ASSISTANT COMMISSONER OF INCOME TAX-CIRCLE-3.3.1, MUMBAI vs. JAMNAGAR UTILITIES POWER PVT. LTD., MUMBAI

IN THE INCOME-TAX APPELLATE TRIBUNAL “F” BENCH,
MUMBAI
BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT
&
SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER

ITANo.4766/MUM/2024

(A.Y. 2014-15)

Assistant Commissioner of Income Tax, Circle - 3.3.1,
Aayakar Bhawan, Room No.
522, M.K. Road, Mumbai -
400 020, Maharashtra v/s.
बनाम
Jamnagar Utilities
Power
Pvt. Ltd., 3rd Floor, Maker
Chamber,
222,
Nariman
Point, Mumbai – 400 021,
Maharashtra
स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAACR3893B
Appellant/अपीलाथी
..
Respondent/प्रतिवादी

प्रत्याक्षेपसं/C.O. No.225/MUM/2024
(Arising out of ITA No. 4766/MUM/2024)
(A.Y. 2014-15)

Jamnagar Utilities Power
Pvt. Ltd., 3rd Floor, Maker
Chamber,
222,
Nariman
Point, Mumbai – 400 021,
Maharashtra v/s.
बनाम
Assistant Commissioner of Income
Tax,
Circle
-
3.3.1,Aayakar
Bhawan,
Room No. 522, M.K. Road,
Mumbai
-
400
020,
Maharashtra
स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAACR3893B
Appellant/अपीलार्थी
..
Respondent/प्रतिवादी

Appellant by :
Shri Madhur Agarwal / Shri Nimesh Vora /
Ms. Moksha Mehta,ARs
Respondent by :
Shri Ashish Heliwal (CIT DR)

Date of Hearing
25.07.2025
Date of Pronouncement
05.09.2025

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Jamnagar Utilities and Power Pvt. Ltd. Mumbai

आदेश / O R D E R

PER PRABHASH SHANKAR [A.M.] :-

The present appeal preferred by the Revenue and Cross Objections of the assessee emanate from the appellate order dated18.07.2024 as passed by the Learned Commissioner of Income-tax (Appeals)/National
Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”]
pertaining to assessmentorder u/s. 147 r.w.s. 144 of the Income-tax Act,
1961 [hereinafter referred to as “Act”] dated30.03.2022for the Assessment
Year [A.Y.] 2014-15.We take up Revenue’s appeal in ITA No.
4766/MUM/2024 first, as below:
2. The grounds of appeal are as under:-
“Whether on the facts and in the circumstances of the case, the Ld.
CIT(A) justified in deleting the addition of Rs.51,19,35,624/- holding that the AO has not brought on records any discrepancy in the allocation of interests and finance charges of Rs. 95,62,46,575/- to Investment Division and Rs.80,99,58,408/- to Power Generation
Division, disregarding the absence of valid response of the assessee to the actual reason which is division of unallocable expenses of Rs.216.28 Cr out of Rs.311.90 Cr.”
3. Facts of the case are that the return of income for relevant year was filed by the assessee company declaring loss at Rs. 51,71,85,850/- under normal provision of Act and book profit u/s 115JB of the Act at Rs.
621,87,16,856/-. The assessment order u/s 143(3) of the Act waspassed on 28.12.2016 without making any addition. Thereafter, notice u/s 148 of the P a g e | 3
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Jamnagar Utilities and Power Pvt. Ltd. Mumbai

Act was issued to it on 30.03.2021. In response,it filed return of income on 26.04.2021 declaring total income at Rs. 66,11,81,680/-. The reassessment order was passed on 30.03.2022 inter alia making additions of i) Rs.
51,19,35,624/- in respect of less finance cost debited to power generation division resulting in grant of excess deduction under section 80IA/80IAB of the Act and (ii) Unrealized forex loss of Rs. 75,73,89,578/- allowed reducing deduction claimed u/s 80IAB of IT Act.
4. In the subsequent appeal in this regard, the ld.CIT(A) has discussed the findings of the AO relating to the additional finance cost of Rs. 51,19,35,624/- allocated to 80IAB unit by him resulting in reduction of this claim. The assessee submitted before him that the AO erred in considering additional finance cost of Rs. 51,19,35,624/- as allocable to Power Generation Division and thereby reducing claim of deduction u/s 80IA/80IAB without appreciating the fact that the assessee is maintaining separate books of accounts of the said units claiming deduction u./s
80IA/80IAB and properly allocated finance cost which is duly audited by the auditors. The assessee submitted that the segment information was complied in accordance with Accounting Standard -17 “Segment Reporting
(AS-17)”.However the reply of assessee was not accepted by AO who stated that the actual reason on which basis the division of unallocable expenses of Rs. 216.28 cr. out of Rs. 311.90 cr. was made, was not provided by the P a g e | 4
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Jamnagar Utilities and Power Pvt. Ltd. Mumbai it.During the appellate proceedings, the assessee submitted that additional allocation of Rs. 51,19,35,624/- made by AO on turnover basis was not in accordance with the law. Interest cost allocation on the basis of utilization of funds is more appropriate and correct than the allocation on the basis of turnover as done by the AO.
4.1 It was observed by the ld.CIT(A) that the 80IAB unit being the power plant in SEZ unit at Jamnagar was set up by M/s Reliance Utilities
Private Limited (RUL) which was later demerged to the assessee company.
For its setup, RUL had borrowed a sum of U 425,000,000 in FY 2006-
07. The said finance cost was in respect of specific borrowing made for the purpose of setting up the power plant. The operations of the unit commenced in FY 2008-09. The unit set up by RUL had claimed deduction u/s 80IAB since AY 2010-11 and in subsequent years. RUL has filed relevant Form 10CCB for claiming the deduction u/s 80IAB prior to demerger of its power plant to the assessee in FY 2011-12. The power plant unit claiming deduction u/s 80IAB was merged with the assessee on 01.04.2011. Therefore, all the assets and liabilities of the power plant division had been transferred from RUL to it from 01.04.2011. Accordingly, the ECB loan amounting to U 425,000,000 taken for setting up the power plant division was transferred from RUL to it. The interest/finance cost amounting to Rs. 80,99,58,408/- on the ECB loan had been debited to P a g e | 5
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Jamnagar Utilities and Power Pvt. Ltd. Mumbai

80IAB unit. Accordingly, borrowing which had nexus with the 80IAB unit is ECB, the interest on the same was debited to the Profit and Loss account prepared for the 80IAB unit by the assessee. The AO relied on the segment reporting for accounting purpose while coming to the conclusion that unallocated interest cost as per segment accounts shall be allocated to all units in turnover ratio.
4.2 The ld.CIT(A) further observed that Clause 5.6 of this AS-17
that prescribed the segment expenses was as under:
(i)
The expense resulting from the operating activities of a segment that is directly attributable to the segment and,
(ii)
The relevant portion of enterprise expense that can be allocated on a reasonable basis to the segment, including expense relating to transactions with other segment of the enterprise.
4.3 The ld.CIT(A) further noted that AS-17 further provides that segment expense does not include the interest expense, including interest incurred on advances or loans from other segments, unless the operations of the segment are primarily of a financial nature. The assessee out of the total interest and finance expenses debited to profit and loss account, allocated an amount of Rs. 95,62,46,575/- for investment activities (being

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Jamnagar Utilities and Power Pvt. Ltd. Mumbai financial nature) to "Investment division" and the balance interest expenditure was reported as "Unallocable" in accordance with para 5.6 of AS-17. In its financial statements for 80IAB unit, allocated Rs.
80,99,58,408/- to 80IAB unit based on actual utilization of proceeds of the borrowings. The assessee, also provided its breakup of borrowings and its utilization. It is evident that it utilized only the foreign ECB loan amounting to U 425,000,000 for its SEZ unit. Therefore, further allocation by the AO to the tune of Rs. 51,19,35,624/- to the SEZ unit seemed to be incorrect.
4.4 Further, in the appellate proceedings, the assessee relied on certain case laws i.e. the Hon’ble ITAT Ahmedabad in the case of Sintex
Industries Ltd (2786/Ahd/2014) ITA No. 1548/Ahd/2012 has stated about allocation of common interest and financial charges as under:-
"We have duly considered rival contentions and gone through the record carefully. The case of the assessee is that financial charges cannot be allocated in the ratio of sales, because, the sales have no direct influence on the interest expenditure. The financial charges are relevant to the investment made by an assessee. In other words, suppose an assessee has made investment after borrowing funds due to some reason or market conditions he could not effect the sales, then, if we go by the logic of the AO, there would be a lesser allocation. The assessee has allocated the expenditure on account of financial charges, keeping in view the investment in Bhaddi units. In other words, these are direct expenditure relatable to Bhaddi units. Therefore, the Id.CIT(A) has rightly deleted the allocation of interest/financial charges in the Bhaddi made on the basis of sales ratio. We do not find any infirmity in the order of the Id.CIT(A) on this issue.”

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Resultantly, interest cost of Rs. 216.28 crs. (ie. 311.90 cr. less 95.62 cr.) was reported as “unallocable” in the segmental information given in the financial statements. For the sake of quick reference, the same was reproduced as under:
(i) (Primary Segment information (Business)
(Rs in Crore)
Particulars
Power
Generation
Investments
Unallocable
Total

2013-14
2012-
13
2013-
14
2012-13
2013-14
2012-
13
2013-
14
2012-
13

Segment
Revenue
1463.66
1323.81
169.48
157.08
-
-
1633.14
1480.8
0
Operating
Segment
Result before
Interest and Tax
552.42
849.34
72.77
17.60
(3.79)
(14.15)

Add-Interest
Income
-
-
-
-
0.71
-
0.71
-
Add-Other non operating income
-
-
-
-
0.00
0.00
0.00
0.00
Less Interest and Finance Charges
-
-
-
-
216.28
133.37
216.28

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Jamnagar Utilities and Power Pvt. Ltd. Mumbai iii. For the purpose of computing deduction u/s. 80-IAB, the interest on aforesaid ECB, of Rs. 80.99 crs, was allocated to the Power Generation Unit at SEZ. However, in view of AS-17, the same was reported as “unallocable” in the financial statements, as the power generation business was not primarily in nature of finance.
iv. The aforesaid interest cost on ECB of Rs. 80.99 crs included the adjustment of Rs. 61.48 crs towards foreign currency exchange difference to the extent considered as borrowing cost as per AS-16. v. Thus, the interest cost of Rs. 216.28 crs categorised as “unallocable” in the segmental information included the interest cost of Rs. 80.99 crs allocated to the profits of SEZ unit eligible u/s. 80-IAB of the Act.
6.3. It is contented that the AO merely relied on the segmental information and alleged that the assessee did not allocate any interest to the power generation unit and held that the “unallocable interest cost” was to be allocated to power generation unit basis turnover ratio (i.e. turnover of power generation unit divided by total turnover of the assessee). It is pertinent to note that while making the addition towards allocation of interest cost, the AO recorded the fact that the assessee had debited finance cost to the power generating unit at Jamnagar SEZ. However, he misunderstood the said allocation as Rs. 142.37 cr. (Rs. 80.99 cr. plus Rs.
61.48 cr) as per 3rd last para at page 7 of the assessment order. Thus, it is submitted that the AO was aware of the fact that the finance cost was debited to the power generation unit by the assessee and did not dispute

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Jamnagar Utilities and Power Pvt. Ltd. Mumbai the allocation of interest cost to SEZ unit, as made by the assessee. The interest cost could be allocated on actual utilization of the borrowed funds which the assessee had already allocated to the Power Generation SEZ unit in the computation of income. In support, the Assessee submitted the breakup of interest cost and utilization of borrowed funds which established that, except for the above referred ECB, no other borrowing cost was allocable to the Power Generation SEZ unit. The same is evident from the following facts:
a. During the year under consideration, the Appellant had following outstanding borrowings:
i. External Commercial Borrowing (“ECB”) of Rs. 1061 cr.:
As stated in the foregoing, this ECB was obtained by RUL, specifically for setting up power generation unit at SEZ. The said unit was demerged from RUL to the assessee, w.e.f. 1.4.2011. Since this ECB was directly linked with the setting up of power generation unit, this ECB was taken over by the assessee in the said demerger. Thus, these funds were clearly relating to SEZ power generation unit and hence, interest cost thereon was allocated to the SEZ unit by the assessee. This fact has not been challenged by the AD and was also accepted by the Ld. CIT(A).
ii. 9.2% Non-convertible Debentures (“NCD”) of Rs. 1000 cr:
These funds were utilised towards making investments in NCDs of Sikka
Ports & Terminals Ltd (earlier known as Reliance Ports And Terminals
Limited) and as such the interest cost thereon was allocated to investment activities in the segmental information in the financial statements. Thus, these funds were not utilised towards setting up of SEZ unit. Besides, since

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Jamnagar Utilities and Power Pvt. Ltd. Mumbai the power generation unit at SEZ was already set-up by RUL prior to 1.4.2011, the funds borrowed by the Assessee could not be said to be relatable to the SEZ unit.
iii. 8.95% NCDs of Rs. 2000 cr:
These funds were raised during the FY 2013-14. Since these funds were borrowed during the year under consideration, the same could not have been utilised for setting up SEZ unit which was set-up and demerged into Assessee prior to FY 2011-12. For the sake of completeness, these funds were utilised towards other projects and general corporate purpose.
6.5. In view of the above facts, it is clear that finance cost other than that on ECB was not allocable to the SEZ unit.Theallocation of interest expenditure is to be made on the basis of actual utilization of the borrowed funds. In support, the assessee relied on the following decisions:
 CIT v. Hindustan Lever Ltd. [2012] 343 ITR 161 (Bom) (HC)
 Nyati Builders (P.) Ltd. v. DCIT (2014] 65 SOT 112 (Pune) (ITAT)
 ACIT v. Glenmark Pharmaceuticals Ltd. [2019] ITA No. 1654/Mum/2016
(Mum) (ITAT)
6.6 In the course of hearing before us, the ld. DR could not controvert the facts stated above or the findings of the ld. CIT(A) in respect of the actual utilization of borrowings and the allocation of interest cost by the assessee.
7. We have carefully perused the records,considered rival submissions and the legal position emerging from the cited decisions as per preceding

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Jamnagar Utilities and Power Pvt. Ltd. Mumbai paras.During the appellate proceedings, the assessee submitted that additional allocation of Rs. 51,19,35,624/- made by AO on turnover basis was not in accordance with the law. Interest cost allocation on the basis of utilization of funds is more appropriate and correct than the allocation on the basis of turnover as done by the AO. The contention of the assessee is based on certain cited judicial decisions(supra).We concur with the conclusion drawn by the ld.CIT(A) that the AO was not justified in adopting the method of allocation based on turnover.From the facts of the case as discussed in preceding paras, there is no dispute as regard direct interest expenses are concerned.
7.1. Further, we find no infirmity in the observations of the ld.
CIT(A) that the assessee had identified interest cost of Rs. 95.62 cr. to the investment activities and had allocated Rs. 80.99 cr. to the 80IAB unit.Besides,the AO neither brought on records any discrepancy in the said allocation nor did he identify any specific defect in the allocation made by the assessee.Moreover,there was no basis for further allocation of interest on the basis of turnover and hence, the addition made by the AO pursuant to the allocation of interest cost was rightly deleted by the ld.CIT(A).
Accordingly, based on the above discussion, we uphold the appellate order and consequently appeal of the Revenue is dismissed.

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C.O. No.225/MUM/2024(Assessee)
8. The assessee has raised following grounds of appeal in the cross objections:
i)Reopening of the assessment is bad in law- The ld.CIT(A)erred in upholding reopening of the assessment under section 147 of the Income Tax Act, 1961 which is in violation of provisions of the Act and judicial precedents.
ii) Claim of additional depreciation: The ld.CIT(A) erred in not directing to allow claim of additional depreciation of Rs.
14,39,95,837/-which was allowed in original assessment u/s 143(3)but inadvertently not claimed in the return of income filed in response to the notice issued u/s 148 of the Act.
9. In respectof the ground no.i) above relating to the reopening of assessment proceedings u/s 147 of the Act. ,the ld.AR did not press this ground before us which is therefore, dismissed.
10. In respect of the ground no.ii) above, pertaining to the claim of additional depreciation,it is contented that the ld.CIT(A) erred in not directing to allow claim of additional depreciation of Rs. 14,39,95,837/- which was allowed in original assessment u/s 143(3) but inadvertently not P a g e | 15
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Jamnagar Utilities and Power Pvt. Ltd. Mumbai claimed in the return of income filed in response to the notice issued u/s 148 of the Act.
11. It is further submitted that the AO erred in restricting claim of depreciation at Rs. 148,98,95,601/- as against Rs. 163,38,91,438/- claimed in return filed u/s 139(1) of the Act which was allowed in order u/s 143(3) of the Act in the case of the appellant. The assessee further pleaded to give direction to allow claim of additional depreciation of Rs. 14,39,95,830/- which was inadvertently not claimed in the return of income filed in response to the notice u/s 148 of the Act.
11.1 Further, as observed by the ld.CIT(A) in the original return of income-Column no. 11 of schedule BPM, the depreciation amount on column 9 at half rate was taken at Rs. 31,05,19,059/- whereas in the ITR filed in response to notice u/s 148 the amount at column no. of schedule
BPM was taken at Rs. 16,61,63,165/-. The column no. 11 of schedule BPM talks about the depreciation in column 9 at half rate which is half of 15%
i.e. 7.5%.
12. No discussion on this issue was made in the assessment order.Apparently, the issue does not appear to have been examined by the AO. Accordingly, we deem it proper to remit the issue to the ld.CIT(A) who is directed to verify the claim of the assessee which, if found correct,

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Jamnagar Utilities and Power Pvt. Ltd. Mumbai necessary relief may be granted as per law.The cross objection ii) is therefore, allowed for statistical purposes.
13. In the result, the appeal of the Revenue is dismissed while CO of the assessee is partly allowed.
Order pronounced in the open court on 05/09/2025. SAKTIJIT DEY
PRABHASH SHANKAR
(उपाध्यक्ष/ VICE PRESIDENT)
(लेखाकारसदस्य/ACCOUNTANT MEMBER)

Place: म ुंबई/Mumbai
ददनाुंक /Date 05.09.2025
Lubhna Shaikh / Steno

आदेश की प्रतितलतप अग्रेतिि/Copy of the Order forwarded to :
1. अपीलार्थी / The Appellant
2. प्रत्यर्थी / The Respondent.
3. आयकर आयुक्त / CIT
4. विभागीय प्रविवनवि, आयकर अपीलीय अविकरण DR, ITAT,
Mumbai
5. गार्ड फाईल / Guard file.

सत्यावपि प्रवि ////
आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt.