ACIT 6(3), MUMBAI V. HINDALCO INDUSTRIES LTD, MUMBAI

ITA 4918/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101079 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 16-03-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 30-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; Opportunity of being heard; International transaction; Retrospective amendment; Question of law
• Section: 43B; 92B; 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM) . . , , ./ I.T .A. NO. 4857 / MUM/20 1 2 ( / ASSESSMENT YEAR : 20 0 5 - 06 ) HINDALCO INDUSTRIES LTD., 3 RD FLOOR, CENTURY BHAVAN, DR.A B ROAD, WORLI, MUMBAI - 400030 / VS. THE ADDL. COMMISSIONER OF INCOME TAX, CIRCLE 6(3), ROOM NO.522, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO. 4 9 18 /MUM/20 12 ( / ASSESSMENT YEAR : 2005 - 06 ) ASSTT. COMMISSIONER OF INCOME TAX - CIRCLE 6(3), R . NO.522, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 / VS. HINDALCO INDUSTRIES LTD., 3 RD FLOOR, CENTURY BHAVAN, DR.A B ROAD, WORLI, MUMBAI - 400030 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAACH1201R / A SSESSE E BY S/ SHRI S E DASTUR AND S M BANDI / RSPONDENT BY SHRI G M DOSS / DATE OF HEARING : 22.6. 201 5 / DATE OF PRONOUNCEMENT : 16. 9. 201 5 / O R D E R PER B.R. BASKARAN (AM) : T HESE CROSS - APPEALS FILED BY ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE ORDER DATED 30.5.2012 PASSED BY THE LD. CIT(A) - 15, MUMBAI AND THE Y RELATE TO THE ASSESSMENT YEAR 2005 - 06. ITA NO. 4857 AND 49 18 / MUM/20 1 2 2 2. W E SHALL TAKE UP THE APPEAL FILED BY ASSESSEE FIRST . THE ASSESSEE HAS URGED T EN GROUNDS IN THIS APPEAL. AT THE TIME OF HEARING, TH E LD.AR DID NOT PRESS GROUND NUMBER II RELATING TO DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT FOR THE REASON THAT THE ASSESSEE HAS BEEN ALLOWED DEPRECIAT ION ON THIS AMOUNT. THE ASSESSEE DID NOT PRESS GROUND NUMBER V RELATING TO DISALLOWANCE MADE U/S 43B OF THE ACT ALSO, SINCE THE AMOUNT SO DISALLOWED HAS BEEN ALLOWED ON ACTUAL BASIS. THE ASSESSEE ALSO DID NOT PRESS GROUND NUMBER VI RELATING TO DISALLOWANC E OF INTEREST PAID ON LATE PAYMENT OF TDS AMOUNT, IN VIEW OF SMALLNESS OF THE AMOUNT . THE ASSESSEE DID NOT PRESS ADDITIONAL GROUND NUMBER 1 ALSO. T HEREFORE ALL THE GROUNDS CITED ABOVE ARE DISMISSED AS NOT PRESSED. GROUND NO. X, BEING GENERAL IN NATURE , DOES NOT REQUIRE ADJUDICATION. 3. IN THE REMAINING GROUNDS , THE ASSESSEE HAS URGED FOLLOWING ISSUES: A) DISALLOWANCE MADE U/S 14A OF THE ACT. B) DISALLOWANCE OF FOREIGN TRAVEL EXPENSES AMOUNTING TO RS.2,12,010/ - ; C) ASSESSMENT OF RENTAL INCOME OF HOU SE PROPERTY AND SER VICE CHARGES AS INCOME FROM HOUSE PROPERTY. D) DISALLOWANCE OF D EDUCTION OF RS.7,19,01,340/ - PERTAINING TO IF F CO ARBITRATION CLAIM; E) ADDITION U/S 92CA OF T HE ACT MADE IN RESPECT OF PURCHASE OF RS.6,03,07,020 / - FROM ITS ASSOCIATED EN TERPRISES; F) ADDITION U/S 92CA OF T HE ACT MADE IN RESPECT OF CORPORATE GUARANTEE FEE OF RS.9,70,40,250/ - THE ADDITIONAL GROUND NO. 2 IS RELATED TO IFFCO ARBITRATION CLAIM LISTED AS (D) ABOVE. THE ADDITIONAL GROUND NO.3 IS RELATED TO ADDITION MADE IN R ESPECT OF CORPORATE GUARANTEE FEE LISTED AS (F) ABOVE. ITA NO. 4857 AND 49 18 / MUM/20 1 2 3 4 . FACTS OF THE CASE ARE STATED IN BRIEF . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF ALUMINIUM METAL, COPPER METAL, PRECIOUS METALS, CERTAIN CHEMICALS INCLUDING DAP/NPK AND IS ALSO ENGAGED IN THE GENERATION OF POWER, EXTRACTION OF ALUMINA, REDUCTION OF ALUMINA INTO ALUMINIUM BY ELECTROLYTIC PROCESS, MANUFACTURE OF ALUMINIUM SEMI - FABRICATED PRODUCTS, ALUMINIUM FOILS ETC. 5 . THE FIRST ISSUE RELATES TO THE DISALLOWANCE MADE U/ S 14A / 36(1)(III) OF THE ACT. THE AO NOTICED THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES, TAX FREE BONDS , GOI STOCK AND MUTUAL FUNDS (DIVIDEND SCHEME) . THE AO NOTICED THAT THE ASSESSEE HAS ALSO BORROWED FUNDS FOR THE PURPOSE OF BUSINESS AND PAID INTE REST THEREON. HENCE, THE AO TOOK THE VIEW THAT THE ASSESSEE HAS USED THE INTEREST BEARING BORROWED FUNDS FOR MAKING THE ABOVE INVESTMENTS. ACCORDINGLY HE WORKED OUT THE INTEREST ATTRIBUTABLE TO SAID INVESTMENTS AT RS.27 . 93 CRORES AND ADDED THE SAME TO TH E TOTAL INCOME OF THE ASSESSEE . IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ENHANCED THE INTEREST DISALLOWANCE BY 0.22 CRORES AND ACCORDINGLY HELD THAT THE INTEREST TO THE EXTENT OF RS.28.15 CRORES IS DISALLOWABLE. THE AO ALSO DISALLOWED A SUM OF RS.10. 00 LAKHS TOWARDS ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO EARN TAX FREE INCOME. THE LD CIT(A), HOWEVER, ENHANCED THE SAME TO RS.11.00 CRORES CALCULATED AT 0.5% OF THE AVERAGE VALUE OF INVESTMENTS. IT IS PERTINENT TO NOTE THAT THE LD CIT(A) ACCEPTED THAT T HE PROVISIONS OF RULE 8D SHALL NOT APPLY TO THE YEAR UNDER CONSIDERATION IN VIEW OF THE DECISION OF HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (328 ITR 81), YET HE COMPUTED THE DISALLOWANCE AS PER RULE 8D ONLY WITH THE REASONING THAT HE HAS ADOPTED RULE 8D AS THE BASIS FOR COMPUTING THE DISALLOWANCE. ITA NO. 4857 AND 49 18 / MUM/20 1 2 4 6 . BEFORE US, THE LD. AR SUBMITTED THAT THE ASSESSEE HAS INVESTED ITS OWN FUNDS ONLY FOR MAKING THESE INVESTMENTS. THE LD.AR SUBMITTED THAT AN IDENTICAL ISSUE HAS COME UP BEFORE THE TRIBUNAL IN THE APPEAL FILED BY THE DEPARTMENT IN THE ASSESSEES OWN C