ACIT, CIRCLE - 3 3 1, MUMBAI vs JAMNAGAR UTILITIES AND POWER PVT LTD, MUMBAI

Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI

Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN

For Appellant: Mr. Nimesh Vora/, Ms. Moksha Mehta, Mr. Vivek Perampurna, CIT-DR

For Respondent: Mr. Nimesh Vora/, Ms. Moksha Mehta, Mr. Vivek Perampurna, CIT-DR

Hearing: 17/09/2025Pronounced: 04/12/2025

ORDER PER BENCH

These two appeals by the Revenue are directed against, two separate orders, dated 06.08.2024 and 02.08.2024, passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2019-2020 and 2020-21 respectively.

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 2 & 5310/MUM/2024 & 5310/MUM/2024

As these appeals are having common iss As these appeals are having common iss As these appeals are having common issue in dispute permeating from same set of facts permeating from same set of facts, therefore, same were heard , therefore, same were heard together and disposed off by way of this consolidated order for the together and disposed off by way of this consolidated order for the together and disposed off by way of this consolidated order for the sake of convenience and avoid repetition of facts. sake of convenience and avoid repetition of facts.

At the outset, the Ld. Departmental Representative (DR) t the outset, the Ld. Departmental Representative (DR) t the outset, the Ld. Departmental Representative (DR) submitted that there was a delay of 4 days in filing the appeal for ubmitted that there was a delay of 4 days in filing the appeal for ubmitted that there was a delay of 4 days in filing the appeal for Assessment Year 2019 Assessment Year 2019–20 and a delay of 8 days in filing the appeal 20 and a delay of 8 days in filing the appeal for Assessment Year 2020 for Assessment Year 2020–21. The Ld. DR explained that the delay 21. The Ld. DR explained that the delay occurred due to workload arising from judicial matters, reporting occurred due to workload arising from judicial matters, r occurred due to workload arising from judicial matters, r duties, and other miscellaneous official responsibilities. It was duties, and other miscellaneous official responsibilities. It was duties, and other miscellaneous official responsibilities. It was further submitted that the delay was neither deliberate nor further submitted that the delay was neither deliberate nor further submitted that the delay was neither deliberate nor intentional but occurred for bona fide reasons, and therefore intentional but occurred for bona fide reasons, and therefore intentional but occurred for bona fide reasons, and therefore deserved to be condoned. As there was no serious objection from deserved to be condoned. As there was no serious objection deserved to be condoned. As there was no serious objection the opposite side, and upon considering the reasons furnished by the opposite side, and upon considering the reasons furnished by the opposite side, and upon considering the reasons furnished by the Ld. DR, we are satisfied that sufficient cause has been shown the Ld. DR, we are satisfied that sufficient cause has been shown the Ld. DR, we are satisfied that sufficient cause has been shown for not filing the appeals within the prescribed time. The for not filing the appeals within the prescribed time. The for not filing the appeals within the prescribed time. The explanation offered is found to be reasonable and acceptable. explanation offered is found to be reasonable and acceptable. explanation offered is found to be reasonable and acceptable. Accordingly, the delay in filing the appeals is condoned. Accordingly, the delay in filing the appeals is condoned. Accordingly, the delay in filing the appeals is condoned.

Now, we take up the appeal of the Revenue for assessment Now, we take up the appeal of the Revenue for assessment Now, we take up the appeal of the Revenue for assessment year 2019-2020. The grounds raised by the Revenue are reproduced 2020. The grounds raised by the Revenue are reproduced 2020. The grounds raised by the Revenue are reproduced as under:

"Whether the contribution or donation made by assessee not 1. "Whether the contribution or donation made by assessee not 1. "Whether the contribution or donation made by assessee not voluntarily, but to discharge legal obligation arising from section 135 voluntarily, but to discharge legal obligation arising from section 135 voluntarily, but to discharge legal obligation arising from section 135 of the Company's Act r.w. schedule VII of Company's Act, is donation of the Company's Act r.w. schedule VII of Company's Act, is donation of the Company's Act r.w. schedule VII of Company's Act, is donation

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 3 & 5310/MUM/2024 & 5310/MUM/2024 or voluntary contribution within the meaning of Secti or voluntary contribution within the meaning of Section 80G r.w.s. 's on 80G r.w.s. 's 11 & 12 of the IT Act, 1961?" 11 & 12 of the IT Act, 1961?" 2. "Whether the MTM losses arising out of Currency Swap Contract 2. "Whether the MTM losses arising out of Currency Swap Contract 2. "Whether the MTM losses arising out of Currency Swap Contract do not fall in the purview of Section 43AA of the Act which is subject do not fall in the purview of Section 43AA of the Act which is subject do not fall in the purview of Section 43AA of the Act which is subject to the section 43A of the Act relating to taxation of foreign exchange to the section 43A of the Act relating to taxation of foreign exchange to the section 43A of the Act relating to taxation of foreign exchange fluctuation?" 3. "Whether on the facts and in the circumstances of the case and in 3. "Whether on the facts and in the circumstances of the case and in 3. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has rightly confirmed the treatment of MTM losses law, the Ld.CIT(A) has rightly confirmed the treatment of MTM losses law, the Ld.CIT(A) has rightly confirmed the treatment of MTM losses on currency swap as done by the assessee disregarding the findings on currency swap as done by the assessee disregarding the findings on currency swap as done by the assessee disregarding the findings of assessing officer made during the as of assessing officer made during the assessment proceedings?" sessment proceedings?" 4. "Whether the amount paid by the Assessee to Shrimad Rajchandra 4. "Whether the amount paid by the Assessee to Shrimad Rajchandra 4. "Whether the amount paid by the Assessee to Shrimad Rajchandra Sarvamangal Trust and Reliance Foundation is eligible spending Sarvamangal Trust and Reliance Foundation is eligible spending Sarvamangal Trust and Reliance Foundation is eligible spending within the meaning of section 135 r.w. rule 7 of Company's Act within the meaning of section 135 r.w. rule 7 of Company's Act within the meaning of section 135 r.w. rule 7 of Company's Act 2013?" 5. "Whether on the facts and in th 5. "Whether on the facts and in the circumstances of the case and in e circumstances of the case and in law, the Ld.CIT(A) has justified in deleting the addition of fair value law, the Ld.CIT(A) has justified in deleting the addition of fair value law, the Ld.CIT(A) has justified in deleting the addition of fair value adjustment on asset being redeemable preference shares(RPS) in adjustment on asset being redeemable preference shares(RPS) in adjustment on asset being redeemable preference shares(RPS) in book profit, without appreciating the facts that assessee has valued book profit, without appreciating the facts that assessee has valued book profit, without appreciating the facts that assessee has valued the RPS price to the RPS price to NIL arbitrarily and MTM loss arising out of NIL arbitrarily and MTM loss arising out of revaluation/fair revaluation/fair revaluation/fair value value value adjustment adjustment adjustment is is is not not not applicable applicable applicable as as as there is no market?" market?" 6. "Whether on the facts and in the circumstances of the case and in 6. "Whether on the facts and in the circumstances of the case and in 6. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has justified in deleting the addition of fair v law, the Ld.CIT(A) has justified in deleting the addition of fair v law, the Ld.CIT(A) has justified in deleting the addition of fair value adjustment on asset being redeemable preference shares(RPS) in adjustment on asset being redeemable preference shares(RPS) in adjustment on asset being redeemable preference shares(RPS) in book profit, without appreciating the fact that revaluation of the RPS book profit, without appreciating the fact that revaluation of the RPS book profit, without appreciating the fact that revaluation of the RPS is nothing but a provision for is nothing but a provision for diminution?"

Briefly stated, the facts of the case are that the assessee Briefly stated, the facts of the case are that the assessee Briefly stated, the facts of the case are that the assessee- company, incorporated in 1991, is primarily engaged in the ncorporated in 1991, is primarily engaged in the ncorporated in 1991, is primarily engaged in the business of setting up, operating, and maintaining captive plants at business of setting up, operating, and maintaining captive plants at business of setting up, operating, and maintaining captive plants at various manufacturing locations of M/s Reliance Industries various manufacturing locations of M/s Reliance Industries various manufacturing locations of M/s Reliance Industries Limited. The assessee filed its original return of income under Limited. The assessee filed its original return of income under Limited. The assessee filed its original return of income under section 139(1) of the Income of the Income-tax Act, 1961 (“the Act”) for the year tax Act, 1961 (“the Act”) for the year under consideration on 29.11.2019, declaring total income of Rs. under consideration on 29.11.2019, declaring total income of Rs. under consideration on 29.11.2019, declaring total income of Rs. 15,84,40,22,530/- under under the the normal normal provisions provisions and and Rs. Rs.

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 4 & 5310/MUM/2024 & 5310/MUM/2024 12,46,26,46,242/- under section 115JB of the Act (MAT). under section 115JB of the Act (MAT). under section 115JB of the Act (MAT). The return was selected for return was selected for scrutiny, and statutory notices were duly scrutiny, and statutory notices were duly issued and complied with. The assessment was completed under issued and complied with. The assessment was completed under issued and complied with. The assessment was completed under section 143(3) read with section 144B of the Act on 30.03.2022, section 143(3) read with section 144B of the Act on 30.03.2022, section 143(3) read with section 144B of the Act on 30.03.2022, wherein wherein wherein the the the Assessing Assessing Assessing Officer Officer Officer made made made the the the following following following additions/adjustments: additions/adjustments: a. a. Disallowance Disallowance of o f deduction deduction u/s u/s 80G 80G amounting amounting to to Rs. Rs. 11,15,00,000/ 11,15,00,000/- b. Mark To Market loss on currency swap contracts am b. Mark To Market loss on currency swap contracts am b. Mark To Market loss on currency swap contracts amounting to Rs. 1,95,03,97,953/ 1,95,03,97,953/- was added back by the assessee but allowed by added back by the assessee but allowed by Assessing officer Assessing officer as deduction. c. Addition of Rs. 18,83,82,94,946/ c. Addition of Rs. 18,83,82,94,946/- to book profits under section book profits under section 115JB in relation to loss recognised on Fair Value of investments in 115JB in relation to loss recognised on Fair Value of investments in 115JB in relation to loss recognised on Fair Value of investments in accordance with with Ind AS.

6. On further appeal, the Ld. CIT(A) deleted all the three On further appeal, the Ld. CIT(A) deleted all the three On further appeal, the Ld. CIT(A) deleted all the three additions/adjustments. Aggrieved, the Revenue is in appeal before additions/adjustments. Aggrieved, the Revenue is in appeal before additions/adjustments. Aggrieved, the Revenue is in appeal before us by way of raising the grounds as reproduced above. f raising the grounds as reproduced above. f raising the grounds as reproduced above.

Grounds Nos. 1 and 4 Grounds Nos. 1 and 4 – Deduction under Section 80G in respect Deduction under Section 80G in respect of CSR Expenditure of CSR Expenditure

The Ground Nos s. 1 and 4 of the appeal of Revenue . 1 and 4 of the appeal of Revenue concern the disallowance made by the Assessing Officer of the deduction disallowance made by the Assessing Officer of the deduction disallowance made by the Assessing Officer of the deduction claimed by the assessee under section 80G amounting to Rs. by the assessee under section 80G amounting to Rs. by the assessee under section 80G amounting to Rs. 11,15,00,000/-, which the Ld. CIT(A) has deleted. , which the Ld. CIT(A) has deleted.

7.1 The brief facts relevant to this issue are that the assessee The brief facts relevant to this issue are that the assessee The brief facts relevant to this issue are that the assessee debited a sum of Rs. 22,30,00,000/ debited a sum of Rs. 22,30,00,000/- in its profit and loss account in its profit and loss account

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 5 & 5310/MUM/2024 & 5310/MUM/2024 towards Corporate Soci towards Corporate Social Responsibility (CSR) expenditure. In al Responsibility (CSR) expenditure. In accordance with the specific bar contained in Explanation 2 to accordance with the specific bar contained in Explanation 2 to accordance with the specific bar contained in Explanation 2 to section 37(1) of the Act, the assessee section 37(1) of the Act, the assessee suo-motu disallowed this amount while computing its business income. However, as these amount while computing its business income. However, as these amount while computing its business income. However, as these payments were made to insti payments were made to institutions duly registered under section tutions duly registered under section 80G, the assessee claimed deduction of 50% of the eligible amount, 80G, the assessee claimed deduction of 50% of the eligible amount, 80G, the assessee claimed deduction of 50% of the eligible amount, i.e., Rs. 11,15,00,000/ i.e., Rs. 11,15,00,000/- under section 80G. Party-wise details of the wise details of the donees, copies of donation receipts, and copies of their valid section donees, copies of donation receipts, and copies of their valid section donees, copies of donation receipts, and copies of their valid section 80G registration certificates were furnished. ration certificates were furnished.

7.2 The Assessing Officer rejected the claim on the ground that The Assessing Officer rejected the claim on the ground that The Assessing Officer rejected the claim on the ground that CSR expenditure under the Companies Act, 2013 is mandatory and CSR expenditure under the Companies Act, 2013 is mandatory and CSR expenditure under the Companies Act, 2013 is mandatory and therefore lacks voluntariness, which in his view is an essential therefore lacks voluntariness, which in his view is an essential therefore lacks voluntariness, which in his view is an essential prerequisite for a donation prerequisite for a donation eligible for deduction under section 80G. eligible for deduction under section 80G. The AO further held that allowing such ded The AO further held that allowing such deduction would indirectly uction would indirectly subsidize CSR expenditure, contrary to legislative intent. e CSR expenditure, contrary to legislative intent.. e CSR expenditure, contrary to legislative intent.

7.3 Before the Ld. CIT(A), the assessee relied upon the decision of Before the Ld. CIT(A), the assessee relied upon the decision of Before the Ld. CIT(A), the assessee relied upon the decision of the Coordinate Bench of the Tribunal in h of the Tribunal in Reliance Industries Ltd. v. Reliance Industries Ltd. v. DCIT (ITA Nos. 2587 & 2588/Mum/2022), (ITA Nos. 2587 & 2588/Mum/2022), Naik Seafoods Pvt. Ltd. v. Naik Seafoods Pvt. Ltd. v. Pr. CIT (ITA No. 490/Mum/2021) and other decisions wherein it has (ITA No. 490/Mum/2021) and other decisions wherein it has (ITA No. 490/Mum/2021) and other decisions wherein it has been consistently held that, although CSR expenditure cannot be been consistently held that, although CSR expenditure cannot be been consistently held that, although CSR expenditure cannot be allowed as business expenditure under section 37, nothing in allowed as business expenditure under section 37, nothing in allowed as business expenditure under section 37, nothing in section 80G prohibits deduction of amounts paid to eligible section 80G prohibits deduction of amounts paid to eligible section 80G prohibits deduction of amounts paid to eligible institutions merely because they also fall within CSR obligations. merely because they also fall within CSR obligations. merely because they also fall within CSR obligations.

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 6 & 5310/MUM/2024 & 5310/MUM/2024 The Ld. CIT(A), following these binding precedents, deleted the The Ld. CIT(A), following these binding precedents, deleted the The Ld. CIT(A), following these binding precedents, deleted the disallowance.

Before us, the Ld. DR submitted that the above decisions have Before us, the Ld. DR submitted that the above decisions have Before us, the Ld. DR submitted that the above decisions have not been accepted by the Department and that further appeal is not been accepted by the Department and that further appea not been accepted by the Department and that further appea pending before the Hon’ble Bombay High Court. However, no stay of pending before the Hon’ble Bombay High Court. However, no stay of pending before the Hon’ble Bombay High Court. However, no stay of operation of those orders has been brought to our notice. operation of those orders has been brought to our notice. operation of those orders has been brought to our notice.

The Ld. Counsel for the assessee contended that the ounsel for the assessee contended that the ounsel for the assessee contended that the Tribunal’s decisions continue to hold the field and must be treated Tribunal’s decisions continue to hold the field and must be treated Tribunal’s decisions continue to hold the field and must be treated as binding precedents. inding precedents.

10.

We have considered the rival submissions and examined the We have considered the rival submissions and examined the We have considered the rival submissions and examined the material on record. The core issue is whether CSR expenditure, material on record. The core issue is whether CSR expenditure, material on record. The core issue is whether CSR expenditure, though disallowed under section 37(1), can nevertheless qualify for though disallowed under section 37(1), can nevertheless qualify for though disallowed under section 37(1), can nevertheless qualify for deduction under section 80G, provided other deduction under section 80G, provided other statutory conditions statutory conditions are fulfilled. Section 37(1), read with Explanation 2, merely are fulfilled. Section 37(1), read with Explanation 2, merely are fulfilled. Section 37(1), read with Explanation 2, merely prohibits allowance of CSR expenditure prohibits allowance of CSR expenditure as business expenditure as business expenditure. It does not create any bar on the allowance of such expenditure under does not create any bar on the allowance of such expenditure under does not create any bar on the allowance of such expenditure under other provisions of the Act, including other provisions of the Act, including section 80G. This is further section 80G. This is further supported by the Explanatory Memorandum to the Finance (No. 2) supported by the Explanatory Memorandum to the Finance (No. 2) supported by the Explanatory Memorandum to the Finance (No. 2) Act, 2014, which expressly clarifies that CSR expenditure of the Act, 2014, which expressly clarifies that CSR expenditure of the Act, 2014, which expressly clarifies that CSR expenditure of the nature described in sections 30 to 36 will continue to be allowable nature described in sections 30 to 36 will continue to be allowable nature described in sections 30 to 36 will continue to be allowable under those provisions, and onl under those provisions, and only its allowance under section 37(1) y its allowance under section 37(1) is restricted. For ready reference, t For ready reference, the relevant Explanation of he relevant Explanation of section 37(1) of the Act is reproduced as under: section 37(1) of the Act is reproduced as under:

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 7 & 5310/MUM/2024 & 5310/MUM/2024

37.

37 (1) 38Any expenditure Any expenditure 39 (not being expenditure of the nature described (not being expenditure of the nature described in sections 30 to 36 to 3640[***] and not being in the nature of capital expenditure [***] and not being in the nature of capital expenditure 41 or personal expenses of the asses or personal expenses of the assessee), laid out or expended wholly and see), laid out or expended wholly and exclusively 41 for the pur for the purposes of the business 41 or profession shall be or profession shall be allowed in computing the income allowed in computing the income chargeable under the head “Profits and chargeable under the head “Profits and gains of business or profession”. ness or profession”. 42 [ 43[Explanation 1. Explanation 1.]- …………………… 45 [Explanation 2. Explanation 2.-For the removal of doubts, it is hereby declared that For the removal of doubts, it is hereby declared that for the purposes of sub for the purposes of sub-section (1), any expenditure incurred by an section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility assessee on the activities relating to corporate social responsibility assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 20 referred to in section 135 of the Companies Act, 2013 (18 of 20 referred to in section 135 of the Companies Act, 2013 (18 of 2013) 46 shall not be deemed to be an expenditure incurred by the assessee for shall not be deemed to be an expenditure incurred by the assessee for shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.] the purposes of the business or profession.] 47 [Explanation 3. Explanation 3.- ………………… (2) ……………. 10.1 It is also of significance that Parliament, while amending significance that Parliament, while amending significance that Parliament, while amending section 37(1), did not amend section 80G to exclude CSR payments. section 37(1), did not amend section 80G to exclude CSR payments. section 37(1), did not amend section 80G to exclude CSR payments. On the contrary, only two specific categories of CSR contributions On the contrary, only two specific categories of CSR contributions On the contrary, only two specific categories of CSR contributions viz., payments to the “Swachh Bharat Kosh” and “Clean Ganga viz., payments to the “Swachh Bharat Kosh” and “Clean Ganga viz., payments to the “Swachh Bharat Kosh” and “Clean Ganga Fund”, have been e Fund”, have been expressly denied deduction under section xpressly denied deduction under section 80G(2)(iiihk) and (iiihl). The principle of 80G(2)(iiihk) and (iiihl). The principle of expressio unius est exclusio expressio unius est exclusio alterius therefore applies: where the Legislature intended to deny therefore applies: where the Legislature intended to deny therefore applies: where the Legislature intended to deny deduction, it has done so explicitly; no further implied prohibition deduction, it has done so explicitly; no further implied prohibition deduction, it has done so explicitly; no further implied prohibition can be read into the statute. read into the statute. The relevant finding of the Ld. CIT(A) The relevant finding of the Ld. CIT(A) on the issue in dispute is under: on the issue in dispute is under:

7.3 The appellant during the appellate proceedings has submitted 7.3 The appellant during the appellate proceedings has submitted 7.3 The appellant during the appellate proceedings has submitted that the belief of the AO was purely based on its interpretation of the that the belief of the AO was purely based on its interpretation of the that the belief of the AO was purely based on its interpretation of the provisions of the Act. provisions of the Act. Nothing in the provisions of section 80G of the Nothing in the provisions of section 80G of the Act debars deduction in respect of donations made in the nature of Act debars deduction in respect of donations made in the nature of Act debars deduction in respect of donations made in the nature of CSR activities. If the legislators intended to deny deduction under CSR activities. If the legislators intended to deny deduction under CSR activities. If the legislators intended to deny deduction under section 80G of the Act for such donations, they could have amended section 80G of the Act for such donations, they could have amended section 80G of the Act for such donations, they could have amended section 80G similar to the amendment in Explanation 2 to section n 80G similar to the amendment in Explanation 2 to section n 80G similar to the amendment in Explanation 2 to section 37(1) of the Act, wherein it has specified that expenditure in the 37(1) of the Act, wherein it has specified that expenditure in the 37(1) of the Act, wherein it has specified that expenditure in the nature of CSR activity shall not be deemed as business or nature of CSR activity shall not be deemed as business or nature of CSR activity shall not be deemed as business or professional expenditure. Since no such amendment has been made professional expenditure. Since no such amendment has been made professional expenditure. Since no such amendment has been made

