TaxTMI 
TaxTMI 
2023 (5) TMI 1503
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....iled its return of income on 29/11/2012 declaring a total income of Rs. Nil after claiming deduction under section 80IA of the Act amounting to Rs. 508,78,30,027. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. Pursuant to the reference by the Assessing Officer ("AO") under section 92CA(1) of the Act, the Transfer Pricing Officer ("TPO") proposed a total transfer pricing adjustment of Rs. 45,48,80,196 vide order dated 29/01/2016 passed under section 92CA(3) of the Act. In conformity, the AO passed the draft assessment order dated 31/03/2016 under section 143(3) r/w section 144C(1) of the Act after making various additions/disallowances. While deciding assessee's objections against the addition/disallowances made by the TPO/AO, the learned DRP vide its directions dated 29/12/2016 granted partial relief to the assessee. In conformity with the directions issued by the learned DRP, the AO passed the impugned final assessment on 30/01/2017 under section 143(3) r/w section 144C(13) of the Act. Being aggrieved, the assessee has raised the following grounds....
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....its calculated u/s Section 115JB, without considering the fact & circumstances of the case. 10) The Hon'ble DRP has erred in confirming the action of Learned Assessing Officer in making an addition of Rs. 12,67,68,491/- u/s. 41(1) of the Income Tax Act, 1961, on account of write off of Project creditors, without considering the facts and circumstances of the case. 11) The appellant craves leave to add, amend, alter or delete the said ground of appeal." 3. The issue arising in ground No. 1, raised in assessee's appeal, is pertaining to transfer pricing adjustment on account of guarantee commission. 4. We have considered the submissions of both sides and perused the material available on record. During the year under consideration, the assessee entered into the following international transactions with its associated enterprises :- Nature of international transaction Most appropriate method Arm's Length Analysis Export of MS Slabs CUP The AEs' landed cost i.e. CIF from third parties was considered for comparability purposes with the landed cost of slabs exported by JSWSL Receipt of Interest on Term Loan....
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.... financial year 2011-12 and all these loans were guaranteed by the assessee. 6. The assessee selected 'Other Method' as the most appropriate method for benchmarking this international transaction of guarantee fee payable by the associated enterprises to the assessee. Under the `Other Method' applied by the assessee, the `Interest Saved Approach' was adopted as a suitable method for determining the arm's length nature of the guarantee fee payable by the overseas entities to the assessee. As per the 'Interest Saved Approach', the guarantee fee is quantified by analysing the relative benefit conferred by the guarantee upon the borrower through the reduction in the lending rate achieved as a result of the guarantee. That is, the benefit conferred to the party receiving the guarantee is measured by how much the borrower's third- party interest rate was reduced as a result of the guarantee. Thus, the `Interest Saved Approach' compares the difference between the actual rates at which JSW Netherlands or JSW Holding USA borrows compared to the notional rate at which it would be able to borrow, in the absence of the guarantee. 7. Further, based on th....
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....s & Resorts Worldwide Inc. 20-Apr-10 3.5 LIB 275 Mean (in bps) 357.14 Median (in bps) 325.00 Interest Post Guarantees (in bps) 325.00 Interest Saved (in bps) 32.14 10. Accordingly, the assessee came to the conclusion that JSW Holding USA would have had to borrow funds at an interest rate of around LIBOR +357.14 basis points on a standalone basis. However, the assessee's guarantee has resulted in JSW Holding USA borrowing funds at LIBOR +325 basis points, which indicates that the assessee's guarantee has reduced the actual cost of borrowing to JSW Holding USA by 32.14 basis points. Thus, it was concluded that the maximum guarantee fee that can be charged by the assessee to JSW Holding USA is 32.14 basis points, which shall be considered to be at arm's length. 11. Further, JSW Holding USA and Royal Bank of Scotland NV entered into a loan agreement of USD 50 million, at an interest rate of LIBOR +375 basis points, which was not guaranteed by the assessee. Since this unguaranteed loan shared the same characteristics as the guaranteed loans, the assessee's interest savings are as under :- Sr. No. Amount of Faci....
