of average value of investments which have yielded exempt income during the year or expenses disallowed by the assessee. 3. erred in directing the AO to compute the disallowance under clause (f) of Exp 1 to section 115JB(2) i.e. expenditure relating to exempt income, when no such disallowance ought to have been....
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....ot 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. 10. 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. Interest chargeable on share application money refunded by the Associated Enterprise(AE) Reliance Industries Middle-East DMCC 11. erred in determining the arm's length price (ALP) of interest chargeable in respect of share application money refunded by the AE at INR 50,02,095. 12. erred in re-characterizing the transaction as being in the nature of loan financing on which interest is chargeable without appreciating that the amounts were refunded within 91 days due to business considerations. 13. failed to appreciate that the provision....
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.... dated 08/03/2022, for assessment years 2014-15 and 2015-16. The relevant findings of the coordinate bench of the Tribunal in aforesaid decision, are as under: "16. So far as the additional ground of appeal is concerned, we find that this grievance is ill-conceived inasmuch as, at page 58 of the assessment order, the Assessing Officer has specifically observed that "since the assessee has not correctly apportioned any expenses as having been incurred for earning this exempt income, I am not satisfied with regard to correctness of the claim of expenditure made by the assessee, and, accordingly, provisions of rule 8D of the Income Tax Rules are being invoked". It cannot, therefore, be said that the Assessing Officer has proceeded to make the disallowance under section 14A r.w.r 8D without recording satisfaction for rejection of the disallowance computed by the assessee"." 6. The learned Authorised Representative ('learned AR') could not show us any reason to deviate from the aforesaid decision rendered in assessee's own case and no change in facts and law was alleged in the relevant assessment year. Thus, respectfully following the judicial precedent in assessee's own cas....
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....A of the Act. 10. We find that this issue is recurring in nature and was considered in assessee's own case for assessment years 2014-15 and 2015-16, wherein following judicial precedent, the coordinate bench of the Tribunal, vide order dated 08/03/2022, observed as under: "24. We find that in the immediately preceding assessment year in assessee‟s own case, a coordinate bench has decided this issue in favour of the assessee, and observed as follows: 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 iss....
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....'s own case, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, ground No. 4 raised in assessee's appeal is dismissed. 15. The issue arising in ground No. 5, raised in assessee's appeal, is pertaining to addition on account of interest on income tax refund to the book profit of the assessee under section 115JB of the Act. 16. The brief facts pertaining to this issue are: For the year under consideration, assessee in its return has offered interest income on income tax refund of Rs. 266,45,06,765, following the Special Bench decision in Avada Trading Company (P) Ltd vs ACIT (100 ITD 131). The interest income on income tax refund was revised to Rs. 265,38,24,122 due to orders passed subsequently. During the course of assessment proceedings, the assessee was asked to show cause as to why interest on income tax refund ought not to be added to book profit under section 115 JB of the Act. In reply, assessee submitted that there was no certainty with the quantum of interest on income tax refund, as the assessee as well as Department are in appeal on multiple issues before appellate forums, thus no finality has been obtained with respe....
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....applicable in this case as the assessee has not reflected the aforesaid information in the profit and loss account as well as in its annual accounts. 20. We have considered the submission of both sides and perused the material available on record. During the year under consideration, the assessee has received interest of Rs. 266,45,06,765 on income tax refund which has been reduced from advance Income Tax shown under the head 'loans and advances'. While filing the return of income, the said interest has been offered to tax under the normal provisions of the Act. Interest on income tax refund was revised to Rs. 265,38,24,122 due to orders passed subsequently and same was assessed to tax under the normal provisions of the Act. However, since the said interest was not routed through the profit and loss account, the same was not offered to tax under section 115 JB of the Act. As per the assessee since corresponding appeals, relating to the income tax refunds on which interest has been received, are pending at different forums, therefore, there is no finality as to the assessed income of the assessee. Thus, interest on income tax refund is not crystallised and accordingly the same wa....
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....o go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J." 23. In view of the above, once assessee's accounts have been maintained in accordance with Companies Act and the same have also been scrutinised and audited by the statutory auditor, in absence of any material to negate these facts, the AO has limited power under section 115 JB of the Act to make adjustment to book profit only in respect of the items provided in Explanation 1 to section 115 JB (1) of the Act. As regards the submission of learned DR that the information regarding interest on income tax refund being not included in the profit and loss account has not been disclosed by the assessee in its annual accounts and thus could not be said to be approved in the AGM or filed with the ROC and other statutory authorities, we find that no evidence has brought on record to the effect that because of such non-disclosure the accounts of the assessee were not maintained as per the provisions of Companies Act and other relevant rules and regulations. Further, no such objection by the statutory auditor or ROC or other statutory authority has been brought ....
