Appeal Details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 6838 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
5 year(s) 2 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
29-04-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
I1
Assessment Year
2009-2010
Appeal Filed On
17-02-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHE I - 1 , NEW DELHI BEFORE SH. BHAVNESH SAINI, JUDICIAL MEMBER AND SH. N. S. SAINI, ACCOUNTANT MEMBER ITA NO. 893/DEL/2014 : ASSTT. YEAR : 2009 - 1 0 JINDAL STEEL & POWER LTD., JINDAL CENT RE, 12, BHIKAJI CAMA PLACE, NEW DELHI - 110066 VS ASSTT. COMMISSIONER OF INCOME TAX, HISAR CIRCLE, HISAR (APPELLANT) (RESPONDENT) PAN NO. A AACJ7079D ASSESSEE BY : SH. SALIL KAPOOR, ADV., SH. SUMIT LAL CHANDANI, ADV., MS. ANANYA KAPOOR, ADV. & MS. PALLAVI SAIGAL, ADV. REVENUE BY : SH. SANJAY I. BARA, CIT DR DATE OF HEARING :0 5.03 .2019 DATE OF PRONOUNCE MENT : 29 .04 .2019 ORDER PER N. S. SAINI, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILE D BY THE ASSESSEE AGAINST THE ORDER OF ASSESSING OFFICER U/S 143(3)/144C(13) OF THE INCOME TAX ACT, 1961 DATED 29.10.2018 FOR ASSESSMENT YEAR S 2013 - 14 2. GROUND NO. 1 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE IMPUGNED ASSESSMENT COMPLETED VIDE ORDER DATED 16.01.2014 UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME - TAX ACT, 1961 ( THE ACT ), IS ILLEGAL AND BAD IN LAW. 1.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN COMPLETING THE IMPUGNED ASSESSMENT AT AN INCOME OF RS. 1322,13,35,445 AGAINST INCOME OF RS. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 2 1006,66,79,810 DECLARED BY THE APPELLANT IN THE RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR. 1.2 THAT THE DISPUTE RESOLUTION PANEL ( DRP ) ERRED ON FACTS AND IN LAW IN AFFIRMING THE DRAFT ASSESSMENT ORDER BY PASSING A CRYPTIC AND NON - SPEAKING ORDER, WITHOUT JUDICIOUSLY CONSIDERING THE ENTIRE MATERIAL AND THE SUBMISSIONS/ OBJECTIONS FILED BY THE APPELLANT. 3. AT THE TIME OF HEARING, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THIS GROUND OF APPEAL IS GENERAL IN NATURE AND DO NOT REQUIRE SEPARATE ADJUDICATION BY US. THEREFORE, THE SAME IS DISMISSED. 4. GROUND NO. 2 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 2. THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN REDUCING THE DEDUCTION CLAIMED BY THE APPELLANT UNDER SECTION 80 - 1A OF THE ACT FROM RS.4,19,30,71,772 TO RS.2,52,62,31,398. 2.1 THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT THE RATE AT WHICH POWER WAS SU PPLIED BY APPELLANT TO STATE ELECTRICITY BOARD ( SEB ), I.E. RS.2.3336 PER UNIT, WAS THE MARKET RATE OF POWER FOR PURPOSES OF COMPUTATION OF DEDUCTION UNDER SECTION 80IA OF THE ACT. 5. THE ASSESSING OFFICER OBSERVED THAT FROM THE PERUSAL OF THE INFORMATI ON PLACED ON RECORD BY THE ASSESSEE, IT IS OBSERVED THAT THE ASSESSEE HAS TAKEN RATE OF POWER IN CASE OF SUPPLY TO ITS UNITS @ 3.9227 PER UNIT ON THE LOGIC THAT THE SAME RATE IS CHARGED BY SEB FOR SUPPLYING POWER TO THE INDUSTRIAL CONSUMERS. HOWEVER, THE P OWER SUPPLIED BY ELECTRICITY BOARD TO THE INDUSTRIAL CONSUMERS INCLUDES THE COST DUE TO LOSSES IN TRANSMISSION AND DISTRIBUTION WHICH ARE QUITE HIGH IN CASE OF INDIAN CONDITIONS. THE SAID COST INGREDIENTS ARE ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 3 ABSENT IN THE CASE OF THE ASSESSEE COMPANY. THE ASSESSEE HAD SUPPLIED POWER TO ITS OWN CONSTITUENT UNITS WITHOUT INCURRING ANY EXPENDITURE IN PUTTING UP TRANSMISSION AND DISTRIBUTION NETWORK. FOR SUPPLY OF POWER TO LIMITED CUSTOMERS LOCATED NEAR POWER GENERATION FACILITY, STATE WIDE DISTRIBUTION SYSTEM IS NOT REQUIRED. MOREOVER, THERE IS HARDLY ANY TRANSMISSION LOSS IN THE CASE OF ASSESSEE, WHICH COMES TO ALMOST 20% IN THE CASE OF STATE ELECTRICITY BOARD. THUS THE POWER TARIFF CHARGED BY SEB FROM THE COMMON CONSUMERS COULD NOT BE COMPARED WITH THE POWER TARIFF CHARGED BY ASSESSEE FOR SUPPLYING POWER TO ITS - OWN CONSTITUENT UNITS BECAUSE THE COST INGREDIENTS LIKE COST OF TRANSMISSION WERE ABSENT IN THE CASE OF THE ASSESSEE. SECONDLY, THERE WAS NO COST OF COLLECTION IN THE CASE OF THE ASSESSEE WHILE THE SEB HAD TO MAINTAIN FULL - FLEDGED DEPARTMENT AND ACCOUNTING SYSTEM FOR COLLECTION OF ELECTRICITY, CHARGES FROM THE COMMON CONSUMERS SPREAD OVER THE ENTIRE LENGTH AND BREADTH OF THE STATE. IN ADDITION THE COLLECTION CHARGES FOR ELECTRICITY BILLS ARE ALSO TO BE PAID TO THE BANKERS. THUS THE COST OF POWER SUPPLY BY THE STATE ELECTRICITY BOARD TO THE COMMON CONSUMERS ENTAILS ENORMOUS COST WHILE THE AFOREMENTIONED ADDITIONAL COST INGREDIENTS ARE ABSENT IN THE CASE OF ASSESSEE THAT IS THE REASON WHY THE POWER TARIFF OF THE SEB CANNOT BE COMPARED WITH THAT OF THE POWER TARIFF SUPPLIED BY THE ASSESSEE TO ITS OWN CONSTITUENTS UNITS. IN VIEW OF ABOVE COMPLEXITIES, I AM OF THE OPINION THAT IT IS NECESSARY TO INVOKE PROVISIONS OF SECTION 80IA(8) WHICH DEALS WITH DETERMINATI ON OF VALUE OF GOODS OR SERVICES BY THE ASSESSING OFFICER IS REPRODUCED AS UNDER: - 'WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSE OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 4 BUSINESS CARRIED ON BY THE ASSESSEE, OR WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSE OF ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO ELIGIBLE BUSINESS AND, IN EITHER CASE, THE CONSIDERATION, IF ANY, FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MAR KET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF TRANSFER, THEN, FOR THE PURPOSE OF THE DEDUCTION UNDER THIS SECTION, THE PROFIT AND GAINS OF SUCH ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF THE TRANSFER, IN EITHER CASE, HAS BEEN MADE AT THE MARKET VALU E OF SUCH GOODS OR SERVICES AS ON THAT DATE. PROVIDED THAT WHERE, IN THE OPINION OF THE ASSESSING OFFICER, THE COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS IN THE MANNER HEREIN BEFORE, SPECIFIED, PRESENTS EXCEPTIONAL DIFFICULTIES THE ASSE SSING OFFICER MAY COMPUTE SUCH PROFITS AND GAINS ON SUCH REASONABLE BASIS AS HE MAY DEEM FIT. 6. HE FURTHER OBSERVED THAT I T MAY BE POINTED OUT THAT T HE EXPLANATION ONLY REQUIRES TO FIND OUT THE PRICE AT WHICH THE GOODS WOULD ORDINARILY FETCH IN THE OPEN MARKET. HERE THE WORD ORDINARILY IS MOST IMPORTANT I.E. TO THE EXTENT THE MARKET IS AVAILABLE, IN ORDINARY SITUATION, THE MARKET PRICE HAS TO BE WORKED OUT. IF THE EXTRAORDINARY SITUATIONS ARE THERE AND THE OPEN MARKET IS NOT THAT OPEN, IF COMPARED WITH THE DEVELOPED COUNTRIES, AND OPEN MARKET IS LESSER OPEN, IT WOULD NOT MEAN THAT THE MARKET VALUE IS NOT THERE. 7. HE OPINED THAT, IT WOULD HAVE TO DEPEND WHAT PRICE IS AVAILABLE TO AN INDEPENDENT UNDERTAKING HAVING SOLE BUSINESS OF POWER GENERATING. IT IS COMMONLY KNOWN THAT INDIA IS A POWER DEFICIENT COUNTRY. AS PER THE ELECTRICITY ACT, 2003, CENTRAL ELECTRICITY AUTHORITY (CEA) HAS BEEN ESTABLISHED FOR TECHNICAL COORDINATION AND SUPERVISION OF PROGRAMMES. AS PER ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 5 WEB - SITE OF CEA (WWW.CEA.NIC.IN), THE POSIT ION OF REVISED TARIFF (AS ON 1ST JULY 2012) IN CASE OF UTTRA MEGA POWER PROJECTS (UMPP) AWARDED THROUGH TARIFF BASED COMPETITIVE BIDDING IS AS UNDER: - PROJECTS AWARDED THROUGH TARIFF BASED COMPETITIVE BIDDING ROUTE (AS ON 1ST JULY, 2012) NAME OF THE PROJ ECT AND CAPACITY AS PER LOI NAME OF THE SUCCESSFUL BIDDER DATE OF LOI LEVELISED TARIFF (RS/KWH) MUNDRA (5X800 MW) (GUJARAT) M/S TATA POWER LTD. 28.12.2006 2.26 SASAN (6X660) (GUJARAT) M/S RELIANCE POWER LTD. 01.08.2007 1.2 KRISHNAPATNAM (6X660) (ANDHRA PRADESH) M/S RELIANCE POWER LTD. 30.11.2007 2.33 TILAIYA (6X660) (JHARKHAND) M/S RELIANCE POWER LTD. 12.02.2009 1.77 8. HE NOTED THAT RATE WHICH IS DETERMINED BY COMPETITIVE BIDDING COULD BE SAID TO BE THE RATE IN OPEN MARKET. QUANTITY OF POWER GENERAT ED BY THE ASSESSEE IS MINUSCULE AS 'COMPARED TO THESE UMPPS', HENCE, ASSESSEE IS BOUND TO BE COMPULSORY SELLER IN THE MARKET. THEREFORE, HE IS BOUND TO GET MUCH LOWER RATES THAN THESE UMPPS. WE ARE CONSIDERING RATES IN FINANCIAL YEAR 2008 - 09 IN WHICH RATES ARE BOUND TO BE LOWER THAN THE ABOVE MENTIONED RATES (WHICH ARE AS ON 01.07.2012). THEREFORE, IN MY OPINION, RATE OFFERED TO ASSESSEE BY THE STATE ELECTRICITY BOARD I.E. RS.2.336 PER UNIT IS MORE THAN REASONABLE TO - BE ADOPTED FOR PURPOSES OF COMPUTATION OF PROFITS AND GAINS DERIVED FROM ELIGIBLE BUSINESS FOR THE PURPOSES OF SECTION 80IA OF THE INCOME - TAX ACT 1961. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 6 9. HE FURTHER OBSERVED THAT AS REGARDS RELIANCE PLACED BY ASSESSEE ON LD. ITAT DELHI S ORDER FOR AY 2001 - 02 IN HIS CASE & THE ORDER OF HIGH CO URT ON THE ISSUE, IT IS MENTIONED WITH UTMOST RESPECT TO THE ADVERSE ORDER OF HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ASSESSEE THAT THE DEPARTMENT HAS PREFERRED SLP BEFORE THE APEX COURT ON THE ISSUES ADJUDICATED BY THE HON BLE PUNJAB & HARYANA HIGH COURT. 10. HE ALSO OBSERVED THAT IT IS ALSO RESPECTFULLY SUBMITTED THAT IN THE ASSESSMENT YEAR 2001 - 02 THE DEPARTMENT COULD NOT BRING THE ENTIRE PICTURE BEFORE THE HIGHER JUDICIAL AUTHORITIES. THE WHOLE ISSUE NEEDS TO BE CONSIDERED FROM AN OVERALL PE RSPECTIVE. AS TO MARKET VALUE OF ELECTRICITY SUPPLIED IS CONCERNED, IT POSTULATES A MARKET AND IF A MARKET IS NOT THERE, A NOTIONAL MARKET HAS TO BE PRESUMED. UNDER THE ELECTRICITY (SUPPLY) ACT 1948, THE GENERATION OF ELECTRICITY IS NOT PERMITTED EXCEPT B Y THE BOARD OR THE LICENSEE AND FURTHER SURPLUS POWER FROM ITS CAPTIVE CONSUMPTION COULD BE SOLD TO THE BOARD ONLY. THE BOARD HAS BEEN DEFINED UNDER SECTION 5 OF THE ELECTRICITY (SUPPLY) ACT 1948. THUS THE SURPLUS POWER COULD ONLY BE SOLD TO EITHER THE BOA RD OF SAME STATE GOVT. OR THE BOARD OF OTHER STATE GOVERNMENTS. THUS, THERE, WILL BE AS MANY BUYER AS THE NUMBER OF STATE ELECTRICITY BOARD ARE THERE. THUS, IT WOULD BE WRONG TO SAY THAT THERE IS NO OPEN MARKET. OF, COURSE, IT IS TRUE THAT BOARDS ARE ONLY BUYERS IN THE COUNTRY. NOW A QUESTION OF LAW ARISES THAT IF THE POLITICAL SYSTEM/POLITY OF THE NATION/ENACTMENT BY CENTRAL LEGISLATURE IS AS HEREIN ABOVE IN INDIA, WHEREBY THE ONLY MARKET CONSISTS OF THE BOARDS, WOULD IT MEAN THAT THERE WOULD BE NO MARKET. IN ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 7 MY OPINION, THE ANSWER IS IN NEGATIVE IN VIEW OF EXPOSITION AS FOLLOWS. THE DEFINITION OF MARKET VALUE HAS TO BE SEEN AS PER THE POLITICAL SYSTEM AND THE ECONOMY OF THE COUNTRY. THE INCOME TAX ACT, 1961 IS A LAW PASSED, BY THE CENTRAL GOVT. AND HENCE , THE DEFINITION OF MARKET VALUE USED IN SUB - SECTION 7 OF SECTION 80IA HAS TO BE FOUND, WHICH IS IN HARMONY WITH THE MARKET DEFINED AND COVERED BY ELECTRICITY SUPPLY ACT, 1948 (A CENTRAL ACT), TILL THE ACT IS AMENDED BY THE PARLIAMENT. 11. CONSIDERING THE PRINCIPLES OF ECONOMICS, EVEN IN MONOPOLY SITUATION IN AN ECONOMY OF THE NATION, THERE IS A MARKET VALUE/RATE/PRICE AND THE OPEN MARKET. THE WORDS, MARKET VALUE, OPEN MARKET, HAVE TO BE UNDERSTOOD AS THE RATE PRICE GIVEN BY A MONOPOLIST IN AN ECONOMY OF T HE NATION TO THE EXTENT, IT IS CONSTITUTIONALLY OPEN. IT IS IRRELEVANT TO SAY THAT LESSER PRICE WAS OFFERED TO THE APPELLANT BY THE STATE GOVT./STATE ELECTRICITY BOARD. INCIDENTALLY, AN ELECTRICITY BOARD REPRESENTS STATE IN THE FEDERAL SET UP OF THE COUN TRY. THOUGH LOOKING SINGULAR, IT REPRESENTS PLURALITY (OF COUNTRYMEN). 12. HENCE, EVEN WHEN ONLY ONE STATE ELECTRICITY BOARD IS A BUYER OF ELECTRICITY, THE RATE GIVEN BY IT TO THE ASSESSEE HAS TO BE TREATED AS MARKET RATE, GIVEN BY PUBLIC AT LARGE (THROUG H REP. BOARD) TO THE ASSESSEE. 13. EVEN WHILE CONSIDERING THE MARKET PRICE , FROM THE STATE ELECTRICITY BOARD PERSPECTIVE, THE FOLLOWING FACTS NEED TO BE CONSIDERED WHICH THEMSELVES EXPLAIN THE DIFFERENCE BETWEEN THE RATE PAID BY SEB TO THE ASSESSEE COMPANY AND RATE CHARGED FROM CONS UMERS. THE SEB HAS TO INCUR HUGE COSTS ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 8 BEFORE IT CAN SUPPLY ELECTRICITY TO THE END CONSUMER ON FOLLOWING HEADS: - (I) HUGE CAPITAL INVESTMENT IN DISTRIBUTION NETWORK. (II) HUGE ESTABLISHMENT COST RELATED TO ITS EMPLOYEES AND THE OFFICES SET UP. (III) TRA NSMISSION LOSSES. (IV) ELECTRICITY LOSSES DUE TO LEAKAGES IN OUR COUNTRY. (V) COLLECTION CHARGES (VI) THE FINANCIAL COST OF FINANCING THE CAPITAL INFRASTRUCTURE AS WELL COSTS RELATED TO NON - REALIZATION OF BILLS FROM CONSUMERS. 14. IN CASE ALL THESE CO STS ARE CONSIDERED, THE GAP CHARGED BY SEB FROM CONSUMERS AND THAT PAID TO ASSESSEE COMPANY CAN BE EASILY UNDERSTOOD. IT IS ALSO A FACT THAT MOST OF THE POWER DISTRIBUTION BOARDS IN OUR COUNTRY ARE INCURRING HUGE BUSINESS LOSSES. 15. FURTHER, WHEN THE ASS ESSEE COMPANY TOOK THE BUSINESS DECISION TO SET UP THE POWER PLANT, IT KNEW THAT IT HAD TO OPERATE IN A MARKET GOVERNED BY ELECTRICITY SUPPLY ACT 1948, AND ALL THE FINANCIAL APPRAISAL REPORTS WOULD REFLECT THE SALE OF EXCESS POWER TO SEB AT THE RATES FIXED . STILL THE ASSESSEE COMPANY HAD TAKEN BUSINESS DECISION TO SETUP THE POWER PLANT. 16. IN THE LIGHT OF ABOVE, THE DEDUCTION U/S 80IA WAS PROPOSED TO BE ALLOWED AT RS.2,52,62,31,398/ - IN THE DRAFT ORDER DATED 28.03.2013. 17. IT WAS OBSERVED BY THE DRP TH AT THE ISSUE AT STAKE WAS THE SUBJECT MATTER OF INTENSE JUDICIAL LITIGATION. THE JUDGEMENT OF HON BLE P & H HIGH COURT IN CASE OF THE ASSESSEE FOR A.Y. 2001 - 02 IS BASED ON THE ORDER OF SAME HIGH COURT IN CASE OF ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 9 ASSESSEE FOR A.Y. 2000 - 01 IN WHICH RELIEF IS ALLOWED TO THE ASSESSEE BY MAKING OBSERVATION AS UNDER: AT THE VERY OUTSET, WE MAY RECORD THAT COUNSEL FOR THE REVENUE HAS VERY FAIRLY STATED THAT QUESTION NO.3 STANDS COVERED AGAINST THE REVENUE AND WE HELD AS SUCH ACCORDINGLY. 18. IT WAS OBSERVED BY THE DRP THAT ON INQUIRY, THE ASSESSEE COULD NOT EXPLAIN BY WHICH ORDER THE ABOVE SAID QUESTION NO.3 IS COVERED AGAINST THE REVENUE. FURTHER, IT HAS BEEN NOTED THAT SLP IS PENDING IN HON BLE SUPREME COURT ON THE ISSUE INVOLVED. 19. THE DRP HAS NOTED THAT T HE ASSESSEE IS NOT ALLOWED TO SELL THE SURPLUS POWER IN OPEN MARKET AND AS PER PPA, IT HAS TO SELL SURPLUS POWER TO SEB ONLY. THEREFORE, ONLY MARKET AVAILABLE FOR THE ASSESSEE IS SEB. FURTHER, SECTION 80A(6) INSERTED BY FINANCE ACT,2009 W.E.F. 01.04.2009 D EFINES MARKET VALUE AS UNDER: EXPLANATION - FOR THE PURPOSES OF THIS SUB - SECTION, THE EXPRESSION MARKET VALUE (I) IN RELATION TO ANY GOODS OR SERVICES SOLD OR SUPPLIED, MEANS THE PRICE THAT SUCH, GOODS OR SERVICES WOULD FETCH IF THESE, WERE SOLD BY THE UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS IN THE OPEN MARKET, SUBJECT TO STATUTORY OR REGULATORY RESTRICTIONS, IF ANY. 20. THE DRP OBSERVED THAT IT IS PERTINENT TO MENTION THAT SECTION 80IA IS UMBRELLA SECTION AND IT GOVERNS DEDUCTIONS ALLOWA BLE UNDER CHAPTER VIA. THEREFORE, IT IS SEEN THAT W.E.F. 01.04.2009, THERE IS SUBSTANTIVE CHANGE IN THE LAW AND THEREFORE, EARLIER CASE LAWS SHALL NOT BE APPLICABLE IN THE PRESENT SITUATION. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 10 21. IN VIEW OF ABOVE, DRP WAS OF THE VIEW THAT THE AO HAS RIGHTLY TAKEN MARKET VALUE AT THE PRICE AT WHICH POWER HAS BEEN SOLD TO SEB. 22. THE ASSESSING OFFICER OBSERVED THAT ACCORDINGLY, IN VIEW OF THE ABOVE DISCUSSION, THE EXCESSIVE PROFIT AS WORKED OUT ABOVE IS REDUCED FOR THE CALCULATION OF DEDUCTION U/S 80IA. HEN CE, THE CLAIM OF THE ASSESSEE COMPANY U/S 80 - IA IS REDUCED BY AMOUNT OF RS. 166,68,40,374/ - . THE ASSESSEE COMPANY CLAIMED DEDUCTION U/S 80IA IS RESPECT OF SALE OF POWER FOR RS. 4,193,071,772/ - . THUS, THE ALLOWABLE DEDUCTION U/S. 80 - 1A COMES TO RS. RS.2,52, 62,31,398/ (RS. 4,193,071,772/ - MINUS RS. 1,666,840,374/ - ). 23. BEFORE US, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE AFORESAID DISPUTE, IN RESPECT OF MARKET RATE OF POWER AS PER THE PROVISIONS OF SECTION 80IA(8) OF THE ACT, STANDS S QUARELY DECIDED IN FAVOUR OF ASSESSEE BY THE FOLLOWING DECISIONS: DECISION OF THE TRIBUNAL IN THE ASSESSEE S OWN CASE FOR ASSESSMENT YEARS 2000 - 01 AND 2001 - 02, AS AFFIRMED BY THIS HON BLE COURT; (KINDLY REFER PG. 160 - 206 AND 207 - 215 (PARA 12 - 18) (16 SOT 5 09 (DEL)) AND PG. 156 - 158 AND 159 OF PB VOL. 1) DECISION OF THE TRIBUNAL IN THE ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2004 - 05 (KINDLY REFER PG. 216 - 260 OF PB VOL. 1) DECISION OF THE TRIBUNAL IN THE ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2002 - 03 AND 2005 - 06 (KINDLY REFER PG. 840 - 870 OF PB VOL. III) 24. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES . ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 11 25. WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF IN AY 2001 - 02 REPORTED IN 16 SOT 509 (DEL) WHERE IT WAS HELD AS UNDER : - 12. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES ON THIS ASPECT. THE CRUX OF THE DISPUTE BEFORE US RELATES TO THE MANNER OF COM PUTING PROFITS OF THE UNDERTAKINGS OF THE ASSESSEE ENGAGED IN GENERATION OF POWER FOR THE PURPOSES OF RELIEF UNDER SECTION 80 - IA OF THE ACT. THE DIFFERENCE BETWEEN THE ASSESSEE AND THE REVENUE IS WITH REGA RD TO THE DETERMINATION OF THE MARKET VALUE OF POWER SO AS TO RECORD THE INCOME ACCRUED TO THE ASSESSEE ON SUPPLIES MADE TO ITS OWN MANUFACTURING UNITS. AS NOTED EARLIER, IN THIS CASE, THE ASSESSEE HAS UTILIZED THE POWER GENERATED FOR ITS CAPTIVE CONSUMPTI ON BY WAY OF SUPPLIES TO ITS OTHER MANUFACTURING UNITS AND ALSO FOR SALE TO THE STATE ELECTRICITY BOARD. THE DISPUTE ESSENTIALLY RELATES TO THE MECHANISM OF SECTION 80 - IA(8) OF THE ACT. SECTION 80 - IA(8) PROVIDES THAT WHERE AN ASSESSEE, WHICH IS ELIGIBLE FOR SECTION 80 - IA BENEFITS, TRANSFERS ITS GOODS OR SERVICES TO A BUSINESS OTHER THAN THE ELIGIBLE BUSINES S, THE CONSIDERATION, IF ANY, RECORDED FOR SUCH TRANSFER IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS SHOULD CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES. THE SAID SECTION AUTHORIZES THE ASSESSING OFFICER THAT WHERE THE TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE, THE PROFITS DECLARED OF THE ELIGIBLE BUSINESS CAN BE ADJUSTED BY THE ASSESSING OFFICER ON SUCH BASIS SO AS TO ENSURE THAT GOODS OR SERVICES TRANSFERRED TO ITS OWN UNIT IS DONE AT TH E MARKET VALUE OF SUCH GOODS OR SERVICES. OSTENSIBLY, IN THIS CASE, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE CONSIDERATION FOR TRANSFER OF POWER FOR CAPTIVE CONSUMPTION TO OTHER UNITS HAS BEEN RECORDED AT A CONSIDERATION WHICH DOES NOT CORRESPOND TO ITS MARKET VALUE. ACCORDING TO THE AUTHORIZED REPRESENTATIVE , THE CONSIDERATION HAS BEEN RECORDED AT A PRICE HIGHER THAN THE MARKET VALUE, IN OTHER WORDS, THE ASSESSING OFFICER DOES ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 12 NOT PERCEIVE RS. 3.72 PER UNIT AS THE MARKET VALUE OF THE POWER GENERAT ED BY THE ASSESSEE AND INSTEAD ADOPTS RS. 2.32 PER UNIT AS THE MARKET VALUE, BEING THE PRICE AT WHICH THE ASSESSEE SELLS POWER TO THE BOARD. 13. BEFORE WE PROCEED FURTHER, IT IS ALSO RELEVANT TO UNDERSTAND THE IMPLICATIONS OF THE EXPRESSION 'MARKET VALUE' AS APPEARING IN SECTION 80 - IA(8) OF THE ACT. IN THE EXPLANATION BELOW SECTION 80 - IA(8) , IT IS PROVIDED THAT THE EXPRESSION 'MARKET VALUE' FOR THE PURPOSE S OF THE SUB - SECTION MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET. IN THE ABOVE CONTEXT, IT THEREFORE BECOMES IMPORTANT FOR US TO CONSIDER AS TO WHETHER THE PRICE CHARGED BY THE ASSESSEE FOR POWER SUPPLIED TO ITS OW N MANUFACTURING UNITS AT THE RATE OF RS. 3.72 PER UNIT CAN BE SAID TO BE CONSTITUTING A MARKET VALUE OF ITS GOODS, NAMELY, POWER. 14. IN THE ADVANCED LAW LEXICON BY P. RAMANATHA AIYAR, 3RD EDITION, 2005, THE MARKET PRICE OR MARKET VALUE HAS BEEN DEFINED A S BELOW: MARKET PRICE OR VALUE IS T HE PRICE FIXED BY BUYER AND SELLER IN AN OPEN MARKET IN THE USUAL AND ORDINARY COURSE OF LAWFUL TRADE AND COMPETITION; THE PRICE OR VALUE OF THE ARTICLE ESTABLISHED OR SHOWN BY SALES, PUBLIC OR PRIVATE, IN THE ORDINARY W AY OF BUSINESS; THE FAIR VALUE OF THE PROPERTY AS BETWEEN ONE WHO DESIRES TO PURCHASE AND ONE WHO DESIRES TO SELL; THE CURRENT PRICE. SIMILARLY, IN THE CASE OF ORCHARD V. SIMPSON (1857) 2 CBNS 299, THE PHRASE 'MARKET VALUE' IN A CONTRACT FOR THE SALE OF G OODS HAS BEEN UNDERSTOOD TO MEAN THE PRICE IN THE MARKET TO AN ORDINARY CONSUMER, IRRESPECTIVE OF THE PARTICULAR CONTRACT. SIMILARLY, IN LAW LEXICON BY P. RAMANATHA AIYAR, WITH REFERENCE TO U. S. V. CERTAIN : PROPERTY IN BOROUGH OF MANHATTAN, CITY COUNTY AND STATE OF NEW YORK, CANY, 403 F.2D800, 802, IT HAS BEEN EXPLAINED THAT THE MARKET VALUE OF AN ARTICLE OR PIECE OF PROPERTY IS THE PRICE WHICH IT MIGHT BE ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 13 EXPECTED TO BRING IF OFFERED FOR SALE IN A FAIR MARKET; NOT THE PRICE WHICH MIGHT BE OBTAINED ON A SALE AT PUBLIC AUCTION OR A SALE FORCED BY THE NECESSITIES OF THE OWNER, BUT SUCH A PRICE AS WOULD BE FIXED BY NEGOTIATION AND MUTUAL AGREEMENT, AFTER AMPLE TIME TO FIND A PURCHASER, AS BETWEEN A VENDOR WHO IS WILL (BUT NOT COMPELLED) TO SELL AND A PURCHAS ER WHO DESIRES TO BUY BUT IS NOT COMPELLED TO TAKE THE PARTICULAR ARTICLE OR PIECE OF PROPERTY. 15. THEREFORE, FROM THE AFORESAID, IT CAN BE DEDUCED THAT MARKET VALUE IS AN EXPRESSION WHICH DENOTES A PRICE ARRIVED AT BETWEEN THE BUYER AND THE SELLER IN TH E OPEN MARKET WHEREIN THE TRANSACTIONS TAKE PLACE IN THE NORMAL COURSE OF TRADING AND COMPETITION IN CONTRAST TO A SITUATION WHERE THE PRICE IS FIXED BETWEEN A BUYER AND A SELLER IN A NEGOTIATION DONE UNDER THE SHADOW OF LEGISLATIVELY MANDATED COMPULSION. IN THE CASE OF THE FORMER, THE PRICE FIXED BETWEEN THE BUYER AND SELLER CAN BE UNDERSTOOD AS DENOTING 'MARKET PRICE' SINCE THE ELEMENTS OF TRADING AND COMPETITION EXIST. WHEREAS IN THE CASE OF THE LATTER SITUATION, THE PRICE FIXED BETWEEN THE BUYER AND SEL LER CANNOT BE UNDERSTOOD AS DENOTING THE MARKET PRICE SINCE THE ELEMENTS OF TRADE AND COMPETITION ARE CONSPICUOUS BY THEIR ABSENCE. 16. TO UNDERSTAND THE CONTRASTING SITUATIONS, LET US ANALYZE THE SITUATION ON HAND. IN THIS CASE, THE ASSESSEE RECEIVED CONS ENT UNDER SECTION 44A OF THE ELECTRICITY (SUPPLY) ACT, 1948 TO ESTABLISH AND OPERATE THE CAPTIVE POWER PLANT IN TERMS OF A POWER PURCHASE - CUM - WHEELING OF POWER AGREEMENT DATED 15 - 7 - 1999 ENTERED BETWEEN THE STATE ELECTRICITY BOARD AND THE ASSESSEE. A COPY OF THE SAID AGREEMENT HAS BEEN PLACED IN THE PAPER BOOK. NOW, IN TERMS OF THE ELECTRICITY (SUPPLY) ACT , 1948, THE LEGISLATURE HAS PUT RESTRICTIONS ON ESTAB LISHMENT OF POWER GENERATING UNITS AND THEIR FUNCTIONING. THE POWER GENERATING UNITS ARE ALLOWED TO USE POWER FOR CAPTIVE CONSUMPTION AND THE SURPLUS AVAILABLE, IF ANY, IS TO BE SOLD TRANSFERRED TO THE STATE ELECTRICITY BOARDS. SECTION 43 OF THE ELECTRICITY (SUPPLY) ACT, 1948 ONLY AUTHORIZES THE STATE ELECTRICITY BOARD TO ENTER INTO ARRANGEMENTS FOR ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 14 PURCHASE AND SALE OF ELECTRICITY UNDER CERTAIN CONDITIONS. SECTION 43A OF THE ELECTRICITY (SUPPLY) ACT, 1948 ALSO LAYS DOWN RULES AND CONDITIONS FOR DETERMINING THE TARIFF FOR THE SALE OF ELECTRICITY BY A GENERATING COMPANY TO THE STATE ELECTRICITY BOARDS. A PERUSAL OF THE SAME REVEALS THAT THE TARIFF IS DETERMIN ED ON THE BASIS OF VARIOUS PARAMETERS CONTAINED THEREIN. FROM THE AFORESAID, IT IS EVIDENT THAT ON ONE HAND IT IS ONLY UPON GRANTING OF SPECIFIC CONSENT THAT A PRIVATE PERSON CAN SET UP A POWER GENERATING UNIT HAVING RESTRICTIONS ON THE USE OF POWER GENERA TED AND AT THE SAME TIME THE TARIFF AT WHICH A POWER GENERATING UNIT CAN SUPPLY POWER TO THE ELECTRICITY BOARD IS ALSO LIABLE TO BE DETERMINED IN ACCORDANCE WITH THE STATUTORY REQUIREMENTS. IN THIS CONTEXT IT CAN BE SAFELY DEDUCED THAT DETERMINATION OF TAR IFF BETWEEN THE ASSESSEE AND THE BOARD CAN BE SAID TO BE AN EXERCISE BETWEEN A BUYER AND SELLER NEITHER IN A COMPETITIVE ENVIRONMENT AND NOR IN THE ORDINARY COURSE OF TRADE AND BUSINESS. IT IS AN ENVIRONMENT WHERE ONE OF THE PLAYERS HAS THE COMPULSIVE LEGI SLATIVE MANDATE NOT ONLY IN THE REALM OF ENFORCING BUYING BUT ALSO TO SET THE BUYING TARIFF IN TERMS OF PRESET STATUTORY GUIDELINES. THEREFORE, THE PRICE DETERMINED IN SUCH A SCENARIO CANNOT BE EQUATED WITH A SITUATION WHERE THE PRICE IS DETERMINED IN THE NORMAL COURSE OF TRADE AND COMPETITION. THEREFORE, THE PRICE DETERMINED AS PER THE POWER PURCHASE AGREEMENT CANNOT BE EQUATED WITH MARKET VALUE AS UNDERSTOOD IN COMMON PARLANCE. WE SEE NO REASON FOR NOT HOLDING SO FOR THE PURPOSES OF SECTION 80 - IA(8) ALSO. 17. IN THIS BACKGROUND, WE MAY MAKE A GAINFUL REFERENCE TO THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CAIT VS MANMATHA NATH MUKHERJEE , WHICH HAS BEEN RELIED ON BY THE ASSESSEE BEFORE US. THE ISSUE BEFORE THE HON'BLE CALCUTTA HIGH COURT WAS IN THE CONTEXT OF THE BENGAL AGRICULTURAL INCOME TAX ACT, 1944. SHORN OF OTHER DETAILS, THE QUESTION CONSIDERED BY THE HON'BLE HIGH COURT, RELEVANT FOR THE PRESENT, WAS WHETHER THE PROCUREMENT RATE O F PADDY OFFERED BY THE STATE COULD BE CONSIDERED TO BE THE MARKET ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 15 VALUE OF PADDY. IN THIS BACK GROUND, THE FOLLOWING OBSERVATIONS OF THE HON'BLE HIGH COURT ARE WORTHY OF NOTICE: A MARKET CONNOTES FREEDOM OF BARGAIN. THERE MAY BE A MARKET, COMPLETELY CIRCU MSCRIBED AS REGARDS THE R ATES BY PRICE CONTROL, BUT WITH IN THE LIMIT SET BY THE RELEVANT RULE OR ORDER, THE AREA OF OPERATION WOULD STILL BE A COMMERCIALLY FREE AREA. EVEN WHERE A CONTROL PRICE IS FIXED, IT IS GENERALLY THE CEILING WHICH IS FIXED AND NOT A N INVARIABLE PRICE. BE THAT AS IT MAY, TO SAY THAT WHEN AGENTS OF THE STATE SEIZE PADDY GROWN BY SUBJECTS UNDER THE AUTHORITY OF SOME LAW OR REGULATION AND PAY FOR IT AT SOME RATE FIXED BY THEMSELVES AND MUCH BELOW THE RATE IN THE OPEN MARKET, THEY CREATE A REGULATED OR ANY KIND OF MARKET AT ALL, IS IF I MAY BE PERMITTED TO USE THE STRONG EXPRESSION, A MISUSE OF LANGUAGE. THE TRIBUNAL EVEN SPEAK OF THE PERSONS WHOSE PADDY IS SEIZED AS 'OPERATING' IN THE REGULATED MARKET. HOW ANY PERSON WHO IS SEIZED BY THE NECK AND COMPELLED TO DELIVER HIS PADDY AND THEN DISMISSED WITH A TRIVIALSUM AS ITS PRICE CAN BE SAID TO OPERATE IN THE MARKET IS BEYOND MY COMPREHENSION. FROM THE AFORESAID, AN ANALOGY THAT CAN BE SAFELY DEDUCED IS THAT THE MARKET VALUE CANNOT BE THE RES ULT OF A TRANSACTION WHICH HAS BEEN ENTERED INTO BETWEEN A BUYER AND A SELLER IN A SITUATION WHERE ONE OF THE PARTIES IS CARRYING THE COMPULSIVE MANDATE OF THE LEGISLATURE. THE SITUATION BEFORE US IS SUCH WHEREIN THE AFORESAID ANALOGY CAN BE USEFULLY APPLI ED. AS WE HAVE SEEN EARLIER, THE PRICE AT WHICH THE POWER IS SUPPLIED BY THE ASSESSEE TO THE BOARD IS DETERMINED ENTIRELY BY THE BOARD IN TERMS OF THE STATUTORY REGULATIONS. SUCH A PRICE CANNOT BE EQUATED WITH THE MARKET VALUE AS UNDERSTOOD FOR THE PURPOSE S OF SECTION 80 - IA(8) OF THE ACT. THE STAND OF THE REVENUE TO THE AFORESAID EFFECT CANNOT BE APPROVED. 18. HAVING HELD SO, THE NATURAL COROLLARY IS TO ASCERTAIN WHETHER THE PRICE RECORDED BY THE ASSESSEE AT RS. 3.72 PET UNIT CAN BE CONSIDERED TO ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 16 BE THE MARKET VALUE FOR THE PURPOSES OF SECTION 80 - IA(8) OF THE ACT. THE ANSWER, TO OUR MIND, IS IN THE AFFIRMATIVE. THIS IS FOR THE REASON THAT THE ASSESSEE AS AN INDUSTRIAL CONSUMER IS ALSO BUYING POWER FROM THE BOARD AND THE BOARD SUPPLIES SUCH POWER AT THE RATE OF RS. 3.72 PER UNIT TO ITS CONSUMERS. THIS IS THE PRICE AT WHICH THE CONSUMERS ARE ABLE TO PROCURE THE POWER. WE MAY CONSIDER HYPOTHETICAL SITUATION AS WELL. HAD THE ASSESSEE NOT BEEN SADDLED WITH RESTRICTIONS OF SUPPLYING SURPLUS POWER TO THE STATE ELECTRICITY BOARD, IT WOULD HAVE SUPPLIED POWER TO THE ULTIMATE CONSUMERS AT RATES SIMILAR TO THOSE OF THE BOARD OR SUCH OTHER COMPETITIVE RATES, MEANING THER EBY THAT PRICE RECEIVED BY THE ASSESSEE WOULD BE IN THE VICINITY OF RS. 3.72 PER UNIT I.E. CHARGED BY THE BOARD FROM ITS INDUSTRIAL CONSUMERS/USERS. THUS, UNDER THE GIVEN CIRCUMSTANCES, IT WOULD BE IN THE FITNESS OF THINGS TO HOLD THAT THE CONSIDERATION RE CORDED BY THE ASSESSEE'S UNDERTAKING GENERATING ELECTRIC POWER FOR TRANSFER OF POWER FOR CAPTIVE CONSUMPTION AT THE RATE OF RS. 3.72 PER UNIT CORRESPONDS TO THE MARKET VALUE OF POWER. THEREFORE, ON THIS ASPECT, WE UPHOLD THE STAND OF THE ASSESSEE AND SET A SIDE ORDER OF THE COMMISSIONER (APPEALS) AND DIRECT THE ASSESSING OFFICER TO ALLOW RELIEF TO THE ASSESSEE UNDER SECTION 80 - IA AS CLAIMED. ASSESSEE SUCCEEDS ON THIS GROUND. 26. IT IS ALSO SEEN THAT AGAINS T THIS DECISION, THE DEPARTMENT PREFERRED AN APPEAL BEFORE THE HON BLE PUNJAB & HARYANA HIGH COURT WHICH WAS DISMISSED VIDE ORDER DATED 02.09.2008 IN ITA NO. 53 OF 2008 COPY OF WHICH IS PLACED AT PAGE NO. 159 OF THE PAPER BOOK VOLUME 1 FILED BY THE ASSESSE E . 27. FURTHER ON AN IDENTICAL ISSUE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE INDUSTRIES LTD. [2019] 102 TAXMANN.COM 372) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER : - ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 17 4. QUESTION (C) PERTAINS TO THE DISPUTE BE TWEEN THE DEPARTMENT AND THE ASSESSEE REGARDING THE RATE AT WHICH THE ELECTRICITY GENERATED BY ONE UNIT OF THE ASSESSEE - COMPANY AND PROVIDED TO THE ANOTHER BE VALUED. THE ASSESSEE CONTENDED THAT SUCH VALUATION SHOULD BE AT THE RATE AT WHICH THE ELECTRICITY DISTRIBUTION COMPANIES ARE ALLOWED TO SUPPLY 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 GENERATIN G 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 P ROFIT. 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 RELIAN CE INFRASTRUCTURE LTD. V. ADDL. CIT [2011] 9 TAXMANN.COM 186 (MUM. - TRIB.). 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 JUDGMENT AN IDENTICAL ISSUE CAME U P FOR CONSIDERATION. THE TRIBUNAL BY DETAILED JUDGMENT HAD HELD AND OBSERVED AS UNDER: '44. IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE PROFITS OF THE BUSINESS OF GENERATION OF POWER WORKED OUT BY THE ASSESSEE ON THE BAS IS OF THE PRICE THAT IT PAID TO TPC FOR PURCHASE OF POWER CONTINUES TO BE THE BEST BASIS EVEN AFTER THE ORDER OF MERC AND THEREFORE THE SAME HAS TO BE ACCEPTED AS WAS DONE IN THE PAST AND AS APPROVED BY THE ITAT IN ASSESSSEE'S ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 18 CASE. WE THEREFORE DISMISS GR OUND NO.4 OF THE REVENUE.' 7. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE JUDGMENT OF THE TRIBUNAL IN CASE OF RELIANCE INFRASTRUCTURE LTD. (SUPRA) WAS CARRIED IN APPEAL BY THE REVENUE BEFORE THE HIGH COURT IN INCOME TAX APPEAL NO.2180 OF 2011, SUCH APPE AL WAS DISMISSED MAKING FOLLOWING OBSERVATIONS: '6. AS FAR AS QUESTION (D), NAMELY, THE CLAIM RELATING TO PURCHASE PRICE FROM TATA POWER COMPANY IS CONCERNED AND THAT WAS FOR THE DEDUCTION UNDER SECTION 80IA, THE ITAT IN PARAGRAPH 21 ONWARDS HAS NOTED TH E FACTUAL FINDINGS AND ALSO REFERRED TO THE ORDER OF THE MAHARASHTRA ELECTRICITY REGULATORY AUTHORITY (FOR SHORT 'MERC'). PARAGRAPH 36 SET OUTS AS TO HOW THE CLAIM AROSE. THE CLAIM HAS BEEN CONSIDERED IN THE LIGHT OF SECTION 80IA AND PARTICULARLY PROVISO A ND EXPLANATION THERETO. THE TRIBUNAL EVENTUALLY HELD THAT TILL THE ASSESSMENT YEAR 2005 - 2006, THE REVENUE CONSIDERED THE RATE AT WHICH THE POWER WAS PURCHASED BY THE ASSESSEE FROM TATA POWER COMPANY AS MARKET VALUE. THERE IS NOTHING BROUGHT ON RECORD AS TO HOW THE RATE DETERMINED BY THE MERC IS THE TRUE MARKET VALUE. THE ASSESSEE GAVE EXPLANATION THAT THE RATES DETERMINED BY THE MERC DO NOT REFLECT THE CORRECT MARKET RATE. THE FINDING IS THAT THE MODE OF COMPUTATION AND DEDUCTION UNDER SECTION 80IA REQUIRES NO DEVIATION FROM THE PAST. THE FINDINGS OF FACT AND TO BE FOUND IN PARAGRAPHS 42 TO 50 ALSO REFLECT THAT THE VERY ISSUE CAME UP FOR CONSIDERATION FOR THE ASSESSMENT YEAR 2003 - 2004. FOR THE REASONS ASSIGNED BY THE ITAT AND FINDING THAT THE ATTEMPT IS TO S EEK REAPPRECIATION AND REAPPRAISAL OF THE FACTUAL DATA THAT WE COME TO A CONCLUSION THAT EVEN QUESTION (D) AS FRAMED IS NOT A SUBSTANTIAL QUESTION OF LAW.' 8. THUS, THE ISSUE AT HAND HAD BEEN EXAMINED BY THIS COURT ON EARLIER OCCASION AND THE VIEW OF THE TRIBUNAL UNDER SIMILAR CIRCUMSTANCES WAS APPROVED. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 19 9. ADDITIONALLY, WE ALSO NOTICE THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE CHHATTISGARH HIGH COURT IN CASE OF CIT V. GODAWARI POWER & ISPAT LTD. [2014] 42 TAXMANN.COM551/223 TAXMAN 234, 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 A N ILLEGALITY IN COMPUTING THE MARKET VALUE BY TAKING INTO ACCOUNT THE RATE CHARGED TO A SUPPLIER: IT SHOULD HAVE BEEN COMPARED WITH THE MARKET VALUE OF POWER SUPPLIED TO A CONSUMER.' 10. GUJARAT HIGH COURT IN CASE OF PR. CIT V. GUJARAT ALKALIES & CHEMICAL S LTD. [2017] 395 ITR 247/88 TAXMANN.COM 722 ALSO HAD OCCASION TO EXAMINE SUCH AN ISSUE. IT REFERRED TO EARLIER ORDER IN CASE OF ASSTT. CIT V. PRAGATI GLASS WORKS (P.) LTD. [TAX APPEAL NO. 1646 OF 2010, DATED 30 - 1 - 2012] IN WHICH FOLLOWING OBSERVATIONS WERE MADE: '7. TO OUR MIND, TRIBUNAL HAS COMMITTED NO ERROR. ASSESSING OFFICER AND CIT (APPEALS) WHILE ADOPTING RS. 4.51 PER UNIT AS THE VALUE OF ELECTRICITY GENERATED BY ELIGIBLE UNIT OF ASSESSEE AND SUPPLIED THROUGH ITS NON ELIGIBLE UNIT ONLY WORKED OUT CO ST OF SUCH ELECTRICITY GENERATION. IN FACT CIT (APPEALS) IN TERMS RECORDED THAT RS. 4.51 WAS COMPUTED AS THE REASONABLE VALUE OF THE ELECTRICITY GENERATED BY ELIGIBLE UNIT OF ASSESSEE. THIS AMOUNT INCLUDED RS. 4.17 PER UNIT WHICH WAS THE COST OF ELECTRICIT Y GENERATION AND RS. 0.34 PER UNIT WHICH WAS DUTY PAID BY THE ASSESSEE TO GEB FOR SUCH POWER GENERATION. THUS THE SUM OF RS. 4.51 PER UNIT ONLY REPRESENTED THE COST OF ELECTRICITY GENERATION TO THE ASSESSEE. IN SECTION 80IA(8) OF THE ACT WHAT IS ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 20 REQUIRED T O BE ASCERTAINED IS THE MARKET VALUE OF THE GOODS TRANSFERRED BY THE ELIGIBLE BUSINESS, WHEN SUCH TRANSFER IS BY ELIGIBLE BUSINESS TO ANOTHER NON ELIGIBLE BUSINESS OF THE SAME ASSESSEE AND THE CONSIDERATION RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO MARKET VALUE OF SUCH GOODS. TERM 'MARKET VALUE' IS FURTHER EXPLAINED IN EXPLANATION TO SAID SUB - SECTION TO MEAN IN RELATION TO ANY GOODS OR SERVICES, PRICE THAT SUCH GOODS OR SERVICES WILL ORDINARILY FETCH IN THE OPEN MARKET. TO OUR MIND SUM OF RS. 4.51 PER UNIT OF ELECTRICITY ONLY REPRESENTED COST OF ELECTRICITY GENERATION TO THE ASSESSEE AND NOT THE MARKET VALUE THEREOF. IT IS NOT IN DISPUTE THAT THE GEB CHARGED RS. 5 PER UNIT FOR SUPPLYING ELECTRICITY TO OTHER INDUSTRIES INCLUDING NON ELIGIBLE UNIT OF THE ASSESSEE ITSELF. TRIBUNAL THEREFORE, WHILE ADOPTING THE SAID BASE FIGURE AND EXCLUDING EXCISE DUTY THEREFROM TO WORK OUT RS. 4.90 AS THE MARKET VALUE OF THE ELECTRICITY GENERATED BY THE ASSESSEE, TO OUR MIND, COMMITTED NO ERROR. I T CAN BE EASILY SEEN THAT IF THE ASSESSEE WERE TO SUPPLY SUCH ELECTRICITY OR WAS ALLOWED TO DO SO IN THE OPEN MARKET, SURELY IT WOULD NOT FETCH RS. 4.51 PER UNIT BUT RS. 5 PER UNIT AS WAS BEING CHARGED BY GEB. SINCE THE EXCISE DUTY COMPONENT THEREOF WOULD NOT BE RETAINED BY THE ASSESSEE, TRIBUNAL REDUCED THE SAID FIGURE BY THE NATURE OF EXCISE DUTY AND CAME TO THE FIGURE OF RS. 4.90 TO ASCERTAIN THE MARKET VALUE OF ELECTRICITY GENERATED BY THE ELIGIBLE UNIT AND SUPPLIED TO NON ELIGIBLE BUSINESS OF THE ASSES SEE. NO ERROR WAS COMMITTED BY THE TRIBUNAL. NO QUESTION OF LAW THEREFORE, ARISES. TAX APPEAL IS DISMISSED.' 11. JUDGMENT OF CALCUTTA HIGH COURT IN CASE OF CIT V. ITC LTD. [2016] 236 TAXMAN 612/[2015] 64 TAXMANN.COM 214 WAS ALSO BROUGHT TO OUR NOTICE IN W HICH 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. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 21 28. HENCE , RESPECTFULLY FOLLOWING THE ABOVE DE CISIONS WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND VACATE THE REDUCTION IN ALLOWANCE OF DEDUCTION OF RS. 166,68,40,374/ - UNDER SECTION 80IA OF THE ACT AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 29. GRO UND NO. 3 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 3. THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN NOT CONSIDERING AND ALLOWING DEDUCTION OF RS.77,81,08,987 CLAIMED BY THE APPELLANT UNDER SECTION 801B OF THE ACT IN RESPECT OF PROFITS DERIVED FROM RAIL UNIVERSAL BEAM MILL. 3.1 THAT THE ASSESSING OFFICER/ DRP GROSSLY ERRED IN HOLDING THAT DEDUCTION UNDER SECTION 80IB OF THE ACT CLAIMED BY THE APPELLANT IN RESPECT OF PROFITS OF THE RAIL UNIVERSAL BEAM MILL DURING THE COURSE OF ASSESSMENT PROCEEDINGS WAS NOT ADMISSIBLE IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE CASE OF GOETZE INDIA LIMITED VS CIT: 284 ITR 323. 3.2 THAT THE ASSESSING OFFICER/ DRP GROSSLY ERRED IN NOT APPRECIATING THAT: (A) AFORESAID DEDUCTION CLAIMED BY THE APPELL ANT WAS MERE ENHANCEMENT OF THE DEDUCTION CLAIMED UNDER SECTION 80IB OF THE ACT IN THE RETURN OF INCOME; AND (B) THE ASSESSING OFFICER WAS, IN ANY CASE, DUTY BOUND TO SUO MOTU ALLOW THE SAID DEDUCTION, EVEN IF THE APPELLANT HAD NOT CLAIMED THE SAME IN THE RETURN OF INCOME OR DURING THE ASSESSMENT PROCEEDINGS. 3.3 WITHOUT PREJUDICE, THAT, IN ANY CASE, THE DRP GROSSLY ERRED ON FACTS AND IN LAW IN NOT ADMITTING AND CONSIDERING ON MERITS DEDUCTION CLAIMED BY THE APPELLANT UNDER SECTION 80IB OF THE ACT, BY TREA TING THE SAME AS FRESH CLAIM. 30. THE ASSESSING OFFICER OBSERVED THAT LD. M EMBERS OF THE DRP HEARD ARGUMENTS OF THE AUTHORIZED REPRESENTATIVE OF THE ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 22 ASSESSEE AND OBSERVED THAT THEY ARE MISPLACED. THE DRP OBSERVED THAT THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S GOETZE INDIA LIMITED V/S C.I.T. REPORTED IN 284 ITR 324(SC), IS THE LAW OF THE LAND AND THE A.O.'S ACTION BEING FUNDAMENTALLY BASED ON THE SAID DECISION OF THE HON'BLE SUPREME COURT, CALLS FOR NO INTERFERENCE. THE DRP ALSO OBSERVED THAT ASSESSEE HAD AMPLE OPPORTUNITIES TO CLAIM THE DEDUCTION IN THE ORIGINAL RETURN AS WELL AS IN THE REVISED RETURN, BUT, THE ASSESSEE, AT NO POINT OF TIME, MADE ANY EFFORT IN THE DIRECTION. 31. THE ASSESSING OFFICER OBSERVED THAT THE LD. DRP ALSO FOUN D THAT THE CBDT'S CIRCULAR RELIED UPON BY THE ASSESSEE WAS ALSO NOT OF MUCH ASSISTANCE BECAUSE THE CASE UNDER DISCUSSION WAS NOT A SIMPLE CASE OF IGNORANCE ON THE PART OF THE ASSESSEE WHICH IS A LIMITED COMPANY, UNDERGOING ASSESSMENT PROCEEDINGS FOR THE LAST SO MANY YEARS AND BEING GUIDED BY A WELL COMPETENT TAX ADVISOR. IN ANY CASE THE SAID CIRCULAR OF THE CBDT HAS NOT DIRECTED THE A.O. TO ALLOW SUCH CLAIMS SUO - MOTTO. AS PER THE SCHEME OF THE ACT, THE SAID CLAIM OF DEDUCTION MUST HAVE BEEN MADE IN THE OR IGINAL OR REVISED RETURN OF INCOME WHICH THE ASSESSEE HAS FAILED TO COMPLY WITH. THE LD. DRP WENT ON TO SAY THAT THE SAID CIRCULAR OF CBDT CANNOT OVERRIDE THE SCHEME OF THE ACT AS INTERPRETED BY THE HON'BLE SUPREME COURT OF INDIA. 32. THE ASSESSING OFFICE R FURTHER OBSERVED THAT THE LD. MEMBERS OF DRP HAVING CONSIDERED THE OBJECTIONS RAISED BY THE ASSESSEE AND THE ISSUES DISCUSSED IN DETAIL IN THE DRAFT ASSESSMENT ORDER DATED 28.03.2013, PASSED THE CONSIDERED ORDER WITH THE FOLLOWING OBSERVATION: - ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 23 'AFTER A CAREFUL CONSIDERATION OF THE DETAILS THE DRP ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE IN THE LIGHT OF THE JUDGEMENT IN THE CASE OF GOETZE INDIA LTD., VS. CIT (SC). ACCORDINGLY, THE OBJECTION OF THE ASSESSEE IS REJECTED.' 33. THE ASSESSING OFFICER FOR THE REASONS GIVEN ABOVE AND THE DIRECTIONS OF THE LD. D.R.P., DISALLOWED THE CLAIM OF DEDUCTION U/S 80IB AMOUNTING TO RS.77,81,08,987/ - . 34. BEFORE US, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT D URING THE COURSE OF HEARING BEFORE THE ASSESSING OFFICER , THE LD. AR PUT FORWARD VARIOUS FACTUAL AND LEGAL ARG U MENTS, A S UNDER : - A. THAT THE CLAIM OF DEDUCTION U/S 80 - IB OF THE ACT MADE BY THE ASSESSEE WAS NOT A FRESH CLAIM, BUT MERE ENHANC EMENT OF ITS EXISTING CLAIM OF DEDUCTION UNDER THE PROVISION OF THE ACT AS 80 - IB WAS CLAIMED ON OTHER UNITS. B. THE SUPREME COURT, MADE IT CLEAR IN THE DECISION ITSELF THAT GOETZE INDIA (SUPRA) WAS RESTRICTED TO THE POWER OF AO TO ENTERTAIN A CLAIM FOR DEDUC TION OTHERWISE THAN BY A REVISED RETURN AND THE SAME DID NOT IMPINGE ON THE POWER OF THE TRIBUNAL U/S 254 OF THE ACT TO PERMIT A NEW CLAIM. C. THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. RAMCO INTERNATIONAL [2011] 332 ITR 306 (P&H), AFTER DI SCUSSING THE DECISION OF GOETZE INDIA (SUPRA), UPHELD THE TRIBUNAL S DECISION WHICH HAD, INTERALIA, UPHELD THE DECISION OF CIT(APPEALS) ALLOWING THE ASSESSEE TO CLAIM THE BENEFIT OF SECTION 80 - IB THROUGH FORM 10CCB AND OTHER DOCUMENTS WHICH WERE FURNISHED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE HON BLE HIGH COURT, WHILE ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 24 CONSIDERING THE FOLLOWING SUBSTANTIAL QUESTION, DECIDED THE ISSUE (AT PARA 5) IN FAVOR OF THE ASSESSEE. D. THE JUDGMENT OF GOETZE INDIA (SUPRA) WAS NOTED BY THE MUMBAI B ENCH OF THE TRIBUNAL IN THE CASE OF CHICAGO PNEUMATIC INDIA LTD. V DCIT: 15 SOT 252. IN THAT CASE, THE ASSESSEE REVISED THE CLAIMS FOR DEDUCTION U/S 80HH AND 80 - I OF THE ACT DURING THE COURSE OF ASSESSMENT PROCEEDINGS WITHOUT FILING A REVISED RETURN. THE T RIBUNAL CONSIDERED CIRCULAR NO. 14(XL - 35) OF 1955 [PG. 271 TO 273 OF PB - 1], AS WELL AS THE DECISION OF THE SUPREME COURT IN THE CASE OF GOETZE INDIA (SUPRA) AND HELD AS UNDER: THE A.O. MAY GRANT RELIEFS/REFUNDS SUOMOTU OR CAN DO SO ON BEING POINTED OUT B Y THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR WHICH ASSESSEE HAS NOT FILED REVISED RETURN, ALTHOUGH, AS PER LAW, THE ASSESSEE IS REQUIRED TO FILE THE REVISED RETURN . E. THAT FROM THE FACTS OF GOETZE INDIA (SUPRA)IT IS INFERRED THAT IT WAS A CAS E OF FRESH CLAIM WHEREAS THE ASSESSEE CASE IS OF THE ENHANCEMENT OF ITS EXISTING CLAIM . HENCE, THE DECISION OF GOETZE INDIA (SUPRA) IS NOT APPLICABLE AT ALL. 35. IT IS SUBMITTED THAT BY WAY OF REVISED COMPUTATION OF INCOME FILED ALONG WITH LETTER DATE D 28.03.2012, THE ASSESSEE MERELY ENHANCED ITS EXISTING CLAIM OF DEDUCTION U/S 80IB OF THE ACT BY CLAIMING DEDUCTION UNDER THAT SECTION WITH RESPECT TO PROFITS DERIVED FROM RAIL UNIVERSAL BEAM MILL UNIT AS IN THE RETURN 80IB DEDUCTION FOR MINI BLAST FURNAN CE UNIT HAD ALREADY BEEN CLAIMED. ALSO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON IDENTICAL FACTS, DEDUCTION FOR FERRO CHROMO UNIT WAS CLAIMED UNDER SECTION 80IB, WHICH HAD NOT BEEN CLAIMED IN THE RETURN OF INCOME AND THAT IT W AS ALLOWED TO THE ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 25 ASSES SEE. THESE FACTS FIND MENTION IN PARA 4.2 OF THE DRAFT ASSESSMENT ORDER. 36. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE RELIED ON THE DECISION OF HON BLE TRIBUNAL IN THE CASE OF JCIT VS HERO HONDA FINLEASE LTD.: 115 TTJ 752 (DEL. ITAT) (THIRD MEMBER ), WHEREIN AFTER CONSIDERING THE DECISION OF SUPREME COURT IN THE CASE OF GOETZE INDIA (SUPRA), ON A SIMILAR ISSUE, DECIDED IN FAVOUR OF THE ASSESSEE . 37. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS . EFEXTRA ESOLUTIONS PVT. LTD. [ITA NO. 313/DEL/2012] WHEREIN THE TRIBUNAL AFTER CONSIDERING THE DECISION OF GOETZE INDIA (SUPRA ) , HELD AS UNDER: - 'THE ISSUE BEFORE US IS AS TO WHETHER THE AFORESAID ACTION OF THE LD. CIT (A) IS JUSTIFIED. NOW, IT IS SEEN T HAT THE ASSESSEE, ON BEING POINTED OUT BY THE ASSESSING OFFICER THAT DEDUCTION U/S 10B WAS NOT AVAILABLE TO IT, CHANGED ITS CLAIM TO ONE U/S 10A OF THE ACT, BY WAY OF FILING A REPORT IN FORM NO.56 F BEFORE THE ASSESSING OFFICER. GOETZE (INDIA) (SUPRA), TO OUR MIND, IS NOT ATTRACTED TO THE FACTS OF THE PRESENT CASE, SINCE THEREIN, THE CLAIM MADE SUBSEQUENTLY WAS AN ALTOGETHER FRESH CLAIM, WHEREBY THE RETURNED INCOME GOT CHANGED. IT IS NOT SO HERE. UNDISPUTEDLY, IN THE PRESENT CASE, ON THE CHANGE OF THE CLAI M, NEITHER THE RETURNED INCOME, NOR THE ASSESSED INCOME OF THE ASSESSEE HAS UNDERGONE ANY CHANGE WHATSOEVER.' 38. FURTHER , RELIANCE IN THIS REGARD, WAS ALSO PLACED ON THE FOLLOWING DECISIONS WHEREIN IT HAS BEEN HELD THAT THE DECISION OF THE SUPREME COURT IN THE CASE OF GOETZE INDIA (SUPRA) IS NOT APPLICABLE TO CASES WHERE THE ASSESSEE MERELY SEEKS TO ENHANCE ITS EXISTING CLAIM: ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 26 CIT VS ARVIND MILLS LTD.: ITA NO. 1407 OF 2011 (GUJ.) CIT VS M/S. PRUTHVI BROKERS & SHAREHOLDERS: ITA NO. 3908 OF 2010 (BOM.) JCIT VS HERO HONDA FINLEASE LTD.: 115 TTJ 752 (DEL. ITAT) (THIRD MEMBER) 39. FU RTHERMORE, IT WAS CONTENDED THAT A CLAIM WHICH IS ADMISSIBLE IN APPELLATE PROCEEDINGS SHOULD BE ALLOWED IN ASSESSMENT PROCEEDINGS AS WELL, IN ORDER TO AVOID A MULTIPLICITY OF PROCE EDINGS AND AVOID COMPLEXITIES. FOR THIS RELIANCE WAS PL ACED ON THE FOLLOWING DECISIONS : - CHICAGO PNEUMATIC INDIA LTD. V DCIT: 15 SOT 252 (MUM. ITAT) KISAN DISCRETIONARY FAMILY TRUST V ACIT: 113 TTJ 918 (AHMEDABAD ITAT) OMAN INTERNATIONAL BANK SAOG VS ACI T: ITA NO.1981/MUM/2001 (MUM. ITAT) 40. IT WAS ALSO ARGUED THAT THERE IS NO BAR/ PROHIBITION ON THE POWER OF AN APPELLATE A UTHORITY TO CONSIDER FRES H CLAIM MADE BY THE ASSESSEE FOR WHICH RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS : - FRANCO - INDIAN P HARMACEUTICALS (P.) LTD. V. INCOME - TAX OFFICER [2010] 195 TAXMAN 30 (MUM.) (MAG) HON BLE DELHI ITAT IN THE CASE OF JCIT VS HERO HONDA FINLEASE LTD.: 115 TTJ 752 (DEL. ITAT) CIT VS JAI PARABOLIC SPRINGS LTD.: 306 ITR 42 (DEL. HC) CIT VS RAMCO INTERNATIONA L: 332 ITR 306 (P&H). CIT VS PRUTHVI BROKERS AND SHAREHOLDERS (P) LTD.: 208 TAXMAN 498 (BOM.) CIT VS ARVIND MILLS LTD: ITA NO. 1407 OF 2011 (GUJ.) AISHWARYA RAI VS DCIT: ITA NO. 1159/MUM/04 CIT V. SAM GLOBAL SECURITIES LTD. [2014] 360 ITR 682 (DELHI) ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 27 41. RELIANCE WAS PLACED ON THE CIRCULAR NO. 14(XL - 35) OF 1955 ISSUED BY THE BOARD OF REVENUE UNDER THE INCOME - TAX ACT, 1922 EXPLAINING THE ROLE TO BE PLAYED BY THE AO S WHILE CONDUCTING ASSESSMENTS. THE SAID CIRCULAR PROVIDED THAT THE AO S MUST NOT TAKE AD VANTAGE OF IGNORANCE OF THE ASSESSEE AND IN CASE, THE ASSESSEE OMITS TO CLAIM ANY RELIEF OR REFUND, WHICH HE IS ENTITLED TO, THE AO SHOULD DRAW ATTENTION OF THE ASSESSEE TOWARDS SUCH OMITTED CLAIM/ RELIEF/ REFUND. 42. RELIANCE WAS PLACED ON THE DECISION OF HON BLE HIGH COURT OF DELHI IN THE CASE OF PR. COMMISSIONER OF INCOME TAX VS. ORACLE(O FSS) BPO SERVICES ITA 593/2018 ORDER DATED 17TH JANUARY, 2019 WHEREIN HON BLE COURT WHILE ADJUDICATING THE IDENTICAL FACTS AS INVOLVED IN THE FACTS OF THE PRESENT CASE HELD THAT AMENDMENT TO 80A (5) OF THE ACT DOES NOT BAR THE ASSESSEE FROM REVISING THE COMPUTATION FOR DEDUCTION MADE UNDER THE PROVISION. 43. IT WAS SUBMITTED THAT HON BLE DELHI HIGH COURT WHILE DISMISSING THE DEPARTMENT APPEAL HAS ALSO DISCUSSED THE O RDER IN THE CASE OF INFLUENCE VS. COMMISSIONER OF INCOME TAX (2015) 55 TAXMAN.COM 192 (DELHI) AND PRINCIPAL COMMISSIONER OF INCOME - TAX VS. E - FUNDS INTERNATIONAL INDIA PVT. LTD. (2015) 379 ITR 292 (DELHI) AND OBSERVED THAT : - THUS A DISTINCTION WAS DRAWN BETWEEN A NEW CLAIM, WHICH IS BARRED AND NOT PERMISSIBLE AND A REQUEST OR PRAYER MADE BY THE ASSESSEE FOR RE - COMPUTATION OF THE DEDUCTION ALREADY CLAIMED. LATTER WAS PERMISSIBLE AND NOT BARRED IN TERMS OF THE DECISION IN THE CASE. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 28 44. FURTHER , IT WAS SUB MITTED THAT DEPARTMENT HAS NOT ALLEGED THE CORRECTNESS OF THE REVISED COMPUTATION OF INCOME MADE BY ASSESSEE. 45. FURTHER , THE AUTHORIZED REPRESENTATIVE PLACED RELIANCE ON ARTICLE 265 OF THE CONSTITUTION OF INDIA, ACCORDING TO WHICH NO TAX CAN BE IMPOSED / COLLECTED BY THE STATE, OTHERWISE THAN BY AUTHORITY OF LAW. IN THE PRESENT CASE, IT WAS SUBMITTED THAT, THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT ON MERITS. THE SAID DEDUCTION WAS INADVERTENTLY NOT CLAIMED IN ORIGINAL OR REVISED RETURN OF INCOME. HOWEVER, THE SAME WAS DULY CLAIMED BY THE ASSESSEE IN ASSESSMENT PROCEEDINGS VIDE LETTER DATED 28.03.2012, SUBMITTED BEFORE THE AO. THE CLAIM OF DEDUCTION WAS DULY SUPPORTED BY THE REPORT OF THE CHARTERED ACCOUNTANT IN FORM NO. 10CCB, CERTIFYING THE CLAIM OF DEDUCTION. SINCE ALLOWABILITY IS NOT DISPUTED BY THE AO, DENIAL OF THE DEDUCTION UNDER SECTION 80IB OF THE ACT BY APPLYING THE DECISION IN THE CASE OF GEOTZE INDIA IS NOT PERMITTED AND IS AGAINST THE SPIRIT OF ARTICLE 265 OF THE CONSTITUTION OF INDIA. 46. IT WAS THEREFORE PRAYED THAT IN VIEW OF THE ABOVE , THE ACTION OF THE AO IN NOT CONSIDERING THE CLAIM MADE BY ASSESSEE DURING THE ASSESSMENT PROCEEDINGS, WITHOUT APPRECIATING THAT THE SAME IN THE TRUE SPIRIT OF THE LAW, IS ILLEGAL LAND UNSUST AINABLE. THE AO SHOULD, THEREFORE, BE DIRECTED TO ALLOW DEDUCTION U/S 80IB OF THE ACT, AS CLAIMED BY THE ASSESSEE. 47 . THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND INSISTED THAT THE SUPREME COURT DECISION HAS BEEN RIGHTLY APPLIED BY THE ASSESSING OFFICER AND THE SAME SHOULD BE FOLLOWED. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 29 48 . AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIALS ON RECORD WE FIND THAT THE ASSESSEE BEFORE THE ASSESSING OFFICER HAD CATEGORICALLY SUBMITTED THAT IN THE RELEV ANT ASSESSMENT YEAR, THE SAID UNIT EARNED PROFITS OF RS.77,81,08,987/ - WHICH WERE ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. THE SAID DEDUCTION WAS, INADVERTENTLY, NOT CLAIMED BY ASSESSEE IN ORIGINAL/ REVISED RETURN OF INCOME. IN THE NOTES TO ACCOUNT NO. 7 FILED ALONG WITH THE RETURN OF INCOME, THE ELIGIBILITY OF DEDUCTION U/S 80IB WAS CATEGORICALLY MENTIONED. ACCORDINGLY, THE DEDUCTION WAS CLAIMED DURING ASSESSMENT PROCEEDINGS FOR RELEVANT ASSESSMENT YEAR, VIDE LETTER DATED 28.03.2012 ALONG THAT WITH FO RM 10CCB CERTIFYING THE SAID CLAIM OF DEDUCTION. FROM THE ASSESSMENT ORDER IT IS SEEN THAT THE AO ALLOWED A SIMILAR DEDUCTION U/S 80IB WITH RESPECT TO FERRO CHROME UNIT (SAF), WHICH WAS MENTIONED IN THE NOTES TO THE ACCOUNT, AND NOT CLAIMED IN THE RETURN O F INCOME, WAS ALLOWED DURING THE COURSE OF ASSESSMENT AND TO THAT EXTENT, THE FACTS ARE IDENTICAL. IT IS ALSO SEEN FROM RECORD THAT ALLOWABILITY OF THE CLAIM ON MERITS IS NOT DISPUTED BY THE AO AND IN FACT DEDUCTION ON THIS UNIT HAS BEEN ALLOWED IN SUBSEQU ENT YEAR ALSO. HOWEVER, THE ONLY REASON WHY THE AO DID NOT ALLOW THE DEDUCTION IS ON ACCOUNT OF A SUPREME COURT DECISION IN THE CASE OF GOETZE INDIA LIMITED VS CIT (284 ITR 323) (SC). THE HON BLE SUPREME COURT, MADE IT CLEAR THAT THE DECISION IN GOETZE IND IA (SUPRA) WAS RESTRICTED TO THE POWER OF AO TO ENTERTAIN A CLAIM FOR DEDUCTION OTHERWISE THAN BY A REVISED RETURN AND THE SAME DID NOT IMPINGE ON THE POWER OF THE TRIBUNAL U/S 254 OF THE ACT TO PERMIT A NEW CLAIM. IN ANY CASE, THIS ORDER HAS BEEN SUBJECT MATTER OF DECISION IN VARIOUS OTHER CASES, WHEREIN INTERPRETING THIS ISSUE, IT HAS BEEN HELD ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 30 IN FAVOUR OF THE ASSESSEE BY OBSERVING THAT THE POWER OF THE TRIBUNAL IN DECIDING APPEALS IS VERY WIDE. HON BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT V. RAMCO INTERNATIONAL [2011] 332 ITR 306 (P&H), AFTER DISCUSSING THE DECISION OF GOETZE INDIA (SUPRA), UPHELD THE TRIBUNAL S DECISION WHICH HAD, INTER ALIA, UPHELD THE DECISION OF CIT(APPEALS) ALLOWING THE ASSESSEE TO CLAIM THE BENEFIT OF SECTION 80 - IB TH OU GH FORM 10CCB AND OTHER DOCUMENTS WHICH WERE FURNISHED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE HON BLE HIGH COURT, WHILE CONSIDERING THE FOLLOWING SUBSTANT IAL QUESTION, DECIDED THE ISSUE IN FAVO U R OF THE ASSESSEE: '1.WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ITAT WAS RIGHT IN LAW IN ALLOWING ASSESSEE'S CLAIM FOR DEDUCTION U/S 80 - IB, WHICH THE ASSESSEE HAD NEITHER CLAIMED IN THE RETURN OF INCOME NOR THROUGH A REVISED RETURN OF INCOME? 2. WHETHER ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DECISION OF ITAT IS NOT CONTRARY TO THE LAW AS SPELL OUT BY THE HON'BLE SUPREME COURT IN GOETZE (INDIA) LIMITED V. CIT 284 ITR 323 (SC) AND ADDITIONAL COMMISSIONER OF INCOME - TAX V. GURJARGRAVURES (P.) LTD. 111 ITR 1 (SC)?' ........................................ 5. IN VIEW OF THE FINDING THAT THE ASSESSEE WAS NOT MAKING ANY FRESH CLAIM AND HAD DULY FURNISHED THE DOCUMENTS AND SUBMITTED FORM FOR CLAIM U/S 80 - IB, THERE WAS NO REQUIREMENT FOR FILING ANY REVI SED RETURN. THE JUDGMENT RELIED UPON WAS NOT APPLICABLE. RELIANCE IN THIS REGARD IS FURTHER PLACED ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN OMAN INTERNATIONAL BANK SAOG VS ACIT: ITA NO.1981/MUM/2001. ON FURTHER APPEAL, THE TRIBUNAL ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 31 UPHELD T HE CLAIM OF THE ASSESSEE BY HOLDING AS UNDER: WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. THE IMPUGNED AMOUNT CLAIMED BY THE ASSESSEE IS NOT A DEDUCTION BUT IT IS AN EXPENDITURE. IT IS NOT THE CASE OF THE REVENUE THAT THESE EXPENDITURES ARE NOT ALLOWAB LE IN THE REGULAR COURSE OF BUSINESS OF THE ASSESSEE. THE CLAIM IS SUPPORTED BY THE AUDIT REPORT. THEREFORE, WE ARE OF THE OPINION, THAT LD. CIT(A)HAS RIGHTLY GRANTED RELIEF TO THE ASSESSEE. THE AFOREMENTIONED DECISION OF HON BLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THIS CASE. THEREFORE, WE DECLINE TO INTERFERE IN THE RELIEF GRANTED BY THE LD. CIT(A). THIS GROUND OF THE REVENUE FOR BOTH THE YEARS IS DISMISSED. FURTHERMORE, RELIANCE IS ALSO PLAC ED IN THE CASE OF FRANCO - INDIAN PHARMACEUTICALS (P.) LTD. V. INCOME - TAX OFFICER [2010] 195 TAXMAN 30 (MUM.) (MAG) HON BLE ITAT AFTER CONSIDERING THE DECISION IN THE CASE OF GOETZE INDIA (SUPRA) OBSERVED THAT 12. ON A CONSIDERATION OF THE ARGUMENTS, WE HOLD THAT THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA) MAKES IT CLEAR THAT THE POWERS OF THE TRIBUNAL AS LAID DOWN IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. (SUPRA) ARE NOT AFFECTED BY THIS DECISION. THUS, THE TRIBUNAL HAS THE POWER TO ADMIT AN ADDITIONAL GROUND OR CLAIM MADE BY THE ASSESSEE, WHEN ALL THE FACTS ARE ON RECORD. IN THIS CASE, THE FACTS HAVE BEEN BROUGHT ON RECORD BEFORE THE AO BY THE ASSESSEE IN THE LETTER DATED 24 - 7 - 2006 ITSELF. THUS, AS THE FACTS ARE ON RECORD, WE ADMIT THIS CLAIM OF THE ASSESSEE MADE BEFORE US BY APPLYING THE RATIO OF THE DECISION OF THE HON BLE SUPREME COURT IN THE CASES OF NATIONAL THERMAL POWER CO. LTD. (SUPRA) AS WELL AS CASE OF JUTE CORPN. OF INDIA LTD. V. CIT [1991] 187 ITR 688. 1 THUS, THIS ALTERNATIVE ARGUMENT OF THE ASSESSEE IS ALLOWED. MOREOVER, HON BLE DELHI ITAT IN THE CASE OF JCIT VS HERO HONDA FINLEASE LTD.: 115 TTJ 752 (DEL. ITAT) ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 32 (THIRD MEMBER), AFTER CONSIDERING THE DECISION IN THE CASE OF GOETZE INDIA (SUPRA) O BSERVED: I HAVE CAREFULLY CONSIDERED THE QUESTIONS, THE ORDERS OF THE IT AUTHORITIES AND THE RIVAL CONTENTIONS. THE PRECISE DIFFERENCE BETWEEN THE TWO LEARNED MEMBERS IS REGARDING THE QUESTION WHETHER THE CIT(A) OUGHT TO HAVE FIRST DECIDED THE QUESTION O F ENTERTAINABILITY OF THE ASSESSEE'S HIGHER CLAIM OF DEPRECIATION BY A LETTER AND NOT BY A REVISED RETURN, BEFORE DECIDING THE MERITS OF THE CLAIM. IN GOETZE (INDIA) LTD. V. CIT [2006] 284 ITR 323/157 TAXMAN 1 (SC), THE SUPREME COURT HELD THAT THE ASSESSEE CAN MAKE A CLAIM FOR DEDUCTION, WHICH HAS NOT BEEN CLAIMED IN THE RETURN, ONLY BY FILING A REVISED RETURN WITHIN THE TIME ALLOWED. IN THE SAME DECISION, IT WAS MADE CLEAR THAT THE POWER OF THE TRIBUNAL TO ADMIT AN ADDITIONAL GROUND UNDER S. 254 IS NOT AFF ECTED BY ITS DECISION. IT WAS HOWEVER CLARIFIED THAT THE CASE WAS CONCERNED WITH ONLY THE POWER OF THE ASSESSING AUTHORITY AND NOT THE APPELLATE AUTHORITY. UNDER S. 250(5), THE CIT(A) HAS THE POWER TO ALLOW THE APPELLANT TO GO INTO ANY GROUND OF APPEAL NOT SPECIFIED IN THE GROUNDS OF APPEAL IF HE SATISFIED THAT THE OMISSION OF THE GROUND FROM THE FORM OF APPEAL WAS NOT WILFUL AND UNREASONABLE. DEALING WITH SUCH A POWER, THE BOMBAY HIGH COURT IN PRABHU STEEL INDUSTRIES (P) LTD. (SUPRA), HELD THAT WHERE A CLA IM FOR SPECIAL DEDUCTION WAS MADE BY THE ASSESSEE NOT IN HIS RETURN BUT IN THE COURSE OF THE ASSESSMENT PROCEEDINGS AND THE ITO FAILED TO CONSIDER THE SAME, IT WAS OPEN TO THE AAC TO ENTERTAIN THE CLAIM. IN CIT V. KANPUR COAL SYNDICATE [1964] 53 ITR 225 (S C), IT WAS HELD BY THE SUPREME COURT THAT THE POWERS OF THE CIT(A) SITTING IN APPEAL OVER AN ASSESSMENT WERE PLENARY AND CO - TERMINUS WITH THOSE OF THE AO AND THAT HE CAN DO WHAT THE ITO CAN DO AND ALSO DIRECT HIM TO DO WHAT HE HAS FAILED TO DO. IN THE LIGH T OF THE LAW LAID DOWN IN THIS JUDGMENT BY THE SUPREME COURT, IT WAS OPEN TO THE CIT(A) TO CONSIDER THE ASSESSEE'S CLAIM ON MERITS BY VIRTUE OF HIS CO - EXTENSIVE POWER OVER THE ASSESSMENT PROCEEDINGS AND ALSO BY VIRTUE OF S. 250(5). THAT APART, THE JUDGMENT OF THE SUPREME COURT IN GOETZE (SUPRA) IS DISTINGUISHABLE ON FACTS BECAUSE IN THAT CASE THE CLAIM WAS MADE FOR THE FIRST TIME IN THE ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 33 LETTER FILED BY THE ASSESSEE IN THE COURSE OF THE ASSESSMENT PROCEEDINGS WHEREAS IN THE PRESENT CASE THE CLAIM OF DEPRECIA TION ON THE TRUCKS @ 20 PER CENT WAS ALREADY MADE IN THE RETURN OF INCOME AND IT WAS MERELY ENLARGED TO 40 PER CENT ON THE FOOTING THAT THE ASSESSEE WAS RUNNING THE TRUCKS ON HIRE FURTHERMORE, AS HAS BEEN HELD BY VARIOUS COURT AND INCLUDING A CBDT BOARD CIRCULAR (CIRCULAR NO. 14(XL - 35) OF 1955), THE ASSESSING OFFICER IS DUTY BOUND TO APPLY RELEVANT PROVISIONS OF THE ACT IN ORDER TO ARRIVE AT THE TRUE FIGURE OF THE ASSESSEE S TAXABLE INCOME. THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. ARCHANA R. DH ANWATAY 136 ITR 355[PG. 297 TO 300 OF PB - 1] UPHELD THE ORDER OF THE TRIBUNAL WHEREIN IT WAS HELD BY THE TRIBUNAL THAT IT WAS THE DUTY OF THE ITO TO CONSIDER WHETHER THE ASSESSEE WAS ENTITLED TO DEDUCTION, EVEN WHEN IT WAS NOT CLAIMED BY THE ASSESSEE. SIMIL AR OBSERVATION WAS MADE BY THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT V. BHARAT GENERAL REINSURANCE CO. LTD. [1971] 81 ITR 303 (DELHI)] AND IN CIT V. SAIN PROCESSING &WVG. MILLS (P.) LTD]. LASTLY, WE ALSO AGREE WITH THE CONTENTION OF THE COUNSEL FOR THE ASSESSEE, THAT GOETZE INDIA (SUPRA) IS DISTINGUISHABLE AS THAT WAS A CASE OF FRESH CLAIM WHEREAS THE ASSESSEE S CASE IS OF THE ENHANCEMENT OF ITS EXISTING CLAIM . HENCE, THE DECISION OF GOETZE INDIA (SUPRA) IS NOT APPLICABLE AT ALL. FOR THIS PROPOS ITION, WE DERIVE SUPPORT FROM THE DECISION OF HON BLE DELHI ITAT IN THE CASE OF JCIT VS HERO HONDA FINLEASE LTD.: 115 TTJ 752 (DEL. ITAT) (THIRD MEMBER) (SUPRA) AND THE DECISION OF ITO VS. EFEXTRA ESOLUTIONS PVT. LTD. [ITA NO. 313/DEL/2012]. IN THE PRESE NT CASE, IT IS SEEN THAT IN THE ORIGINAL AS WELL AS REVISED RETURNS OF INCOME FILED BY THE ASSESSEE, THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80 - IB OF THE ACT. IN FACT IN NOTES TO ACCOUNT NO. 7, THE ASSESSEE HAS MENTIONED ABOUT THE ELIGIBILITY OF DEDUCTION U /S 80IB IN RESPECT OF RAIL UNIVERSAL BEAM MILL. SIMILARLY, IN NOTES TO ACCOUNT NO. 6, THE ASSESSEE HAD MENTIONED ABOUT ELIGIBILITY OF DEDUCTION U/S 80IB FOR FERRO CHROME UNIT (SAF) WHICH WAS NOT ALSO ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 34 CLAIMED AT THE TIME OF FILING OF RETURN OF INCOME OR REV ISED RETURN OF INCOME, HOWEVER, DEDUCTION ON THE SAID UNIT (SAF) WAS CLAIMED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT AND THE SAME HAS BEEN ALLOWED BY THE AO. IT IS PERTINENT TO NOTE HERE THAT THERE IS NO JUSTIFICATION FOR THE AO TO TREAT THE DEDUCT ION CLAIMED IN RESPECT OF FERRO CHROME UNIT (SAF) AND RAIL UNIVERSAL BEAM UNIT, DIFFERENTLY BY ALLOWING DEDUCTION CLAIMED IN RESPECT OF ONE UNIT AND DENYING IT IN RESPECT OF ANOTHER, WHEN ADMITTEDLY FACTS ARE IDENTICAL. THIS CAN BE SEEN FROM PARA 4.2 OF TH E DRAFT ASSESSMENT ORDER, WHICH HAS BEEN PLACED BEFORE US. EVEN OTHERWISE, ALLOWABILITY OF THE CLAIM IS NOT DOUBTED NOR DISPUTED BY THE ASSESSING OFFICER. REPORT OF CHARTERED ACCOUNTANT IN FORM NO. 10CCB FOR THIS UNIT HAS ALSO BEEN PLACED ON RECORD, A COPY OF WHICH IS IN THE PAPER BOOK BEFORE US ALSO. IN THIS REGARD, WE ALSO WISH TO CONSIDER A RECENT DELHI HIGH COURT JUDGMENT WHEREIN ON IDENTICAL FACTS HON BLE HIGH COURT OF DELHI IN THE CASE OF PR. COMMISSIONER OF INCOME TAX VS. ORACLE(OFSS) BPO SERVICES ITA 593/2018 JUDGMENT DATED 17TH JANUARY, 2019 WHILE ADJUDICATING THE IDENTICAL FACTS AS INVOLVED IN THE FACTS OF THE PRESENT CASE HON BLE HIGH COURT HELD THAT AMENDMENT TO 80A (5) OF THE ACT DOES NOT BAR THE ASSESSEE FROM REVISING THE COMPUTATION FOR DE DUCTION MADE UNDER THE PROVISION. THE COURT HELD THAT - DID THE INCOME TAX APPELLATE TRIBUNAL (ITAT) FALL INTO ERROR IN HOLDING THAT THE REVISED COMPUTATION OF DEDUCTION UNDER SECTION 10 A OF THE INCOME TAX ACT, 1961 ( THE ACT ) FOR SHORT) WAS PERMISSIBLE HAVING REGARD TO SECTION 10A (5) AND SECTION 80A(5) OF THE ACT? 11. THE CONTENTION OF THE REVENUE IS THAT THE REVISED COMPUTATION SHOULD NOT HAVE BEEN ACCEPTED, FOR WHICH RELIANCE IS P LACED ON THE JUDGMENT OF THE SUPREME COURT IN GOETZE (INDIA) LTD. VS. COMMISSIONER OF INCOME TAX (2006) 284 ITR 323 (SC). IT WAS ALSO SUBMITTED THAT THE FIRST APPELLATE AUTHORITY AND THE TRIBUNAL HAVE FAILED TO TAKE NOTICE OF THE AMENDMENT TO SECTION 80A ( 5) VIDE FINANCE ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 35 ACT, 2009 W.E.F. 1ST APRIL, 2003. IN SUPPORT, REFERENCE WAS MADE TO THE JUDGMENT OF THIS COURT IN NATH BROTHERS EXIM INTERNATIONAL LTD. VS. UNION OF INDIA &ORS., (2017) 394 ITR 577 (DEL.). 20. IN THE FACTS OF THE PRESENT CASE, WE DO NOT TH INK SUB - SECTION 5 TO SECTION 80A WOULD BE ATTRACTED AND SHOULD BE APPLIED .. 21. SUB - SECTION 5 TO SECTION 80A STATES THAT IF ASSESSEE HAS FAILED TO MAKE ITS CLAIM ON RETURN UNDER 10AA OR 10B OR ANY OTHER PROVISIONS OF CHAPTER VIA, NO DEDUCTION SHALL BE ALLOWED TO HIM THEREUNDER. THIS BARS AND PROHIBITS THE ASSESSEE FROM CLAIMING THE DEDUCTION UNDER SECTIONS 10A AND 10B AND CHAPTER VIA IF NO SUCH CLAIM WAS MADE IN THE RETURN OF INCOME. IT IS ALSO MANDATORY THAT THE RETURN OF INCOME FOR CLAIMING SUCH DEDUC TION SHOULD BE FILED WITHIN THE TIME STIPULATED UNDER SECTION 139 (1) OF THE ACT, AS WAS HELD IN THE CASE OF NATH BROTHERS EXIM INTERNATIONAL (SUPRA). IN THE SAID CASE THE ASSESSEE IN THE RETURN FOR THE ASSESSMENT YEAR 2007 - 08 HAD NOT CLAIMED ANY EXEMPTION UNDER SECTION 10B OF THE ACT. THIS DEDUCTION WAS CLAIMED FOR THE FIRST TIME IN THE REVISED RETURN. ON BEING DENIED THIS CLAIM, CONSTITUTIONAL VIRES OF SUB - SECTION 5 TO SECTION 80A, AS INSERTED BY FINANCE ACT, 2009 AND 4TH PROVISO OF SECTION 10B (1) OF THE ACT, WERE CHALLENGED. THE CHALLENGE WAS REJECTED BY THE DIVISION BENCH OF THIS COURT HOLDING THAT THE AMENDMENT MADE CANNOT BE FAULTED AND QUASHED ON THE GROUND THAT IT WAS DISCRIMINATORY, ARBITRARY, UNREASONABLE AND VIOLATIVE OF ARTICLE 14, OBSERVING THA T IT WAS WITHIN THE LEGISLATIVE DOMAIN TO PRESCRIBE THE LIMITATION PERIOD AND ALSO STIPULATE THAT THE ASSESSEE TO CLAIM DEDUCTION MUST FILE RETURNS DURING THE LIMITATION PERIOD, SO AS TO ENABLE THE DEPARTMENT TO TAKE UP THESE CASES FOR SCRUTINY ASSESSMENT. PLEA OF ARBITRARINESS WAS REJECTED. THE DECISION AND RATIO IS DISTINGUISHABLE AS THE RESPONDENT - ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT IN THE RETURN OF INCOME FILED WITHIN THE LIMITATION PERIOD. IT WAS, THEREFORE, NOT A NEW CLAIM. QUE STION OF REVISION OF DEDUCTION WAS NOT THE ISSUE AND QUESTION RAISED ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 36 AND ANSWERED IN NATH BROTHERS EXIM INTERNATIONAL (SUPRA). 22. OUR ATTENTION WAS, HOWEVER, DRAWN TO THE OBSERVATIONS OF THE DIVISION BENCH THAT THE OBJECTIVE BEHIND THE AMENDMENT WAS TO D EFEAT MULTIPLE CLAIMS OF DEDUCTION AND ENSURE BETTER COMPLIANCE. CERTAINLY, THE AMENDED PROVISIONS ENSURE BETTER COMPLIANCE OF THE STATUTORY PROVISIONS. REFERENCE TO THE EXPRESSION MULTIPLE CLAIMS OF DEDUCTION WOULD BE WITH REFERENCE TO THE STIPULATION T HAT DEDUCTION SHOULD BE CLAIMED UNDER A PARTICULAR PROVISION AND IT CANNOT BE SHIFTED AND TREATED AS DEDUCTION CLAIMED UNDER THE OTHER PROVISION. LANGUAGE OF SUB - SECTION 5 TO SECTION 80A DOES NOT STATE THAT THE DEDUCTION ONCE CLAIMED UNDER A PARTICULAR SEC TION CANNOT BE CORRECTED AND MODIFIED BEFORE THE ASSESSING OFFICER. INDEED, THE ASSESSING OFFICER CAN EXAMINE THE CLAIM FOR DEDUCTION AND CAN MAKE ADJUSTMENT/ DISALLOWANCE. WE WOULD NOT READ IN THE AMENDED PROVISION, A STIPULATION BARRING AND RESTRICTING T HE ASSESSEE FROM REVISING THE COMPUTATION/ CLAIM FOR DEDUCTION MADE IN ACCORDANCE WITH SECTION 80A (5) OF THE ACT. HENCE, TAKING INTO CONSIDERATION ALL THE RELEVANT JUDGMENTS AS CITED ABOVE BY US AND ALSO CONSIDERING THE FACT THAT THE ALLOWABILITY OF THE CLAIM ON MERITS IS NOT DISPUTED BY THE ASSESSING OFFICER AND MORE IMPORTANTLY, ON IDENTICAL FACTS, IN CASE OF ANOTHER UNIT, 80IB DEDUCTION WAS ALLOWED BY THE ASSESSING OFFICER HIMSELF, DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS MENTIONED IN PARA 4.2 O F THE DRAFT ORDER, WE SEE NO REASON TO NOT ALLOW THIS CLAIM OF THE ASSESSEE. HENCE, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE DEDUCTION U/S 80IB OF THE ACT ON THIS UNIT OF RAIL UNIVERSAL BEAM MILL. 49. IN VIEW OF THE ABOVE DISCUSSIONS , WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES. AS AO HAS NOT EXAMINED THE QUANTUM OF DEDUCTION ALLOWABLE UNDER SECTION 80IB BEING PROFIT DERIVED FROM RAIL UNIVERSAL BEAM MILL WE DIRECT THE AO TO ALLOW DEDUCTION UNDER SECTION 80IB IN RESPECT OF INCOME DERIVED ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 37 FROM TH AT UNIT AFTER VERIFICATION OF THE ELIGIBLE AMOUNT AS PER LAW. NEEDLESS TO MENTION THAT THE AO BEFORE DETERMINING THE ELIGIBLE AMOUNT OF DEDUCTION SHALL ALLOW REASONABLE OPPORTUNITY OF HEARING T O THE ASSESSEE . THUS , THE GROUND NO.3 OF THE APPEAL OF THE ASSE SSEE IS TREATED AS ALLOWED. 50. GROUND NO. 4 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 4. THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN NOT HOLDING THAT INCENTIVE/ SUBSIDY IN THE FORM OF EXEMPTION FROM SALES TAX, ENTRY TAX AND ELECTRIC ITY DUTY, AMOUNTING TO RS. 120,74,28,854 WAS IN THE NATURE OF CAPITAL RECEIPT NOT LIABLE TO TAX. 4.1 THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT WAS UNABLE TO LINK THE SUBSIDY/ INCENTIVE WITH ANY PARTICULAR SCH EME OF SUBSIDY ISSUED BY THE STATE GOVERNMENT. 4.2 THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT THE AFORESAID INCENTIVE/ SUBSIDY WAS PROVIDED TO AID DAY - TO - DAY RUNNING OF THE BUSINESS AND WAS NOT IN THE NATURE OF CAPITAL RECE IPT. 4.3 THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT SINCE NO AMOUNT WAS ACTUALLY RECEIVED BY THE APPELLANT IN THE FORM OF INCENTIVE/ SUBSIDY, ANY HYPOTHETICAL/ NOTIONAL FIGURE COULD NOT BE TREATED AS INCENTIVE/ SUBSIDY AND ALLOWED AS REDUCTION FROM THE TAXABLE INCOME. 4.4 THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT WAS TAKING DOUBLE BENEFIT OF ELECTRICITY DUTY BY CLAIMING DEDUCTION OF INCENTIVE/ SUBSIDY AND ALSO NOT DEDUCTING THE SAME FROM PROFITS WHILE COMPUTING DEDUCTION UNDER SECTION 80IA OF THE ACT. 51. THE ASSESSING OFFICER OBSERVED THAT IN VIEW OF THE CLAIM OF THE ASSESSEE REGARDING REDUCTION OF PROFIT BY WAY OF ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 38 APPROPRIATION OF TAXABLE PROFIT BY AN AMOUNT OF RS.50,03,98,22 8/ - TOWARDS SALES - TAX SUBSIDY/CAPITAL RESERVE AND ALSO OF REDUCTION AT THE TIME OF COMPUTATION OF INCOME AT RS.39,35,77,228/ - AND RS.31,34,53,398/ - IN RESPECT OF SO CALLED ENTRY - TAX AND ELECTRICITY DUTY SUBSIDY IN LIEU OF TAX EXEMPTIONS ARE DISALLOWED. THU S, ADDITION OF RS. 1,20,74,28,854/ - (50,03,98,228/ - + 39,35,77,228/ - + 31,34,53,398/ - ) IS MADE TO THE INCOME FOR THE PURPOSE OF ARRIVING AT ASSESSED INCOME. 52. THE ASSESSING OFFICER NOTED THAT THE UPTO THE ASSESSMENT YEAR 2007 - 08, THE ASSESSEE COMPANY HA S BEEN CLAIMING DEDUCTIONS ON ACCOUNT OF SALES - TAX SUBSIDY, ENTRY - TAX SUBSIDY AND ELECTRICITY DUTY SUBSIDY AT THE STAGE OF COMPUTATION OF INCOME. HOWEVER, FROM A.Y. 2008 - 09 ONWARDS, INCLUDING THIS YEAR, THE ASSESSEE CHANGED ITS METHOD AND TOOK THE AMOUNT E QUIVALENT TO THE SALES - TAX WHICH WOULD HAVE BEEN PAYABLE BUT FOR THE SAID EXEMPTION, TO THE RESERVE CREATED IN THE BALANCE SHEET. DURING THE YEAR, IN NORMAL COURSE, THE ENTIRE AMOUNT OF SALES PROCEEDS WERE CREDITED AS REVENUE TO THE PROFIT & LOSS ACCOUNT. HOWEVER, AT THE YEAR END, PROFIT HAD BEEN REDUCED BY PASSING JOURNAL ENTRY FOR APPROPRIATION OF RS.50.04 CRORES AS 'SALES - TAX SUBSIDY'. BY THIS METHOD, THE TAXABLE PROFIT WAS REDUCED BY THE EQUIVALENT AMOUNT AND 'SALES - TAX SUBSIDY/CAPITAL RESERVE' UNDER TH E HEADS 'RESERVE AND SURPLUS'. 53. AS MENTIONED EARLIER, THE REDUCTIONS/DEDUCTIONS CLAIMED ARE BEYOND SCHEME OF INCOME TAX ACT. ASSESSEE IS HAVING LUXURY OF FULL FLEDGED TAX DEPARTMENT MANNED BY MOST COMPETENT, AND WELL EXPERIENCED PROFESSIONALS. THEREFO RE, BY ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 39 THE ABOVE ACTS OF CLAIMING UNALLOWABLE REDUCTION/DEDUCTION, IN RESPECT OF SALES TAX, ENTRY TAX AND ELECTRICITY DUTY, THE ASSESSEE HAS MADE ACTIVE ATTEMPT TO EVADE TAX. 54. BEFORE US, THE AUTHORIZED REPRESENTATIVE OF THE SUBMITTED AS UNDER: 1. THE ASSESSEE FROM THE YEAR 2000 ONWARDS HAD SETUP NEW INDUSTRIAL UNITS ENTAILING AN INVESTMENT EXCEEDING RS.1,000 CRORES AT RAIGARH, WHICH IS A BACKWARD AND TRIBAL AREA OF THE THEN STATE OF MADHYA PRADESH. THE SAID UNITS INCLUDED, INTER - ALIA, THE FOLLOWING: I. 1 .5 LAC TON CAPACITY ROTARY KILN FOR MANUFACTURING SPONGE IRON SETUP IN 2000 - 01; II. CAPTIVE POWER PLANT. III. 5 LAC TON CAPACITY UNIVERSAL BEAM/ RAIL MILL SETUP IN FINANCIAL YEAR 2003 - 04. 1.1 THE THEN GOVERNMENT OF MADHYA PRADESH, VIDE NOTIFICATIONS DATED 24.4.20 00 (PG. 1094 - 1095 OF THE ADDITIONAL EVIDENCE FILED), EXEMPTED THE ASSESSEE FROM PAYMENT OF CENTRAL SALES TAX AND ENTRY TAX INVOLVING INVESTMENT OF RS.1000 CRORES OR MORE AND FROM PAYMENT OF ELECTRICITY DUTY VIDE NOTIFICATION DATED 29.07.2000. IN THE MONTH OF NOVEMBER 2000, A NEW STATE OF CHATTISGARH WAS CARVED OUT OF PART OF STATE OF MADHYA PRADESH AND THE RAIGARH UNIT BECAME A PART OF CHATTISGARH. THE STATE OF CHATTISGARH ALSO ENDORSED THE EXEMPTIONS GRANTED BY THE STATE OF MADHYA PRADESH. 1.1. APART FROM T HE AFORESAID, FROM FINANCIAL YEAR 2005 - 06 ONWARDS THE APPELLANT HAD SET UP A NEW INDUSTRIAL UNIT NO. IIIIN THE STATE OF CHHATTISGARH FOR WHICH THE APPELLANT WAS GRANTED INCENTIVES IN THE FORM OF EXEMPTION FROM PAYMENT OF ENTRY TAX AND ELECTRICITY DUTY UNDE R THE INDUSTRIAL POLICY (2004 2009) ISSUED BY THE GOVERNMENT OF CHATTISGARH (HEREINAFTER REFERRED TO AS `INDUSTRIAL POLICY, 2004 ). 1.2. THUS, UNDER THE AFOREMENTIONED SCHEME, DURING THE RELEVANT PREVIOUS YEAR, THE APPELLANT AVAILED EXEMPTION ON ACCOUNT OF SALE S TAX, ENTRY TAX AND ELECTRICITY DUTY AGGREGATING TO RS.120,74,28,254 (50,03,98,228 + 39,35,77,228 + 31,34,53,398). THE SAID INCENTIVES/ SUBSIDIES WERE CLAIMED ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 40 AS CAPITAL RECEIPTS AND ACCORDINGLY, WERE NOT OFFERED TO TAX IN THE RETURN OF INCOME FOR RELEVAN T ASSESSMENT YEAR. 1.3. IT IS THE CASE OF THE ASSESSEE THAT EXEMPTION ON ACCOUNT OF SALES TAX, ENTRY TAX AND ELECTRICITY DUTY AGGREGATING TO RS.120,74,28,854/ - .IN RESPECT OF INDUSTRIAL UNIT AT RAIGARH, MADHYA PRADESH IS A CAPITAL RECEIPT NOT LIABLE TO TAX AND SHOULD, THEREFORE, BE DIRECTED TO BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. IN THIS REGARD, LD. AR PLACED RELIANCE ON A NUMBER OF JUDGMENTS, INCLUDING FEW SUPREME COURT JUDGMENTS ALSO. THE ASSESSEE HAS A LSO FILED BEFORE US ADDITIONAL EVIDENCE IN THIS REGARD IN FORM OF AN APPLICATION FILED UNDER RULE 29 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963 RUNNING FROM PAPERBOOK PG. 1024 TO 1105, THE CONTENTS OF WHICH ARE REPRODUCED HEREINBELOW - 1.4. THE APPLICAN T / ASSESSEE CRAVES LEAVE FOR ADMISSION OF THE FOLLOWING DOCUMENTS ( PLACED IN PAPER BOOK FROM PAGES 1024 TO 1105 ) AS ADDITIONAL EVIDENCES UNDER RULE 29 OF THE INCOME - TAX (APPELLATE TRIBUNAL), 1963 IN CONNECTION WITH THE CAPTIONED APPEALS : S.NO. (PB) PA RTICULARS PAGE NO.: (PB) RE : CAPITAL SUBSIDY 106. COPY OF NOTIFICATION DATED 03.06.1993 ISSUED BY GOVERNMENT OF MADHYA PRADESH FOR ISSUING SCHEME FOR RS.1000 CRORES PLUS INTEGRATED STEEL PLANTS 1024 - 1031 107. COPY OF NOTIFICATION NO.A - 3 - 24 - 94 - ST - V (10 8) DATED 06.10.1994 ISSUED BY THE GOVERNMENT OF MADHYA PRADESH PURSUANT TO INDUSTRIAL POLICY AND ACTION PLAN, 1994 1032 - 1046 108. COPY OF RELEVANT EXTRACTS (PREFACE) OF INDUSTRIAL PROMOTION POLICY - 2004 AND ACTION PLAN ISSUED BY GOVERNMENT OF MADHYA PRADES H SHOWING THAT INDUSTRIAL POLICY, 1994 WAS APPLICABLE TILL 2003 1047 - 1050 109. COPY OF NOTIFICATION NO.A - 31295STV(96) DATED 07.11.1997 ISSUED BY THE GOVERNMENT OF MADHYA PRADESH IN RESPECT OF EXEMPTION OF SALES ENTRY TAX (NOT APPLICABLE ON ASSESSEE) 1051 - 1062 ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 41 110. COPY OF CORRESPONDENCE MADE BY ASSESSEE TO THEN CHIEF MINISTER OF MADHYA PRADESH / SENIOR OFFICIALS OF MADHYA PRADESH STATE INDUSTRIAL DEVELOPMENT CORPORATION DURING JULY 1998 TO NOV. 1999 FOR FORMULATION OF SPECIAL INCENTIVE PACKAGE FOR THE ASS ESSE 1063 - 1080 111. COPY OF LETTERS WRITTEN BY ASSESSEE TO THEN CHIEF MINISTER AND GOVERNMENT OFFICIAL POST ISSUE OF SPECIFIC NOTIFICATIONS DATED 24.04.2000 GRANTING EXEMPTION TO THE ASSESSEE 1081 - 1082 112. COPY OF LETTER DATED 17.05.2002 BY ASSESSEE TO SECRETARY ENERGY, CHHATISGARH REQUESTING FOR GRANT OF EXEMPTION FROM ELECTRICITY DUTY FOR 15 YEARS AS AGAINST 10 YEAR GRANTED VIDE NOTIFICATION DATED 29.07.2000. 1083 - 1084 113. NOTIFICATION ISSUED BY GOVERNMENT OF CHHATISHGARH FOR GRANTING DUTY EXEMPTION FOR A PERIOD OF 15 YEARS 1085 - 1086 114. COPY OF MEMORANDUM OF UNDERSTANDING DATED 21.05.2001 ENTERED INTO BETWEEN ASSESSEE AND GOVERNMENT OF CHHATTISGARH WHEREBY THE INCENTIVES / BENEFITS GIVEN BY THE GOVERNMENT OF MADHYA PRADESH HAVE BEEN APPROVED / ADOP TED BY THE CHHATTISHGARH GOVERNMENT. 1087 - 1091 115. COPY OF LETTER DATED 02.05.2002 ISSUED BY DEPARTMENT OF COMMERCE AND INDUSTRY, GOVERNMENT OF CHATTISGARH APPROVING THE INCENTIVE / SUBSIDIES GRANTED VIDE NOTIFICATION DATED 24.04.2000 ISSUED BY THE EARLI ER GOVERNMENT OF MADHYA PRADESH. 1092 116. COPY OF LETTER DATED 11.11.2004 ISSUED BY COMMERCIAL TAX DEPARTMENT, RAIGARH CERTIFYING INVESTMENT OF RS.1027 CRORES BY THE ASSESSEE TILL THE YEAR 2003 - 04. 1093 117. COPY OF NOTICE ISSUED BY THE COMMERCIAL TAX D EPARTMENT IN MARCH 2013 FOR F.Y.2008 - 09 REQUIRING THE ASSESSEE TO SHOW CAUSE AS TO WHY THE CENTRAL SALES TAX MAY NOT BE RECOVERED FOR NON - FULFILLMENT OF CONDITIONS IN NOTIFICATION NO. (40) DATED 24.04.2000. 1094 - 1095 118. COPY OF REPLY DATED 07.05.2013 FI LED BY THE ASSESSEE IN RESPONSE TO AFORESAID NOTICE 1096 - 1098 ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 42 ISSUED BY COMMERCIAL TAX DEPARTMENT 119. COPY OF ORDER DATED 25.09.2013 PASSED BY THE COMMERCIAL TAX DEPARTMENT DROPPING AFORESAID PROCEEDINGS. 1099 120. COPY OF NOTICE ISSUED BY THE COMMERCIA L TAX DEPARTMENT IN MARCH 2013 FOR F.Y.2008 - 09 REQUIRING THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ENTRY TAX MAY NOT BE RECOVERED FOR NON - FULFILLMENT OF CONDITIONS IN NOTIFICATION NO. (40) & (41) DATED 24.04.2000 1100 - 1101 121. COPY OF REPLY DATED 07.05.20 13 FILED BY THE ASSESSEE IN RESPONSE TO AFORESAID NOTICE ISSUED BY THE COMMERCIAL TAX DEPARTMENT 1102 - 1103 122. COPY OF ORDER DATED 25.09.2013 PASSED BY THE COMMERCIAL TAX DEPARTMENT DROPPING AFORESAID PROCEEDINGS. 1004 123. COPY OF ASSESSMENT ORDER DATE D 16.04.2012 PASSED BY THE COMMERCIAL TAX DEPARTMENT, RAIGARH DULY QUANTIFYING THE SALES EXEMPT FROM CENTRAL SALES TAX OF UNIT II MADE BY THE ASSESSEE FOR YEAR ENDING 31.03.2009 1105 55. WE FIND FROM THE RECORDS THAT THIS IS A REPETITIVE YEAR ISSUE AND I N ALL FAIRNESS, IT MAY BE POINTED OUT THAT THIS ISSUE OF TREATMENT OF SUBSIDY AS CAPITAL OR REVENUE RECEIPT HAS BEEN DECIDED AGAINST THE APPELLANT BY THE HON BLE DELHI BENCH OF THE TRIBUNAL IN APPELLANT S OWN CASE FOR ASSESSMENT YEAR 2004 - 05 IN ITA NO. 331 9/ DEL/ 2008 AND ALSO IN THE DECISION OF THE ASSESSEE FOR AY 2008 - 09 WHEREIN THE AFOREMENTIONED ADDITIONAL EVIDENCE HAS BEEN ADMITTED AND THEREAFTER THIS ISSUE HAS BEEN DECIDED AGAINST T HE ASSESSEE. TRIBUNAL HAS HELD THAT : - 1.5 THE LD. AR ALSO STATED THAT THE DECISIONS OF THE TRIBUNAL ARE ONLY IN THE CONTEXT OF UNIT II AND ARE NOT AT ALL IN THE CONTEXT OF UNIT III, WHICH WAS SET UP SUBSEQUENTLY IN THE STATE OF CHHATTISGARH. THEREFORE, THE LD. AR SUBMITTED THAT THE ELIGIBILITY OF THE APPELLANT TO CLAIM EXEM PTION IN RESPECT OF UNIT III MAY KINDLY BE CONSIDERED INDEPENDENT OF THE DECISION OF THE TRIBUNAL IN THE CONTEXT OF OTHER UNITS. HOWEVER, IT IS SEEN THAT THE GENERAL PRINCIPLE IS THE SAME AS REGARDS TAXATION AND DETERMINATION OF SUBSIDY AS REVENUE RECEIPT VIS - - VIS CAPITAL RECEIPT AND THUS, WE ARE INCLINED TO ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 43 FOLLOW THE ORDER OF ITAT AS ADJUDICATED IN ASSESSEE S OWN CASE FOR EARLIER YEAR. 56 . FACTS BEING IDENTICAL , RESPECTFULLY FOLLOWING THE PRECEDENT WE CONFIRM THE ORDER OF THE AO AND DISMISS THE GROUND NO . 4 OF APPEAL OF THE ASSESSEE. 57 . GROUND NO. 5 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 5. THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION IN RESPECT OF WRITE BACK OF AN AMOUNT OF RS.3,92,93,000, CONSISTENT WIT H THE FINDING IN THE EARLIER ASSESSMENT YEARS THAT DEDUCTION IS NOT ALLOWABLE IN RESPECT OF DEFERMENT OF EMPLOYEE COMPENSATION EXPENDITURE INCURRED ON ACCOUNT OF PROVISION OF EMPLOYEE STOCK OPTION SCHEME ( ESOS ) TO EMPLOYEES. 5.1 THAT THE DRP GROSSLY ERR ED ON FACTS AND IN LAW IN NOT ALLOWING AFORESAID DEDUCTION BY HOLDING THAT THE SAID ISSUE STANDS DECIDED IN FAVOUR OF REVENUE BY THE ORDER OF THE CIT(A) IN THE PRECEDING ASSESSMENT YEARS, WITHOUT APPRECIATING THAT THE SAID OBSERVATION ACTUALLY SUPPORTS THE APPELLANT S AFORESAID CLAIM OF DEDUCTION. 58 . THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT ESOS EXPENDITURE HAS BEEN DISALLOWED IN THE EARLIER ASSESSMENT YEARS AND DURING THE CURRENT ASSESSMENT YEAR THE ASSESSEE HAS WRITTEN BACK RS. 3,92 ,93,000/ - ON ACCOUNT OF EMPLOYEE STOCK OPTION SCHEME (ESOS). THE ASSESSEE HAS NOT ACCEPTED THE DISALLOWANCES MADE IN EARLIER YEARS AND HAS FILED APPEAL IN THE MATTER. SINCE, THE ISSUE IS PENDING BEFORE THE APPELLATE AUTHORITY, NO ACTION IS TAKEN ON THIS IS SUE IN THE CURRENT YEAR. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 44 59 . IT WAS SUBMITTED THAT THE DRP REJECTED THE OBJECTIONS OF THE ASSESSEE BY OBSERVING AS UNDER : - 'THE DRP CONSIDERED THE FACTS OF THE CASE CAREFULLY. IT WAS NOTICED THAT IN THE EARLIER ASSESSMENT YEARS, SUCH AMOUNT CLAMED AS DE DUCTION BY THE ASSESSEE WAS NOT ALLOWED BY THE ASSESSING OFFICER, WHICH WAS AFFIRMED IN APPEAL BY THE CIT(A). AGAINST THE ORDER OF THE CIT(A), THE ASSESSEE HAS PREFERRED APPEAL BEFORE THE ITAT, DELHI WHICH IS PENDING ADJUDICATION. SINCE, THE ISSUE STANDS DECIDED IN FAVOUR OF THE REVENUE, BY THE CIT(A), THE OBJECTION OF THE ASSESSEE IS REJECTED.' 60. THE ASSESSING OFFICER FOLLOWING THE ABOVE DIRECTIONS O F THE DRP, HELD THAT NO COGNIZANCE IS TAKEN IN RESPECT OF THE ABOVE SUM OF RS.3,92,93,000/ - WRITTEN BACK BY THE ASSESSEE ON ACCOUNT OF EMPLOYEE STOCK OPTION SCHEME. EVEN, IF THE ASSESSEE ACCEPTS THE VERSION OF THE DEPARTMENT IN EARLIER YEARS, THIS SUM OF RS.3,92,93,000/ - CANNOT BE REDUCED FROM THE ASSESSED INCOME BECAUSE IN THOSE YEARS THE ASSESSEE IS CLAIMI NG DEDUCTION (WITHOUT ANY OUT - GOING FROM THE PROFIT) OVER AND ABOVE NORMAL INCOME AND DEPARTMENT IS JUST REJECTING SUCH CLAIM. HENCE, THERE IS NO 'ADDITION' IN THOSE YEARS. 61 . BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT AN ESOS SCHEME IS AN EMPLOYEE COMPENSATION SCHEME, INTENDING TO INCULCATE A SENSE OF BELONGINGNESS AND INSTILL A FEELING OF OWNERSHIP IN THE EMPLOYEES TO CREATE PARTNERSHIP WITH THE EMPLOYEES, FOR TRANSITION FROM BEING MERE EMPLOYEES TO STAKE HOLDERS . ONCE GRANTS ARE IS SUED BY THE ASSESSEE TO ITS EMPLOYEES UNDER THE ESOS, IN SO FAR AS THE ASSESSEE IS CONCERNED, THE LIABILITY CRYSTALLIZES IN AS MUCH AS THE OPTION TO ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 45 EXERCISE SUCH GRANT IS WITH THE EMPLOYEES ON WHICH THE ASSESSEE HAS NO CONTROL. SINCE SUCH LIABILITY TOWARD S EMPLOYEE COMPENSATION, ON THE GRANT OF OPTION, CAN BE ESTIMATED WITH REASONABLE CERTAINTY, A LIABILITY TOWARDS THE SAID COMPENSATION DEFINITELY ARISES ON THE GRANT OF OPTION. 6 2 . FURTHERMORE , THE EXPENDITURE INCURRED IS TOWARDS EMPLOYEE COMPENSATION AND THE SAID EXPENSE IS MERELY DISCHARGED BY GRANT OF OPTIONS AND SUBSEQUENT ISSUANCE OF SHARES UNDER ESOS. BY VIRTUE OF ESOS, THE EMPLOYEE IS REMUNERATED TO THE EXTENT OF DIFFERENCE BETWEEN THE ISSUE PRICE AND THE MARKET VALUE OF SHARES, WHICH REPRESENTS THE BENEFITS TO THE EMPLOYEES. THE ISSUE OF SHARES IS ONLY A MODE/MANNER OF REMUNERATING THE EMPLOYEE. THE EXPENDITURE IS THUS INCURRED AND THE SAME HAS BEEN CLAIMED IN THE EARLIER ASSESSMENT YEARS. THAT, CONSISTENT WITH THE SAID APPROACH, THE APPELLANT FOR T HE YEAR UNDER CONSIDERATION HAS WRITTEN BACK AN AMOUNT OF RS. 3,92,93,000/ - TO THE PROFIT & LOSS ACCOUNT AS INCOME BECAUSE ONLY A FEW OPTIONS WERE EXERCISED BY THE EMPLOYEE AGAINST WHICH SHARES WERE ALLOTTED AND BALANCE OPTIONS WERE LAPSED/WITHDRAWN DURING THE PERIOD. 63 . LD. AUTHORIZED REPRESENTATIVE , DURING THE COURSE OF THE HEARING, SUBMITTED THAT EXPENSE INCURRED ON ACCOUNT OF DISCOUNT ON ESOS IS AN ALLOWABLE EXPENDITURE IN LAW. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING CASE LAWS: BIOCON LTD. VS. DCIT [2013] 144 ITD 21(BANGALORE TRIB.) (SB) DCIT V. KOTAK MAHINDRA BANK LTD. [2018 ] 168 ITD 529 (MUMBAI - TRIB.) LEMON TREE HOTELS LTD. V. AD DL. CIT ITA NO. 4588/DEL/2013 ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 46 RELIGARE COMMODITIES LTD. V. ACIT AN D ORS. ITA NO. 2283/DEL/2013 64 . I T WAS FURTHER SUBMITTED T HAT, WITHOUT PREJUDICE, THE AO/DRP HAVE ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION IN RESPECT OF WRITTEN BACK AMOUNT IN THIS YEAR CONSISTENT WITH THE FINDING IN THE EARLIER ASSESSMENT YEARS THAT DEDUCTION IS NOT ALLOWABLE IN RESPECT OF DEFERMENT OF EMPLOYEE COMPENSATION EXPENDITURE. THAT, WHILE DISALLOWING THE DEDUCTION, THE STAND OF THE REVENUE IN EARLIER ASSESSMENT YEARS TO NOT ALLOW DEDUCTION ON ACCOUNT OF DISCOUNT ON ESOP, ACTUALLY SUPPORTS THE CLAIM OF THE ASSESSEE FOR ALLOWING DEDUCTION IN THE PRESENT ASSESSMENT YEAR. IN THE RELEVANT ASSESSMENT ORDER, AO OUGHT TO HAVE ALLOWED DEDUCTION OF WRITE BACK OF THE AFORESAID AMOUNT OF RS.3,92,93,000/ - , CONSISTENT WITH THE FINDING IN THE EARLIER ASSESSMENT YEARS THAT DEDUCTION I S NOT ALLOWABLE IN THE YEAR OF GRANT OF OPTIONS. 65 . IT WAS ARGUED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY VARIOUS DECISIONS OF THE TRIBUNAL INCLUDING A SPECIAL BENCH DECISION WHEREIN THIS ISSUE WAS DISCUSSED AT LENGTH. IN THE CASE OF BIOC ON LTD. VS. DCIT [2013] 144 ITD 21(BANGALORE TRIB.) (SB), BANGALORE SPECIAL BENCH DISCUSSED THIS ISSUE AT LENG TH INCLUDING ALL THE ARGUMENTS AND SUBMISSIONS OF THE REVENUE/DEPARTMENT AND THEREAFTER CONCLUDED THAT THIS IS AN ALLOWABLE EXPENSE U/S 37 OF TH E ACT. IT WAS HELD AS UNDER: 9.2.5 THE CORE OF THE ARGUMENTS OF THE LD. DR IN THIS REGARD IS TWO - FOLD. FIRST, THAT IT IS NOT AN EXPENDITURE IN ITSELF AND SECONDLY, IT IS A SHORT CAPITAL RECEIPT OR AT THE MOST A SORT OF CAPITAL EXPENDITURE. IN OUR CONSIDER ED OPINION BOTH THE LEGS OF THIS CONTENTION ARE LEGALLY UNSUSTAINABLE. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 47 9.2.6 THERE IS NO DOUBT THAT THE AMOUNT OF SHARE PREMIUM IS OTHERWISE A CAPITAL RECEIPT AND HENCE NOT CHARGEABLE TO TAX IN THE HANDS OF COMPANY. THE FINANCE ACT, 2012 HAS INSERTED CLAUS E (VIIB) OF SECTION 56(2) W.E.F. 1.4.2013 PROVIDING THAT: 'WHERE A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, RECEIVES, IN ANY PREVIOUS YEAR, FROM ANY PERSON BEING A RESIDENT, ANY CONSIDERATION FOR ISSUE OF SHARES THAT E XCEEDS THE FACE VALUE OF SUCH SHARES, THE AGGREGATE CONSIDERATION RECEIVED FOR SUCH SHARES AS EXCEEDS THE FAIR MARKET VALUE OF THE SHARES', THEN SUCH EXCESS SHARE PREMIUM SHALL BE CHARGED TO TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. BUT FOR THAT, THE AMOUNT OF SHARE PREMIUM HAS ALWAYS BEEN UNDERSTOOD AND ACCEPTED AS A CAPITAL RECEIPT. IF A COMPANY ISSUES SHARES TO THE PUBLIC OR THE EXISTING SHAREHOLDERS AT LESS THAN THE OTHERWISE PREVAILING PREMIUM DUE TO MARKET SENTIMENT OR OTHERWISE, SUCH SHORT RECE IPT OF PREMIUM WOULD BE A CASE OF A RECEIPT OF A LOWER AMOUNT ON CAPITAL ACCOUNT. IT IS SO BECAUSE THE OBJECT OF ISSUING SUCH SHARES AT A LOWER PRICE IS NOWHERE DIRECTLY CONNECTED WITH THE EARNING OF INCOME. IT IS IN SUCH LIKE SITUATION THAT THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE WOULD PROPERLY FIT IN, THEREBY DEBARRING THE COMPANY FROM CLAIMING ANY DEDUCTION TOWARDS DISCOUNTED PREMIUM. IT IS QUITE BASIC THAT THE OBJECT OF ISSUING SHARES CAN NEVER BE LOST SIGHT OF. HAVING SEEN THE RATIONA LE AND MODUS OPERANDI OF THE ESOP, IT BECOMES OUT - AND - OUT CLEAR THAT WHEN A COMPANY UNDERTAKES TO ISSUE SHARES TO ITS EMPLOYEES AT A DISCOUNTED PREMIUM ON A FUTURE DATE, THE PRIMARY OBJECT OF THIS EXERCISE IS NOT TO RAISE SHARE CAPITAL BUT TO EARN PROFIT B Y SECURING THE CONSISTENT AND CONCENTRATED EFFORTS OF ITS DEDICATED EMPLOYEES DURING THE VESTING PERIOD. SUCH DISCOUNT IS CONSTRUED, BOTH BY THE EMPLOYEES AND COMPANY, AS NOTHING BUT A PART OF PACKAGE OF REMUNERATION. IN OTHER WORDS, SUCH DISCOUNTED PREMIU M ON SHARES IS A SUBSTITUTE TO GIVING DIRECT INCENTIVE IN CASH FOR AVAILING THE SERVICES OF THE EMPLOYEES. THERE IS NO DIFFERENCE IN TWO SITUATIONS VIZ., ONE, WHEN THE COMPANY ISSUES SHARES TO PUBLIC AT MARKET PRICE AND A PART OF THE PREMIUM IS GIVEN ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 48 TO TH E EMPLOYEES IN LIEU OF THEIR SERVICES AND TWO, WHEN THE SHARES ARE DIRECTLY ISSUED TO EMPLOYEES AT A REDUCED RATE. IN BOTH THE SITUATIONS, THE EMPLOYEES STAND COMPENSATED FOR THEIR EFFORT. IF UNDER THE FIRST SITUATION, THE COMPANY, SAY, ON RECEIPT OF PREMI UM AMOUNTING TO RS. 100 FROM ISSUE OF SHARES TO PUBLIC, GIVES RS. 60 AS INCENTIVE TO ITS EMPLOYEES, SUCH INCENTIVE OF RS. 60 WOULD BE REMUNERATION TO EMPLOYEES AND HENCE DEDUCTIBLE. IN THE SAME WAY, IF THE COMPANY, INSTEAD, ISSUES SHARES TO ITS EMPLOYEES A T A PREMIUM OF RS. 40, THE DISCOUNTED PREMIUM OF RS. 60, BEING THE DIFFERENCE BETWEEN RS. 100 AND RS. 40, IS AGAIN NOTHING BUT A DIFFERENT MODE OF AWARDING REMUNERATION TO EMPLOYEES FOR THEIR CONTINUED SERVICES. IN BOTH THE CASES, THE OBJECT IS TO COMPENSA TE EMPLOYEES TO THE TUNE OF RS. 60. IT FOLLOWS THAT THE DISCOUNT ON PREMIUM UNDER ESOP IS SIMPLY ONE OF THE MODES OF COMPENSATING THE EMPLOYEES FOR THEIR SERVICES AND IS A PART OF THEIR REMUNERATION. THUS, THE CONTENTION OF THE LD. DR THAT BY ISSUING SHARE S TO EMPLOYEES AT A DISCOUNTED PREMIUM, THE COMPANY GOT A LOWER CAPITAL RECEIPT, IS BEREFT OF AN FORCE. THE SOLE OBJECT OF ISSUING SHARES TO EMPLOYEES AT A DISCOUNTED PREMIUM IS TO COMPENSATE THEM FOR THE CONTINUITY OF THEIR SERVICES TO THE COMPANY. BY NO STRETCH OF IMAGINATION, WE CAN DESCRIBE SUCH DISCOUNT AS EITHER A SHORT CAPITAL RECEIPT OR A CAPITAL EXPENDITURE. IT IS NOTHING BUT THE EMPLOYEES COST INCURRED BY THE COMPANY. THE SUBSTANCE OF THIS TRANSACTION IS DISBURSING COMPENSATION TO THE EMPLOYEES FO R THEIR SERVICES, FOR WHICH THE FORM OF ISSUING SHARES AT A DISCOUNTED PREMIUM IS ADOPTED. 9.2.7 NOW WE ESPOUSE THE SECOND PART OF THE SUBMISSION OF THE LD. DR IN THIS REGARD. HE CANVASSED A VIEW THAT AN EXPENDITURE DENOTES 'PAYING OUT OR AWAY' AND UNLESS THE MONEY GOES OUT FROM THE ASSESSEE, THERE CAN BE NO EXPENDITURE SO AS TO QUALIFY FOR DEDUCTION U/S 37. SUB - SECTION (1) OF THE SECTION PROVIDES THAT ANY EXPENDITURE (NOT BEING EXPENDITURE IN THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 49 EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINES S OR PROFESSION'. TO PUT IT DIFFERENTLY, AN EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS SO AS TO BE ELIGIBLE FOR DEDUCTION U/S 37(1). THERE IS ABSOLUTELY NO DOUBT THAT SECTION 37(1) TALKS OF GRANTING DEDUCTIO N FOR AN 'EXPENDITURE', AND THE HON'BLE SUPREME COURT IN INDIAN MOLASSES CO. (P.) LTD. (SUPRA) HAS DESCRIBED 'EXPENDITURE' TO MEAN WHAT IS 'PAID OUT OR AWAY' AND IS SOMETHING WHICH HAS GONE IRRETRIEVABLY. HOWEVER, IT IS PERTINENT TO NOTE THAT THIS SECTION DOES NOT RESTRICT PAYING OUT OF EXPENDITURE IN CASH ALONE. SECTION 43 CONTAINS THE DEFINITION OF CERTAIN TERMS RELEVANT TO INCOME FROM PROFITS OF BUSINESS OR PROFESSION COVERING SECTIONS 28 TO 41. SECTION 37 OBVIOUSLY FALLS UNDER CHAPTER IV - D. SUB - SECTION (2) OF SECTION 43 DEFINES 'PAID' TO MEAN: 'ACTUALLY PAID OR INCURRED ACCORDING TO THE METHOD OF ACCOUNTING UPON THE BASIS OF WHICH THE PROFITS OR GAINS ARE COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'.' WHEN WE READ THE DEFINITION OF THE WORD 'PAID' U/S 43(2) IN JUXTAPOSITION TO SECTION 37(1), THE POSITION WHICH EMERGES IS THAT IT IS NOT ONLY PAYING OF EXPENDITURE BUT ALSO INCURRING OF THE EXPENDITURE WHICH ENTAILS DEDUCTION U/S 37(1) SUBJECT TO THE FULFILMENT OF OTHER CONDITIONS. A T THIS JUNCTURE, IT IS IMPERATIVE TO NOTE THAT THE WORD 'EXPENDITURE' HAS NOT BEEN DEFINED IN THE ACT. HOWEVER, SEC. 2(H) OF THE EXPENDITURE ACT, 1957 DEFINES 'EXPENDITURE' AS : 'ANY SUM OF MONEY OR MONEY'S WORTH SPENT OR DISBURSED OR FOR THE SPENDING OR D ISBURSING OF WHICH A LIABILITY HAS BEEN INCURRED BY AN ASSESSEE '. WHEN SECTION 43(2) OF THE ACT IS READ IN CONJUNCTION WITH SECTION 37(1), THE MEANING OF THE TERM 'EXPENDITURE' TURNS OUT TO BE THE SAME AS IS THERE IN THE AFOREQUOTED PART OF THE DEFINITIO N UNDER SECTION 2(H) OF THE EXPENDITURE ACT, 1957, VIZ., NOT ONLY 'PAYING OUT' BUT ALSO 'INCURRING'. COMING BACK TO OUR CONTEXT, IT IS SEEN THAT BY UNDERTAKING TO ISSUE SHARES AT DISCOUNTED PREMIUM, THE COMPANY DOES NOT PAY ANYTHING TO ITS EMPLOYEES BUT IN CURS OBLIGATION OF ISSUING SHARES AT A DISCOUNTED PRICE ON ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 50 A FUTURE DATE IN LIEU OF THEIR SERVICES, WHICH IS NOTHING BUT AN EXPENDITURE U/S 37(1) OF THE ACT. 66 . IT WAS SUBMITTED THAT F OLLOWING THE , MUMBAI TRIBUNAL DECISION IN DCIT VS. KOTAK MAHINDRA BAN K LTD. [2018] 89 TAXMANN.COM 223(MUM) , THE 'SPECIAL BENCH' OF THE TRIBUNAL IN THE CASE OF BIOCON LTD. V. DY. CIT (LTU) [2013] 144 ITD 21/35 TAXMANN.COM 335 (BANG.) AFTER DELIBERATING AT LENGTH ON THE ISSUE AS TO WHETHER THE ASSESSEE WAS ENTITLED TO CLAIM THE DISCOUNT ON ESOS AS AN EXPENDITURE UNDER SECTION 37(1), OR NOT, HAD THEREIN ANSWERED THE SAID ISSUE IN AFFIRMATIVE AND CONCLUDED THAT THE SAME WAS ALLOWABLE AS AN EXPENDITURE UNDER SECTION 37(1) IN THE HANDS OF THE ASSESSEE. 6 7 . HENCE, IN VIEW OF TH E DIRECT SPECIAL BENCH DECISION ON THIS ISSUE, DEDUCTION OF THE CLAIM SHOULD BE ALLOWED U/S 37 OF THE ACT FOR THE YEAR UNDER CONSIDERATION. NEEDLESS TO SAY THAT IF THE ASSESSEE SUCCEEDS IN ITS APPEALS OF EARLIER AYS, THEN THIS AMOUNT SHALL BE TAXABLE IN TH IS YEAR. HOWEVER, IF ASSESSEE FAILS IN THE APPEALS OF THE EARLIER YEARS, THEN THIS AMOUNT ADDED BACK CANNOT BE TREATED AS INCOME AND HENCE SHALL NOT BE TAXABLE IN THIS YEAR. WITH THESE DIRECTIONS, THIS GROUND OF APPEAL SHOULD BE ALLOWED. 68 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE CLAIM OF THE ASSESSEE IS IT HAS CREDITED RS.3,92,93,000/ - IN THE PROFIT AND LOSS ACCOUNT AS WRITE BACK ON ACCOUNT OF EMPLOYEE STOCK OPTION SCHEME (ESOS). THE ASSESSEE FURTHER CLAIMED THAT WHEN PROVISION WAS MADE ON ACCOUNT OF ESOS IN EARLIER YEARS BY WAY OF DEBIT TO ITS PROFIT AND LOSS ACCOUNT THE SAID AMOUNT WAS NOT ALLOWED AS DEDUCTION ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 51 TO THE ASSESSEE IN THE ASSESSMENT OF EARLIER YEARS. IN OUR CO NSIDERED VIEW WHEN AN AMOUNT IS NOT ALLOWED AS DEDUCTION WHEN ITS PROVISION WAS MADE IN THE YEAR OF PROVISION THEN WRITE BACK OF THE VERY SAME AMOUNT IN THE SUBSEQUENT YEAR CANNOT BE INCLUDED IN THE TOTAL INCOME OF THE SUBSEQUENT YEAR. WE THEREFORE SET ASI DE THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR ADJUDICATION AFRESH IN LIGHT OF THE ABOVE OBSERVATION. THE AO SHALL VERIFY WHETHER THE AMOUNT WRITTEN BACK THIS YEAR WAS ALLOWED AS DEDUCTION OR NOT IN THE YEAR IN WHICH PROVISION FOR THE SAME WAS MADE BY THE ASSESSEE. FURTHER, THE ASSESSEE HAS SUBMITTED BEFORE US THAT THE DISALLOWANCE MADE IN EARLIER YEARS WHEN PROVISION WAS MADE IS CHALLENGED IN APPEAL AND THE APPEAL IS PENDING BEFORE THE APPELLATE A UTHORITY. WE WOULD LIKE TO CLARIFY HERE THAT IF AFTER APPEAL THE ASSESSEE IS ALLOWED DEDUCTION IN THE YEAR OF PROVISION IN THE APPEAL THEN WHILE GIVING EFFECT TO THAT ORDER THE AO SHALL BRING TH E CORRESPONDING AMOUNT OF WRITE BACK IN THE YEAR UNDER CONSIDE RATION TO TAX .THUS , THIS GROUND NO. 5 OF THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED. 69 . GROUND NO. 6 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 6. THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN DISALLOWING A SUM OF RS.21,54,00,00 0 UNDER SECTION 14A OF THE ACT, AS PER THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES, 1962 ( THE RULES ). 6.1 THAT THE ASSESSING OFFICER/ DRP ERRED IN COMPUTING DISALLOWANCE UNDER SECTION 14A BY INVOKING PROVISIONS OF RULE 8D OF THE RULES, WITHOUT APP RECIATING THAT CONDITIONS PRECEDENT FOR APPLYING PROVISIONS OF TH E SAID RULE AS CONTAINED IN SUB - ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 52 SECTIONS (2) AND (3) OF THAT SECTION WERE NOT SATISFIED. 70 . THE ASSESSING OFFICER OBSERVED THAT F ROM THE PERUSAL OF THE BALANCE - SHEET OF THE ASSESSEE COMPAN Y FOR THE PERIOD ENDING AS ON 31.03.2010, IT WAS NOTICED THAT THE ASSESSEE HAS SHOWN OTHER INVESTMENTS AT RS.1233 CRORE ON WHICH DIVIDEND INCOME HAS BEEN EARNED. SINCE, THE DIVIDEND INCOME IS EXEMPT U/S 10(33)/(34) OF THE INCOME - TAX ACT, 1961 AND NOT INCLU DABLE IN THE TOTAL INCOME, EXPENSES CORRESPONDING TO THE SAID INVESTMENT ARE NOT ALLOWABLE U/S 14A OF THE ACT. ASSESSEE WAS, THEREFORE, ASKED TO SHOW CAUSE AS TO WHY THE EXPENSES ATTRIBUTABLE TO THE AFORESAID INVESTMENT SHOULD NOT BE DISALLOWED AS PER THE PROVISIONS OF SECTION 14A OF THE ACT R.W.R. 8D OF THE INCOME - TAX RULES, 1962. 71 . FURTHER, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES AND HAS EARNED DIVIDEND INCOME OF RS.90.14 CRORE WHICH IS EXEMPT. THE ASSESSEE HAS NO T GIVEN ANY BASIS AS TO SUO MOTO DISALLOWANCE OF RS.2,65,715/ - MADE BY THE ASSESSEE U/S 14A OF THE ACT. THEREFORE, HE WAS NOT SATISFIED WITH THE CORRECTNESS OF CLAIM MADE BY THE ASSESSEE. 72 . THE ASSESSING OFFICER FURTHER OBSERVED THAT AS PER DETAILS GIVE N BY THE ASSESSEE, THE PAYMENTS HAVE BEEN MADE ON VARIOUS DATES. HOWEVER, THE SOURCE OF THE SAME HAS NOT BEEN PROVIDED. FOR EXAMPLE, THE ASSESSEE HAD MADE PAYMENT OF RS.19 CRORE ON 17.03.2006 AND ANOTHER PAYMENT OF RS.19 CRORE ON 17.03.2006. THE ASSESSEE H AS NOT GIVEN DETAILS AS TO WHERE THIS MONEY CAME FROM. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 53 73 . THE ASSESSING OFFICER OBSERVED THAT INSTEAD OF GIVING SPECIFIC DETAILS AS TO WHAT WAS SOURCE OF SAID MONEY WITH RESPECT TO STATEMENT OF BANK ACCOUNT FROM WHERE THE SAID PAYMENT HAS BEEN MADE AND DESCRIPTION OF ENTRIES RESPONSIBLE FOR BUILDING UP OF THE BALANCE FROM WHICH PARTICULAR PAYMENT WAS MADE, THE ASSESSEE GAVE GENERAL DESCRIPTION. 74 . THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAS GIVEN VAGUE REPLY. THE REPLY IS ONLY REGARDIN G PAYMENT OF RS.325.90 CRORE. HOWEVER, THE INVESTMENT IS RS.1233 CR. THE ASSESSEE IS SHYING AWAY FROM GIVING SPECIFIC DETAILS, PRO BABLY, FOR FEAR OF DETECTION OF FACT THAT ACTUALLY, THE PAYMENT HAS BEEN MADE FROM GENERAL POOL OF FUNDS WHICH DOES INCLUDE BO RROWED FUND, ON WHICH INTEREST IS BEING PAID. SINCE, THE ASSESSEE HAS NOT KEPT ANY SUCH DETAILS IN ITS BOOKS OF ACCOUNT, NO OPTION BUT TO CONCLUDE THAT CLAIM OF THE ASSESSEE REGARDING CORRESPONDING EXPENSES IS INACCURATE AND UNRELIABLE. SINCE, SPECIFIC DAT A/CALCULATION FOR ARRIVING AT ACCURATE EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME WHICH IS NOT FORMING PART OF TOTAL INCOME IS NOT AVAILABLE AS PER BOOKS OF ACCOUNT, THE METHOD PRESCRIBED UNDER RULE 8 IS THE ONLY OPTION. 75 . THE ASSESSING OFFICER OB SERVED THAT AS PER SECTION 14A(2) OF THE ACT, THE ASSESSING OFFICER SHALL DETERMINE THE EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME AND THE PROVISIONS OF SUB - SECTION (2) SHALL ALSO APPLY IN RELATION TO A CASE WH ERE AN ASSESSEE CLAIMS NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO EXEMPT INCOME. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 54 76 . THE ASSESSING OFFICER ALSO OBSERVED THAT THE DRP REJECTED THE OBJECTIONS OF THE ASSESSEE BY OBSERVING THAT ONCE THE ASSESSING OFFICER IS SATISFIED THAT SOME E XPENDITURES HAS BEEN INCURRED IN RELATION TO EARNING OFF EXEMPT INCOME, HE IS EMPOWERED TO COMPUTE DISALLOWANCE U/S 14A OF THE ACT R.W.R. 8D. THEREFORE, THE AO MADE ADDITION OF RS.21.54 CRORES U/S 14A OF THE ACT WHICH WAS COMPUTED BY HIM UNDER RULE 8D OF T HE INCOME - TAX RULES, 1962 WHICH COMPRISED OF DISALLOWANCE OF INTEREST OF RS.15.87 CRORES AND ADDITION OF 0.5% OF AVERAGE VALUE OF INVESTMENT OF RS.5.67 CRORES. 7 7 . BEFORE US, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE CONTENTED THAT THE AO HAS NOT RECO RDED ANY SPECIFIC SATISFACTION IN THE ENTIRE ASSESSMENT ORDER AS TO THE INCORRECTNESS OF THE SUO MOT O DISALLOWANCE MADE BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS AND STATED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN VARIOUS JUDGMENTS SUCH AS GO DREJ AND BOYCE MANUFACTURING CO VS. CIT [394 ITR 449] AND HT MEDIA VS. CIT [399 ITR 576] AND A RECENT DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF PCIT V. HINDUSTAN CLEAN ENERGY LTD. [ITA NO. 268 OF 2018]. , THE HON BLE COURT HAS HELD AS UNDER: IN THE PRESENT CASE, HOWEVER, THE ASSESSING O F FICER ( AO ) WITHOUT RECORDING REQUIRED SATISFACTION ON HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO BE GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE COR RECTNESS OF THE CLAIM OF THE ASSESSEE , HAD INVOKED AND APPLIED RULE 8D AS A MANDATORY PROVISION APPLICABLE IN ALL CASES OF EXEMPT INCOME. ACTION OF THE AO WAS CONTRARY TO LAW, AND THEREFORE, THERE IS NO MERIT IN THE PRESENT APPEAL. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 55 78. THE LD. AUTHORIZ ED REPRESENTATIVE OF THE ASSESSEE FURTHER CONTENDED THAT EVEN IN THE PRECEDING ASSESSMENT YEAR 2008 - 09 IN THE ORDER PASSED U/S 143(3), THE AO ACCEPTED THE SUO MOTO DISALLOWANCE OF RS. 1,37,568/ - , WHICH WAS MADE ON SIMILAR BASIS AND THERE IS NO CHANGE IN TH E INVESTMENT IN THIS YEAR. AS REGARDS PURPORTED INTEREST EXPENDITURE, THE LD. AR CONTENDED THAT IT IS A SETTLED LEGAL POSITION THAT IN THE EVENT THE ASSESSEE HAS OWN FUNDS, THE SAME WOULD BE TAKEN TO HAVE BEEN USED FOR MAKING INVESTMENT, AND THEREFORE, NO DISALLOWANCE ON ACCO U NT OF INTEREST EXPENDITURE OUGHT TO BE MADE, ESPECIALLY WHEN THE AVAILABLE FUNDS EXCEED THE QUANT U M OF INVESTMENT YIELDING EXEMPT INCOME. IT WAS SUBMITTED THAT AS AGAINST THE TOTAL INVESTMENT OF RS. 1233.40 CRORES, THE ASSESSEE HA D AVA ILABLE FUNDS OF RS. 4585.85 CRORES. THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. HDFC BANK LTD. REPORTED IN 366 ITR 505 (BOM) AND RELIANCE UTILITIES LTD VS. CIT REPORTED IN 313 ITR 340 (BOM) HAS HELD THAT THERE IS PRESUMPTION THAT THE INVESTMENTS AR E MADE FROM SELF OWNED FUNDS UNLESS THE CONTRARY IS PROVED. MOREOVER, ON THE PECULIAR FACTS OF THE PRESENT CASE, IT WILL KINDLY BE APPRECIATED THAT THE ASSESSEE COMPANY PROMOTED JINDAL POWER LIMITED (JPL) TO BUILD 1000 MW POWER PROJECT IN RAIGARH DISTRICT IN THE STATE OF CHATTISGARH CONSIDERING THE INCREASING REQUIREMENT OF POWER IN THE ASSESSEE S STEEL MANUFACTURING ACTIVITIES. THUS THE BUSINESS OF THE ASSESSE E COMPANY AND JPL IS LINKED AND ASSESSE E COMPANY ACQUIRED A DEFINITE BUSINESS ADVANTAGE OR BENEFIT FROM SUCH INVESTMENT AND SO THE DIVIDEND YIELD ON SUCH INVESTMENT IS NOT THE SOLE BENEFIT EARNED FROM SUCH INVESTMENT, HOWEVER, THE SAME IS ON ACCOUNT OF COMMERCIAL EXPEDIENCY. LASTLY AND WITHOUT PREJUDICE TO THE ABOVE, THE ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 56 ASSESSEE SUBMITS THAT THE AO HA S ERRED IN APPLICATION OF RULE 8D OF THE RULES, WITH REGARD TO CALCULATION OF THE AVERAGE VALUE OF INVESTMENT PRESCRIBED IN THE FORMULAE. IN THIS REGARD, THE ASSESSEE PLACES RELIANCE ON THE DECISION OF THE HON BLE DELHI HIGH COURT IN ACB INDIA LTD VS. ACIT [374 ITR 108 (DELHI)] AND IN THE CASE OF PCIT V. M/S CARAF BUILDERS & CONSTRUCTIONS PVT. LTD. [ITA NO. 1260 OF 2018]. DELHI ITAT SPECIAL BENCH DECISION IN THE CASE OF ACIT V. VIREET INVESTMENT PVT. LTD. [[2017] 165 IT 27 (SB)] HAS TAKEN THE SAME VIEW. 7 9 . IT WAS ARGUED THAT THE ASSESSEE MADE DISALLOWANCE OF RS.2,65,715/ - IN THE RETURN. THE ASSESSEE ARRIVED AT THIS AMOUNT REPRESENTING THE PROPORTIONATE SALARY PAID TO THE CONCERNED PERSON LOOKING AFTER INVESTME N T IN MUTUAL FUNDS. THE AO HAS NOT BEEN ABLE T O BRING ANY ADVERSE MATERIAL OR FACTS ON RECORD. NO SPECIFIC REASON AS TO WHY DISALLOWANCE MADE IS COMING OUT OF THE ORDER. IN THE ASSESSMENT ORDER, THE AO HAS NOT DEALT WITH THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE, OR AS TO WHY IT WAS INCORRECT. TH IS ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY DELHI HIGH COURT IN THE CASE OF PCIT V. HINDUSTAN CLEAN ENERGY LTD. [ITA NO. 268 OF 2018] WHEREIN THE COURT HAS HELD AS UNDER: IN THE PRESENT CASE, HOWEVER, THE ASSESSING OFICER ( AO ) WITHOUT RECORDIN G REQUIRED SATISFACTION ON HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO BE GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE , HAD INVOKED AND APPLIED RULE 8D AS A MANDATORY PROVISION APPLICABLE IN ALL CASES OF EXEMPT INCOME. ACTION OF THE AO WAS CONTRARY TO LAW, AND THEREFORE, THERE IS NO MERIT IN THE PRESENT APPEAL. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 57 80 . THIS ISSUE WAS DISCUSSED IN DETAIL IN HT MEDIA VS. CIT [399 ITR 576] WHEREIN DELHI HIGH COUR T HELD THAT - 30. RULE 8D(1) STATES MORE OR LESS WHAT SECTION 14 A (2) OF THE ACT STATES. IT REQUIRES THE AO TO FIRST EXAMINE THE ACCOUNTS OF THE ASSESSEE AND THEN RECORD THAT HE IS NOT SATISFIED WITH (A) THE CORRECTNESS OF THE ASSESSEE'S CLAIM OF EXPENDIT URE OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED. UNLESS THIS STAGE IS CROSSED I.E. THE STAGE OF THE AO RECORDING THAT HE IS NOT SATISFIED WITH THE CLAM OF THE ASSESSEE IN THE MANNER INDICATED I.E. AFTER EXAMINING THE ASSESSE E'S ACCOUNTS, THE QUESTION OF APPLYING THE FORMULA UNDER RULE 8D (2) DOES NOT ARISE. THAT THIS IS A MANDATORY PRE - REQUISITE FOR APPLYING RULE 8D (2) IS FAIRLY WELL - SETTLED. 81 . THE SAME HAS ALSO BEEN HELD BY HON BLE APEX COURT IN THE CASE OF GODREJ AND B OYCE MANUFACTURING CO VS. CIT [394 ITR 449] AND SAME VIEW HAS ALSO BEEN TAKEN BY PUNJAB AND HARYANA HIGH COURT. APPLYING THIS DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ASSOCIATED LAW ADVISERS VS. ITO - [2017] 87 TAXMANN.COM 148 (DELHI - TRIB.) HAS HELD TH AT - 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT FIND GIVEN IN THE IMPUGNED ORDER. THE ASSESSEE BEFORE THE ASSESSING OFFICER HAD CATEGORICALLY SUBMITTED THAT THE LOOKING TO THE NATURE OF EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT AS WELL AS POINTED FROM OTHER DETAILS LIKE BANK STATEMENTS AND BALANCE SHEET THAT NO EXPENDITURE WHATSOEVER HAS BEEN INCURRED FOR EARNING OF INCOME BY WAY OF DIVIDENDS WHICH VERY PALTRY SUM. IT WAS FURTHER SUBMITTED THAT THE INCOME IN RESPECT OF UN ITS OF MUTUAL FUNDS AND GROSS AMOUNT OF INCOME HAS BEEN OFFERED FOR TAXATION. AFTER SUCH A CLAIM, UNDER THE PROVISIONS OF SUB SECTION (2) & (3) OF SECTION 14, IT WAS INCUMBENT UPON THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AND THE NATURE OF EXPENSES DEBITED, TO EXAMINE THE CORRECTNESS OF THE CLAIM THAT WHETHER ANY EXPENDITURE IN RELATION TO THE EXEMPT INCOME HAS ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 58 BEEN INCURRED OR NOT. IF THE ASSESSING OFFICER FAILS TO SATISFY HIMSELF IN THIS REGARD, THEN OSTENSIBLY HE CANNOT PROCEED TO APPLY RULE 8D. THE LAW DOES NOT ENVISAGES THAT WHEREVER THERE IS AN EXEMPT INCOME, EXPENDITURE HAS TO BE DISALLOWED. IT IS REQUIRED TO BE SEEN, WHETHER EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE IN RELATION TO THE EARNING OF EXEMPT INCOME OR NOT AND THIS CAN BE EXAMINED HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AND THE NATURE OF EXPENDITURE DEBITED. HERE IN THIS CASE, THE ASSESSING OFFICER HAS FAILED TO SATISFY HIMSELF ABOUT THE CORRECTNESS OF THE ASSESSEE'S CLAIM AND, THEREFORE, IN VIEW OF THE P RINCIPLE LAID DOWN BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF H.T. MEDIA LTD. V. PR. CIT [2017] 85 TAXMANN.COM 113 (DELHI), THE ASSESSING OFFICER CANNOT PROCEED TO MAKE DISALLOWANCE UNDER SECTION 14A. THE HON'BLE JURISDICTIONAL HIGH COURT HAS ONCE AGAI N REITERATED THAT IT IS MANDATORY AND INCUMBENT UPON THE ASSESSING OFFICER TO RECORD SUCH SATISFACTION AND IN THE ABSENCE OF SUCH 'SATISFACTION' NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A. THE HON'BLE HIGH COURT CONCLUDED THAT; FIRSTLY, WHERE THERE WAS A FAILURE BY ASSESSING OFFICER TO COMPLY WITH MANDATORY REQUIREMENT OF SECTION 14A(2) READ WITH RULE 8D(1)(A) TO RECORD HIS SATISFACTION AS REQUIRED THEREUNDER, THEN QUESTION OF APPLYING RULE 8D(2)(III) DOES NOT ARISE; AND SECONDLY, WHERE ASSESSING OFFICER HAD FAILED TO ESTABLISH ANY DIRECT NEXUS BETWEEN INVESTMENTS MADE BY ASSESSEE AND INTEREST EXPENDITURE INCURRED, THEN IT NOT CORRECT TO REMAND THE MATTER CONCERNING DELETION OF DISALLOWANCE OF INTEREST UNDER CLAUSE (II) OF RULE 8D(2) TO ASSESSING OFFICER FOR FRESH DETERMINATION. ACCORDINGLY, ON THE FACTS OF THE PRESENT CASE DISALLOWANCE OF RS. 71,122/ - MADE BY THE ASSESSING OFFICER IS DIRECTED TO BE DELETED. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. 82 . ON THE OTHER HAND, THE LD. DEPARTMENTAL R EPRESENTATIVE RELIED ON THE ORDER S OF THE LOWER AUTHORITIES. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 59 83 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE COMPANY EARNED DIVIDEND INCOME OF RS .90.14 CRORES WHICH IS EXEMPT INCOME AND INCLUDIBLE IN THE TOTAL INCOME. AGAINST THE SAID INCOME THE ASSESSEE SUO - MOTO DISALLOWED EXPENSES TO THE TUNE OF RS.2,65,715/ - IN THE RETURN OF INCOME UNDER SECTION 14A OF THE ACT. THE AO IN THE IMPUGNED ORDER WORKE D OUT THE AMOUNT DISALLOWABLE UNDER SECTION 14A READ WITH RULE 8D AT RS.21.54 CRORES. WE FIND THAT THE CONDITION PRECEDENT FOR INVOKING PROVISIONS OF RULE 8D IS THAT THE AO MUST RECORD A SATISFACTION THAT THE AMOUNT OF DISALLOWANCE CLAIMED IN THE RETURN OF INCOME IS NOT CORRECT. WITHOUT RECORDING SUCH A SATISFACTION THE AO CANNOT INVOKE PROVISIONS OF RULE 8D. ABOVE VIEW FINDS SUPPO RT FROM THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX - I VS. ABHISHEK INDUSTRIE S LTD. R EPORT ED IN 360 ITR 652 AND COMMISSIONER OF INCOME - TAX VS. KAPSONS ASSOCIATES REPORTED IN 381 ITR 204. IN THE INSTANT CASE ON PERUSAL OF THE IMPUGNED O RDER OF ASSESSMENT WE NOTICE THAT NO SUCH SATISFACTION WAS ARRIVED AT BY THE AO. IN THE CIRCUMST ANCES DISALLOWANCE UNDER SECTION 14A OF THE ACT OF RS.21.54 CRORES I N PLACE OF RS.2,65,715/ - C LAIMED BY THE ASSESSEE IN THE RETURN INCOME IS BAD IN LAW AND UNSUSTAINABLE. WE THEREFORE DELETE THE SAME AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE UNDER SEC TION 14A OF THE ACT TO RS.2,65,715/ - . THUS , THIS GROUND N O . 6 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 60 8 4 . GROUND NO. 7 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 7. THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN DISALLOWING AN AMOUNT O F RS.42 LACS ON ACCOUNT OF DEPRECIATION ON ALLEGED NON - FUNCTIONAL UNITS. 7.1 THAT THE ASSESSING OFFICER/ DRP ERRED IN LAW IN NOT APPRECIATING THAT THE ASSETS OF RION - FUNCTIONAL UNITS WERE USED BY THE APPELLANT DURING THE RELEVANT ASSESSMENT YEAR. 7.2 THAT THE DRP ERRED ON FACTS AND IN LAW IN ALLEGING THAT THE APPELLANT FAILED TO ESTABLISH THAT THE NON - FUNCTIONAL UNITS WERE READY TO USE. 7.3 THAT THE ASSESSING OFFICER/ DRP ERRED IN LAW IN DISALLOWING THE AFORESAID CLAIM OF DEPRECIATION WITHOUT APPRE CIATING THAT THE SAID CLAIM HAD CONSISTENTLY BEEN ALLOWED BY THE REVENUE IN ASSESSMENT ORDERS PASSED FOR PRECEDING ASSESSMENT YEARS. 7.4 WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON FACTS IN DISALLOWING RS.42 LACS IN RESPECT OF DEPRECIATION ON NON - FUNCTIONAL. UNITS, WITHOUT APPRECIATING THAT THE SAID AMOUNT REPRESENTS DEPRECIATION UNDER THE COMPANIES ACT, 1956, WHICH WAS SUO MOTU DISALLOWED BY THE APPELLANT IN THE RETURN OF INCOME, AND DISALLOWANCE, IF ANY, COULD HAVE BEEN MADE FOR DEPRECIATION CLAI MED UNDER THE PROVISIONS OF THE ACT. 8 5 . THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR, THE ASSESSEE HAS CLAIMED DEPRECIATION ON NON - FUNCTIONAL UNITS A, B & C. THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY DEPRECIATION ON NON - FUNCTIONAL UNITS SHOU LD NOT BE DISALLOWED. THE ASSESSEE SUBMITTED THAT PART - A CONSIST OF 2 DG SETS OF CAPACITY 3.5 MW/HOUR. THESE ARE STAND BY DG SETS MAINTAINED BY THE ASSESSEE FOR GENERATION OF ELECTRICITY IN CASE NEED ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 61 ARISES. DURING THE ASSESSMENT YEAR 2009 - 10, THE ASSESSEE HAS CLAIMED ONLY DEPRECIATION OF RS.0.42 CRORE. IT HAS BEEN HELD IN VARIOUS JUDGMENTS THAT THE USER OF THE ASSET SHOULD BE UNDERSTOOD IN WIDE SENSE SO AS TO EMBRACE PASSIVE AS WELL AS ACTIVE USER. AN ASSET CAN BE SAID TO BE IN USE WHEN IT IS KEPT READY FO R USE. IF A MACHINERY IS KEPT READY FOR USE AT ANY MOMENT IN A PARTICULAR FACTORY, UNDER AN EXPRESS AGREEMENT, FROM WHICH TAXABLE PROFITS ARE EARNED, THE MACHINERY CAN BE SAID TO BE USED FOR THE PURPOSE OF BUSINESS WHICH EARNS PROFITS, ALTHOUGH IN FACT I T HAS NOT WORKED DURING THE YEAR. 86 . IT WAS FURTHER SUBMITTED THAT PART - B&C ARE TWO WASTE HEAD RECOVERY BOILERS OF CAPACITY 35 TONS EACH FOR STEAM GENERATION WHICH IS BEING SUPPLIED/TRANSFERRED TO OTHER POWER PLANTS UNITS. DURING THE YEAR ASSESSEE HAS EA RNED REVENUE OF RS.5.37 CRORES AND RS.8.09 CRORES RESPECTIVELY FROM TRANSFER OF STEAM GENERATED IN BOILERS OF THESE POWER PLANTS. THEREFORE, IT WAS SUBMITTED THAT PART - A, B & C ARE FUNCTIONAL/OPERATIONAL UNITS AND DEPRECIATION SHOULD BE ALLOWED ACCORDINGLY . 87 . THE ASSESSING OFFICER AFTER CONSIDERING THE REPLY OF THE ASSESSEE OBSERVED THAT THE ASSESSEE COULD NOT SHOW THAT TWO DG SETS WHICH ARE CALLED PART - A WERE USED EVEN FOR A SINGLE DAY. IN FACTS, ASSESSEE HAS ALSO FILED THE SAME REPLY IN THE LAST SO MA NY YEARS. IT GOES TO SHOW THAT THE ASSETS WERE NOT IN USE FOR SO MANY YEARS. 88 . THE ASSESSING OFFICER FURTHER OBSERVED THAT THE DRP REJECTED THE OBJECTIONS OF THE ASSESSEE OBSERVING THAT THE ASSESSEE WAS REQUIRED TO PROVE BEFORE THE ASSESSING OFFICER THA T THE MACHINERY OF THE NON - FUNCTIONAL UNITS WAS READY FOR ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 62 USE AS THE SAME WAS IN THE NATURE OF STAND BY ASSET TO AVOID DISRUPTIONS IN BUSINESS OPERATION. IN ABSENCE OF THE SAME, THE ASSESSING OFFICER WAS NOT MISDIRECTED IN DISALLOWING DEPRECIATION. 89 . THE REFORE, THE ASSESSING OFFICER DISALLOWED RS.42 LACS ON ACCOUNT OF DEPRECIATION ON ASSETS OF NON - FUNCTIONAL UNIT PART - A. 90 . IT WAS SUBMITTED BY THE AR THAT THE EXPRESSION USED FOR THE PURPOSES OF THE BUSINESS HAS BEEN JUDICIALLY INTERPRETED TO INCLUDE A CASE WHERE THE ASSET IS KEPT READY FOR USE, BUT IS NOT ACTUALLY PUT TO USE. THE FOLLOWING DECISIONS SUPPORT THE SAID PROPOSITION: CIT VS. VISWANATH BHASKAR SATHE (1937) 5 ITR 621 (BOM) CIT VS. DALMIA CEMENT LTD. (1945) 13 ITR 415 (PAT) MACHINERY MANUFACT URERS CORPORATION LTD. V. CIT: 31 ITR 203 (BOM.) WHITTLE ANDERSON LTD. VS. CIT (1971) 79 ITR 613 (BOM) CAPITAL BUS SERVICE P. LTD. VS. CIT, (1980) 123 ITR 404 (DEL) CIT VS. VAYITHRI PLANTATIONS LTD. (1981) 128 ITR 675 (MAD) CIT VS. G.N. AGRAWAL (INDIVIDUAL ): 217 ITR 250 (BOM.) CIT VS. INDIA TEA & TIMBER TRADING CO. 221 ITR 857(GAU) CIT VS. GEO TECH CONSTRUCTION CORPN: 244 ITR 452 (KER.) CIT VS. REFRIGERATION AND ALLIED INDUSTRIES LTD. (2001) 247 ITR 12 (DEL) CIT V. SWARUP VEGETABLE PRODUCTS INDIA LIMITED: 277 ITR 60 (ALL.) REFLEXIONSNARAYANI IMPEX (P) LTD. V. ITO: 2013 (3) TMI 434 ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 63 CIT VS. OSWALWOOLLEN MILLS LIMITED: 206 CTR 141 (P&H) CIT VS. NORPLEX OAK INDIA : 198 TAXMAN 470 (CAL) CIT VS. PREMIER INDUSTRIES (INDIA) LTD.: 323 ITR 672 (MP) CIT VS. PANACEA B IOTECH LTD.: 324 ITR 311 (DEL.) CIT VS. YAMAHA MOTOR INDIA PVT. LTD. (2010) 328 ITR 297 (DEL) ACIT V. CHENNAI PETROLEUM CORPORATION LTD.: 126 TTJ 865 (CHENNAI) (ITAT) 91 . IT WAS FURTHER SUBMITTED BY AR THAT ASSETS OF PART A OF NON - FUNCTIONAL UNITS WERE KE PT AS STANDBY ASSETS FOR THE PURPOSE OF SMOOTH FUNCTIONING OF BUSINESS OF THE ASSESSEE. IT IS, HOWEVER, TO BE NOTED THAT THE UNITS OF THE ASSESSEE WERE KEPT READY FOR USE SINCE THE SAME WERE MEANT TO BE USED IN CASE OF AN EXIGENCY. THE UNITS WERE MEANT TO BE OPERATIONAL TO AVOID ANY DISRUPTION ARISING IN CASE OF ANY FAILURE, WHICH ITSELF CORROBORATES THAT THE UNITS WERE READY TO USE OR ELSE THE WHOLE PURPOSE OF MEETING AN EMERGENCY STANDS DEFEATED. THE AO HAS ALSO STATED THAT WHEN THEY VISITED THE PREMISES DURING THE COURSE OF SURVEY, THEY DID NOT FIND IT. THE LD. AR EXPLAINED THIS AND SAID THAT THE SURVEY WAS CONDUCTED IN 2013 AND IT WAS THEN THAT THE PREMISES WERE VISITED BY THE DEPARTMENT. HOWEVER, AT PRESENT WE ARE REFERRING TO FY 2008 - 09. FURTHERMORE, T HIS DG SET WAS SOLD IN AY 2010 - 11 AND RELEVANT DOCUMENTS FOR THIS WERE ALREADY FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR AY 2010 - 11 AND HENCE THESE DOCUMENTS WERE ALREADY IN RECORD OF THE AO. FURTHERMORE, THIS ISSUE HAS BEEN ADJUDICATED IN A NU MBER OF CASES WHEREBY IT HAS BEEN HELD THAT DEPRECIATION IS ALLOWABLE EVEN ON ACCOUNT OF PASSIVE USE/READY TO USE ASSETS. THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. NAHAR EXPORTS LTD. 163 TAXMAN 518 (P&H) REITERATED THAT EVEN WHERE THE MACHINERY IS KEPT READY ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 64 FOR USE, DEPRECIATION IS ADMISSIBLE UNDER SECTION 32 OF THE ACT. HON BLE HIGH COURT IN THE CASE OF CIT V. PEPSU ROAD TRANSPORT CORPN: 253 ITR 303 HELD THAT DEPRECIATION CLAIMED BY A TRANSPORT UNDERTAKING ON SPARE ENGINES KEPT IN STORE FOR USE IN THE CASE OF NEED, COULD NOT BE DISALLOWED ON THE GROUND THAT THE SAME WERE NOT USED BY ASSESSEE. HENCE, FOLLOWING THESE TWO DIRECT JURISDICTIONAL HIGH COURT DECISIONS , DEPRECIATION SHOULD BE ALLOWED TO THE ASSESSEE. 92 . THE DEPARTMENTAL REPRESENTATIV E RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 93 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE AO DISALLOWED DEPRECIATION OF RS42 LACS IN RESPECT OF 2 GENERATOR SETS ON THE G ROUND THAT THOSE GENERATOR SETS WERE NOT USED DURING THE RELEVANT PREVIOUS YEAR. THE ASSESSEE EXPLAINED BEFORE THE AO THAT THE 2 GENERATOR SETS WERE KEPT STANDBY FOR USE IN THE BUSINESS OF GENERATION OF ELECTRICITY SO THAT THE CONTINUITY OF THE BUSINESS IS NOT AFFECTED. WE FIND THAT NO MATERIAL HAS BEEN BROUGHT ON RECORD TO CONTROVERT THE PLAUSIBLE EXPLANATION OF THE ASSESSEE. IT IS AN ESTABLISHED POSITION OF LAW THAT THE ASSET WHICH HAVE BEEN KEPT READY FOR USE IN BUSINESS BUT COULD NOT BE USED FOR ANY REA SON THE SA ME IS TREATED AS USED FOR THE PURPOSE OF BUSINESS. SUPPORT FOR THE ABOVE VIEW IS DRAWN FROM THE DECISION IN T HE CASE OF CIT VS. NAHAR EXPORTS LTD. 163 TAXMAN 518 (P&H) . WE THEREFORE DELETE THE DISALLOWANCE OF DEPRECIATION OF RS.42 LACS AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 94 . GROUND NO. 8 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 65 8. THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN DISALLOWING A SUM OF RS.54,03,885 INCURRED BY THE APPELLANT TOWARDS EMPLOYEE WELFARE EXP ENSES UNDER SECTION 40A(9) OF THE ACT. 8.1 THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT THE AFORESAID EXPENSES WERE IN NO WAY LINKED TO BUSINESS EXPEDIENCY AND WERE DISALLOWABLE UNDER SECTION 40A(9) OF THE ACT. 8.2 THAT TH E ASSESSING OFFICER/ DRP FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 40A(9) OF THE ACT WERE NOT APPLICABLE TO THE AFORESAID EXPENDITURE INCURRED BY THE APPELLANT. 95 . THE ASSESSING OFFICER OBSERVED THAT WHILE COMPUTING THE INCOME IN THE ORIGINAL RETURN, THE ASSESSEE HAS ITSELF DISALLOWED RS.54,03,885/ - U/S 40A(9) OF THE INCOME - TAX ACT, 1961. HOWEVER IN THE REVISED RETURN THE EXPENSES HAVE BEEN CLAIMED AS DEDUCTION. THE ASSESSEE WAS REQUIRED TO SHOW CAUSE ADDITION OF RS. 54,03,885/ - SHOULD NOT BE M ADE. THE ASSESSEE FILED WRITTEN REPLY AS UNDER: - 'AS REGARDING YOUR QUERY RELATING TO SUM PAID BY THE ASSESSEE AS EMPLOYER OF RS.5403885/ - TOWARDS EMPLOYEE WELFARE SCHEME, IT IS SUBMIT THAT DURING THE PREVIOUS YEAR THE EMPLOYER HAS CONTRIBUTED RS.54,03,88 5/ - TOWARDS WELFARE OF EMPLOYEE I.E. TOWARDS PROVIDING FINANCIAL ASSISTANCE TO THE NE E DY EMPLOYEE/HIS FAMILY IN CASE OF DEATH/PERMANENT TOTAL DISABLEMENT OF AN EMPLOYEE; MEDICAL TREATMENT TO SELF & DEPENDENTS; RETIREMENT ON ATTAINING THE AGE OF SUPERANNUAT ION ETC. FURTHER AMOUNT OF RS. 15,50,361/ - ACTUALLY UTILIZED ON WELFARE ACTIVITIES IS ATTACHED AS PER ANNEXURE - 3 ALONGWITH THE DETAIL OF EXPENSES. THEREFORE, THERE WOULD NOT BE ANY DISALLOWANCE UNDER SECTION 40A(9) OF THE INCOME - TAX ACT, 1961. 87. AFTER C ONSIDERING THE SUBMISSIONS OF THE ASSESSEE THE AO OBSERVED THAT IT IS FOUND TO BE NOT ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 66 TENABLE. THE AUDITOR IN HIS TAX AUDIT REPORT IN FORM NO.3CD IN COLUMN 17(G) HAS MADE THE FOLLOWING OBSERVATIONS: - 'ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER NOT ALLOWA BLE UNDER SECTION 40A(9) - ANNEXURE - J (REPRODUCED BELOW) : - EMPLOYER'S CONTRIBUTION MADE TO EMPLOYEES WELFARE SCHEME: - RAIGARH 4072542.71 DELHI 260708.50 RAIPUR 245732.73 TENSA 115574.70 TAMNAR 66613.00 B ARGIL 32546.00 ANGUL 317297.73 TOTAL: 54038 85.37 9 6 . THE ASSESSING OFFICER THERE AFTER OBSERVED THAT ASSESSEE DID NOT SUBMIT ANY FURTHER DETAILS OR SUPPORTING EVIDENCE. WHATEVER IS ON RECORD SHOWS THAT THE PAYMENTS HAVE NOTHING TO DO WITH THE BUSINESS EXIGENCIES, LI KE THE ASSESSEE HAS DEBITED RS. 7 5,000/ - WITH THE FOLLOWING NARRATION: - S.NO . NAME OF THE EMPLOYEE DESIGN ATION CLAIM FOR AMOUNT DISEASE 1 S.S.M LAKRA OFFICER SELF 75,000/ - ARTIFICIAL INSEMINATION 97 . THE ASSESSING OFFICER OBSERVED THAT THERE CANNOT BE AN Y CONNECTION BETWEEN THE 'ARTIFICIAL INSEMINATION' AND THE BUSINESS OF THE ASSESSEE COMPANY. THE STATUTORY AUDITOR HAS ALREADY APPLIED HIS MIND AND SEGREGATED EXPENSES OF RS.54,03,885/ - (OUT OF TOTAL OF SUCH EXPENSES OF RS. 1,55,50,361/ - ) AS - DISALLOWABLE U /S 40A(9) OF THE INCOME - TAX ACT, 1961 AS THESE ARE NOT BASICALLY RELATED TO BUSINESS EXIGENCIES. IN FACT, THE ASSESSEE HAS FURNISHED MINIMAL DETAILS BEFORE THE ASSESSING OFFICER. IT IS UNDERSTOOD THAT SUFFICIENT ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 67 DETAILS WERE AVAILABLE BEFORE THE STATUTORY AUDITOR AND STATUTORY AUDITOR HAS REACHED LOGICAL CONCLUSION AFTER APPLYING HIS MIND AS WELL AS PROVISIONS OF LAW. THEREFORE, THE ASSESSING OFFICER INCLINED TO GO WITH THE OPINION OF THE STATUTORY AUDITOR AND A SUM OF RS. 54,03,885/ - WAS PROPOSED TO BE DIS ALLOWED U/S 40A(9) OF THE INCOME - TAX ACT, 1961. 9 8 . THE ASSESSING OFFICER ALSO OBSERVED THAT IN RESPECT OF THE OBJECTIONS OF THE ASSESSEE THE DRP REJECTED THE OBJECTIONS OF THE ASSESSEE BY OBSERVING AS UNDER: - THE ASSESSING OFFICER DISALLOWED THE EXPEND ITURE OF RS.54,03,885/ - PLACING RELIANCE ON 40A(9) OF THE ACT. THE CONTRIBUTION BY THE ASSESSEE TO THE EMPLOYEE S WELFARE SCHEMES, WAS INDEED, NOT IN CONSONANCE WITH THE PRESCRIPTIONS OF THE ABOVE PROVISION.' 99 . THEREFORE , THE SUM OF RS.54,03,885/ - WAS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE BY THE AO. 100 . WE FIND THAT THE AR REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. WE FIND THAT RS54,03,885/ - WAS DISALLOWED BY THE AO BY INVOKING PROVISIONS OF SECTION 40A(9) OF THE A CT. THE OPINION OF THE AO IS ALSO SUPPORTED BY THE OPINION OF THE TAX AUDITOR OF THE ASSESSEE. THE LD. AR OF THE ASSESSE HAS BROUGHT NO MATERIAL BEFORE US TO SHOW THAT THE AMOUNT IN QUESTION WAS NOT HIT BY THE PROVISIONS OF SECTION 40A(9) OF THE ACT. IN TH E CIRCUMSTANCES WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE AO. THUS THE GROUND NO. 8 OF THE APPEAL OF THE ASSESSEE IS DISMISSED. 101 . GROUND NO. 9 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 68 9. THAT THE ASSESSING OFFICER/ DRP ERR ED ON FACTS AND IN LAW IN DISALLOWING LEASE RENT AMOUNTING TO RS.1,83,93,480 HOLDING THE SAME TO BE CAPITAL EXPENDITURE. 9.1 THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT THE AFORESAID PAYMENT WAS TOWARDS COST OF THE CAPITAL ASSET AND THEREFORE, THE SAME COULD NOT HE ALLOWED AS REVENUE EXPENDITURE. 9.2 THAT THE ASSESSING OFFICER/ DRP FAILED TO APPRECIATE THAT SIMILAR LEASE RENTS HAD BEEN ALLOWED AS DEDUCTION IN EARLIER ASSESSMENT YEARS AND THEREFORE, THERE WAS NO REASON TO DEVIATE FROM THE ACCEPTED POSITION DURING THE YEAR UNDER CONSIDERATION. 9.3 WITHOUT PREJUDICE, THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEPRECIATION ON THE TOTAL COST/ VALUE OF THE ASSETS TAKEN ON LEASE, CONSISTENT WITH THE F INDING THAT THE CAPITAL ASSETS WERE ACQUIRED BY THE APPELLANT ON FINANCE LEASE. 102 . THE ASSESSING OFFICER OBSERVED THAT D URING THE PREVIOUS YEAR 2004 - 05, THE COMPANY HAS TAKEN AN AIRCRAFT ON LEASE FROM GE CAPITAL SERVICES INDIA, THE LEASE PAYMENT EXCLUD ING FINANCE CHARGES HAVE NOT BEEN DEBITED TO PROFIT & LOSS ACCOUNT AS PER THE PROVISIONS OF AS - 19 ISSUED BY THE ICAI. THE FINANCE CHARGES DEBITED TO THE PROFIT & LOSS ACCOUNT HAVE BEEN INITIALLY ADDED TO THE INCOME FOR THE PURPOSE OF COMPUTATION OF TAX AND DEDUCTION OF LEASE RENTAL INCLUDING THE FINANCIAL CHARGES IN THE CUMULATIVE SUM OF RS. 1,16,91034/ - HAS BEEN CLAIMED AS AN EXPENSES AS PER THE PROVISIONS OF THE ACT . 10 3 . THE ASSESSEE HAS FILED A COPY OF THE AIRCRAFT LEASE AGREEMENT DURING THE ASSESSMEN T PROCEEDINGS, WHEREIN GE CAPITAL SERIES INDIA IS THE LESSOR AND OWNER OF THE AIRCRAFT AND THE ASSESSEE COMPANY. JSPL IS THE LESSEE. IN THE CLAUSE 21 OF ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 69 THE AGREEMENT TERMED AS END OF LEASE PURCHASE OPTION, THE LESSEE HAS BEEN GIVEN RIGHT TO PURCHASE THE A IRCRAFT B UT SUBJECT TO CONDITIONS SPECIFIED. AS PER ANNEXURE - E OF THE RENTAL AGREEMENT, FINAL RENTAL SCHEDULE HAS BEEN DRAWN FOR 84 MONTHS GIVING THE BREAKUP OF MONTHLY RENTAL SPLIT INTO INTEREST AND PRINCIPAL . 104 . THIS IS A FINANCE LEASE AND ASSESSEE HA S GOT THE AIRCRAFT FINANCED BY GE CAPITAL SERVICES INDIA PRIVATE LIMITED. THEREFORE, AMOUNT OF INTERESTS ALONE CAN BE SAID TO BE INCURRED FOR BUSINESS AND ALLOWANCE UNDER THE INCOME - TAX IS RESTRICTED TO THE SAME. AMOUNT OF PRINCIPAL CANNOT BE ALLOW ED AS DE DUCTION A S IT RELATES TO THE PRINCIPAL AMOUNT WHICH IS A CAPITAL EXPENSE. 10 5 . IN THE SUBMISSIONS FILED DURING THE FBT PROCEEDINGS, IT HAS BEEN SUBMITTED BY THE ASSESSEE THAT TOTAL LEASE PAYMENTS OF RS. 2,16,91,034/ - HAS BEEN MADE WHICH CONSTITUTES RS. 32 ,97,554/ - TOWARDS FINANCE CHARGES AND RS. 1,83,93,480/ - TOWARDS CAPITAL COST. IN VIEW OF THE SAME, RS. 1,83,93,480/ - WAS PROPOSED TO BE TREATED AS CAPITAL EXPENDITURE AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 106 . THE D.R.P. REJECTED THE OBJECTIONS R AISED BY THE ASSESSEE OBSERVING THAT THE MATTER IS PENDING ADJUDICATION WITH HIGHER APPELLATE AUTHORITIES AND THEREFORE, THE OBJECTION IS NOT ACCEPTED. 107 . THEREFORE , THE ASSESSING OFFICER TREATED, THE SUM OF RS.1,83,93,480/ - AS CAPITAL EXPENDITURE AND A DDED BACK TO THE INCOME OF THE ASSESSEE. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 70 10 8 . THE ASSESSING OFFICER FURTHER OBSERVED THAT SINCE, THE DEPARTMENT IS TREATING THIS TRANSACTION AS PURCHASE, THE DEPRECIATION ON THE SAME COULD BE ALLOWED PROVIDED ASSESSEE ACCEPTS THE DEPARTMENTAL STAND AND MAK ES A CLAIM OF DEPRECIATION. THE SAME WOUL D BE ALLOWED U/S 154, PROMPTLY. 109 . ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 110 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOW ER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE HAS PAID RS.2,16,91,034/ - IN RESPECT OF LEASE CUM PURCHASE AGREEMENT OF ONE AIRCRAFT. THE AO OBSERVED FROM THE AGREEMENT THAT IN CLAUSE 21 THEREOF THE ASSESSEE WAS GRANTED RIGHT TO PURCHASE THE SAID AIRCRAFT AT THE END OF THE LEASE PERIOD SUBJECT TO CERTAIN CONDITIONS MENTIONED THEREIN. FROM THE SAID AGREEMENT THE AO OBSERVED THAT THE LEASE IN QUESTION WAS A FINANCIAL LEASE AND THE PAYMENT MADE BY THE ASSESSEE WAS COMPRISED OF TWO ELEMENTS I.E. A PART TOWARDS THE CAPITAL COST OF THE ASSET AND THE OTHER PART FOR INTEREST. THE AO WORKED OUT THE INTEREST COMPONENT AT RS.32,97,554/ - AND ALLOWED THE SAME . THE BALANCE PAYMENT WAS CONSIDERED AS CAPITAL EXPENDITURE . THE AO FURTHER STATED THAT DEPRECIATION IN RESPECT OF THE COST OF CAPITAL ASSET SHALL BE ALLOWED TO THE ASSESSEE IF THE ASSESSEE MOVES 154 PETITION. WE FIND THAT THE LD. AR COULD NOT BRING ANY MATERIAL BEFORE US TO CONTROVERT THE FINDING OF THE AO. IN THE CIRCUMSTANCES WE FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE AO. HOWEVER, WE FIND FORCE IN THE CONTENTION OF THE LD. AR THAT DEPRECIATION OUGHT TO HAVE BEEN ALLOWED TO THE ASSESSEE IN RESPECT OF COST OF THE ASSET. WE ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 71 THEREFORE DIRECT THE AO TO ALLOW DEPRECIAT ION AS PER LAW IN RESPECT OF COST OF ASSET. THUS THIS GROUND OF APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. 111 . GROUND NO. 10 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 10. THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS OF THE CASE AND IN LA W IN DISALLOWING RS.6,34,582 OUT OF A IRCRAFT EXPENSES INCURRED BY THE APPELLANT DURING THE RELEVANT ASSESSMENT YEAR WITHOUT PROVIDING ANY COGENT REASONS FOR DOING SO. 10.1 THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS OF THE CASE AND IN LAW IN MAKING T HE AFORESAID DISALLOWANCE WITHOUT APPRECIATING THAT THE AIRCRAFT EXPENSES WERE INCURRED BY THE APPELLANT WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. 112 . THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR, THE ASSESSEE HAS CLAIMED AVIATION EXPENSES OF RS.4,08,02,454/ - IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE FURNISHED DETAILS OF THE AVIATION EXPENSES. FROM A P ERUSAL OF DETAILS, IT IS NOTICED THAT THE ASSESSEE HAS CLAIMED THE FOLLOWING JOURNEY EXPENDITURE: - SR. NO. PARTICULARS AMOUNT DATE 1 H IRING OF HELICOPTER - BADAUN - DELHI 223976/ - 26.08.2008 2 PAID TO SANJEEV TOWARD FLIGHT EXP BILLS 4,10,606/ - 17 TO 19.03.2009 113 . THE ASSESSEE WAS REQUIRED TO PROVE THE GENUINENESS OF JOURNEY AND COMPLETE DETAILS OF CLIENTS WITH WHOM THE MEETING WAS HEL D AND THE TRANSACTIONS ENTERED INTO. THE ASSESSEE FURNISHED WRITTEN REPLY, WHICH IS AS UNDER: - HIRING CHARGES OF HELICOPTER FROM DEHRADUN - DELHI - RS. 240833/ - PLEASE FIND ATTACHED THE BILL AS ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 72 ANNEXURE - 5. PLEASE NOTE THAT THESE EXPENSES HAVE BEEN INCURRED T OWARDS HIRE CHARGES FO R VISIT TO CUSTOMERS SIT E IN U.P. VARIOUS PAYMENTS TO SANJEEV TOTALING RS.3,90,906/ - IN VARIOUS DATES BETWEEN 16 MARCH, TO 19TH MARCH, 2009 - PLEASE NOTE THAT MR. SANJEEV IS A CASHIER AND THESE PAYMENTS HAVE BEEN MADE TO MR. SANJEEV FOR REIMBURSEMENT OF VARIOUS PETTY CASH EXPENSES INCURRED BY THE PILOTS DURING FLIGHTS LIKE STATUTORY PAYMENT OF DUTIES, HOTEL BILLS, FOODING BILLS, CHARGES PAID TO AIR INDIA, MEDICAL KIT ETC. PLEASE FIND ATTACHED THE SAMPLE COPIES OF BILLS AS ANNEXURE - II .' 11 4 . THE ASSESSING OFFICER OBSERVED THAT T HE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED CAREFULLY AND IS FOUND TO BE NOT TENABLE. THE ASSESSEE COULD NOT FURNISH COMPLETE DETAILS OF CLIENTS AND TRANSACTIONS ENTERED INTO. IN AN ABSENCE OF SUCH DETAI LS EXPENSES CANNOT BE SAID TO BE INCURRED FOR BUSINESS PURPOSE. AS REGARD THE PAYMENT MADE TO SANJEEV EXPENSES HAVE BEEN INCURRED TOWARDS THE END OF THE YEAR AND ALL THE PAYMENTS ARE BELOW RS. 20,000/ - WITHIN A PERIOD OF FIVE DAYS. THE BILLS OF THE EXPENSE S HAVE BEEN RAISED IN THE MONTH OF MARCH. IT IS BEYOND COMPREHENSION HOW SUCH EXPENSE WOULD OCCUR ONLY IN THE MONTH OF MARCH, 2009. HENCE, THE SUM OF RS. 6,34,582/ - WAS PROPOSED TO BE DISALLOWED AS THE ASSESSEE HAS BEEN UNABLE TO PROVE THE BUSINESS UTILITY OF THE ABOVE EXPENDITURE. 1 15 . THE D.R.P. REJECTED THE OBJECTIONS OF THE ASSESSEE BY OBSERVING THAT EVEN DURING PRESENT PROCEEDING, THE ASSESSEE DID NOT PROVIDE NECESSARY DETAILS TO PROVE THAT THE EXPENSES WERE WITH REFERENCE TO GENUINE NEED OF THE BUSIN ESS. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 73 1 16 . THEREFORE, THE ASSESSING OFFICER DISALLOWED RS.6,34,582/ - AND ADDED TO THE INCOME OF THE ASSESSEE. 117. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSE E SUBMITTED THAT ON A PERUSAL OF THE DETAILS OF EXPENDITURE INCURRED ON AIR JOURNEYS, IT WILL BE KINDLY APPRECIATED THAT ALL THE JOURNEYS WERE RELATED TO THE BUSINESS OF THE ASSESSEE AND THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE INCURRED ON AN AD - HOC BASIS, BY RANDOMLY PICKING SOME OF THE JOURNEYS MADE AND HOLDING THAT THEY WERE NOT MADE FOR B USINESS PURPOSES WITHOUT BRINGING ON RECORD EVEN AN IOTA OF EVIDENCE TO SUBSTANTIATE THAT THE JOURNEYS WERE FOR NON - BUSINESS PURPOSES. THE LD. AR SUBMITTED THAT AD - HOC DISALLOWANCE IS NOT PERMITTED IN LAW. THE LD. AR ALSO SUBMITTED THAT THE ASSESSING OFFIC ER HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO REBUT THE ASSESSEE S CONTENTION THAT THE TRIPS WERE CONDUCTED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. 1 18 . IT WAS FURTHER SUBMITTED THAT THE ABOVE ISSUE, IN PRINCIPLE, STANDS DECIDED IN FAVOUR O F THE ASSESSEE BY THE DECISION OF THE DELHI BENCH I OF THE TRIBUNAL IN ASSESSEE S OWN CASE BEARING ITA NOS. 3257/DEL/05 AND 3485/DEL/05 FOR THE ASSESSMENT YEAR 2001 - 02, WHEREIN THE TRIBUNAL HAS HELD THAT EXPENSES FOR TRIPS TO MEET CUSTOMERS AND/OR PROSPE CTIVE CUSTOMERS WERE DIRECTED TO BE ALLOWED BY THE TRIBUNAL. THE ASSESSEE HAS FILED IN THE PAPER BOOK THE DETAILS AT PAGE NO. 596 - 602 OF PAPER BOOK VOL. 2. THE ASSESSING OFFICER MADE THE ADDITION WITH RESPECT TO ONLY TWO EXPENSES AND THE PROOF FOR THE SAME HAS BEEN DULY SUBMITTED BY THE ASSESSEE, BY FURNISHING REQUISITE INVOICE FOR DELHI DEHRADUN DELHI TRAVEL ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 74 AND COPY OF SAMPLE INVOICES IN RESPECT OF REIMBURSEMENTS MADE BY SANJEEV WHICH IS PLACED AT PAGE NO. 603 - 606 A ND 607 - 610 OF PAPER BOOK VOL. 2 . WHE N THE EVIDENCES, INVOICES AND VOUCHERS HAVE BEEN DULY SUBMITTED, THERE WAS NO REASON TO DISALLOW THIS EXPENDITURE SPECIALLY CONSIDERING THE FACT THAT THE ASSESSEE HAS BEEN ABLE TO SUPPORT THIS CLAIM WITH ENOUGH MATERIAL ON RECORD AND THE ASSESSING OFFICER HAD ONLY MADE AN AD HOC DISALLOWANCE. THUS, THE ASSESSING OFFICER BE DI RECTED TO DELETE THIS ADDITION. 119 . THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 120 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE AO DISALLOWED RS.6,34,582/ - OUT OF EXPENSES CLAIMED BY THE ASSESSEE UNDER THE HEAD AIRCRAFT EXPENSES. THE SAID DISALLOWANCE IS COMPRISED OF TWO ELEMENTS NAMELY RS.2,23,606/ - FOR HELICOPTER HI RE CHARGES FOR VISITS ON DELHI TO DEHRADUN AND RS. 4,10,606/ - FOR REIMBURSEMENT OF MISCELLANEOUS EXPENSES INCURRED BY PILOT LIKE PAYMENT OF STATUTORY DUTIES AND HOTEL CHARGES ETC. THE AO DISALLOWED HELICOPTER CHARGES OF RS2,23,606/ - ON THE GROUND THAT BUS INESS PURPOSE OF THE SAME WAS NOT ESTABLISHED. THE AO DISALLOWED RS.4,10,606/ - BY OBSERVING THAT THE ENTIRE EXPENSES WERE INCURRED DURING THE MONTH OF MARCH 2009 I.E. IN THE LAST PART OF THE RELEVANT YEAR AND ALL EXPENSES WERE INCURRED IN CASH. THE LD. AR OF THE ASSESSEE SUBMITTED THAT VISIT TO DEHRADUN WAS MADE BY THE DIRECTORS OF THE ASSESSEE COMPANY TO MEET THE CUSTOMERS AND PROSPECTIVE CUSTOMERS SITUATED IN AND AROUND DEHRADUN. THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 75 COMPANY ITSELF IN THE AY 2001 - 02 HA S HELD THAT TRAVELLING EXPENSES INCURRED TO MEET CUSTOMERS AND PROSPECTIVE CUSTOMERS IS ALLOWABLE AS BUSINESS DEDUCTION. IN RESPECT OF EXPENSE OF RS.4,10,606/ - IT WAS EXPLAINED THAT THE EXPENDITURE WAS INCURRED IN CONNECTION WITH THE ABOVE JOURNEY AND ALL ARE SUPPORTED BY BILLS AND VOUCHERS. THESE ARE INCIDENTAL EXPENSES LIKE AIRPORT DUTY AND TAXES AND HOTEL CHARGES FOR STAY OF PILOT ETC. THE LD. DR COULD NOT CONTROVERT THE SUBMISSION OF THE ASSESSEE. THUS, WE FIND THAT THE EXPENSES WERE INCURRED BY THE COM PANY OUT OF COMMERCIAL EXPEDIENCY. WE THEREFORE DELETE THE DISALLOWANCE OF RS.6,34,582/ - . THUS, THIS GROUND OF APPEAL IS ALLOWED. 121 . GROUND NO. 11 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 11. THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN L AW IN DISALLOWING RS:61,65,830/ - (RS.38.48,859 + RS.23,16,971) OUT OF FOREIGN TRAVEL EXPENSES INCURRED BY THE APPELLANT, HOLDING THE SAME TO BE NON - BUSINESS EXPENDITURE . 11.1 THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING T HAT EXPENDITURE OF RS.38,48,859 INCURRED FOR EXPLORING RAW - MATERIAL FROM OVERSEAS MINES WAS INCURRED WHOLLY AND EXCLUSIVELY FOR PURPOSE OF BUSINESS. 11.2 THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT EXPLORATION OF RAW MATERI ALS AT BOLIVIA WAS NEW BUSINESS OR EXPANSION OF THE EXISTING BUSINESS AND HENCE EXPENDITURE INCURRED WAS NOT FOR THE EXISTING BUSINESS. 11.3 THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN DISALLOWING OTHER FOREIGN TRAVEL EXPENSES OF RS.21, 16,971 HOLDING THAT THE SAID EXPENSES WERE NOT INCURRED FOR BUSINESS PURPOSES. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 76 11.4 THAT THE DRP ERRED IN ALLEGING THAT THE APPELLANT FAILED TO FILE NECESSARY DETAILS TO ESTABLISH THAT THE AFORESAID EXPENSES WERE INCURRED FOR BUSINESS PURPOSES. 122 . T HE ASSESSING OFFICER OBSERVED THAT F ROM THE PERUSAL OF THE PROFIT & LOSS ACCOUNT FILED ALONGWITH THE RETURN, IT WAS NOTICED THAT THE ASSESSEE CLAIMED FOREIGN TRAVELLING EXPENSES OF RS. 8,87,25,778/ - . FROM THE EXAMINATION OF THE SAID DETAILS, IT WAS NOTICED THAT THE ASSESSEE HAS DEBITED OF RS.38,48,859/ - ON ACCOUNT OF PLANE HIRE ON 22.07.2008. ON BEING REQUIRED TO EXPLAIN AS TO HOW THE EXPENSES WERE INCIDENTAL TO BUSINESS, THE ASSESSEE'S COUNSEL REPLIED THAT THAT PLANE HIRE CHARGES OF RS. 38,48,859/ - WERE IN CURRED BY THE ASSESSEE FOR EXPLORING RAW MATERIAL FROM MINES AT OVERSEAS LOCATION AT BOLIVIA. 1 23. FURTHER BESIDES THE ABOVE, THE ASSESSEE HAS CLAIMED OTHER EXPENSES ON ACCOUNT OF JOURNEY PERFORMED BY THE DIRECTORS AND OTHER EMPLOYEES AS DETAILED BELOW: - 17.07.2008 AIR TICKET BILL OF SH. RANA & FAMILY RS. 970958/ - 19.11.2008 FOREIGN EXPENSE, SINGAPORE RS.353464/ - 23.07.2008 SH. NAVEEN JINDAL RS.992549 / - 1 24 . THESE ARE ONLY SOME OF THE INSTANCES. THE ASSESSEE COULD NOT FURNISH THE COPIES OF THE TICKETS AND BILL ISSUED BY THE TRAVELLING AGENT ON THE GROUND THAT THE SAME ARE NOT TRACEABLE. ACCORDINGLY, THE ASSESSEE WAS SPECIFICALLY ASKED VIDE LETTER DATED 22.02.2012 TO FURNISH THE FOLLOWING DETAILS NAME OF THE PERSONS AND THEIR FAMILY MEMBERS, DURATION, PURPOSES OF JOURNEY AND WHETHER ITDS DEDUCTED ON THE PLANE HIRE EXPENSES, NAMES OF THE CLIENT TO WHOM MET, COPIES OF BILLS, TICKETS, BOARDING AND LODGING EXPENSES, BUSINESS DEALS/TRANSACTIONS. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 77 1 2 5 . THE ASSESSEE FURNISHED WR ITTEN REPLY AS UNDER: 'PLEASE NOTE THAT PLANE HIRE CHARGES OF RS. 38,48,859/ - WERE INCURRED BY THE ASSESSEE FOR EXPLORING RAW MATERIAL FROM MINES AT OVERSEAS LOCATION AT BOLIVIA. KINDLY NOTE THAT THE FOREIGN TRAVELLING EXPENSES WERE INC URRED ON TRAVEL OF MR . NAVEEN JINDAL, EVC & MD, IN MOST OF THE CASES ARE WI TH, SENIOR MANAGEMENT TEAM OF THE COMPANY, FOR THE BUSINESS PURPOSE OF TH E ASSESSEE LIKE EXPLORING SOURCES FOR CONTINUOUS SUPPLY OF RAW MATERIAL LIKE COAL, IRON ORE; EXPLORATION OF NEW CUSTOMERS AT V ARIOUS LOCATIONS; MEETING WITH VARIOUS SUPPLIER; ATTENDING INTERNATIONAL BUSINESS /ECONOMIC SUMMITS ETC. 1 26 . THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY SUPPORTING EVIDENCE AS TO WHAT WAS THE OUTCOME OF THE VISIT; THE DETAILS OF CLIENTS WHOM CONTACTED AND THE TRANSACTIONS CONDUCTED ON ACCOUNT OF THE ABOVE JOURNEY. THE EXPENSES ON ACCOUNT OF TRAVEL OF FAMILY ME MBERS CAN NOT AT ALL BE SAID TO BE INCURRED FOR BUSINESS PURPOSE. THE ASSESSEE HAS ADMITTEDLY FAILED TO PROVE THE GENUIN ENESS OF HIS CLAIM; AS THE ASSESSEE IS NOT HAVING ANY BILL OR SUPPORTING VOUCHERS IN RESPECT OF THE EXPENSES CLAIMED. THE EXPENSES INCURRED FOR EXPLORATION OF RAW MATERIALS AT BOLIVIA CANNOT BE SAID TO BE INCURRED FOR EXISTING BUSINESS AND ARE AT BEST RELA TED TO NEW BUSINESS SET UP OR EXPANSION OF BUSINESS. 1 2 7 . THE ASSESSING OFFICER FURTHER OBSERVED THAT E VEN ON MERITS, THE CLAIM OF THE ASSESSEE IS NOT MAINTAINABLE AS THE SAME HAS NOT BEEN SHOWN TO HAVE ANY NEXUS WITH THE BUSINESS CARRIED OUT BY THE ASSES SEE AND IT HAS NOT BEEN PROVED THAT IT WAS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF SUCH BUSINESS AND, THEREFORE, THE SAME ARE STILL NOT ALLOWABLE U/S ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 78 37(1) OF THE ACT. THE HON'BLE APEX COURT HAS HELD IN THE CASE OF VIJAY LAXMI SUGAR MILLS LTD. V S CIT (1991) 191 ITR 641 THAT WHERE THERE IS NO NEXUS BETWEEN THE BUSINESS AND EXPENDITURE, THE EXPENDITURE IS NOT ALLOWABLE. IN THIS REGARD, HE DREW SUPPORT FROM THE JUDGEMENT OF THE HON'BLE SUPREME COURT, DELIVERED IN THE CASE OF ALUMINUM CORPORATION OF INDIA LTD. VS CIT 86 ITR 11, WHEREIN, IT WAS HELD THAT FOR ALLOWING ANY EXPENDITURE THERE MUST BE COMMERCIAL EXPEDIENCY. IN VIEW OF THE ABOVE DISCUSSION, IT IS CLEAR THAT - FIRSTLY THESE ARE PERSONAL EXPENSES, WHICH REMAIN TO BE VERIFIABLE IN THE ABSENCE O F ANY BILLS AND VOUCHERS AND SECONDLY THE TOUR EXPENSES ARE NOT IN ANY WAY INCIDENTAL TO BUSINESS OF THE ASSESSEE AND HENCE THESE ARE NOT AT ALL ALLOWABLE. 1 28 . KEEPING IN VIEW, THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, A SUM OF RS. 61,65,830/ - WAS PROPOSED TO BE DISALLOWED OUT OF FOREIGN TRAVELING EXPENSES BEING NOT INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. 1 2 9 . THE D.R.P. REJECTED THE OBJECTIONS OBSERVING THAT THE FOREIGN TRAVEL EXPENSES FOR RS.61,65,830/ - COMPRISED OF AIR TICKETS OF SRI RANA & FAMILY, AIRFARE FOR EXPLORING RAW MATERIAL, VISITS TO SINGAPORE AND TRAVELING EXPENSES OF SRI NAVEEN JINDAL, MD. HOWEVER, THE DETAILS OF THE CORRESPONDENCES, PRIOR TO UNDERTAKING THE MISSIONS ABROAD, ITINERARIES, DETAILS OF MEETINGS, NEGOTIATIO NS, AND OUTCOMES OF ALL SUCH MEETINGS WERE NOT MADE AVAILABLE. 1 30 . HENCE , THE AO DISALLOWED SUM OF RS.61,65,830/ - AND ADDED BACK TO THE INCOME OF THE ASSESSEE. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 79 13 1 . THE AUTHORIZED REPRESENTATIVE OF THE AS S ESSEE SUBMITTED THAT THE ASSESSEE HAD INCURRED TRAVELLING EXPENSES OF RS.8,87,25,778/ - WHICH WERE CLAIMED AS BUSINESS EXPENDITURE UNDER SECTION 37(1) OF THE ACT, OUT OF WHICH A SUM OF RS. 61,65,830/ - HAS BEEN DISALLOWED BY THE AO, ON THE GROUND OF GENUINENESS AS WELL AS LACK OF COMMERCIAL EXPEDIENCY, D ESPITE THE FACT THAT THE ASSESSEE SUBMITTED DETAILS/ INFORMATION/ DOCUMENTS/ EVIDENCES AS REQUIRED BY THE AO IN SUPPORT OF TRAVELLING EXPENSES, WHICH INCLUDED RELEVANT ACCOUNTS, INTERNAL TRAVEL APPROVAL FORMS, AND SAMPLE INVOICES OF TRAVEL UNDERTAKEN BY TH E OFFICIALS OF THE ASSESSEE FOR BUSINESS PURPOSES. 13 2 . THE DETAILS OF THE DISALLOWED AMOUNT ARE: S. NO. EXPENDITURE AMOUNT (IN RS.) 1. HIRING COST OF PLANE HIRED IN BOLIVIA DATED 22.07.2008 38,48,859/ - 2. AIR TICKET BILL OF SH. RANA & FAMILY DATED 17.07.2 008 9,70,958/ - 3. FOREIGN EXPENSES, SINGAPORE DATED 19.11.2008 3,53,464/ - 4. SH. NAVEEN JINDAL DATED 23.07.2008 9,92,549/ - TOTAL: 61,65,830/ - 13 3 . IN SUPPORT OF THE GENUINENESS OF THE ABOVE CLAIM, THE LD. AR SUBMITTED THAT THE ASSESSEE SUBMITTED BEFORE T HE AO THAT THE PLANE HIRING CHARGES WERE INCURRED FOR THE EXPLORATION OF RAW MATERIALS FROM MINES AT OVERSEAS LOCATION AT BOLIVIA. FURTHER, THE ASSESSEE SUBMITTED THAT FOREIGN TRAVELLING EXPENSES OF SH. JINDAL WERE WITH THE SENIOR MANAGEMENT TEAM OF THE CO MPANY, FOR THE BUSINESS PURPOSES OF THE COMPANY, LIKE EXPLORATION SOURCES FOR CONTINUOUS SUPPLY OF RAW MATERIALS LIKE COAL, IRON ORE, EXPLORATION OF NEW CUSTOMERS AT VARIOUS ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 80 LOCATIONS, MEETING WITH VARIOUS SUPPLIERS, ATTENDING INTERNATIONAL BUSINESS / ECON OMIC SUMMITS, ETC. 1 3 4. FURTHER, THE LD. AUTHORIZED REPRESENTATIVE ALSO SUBMITTED COPIES OF INVOICES, INTERNAL AUTHORIZATION FORMS, STATEMENTS OF EXPENSES ETC. ARE PLACED AT PG. 611 - 670 OF VOLUME - 2OF PAPER BOOK IN ORDER TO PROVE THE GENUINENESS OF THE CL AIMS. THE ASSESSEE ALSO SUBMITTED A SHORT NOTE WHICH IS PLACED AT PAGE NOS. 662 - 664 OF VOLUME - 2OF THE PAPER BOOK ON THE SAID CLAIM. HOWEVER, ACCORDING TO THE LD. AR, THE AO HAS NOT REFERRED TO THE SUBMITTED DOCUMENTS, AND INSTEAD, HAS PROCEEDED TO TERM THE CLAIM AS NON - GENUINE. FURTHER, THE EXPLANATION PROVIDED FOR BUSINESS EXPEDIENCY, WERE NOT CONSIDERED BY THE AO WHILE PASSING THE ASSESSMENT ORDER. 1 35 . THE ASSESSEE ALSO SUBMITTED THAT THE ENTIRE TRAVELLING EXPENSES WERE INCURRED FOR VARIOUS BUSINESS PU RPOSES, INCLUDING MEETING WITH CUSTOMERS, VENDORS, PROCUREMENT OF GOODS AND SERVICES, MARKET RESEARCH CONCLAVES, SEMINARS, ETC. AND ON ACCOUNT OF COMMERCIAL EXPEDIENCY. THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER IN RELATION TO REASONING OF DISALLOWANCE OF TRAVELLING EXPENSES CLAIMED BY THE ASSESSEE, NOR IS THERE ANY DISCUSSION ON THE VOLUMINOUS DOCUMENTS SUBMITTED BY THE ASSESSEE. 1 36 . IT WAS SUBMITTED THAT, IN THE FOLLOWING DECISION THE COURTS/TRIBUNALS HAVE HELD THAT EXPENSES INCURRED IN RELATION TO SETTING UP OF A NEW UNIT BY AN EXISTING BUSINESS IS ALLOWABLE DEDUCTION IF THE NEW UNIT CONSTITUTES THE SAME BUSINESS. SETABGANJ SUGAR MILLS LTD. VS. CIT: 41 ITR 272 (SC) ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 81 CIT VS. PRITHVI INSURANCE CO. LTD. : 63 ITR 632 (SC) L.M.CHHABDA & SONS VS. CIT: 65 ITR 639 (SC) PRODUCE EXCHANGE CORPORATION LTD. VS. CIT: 77 ITR 739 (SC) B .R.LTD. VS. V.P.GUPTA CIT BOMBAY: 113 ITR 647 (SC) VEECUMSEES VS. CIT 220 ITR 185 (SC) DCIT, BARODA VS. GUJARAT ALKIALIER & CHEMICALS PVT. LTD.: 299 ITR 85 (SC) DCIT VS. CORE HEALTH CARE LTD. : 298 ITR 194 (SC) CIT VS. MODI INDUSTRIES LTD. (NO. 3): 200 ITR 341(DELHI) CIT VS. TRIVENI ENGINEERING AND INDUSTRIES LIMITED. : 181TAXMAN 5 (DELHI) CIT VS. RELAXO FOOTWEARS LTD. : 293 ITR 231 (DELHI) CIT VS. USHA IRON & FERRO METAL CORP. LTD. : 296 ITR 140 (DELHI) CIT VS. RANE (MADRAS) LTD. : 293 ITR 459 (DELHI) INDO RAMA SYNTHETICS (I) LTD.VS. CIT: 228 CTR 278 (DELHI) JAY ENGINEERING WORKS LTD. VS. CIT: 311 ITR 405 (DELHI) CIT VS. MONNET INDUSTRIES LTD. : 221 CTR 266 (DELHI) CIT VS. HAVELLS I NDIA LIMITED: 352 ITR 376 (DELHI) 1 37 . IT IS THUS SETTLED POSITION THAT EXPENDITURE INCURRED FOR THE PURPOSE OF EXPANSION/EXTENSION OF THE EXISTING BUSINESS IS ALLOWABLE REVENUE EXPENDITURE. 1 38 . IN THE PRESENT CASE, AS STATED ABOVE, EXPENSES WERE, IT IS REITERATED, INCURRED MERELY TO EXPLORE POSSIBILITY OF RAW MATERIAL FROM MINES LOCATED AT BOLIVIA, WHICH WERE REQUIRED FOR THE EXISTING BUSINESS OF THE ASSESSEE. THUS, THE EXPENDITURE SO INCURRE D IS, IN ITS ENTIRET Y, ALLOWABLE AS BUSINESS DEDUCTION. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 82 1 3 9 . EVEN ASSUMING THAT SUCH EXPENDITURE WAS INCURRED FOR EXPANSION OF THE EXISTING BUSINESS, SINCE THE SAID ACTIVITY WAS UNDERTAKEN UNDER THE CONTROL AND SUPERVISION OF THE EXISTING MANAGEMENT AND OUT OF THE EXISTING AVAILABLE FUNDS OF THE ASSESSEE, THE EXP ENSES INCURRED WERE STILL ALLOWABLE AS DEDUCTION. RELIANCE WAS PLACED ON FOLLOWING DECISIONS: INDORAMA SYNTHETICS LTD. : 333 ITR 18 (DELHI) CIT VS. VARDHMAN SPINNING & GENERAL MILLS : 176 TAXMAN 157 (P&H) 140 . IT WAS THEREFORE SUBMITTED THAT THE EXPENDIT URE INCURRED WAS ALLOWABLE AS BUSINESS DEDUCTION. 1 41 . IT WAS SUBMITTED THAT IN ANY CASE, THE ASSESSING OFFICER CANNOT PUT HIMSELF IN THE ARMCHAIR OF A BUSINESSMAN TO DECIDE THE JUSTIFICATION OF INCURRING OR NOT INCURRING ANY PARTICULAR EXPENDITURE. SO LO NG AS THE EXPENDITURE INCURRED IS FOR BUSINESS PURPOSES, THE SAME IS ALLOWABLE AS BUSINESS DEDUCTION IN VIEW OF THE FOLLOWING HIGH COURT DECISIONS: CIT V. DALMIA CEMENT (P.) LTD: 254 ITR 377 (DEL.) CIT V. BHARTI TELEVENTURES LTD: 331 ITR 502 (DEL.) D & H SECHERON ELECTRODES PVT. LTD. VS. CIT: 149 ITR 400 (MP). 14 2 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE AO HAS DISALLOWED RS 61,65,830/ - OUT OF FOREIGN TRAVEL E XPENSES MAINLY ON THE GROUND THAT THE PURPOSE OF THE RELATED TRAVEL WAS NOT FURNISHED AND THEREFORE THE COMMERCIAL EXPEDIENCY OF THE SAID EXPENDITURE WAS NOT ESTABLISHED. ON THE OTHER HAND THE ASSESSEE HAS FILED COPIES OF ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 83 INVOICES AND DETAILS OF EXPENSES A T PAGE NOS . 611 TO 670 OF VOLUME 2 OF THE PAPER BOOK AND CONTENDED THAT THESE DOCUMENTS WERE FILED BEFORE THE AO TO SHOW BUSINESS CONNECTION OF THE EXPENDITURE IN QUESTION. HOWEVER, THE AO HAS NOT CONSIDERE D THE SAME . THE LD. DR COULD NOT CONTROVERT THE AB OVE SUBMISSION OF THE ASSESSEE. IN THE CIRCUMSTANCES IN OUR CONSIDERED OPINION IT SHALL BE IN THE INTEREST OF THE JUSTICE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE AO FOR ADJUDICATION AFRESH AFTER TAKING INTO CONSIDERATION THE SAID DOCUMENTS BY PASSING A SPEAKING ORDER. NEEDLESS TO MENTION THAT THE AO SHALL ALLOW REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE ADJUDICATING THE ISSUE AFRESH. THEREFORE , THE GROUND NO . 11 OF THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES 143 . GROUND NO. 12 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 12. THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN DISALLOWING AN AMOUNT OF RS.77,33,850 OUT OF BUSINESS PROMOTION EXPENSES INCURRED BY THE APPELLANT DURING THE RELEVANT ASSESSMENT YEAR WITHOUT PROVIDI NG ANY COGENT REASONS FOR DOING SO. 144 . THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR, THE ASSESSEE HAS DEBITED HUGE BUSINESS PROMOTION EXPENSES IN THE PROFIT & LOSS ACCOUNT. THE ASSESSEE FURNISHED THE DETAILS OF PROMOTION EXPENSES DURING THE ASSE SSMENT PROCEEDINGS. FROM EXAMINATION, THE DETAILS OF THESE EXPENSES, IT IS NOTICED THAT THE ASSESSEE HAS MADE THE FOLLOWING EXPENSES: - SR. NO. PARTICULARS AMOUNT DATE 1 GIFT FOR PRESS REPORTER 87400/ - 23.04.2008 2 DIWALI GIFT PURCHASE FOR VIP 551800/ - 2 4.10.2008 3 DIWALI GIFT PURCHASE FOR VIP 1050600/ - 24.10.2008 4 DIWALI GIFT PURCHASE FOR VIP 329606/ - 24.10.2008 ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 84 5 PURCHASE FROM ANOOP CHAND JEWELERS 999025/ - 12.11.2008 6 MISHRI LAI LA CHAND 446732/ - 12.11.2008 7 ANOOP CHAND TRILOK CHAND 954188 / - 30.11.2008 8 EXPENSES ON DIWALI FOR PARDEEP OFFICE 234599/ - 31.12.2008 9 GIFT FOR OFFICE GUEST 365620/ - 31.03.2009 10 SHOOTING EQUIPMENT VIDYA DEVI JINDAL SCHOOL, HISAR 100000/ - 28.08.2008 11 PLATINUM SUPPORT ENT ODISSA 500000/ - 15.10.2008 12 BELI RAM TARA CHAND 1204026/ - 03.11.2008 13 FAQUIR CHAND & SONS 748800/ - 03.11.2008 14 CIVIL WORK OF SHOOTING RANGE AT SONIPAT 166373/ - 21.02.2009 1 45 . THE ASSESSEE WAS REQUIRED TO FURNISH SPECIFIC DETAILS OF THE BENEFICIARIES AND TO PROVE THE GENUINENESS A ND BUSINESS EXIGENCIES OF THE ABOVE EXPENDITURE. IN RESPONSE TO THIS, THE ASSESSEE FURNISHED WRITTEN REPLY WHICH AS UNDER: - 'DIWALI GIFTS OF RS . 5,51,800/ - & RS. 10,50,600/ - - PLEASE NOTE THAT THESE EXPENSES HAVE BEEN INCURRED ON DIWALI GIFTS WHICH ARE GIV EN TO BANKERS, CUSTOMERS ETC. ON THE OCCASION OF DIWALI. PLEASE FIND ATTACHED THE DETAILS OF THE PAYMENTS MADE AS ANNEXURE - 2.' CIVIL WORK - OF SHOOTING RANGE - RS, 166373/ - - PLEASE FIND ATTACHED THE BILL AS ANNEUXRE - 3. THESE EXPENSES HAVE BEEN INCURRED FOR PROVIDING SPORT FACILITIES TO EMPLOYEES AND VARIOUS OTHER STAKE HOLDER IN THE COMPANY ETC.' EXPENSES OF AUTHENTIC CREATION - RS. 29,92,100/ - , BELI RAM TARA CHAND - RS. 12,04,026/ - , GIFTS FOR GUESTS, DIWALI GIFTS FOR VIP'S, FIRE WORK DONE, DIWALI GIFTS FROM ANOP CHAND JEWELLERS, DIWALI GIFTS FROM MISHRI LAI CHAND, DIWALI GIFTS (SWEETS & WATCH) - PLEASE NOTE THAT THESE ARE ALL DIWALI GIFTS WHICH ARE GIVEN TO BANKERS, CUSTOMERS, SUPPLIERS, EMPLOYEES AND VARIOUS OTHER STAKE HOLDERS IN THE COMPANY ETC. ON T HE OCCASION OF DIWALI.' ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 85 GIFTS FOR PRESS REPORTERS - VARIOUS PRESS CONFERENCES NEED TO BE HELD AND THESE ARE CUSTOMARY GIFTS GIVEN TO ALL NEWS AGENCIES WHICH ATTEND PRESS CONFERENCE.' 1 46. THE ASSESSING OFFICER OBSERVED THAT REPLY OF THE ASSESSEE HAS BEEN CONSIDERED CAREFULLY AND IS NOT TENABLE. THE ASSESSEE COULD NOT FURNISH THE NECESSARY DETAILS LIKE COMPLETE NARRATION OF THESE EXPENSES, DETAILS OF BENEFICIARIES. THE ASSESSEE COULD NOT FURNISH THE NAME AND ADDRESSES OF THE PERSON TO WHOM THE GIFTS WERE D ISTRIBUTED. THE ASSESSEE'S FACTORY PREMISES ARE LOCATED AT RAIPUR AND RAIGARH. THE REGISTERED OFFICE OF THE ASSESSEE IS SITUATED AT HISAR AND DELHI. THE SHOOTING RANGE IS BEING SET UP AT SONEPAT. SO - THE BUSINESS UTILITY OF SETTING UP SHOOTING RANGE AT SONE PAT IS NOT ESTABLISHED. THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF THESE EXPENSES. THE ASSESSEE ALSO COULD NOT PROVE THAT THE SAME ARE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. HENCE, A SUM OF RS. 77,33,850/ - WAS PROPOSED TO BE DISALLOWED OUT OF PROMOTION EXPENSES IN THE DRAFT ORDER. 1 47 . THE D.R.P. REJECTED THE OBJECTIONS OF THE ASSESSEE BY OBSERVING AS UNDER: - ' EVEN DURING PRESENT PROCEEDING, THE ASSESSEE DID NOT PROVIDE NECESSARY DETAILS TO PROVE THAT THE EXPENSES WERE WITH REFERENCE TO GENUINE NEED OF THE BUSINESS.' 1 48 . THEREFORE, A DISALLOWANCE OF RS.77,33,850/ - WAS MADE OUT OF BUSINESS PROMOTION EXPENSES, AND ADDED TO THE TAXABLE INCOME OF THE ASSESSEE. 1 49 . THE AUTHORIZED REPRESENTATIVE ARGUED THAT DURING THE YEAR UNDER CONSIDE RATION, THE ASSESSEE HAD DEBITED, INTER ALIA, BUSINESS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT ON ACCOUNT ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 86 OF BUSINESS PROMOTION EXPENSES. IN THE ASSESSMENT ORDER, THE AO HAS PROCEEDED TO DOUBT THE GENUINENESS AND BUSINESS EXPEDIENCY OF THE SAID EXPENDIT URES AND THUS AN AMOUNT OF RS. 77,33,850/ - HAS BEEN DISALLOWED. 150 . THAT IN RESPONSE TO THE AO S QUERIES, THE ASSESSEE SUBMITTED DETAILS OF VARIOUS BUSINESS PROMOTION EXPENSES UNDERTAKEN BY IT, AND ALSO SUBMITTED SAMPLE INVOICES, IN ORDER TO PROVE THE GE NUINENESS THEREOF. HOWEVER, THE AO HAS NOT REFERRED TO EVEN A SINGLE SAMPLE INVOICE THAT HAS BEEN PRODUCED BY THE ASSESSEE. REGARDING THE BUSINESS EXPEDIENCY OF THE EXPENSES, THE LD. AR SUBMITTED THAT THE BUSINESS PROMOTION EXPENSES CAN BE BROADLY DIVIDED INTO THE FOLLOWING HEADS: DIWALI GIFTS / EXPENSES, CIVIL WORK FOR SHOOTING RANGE, GIFTS FOR CONFERENCES / EVENTS. BEFORE THE AO, THE ASSESSEE MADE DETAILED SUBMISSIONS ON ALL THESE HEADS, AND THE COMMERCIAL EXPEDIENCY OF THE SAME. 1 51 . REGARDING DIWALI GIFTS, IT WAS SUBMITTED THAT THESE GIFTS WERE GIVEN TO BANKERS, CUSTOMERS, VIP ETC., ON THE OCCASION OF DIWALI AND INCLUDED COSTS TOWARDS, SWEETS, FIRE CRACKERS, GIFTS ETC., DETAILS OF WHICH WERE ALSO SUBMITTED BEFORE THE AO. REGARDING CIVIL WORK FOR SHOOT ING RANGE, IT WAS SUBMITTED BEFORE THE AO THAT THE THESE EXPENSES WERE INCURRED TO PROVIDING SPORTS FACILITIES FOR EMPLOYEES AND VARIOUS OTHER STAKE HOLDERS IN THE ASSESSEE COMPANY, INVOICE FOR WHICH WAS ALSO SUBMITTED BEFORE THE AO. REGARDING THE GIFTS FO R CONFERENCES / EVENTS, IT WAS SUBMITTED BEFORE THE AO THAT THE ASSESSEE COMPANY USED TO CONDUCT VARIOUS PRESS CONFERENCES, WHEREIN CUSTOMARY GIFTS WERE DISTRIBUTED TO THE ATTENDEES, COSTS OF WHICH WERE CLAIMED AS BUSINESS PROMOTION EXPENSES. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 87 152 . ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 15 3 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE AO ON VERIFICATION OF SALE PROMO TION EXPENSES FOUND THAT EXPENDITURE TO THE TUNE OF RS.77,33,850/ - WAS NOT FOR THE PURPOSES OF THE BUSINESS. THEREFORE HE DISALLOWED THE SAME. WE FIND THAT RS.21,66,605/ - WAS INCURRED FOR MAKING GIFT TO BANKERS CUSTOMERS ,ETC. ON THE OCCASION OF FESTIVAL OF DIWALI. SUCH EXPENDITURE WERE INCURRED TO BUILD RELATIONSHIP WITH BUSINESS ASSOCIATE FOR PROMOTION OF BUSINESS. SIMILARLY CUSTOMARY GIFTS TO PRESS REPORTERS ATTENDING THE BUSINESS PRESS CONFERENCE OF THE ASSESSEE WAS INCURRED OUT OF COMMERCIAL EXPEDIENC Y. KEEPING IN VIEW THE VOLUME OF BUSINESS OF THE ASSESSEE DIWALI GIFT OF RS.21,66,605/ - AND GIFT OF RS.87,400/ - TO THE PRESS REPORTERS CAN BE HELD TO HAVE INCURRED OUT OF COMMERCIAL EXPEDIENCY. IN RESPECT OF EXPENSE OF RS.2,66,373/ - INCURRED FOR CIVIL CO NSTRUCTION OF SHOOTING RANGE AND SHOOTING EQUIPMENT IT IS OBSERVED THAT THEY WERE IN CURRED FOR A SHOOTING RANGE AT S ONI PAT WHERE NEITHER THE FACTORY OR OFFICE OF THE ASSESSEE IS SITUATED. THE ASSESSEE COULD NOT ESTABLISH THE BUSINESS CONNECTION OF THE SAID EXPENDITURE. SIMILARLY IN RESPECT OF BALANCE EXPENDITURE OF RS.55,00,877/ - IN ABSENCE OF DETAILS OF BENEFICIARY THE COMMERCIAL EXPEDIENCY OF THE SAME COULD NOT BE ESTABLISHED. WE THEREFORE DELETE THE DISALLOWANCE OF RS.24,32,973/ - OUT OF TOTAL DISALLOWANC E OF RS.77,33,850/ - AND CONFIRM THE DISALLOWANCE OF BALANCE AMOUNT OF RS.55,00,877/ - . THUS , THIS G R OUND NO . 12 OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 88 15 4 . GROUND NO. 13 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 13. THAT THE ASSESSING OFFICE R ERRED ON FACTS AND IN LAW IN MAKING AN ADJUSTMENT OF RS.21,06,39,195 TO THE ARM'S LENGTH PRICE OF THE 'INTERNATIONAL TRANSACTIONS' OF INTEREST RECEIVED FROM LOAN ADVANCED TO ASSOCIATED ENTERPRISE, ON THE BASIS OF THE ORDER PASSED UNDER SECTION 92CA(3) O F THE INCOME - TAX ACT, 1961 ('THE ACT'), BY THE TPO. 13.1 THAT THE ASSESSING OFFICER/ TPO ERRED ON FACTS AND IN LAW IN COMPUTING THE ARMS LENGTH RATE OF INTEREST CHARGED ON THE INTERNATIONAL TRANSACTION OF LOAN EXTENDED TO \ THE AE'S, VIZ., JINDAL STEEL & POWER (MAURITIUS) LTD. AND JINDAL MINERALS & METALS AFRICA LTD., AT THE RATE OF 16% P.A. AS AGAINST 8% P.A. CHARGED BY THE APPELLANT BASED ON CONJECTURES AND SURMISES AND BY INCORRECT DETERMINATION OF ARM'S LENGTH PRICE UNDER THE TRANSFER PRICING REGULATI ONS. 13.2 THAT THE ASSESSING OFFICER / TPO ERRED ON FACTS AND IN LAW IN APPROPRIATELY DETERMINING THE ARM'S LENGTH RATE OF INTEREST IN RESPECT OF INTERNATIONAL TRANSACTION OF LOAN EXTENDED TO THE AE APPLYING CUP METHOD BY COMPARING THE AFORESAID PRIME L ENDING RATE (PLR) OF SBI FOR THE PREVIOUS YEAR 2008 - 09 AT 12.75%WITH A MARK - UP OF 325 BASE POINT AS THE BENCHMARK FOR DETERMINING THE ARM'S LENGTH RATE OF INTEREST IN RESPECT OF INTERNATIONAL TRANSACTION EXTENDED IN FOREIGN CURRENCY. 13.3 THAT THE ASSES SING OFFICER / TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT 'CONSIDERING THE COMPARABLE UNCONTROLLED BENCHMARK, PLACED ON RECORD BY THE APPELLANT, THE INTERNATIONAL TRANSACTION OF LOAN EXTENDED TO THE AE WAS ESTABLISHED TO BE AT ARM'S LENGTH INTE REST RATE. 13.4 THAT THE ASSESSING OFFICER/ TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE INTEREST CHARGED BY THE APPELLANT AT 8% P.A. IS HIGHER THAN THE INTEREST CHARGED BY BANKS ON EXTERNAL COMMERCIAL BORROWINGS FROM THE APPELLANT IN A RA NGE OF I.63% - ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 89 3.72% AND THE TRANSACTION OF RECEIPT OF INTEREST IS TO BE CONSIDERED BEING AT ARM S LENGTH RATE. 13.5 THAT THE ASSESSING OFFICER/TPO ERRED ON FACTS AND IN LAW IN DISREGARDING THE FACT THAT THE LOAN WAS ADVANCED BY THE APPELLANT TO ITS ASSOC IATED ENTERPRISE IN FOREIGN DENOMINATED CURRENCY AND ACCORDINGLY, LOAN AVAILABLE IN THE INTERNATIONAL MARKET WITH INTEREST RATE COMPUTED CONSIDERING LIBOR RATES SHALL HE APPLIED FOR BENCHMARKING. 13.6 THAT THE ASSESSING OFFICER/TPO ERRED ON FACTS AND IN LAW IN CONSIDERING THE AVERAGE PRIME LENDING RATE OF SBI AS THE ARMS LENGTH RATE OF INTEREST WITHOUT APPRECIATING THAT SUCH RATE IS APPLICABLE ON LOANS AVAILED IN INDIA IN DOMESTIC CURRENCY. 13.7 THAT THE ASSESSING OFFICER/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE CREDIT OF THE APPELLANT IS `AA+' AND SINCE THE ASSOCIATED ENTERPRISE IS A WHOLLY, OWNED SUBSIDIARY OF APPELLANT, THE SAME CREDIT RATING SHALL APPLY TO ITS ASSOCIATED ENTERPRISE ALSO. 13.8 THAT THE ASSESSING OFFICER / TPO ER RED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE INTEREST RATE OF 8%, CHARGED BY THE APPELLANT IN RESPECT OF FOREIGN CURRENCY LOAN TO THE AE, WAS HIGHER THAN THE UN - RATED BOND ISSUED IN SINGAPORE DOLLAR BY TATA COMMUNICATION (NETHERLANDS) BV AT 4.25%. 13.9 THAT THE ASSESSING OFFICER/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT EVEN CONSIDERING THE YIELD ON BONDS ISSUED BY UNRELATED INDIAN COMPANIES IN INDIAN CURRENCY HAVING AN YIELD OF 2.917% - 6.877%, NO ADJUSTMENT IS WARRANTED ON THIS ACCOU NT. 13.10 THAT THE ASSESSING OFFICER/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE LOAN ADVANCED BY THE APPELLANT IS FOR EXPANDING ITS BUSINESS IN NEW HORIZONS AND HAVING REGARD TO THE ECONOMIC SUBSTANCE OF THE TRANSACTION, THE SAID TRANSACT ION SHALL BE CONSIDERED IN THE NATURE OF QUASI EQUITY AND ACCORDINGLY SHALL NOT HE BENCHMARKED APPLYING RATES ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 90 APPLICABLE ON COMMERCIAL LOAN LOANS PROVIDED BY BANKS. 13.11 WITHOUT PREJUDICE, THE ASSESSING OFFICER/TPO ERRED ON FACTS AND IN LAW IN FURTHER A DDING A MARKUP OF 325 BPS IN THE PLR RATE OF SBI, ON ACCOUNT OF ADJUSTMENT FOR SECURITY AND SINGLE CUSTOMER RISK, WITHOUT APPRECIATING THAT THE APPELLANT ITSELF IS THE HOLDING COMPANY OF ITS ASSOCIATED ENTERPRISE AND ACCORDINGLY POSSES THE CHARGE OF ALL AS SETS OF ITS ASSOCIATED ENTERPRISE. 13.12 THAT THE DRP ERRED ON FACTS AND IN LAW IN SUMMARILY UPHOLDING THE TRANSFER PRICING ADJUSTMENT MADE BY THE TPO IN THE ORDER PASSED UNDER SECTION 92EA(3) OF THE ACT IN RESPECT OF INTERNATIONAL TRANSACTION OF LOAN AD VANCED TO THE ASSOCIATED ENTERPRISE OF RS.21,06,39,195 WITHOUT RECORDING REASONED FINDING. 155 . THE ASSESSING OFFICER OBSERVED THAT D URING THE PRECEDING YEARS, JSPL HAS GRANTED LOAN AMOUNTING TO RS.4,14,07,06,500 TO JINDAL STEEL & POWER (MAURITIUS)LTD. A ND RS.46,71,31,785 TO JINDAL MINERALS & METALS AFRICA LIMITED. JSPL HAS GRANTED THESE LOANS FOR BUSINESS PURPOSES AND IT IS CHARGING INTEREST @ 8% ANNUALLY. ACCORDINGLY, IN THE RELEVANT FINANCIAL YEAR, JSPL RECEIVED INTEREST AMOUNTING TO RS.18,16,45,581/ - A ND RS. 2,89,94,354/ - ON LOAN GRANTED TO JINDAL STEEL & POWER (MAURITIUS) LIMITED AND JINDAL MINERAL METAL AFRICA LIMITED RESPECTIVELY. 156 . REGARDING THE REFERENCE MADE U/S 92CA(1), TRANSFER PRICING OFFICER, HAS PASSED ORDER U/S 92CA(3) DATED 29.01.2013 W HEREIN AN UPWARD ADJUSTMENT OF RS.23,22,39,255/ - IS DIRECTED TO BE MADE. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 91 157 . THE TPO CALCULATED ARM S LENGTH PRICE OF THE INTEREST @ 16% PER ANNUM AS UNDER: NAME OF THE AE LOAN AMT. RATE OF INTEREST CHARGED ARM S LENGTH RATE OF INTEREST AMOUNT OF INTERE ST CHARGED ARM S LENGTH AMT. OF INTEREST SHORTFALL BEING ADJUSTMENT U/S 92CA JINDAL STEEL & POWER (MAURITIUS) LTD. 4140706500 8% 16% 181645581 363291162 181645581 JINDAL MINERALS & METALS AFRICA LTD. 462131785 8% 16% 28994334 57988668 28994334 158 . HEN CE, THE ARM S LENGTH/VALUE OF INTEREST RECEIVABLE ON LOANS OUTSTANDING IN THE NAME OF AE S DETERMINED AT RS.42,12,79,830/ - AGAINST RS.21,06,39,195/ - RECEIVED BY THE ASSESSEE. 159 . THE DRP HAS HELD THAT C ONSIDERING THE FACTS OF THE CASE, THE TPO HAS HELD T HAT THE INTEREST RATE OF 16% P.A. IS CONSIDERED AS REASONABLE IN THIS CASE. THE TPO HAS APPLIED THE CUP METHOD TO DETERMINE THE ARM S LENGTH PRICE OF TRANSACTION OF PROVISION OF LOAN BY THE ASSESSEE TO ITS AE. THE AVERAGE PLR OF THE SBI DURING THE FINANCIA L YEAR 2008 - 09 WAS 12.75%. APPLYING A MARKUP OF 325 BASIS POINTS, THE TPO HAS ADOPTED THE REASONABLE RATE OF INTEREST AT 16% AGAINST 17.24% MENTIONED IN THE SHOW CAUSE. THE ARM S LENGTH PRICE/VALUE OF INTEREST RECEIVABLE ON LOANS OUTSTANDING IN THE NAME OF THE AE S HAS BEEN DETERMINED AT RS.42,12,79,830/ - AGAINST RS.21,06,39,195/ - RECEIVED BY THE ASSESSEE. ACCORDINGLY, THE TPO HAS DETERMINED THE TP ADJUSTMENT OF RS.21,06,39,195/ - ON ACCOUNT OF INTEREST FROM LOAN ADVANCED TO ASSOCIATED ENTERPRISE. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 92 160 . THE DRP THEREFORE HELD THAT THE TPO IS RIGHT IN MAKING THE ABOVE ADJUSTMENT. THE TPO HAS GIVEN ELABORATE AND SUFFICIENT REASONS TO MAKE THIS ADDITION. THE USE OF CUP AS THE MOST APPROPRIATE METHOD IN THE FACTS AND CIRCUMSTANCES OF THE CASE IS ALSO JUSTIFIED. 16 1 . HENCE , THE ASSESSING OFFICER MADE ADDITION OF RS.23,22,39,255/ - TO THE INCOME OF THE ASSESSEE. 162 . BEFORE US, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED T HE APPELLANT HAD GRANTED LOAN AMOUNTING TO USD 8,12,70,000 TO JINDAL STEEL & POWER (MAURITIUS) LIMITED AND USD 90,70,300 TO JINDAL MINERALS & METALS AFRICA LIMITED, WHO ARE THE ASSOCIATED ENTERPRISES (AES) OF THE APPELLANT. INTEREST IS CHARGED ON THE LOAN AT THE RATE OF 8% ANNUALLY. DURING THE RELEVANT FINANCIAL YEAR, JSL RECEIVED INTER EST AMOUNTING TO RS.18,16,45,581/ - ON LOAN GRANTED TO JINDAL STEEL & POWER (MAURITIUS) LIMITED AND RS. 2,89,94,334/ - ON LOAN GRANTED TO JINDAL MINERALS & METALS AFRICA LIMITED. 163 . IN THE TP STUDY, THE APPELLANT HAS BENCHMARKED THE SAID TRANSACTION S APP LYING CUP METHOD AND CONCLUDED THAT THE AFORESAID TRANSACTION IS AT ARM S LENGTH AS THE APPELLANT HAS AVAILED EXTERNAL COMMERCIAL BORROWINGS FROM FINANCIAL INSTITUTIONS AT A RATE OF INTEREST RANGING FROM 1.63% TO 3.72% P.A. BUT EXTENDED LOAN TO JINDAL STEE L & POWER (MAURITIUS) LIMITED AND JINDAL MINERALS & METALS AFRICA LIMITED AT HIGHER RATE, I.E. 8% P.A. IN CASE OF JSPL, COMPARABLE TRANSACTION WAS AVAILABLE WHERE JSPL HAS AVAILED EXTERNAL COMMERCIAL BORROWING FROM FINANCIAL INSTITUTIONS, AT A RATE OF INTE REST RANGING FROM 1.63% TO 3.72% P.A. CONSIDERING THAT THE ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 93 INTERNATIONAL TRANSACTION OF RECEIPT OF INTEREST BY JSPL AT 8% WAS HIGHER THAN COMPAR ED TO COMPARABLE UNCONTROLLED PRICES FOR SIMILAR UNCONTROLLED TRANSACTIONS, THE INTERNATIONAL TRANSACTION OF I NTEREST RECEIVED WAS CONSIDERED TO BE AT ARM S LENGTH APPLYING COMPARABLE UNCONTROLLED PRICE METHOD. 16 4 . THE TPO DISREGARDED THE BENCHMARKING ANALYSIS UNDERTAKEN BY THE APPELLANT FOR DETERMINING THE ARMS LENGTH PRICE OF INTEREST ON LOAN APPLYING CUP METH OD AND INSTEAD COM PUTED THE RATE OF INTEREST OF 11.33% P.A. ON THE BASIS OF AVERAGE PRIME LENDING RATE OF INTEREST OFFERED BY STATE BANK OF INDIA. THE TPO FURTHER, ADDED A MARKUP OF 395 BPS ON ACCOUNT OF ADJUSTMENT FOR SECURITY AND TRANSACTION COST, ON THE PLR OF SBI. THE TPO ACCORDINGLY APPLIED THE RATE OF 16% AND COMPUTED AN ADJUSTMENT OF RS. 21,06,39,195/ - . 165 . THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT RULE 10B(1)(A) OF THE INCOME - TAX RULES PROVIDES THAT COMPARABLE UNCONTROLLED PRIC E METHOD COMPARES THE PRICE CHARGED FOR PROPERTY OR SERVICES TRANSFERRED IN A CONTROLLED TRANSACTION TO THE PRICE CHARGED FOR PROPERTY OR SERVICES TRANSFERRED IN A COMPARABLE UNCONTROLLED TRANSACTION IN COMPARABLE CIRCUMSTANCES. 166 . GENERALLY, INTERNAL COMPARABLES AVAILABLE IN CASE OF AN APPELLANT ARE TO BE PREFERRED FOR THE PURPOSE OF BENCHMARKING OF INTERNATIONAL TRANSACTIONS EVEN IN THE CASE WHERE ANY OF THE PRESCRIBED METHOD IS APPLIED, INSTEAD OF RELYING ON EXTERNAL COMPARABLES, AS PROVIDED IN PARAG RAPH 3.26 OF THE OECD GUIDELINES. THE REVISED OECD TRANSFER PRICING GUIDELINES ISSUED ON 22ND JULY, 2010, TOO, PROVIDE FOR USE OF INTERNAL ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 94 COMPARABLE DATA FOR BENCHMARKING ANALYSIS IN PREFERENCE OVER THE EXTERNAL BENCHMARK. THE BENCHES OF THE TRIBUNAL CONS ISTENTLY HELD THAT THE RULE ITSELF PROVIDES THAT WHILE UNDERTAKING A BENCHMARKING ANALYSIS, INTERNAL COMPARABLE UNCONTROLLED TRANSACTIONS IS TO BE PREFERRED OVER THE EXTERNAL COMPARABLE UNCONTROLLED TRANSACTIONS. 167 . RELIANCE IN THIS REGARD WAS PLACED O N THE RECENT DECISION OF CHENNAI BENCH OF TRIBUNAL IN THE CASE OF VVF LTD VS DCIT [ITA NO. 673/MUM/06] , WHEREIN, IT WAS HELD AS UNDER: WE HAVE NOTED THAT AS WAS ALSO NOTED BY THE TRANSFER PRICING OFFICER HIMSELF AT PAGE 3 OF HIS ORDER THE APPELLANT HAS B ORROWED FOREIGN CURRENCY LOANS IN US DOLLARS AND FOR THE PURPOSES OF INVESTING IN SUBSIDIARIES ABROAD, FROM ICICI BANK AT THE RATE OF LIBOR + 3% THE APPELLANT HAS ALSO FILED A LETTER FROM BANK OF INDIA STATING THAT 'DURING MARCH 2002, WE HAD BEEN CHARGING SPREADS OF 150 BPS TO 300 BPS OVER LIBOR IN RESPECT OF FOREIGN CURRENCY LOANS BASED ON FINANCIAL POSITION AND CREDIT RATING OF THE BORROWER'. AS FOR THE LIBOR RATE, AS PER THE INFORMATION PROVIDED BY APPELLANT, IT RANGED FROM 1,85000 (2 WEEKS) TO 3.00250 ( 1 YEAR). ON THE GIVEN FACTS, IN OUR CONSIDERED VIEW, IT WOULD BE APPROPRIATE TO ACCEPT INTERNAL CUP, I.E. THE RATE AT WHICH THE APPELLANT HAS RESORTED TO FOREIGN EXCHANGE BORROWINGS FROM THE ICICI, AS ARMS LENGTH PRICE UNDER CUP METHOD. THE FACT, AS BROUGH T ON RECORD BY THE AUTHORITIES BELOW THAT THIS LOAN FROM ICICI BANK WAS NOT USED FOR THE PURPOSES OF REMITTANCE TO SUBSIDIARIES AS INTEREST FREE LOANS HAS NO BEARING FOR THE PURPOSES OF COMPUTING ALP OF INTEREST FREE LOAN. THE FINANCIAL POSITION AND CREDIT RATING OF THE SUBSIDIARIES WILL BE BROADLY THE SAME AS THE HOLDING COMPANY, AND, THEREFORE , THE PRECISE RATE AT WHICH THE ICICI BANK HAS ADVANCED THE FOREIGN CURRENCY LOANS TO THE APPELLANT COMPANY CAN BE ADOPTED AT ARMS LENGTH PRICE OF INTEREST FREE LOAN S ADVANCED BY THE APPELLANT COMPANY TO ITS FOREIGN SUBSIDIARIES. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 95 168 . IN THE PRESENT CASE , THE APPELLANT HAS APPROPRIATELY JUSTIFIED THE SAID INTERNATIONAL TRANSACTION OF RECEIPT OF INTEREST ON THE AFORESAID LOAN OF USD 8,12,70,000 ADVANCED TO JINDAL ST EEL &POWER (MAURITIUS) LIMITED AND USD 90,70,300 TO JINDAL MINERALS & METALS AFRICA LIMITED BY WAY OF INTEREST PAID ON ECBS TAKEN FROM VARIOUS BANKS AT THE RATE OF INTEREST RANGING FROM 1.63% TO 3.72% P.A. 169 . THE TPO, HOWEVER, DISREGARDED SUCH INTERNAL CUP PROVIDED BY THE APPELLANT BY WAY OF ECB LOANS. IT IS SUBMITTED THAT THE TPO DID NOT APPRECIATE THAT THE APPELLANT HAS ALSO TAKEN ECB LOAN ON 15.12.2005, 19.06.2006 AND 26.03.2007 FOR A CUMULATIVE SUM OF USD 170 MILLION AND JPY 12184 MILLION AT THE RAT E OF INTEREST RANGING FROM 1.63% TO 3.72% P.A.. NO REASON, WHATSOEVER HAS BEEN GIVEN BY THE TPO FOR DISREGARDING THE INTERNAL CUP APPLIED BY THE APPELLANT. 170 . THE HON BLE DELHI HIGH COURT IN CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA (P.) LTD. VS . CIT (374 ITR 118 (DEL)) HAS HELD THAT AN INTERNAL COMPARABLE IS MORE DEPENDABLE AND RELIABLE AND IS TO BE USED, WHEN DATA FOR THE SAME IS AVAILABLE. 171 . IT WAS ARGUED THAT THE APPELLANT HAS, THOUGH JUSTIFIED THE SAID INTERNATIONAL TRANSACTION OF RECEIP T OF INTEREST ON THE AFORESAID LOAN OF USD 8,12,70,000 TO JINDAL STEEL & POWER (MAURITIUS) LIMITED AND USD 90,70,300 TO JINDAL MINERALS & METALS AFRICA LTD BY WAY OF INTEREST PAID ON ECBS TAKEN FROM VARIOUS BANKS, INTERNATIONALLY THE EXTERNAL COMMERCIAL BO RROWINGS ARE AVAILABLE AT MUCH LOWER RATE WHICH ARE CHARGED WITH REFERENCE TO THE LONDON INTER BANKING OFFERED RATE ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 96 (LIBOR).IN THE INSTANT CASE LOAN IS GIVEN IN USD AND THERE IS NO DISPUTE ON THE SAME. 17 2 . IT WAS SUBMITTED THAT, IN THE CASE OF EXPORT CR EDIT IN FOREIGN CURRENCY, THE RBI HA S ALSO GIVEN DIRECTIONS WHEREIN IT IS SPECIFICALLY MENTIONED THAT THE LIBOR RATE WAS TO BE APPLIED. SINCE, THE ABOVE TRANSACTION OF LENDING LOAN IN FOREIGN CURRENCY TO A FOREIGN ENTITY IS ALSO AN INTERNATIONAL TRANSACTIO N, AS PER THE RBI GUIDELINES, ONLY THE LIBOR RATES CAN BE APPLIED. 17 3 . HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. COTTON NATURALS I. P. LTD. REPORTED IN 276 CTR 445 (DEL) HAS HELD THAT PLR RATE IS NOT APPLICABLE AND LIBOR RATE IS TO BE APPLIED WHEN THE LOAN IS IN FOREIGN CURRENCY. 17 4 . THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ALSO RELIED ON THE DECISION OF CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF SIVA INDUSTRIES AND HOLDINGS LTD. VS. ACIT [ITA NO. 2148/MDS/2148], WHEREIN, THE TRIBUNAL HEL D THAT, ONCE THE TRANSACTION BETWEEN THE APPELLANT AND THE ASSOCIATED ENTERPRISE IS IN FOREIGN CURRENCY AND THE TRANSACTION IS AN INTERNATIONAL TRANSACTION, THEN THE TRANSACTION WOULD HAVE TO BE LOOKED UPON BY APPLYING THE COMMERCIAL PRINCIPLES IN REGARD T O INTERNATIONAL TRANSACTION. 175 . IT WAS SUBMITTED THAT SINCE THE APPELLANT HAS CHARGED A HIGHER RATE OF 8% THAN THE APPLICABLE LIBOR RATE, NO ADJUSTMENT WAS REQUIRED TO BE MADE ON ACCOUNT OF THE ARMS LENGTH PRICE OF RECEIPT OF INTEREST. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 97 176 . WE HAVE HE ARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE GRANTED LOAN OF USD 8,12,70,000 TO JINDAL STEEL & POWER (MAURITIUS) LTD. AND OF USD 90,70,300 TO JINDAL MINERALS & METALS AFRICA LTD. WHO ARE THE ASSOCIATED ENTERPRISES OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. ON THESE LOANS, THE ASSESSEE CHARGED INTEREST @ 8% PER ANNUM AND RECEIVED RS.18,16,45,581/ - FROM M/S JINDAL STEEL & POWER (MAURITIUS) LTD. AND RS.2 ,89,94,334/ - FROM JINDAL MINERALS & METALS AFRICA LTD. THE ASSESSEE BENCHMARKED THIS TRANSACTION OF LOAN BY APPLYING CUP METHODS. ACCORDING TO THE ASSESSEE, AS PER RULE 10B(1)(A) OF INCOME TAX RULES, CUP METHOD COMPARES THE PRICE CHARGED FOR PROPERTY OR SE RVICES TRANSFERRED IN A CONTROLLED TRANSACTION TO THE PRICE CHARGED FOR PROPERTY OR SERVICES TRANSFERRED IN A COMPARABLE UNCONTROLLED TRANSACTION. AS PER THE REVISED OECD TRANSFER PRICING GUIDELINES ISSUED ON 22.07.2010 INTERNAL COMPARABLE DATA FOR BENCHMA RKING ANALYSIS SHOULD BE PREFERRED OVER EXTERNAL BENCHMARK. THE ISSUE WAS DECIDED BY THE HON BLE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA (P.) LTD. VS CIT REPORTED IN 374 ITR 118 (DEL.) THAT INTERNAL COMPARABLE WAS MORE DEP ENDABLE AND RELIABLE AND SHOULD BE USED WHERE DATA FOR THE SAME IS AVAILABLE. FURTHER, THE HON BLE HIGH COURT IN THE CASE OF CIT VS COTTON NATURALS I. P. LD. REPORTED IN 276 CTR 445 (DEL.) HELD THAT PLR RATE WAS NOT APPLICABLE AND LIBOR RATE WAS TO BE APPL IED WHEN THE LOAN WAS IN FOREIGN CURRENCY. HENCE, THE TPO/AO WAS NOT JUSTIFIED IN APPLYING PLR RATE OF STATE BANK OF INDIA IN DETERMINING THE ALP OF FOREIGN CURRENCY LOAN GIVEN BY THE ASSESSEE TO ITS TWO ASSOCIATED ENTERPRISES. FURTHER, THE ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 98 CHENNAI BENCH O F TRIBUNAL IN THE CASE OF SIVA INDUSTRIES AND HOLDINGS LTD. VS ACIT IN ITA NO. 2148/MDS./2018 HELD THAT ONCE THE TRANSACTION BETWEEN THE APPELLANT AND THE ASSOCIATED ENTERPRISES WAS IN FOREIGN CURRENCY AND WAS AN INTERNATIONAL TRANSACTION THAN IT SHOULD BE LOOKED UPON BY APPLYING COMMERCIAL PRINCIPLE IN REGARD TO INTERNATIONAL TRANSACTION. IT WAS ARGUED THAT SINCE THE ASSESSEE HAS CHARGED HIGHER INTEREST RATE OF 8% THAN THE LIBOR RATE, THEREFORE, THE TRANSACTION OF THE ASSESSEE WAS AT ARM S LENGTH. 17 7 . IT WAS ALSO SUBMITTED THAT THE ASSESSEE DURING THE SAME PERIOD HAS TAKEN LOAN FROM FINANCIAL INSTITUTION THROUGH EXTERNAL COMMERCIAL BORROWING AT INTEREST RATE OF 1.63% TO 3.72% PER ANNUM AND THEREFORE, THE INTEREST RATE OF 8% CHARGED BY THE ASSESSEE FROM IT S TWO ASSOCIATED ENTERPRISES WAS AT ARM S LENGTH AND HENCE, NO ADDITION ON THAT ACCOUNT WAS WARRANTED. 178 . WE FIND THAT THE RATE WHICH SHOULD BE ADOPTED BY THE TPO/AO FOR BENCHMARKING THE LOAN TRANSACTIONS WITH THE ASSESSEE S ASSOCIATED ENTERPRISES SHOUL D BE THE LIBOR RATE AND NOT THE PLR RATE AS ADOPTED IN THE INSTANT CASE IN VIEW OF THE DECISION OF HON BLE DELHI HIGH COURT IN CIT VS COTTON NATURALS I. P. LTD. (SUPRA). THE ASSESSEE HAS ALSO SUBMITTED THAT IT HAS MADE EXTERNAL COMMERCIAL BORROWINGS AT INT EREST RATE RANGING FROM 1.63% TO 3.72% PER ANNUM. THE ASSESSEE HAS NOT PROVIDED US THE DETAILS OF EXTERNAL COMMERCIAL BORROWINGS AND THAT THE LOANS ADVANCED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES WAS FROM THESE BORROWINGS. FURTHER, THE DETAILS OF LI BOR RATE PREVAILING AT THE RELEVANT TIME HAS ALSO NOT BEEN PROVIDED BY THE ASSESSEE. THEREFORE, WE ARE UNABLE ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 99 TO ADJUDICATE THE ISSUE COMPLETELY. HENCE, WE HAVE NO OTHER ALTERNATIVE BUT TO REMAND THE MATTER BACK TO THE FILE OF THE AO TO ADJUDICATE THE ISSU E AFRESH AFTER EXAMINATION IN LINE WITH THE DISCUSSIONS MADE HEREINABOVE. THUS, THE GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 179 . GROUND NO. 14 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: TRANSFER PRICING ADJUSTMENT ON GUARANTEE ISSUED ON B EHALF OF THE AE 14. THAT THE ASSESSING OFFICER / TPO ERRED ON FACTS AND I N LAW IN MAKING AN ADDITION OF RS.2,16,00,060 ALLEGEDLY ON THE GROUND THAT NO COMMISSION HAS BEEN CHARGED BY THE APPELLANT FOR PROVIDING CORPORATE GUARANTEE TO THE LENDERS ON BEHA LF OF ITS ASSOCIATED ENTERPRISES. 14.1 THAT THE ASSESSING OFFICER /. TPO ERRED ON FACTS AND IN LAW IN IMPUTING THE COMMISSION AT THE RATE OF 2.71% P.A. PLUS A MARK - UP OF 200 BPS, ALLEGEDLY ON THE BASIS OF DATA OBTAINED FROM VARIOUS BANKS U/S 133(6) OF T HE ACT. 14.2 THAT THE ASSESSING OFFICER/TPO ERRED ON FACTS AND IN LAW IN DISREGARDING THE FACT THAT GUARANTEE WAS ISSUED BY THE ASSESSEE PURSUANT TO AN OBLIGATION CAST UPON A SHAREHOLDER, BEING THE HOLDING COMPANY, AND NOT A SERVICE RENDERED TO THE AE. 14.3 THAT THE ASSESSING OFFICER/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT CORPORATE GUARANTEE ISSUED BY THE ASSESSEE WAS PURELY ON THE COMMERCIAL CONSIDERATION IN ANTICIPATION OF SIGNIFICANT BENEFIT IN THE FORM OF PROFIT INCOME IN THE LATER YEARS. 14.4 WITHOUT PREJUDICE, THE ASSESSING OFFICER/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE APPELLANT HAS HIMSELF PAID COMMISSION AT THE RATE OF 0.125% P.A. ON BANK GUARANTEE ISSUED BY YES BANK, AND ACCORDINGLY WITHOUT PREJUDICE, THE ADJUSTMENT ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 100 PROPOSED ON THIS ACCOUNT SHALL BE RESTRICTED TO 0.125% P.A. APPLYING CUP METHOD. 14.5 WITHOUT PREJUDICE, THE ASSESSING OFFICER/TPO ERRED ON FACTS AND IN LAW IN CHARGING A MARKUP OF 200 BPS ON THE AVERAGE RATE OF COMMISSION CHARGED BY VARIOUS B ANKS ON ACCOUNT OF ADJUSTMENT FOR LENDING BUSINESS RISK AND SINGLE CUSTOMER1 RISK WITHOUT PROVIDING COGENT REASONS AND ON THE BASIS OF CONJECTURE AND SURMISES. 14.6 THAT THE DRP ERRED ON FACTS AND IN LAW IN SUMMARILY UPHOLDING THE TRANSFER PRICING ADJUST MENT MADE BY THE TPO IN THE ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT IN RESPECT OF CORPORATE GUARANTEE ISSUED TO THE LENDERS ON BEHALF OF THE ASSOCIATED ENTERPRISE OF RS. 2,16,00,060 WITHOUT RECORDING REASONED FINDING. 180 . THE ASSESSING OFFICER OBS ERVED THAT T HE ASSESSEE COMPANY HAS GIVEN A BANK GUARANTEE WORTH RS.18 MILLION $ ON BEHALF OF THE AE JINDAL STEEL. THE ABOVE TRANSACTION IS AN INDEPENDENT CLASS OF INTERNATIONAL TRANSACTION AND THE SAME IS INCLUDED IN DEFINITION OF INTERNATIONAL TRANSACTIO N AS PER AMENDMENT MADE U/S 92B OF THE ACT. HENCE, IT WAS PROPOSED TO CHARGE ARM S LENGTH PRICE OF PROVIDING THE SERVICES BY THE ASSESSEE IN THE SHAPE OF BANK GUARANTEE BY CONSIDERING THE RATES PREVALENT IN INDEPENDENT TRANSACTION. HENCE, IN ORDER TO DETER MINE ARM S LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTIONS THE CASE WAS REFERRED TO TRANSFER PRICING OFFICER AFTER OBTAINING THE PRIOR APPROVAL OF CIT, HISAR. 181 . THE TPO DETERMINED THE RATE TO BE CHARGED BY THE ASSESSEE FROM ITS ASSOCIATED ENTERP RISES FOR CORPORATE GUARANTEE AS UNDER: SR. NO. DETAILS OF BANK GUARANTEE VALUE OF BANK GUARANTEE AVERAGE COMMISSION RATE RATE TO BE CHARGED BY ASSESSEE CORPORATE GUARANTEE CHARGES ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 101 (RS. IN CR.) CHARGED BY BANKS (%) (%) (RS.) 1 USD MILLION DATED 15.12.2007 45.86 2.71 ( REFER ANNEX.1) 4.71 2,16,00,06 0 182 . ARM S LENGTH PRICE OF PROVIDING THE SERVICES IN THE FORM OF BANK GUARANTEE IS DETERMINED AS UNDER: ALP OF CORPORATE GUARANTEE CHARGES RS.2,16,00,060/ - CORPORATE GUARANTEE CHARGES RECEIVED NIL SHORTFALL BEING ADJUSTMENT U/S 92CA RS.2,16,00,060/ - 183 . THE ASSESSING OFFICER OBSERVED THAT T HE FACTS INVOLVED FOR THIS ISSUE ARE THAT THE APPELLANT DURING THE YEAR HAS GIVEN PERFORMANCE GUARANTEE TO ICICI BANK FOR AN AMOUNT OF USD 9 MILLION ON BEHALF OF JINDAL STEEL, BOLIVIA, PURSUANT TO FACILITY AGREEMENT DATED 15 TH DECEMBER 2007. 1 84 . THE APPELLANT FOR THE PURPOSE OF EXTENDING ITS BUSINESS OPERATIONS ACROSS THE GLOBE HAS ENTERED INTO AGREEMENT WITH THE GOVERNMENT OF BOLIVIA FOR SETTING UP STEEL, PELLET, SPO NGE IRON & POWER PLANT IN SOUTH AMERICA. PURSUANT TO TENDER ISSUED BY THE GOVERNMENT OF BOLIVIA FOR SUBSCRIPTION CONTRACT MINING PRODUCTION OF STEEL MUTUN . T HE APPELLANT DURING THE YEAR HAS GIVEN CORPORATE GUARANTEE TO ICICI BANK FOR AN AMOUNT OF USD 9 M ILLION ON BEHALF OF JINDAL STEEL, BOLIVIA, IN LIEU OF ITS COMMITMENT FOR PERFORMING THE TENDER TAKEN . IT IS THE CASE OF THE ASSESSEE THAT IT HAS EXTENDED THIS SUPPORT IN CAPACITY OF A SHAREHOLDER S ACTIVITY AS THE SUBSIDIARIES ARE STRATEGIC INVESTMENT. FUR THER, CORPORATE GUARANTEE HAS BEEN PROVIDED TO GUARD ITS INVESTMENT IN THE GROUP COMPANIES FOR VARIOUS BUSINESS AND ECONOMIC REASONS. IT IS TO SAFEGUARD ITS OWN INTEREST. THE APPELLANT WAS AWARDED THE CONTRACT BY THE GOVERNMENT OF BOLIVIA AND HENCE IT IS T HE APPELLANT S OWN ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 102 OBLIGATION WHICH IS ONLY BEING EXECUTED VIA JINDAL STEEL, BOLIVIA. 18 5 . THE APPELLANT DID NOT INCUR ANY COSTS/EXPENSES ON ACCOUNT OF ISSUE OF SUCH GUARANTEES AND ACCORDINGLY, TOOK THE VIEW THAT IT IS NOT AN INTERNATIONAL TRANSACTION IN TERMS OF SECTION 92B(1) OF THE INCOME TAX ACT. THE TPO IN HIS ORDER, HOWEVER, HAS REJECTED THIS HOLDING THAT THE APPELLANT AND THE AES ARE SEPARATE LEGAL ENTITY AND ACCORDINGLY, THE TRANSACTION OF ISSUE OF PERFORMANCE GUARANTEE IS REQUIRED TO BE DEMONSTRAT ED TO BE AT ARM S LENGTH PRICE. THE TPO IMPUTED NOTIONAL COMMISSION INCOME AT THE RATE OF 2.71% P.A. PLUS A MARK - UP OF 200 BASIS POINTS ON THE BASIS OF DATA OBTAINED FROM STATE BANK OF INDIA U/S 133(6) OF THE ACT, HOLDING THAT SUCH TRANSACTIONS ARE INDEPEN DENT TRANSACTIONS AND SHALL BE BENCHMARKED APPLYING CUP METHOD. 186 . SECTION 92(1) OF THE ACT PROVIDES FOR COMPUTATION OF INCOME ARISING FROM AN INTERNATIONAL TRANSACTION HAVING REGARD TO THE ARM S LENGTH PRICE. EXPLANATION TO SECTION 92(1) OF THE ACT F URTHER CLARIFIES THAT ALLOWANCE OF ANY EXPENSE OR INTEREST ARISING FROM AN INTERNATIONAL TRANSACTION SHALL ALSO BE DETERMINED HAVING REGARD TO THE ARM S LENGTH PRICE. 187 . FURTHER, SUB - SECTION (2) OF SECTION 92 OF THE ACT PROVIDES FOR APPLICATION OF AR M S LENGTH TEST IN RESPECT OF MUTUAL AGREEMENT OR ARRANGEMENT . THE PRE - CONDITION FOR INVOKING ARM S LENGTH TEST AS PROVIDED IN SUB - SECTION (2) OF SECTION 92 OF THE ACT THAT THE TWO OR MORE ASSOCIATED ENTERPRISES MUST ENTER INTO A MUTUAL AGREEMENT OR AR RANGEMENT FOR ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSES ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 103 INCURRED IN CONNECTION WITH BENEFIT, SERVICE PROVIDED BY ONE OR MORE OF SUCH ENTERPRISES ADMITTEDLY DOES NOT EXIST IN THE PRESENT CASE. 188 . IT IS AN UNDISPUTED FAC T THAT THE AFORESAID CORPORATE GUARANTEES WERE ISSUED BY THE APPELLANT WITHOUT INCURRING ANY COST. IN VIEW OF THE AFORESAID, IT WOULD BE APPRECIATED THAT SINCE THE CORPORATE GUARANTEE ISSUED BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISE DOES NOT HAVE ANY I MPACT ON ITS PROFITS, COST AND INCOME, IT CANNOT BE SUBJECTED TO BENCHMARKING UNDER TRANSFER PRICING PROVISION OF THE ACT AS IT FALLS WITHIN THE PURVIEW OF THE DEFINITION OF INTERNATIONAL TRANSACTION AS MENTIONED IN SECTION 92B(1) OF THE ACT. 189 . IN TH E FOLLOWING CASES TOO, IT HAS BEEN HELD THAT CORPORATE GUARANTEE IS OUTSIDE THE PURVIEW OF TRANSFER PRICING: 1. SIRO CLINPHARM PVT. LTD. VS. DCIT ITA. NO. 2618/MUM/2014 MUMBAI ITAT 1 56 OF THE TP CLC (RELEVANT PG. 11) 2. MARICO LTD. VS. ACIT ITA NO. 8713 & 8858/ MUM/2011 [2016] 70 TAXMANN.COM 214 (MUMBAI - TRIB.) MUMBAI ITAT 57 76 OF THE TP CLC (RELEVANT PG. 66 - 70) 3. VIDEOCON INDUSTRIES LTD. VS. ACIT I.T.A. NO.1728 - 1729/MUM/2014 MUMBAI ITAT 77 136 OF THE TP CLC 4. BHARTI AIRTEL LIMITED VS. ADDL. CIT I.T. A. NO.: 5816/DEL/2012 NEW DELHI ITAT 137 194 OF THE TP CLC (RELEVANT PG. 153 - 162) 5. REDINGTON (INDIA) LIMITED VS. JCIT ITA NO.619/MDS/2014 CHENNAI ITAT 195 266 OF THE TP CLC 6. FOUR SOFT LTD. VS. DCIT ITA NO. 1903/HYD/11 HYDERABAD ITAT 267 288 OF THE TP CLC 7. RELIANCE INDUSTRIES LTD. VS. ADDL. CIT ITA NO.885/MUM/2009 MUMBAI ITAT 289 370 OF THE TP CLC 8. MICRO INK LTD VS. ACIT ITA 2873/AHD/10 AHMADABA D ITAT 371 430 OF THE TP CLC (RELEVANT PG. 387 - 419) ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 104 9. MANUGRAPH INDIA LTD. VS. DCIT I.T.A. NO.2631/MU M/2015 MUMBAI ITAT 431 486 OF THE TP CLC (RELEVANT PG. 444) 190 . IN VIEW OF THE AFORESAID, IT IS SUBMITTED THAT THE TRANSACTION OF ISSUE OF CORPORATE GUARANTEE IS NOT REQUIRED TO BE BENCHMARKED UNDER SECTION 92(1) OF THE INCOME TAX ACT AND HENCE, NOTIO NAL INCOME PROPOSED TO BE IMPUTED IS LIABLE TO BE DROPPED. 191 . FURTHER, GUARANTEE PROVIDED BY THE APPELLANT WAS PART OF THE PROCEDURAL COMPLIANCE FOR AVAILING THE BANKING FACILITIES I.E. LOAN BY THE SUBSIDIARIES AND WAS GIVEN BY APPELLANT FOR ITS OWN COM MERCIAL EXPEDIENCY AND FOR THE OVERALL BENEFIT OF THE APPELLANT AND THE GROUP. THE CORPORATE GUARANTEE WAS PROVIDED BY THE APPELLANT AS IT IS HAVING SHAREHOLDING INTEREST IN THE SUBSIDIARIES. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: MARICO LTD. VS. ACIT [2016] 70 TAXMANN.COM 214 (MUMBAI TRIBUNAL) MICRO INK LTD VS. ACIT (ITA 2873/AHD/10) MANUGRAPH INDIA LTD. VS. DCIT (I.T.A. NO.2631/MUM/2015) TEGA INDUSTRIES LTD VS. DCIT 192 . THE RELIANCE WAS ALSO PLACED ON THE FOLLOWING CASE LAWS: M/S KNORR BRE MSE INDIA PVT. LTD. [ITA NO. 182/2013] CIT VS. CUSHMAN & WAKEFIELD (INDIA) PVT. LTD., [2014] 46 TAXMANN.COM 317 (DELHI) NEW DELHI TELEVISION LTD. VS ACIT (ITA NO. 2851/DEL/2013) 193 . IT WAS SUBMITTED THAT I N RESPECT OF TRANSACTION WHERE NO INCOME HAS B EEN ACTUALLY EARNED, NO INCOME CAN, BE IMPUTED UNDER ANY PROVISIONS OF THE ACT, SINCE THE LAW DOES NOT ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 105 EMPOWER THE REVENUE AUTHORITIES TO BRING TO TAX ANY NOTIONAL / HYPOTHETICAL INCOME. 19 4 . IT IS FURTHER SUBMITTED THAT UNDER THE SCHEME OF THE ACT, SEC TION 92 AND THE RELATED PROVISIONS UNDER CHAPTER - X OF THE ACT CONTAIN MACHINERY PROVISIONS FOR COMPUTATION OF INCOME ARISING FROM INTERNATIONAL TRANSACTION. THE TRANSFER PRICING PROVISIONS, BEING IN THE NATURE OF MACHINERY PROVISIONS ARE NOT INTENDED TO OVERRIDE THE CHARGING PROVISIONS OF SECTION 4 OF THE ACT, AND THUS CANNOT BE INVOKED TO BRING TO TAX ANY FICTIONAL / ASSUMED OR HYPOTHETICAL INCOME WHERE NO INCOME OTHERWISE RESULTS. TO PUT IT DIFFERENTLY, SECTION 92 OF THE ACT IS NOT A CHARGING PROVISION AND CANNOT ENLARGE THE SCOPE AND AMBIT OF THE ACT. FOR THE APPLICATION OF SECTION 92 OF THE ACT, THERE HAS TO BE, FIRST, INCOME EMBEDDED IN THE INTERNATIONAL TRANSACTION. 19 5 . FURTHERMORE, IT MUST BE APPRECIATED THAT TRANSFER PRICING DETERMINATION IS NOT PRIMARILY UNDERTAKEN TO RE - WRITE THE CHARACTER AND NATURE OF THE TRANSACTION (CIRCULAR NO. 14 OF 2001). THE OBJECT IS NOT TO TAX ANY NOTIONAL INCOME. THE LAW OF TRANSFER PRICING DOES NOT ARTIFICIALLY BROADEN, EXPAND OR DEVIATE FROM THE CONCEPT OF 'REAL IN COME'. THE AIM IS NOT TO UNNECESSARILY BROADEN THE TAX BASE AND TAX NOTIONAL INCOME . 19 6 . IT WAS ARGUED THAT IT WAS THE PRIMARY OBLIGATION OF THE APPELLANT WHICH WAS ONLY EXECUTED THROUGH ITS SUBSIDIARIES. THE OBJECTIVE WAS ALSO TO HAVE SYNERGY IN THE INT ERNATIONAL OPERATIONS, HAVING GLOBAL FOOTPRINT, MAKING PRESENCE FELT WORLDWIDE. IT WAS DRIVEN BY COMMERCIAL CONSIDERATION WITH ANTICIPATION OF SIGNIFICANT BENEFIT IN THE FORM OF PROFIT/ INCOME IN THE LATER YEARS. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 106 197 . IT SUBMITTED THAT PROVISION OF GUARAN TEE IS TO BE REGARDED AS A SHAREHOLDER ACTIVITY WHICH IS ENJOYED BY THE AES JUST BEING A PART OF THE GROUP. HENCE, THE QUESTION OF DETERMINING AN ARM S LENGTH PRICE DOES NOT ARISE. AS A BUSINESS PRACTICE, GUARANTEES TO SUBSIDIARIES FORMED ESPECIALLY FOR PU RPOSES OF ACQUISITION OR HOLDING INVESTMENTS ARE TYPICALLY PROVIDED BY THE PARENT COMPANY AS PART OF THE SHAREHOLDER ACTIVITY. 198 . THE APPELLANT HAS PROVIDED GUARANTEES TO ITS AES ONLY TO PROVIDE ASSURANCE AND COMFORT TO THE THIRD PARTIES, IT IS IN THE O RDINARY COURSE OF BUSINESS. SHAREHOLDERS SOMETIMES HAVE TO MAKE COMMITMENTS TO REGULATORY AUTHORITIES WITH RESPECT TO THE HEALTH OF AN AFFILIATE IN ORDER TO GET PERMISSION TO ACQUIRE AN AFFILIATE. IN THESE CASES, IT SEEMS REASONABLE TO CONCLUDE THAT THE GU ARANTEE CONFERS NO REAL BENEFIT ON THE AFFILIATE; RATHER, THE SHAREHOLDER IS THE TRUE BENEFICIARY BECAUSE THE GUARANTEE ENABLES IT TO ACQUIRE ITS INVESTMENT. IT IS INCIDENTAL TO THE PARENT S PARTICIPATION AS A SHAREHOLDER IN THE SUBSIDIARY. IN THE PRESENT CASE, PURSUANT TO THE OBLIGATION OF THE APPELLANT, AS THE AWARDEE OF THE TENDER, TO PERFORM IN ACCORDANCE WITH THE TENDER, THE GUARANTEE WAS GIVEN AND HENCE THE AE CANNOT BE CHARGED WITH COMMISSION FOR AN OBLIGATION OF THE APPELLANT. 199 . THE CHENNAI BEN CH OF THE TRIBUNAL IN THE CASE OF MASCON GLOBAL LTD. VS. ACIT IN ITA NO. 22 05/MDS/2010 HAS APPRECIATED THE CONCEPT OF SHAREHOLDER SERVICES AND HELD THAT NO BENCHMARKING IS REQUIRED WHERE TRANSACTION AROSE ON ACCOUNT OF COMMERCIAL EXPEDIENCY. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 107 200 . THE HON BLE AHMADABAD BENCH OF THE TRIBUNAL IN THE CASE OF MICRO INK LTD VS ADDL . CIT (ITA NO 2873/AHD/10) WHILE RELYING ON THE OCED GUIDELINES HELD THAT ACTIVITY WHICH IS SOLELY UNDERTAKEN BECAUSE OF THE OWNERSHIP INTEREST IN THE SUBSIDIARY WOULD NOT JUSTIFY A C HARGE FROM THE SUBSIDIARY. 201 . RECENTLY, THE KOLKATA BENCH OF TRIBUNAL IN THE CASE OF TEGA INDUSTRIES LIMITED VS. DCIT IN ITA NO. 1912/KOL/2012, HELD THAT CORPORATE GUARANTEE FURNISHED BY APPELLANT TO BANK FOR EXTENDING LOAN TO SUBSIDIARY COMPANY IN THE BAHAMAS (SPV), FOR THE PURPOSE OF ACQUIRING 2 SOUTH AFRICAN ENTITIES IS A SHAREHOLDER FUNCTION NOT WARRANTING ANY COMMISSION ON ISSUE OF SUCH CORPORATE GUARANTEE. 2 02 . IT WAS SUBMITTED THAT , COMPARING THIS GUARANTEE WITH BANK GUARANTEE IS ILL - FOUND AS W HEN COMMERCIAL BANKS ISSUE BANK GUARANTEES THESE ARE TREATED AS THE BLOOD OF COMMERCE BEING EASILY E NCASHABLE IN THE EVENT OF DEFAULT. THE CONSIDERATION FOR WHICH BANKS ISSUE FINANCIAL GUARANTEES ON BEHALF OF ITS CLIENTS AND THE CONSIDERATION FOR WHICH THE CORPORATES ISSUE GUARANTEES FOR THEIR SUBSIDIARIES, IS DIFFERENT BECAUSE WHILE BANKS SEEK TO BE COMPENSATED, EVEN FOR THE SECURED GUARANTEES, FOR THE FINANCIAL RISK OF LIQUIDATING THE UNDERLYING SECURITIES AND MEETING THE FINANCIAL COMMITMENTS UNDER THE G UARANTEE, THE GUARANTEES ISSUED BY THE CORPORATES FOR THEIR SUBSIDIARIES ARE RARELY, IF AT ALL, BACKED BY ANY UNDERLYING SECURITY AND THE RISK IS ENTIRELY ENTREPRENEURIAL. THE MOTIVATION OR TRIGGER FOR ISSUANCE OF SUCH GUARANTEES IS NOT THE KIND FOR CONSID ERATION FOR WHICH A BANKER GIVES THE GUARANTEE AS MOTIVATIONAL ISSUE IS ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 108 MAXIMIZATION OF GAINS FOR THE RECIPIENT ENTITY AND THUS THE MNE GROUP AS A WHOLE. 203 . IT WAS SUBMITTED THAT AMENDMENT TO SECTION 92B IS PROSPECTIVE IN NATURE AND PLACED RELIANCE O N THE FOLLOWING DE CISIONS : - CIT VS. VATIKA TOWNSHIP (P.) LTD. (367 ITR 466(SC)) DIT V. NEW SKIES SATELLITE BV [2016] 382 ITR 114/68 RUSABH D IAMONDS VS. ACIT [2016] 48 ITR(T) 707 - MUMBAI KGK ENTERPRISES VS. ACIT ([2017] 88 TAXMANN.COM 264 (JAIPUR - TRIB.) 204 . WITHOUT PREJUDICE TO OUR ARGUMENTS, IT WAS SUBMITTED THAT THE SAID TRANSACTION OF CORPORATE GUARANTEE CANNOT BE BENCHMARKED SEPARATELY AND THE CORPORATE GUARANTEE PROVIDED BY THE APPELLANT IS DIFFERENT FROM THE BANK GUARANTEE PROVIDED BY OTHER BANKS, IT IS SUBMITTED THAT THE APPELLANT HAS PAID BANK GUARANTEE FEES AT A MUCH LOWER RATE OF 0.10% - 0.125% P.A. TO YES BANK LIMITED ON ISSUE OF F OREIGN GUARANTEE. 205 . THE TPO IN THE IMPUGNED ORDER HAS ALLEGEDLY ADDED AN AD - HOC MARKUP OF 200 BPS ON THE AVERAGE RATE OF COMMISSION OF 2.71% P.A. CHARGED BY VARIOUS BANKS AS PER INFORMATION SOUGHT UNDER SECTION 133(6). 206 . SINCE , THE TPO HAS CONSIDE RED THE HIGHEST RATE OF COMMISSION THAT WOULD HAVE BEEN CHARGED BY THE BANK FROM A COMPANY HAVING BBB OR UNRATED RATING, THE CREDIT RISK HAS ALREADY BEEN FACTORED IN SUCH RATES. FURTHER, SINCE THE TPO HAS CONSIDERED THE HIGHEST RATE OF COMMISSION CHARGED B Y THE BANKS WITHOUT TAKING INTO ACCOUNT THE CREDIT WORTHINESS AND ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 109 MARKET REPUTATION OF THE APPELLANT, A MARKUP ON ACCOUNT OF RISK ADJUSTMENT IS UNWARRANTED AND LIABLE TO BE REDUCED FROM THE ARMS LENGTH RATE OF INTEREST SO DETERMINED. 20 7 . FURTHER , IT WAS SUBMITTED THAT RATE OF 0.27% SHOULD BE APPLIED. FOR THIS RELIANCE WAS PLACED ON THE DECISION OF THE TRIBUNAL IN CASE OF LANCO INFRATECH LIMITED [TS - 328 - ITAT - 2017(HYD) - TP]. IT WAS SUBMITTED THAT THE TRIBUNAL FOLLOWING ASIAN PAINTS DECISION , ADOPT ED 0.27% AS ARM S LENGTH COMMISSION RATE FOR THE CORPORATE GUARANTEE PROVIDED. 208 . THE TRIBUNAL CONSIDERING ASIAN PAINTS LTD [TS - 868 - HC - 2016(BOM) - TP] CASE, DIRECTED AO/TPO TO CONSIDER ONLY 0.27% AS THE GUARANTEE COMMISSION. FURTHER, RELIANCE WAS ALSO PLACED ON THE CASE OF ASTER PVT . LTD . [TS - 446 - ITAT - 2017(HYD) - TP], WHEREIN THE TRIBUNAL ADOPTED 0.25% AS ALP OF COMMISSION IN RESPECT OF CORPORATE GUARANTEE. 209 . IT WAS ARGUED THAT THIS TRANSACTION WAS TREATED AS AN INTERNATIONAL TRANSACTION FOR THE REASON THAT THE FI NANCE ACT, 2012, HAS INSERTED AN EXPLANATION . IT WAS ARGUED THAT THE AMENDMENT WILL BE APPLICABLE PROSPECTIVELY FROM AY 2013 - 14 AND WILL NOT BE APPLICABLE TO THE CURRENT ASSESSMENT YEAR . THE SAME VIEW WAS SUPPORTED BY THE DECISION OF COORDINATE BENCH OF TH E TRIBUNAL IN THE CASE OF DR. REDDY LABORATORIES AND OTHER BENCHES OF TRIBUNAL. THE FINDINGS GIVEN BY THE COORDINATE BENCH IN THE CASE OF DR. REDDY LABORATORIES LTD. V. ADDL. CIT [2017] 81 TAXMANN. COM 398 (HYD. - TRIB.) WAS AS UNDER : - 29. IT WAS ARGUED THAT THE ITAT, DELHI BENCH IN THE CASE OF BHARATI AIRTEL LTD . ( SUPRA ) HAS CONSIDERED AN IDENTICAL ISSUE WHICH WAS RE - AFFIRMED IN THE CASE ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 110 OF SIRO CLINPHARMA PVT. LTD ., V. D CIT (ORDER DATED 31ST MARCH, 2016). THE BENCH OBSERVED THAT TRANSFER PRICING IS A LEGISLATION SEEKING THE TAX - PAYERS TO ORGANIZE THEIR AFFAIRS IN A MANNER COMPLIANT WITH THE NORMS SET - OUT. IN SHORT, IT IS AN ANTI ABUSE LEGISLATION WHICH TELLS YOU AS TO WH AT IS THE ACCEPTABLE BEHAVIOUR BUT IT DOES NOT TRIGGER LEVY OF TAX IN A RETROSPECTIVE MANNER BECAUSE NO PARTY CAN BE ASKED TO DO AN IMPOSSIBILITY. ANALYZING FURTHER THE BENCH OBSERVED THAT THOUGH EXPLANATION TO SECTION 92B IS STATED TO BE C1ARIFICATORY, IT HAS TO BE NECESSARILY TREATED AS EFFECTIVE FROM THE A.Y. 2013 - 2014 AND IN THIS REGARD, RELIED UPON THE OBSERVATIONS OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF SKIES SATELLITE. WE HAVE ALSO ANALYZED THE CASE LAW RELIED UPON BY THE LD. D.R. AND ALSO TH E PROVISIONS OF THE ACT. IN OUR CONSIDERED OPINION, THE VIEW TAKEN BY THE DELHI BENCH OF ITAT IN THE CASE OF BHARATI AIRTEL LTD . ( SUPRA ) IS ONE OF THE POSSIBLE VIEWS ON THE MATTER AND SO LONG AS THERE IS NO BINDING DECISION OF ANY OTHER HIGHER FORUM TAKING A CONTRARY VIEW, THE ONE WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE ADOPTED EVEN THOUGH OTHER BENCHES HAVE TAKEN A DIFFERENT VIEW. WE, THEREFORE, HOLD THAT THE EXPLANATION TO SECTION 92B CANNOT BE APPLIED RETROSPECTIVELY AND FOR THE YEARS UNDER CONSIDE RATION THE ASSESSEE HAVING NOT INCURRED ANY COSTS IN PROVIDING CORPORATE GUARANTEE IT WOULD NOT CONSTITUTE 'INTERNATIONAL TRANSACTION' WITHIN THE MEANING OF SECTION 92B OF THE ACT AND CONSEQUENTLY, ALP ADJUSTMENT IS NOT WARRANTED ON THIS ASPECT.' 210 . S IM ILAR FINDING WAS GIVEN IN THE CASE OF RUSABH DIAMONDS VS. ACIT ([2016] 68 TAXMANN.COM 141 (MUMBAI - TRIB.)) WHEREIN IT WAS HELD AS FOLLOWS: - 38. WELL, IF THE 2012 AMENDMENT DOES NOT ADD ANYTHING OR EXPAND THE SCOPE OF INTERNATIONAL TRANSACTION DEFINED UN DER SECTION 92B, ASSUMING THAT IT INDEED DOES NOT - AS LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDS, THIS PROVISION HAS ALREADY BEEN JUDICIALLY INTERPRETED, AND THE MATTER RESTS THERE UNLESS IT IS REVERSED BY A HIGHER ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 111 JUDICIAL FORUM. HOWEVER, IF THE 2012 AM ENDMENT DOES INCREASE THE SCOPE OF INTERNATIONAL TRANSACTION UNDER SECTION 92B, AS IS OUR CONSIDERED VIEW, THERE IS NO WAY IT COULD BE IMPLEMENTED FOR THE PERIOD PRIOR TO THIS LAW COMING ON THE STATUTE I.E. 28TH MAY 2012. THE LAW IS WELL SETTLED. IT DOES N OT EXPECT ANYONE TO PERFORM AN IMPOSSIBILITY. REITERATING THIS SETTLED LEGAL POSITION, HON'BLE SUPREME COURT HAS, IN THE CASE OF KRISHNASWAMY S. PD. V. UNION OF INDIA [200 6] 281 ITR 305/151 TAXMAN 286 , OBSERVED AS FOLLOWS: 'THE OTHER RELEVANT MAXIM IS, LEX NON COGIT AD IMPOSSIBILIA THE LAW DOES NOT COMPEL A MAN TO DO WHAT HE CANNOT POSSIBLY PERFORM. THE LAW ITSELF AND ITS ADMINISTRATION IS UNDERSTOOD TO DISCLAIM AS IT DOE S IN ITS GENERAL APHORISMS, ALL INTENTION OF COMPELLING IMPOSSIBILITIES, AND THE ADMINISTRATION OF LAW MUST ADOPT THAT GENERAL EXCEPTION IN THE CONSIDERATION OF PARTICULAR CASES. [ SEE : U.P.S.R.T.C. V. IMTIAZ HUSSAIN 2006 (1) SCC 380, SHAIKH SALIM HAJI ABD UL KHAYUMSAB V. KUMAR & ORS. 2006 (1) SCC 46, MOHAMMOD GAZI V. STATE OF M.P. & ORS. 2000 (4) SCC 342 AND GURSHARAN SINGH V. NEW DELHI MUNICIPAL COMMITTEE 1996 (2) SCC 459].' 39. IT IS FOR THIS REASON THAT THE EXPLANATION TO SECTION 92B, THOUGH STATED TO B E CLARIFICATORY AND STATED TO BE EFFECTIVE FROM 1ST APRIL 2002, HAS TO BE NECESSARILY TREATED AS EFFECTIVE FROM AT BEST THE ASSESSMENT YEAR 2013 - 14. IN ADDITION TO THIS REASON, IN THE LIGHT OF HON'BLE DELHI HIGH COURT'S GUIDANCE IN THE CASE OF NEW SKIES SA TELLITE BV ( SUPRA ) ALSO, THE AMENDMENT IN THE DEFINITION OF INTERNATIONAL TRANSACTION UNDER SECTION 92B, TO THE EXTENT IT PERTAINS TO THE ISSUANCE OF CORPORATE GUARANTEE BEING OUTSIDE THE SCOPE OF 'INTERNATIONAL TRANSACTION', CANNOT BE SAID TO BE RETROSPEC TIVE IN EFFECT. THE FACT THAT IT IS STATED TO BE RETROSPECTIVE, IN THE LIGHT OF THE AFORESAID GUIDANCE OF HON'BLE DELHI HIGH COURT, WOULD NOT ALTER THE SITUATION, AND IT CAN ONLY BE TREATED AS PROSPECTIVE IN EFFECT I.E. WITH EFFECT FROM 1ST APRIL 2012 ONWA RDS. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 112 211 . A SIMILAR VIEW HAS BEEN TAKEN BY JAIPUR ITAT IN THE CASE OF KGK ENTERPRISES VS. ACIT ([2017] 88 T AXMANN.COM 264 (JAIPUR - TRIB.) WHEREIN THE COURT HELD THAT - 50. WE FIND THAT THE COORDINATE BENCH IN RUSHABH DIAMONDS ( SUPRA ) HAS EXAMINED AT LEN GTH THE EFFECT OF THE AMENDMENT BROUGHT IN BY THE FINANCE ACT 2012, CONSIDERED THE DECISION OF THE HON'BLE DELHI HIGH COURT IN CASE OF NEW SKIES SATELLITE BV AND HAS HELD THAT EXPLANATION TO SECTION 92B WHICH INCREASES THE SCOPE OF INTERNATIONAL TRANSACTIO N, HAS TO BE NECESSARILY TREATED AS EFFECTIVE PROSPECTIVELY FROM THE ASSESSMENT YEAR 201 3 - 14 THOUGH STATED TO BE CLARIF CATORY AND STATED TO BE EFFECTIVE FROM 1ST APRIL 2002. WE HAVE ALSO GONE THROUGH OTHER COORDINATE BENCH DECISIONS IN CASE OF GITANJALI EX PORTS CORPORATION ( SUPRA ) AND SIRO CLINPHARM PRIVATE LIMITED ( SUPRA ) WHERE SIMILAR VIEW HAS BEEN TAKEN. THE DECISION OF HON'BLE BOMBAY HIGH COURT IN CASE OF PATNI COMPUTER SYSTEMS LTD. HAS BEEN RIGHTLY ANALYSED BY THE COORDINATE BENCH IN RUSHABH DIAMONDS ( SUPRA ) AND IT WAS HELD THAT 'RATHER THAN ANSWERING THIS QUESTION ON MERITS, AND WITH THE CONSENT OF BOTH THE PARTIES, THEIR LORDSHIPS SENT THE MATTER BACK FOR FRESH CONSIDERATION OF THE TRIBUNAL' AND TO THIS EXTENT, THE DECISION OF THE COORDINATE BENCH IN CASE OF AMERIPRISE INDIA PVT LTD WHICH HAS EQUALLY RELIED ON THE SAID DECISION OF THE BOMBAY HIGH COURT IS DISTINGUISHABLE. IN LIGHT OF THE SAME, FOLLOWING THE DECISION OF THE COORDINATE BENCH IN RUSHABH DIAMONDS AND IN ABSENCE OF ANY CONTRARY HIGHER AUTHO RITY ON THE SUBJECT, WE AGREE WITH THE CONTENTION RAISED BY THE LD. AR THAT SUCH AMENDMENT BY WAY OF AN EXPLANATION TO SECTION 92B IS AN AMENDMENT TO A SUBSTANTIVE LAW AS IT HAS RESULTED IN ENHANCEMENT OF THE SCOPE OF INTERNATIONAL TRANSACTIONS AS ENVISAGE D U/S 92B OF THE ACT. ACCORDINGLY, THE SUBJECT TRANSACTION IF AT ALL, IT HAS TO BE CONSIDERED AS AN INTERNATIONAL TRANSACTION IN LIGHT OF DECISION IN CASE OF KUSUM HEALTHCARE ( SUPRA ), WHICH IT IS NOT, IN THE FACTS OF THE PRESENT CASE, AS WE HAVE HELD ABOVE , IT HAS TO BE CONSIDERED AS AN INTERNATIONAL TRANSACTION FROM AY 2013 - 14 ONWARDS AND FOR THE YEARS UNDER CONSIDERATION BEING AY 2007 - ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 113 08, 2008 - 09 AND 2009 - 10, THE SAME WILL THUS NOT QUALIFY AS AN INTERNATIONAL TRANSACTION. 212 . ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE AUTHORITIES BELOW. 213 . AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF DR. REDDY LABORATORIES LTD. V. ADDL. CIT [2017] 81 TAXMANN. COM 398 HAS HELD AS UNDER : - 29. IT WAS ARGUED THAT THE ITAT, DELHI BENCH IN THE CASE OF BHARATI AIRTEL LTD . ( SUPRA ) HAS CONSIDERED AN IDENTICAL ISSUE WHICH WAS RE - AFFIRMED IN THE CASE OF SIRO CLINPHARMA PVT. LTD ., V. DCIT (ORDER DATED 31ST MARCH, 2016). THE BENCH OBSERVED THAT TRANSFER PRICING IS A LEGISLATION SEEKING THE TAX - PAYERS TO ORGANIZE THEI R AFFAIRS IN A MANNER COMPLIANT WITH THE NORMS SET - OUT. IN SHORT, IT IS AN ANTI ABUSE LEGISLATION WHICH TELLS YOU AS TO WHAT IS THE ACCEPTABLE BEHAVIOUR BUT IT DOES NOT TRIGGER LEVY OF TAX IN A RETROSPECTIVE MANNER BECAUSE NO PARTY CAN BE ASKED TO DO AN I MPOSSIBILITY. ANALYZING FURTHER THE BENCH OBSERVED THAT THOUGH EXPLANATION TO SECTION 92B IS STATED TO BE C1ARIFICATORY, IT HAS TO BE NECESSARILY TREATED AS EFFECTIVE FROM THE A.Y. 2013 - 2014 AND IN THIS REGARD, RELIED UPON THE OBSERVATIONS OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF SKIES SATELLITE. WE HAVE ALSO ANALYZED THE CASE LAW RELIED UPON BY THE LD. D.R. AND ALSO THE PROVISIONS OF THE ACT. IN OUR CONSIDERED OPINION, THE VIEW TAKEN BY THE DELHI BENCH OF ITAT IN THE CASE OF BHARATI AIRTEL LTD . ( SUP RA ) IS ONE OF THE POSSIBLE VIEWS ON THE MATTER AND SO LONG AS THERE IS NO BINDING DECISION OF ANY OTHER HIGHER FORUM TAKING A CONTRARY VIEW, THE ONE WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE ADOPTED EVEN THOUGH OTHER BENCHES HAVE TAKEN A DIFFERENT VIEW . WE, THEREFORE, HOLD THAT THE EXPLANATION TO SECTION 92B CANNOT BE APPLIED RETROSPECTIVELY AND FOR THE YEARS UNDER CONSIDERATION THE ASSESSEE HAVING NOT ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 114 INCURRED ANY COSTS IN PROVIDING CORPORATE GUARANTEE IT WOULD NOT CONSTITUTE 'INTERNATIONAL TRANSACTION ' WITHIN THE MEANING OF SECTION 92B OF THE ACT AND CONSEQUENTLY, ALP ADJUSTMENT IS NOT WARRANTED ON THIS ASPECT.' 214 . FURTHER , THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF RUSABH DIAMONDS VS. ACIT ([2016] 68 TAXMANN.COM 141 HAS HELD AS FOLLOWS: - 38. WELL, IF THE 2012 AMENDMENT DOES NOT ADD ANYTHING OR EXPAND THE SCOPE OF INTERNATIONAL TRANSACTION DEFINED UNDER SECTION 92B, ASSUMING THAT IT INDEED DOES NOT - AS LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDS, THIS PROVISION HAS ALREADY BEEN JUDICIALLY INT ERPRETED, AND THE MATTER RESTS THERE UNLESS IT IS REVERSED BY A HIGHER JUDICIAL FORUM. HOWEVER, IF THE 2012 AMENDMENT DOES INCREASE THE SCOPE OF INTERNATIONAL TRANSACTION UNDER SECTION 92B, AS IS OUR CONSIDERED VIEW, THERE IS NO WAY IT COULD BE IMPLEMENTED FOR THE PERIOD PRIOR TO THIS LAW COMING ON THE STATUTE I.E. 28TH MAY 2012. THE LAW IS WELL SETTLED. IT DOES NOT EXPECT ANYONE TO PERFORM AN IMPOSSIBILITY. REITERATING THIS SETTLED LEGAL POSITION, HON'BLE SUPREME COURT HAS, IN THE CASE OF KRISHNASWAMY S. P D. V. UNION OF INDIA [2006] 281 ITR 305/151 TAXMAN 286 , OBSERVED AS FOLLOWS: 'THE OTHER RELEVANT MAXIM IS, LEX NON COGIT AD IMPOSSIBILIA THE LAW DOES NOT COMPEL A MAN TO DO WHAT HE CANNOT POSSIBLY PERFORM. THE LAW ITSELF AND ITS ADMINISTRATION IS UNDERSTOOD TO DISCLAIM AS IT DOES IN ITS GENERAL APHORISMS, ALL INTENTION OF COMPELLING IMPOSSIBILITIES, AND THE ADMINISTRATION OF LAW MUST ADOPT THAT GENERAL EXCEPTION IN THE CO NSIDERATION OF PARTICULAR CASES. [ SEE : U.P.S.R.T.C. V. IMTIAZ HUSSAIN 2006 (1) SCC 380, SHAIKH SALIM HAJI ABDUL KHAYUMSAB V. KUMAR & ORS. 2006 (1) SCC 46, MOHAMMOD GAZI V. STATE OF M.P. & ORS. 2000 (4) SCC 342 AND GURSHARAN SINGH V. NEW DELHI MUNICIPAL CO MMITTEE 1996 (2) SCC 459].' 39. IT IS FOR THIS REASON THAT THE EXPLANATION TO SECTION 92B, THOUGH STATED TO BE CLARIFICATORY AND ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 115 STATED TO BE EFFECTIVE FROM 1ST APRIL 2002, HAS TO BE NECESSARILY TREATED AS EFFECTIVE FROM AT BEST THE ASSESSMENT YEAR 2013 - 1 4. IN ADDITION TO THIS REASON, IN THE LIGHT OF HON'BLE DELHI HIGH COURT'S GUIDANCE IN THE CASE OF NEW SKIES SATELLITE BV ( SUPRA ) ALSO, THE AMENDMENT IN THE DEFINITION OF INTERNATIONAL TRANSACTION UNDER SECTION 92B, TO THE EXTENT IT PERTAINS TO THE ISSUANCE OF CORPORATE GUARANTEE BEING OUTSIDE THE SCOPE OF 'INTERNATIONAL TRANSACTION', CANNOT BE SAID TO BE RETROSPECTIVE IN EFFECT. THE FACT THAT IT IS STATED TO BE RETROSPECTIVE, IN THE LIGHT OF THE AFORESAID GUIDANCE OF HON'BLE DELHI HIGH COURT, WOULD NOT ALTE R THE SITUATION, AND IT CAN ONLY BE TREATED AS PROSPECTIVE IN EFFECT I.E. WITH EFFECT FROM 1ST APRIL 2012 ONWARDS. 21 5 . A SIMILAR VIEW HAS BEEN TAKEN BY JAIPUR ITAT IN THE CASE OF KGK ENTERPRISES VS. ACIT ([2017] 88 T AXMANN.COM 264 (JAIPUR - TRIB.) WHERE IN THE COURT HELD THAT - 50. WE FIND THAT THE COORDINATE BENCH IN RUSHABH DIAMONDS ( SUPRA ) HAS EXAMINED AT LENGTH THE EFFECT OF THE AMENDMENT BROUGHT IN BY THE FINANCE ACT 2012, CONSIDERED THE DECISION OF THE HON'BLE DELHI HIGH COURT IN CASE OF NEW SKIES S ATELLITE BV AND HAS HELD THAT EXPLANATION TO SECTION 92B WHICH INCREASES THE SCOPE OF INTERNATIONAL TRANSACTION, HAS TO BE NECESSARILY TREATED AS EFFECTIVE PROSPECTIVELY FROM THE ASSESSMENT YEAR 201 3 - 14 THOUGH STATED TO BE CLARIF CATORY AND STATED TO BE EFF ECTIVE FROM 1ST APRIL 2002. WE HAVE ALSO GONE THROUGH OTHER COORDINATE BENCH DECISIONS IN CASE OF GITANJALI EXPORTS CORPORATION ( SUPRA ) AND SIRO CLINPHARM PRIVATE LIMITED ( SUPRA ) WHERE SIMILAR VIEW HAS BEEN TAKEN. THE DECISION OF HON'BLE BOMBAY HIGH COURT IN CASE OF PATNI COMPUTER SYSTEMS LTD. HAS BEEN RIGHTLY ANALYSED BY THE COORDINATE BENCH IN RUSHABH DIAMONDS ( SUPRA ) AND IT WAS HELD THAT 'RATHER THAN ANSWERING THIS QUESTION ON MERITS, AND WITH THE CONSENT OF BOTH THE PARTIES, THEIR LORDSHIPS SENT THE MAT TER BACK FOR FRESH CONSIDERATION OF THE TRIBUNAL' AND TO THIS EXTENT, THE DECISION OF THE COORDINATE BENCH IN CASE OF AMERIPRISE INDIA PVT LTD WHICH HAS EQUALLY RELIED ON THE SAID DECISION OF THE BOMBAY ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 116 HIGH COURT IS DISTINGUISHABLE. IN LIGHT OF THE SAME, FOLLOWING THE DECISION OF THE COORDINATE BENCH IN RUSHABH DIAMONDS AND IN ABSENCE OF ANY CONTRARY HIGHER AUTHORITY ON THE SUBJECT, WE AGREE WITH THE CONTENTION RAISED BY THE LD. AR THAT SUCH AMENDMENT BY WAY OF AN EXPLANATION TO SECTION 92B IS AN AMENDMENT TO A SUBSTANTIVE LAW AS IT HAS RESULTED IN ENHANCEMENT OF THE SCOPE OF INTERNATIONAL TRANSACTIONS AS ENVISAGED U/S 92B OF THE ACT. ACCORDINGLY, THE SUBJECT TRANSACTION IF AT ALL, IT HAS TO BE CONSIDERED AS AN INTERNATIONAL TRANSACTION IN LIGHT OF DECISION IN CASE OF KUSUM HEALTHCARE ( SUPRA ), WHICH IT IS NOT, IN THE FACTS OF THE PRESENT CASE, AS WE HAVE HELD ABOVE, IT HAS TO BE CONSIDERED AS AN INTERNATIONAL TRANSACTION FROM AY 2013 - 14 ONWARDS AND FOR THE YEARS UNDER CONSIDERATION BEING AY 2007 - 08, 2008 - 09 AND 2009 - 10, THE SAME WILL THUS NOT QUALIFY AS AN INTERNATIONAL TRANSACTION. 216 . STILL , FURTHER , THE JAIPUR BENCH OF THE TRIBUNAL IN THE CASE OF KGK ENTERPRISES VS. ACIT ([2017] 88 T AXMANN.COM 264 HAS HELD AS UNDER : - 50. WE FIND THAT THE COORDINATE BEN CH IN RUSHABH DIAMONDS ( SUPRA ) HAS EXAMINED AT LENGTH THE EFFECT OF THE AMENDMENT BROUGHT IN BY THE FINANCE ACT 2012, CONSIDERED THE DECISION OF THE HON'BLE DELHI HIGH COURT IN CASE OF NEW SKIES SATELLITE BV AND HAS HELD THAT EXPLANATION TO SECTION 92B WHI CH INCREASES THE SCOPE OF INTERNATIONAL TRANSACTION, HAS TO BE NECESSARILY TREATED AS EFFECTIVE PROSPECTIVELY FROM THE ASSESSMENT YEAR 201 3 - 14 THOUGH STATED TO BE CLARIF CATORY AND STATED TO BE EFFECTIVE FROM 1ST APRIL 2002. WE HAVE ALSO GONE THROUGH OTHER COORDINATE BENCH DECISIONS IN CASE OF GITANJALI EXPORTS CORPORATION ( SUPRA ) AND SIRO CLINPHARM PRIVATE LIMITED ( SUPRA ) WHERE SIMILAR VIEW HAS BEEN TAKEN. THE DECISION OF HON'BLE BOMBAY HIGH COURT IN CASE OF PATNI COMPUTER SYSTEMS LTD. HAS BEEN RIGHTLY ANAL YSED BY THE COORDINATE BENCH IN RUSHABH DIAMONDS ( SUPRA ) AND IT WAS HELD THAT 'RATHER THAN ANSWERING THIS QUESTION ON MERITS, AND WITH THE CONSENT OF BOTH THE PARTIES, THEIR LORDSHIPS SENT THE MATTER BACK FOR FRESH CONSIDERATION OF THE TRIBUNAL' ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 117 AND TO THI S EXTENT, THE DECISION OF THE COORDINATE BENCH IN CASE OF AMERIPRISE INDIA PVT LTD WHICH HAS EQUALLY RELIED ON THE SAID DECISION OF THE BOMBAY HIGH COURT IS DISTINGUISHABLE. IN LIGHT OF THE SAME, FOLLOWING THE DECISION OF THE COORDINATE BENCH IN RUSHABH DI AMONDS AND IN ABSENCE OF ANY CONTRARY HIGHER AUTHORITY ON THE SUBJECT, WE AGREE WITH THE CONTENTION RAISED BY THE LD. AR THAT SUCH AMENDMENT BY WAY OF AN EXPLANATION TO SECTION 92B IS AN AMENDMENT TO A SUBSTANTIVE LAW AS IT HAS RESULTED IN ENHANCEMENT OF T HE SCOPE OF INTERNATIONAL TRANSACTIONS AS ENVISAGED U/S 92B OF THE ACT. ACCORDINGLY, THE SUBJECT TRANSACTION IF AT ALL, IT HAS TO BE CONSIDERED AS AN INTERNATIONAL TRANSACTION IN LIGHT OF DECISION IN CASE OF KUSUM HEALTHCARE ( SUPRA ), WHICH IT IS NOT, IN TH E FACTS OF THE PRESENT CASE, AS WE HAVE HELD ABOVE, IT HAS TO BE CONSIDERED AS AN INTERNATIONAL TRANSACTION FROM AY 2013 - 14 ONWARDS AND FOR THE YEARS UNDER CONSIDERATION BEING AY 2007 - 08, 2008 - 09 AND 2009 - 10, THE SAME WILL THUS NOT QUALIFY AS AN INTERNATIO NAL TRANSACTION. 217 . RESPECTFULLY , FOLLOWING THE DECISIONS QUOTED ABOVE WE HOLD HAS HELD THAT THE AMENDMENT MADE TO SECTION 92B BY THE FINANCE ACT 2012 IS PROSPECTIVE IN OPERATION AND ACCORDINGLY APPLICABLE IN THE ASSESSMENT YEAR 2013 - 14 AND SUBSEQUENT YEARS, AND NOT APPLICABLE IN THE IMPUGNED ASSESSMENT YEAR WHICH IS THE ASSESSMENT YEAR 2009 - 10 . WE, THEREFORE , HOLD THAT THE ISSUANCE OF CORPORATE GUARANTEE CANNOT BE CONSIDERED AS AN INTERNATIONAL TRANSACTION FOR THE YEAR UNDER CONSIDERATION. THEREFORE, THE ADDITION MADE OF RS.2,16,00,060/ - IS DELETED. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 218 . GROUND NO . 15 OF THE APPEAL OF THE ASSESSEE READ S AS UNDER: ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 118 15. THAT THE ASSESSING OFFICER/DRP ERRED ON FACTS AND IN LAW IN NOT ALLOWING MAT CR EDIT UNDER SECTION 115JAA OF THE ACT. 219 . WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE LD. AR OF THE ASSESSEE CLAIMED THAT MAT CREDIT AS ELIGIBLE UNDER SECTION 115JAA OF THE ACT HAS NOT BEEN ALLOWED TO THE ASSESSEE COMPANY. WE THEREFORE DIRECT THE AO TO VERIFY THE CLAIM OF THE ASSESSEE AS PER RECORD AND ALLOW CREDIT UNDER SECTION 115J AA OF THE ACT AS ALLOWABLE AS PER LAW. 220 . GROUND NO. 16 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 16. THAT THE ASSESSING OFFICER/DRP ERRED ON FACTS AND IN LAW IN CHARGING INTEREST UNDER SECTION 234B OF THE ACT. 22 1 . NO SUBMISSIONS WERE MADE BY THE AR OF THE ASSESSEE ON THIS GROUND OF APPEAL. WE HOLD THAT CHARGING OF INTEREST IS CONSEQUENTIAL AND MANDATORY. THE AO IS DIRECTED TO PROVIDE CONSEQUENTIAL RELIEF AS PER LAW. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISPOSED OF F . 222 . THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF T HE CASE AND IN LAW, ADDITIONAL COAL LEVY RELATABLE TO YEAR UNDER CONSIDERATION AMOUNTING TO RS.176,94,54,250/ - PAID ON ACCOUNT OF EXTRACTION OF COAL PURSUANT TO THE ORDER(S) OF THE HON BLE SUPREME COURT, BE DIRECTED TO BE ALLOWED AS BUSINESS DEDUCTION. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, A SUM OF RS.25,00,00,000/ - SET ASIDE ON ACCOUNT OF DEBENTURE REDEMPTION RESERVE SHOULD BE ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 119 EXCLUDED FROM BOOK PROFITS UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961. 223 . THE AUTHORIZED REPRES ENTATIVE ARGUED THAT IN THE LIGHT OF THE LAW LAID DOWN BY HON'BLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. V. CIT [1998] 229 ITR 383, THERE CANNOT INDEED BE ANY OBJECTION TO AN ASSESSEE RAISING A NEW LEGAL PLEA AT THIS STAGE. THIS IS A PURE LEGAL ISSUE AND ALL FACTS FOR ADJUDICATION OF THIS GROUND ARE ALREADY ON RECORD . FURTHERMORE, THE ASSESSEE SUBMITTED THAT THIS HAS BEEN ALLOWED BY THE ASSESSING OFFICER HIMSELF IN AY 2014 - 15 AND AY 2015 - 16 AND THE ISSUE ON MERITS STANDS COVERED BY VAR IOUS TRIBUNAL AND HIGH COURT JUDGMENTS. 2 24 . THE LD. DEPARTMENTAL REPRESENTATIVE STATED THAT THIS IS A NEW GROUND BEING RAISED IN TRIBUNAL FOR THE FIRST TIME AND HENCE SHOULD NOT BE ADJUDICATED AS THIS CLAIM WAS NOT BEFORE THE LOWER AUTHORITIES. HE THERE FORE PRAYED THAT THE ADDITIONAL GROUNDS MAY NOT BE ADMITTED. 225 . AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIALS ON RECORD , WE FIND THAT THE ISSUE RAISED IN THE ADDITIONAL GROUNDS OF APPEAL ARE LEGAL ISSUES WHICH CAN BE ADMITTED IN VIEW OF THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. V. CIT (SUPRA) . WE THEREFORE ADMIT THE SAME. 226 . AS THESE ADDITIONAL GROUNDS WERE NOT ADJUDICATED BY THE LOWER AUTHORITIES, WE THEREFORE RESTORE THE SAME TO THE FILE OF THE AO FOR ADJUDICATING THE SAME. THUS, BOTH THE ADDITIONAL GROUNDS OF APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 893 /DEL/2014 JINDAL STEEL & POWER LTD. 120 227 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. (ORDER PRONOUNCED IN THE COURT ON 29 TH DAY OF APRIL, 2019 AT NEW DELH I ) SD/ - SD/ - ( BHAVNESH SAINI ) (N. S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29 /04 /2019 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTAN T REGISTRAR
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