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....d that the rates for financial guarantee charged by the banks cannot be applied in the case of corporate guarantee since the factors applicable for issuance of both are different. The learned AR by placing reliance upon the decision of the Hon'ble jurisdictional High Court in CIT vs Everest Kanto Cylinders Ltd, [2015] 378 ITR 57 (Bom.) submitted that since the guarantee fee as per `Interest Saving Approach' is in the range of 0.25% to 1.25%, the same is to be accepted for benchmarking this transaction. The learned AR agreed that the computation of the guarantee fee as provided in the TP Study Report was offered to be added by the assessee, however, no guarantee fee was charged as the assessee was of the opinion that corporate guarantee doesn't fall within the ambit of international transaction as per section 92B of the Act. 14. We find that in Everest Kanto Cylinders Ltd (supra), the Hon'ble jurisdictional High Court categorically held that no comparison can be made between guarantees issued by commercial banks against a corporate guarantee issued by a holding company for the benefit of its associated enterprise, a subsidiary company, for computing arm's leng....
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....tion pertaining to corporate guarantee after considering the benchmarking analysis as done by the assessee in its TP Study Report. As a result, ground No. 1 raised in assessee's appeal is allowed for statistical purposes. 16. The issue arising in ground No. 2, raised in assessee's appeal, is pertaining to transfer pricing adjustment on account of short receipt of interest on loans to JSW Holdings USA. 17. The brief facts of the case pertaining to this issue are: During the year under consideration, the term loans granted by the assessee to JSW Holding USA during the financial years prior to 2011-12 were amended, whereby the date of repayment was extended and interest rates were revised. Since these loan transactions were entered into in the previous years and date prior to 01/04/2011, the same was reported in the benchmarking during those previous years. Further such transaction was also reported in the current year since it continues to have effect during the course of this year. For benchmarking this international transaction, the assessee searched for the comparable uncontrolled transactions on the Reuter's Dealscan Database by taking into consideration search ....
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....hand, the learned DR by vehemently relying upon the orders passed by the lower authorities submitted that in the case of sister concern PLR was considered for computation of interest, while, in this case, LIBOR has been considered by the TPO for computing the arm's length rate of interest. 21. We have considered the rival submissions and perused the material available on record. We find from the TPO's order, in the case of the sister concern of the assessee i.e. JSW Energy Ltd, for the assessment year 2012-13, that in respect of a similar international transaction of receipt of interest on loan given to associated enterprises, the taxpayer charged the interest at the LIBOR rate. Alternatively, the taxpayer also benchmarked the loan transaction on the basis of external CUP by considering the data available on Reuter's Dealscan Database and considered LIBOR +243.88 basis points and LIBOR +163.8 basis points as the arm's length interest rate. The TPO rejected the benchmarking analysis of the taxpayer by considering interest at the LIBOR rate and instead applied the rates based on the Bloomberg database on the basis that PLI based rate is for loans given in Indian cu....
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....ties to accept alternative TP adjustment of Rs. 491.07 Lacs as worked out by the assessee during proceedings before Ld. TPO based on LIBOR + spread of 243.88 bps / 163.8 bps for AYS 2011-12 & 2012-13 respectively. The interest already charged by the assessee would be adjusted from the same and the net amount shall be the amount of TP adjustment for the impugned AY. Ground No.1 stand partly allowed." 22. Therefore, the coordinate bench of the Tribunal, in the aforesaid decision, upheld the alternative transfer pricing analysis by applying the data available on Reuter's Dealscan Database, which is the methodology adopted by the assessee, in the present case, for benchmarking the international transaction of receipt of interest on loans to JSW Holdings USA. Thus, respectfully following the aforesaid decision of the coordinate bench of the Tribunal in the case of assessee's sister concern, we direct the TPO/AO to delete the transfer pricing adjustment in respect of international transaction pertaining to interest received on loans given to JSW Holdings USA. As a result, ground No. 2 raised in assessee's appeal is allowed. 23. The issue arising in grounds no. 3-5, rais....
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....been held by the Coordinate Bench in the case of M/s. UltratechCements Limited (supra) that the Railway System operated by the assessee is an infrastructure facility and entitled for the deduction u/s. 80IA of the Act. 39. We further find that revenue's appeal against the decision of Hon'ble ITAT in the case of M/s. Ultratech Cement Ltd. for A.Y. 2006-07 in ITA.No.6070 of 2010, has been admitted by Hon'ble Bombay High Court vide order dated 02.04.2014 on limited issue of as to whether railway siding can be treated as profit Centre or cost Centre for the purpose of determination of eligible profit. As regards revenue's ground of appeal against very availability of deduction u/s. 80IA in respect of railway siding the Hon'ble High Court rejected the same holding as under: "After hearing the counsel at some length and perusing with their assistance the order passed by the Commissioner of Income Tax (Appeals) and the income Tax Appellate Tribunal, we are of the opinion that though the appeal deserves admission but it should not be on the question of law as framed at Page 5 of the paper book. That questions the very applicability of the provision. Fr....
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.... a view to provide an impetus to private sector participation in infrastructural projects. Consistent with the legislative object of encouraging private sector participation in the development of infrastructure, section 80-IA was enacted." 42. As could be observed from the decision of the Hon'ble Bombay High Court Section 80-lA was an instrument of legislative policy, conceived with a view to provide an impetus to private sector participation in infrastructural projects. We also find from the letter dated 04.03.2014 submitted to the Assessing Officer it was clearly stated that this facility is being operated and maintained by the assessee company. Therefore, it can be said that the assessee is operating and maintaining the infrastructure facility in the form of water supply project. Therefore, applying the same principles as was held in the case of Railway system we hold that the Water Supply Project operated and maintained by the assessee is an infrastructural facility and is eligible for deduction u/s. 80IA of the Act. 43. Thus, in view of what is discussed above, we hold that the assessee is entitled for deduction u/s. 80IA in respect of the Railway System ....
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....the Certified Emission Reductions (CERS) which under common parlance is known as Carbon Credits, is one of the outcomes of the Kyoto Protocol, which is an international treaty in force since February 2005, for reduction in the emission of Green House Gases(GHG). The trading in CERS or Carbon trading is a transaction which involves sale of Carbon Credits by an entity which has obtained such credits to another entity, which is not able to achieve the prescribed reduction in the emission of Green House Gases on its own. The issue before us relates to the income earned by the assessee on sale of CERS or Carbon Credits. In the return of income, assessee considered such income as revenue in nature, and further treated it as an income derived from the eligible business of generation of power and claimed exemption u/s 80IA of the Act. The Assessing Officer accepted that the impugned income was a business income; but according to him, said income was not an income "derived from" the eligible business of generation of power, and the claim of exemption u/s 801A of the Act was denied. Before the CIT(A), assessee not only assailed the denial of exemption u/s 80IA of the Act but raised an altern....
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....of assessee before the Hon'ble Andhra Pradesh High Court, assessee had earned income on sale of Carbon Credits in the course of carrying on the business of power generation, which is also the fact-position before us. The Hon'ble High Court has held that the income received on sale of excess Carbon Credits was a capital receipt not chargeable to tax. Quite clearly, the said Judgment supports the plea of assessee in the instant case that the receipts on sale of CERS is a capital receipt not chargeable to tax. Following the said Judgment we uphold the plea of the assessee. 11. In so far as the reliance placed by the Ld. DR on the decision of Cochin Bench of the Tribunal in the case of Apollo Tyres Ltd (supra) is concerned, ostensibly, the same does not help the case of Revenue, in view of the subsequent Judgment of Hon'ble Andhra Pradesh High Court in the case of My Home Power Ltd. (supra). In fact, the Cochin Bench of the Tribunal has analysed the situation and observed that the earning of Carbon Credits was in the course of carrying on the business and, therefore, such income was held to be in the nature of revenue receipt. The Hon'ble High Court, however ap....
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....se of promoting and facilitating its business, and with the intention of acquiring and retaining controlling interest in the Companies whose shares were held by the assessee. The AO vide assessment order did not agree with the submissions of the assessee and proceeded to compute the disallowance of Rs.38,03,24,470 under section 14A as per Rule 8D of the Income Tax Rules, 1962, after considering the suo moto disallowance made by the assessee. The learned DRP rejected the objections filed by the assessee. Being aggrieved, the assessee is in appeal before us. 33. Having considered the submissions of both sides and perused the material available on record we find from the audited financial statement that the assessee has own funds of Rs.18,497.49 crores (comprising of share capital of Rs.563.18 crores, and reserves & surplus of Rs.17,934.31 crores). While the amount of investment held by the assessee earning exempt income is only Rs.3,192.17 crores. We find that the Hon'ble Jurisdictional High Court in CIT vs HDFC Bank Ltd., [2014] 366 ITR 505 (Bom.) held that where assessee's own funds and other non-interest bearing funds were more than the investment in tax-free securities....
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....d accordingly. 37. The issue arising in ground no.10, raised in assessee's appeal, is pertaining to addition under section 41(1) of the Act on account of write off of project creditors. 38. The brief facts of the case pertaining to this issue are: During the year under consideration, the assessee claimed an amount of Rs.12,67,68,491 as provisions no longer required written back in respect of project creditors. The assessee vide submission stated that this amount is on account of waiver of principal amount of loan utilised for purchase of plant and machinery. The assessee further submitted that the write-off is on capital account, not claimed as a deduction, and hence not covered by the provisions of section 41(1)/28(iv) of the Act. Thus, as per the assessee, the said amount is not taxable. The AO vide assessment order did not agree with the submissions of the assessee and held the amount of Rs.12,67,68,491 to be income under section 28(iv) of the Act. The relevant findings of the AO are as under :- "11 Write Off of Project creditors of Rs. 12,67,68,491/- 11.1 It is seen that the assessee has during the year claimed an amount of Rs. 12,67,68,491/- as prov....
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....ue the coordinate bench of the Tribunal in assessee's own case in ACIT vs JSW Steel Ltd., in ITA No. 930/Bang./2009, vide order dated 13/01/2017, for the assessment year 2004-05, observed as under :- "29. We have heard the rival submissions made by the parties and also considered the relevant finding given in the impugned orders. First of all it is seen that Assessing Officer's case is that provisions of section 41(1) are applicable because the assessee has claimed depreciation in the earlier years on the loan taken. for acquisition or capital asset and for coming to this conclusion he has heavily relied upon the decision of Hon'ble Bombay High Court in the case of Nectar Beverages vs. DCIT (supra). This observation and finding of the Assessing Officer now stands negated by the judgment of Hon'ble Supreme Court in the case of Nectar Beverages vs. DCIT (supra) wherein the Apex Court has reversed the said decision of the Hon'ble Bombay High Court and observed that depreciation is neither a trading liability as referred to in section 41(1) nor the principal component of the borrowings for acquisition of a capital asset has not been allowed as an allowance ....
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.... the facts of the present case as depreciation is neither a loss nor an expenditure as held by the Hon'ble Supreme Court in the case of Nectar Beverages Pvt. Ltd. (supra); and secondly, liability incurred by the assessee was utilized for the purchase of capital asset and therefore, under no circumstances it can be held to be a trading liability. Depreciation allowance has no connection with waiver of the capital loans in question and hence would not attract section 41(1). By way of additional grounds the Ld. D.R. has sought to contend that in view of the decision of Hon'ble Bombay High Court in the case of Solid Containers Ltd. 308 ITR 407 the waiver of a loan is to be reckoned as in the nature of trading liabilities and therefore, it is taxable under section 41(1). As discussed in detail in the earlier part of the order, here it is not the case of the Assessing Officer that the principal amount of loan taken by the assessee was for any trading account, albeit it was for the purchase of a capital asset which has never been allowed as a deduction. The loan taken for an acquisition of a capital asset does not constitute trading liabilities which has been allowed as a deductio....
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....the present fact was taken for acquisition of capital asset and not for the purposes of trading activity as in the case of Solid Containers Ltd. (supra). The present case is, therefore, covered in favour of the respondent-assessee by the decision of this court in the matter of Mahindra and Mahindra Ltd. (supra)." Therefore the plea raised by the Revenue through additional ground cannot be upheld and same is rejected. 30. Before us one more argument was taken by the Ld. CIT D.R. that provision of section 28(iv) would get attracted because the waiver of loan amounts to value of any benefit or perquisite, whether convertible into money or not, arising from business. First of all it is seen that it is neither the case of the Assessing Officer nor the case of the Ld. CIT(A) that the amount of waiver of lean is to be taxed under section 28(iv). The Hon'ble Bombay High Court in the case of Mahindra & Mahindra vs. CIT 260 ITR 180 501 held that a loan which is originally taken for capital expenditure, if waived, will not give rise to taxable income either under section 41(1) or under section 28(iv). The relevant observation and finding of the Hon'ble Bombay High Co....