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....ce and allotment with reference to the aforesaid AE are as under: Date of remittance Amount invested in USD Amount invested in INR Date of allotment of shares 28/12/2015 10,00,00,000 6,61,24,60,000 30/03/2016 09/02/2016 23,00,00,000 15,55,89,02,000 30/03/2016 25/02/2016 3,50,000 2,31,89,250 19/09/2016 21/03/2016 6,67,50,000 4,42,25,21,250 19/09/2016 29. As per the assessee, excess share application money of Rs. 45,76,26,069 out of the remittance made on 21/03/2016 of Rs. 4,42,25,21,250, was refunded to the assessee in July 2016. It is only in respect of this part share application money, which was returned by the AE without issuance of preference shares, the learned CIT(A) has upheld the levy of interest. Since, the assessee has remitted the share application money to AE in UAE, reliance has been placed upon Master Direction No. 15/2015 - 16 dated 01/01/2016, issued by Reserve Bank of India on 'Direct Investment by Residents in Joint Venture/Wholly-Owned Subsidiary abroad'. From the perusal of aforesaid Master Direction issued by RBI, it is evident that direct investments by residents in joint venture and wholly-owned s....
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....A) erred in restricting the disallowance u/s 14A of the Act to the amount disallowed by the assessee for the purpose of income u/s 115JB of the Act? - Rs.151,95,12,126/- 3. Whether, on the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in deleting the disallowance of Rs. 595,00,438/- incurred by the assessee on aborted blocks of other contract areas under Production Sharing contracts other than KGD? - Rs.2,05,91,912/- 3.1 Whether, on the facts and in the circumstances of the case and in law, the Id CIT(A) erred in not accepting the decision of AO that "Mineral Oil" does not include "Natural Gas and condensate" for the purpose of claiming deduction under section 801B(9)(ii). - Nil 3.2 Whether, on the facts and in the circumstances of the case and in law, the Id.CIT(A) erred in not accepting the decision of AO to restrict the deduction u/s 80IB(9)(ii) to the extent of ratio of production of oil. - Nil 4. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing AO to grant deduction u/s 10AA with reference to profits and gains as determined by Hon'ble Supreme court in the ca....
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.... Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the of capital loss by stating that General Anti Avoidance provisions are not applicable for the assessment year under consideration without appreciating that the TPO has looked through the form of the transaction and has brought on record adequate facts for the current year to demonstrate the true substance of the transaction which is permitted under transfer pricing u's 92F(ii) to unveil the transaction under the prism of unrelated parties under uncontrolled conditions, BEPS Action 8 to 10 and various case-laws including the one stated in ground 2.30 above?(Included in 7) 7.4 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the following sufficient and adequate vital facts brought on record in the TP order of the impugned year (which are more fully stated in the grounds under 2 above) to hold that the transaction of preference shares with the AEs RGBV and RIME is sham to recharacterize the transaction as loan transaction and therefore the capital loss arising out of the said transaction is not allowable?: (Included in 7....
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....clearly held by the Tribunal that recharacterisation is possible when the transaction is sham or substantially at variance with the stated form, and there are enough pointers as detailed above for the impugned year to show that the transaction is loan which is substantially at variance with the stated form of preference share and so, the capital loss claimed by the assessee is not allowable." - (Included in 7) 8. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the TP adjustment of Rs. 13,20,48386/- in respect of debts receivable from the AEs made by the TPO, based on earlier years decisions which is in violation of Rule 10B(4) on contemporaneous nature of comparable data, as interest rate vary every year? (Included in 7) 8.1 Whether on the facts and circumstances of the case and in law, Ld. CIT(A) is correct in not considering the cost of borrowing for the assessee adopted by the TPO to benchmark the interest chargeable on receivables, and in holding that ad-hoc 1 month Libor plus spread of 200 bps as adopted by the assessee is correct, and also holding that interest as in offer letters for short term loans from....
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....echaracterised so? (Included in 7) 9.4 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the TP adjustment being interest on investment in the nature of debt capital (loan) in substance termed by the assessee as "preference stock of AEs, by relying on the decision of earlier years which in turn relied on the decision of Hon'ble Bombay High Court in case of M/s Aegis Ltd. (ITA No. 1248 of 2106) holding that recharacterisation of subscription amount as loan is not permitted, without appreciating the difference in the facts of the case and ignoring following vital exceptional facts and circumstances in the instant case? (Included in 7) 9.5 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the vital fact that though the said investment is stated to be compulsorily convertible preference shares the assessee said to have redeemed 50 crore number of such shares or 16.04.2013, 183.27 crore number of such shares on 06.06.2014 and 27.66 crore number of such shares on 28.10.2014 at the same face value at 0.01 euro per share without any arm's length return from the AE RGBV, p....
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.... to India, casting severe doubts on the nature of entire investment, which is otherwise an interest free loan? (Included in 7) 9.10 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the fact that the AE RGBV incurred losses from FY 2013-14 onwards and there is no rationale for making investments to the level of Rs.222,66,88,853/- (2,62,13,30,100 number of the said preference shares), that too, at the fag end of the FY 2013-14 knowing fully well that the AE is incurring losses and there is no possibility of getting any return as the stipulated 5% coupon rate, which no unrelated party in uncontrolled circumstances would have done within the meaning of section 92F(ii)? (Included in 7) 9.11 Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in ignoring the fact that the AE RIME has been making losses continuously from calendar year 2010 to 2014 and though its net worth is negative, the assessee has shown to have invested in the said preference shares, which is not an arm's length behavior, which no unrelated party would have done so looking from the angle section 92F(ii)? (Included in....
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....ing company from calendar year 2010 to 2015, assessee booking huge loss of Rs.113.3cr under the head capital gains for the impugned AY 2016-17, and the source for the continuously loss making AE RIME to the said purchase was again flowing from alleged preference share investment of assessee into RIME, thus what is essentially a loan transaction was projected as share transaction leading to base erosion to India, raising huge questions as to which continuously loss making company would buy the shares of another wound-up company on the date of winding-up, which clearly shows that the alleged preference share transaction is a sham one with a motive of avoiding taxation of interest, as the real nature of the transaction is interest free loan? - (Included in 7) 9.17 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in not appreciating the sham nature of the nomenclature and form of the transaction "compulsorily convertible preference share", when the investment was redeemed losing the significance of "compulsorily convertible"; never ever been convert into equity shares at any point of time further losing its nature; and never ever received....
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....the transaction to arrive at the decision that the investment is quasi-equity in nature whereas in substance it is "loan" in nature and that the "form" of investment in preference shares was used to avoid taxation of interest leading to base erosion in India? (Included in 7) 9.24 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is right in ignoring the amendment by way of Explanation (i)(c) inserted by Finance Act 2102, with retrospective effect from 1.4.2002 whereby the capital investment could be covered as an international transaction under "capital financing" and such transaction would yield accrued interest which is "income for the purposes of section 92(1), so as to be dealt under Chapter X of the Income tax Act? (Included in 7) 9.25 Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in ignoring the essential character of the transaction is "loan" in "substance" which the assessee camouflages as "preference share' in order to avoid tax liability on the interest that accrues coupled with the base erosion in India by shifting of huge amount of Rs.3163 crores (Rs 2746 crores in the case of RIME & Rs ....
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....he decision of the Hon'ble High Court in the case of Vodafone India Service P. Ltd (Writ Petition No. 871 of 2014), as the decision held that the shortfall or excess in investment is capital in nature and so cannot be added as income, whereas in the instant case capital itself has not been considered for adjustment and that the capital was considered as loan and only the accrued interest has been considered as the income? (Included in 7) 9.31 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the order of the Hon'ble Tribunal in assessee's own case for AY 2010-11 while relying on it, in which it has been held recharacterisation is possible when the transaction is sham or substantially at variance with the stated form, and ignoring that there are enough pointers as detailed in the above grounds for the impugned year to show that the transaction is loan which is substantially at variance with the stated form of preference share? (Included in 7) 9.32 Whether, on the facts and circumstances of the case and in law, the and order of the Ld. CIT(A) is not bad in law in not realizing that Hon'ble Supreme Court in t....
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....st the agreement with Kurdish government would only serve as evidence for cost incurred and it could not be read into much for ALP determination in the absence of any binding Bilateral Treaty between India and Iraq? (Included in 7) 10.4 Whether on the facts and circumstances of the case an in law, the Ld. Included in 7 CIT(A) is correct in holding that the transaction is covered under rule 10B(2)(d) in the absence of any laws and Government orders in force and equating an agreement between the AE and the regional government for incurring of cost with law or government order in force' for ALP of the transaction to be determined in the hands of the Indian assessee as per Indian Income tax Act? (Included in 7) 10.5 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in accepting the cost-to-cost basis of support services to the AE, without understanding the basic tenet of the transfer pricing u/s 92F(ii) that no unrelated assessee in uncontrolled circumstances in third party situation would have rendered services on cost-to-cost basis, leading to base erosion in India? (Included in 7) 10.6 Whether on the facts and circums....
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....merely relying on the CIT(A)'s orders for AY 2014-15 and AY 2015-16 and Hon. ITAT's order for AY 2011-12 to AY 2013-14 which in turn relied on the ITAT order for AYS 2005-06 to 2009-10 in the assessee's own case, which is violative of Rule 10B(4) on the need to have contemporaneous nature of the comparable data? (Included in 7) 11.1 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in relying on the orders of the Hon'ble ITAT for AYS 2005-06 to 2009-10, in which the assessee has not adopted Yield Spread Method(YSM), whereas for the impugned year the assessee has adopted YSM and the decisions of the Hon'ble ITAT for those AY's 2005-06 to 2009-10 are not based on YSM, which clearly shows that the CIT(A) has not verified the YSM adopted by the assessee? (Included in 7) 11.2 Whether on the facts and circumstances of the case and in law, Ld. CIT(A) is correct in contradicting himself in stating in one place that he accepted the yield spread method as followed by assessee and at another place relying on the Hon'ble ITAT's decision for a y 2005 2006 to 2009-2010 wherein assessee followed CUP method, which again clearly shows that the....
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....orrect in accepting the benchmarking done by the assessee using the indicative rates obtained from only two banks the CITI Bank and Barclays Bank PLC and applying them to all the AEs located in various geographies across board, which does not represent a proper diversified dataset for quantification of guarantee commission and produces skewed and unreliable results and is violative of Rule 108(2)(d)? (Included in 7) 11.9 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in directing to restrict the TP adjustment of corporate guarantee fee in which the interest differential is split into 50:50 by the assessee as against the split of 60:40 charged by the TPO for the impugned year merely relying on the Tribunal and the CIT(A)'s order for earlier year in assessee's own case, which is violative of Rule 10B(4) on the need to be contemporaneous nature of the comparable data? (Included in 7) 11.10 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in restricting the rate ignoring the fact that the rate depends on various variables such as risk profile, credit profile, place of loan, time period & r....
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.... facts and circumstances of the case and in law, powers being coterminous, the CIT(A) is correct in not carrying out appropriate FAR analysis on his own, or getting it done by the TPO by remanding the case u/s 250(4) r.w.r. 46A and deciding the issue taking into account such remand report? (Included in 7) 11.18 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in passing a non-speaking order in as much as he held the split of 50:50 of interest differential is correct based on earlier years without adducing any reasons as to how the equal split between the assessee and the AEs would be correct, whereas it is anybody's knowledge that the huge assessee and the less creditworthy small AEs cannot be equated on any parameter? (Included in 7) 11.19 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in accepting the 50:50 split of interest differential based on earlier years orders of AY 2011-12 to AY 2015-16 without understanding the fact that the FAR analysis could vary year-on-year and passing order without depending on independent FAR analysis done for the impugned AY 2016-17? (Included in 7)....
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....rores only whereas segmental turnover of tested party is Rs 188 crores, overlooking the fact that non application of turnover filter will defeat the very purpose of benchmarking the transaction and also ignoring the decision of Hon'ble Karnataka high court in case of Acusis software India Private Limited (ITA No 223/2017) in this regard?" (Included in 7) 13. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the adjustment on inter-unit transfer of power of Rs. 113,76,65,177/- by merely placing reliance on the Hon. ITAT's order in the assessee's own case for AY 2013-14 which in turn placed reliance on the orders of earlier years from AY 2005-06 onwards wherein the assessee's claim for 80IA(8) was being approved by the Tribunal without appreciating that there is change in law from the impugned AY 2013-14 by way of insertion of section 92BA and amendment of 'market value' in the Explanation to section 801A(8)? 13.1 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the adjustment on inter-unit transfer of power of Rs. 113,76,65,177/- by merely placing reliance on the ....
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....ken as tested party for choosing the matching FAR comparable?: (Included in 7) (a) The object of section 801A is to quantify the profits and gains derived by an undertaking that is engaged in the eligible activity of power generation; (b) The SDT for which ALP is required to be determined is the 'supply of power by the eligible power generation unit only; (c) The method chosen to determine the ALP as well as the choice of tested party should be such as to arrive at the bes possible approximation of the profits of such eligible power generation unit only; (d) In view of the above, the power generating unit alone should be considered as the tested party and the FAR of the power generating unit which has a direct impact in the quantum of SDT, should be given precedence over the FAR of the power consuming unit for choosing the matching FAR comparable; (e) Only when the FAR of the power generating unit is tested against a comparable transaction having a similar FAR, will we be able to reach the correct profitability of the power generation activity; only then the object of section 801A will be achieved through the mechanism of TP provisions w....
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....ibutor by non-eligible unit of the assessee can by no means be the market rate at which the power plant of the assessee could have sold its production in the open market, especially considering the amendments in the Act from AY 2013-14? (Included in 7) 13.8 Whether on the facts and circumstances of the case and in law, the in Ld. CIT(A) is correct in not appreciating the fact that if the manufacturing (non-eligible) unit has to procure the electricity from the eligible units at the Power Distributor company's sale rates, what is the necessity for the assessee to establish its own Captive Power Plants(CPPs), as it could very well procure electricity from Power Distributor company itself? (Included in 7) 13.9 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the fact that when cost of production of electricity by CPPs is lesser, adoption of CPP's sale rat of electricity equal to the Power Distributor's sale rate notionally leads to more than ordinary profits to the eligible unit claiming deduction on the same and at the same time, it leads to lesser taxable profits in the hands of the non-eligible unit due t....
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.... the above grounds be set-aside and that of the Assessing Officer be restored." 33. The issue arising in ground No. 1, raised in Revenue's appeal, is pertaining to reducing the depreciation by reworking the claim of depreciation on the basis of earlier years. 34. The brief facts of the case pertaining to this issue are: The assessee had not claimed depreciation on certain assets till assessment year 2001-02. The AO by following the approach adopted in previous assessment years proceeded to recompute the written down value by thrusting depreciation for the period prior to 01/04/2002 and recomputed the admissible depreciation, for the year under consideration, by making consequential adjustments. Accordingly, the AO vide assessment order made an addition of Rs. 65,34,14,924 being difference in WDV as per working of the Department and working of the assessee. 35. The learned CIT(A), following the decisions of coordinate bench of the Tribunal in assessee's own case as well as its own predecessors, directed the AO to adopt the WDV of the assets as on 01/04/2015 on the basis of orders giving effect to the orders of CIT(A) of preceding years. Being aggrieved, the Revenue is in ap....
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....er passed by the learned CIT(A) on this issue. As a result, ground No. 1 raised in Revenue's appeal is dismissed. 38. The issue arising in ground No. 2, raised in assessee's appeal, is pertaining to computation of disallowance under section 14A read with Rule 8D(2)(iii) to 0.5% of average value of that investment which have yielded dividend during the year under consideration. 39. The brief facts of the case pertaining to this issue are: The learned CIT(A) vide impugned order directed the AO to recompute the disallowance @0.5% by taking average value of those investment which have yielded exempt income during the year under consideration or the expenses disallowed by assessee whichever is higher, while computing income under normal provisions. We find that the coordinate bench of the Tribunal in assessee's own case for assessment year 2014-15 and for 2015-16 cited supra, decided similar issue in favour of assessee by observing as under: "17. As regards the Assessing Officer‟s grievance that the learned CIT(A) has erred in directing the Assessing Officer to take into account only such investments as having yielded dividends during the year under consideration, w....
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....puting deduction under the said section the provisions of section 80 IA(5) were applicable, which provides that for the purposes of determining the quantum of deduction, the profits and gains of eligible business shall be computed as if such eligible business were the only source of income of the assessee. The assessee further submitted that as per Article 17.2.2 of the Production Sharing Contract, the assessee company as a whole was entitled to claim such expenses. Therefore, the claim in respect of the unsuccessful exploration cost incurred in contract area other than KGD 6 has been made in computation of income under section 42(1)(a) against the entire income of the assessee company while computing the business income. Accordingly, it was submitted that the unsuccessful exploration cost for the blocks was not to be reduced while working out profits and gains of the eligible undertaking i.e. contract area KGD 6. The AO vide assessment order did not agree with the submissions of the assessee and held that the argument of the assessee is completely against the express provisions of Production Sharing Contract and the Act. The AO further held that the deduction of the entire profits....
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.... 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 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) of the Act each contract area constituted an independent undertaking. Since the assessee had complied with the conditions specified u/s. 80IB(9) of the Act, it claimed deduction of the profits and gains of KGD undertaking u/s. 80-IB(9) of the Act. While computing the profits and gains of KGD undertaking for the purpose of claiming deduction under the section 80IB(9) of the Act, the provisions of section 80IA(5) are applicable, which provide that for the purposes of determining the quantum of deduction, the profits and gains of the eligible business shall be computed as if such eligible business were the only sourc....
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...., 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" while computing deduction u/s 80IB(9) of the Act. Hence, we are of the view that the decision rendered by Ld CIT(A) does not call for any interference and accordingly we uphold the same. Since facts are identical and it is not the case that above decision of ITAT has been reversed by Hon'ble Jurisdictional High Court, we uphold the order of learned CIT(A). 36. Respectfully following the views so expressed by the coordinate bench in assessee's own case, for the immediately preceding assessment year, we uphold the conclusions arrived at by the learned CIT(A) on this point as well, and decline to interfere in the matter." 45. Thus, respectfully following the aforesaid decision in assessee's own case, we find no infirmity in the findings of the learned CIT(....
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....luding Petroleum and gas, refining of petroleum products etc. 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 Oil fields (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 I....
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.... 41. Respectfully following the views so expressed by the coordinate bench in assessee's own case, for the immediately preceding assessment year, we uphold the conclusions arrived at by the learned CIT(A) on this point as well, and decline to interfere in the matter." 49. Thus, respectfully following the judicial precedents in assessee's own case, we find no infirmity in the findings of learned CIT(A) on this issue. Accordingly, grounds No. 3.1 and 3.2 raised in Revenue's appeal are dismissed. 50. The issue arising in grounds No. 4 and 5, raised in Revenue's appeal, is pertaining to computation of deduction under section 10 AA of the Act. 51. The brief facts of the case pertaining to this issue are: The assessee during the course of assessment proceedings has revised its claim of deduction under section 10 AA for both Refinery SEZ and PP SEZ and has filed revised Form 56F. Thus, for Refinery SEZ, assessee has claimed deduction of Rs. 1003,58,90,070 under section 10 AA r/w section 80 A(4) of the Act, as against Rs. Nil claimed in the return of income and for PP SEZ, the assessee has claimed deduction of Rs. 619,27,43,122 under section 10 AA of the Act as against Rs. 595,55,....
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.... assessee has claimed deduction of Rs. 492.01 crores. Hence, balance of Rs. 3.71 crores being the additional claim made by the assessee in respect of revenue expenditure under section 35(2AB) of the Act was disallowed by the AO vide assessment order. Further, as regards capital expenditure, as per the report issued by DSIR the total deduction allowable under section 35(2AB) in respect of capital expenditure is Rs. 182.16 crore, whereas the assessee has claimed deduction of Rs. 182.77 crores. Hence, Rs. 61 lakhs being the additional claim made by the assessee in respect of Revenue expenditure under section 35(2AB) of the Act was disallowed by the AO. 55. The learned CIT(A) following the order of its predecessor, directed the AO to allow weighted deduction in respect of R&D expenditure under section 35(2AB) of the Act as claimed by the assessee after excluding the amount already allowed by the AO. Being aggrieved, the Revenue is in appeal before us. 56. We have considered the rival submissions and perused the material available on record. In the present case, it is evident that the AO has not doubted the incurrence of research and development expenditure by the assessee and its....
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....arch and Development Expenditure under section 35(2AB) of the Act as claimed by the appellant after excluding the amount already allowed by the AO." 57. We find that coordinate bench of the Tribunal in M/s. Glenmark Pharmaceuticals Ltd. Vs ACIT, in ITA No.5651/Mum/2017, vide order dated 21/08/2019, observed as under: "once the facility is approved by DSIR, the assessee is entitled for weighted deduction u/s 35(2AB) of the Act and there is no requirement as per the Act that the expenses need to be approved by DSIR. In this regard, the amendment has been brought in Rule 6(7A) of the IT Rules with effect from 1.7.2016 that even the expenses need to be approved by DSIR. Since this is applicable only from Asst Year 2017-18 onwards, the same cannot be made applicable for Asst Year 2013-14." (Emphasis supplied) 58. In this regard, it is pertinent to note that prior to the aforesaid amendment, no such authority was granted to DSIR for approving any expenditure for the purpose of claiming deduction under section 35(2AB) of the Act. The pre-amended rules do not prescribe any methodology of approval to be granted by the prescribed authority vis-à-vis expenditure from yea....
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....Revenue's appeal are dismissed. 62. The issue arising in grounds No. 8 - 8.3, raised in Revenue's appeal, is pertaining to transfer pricing adjustment on account of interest on delayed receipts of sale proceeds. 63. The brief facts of the case pertaining to this issue are: During the year under consideration, the assessee had sold petroleum products to its associated enterprises ('AE') - RIL USA Inc, USA and RGESS, Singapore. In respect of certain sales made, the proceeds were received beyond the agreed credit period. Accordingly, in respect of such receipts, the assessee has raised the debit notes on the AE towards interest on delayed receipts beyond the agreed credit period. The said interest has been charged at the rate of 1 month LIBOR plus spread of 200 basis point, which effectively works out to be in the range of 2.17% to 2.44% per annum. The TPO made an adjustment of Rs. 13,20,48,386 by benchmarking the interest receivable at assessee's average borrowing cost plus a markup based on Bloomberg data. The learned CIT(A) by following the orders passed by the coordinate bench of the Tribunal in assessee's own case determined the arm's length rate of interest in respect of d....
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....03/2022, observed as under: "68. We find that, while dealing with the same issue for the assessment year 2013-14, a coordinate bench of the Tribunal has, inter alia, observed as follows: 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 learned 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, even under judge-made law, recharacterisation is possibly only if transactions are found to be substantially at variance with the stated form. In the absence of any such finding and also in the absence of anything on record to show that unrel....
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....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." Furthermore, 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 the grounds above do not rel....
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....l are neither on the specific findings of fact, nor even specific arguments on facts before us, and have not been raised in the TPO's order. Just because if the assessee was to give loans, rather than make investments in the compulsorily convertible shares, the Indian tax base would not have been eroded cannot be reason enough to disregard the reality of investment having been made in the compulsorily convertible preference shares, and proceed to benchmark the transaction as that of a loan. The BEPS action plan, unless it results in an appropriate amendment in law, and the change in the definition of international transaction, including capital financing in its ambit, has no impact on the stand of the CIT(A) because what has been held is that this transaction cannot be compared with a loan. In the light of these discussions, as also bearing in mind the entirety of the case, we approve the conclusions arrived at by the learned CIT(A) on this point as well, and decline to interfere in the matter." 68. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee's own case and no change in facts and law was alleged in the relevant assessme....
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....exploration and development of petroleum in the specified area. Under the said PSC, any professional or administrative services rendered by the affiliates of the AE had to be on 'cost to cost basis'. The stand of the assessee was that since the provisions of rule 10B(2)(d), which provide thatan uncontrolled transaction being judged with respect to "conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail", will be attracted, and viewed thus, the cost to cost transaction is an arm's transaction on the facts of this case. The TPO, however, rejected this plea, holding the PSC of no relevance in the manner, and proceed to compute arm's length price of the transaction at 17.21% mark up. An addition of Rs 58,16,290 was thus made. Aggrieved, assessee carried the matter in appeal before the CIT(A). Learned CIT(A), following the orders of the coordinate benches in assesee's own cases for the assessment year....
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.... the interest on loan chargeable by the banks to the AE with assessee's guarantee and without guarantee as compared in the rate differential is divided amongst the AE and the assessee equally. Accordingly, guarantee commission was charged by the assessee from its AE at 50% of the interest rate differential. The TPO, though accepted the yield spread method adopted by the assessee, however, did not accept the division of interest rate differential in 50:50 ratio and assigned at least 60% of the rate differential to the assessee. Further, the TPO adopted long term rates even for short guarantees and accordingly made adjustment of Rs. 40,39,46,916. The learned CIT(A) vide impugned order by following the decision of coordinate bench of Tribunal in assessee's own case in preceding assessment years, accepted the benchmarking done by the assessee by following the yield spread approach with split of 50:50 in respect of both short-term and long-term guarantee. Being aggrieved, the Revenue is in appeal before us. 75. Having heard both the parties and perused the material available on record, we find that this is a recurring issue and has been decided in favour of the assessee in preceding ....
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....ss Solutions Limited was rejected due to the lesser turnover i.e. Rs. 6.55 crores. The TPO selected BVG India Ltd as comparable for benchmarking the aforesaid transaction and accordingly made an adjustment of Rs 30,44,23,732 in respect of aforesaid transaction. The learned CIT(A) vide impugned order directed inclusion of Empire Industries Ltd, ICRA Management Consulting Services Ltd and Spectrum Business Solutions Limited and exclusion of BVG India Ltd as comparable, following the decision of coordinate bench of the Tribunal in assessee's own case for assessment year 2013-14 as well as decision of his predecessor in earlier assessment year. Being aggrieved, the Revenue is in appeal before us. 79. Having considered the rival submissions and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee's own case for assessment years 2014-15 and 2015-16 vide order dated 08/03/2022 upheld the exclusion of BVG India Ltd and inclusion of Empire Industries Ltd as comparable. The relevant findings of coordinate bench of the Tribunal in aforesaid decision are as under "85. Learned representatives fairly agree that so far as this issue i....
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....in of 4.84%) as comparable, apart from Empire Industries Ltd (having margin of -1.22% of relevant segment), arm's length margin would still be less than 5% charged by AE, therefore, issue of comparability of ICRA Management Consulting Services Ltd is kept open. As a result, grounds No. 12 - 12.4 raised in Revenue's appeal are dismissed. 83. The issue arising in grounds No. 13 - 13.12, raised in Revenue's appeal, is pertaining to determination of arm's length price for inter-unit transfer of power. 84. The brief facts of the case pertaining to this issue are: The assessee is eligible unit (claiming deduction under section 80 IB of the Act) i.e. captive power plant, has transferred power to its non-eligible unit. The manufacturing division requires additional power and the same is drawn from third-party i.e. Dakshin Gujarat Vij Company Ltd. Assessee following internal Comparable Uncontrolled transaction method, benchmark the transaction of purchase of power from the captive unit. The TPO rejected the benchmarking analysis conducted by the assessee and adopted rates charged by the third-party namely Gujarat State Electricity Corp Ltd and thereby adopted external CUP. Accordingly....
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....learned Counsel of the assessee also referred to ITAT decision and Hon'ble Gujarat High Court decision. It is further contention that honourable Supreme Court has also rejected the special leave decision filed by the Commissioner of income tax, Ahmedabad and the principle down by the honourable High Court has attained finality in favour of the assessee. 171. With regard to ground No. 10.4 it is the contention of the learned counsel of the assessee that he will not press this ground if ground No. 10.3 is decided in favour of the assessee. 172. In this ground the assessee contends that assessee's CPP is supplying power to the manufacturing unit that is the customer and learned Transfer 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 electrici....
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....upply electricity to the consumers. The revenue on the other hand argues that the appropriate rate should be the rate at which the electricity is purchased by the distribution companies from the electricity generating companies. 5. This controversy arose in the background of the fact that the assessee had set up a captive power generating unit and claimed deduction under Section 80IA of the Income Tax Act, 1961 ("the Act" for short) in respect of the profits arising out of such activity. Obviously, therefore the attempt on the part of the assessee was to claim larger profit under the unit which was eligible for such deduction as against this, attempt of the revenue would be see that the ineligible unit shows greater profit. 6. The Tribunal in the impugned 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 ju....
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..... 9. Additionally, we also notice that similar issue came up for consideration before Chhattisgarh High Court in case of Commissioner of Income-tax, Raipur Vs. Godawari Power &Ispat Limited1, in which the Court held and observed as under: "31. The market value of the power supplied to the Steel-Division should be computed considering the rate of power to a consumer in the open market and it should not be compared with the rate of power when it is sold to a supplier as this is not the rate for which a consumer or the Steel-Division could have purchased power in the open market. The rate of power to a supplier is not the market rate to a consumer in the open market. 32. In our opinion, the AO committed an illegality in computing the market value by taking into account the rate charged to 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 ....
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....tta High Court in case of Commissioner of Income- tax, Kolkata - III Vs. ITC Ltd. was also brought to our notice in which the said High Court has taken a different stand. However, since the issue has already been examined by this Court earlier and in view of the decisions of the Chhattisgarh and Gujarat High Court, we see no reason to entertain this question." 176. Here we note that the assessing officer while expounding that rate duly approved under 80 IA(8) is to be changed for Transfer Pricing purposes has placed reliance upon honourable Calcutta High Court decision in the case of ITC Ltd. We find that the view of TPO and learned CIT(appeals) also by relying upon Calcutta High Court decision in ITC Ltd that market value basis duly approved by the honourable Bombay High Court shall change for the purpose of domestic transfer pricing regimen here is not at all sustainable. The reliance by learned CIT(appeals) on honourable Calcutta High Court decision in the case of ITC Limited supra has been distinguished by the honourable jurisdictional High Court. The honourable jurisdictional High Court has chosen not to follow the Calcutta High Court decision. Hence in our considered....