ACIT -3(4) , MUMBAI vs. RELIANCE INDUSTRIES LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “J” BENCH, MUMBAI

BEFORE SHRI PRAMOD KUMAR, VICE PRESIDE AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER

ITA No.579/Mum./2021 (Assessment Year : 2016–17) Reliance Industries Ltd. Maker Chamber–IV, 3rd Floor ……………. Appellant 222, Nariman Point, Mumbai 400 021 PAN – AAACR5055K v/s Asstt. Commissioner of Income Tax …………….Respondent Central Circle–3(4), Mumbai

ITA No.1438/Mum./2021 (Assessment Year : 2016–17) Asstt. Commissioner of Income Tax ……………. Appellant Central Circle–3(4), Mumbai v/s Reliance Industries Ltd. Maker Chamber–IV, 3rd Floor …………….Respondent 222, Nariman Point, Mumbai 400 021 PAN – AAACR5055K Assessee by : Shri Nimesh Vora a/w Ms. Moksha Mehta Revenue by : Shri Chetan M. Kacha, Sr. AR

Date of Hearing – 02/09/2022 Date of Order – 14/10/2022

O R D E R PER SANDEEP SINGH KARHAIL, J.M.

The present cross appeals have been filed by the assessee and the Revenue challenging the impugned order dated 17/02/2021, passed under

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 section 250 of the Income Tax Act, 1961 (‘the Act‘) by the learned Commissioner of Income Tax (Appeals)-57, Mumbai [‘learned CIT(A)’], which in turn arose from the assessment order dated 25/03/2019 passed under section 143 (3) r/w section 144C(3) of the Act, for the assessment year 2016- 17.

ITA no.579/Mum./2021 Assessee’s Appeal – A.Y. 2016–17

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 during the year under consideration and hence depreciation u/s. 32 of the Act on such capitalised value of the goods is allowable. Addition of interest on Income Tax Refund while computing Book Profits u/s 115JB 5. erred in confirming the action of the AO of adding interest on income tax refund of Rs 265,38,24,122/- to the book profit of the appellant u/s 115JB of the Act. The appellant submits that since the interest on income tax refund was not credited to profit and loss account as per the accounting policy consistently followed by the appellant, the learned CIT(A) erred in confirming the action of the AO in making adjustment to the book profit, which is not enumerated in clause (a)to (k) of Explanation 1 to section 115JB of the Act. Reference to the Transfer Pricing Office (TPO) under section 92CA of the Act 6. erred in confirming the action of the learned Assessing Officer ('AO') in making reference of the Appellant's case to the TPO, without applying his mind and without recording his satisfaction, thereby making the entire process of referring the matter to the TPO as invalid; 7. erred in confirming the action of the learned AO in not stating reasons to show that any of the conditions mentioned in clauses (a) to (d) of Section 92C(3) of the Act were satisfied before making an adjustment to the total income of the Appellant: 8. erred in confirming the action of the learned AO in not demonstrating the motive of the Appellant to shift profits outside of India by manipulating the prices charged in its international transactions, either at the stage of invoking or initiating the assessment or at the stage of framing the assessment; 9. erred in confirming the action of the learned AO in not demonstrating the motive of the Appellant, to carry out transactions between an eligible business and other business, to reduce the taxable profits by manipulating the prices of its Specified Domestic Transactions, either at the stage of invoking or initiating the assessment or at the stage of framing the assessment. 10. erred in confirming the action of the learned AO in not demonstrating that the course of business between the Appellant and the closely connected person was so arranged that it produces to the Appellant more than ordinary profits which might be expected to arise in its eligible business. Interest chargeable on share application money refunded by the Associated Enterprise(AE) Reliance Industries Middle-East DMCC 11. erred in determining the arm's length price (ALP) of interest chargeable in respect of share application money refunded by the AE at INR 50,02,095.

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 12. erred in re-characterizing the transaction as being in the nature of loan financing on which interest is chargeable without appreciating that the amounts were refunded within 91 days due to business considerations. 13. failed to appreciate that the provision of Chapter X of the Act are not applicable to the transaction of share application money paid for subscription of preference shares being equity in nature. 14. without prejudice to the above, erred in upholding functionally dissimilar companies selected by the TPO as comparables, in arriving at the ALP of the of interest chargeable in respect of share application money refunded by the AE. 15. erred in upholding the rate of interest determined by the TPO by adopting Libor based spreads, and then in applying the float to fixed swap. 16. without prejudice to the above, should have directed to benchmark the interest basis the comparable furnished by the Appellant for benchmarking interest on loan if share application money is recharacterized into loan. Each of the above Grounds of Appeal are without prejudice to each other.‖

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021

―16. So far as the additional ground of appeal is concerned, we find that this grievance is ill-conceived inasmuch as, at page 58 of the assessment order, the Assessing Officer has specifically observed that ―since the assessee has not correctly apportioned any expenses as having been incurred for earning this exempt income, I am not satisfied with regard to correctness of the claim of expenditure made by the assessee, and, accordingly, provisions of rule 8D of the Income Tax Rules are being invoked‖. It cannot, therefore, be said that the Assessing Officer has proceeded to make the disallowance under section 14A r.w.r 8D without recording satisfaction for rejection of the disallowance computed by the assessee‖.‖

―22. As regards disallowance for other expenses learned CIT(A) referred to several judgements relied upon by the assessee and directed that disallowance should be computed @ 0.5% by taking average value of those investments which have yielded dividend during the year under consideration or the expenses disallowed by the assessee whichever is higher, both in normal provisions as well as book profit u/s. 115JB of the Act. Learned CIT(A) also noted that identical issue was similarly decided by the ITAT in earlier years.

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 23. Against this order, Revenue is in appeal before us. 24. Learned Counsel of the assessee in this regard has submitted that the issue is covered in favour of the assessee by earlier year orders of the ITAT. He also referred to following further case laws :- • Pr.CIT Vs. Bhushan Steel (Delhi High Court) • Bengal Finance & Investment Vs. ACIT (Mumbai) • Vireet Investment (ITAT Special bench) 25. Upon careful consideration, we find that the direction of learned CIT(A) is in consonance with earlier year ITAT order as regards disallowance u/s 14A is concerned. Hence, in this regard, we uphold the order of CIT(A). As regards importing disallowance u/s 14A to Section 115JB of the Act is concerned, we are dealing with the same in assessee‘s appeal.‖

―24. We find that in the immediately preceding assessment year in assessee‟s own case, a coordinate bench has decided this issue in favour of the assessee, and observed as follows: On this issue the subject matter is whether for the purpose of computation of book profit under section 115 JB disallowance under section 14A have to be taken into account or not. The learned counsel of the assessee this regard has referred to ITAT decision in assessee‗s own case. We note that this issue is covered in favour of the assessee by the decision of honourable Bombay High Court in the case of Commissioner of income tax vs Bengal finance and investment private limited, wherein the honourable High Court by the order dated 5/1/18 held that disallowance under section 14A cannot be added under

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 section 115JB. Respectfully following the precedent from honourable jurisdictional High Court, we decide this issue in favour of the assessee. 25. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. Respectfully following the same, we direct the Assessing Officer to delete the impugned adjustment for disallowance under section 14 A in the book profit computed under section 115JB. The assessee gets the relief accordingly.‖

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 14. We find that similar issue in respect of depreciation claimed on the opening WDV of capitalised value of goods purchased from P.K. Agarwal group concern has been decided against the assessee by the coordinate bench of the Tribunal in assessee’s own case in preceding assessment years. Respectfully following judicial precedents in assessee’s own case, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, ground No. 4 raised in assessee’s appeal is dismissed.

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 per the provisions of section 115 JB of the Act. Accordingly, interest on income tax refund determined at Rs. 266,45,06,765 was added, inter-alia, for the computation of book profit under section 115 JB of the Act.

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 ‘loans and advances’. While filing the return of income, the said interest has been offered to tax under the normal provisions of the Act. Interest on income tax refund was revised to Rs. 265,38,24,122 due to orders passed subsequently and same was assessed to tax under the normal provisions of the Act. However, since the said interest was not routed through the profit and loss account, the same was not offered to tax under section 115 JB of the Act. As per the assessee since corresponding appeals, relating to the income tax refunds on which interest has been received, are pending at different forums, therefore, there is no finality as to the assessed income of the assessee. Thus, interest on income tax refund is not crystallised and accordingly the same was not credited to the profit and loss account as per the policy consistently followed by the assessee. Further, the said financial statement has been prepared as required under Companies Act. The assessee further submitted that the financial statement of the assessee has been duly scrutinised and audited by the statutory auditors and have also been approved in the annual general meeting. The said financial statement has also been filed with ROC and other statutory authorities.

―Can an the Assessing Officer while assessing a company for income-tax under section 115J of the Income-tax Act question the correctness of the profit and loss account prepared by the assessee-company and certified by the statutory auditors of the company as having been prepared in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act ?‖ 22. While deciding the same in aforesaid decision, Hon’ble Supreme Court observed as under:

―If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of section 115J, then it should be that income which is acceptable to the authorities under the Companies Act. There cannot be two incomes one for the purpose of Companies Act and another for the purpose of the Income-tax Act both maintained under the same Act. If the Legislature intended the Assessing Officer to reassess the company's income, then it would have stated in section 115J that 'income of the company as accepted by the Assessing Officer'. In the absence of the same and on the language of section 115J, it will have to held Page | 10

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 that view taken by the Tribunal is correct and the High Court has erred in reversing the said view of the Tribunal. Therefore, we are of the opinion that the Assessing Officer while computing the income under section 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increase and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J.‖

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 Date of remittance Amount invested in Amount invested in Date of USD INR allotment of shares 28/12/2015 10,00,00,000 6,61,24,60,000 30/03/2016 09/02/2016 23,00,00,000 15,55,89,02,000 30/03/2016 25/02/2016 3,50,000 2,31,89,250 19/09/2016 21/03/2016 6,67,50,000 4,42,25,21,250 19/09/2016

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 transaction of subscribing to preference shares was itself not found to be bogus or sham, we do not find any merits in findings of learned CIT(A) in upholding levy of interest on excess share application money refunded, by treating the same as loan. Therefore, we direct the AO/TPO to delete the adjustment on account of levy of interest on excess share application money refunded. As a result, grounds No. 11 – 16 raised in assessee’s appeal are allowed.