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 8 & 5310/MUM/2024 & 5310/MUM/2024 in section 80G, the appellant is eligible to claim a deduction of Rs on 80G, the appellant is eligible to claim a deduction of Rs on 80G, the appellant is eligible to claim a deduction of Rs 11,15,00,000/ 11,15,00,000/- being 50% of donations of Rs 22,30,00,000/ being 50% of donations of Rs 22,30,00,000/- made in the nature of CSR activities. The Appellant further relied on the in the nature of CSR activities. The Appellant further relied on the in the nature of CSR activities. The Appellant further relied on the decision of Hon'ble Delhi Tribunal, in case of Interglobe Tech decision of Hon'ble Delhi Tribunal, in case of Interglobe Tech decision of Hon'ble Delhi Tribunal, in case of Interglobe Technology Quotient Private Limited Vs. ACIT, Circle Quotient Private Limited Vs. ACIT, Circle-10(1), New Delhi (ITA No 10(1), New Delhi (ITA No 95/DEL/2024), wherein while allowing deduction u/s. 80G in 95/DEL/2024), wherein while allowing deduction u/s. 80G in 95/DEL/2024), wherein while allowing deduction u/s. 80G in respect of amount spent under CSR, the Hon'ble ITAT negated the respect of amount spent under CSR, the Hon'ble ITAT negated the respect of amount spent under CSR, the Hon'ble ITAT negated the Department's argument on voluntariness in amounts spent und Department's argument on voluntariness in amounts spent und Department's argument on voluntariness in amounts spent under CSR. It has been held that the CSR expenditures are voluntary in CSR. It has been held that the CSR expenditures are voluntary in CSR. It has been held that the CSR expenditures are voluntary in nature as they are without any reciprocal commitment from nature as they are without any reciprocal commitment from nature as they are without any reciprocal commitment from beneficiary being philanthropic in nature. beneficiary being philanthropic in nature. Further, the appellant placed reliance on the following judicial Further, the appellant placed reliance on the following judicial Further, the appellant placed reliance on the following judicial decisions including decisions including the decisions of jurisdictional ITAT Mumbai where the decisions of jurisdictional ITAT Mumbai where it has been held that payments towards donations made on account it has been held that payments towards donations made on account it has been held that payments towards donations made on account of corporate social responsibility, disallowed under section 37(1), are of corporate social responsibility, disallowed under section 37(1), are of corporate social responsibility, disallowed under section 37(1), are allowable as deductions under section 80G of the Act: allowable as deductions under section 80G of the Act: (i) (Mumbai ITA (i) (Mumbai ITAT) DCIT v. Reliance Industries Ltd. [2023] DCIT v. Reliance Industries Ltd. [2023] & 2588/Mum/2022 2587 & 2588/Mum/2022 (ii) FNF India (P.) Ltd. Vs. ACIT [2021] (133 taxmann.com 251) (ii) FNF India (P.) Ltd. Vs. ACIT [2021] (133 taxmann.com 251) (ii) FNF India (P.) Ltd. Vs. ACIT [2021] (133 taxmann.com 251) (Bangalore ITAT) (Bangalore ITAT) (iii) Sling Media (P.) Ltd. Vs. DCIT [2022] (194 ITD 1) (Banglore ITAT) (iii) Sling Media (P.) Ltd. Vs. DCIT [2022] (194 ITD 1) (Banglore ITAT) (iii) Sling Media (P.) Ltd. Vs. DCIT [2022] (194 ITD 1) (Banglore ITAT) (iv) Infinera India (P.) Ltd. (iv) Infinera India (P.) Ltd. Vs. JCIT JCIT [2022] (194 ITD 463) Vs. JCIT JCIT [2022] (194 ITD 463) (Bangalore ITAT) (Bangalore ITAT) (v) DCIT Vs. M/s. The Peerless General Finance & Investment & Co. (v) DCIT Vs. M/s. The Peerless General Finance & Investment & Co. (v) DCIT Vs. M/s. The Peerless General Finance & Investment & Co. Ltd (ITA No. 1469 & 1470/Kol/2019) (Kolkata ITAT) Ltd (ITA No. 1469 & 1470/Kol/2019) (Kolkata ITAT) M/s. Naik Seafoods Pvt. Ltd. Vs. Pr. CIT M/s. Naik Seafoods Pvt. Ltd. Vs. Pr. CIT - 2 (ITA No 490/MUM/2021) 2 (ITA No 490/MUM/2021) (vi) (Mumbai ITAT) (vi) (Mumbai ITAT) 7.4 It is observed from the contents of above decision of Hon'ble ITAT .4 It is observed from the contents of above decision of Hon'ble ITAT .4 It is observed from the contents of above decision of Hon'ble ITAT that the explanatory memorandum to Finance Act No. 2, 2014, that the explanatory memorandum to Finance Act No. 2, 2014, that the explanatory memorandum to Finance Act No. 2, 2014, introducing Explanation 2 to Section 37 (1) which prohibited the introducing Explanation 2 to Section 37 (1) which prohibited the introducing Explanation 2 to Section 37 (1) which prohibited the allowability of CSR expenditure as business expenditure. The allowability of CSR expenditure as business expenditure. The allowability of CSR expenditure as business expenditure. The memorandum clearly states that CSR expenditure described in memorandum clearly states that CSR expenditure described in memorandum clearly states that CSR expenditure described in sections 30 to 36 of the Income sections 30 to 36 of the Income-tax Act, 1961 shall be allowed. tax Act, 1961 shall be allowed. Legislators never intended to deny deductions for CSR expenditure Legislators never intended to deny deductions for CSR expenditure Legislators never intended to deny deductions for CSR expenditure outright; it is only not allowable under section 37(1). As the outright; it is only not allowable under section 37(1). As the outright; it is only not allowable under section 37(1). As the amendment in section 37(1) does not apply to sections 30 to 36 of the ndment in section 37(1) does not apply to sections 30 to 36 of the ndment in section 37(1) does not apply to sections 30 to 36 of the Act, the same would not apply to section 80G of the Act. Thus, Act, the same would not apply to section 80G of the Act. Thus, Act, the same would not apply to section 80G of the Act. Thus, appellant shall be allowed to claim a deduction under section 80G of appellant shall be allowed to claim a deduction under section 80G of appellant shall be allowed to claim a deduction under section 80G of the Income Tax Act, 1961 to the extent of eligibility. the Income Tax Act, 1961 to the extent of eligibility.

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 9 & 5310/MUM/2024 & 5310/MUM/2024

7.4.1 It is further viewed that jurisdictional Hon'ble Mumbai ITAT in 4.1 It is further viewed that jurisdictional Hon'ble Mumbai ITAT in 4.1 It is further viewed that jurisdictional Hon'ble Mumbai ITAT in the case of M/s.Reliance Industries Ltd. V.DCIT[2023](ITA ΝΟ.2587 & the case of M/s.Reliance Industries Ltd. V.DCIT[2023](ITA ΝΟ.2587 & the case of M/s.Reliance Industries Ltd. V.DCIT[2023](ITA ΝΟ.2587 & 2588/MUM/2022) has followed the decision rendered by Mumbai 2588/MUM/2022) has followed the decision rendered by Mumbai 2588/MUM/2022) has followed the decision rendered by Mumbai ITAT in the case of Naik Sea foods P Ltd V.Pr.CIT ITAT in the case of Naik Sea foods P Ltd V.Pr.CIT ITAT in the case of Naik Sea foods P Ltd V.Pr.CIT-2(ITA NO.490/MUM/2021). In the case of Naik Sea foods P Ltd (supra), the 90/MUM/2021). In the case of Naik Sea foods P Ltd (supra), the 90/MUM/2021). In the case of Naik Sea foods P Ltd (supra), the co-ordinate bench has followed the decision rendered by Bangalore ordinate bench has followed the decision rendered by Bangalore ordinate bench has followed the decision rendered by Bangalore bench of Tribunal in the case of M/s FNF India P Ltd (ITA No. bench of Tribunal in the case of M/s FNF India P Ltd (ITA No. bench of Tribunal in the case of M/s FNF India P Ltd (ITA No. 1565/Bang/2019 dated 05 1565/Bang/2019 dated 05- 012021), which in turn followed the 012021), which in turn followed the decision rendered in the case of Allegis Services (India) Pvt. Ltd. v. sion rendered in the case of Allegis Services (India) Pvt. Ltd. v. sion rendered in the case of Allegis Services (India) Pvt. Ltd. v. ACIT (ITA No. 1693/Bang/2019) and held that the assessee is ACIT (ITA No. 1693/Bang/2019) and held that the assessee is ACIT (ITA No. 1693/Bang/2019) and held that the assessee is eligible for deduction u/s 80G of the Act in respect of certain eligible for deduction u/s 80G of the Act in respect of certain eligible for deduction u/s 80G of the Act in respect of certain payments included in CSR Expenses. payments included in CSR Expenses. 7.4.2 The relevant discussions 7.4.2 The relevant discussions made by the Tribunal in the case of made by the Tribunal in the case of Naik Sea foods P Ltd V.Pr.CIT Naik Sea foods P Ltd V.Pr.CIT-2 (ITA NO.490/MUM/2021) are 2 (ITA NO.490/MUM/2021) are reproduced hereunder: reproduced hereunder:- 15................... After considering the submissions of both the parties 15................... After considering the submissions of both the parties 15................... After considering the submissions of both the parties we observe from the record that with regard to section 80G ded we observe from the record that with regard to section 80G ded we observe from the record that with regard to section 80G deduction we observed that the Coordinate Bench of ITAT Bangalore Bench we observed that the Coordinate Bench of ITAT Bangalore Bench we observed that the Coordinate Bench of ITAT Bangalore Bench decided the issue of deduction u/s. 80G relating to donations which decided the issue of deduction u/s. 80G relating to donations which decided the issue of deduction u/s. 80G relating to donations which is part of Corporate Social Responsibility in the case of M/s.FNF is part of Corporate Social Responsibility in the case of M/s.FNF is part of Corporate Social Responsibility in the case of M/s.FNF India Pvt. Ltd., v. ACIT (ITA. No. 1565/Bang/2019 dat India Pvt. Ltd., v. ACIT (ITA. No. 1565/Bang/2019 dat India Pvt. Ltd., v. ACIT (ITA. No. 1565/Bang/2019 dated 05.01.2021). The relevant findings of the Bangalore Bench are 05.01.2021). The relevant findings of the Bangalore Bench are 05.01.2021). The relevant findings of the Bangalore Bench are reproduced below: reproduced below: - "9. After hearing both the parties, we find that similar issue came up "9. After hearing both the parties, we find that similar issue came up "9. After hearing both the parties, we find that similar issue came up for consideration before this Tribunal in in for consideration before this Tribunal in in for consideration before this Tribunal in in the case of Allegis Services (Ind the case of Allegis Services (India) Pvt. Ltd. v. ACIT. The Tribunal by ia) Pvt. Ltd. v. ACIT. The Tribunal by its order dated 29.4.2020 held as under: its order dated 29.4.2020 held as under:- "10. Section 135 of Companies Act, 2013 requires companies with "10. Section 135 of Companies Act, 2013 requires companies with "10. Section 135 of Companies Act, 2013 requires companies with CSR obligations, with effect from 01/04/2014. CSR obligations, with effect from 01/04/2014. Finance (No.2) Act, 2014 inserted new Explanation 2 to sub Finance (No.2) Act, 2014 inserted new Explanation 2 to sub Finance (No.2) Act, 2014 inserted new Explanation 2 to sub- section (1) of section 37, so as to clarify that for purposes of sub (1) of section 37, so as to clarify that for purposes of sub (1) of section 37, so as to clarify that for purposes of sub- section (1) of section 37, any expenditure incurred by an assessee on the of section 37, any expenditure incurred by an assessee on the of section 37, any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in activities relating to corporate social responsibility referred to in activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall n section 135 of the Companies Act, 2013 shall not be deemed to be an ot be deemed to be an expenditure incurred by the assessee for the purposes of the expenditure incurred by the assessee for the purposes of the expenditure incurred by the assessee for the purposes of the business or profession. business or profession. This amendment will take effect from 1/04/2015 and will, This amendment will take effect from 1/04/2015 and will, This amendment will take effect from 1/04/2015 and will, accordingly, apply to assessment year 2015 accordingly, apply to assessment year 2015-16 and subsequent 16 and subsequent years. 11.

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 10 & 5310/MUM/2024 & 5310/MUM/2024

12. Thus, CSR expend 12. Thus, CSR expenditure is to be disallowed by new Explanation 2 iture is to be disallowed by new Explanation 2 to section 37(1), while computing Income under the Head 'Income to section 37(1), while computing Income under the Head 'Income to section 37(1), while computing Income under the Head 'Income form Business and Profession'. Further, clarification regarding impact form Business and Profession'. Further, clarification regarding impact form Business and Profession'. Further, clarification regarding impact of Explanation 2 to section 37(1) of the Income Tax Act in Explanatory of Explanation 2 to section 37(1) of the Income Tax Act in Explanatory of Explanation 2 to section 37(1) of the Income Tax Act in Explanatory Memorandum to The Finance (No.2) Bill, 2014 is as under: orandum to The Finance (No.2) Bill, 2014 is as under: orandum to The Finance (No.2) Bill, 2014 is as under: "The existing provisions of section 37(1) of the Act provide that "The existing provisions of section 37(1) of the Act provide that "The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in deduction for any expenditure, which is not mentioned specifically in deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same section 30 to section 36 of the Act, shall be allowed if the same section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on incurred wholly and exclusively for the purposes of carrying on incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application business or profession. As the CSR expenditure (being an application business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, of income) is not incurred for the purposes of carrying on business, of income) is not incurred for the purposes of carrying on business, such expenditure cannot be allowed under the existi such expenditure cannot be allowed under the existing provisions of ng provisions of section 37 of the Income section 37 of the Income-tax Act. Therefore, in order to provide tax Act. Therefore, in order to provide certainty on this issue, it is proposed to clarify that for the purposes certainty on this issue, it is proposed to clarify that for the purposes certainty on this issue, it is proposed to clarify that for the purposes of section 37(1) any expenditure incurred by an assessee on the of section 37(1) any expenditure incurred by an assessee on the of section 37(1) any expenditure incurred by an assessee on the activities relating to corporate soci activities relating to corporate social responsibility referred to in al responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have section 135 of the Companies Act, 2013 shall not be deemed to have section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and, hence, shall not be been incurred for the purpose of business and, hence, shall not be been incurred for the purpose of business and, hence, shall not be allowed as deduction under section 37. However, the CSR allowed as deduction under section 37. However, the CSR allowed as deduction under section 37. However, the CSR expenditure which is of the natur expenditure which is of the nature described in section 30 to section e described in section 30 to section 36 of the Act shall be allowed deduction under those sections subject 36 of the Act shall be allowed deduction under those sections subject 36 of the Act shall be allowed deduction under those sections subject to ulfillment of conditions, if any, specified therein." to ulfillment of conditions, if any, specified therein."

13.

From the above it is clear that under Income tax Act, certain 13. From the above it is clear that under Income tax Act, certain 13. From the above it is clear that under Income tax Act, certain provisions explicitly stat provisions explicitly state that deductions for expenditure would be e that deductions for expenditure would be allowed while computing income under the head, 'Income from allowed while computing income under the head, 'Income from allowed while computing income under the head, 'Income from Business and Profession" to those, who pursue corporate social Business and Profession" to those, who pursue corporate social Business and Profession" to those, who pursue corporate social responsibility projects under following sections. responsibility projects under following sections. Section 30 provides deduction on Section 30 provides deduction on repairs, municipal tax and repairs, municipal tax and insurance premiums. insurance premiums. Section 31, provides deduction on repairs and insurance of plant, Section 31, provides deduction on repairs and insurance of plant, Section 31, provides deduction on repairs and insurance of plant, machinery and furniture Section 32 provides for depreciation on machinery and furniture Section 32 provides for depreciation on machinery and furniture Section 32 provides for depreciation on tangible assets like building, machinery, plant, furniture and also on tangible assets like building, machinery, plant, furniture and also on tangible assets like building, machinery, plant, furniture and also on intangible assets like knowhow, patents, trademarks, licenses. le assets like knowhow, patents, trademarks, licenses. le assets like knowhow, patents, trademarks, licenses. Section 33 allows development rebate on machinery, plants and Section 33 allows development rebate on machinery, plants and Section 33 allows development rebate on machinery, plants and ships. Section 34 states conditions for depreciation and development rebate. Section 34 states conditions for depreciation and development rebate. Section 34 states conditions for depreciation and development rebate. Section 35 grants deduction on expenditure for scientific rese Section 35 grants deduction on expenditure for scientific rese Section 35 grants deduction on expenditure for scientific research and knowledge extension in natural and applied sciences under and knowledge extension in natural and applied sciences under and knowledge extension in natural and applied sciences under agriculture, animal husbandry and fisheries. Payment to approved agriculture, animal husbandry and fisheries. Payment to approved agriculture, animal husbandry and fisheries. Payment to approved universities/research institutions or company also qualifies for universities/research institutions or company also qualifies for universities/research institutions or company also qualifies for deduction. In- -house R&D is eligible for deduction, under th house R&D is eligible for deduction, under this section.

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 11 & 5310/MUM/2024 & 5310/MUM/2024 Section 35CCD provides deduction for skill development projects, Section 35CCD provides deduction for skill development projects, Section 35CCD provides deduction for skill development projects, which constitute the flagship mission of the present Government. which constitute the flagship mission of the present Government. which constitute the flagship mission of the present Government. Section 36 provides deduction regarding insurance premium on stock, Section 36 provides deduction regarding insurance premium on stock, Section 36 provides deduction regarding insurance premium on stock, health of employees, loans or commission for e health of employees, loans or commission for employees, interest on mployees, interest on borrowed capital, employer contribution to provident fund, gratuity borrowed capital, employer contribution to provident fund, gratuity borrowed capital, employer contribution to provident fund, gratuity and payment of security transaction tax, and payment of security transaction tax, Income Tax Act, under section 80G, forming part of Chapter VIA, Income Tax Act, under section 80G, forming part of Chapter VIA, Income Tax Act, under section 80G, forming part of Chapter VIA, provides for deductions for computing taxable income as under provides for deductions for computing taxable income as under provides for deductions for computing taxable income as under: Section 80G(2) provides for sums expended by an assessee as Section 80G(2) provides for sums expended by an assessee as Section 80G(2) provides for sums expended by an assessee as donations against which deduction is available. donations against which deduction is available. a) Certain donations, give 100% deduction, without any qualifying a) Certain donations, give 100% deduction, without any qualifying a) Certain donations, give 100% deduction, without any qualifying limit like Prime Minister's National Relief Fund, National Defence limit like Prime Minister's National Relief Fund, National Defence limit like Prime Minister's National Relief Fund, National Defence Fund, Nationa Fund, National Illness Assistance Fund etc., specified under section l Illness Assistance Fund etc., specified under section 80G(1) (i) b) Donations with 50% deduction are also available under Section b) Donations with 50% deduction are also available under Section b) Donations with 50% deduction are also available under Section 80G for all those sums that do not fall under section 80G(1)(i). 80G for all those sums that do not fall under section 80G(1)(i). 80G for all those sums that do not fall under section 80G(1)(i). Under Section 80G(2) (iiihk) and (iiihl) there are specific Under Section 80G(2) (iiihk) and (iiihl) there are specific Under Section 80G(2) (iiihk) and (iiihl) there are specific exclusion of certain payments, that are part ofCSR responsibility, not eligible for certain payments, that are part ofCSR responsibility, not eligible for certain payments, that are part ofCSR responsibility, not eligible for deduction u/s80G. deduction u/s80G.

14. In our view, expenditure incurred under section 30 to 36 are 14. In our view, expenditure incurred under section 30 to 36 are 14. In our view, expenditure incurred under section 30 to 36 are claimed while computing income under the head, 'Income form claimed while computing income under the head, 'Income form claimed while computing income under the head, 'Income form Business and Profession", w Business and Profession", where as monies spent under section 80G here as monies spent under section 80G ate claimed while computing "Total Taxable income" in the hands of ate claimed while computing "Total Taxable income" in the hands of ate claimed while computing "Total Taxable income" in the hands of assessee. The point of claim under these provisions are different. assessee. The point of claim under these provisions are different. assessee. The point of claim under these provisions are different.

15.

Further, intention of legislature is very clear and unambiguous, 15. Further, intention of legislature is very clear and unambiguous, 15. Further, intention of legislature is very clear and unambiguous, since expendit since expenditure incurred under section 30 to 36 are excluded from ure incurred under section 30 to 36 are excluded from Explanation 2 to section 37(1) of the Act, they are specifically Explanation 2 to section 37(1) of the Act, they are specifically Explanation 2 to section 37(1) of the Act, they are specifically excluded in clarification issued. There is no restriction on an excluded in clarification issued. There is no restriction on an excluded in clarification issued. There is no restriction on an expenditure being claimed under above sections to be exempt, as expenditure being claimed under above sections to be exempt, as expenditure being claimed under above sections to be exempt, as long as it satisfies necessary conditions under section 30 to 36 of the t satisfies necessary conditions under section 30 to 36 of the t satisfies necessary conditions under section 30 to 36 of the Act, for computing income under the head, "Inco Act, for computing income under the head, "Income from Business me from Business and Profession and Profession".

16. For claiming benefit under section 80G, deductions are 16. For claiming benefit under section 80G, deductions are 16. For claiming benefit under section 80G, deductions are considered at the stage of computing "Total taxable i considered at the stage of computing "Total taxable income". Even if ncome". Even if any any any payments payments payments under under under section section section 80G 80G 80G forms forms forms part part part of of of CSR CSR CSR payments(keeping in mind ineligible deduction expressly provided payments(keeping in mind ineligible deduction expressly provided payments(keeping in mind ineligible deduction expressly provided u/s.80G), the same would already stand excluded while computing, u/s.80G), the same would already stand excluded while computing, u/s.80G), the same would already stand excluded while computing, Income under the head, "Income from Business and Profession". Income under the head, "Income from Business and Profession". Income under the head, "Income from Business and Profession". The effect of such disallowance would lead to increase in Business effect of such disallowance would lead to increase in Business effect of such disallowance would lead to increase in Business

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 12 & 5310/MUM/2024 & 5310/MUM/2024 income. Thereafter benefit accruing to assessee under Chapter VIA income. Thereafter benefit accruing to assessee under Chapter VIA income. Thereafter benefit accruing to assessee under Chapter VIA for computing "Total Taxable Income" cannot be denied to assessee, for computing "Total Taxable Income" cannot be denied to assessee, for computing "Total Taxable Income" cannot be denied to assessee, subject to fulfillment of necessary conditions therein. subject to fulfillment of necessary conditions therein.

17. We therefore do not agree with arguments advanced by Ld. Sr.

17.

We therefore do not agree with arguments advanced by Ld. Sr. DR.

18. In present facts of case, Ld.AR submitted that all payments 18. In present facts of case, Ld.AR submitted that all payments 18. In present facts of case, Ld.AR submitted that all payments forming part of CSR does not form part of profit and loss account for forming part of CSR does not form part of profit and loss account for forming part of CSR does not form part of profit and loss account for computing Income under the head, "Income from Busine computing Income under the head, "Income from Busine computing Income under the head, "Income from Business and Profession It has been submitted that some payments forming part of Profession It has been submitted that some payments forming part of Profession It has been submitted that some payments forming part of CSR were claimed as deduction under section 80G of Act, for CSR were claimed as deduction under section 80G of Act, for CSR were claimed as deduction under section 80G of Act, for computing "Total taxable income", which has been disallowed by computing "Total taxable income", which has been disallowed by computing "Total taxable income", which has been disallowed by authorities below. In our view, assessee cannot be denied authorities below. In our view, assessee cannot be denied authorities below. In our view, assessee cannot be denied the benefit of claim under Chapter VI A, which is considered for computing 'Total of claim under Chapter VI A, which is considered for computing 'Total of claim under Chapter VI A, which is considered for computing 'Total Taxable Income". If assessee is denied this benefit, merely because Taxable Income". If assessee is denied this benefit, merely because Taxable Income". If assessee is denied this benefit, merely because such payment forms part of CSR, would lead to double disallowance, such payment forms part of CSR, would lead to double disallowance, such payment forms part of CSR, would lead to double disallowance, which is not the intention of Legislatu which is not the intention of Legislature.

19. On the basis of above discussion, in our view, authorities below 19. On the basis of above discussion, in our view, authorities below 19. On the basis of above discussion, in our view, authorities below have erred in denying claim of assessee under section 80G of the Act. have erred in denying claim of assessee under section 80G of the Act. have erred in denying claim of assessee under section 80G of the Act. 77e also note that authorities below have not verified nature of 77e also note that authorities below have not verified nature of 77e also note that authorities below have not verified nature of payments qualifying exemption under section 80G payments qualifying exemption under section 80G of the Act and of the Act and quantum of eligibility as per section 80G(1) of the Act. quantum of eligibility as per section 80G(1) of the Act.

20. Under such circumstances, we are remitting the issue back to 20. Under such circumstances, we are remitting the issue back to 20. Under such circumstances, we are remitting the issue back to Ld.AO for verifying conditions necessary to claim deduction under Ld.AO for verifying conditions necessary to claim deduction under Ld.AO for verifying conditions necessary to claim deduction under section 80G of the Act. Assessee is directed to file section 80G of the Act. Assessee is directed to file all requisite details all requisite details in order to substantiate its claim before Ld.AO. Ld.AO is then directed in order to substantiate its claim before Ld.AO. Ld.AO is then directed in order to substantiate its claim before Ld.AO. Ld.AO is then directed to grant deduction to the ex tent of eligibility. Accordingly grounds to grant deduction to the ex tent of eligibility. Accordingly grounds to grant deduction to the ex tent of eligibility. Accordingly grounds raised by assessee stands allowed for statistical purposes." raised by assessee stands allowed for statistical purposes." raised by assessee stands allowed for statistical purposes." 7.5 The Hon'ble ITAT Delhi, 'C' 7.5 The Hon'ble ITAT Delhi, 'C' Bench in the case of Interglobe Bench in the case of Interglobe Technology Quotient (P.) Ltd vs. ACIT, of 2024 dated Technology Quotient (P.) Ltd vs. ACIT, of 2024 dated Technology Quotient (P.) Ltd vs. ACIT, of 2024 dated 28.05.2024 has held as under: 28.05.2024 has held as under: - I. Section 80G, read with section 37(1), of the Income I. Section 80G, read with section 37(1), of the Income- -tax Act, 1961 - Deductions - Donations to certain funds, Charitable insti Donations to certain funds, Charitable institutions, etc. (CSR) (CSR) Assessment Assessment year year 2020-21 2020 Assessee-company company claimed claimed deduction under section 80G in respect of donations It had suo deduction under section 80G in respect of donations It had suo deduction under section 80G in respect of donations It had suo- motu disallowed expenditure incurred as part of Corporate Social disallowed expenditure incurred as part of Corporate Social disallowed expenditure incurred as part of Corporate Social Responsibility (CSR) activities in accordance with provisi Responsibility (CSR) activities in accordance with provisi Responsibility (CSR) activities in accordance with provisions of section 37(1) Assessing Officer disallowed deduction claimed by section 37(1) Assessing Officer disallowed deduction claimed by section 37(1) Assessing Officer disallowed deduction claimed by assessee by holding that donations had been made to meet statutory assessee by holding that donations had been made to meet statutory assessee by holding that donations had been made to meet statutory requirement of provisions of Companies Act 2013 and were requirement of provisions of Companies Act 2013 and were requirement of provisions of Companies Act 2013 and were accordingly not 'voluntary donation to be allowable under sec accordingly not 'voluntary donation to be allowable under sec accordingly not 'voluntary donation to be allowable under section 80G - Whether section 80G falls in Chapter VIA, which comes into Whether section 80G falls in Chapter VIA, which comes into Whether section 80G falls in Chapter VIA, which comes into

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 13 & 5310/MUM/2024 & 5310/MUM/2024 play only after gross total income has been computed by applying play only after gross total income has been computed by applying play only after gross total income has been computed by applying computation provisions under various heads of income, including computation provisions under various heads of income, including computation provisions under various heads of income, including Explanation 2 to section 37(1) and, thus, there was no co Explanation 2 to section 37(1) and, thus, there was no co Explanation 2 to section 37(1) and, thus, there was no correlation between suo between suo-moto disallowance in section 37(1) and claim of moto disallowance in section 37(1) and claim of deduction under section 80G Held, yes Whether Act permits deduction under section 80G Held, yes Whether Act permits deduction under section 80G Held, yes Whether Act permits deduction of donations as per section 80G, even though, assessee deduction of donations as per section 80G, even though, assessee deduction of donations as per section 80G, even though, assessee was not gaining any benefit out of any reciprocity from donee a was not gaining any benefit out of any reciprocity from donee a was not gaining any benefit out of any reciprocity from donee and, similarly, mandatory nature of CSR expenditure does not justify similarly, mandatory nature of CSR expenditure does not justify similarly, mandatory nature of CSR expenditure does not justify disallowance of same under section 80G, if other conditions of section disallowance of same under section 80G, if other conditions of section disallowance of same under section 80G, if other conditions of section 80G were fulfilled 80G were fulfilled - Held, yes [Paras 7.4 and 7.5] [In favour of Held, yes [Paras 7.4 and 7.5] [In favour of assessee] 7.6 In view of the decision of 7.6 In view of the decision of jurisdictional Hon'ble Mumbai ITAT in jurisdictional Hon'ble Mumbai ITAT in the case of M/s.Reliance Industries Ltd. V.DCIT[2023] (ITA NO.2587 the case of M/s.Reliance Industries Ltd. V.DCIT[2023] (ITA NO.2587 the case of M/s.Reliance Industries Ltd. V.DCIT[2023] (ITA NO.2587 & 2588/MUM/2022) and Naik Seafoods Pvt. Ltd. V.Pr.CIT & 2588/MUM/2022) and Naik Seafoods Pvt. Ltd. V.Pr.CIT & 2588/MUM/2022) and Naik Seafoods Pvt. Ltd. V.Pr.CIT-2[2021]) it is held that AO has erred in denying claim it is held that AO has erred in denying claim ITA No.490/MUM/2021, it is held that AO has erred in denying claim of the appellant unde of the appellant under section 80G of the Act. It is also observed that r section 80G of the Act. It is also observed that assessing officer has not verified nature of payments qualifying assessing officer has not verified nature of payments qualifying assessing officer has not verified nature of payments qualifying exemption u/s.80G of the Act and quantum of eligibility as per exemption u/s.80G of the Act and quantum of eligibility as per exemption u/s.80G of the Act and quantum of eligibility as per section 80G(1) of the Act. Therefore, AO is directed to verify section 80G(1) of the Act. Therefore, AO is directed to verify section 80G(1) of the Act. Therefore, AO is directed to verify conditions nec conditions necessary to claim deduction u/s.80G of the Act and grant essary to claim deduction u/s.80G of the Act and grant deduction to the extent of eligibility. Accordingly, this ground no. 2 deduction to the extent of eligibility. Accordingly, this ground no. 2 deduction to the extent of eligibility. Accordingly, this ground no. 2 stands allowed for statistical stands allowed for statistical purposes.” 10.2 The reasoning of the Assessing Officer that CSR expenditure The reasoning of the Assessing Officer that CSR expenditure The reasoning of the Assessing Officer that CSR expenditure lacks voluntariness has lacks voluntariness has been expressly rejected by several Benches been expressly rejected by several Benches of the Tribunal, which held that voluntariness is not defeated of the Tribunal, which held that voluntariness is not defeated of the Tribunal, which held that voluntariness is not defeated merely because CSR spending is statutory; donations made to merely because CSR spending is statutory; donations made to merely because CSR spending is statutory; donations made to eligible institutions remain philanthropic, and there is no element of eligible institutions remain philanthropic, and there is no element of eligible institutions remain philanthropic, and there is no element of quid pro quo. In the present case, the assessee has furnished the present case, the assessee has furnished the present case, the assessee has furnished complete evidence of payments to institutions registered under complete evidence of payments to institutions registered under complete evidence of payments to institutions registered under section 80G. The AO has not doubted the genuineness of donations, section 80G. The AO has not doubted the genuineness of donations, section 80G. The AO has not doubted the genuineness of donations, the eligibility of the donees, or compliance with section 80G(5). The the eligibility of the donees, or compliance with section 80G(5). The the eligibility of the donees, or compliance with section 80G(5). The only objection raised is on the legal interpretation that CSR on raised is on the legal interpretation that CSR on raised is on the legal interpretation that CSR payments are per se ineligible for deduction. This objection cannot payments are per se ineligible for deduction. This objection cannot payments are per se ineligible for deduction. This objection cannot

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 14 & 5310/MUM/2024 & 5310/MUM/2024 be sustained in view of consistent judicial authority holding to the be sustained in view of consistent judicial authority holding to the be sustained in view of consistent judicial authority holding to the contrary.

10.3 We also note that the Ld. CIT(A) has followed binding We also note that the Ld. CIT(A) has followed binding We also note that the Ld. CIT(A) has followed binding precedents of the jurisdictional Mumbai Tribunal, particularly precedents of the jurisdictional Mumbai Tribunal, particularly precedents of the jurisdictional Mumbai Tribunal, particularly Reliance Industries Ltd. Reliance Industries Ltd. (supra) and Naik Seafoods Pvt. Ltd. Naik Seafoods Pvt. Ltd. (supra). The mere fact that the Revenue has filed further appeal cannot The mere fact that the Revenue has filed further appeal cannot The mere fact that the Revenue has filed further appeal cannot dilute the binding force of those decisions in the absence of a stay. dilute the binding force of those decisions in the absence o dilute the binding force of those decisions in the absence o We therefore find no infirmity in the well We therefore find no infirmity in the well-reasoned order of the Ld. reasoned order of the Ld. CIT(A). The deletion of the disallowance is in accordance with law CIT(A). The deletion of the disallowance is in accordance with law CIT(A). The deletion of the disallowance is in accordance with law and judicial precedent. We accordingly uphold the order of the Ld. and judicial precedent. We accordingly uphold the order of the Ld. and judicial precedent. We accordingly uphold the order of the Ld. CIT(A) on this issue. . The Ground Nos. 1 & 4 of appeal raised by the of appeal raised by the Revenue are therefore therefore dismissed.

Ground Nos. 2 & 3: Disallowance of Mark : Disallowance of Mark-to-Market Losses on Market Losses on Cross-Currency Swap Contracts Currency Swap Contracts 11. The Ground Nos. 2 and 3 Ground Nos. 2 and 3 of the appeal concern whether the of the appeal concern whether the market (MTM) loss of ₹195,03,97,953/– mark-to-market (MTM) loss of arising on the assessee’s outstanding cross assessee’s outstanding cross-currency swap (CCS) contracts is to be currency swap (CCS) contracts is to be treated as a revenue expenditure while computing business income, treated as a revenue expenditure while computing business income, treated as a revenue expenditure while computing business income, or whether it is merely a notional loss liable to be added back. or whether it is merely a notional loss liable to be added back. or whether it is merely a notional loss liable to be added back.

11.1 The facts in brief qua the issue in The facts in brief qua the issue in dispute are that assessee dispute are that assessee had outstanding rupees borrowing of Rs.5875 crores by way of had outstanding rupees borrowing of Rs.5875 crores by way of had outstanding rupees borrowing of Rs.5875 crores by way of debentures. Keeping part of said borrowers as underlying, the debentures. Keeping part of said borrowers as underlying debentures. Keeping part of said borrowers as underlying

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 15 & 5310/MUM/2024 & 5310/MUM/2024 assessee entered into cross currency swap (CCS) contracts coupled assessee entered into cross currency swap (CCS) contracts coupled assessee entered into cross currency swap (CCS) contracts coupled with interest swap which has following ef with interest swap which has following effect:

(a) the assessee lent notional amount of Rs.5310.76 crores to (a) the assessee lent notional amount of Rs.5310.76 crores to (a) the assessee lent notional amount of Rs.5310.76 crores to counterparties ( i.e Banks) ( i.e Banks) and (b) the assessee notionally borrowed equivalent amount in USD (b) the assessee notionally borrowed equivalent amount in USD (b) the assessee notionally borrowed equivalent amount in USD (approximately USD 822.29 million) at lower rates linked to LIBOR. (approximately USD 822.29 million) at lower rates linked to LIBOR (approximately USD 822.29 million) at lower rates linked to LIBOR 11.2 The assessee explaine The assessee explained that CCS transactions involve only a d that CCS transactions involve only a contractual exchange of rights and obligations, without any actual contractual exchange of rights and obligations, without any actual contractual exchange of rights and obligations, without any actual exchange of money or currencies. The interest cash flows were exchange of money or currencies. The interest cash flows were exchange of money or currencies. The interest cash flows were settled periodically on a net basis; the notional principal was settled periodically on a net basis; the notional principal was settled periodically on a net basis; the notional principal was similarly net-settled on settled only on scheduled maturity. At each balance ly on scheduled maturity. At each balance- sheet date, the CCS positions were restated at MTM values which sheet date, the CCS positions were restated at MTM values sheet date, the CCS positions were restated at MTM values was derived based on market projections/expectations of interest was derived based on market projections/expectations of interest was derived based on market projections/expectations of interest rates curves and foreign currency curves for the balance period of rates curves and foreign currency curves for the balance period of rates curves and foreign currency curves for the balance period of maturity.

11.3 It was submitted that in vie was submitted that in view of provisions of the Act read w of provisions of the Act read with income computation a income computation and disclosure standards (ICDS) nd disclosure standards (ICDS)-1, relating to Accounting Policies, marked to market loss or gain was not to be Accounting Policies, marked to market loss or gain was not Accounting Policies, marked to market loss or gain was not recognized unless specifically provided by any ICDS. It was recognized unless specifically provided by any ICDS. It was recognized unless specifically provided by any ICDS. It was submitted on behalf of the assessee that said unrealized marked to bmitted on behalf of the assessee that said unrealized marked to bmitted on behalf of the assessee that said unrealized marked to market loss of Rs.195.04 crores market loss of Rs.195.04 crores was debited to was debited to profit and loss account. . . This This This loss loss loss was was was adjusted adjusted adjusted with with with the the the realized realized realized interest/settlement gain on contracts of Rs. 197.50 crores. interest/settlement gain on contracts of Rs. 197.50 crores. interest/settlement gain on contracts of Rs. 197.50 crores.

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 16 & 5310/MUM/2024 & 5310/MUM/2024 Accordingly, in the profit and loss account e profit and loss account a net gain of Rs.2.46 a net gain of Rs.2.46 crores was reflected. But while computing the taxable income, the crores was reflected. But while computing the taxable income, the crores was reflected. But while computing the taxable income, the assessee offered the realized gain of settlement of the contracts for assessee offered the realized gain of settlement of the contracts for assessee offered the realized gain of settlement of the contracts for tax but unrealized loss of Rs.195.04 crores was added back in tax but unrealized loss of Rs.195.04 crores was added back in tax but unrealized loss of Rs.195.04 crores was added back in terms of the ICDS-I relating to accounting policies. I relating to accounting policies.

11.4 However, the Assessing Officer was not convinced with the However, the Assessing Officer was not convinced with the However, the Assessing Officer was not convinced with the above treatment by the assessee. above treatment by the assessee. He relied on section 36(1)(xviii) He relied on section 36(1)(xviii) as per which marked as per which marked to market loss as computed in the manner as computed in the manner provided in ICDS notified u/s 145(2) of the Act is allowable notified u/s 145(2) of the Act is allowable notified u/s 145(2) of the Act is allowable as deduction. The Assessing Officer further relied on section 43AA of deduction. The Assessing Officer further relied on section 43AA of deduction. The Assessing Officer further relied on section 43AA of the Act which provides that any gain or loss arising on account of the Act which provides that any gain or loss arising on account of the Act which provides that any gain or loss arising on account of change in foreign exchange rates shall be treated as income or loss change in foreign exchange rates shall be treated as income or loss change in foreign exchange rates shall be treated as income or loss in accordance with the ICDS. The Assessing Officer in para 7.3 of rdance with the ICDS. The Assessing Officer in para 7.3 of rdance with the ICDS. The Assessing Officer in para 7.3 of the impugned assessment order observed that the currency swaps the impugned assessment order observed that the currency swaps the impugned assessment order observed that the currency swaps in a form of derivative contract which are generally used for in a form of derivative contract which are generally used for in a form of derivative contract which are generally used for arbitrage or hedging. Most swaps involved cash flow based on arbitrage or hedging. Most swaps involved cash flow based on arbitrage or hedging. Most swaps involved cash flow based on notional principal amount. Having narrated the features of swap incipal amount. Having narrated the features of swap incipal amount. Having narrated the features of swap contracts, the Assessing Officer then contracts, the Assessing Officer then rejected the sub the submission of the assessee that those se were not transactions in foreign currency or not transactions in foreign currency or forward exchange contract. The Assessing Officer accordingly forward exchange contract. The Assessing Officer accordingly forward exchange contract. The Assessing Officer accordingly concluded that marked to market losses was therefore to be allowed d that marked to market losses was therefore to be allowed d that marked to market losses was therefore to be allowed to the assessee.

11.5 The Assessing Officer further noticed that prior to insertion of The Assessing Officer further noticed that prior to insertion of The Assessing Officer further noticed that prior to insertion of clause (xviii) in section 36, the MTM losses were allowed as clause (xviii) in section 36, the MTM losses were allowed as clause (xviii) in section 36, the MTM losses were allowed as Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 17 & 5310/MUM/2024 & 5310/MUM/2024 business loss by Hon’ble Supreme Court and other business loss by Hon’ble Supreme Court and other authorities. But post amendment to section 36(1) amendment to section 36(1) and insertion of section 43AA, insertion of section 43AA, MTM loss is allowed as deduction. MTM loss is allowed as deduction. The ld AO further, relied on The ld AO further, relied on ICDS-VI which provides for treatment of income or loss in case of VI which provides for treatment of income or loss in case of VI which provides for treatment of income or loss in case of forward exchange contracts. forward exchange contracts. According to the A According to the AO, the cross currency swaps(CCS) entered into by the assessee are in nature of currency swaps(CCS) entered into by the assessee are in nature of currency swaps(CCS) entered into by the assessee are in nature of forward exchange contract and hence forward exchange contract and hence loss arising thereon loss arising thereon to be treated under ICDS- -VI and to be recognised in profit and loss to be recognised in profit and loss account as revenue expenditure. account as revenue expenditure. Accordingly, the Ass Accordingly, the Assessing Officer allowed the said loss of Rs.195,03,97,953/ allowed the said loss of Rs.195,03,97,953/- to the computation of to the computation of the income including computation of profit for SEZ Unit while the income including computation of profit for SEZ Unit while the income including computation of profit for SEZ Unit while claiming deduction u/s 80IAB. Thus claiming deduction u/s 80IAB. Thus, allowing of loss on currency allowing of loss on currency swap contract as revenue expenditure reduced as revenue expenditure reduced total income before al income before Chapter VI A deduction and then reduced deduction u/s 80-IA Chapter VI A deduction and then reduced deduction u/s 80 Chapter VI A deduction and then reduced deduction u/s 80 accordingly.

11.6 Before the Ld. CIT(A), the assessee contended that, in terms of Before the Ld. CIT(A), the assessee contended that, in terms of Before the Ld. CIT(A), the assessee contended that, in terms of Sections 36(1)(xviii) and 43AA of the Act, mark Sections 36(1)(xviii) and 43AA of the Act, mark-to to-market (MTM) loss or expected loss is allowab loss or expected loss is allowable only in accordance with ICDS le only in accordance with ICDS-I, which governs accounting policies. The assessee submitted that which governs accounting policies. The assessee submitted that which governs accounting policies. The assessee submitted that although MTM losses are generally not allowable, an exception although MTM losses are generally not allowable, an exception although MTM losses are generally not allowable, an exception exists only where ICDS exists only where ICDS-I specifically permits such recognition while I specifically permits such recognition while computing taxable income. computing taxable income. The Assessing Officer, however, relied he Assessing Officer, however, relied on ICDS-VI and held that the unreali VI and held that the unrealized MTM loss on currency ed MTM loss on currency swap contracts (CCS) was allowable as a revenue item. In response, swap contracts (CCS) was allowable as a revenue item. In response, swap contracts (CCS) was allowable as a revenue item. In response,

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 18 & 5310/MUM/2024 & 5310/MUM/2024 the assessee argued that ICDS the assessee argued that ICDS-VI applies only to “forward exchange VI applies only to “forward exchange contracts” and does not contracts” and does not extend to CCS. To support this contention, extend to CCS. To support this contention, the assessee referred to the definitions of “forward exchange the assessee referred to the definitions of “forward exchange the assessee referred to the definitions of “forward exchange contract,” “forward rate,” and “exchange difference” under ICDS-VI contract,” “forward rate,” and “exchange difference” under ICDS contract,” “forward rate,” and “exchange difference” under ICDS and submitted that currency swaps do not fall within any of these and submitted that currency swaps do not fall within any of these and submitted that currency swaps do not fall within any of these definitions. Accordingly, the assessee maintained that ICDS rdingly, the assessee maintained that ICDS-VI has rdingly, the assessee maintained that ICDS no application to the CCS transactions undertaken by it, and only no application to the CCS transactions undertaken by it, and only no application to the CCS transactions undertaken by it, and only ICDS-I would govern such contracts. Under ICDS I would govern such contracts. Under ICDS-I, MTM losses on I, MTM losses on currency swaps are not allowable while computing income under currency swaps are not allowable while computing income under currency swaps are not allowable while computing income under the Act.

11.7 After considering the rival submissions and examining the After considering the rival submissions and examining the After considering the rival submissions and examining the material on record, the Ld. CIT(A) accepted the assessee’s position material on record, the Ld. CIT(A) accepted the assessee’s position material on record, the Ld. CIT(A) accepted the assessee’s position and allowed the claim, placing reliance on the decisions of the Co- and allowed the claim, placing reliance on the decisions of the Co and allowed the claim, placing reliance on the decisions of the Co ordinate Bench in East West Pipelines East West Pipelines (supra) and (supra) and Adani Power Maharashtra (supra). (supra). The relevant finding of the Ld. CIT(A) are The relevant finding of the Ld. CIT(A) are reproduced as under: reproduced as under:

8.7 As per Ind AS, all forwards contracts in foreign currency needs 8.7 As per Ind AS, all forwards contracts in foreign currency needs 8.7 As per Ind AS, all forwards contracts in foreign currency needs to be marked to market at exchange rate as on the day of closing of to be marked to market at exchange rate as on the day of closing of to be marked to market at exchange rate as on the day of closing of financial period. period. However taxability of MTM (Marked to Market) of MTM (Marked to Market) losses are governed by ICDS & Income Tax Act. Appellant needs to losses are governed by ICDS & Income Tax Act. Appellant needs to losses are governed by ICDS & Income Tax Act. Appellant needs to make adjustments in Computation of Income to disallow unrealized make adjustments in Computation of Income to disallow unrealized make adjustments in Computation of Income to disallow unrealized MTM losses for the financial period considered in Profit and Loss MTM losses for the financial period considered in Profit and Loss MTM losses for the financial period considered in Profit and Loss Account. 8.8 The provisions relat 8.8 The provisions related to taxation of MTM losses as per ICDS ed to taxation of MTM losses as per ICDS and as per Income Tax Act are as under: and as per Income Tax Act are as under: 1. As per ICDS I Para 4 (ii) : 1. As per ICDS I Para 4 (ii) :

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 19 & 5310/MUM/2024 & 5310/MUM/2024

MTM loss or an expected loss shall not be recognized unless the MTM loss or an expected loss shall not be recognized unless the MTM loss or an expected loss shall not be recognized unless the recognition of such loss is in accordance with the provisions of any recognition of such loss is in accordance with the provisions of any recognition of such loss is in accordance with the provisions of any other ICDS. (ii) As per ICDS VI Para 8 (5): (ii) As per ICDS VI Para 8 (5): Premium, discount or exchange difference on contracts that are Premium, discount or exchange difference on contracts that are Premium, discount or exchange difference on contracts that are intended for trading or speculation purposes, or that are entered intended for trading or speculation purposes, or that are entered intended for trading or speculation purposes, or that are entered into to hedge the foreign currency risk of a firm commitment or a into to hedge the foreign currency risk of a firm commitment or a into to hedge the foreign currency risk of a firm commitment or a highly probable forecast tra highly probable forecast transaction shall be recognized at the time nsaction shall be recognized at the time of settlement. It means only realized losses will be allowed as of settlement. It means only realized losses will be allowed as of settlement. It means only realized losses will be allowed as deduction as per ICDS. deduction as per ICDS. (iii) As per Income Tax Act Section 36 (1) (xviii) : HE TAX DEPAR (iii) As per Income Tax Act Section 36 (1) (xviii) : HE TAX DEPAR (iii) As per Income Tax Act Section 36 (1) (xviii) : HE TAX DEPAR Marked to market loss or other expected loss as computed in Marked to market loss or other expected loss as computed in Marked to market loss or other expected loss as computed in accordance with the income computation and disclosure standards ccordance with the income computation and disclosure standards ccordance with the income computation and disclosure standards notified under sub notified under sub-section (2) of section 145 will be allowed as section (2) of section 145 will be allowed as deduction. As per ICDS loss on settlement of forward contracts will deduction. As per ICDS loss on settlement of forward contracts will deduction. As per ICDS loss on settlement of forward contracts will be allowed as deduction. be allowed as deduction. (iv) The provisions of section 43AA (iv) The provisions of section 43AA of the Income Tax Act are of the Income Tax Act are reproduced hereunder: reproduced hereunder: 37 [Taxation of foreign exchange fluctuation. 37 [Taxation of foreign exchange fluctuation. 43AA. (1) Subject to the provisions of section 43A, any gain or loss 43AA. (1) Subject to the provisions of section 43A, any gain or loss 43AA. (1) Subject to the provisions of section 43A, any gain or loss arising on account of any change in foreign exchange rates shall be arising on account of any change in foreign exchange rates shall be arising on account of any change in foreign exchange rates shall be treated as income or los treated as income or loss, as the case may be, and such gain or loss s, as the case may be, and such gain or loss shall be computed in accordance with the income computation and shall be computed in accordance with the income computation and shall be computed in accordance with the income computation and disclosure standards notified under sub disclosure standards notified under sub-section (2) of section section (2) of section 145,38 (2) For the purposes of sub (2) For the purposes of sub-section (1), gain or loss arising on section (1), gain or loss arising on account of the effects of change in foreign exchange rates shall be in he effects of change in foreign exchange rates shall be in he effects of change in foreign exchange rates shall be in respect of all foreign currency transactions, including those relating respect of all foreign currency transactions, including those relating respect of all foreign currency transactions, including those relating to- (1) monetary items and non (1) monetary items and non-monetary items; (ii) translation of financial statements of foreign operations; (ii) translation of financial statements of foreign operations; (ii) translation of financial statements of foreign operations; (iii) forward exchange contracts; exchange contracts; (iv) foreign currency translation reserves.] (iv) foreign currency translation reserves.] 8.9 Any gain or loss arising on account of any change in foreign 8.9 Any gain or loss arising on account of any change in foreign 8.9 Any gain or loss arising on account of any change in foreign exchange rates shall be treated as income or loss, as the case may exchange rates shall be treated as income or loss, as the case may exchange rates shall be treated as income or loss, as the case may

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 20 & 5310/MUM/2024 & 5310/MUM/2024 be, and such gain or loss shall be computed in accordance be, and such gain or loss shall be computed in accordance be, and such gain or loss shall be computed in accordance with the income computation and disclosure standards notified under sub income computation and disclosure standards notified under sub income computation and disclosure standards notified under sub- section (2) of section 145. It means any forex loss shall be allowed section (2) of section 145. It means any forex loss shall be allowed section (2) of section 145. It means any forex loss shall be allowed as deduction only if it is computed in accordance with ICDS. As per as deduction only if it is computed in accordance with ICDS. As per as deduction only if it is computed in accordance with ICDS. As per ICDS only realized forex loss on forward contra ICDS only realized forex loss on forward contracts is allowed as cts is allowed as deduction. 8.9.1 The AO has relied upon the decision rendered in the case of 8.9.1 The AO has relied upon the decision rendered in the case of 8.9.1 The AO has relied upon the decision rendered in the case of Commissioner of Income Commissioner of Income-tax, Delhi v. Woodward Governor India (P.) tax, Delhi v. Woodward Governor India (P.) Ltd 312 ITR 254 (SC)/[2009]. The Hon'ble Supreme Court of India Ltd 312 ITR 254 (SC)/[2009]. The Hon'ble Supreme Court of India Ltd 312 ITR 254 (SC)/[2009]. The Hon'ble Supreme Court of India has held as under: has held as under:- Assessment year 1998 year 1998-99 1. Section 37(1), read with section 145, of 99 1. Section 37(1), read with section 145, of the Income-tax Act, 1961 Business expenditure Allowablilty of tax Act, 1961 Business expenditure Allowablilty of tax Act, 1961 Business expenditure Allowablilty of Whether expression 'expenditure' as used in section 37 may, in Whether expression 'expenditure' as used in section 37 may, in Whether expression 'expenditure' as used in section 37 may, in circumstances of a particular case, cover an amount which is really circumstances of a particular case, cover an amount which is really circumstances of a particular case, cover an amount which is really a 'loss', even though said amount has not gone out from pocket of s', even though said amount has not gone out from pocket of s', even though said amount has not gone out from pocket of assessee - Held, yes Whether loss suffered by assessee on account Held, yes Whether loss suffered by assessee on account Held, yes Whether loss suffered by assessee on account of foreign exchange difference as on date of balance sheet is an of foreign exchange difference as on date of balance sheet is an of foreign exchange difference as on date of balance sheet is an item of expenditure under section 37(1) Held, yes Whether item of expenditure under section 37(1) Held, yes Whether item of expenditure under section 37(1) Held, yes Whether accounting method followed by an assessee continuously for a ing method followed by an assessee continuously for a ing method followed by an assessee continuously for a given period of time needs to be presumed to be correct till given period of time needs to be presumed to be correct till given period of time needs to be presumed to be correct till Assessing Officer comes to conclusion for reasons to be given that Assessing Officer comes to conclusion for reasons to be given that Assessing Officer comes to conclusion for reasons to be given that said system does not reflect true and correct profits said system does not reflect true and correct profits said system does not reflect true and correct profits - Held, yes - Whether an enterprise has to report outstanding liability relating to r an enterprise has to report outstanding liability relating to r an enterprise has to report outstanding liability relating to import of raw material using closing rate of foreign exchange and import of raw material using closing rate of foreign exchange and import of raw material using closing rate of foreign exchange and any difference, loss or gain, arising on conversion of said liability at any difference, loss or gain, arising on conversion of said liability at any difference, loss or gain, arising on conversion of said liability at closing rate should be recognized in profit and loss closing rate should be recognized in profit and loss closing rate should be recognized in profit and loss account for reporting period reporting period - Held, yes II. Section 43A of the exchange, change in to section 43A by II. Section 43A of the exchange, change in to section 43A by II. Section 43A of the exchange, change in to section 43A by amendatory and not clarificatory amendatory and not clarificatory - Held, yes - Whether under Whether under unamended section 43A, 'actual payment' was not a condition section 43A, 'actual payment' was not a condition section 43A, 'actual payment' was not a condition precedent for making necessary adjustment in carrying cost of fixed precedent for making necessary adjustment in carrying cost of fixed precedent for making necessary adjustment in carrying cost of fixed asset acquired in foreign currency Held, yes Whether therefore, asset acquired in foreign currency Held, yes Whether therefore, asset acquired in foreign currency Held, yes Whether therefore, prior to amendment to section 43A, assessee was entitled to adjust prior to amendment to section 43A, assessee was entitled to adjust prior to amendment to section 43A, assessee was entitled to adjust actual cost of imported assets acquired in foreign currency on cost of imported assets acquired in foreign currency on cost of imported assets acquired in foreign currency on account of fluctuation in rate of exchange at each balance account of fluctuation in rate of exchange at each balance account of fluctuation in rate of exchange at each balance-sheet date, pending actual payment of varied liability date, pending actual payment of varied liability - Held, Income Held, Income-tax Act, 1961 Foreign currency, rate of Assessment year 1998 Act, 1961 Foreign currency, rate of Assessment year 1998 Act, 1961 Foreign currency, rate of Assessment year 1998-99 - Whether amendment Finance Act, 2002 with effect from 1 her amendment Finance Act, 2002 with effect from 1 her amendment Finance Act, 2002 with effect from 1-4-2003 is yes 8.9.2 The facts of the case in Woodward Governor India P. Ltd. was 8.9.2 The facts of the case in Woodward Governor India P. Ltd. was 8.9.2 The facts of the case in Woodward Governor India P. Ltd. was that Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 21 & 5310/MUM/2024 & 5310/MUM/2024

"the assessee had debited to its Profit & Loss Account a sum of Rs. "the assessee had debited to its Profit & Loss Account a sum of Rs. "the assessee had debited to its Profit & Loss Account a sum of Rs. 41,06,746.00 out of which a sum of Rs. 29,49,088.00 41,06,746.00 out of which a sum of Rs. 29,49,088.00 41,06,746.00 out of which a sum of Rs. 29,49,088.00 was the unrealized loss due to foreign exchange fluctuation on the last date unrealized loss due to foreign exchange fluctuation on the last date unrealized loss due to foreign exchange fluctuation on the last date of the accounting year. The AO held that the liability as on the last of the accounting year. The AO held that the liability as on the last of the accounting year. The AO held that the liability as on the last date of the previous year under consideration was a contingent date of the previous year under consideration was a contingent date of the previous year under consideration was a contingent liability, it was not an ascertained liabilit liability, it was not an ascertained liability and consequently it had y and consequently it had to be added back to the total income of the assessee. Accordingly, to be added back to the total income of the assessee. Accordingly, to be added back to the total income of the assessee. Accordingly, he added back Rs. 29,49,088.00 being the unrealized loss due to he added back Rs. 29,49,088.00 being the unrealized loss due to he added back Rs. 29,49,088.00 being the unrealized loss due to foreign exchange fluctuation. In other words, the debit to the P&L foreign exchange fluctuation. In other words, the debit to the P&L foreign exchange fluctuation. In other words, the debit to the P&L account was disallowed." account was disallowed." 8.9.3 However, in this case the issue is that the appellant had owever, in this case the issue is that the appellant had owever, in this case the issue is that the appellant had entered into currency swap (CCS) contracts with various banks entered into currency swap (CCS) contracts with various banks entered into currency swap (CCS) contracts with various banks (authorized dealers). The marked to market loss of Rs.195.04 Cr on (authorized dealers). The marked to market loss of Rs.195.04 Cr on (authorized dealers). The marked to market loss of Rs.195.04 Cr on these contracts was debited to profit & loss account. However, these contracts was debited to profit & loss account. However, these contracts was debited to profit & loss account. However, while computing its taxable income the appellant had added back omputing its taxable income the appellant had added back omputing its taxable income the appellant had added back these amount of Rs.195.04 Cr in terms of provision income these amount of Rs.195.04 Cr in terms of provision income these amount of Rs.195.04 Cr in terms of provision income computation and disclosure standards [ICDS(I)]. computation and disclosure standards [ICDS(I)]. 8.10 During the appellate proceedings (Video Conferencing) the 8.10 During the appellate proceedings (Video Conferencing) the 8.10 During the appellate proceedings (Video Conferencing) the appellant was confronted with appellant was confronted with the fact that various courts had the fact that various courts had rendered decisions wherein cross currency swap loss was allowed rendered decisions wherein cross currency swap loss was allowed rendered decisions wherein cross currency swap loss was allowed to the assessee. The issue being identical for A.Y. 2019 to the assessee. The issue being identical for A.Y. 2019 to the assessee. The issue being identical for A.Y. 2019-20 and 2020-21, the appellant discussed the issue in detail in A.Y. 2020 21, the appellant discussed the issue in detail in A.Y. 2020 21, the appellant discussed the issue in detail in A.Y. 2020-21 and relied upon the same f and relied upon the same for A.Y. 2019-20. On this issue the 20. On this issue the appellant has filed written submission and discussed the decision appellant has filed written submission and discussed the decision appellant has filed written submission and discussed the decision rendered by courts in respect of below cases: rendered by courts in respect of below cases: (i) (i) (i) DCIT DCIT DCIT v. v. v. East East East West West West Pipeline Pipeline Pipeline Pvt. Pvt. Pvt. Ltd. Ltd. Ltd. [2023] [2023] [2023] ITA ITA (Mum)(ITAT) No.1999/Mum/2023 (Mum)(ITAT) (ii) DCIT v. Adani Power Mah (ii) DCIT v. Adani Power Maharashtra Ltd. [2023] 199 ITD 226 arashtra Ltd. [2023] 199 ITD 226 8.11 In this regards, the appellant has submitted that the above 8.11 In this regards, the appellant has submitted that the above 8.11 In this regards, the appellant has submitted that the above case laws are not applicable to the facts of its case. The discussion case laws are not applicable to the facts of its case. The discussion case laws are not applicable to the facts of its case. The discussion made in the submission pertaining to A.Y. 2020 made in the submission pertaining to A.Y. 2020-21 in para 2.8, 2.10 21 in para 2.8, 2.10 & 2.11 of submission & 2.11 of submission dated 29.07.2024 is reproduced hereunder: dated 29.07.2024 is reproduced hereunder: "2.8 In this regard, decision of DCIT v. East West Pipeline Pvt. Ltd. "2.8 In this regard, decision of DCIT v. East West Pipeline Pvt. Ltd. "2.8 In this regard, decision of DCIT v. East West Pipeline Pvt. Ltd. [2023] (Mum) (ITAT) can be referred which [2023] (Mum) (ITAT) can be referred which [2023] ITA No.1999/Mum/2023 (Mum) (ITAT) can be referred which was rendered in context of allowability of realized and unrealized was rendered in context of allowability of realized and unrealized was rendered in context of allowability of realized and unrealized (marked to ma (marked to market) foreign exchange loss on account of CCS. The rket) foreign exchange loss on account of CCS. The AO had disallowed the same by treating it as speculative in nature AO had disallowed the same by treating it as speculative in nature AO had disallowed the same by treating it as speculative in nature u/s 43(5) and capital in nature u/s. 37(1). The learned CIT(A) held u/s 43(5) and capital in nature u/s. 37(1). The learned CIT(A) held u/s 43(5) and capital in nature u/s. 37(1). The learned CIT(A) held that said losses are not speculative in nature and not capital in that said losses are not speculative in nature and not capital in that said losses are not speculative in nature and not capital in nature and also held that the reopening of the assessment was bad re and also held that the reopening of the assessment was bad re and also held that the reopening of the assessment was bad in law. The Hon'ble ITAT has dismissed department's appeal on the in law. The Hon'ble ITAT has dismissed department's appeal on the in law. The Hon'ble ITAT has dismissed department's appeal on the Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 22 & 5310/MUM/2024 ITA No. 5312 & 5310/MUM/2024 jurisdictional issue and quashed the assessment re jurisdictional issue and quashed the assessment re- opened beyond opened beyond 44 years by holding that the assessee had made full and true 44 years by holding that the assessee had made full and true 44 years by holding that the assessee had made full and true disclosure. Resultantly, the Hon'ble ITAT rendered the grounds on isclosure. Resultantly, the Hon'ble ITAT rendered the grounds on isclosure. Resultantly, the Hon'ble ITAT rendered the grounds on merits as academic and dismissed the same as infructuous. It is to merits as academic and dismissed the same as infructuous. It is to merits as academic and dismissed the same as infructuous. It is to be noted that the decision pertained to AY 2014 be noted that the decision pertained to AY 2014- 15. [Copy of decision is attached as Annexure 'A'] decision is attached as Annexure 'A'] 2.10 Another decision of 2.10 Another decision of Hon'ble Ahmedabad ITAT in case of DCIT Hon'ble Ahmedabad ITAT in case of DCIT v. Adani Power Maharashtra Ltd. [2023] 199 ITD 226, can be v. Adani Power Maharashtra Ltd. [2023] 199 ITD 226, can be v. Adani Power Maharashtra Ltd. [2023] 199 ITD 226, can be referred which was rendered in context of allowability of marked to referred which was rendered in context of allowability of marked to referred which was rendered in context of allowability of marked to market foreign exchange loss on account of interest rate swap market foreign exchange loss on account of interest rate swap market foreign exchange loss on account of interest rate swap contract. The said loss was contract. The said loss was recognized and claimed as deduction as recognized and claimed as deduction as per principles of prudence and following accounting standard (AS) per principles of prudence and following accounting standard (AS) per principles of prudence and following accounting standard (AS) - 1, being disclosure of accounting policies issued y ICAI. The ITAT 1, being disclosure of accounting policies issued y ICAI. The ITAT 1, being disclosure of accounting policies issued y ICAI. The ITAT allowed the claim of the assessee as same was in accordance with allowed the claim of the assessee as same was in accordance with allowed the claim of the assessee as same was in accordance with AS-11 and was no 11 and was not contingent or hypothetical liability. It is to be t contingent or hypothetical liability. It is to be noted that the decision pertained to AY 2015 noted that the decision pertained to AY 2015-16 and 2016 16 and 2016-17. [Copy of decision is attached as Annexure 'B]." [Copy of decision is attached as Annexure 'B]." 2.11 Both the above decision are not applicable to the facts of the 2.11 Both the above decision are not applicable to the facts of the 2.11 Both the above decision are not applicable to the facts of the case of the Appellant befor case of the Appellant before your honour, since the appellant's case e your honour, since the appellant's case pertains to AY 2020 pertains to AY 2020-21 to which provisions of clause (xviii) to 21 to which provisions of clause (xviii) to section 36(1) applies, which was introduced by Finance Act, 2018, section 36(1) applies, which was introduced by Finance Act, 2018, section 36(1) applies, which was introduced by Finance Act, 2018, w.e.f. 1.4.2017 (AY 2017 w.e.f. 1.4.2017 (AY 2017-18). 8.12 The appellant has also argued that the action of 8.12 The appellant has also argued that the action of 8.12 The appellant has also argued that the action of the AO was bad in law in as much as the law laid down by the Hon'ble bad in law in as much as the law laid down by the Hon'ble bad in law in as much as the law laid down by the Hon'ble Supreme Court in the case of Goetze (India) Limited vs. CIT [2006] Supreme Court in the case of Goetze (India) Limited vs. CIT [2006] Supreme Court in the case of Goetze (India) Limited vs. CIT [2006] 284 ITR 323 (SC) is squarely applicable to the facts of the case. The 284 ITR 323 (SC) is squarely applicable to the facts of the case. The 284 ITR 323 (SC) is squarely applicable to the facts of the case. The Assessing Officer cannot entertained a claim of de Assessing Officer cannot entertained a claim of deduction otherwise duction otherwise than by filing return or revised return. In the appellant's case the than by filing return or revised return. In the appellant's case the than by filing return or revised return. In the appellant's case the unrealized loss on CCS was disallowed in the computation of unrealized loss on CCS was disallowed in the computation of unrealized loss on CCS was disallowed in the computation of income in the return of income itself. However, the AO allowed the income in the return of income itself. However, the AO allowed the income in the return of income itself. However, the AO allowed the deduction even though he did not make a cl deduction even though he did not make a claim, which is aim, which is contradictory to the law laid down by the Hon'ble Supreme Court. contradictory to the law laid down by the Hon'ble Supreme Court. contradictory to the law laid down by the Hon'ble Supreme Court. 8.13 During the Video Conferencing the appellant stressed on the 8.13 During the Video Conferencing the appellant stressed on the 8.13 During the Video Conferencing the appellant stressed on the issue that the case is not covered under the term "Foreign Exchange issue that the case is not covered under the term "Foreign Exchange issue that the case is not covered under the term "Foreign Exchange Contracts" as referred in Section 43AA(2)(ii Contracts" as referred in Section 43AA(2)(iii). It was argued that i). It was argued that there is a great difference between a "forward exchange contract" there is a great difference between a "forward exchange contract" there is a great difference between a "forward exchange contract" and a "currency swap contract". It was further stressed it is and a "currency swap contract". It was further stressed it is and a "currency swap contract". It was further stressed it is pertinent to note how both these contracts are not similar in nature. pertinent to note how both these contracts are not similar in nature. pertinent to note how both these contracts are not similar in nature. It was stated that as per provision It was stated that as per provisions of ICDS-VI: "Forward exchange VI: "Forward exchange contract" means an agreement to exchange different currencies at a contract" means an agreement to exchange different currencies at a contract" means an agreement to exchange different currencies at a forward rate, and includes a foreign currency option contract or forward rate, and includes a foreign currency option contract or forward rate, and includes a foreign currency option contract or another financial instrument of a similar nature;" Further "Forward another financial instrument of a similar nature;" Further "Forward another financial instrument of a similar nature;" Further "Forward rate" is the specified e rate" is the specified exchange rate for exchange of two currencies xchange rate for exchange of two currencies

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 23 & 5310/MUM/2024 & 5310/MUM/2024 at specified future date;" The appellant submitted that there are two at specified future date;" The appellant submitted that there are two at specified future date;" The appellant submitted that there are two elements of forward exchange contract, being: elements of forward exchange contract, being: i. exchange of different currencies; i. exchange of different currencies; ii. at a forward rate ii. at a forward rate The appellant therefore argued that The appellant therefore argued that as per the definition of forward as per the definition of forward rate, it is clear that it is a pre rate, it is clear that it is a pre-agreed rate at which the currencies agreed rate at which the currencies will be exchanged at a future date, meaning thereby, the forward will be exchanged at a future date, meaning thereby, the forward will be exchanged at a future date, meaning thereby, the forward rate would not vary at any given point of time. rate would not vary at any given point of time. 8.14 The appellant has clarified that a 8.14 The appellant has clarified that as on 31.03.2019 it had s on 31.03.2019 it had outstanding rupee borrowing Rs.5875 crore by way of debentures. outstanding rupee borrowing Rs.5875 crore by way of debentures. outstanding rupee borrowing Rs.5875 crore by way of debentures. Keeping part of these rupee borrowings as underlying, it entered Keeping part of these rupee borrowings as underlying, it entered Keeping part of these rupee borrowings as underlying, it entered into cross currency swap (CCS) contracts coupled with interest into cross currency swap (CCS) contracts coupled with interest into cross currency swap (CCS) contracts coupled with interest swaps, which effectively meant that it le swaps, which effectively meant that it lent notional amount of nt notional amount of Rs.5310.76 crore to counterparties and borrowed equivalent amount Rs.5310.76 crore to counterparties and borrowed equivalent amount Rs.5310.76 crore to counterparties and borrowed equivalent amount in USD (appx USD 822.29 mn) at lower interest rates linked to in USD (appx USD 822.29 mn) at lower interest rates linked to in USD (appx USD 822.29 mn) at lower interest rates linked to LIBOR. Thus the transaction involves contractual assumption of LIBOR. Thus the transaction involves contractual assumption of LIBOR. Thus the transaction involves contractual assumption of rights and obligations by the parties witho rights and obligations by the parties without actual exchange of ut actual exchange of money or foreign currency. These are not transactions in foreign money or foreign currency. These are not transactions in foreign money or foreign currency. These are not transactions in foreign currency or forward exchange contracts. The interest difference is currency or forward exchange contracts. The interest difference is currency or forward exchange contracts. The interest difference is periodically settled on net basis. The notional loan amount is settled periodically settled on net basis. The notional loan amount is settled periodically settled on net basis. The notional loan amount is settled on net basis on scheduled matur on net basis on scheduled maturity. At end of reporting period, the ity. At end of reporting period, the outstanding CCS are required to be adjusted for marked to market outstanding CCS are required to be adjusted for marked to market outstanding CCS are required to be adjusted for marked to market (MTM) which is derived based on expected foreign currency curves (MTM) which is derived based on expected foreign currency curves (MTM) which is derived based on expected foreign currency curves and interest rates curves for the balance period of maturity. and interest rates curves for the balance period of maturity. and interest rates curves for the balance period of maturity. 8.15 The AO has held that t 8.15 The AO has held that the currency swap is in the nature of he currency swap is in the nature of forward contracts. He has further relied upon provisions of section forward contracts. He has further relied upon provisions of section forward contracts. He has further relied upon provisions of section 43AA of the IT Act. Perusal of the submission of the appellant and 43AA of the IT Act. Perusal of the submission of the appellant and 43AA of the IT Act. Perusal of the submission of the appellant and facts of the case reveal that the transactions do not fall under the facts of the case reveal that the transactions do not fall under the facts of the case reveal that the transactions do not fall under the term "Forward E term "Forward Exchange Contract". The definition of forward xchange Contract". The definition of forward exchange contract as per ICDS is reproduced hereunder: exchange contract as per ICDS is reproduced hereunder: exchange contract as per ICDS is reproduced hereunder:- 3. Definitions "2. (1) The following terms are used in this Income Computation and "2. (1) The following terms are used in this Income Computation and "2. (1) The following terms are used in this Income Computation and Disclosure Standard with the meanings specified: Disclosure Standard with the meanings specified: (h) "Forward exchange c (h) "Forward exchange contract" means an agreement to exchange ontract" means an agreement to exchange different currencies at a forward rate, and includes a foreign different currencies at a forward rate, and includes a foreign different currencies at a forward rate, and includes a foreign currency option contract or another financial instrument of a similar currency option contract or another financial instrument of a similar currency option contract or another financial instrument of a similar nature; Perusal of the above definition reveals that the currency swap Perusal of the above definition reveals that the currency swap Perusal of the above definition reveals that the currency swap contract does not fall under the term "forward exchange contract". s not fall under the term "forward exchange contract". s not fall under the term "forward exchange contract".

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 24 & 5310/MUM/2024 & 5310/MUM/2024

However, even if the said transaction is considered as forward However, even if the said transaction is considered as forward However, even if the said transaction is considered as forward exchange contract, as per ICDS VI Para 8 (5) Premium, discount or exchange contract, as per ICDS VI Para 8 (5) Premium, discount or exchange contract, as per ICDS VI Para 8 (5) Premium, discount or exchange difference on contracts that are intended for trading or exchange difference on contracts that are intended for trading or exchange difference on contracts that are intended for trading or speculation purposes, or that are entered into to hedge the foreign ation purposes, or that are entered into to hedge the foreign ation purposes, or that are entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast currency risk of a firm commitment or a highly probable forecast currency risk of a firm commitment or a highly probable forecast transaction shall be recognized at the time of settlement. It means transaction shall be recognized at the time of settlement. It means transaction shall be recognized at the time of settlement. It means only realized losses will be allowed as deduction as per ICDS only realized losses will be allowed as deduction as per ICDS only realized losses will be allowed as deduction as per ICDS. Therefore, the same does not get covered by ICDS VI. Therefore, it Therefore, the same does not get covered by ICDS VI. Therefore, it Therefore, the same does not get covered by ICDS VI. Therefore, it would then revert to ICDS I. As per ICDS I Para 4 (ii) MTM loss or an would then revert to ICDS I. As per ICDS I Para 4 (ii) MTM loss or an would then revert to ICDS I. As per ICDS I Para 4 (ii) MTM loss or an expected loss shall not be recognized unless the recognition of such expected loss shall not be recognized unless the recognition of such expected loss shall not be recognized unless the recognition of such loss is in accordance with the provisions of any loss is in accordance with the provisions of any other ICDS. other ICDS. 8.16 To sum up a forward exchange contract is a financial 8.16 To sum up a forward exchange contract is a financial 8.16 To sum up a forward exchange contract is a financial agreement between two parties to exchange a specific amount of agreement between two parties to exchange a specific amount of agreement between two parties to exchange a specific amount of one currency for another currency at a fixed exchange rate on a one currency for another currency at a fixed exchange rate on a one currency for another currency at a fixed exchange rate on a specific date in the future. This type of contract is used specific date in the future. This type of contract is used specific date in the future. This type of contract is used to manage foreign exchange risk and lock in a fixed rate for future foreign exchange risk and lock in a fixed rate for future foreign exchange risk and lock in a fixed rate for future transactions. Key elements of a forward exchange contract are as under: Key elements of a forward exchange contract are as under: Key elements of a forward exchange contract are as under:-

1. 1. Fixed exchange rate: The rate at which the currencies will be 1. Fixed exchange rate: The rate at which the currencies will be 1. Fixed exchange rate: The rate at which the currencies will be exchanged is agreed upon and fixed at the time of exchanged is agreed upon and fixed at the time of the contract. the contract.

2. Specific date: The contract specifies the date on which the 2. Specific date: The contract specifies the date on which the 2. Specific date: The contract specifies the date on which the exchange will take place. exchange will take place.

3. Amount: The amount of currency to be exchanged is 3. Amount: The amount of currency to be exchanged is 3. Amount: The amount of currency to be exchanged is predetermined. predetermined.

4. Parties: Typically involves a business or investor and a bank or 4. Parties: Typically involves a business or investor and a bank or 4. Parties: Typically involves a business or investor and a bank or financial instit financial institution. 8.17 The appellant has distinguished the case laws stating that the 8.17 The appellant has distinguished the case laws stating that the 8.17 The appellant has distinguished the case laws stating that the appellant's case pertains to AY 2019 appellant's case pertains to AY 2019-20 to which provisions of 20 to which provisions of clause (xviii) to section 36(1) applies, which was introduced by clause (xviii) to section 36(1) applies, which was introduced by clause (xviii) to section 36(1) applies, which was introduced by Finance Act, 2018, w.e.f. 1.4.2017 (AY 2017 Finance Act, 2018, w.e.f. 1.4.2017 (AY 2017-18). Further, it has not 18). Further, it has not made any forward contracts and no foreign currency rate has been made any forward contracts and no foreign currency rate has been made any forward contracts and no foreign currency rate has been fixed on the date of settlement. Therefore, considering the provisions fixed on the date of settlement. Therefore, considering the provisions fixed on the date of settlement. Therefore, considering the provisions of Act and ICDS, unrealized MTM Loss is not allowable as deduction of Act and ICDS, unrealized MTM Loss is not allowable as deduction of Act and ICDS, unrealized MTM Loss is not allowable as deduction in Computation of Income as per Incom in Computation of Income as per Income Tax Act and appellant e Tax Act and appellant needs to make required adjustments while preparing Computation needs to make required adjustments while preparing Computation needs to make required adjustments while preparing Computation of Income, which, appellant has rightly done in its computation of of Income, which, appellant has rightly done in its computation of of Income, which, appellant has rightly done in its computation of income. In view of the above discussion the appellant is right in income. In view of the above discussion the appellant is right in income. In view of the above discussion the appellant is right in giving treatment of MMT loss on curr giving treatment of MMT loss on currency swap. In view of the ency swap. In view of the above discussion and on the lines of decision rendered in the case above discussion and on the lines of decision rendered in the case above discussion and on the lines of decision rendered in the case

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 25 & 5310/MUM/2024 & 5310/MUM/2024 of the appellant for A.Y. 2020 of the appellant for A.Y. 2020-21 on identical issue, the Ground no. 21 on identical issue, the Ground no. 3 and 4 of appeal 3 and 4 of appeal are allowed.”

12.

We have carefully considered the rival submissions and We have carefully considered the rival submissions and We have carefully considered the rival submissions and perused the material placed on record, including the audited rused the material placed on record, including the audited rused the material placed on record, including the audited financial statements, the assessee’s risk financial statements, the assessee’s risk-management policy, the management policy, the terms of the cross- -currency swap contracts, and the statutory currency swap contracts, and the statutory framework comprising sections 145, 43AA and 36(1)(xviii) of the Act framework comprising sections 145, 43AA and 36(1)(xviii) of the Act framework comprising sections 145, 43AA and 36(1)(xviii) of the Act read with ICDS-I and ICDS I and ICDS-VI. The short controversy is whether the VI. The short controversy is whether the notional “mark-to-market” (MTM) loss recognised by the assessee market” (MTM) loss recognised by the assessee market” (MTM) loss recognised by the assessee on outstanding cross on outstanding cross-currency swap contracts as at the balance currency swap contracts as at the balance- sheet date is an allowable deduction in computing business income sheet date is an allowable deduction in computing business inc sheet date is an allowable deduction in computing business inc for the year under consideration. for the year under consideration. 12.1 At the outset, At the outset, we feel it necessary to refer refer the statutory scheme. Under section 145(2), the Central Government has notified scheme. Under section 145(2), the Central Government has notified scheme. Under section 145(2), the Central Government has notified Income Computation and Disclosure Standards (ICDS) to be Income Computation and Disclosure Standards (ICDS) to be Income Computation and Disclosure Standards (ICDS) to be followed for the purposes of co followed for the purposes of computation of income chargeable mputation of income chargeable under the head "Profits and gains of business or profession". under the head "Profits and gains of business or profession". under the head "Profits and gains of business or profession". 12.2 The ICDS-I, provides that I, provides that marked to market loss or an arked to market loss or an expected loss shall not be recognized unless the recognition of such expected loss shall not be recognized unless the recognition of such expected loss shall not be recognized unless the recognition of such loss is in accordance with the pr loss is in accordance with the provisions of any other ICDS. MTM ovisions of any other ICDS. MTM gain or expected profit shall also not be recognized in the same way. gain or expected profit shall also not be recognized in the same way gain or expected profit shall also not be recognized in the same way 12.3 The ICDS-VI deals with: (a) treatment of transactions in VI deals with: (a) treatment of transactions in VI deals with: (a) treatment of transactions in foreign currencies; (b) translating the financial statements of foreign foreign currencies; (b) translating the financial statements of foreign foreign currencies; (b) translating the financial statements of foreign operations; and (c) treatment of foreign currency transactions in the ) treatment of foreign currency transactions in the ) treatment of foreign currency transactions in the nature of forward exchange contracts. nature of forward exchange contracts. The ICDS The ICDS-VI specifically

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 26 & 5310/MUM/2024 & 5310/MUM/2024 deals with foreign currency transactions and forward exchange deals with foreign currency transactions and forward exchange deals with foreign currency transactions and forward exchange contracts. Clause (h) of paragraph 2 of ICDS contracts. Clause (h) of paragraph 2 of ICDS-VI defines "forward VI defines "forward exchange contract" to mean an agreement to exchange different act" to mean an agreement to exchange different act" to mean an agreement to exchange different currencies at a forward rate and expressly provides that it includes currencies at a forward rate and expressly provides that it currencies at a forward rate and expressly provides that it a foreign currency option contract or another financial instrument of a a foreign currency option contract or another financial instrument of a a foreign currency option contract or another financial instrument of a similar nature. The definition The definitions provided in paragraph 2 under said provided in paragraph 2 under said ICDS is reproduced as under: ICDS is reproduced as under:

2 (1). (a) to (b) …………………….. ) …………………….. (c) "Exchange difference" is the difference resulting from reporting ) "Exchange difference" is the difference resulting from reporting ) "Exchange difference" is the difference resulting from reporting the same number of units of a foreign currency in the reporting the same number of units of a foreign currency in the reporting the same number of units of a foreign currency in the reporting currency of a person at different exchange rates;" currency of a person at different exchange rates;" (d)…………………. (d)…………………. (e) "Foreign currency" is a currency other than the reporting (e) "Foreign currency" is a currency other than the reporting (e) "Foreign currency" is a currency other than the reporting currency of a person;" (f) –(g)………………………. (g)………………………. (h) "Forward exchange contract" means an agreement to exchange (h) "Forward exchange contract" means an agreement to exchange (h) "Forward exchange contract" means an agreement to exchange different currencies at a forward rate, and includes a foreign different currencies at a forward rate, and includes a foreign different currencies at a forward rate, and includes a foreign currency option contract or another financial instrument of a another financial instrument of a currency option contract or similar nature;" similar nature;" (i) "Forward rate" is the specified exchange rate for exchange of two rward rate" is the specified exchange rate for exchange of two rward rate" is the specified exchange rate for exchange of two currencies at specified future date;" currencies at specified future date;" 12.4 Further, the Clause 8 (1) of the ICDS he Clause 8 (1) of the ICDS- VI also provides VI also provides that "Any premium or discount arising at the inception of a "Any premium or discount arising at the inception of a "Any premium or discount arising at the inception of a forward exchange contract shall be amortised as expense or forward exchange contract shall be amortised as expense or forward exchange contract shall be amortised as expense or income over the life of the contract. Exchange differences on income over the life of the contract. Exchange differences on income over the life of the contract. Exchange differences on such a contract shall be recognised as income or as expense in such a contract shall be recognised as income or as expense in such a contract shall be recognised as income or as expense in Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 27 & 5310/MUM/2024 & 5310/MUM/2024 the previous year in which the exchange rates change. Any in which the exchange rates change. Any in which the exchange rates change. Any profit or loss arising on cancellation or renewal shall be profit or loss arising on cancellation or renewal shall be profit or loss arising on cancellation or renewal shall be recognised as income or as expense for the previous year." recognised as income or as expense for the previous year." recognised as income or as expense for the previous year." 12.5 Further, section 43AA mandates that exchange differences in Further, section 43AA mandates that exchange differences in Further, section 43AA mandates that exchange differences in respect of specified foreign cu respect of specified foreign currency transactions shall be computed rrency transactions shall be computed in accordance with the notified ICDS and recognised accordingly, in accordance with the notified ICDS and recognised accordingly, in accordance with the notified ICDS and recognised accordingly, and section 36(1)(xviii) allows deduction of loss only to the extent so and section 36(1)(xviii) allows deduction of loss only to the extent so and section 36(1)(xviii) allows deduction of loss only to the extent so computed. Thus, the legislative design is that all material foreign computed. Thus, the legislative design is that all material foreign computed. Thus, the legislative design is that all material foreign currency risk management instruments are to be governed by management instruments are to be governed by management instruments are to be governed by ICDS-VI for tax purposes. VI for tax purposes. 12.6 From the submission before lower authorities and submission before lower authorities and submission before lower authorities and before us, it is evident that the assessee had is evident that the assessee had entered into cross- -currency swaps (CCS) to hedge its underlying forei (CCS) to hedge its underlying foreign currency ex gn currency exposures. Under those contracts, the assessee notionally lends one currency and se contracts, the assessee notionally lends one currency and se contracts, the assessee notionally lends one currency and borrows another of equivalent notional principal; it receives interest borrows another of equivalent notional principal; it receives interest borrows another of equivalent notional principal; it receives interest on one currency leg and pays interest on the other over the tenure on one currency leg and pays interest on the other over the tenure on one currency leg and pays interest on the other over the tenure of the contract, and principal on both of the contract, and principal on both legs is amortised or settled legs is amortised or settled over time. On each reset or settlement date, the interest and over time. On each reset or settlement date, the interest and over time. On each reset or settlement date, the interest and principal cash flows in the foreign currency leg are translated into principal cash flows in the foreign currency leg are translated into principal cash flows in the foreign currency leg are translated into the functional currency by reference to the prevailing exchange rate, the functional currency by reference to the prevailing exchange rate, the functional currency by reference to the prevailing exchange rate, and only the net amount in and only the net amount in the functional currency is settled the functional currency is settled between the parties. Economically, such a structure is well between the parties. Economically, such a structure is well between the parties. Economically, such a structure is well recognised in finance as being equivalent to a series of forward recognised in finance as being equivalent to a series of forward recognised in finance as being equivalent to a series of forward exchange contracts coupled with interest exchange contracts coupled with interest-rate swaps. rate swaps.

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 28 & 5310/MUM/2024 & 5310/MUM/2024 12.7 Before us, the assessee submitted tha Before us, the assessee submitted that a combined t a combined reading of paragraph 8(1) of ICDS reading of paragraph 8(1) of ICDS-VI and the definitions of VI and the definitions of “exchange difference,” “forward exchange contract,” and “exchange difference,” “forward exchange contract,” and “exchange difference,” “forward exchange contract,” and “forward rate” contained in paragraph 2(1) of ICDS “forward rate” contained in paragraph 2(1) of ICDS- VI leads to the following conclusions: the following conclusions: a. The reporting currency of the Appe a. The reporting currency of the Appellant is Indian Rupees (INR) llant is Indian Rupees (INR) b. Exchange difference in relation to forward exchange contracts b. Exchange difference in relation to forward exchange contracts b. Exchange difference in relation to forward exchange contracts covered by ICDS covered by ICDS-VI is a difference arising on account of reporting of VI is a difference arising on account of reporting of foreign currency (USD in the case of appellant) in equivalent amount foreign currency (USD in the case of appellant) in equivalent amount foreign currency (USD in the case of appellant) in equivalent amount of INR at a given excha of INR at a given exchange rate at relevant point of time. It does not nge rate at relevant point of time. It does not envisage a case where future exchange rate is determined by envisage a case where future exchange rate is determined by envisage a case where future exchange rate is determined by prevailing market rates. prevailing market rates. c. The Forward Exchange Contract (FEC) covered by ICDS c. The Forward Exchange Contract (FEC) covered by ICDS c. The Forward Exchange Contract (FEC) covered by ICDS-VI is a contract involving determination / fixation of Forward Rate contract involving determination / fixation of Forward Rate contract involving determination / fixation of Forward Rate for a Foreign Currency (USD in this case) upfront at which the transaction Foreign Currency (USD in this case) upfront at which the transaction Foreign Currency (USD in this case) upfront at which the transaction will be settled in future. will be settled in future. d. The contract where conversion of rate of Foreign Currency in to d. The contract where conversion of rate of Foreign Currency in to d. The contract where conversion of rate of Foreign Currency in to INR is not fixed upfront is not covered by ICDS INR is not fixed upfront is not covered by ICDS-VI. In short, the VI. In short, the Currency Swap Contrac Currency Swap Contract is not covered by ICDS-VI as this contract VI as this contract does not involve upfront fixation of conversion rate of foreign does not involve upfront fixation of conversion rate of foreign does not involve upfront fixation of conversion rate of foreign currency into INR. currency into INR. 12.8 The assessee further explained The assessee further explained as why currency swap why currency swap contracts cannot be treated as forward contracts. It was contracts cannot be treated as forward contracts. It was contracts cannot be treated as forward contracts. It was submitted that t t the the the assessee assessee assessee had had had outstanding outstanding outstanding rupee rupee rupee borrowings of ₹5,875 crore 5,875 crores through debentures, and, using a through debentures, and, using a portion thereof as the underlying, it entered into cross- portion thereof as the underlying, it entered into cross portion thereof as the underlying, it entered into cross currency swap (CCS) contracts coupled with interest swaps. currency swap (CCS) contracts coupled with interest swaps. currency swap (CCS) contracts coupled with interest swaps. The effect of these arrangements was: The effect of these arrangements was:

(a) Assessee lent notional amount of Rs 5310.76 crore to (a) Assessee lent notional amount of Rs 5310.76 crore to (a) Assessee lent notional amount of Rs 5310.76 crore to counterparties and counterparties and Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 29 & 5310/MUM/2024 & 5310/MUM/2024

(b) Assessee notionally borrowed equivalent amount in USD (appx (b) Assessee notionally borrowed equivalent amount in USD (appx (b) Assessee notionally borrowed equivalent amount in USD (appx USD 822.29 mn) at lower interest rates linked to LIBOR. USD 822.29 mn) at lower interest rates linked to LIBOR. USD 822.29 mn) at lower interest rates linked to LIBOR. ii. In terms of the above, Appellant receives interest on IN ii. In terms of the above, Appellant receives interest on IN ii. In terms of the above, Appellant receives interest on INR leg of the contract and it pays interest on USD leg of the contract over the contract and it pays interest on USD leg of the contract over the contract and it pays interest on USD leg of the contract over the tenure of the contract. tenure of the contract. iii. The principal amount of the contract (Rs. 5310.76 cr in this case) iii. The principal amount of the contract (Rs. 5310.76 cr in this case) iii. The principal amount of the contract (Rs. 5310.76 cr in this case) will be amortised in installments as per agreed schedule in the will be amortised in installments as per agreed schedule in the will be amortised in installments as per agreed schedule in the contract. Simulta contract. Simultaneously USD leg (USD 822.29 mn in this case) of neously USD leg (USD 822.29 mn in this case) of the loan will also be amortised in same manner. the loan will also be amortised in same manner. iv. The settlement of the interest and principal will happen on net iv. The settlement of the interest and principal will happen on net iv. The settlement of the interest and principal will happen on net basis on respective dates as per the schedule agreed in the basis on respective dates as per the schedule agreed in the basis on respective dates as per the schedule agreed in the Contract. v. Thus, on the agreed v. Thus, on the agreed date, principal amount of USD leg and date, principal amount of USD leg and interest on this USD notional amount will be converted into INR at interest on this USD notional amount will be converted into INR at interest on this USD notional amount will be converted into INR at the rate prevailing on that date of settlement. In other words! the the rate prevailing on that date of settlement. In other words! the the rate prevailing on that date of settlement. In other words! the rate of conversion of USD into INR is not determined upfront, unlike rate of conversion of USD into INR is not determined upfront, unlike rate of conversion of USD into INR is not determined upfront, unlike in the case of forward rate contracts. f forward rate contracts. Thus the currency swap contacts entered into by Appellant are not Thus the currency swap contacts entered into by Appellant are not Thus the currency swap contacts entered into by Appellant are not in in in the the the nature nature nature of of of forward forward forward rate rate rate contracts contracts contracts within within within the the the meaning of the the ICDS-VI.” 12.9 On this basis, the assessee argued that currency swaps are On this basis, the assessee argued that currency swaps are On this basis, the assessee argued that currency swaps are fundamentally different fundamentally different from forward rate contracts because they from forward rate contracts because they do not involve the fixation of a forward rate at the inception of the do not involve the fixation of a forward rate at the inception of the do not involve the fixation of a forward rate at the inception of the contract. Therefore, they do not fall within the meaning of “forward contract. Therefore, they do not fall within the meaning of “forward contract. Therefore, they do not fall within the meaning of “forward exchange exchange contract” contract” under under ICDS-VI. ICDS VI. Consequently, Consequently, such such transactions, in its vi transactions, in its view, must be governed by ICDS ew, must be governed by ICDS-I, under which mark-to-market losses cannot be recognised unless specifically market losses cannot be recognised unless specifically market losses cannot be recognised unless specifically permitted by another ICDS. permitted by another ICDS. The assessee contended he assessee contended that since no separate ICDS deals with currency swaps, separate ICDS deals with currency swaps, the ICDS- -I alone applies, and, therefore, the MTM loss on currency swaps cannot be allowed and, therefore, the MTM loss on currency swaps cannot be allowed and, therefore, the MTM loss on currency swaps cannot be allowed while computing taxable income. while computing taxable income.

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 30 & 5310/MUM/2024 & 5310/MUM/2024 12.10 The assessee asserted that cross The assessee asserted that cross-currency swaps do not currency swaps do not satisfy the definitions of “forward exchange contract,” “forward satisfy the definitions of “forward exchange contract,” “forward satisfy the definitions of “forward exchange contract,” “forward rate,” or “exchange difference” in clause (h) of paragraph 2 of ICDS “exchange difference” in clause (h) of paragraph 2 of ICDS “exchange difference” in clause (h) of paragraph 2 of ICDS- VI.. However, having considered the submissions and examined the However, having considered the submissions and examined the However, having considered the submissions and examined the relevant provisions, we find no merit in this contention. relevant provisions, we find no merit in this contention. relevant provisions, we find no merit in this contention. 12.11 In the first place, the definition in clause (h) is couched in In the first place, the definition in clause (h) is couched in In the first place, the definition in clause (h) is couched in inclusive terms. It states that "forward exchange contract" means usive terms. It states that "forward exchange contract" means usive terms. It states that "forward exchange contract" means an agreement to exchange different currencies at a forward rate and an agreement to exchange different currencies at a forward rate an agreement to exchange different currencies at a forward rate includes a foreign currency option contract or another financial a foreign currency option contract or another financial a foreign currency option contract or another financial instrument of a similar nature. The use of the word "includes" is instrument of a similar nature. The use of the word "includes instrument of a similar nature. The use of the word "includes well understood to enlarge the scope of the main part of the well understood to enlarge the scope of the main part of the well understood to enlarge the scope of the main part of the definition. It is significant that a foreign currency option contract definition. It is significant that a foreign currency option contract definition. It is significant that a foreign currency option contract has been specifically brought within the ambit of "forward exchange has been specifically brought within the ambit of "forward exchange has been specifically brought within the ambit of "forward exchange contract" even though such an option may, depending on its terms, contract" even though such an option may, depending contract" even though such an option may, depending not involve any physical exchange of currencies and may be cash- not involve any physical exchange of currencies and may be cash not involve any physical exchange of currencies and may be cash settled. The Legislature has thus clearly indicated that physical settled. The Legislature has thus clearly indicated that physical settled. The Legislature has thus clearly indicated that physical delivery of currencies on a single future date is not an delivery of currencies on a single future date is not an delivery of currencies on a single future date is not an indispensable element once the inclusive limb is attracted. indispensable element once the inclusive limb is attrac indispensable element once the inclusive limb is attrac 12.12 Secondly, the expression "another financial instrument of Secondly, the expression "another financial instrument of Secondly, the expression "another financial instrument of a similar nature" directs attention to the economic substance rather a similar nature" directs attention to the economic substance rather a similar nature" directs attention to the economic substance rather than the legal form of the instrument. The relevant "nature" for the than the legal form of the instrument. The relevant "nature" for the than the legal form of the instrument. The relevant "nature" for the purposes of ICDS-VI is that the instrument is a f VI is that the instrument is a financial derivative inancial derivative whose payoff is a function of movements in the exchange rate whose payoff is a function of movements in the exchange rate whose payoff is a function of movements in the exchange rate between two currencies and which is employed to transfer or between two currencies and which is employed to transfer or between two currencies and which is employed to transfer or Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 31 & 5310/MUM/2024 & 5310/MUM/2024 manage foreign exchange risk. Cross manage foreign exchange risk. Cross-currency swaps, by their very currency swaps, by their very design, satisfy these criteria: they are financial instruments design, satisfy these criteria: they are financia design, satisfy these criteria: they are financia denominated in two different currencies; they generate streams of denominated in two different currencies; they generate streams of denominated in two different currencies; they generate streams of cash flows in each currency; and the net settlement is determined cash flows in each currency; and the net settlement is determined cash flows in each currency; and the net settlement is determined with reference to the bilateral exchange rate. On this parameter, with reference to the bilateral exchange rate. On this parameter, with reference to the bilateral exchange rate. On this parameter, they are of the same genus as forward exchan they are of the same genus as forward exchange contracts and ge contracts and foreign currency options. foreign currency options. 12.13 Thirdly, even on the main limb of the definition, we are of Thirdly, even on the main limb of the definition, we are of Thirdly, even on the main limb of the definition, we are of the view that a standard cross the view that a standard cross-currency swap substantially meets currency swap substantially meets the ingredients of an "agreement to exchange different currencies at the ingredients of an "agreement to exchange different currencies at the ingredients of an "agreement to exchange different currencies at a forward rate". There is an agreement that, on specified future e". There is an agreement that, on specified future e". There is an agreement that, on specified future dates, one party will make payments referable to principal and dates, one party will make payments referable to principal and dates, one party will make payments referable to principal and interest in one currency, while the counterparty will make interest in one currency, while the counterparty will make interest in one currency, while the counterparty will make payments referable to principal and interest in another currency, payments referable to principal and interest in another currency, payments referable to principal and interest in another currency, and that these reciprocal obligations will be settled by reference to eciprocal obligations will be settled by reference to eciprocal obligations will be settled by reference to the specified exchange rate mechanism on those future dates. The the specified exchange rate mechanism on those future dates. The the specified exchange rate mechanism on those future dates. The fact that, in practice, the parties may settle only the net amount in fact that, in practice, the parties may settle only the net amount in fact that, in practice, the parties may settle only the net amount in the functional currency does not detract from the underlying the functional currency does not detract from the underlying the functional currency does not detract from the underlying character that each leg represents an obligation to pay the ter that each leg represents an obligation to pay the ter that each leg represents an obligation to pay the equivalent of another currency. In modern derivative markets, equivalent of another currency. In modern derivative markets, equivalent of another currency. In modern derivative markets, forward contracts and options are frequently cash forward contracts and options are frequently cash-settled, yet they settled, yet they are still regarded as forward exchange contracts and options for all are still regarded as forward exchange contracts and options for all are still regarded as forward exchange contracts and options for all legal and regulatory purposes. al and regulatory purposes.

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 32 & 5310/MUM/2024 & 5310/MUM/2024 12.14 As regards the expression "forward rate", ICDS-VI defines As regards the expression "forward rate", ICDS As regards the expression "forward rate", ICDS it as the specified exchange rate for exchange of two currencies at a it as the specified exchange rate for exchange of two currencies at a it as the specified exchange rate for exchange of two currencies at a specified future date. There is nothing in the language to suggest specified future date. There is nothing in the language to suggest specified future date. There is nothing in the language to suggest that the rate must be a fix that the rate must be a fixed numerical figure agreed upon at ed numerical figure agreed upon at inception; the requirement is that the rate, or the method of inception; the requirement is that the rate, or the method of inception; the requirement is that the rate, or the method of determining such rate, must be contractually specified for the determining such rate, must be contractually specified for the determining such rate, must be contractually specified for the future date. A clause which stipulates that, on each settlement future date. A clause which stipulates that, on each settlement future date. A clause which stipulates that, on each settlement date, the foreign currency leg s date, the foreign currency leg shall be converted into the functional hall be converted into the functional currency at the then- -prevailing reference rate (for example, the RBI prevailing reference rate (for example, the RBI reference rate or an agreed market benchmark) is, in our view, a reference rate or an agreed market benchmark) is, in our view, a reference rate or an agreed market benchmark) is, in our view, a "specified" rate within the meaning of ICDS "specified" rate within the meaning of ICDS-VI. The contractual VI. The contractual formula or rule for determining the rate on the future date suffices determining the rate on the future date suffices determining the rate on the future date suffices to meet the definition. to meet the definition. 12.15 Thus, both on a strict textual construction and on a Thus, both on a strict textual construction and on a Thus, both on a strict textual construction and on a purposive reading, cross purposive reading, cross-currency swaps are covered by the currency swaps are covered by the inclusive definition of "forward exchange contract" in clause (h) of inclusive definition of "forward exchange contract" in clause (h) inclusive definition of "forward exchange contract" in clause (h) paragraph 2 of ICDS paragraph 2 of ICDS-VI as "another financial instrument of a VI as "another financial instrument of a similar nature". The argument that they stand outside the scope of similar nature". The argument that they stand outside the scope of similar nature". The argument that they stand outside the scope of ICDS-VI merely because there is no gross physical exchange of VI merely because there is no gross physical exchange of VI merely because there is no gross physical exchange of currencies or because the rate is determined by a formula linked to currencies or because the rate is determined by a formula link currencies or because the rate is determined by a formula link the prevailing rate is, therefore, not acceptable. the prevailing rate is, therefore, not acceptable. 12.16 This conclusion is fortified if one has regard to the This conclusion is fortified if one has regard to the This conclusion is fortified if one has regard to the legislative purpose behind section 43AA and ICDS-VI. These legislative purpose behind section 43AA and ICDS legislative purpose behind section 43AA and ICDS provisions were introduced to provide a uniform and codified regime provisions were introduced to provide a uniform and codified regime provisions were introduced to provide a uniform and codified regime

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 33 & 5310/MUM/2024 & 5310/MUM/2024 for recognition of exchange differences in respect of foreign currency ion of exchange differences in respect of foreign currency ion of exchange differences in respect of foreign currency transactions and related derivatives and to align tax computation transactions and related derivatives and to align tax computation transactions and related derivatives and to align tax computation with the economic realities of such instruments. It would be wholly with the economic realities of such instruments. It would be wholly with the economic realities of such instruments. It would be wholly inconsistent with this purpose if simple forwards and options were inconsistent with this purpose if simple forwards and options w inconsistent with this purpose if simple forwards and options w brought within ICDS brought within ICDS-VI while more sophisticated, but functionally VI while more sophisticated, but functionally equivalent, instruments such as cross equivalent, instruments such as cross-currency swaps were left to currency swaps were left to be dealt with under the general provisions of ICDS-I. Such an be dealt with under the general provisions of ICDS be dealt with under the general provisions of ICDS interpretation would open the door to arbitrage, allowing taxpayers interpretation would open the door to arbitrage, allowing interpretation would open the door to arbitrage, allowing to choose the form of derivative purely to achieve a more favourable to choose the form of derivative purely to achieve a more favourable to choose the form of derivative purely to achieve a more favourable timing of recognition of gains or losses. timing of recognition of gains or losses. 12.17 It is also a matter of common commercial understanding, It is also a matter of common commercial understanding, It is also a matter of common commercial understanding, as reflected in accounting standards under Ind AS/IFRS and as reflected in accounting standards under Ind AS/IFRS and as reflected in accounting standards under Ind AS/IFRS and market practice, that foreign currency forwards, options and swaps e, that foreign currency forwards, options and swaps e, that foreign currency forwards, options and swaps are all forms of foreign exchange derivative contracts. Hedge are all forms of foreign exchange derivative contracts. Hedge are all forms of foreign exchange derivative contracts. Hedge accounting frameworks do not segregate them into watertight accounting frameworks do not segregate them into watertight accounting frameworks do not segregate them into watertight compartments for the purposes of identifying and measuring foreign compartments for the purposes of identifying and measuring foreign compartments for the purposes of identifying and measuring foreign currency risk. The legislature is legislature is aware of the evolving derivative aware of the evolving derivative landscape, therefore, therefore, has consciously used the broad expression has consciously used the broad expression "another financial instrument of a similar nature" so as not to "another financial instrument of a similar nature" so as not to "another financial instrument of a similar nature" so as not to create a casus omissus casus omissus in respect of instruments like currency in respect of instruments like currency swaps which were already well known at the time of notification. were already well known at the time of notification. were already well known at the time of notification. In our opinion, had there been an intention to exclude such ad there been an intention to exclude such ad there been an intention to exclude such instruments, a specific exclusion could easily have been articulated. instruments, a specific exclusion could easily have been articulated. instruments, a specific exclusion could easily have been articulated.

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 34 & 5310/MUM/2024 & 5310/MUM/2024 12.18 Having held that cross Having held that cross-currency swaps are forward currency swaps are forward exchange contracts within the extended meaning of clause (h) of s within the extended meaning of clause (h) of s within the extended meaning of clause (h) of paragraph 2 of ICDS paragraph 2 of ICDS-VI, we now turn to the consequence for the VI, we now turn to the consequence for the recognition of MTM losses at the balance recognition of MTM losses at the balance-sheet date. ICDS sheet date. ICDS-I, which lays down the fundamental principles of accounting for income lays down the fundamental principles of accounting for income lays down the fundamental principles of accounting for income computation, expressly mandates that MTM losses or expected essly mandates that MTM losses or expected essly mandates that MTM losses or expected losses shall not be recognised unless recognition is required by any losses shall not be recognised unless recognition is required by any losses shall not be recognised unless recognition is required by any other ICDS. ICDS-VI, in turn, draws a clear distinction between (i) VI, in turn, draws a clear distinction between (i) VI, in turn, draws a clear distinction between (i) forward exchange contracts entered into for trading or speculation forward exchange contracts entered into for trading or speculation forward exchange contracts entered into for trading or speculation purposes or to hedge firm commitments or highly probable forecast or to hedge firm commitments or highly probable forecast or to hedge firm commitments or highly probable forecast transactions, and (ii) those entered into for other purposes. In the transactions, and (ii) those entered into for other p transactions, and (ii) those entered into for other p former category, which, on the facts of the present case, includes which, on the facts of the present case, includes which, on the facts of the present case, includes the assessee’s cross assessee’s cross-currency swaps, the standard provides that the standard provides that any gain or loss shall be recognised only at the time of settlement of any gain or loss shall be recognised only at the time of settlement of any gain or loss shall be recognised only at the time of settlement of the contract, subject to the provisions of section 43AA. the contract, subject to the provisions of section 43AA. the contract, subject to the provisions of section 43AA. 12.19 Section 43AA reinforces this position by enacting that Section 43AA reinforces this position by enacting that Section 43AA reinforces this position by enacting that exchange differences in respect of specified foreign currency exchange differences in respect of specified foreign currency exchange differences in respect of specified foreign currency transactions shall be computed in accordance with the notified sactions shall be computed in accordance with the notified sactions shall be computed in accordance with the notified ICDS and shall be recognised in accordance with such standards. ICDS and shall be recognised in accordance with such standards. ICDS and shall be recognised in accordance with such standards. Section 36(1)(xviii) then allows deduction of such loss only to the Section 36(1)(xviii) then allows deduction of such loss only to the Section 36(1)(xviii) then allows deduction of such loss only to the extent extent extent so computed. Once the so computed. Once so computed. Once the the governing governing governing ICDS ICDS ICDS postpones postpones postpones recognition of gain or loss on such contracts until the time of of gain or loss on such contracts until the time of of gain or loss on such contracts until the time of settlement, any deduction claimed in respect of interim revaluation settlement, any deduction claimed in respect of interim revaluation settlement, any deduction claimed in respect of interim revaluation

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 35 & 5310/MUM/2024 & 5310/MUM/2024 or MTM losses on open contracts at the balance or MTM losses on open contracts at the balance-sheet date would sheet date would run counter to the statutory scheme. run counter to the statutory scheme. 12.20 The The assessee’s assessee’s reliance reliance on on general g eneral principles principles of of commercial accounting and on pre commercial accounting and on pre-ICDS judicial authorities which ICDS judicial authorities which permitted deduction of foreign exchange losses on restatement of permitted deduction of foreign exchange losses on restatement of permitted deduction of foreign exchange losses on restatement of monetary items is, in this context, misplaced. Those authorities monetary items is, in this context, misplaced. Those authorities monetary items is, in this context, misplaced. Those authorities were rendered in a regime where the trea were rendered in a regime where the treatment of such items was tment of such items was not codified by income not codified by income-computation standards notified under computation standards notified under section 145(2). After the insertion of sections 43AA and 36(1)(xviii) section 145(2). After the insertion of sections 43AA and 36(1)(xviii) section 145(2). After the insertion of sections 43AA and 36(1)(xviii) and the notification of ICDS and the notification of ICDS-I and ICDS-VI, the field is occupied by VI, the field is occupied by specific statutory directions. Wh specific statutory directions. Where there is a conflict between ere there is a conflict between general accounting conventions and a binding computation general accounting conventions and a binding computation general accounting conventions and a binding computation standard, the latter must prevail for purposes of the Act. standard, the latter must prevail for purposes of the Act. standard, the latter must prevail for purposes of the Act. 12.21 In the light of the above discussion, we hold that the In the light of the above discussion, we hold that the In the light of the above discussion, we hold that the cross-currency swaps entered into by the assess currency swaps entered into by the assessee are covered by ee are covered by the expression "another financial instrument of a similar nature" in the expression "another financial instrument of a similar nature" in the expression "another financial instrument of a similar nature" in clause (h) of paragraph 2 of ICDS clause (h) of paragraph 2 of ICDS-VI and are, therefore, to be VI and are, therefore, to be treated as forward exchange contracts for the purposes of that treated as forward exchange contracts for the purposes of that treated as forward exchange contracts for the purposes of that standard. Consequently, the MTM loss recogn standard. Consequently, the MTM loss recognised by the assessee ised by the assessee on such outstanding contracts as at the balance-sheet date is on such outstanding contracts as at the balance on such outstanding contracts as at the balance purely notional, has not crystallised into an enforceable liability, purely notional, has not crystallised into an enforceable liability, purely notional, has not crystallised into an enforceable liability, and is not an allowable deduction in the year under consideration, and is not an allowable deduction in the year under consideration, and is not an allowable deduction in the year under consideration, having regard to the combined operati having regard to the combined operation of ICDS-I, ICDS I, ICDS-VI, section 43AA and section 36(1)(xviii) of the Act. 43AA and section 36(1)(xviii) of the Act.

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 36 & 5310/MUM/2024 & 5310/MUM/2024 12.23 In view of the foregoing, we are unable to sustain the In view of the foregoing, we are unable to sustain In view of the foregoing, we are unable to sustain finding of ld CIT(A) which proceeds on the footing that such MTM which proceeds on the footing that such MTM which proceeds on the footing that such MTM loss on cross-currency swaps is allowable in the year of re currency swaps is allowable in the year of re- currency swaps is allowable in the year of re measurement. The disallowance made by the Assessing Officer by measurement. The disallowance made by the Assessing Officer by measurement. The disallowance made by the Assessing Officer by adding back the MTM loss on cross adding back the MTM loss on cross-currency swaps to the total currency swaps to the total income is accordingly uphel income is accordingly upheld. The ground Nos. 2 &3 Nos. 2 &3 of appeal of the Revenue on this issue the Revenue on this issue are allowed.

14.

The ground Nos. 5 and 6 of the appeal The ground Nos. 5 and 6 of the appeal The ground Nos. 5 and 6 of the appeal concern the computation of book profit under section 115JB of the Act, computation of book profit under section 115JB of the Act, computation of book profit under section 115JB of the Act, specifically whether the loss recognised on fair valuation of specifically whether the loss recognised on fair valuation of specifically whether the loss recognised on fair valuation of preference shares in accordance with Indian Accounting Standard rence shares in accordance with Indian Accounting Standard rence shares in accordance with Indian Accounting Standard (Ind AS) 109 can be reduced while determining the assessee’s book (Ind AS) 109 can be reduced while determining the assessee’s book (Ind AS) 109 can be reduced while determining the assessee’s book profit.

14.1 The facts in brief qua the issue in dispute The facts in brief qua the issue in dispute The facts in brief qua the issue in dispute are that the assessee prepared its financial statements in compliance with Ind assessee prepared its financial statements in compliance with Ind assessee prepared its financial statements in compliance with Ind AS, as mandated under the Companies (Indian Accounting AS, as mandated under the Companies (Indian Accounting AS, as mandated under the Companies (Indian Accounting Standards) Rules, 2015. During the year, the assessee debited an Standards) Rules, 2015. During the year, the assessee debited an Standards) Rules, 2015. During the year, the assessee debited an amount of ₹18,83,82,94,946 to its profit and loss account 18,83,82,94,946 to its profit and loss account 18,83,82,94,946 to its profit and loss account towards fair-value loss arising on preference shares of East West Pipeline value loss arising on preference shares of East West Pipeline value loss arising on preference shares of East West Pipeline Ltd. (EWPL), in accordance with Ind AS Ltd. (EWPL), in accordance with Ind AS-109. While the assessee 109. While the assessee added back this loss in computing its income under the normal added back this loss in computing its income under the normal added back this loss in computing its income under the normal provisions of the Act, no such adjustment was made while provisions of the Act, no such adjustment was made whil provisions of the Act, no such adjustment was made whil computing book profit under section 115JB. computing book profit under section 115JB.

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 37 & 5310/MUM/2024 & 5310/MUM/2024 14.2 The EWPL is a wholly owned subsidiary of EWPL Holdings Pvt. EWPL is a wholly owned subsidiary of EWPL Holdings Pvt. EWPL is a wholly owned subsidiary of EWPL Holdings Pvt. Ltd. (EHPL). The assessee holds 45% equity in EHPL and is thus an Ltd. (EHPL). The assessee holds 45% equity in EHPL and is thus an Ltd. (EHPL). The assessee holds 45% equity in EHPL and is thus an indirect promoter of EWPL. The assessee submitted that because indirect promoter of EWPL. The assessee submitted that because indirect promoter of EWPL. The assessee submitted that because EWPL’s pipeline business had incurred substantial losses and its business had incurred substantial losses and its business had incurred substantial losses and its net worth had significantly eroded, its promoters, including the net worth had significantly eroded, its promoters, including the net worth had significantly eroded, its promoters, including the assessee, undertook to support its financial obligations to all assessee, undertook to support its financial obligations to assessee, undertook to support its financial obligations to external lender/investors of EWPL external lender/investors of EWPL including obligations relating to including obligations relating to redeemable preference shares. preference shares.

14.3 The assessee submitted that The assessee submitted that during FY 2018 FY 2018-19, EWPL proposed a transfer of its pipeline business under a scheme of proposed a transfer of its pipeline business under a scheme of proposed a transfer of its pipeline business under a scheme of arrangement sanctioned by the NCLT arrangement sanctioned by the NCLT u/s 230 u/s 230-232 of the Companies Act, 2013 Companies Act, 2013. Reliance Industries Ltd. (RIL), . Reliance Industries Ltd. (RIL), was holding redeemable preference shares (RPS), redeemable preference shares (RPS), at premium. The RIL was at premium. The RIL was accruing the premium year on year in its books of accounts. For accruing the premium year on year in its books of accounts. For accruing the premium year on year in its books of accounts. For obtaining the sanction of Hon’ble NCLT for transfer of pipelines obtaining the sanction of Hon’ble NCLT for transfer of pipelines obtaining the sanction of Hon’ble NCLT for transfer of pipelines business at least three fourth value of the creditors or class of business at least three fourth value of the creditors or cl business at least three fourth value of the creditors or cl creditors or members or class of member must agree for any creditors or members or class of member must agree for any creditors or members or class of member must agree for any compromise or arrangement. A preference share holder is a member compromise or arrangement. A preference share holder is a member compromise or arrangement. A preference share holder is a member in a company hence, pursuant to the said provision, EWPL was in a company hence, pursuant to the said provision, EWPL was in a company hence, pursuant to the said provision, EWPL was required to obtain consent from RIL to transfer its pipeline business required to obtain consent from RIL to transfer its pipel required to obtain consent from RIL to transfer its pipel under the scheme. Since the assessee being a promoter of EWPL, Since the assessee being a promoter of EWPL, Since the assessee being a promoter of EWPL, holding 45% equity therein through its subsidiary, it agreed to holding 45% equity therein through its subsidiary, it agreed to holding 45% equity therein through its subsidiary, it agreed to acquire part of the RPS held by the RIL at Rs.1883.83 crores acquire part of the RPS held by the RIL at Rs.1883.83 crores acquire part of the RPS held by the RIL at Rs.1883.83 crores (equivalent to amount invested+ accrued premium) enabling RIL to (equivalent to amount invested+ accrued premium) enabling RIL (equivalent to amount invested+ accrued premium) enabling RIL

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 38 & 5310/MUM/2024 & 5310/MUM/2024 grant consent to the said scheme transfer of the pipeline business grant consent to the said scheme transfer of the pipeline business grant consent to the said scheme transfer of the pipeline business by EWPL. Accordingly, for financial year 2018 by EWPL. Accordingly, for financial year 2018-19, the assessee 19, the assessee acquired 25,00,00,000 preference share of EWPL from RIL, at acquired 25,00,00,000 preference share of EWPL from RIL, at acquired 25,00,00,000 preference share of EWPL from RIL, at consideration of Rs.1883.83 crores. consideration of Rs.1883.83 crores.

14.4 The EWPL had huge car The EWPL had huge carried forward losses and post transfer ried forward losses and post transfer of the pipeline business it ceased to have any significant business of the pipeline business it ceased to have any significant business of the pipeline business it ceased to have any significant business activities. Subsequent to transfer of pipeline no operating income activities. Subsequent to transfer of pipeline no operating income activities. Subsequent to transfer of pipeline no operating income and cash flows remained with EWPL and it had very remote and cash flows remained with EWPL and it had very remote and cash flows remained with EWPL and it had very remote possibility of redeeming t possibility of redeeming these preference shares held by the hese preference shares held by the assessee. Hence, in view of Ind AS 109, the RPS were fair valued by assessee. Hence, in view of Ind AS 109, the RPS were f assessee. Hence, in view of Ind AS 109, the RPS were f the assessee to Rs.1 in its financial statement. Balance sheet of .1 in its financial statement. Balance sheet of .1 in its financial statement. Balance sheet of EWPL for assessment year 2018 EWPL for assessment year 2018-19 is indicating that it had no 19 is indicating that it had no ability to redeem these r ability to redeem these redeemable preference shares. edeemable preference shares.

14.5 But, the Assessing Officer, however, he Assessing Officer, however, regarded the loss regarded the loss recorded in books of account on account of fair valuation of RPS as recorded in books of account on account of fair valuation of RPS recorded in books of account on account of fair valuation of RPS a provision for diminution in the value of an asset provision for diminution in the value of an asset falling within provision for diminution in the value of an asset clause (i) of Explanation 1 to section 115JB(2), observing that there ) of Explanation 1 to section 115JB(2), observing that there ) of Explanation 1 to section 115JB(2), observing that there was no market for the RPS, that the fair was no market for the RPS, that the fair-value adjustment was in value adjustment was in substance a provision, and that the change in nomenclature could substance a provision, and that the change in nomenclature could substance a provision, and that the change in nomenclature could not alter the true nature of the transaction. not alter the true nature of the transaction.

14.6 Before the CIT(A), the assessee contended that the financial T(A), the assessee contended that the financial T(A), the assessee contended that the financial statements were prepared strictly in accordance with Ind AS, as statements were prepared strictly in accordance with Ind AS, statements were prepared strictly in accordance with Ind AS, mandated under the relevant provisions of the Companies Act, mandated under the relevant provisions of the Companies Act, mandated under the relevant provisions of the Companies Act,

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 39 & 5310/MUM/2024 & 5310/MUM/2024 2013 and accordingly, the assessee had recognized its investment 2013 and accordingly, the assessee had recognized its investment 2013 and accordingly, the assessee had recognized its investment in mutual fund, bo in mutual fund, bonds, commercial paper associates, fellow nds, commercial paper associates, fellow subsidiary at a fair value through profit and loss (FVTPL) as subsidiary at a fair value through profit and loss (FVTPL) as subsidiary at a fair value through profit and loss (FVTPL) as prescribed in Ind AS prescribed in Ind AS-19 for Financial instrument. Accordingly, the 19 for Financial instrument. Accordingly, the at the yearend RPSs were re RPSs were re-valued at fair market value and valued at fair market value and resultant loss was debite resultant loss was debited to the profit and loss account under the d to the profit and loss account under the head ‘other expenses. head ‘other expenses. The assessee relied on CBDT Circular No. The assessee relied on CBDT Circular No. 24/2017, which clarifies that where fair 24/2017, which clarifies that where fair-value adjustments under value adjustments under Ind AS are routed through the profit and loss account, such losses Ind AS are routed through the profit and loss account, such losses Ind AS are routed through the profit and loss account, such losses are not to be added back while computing book profit under section d back while computing book profit under section d back while computing book profit under section 115JB and the provision related the diminution or impairment of the provision related the diminution or impairment of the provision related the diminution or impairment of asset would not apply asset would not apply. Reliance was also placed on judicial . Reliance was also placed on judicial precedents, including precedents, including Apollo Tyres Ltd. v. CIT (255 ITR 273, SC), (255 ITR 273, SC), wherein it was held that the Assessing Officer cannot go behind the ld that the Assessing Officer cannot go behind the ld that the Assessing Officer cannot go behind the profit and loss account prepared in accordance with the Companies profit and loss account prepared in accordance with the Companies profit and loss account prepared in accordance with the Companies Act, except to make the specific adjustments prescribed in Act, except to make the specific adjustments prescribed in Act, except to make the specific adjustments prescribed in Explanation 1 to section 115JB. Explanation 1 to section 115JB. The Ld. CIT(A) after considering the The Ld. CIT(A) after considering the CBDT instruction and other judicial precedent on the issue in ction and other judicial precedent on the issue in ction and other judicial precedent on the issue in dispute allowed the claim of the assessee observing as under: dispute allowed the claim of the assessee observing as under: dispute allowed the claim of the assessee observing as under:

“9.3 The stand taken by the AO and the submissions filed by the 9.3 The stand taken by the AO and the submissions filed by the 9.3 The stand taken by the AO and the submissions filed by the appellant has appellant has been carefully considered. The appellant has been carefully considered. The appellant has submitted that its books of accounts were drawn up in compliance submitted that its books of accounts were drawn up in compliance submitted that its books of accounts were drawn up in compliance with Indian accounting standards ("Ind AS") as notified under the with Indian accounting standards ("Ind AS") as notified under the with Indian accounting standards ("Ind AS") as notified under the Companies (Indian Accounting Standards) Rules, 2015. During the Companies (Indian Accounting Standards) Rules, 2015. During the Companies (Indian Accounting Standards) Rules, 2015. During the year under cons year under consideration, the appellant debited its profit and loss ideration, the appellant debited its profit and loss account by Rs. 18,83,82,94,946/ account by Rs. 18,83,82,94,946/- towards loss on fair valuation of towards loss on fair valuation of the preference shares held by the Appellant of M/s. East West the preference shares held by the Appellant of M/s. East West the preference shares held by the Appellant of M/s. East West Pipeline Limited (EWPL) as per Ind AS 109. The Appellant had Pipeline Limited (EWPL) as per Ind AS 109. The Appellant had Pipeline Limited (EWPL) as per Ind AS 109. The Appellant had added back th added back the said loss of Rs. 18,83,82,94,946/-, while computing , while computing

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 40 & 5310/MUM/2024 & 5310/MUM/2024 income under the normal provisions of the Act. No adjustment was income under the normal provisions of the Act. No adjustment was income under the normal provisions of the Act. No adjustment was made towards the said loss while computing book profits u/s. made towards the said loss while computing book profits u/s. made towards the said loss while computing book profits u/s. 115JB of the Act. East West Pipeline Limited (EWPL) is wholly 115JB of the Act. East West Pipeline Limited (EWPL) is wholly 115JB of the Act. East West Pipeline Limited (EWPL) is wholly owned by EWPL owned by EWPL Holdings Private Limited (EHPL). The Appellant Holdings Private Limited (EHPL). The Appellant holds 45% equity stake in EHPL and hence owns indirectly 45% of holds 45% equity stake in EHPL and hence owns indirectly 45% of holds 45% equity stake in EHPL and hence owns indirectly 45% of the equity in EWPL. Appellant, being one of the promoters of EHPL, the equity in EWPL. Appellant, being one of the promoters of EHPL, the equity in EWPL. Appellant, being one of the promoters of EHPL, is also a promoter of EWPL. Since EWPL was making losses in its is also a promoter of EWPL. Since EWPL was making losses in its is also a promoter of EWPL. Since EWPL was making losses in its pipeline busin pipeline business, the net worth held substantially eroded. The ess, the net worth held substantially eroded. The promoter of the EWPL, including the appellant had committed to promoter of the EWPL, including the appellant had committed to promoter of the EWPL, including the appellant had committed to extend full financial support to owner financial obligations to all extend full financial support to owner financial obligations to all extend full financial support to owner financial obligations to all external lenders/ investors of EWPL. external lenders/ investors of EWPL. 9.4 The main contention of the AO was 9.4 The main contention of the AO was that the preference share that the preference share was acquired at the inflated rate. Further, it was held that marked was acquired at the inflated rate. Further, it was held that marked was acquired at the inflated rate. Further, it was held that marked to market loss was not applicable to the appellant as there was no to market loss was not applicable to the appellant as there was no to market loss was not applicable to the appellant as there was no market available for such transactions. The AO also held that the market available for such transactions. The AO also held that the market available for such transactions. The AO also held that the loss was in the nature of "pr loss was in the nature of "provision" and therefore Rs. 1883.83 Cr. ovision" and therefore Rs. 1883.83 Cr. Was required to be added back while computing profit u/s. 115JB required to be added back while computing profit u/s. 115JB required to be added back while computing profit u/s. 115JB of the Act. 9.5 On the other hands the appellant filed detailed submission to 9.5 On the other hands the appellant filed detailed submission to 9.5 On the other hands the appellant filed detailed submission to rebut the findings of the appellant. The gist of the submission of the rebut the findings of the appellant. The gist of the submission of the rebut the findings of the appellant. The gist of the submission of the appellant is reproduced hereunder: ellant is reproduced hereunder: - (i) In FY 2018 (i) In FY 2018-19, the Pipeline Business of EWPL was transferred to 19, the Pipeline Business of EWPL was transferred to an external entity under a scheme of arrangement u/s. 230 an external entity under a scheme of arrangement u/s. 230 an external entity under a scheme of arrangement u/s. 230-232 of the Companies Act, 2013, which scheme was sanctioned by the the Companies Act, 2013, which scheme was sanctioned by the the Companies Act, 2013, which scheme was sanctioned by the Hon'ble National Company Law Hon'ble National Company Law Tribunal ("NCLT") at Ahmedabad Tribunal ("NCLT") at Ahmedabad and Mumbai. (ii) For obtaining the sanction of Hon'ble NCLT for transfer of pipeline (ii) For obtaining the sanction of Hon'ble NCLT for transfer of pipeline (ii) For obtaining the sanction of Hon'ble NCLT for transfer of pipeline business as per section 230 of the Companies Act, 2013, at least business as per section 230 of the Companies Act, 2013, at least business as per section 230 of the Companies Act, 2013, at least three fourth of value of creditors, or class of creditors or members or three fourth of value of creditors, or class of creditors or members or three fourth of value of creditors, or class of creditors or members or class of members must agree for any compromise or arrangement. A ss of members must agree for any compromise or arrangement. A ss of members must agree for any compromise or arrangement. A preference share holder is a member in a company. Hence, preference share holder is a member in a company. Hence, preference share holder is a member in a company. Hence, pursuant to the said provision, EWPL was required to obtain pursuant to the said provision, EWPL was required to obtain pursuant to the said provision, EWPL was required to obtain consent from RIL to transfer its pipeline business under the scheme. consent from RIL to transfer its pipeline business under the scheme. consent from RIL to transfer its pipeline business under the scheme. (iii) Since the Appellant was a promoter of EWPL, holding 45% equity nce the Appellant was a promoter of EWPL, holding 45% equity nce the Appellant was a promoter of EWPL, holding 45% equity therein through its subsidiary, it agreed to acquire part of the RPS therein through its subsidiary, it agreed to acquire part of the RPS therein through its subsidiary, it agreed to acquire part of the RPS held by RIL at Rs. 1883.83 crore (equivalent to amount invested + held by RIL at Rs. 1883.83 crore (equivalent to amount invested + held by RIL at Rs. 1883.83 crore (equivalent to amount invested + accrued premium), enabling RIL to grant consent to the said accrued premium), enabling RIL to grant consent to the said accrued premium), enabling RIL to grant consent to the said scheme for transfer of the pipeline business by EWPL. for transfer of the pipeline business by EWPL. (iv) It is a settled legal position that the assessing officer can make (iv) It is a settled legal position that the assessing officer can make (iv) It is a settled legal position that the assessing officer can make adjustments to book profits u/s. 115JB only if the adjustment falls adjustments to book profits u/s. 115JB only if the adjustment falls adjustments to book profits u/s. 115JB only if the adjustment falls

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 41 & 5310/MUM/2024 & 5310/MUM/2024 within any of the adjustments prescribed in Explanation 1 to s within any of the adjustments prescribed in Explanation 1 to s within any of the adjustments prescribed in Explanation 1 to section 115JB(1) of the Act. [Apollo Tyres v. CIT [2002] 255 ITR 273 (SC)]. 115JB(1) of the Act. [Apollo Tyres v. CIT [2002] 255 ITR 273 (SC)]. 115JB(1) of the Act. [Apollo Tyres v. CIT [2002] 255 ITR 273 (SC)]. (v) The Circular no. 24 of 2017 dated 25/07/2017, issued by the (v) The Circular no. 24 of 2017 dated 25/07/2017, issued by the (v) The Circular no. 24 of 2017 dated 25/07/2017, issued by the Central Board of Direct Taxes ("CBDT"), which has clarified the Central Board of Direct Taxes ("CBDT"), which has clarified the Central Board of Direct Taxes ("CBDT"), which has clarified the issue regarding to FVTPL adjustments under Ind issue regarding to FVTPL adjustments under Ind-AS. (vi) In Sri Hariram Hotels (P.) Ltd. V. CIT [2016] 237 Taxman 564 i) In Sri Hariram Hotels (P.) Ltd. V. CIT [2016] 237 Taxman 564 i) In Sri Hariram Hotels (P.) Ltd. V. CIT [2016] 237 Taxman 564 (Karnataka HC), it has been held that once the accounts are (Karnataka HC), it has been held that once the accounts are (Karnataka HC), it has been held that once the accounts are scrutinized, certified by the statutory auditors (even though with scrutinized, certified by the statutory auditors (even though with scrutinized, certified by the statutory auditors (even though with qualification) and approved by the company in general body of qualification) and approved by the company in general body of qualification) and approved by the company in general body of meeting, and then filed with registrar of companies, the AO has to ting, and then filed with registrar of companies, the AO has to ting, and then filed with registrar of companies, the AO has to rely on the authentic accounts and has no power to re rely on the authentic accounts and has no power to re rely on the authentic accounts and has no power to re-compute the book profit. The AO has no power to embark upon a fresh enquiry book profit. The AO has no power to embark upon a fresh enquiry book profit. The AO has no power to embark upon a fresh enquiry with regard to entries made in books of account of company and with regard to entries made in books of account of company and with regard to entries made in books of account of company and has to rely upon authentic statements of accounts of company, has to rely upon authentic statements of accounts of company, has to rely upon authentic statements of accounts of company, being scrutinized and certified by statutory auditors. being scrutinized and certified by statutory auditors. (vii) The Appellant had recognized the RPS at their value in terms of (vii) The Appellant had recognized the RPS at their value in terms of (vii) The Appellant had recognized the RPS at their value in terms of Ind AS 109. The Appellant has not "set aside" any amount as Ind AS 109. The Appellant has not "set aside" any amount as Ind AS 109. The Appellant has not "set aside" any amount as provision for diminution in value. On the other hand it has reduced n for diminution in value. On the other hand it has reduced n for diminution in value. On the other hand it has reduced the carrying amount of investments itself. the carrying amount of investments itself. (viii) The RPS of EWPL are transferable instruments and can be (viii) The RPS of EWPL are transferable instruments and can be (viii) The RPS of EWPL are transferable instruments and can be traded. Ind AS 109 mandates investments / financial instruments traded. Ind AS 109 mandates investments / financial instruments traded. Ind AS 109 mandates investments / financial instruments to be fair valued irrespec to be fair valued irrespective of whether they are actively traded in tive of whether they are actively traded in the market, as prescribed in Ind AS 113. the market, as prescribed in Ind AS 113. 9.6 The appellant has further relied on the decision rendered by the 9.6 The appellant has further relied on the decision rendered by the 9.6 The appellant has further relied on the decision rendered by the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. V. Hon'ble Supreme Court in the case of Apollo Tyres Ltd. V. Hon'ble Supreme Court in the case of Apollo Tyres Ltd. V. Commissioner of Income Commissioner of Income-tax, 255 ITR 273 (SC)/[2002] has held as /[2002] has held as under: - "Section 115J of the Income "Section 115J of the Income-tax Act, 1961, read with Parts II and III tax Act, 1961, read with Parts II and III of Schedule VI to the Companies Act, 1956 Zero of Schedule VI to the Companies Act, 1956 Zero-tax companies tax companies Assessee-company, while determining its net profit, had provided company, while determining its net profit, had provided company, while determining its net profit, had provided for arrears of depreciation in for arrears of depreciation in its profit and loss account which its profit and loss account which according to revenue was not in accordance with Parts II and III of according to revenue was not in accordance with Parts II and III of according to revenue was not in accordance with Parts II and III of Schedule VI to the Companies Act, 1956 Hence, Assessing Officer, Schedule VI to the Companies Act, 1956 Hence, Assessing Officer, Schedule VI to the Companies Act, 1956 Hence, Assessing Officer, while considering case of assessee while considering case of assessee-company under section 115J, company under section 115J, recomputed said profit and recomputed said profit and loss account so as to exclude provisions loss account so as to exclude provisions made for arrears of depreciation Accounts of assessee company made for arrears of depreciation Accounts of assessee company made for arrears of depreciation Accounts of assessee company were certified by auditors as having been maintained in accordance were certified by auditors as having been maintained in accordance were certified by auditors as having been maintained in accordance with provisions of the Companies Act with provisions of the Companies Act - Tribunal held that Assessing Tribunal held that Assessing Officer had no au Officer had no authority to reopen accounts of a company which thority to reopen accounts of a company which were certified by auditors of company as having been maintained in were certified by auditors of company as having been maintained in were certified by auditors of company as having been maintained in accordance with provisions of the Companies Act and which accordance with provisions of the Companies Act and which accordance with provisions of the Companies Act and which Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 42 & 5310/MUM/2024 & 5310/MUM/2024 account had been accepted in general meeting of company as well account had been accepted in general meeting of company as well account had been accepted in general meeting of company as well as by Registrar of Co as by Registrar of Companies Whether, while computing income mpanies Whether, while computing income under section 115J, Assessing Officer has only power of examining under section 115J, Assessing Officer has only power of examining under section 115J, Assessing Officer has only power of examining whether books of account are certified by authorities under whether books of account are certified by authorities under whether books of account are certified by authorities under Companies Act as having been properly maintained in accordance Companies Act as having been properly maintained in accordance Companies Act as having been properly maintained in accordance with Companies Act and ther with Companies Act and thereafter, he has limited power of making eafter, he has limited power of making additions and reductions as provided for in Explanation to said additions and reductions as provided for in Explanation to said additions and reductions as provided for in Explanation to said section - Held, yes Held, yes - Whether, therefore, Assessing Officer does not Whether, therefore, Assessing Officer does not have jurisdiction to go behind net profit shown in profit and loss have jurisdiction to go behind net profit shown in profit and loss have jurisdiction to go behind net profit shown in profit and loss account except to account except to extent provided in Explanation to section 115J extent provided in Explanation to section 115J - Held, yes - Whether Tribunal had rightly set aside order of Whether Tribunal had rightly set aside order of Assessing Officer Assessing Officer - Held, yes" 9.7 The Hon'ble High Court of Calcutta in the case of Balmer Lawrie 9.7 The Hon'ble High Court of Calcutta in the case of Balmer Lawrie 9.7 The Hon'ble High Court of Calcutta in the case of Balmer Lawrie and Company Ltd, [2023] 149 taxmann.com 286 (Ca and Company Ltd, [2023] 149 taxmann.com 286 (Calcutta) has held lcutta) has held as under: - "I. Section 37(1) of the Income "I. Section 37(1) of the Income-tax Act, 1961 Business expenditure tax Act, 1961 Business expenditure - Allowability of (Prior period expenses) Allowability of (Prior period expenses) - Assessment year 2012 Assessment year 2012-13 Assessee claimed prior period expenses adjustment in its return of Assessee claimed prior period expenses adjustment in its return of Assessee claimed prior period expenses adjustment in its return of income for relevant year income for relevant year Assessing Officer asked assessee to Assessing Officer asked assessee to explain why prior period expenditure should not be disallowed explain why prior period expenditure should not be disallowed explain why prior period expenditure should not be disallowed - Assessing Officer held that assessee did not follow mercantile Assessing Officer held that assessee did not follow mercantile Assessing Officer held that assessee did not follow mercantile system of accounting and, therefore, not allowable as expenditure system of accounting and, therefore, not allowable as expenditure system of accounting and, therefore, not allowable as expenditure Aggrieved, assessee appeale Aggrieved, assessee appealed before Commissioner (Appeals). d before Commissioner (Appeals). contending that expenditure though related to earlier period got contending that expenditure though related to earlier period got contending that expenditure though related to earlier period got crystallized during year under consideration and was incurred crystallized during year under consideration and was incurred crystallized during year under consideration and was incurred wholly and exclusively for carrying on business and hence wholly and exclusively for carrying on business and hence wholly and exclusively for carrying on business and hence deductible Commissioner (Appeals) allo deductible Commissioner (Appeals) allowed entire prior period wed entire prior period expenses Tribunal, upheld order of Commissioner (Appeals) expenses Tribunal, upheld order of Commissioner (Appeals) expenses Tribunal, upheld order of Commissioner (Appeals) - Revenue was not able to place any material to disprove explanation Revenue was not able to place any material to disprove explanation Revenue was not able to place any material to disprove explanation furnished by assessee before authorities in support of its claim that furnished by assessee before authorities in support of its claim that furnished by assessee before authorities in support of its claim that liability to pay expenses charged u liability to pay expenses charged under head 'prior period nder head 'prior period crystallized during financial year 2011 crystallized during financial year 2011-12- Whether therefore, no Whether therefore, no substantial question of law arose for consideration under head prior substantial question of law arose for consideration under head prior substantial question of law arose for consideration under head prior period expenses period expenses - Held, yes [Paras 4 and 5] [In favour of assessee] Held, yes [Paras 4 and 5] [In favour of assessee] II. Section 115JB of the Inco II. Section 115JB of the Income-tax Act, 1961 - Minimum alternate Minimum alternate tax (Computation of book profit) Assessment year 2012 tax (Computation of book profit) Assessment year 2012 tax (Computation of book profit) Assessment year 2012-13 - Whether amount though bearing nomenclature of provision for Whether amount though bearing nomenclature of provision for Whether amount though bearing nomenclature of provision for diminution in value of investment, having been actually written off, diminution in value of investment, having been actually written off, diminution in value of investment, having been actually written off, could not be added to book prof could not be added to book profit under section 115JB(2) Held, yes it under section 115JB(2) Held, yes [Para 8] [In favour of assessee)" [Para 8] [In favour of assessee)" 9.8 On appreciation of the facts it is clear that the loss debited to .8 On appreciation of the facts it is clear that the loss debited to .8 On appreciation of the facts it is clear that the loss debited to the P&L is a diminution in value. It was not a provision. The value of the P&L is a diminution in value. It was not a provision. The value of the P&L is a diminution in value. It was not a provision. The value of assets (RPS) itself has been reduced, it does assets (RPS) itself has been reduced, it does not amount to provision not amount to provision

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 43 & 5310/MUM/2024 & 5310/MUM/2024 for diminution in value of asset but it amounts to actual write off of for diminution in value of asset but it amounts to actual write off of for diminution in value of asset but it amounts to actual write off of the loss. The Circular no. 24 of 2017 dated 25/07/2017, issued by the loss. The Circular no. 24 of 2017 dated 25/07/2017, issued by the loss. The Circular no. 24 of 2017 dated 25/07/2017, issued by the Central Board of Direct Taxes ("CBDT"), relied by the appellant the Central Board of Direct Taxes ("CBDT"), relied by the appellant the Central Board of Direct Taxes ("CBDT"), relied by the appellant clarifies that since MTM g clarifies that since MTM gains recognized through profit or loss on ains recognized through profit or loss on FVTPL classified financial instruments are included in book profits FVTPL classified financial instruments are included in book profits FVTPL classified financial instruments are included in book profits for MAT computation, it is clarified that MTM losses on such for MAT computation, it is clarified that MTM losses on such for MAT computation, it is clarified that MTM losses on such instruments recognized through profit or loss shall not require any instruments recognized through profit or loss shall not require any instruments recognized through profit or loss shall not require any adjustments as pr adjustments as provided under clause (i) of Explanation 1 to section ovided under clause (i) of Explanation 1 to section 115JB(2) of the Act. In view of the facts of the case and case laws 115JB(2) of the Act. In view of the facts of the case and case laws 115JB(2) of the Act. In view of the facts of the case and case laws discussed above, it is clear that book profits of the appellant cannot discussed above, it is clear that book profits of the appellant cannot discussed above, it is clear that book profits of the appellant cannot be be be tinkered tinkered tinkered with. with. with. In In In view view view of of of the the the above, above, above, the the the ground ground ground no.5 & 6 is allowed.” 14.7. We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on record the relevant materials on record. The narrow issue before us is . The narrow issue before us is whether the fair-value loss recognised by the assessee value loss recognised by the assessee value loss recognised by the assessee on redeemable preference shares, mandated by Ind AS, can be brought redeemable preference shares, mandated by Ind AS, redeemable preference shares, mandated by Ind AS, within the mischief of “provision for diminution in the value of any within the mischief of “provision for diminution in the value of any within the mischief of “provision for diminution in the value of any asset” for purposes of section 115JB. asset” for purposes of section 115JB. The assessee The assessee has referred to the CBDT Circular No. 24/ No. 24/2017, where it is explicitly clarified that where it is explicitly clarified that fair-value losses recognised through the pr value losses recognised through the profit and loss ofit and loss account under Ind AS (FVTPL) for under Ind AS (FVTPL) for classified instruments, , are not to be added back under clause (i) of Explanation 1 to section 115JB(2) as added back under clause (i) of Explanation 1 to section 115JB(2) added back under clause (i) of Explanation 1 to section 115JB(2) diminution or impairment or impairment of the asset. The Ld. CIT(A) has followed he Ld. CIT(A) has followed the said circular which is binding the said circular which is binding on the Income-tax Authorities tax Authorities.

14.8 In the present case, the assessee has not created any In the present case, the assessee has not created any In the present case, the assessee has not created any provision; rather, it has reduced the carrying amount of the provision; rather, it has reduced the carrying amount of the provision; rather, it has reduced the carrying amount of the investment itself in accordanc investment itself in accordance with Ind AS-109. Such a write 109. Such a write down does not fall within the scope of a “provision for diminution” does not fall within the scope of a “provision for diminution” does not fall within the scope of a “provision for diminution” contemplated in Explanation 1 contemplated in Explanation 1 to section 115JB of the Act to section 115JB of the Act. The Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 44 & 5310/MUM/2024 & 5310/MUM/2024 CIT(A) has correctly applied the CBDT circular as well as the CIT(A) has correctly applied the CBDT circular as well as the CIT(A) has correctly applied the CBDT circular as well as the principles laid down in principles laid down in Apollo Tyres ltd (supra) and other judicial and other judicial authorities. Ttherefore therefore, we do not find any infirmity in the order of , we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute. Accordingly, we uphold the the Ld. CIT(A) on the issue in dispute. Accordingly, we uphold the the Ld. CIT(A) on the issue in dispute. Accordingly, we uphold the same. The ground of appeal of the Revenue is accordingly same. The ground of appeal of the Revenue is accordingly same. The ground of appeal of the Revenue is accordingly dismissed.

15. Now we take up the appeal Now we take up the appeal of the Revenue for Assessment Assessment year 2020-21. The ground raised by the Revenue are reproduced as 21. The ground raised by the Revenue are reproduced as 21. The ground raised by the Revenue are reproduced as under :

1. "Whether the contribution or donation made by assessee not 1. "Whether the contribution or donation made by assessee not 1. "Whether the contribution or donation made by assessee not voluntarily, but to discharge legal obligation arising from section 135 voluntarily, but to discharge legal obligation arising from section 135 voluntarily, but to discharge legal obligation arising from section 135 of the Company's A of the Company's Act r.w. schedule VII of Company's Act, is donation ct r.w. schedule VII of Company's Act, is donation or voluntary contribution within the meaning of Section 80G r.w.s. 's or voluntary contribution within the meaning of Section 80G r.w.s. 's or voluntary contribution within the meaning of Section 80G r.w.s. 's 11 & 12 of the IT Act, 1961?" 11 & 12 of the IT Act, 1961?" 2. "Whether the MTM losses arising out of Currency Swap Contract 2. "Whether the MTM losses arising out of Currency Swap Contract 2. "Whether the MTM losses arising out of Currency Swap Contract do not fall in the purview of Section 43 do not fall in the purview of Section 43AA of the Act which is subject AA of the Act which is subject to the section 43A of the Act relating to taxation of foreign exchange to the section 43A of the Act relating to taxation of foreign exchange to the section 43A of the Act relating to taxation of foreign exchange fluctuation?" 3. "Whether on the facts and in the circumstances of the case and in 3. "Whether on the facts and in the circumstances of the case and in 3. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has rightly confirmed the treatment of MTM losses law, the Ld.CIT(A) has rightly confirmed the treatment of MTM losses law, the Ld.CIT(A) has rightly confirmed the treatment of MTM losses on currency swap as done by the assessee disregarding the findings currency swap as done by the assessee disregarding the findings currency swap as done by the assessee disregarding the findings of assessing officer made during the assessment proceedings?" of assessing officer made during the assessment proceedings?" of assessing officer made during the assessment proceedings?" 4. "Whether the amount paid by the Assessee to 4. "Whether the amount paid by the Assessee to M/s. Reliance Foundation is eligible Foundation is eligible spending within the meaning of section 135 spending within the meaning of section 135 r.w. rule 7 of Company's Act 2013?" w. rule 7 of Company's Act 2013?" 5. "Whether on the facts and in the circumstances of the case and in 5. "Whether on the facts and in the circumstances of the case and in 5. "Whether on the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeal) learned Commissioner of Income Tax (Appeal) learned Commissioner of Income Tax (Appeal) was justified in deleting the in deleting the disallowance made u/s.14A without appreciating that disallowance made u/s.14A without appreciating that the disallowance u the disallowance u/s. 145A as required to be determined according /s. 145A as required to be determined according to Rule 8D of Income Tax Rules 1962 as had been done by the to Rule 8D of Income Tax Rules 1962 as had been done by the to Rule 8D of Income Tax Rules 1962 as had been done by the Assessing officer?” Assessing officer?”

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 45 & 5310/MUM/2024 & 5310/MUM/2024

"Whether on the facts and in the circumstances of the case and in 6. "Whether on the facts and in the circumstances of the case and in 6. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was correct in not noticing CBDT Circul was correct in not noticing CBDT Circular No. 5/2014 when it is judicially acknowledged that CBDT Circulars 5/2014 when it is judicially acknowledged that CBDT Circulars 5/2014 when it is judicially acknowledged that CBDT Circulars constitute important clarifications of legislature intent ?” constitute important clarifications of legislature intent ?” constitute important clarifications of legislature intent ?” 15.1 The Ground No os.1 and 4 of the appeal for AY 2020 for AY 2020-21 are identical to the Ground no.1 and 4 of the appeal round no.1 and 4 of the appeal for AY 2019 for AY 2019-20, therefore, these grounds are decided grounds are decided mutatis mutandis mutatis mutandis to ground decided in AY 2019-20. 20.

15.2 The Ground Nos s.2 and 3 of the present appeal are identical to .2 and 3 of the present appeal are identical to the Ground no.2 and 3 of the appeal for AY 2019 round no.2 and 3 of the appeal for AY 2019-20, therefore, round no.2 and 3 of the appeal for AY 2019 these grounds are decided these grounds are decided mutatis mutandis to ground decided in to ground decided in AY 2019-20.

15.3 The Ground No os. 5 and 6 of the appeal relate to disallowance the appeal relate to disallowance under Section 14 A read with Rule 8 D of the Income Tax Rules, der Section 14 A read with Rule 8 D of the Income Tax Rules, der Section 14 A read with Rule 8 D of the Income Tax Rules, 1962.

16.

We have carefully considered the rival submissions and We have carefully considered the rival submissions and We have carefully considered the rival submissions and examined the materi examined the material placed on record in relation to the issue al placed on record in relation to the issue under adjudication. The Assessing Officer noted that the assessee under adjudication. The Assessing Officer noted that the assessee under adjudication. The Assessing Officer noted that the assessee had made substantial investments in shares capable of yielding had made substantial investments in shares capable of yielding had made substantial investments in shares capable of yielding exempt dividend income. However, it is an undisputed fact that no exempt dividend income. However, it is an undisputed fact that no exempt dividend income. However, it is an undisputed fact that no exempt income was earned by the assessee during the year under s earned by the assessee during the year under s earned by the assessee during the year under consideration. Notwithstanding this, and in the absence of any suo consideration. Notwithstanding this, and in the absence of any consideration. Notwithstanding this, and in the absence of any motu disallowance by the assessee, the Assessing Officer proceeded disallowance by the assessee, the Assessing Officer proceeded disallowance by the assessee, the Assessing Officer proceeded to invoke Rule 8D of the Income to invoke Rule 8D of the Income-tax Rules, 1962, and accordingly tax Rules, 1962, and accordingly computed a disallowance of ₹65,63,50,056/–. computed a disallowance of Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 46 & 5310/MUM/2024 & 5310/MUM/2024

17. In appeal, the Ld. CIT(A) deleted the disallowance primarily on In appeal, the Ld. CIT(A) deleted the disallowance primarily on In appeal, the Ld. CIT(A) deleted the disallowance primarily on the ground that the assessee had not earned any exempt income the assessee had not earned any exempt income the assessee had not earned any exempt income during the relevant assessment year. The Ld. CIT(A), relying on the during the relevant assessment year. The Ld. CIT(A), relying on the during the relevant assessment year. The Ld. CIT(A), relying on the judicial precedents governing the issue judicial precedents governing the issue—including the judgment of including the judgment of the Hon’ble Jurisdictional High Court in the Hon’ble Jurisdictional High Court in Ballarpur Industries Ltd. Ballarpur Industries Ltd. (supra)—held that in such circumstances, no disallowance under eld that in such circumstances, no disallowance under eld that in such circumstances, no disallowance under section 14A read with Rule 8D was warranted. The Ld. CIT(A) also section 14A read with Rule 8D was warranted. The Ld. CIT(A) also section 14A read with Rule 8D was warranted. The Ld. CIT(A) also duly considered the applicability of CBDT Circular No. 5/2014 duly considered the applicability of CBDT Circular No. 5/2014 duly considered the applicability of CBDT Circular No. 5/2014 while arriving at the aforesaid conclusion. while arriving at the aforesaid conclusion. Relevant finding of the Relevant finding of the Ld. CIT (A) is reproduced as under: (A) is reproduced as under:

“9.Ground no.6 and 7 of appeal is related to the disallowance u/s 14A r.w.r 8D of Ground no.6 and 7 of appeal is related to the disallowance u/s 14A r.w.r 8D of Ground no.6 and 7 of appeal is related to the disallowance u/s 14A r.w.r 8D of the Act of Rs. 65,63,50,056/-. The appellant has contended that AO erred in the Act of Rs. 65,63,50,056/ . The appellant has contended that AO erred in computing disallowance u/s 14A r.w.r 8D of Rs. 65,63,50,056/- without computing disallowance u/s 14A r.w.r 8D of Rs. 65,63,50,056/ computing disallowance u/s 14A r.w.r 8D of Rs. 65,63,50,056/ appreciating the fact that most of the investment yield is taxable income and the fact that most of the investment yield is taxable income and the fact that most of the investment yield is taxable income and income on such investments recognized during the year is taxed under various investments recognized during the year is taxed under various investments recognized during the year is taxed under various heads of income. The AO erred in making disallowance u/s 14A in the absence of AO erred in making disallowance u/s 14A in the absence of any exempt income ear earned during the year under consideration. ned during the year under consideration.

9.1 The AO while making disallowance u/s 14A of the Act of Rs. 65,63,50,056/- 9.1 The AO while making disallowance u/s 14A of the Act of Rs. 65,63,50,056/ 9.1 The AO while making disallowance u/s 14A of the Act of Rs. 65,63,50,056/ relied on CBDT circular no. 05/2014 which gives a mechanism for calculating relied on CBDT circular no. 05/2014 which gives a mechanism for calculating relied on CBDT circular no. 05/2014 which gives a mechanism for calculating disallowance u/s 14A of the Act and clearly mentions that the disallowance u/s 14A of the Act and clearly mentions that the said disallowance is attracted even when there is no exempt income. During the appellate proceedings attracted even when there is no exempt income. During the appellate proceedings attracted even when there is no exempt income. During the appellate proceedings the appellant has filed written submission on the issue of disallowance u.s 14A of the appellant has filed written submission on the issue of disallowance u.s 14A of the appellant has filed written submission on the issue of disallowance u.s 14A of the Act. The appellant submitted that during the year under Act. The appellant submitted that during the year under consideration it did not consideration it did not earn any exempt income and it is a settled legal position that the disallowance u/s any exempt income and it is a settled legal position that the disallowance u/s any exempt income and it is a settled legal position that the disallowance u/s 14A cannot be made in absence of exempt income. In this regard the appellant has cannot be made in absence of exempt income. In this regard the appellant has cannot be made in absence of exempt income. In this regard the appellant has relied on various case laws as under: on various case laws as under:

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 47 & 5310/MUM/2024 & 5310/MUM/2024

(i) PCIT v. Ballarpur Indust (i) PCIT v. Ballarpur Industries Limited [2016] (ITA No. 51 of 2016) ries Limited [2016] (ITA No. 51 of 2016) (Bom)(HC).

(ii) PCIT v. Kohinoor Project (P.) Ltd. [2020] 425 ITR 700 (Bom)(HC) (ii) PCIT v. Kohinoor Project (P.) Ltd. [2020] 425 ITR 700 (Bom)(HC) (ii) PCIT v. Kohinoor Project (P.) Ltd. [2020] 425 ITR 700 (Bom)(HC)

(iii) MAN Infraprojects Ltd. (ITA No.259 of 2017 dated 09.04.2019) (iii) MAN Infraprojects Ltd. (ITA No.259 of 2017 dated 09.04.2019) (iii) MAN Infraprojects Ltd. (ITA No.259 of 2017 dated 09.04.2019) (Bom.)(HC)

(iv) PCIT vs. Wockhardt Hospitals Limited of (iv) PCIT vs. Wockhardt Hospitals Limited of (iv) PCIT vs. Wockhardt Hospitals Limited of 2017 (dated 16.03.2020) (Bom.)(HC) 16.03.2020) (Bom.)(HC)

(v) PCIT vs. JSW Energy Ltd. of 2017 (dated 19.08.2019) (v) PCIT vs. JSW Energy Ltd. of 2017 (dated 19.08.2019) (v) PCIT vs. JSW Energy Ltd. of 2017 (dated 19.08.2019) (Bom.)(HC)

(vi) Cheminvest Ltd. v. CIT [2015] 234 Taxman 761, Hon’ble Delhi High (vi) Cheminvest Ltd. v. CIT [2015] 234 Taxman 761, Hon’ble Delhi High (vi) Cheminvest Ltd. v. CIT [2015] 234 Taxman 761, Hon’ble Delhi High Court

(vii) PCIT v. McDonald's India (P.) Ltd. [2019] 101 taxmann.com (vii) PCIT v. McDonald's India (P.) Ltd. [2019] 101 taxmann.com (vii) PCIT v. McDonald's India (P.) Ltd. [2019] 101 taxmann.com 86 (Delhi)

9.2 Further, to counter the CBDT circular no. 05/2014 on which the AO relied while 9.2 Further, to counter the CBDT circular no. 05/2014 on which the AO relied 9.2 Further, to counter the CBDT circular no. 05/2014 on which the AO relied making the disallowance u/s 14A of the Act, the appellant has relied on the making the disallowance u/s 14A of the Act, the appellant has relied on the making the disallowance u/s 14A of the Act, the appellant has relied on the following case laws.

(i) Hon’ble Delhi High Court, in case of PCIT v. IL Hon’ble Delhi High Court, in case of PCIT v. IL Hon’ble Delhi High Court, in case of PCIT v. IL & FS Energy Development Company Ltd.[2017] 399 ITR 483 (Delhi) Development Company Ltd.[2017] 399 ITR 483 (Delhi) Development Company Ltd.[2017] 399 ITR 483 (Delhi) has considered the considered the above mentioned CBDT Circular and held that the above mentioned CBDT Circular and held that the said Circular cannot override the express Circular cannot override the express provisions of section 14A read with provisions of section 14A read with Rule 8D. It was ultimately held that disallowance u/s. 14A was ultimately held that disallowance u/s. 14A was ultimately held that disallowance u/s. 14A cannot be made where no exempt income was made where no exempt income was earned by the assessee during the earned by the assessee during the year.

(ii) Hon’ble Mumbai Tribunal, too, in case of Hon’ble Mumbai Tribunal, too, in case of Kamat Hotels (India) Kamat Hotels (India) Ltd. v. DCIT [2018] 89 Ltd. v. DCIT [2018] 89 taxmann.com 225, has considered the said , has considered the said CBDT Circular and held that legislative inte Circular and held that legislative intent is more nt is more discernible in decisions of High Courts. Hence, following decisions of High Courts. Hence, following decisions of various High decisions of various High

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 48 & 5310/MUM/2024 & 5310/MUM/2024

Courts it was held that Courts it was held that section 14A will not apply if no exempt income is section 14A will not apply if no exempt income is received during the relevant previous year. received during the relevant previous year.

(iii) In Astik Dyestuff Pvt Ltd Vs. CCE [20 Astik Dyestuff Pvt Ltd Vs. CCE [2014-TIOL TIOL- 237- HC- AHM- ST], Hon’ble Gujarat High Court ST], Hon’ble Gujarat High Court has held that in case of conflict held that in case of conflict between decision of between decision of Jurisdictional High Court and a Board’s Circular Jurisdictional High Court and a Board’s Circular arises, the decision of the jurisdictional High Court is arises, the decision of the jurisdictional High Court is arises, the decision of the jurisdictional High Court is binding on the department rather than CBDT department rather than CBDT circular.

9.3 The appellant has also pointed out the amendment brought in section 14A, 9.3 The appellant has also pointed out the amendment brought in section 14A, 9.3 The appellant has also pointed out the amendment brought in section 14A, vide Finance Act, 2022, by which an Explanation to section 14A has been vide Finance Act, 2022, by which an Explanation to section 14A has been vide Finance Act, 2022, by which an Explanation to section 14A has been inserted. The same is reproduced as under: The same is reproduced as under:

“Explanation.— —For the removal of doubts, it is hereby For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the notwithstanding anything to the contrary contained in this Act, the notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have provisions of this section shall apply and shall be deemed to have provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the always applied in a case where the income, not forming part of the always applied in a case where the income, not forming part of the total income under this Act, has not income under this Act, has not accrued or arisen or has not accrued or arisen or has not been received during the previous year relevant to an assessment received during the previous year relevant to an assessment received during the previous year relevant to an assessment year and the expenditure has been incurred during the said the expenditure has been incurred during the said previous year in relation to such income not forming part of the relation to such income not forming part of the total income.” total income.”

The Appellant pleaded that the amendment has been made effective only The Appellant pleaded t hat the amendment has been made effective only from 1.4.2022, i.e., from Assessment Year 2022 1.4.2022, i.e., from Assessment Year 2022-23. The same cannot be 23. The same cannot be applied to the assessment year in question, i.e., AY 2020 assessment year in question, i.e., AY 2020-21. 21.

9.4 Perusal of the assessment order reveals that during the assessment 9.4 Perusal of the assessment order reveals that during the assessment 9.4 Perusal of the assessment order reveals that during the assessment proceedings the appellant itself submitted the working of 14A disallowance as dings the appellant itself submitted the working of 14A disallowance as dings the appellant itself submitted the working of 14A disallowance as under:

Annual Average of Monthly average of Balance Investment for Annual Average of Monthly average of Balance Investment for Annual Average of Monthly average of Balance Investment for FY 19-20

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 49 & 5310/MUM/2024 & 5310/MUM/2024 Month Opening Closing Monthly Monthly Balance Balance Average Average April 33,002 33,002 33,002 33,002 May 33,002 33,002 33,002 33,002 June 33,002 33,002 33,002 33,002 July 33,002 33,002 33,002 33,002 August 33,002 33,002 33,002 33,002 September 33,002 33,002 33,002 33,002 October 33,002 33,002 33,002 33,002 November 33,002 33,002 33,002 33,002 December 33,002 25,33,002 12,83,002 12,83,002 January 25,33,002 25,33,002 25,33,002 25,33,002 February 25,33,002 25,33,002 25,33,002 25,33,002 March 25,33,002 25,33,002 25,33,002 25,33,002 Total of Monthly Average (A) Total of Monthly Average (A) 91,46,024 91,46,024 Annual Average A/12 Annual Average A/12 7,62,168.667 7,62,168.667

1% of Annual Average of Monthly average of 1% of Annual Average of Monthly average of 7621/- 7621/ Balance Investments of FY 19 Balance Investments of FY 19-20

Jamnagar Utilities and Power Pvt. Ltd. Jamnagar Utilities and Power Pvt. Ltd. 50 & 5310/MUM/2024 & 5310/MUM/2024

During the appellate proceedings the appellant submitted that without prejudice appellate proceedings the appellant submitted that without prejudice appellate proceedings the appellant submitted that without prejudice its contention that no disallowance should be made in the absence of exempt contention that no disallowance should be made in the absence of exempt contention that no disallowance should be made in the absence of exempt income, Rule 8D when applied to balance investments (i.e. investments other than Rule 8D when applied to balance investments (i.e. investments other than Rule 8D when applied to balance investments (i.e. investments other than those which generate interest which generate interest income / gains on redemption/transfer which is income / gains on redemption/transfer which is offered to tax in ROI), 1% of the annual average of monthly average of balance in ROI), 1% of the annual average of monthly average of balance in ROI), 1% of the annual average of monthly average of balance investments works out to Rs. 7,622. out to Rs. 7,622.

9.5 In view of the above discussion, case laws relied upon by the appellant and the 9.5 In view of the above discussion, case laws relied upon by the appellant and 9.5 In view of the above discussion, case laws relied upon by the appellant and fact that during the year under consideration the appellant has not earned any during the year under consideration the appellant has not earned any during the year under consideration the appellant has not earned any exempt income which is evident from the computation of income provided by the exempt income which is evident from the computation of income provided by the exempt income which is evident from the computation of income provided by the appellant, the disallowance of Rs. 65,63,50,056/- made u/s 14A of the Act by AO appellant, the disallowance of Rs. 65,63,50,056/ made u/s 14A of the Act by AO restricted to Rs. 7,622/-.” is restricted to Rs. 7,622/

18.

Since the Ld. CIT (A) has followed the binding Since the Ld. CIT (A) has followed the binding Since the Ld. CIT (A) has followed the binding precedents on the issue in dispute, we do not find any infirmity in the finding of the issue in dispute, we do not find any infirmity in the finding of the issue in dispute, we do not find any infirmity in the finding of the Ld. CIT (A) and accordingly the Ld. CIT (A) and accordingly, we uphold the same. we uphold the same.

19.

The Ground N Ground Nos.5 and 6 of the appeal are accordingly .5 and 6 of the appeal are accordingly dismissed.

20.

In the result, both both the appeals of the Revenue of the Revenue are allowed partly.

Order pronounced in the open Court on 04 ounced in the open Court on 04/1 /12/2025.

ACIT, CIRCLE - 3 3 1, MUMBAI vs. JAMNAGAR UTILITIES AND POWER PVT LTD, MUMBAI