ASE FOR THE ASSESSMENT YEAR 1993 - 94 TO 2002 - 03 IN THE CASE OF JCIT V/S M/S HINDALCO INDUSTRIES LTD IN ITA NO.3101/3102/3102/312 - A/MUM/1999 (AYS 1993 - 94, 1994 - 95 AND 1995 - 96 ) AND THE TRIBUNAL, VIDE ITS ORDER DATED 21.2.2006 HAS HELD THAT THE ASSESSEE HAS NOT USED ITS INTEREST BEARING BORROWED FUNDS FOR MAKING INVESTMENTS . THE LD A.R FURTHER SUBMITTED THAT THE LD. CIT(A) DELETED THE DISALLOWANCE MADE U/S 36(1)(III) FOR THE AY 2003 - 04 AND 2004 - 05 FOR IDENTICAL REASONING AND DEPARTMENT HA S NOT FILED ANY APPEAL AGAINST IT. THE LD A.R ALSO INVITED OUR ATTENTION TO PAGE 18 OF THE PAPER BOOK A N D SUBMITTED THAT THE CASH FLOW STATEMENT PREPARED BY THE ASSESSEE WOULD SHOW THAT THE INV ESTMENTS MADE DURING THE YEAR UNDER CONSIDERATION IS FAR EXCESS OF OWN FUNDS GENERATED DURING THE INSTANT YEAR. HE FURTHER PLACED RELIANCE ON THE DECISION RENDERED BY THE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD (366 ITR 505) TO CONT END THAT NO DISALLOWANCE OF INTEREST IS REQUIRED WHEN SUFFICIENT OWN FUNDS ARE AVAILABLE. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE TOWARDS ADMINISTRATIVE EXPENSES AT A REASONABLE LEVEL OF RS.10.00 LAKHS. HE SUBMITTED THAT THE LD CIT(A) WAS NOT JUSTIFIED IN ENHANC ING THE SAME TO RS.11.00 CRORES BY FOLLOWING THE METHODOLOGY PRESCRIBED IN RULE 8D(2)(III) WITHOUT REFERRING TO THE FACTUAL SITUATION. 7 . THE LD. DR SUBMITTED THAT THE AVAILABILITY OF OWN FUNDS SHOULD BE EXAMINED AS ON THE DATE OF MAKING INVESTMENT AND NOT ON BALANCE SHEET DATE. HE FURTHER SUBMITTED THAT THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES IS TUNE WITH MAGNITUDE OF INVESTMENTS MADE AND DIVIDEND RECEIVED BY THE ASSESSEE. ITA NO. 4857 AND 49 18 / MUM/20 1 2 5 8 . WE HEARD THE PARTIES ON THIS ISSUE A ND PERUSED THE RECORD. WE FIND THAT THE SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE ASSESSEES OWN CASE AND THE TRIBUNAL HAS TAKEN THE VIEW THAT THE ASSESSEE HAS NOT USED BORROWED FUNDS FOR THE PURPOSE OF MAKING INVESTMENTS. THE ASSESSEE HAS FUR NISHED A COPY OF ITS ANNUAL REPORT BEFORE US. A PERUSAL OF THE BALANCE SHEET SHOWS THAT THE ASSESSEE HAD HELD OWN FUNDS OF RS.6857.9 AND RS.7666.5 CRORES RESPECTIVELY AS ON 31.3.2004 AND 31.3.2005, AS AGAINST INVESTMENTS OF RS.3377.2 AND RS.3702.1 CRORES RESPECTIVELY ON THOSE DATES. HENCE, IN OUR VIEW, THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK (SUPRA) SHALL APPLY TO THE FACTS OF THE INSTANT CASE. ACCORDINGLY, CONSISTENT WITH THE VIEW TAKEN BY THE CO - ORDINATE BENCH IN THE ASSESSEES OWN CASE IN THE EARLIER YEARS, WE HOLD THAT THE INTEREST DIS ALLOWANCE MADE BY THE TAX AUTHORITIES IS NOT CALLED FOR. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD.CIT(A) IN RESPECT OF INTEREST DISALLOWANCE AND DIREC T THE AO TO DELETE THE SAME. 9. IN RESPECT OF DISALLOWANCE OF ADMINISTRATIVE EXPENSES RELATING TO EXEMPTED INCOME, WE NOTICE THAT THE LD CIT(A) HAS WORKED OUT THE SAME AS PER RULE 8D(III) OF IT RULES, EVEN THOUGH HE ACCEPTED THE FACT THAT RULE 8D SHALL NOT APPLY TO THE YEAR UNDER CONSIDERATION. HOWEVER, WE NOTICE THAT THE ASSESSING OFFICER HAS WORKED OUT THE DISALLOWANCE AT RS.10.00 LAKHS BY CONSIDERING THE EXPLANATIONS OF THE ASSESSEE. SINCE THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES IS TO BE WORKED OUT ON A REASONABLE BASIS AS PER THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (SUPRA) AND SINCE MAJOR PART OF INVESTMENTS HAS BEEN BROUGHT FORWARD FROM THE EARLIER YEARS, IN OUR VIEW, THE DISALLOWANCE MADE BY AO DOES NOT CALL FOR INTERFERENCE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND SUSTAIN THE DISALLOWANCE OF RS.10.00 LAKHS MADE BY THE AO. ITA NO. 4857 AND 49 18 / MUM/20 1 2 6 10 . T HE NEXT ISSUE RELATES TO THE DISALLOWANCE OF FOREIGN TRAVELLING EXPENSES OF RS.2,12,010/ - ON THE GROUND THAT THE ASSESSEE INCURRED THESE EXPENSES FOR THE WIFE OF CHAIRMAN, WHOLE TIME DIRECTOR AND EXECUTIVES ON FOREIGN TOURS. IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) CONFIRMED THE DISALLOWANCE BY FOLLOWING HIS DECISION RENDERED FOR ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 . 1 1 . AT THE TIME OF HEARING, THE LD. A . R FAIRLY SUBMITT ED THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ISSUE BY THE TRIBUNAL IN THE ASSESSEES OWN CASE, VIDE ITS ORDER DATED 11.2.2009 PASSED IN ITA NO.3209/MUM/2006 FOR AY - 2004 - 05 . THEREFORE, RESPECTFULLY FOL LOWING THE ORDER OF THE TRIBUNAL REFERRED ABOVE, WE CONFIRM THE ORDER OF LD CIT(A) ON THIS ISSUE. 1 2 . THE NEXT ISSUE RELATES TO THE ASSESSMENT OF RENTAL INCOME UNDER THE HEAD INCOME OF HOUSE PROPERTY AND SERVICE CHARGES INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES, AS AGAINST THE CLAIM OF THE ASSESSEE THAT BOTH THE RECEIPTS SHOULD BE ASSESSED AS BUSINESS INCOME OF THE ASSESSEE. THE ASSESSEE OWNS A PROPERTY AS CO - OWNER IN CALCUTTA AND IT HAS GIVEN THE SAID PREMISES ON RENT . IT ALSO RECEIVED SERVICE CH ARGES FROM THE SAID PREMISES . THE ASSESSEE DECLARED BOTH THE RECEIPTS AS BUSINESS INCOME. THE AO ASSESSED THE RENTAL RECEIPTS AS INCOME FROM HOUSE PROPERTY AND THE SERVICE CHARGES AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THE LD CIT(A) CONFIRME D THE SAME. 1 3 . THE LD A.R FAIRLY ADMITTED THAT IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.5468/MUM/2001 (AY - 1997 - 98) AND THE TRIBUNAL, VIDE ITS ORDER DATED 6.7.2007 , HAS HELD AS UNDER : 25. .THE CIT(A) CONFIRMED THE ASSESSMENT OF PROPER RENTAL INCOME AS INCOME FROM HOUSE PROPERTY AND RECOVERY OF SERVICE CHARGES AS INCOME FROM OTHER SOURCES. THE CIT(A) ACCORDINGLY, DIRECTED THE AO TO ALLOW THE DEDUCTION OF THE EXPENSES INCURRED FOR EARNING THE ITA NO. 4857 AND 49 18 / MUM/20 1 2 7 INCOME FROM SERVICE CHARGES AS DIRECTED EARLIER BY THE TRIBUNAL IN THE ASSESSMENT YEAR 1990 - 91. SO FOLLOWING THE SAME, THE CIT(A) HAS SUSTAINED THE ASSESSMENT OF RENTAL INCOME AS INCOME FROM PROPERTY AND THE INCOME FROM SERVICE CHARGES UNDER THE HEAD INCOME FROM OTHER SOUR CES AND DIRECTED THE AO TO GRANT DEDUCTION OF EXPENSES INCURRED FOR EARNING FROM SERVICE CHARGES . THIS VIEW IS CONSISTENT TO THE VIEW TAKEN BY T HE TRIBUNAL FOR THE EARLIER YEARS. THIS GROUND IS REJECTED CONSISTENT WITH THE VIEW TAKEN BY THE CO - ORDINAT E BENCH OF TRIBUNAL IN THE EARLIER YEARS, WE CONFIRM THE ORDER OF LD CIT(A). HOWEVER, THE AO IS DIRECTED TO ALLOW ADMISSIBLE DEDUCTIONS ALLOWABLE UNDER THE RESPECTIVE HEADS. 1 4 . THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF RS.7,19,01,340/ - PAID TO IFFC O AS PER THE ARBITRATION PROCEEDINGS. THE FACTS RELATING TO THE ISSUE IS THAT THE COPPER PLANT OF ERSTWHILE INDO GULF CORPORATION LTD (I G CL) WAS AMALGAMATED WITH THE ASSESSEE W.E.F.1.4.2002. THE ICGL HAD ENTERED INTO A MOU WITH THE INDIAN FARMERS FERTILIZ ER CO - OPERATIVE ( IFFCO ) IN THE PREVIOUS YEAR 1998 - 99, WHEREBY I G C L AGREED TO SUPPLY CERTAIN CHEMICALS TO IFFCO. IN THE SUBSEQUENT YEARS, DISPUTE AROSE BETWEEN THE ICGL AND IFFCO ABOUT LIFTING AND SUPPLY OF CHEMICALS , I.E., IFFCO MADE CERTAIN CLAIMS AGAINST IGCL FOR NON - SUPPLY OF CHEMICALS AND SIMULTANEOUSLY IGCL ALSO MADE COUNTER CLAIMS AGAINST IFFCO . THE DISPUTES W ERE REFERRED TO AN ARBITRATOR . P ENDING RECEIPT OF ARBITRATOR S WARD IN THE MATTER S , THE ASSESSEE MADE A PROVISION OF RS.7,19,01,340/ - IN YEAR ENDING 31.3.2003 RELEVANT TO THE AY 2003 - 04. THE CLAIM OF THE ASSESSEE WAS DISALLOWED BOTH BY THE AO AND LD.CIT(A) IN THAT YEAR. THE TRIBUNAL ALSO DECIDED THIS CLAIM AGAINST THE ASSESSEE IN AY 2003 - 04 ON THE GROUND THAT THE LIABILITY DID NOT CRYSTALLIZE I N THAT YEAR. THE ARBITRATION AWARD WAS GIVEN IN THE MONTH OF JULY, 2004, WHEREIN TWO ARBITRATORS DECIDED THE MATTERS AGAINST THE ASSESSEE AND ONE ARBITRATOR DECIDED THE SAME IN FAVOUR OF THE ASSESSEE. ITA NO. 4857 AND 49 18 / MUM/20 1 2 8 IT IS PERTINENT TO NOTE THAT THE ASSESSEE DID NOT ACCE PT THE AWARD AND HENCE FILED APPEAL BEFORE HONBLE DELHI HIGH COURT. HOWEVER, SINCE THE ARBITRATION AWARD HAS GONE AGAINST THE ASSESSEE BY MAJORITY VIEW OF THE ARBITRATORS, THE ASSESSEE CLAIMED BEFORE THE AO THAT THE PROVISION OF RS.7.19 CRORES HAS TO BE ALLOWED AS DEDUCTION IN AY 2005 - 06 . THE AO REJECTED THE SAID CLAIM BY HOLDING THAT THE DISPUTE IS NOT FINALLY SETTLED. THE LD CIT(A) ALSO CONFIRMED THE SAME. 15. THE ASSESSEE HAS CHALLENGED THE DECISION OF LD CIT(A) ON THIS ISSUE IN THE ORIGINAL GROU NDS OF APPEAL AND IN THE ADDITIONAL GROUND, THE ASSESSEE HAS PRAYED FOR ALLOWING DEDUCTION OF INTEREST PAYABLE TO IFFCO UP TO 31.3.2005 ON THE ARBITRATION AWARD. 16. THE LD A.R SUBMITTED THAT THE AWARD GIVEN BY THE ARBITRATORS HAS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION, SINCE THE AWARD HAS BEEN GIVEN DURING THE YEAR UNDER CONSIDERATION. HE FURTHER SUBMITTED THAT THE LIABILITY TO PAY THE AWARD CANNOT BECOME CONTINGENT LIABILITY, EVEN IF THE ASSESSEE HAS CHALLENGED THE ARBITRATION AWARD IN THE HIGH COURT. IN THIS REGARD, THE LD A.R PLACED RELIANCE ON THE DECISION RENDERED BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NAVIJAN ROLLER FLOUR AND PULSE MILLS LTD VS. DY. CIT REPORTED IN 315 ITR 190. HE ALSO REFERRED TO THE COMMENTARY GIVEN BY KA NGA & PALKHIWALA IN PAGE 943 OF ITS LATEST EDITION. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE HAS NOT ACCEPTED THE ARBITRATION AWARD AND HENCE IT HAS FILED APPEAL CHALLENGING THE SAME BEFORE THE HONBLE HIGH COURT. ACCORDINGLY HE SUBMITTED THAT THE ARBITRATION AWARD CANNOT BE CONSIDERED TO HAVE BEEN FINALLY SETTLED DURING THE YEAR UNDER CONSIDERATION. HE SUBMITTED THAT THE TRIBUNAL, IN AY 2003 - 04, HAS HELD THAT THE CLAIM OF THE ASSESSEE SHALL BE ALLOWABLE IN THE YEAR IN WHICH THE DISPUTE GO T FINALLY SETTLED. ITA NO. 4857 AND 49 18 / MUM/20 1 2 9 17. WE HAVE HEARD RIVAL CONTENTIONS ON THIS I SSUE AND PERUSED THE RECORD. THE HONBLE GUJARAT HIGH COURT HAD AN OCCASION TO CONSIDER AN IDENTICAL ISSUE IN THE CASE OF NAVIJAN ROLLER FLOUR AND PULSE MILLS LTD VS. DY. CIT (SUPRA) . THE ASSESSEE THEREIN PLACED AN ORDER WITH AN AUSTRALIAN COMPANY FOR IMPORT OF YELLOW GRAM AND IT WAS REQUIRED TO OPEN IRREVOCABLE LETTER OF CREDIT. HOWEVER, THE ASSESSEE DID NOT OPEN THE LETTER OF CREDIT WITHIN THE EXTENDED PERIOD ALSO AND IN FACT, REP UDIATED THE CONTRACT THROUGH A LETTER. ARBITRATION PROCEEDIN GS WERE INITIATED BY THE AUSTRALIAN COMPANY WITH GRAIN AND FEED TRADE ASSOCIATION (GAFTA). HOWEVER, THE ASSESSEE OBJECTED TO THE JURISDICTION OF GAFTA. HOWEVER, GAFTA PASSED THE AWARD OF ARBITR ATION ON MAY 28, 1987, WHERE UNDER THE ASSESSEE WAS REQUIRED TO PAY DAMAGES. THE ASSESSEE DID NOT ACCEPT THE AWARD AND THE BOARD OF APPEAL UNDER THE GAFTA DECIDED THE MATTER AGAINST THE ASSESSEE. THE ASSESSEE CLAIMED DEDUCTION IN AY 1988 - 89, SINCE THE IN ITIAL AWARD WAS GIVEN ON MAY 28, 1987. HOWEVER, THE REVENUE TOOK THE VIEW THAT THE AWARD IS DEDUCTIBLE IN AY 1989 - 90. WHILE RESOLVING THIS DISPUTE, THE HONBLE GUJARAT HIGH COURT HAS DISCUSSED ABOUT THE PROPOSITION IN THIS MANNER: - IN MERCANTILE SYSTEM OF ACCOUNTING IT IS WELL SETTLED THAT BOTH RECEIPT AND LIABILITY ACCRUE AT THE EARLIE ST POINT OF TIME AND ARE NOT POSTPONED MERELY ON THE BASIS OF AN ENTRY MADE OR ABSENCE OF AN ENTRY. ADMITTEDLY, THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNT ING. ON MAY 28, 1987, WHEN THE TRADE ASSOCIATION MADE AN AWARD FOR DAMAGES FOR BREACH OF CONTRACT THE LIABILITY TO PAY SUCH DAMAGES HAD ALREADY BEEN INCURRED BY THE ASSESSEE. MERELY BECAUSE THE AWARD WAS CHALLENGED IN APPEAL BY THE ASSESSEE CANNOT BE A G ROUND FOR HOLDING THAT THE LIABILITY HAD NOT BEEN INCURRED. IN THE INSTANT CASE ALSO, THERE IS NO DISPUTE THAT THE ARBITRATION AWARD WAS GIVEN IN THE MONTH OF JULY, 2004 AND HENCE THE SAID AWARD RELATE TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IT IS A FACT THAT THE ASSESSEE HAS CHALLENGED THE ARBITRATION AWARD BY FILING APPEAL BEFORE THE HONBLE HIGH COURT. HOWEVER, THE HONBLE GUJARAT HIGH COURT HAS HELD IN THE ABOVE ITA NO. 4857 AND 49 18 / MUM/20 1 2 10 CITED CASE THAT THE LIABILITY ACCRUES AT THE EARLIEST POINT OF TIME AND THE FACT TH AT THE AWARD WAS CHALLENGED IN APPEAL CANNOT BE A GROUND FOR HOLDING THAT THE LIABILITY HAD NOT BEEN INCURRED. ACCORDINGLY BY FOLLOWING THE HONBLE GUJARAT HIGH COURT (REFERRED SUPRA), WE DIRECT THE AO TO ALLOW DEDUCTION OF THE ARBITRATION AWARD. THE ASS ESSEE HAS ALSO RAISED AN ADDITIONAL GROUND PRAYING THAT THE INTEREST ACCRUED THEREON UP TO 31.3.2005 SHOULD ALSO BE ALLOWED. HOWEVER, WE PREFER TO RESTORE THIS MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE ARBITRATION ORDER AND TAKE APPRO PRIATE DECISION IN ACCORDANCE WITH THE LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 18 . THE NEXT ISSUE RELATES TO THE ADDITION OF RS.6,03,07,020/ - MADE U/S 92CA OF THE ACT IN RESPECT OF PURCHASE S MADE FROM THE ASSOCIATED EN TERPRISES ( AE ) OF THE ASSESSEE. T HE FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEES SUBSIDIARY COMPANY NAMED M/S BIRLA MT. GORDON PTY LTD, AUSTRALIA OWNED A MINE IN AUSTRALIA. THE ASSESSEE PURCHASED COPPER CONCENTRATES FROM THIS SUBSIDIARY COMPANY. T HE ASSESSEE HAD PURCHASED COPPER CONCENTRATES FROM UNRELATED PARTIES ALSO. THE PRICES OF COPPER CONCENTRATES ARE DETERMINED ON THE BASIS OF PRICES OF COPPER QUOTED IN LONDON METAL EXCHANGE (LME) LESS THE PROCESSING CHARGES TOWARDS SMELTING, REFINING AND M ARGIN FOR THE SELLER. FROM THE VALUE SO ARRIVED AT, A FURTHER REDUCTION TOWARDS TREATMENT CHARGES/REFINING CHARGES (TC/RC) ARE ALLOWED. THE TC/RC IS DETERMINED BY JAPANESE BUYERS OF CONCENTRATES, NORMALLY IN THE BEGINNING OF THE CALENDA R YEAR AND THE PRI CE SO DETERMINED IS CONSIDERED TO BE THE INDUSTRY AVERAGE. THE TC/RC DETERMINED IS FURTHER ADJUSTED FOR FREIGHT DIFFERENTIALS. 19. IN ITS T.P. STUDY, THE ASSESSEE FOLLOWED CUP METHOD AND COMPARED THE TC/RC CHARGES OF THE GOODS PURCHASED FROM ITS A E WITH TC/RC CHARGE S OF THE GOODS PURCHASED FROM A NON - AE COMPANY NAMED M/S PT FREEPORT ITA NO. 4857 AND 49 18 / MUM/20 1 2 11 FOR THE CALENDAR YEAR 2004. THERE WAS NO DIFFERENCE BETWEEN THE TWO. THE AO REFERRED THE MATTER TO THE TPO. THE AO HAS DISCUSSED THE ADDITION PROPOSED BY THE TPO IN THE ASSESSMENT ORDER. THE AO HAS STATED THAT THE TC/RC CHARGES HAVE BEEN DEDUCTED IN RESPECT OF PURCHASES MADE FROM NON - AES @ US $ 95 PER MT AND US $ 85.5 MT FOR THE MONTH OF FEBRUARY, 2005 AND MARCH, 2005 RESPECTIVELY. HOWEVER, IN RESPECT OF PURCHASES M ADE FORM AES, THE SAME WAS DEDUCTED AT US $ 43 PER MT ONLY. HENCE, THE AO/TP O COMPARED THE PRICES OF CONCENTRATES PURCHASED IN THE MONTHS OF FEBRUARY, 2005 AND MARCH, 2005. THE AO /TPO NOTICED THAT THE PURCHASE PRICE WAS HIGHER BY RS.8713/ - PER MT AND RS. 7843/ - PER MT IN THE MONTHS OF FEBRUARY, 2005 AND MARCH, 2005 IN RESPECT OF PURCHASES MADE FROM AES VIS - - VIS NON - AES. THE REASON FOR HIGHER PRICE WAS MAINLY DUE TO LOWER RATE ADOPTED FOR DEDUCTION OF TC/RC CHARGES. THE AO WORKED OUT THE DIFFERENTIAL PR ICE FOR THE PURCHASES EFFECTED IN THE MONTHS OF FEBRUARY, 2005 AND MARCH, 2005 AT RS.6.03 CRORES AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSE SSEE. THE LD CIT(A) ALSO CONFIRM ED THE SAME. 20. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS ENTERE D INTO CONTRACT FOR PURCHASE OF CONCENTRATES WITH ITS AE ON A LONG TERM BASIS FOR THE ENTIRE LIFE OF THE MINES AND HENCE SUCH THE PRICES FIXED ON LONG TERM CONTRACTS CANNOT BE COMPARED WITH THE PURCHASES MADE FROM NON - AES, WHERE NO SUCH LONG TERM CONTRACT WAS THERE. THE LD A.R FURTHER SUBMITTED THAT THE TC/RC CHARGES FOR NON - AES ARE FIXED ON CALENDAR YEAR BASIS, WHEREAS THE SAME IS FIXED ON FINANCIAL YEAR BASIS WITH AE. HE SUBMITTED THAT THE JAPANESE SMELTERS USUALLY FIX THE TC/RC CHARGES IN THE MONTH OF JANUARY, EVERY YEAR. WHILE FOR NON - AES, THE SAME IS GIVEN EFFECT IMMEDIATELY FROM THE MONTH OF JANUARY ITSELF , FOR AES, THE SAME IS GIVEN EFFECT FROM 1 ST APRIL. SINCE THE TC/RC CHARGES ARE GIVEN EFFECT ON CALENDAR YEAR BASIS F OR NON - AES AND THE SAME IS G IVEN EFFECT ON FINANCIAL YEAR BASIS FOR AE , THERE ITA NO. 4857 AND 49 18 / MUM/20 1 2 12 BOUND TO BE SOME DIFFERENCE IN THE PRICES ON ACCOUNT OF TC/RC CHARGES IN THE MONTHS OF JANUARY TO MARCH EVERY YEAR. HE FURTHER SUBMITTED THAT IT SO HAPPENED THAT THE TC/RC CHARGES DEDUCTIBLE FROM PRICES PA ID TO NON - AES WAS HIGHER DURING THE YEAR UNDER CONSIDERATION RESULTING I N PAYMENT OF HIGHER PRICES TO THE AE. HE SUBMITTED THAT THE ASSESSEE HA S PA ID LOWER PRICES TO ITS AE IN THE SUBSEQUENT YEARS DUE TO DEDUCTION OF HIGHER TC/RC CHARGES VIS - - VIS THE PAY MENTS MADE TO NON - AES. IN THIS REGARD, THE LD A.R INVITED OUR ATTENTION TO A CHART PLACED AT PAGE 221 OF THE PAPER BOOK. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS EXPLAINED BEFORE THE AO ABOUT THE PRACTICE CONSISTENTLY FOLLOWED BY THE ASSESSEE. HOWEVER, THE AO HAS NOT ADDRESSED THE SAME. HE FURTHER SUBMITTED THAT THE LD CIT(A) HAS ALSO APPRECIATED THE FACT THAT THE ASSESSEE IS DETERMINING THE RATE WITH AE ON FINANCIAL YEAR BASIS BY OBSERVING THAT THE SAME MAY BE ALRIGHT FOR ADMINISTRATIVE CONVENIENCE. 21. THE LD A.R FURTHER SUBMITTED THAT THE TAX AUTHORITIES HAVE TO COMPARE THE LONG TERM CONTRACTS ENTERED WITH AES WITH SIMILAR KIND OF LONG TERM CONTRACTS ENTERED WITH NON - AES. HE SUBMITTED THAT THE ASSESSEE HAS POINTED OUT THIS PRINCIPLE AT PAGE 12 OF ITS TP STUDY (PAGE 172 OF PAPER BOOK). THE PARTIES ALSO ENTER INTO NO HOLIDAY CONTRACT WITH THE MINE OWNERS AND THE NO HOLIDAY CONTRACT IS ALSO A TYPE OF LONG TERM CONTRACT ONLY. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS ENTERED INTO A NO - HOLIDAY CONTRACT WITH TWO COMPANIES , BUT THEY ARE FOR PURCHASE OF FIXED QUANTITY VIZ., PT FREEPORT AND ESCONDIDA FOR PURCHASE OF 90000 DMT EACH. H E NCE THEY CANNOT ALSO BE CONSIDERED AS COMPARABLES. HE FURTHER SUBMITTED THAT THE TPO HAS TAKEN TWO OT HER COMPARABLES WITHOUT CALLING FOR EXPLANATION FROM THE ASSESSEE. 2 2 . THE LD A.R FURTHER SUBMITTED THAT THE TAX AUTHORITIES HAVE TO FIRST DETERMINE ABOUT THE BONAFIDES OF THE LONG TERM CONTRACT ENTERED BETWEEN ITA NO. 4857 AND 49 18 / MUM/20 1 2 13 THE ASSESSEE AND ITS AE. IF THEY ARE SATISFIED WITH THE BONAFIDES OF THE LONG TERM CONTRACT, THE PRICE FLUCTUATION HAPPENING IN THE MARKET SHOULD NOT BE CONSIDERED. 23. ACCORDINGLY, THE LD A.R SUBMITTED THAT THE PRICE PAID TO THE AE SHOULD BE CONSIDERED AT ARMS LENGTH ONLY BY CONSIDERI NG THE PECULIAR FACTS PREVAILING IN THE INSTANT CASE. 24. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE TAX AUTHORITIES ARE REQUIRED TO DETERMINE THE ARMS LENGTH PRICE OF THE PRODUCTS BY COMPARING THE PRICES PAID TO THE AE VIS - - VIS THE NON - AE. HE SU BMITTED THAT THE LONG TERM CONTRACTS ARE ENTERED IN ORDER TO ENSURE REGULAR SUPPLY OF MATERIALS AND THE SAME MAY NOT INFLUENCE THE PRICE. HENCE THE LONG TERM CONTRACTS ARE NOT RELEVANT FOR DETERMINING THE MARKET PRICE OF PRODUCTS. THE LD D.R SUBMITTED TH AT THE ASSESSEE HAS INITIALLY COMPARED THE TC/RC CHARGES DEDUCTED TO THE AE WITH A NON - AE NAMED M/S PT FREEPORT. HE SUBMITTED THAT THE ASSESSEE HAS ENTERED INTO NO - HOLIDAY CONTRACT WITH M/S PT FREEPORT. THE AO HAS ALSO COMPARED THE PRICES PAID TO M/S MIN ERA ESCONDIDA, ANOTHER PARTY WITH WHOM THE ASSESSEE HAD ENTERED INTO LONG TERM CONTRACT ONLY. ACCORDINGLY HE SUBMITTED THAT THE AO/TPO HAS COMPARED THE PRICE PAID TO THE AE WITH INTERNAL COMPARABLES HAVING SIMILAR FEATURES. ACCORDINGLY HE SUBMITTED THAT THE TAX AUTHORITIES ARE JUSTIFIED IN MAKING THIS ADDITION. 25 . WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISSUE AND PERUSED THE RECORD. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS ENTERED INTO A LONG TERM CONTRACT WITH ITS AE FOR PROCURING THE COPPE R CONCENTRATES. THE PERIOD OF CONTRACT IS FOR THE LIFE TIME OF THE MINE. IT IS ALSO AN ADMITTED FACT THAT NO OTHER COMPARABLES IS HAVING THIS FEATURE AND HENCE, ON THIS GROUND ALONE, THE COMPARABLES ADOPTED BY THE AO/TPO IS LIABLE TO BE ITA NO. 4857 AND 49 18 / MUM/20 1 2 14 REJECTED. FURTHE R, THERE IS NO DIFFERENCE BETWEEN AE AND NON - AE WITH REGARD TO THE METHODOLOGY ADOPTED FOR DETERMINING THE PRICES OF COPPER CONCENTRATES, VIZ., (A) ASCERTAIN THE PRICE QUOTED FOR COPPER METAL IN LME. (B) ASCERTAIN THE TC/RC CHARGES FIXED BY JAPANESE SME LTERS ANNUALLY ON CALENDAR YEAR BASIS. (C) REDUCE THE TC/RC CHARGES FROM THE PRICE OF COPPER AND (D) ADJUST THE PRICE SO ARRIVED AT FOR FREIGHT DIFFERENTIALS. THE DIFFERENCE IN PRICES HAS OCCURRED ONLY DUE TO THE FACT THAT THE NON - AES HAVE SYNCHRO NIZED THE REDUCTION OF TC/RC CHARGES WITH THE JAPANESE RATES, I.E., THEY HAVE CHANGED THE TC/RC CHARGES ON CALENDAR YEAR BA S IS. HOWEVER, THE AE HAS FOLLOWED FINANCIAL YEAR BASIS FOR EFFECTING SUCH KIND OF CHANGE, I.E., THE AE HAS GIVEN EFFECT TO THE MODIF IED TC/RC CHARGES FROM 1 ST APRIL OF EVERY YEAR, EVEN THOUGH THE MODIFIED RATES WERE ANNOUNCED IN THE MONTH OF JANUARY ITSELF. THE EFFECT OF THIS PRACTICE IS THAT THE NON - AES SHALL ADOPT NEW RATE OF TC/RC CHARGES FOR JANUARY TO MARCH EVERY YEAR, WHIL E THE AE SHALL ADOPT OLD RATES FOR THAT PERIOD. THE NATURAL EFFECT OF THIS PRACTICE IS THAT THERE IS BOUND TO BE PRICE DIFFERENCE BETWEEN THE AE AND NON - AES IN THESE THREE MONTHS, MAINLY ON ACCOUNT OF TC/RC CHARGES. 26. AS SUBMITTED BY LD A.R THAT IT SO HAPPENED THAT THE ASSESSEE HAD TO PAY HIGHER PURCHASE PRICE DURING THE YEAR UNDER CONSIDERATION FOR THE PURCHASES EFFECTED IN THE MONTHS OF FEBRUARY AND MARCH, DUE TO ADOPTION OF LOWER TC/RC CHARGES APPLICABLE TO IMMEDIATELY PRECEDING CALENDAR YEAR. HOWEV ER, AS CAN BE SEEN FROM THE DETAILS GIVEN IN PAGE 221 OF THE PAPER BOOK, THE DIFFERENCE IN THE RATES OF TC/RC CHARGES ADOPTED BETWEEN AE AND NON - AE WAS 98% DURING THE YEAR UNDER CONSIDERATION AND IT HAS COME DOWN TO 12% IN THE SUCCEEDING YEAR, I.E., FOR CA LENDAR YEAR 2006. HOWEVER, FROM CALENDAR YEAR 2007 ONWARDS, THE TC/RC CHARGES HAVE FALLEN DOWN RESULTING IN PAYMENT OF LOWER PURCHASE PRICE TO AES IN THE ITA NO. 4857 AND 49 18 / MUM/20 1 2 15 MONTHS OF JAN TO MARCH. FOR EXAMPLE, THE TC/RC CHARGES DETERMINED IN 2007 WAS US $ 66 , BUT THE ASSES SEE WAS DEDUCTING US $ 104.5 (THE RATE APPLICABLE FOR CALENDAR YEAR 2006) IN THE MONTHS OF JANUARY, 2007 TO MARCH, 2007 AS PER THE PRACTICE FOLLOWED BY IT. IN THE SUBSEQUENT YEARS ALSO, THE TC/RC CHARGES HAS FALLEN DOWN, BUT THE AE WAS DEDUCTING TC/RC CHA RGES AT HIGHE R RATE RESULTING IN PAYMENT OF LOWER PURCHASE PRICE TO AE. THUS, THE PATTERN FOLLOWED BY THE ASSESSEE AND ITS AE SHOWS THAT THE SAME HAS BEEN CONSISTENTLY FOLLOWED AND THE DIFFERENCE IN PURCHASE PRICES WAS MAINLY ON ACCOUNT OF FOLLOWING A PA RTICULAR PATTERN. THE SAME WOULD SHOW THE BONAFIDES OF THE ASSESSEE AND ALSO THE AE. HENCE, WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT THE TEMPORARY PRICE DIFFERENTIALS DUE TO FOLLOWING A PARTICULAR PATTERN SHOULD BE IGNORED. BESIDES THE ABO VE, AS NOTICED EARLIER, THE COMPARISON SHOULD BE BETWEEN TWO CASES HAVING SIMILAR FEATURES. HOWEVER, IN THE INSTANT CASE, THE ASSESSEE HAS ENTERED INTO A LONG TERM CONTRACT FOR THE LIFE TIME OF THE MINE S AND HENCE THE PRICE PAID TO ITS AE SHOULD BE COMPAR ED WITH A CASE HAVING SIMILAR FEATURES. ACCORDINGLY, IN OUR VIEW, THE CONTRACT ENTERED WITH AE CANNOT BE COMPARED WITH OTHER CASES HAVING ONLY ANNUAL CONTRACTS. WE HAVE NOTICED EARLIER THAT THE NO HOLIDAY CONTRACT IS A VARIANT OF LONG TERM CONTRACT. T HE ASSESSEE HAS ENTERED NO HOLIDAY CONTRACT WITH TWO PARTIES, BUT THEY WERE FOR LIFTING FIXED QUANTITY OF MATERIALS, I.E., THEY WERE NOT LIFE TIME CONTRACTS. HENCE, THEY CANNOT ALSO BE COMPARED. 27. EVEN OTHERWISE, THERE IS NO DIFFERENCE IN THE MET HODOLOGY ADOPTED BY AE AND NON - AE FOR DETERMINING THE PRICE. THE DIFFERENCE HAS OCCURRED DUE TO FOLLOWING FINANCIAL YEAR BASIS FOR AE, WHERE AS THE NON - AES HAVE FOLLOWED CALENDAR YEAR BASIS. SINCE THE ASSESSEE IS FOLLOWING A PARTICULAR PATTERN FOR ITS AES YEAR AFTER YEAR, WE FIND MERITS IN THE CONTENTIONS OF THE LD A.R THAT THE TEMPORARY PRICE DIFFERENCE OCCURRING DUE TO FLUCTUATIONS IN TC/RC CHARGES SHOULD BE IG NORED. THESE SUBMISSIONS BRINGS OUT THE EXACT ITA NO. 4857 AND 49 18 / MUM/20 1 2 16 REASON FOR THE PRICE DIFFERENCE AND IN OUR VI EW, THE SAID REASONS ARE REASONABLE AND NEED TO BE FACTORED IN, I.E., ADJUSTMENTS SHOULD BE PERMITTED , IN WHICH CASE IT WOULD RESULT THAT THE PAYMENTS MADE TO AE WAS AT ALP. FURTHER, IT IS NOT THE CASE THAT THE ASSESSEE WAS PAYING HIGHER PURCHASE PRICE TO ITS AE YEAR AFTER YEAR IN THE MONTHS OF JAN TO MARCH. IN SUBSEQUENT YEARS, THE ASSESSEE HAS GAINED BY PAYING LOWER PURCHASE PRICES. IN VIEW OF THE FOREGOING, WE ARE OF THE VIEW THAT THE ASSESSEE SHOULD BE CONSIDERED AS HAVING PAID THE PURCHASE PRICE TO ITS AE AT ALP ONLY AND HENCE THERE IS NO NECESSITY TO MAKE ADJUSTMENTS. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION. 28. THE NEXT ISSUE RELATES TO ADDITION MADE U/S 92CA MADE ON ACCOUNT OF CORPORATE GUARANTEE FEE , WHICH HAS RESULTED IN AN ADDITION OF RS.9,70,40,250/ - . IN THE ADDITIONAL GROUND NO.3, THE ASSESSEE IS CHALLENGING THE ADDITION ON THE GROUND THAT THE EXPLANATION (I)(C) TO SEC. 92B WAS INSERTED BY FINANCE ACT, 2012 AND HENCE THE SAME SHOULD NOT BE MADE APPLICABLE TO THE YEAR UNDER CONSIDERATION. 29. WITH REGARD TO THE LEGAL ISSUE URGED THROUGH ADDITIONAL GROUND, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THE CONTEN TIONS OF THE ASSESSEE. THE EXP LANATION TO SEC. 92B OF THE ACT WAS INSERTED BY FINANCE ACT, 2012 W.R.E FROM 1.4.2002 ONLY TO CLARIFY THE EXPRESSION INTERNATIONAL TRANSACTION USED IN SEC. 92B OF THE ACT. IT IS NOT A CASE THAT THE EXPRESSION INTERNATIONAL TRANSACTION IS INSERTED FOR THE FIRST TIME WITH RETROS PECTIVE EFFECT. EVEN PRIOR TO THE INSERTION OF THE EXPLANATION, REFERRED ABOVE, THE ASSESSEE IS REQUIRED TO BENCH MARK ALL ITS INTERNATIONAL TRANSACTIONS AND IS REQUIRED TO JUSTIFY THEM. HENCE, IN OUR VIEW, THE EXPLANATION IN NO WAY IMPOSES ANY NEW LIAB ILITY WITH RETROSPECTIVE EFFECT. THE ASSESSEE PLACED RELIANCE ON THE DECISION DATED 11 - 03 - 2014 RENDERED ITA NO. 4857 AND 49 18 / MUM/20 1 2 17 BY THE CO - ORDINATE BENCH IN THE CASE OF BHARTI AIRTEL LTD (ITA NO.5816/DEL/2012) TO SUPPORT ITS ADDITIONAL GROUND. HOWEVER, A CAREFUL PERUSAL OF THE S AID DECISION WOULD SHOW THAT THE TRIBUNAL DELETED THE ADDITION ON MERITS AND THEN MADE A PASSING REFERENCE WITH REGARD TO THE APPLICABILITY OF THE EXPLANATION. IN OUR VIEW, THE SAID OBSERVATIONS ARE OBITER DICTA ONLY. THE DECISION RENDERED BY THE HYDERA BAD BENCH OF TRIBUNAL IN THE CASE OF FOUR SOFT LTD (2011)(142 TTJ (HYD) 358), ON WHICH ALSO THE ASSESSEE PLACED RELIANCE, HAS BEEN RENDERED PRIOR TO THE INSERTION OF EXPLANATION BY FINANCE ACT, 2012. ACCORDINGLY, WE REJECT THE ADDITIONAL GROUND URGED BY T HE ASSESSEE. 30. THE FACTS RELATING TO GUARANTEE FEE RECEIVED BY THE ASSESSEE ARE THAT THE ASSESSEE HAS GIVEN CORPORATE GUARANTEE TO THE AES VIZ., M/S BIRLA MT. GORDON PTY LTD; BIRLA NIFTY PTY LTD AND BIRLA MINERAL RESOURCES PTY LTD. THE ASSESSEE CHA RGED GUARANTEE FEE AT 0.25% P.A. THE AO NOTICED THAT A US BANK HAS CHARGED A FEE OF 1.5% TO 2% TO THE GUARANTEE GIVEN BY IT. ACCORDINGLY, THE AO ADOPTED THE RATE OF 1.75% AND ACCORDINGLY COMPUTED THE GUARANTEE COMMISSION/FEE, WHICH RESULTED IN AN ADDITI ON OF RS.9.70 CRORES. THE LD CIT(A) ALSO CONFIRMED THE SAME. 31. BEFORE US, THE LD A.R PLACED RELIANCE ON THE DECISION DATED 08 - 05 - 2015 RENDERED BY HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S EVEREST KENTO CYLINDERS LTD (ITA N O.1165 OF 2013), WHEREIN THE HIGH COURT HAS HELD THAT THE CONSIDERATION WHICH APPLIED FOR ISSUANCE OF CORPORATE GUARANTEE ARE DISTINCT AND SEPARATE FROM THAT OF BANK GUARANTEE. ACCORDINGLY HE CONTENDED THAT THE TAX AUTHORITIES ARE NOT JUSTIFIED IN ADOPTIN G THE RATE QUOTED BY A BANK FOR GIVING BANK GUARANTEE TO THE CASE OF THE ASSESSEE. ITA NO. 4857 AND 49 18 / MUM/20 1 2 18 32. THE LD D.R, ON THE CONTRARY, SUBMITTED THAT THE ASSESSEE HAS NOT GIVEN ANY BENCH MARK AND HENCE THE TPO/AO WAS CONSTRAINED TO ADOPT THE RATE CHARGED BY THE BANKS. ACCORDINGLY HE SUBMITTED THAT THIS MATTER MAY BE RESTORED BACK TO THE FILE OF THE AO FOR FRESH CONSIDERATION. 33. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. WE NOTICE THAT THE ASSESSEE HAS ALSO REFERRED TO THE DECISION DATED 25.3.2015 R ENDERED BY THE CO - ORDINATE BENCH IN THE CASE OF MANUGRAPH INDIA LTD (ITA NO.4761/MUM/2013), WHEREIN THE CO - ORDINATE BENCH HAS DETERMINED A RATE OF 0.50% FOR GUARANTEE GIVEN. WE FURTHER NOTICE THAT THE RATE OF 0.50% IS CONSISTE NT LY FOLLOWED IN MANY OF THE C ASES BY THE TRIBUNAL. IN FACT, IN THE CASE OF EVEREST KANTO CYLINDER LTD, WHICH WAS CONSIDERED BY THE HONBLE BOMBAY HIGH COURT, THE TRIBUNAL HAS DETERMINED THE RATE AT 0.50% AND THE SAME HAS NOT BEEN DISTURBED BY THE HONBLE BOMBAY HIGH COURT. ACCORDING LY, WE MODIFY THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO COMPUTE THE ADDITION BY ADOPTING THE RATE OF 0.50%. 34 . NOW WE WILL TAKE UP THE APPEAL FILED BY THE REVENUE , WHEREIN FOLLOWING ISSUES ARE URGED: - A) DEDUCTION ALLOWED U/S 80IA BY T HE CIT(A) IN RESPECT OF RENU PO W ER UNIT NOS.6,7,8,9 AND 10; B) DEDUCTION ALLOWED U/S 80I A BY LD.CIT(A) ON CO - GENERATION PLANT - 1 . ; C) DEDUCTION ALLOWED U/S 80IA(2) TO CO - GENERATION PLANT 2 IN TERMS OF OPTION GRANTED U/S 80IA(2); D) DEDUCTION ALLOWED B Y THE LD. CIT(A) U/S 80 - IA APPLYING SUPPLIER/UPSEB MARKET RATE; E) DEDUCTION ALLOWED BY THE LD. CIT(A) TO BIRLA COPPER POWER PLANT UNIT - I AND II U/S 80IA OF THE ACT; F) EXEMPTION U/S 10(23G) ALLOWED BY THE LD.CIT(A) OF GROSS INTEREST RECEIVED FROM DHIL ; ITA NO. 4857 AND 49 18 / MUM/20 1 2 19 35. THE FIRST ISSUE RELATES TO THE ELIGIBILITY OF THE ASSESSEE TO CLAIM DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF RENU POWER UNIT NO.6, 7, 8, 9 AND 10. THE AO REJECTED THE CLAIM, BUT THE LD CIT(A) ALLOWED THE CLAIM. THE LD. AR SUBMITTED THAT THE IS SUE URGED IN THIS GROUND IS COVERED BY THE FOLLOWING DECISIONS OF TRIBUNAL RENDERED IN THE ASSESSEES OWN CASE FOR EARLIER YEARS : A) DEDUCTION FOR UNIT NO.6 HAS BEEN CONFIRMED BY THE TRIBUNAL IN ITA NO.4774/MUM/2003 RELATING TO AY - 1998 - 99, VIDE ITS ORDER DATED 6.7.2007. THE RELEVANT DISCUSSIONS ARE AVAILABLE IN PARA 51 AND 51.1 OF THE ORDER; B) DEDUCTION FOR UNIT NO.7 HAS BEEN CONFIRMED BY THE TRIBUNAL IN ITA NO.4775/MUM/2003 RELATING TO AY - 1999 - 00, VIDE ITS ORDER DATED 6.7.2007. THE RELEVANT DISCUSSIONS ARE AVAILABLE IN PARA 82 OF THE ORDER; C) DEDUCTION FOR UNIT NO.8 HAS BEEN CONFIRMED BY THE TRIBUNAL IN ITA NO.477 5 /MUM/2003 RELATING TO AY - 199 9 - 00 , VIDE ITS ORDER DATED 6.7.2007. THE RELEVANT DISCUSSIONS ARE AVAILABLE IN PARA 86 OF THE ORDER; D) DEDUCTION FOR UNIT NO.9 HAS BEEN CONFIRMED BY THE TRIBUNAL IN ITA NO.4336/MUM/2005 RELATING TO AY - 2003 - 04, VIDE ITS ORDER DATED 28.11.2008. THE RELEVANT DISCUSSIONS ARE AVAILABLE IN PARA 7 AND 7.1 OF THE ORDER; E) DEDUCTION FOR UNIT NO.10 HAS BEEN CON FIRMED BY THE TRIBUNAL IN ITA NO.3852/MUM/2006 RELATING TO AY 2004 - 05, VIDE ITS ORDER DATED 4.8.2009. THE RELEVANT DISCUSSIONS ARE AVAILABLE IN PARA 12 AND 13 OF THE ORDER; THE CLAIM OF THE ASSESSEE FOR RENU POWER UNIT NO.6 TO 9 WAS ALLOWED BY THE TRIBUNA L IN AY 2004 - 05 (SUPRA) ALSO, BY FOLLOWING EARLIER YEARS ORDERS OF THE TRIBUNAL. SINCE THE DECISION RENDERED BY LD CIT(A) ON THIS ISSUE IS IN A CCORDANCE WITH THE DECISION TAKEN BY THE TRIBUNAL, WE DO NOT FIND ANY INFIRMITY IN HIS ORDER ON THIS ISSUE. 36 . THE NEXT ISSUE RELATES TO ELIGIBILITY OF THE ASSESSEE TO CLAIM DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF CO - GENERATION PLANT - 1 . BOTH ITA NO. 4857 AND 49 18 / MUM/20 1 2 20 THE PARTIES AGREED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF TRIBUNAL RENDERED FOR AY 1999 - 2000 IN THE ASSESSEES OWN CASE IN ITA NO.4775/MUM/2003 (REFERRED SUPRA). IT WAS FURTHER SUBMITTED THAT THE ORDER PASSED FOR AY 1999 - 2000 WAS FOLLOWED BY THE TRIBUNAL IN AY 2004 - 05 ALSO. SINCE THE DECISION RENDERED BY LD CIT(A) ON THIS ISSUE IS IN ACCOR DANCE WITH THE DECISION TAKEN BY THE TRIBUNAL, WE DO NOT FIND ANY INFIRMITY IN HIS ORDER ON THIS ISSUE. 37. THE NEXT ISSUE RELATES TO THE ELIGIBILITY OF THE ASSESSEE TO CLAIM DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF CO - GENERATION PLA N T NO.2. THE AS SESSEE COMMISSIONED CO - GENERATION PLANT NO.2 DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2005 - 06, I.E., THE YEAR UNDER CONSIDERATION. HOWEVER, THE ASSESSEE DID NOT CLAIM DEDUCTION U/S 80IA OF THE ACT, SINCE THE PROVISIONS OF SUB - SEC. (2) GIV E AN OPTION TO THE ASSESSEE TO CLAIM DEDUCTION FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING GENERATES POWER. HENCE THE ASSESSEE CHOSE TO CLAIM DEDUCTION IN THE SUBSEQUENT YEARS. THE AO, HO WEVER, TOOK THE VIEW THAT THE QUESTION OF EXERCISING OPTION WOULD ARISE ONLY IF THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF CO - GENERATION PLAT NO.2. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) , BY FOLLOWING HIS ORDER REND ERED IN OTHER CAPTIVE POWER GENERATION UNITS, HELD THAT THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION U/S 80IA . ACCORDINGLY HE HELD THAT THE ASSESSEE IS ENTITLED TO EXERCISE THE OPTION PRESCRIBED IN SEC. 80IA(2) OF THE ACT. 38. WE HAVE HEARD THE PARTIE S ON THIS ISSUE. THE ISSUE RELATING TO ELIGIBILITY OF THE ASSESSEE TO CLAIM DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF CAPTIVE POWER GENERATION UNITS HAS BEEN CONSIDERED BY US IN THE CASE OF RENU POWER UNIT NO.6 TO 10 AND CO - GENERATION PLANT I (SUPRA) IN THE PRECEDING PARAGRAPHS. WE NOTICE THAT THE LD CIT(A) HAS FOLLOWED THE ITA NO. 4857 AND 49 18 / MUM/20 1 2 21 DECISION RENDERED IN RESPECT OF THE ABOVE SAID UNITS FOR DECIDING THIS ISSUE ALSO. HENCE, WE DO NOT FIND ANY INFIRMITY IN HIS ORDER ON THIS ISSU E . SINCE HE HAS HELD THAT THE ASSESS EE IS ELIGIBLE TO CLAIM DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF CO - GENERATION PLAT 2, HE WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE COULD EXERCISE OPTION U/S 80IA(2) OF THE ACT. 39. THE NEXT ISSUE RELATES TO THE DIRECTION GIVEN BY LD CIT(A) TO COMP UTE DEDUCTION U/S 80IA BY APPLYING SUPPLIER/UPSEB MARKET RATE. IT WAS BROUGHT TO OUR NOTICE THAT THE TRIBUNAL, IN THE ORDERS PASSED FOR EARLIER YEARS, HAVE CONSISTENTLY HELD THAT THE STATE ELECTRICITY BOARD RATES HAS TO BE TAKEN AS MARKET VALUE FOR COMPUT ING DEDUCTION U/S 80IA OF THE ACT. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A) ON THIS ISSUE. 40. THE NEXT ISSUE RELATES TO THE ELIGIBILITY OF THE ASSESSEE TO CLAIM DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF BIRLA COPPER POWER P LAT UNIT I & II. THIS ISSUE WAS CONSIDERED BY THE TRIBUNAL IN AY 2003 - 04 IN ITA NO.4336/MUM/05 IN ITS ORDER DATED 28 - 11 - 2008 AND IT WAS DECIDED IN FAVOUR OF THE ASSESSEE. IT WAS SUBMITTED THAT THE ORDER OF AY 2003 - 04 WAS FOLLOWED IN AY 2004 - 05. ACCORDIN GLY, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN ALLOWING DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF BIRLA COPPER POWER PLANT UNIT I & II. 41 . THE LAST ISSUE RELATES TO THE CLAIM FOR EXEMPTION U/S 10(23G) ON THE GROSS AMOUNT OF INTEREST RECEIVE D FROM DAHEJ HARBOUR AND INFRASTRUCTURE LIMITED (DHIL). THE ASSESSEE CLAIMED EXEMPTION U/S 10(23G) OF THE ACT ON THE GROSS INTEREST RECEIPTS. HOWEVER, T HE AO NOTIC ED THAT THE ASSESSEE IS ALSO PAYING INTEREST TO DHIL. ACCORDINGLY, THE AO ALLOWED EXEMPTION U/S 10(23G) OF THE ACT ON THE NET INTEREST . I N THE APPELLATE PROCEEDINGS, THE LD. CIT(A) BY FOLLOWING THE DECISION OF TRIBUNAL RENDERED IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003 - 04 AND 2004 - 05 HELD THAT THE ITA NO. 4857 AND 49 18 / MUM/20 1 2 22 ASSESSEE IS ELIGIBLE TO CLAIM EXEMPTION ON GROSS INTEREST RECEIPTS. IT WAS BROUGHT TO OUR NOTICE THAT THE DECISION RENDERED BY THE TRIBUNAL FOR AY 2003 - 04 HAS SINCE BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT, VIDE ITS ORDER DATED 16 - 08 - 2012 RENDERED IN THE ASSESSEES OWN CASE IN ITA NO.6392 OF 2010 WITH THE FOLLOWING OBSERVATIONS: - 11. THE DHIL HAD PAD INTEREST O THE RESPONDENT IN RESPECT OF THE LOANS ADVANCED BY THE RESPONDENT TO DHIL. THE RESPONDENT PAID INTEREST TO DHIL IN RESPECT OF THE OUTSTANDING BILLS ISSUED BY DHIL. THERE WAS NO CONNECTION BETWEEN THE TWO TRANSACTIONS. THE SECTION DOES NOT REQUIRE OR PERMIT THE NETTING OF PAYMENTS UNDER TWO INDEPENDENT CONTRACTS ALBEIT BETWEEN THE SAME PARTIES. THAT DHIL IS A WHOLLY OWN SUBSIDIARY OF THE RESPONDENT MAKES NO DIFFERENCE. IT IS NOT CONTENDED THAT THE TRANSACTIONS ARE COLOURABLE OR THAT THERE IS ANY CONNECTION BETWEEN THEM. IT WAS NOT SUGGESTED THAT THE TRANSACTIONS WERE STRUCTURED TO AVOID TAX. THE ISSUE RAISED IN PARAGRAPH (I) DOES NOT RAISE A SUBSTANTIAL QUESTION OF LAW. 42. IN THE YEAR UNDER CONSIDERATION, IT WAS NOT SHOWN TO US THAT THE FACTS ARE DIFFERENT THAN THAT RELATING TO AY 2003 - 04. IT WAS ALSO NOT SUGGESTED THAT THE TRANSACTIONS WERE STRUCTURED TO AVOID TAX. HENCE, WE ARE OF THE VIEW THAT THE DECISION REN DERED BY LD CIT(A) ON THIS ISSUE DOES NOT CALL FOR ANY INTERFERENCE. 4 3 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 16TH SEPT, 2015 16TH SEPT , 2015 SD SD ( / AMIT SHUKLA ) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 16TH SEPT ,2015 . . . ./ SRL , SR. PS ITA NO. 4857 AND 49 18 / MUM/20 1 2 23 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI