JE Energy Ventures P.Ltd, Noida V. DCIT, circle-1, Noida

ITA 6598/DEL/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5635 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2014-2015
• Appeal Filed On: 15-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ANUBHAV RASTOGI SHRI K M GUPTA
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Earning of tax free income; Revised return; Rule 8D; Set aside
• Section: 271(1)(c); 92D; 92B; 234B; 14A; 115JB; 201; 144C; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCE) ITA NO.6598/DEL./2018 (ASSESSMENT YEAR : 2014-15) M/S. JE ENERGY VENTURE PRIVATE LTD., VS. DCIT, CIR CLE 1, (FORMERLY KNOWN AS JUBILANT ENERGY PVT.LTD.), NOID A. PLOT NO.1A, INSTITUTIONAL AREA, SECTOR 16A, NOIDA 201 301 (UTTAR PRADESH) (PAN : AAACE0653K) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ANUBHAV RASTOGI, ADVOCATE SHRI K.M. GUPTA, ADVOCATE REVENUE BY : SHRI SUKESH KUMAR JAIN, CIT DR DATE OF HEARING : 23.09.2020 DATE OF ORDER : 30.09.2020 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, JE ENERGY VENTURES PVT. LTD. (HEREINAFT ER REFERRED TO AS THE TAXPAYER) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 10.08.2018 PASSED BY THE A SSESSING OFFICER (AO) IN CONSONANCE WITH THE ORDERS PASSED B Y THE LD. DISPUTES RESOLUTION PANEL (DRP)/TRANSFER PRICING OF FICER (TPO) UNDER SECTION 143 (3) READ WITH SECTION 144C OF THE INCOME-TAX ITA NO.6598/DEL./2018 2 ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2014-15 ON THE MODIFIED GROUNDS INTER ALIA THAT :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER ('LD. AO')/ LEARNED TRANS FER PRICING OFFICER ('LD. TPO') [IN PURSUANCE TO THE DIRECTIONS OF THE HON'BLE DISPUTE RESOLUTION PANEL ('LD. DRP')], ERRE D IN NOT ACCEPTING THE RETURNED INCOME OF THE APPELLANT AMOU NTING TO RS.41,96,45,040/- AND ENHANCING THE SAME BY RS.16,6 6,82,560/-. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. AO/ HON'BLE DRP GROSSLY ERRED IN CONFIRMING THE ADDITION OF RS.16,56,86,204/- TO THE INCOME OF THE APPELLANT PR OPOSED BY THE LD. TPO BY HOLDING THAT PROVISION OF CORPORATE GUAR ANTEE TO ITS ASSOCIATED ENTERPRISE ('AE') DO NOT SATISFY THE ARM 'S LENGTH PRINCIPLE ENVISAGED UNDER THE INCOME TAX ACT, 1961 (' THE ACT') AND IN DOING SO, THE LD. AO/ HON'BLE DRP GROSSLY ER RED IN UPHOLDING THE LD. TPO'S ACTION OF: 2.1. CONSIDERING PROVISION OF CORPORATE GUARANTEE AS INTERNATIONAL TRANSACTION U/S 92B OF THE ACT; 2.2. INCORRECTLY HOLDING THAT THE APPELLANT HAS UN DERTAKEN RISK ON BEHALF OF ITS AES AND THERE IS AN INHERENT COST IN GIVING CORPORATE GUARANTEES FOR WHICH THE APPELLANT SHOULD HAVE CHARGED A CONSIDERATION; 2.3 DISREGARDING THE FACT THAT THE PROVISION OF COR PORATE GUARANTEE TO THE AE WAS IN THE NATURE OF SHAREHOLDE R SERVICE; 2.4 DISREGARDING THE FACT THAT IN THE ABSENCE OF TH E CORPORATE GUARANTEE PROVIDED, THE APPELLANT BEING THE HOLDING COMPANY WOULD HAVE PROVIDED THE FUNDS TO THE SUBSIDIARY BY INCREASING THE SHARE CAPITAL, AND THUS THE GUARANTEE PROVIDED SHOU LD BE TREATED AS QUASI-EQUITY IN NATURE FOR WHICH ARM'S LENGTH CO MPENSATION IS NOT REQUIRED; 2.5 DISREGARDING THE DETAILED AND PROPER COMPARABIL ITY ANALYSIS SUBMITTED BY THE APPELLANT FOLLOWING THE ' INTEREST SAVED' APPROACH; 2.6. IMPUTING THE CORPORATE GUARANTEE COMMISSION O F 2.3% BASED ON THE AVERAGE OF GUARANTEE COMMISSION RATES OF VARIOUS BANKS WITHOUT APPRECIATING THE FACT THAT THE SAME D ID NOT CONSTITUTE A VALID COMPARABLE UNCONTROLLED PRICE ( CUP'); 2.7 CHARGING OF ADHOC PREMIUM OF 150 BASIS POINT OV ER THE 2.3% AS RISK ON ACCOUNT OF SINGLE CUSTOMER RISK AND LENDING RISK; ITA NO.6598/DEL./2018 3 2.8 DISREGARDING THE APPELLANT'S CONTENTION THAT BA NK GUARANTEE CANNOT BE CONSIDERED COMPARABLE TO CORPOR ATE GUARANTEE AND ADJUSTMENTS ARE REQUIRED TO NULLIFY T HE DIFFERENCES BETWEEN THE TWO; AND 2.9 DISREGARDING THE JUDICIAL PRECEDENTS SUBMITTED BY THE APPELLANT ON CORPORATE GUARANTEE 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/ HON'BLE DRP GROSSLY ERRED IN CONFIRMING ADD ITION OF RS.9,96,356/- TO THE INCOME OF THE APPELLANT PERTAI NING TO PAYMENT OF INTEREST ON INTER-CORPORATE LOAN FROM IT S RELATED PARTY DOES NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAG ED UNDER THE ACT AND IN DOING SO, THE LD. AO/ HON'BLE DRP GROSSL Y ERRED IN UPHOLDING THE LD. TPO'S ACTION OF: 3.1. DISREGARDING THE ARM'S LENGTH PRICE AS DETERM INED BY THE APPELLANT IN THE TRANSFER PRICING DOCUMENTATION MAI NTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RUL E 10D OF THE INCOME TAX RULES, 1962 ('THE RULES'); 3.2. INCORRECTLY HOLDING THAT THE APPELLANT DID NO T HAVE A SIMILAR TRANSACTION WITH THIRD PARTIES IN INDIA AND NOT CONSIDERING THE INTERNAL CUP APPLIED BY THE APPELLA NT; 3.3. COMPARING THE RETURN EARNED BY THE APPELLANT WITH RETURN EARNED BY INVESTING IN CORPORATE BONDS AND APPLYING THE BASE RATE OF STATE BANK OF INDIA (SBI') , THEREBY RESUL TING IN AN ERRONEOUS APPLICATION OF CUP METHOD; 3.4 ADHOC ADDITION OF MARKUP OF 200 BASIS POINT OVE R SBI BASE RATE. 4. WITHOUT PREJUDICE TO GROUND NO.5 BELOW, THE LD. AO/ HON'BLE DRP GROSSLY ERRED IN CONFIRMING TRANSFER PR ICING ADJUSTMENT OF RS.9,96,356 ON ACCOUNT OF INTEREST ON INTER CORPORATE LOAN, WHICH SHOULD BE NIL AS THE ENTIRE I NTEREST EXPENSE HAS ALREADY BEEN DISALLOWED U/S 14A OF THE ACT. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/ HON'BLE DRP GROSSLY ERRED IN NOT CONSIDERIN G THE REVISED COMPUTATION OF INCOME FILED BY THE APPELLAN T AND IN DOING SO: 5.1. THE LD. AO/ HON'BLE DRP GROSSLY ERRED IN DISR EGARDING THE EXCLUSION OF DISALLOWANCE U/S 14A OF THE ACT MA DE BY THE APPELLANT THROUGH ITS ORIGINAL RETURN OF INCOME WHI CH IS SUBSEQUENTLY WITHDRAWN BY WAY OF LETTER DATED JUNE 08, 2018 IN ACCORDANCE WITH JUDICIAL PRECEDENTS AND FACTS OF TH E CASE. ITA NO.6598/DEL./2018 4 5.2. WITHOUT PREJUDICE, THAT ON THE FACTS AND CIRC UMSTANCES OF THE CASE AND IN LAW, DISALLOWANCE U/S 14A READ WITH RULE 8D SHOULD BE MADE ONLY IN RESPECT OF SUCH INVESTMENTS FROM WHICH, EXEMPT INCOME NOT FORMING PART OF TOTAL INCOME, HAS BEEN EARNED BY THE APPELLANT. 5.3. WITHOUT PREJUDICE, THAT ON THE FACTS AND CIRC UMSTANCES OF THE CASE AND IN LAW, DISALLOWANCE U/S 14A MADE BY T HE APPELLANT SHOULD BE RESTRICTED TO THE EXEMPT INCOME EARNED BY THE APPELLANT DURING THE YEAR. 6. THE LD. AO HAS GROSSLY ERRED IN CHARGING INTERE ST UNDER SECTION 234B AND 234C OF THE ACT. 7. THE LD. AO HAS GROSSLY ERRED IN INITIATING PENAL TY UNDER SECTION 271(1)(C) OF THE ACT MECHANICALLY AND WITHO UT RECORDING ANY SATISFACTION FOR ITS INITIATION. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE ISSUE AT HAND ARE : JE ENERGY VENTURES PRIVATE LTD . (JEPL), THE TAXPAYER, A STRATEGIC VENTURE BUSINESS SEGMENT OF J UBILANT GROUP THROUGH ITS ALLIANCES AND INTERNATIONAL COMPANIES P ROVIDES BUSINESS MARKETING AND TECHNICAL SUPPORT RELATED OIL AND GAS SERVICES, TRADING IN PAPER SPARES AND AVIATION RELATED SERVIC ES (SALES/MAINTENANCE OF AIRCRAFTS AND HELICOPTERS). DURING THE YEAR UNDER ASSESSMENT, THE TAXPAYER ENTERED INTO INTERNA TIONAL TRANSACTIONS AND SPECIFIED DOMESTIC TRANSACTIONS AS UNDER :- NO. NATURE OF TRANSACTION METHOD VALUE OF TRANSACTION (IN RS.) 1. RECEIPT OF GUARANTEE FEE FOR PROVISION OF CORPORATE GUARANTEE OTHER METHOD 3,46,76,825 2. INTEREST PAID ON INTER- CORPORATE LOAN CUP 68,28,685 3. MANAGERIAL REMUNERATION OTHER METHOD 6,31,77,141 ITA NO.6598/DEL./2018 5 3. DURING THE YEAR UNDER ASSESSMENT, THE TAXPAYER HAS PROVIDED CORPORATE GUARANTEE ON BEHALF OF ITS AR JU BILANT ENERGY NV TO THE TUNE OF RS.14,00,00,000/- BUT WITHOUT CHA RGING ANY GUARANTEE FEE. THE TAXPAYER FOUND ITS INTERNATIONA L TRANSACTIONS QUA PROVIDING CORPORATE GUARANTEE TO ITS ASSOCIATED ENTERPRISES (AE) AT ARMS LENGTH BY TREATING THE SAME AS SHARE HOLDER ACTIVITY; AND THAT GUARANTEE IS NOT COVERED UNDER THE DEFINIT ION OF INTERNATIONAL TRANSACTIONS. 3A. HOWEVER, LD. TRANSFER PRICING OFFICER (TPO) TRE ATED THE PROVISION OF CORPORATE GUARANTEE AS AN INTERNATIONA L TRANSACTION UNDER SECTION 92B OF THE ACT AND IN ORDER TO BENCHM ARK THE INTERNATIONAL TRANSACTIONS, APPLIED COMPARABLE UNCO NTROLLED PRICE (CUP) METHOD AS THE MOST APPROPRIATE METHOD (MAM) A ND PROCEEDED TO HOLD THE CORPORATE GUARANTEE COMMISSIO N AT 2.30% BASED ON AVERAGE GUARANTEE COMMISSION RATE OFFERED BY THE BANK. LD. TPO ALSO ENHANCED THE RATE OF 2% ON ACCOUNT OF LENDING BUSINESS RISK AND PROCEEDED TO HOLD THE ARMS LENGT H COMMISSION RATE OF 4.30% THEREBY PROPOSED TO ENHANCE THE INCOM E OF THE TAXPAYER BY APPLYING BANK GUARANTEE RATES AT 2.30% + 2% ON ACCOUNTING OF LENDING BUSINESS RISKS TOTAL COMES TO 4.30%. ITA NO.6598/DEL./2018 6 4. LD. TPO ALSO ENHANCED THE INCOME OF THE TAXPAYER TO THE TUNE OF RS.2,62,86,178/- PERTAINING TO PAYMENT OF I NTEREST ON INTER- CORPORATE DEPOSIT (SPECIFIED DOMESTIC TRANSACTION ( SDT)) ON THE GROUND THAT SDT PERTAINING TO PAYMENT OF INTEREST O N THE DEPOSIT TAKEN FROM ITS RELATED PARTY DOES NOT SATISFY THE A RMS LENGTH PRICE (ALP) UNDER THE ACT AND HAS ALSO SUBTRACTED AN AMOU NT OF RS.34,45,175/- FROM THE AFORESAID AMOUNT ON ACCOUNT OF NON- CLAIMING OF INTEREST AS EXPENSE UNDER SECTION 14A A ND THEREBY MADE ADJUSTMENT OF RS.2,28,41,006/-. 5. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. D ISPUTES RESOLUTION PANEL (DRP) BY WAY OF FILING OBJECTIONS WHO HAS PARTLY ALLOWED THE SAME. COMPLYING WITH THE DIRECTIONS GI VEN BY THE LD. DRP, LD. TPO REDUCED TRANSFER PRICING ADJUSTMENT FR OM RS.20,06,09,764/- TO RS.16,56,86,204/- IN RELATION TO CORPORATE GUARANTEE FEE TRANSACTIONS AND ENHANCED THE INCOME OF THE TAXPAYER AT RS.9,96,356/- BY HOLDING THAT ITS SDT PERTAINING TO PAYMENT OF INTEREST ON DEPOSIT TAKEN FROM ITS RELATED PARTY DO ES NOT SATISFY ARMS LENGTH PRINCIPLE. FEELING AGGRIEVED, THE TAX PAYER HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ITA NO.6598/DEL./2018 7 ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUND NO.1 7. GROUND NO.1 IS GENERAL IN NATURE, HENCE NEEDS NO SPECIFIC ADJUDICATION. GROUNDS NO.2 TO 2.9 8. UNDISPUTEDLY, THE TAXPAYER HAS PROVIDED CORPORAT E GUARANTEE TO ITS TWO SUBSIDIARIES, NAMELY, JUBILANT ENERGY NV (JENV) AND JUBILANT ENERGY HOLDINGS BV (JEHBV) WITH REGARD TO FOUR LOANS RAISED BY THE SAID SUBSIDIARIES, DETAILED AS UNDER :- LOAN NO. PARTIES AMOUNT OF LOAN (USD MILLION) DATE OF LOAN AVAILED/ PERIODS OPENING BALANCE OF LOAN AMOUNT DRAWN/ REPAID DURING THE YEAR CLOSING BALANCE OF LOAN LOAN 1 JENV AND EXIM BANK USD 50 MILLION W.E.F. 10 TH OCTOBER 2008 TO MATURITY PERIOD OF 5 YEARS USD 40 MILLION REPAID THE FULL OUTSTANDING AMOUNT USD 40 MILLION ON JANUARY 2014 NIL LOAN 2 JENV AND EXIM BANK USD 50 MILLION 1 ST AUGUST, 2011 USD 50 MILLION - USD 50 MILLION LOAN 3 JENV AND AXIS BANK USD 15 MILLION 28 TH MARCH 2014 0 USD 10 MILLION DRAWN USD 10 MILLION LOAN 4 JEHBV AND EXIM BANK USD 45 MILLION 9 TH JANUARY 2014 0 USD 35 MILLION DRAWN USD 35 MILLION 9. IT IS ALSO NOT IN DISPUTE THAT LOAN NOS.1 & 2 SH OWN IN THE AFORESAID TABLE WERE RAISED IN THE EARLIER YEARS AN D WERE SUBJECTED ITA NO.6598/DEL./2018 8 TO TRANSFER PRICING ADJUSTMENT IN AY 2013-14 AND TH E ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.7602/DEL/2017 FOR AY 2013-14 VIDE ORDER DATED 15 .01.2019 . 10. SO FAR AS LOAN NOS.3 & 4 SHOWN IN THE AFORESAID TABLE ARE CONCERNED, IT IS FAIRLY CONCEDED BY THE LD. AR FOR THE TAXPAYER THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE TAXPAYER BY THE TRIBUNAL IN ITA NO.7602/DEL/2017 ORDER DATED 15.01.2019 (SUPRA) WHEREBY APPROACH ADOPTED BY THE TAXPAYER THAT PROVISION OF CORPORATE GUARANTEE TO ITS AE IS A SHAREHOLDER ACTIVITY AND NOT AN INTERNATIONAL TRANSACTION HAS BEEN DISREGARDED. 11. COORDINATE BENCH OF THE TRIBUNAL DECIDED THE ID ENTICAL ISSUE QUA PROVISION OF CORPORATE GUARANTEE TO ITS AE IN T AXPAYERS OWN CASE IN ITA NO.7602/DEL/2017 (SUPRA) BY RETURNING FOLLOWING FINDINGS :- 24. SO, FOLLOWING THE DECISION RENDERED BY THE CO ORDINATE BENCH OF THE TRIBUNAL, WE ARE OF THE CONSIDERED VIE W THAT IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS Q UA CORPORATE GUARANTEE APPROPRIATE COMPARABLE DATA NEEDS TO BE A DOPTED AND BENCHMARKING MADE IN THIS CASE ON THE BASIS OF BANK QUOTES IS NOT SUSTAINABLE, HENCE, THE TP ADJUSTMENT MADE BY T HE TPO/DRP IS NOT SUSTAINABLE IN THE EYES OF LAW. WE ARE ALSO NOT AGREED WITH THE CONTENTIONS RAISED BY THE LD. AR FOR THE TAXPAY ER THAT PROVIDING CORPORATE GUARANTEE IN CASE OF ITS LOAN T O ITS AE IS NOT AN INTERNATIONAL TRANSACTION AND THIS ISSUE HAS BEE N RIGHTLY DECIDED BY THE TPO/DRP BY TREATING THE PROVISION OF CORPORATE GUARANTEE AS INTERNATIONAL TRANSACTION. 25. HOWEVER, AT THE SAME TIME, WE ARE NOT INCLINED TO AGREE WITH THE CONTENTIONS RAISED BY THE TAXPAYER THAT SI NCE NO BENEFIT HAS BEEN PASSED ON TO ITS AE, THERE IS NO NEED TO C OMPENSATE THE TAXPAYER BECAUSE IN A BUSINESS TRANSACTION THERE IS NO CONCEPT OF ITA NO.6598/DEL./2018 9 FREE LUNCH. BECAUSE WITHOUT PROVIDING CORPORATE GUA RANTEE BY THE TAXPAYER NO LOAN WOULD HAVE BEEN GIVEN TO THE A E; THAT THE TAXPAYER HAS TAKEN THE RISK ON BEHALF OF ITS AE WHI CH WOULD NOT HAVE BEEN TAKEN BY ANY THIRD PARTY WITHOUT CONSIDER ATION AND THAT KEEPING IN VIEW THE HIGH RISK INVOLVED IN GIVI NG LOAN BY ANY LENDER TO THE AE, THE COST NEEDS TO BE CHARGED FROM THE AE AND AS SUCH, THE COMMISSION RECEIVED BY THE TAXPAYER FO R PROVIDING CORPORATE GUARANTEE HAS TO BE AT ARM'S LENGTH. HOWE VER, THE AMOUNT RECEIVED BY THE TAXPAYER ON ACCOUNT OF COMMI SSION CHARGED FOR PROVIDING CORPORATE GUARANTEE TO ITS AE NEEDS TO BE AT ARM'S LENGTH PRICE IN VIEW OF THE RATIO OF THE O RDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN GLENMARK PHARMACEUTICALS LTD. (SUPRA) AS DISCUSSED IN PARA 2 1 OF THIS ORDER. SO, THE TPO IS DIRECTED TO BENCHMARK THE INT ERNATIONAL TRANSACTION PROVIDING CORPORATE GUARANTEE TO ITS AE BY PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER. SO, GROUNDS NO.2 TO 2.8 & 3 ARE DETERMINED IN FAVOUR OF THE TAXPAYER FOR STATISTICAL PURPOSES. 12. SO, FOLLOWING THE AFORESAID ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL, WE DIRECT THE TPO TO BENCHMA RK THE INTERNATIONAL TRANSACTIONS QUA PROVISION OF CORPORA TE GUARANTEE BY ADOPTING THE APPROPRIATE COMPARABLE DATA INSTEAD OF MAKING THE BENCHMARKING ON BANK QUOTES IN THE LIGHT OF THE RAT IO OF ORDERS PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN C ASE OF GLENMARK PHARMACEUTICALS LTD VS. ADDL.CIT (ITA NO.5031/M/2012 AY 2008-09), BY PROVIDING AN OPPORTU NITY OF BEING HEARD TO THE TAXPAYER. GROUNDS NO.2 TO 2.9 A RE DETERMINED IN FAVOUR OF THE TAXPAYER FOR STATISTICAL PURPOSES. GROUNDS NO.3 TO 3.4 13. UNDISPUTEDLY, THE TAXPAYER ENTERED INTO SPECIFI ED DOMESTIC TRANSACTIONS (SDT) FOR PAYMENT OF INTEREST ON DEPOS IT FROM ITS ITA NO.6598/DEL./2018 10 RELATED PARTY. IT IS ALSO NOT IN DISPUTE THAT THE TAXPAYER ALSO BORROWED LOAN FROM A THIRD PARTY BANK I.E. IL&FS FI NANCIAL SERVICES LTD. (IFIN) AT AN INTEREST RATE OF 15% AS PER FOLLOWING TERMS & CONDITIONS :- PARTICULARS KEY TERMS- ICD-I KEY TERMS- ICD-II KEY TERMS- THIRD PARTY LOAN BORROWER JEPL JEPL JEPL LENDER JUBILANT MOTORWORKS PVT. LTD. (JMWPL) JMWPL IFIN TYPE OF DEPOSIT INTER CORPORATE DEPOSIT INTER CORPORATE DEPOSIT TERM LOAN DATE OF AGREEMENT (MM/DD/YYYY) 01/10/2013 24/03/2014 18/05/2011 END DATE/ REPAYMENT DATE REPAYABLE ON EXPIRY OF 3 YEARS OR EARLIER AS AGREED BETWEEN THE PARTIES REPAYABLE ON EXPIRY OF 3 YEARS OR EARLIER AS AGREED BETWEEN THE PARTIES 36 MONTHS FROM DATE OF FIRST DISBURSEMENT TENOR AS PER ORIGINAL START DATE (YEARS) APPROX. REPAYABLE ON DEMAND REPAYABLE ON DEMAND 3 YEARS PRINCIPAL INR 10 CRORES INR 2 CRORES INR 125 CRORES CURRENCY INR INR INR INTEREST RATE 14.05% 14.05% 15% SECURED/ UNSECURED UNSECURED UNSECURED SECURED PURPOSE GENERAL CORPORATE PURPOSES GENERAL CORPORATE PURPOSES REFINANCE OF EXISTING DEBT AVAILED/ GENERAL CORPORATE PURPOSES ITA NO.6598/DEL./2018 11 14. LD. AR FOR THE TAXPAYER CONTENDED THAT THIS ISS UE HAS ALSO BEEN ADJUDICATED BY THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2013-14 (SUPRA). 15. IT IS THE CONTENTION OF THE LD. AR FOR THE TAXP AYER THAT LD. TPO WITHOUT APPLYING HIS MIND ON THE APPLICATION OF INTERNAL CUP MADE BY THE TAXPAYER RATHER COMPARED THE RETURN OF THE TAXPAYER WITH PRIME LENDING RATE (PLR) OF STATE BANK OF INDI A AS ON 31.03.2014 I.E. 10%, THEREAFTER, ADDED 150 BASIS PO INT FOR THE RECEIVABLES UPTO RS.50 CRORES AND 300 BASIS POINT I F RECEIVABLES EXCEEDED RS.50 CRORES AND THEREBY PROPOSED ARMS LE NGTH INTEREST RATE OF 11.5% FOR RECEIVABLES UPTO RS.50 CRORES. 16. COORDINATE BENCH OF THE TRIBUNAL DECIDED THE ID ENTICAL ISSUE IN TAXPAYERS OWN CASE FOR AY 2013-14 (SUPRA) BY RETURNING FOLLOWING FINDINGS :- 30. WE ARE INCLINED TO AGREE WITH THE AFORESAID C ONTENTIONS RAISED BY THE LD. AR FOR THE TAXPAYER INTER ALIA TH AT WHEN INTERNAL CUP WAS AVAILABLE AND THE COMPLETE DATA HAS BEEN SU PPLIED FOR COMPARABLE STUDY TO THE TPO/DRP, THE SAME WAS REQUI RED TO BE APPLIED BY PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER. BUT THE TPO HAS NOT PREFERRED TO MAKE ANY COMMENT ON THE REJECTION OF PLEA OF APPLYING INTERNAL CUP R AISED BY THE TAXPAYER. CONSEQUENTLY, TRANSFER PRICING MADE BY TH E TPO IN RESPECT OF SDT PAYMENT OF INTEREST IS NOT SUSTAINAB LE. WHEN OPPORTUNITY OF BEING HEARD IS NOT PROVIDED TO THE T AXPAYER THAT AS TO WHY INTERNAL CUP IS NOT APPLIED BY THE TPO, THE ISSUE IS REQUIRED TO BE SET ASIDE TO THE TPO TO DECIDE AFRES H AFTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE TAXP AYER. GROUNDS NO.4 TO 4.5 ARE ALLOWED FOR STATISTICAL PUR POSES. ITA NO.6598/DEL./2018 12 17. LD. TPO HAS NOT BROUGHT ON RECORD ANY NEW FACTS SUFFICIENT TO DEPART FROM THE VIEW TAKEN BY THE COORDINATE BEN CH OF THE TRIBUNAL IN ASSESSEES OWN CASE OF AY 2013-14, IN T HE IDENTICAL SET OF FACTS AND CIRCUMSTANCES OF THE CASE. SO, FOLLOWI NG THE AFORESAID ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNA L IN TAXPAYERS OWN CASE, WE ARE OF THE CONSIDERED VIEW THAT THIS I SSUE IS REQUIRED TO BE SET ASIDE TO TPO TO DECIDE AFRESH BY CONSIDER ING THE INTERNAL CUP BY EXAMINING COMPLETE DATA SUPPLIED BY THE TAXP AYER FOR COMPARABLE STUDY BY PROVIDING AN OPPORTUNITY OF BEI NG HEARD TO THE TAXPAYER. HENCE, GROUNDS NO.3 TO 3.4 ARE DETERM INED IN FAVOUR OF THE TAXPAYER FOR STATISTICAL PURPOSES. GROUNDS NO.4 & 5 18. THE TAXPAYER IN ITS ORIGINAL RETURN OF INCOME M ADE SUO MOTU DISALLOWANCE U/S 14A OF THE ACT BUT THEREAFTER BY F ILING REVISED COMPUTATION OF TOTAL INCOME INTENDED TO WITHDRAW TH E SUO MOTU DISALLOWANCE BUT AO HAS NOT CONSIDERED THE REVISED COMPUTATION OF TOTAL INCOME. LD. DRP HAS ALSO DECLINED TO GIVE AN Y RELIEF TO THE TAXPAYER ON THIS GROUND FOR THE REASON THAT THE TAX PAYER HAS NOT FILED ANY REVISED RETURN, SUCH CLAIM CANNOT BE ALLO WED. 19. UNDISPUTEDLY, THE TAXPAYER CLAIMED EXEMPT INCOM E OF RS.6,70,80,000/- ON ACCOUNT OF DIVIDEND INCOME EXEM PTED UNDER ITA NO.6598/DEL./2018 13 SECTION 10(34) OF THE ACT BY MAKING SUO MOTU DISALL OWANCE OF RS.19,04,36,363/-. THEREAFTER, THE TAXPAYER FILED A REVISED COMPUTATION OF INCOME UNDER NORMAL PROVISIONS AS WE LL AS UNDER SECTION 115JB OF THE ACT WHICH THE AO AS WELL AS LD . DRP HAVE NOT ACCEPTED. 20. LD. AR FOR THE TAXPAYER CHALLENGING THE IMPUGNE D ORDER PASSED BY THE AO/DRP CONTENDED INTER ALIA THAT THE TAXPAYER IS NOT ONLY ENTITLED TO RAISE LEGAL GROUND AND CAN CLAIM A DDITIONAL CLAIM ALSO; AND THAT DISALLOWANCE IN ANY CASE CANNOT BE M ORE THAN EXEMPT INCOME U/S 14A OF THE ACT AND RELIED UPON THE DECIS ION RENDERED BY THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2013-14 (SUPRA) AND M/S. JUBILANT ENPRO P. LTD. VS. ACIT (CO NO.194/DEL /2017) . 21. WE ARE OF THE CONSIDERED VIEW THAT THE AO CANNO T MAKE DISALLOWANCE U/S 14A OF THE ACT MECHANICALLY AND IN VIEW OF THE LAW LAID DOWN BY HONBLE SUPREME COURT IN CASE OF MAXOPP INVESTMENTS LTD. VS. CIT (2012) 347 ITR 272 (DELHI) , DISALLOWANCE CANNOT EXCEED THE EXEMPT DIVIDEND INCO ME. IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE TAXPAYER IN ITS OWN CASE FOR AY 2013-14 (SUPRA) BY RETURNING FOLLOWING FINDINGS :- 33. UNDISPUTEDLY, THE TAXPAYER HAS SUO MOTU DISAL LOWED THE AMOUNT OF RS.21 CRORES U/S 14A READ WITH RULE 8D WH ICH IS MORE THAN THE DIVIDEND INCOME EARNED DURING THE YEAR UNDER AS SESSMENT WHICH FACT HAS BEEN DULY DISCLOSED IN THE JTP STUDY AND H AS ALSO BROUGHT TO THE NOTICE OF THE TPO VIDE LETTER, AVAILABLE AT PAG E 398 OF THE PAPER BOOK. BUT THE LD. TPO/AO HAS NOT PREFERRED TO DECID E THE ISSUE IN ITA NO.6598/DEL./2018 14 CONTROVERSY. IT IS SETTLED PRINCIPLE OF LAW THAT IN ORDER TO MAKE DISALLOWANCE U/S 14A, RULE 8D CANNOT BE APPLIED MEC HANICALLY AND IN ANY CASE, THE DISALLOWANCE U/S 14A CANNOT BE MORE T HAN THE EXEMPT INCOME RECEIVED BY THE TAXPAYER DURING THE YEAR UND ER ASSESSMENT. IN THESE CIRCUMSTANCES, WE SET ASIDE THIS ISSUE TO THE AO TO RECOMPUTE DISALLOWANCE U/S 14A IN THE LIGHT OF THE DECISIONS RENDERED BY HON'BLE DELHI HIGH COURT IN MAXOPP INVESTMENTS LIMITED VS. CIT (2012) 347 ITR 272 (DELHI) BY PROVIDING AN OPPORTUNITY OF BEIN G HEARD TO THE TAXPAYER. CONSEQUENTLY, ADDITIONAL GROUND IS ALLOWE D FOR STATISTICAL PURPOSES. 22. SIMILARLY, AGAIN IN CASE OF M/S. JUBILANT ENPRO P. LTD. (SUPRA), COORDINATE BENCH OF THE TRIBUNAL DECIDED T HE IDENTICAL ISSUE BY RETURNING FOLLOWING FINDINGS :- RATIO LAID ON BY HON'BLE BOMBAY HIGH COURT IN CASE OF B.R BAMSI VS. CIT (SUPRA), SUPPORTS THE ARGUMENT ADVANCED BY LD.AR. WE ARE THEREFORE INCLINED TO CONSIDER THE PLEA OF ASSESSEE BY SETTING ASIDE THE ISSUE BACK TO LD.AO FOR RE-COMPUTATION OF DISALLOWA NCE UNDER SECTION 14A HAVING REGARDS TO THE DECISION OF HON'BLE SUPRE ME COURT IN THE CASE OF MAXXOP INVESTMENTS LTD VS CIT REPORTED IN ( 2018) 91 TAXMAN.COM 154. IN CASE THE DISALLOWANCE SO COMPUTE D EXCEEDS THE EXEMPT INCOME, LD.AO IS ALSO DIRECTED ITA 3485/DEL/ 2014 ACIT VS. JUBILANT ENPRO P LTD. (A.Y. 2010-11) AND C.O.194/DE L/17 TO RESTRICT THE DISALLOWANCE TO RS.3.17 CRORES, BEING THE AMOUN T OF EXEMPT INCOME EARNED BY ASSESSEE DURING YEAR UNDER CONSIDERATION. 23. IN VIEW OF THE MATTER, WE ARE OF THE CONSIDERED VIEW THAT THIS GROUND IS SET ASIDE TO THE AO TO RECOMPUTE THE DISA LLOWANCE UNDER SECTION 14A OF THE ACT ON THE BASIS OF REVISED COMP UTATION OF INCOME FILED BY THE TAXPAYER IN VIEW OF THE LAW LAI D DOWN BY HONBLE APEX COURT IN MAXOPP INVESTMENTS LTD. VS. CIT (2012) 347 ITR 272 (DELHI). GROUND NO.6 24. GROUND NO.6 QUA LEVY OF INTEREST U/S 234B AND 2 34C OF THE ACT NEEDS NO SPECIFIC FINDING BEING CONSEQUENTIAL I N NATURE. ITA NO.6598/DEL./2018 15 GROUND NO.7 25. GROUND NO.7 BEING PREMATURE NEEDS NO SPECIFIC F INDINGS. 26. RESULTANTLY, THE APPEAL FILED BY THE TAXPAYER I S ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 30 TH DAY OF SEPTEMBER, 2020. SD/- SD/- (N.K. BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 30 TH DAY OF SEPTEMBER, 2020. TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.DRP. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.