ITA no.1438/Mum./2021 Revenue’s Appeal – A.Y. 2016–17

―1. Whether, on the facts and circumstances of the case and in law, the 22 Ld. CIT(A) erred in allowing depreciation as claimed by the assessee by holding that the claim of depreciation for the year was optional in nature? Rs.22,61,33,837/- 2. Whether, on the facts and circumstances of the case and in law, the 1.d. CIT(A) erred in restricting the disallowance u/s 14A of the Act r.w. Rule 8D(2)(iii) to 0.5% by taking average value of that investment which have yielded dividend during the year under consideration? Rs.126,40,91,912/- 2.1 Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance u/s 14A of the Act to the amount disallowed by the assessee for the purpose of income u/s 115JB of the Act? – Rs.151,95,12,126/- 3. Whether, on the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in deleting the disallowance of Rs. 595,00,438/- incurred by the assessee on aborted blocks of other contract areas under Production Sharing contracts other than KGD? – Rs.2,05,91,912/- 3.1 Whether, on the facts and in the circumstances of the case and in law, the Id CIT(A) erred in not accepting the decision of AO that "Mineral Oil" does not include "Natural Gas and condensate" for the purpose of claiming deduction under section 801B(9)(ii). - Nil 3.2 Whether, on the facts and in the circumstances of the case and in law, the Id.CIT(A) erred in not accepting the decision of AO to restrict the deduction u/s 80IB(9)(ii) to the extent of ratio of production of oil. - Nil

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 4. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing AO to grant deduction u/s 10AA with reference to profits and gains as determined by Hon'ble Supreme court in the case of Vijay Industries v. CIT [2019] 412 ITR 1 (SC) in Civil Appeal No 1581-1582 of 2005. Rs.347,32,20,835/- 5. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was right in directing AO to grant deduction u/s 10AA with reference to profits and gains of SEZ unit for manufacture of Polypropylene and other petrochemical products as determined by Hon'ble Supreme court in the case of Vijay Industries v. CIT [2019] 412 ITRI (SC) in Civil Appeal No 1581 1582 of 2005?" – Rs.8,20,85,444/- 6. Whether, on the facts and in the circumstances of the case and in law, the Id CIT(A) erred in allowing appeal of the assessee and directing the assessing officer to allow the weighted deduction at 200% in respect of R&D expenditure u/s 35(2A11) of the Act as claimed by the assessee. Rs.80,19,668/- 7. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) is correct in deleting the disallowance of long term capital loss of Rs 86,47,98,392/- and short term capital loss of Rs 26,80,56,497/- on sale of the said non cumulative compulsorily convertible preference shares (NCCPS) of M/s Reliance Global Business BV (RGBV) without appreciating the true substance of the transaction is that of a loan to AB and therefore capital loss on the same cannot be claimed as per the provisions of the Act? – Rs.81,31,52,400/- 7.1 Whether on the facts and circumstances of the case and in law, the Ld. CITA) is correct in deleting the disallowance of capital loss by merely placing reliance on earlier years decisions without going through the new facts brought on record by the TPO this year independently? - (Included in 7) 7.2 Whether on the facts and circumstances of the case and in law, the 14. CIT(A) is correct in deleting the disallowance of capital loss by placing reliance on the decision of earlier years which further placed reliance on the decision of the jurisdictional High Court in the case of Director of Income Tax (International Taxation) v/s Besix Kier Dhabhol SA (210 Taxman 151) without appreciating the difference in the facts of the case that the issue before the Hon'ble Bombay High Court in the quoted case is disallowance of interest payment when thin capitalization rule is not in force, which is in no way connected to the facts and issue of the instant case? - (Included in 7) 7.3 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the of capital loss by stating that General Anti Avoidance provisions are not applicable for the assessment year under consideration without appreciating that the TPO has looked through the form of the transaction and has brought on record adequate facts for the current year to demonstrate the true substance of the transaction which is permitted under transfer pricing u's 92F(ii) to unveil the transaction under the prism of unrelated parties under uncontrolled conditions, BEPS Action 8 to 10 and various case-laws including the one stated in ground 2.30 above?(Included in 7)

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 7.4 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the following sufficient and adequate vital facts brought on record in the TP order of the impugned year (which are more fully stated in the grounds under 2 above) to hold that the transaction of preference shares with the AEs RGBV and RIME is sham to recharacterize the transaction as loan transaction and therefore the capital loss arising out of the said transaction is not allowable?: (Included in 7) (i) The said preference shares of AE-RGBV were claimed as 'compulsorily convertible', but at no point of time the said shares were converted into equity shares till the time of winding up of the said AE-RGBV, indicating its dubious nature; (Included in 7) (ii) The said preference shares of AE-RGBV were claimed as 'compulsorily convertible', but much of the said investment was redeemed periodically, losing its character of 'compulsory conversion', further indicating its dubious nature; (Included in 7) (iii) The periodical redemption of the alleged 'compulsorily convertible' preference shares as from current a/c loan account demonstrates its nature as loan; (Included in 7) (iv) 5% compulsory coupon rate on the alleged preference shares have been accounted on accrual basis neither by the assessee nor by the AE-RGBV, demonstrating the transaction as interest free loan transaction; (Included in 7) (v) The assessee has made the said investment in the alleged preference shares of the AE-RGBV, a negative net worth company. fully knowing that there is no possibility of any worthwhile return. which is not an arm's length scenario u/s 92F(ii), as two independent parties under uncontrolled conditions won't enter into such transaction; (Included in 7) (vi) Above all, the assessee has shown the sale of the alleged preference shares of the AE-RGBV, a completely eroded negative net worth winding up company to another AE-RIME and booked this capital loss of Rs.113 crores by arranging the sale on the winding up date itself. Which independent company would buy the shares of a winding up company, that too on the winding up date itself? This clearly demonstrates the sham nature of the transaction possible due to the special close relationship between the assessee and the AE- RGBV and another AE-RIME which is not arm's length u/s 92F(ii), as no two independent parties would have done so under uncontrolled conditions; (Included in 7) (vii) The fund for the AE-RIME to purchase the alleged preference shares of the winding up AE-RGBV again flows from the assessee only in the form of investment again in the alleged preference shares of RIIME; (Included in 7) (viii) Ld CIT(A) erred in not appreciating the order of the Hon'ble Tribunal in assessee's own case for AY 2010-11 while relying on it, in which it has been clearly held by the Tribunal that recharacterisation is possible when the transaction is sham or substantially at variance with the stated form, and there are enough pointers as detailed above for the impugned year to show that the

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 transaction is loan which is substantially at variance with the stated form of preference share and so, the capital loss claimed by the assessee is not allowable." – (Included in 7) 8. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the TP adjustment of Rs. 13,20,48386/- in respect of debts receivable from the AEs made by the TPO, based on earlier years decisions which is in violation of Rule 10B(4) on contemporaneous nature of comparable data, as interest rate vary every year? (Included in 7) 8.1 Whether on the facts and circumstances of the case and in law, Ld. CIT(A) is correct in not considering the cost of borrowing for the assessee adopted by the TPO to benchmark the interest chargeable on receivables, and in holding that ad-hoc 1 month Libor plus spread of 200 bps as adopted by the assessee is correct, and also holding that interest as in offer letters for short term loans from various banks to provide buyers/supplier credit facilities @ 0.75% to 0.95% is comparable when the trade receivables are entirely different financial transactions compared to short term loans, which violates all comparability factors laid down in Rule 10B(2)? (Included in 7) 8.2 Whether on the facts and circumstances of the case and in law, Ld. CIT(A) is correct in not considering the cost of borrowing for the assessee adopted by TPO to benchmark interest chargeable on receivables when the sale price is determined to recover the cost of business, which is inclusive of cost of borrowing? (Included in 7) 8.3 Whether on the facts and circumstances of the case and in law, Ld.CIT(A) is correct in ignoring the basic tenet of the transfer pricing as enshrined in section 92F(ii), as in a third party unrelated uncontrolled circumstances the assessee would have recovered the interest on receivables considering the cost of borrowing in its hands?" (Included in 7) 9. Whether on the facts and circumstances of the case and in law, the included in 7 Ld.CIT(A) is correct in deleting the TP adjustment of Rs.38,03,09,823/- out of the total adjustment of Rs 38,32,99,062/ made by the TPO on the issue as interest on investment said to be in preference shares of AEs treated by the TPO as loan in nature of Rs.2217,13,62,000? (Included in 7) 9.1 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the TP adjustment by merely placing reliance on earlier years decisions without going through the new facts brought on record by the TPO this year independently? (Included in 7) 9.2 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in recharacterising only Rs. 45,76,26,069/ pertaining to excess share application money refunded to the assessed as a loan without appreciating the real nature of the entire Rs 2217,13,62,000/- given by the assessee to its AEs which the TPO has treated as a loan for the detailed reasons and new facts brought out by the TPO in his order for this year? (Included in 7) 9.3 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the TP adjustment by merely treating it as

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 recharacterisation without looking into facts of case narrated in the TP order in detail as to why it has been recharacterised so? (Included in 7) 9.4 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the TP adjustment being interest on investment in the nature of debt capital (loan) in substance termed by the assessee as "preference stock of AEs, by relying on the decision of earlier years which in turn relied on the decision of Hon'ble Bombay High Court in case of M/s Aegis Ltd. (ITA No. 1248 of 2106) holding that recharacterisation of subscription amount as loan is not permitted, without appreciating the difference in the facts of the case and ignoring following vital exceptional facts and circumstances in the instant case? (Included in 7) 9.5 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the vital fact that though the said investment is stated to be compulsorily convertible preference shares the assessee said to have redeemed 50 crore number of such shares or 16.04.2013, 183.27 crore number of such shares on 06.06.2014 and 27.66 crore number of such shares on 28.10.2014 at the same face value at 0.01 euro per share without any arm's length return from the AE RGBV, proving the claim of "compulsorily convertible" as dubious, which shows the investment in the AE is essentially interest free loan in nature? (Included in 7) 9.6 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the fact that the assessee redeemed the investment as above, though the investment was stated to be made only few months back in the FY 2013-14, on 10.03.2014, 262,13,30,100 number of preference shares (Rs.222,66,88,853) in RGBV at the same face value of 0.01 euro per share without any return, which again shows the nature as current loan transaction and not compulsorily convertible preference shares as claimed by the assessee? (Included in 7) 9.7 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the vital fact that though the said investment is stated to be compulsorily convertible preference shares the assessee said to have redeemed 2,90,720 said preference shares in another A-RIME in the FY 2012-13 at par with same value of AED 290,72,00,000 (INR 430.70 crores) at which it was invested, without any arm's length return from the All, proving the claim of "compulsorily convertible" as dubious, which shows the investment in the AE is essentially interest free loan in nature? (Included in 7) 9.8 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring another vital fact that though the assessee is eligible for compulsory 5% coupon rate on the said investment and though the AB RGBV had positive incomes of 33,31,606 Euro for FY 2009-10, 1,09,313 Euro for FY 2010-11, 18,923 Euro for FY 2011-12 and 22,332 Euro for FY 2012- 13, the assessee has not accounted any such return on accrual basis leading t base erosion to India, casting severe doubts on the nature of entire investment, which is otherwise an interest free loan? (Included in 7) 9.9 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the fact that though the assessee is eligible for

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 compulsory 5% coupon rate on the said investment and though the AE RIME had positive incomes of 11,494,125 UAB Dirhams, 5,188,402 Dirhams and $ 742,069 during the calendar year 2007, 2008 and 2009 respectively, the assessee has not accounted any such return on accrual basis leading to base erosion to India, casting severe doubts on the nature of entire investment, which is otherwise an interest free loan? (Included in 7) 9.10 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the fact that the AE RGBV incurred losses from FY 2013-14 onwards and there is no rationale for making investments to the level of Rs.222,66,88,853/- (2,62,13,30,100 number of the said preference shares), that too, at the fag end of the FY 2013-14 knowing fully well that the AE is incurring losses and there is no possibility of getting any return as the stipulated 5% coupon rate, which no unrelated party in uncontrolled circumstances would have done within the meaning of section 92F(ii)? (Included in 7) 9.11 Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in ignoring the fact that the AE RIME has been making losses continuously from calendar year 2010 to 2014 and though its net worth is negative, the assessee has shown to have invested in the said preference shares, which is not an arm's length behavior, which no unrelated party would have done so looking from the angle section 92F(ii)? (Included in 7) 9.12 Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in ignoring the fact that the situation in the case of the AE-RGBV is much worse and it has been making very meager profit during the FYs 2010-11 to 2012-13 and loss during the FYS 2013-14 and 2014-15 and has been in liquidation process from FY 2014-15 and its networth is also negative only, and in spite of that the assessee claimed to have made investment in said preference shares, which is not an arm's length behavior which no unrelated party would have done so looking from the angle section 92F(ii)?(Included in 7) 9.13 Whether on the facts and circumstances of the case and in law, the Included in 7 Ld.CIT(A) is correct in ignoring the fact that the assessee has not furnished any detailed valuation report for the value of the preference shares said to be invested as above in RGBV preference shares and also for the value of AED 1000 per preference share in the AE RIME which again casts cloud on the nature of the investment? (Included in 7) 9.14 Whether on the facts and circumstances of the case and in law, the Included in CIT(A) is correct in ignoring the facts that the AE RIME has been making losses continuously from calendar year 2010 to 2015 and as such the share value under NAV is negative and even if it is to be valued under DCF method based on RBI's Circular for outbound shares, the actual cash flows during these years are negative and so its value would be negative only? (Included in 7) 9.15 Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in ignoring the facts that the AE RGBV has been making very meagre profit during the FYs 2010-11 to 2012-13 and loss during the FY 2013-

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 14 and has been under liquidation process from AY 2014-15 and if its outbound shares are valued under DCF, it would also be negative only? (Included in 7) 9.16 Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in ignoring and failing to see the vital facts of the impugned year that the AE RGBV is wound up on 23.03.2016 and or that very same day all its pending alleged preference shares of $93,90,00,000 numbers of face value Euro 5,93,90,000 (INR 417.49 crore) were claimed to have been transferred at the same par value to another AE RIME which is again a continuously loss making company from calendar year 2010 to 2015, assessee booking huge loss of Rs.113.3cr under the head capital gains for the impugned AY 2016-17, and the source for the continuously loss making AE RIME to the said purchase was again flowing from alleged preference share investment of assessee into RIME, thus what is essentially a loan transaction was projected as share transaction leading to base erosion to India, raising huge questions as to which continuously loss making company would buy the shares of another wound-up company on the date of winding-up, which clearly shows that the alleged preference share transaction is a sham one with a motive of avoiding taxation of interest, as the real nature of the transaction is interest free loan? - (Included in 7) 9.17 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in not appreciating the sham nature of the nomenclature and form of the transaction "compulsorily convertible preference share", when the investment was redeemed losing the significance of "compulsorily convertible"; never ever been convert into equity shares at any point of time further losing its nature; and never ever received the coupon rate of return losing the nature of preference share, thus rendering the transaction essentially an interest free loan? (Included in 7) 9.18 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in ignoring the fact that an amount of Rs.3163 crores (Rs 2746 crores in the case of RIME &Rs 417 crores in the case of RGBV) has flown out of India in the garb of preference share investment in the AES without any return leading to base erosion in India, which cannot be an arm's length situation in uncontrolled circumstances as mandated in Section 92F(ii)? (Included in 7) 9.19 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in ignoring the very essence of transfer pricing as to whether unrelated enterprises under uncontrolled conditions would enter into such transactions within the meaning of section 92F(ii)? (Included in 7) 9.20 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in view of the above facts in not perceiving the intention of the assessee in providing loans in the garb of preference shares thereby avoiding tax liability on the interest? (Included in 7) 9.21 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in ignoring the economic substance of the transaction which is essentially loan though its external form is stated to be investment in preference shares, as the basic tenet of transfer pricing is that the transaction

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 is to be seen in uncontrolled circumstances in third party situation as per Section 92F(ii)? (Included in 7) 9.22 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in ignoring the fact that the assessee has entered into an "arrangement, understanding or action in concert" with its AE within the meaning of section 92F(v) whereby huge funds have flown out of India for no return, which no unrelated independent party would have done within the meaning of section 92F(ii), which in turn became possible because of the special relationship existed between the assessee and its AES? (Included in 7) 9.23 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in failing to "look through" the "substance" of transaction and instead "looked at" the superficial "form" of the transaction to arrive at the decision that the investment is quasi-equity in nature whereas in substance it is "loan" in nature and that the "form" of investment in preference shares was used to avoid taxation of interest leading to base erosion in India? (Included in 7) 9.24 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is right in ignoring the amendment by way of Explanation (i)(c) inserted by Finance Act 2102, with retrospective effect from 1.4.2002 whereby the capital investment could be covered as an international transaction under "capital financing" and such transaction would yield accrued interest which is "income for the purposes of section 92(1), so as to be dealt under Chapter X of the Income tax Act? (Included in 7) 9.25 Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in ignoring the essential character of the transaction is "loan" in "substance" which the assessee camouflages as "preference share' in order to avoid tax liability on the interest that accrues coupled with the base erosion in India by shifting of huge amount of Rs.3163 crores (Rs 2746 crores in the case of RIME & Rs 417 crores in the case of RGBV) out of India without any return? (Included in 7) 9.26 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the BEPS (Base Erosion and Profit Shifting) Action Plan 8-10 of which India is a party which mandates that transactions can be disregarded for TP purposes where they lack commercial rationality, as far as proper return on investments is concerned? (Included in 7) 9.27 Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in ignoring the BEPS Action Plan which emphasizes substance over form, economic reality over legal form and conduct of parties over contracts for evaluating a transaction from transfer pricing angle? (Included in 7) 9.28 Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in not realizing the fact that if such practices are allowed under transfer pricing unchecked without setting it right for arm's length return, it would lead to base erosion to this country as huge funds as in this case could be siphoned out of this country in the garb of alleged preference shares in AE, even though the actual character is essentially loan which should be earning

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 interest, which again would be yielding tax revenue to this country? (Included in 7) 9.29 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in ignoring the decision of Hon'ble Delhi High court in the case of CIT v/s EKL Appliances Ltd. (345 ITR 241) wherein it has been held that recharacterisation of transaction is permissible in exceptional circumstances as that of assessee as under? (Included in 7) Two exceptions have been allowed to the aforesaid principle and they are- (i) where the economic substance of a transaction differs from its form ;and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner. (Included in 7) 9.30 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in deleting the interest relying on the decision in earlier years from AY 2010-11 to AY 2015-16, which in turn placed reliance on the decision of the Hon'ble High Court in the case of Vodafone India Service P. Ltd (Writ Petition No. 871 of 2014), as the decision held that the shortfall or excess in investment is capital in nature and so cannot be added as income, whereas in the instant case capital itself has not been considered for adjustment and that the capital was considered as loan and only the accrued interest has been considered as the income? (Included in 7) 9.31 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the order of the Hon'ble Tribunal in assessee's own case for AY 2010-11 while relying on it, in which it has been held recharacterisation is possible when the transaction is sham or substantially at variance with the stated form, and ignoring that there are enough pointers as detailed in the above grounds for the impugned year to show that the transaction is loan which is substantially at variance with the stated form of preference share? (Included in 7) 9.32 Whether, on the facts and circumstances of the case and in law, the and order of the Ld. CIT(A) is not bad in law in not realizing that Hon'ble Supreme Court in the landmark case of Mc Dowell & Company Limited vs The Commercial Tax Officer (SC) (1985) held, "proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally, or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax"; and in the present case, it can be clearly seen that the form of preference share investment was given to the transaction which was in substance, advancing money to the AEs, so as to avoid tax on interest and so, the form given to the transaction by the assessee was a device to avoid taxes, and therefore, the dicta of the constitutional bench in McDowell case clearly applies to the present case?" (Included in 7)

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 10. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the addition of Rs. 44,15,893/- with regard to transfer pricing adjustment on the international transaction of provision of support services by the assessee to its AE-REP DMCC for which remuneration was received by the assessee from the AE on cost-to-cost basis without any mark-up? (Included in 7) 10.1 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the fact that the contract between AE and Kurdish government is not determinative of arms length price for the assessee to be charged on the AE with reference to Indian tax jurisdiction? (Included in 7) 10.2 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in failing to understand that the contract between the AE and the foreign government was to avoid base erosion for the Kurdish government and it would not be binding the assessee in not charging mark-up and in case the assessee chooses to forego the mark-up in favour of AE as in this case, the said agreement between the foreign AE and Kurdish government cannot prevent the Indian jurisdiction to arrive at the ALP of the transaction as per section 92F(ii), unless it is prohibited by any DTAT or Bilateral APA or Bilateral Investment Treaty, otherwise it will cause base erosion to India? (Included in 7) 10.3 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the fact that at best the agreement with Kurdish government would only serve as evidence for cost incurred and it could not be read into much for ALP determination in the absence of any binding Bilateral Treaty between India and Iraq? (Included in 7) 10.4 Whether on the facts and circumstances of the case an in law, the Ld. Included in 7 CIT(A) is correct in holding that the transaction is covered under rule 10B(2)(d) in the absence of any laws and Government orders in force and equating an agreement between the AE and the regional government for incurring of cost with law or government order in force' for ALP of the transaction to be determined in the hands of the Indian assessee as per Indian Income tax Act? (Included in 7) 10.5 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in accepting the cost-to-cost basis of support services to the AE, without understanding the basic tenet of the transfer pricing u/s 92F(ii) that no unrelated assessee in uncontrolled circumstances in third party situation would have rendered services on cost-to-cost basis, leading to base erosion in India? (Included in 7) 10.6 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in relying on ITAT order for AY 2011-12 in which it has been observed by the ITAT that the "TPO did not bring any other comparable to prove that the amount charged by the assessee is not at arm's length. Instead, he has simply marked up the transaction by 12.50%, which is not supported by material", which will not apply to the impugned AY 2016-17 as mark-up has been arrived at 7.07% by adopting separate set of comparables for the given

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 year, thus rendering the order of the CIT(A) violative of Rule 108(4), without appreciating that the transfer pricing study is highly facts-intensive and vary from year to year and thus the CIT(A) should have decided the issue on merits of the facts for the impugned year separately? (Included in 7) 10.7 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in relying on ITAT decision for the AY 2011 12 in the assesse's own case which in turn placed reliance on the decision of Delhi Tribunal in case of Bharti Airtel without realizing the factual difference between the present case & Bharti Airtel's case, in as much as Bharti Airtel talks about lesser relevance of geographical location as one of the criteria in benchmarking the transaction whereas in the present case assessee has not furnished any comparable at all in third party scenario? (Included in 7) 10.8 Whether on the facts and circumstances of the case and in law, the Included in Ld. CIT(A) is correct in relying on ITAT decision for the AY 2011 12 in the assesse's own case which in turn placed reliance on the decision of Delhi Tribunal in the case of- Cotton Naturals without realizing the factual difference between the present case & Cotton Naturals case, in as much as Cotton Naturals talks about benchmarking of interest rate should be done based on currency of Loan, whereas assessee has entered into transaction of sale of oil & drilling equipment to AE and has not furnished any third party comparable at all? (Included in 7) 11. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in directing to restrict the TP adjustment of short term corporate guarantee fee and long term corporate guarantee fee to 0.3% and 0.7% respectively as arrived at by the assessee, as against 0.84% charged by the TPO for the impugned year, by merely relying on the CIT(A)'s orders for AY 2014-15 and AY 2015-16 and Hon. ITAT's order for AY 2011-12 to AY 2013-14 which in turn relied on the ITAT order for AYS 2005-06 to 2009-10 in the assessee's own case, which is violative of Rule 10B(4) on the need to have contemporaneous nature of the comparable data? (Included in 7) 11.1 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in relying on the orders of the Hon'ble ITAT for AYS 2005- 06 to 2009-10, in which the assessee has not adopted Yield Spread Method(YSM), whereas for the impugned year the assessee has adopted YSM and the decisions of the Hon'ble ITAT for those AY's 2005-06 to 2009-10 are not based on YSM, which clearly shows that the CIT(A) has not verified the YSM adopted by the assessee? (Included in 7) 11.2 Whether on the facts and circumstances of the case and in law, Ld. CIT(A) is correct in contradicting himself in stating in one place that he accepted the yield spread method as followed by assessee and at another place relying on the Hon'ble ITAT's decision for a y 2005 2006 to 2009-2010 wherein assessee followed CUP method, which again clearly shows that the CIT(A) has not verified the YSM adopted by the assessee? (Included in 7) 11.3 Whether on the facts and circumstances of the case and in law, L.d. CIT(A) is correct in failing to demonstrate as to how the rates were arrived at by the assessee based on yield spread method followed by assessee for

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 impugned AY and has erred on simply accepting the rates adopted by assessee without looking into actual working of the yield spread methodology of assessee? (Included in 7) 11.4 Whether on the facts and circumstances of the case and in law, Ld. CIT(A) is correct in failing to show as to how assessee followed yield spread method correctly for impugned AY? (Included in 7) 11.5 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in accepting the artificial division of short-term guarantee and long-term guarantee made by the assessee, without appreciating the observations of the TPO in his order that when the corporate guarantee charge is for one year the assessee has not given the rationale for working capital (short term) and non-working capital (long term) distinctions and that the assessee has not given any data for such classification of corporate guarantee and not proved the same? (Included in 7) 11.6 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in relying upon the order of his predecessor for AY 2011-12 without appreciating the fact that his predecessor, for upholding the yield spread approach of the assessee, relied on the decision of Hon'ble Gujarat High Court in CIT VSAdani Wilmar Ltd (Tax Appeal No.240 of 2014 dated 07.04.2014) which nowhere discusses about the method at all? (Included in 7) 11.7 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in relying upon the order of his predecessor and order of Hon'ble Tribunal for AY 2012-13, ignoring that the Hon'ble Tribunal in assessee's own case for AY 2012-13 set aside the order of the CIT(A) on this issue with a specific direction to the TPO to verify the correctness of the method claimed by the assessee in its original order in I.T. (TP)A. No.5842/Mum/2017 dated 28.09.2018 and also in the M.A. order in M.A.No.736/Mum/2018, dated 2.1.2019? (Included in 7) 11.8 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in accepting the benchmarking done by the assessee using the indicative rates obtained from only two banks the CITI Bank and Barclays Bank PLC and applying them to all the AEs located in various geographies across board, which does not represent a proper diversified dataset for quantification of guarantee commission and produces skewed and unreliable results and is violative of Rule 108(2)(d)? (Included in 7) 11.9 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in directing to restrict the TP adjustment of corporate guarantee fee in which the interest differential is split into 50:50 by the assessee as against the split of 60:40 charged by the TPO for the impugned year merely relying on the Tribunal and the CIT(A)'s order for earlier year in assessee's own case, which is violative of Rule 10B(4) on the need to be contemporaneous nature of the comparable data? (Included in 7) 11.10 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in restricting the rate ignoring the fact that the rate depends on various variables such as risk profile, credit profile, place of loan,

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 time period & rate of interest and that all these variables vary from company to company and one rate cannot be applied in an ad hoc manner to all the AEs across the board which will be violative of provisions of Rule 108? (Included in 7) 11.11 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in accepting the rate arrived at by the assessee dividing the interest differential between the assessee and the AEs at 50:50 in an ad hoc unscientific manner, instead of dividing it on the basis of FAR analysis between the assessee and the AEs? (Included in 7) 11.12 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in accepting the assessee's division of interest differential 50:50 between the assessee and the AEs, whereas it is anybody's knowledge that the assessee and the AEs cannot be considered on the same footing for attributing the interest differential advantage equally, as FAR significantly differ between the assessee and the AES? (Included in 7) 11.13 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in not giving any reason for rejecting the 60:40 interest differential split adopted by the TPO in a very conservative manner? (Included in 7) 11.14 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not passing a speaking order on the FAR analysis carried out by the TPO for attributing the interest differential in a more conservative manner at 60:40 ratio and simply accepting the assessee's ad hoc unscientific ratio of 50:50 without any backing of FAR analysis? (Included in 7) 11.15 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in equating the huge assessee with less credit worthy small AEs in assigning the interest differential equally which is not possible at any stretch of imagination, ignoring the scientific apportionment done by the TPO conservatively at 60:40 based on FAR analysis? (Included in 7) 11.16 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the 60:40 split of interest differential carried out by TPO without passing a speaking order and without properly going through the scientific FAR analysis carried out by the TPO? (Included in 7) 11.17 Whether on the facts and circumstances of the case and in law, powers being coterminous, the CIT(A) is correct in not carrying out appropriate FAR analysis on his own, or getting it done by the TPO by remanding the case u/s 250(4) r.w.r. 46A and deciding the issue taking into account such remand report? (Included in 7) 11.18 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in passing a non-speaking order in as much as he held the split of 50:50 of interest differential is correct based on earlier years without adducing any reasons as to how the equal split between the assessee and the AEs would be correct, whereas it is anybody's knowledge that the huge

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 assessee and the less creditworthy small AEs cannot be equated on any parameter? (Included in 7) 11.19 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in accepting the 50:50 split of interest differential based on earlier years orders of AY 2011-12 to AY 2015-16 without understanding the fact that the FAR analysis could vary year-on-year and passing order without depending on independent FAR analysis done for the impugned AY 2016-17? (Included in 7) 11.20 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in accepting the same method of benchmarking for both corporate guarantee and performance guarantee transactions when in fact they are two completely different transactions? (Included in 7) 11.21 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in accepting the interest saving method/yield spread method adopted by the assessee to benchmark the performance guarantee transaction when there cannot arise an interest saving that can be distributed between the AE and the assessee in case of a performance guarantee? (Included in 7) 12. Whether on the facts and circumstances of the case and in law, the Incl Ld. CIT(A) is right in excluding the comparable M/s BVG India Ltd. without appreciating that it is functionally similar as it is engaged in the business support service only? (Included in 7) 12.1 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is right in including the comparable M/s Empire Industries Ltd. for benchmarking the transaction of provision of business support service without appreciating that it is functionally dissimilar as it is engaged in manufacture of machine tools, industry equipments, real estate whereas the tested party (assessee) is engaged in service sector? (Included in 7) 12.2 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is right in accepting functionally dissimilar company as comparable without appreciating that including such comparables will defeat the very purpose of benchmarking? (Included in 7) 12.3 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is right in including M/s ICRA Management Consulting Services Ltd. as comparable without appreciating that it is having substantially lower turnover i.e. Rs 28.55 crores where as segmental turnover of tested party is Rs 188 crores, overlooking the fact that the huge difference in turnover will defeat the very purpose of benchmarking the transaction? (Included in 7) 12.4 Whether On the facts and circumstances of the case and in law, the Inclu Ld. CIT(A) is right in including M/s Spectrum Business Solutions Ltd. as comparable without appreciating that it is having substantially lower turnover i.e. Rs 6.50 crores only whereas segmental turnover of tested party is Rs 188 crores, overlooking the fact that non application of turnover filter will defeat the very purpose of benchmarking the transaction and also ignoring the decision of

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 Hon'ble Karnataka high court in case of Acusis software India Private Limited (ITA No 223/2017) in this regard?" (Included in 7) 13. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the adjustment on inter-unit transfer of power of Rs. 113,76,65,177/- by merely placing reliance on the Hon. ITAT's order in the assessee's own case for AY 2013-14 which in turn placed reliance on the orders of earlier years from AY 2005-06 onwards wherein the assessee's claim for 80IA(8) was being approved by the Tribunal without appreciating that there is change in law from the impugned AY 2013-14 by way of insertion of section 92BA and amendment of 'market value' in the Explanation to section 801A(8)? 13.1 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the adjustment on inter-unit transfer of power of Rs. 113,76,65,177/- by merely placing reliance on the Hon. ITAT's order in the assessee's own case for AY 2013-14 which in turn placed reliance on the orders of earlier years from AY 2005-06 onwards without appreciating that that the case was referred to the TPO in view of the new section 92BA and the Assessing officer was making additions in the earlier AYS on the Return on Capital employed by the unit, whereas the facts were entirely different for the impugned AY wherein the TPO has determined the arm's length value of the transaction and therefore, the CIT(A) cannot rely on the earlier years orders of the Tribunal? (Included in 7) 13.2 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the fact and position of law that comparability of the specified domestic transaction (SDT) with uncontrolled transaction has to be established in terms of parameters contained in Rule 10B(2), by which the price charged by a power generating company cannot be compared to the price of a Distributor more so since the Functions performed, Assets employed and Risks assumed (FAR) are entirely different? (Included in 7) 13.3 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the fact that the assessee ha adopted the price charged by a power distributing company (DGVCL to its non-eligible unit as CUP under Rule 10B(1)(a) and that the margin earned by the power distributor for the functions performed, assets employed and risks assumed by it are embedded in the said price, as against same, the assessee does not perform any function on account of power distribution nor does it employ any huge asset relating to distribution nor does it assume any risk connected with distribution and therefore, adoption of the price charged by a distributor as CUP for the price charged by the assessee which is generator is not correct as per Rule 10B(1)(a) r.w.r.10B(2), as the assessee would be attributed with costs and profits on account of distribution activity, which it has not performed? (Included in 7) 13.4 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the following facts and position of law that the power consuming unit cannot be taken as tested party for choosing the comparable as done by the assessee, but only the power generating unit can be

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 taken as tested party for choosing the matching FAR comparable?: (Included in 7) (a) The object of section 801A is to quantify the profits and gains derived by an undertaking that is engaged in the eligible activity of power generation; (b) The SDT for which ALP is required to be determined is the 'supply of power by the eligible power generation unit only; (c) The method chosen to determine the ALP as well as the choice of tested party should be such as to arrive at the bes possible approximation of the profits of such eligible power generation unit only; (d) In view of the above, the power generating unit alone should be considered as the tested party and the FAR of the power generating unit which has a direct impact in the quantum of SDT, should be given precedence over the FAR of the power consuming unit for choosing the matching FAR comparable; (e) Only when the FAR of the power generating unit is tested against a comparable transaction having a similar FAR, will we be able to reach the correct profitability of the power generation activity; only then the object of section 801A will be achieved through the mechanism of TP provisions which was the entire object of enacting the provisions relating to SDT; (f) Looking at the commencing phrase of section 80IA(8) "Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee....." and definition of 'market value' in Explanation (i) of section 801A(8) "market value means (i) the price that such goods or services would ordinarily fetch in the open market", what is to be seen and tested with comparable is the price that the electricity generated by the eligible unit would ordinarily fetch in the open market if sol in the open market and not the rate at which non-eligible unit could procure the electricity in the open market from a distribution company and therefore, only the eligible unit alone can be taken as tested party and its power rate has to be compared with power sale rate of the matching FAR comparable whose functional activity is power generation; and (g) The tested party in the case of SDT has to be the person performing the economic activity that is entitled for the deduction i.e. the power generating unit. 13.5 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the purport of the Explanatory Memorandum to Finance Bill 2012 which introduced SDT and the provisions relating to SDT were enacted so that the mechanism provided under the Transfer Pricing provision could be applied in respect of domestic transactions as suggested by the Hon'ble Supreme Court in the case of CIT VSGlaxoSmithkline Asia (P) Ltd ([TS-47-SC-2010-TP]? (Included in 7) 13.6 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in relying upon the decision of the Hon' ITAT for AY 2013-14 which in turn placed reliance on the decision of the Hon'ble Bombay High Court in the assessee's own case for the AY 2006-07 relating to pre-SDT era and is not applicable from the AY 2013-14 (and the impugned AY as well) in view of the above ground. (Included in 7)

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 13.7 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not recognising the principles laid down by the Hon'ble Kolkata High Court in the case of CIT Vs ITC Ltd [2015 64 taxmann.com 214 which clearly ruled that the rate at which electricity was purchased from Power Distributor by non-eligible unit of the assessee can by no means be the market rate at which the power plant of the assessee could have sold its production in the open market, especially considering the amendments in the Act from AY 2013-14? (Included in 7) 13.8 Whether on the facts and circumstances of the case and in law, the in Ld. CIT(A) is correct in not appreciating the fact that if the manufacturing (non- eligible) unit has to procure the electricity from the eligible units at the Power Distributor company's sale rates, what is the necessity for the assessee to establish its own Captive Power Plants(CPPs), as it could very well procure electricity from Power Distributor company itself? (Included in 7) 13.9 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the fact that when cost of production of electricity by CPPs is lesser, adoption of CPP's sale rat of electricity equal to the Power Distributor's sale rate notionally leads to more than ordinary profits to the eligible unit claiming deduction on the same and at the same time, it leads to lesser taxable profits in the hands of the non-eligible unit due to the notionally hike cost of electricity for it and the intention of the legislature is to allow the deduction only to the extent of ordinary profits, and precisely for this reason, the Hon'ble Supreme Court in the Glaxo case (supra) had given advisory to the legislature to extend transfer pricing principles to such domestic transactions also, which led to the amendment in Explanation to Section 80IA(8) and insertion of Section 92BA? (Included in 7) 13.10 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the fact and position of law that as per Section 92F(ii) on arm's length principle, the veil of relatedness is to be lifted and seen, and that independent enterprise under uncontrolled conditions would not take pains investing its time labour and capital for establishing CPPs, if it has to procure the electricity from its CPPs at the same rate which it regularly procures from Power Distribution company? (Included in 7) 13.11 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the fact that to claim the higher notional rate equivalent to the sale rate of distribution company is clearly a ploy to claim deduction on more than ordinary profits on one hand in eligible unit and by this notionally hiked cost of electricity to claim lesser taxable profits in the hands of non-eligible units on the other hand and this is precisely what the Hon'ble Supreme Court led amendments desired to plug? (Included in 7) 13.12 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the position of law that Combined understanding and implementation of Sections 80IA(1), 801A(5), 801A(8), amended Explanation to sections 801A(8), sections 92BA and 92F(ii), Rules 10B(1)(a), 10B(2) and 10B(3), Instruction No.3 of 2016, ITC case (supra) and Glaxo case (supra) will not allow such practices of claiming more deduction for the eligible unit by adopting higher notional rate equivalent to the sale rate of

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 distribution company and by sequelae claiming lesser taxable profits in non eligible units and will ensure only ordinary profits of the eligible unit getting deduction u/s 801A by arriving at the ALP applying Chapter X? (Included in 7) 14. The appellant prays that the order of the CIT(A) on the above grounds be set-aside and that of the Assessing Officer be restored.‖

―11. Having heard the rival contentions, and having perused the material on record, we see no reasons to interfere in the conclusions arrived at by the learned CIT(A) on this aspect either. The first appellate order for the assessment year 2013-14, based on which the impugned relief was granted by Page | 31

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 the CIT(A), has since come up for consideration before a coordinate bench of this Tribunal, and the coordinate bench has approved the said order of the CIT(A). While doing so, the coordinate bench has observed as follows: We find that learned CIT(A) has granted relief following earlier orders of ITAT. He had noted that it was held that the claim for depreciation cannot be thrust upon the assessee. Nevertheless, the Assessing Officer has consistently rejected the claim of the assessee based on the stand taken at assessment stage in earlier year. Learned CIT(A) noted that current year issue is consequential. Accordingly, following earlier orders of ITAT in assessee‗s own case, he decided the issue in favour of the assessee. It is not the case that earlier years decision of ITAT has been reversed by Hon'ble High Court. Learned Departmental Representative also did not dispute that this issue is covered in favour of the assessee. Hence, we uphold the order of learned CIT(A). The Revenue‗s ground is dismissed 12. Respectfully following the views of the coordinate bench, and particularly as no reasons for not following the views so expressed by the coordinate bench have been pointed out to us by the learned Departmental Representative, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.‖

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 assessee’s own case for assessment year 2014–15 and for 2015–16 cited supra, decided similar issue in favour of assessee by observing as under:

―17. As regards the Assessing Officer‟s grievance that the learned CIT(A) has erred in directing the Assessing Officer to take into account only such investments as having yielded dividends during the year under consideration, we find that this issue is covered, in favour of the assessee, by several decisions of the coordinate benches, in assessee‟s own case, for the assessment years 2010-11 to 2012-13. Learned Departmental Representative does not dispute this position, nor does he point out any specific reasons for our not following these coordinate bench decisions, but he relies upon the stand of the Assessing Officer nevertheless. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches, in assessee‟s own cases for the assessment years 2010-11, 2011-12 and 2012- 13, and, respectfully following the same, we confirm the conclusions arrived at by the learned CIT(A) on this point as well, and decline to interfere in the matter.‖ 40. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee’s own case and no change in facts and law was alleged in the relevant assessment year. Thus, respectfully following the judicial precedent in assessee’s own case, we find no infirmity in the direction of learned CIT(A) to consider investment which have yielded dividend during the year under consideration. As a result, ground No. 2 raised in Revenue’s appeal is dismissed.

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 than KG – DWN – 6 – 98/3 should not be reduced while working out the profits of KGD6 undertaking. In reply, assessee submitted that the unsuccessful exploration cost incurred in contract area other than KGD 6 was not reduced from the profits of KGD6 undertaking while computing deduction under section 80 IB(9) of the Act, since while computing deduction under the said section the provisions of section 80 IA(5) were applicable, which provides that for the purposes of determining the quantum of deduction, the profits and gains of eligible business shall be computed as if such eligible business were the only source of income of the assessee. The assessee further submitted that as per Article 17.2.2 of the Production Sharing Contract, the assessee company as a whole was entitled to claim such expenses. Therefore, the claim in respect of the unsuccessful exploration cost incurred in contract area other than KGD 6 has been made in computation of income under section 42(1)(a) against the entire income of the assessee company while computing the business income. Accordingly, it was submitted that the unsuccessful exploration cost for the blocks was not to be reduced while working out profits and gains of the eligible undertaking i.e. contract area KGD 6. The AO vide assessment order did not agree with the submissions of the assessee and held that the argument of the assessee is completely against the express provisions of Production Sharing Contract and the Act. The AO further held that the deduction of the entire profits derived by the assessee company cannot be allowed under section 80 IB(9) of the Act and deduction under the said section are to be computed without any regard to the losses on aborted exploration. The learned CIT(A) vide impugned order by following the decision of the coordinate bench of the Tribunal rendered in assessee’s own case in preceding assessment years directed the AO to compute the profits of KGD undertaking on a standalone basis as per the provisions of 80 IA(5), for the purpose of claiming deduction under section 80 IB(9) of the Act. Accordingly, the AO is directed that cost in respect of abortive/unsuccessful blocks are not to be reduced while computing the profits of undertaking namely, KGD which is eligible for deduction under section 80 IB(9) of the Act. Being aggrieved, the Revenue is in appeal before us.

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―35. As learned representatives fairly agree, this issue is also covered, in favour of the assessee, by decisions of the coordinate benches, in assessee‘s own case, for the assessment years 2011-12, 2012-13 and 2013-14. Referring to earlier decisions of the coordinate benches, the order dated 10th November 2020, for the assessment year 2013-14, observes as follows: At the outset on this issue learned Counsel of the assessee submitted that the issue is covered in favour of the assessee by the ITAT on this issue for A.Y. 2011-12 to 2012-13 as under :- ―107. We have heard rival contentions on this issue. We have noticed earlier that the Ld CIT(A) has decided this issue in favour of the assessee by holding that each contract is a separate undertaking and hence the expenses relating to aborted blocks of different contracts cannot be reduced from the profit from sale of mineral oil obtained from another contract. The operative portion of CIT(A) on this issue are extracted below:- "49. Decision: I have considered the facts of the case and the submissions made by assessee. The issue for consideration is whether cost of abortive/ unsuccessful blocks (other independent undertakings) are be reduced while computing the profits of a successful block (KGD in the assessee's case which is independent undertaking) for the purpose of claiming deduction u/s 80-IB(9).The assessee was engaged in the business of exploration and production of mineral oil. The assessee was awarded 31 contract areas under separate production sharing contracts (PSC) signed with the Government of India. The above contract areas were awarded on bidding in separate auction for each contract area. There is no dispute that for the purpose of claiming deduction u/s. 80IB(9) of the Act each contract area constituted an independent undertaking. Since the assessee had complied with the conditions specified u/s. 80IB(9) of the Act, it claimed deduction of the profits and gains of KGD undertaking u/s. 80- IB(9) of the Act. While computing the profits and gains of KGD undertaking for the purpose of claiming deduction under the section 80IB(9) of the Act, the provisions of section 80IA(5) are applicable, which provide that for the purposes of determining the quantum of deduction, the profits and gains of the eligible business shall be computed as if such eligible business were the only source of income of the assessee. Accordingly, the assessee has correctly not reduced the unsuccessful exploration cost incurred in contract area other than KGD, which has been made in the computation of income u/s 42(l)(a) against the entire income of the assessee company while computing the business income. Page | 35

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The AO has however, rejected the above claim of the assessee and has reduced the amount of Rs.2042.69 crores being the abortive cost of wells incurred in contract areas other than KGD while computing deduction u/s. 80IB(9) of the Act in respect of KGD undertaking. In doing so, he has relied on the provisions of Article 17.2.2. of the Production Sharing Contract (PSC). However, on harmonious reading of the provisions of Article 17 of the PSC, it can be concluded that the deduction under Article 17.2.2 in respect of abortive/unsuccessful blocks is to be allowed to a Company while computing its profits and gains from the business of Petroleum Operations. Thus, the same are not be reduced for the purpose of computing the profits of an ‗Undertaking‘ eligible for deduction u/s. 80IB. Thus, this ground of appeal is allowed and AO is directed to compute the profits of KGD undertaking on a standalone basis as per the provisions of 80IA(5), for the purpose of claiming deduction under the section 80IB(9) of the Act. The AO is accordingly, directed that cost in respect of abortive/unsuccessful blocks are not be reduced while computing the profits of the undertaking viz. KGD which is eligible for deduction u/s. 80IB(9). This ground of appeal is accordingly allowed.‖ 108. We notice that the article/clause 17.2.2 of PSC allows deduction of expenses relating to aborted blocks against the profit arising from other blocks. In our view, the assessee was right in contending that the article/ clause 17.2.2 was concerned with the computation of income at entity level in terms of sec. 42 of the Act. The article/clause 17.2.5 of PSC states that all other provisions of Income tax Act shall apply. The PSC does not deal with the deduction given u/s 80IB(9) of the Act and hence the provisions of the Act shall apply. Hence the deduction u/s 80IB(9) of the Act has to be computed in terms of sec. 80IB of the Act. Sec. 80IB(13) of the Act provides that the provisions of sec. 80IA(5) shall apply and under the provisions of sec. 80IA(5) of the Act, the profits and gains of eligible business, for the purposes of sec. 80IB, shall be computed as if such eligible business were the only source of income of the assessee. In view of these provisions, the deduction u/s 80IB(9) has to be computed after ascertaining profits and gains of eligible business in terms of sec. 80IA(5) of the Act. Hence there is no scope to adjust expenses relating to other ―undertaking‖ while computing deduction u/s 80IB(9) of the Act. Hence, we are of the view that the decision rendered by Ld CIT(A) does not call for any interference and accordingly we uphold the same. Since facts are identical and it is not the case that above decision of ITAT has been reversed by Hon‘ble Jurisdictional High Court, we uphold the order of learned CIT(A). 36. Respectfully following the views so expressed by the coordinate bench in assessee‘s own case, for the immediately preceding assessment year, we uphold the conclusions arrived at by the learned CIT(A) on this point as well, and decline to interfere in the matter.‖

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 45. Thus, respectfully following the aforesaid decision in assessee’s own case, we find no infirmity in the findings of the learned CIT(A) on this issue. Accordingly, ground No. 3 raised in Revenue’s appeal is dismissed.

―40. Having heard the rival contentions and having perused the material on record, we find that learned CIT(A)‘s decision for the assessment year 2013-14, which forms the basis of the impugned relief, has travelled in appeal before a coordinate bench, and the coordinate bench, vide order dated 10th November

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 2020, confirmed the relief so granted by the CIT(A) by observing, inter alia, as follows: I have considered the facts of the case and submissions made by the assessee. The issue for consideration is whether the term 'mineral oil' u/s 80-IB(9) includes natural gas and condensate. The assessee company is engaged in the business of extraction of natural resources including Petroleum and gas, refining of petroleum products etc. On 12.04.2000 the assessee alongwith M/s Niko Resources Limited entered into a PSC with the Government of India ['GOI'] for obtaining a Petroleum Mining Lease in respect of Development area specified therein namely Block KG-DWN-98/3 (KGD) for extraction and exploration of mineral oil i.e. 'Petroleum'. Although the term 'mineral oil' is defined in section 42, 44BB and 293A of the Act, the same is not defined in Section 80-IB of the Act. When one refers to following statutes dealing with mineral oil, petroleum and natural gas etc, natural gas is treated as a part of 'mineral oil' viz: a) The Oil fields (Regulation Development) Act, 1948 b) The Mines and Minerals (Development and Regulation) Act, 1959 c) The Oil industry (development) Act, 1974 d) The Regulation for foreign direct investment in India e) Notification issued (No GSR 304(E) dated March 31, 1983 for extending the applicability of the Act to the continental shelf of India f) New Exploration Licensing Policy g) Petroleum Tax Guide published by the Ministry of Petroleum and Natural Gas, Government of India The issue is whether natural gas is mineral oil and is eligible for deduction u/s. 801B(9) of the Act has already been considered by the Hon"ble Income Tax Appellate Tribunal Ahmedabad Bench in the case of NIKO Resources Limited Vs. DCIT [22 DTR 225] and held that natural gas is mineral oil eligible for deduction u/s 80IB(9) of the Act. The above decision of the ITAT has been further confirmed by the Hon'ble Gujarat High Court (reported in 374 ITR 369) by placing reliance upon the decision of the Supreme Court in the case of Association of Natural Gas &Ors.Vs Union of India &Ors.(2004) 4 SCC 489. The Hon'ble Gujarat High Court has also held that the insertion of sub-clause (iv) to Section 80-IB(9) does not mitigate against meaning attributed to the expression "mineral oil" by the Apex Court, Entry 53 of List I does not refer to Natural Gas separately. Further, Hon'ble Gujarat High Court has also rejected the contention raised by the Department, that petroleum products and natural gas have been made part of mineral oil only through inclusive provisions contained in Sections 42, 44BB and 293A and its conspicuous absence in section 80-IB has to be inferred that the purpose of Section 80-IB, mineral oil would include petroleum products and natural gas. Similar issue has been allowed to appellant in the immediately preceding assessment year i.e. for AY 2014-15. Further, similar issue has been decided by the ITAT in favour of the appellant for AY. 2011-12. The relevant extract of ITAT order for A.Y.2011-12 is reproduced below. "112 Since identical issue has been decided by Hon'ble Gujarat High Court in favour of the assesse in the case of NIKO Resources Lid (which holds 10% share in the block) and since the LD CIT(A) has followed the same, we do not find any infirmity in the order passed by Ld CIT(A) on this issue. On perusal of the aforesaid facts and following the decision of the Gujarat High Court (supra) and recent ITAT order in appellant‘s own case for A. Y. 2011-12, I hold that the term 'mineral oil', for the purpose of claiming deduction u/s 80-IB(9) of the Act

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 includes natural gas and condensate and therefore the assessee claim for deduction us 80IB(9) of the Act in respect of both natural gas and condensate is accordingly allowed. Accordingly, this ground of appeal is accordingly allowed. 41. Respectfully following the views so expressed by the coordinate bench in assessee‘s own case, for the immediately preceding assessment year, we uphold the conclusions arrived at by the learned CIT(A) on this point as well, and decline to interfere in the matter.‖

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Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 respect of Revenue expenditure under section 35(2AB) of the Act was disallowed by the AO.

―I have carefully considered the submissions of the appellant and the case law relied upon before me. I agree with the submission made by the appellant that prior to the amendment in Rule 6(7A), no such authority was granted to DSIR [i.e. the prescribed authority under Rule 6(1B) for approving any expenditure for the purpose of claiming deduction us 35(2AB). The pre-amended rules only stipulate filing of audit report before DSIR by the persons availing deduction u/s 35(2AB) of the Act. The provisions pre-amendment do not prescribe any methodology of approval to be granted by DSIR vis-a-vis the expenditure from year to year The amended provisions by which separate part has been inserted in Form No. 3CL for certifying the amount of expenditure thus lays down the procedure to be followed by DSIR Since the amendment has come into effect only from 01.07.2016 (was notified on 28th April 2016) the same would apply only from assessment year 2017-18 and hence will not apply for the assessment year under review 1.e. AY 2016-17.

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 Since the aforesaid issue is directly covered by Hon'ble Pune ITAT in the case of Cummins India Limited (ITA No. 309/PUN/2014) (referred to above) whereby the Hon'ble ITAT on similar disallowance made in AY 2009-10, has held that there is no merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted deduction claim under section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of expenditure in form No.3CL and Further. similar issued was decided by my predecessor in favour of the appellant for the AY 2015-16, I decide the issue in favour of the appellant and direct the AO to allow weighted deduction in respect of Research and Development Expenditure under section 35(2AB) of the Act as claimed by the appellant after excluding the amount already allowed by the AO.‖

―once the facility is approved by DSIR, the assessee is entitled for weighted deduction u/s 35(2AB) of the Act and there is no requirement as per the Act that the expenses need to be approved by DSIR. In this regard, the amendment has been brought in Rule 6(7A) of the IT Rules with effect from 1.7.2016 that even the expenses need to be approved by DSIR. Since this is applicable only from Asst Year 2017-18 onwards, the same cannot be made applicable for Asst Year 2013-14.‖ (Emphasis supplied)

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 capital loss on sale of non-cumulative compulsory convertible preferential shares.

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021

―63. We find that in the immediately preceding assessment years, consistently this approach of the assessee, at the even lower spread of 150 bps, has been all along accepted by the coordinate benches. In any case, no case has been made out that the spread of 200 bps is lower than the arm‘s length price. As regards the cost-plus method on the cost of funds, we find it is fundamentally flawed inasmuch as it treats all the types of borrowing at par and proceeds on the erroneous assumption that the arm‘s length price of the debt has, at its basis, cost of funds available to the tested party- particularly when these funds are of significantly different tenures and different currencies. In view of these discussions, as also bearing in mind the entirety of the case, we approve the conclusions arrived at by the learned CIT(A)- which is, in any event, in harmony with the decisions of the coordinate benches in assessee‘s own, and decline to interfere in the matter.‖

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 65. Since, this is a recurring issue, therefore, we see no reason to deviate from the conclusion so reached by the coordinate bench of the Tribunal in assessee’s own case, in absence of any allegation of change in facts and law. Thus, we find no infirmity in findings of learned CIT(A) on this issue. Accordingly, grounds No. 8 – 8.3 raised in Revenue’s appeal are dismissed.

―68. We find that, while dealing with the same issue for the assessment year 2013-14, a coordinate bench of the Tribunal has, inter alia, observed as follows: It is noted that that this Tribunal in assessee‘s own case in A.Y. 2010-11 to 2012- 13 has decided the identical issue as under:- ―48. We heard the parties on this issue and perused the record. The learned D.R strongly supported the order passed by AO, while the Ld A.R supported the order passed by Ld CIT(A). We notice that the Ld CIT(A) has followed the decision rendered by Hon‘ble jurisdictional High Court in the case of Besix Kier Dabhol (supra) in order to hold that re-characterisation of transaction is not permissible. In the case of Bharti Airtel Ltd (supra), the Delhi ITAT has held that it is not open to the TPO to recharacterise transaction under Income tax Act, unless it is found to be sham or bogus. It was further held that, even under judge-made law, recharacterisation is possibly only if transactions are found to be substantially at variance with the stated form. In the absence of any such finding and also in the absence of anything on record to show that unrelated applicant was to be paid interest for the period ending till the date of allotment of shares, the ITAT deleted the addition. In the case of Bharti Airtel Ltd (supra), there was delay in allotment of shares and still, the Tribunal held that re- characterisation is not permissible. In the instant case, it is seen that the preference shares have been allotted within the year itself. The AO/TPO has not shown that the transactions are sham or bogus nor it was shown that the apparent is not real. It was also not shown that the unrelated share applicant has been paid any interest for the period commencing from date of subscription to the date of allotment of shares. It has been held that the amendment made by Finance Act 2012 including capital financing transactions as international transactions cannot be applied retrospectively. The Ld A.R further submitted that the Preference shares carry coupon rate of 5%, which is higher than the 6 months Libor plus 300 bps.‖

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021

We further note that it has been submitted before us that the above decision is squarely applicable in as much as no fresh investment has been done during the A.Y. 2013-14. Furthermore, as pointed out by learned Counsel of the assessee from Hon'ble Bombay High Court decision in the case of Pr. CIT Vs. M/s. Aegis Limited (supra) supports the above proposition. We may refer the Hon'ble High Court decision as under :- ―The respondent-assessee is a Company registered under the Companies Act. For the Assessment Year 2009-10, the assessee was subjected to transfer pricing regime. Question no.1 arises out of the action of the Revenue to tax notional interest in the hands of the assessee through transfer pricing. The facts are that, during the period relevant to the assessment year in question, the assessee had subscribed to redeemable preferential shares of its Associated Enterprises (―AE‖ for short) and redeemed some of its shares at par. The Transfer Pricing Officer (―TPO‖ for short) held that the preference shares were equivalent to interest free loans advanced by the assessee and accordingly charged the interest on notional basis. The Tribunal by the impugned judgment, deleted the addition by observing that the TPO had re-characterised the transaction of subscription of shares into advancing of unsecured loans. The Tribunal did not accept such conclusion, inter- alia on the grounds that the TPO cannot disregard the apparent transaction and substitute the same without any material of exceptional circumstances pointing out that the assessee had tried to conceal the real transaction or that the transaction in question was sham. The Tribunal observed that the TPO cannot question the commercial expediency of the assessee entered into such transaction. 3. We are broadly in agreement with the view of the Tribunal. The facts on record would suggest that the assessee had entered into a transaction of purchase and sale of shares of an AE. Nothing is brought on record by the Revenue to suggest that the transaction was sham. In absence of any material on record, the TPO could not have treated such transaction as a loan and charged interest thereon on notional basis. No question of law arises.‖ Furthermore, we note that as submitted no fresh investment is made during the year. That the shares were allotted in earlier years. The new issue raised by Revenue on the theory of preponderance are not sustainable as nothing has been cogently brought on record. As pointed out by the learned Counsel of the assessee the examples mentioned in the grounds above do not relate to current year and it is trite that every year is different for transfer pricing purpose. Subsequent year instances cannot give a carte blanche to the Assessing Officer to make adjustment and render the Tribunal decision ceasing to be a precedent. Accordingly in the background of the aforesaid decision and precedent we uphold the order of learned CIT(A)

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 year 2013-14, which is relied upon in the impugned order, has already been confirmed by a coordinate bench as above. As regards plea of the Assessing Officer that the CIT(A) has simply relied upon the earlier decisions of the coordinate benches, without taking a fresh look at the facts, it is an admitted position that there are no changes in the facts in circumstances of the case and there is not even a fresh investment in the present year, and, such being the facts, there cannot indeed be any justification for disregarding the binding legal precedents. This plea of the Assessing Officer is ill-conceived. Similarly, his grievance about reasons for recharacterization having been ignored is not really incorrect as there is a specific consideration by the coordinate benches, as indeed by us, as to why these reasons of recharacterization do not hold good in law. As regards the claim of these transactions being dubious in nature, just because of the timing of conversion at the same value, as long as the conversion of preference shares is within the permissible time frame, nothing turns on the timing against the assessee. Many of the issues being raised in the grounds of appeal are neither on the specific findings of fact, nor even specific arguments on facts before us, and have not been raised in the TPO‘s order. Just because if the assessee was to give loans, rather than make investments in the compulsorily convertible shares, the Indian tax base would not have been eroded cannot be reason enough to disregard the reality of investment having been made in the compulsorily convertible preference shares, and proceed to benchmark the transaction as that of a loan. The BEPS action plan, unless it results in an appropriate amendment in law, and the change in the definition of international transaction, including capital financing in its ambit, has no impact on the stand of the CIT(A) because what has been held is that this transaction cannot be compared with a loan. In the light of these discussions, as also bearing in mind the entirety of the case, we approve the conclusions arrived at by the learned CIT(A) on this point as well, and decline to interfere in the matter.‖

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 area. Pursuant to said agreement, any professional or administrative services provided by AE’s affiliate shall be on cost-to-cost basis. The assessee provided support services for drilling operations carried out by the AE and charged the AE on cost to cost basis. Assessee submitted that since the transaction would get covered by Rule 10 B(2)(d), the amount charged by the assessee was at arm’s length. The TPO rejected the submission of the assessee and held that the Production Sharing Contract entered by the AE with the concerned foreign governments has little relevance in determining the arm’s length price of the aforesaid transaction between assessee and AE. Accordingly, the TPO computed arm’s length price of the markup at 7.07% and made an adjustment of Rs. 44,15,893. The learned CIT(A) vide impugned order, following the decisions of coordinate bench of the Tribunal in assessee’s own case in preceding assessment years, allowed the appeal filed by the assessee on this issue and deleted the adjustment of Rs. 44,15,893 made by the TPO. Being aggrieved, the Revenue is in appeal before us.

―76. So far as this set of grievances of the Assessing Officer is concerned, the relevant material facts are like this. The assessee has entered into a ‗Production Sharing Agreement‘ with the Government of Kurdistan for the exploration and development of petroleum in the specified area. Under the said PSC, any professional or administrative services rendered by the affiliates of the AE had to be on ‗cost to cost basis‘. The stand of the assessee was that since the provisions of rule 10B(2)(d), which provide thatan uncontrolled transaction being judged with respect to ―conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail‖, will be attracted, and viewed thus, the cost to cost transaction is an arm‘s transaction on the facts of this case. The TPO, however, rejected this plea, holding the PSC of no relevance in the manner, and proceed to compute arm‘s length price of the transaction at 17.21% mark up. An addition of Rs 58,16,290 was thus made. Aggrieved, assessee carried the matter in appeal before the CIT(A). Page | 48

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 Learned CIT(A), following the orders of the coordinate benches in assesee‘s own cases for the assessment years 2011-12 and 2012-13 and following his predecessor‘s order for the assessment year 2013-14, deleted the ALP adjustment of Rs 58,16,290. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 77. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 78. We find that the decision of the CIT(A) for the assessment year 2013-14, on the basis of which impugned relief was granted by the CIT(A), has already been approved by a coordinate bench. The issue is thus covered in favour of the assessee by decisions of the coordinate benches in assessee‘s own cases for the assessment years 2011-12, 2012-13 and 2013-14. No reasons as to why we must not follow the decision have been pointed out to us. Undoubtedly, one of the critical factors in determining the ALP, as recognized by rule 10B(2)(d), is conditions prevailing in the market in which AEs operate, and once it‘s a legal condition precedent in entering the transaction in the respective PSC market is that the AE‘s affiliates are not allowed to have any mark up on a supply of services to the AE, the determination of ALP is required to be having regard to this condition. Viewed thus, the cost to cost rendition of services can be indeed be viewed as an arm‘s length transaction. In view of these discussions, and being consistent with the co-ordinate bench decisions, we uphold the action of the CIT(A) and decline to interfere in the matter.‖

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 guarantee commission was charged by the assessee from its AE at 50% of the interest rate differential. The TPO, though accepted the yield spread method adopted by the assessee, however, did not accept the division of interest rate differential in 50:50 ratio and assigned at least 60% of the rate differential to the assessee. Further, the TPO adopted long term rates even for short guarantees and accordingly made adjustment of Rs. 40,39,46,916. The learned CIT(A) vide impugned order by following the decision of coordinate bench of Tribunal in assessee’s own case in preceding assessment years, accepted the benchmarking done by the assessee by following the yield spread approach with split of 50:50 in respect of both short-term and long-term guarantee. Being aggrieved, the Revenue is in appeal before us.

―82. Having heard the rival contentions and having perused the material on record, we find that this is a purely factual matter, which permeates from year to year, and once the coordinate benches have consistently held, right from 2011-12 onwards, that 50:50 allocation is reasonable, and there is no change in the material facts, we see no reasons to take any other view of the matter than the view so taken by the coordinate benches in assessee‘s own cases for the preceding assessment years. We, therefore, approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.‖

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 transaction pertaining to determination of arm’s length price of business support services availed from the AE vis-à-vis.

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021

―85. Learned representatives fairly agree that so far as this issue is concerned, it is also now covered in favour of the asseseee inasmuch as in the immediately preceding assessment year in assessee‘s own case, a coordinate bench has upheld the exclusion of BVG India Limited, as a comparable, and inclusion of Empire Industries Limited as a comparable. Once BVG is excluded and Empire Industries is included, in the valid comparables for the purpose of the benchmarking analysis under the TNMM- as has been done in this case, learned representatives agree that the adjudication on comparability of Spectrun Business Solutions Ltd and ICRA Management Consulting Services Ltd will become academic. 86. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench in assessee‘s own case for the immediately preceding assessment year. Respectfully following the same, and subject to the observations as above, we uphold the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.‖

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 82. Since, after consideration of Spectrum Business Solutions Limited (having margin of 4.84%) as comparable, apart from Empire Industries Ltd (having margin of -1.22% of relevant segment), arm’s length margin would still be less than 5% charged by AE, therefore, issue of comparability of ICRA Management Consulting Services Ltd is kept open. As a result, grounds No. 12 – 12.4 raised in Revenue’s appeal are dismissed.

―124. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position.

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 125. We find that the learned CIT(A)‘s order for the assessment year 2013- 14, based on which the impugned ALP adjustment has been sustained, has come up for consideration before a coordinate bench which has, reversing the stand of the learned CIT(A), observed as follows:

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date: Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.—For the purposes of this sub-section, "market value", in relation to any goods or services, means— (i) the price that such goods or services would ordinarily fetch in the open market; or (ii) the arm's length price as defined in clause (ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA. 175. The rate charged by the assessee has been duly accepted by the Tribunal and upheld by the Hon‘ble Jurisdictional High Court in the case of CIT vs. M/s. Reliance Industries Ltd. (in ITA No. 1056 of 2016 dated 30.01.2019), which reads as under: 4. Question (c) pertains to the dispute between the department and the assessee regarding the rate at which the electricity generated by one unit of the assessee-company and provided to the another be valued. The assessee contended that such valuation should be at the rate at which the electricity distribution companies are allowed to supply electricity to the consumers. The revenue on the other hand argues that the appropriate rate should be the rate at which the electricity is purchased by the distribution companies from the electricity generating companies. 5. This controversy arose in the background of the fact that the assessee had set up a captive power generating unit and claimed deduction under Section 80IA of the Income Tax Act, 1961 ("the Act" for short) in respect of the profits arising out of such activity. Obviously, therefore the attempt on the part of the assessee was to claim larger profit under the unit which was eligible for such deduction as against this, attempt of the revenue would be see that the ineligible unit shows greater profit. 6. The Tribunal in the impugned judgment extracted extensively from the order of CIT (Appeals) and independent reasons for confirming the same. In such order CIT (Appeals) had placed reliance on an earlier judgment of the Tribunal in case of Reliance Infrastructure Limited Vs. Addl. CIT, Range 1(1), Learned counsel for the assessee had placed on record a copy of the judgment of the Tribunal in case of Reliance Infrastructure limited. In such judgment an identical issue came up for consideration. The Tribunal by detailed judgment had held and observed as under:- "44. In the given facts and circumstances of the case, we are of the view that the profits of the business of generation of power worked out by the Assessee on the basis of the price that it paid to TPC for purchase of power continues to be the best basis even after the order of MERC and therefore the same has to be accepted as was done in the past and as approved by the ITAT in Assesssee's case. We therefore dismiss ground.‖ 7. Counsel for the assessee pointed out that the judgment of the Tribunal in case of Reliance Infrastructure limited (supra) was carried in appeal

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 by the revenue before the High Court in Income Tax Appeal No.2180 of 2011, such appeal was dismissed making following observations:- "6. As far as question (d), namely, the claim relating to purchase price from Tata Power Company is concerned and that was for the deduction under Section 80IA, the ITAT in paragraph 21 onwards has noted the factual findings and also referred to the order of the Maharashtra Electricity Regulatory Authority (for short "MERC"). Paragraph 36 set outs as to how the claim arose. The claim has been considered in the light of Section 80IA and particularly proviso and explanation thereto. The Tribunal eventually held that till the Assessment Year 2005-2006, the Revenue considered the rate at which the power was purchased by the Assessee from Tata Power Company as market value. There is nothing brought on record as to how the rate determined by the MERC is the true market value. The Assessee gave explanation that the rates determined by the MERC do not reflect the correct market rate. The finding is that the mode of computation and deduction under Section 80IA requires no deviation from the past. The findings of fact and to be found in paragraphs 42 to 50 also reflect that the very issue came up for consideration for the Assessment Year 2003-2004. For the reasons assigned by the ITAT and finding that the attempt is to seek reappreciation and reappraisal of the factual data that we come to a conclusion that even question (d) as framed is not a substantial question of law." 8. Thus, the issue at hand had been examined by this Court on earlier occasion and the view of the Tribunal under similar circumstances was approved. 9. Additionally, we also notice that similar issue came up for consideration before Chhattisgarh High Court in case of Commissioner of Income-tax, Raipur Vs. Godawari Power &Ispat Limited1, in which the Court held and observed as under: "31. The market value of the power supplied to the Steel-Division should be computed considering the rate of power to a consumer in the open market and it should not be compared with the rate of power when it is sold to a supplier as this is not the rate for which a consumer or the Steel-Division could have purchased power in the open market. The rate of power to a supplier is not the market rate to a consumer in the open market. 32. In our opinion, the AO committed an illegality in computing the market value by taking into account the rate charged to a supplier. it should have been compared with the market 10. Gujarat High Court in case of Principal Commissioner of Income-Tax Vs. Gujarat Alkalies and Chemicals Ltd. also had occasion to examine such an issue. It referred to earlier order in case of Asst. CIT Vs. Pragati Glass Works Pvt. Ltd.2 in which following observations were made:- "7. To our mind, Tribunal has committed no error. Assessing Officer and CIT(Appeals) while adopting Rs.4.51 per unit as the value of electricity generated by eligible unit of assessee and supplied through its non eligible unit only worked out cost of such electricity generation. In fact CIT(Appeals) in terms recorded that Rs.4.51 was computed as the reasonable value of the electricity generated by eligible unit of assessee. This amount included Rs.4.17 per unit which was the cost of electricity generation and Rs.0.34 per unit which was duty paid by the assessee to GEB for such power generation. Thus the sum of Rs.4.51 per unit only represented the cost of electricity generation to the assessee. In Section 80IA(8) of the Act what is required to be ascertained is the market value Page | 56

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 of the goods transferred by the eligible business, when such transfer is by eligible business to another non eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not correspond to market value of such goods. Term "Market Value" is further explained in explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. To our mind sum of Rs.4.51 per unit of electricity only represented cost of electricity generation to the assessee and not the market value thereof. It is not in dispute that the GEB charged Rs. 5 per unit for supplying electricity to other industries including non eligible unit of the assessee itself. Tribunal therefore, while adopting the said base figure and excluding excise duty therefrom to work out Rs. 4.90 as the market value of the electricity generated by the assessee, to our mind, committed no error. It can be easily seen that if the assessee were to supply such electricity or was allowed to do so in the open market, surely it would not fetch Rs. 4.51 per unit but Rs. 5 per unit as was being charged by GEB. Since the excise duty component thereof would not be retained by the assessee, Tribunal reduced the said figure by the nature of excise duty and came to the figure of Rs. 4.90 to ascertain the market value of electricity generated by the eligible unit and supplied to non eligible business of the assessee. No error was committed by the Tribunal. No question of law therefore, arises. Tax Appeal is dismissed." 11. Judgment of Calcutta High Court in case of Commissioner of Income- tax, Kolkata - III Vs. ITC Ltd. was also brought to our notice in which the said High Court has taken a different stand. However, since the issue has already been examined by this Court earlier and in view of the decisions of the Chhattisgarh and Gujarat High Court, we see no reason to entertain this question.‖ 176. Here we note that the assessing officer while expounding that rate duly approved under 80 IA(8) is to be changed for Transfer Pricing purposes has placed reliance upon honourable Calcutta High Court decision in the case of ITC Ltd. We find that the view of TPO and learned CIT(appeals) also by relying upon Calcutta High Court decision in ITC Ltd that market value basis duly approved by the honourable Bombay High Court shall change for the purpose of domestic transfer pricing regimen here is not at all sustainable. The reliance by learned CIT(appeals) on honourable Calcutta High Court decision in the case of ITC Limited supra has been distinguished by the honourable jurisdictional High Court. The honourable jurisdictional High Court has chosen not to follow the Calcutta High Court decision. Hence in our considered opinion, the authorities below have misled themselves by relying upon Calcutta High Court decision in this regard. This decision has not found favour with honourable jurisdictional High Court. 177. Thus we find that the view of the authorities below that the definition of the market value shall change for the purpose of domestic transfer pricing regimen is not at all sustainable. Accordingly, in the background of the aforesaid discussion and precedent, we set aside the orders of the authorities below and decide issue in favour of the assessee.

Reliance Industries Ltd. ITA No.579/Mum./2021 ITA No.1438/Mum./2021 unable to see any legally sustainable basis for rejection of internal CUP on the facts of this case. Respectfully following the views so expressed by the coordinate bench, which, in turn, follows the views of other coordinate benches and Hon‘ble jurisdictional High Court in assessee‘s own case, we uphold the plea of the assessee. Accordingly, the impugned ALP adjustment of Rs 147,12,37,934 stands deleted.‖ 86. Since, this is a recurring issue, therefore, we see no reason to deviate from the conclusion so reached by the coordinate bench of the Tribunal in assessee’s own case in preceding assessment years, in absence of any allegation of change in facts and law. Thus, we find no infirmity in the findings of the learned CIT(A) on this issue. Accordingly grounds No. 13-13.12 raised in Revenue’s appeal are dismissed.

Sd/– Sd/– PRAMOD KUMAR SANDEEP SINGH KARHAIL VICE PRESIDENT JUDICIAL MEMBER

MUMBAI, DATED: 14/10/2022 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai