JINDAL STEEL & POWER LTD.,NEW DELHI vs. ACIT, HISAR

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHE ‘I-1’, NEW DELHI Before Sh. Bhavnesh Saini, Judicial Member And Sh. N. S. Saini, Accountant Member ITA No. 893/Del/2014 : Asstt. Year : 2009-10 Jindal Steel & Power Ltd., Vs Asstt. Commissioner of Jindal Centre, 12, Bhikaji Cama Income Tax, Hisar Circle, Place, New Delhi-110066 Hisar (APPELLANT) (RESPONDENT) PAN No. AAACJ7079D Assessee by : Sh. Salil Kapoor, Adv., Sh. Sumit Lal Chandani, Adv., Ms. Ananya Kapoor, Adv. & Ms. Pallavi Saigal, Adv. Revenue by : Sh. Sanjay I. Bara, CIT DR Date of Hearing :05.03.2019 Date of Pronouncement : 29.04.2019 ORDER Per N. S. Saini, Accountant Member: This is an appeal filed by the assessee against the order of Assessing Officer u/s 143(3)/144C(13) of the Income Tax Act, 1961 dated 29.10.2018 for assessment years 2013-14

ITA No. 893/Del/2014 2 Jindal Steel & Power Ltd. 1006,66,79,810 declared by the appellant in the return of income for the relevant assessment year. 1.2 That the Dispute Resolution Panel (‘DRP’) erred on facts and in law in affirming the draft assessment order by passing a cryptic and non-speaking order, without judiciously considering the entire material and the submissions/ objections filed by the appellant.” 3. At the time of hearing, the Authorized Representative of the assessee submitted that this ground of appeal is general in nature and do not require separate adjudication by us. Therefore, the same is dismissed.

ITA No. 893/Del/2014 3 Jindal Steel & Power Ltd. absent in the case of the assessee company. The assessee had supplied power to its own constituent units without incurring any expenditure in putting up transmission and distribution network. For supply of power to limited customers located near power generation facility, state wide distribution system is not required. Moreover, there is hardly any transmission loss in the case of assessee, which comes to almost 20% in the case of state electricity board. Thus the power tariff charged by SEB from the common consumers could not be compared with the power tariff charged by assessee for supplying power to its- own constituent units because the cost ingredients like cost of transmission were absent in the case of the assessee. Secondly, there was no cost of collection in the case of the assessee while the SEB had to maintain full-fledged Department and accounting system for collection of electricity, charges from the common consumers spread over the entire length and breadth of the state. In addition the collection charges for electricity bills are also to be paid to the bankers. Thus the cost of power supply by the state electricity board to the common consumers entails enormous cost while the aforementioned additional cost ingredients are absent in the case of assessee that is the reason why the power tariff of the SEB cannot be compared with that of the power tariff supplied by the assessee to its own constituents units. In view of above complexities, I am of the opinion that it is necessary to invoke provisions of section 80IA(8) which deals with determination of value of goods or services by the Assessing Officer is reproduced as under:-

"Where any goods or services held for the purpose of the eligible business are transferred to any other

ITA No. 893/Del/2014 4 Jindal Steel & Power Ltd. business carried on by the assessee, or where any goods or services held for the purpose of any other business carried on by the assessee are transferred to eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of transfer, then, for the purpose of the deduction under this section, the profit and gains of such eligible business shall be computed as if the transfer, in either case, has been made at the market 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 herein before, specified, presents exceptional difficulties the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. 6. He further observed that it may be pointed out that the explanation only requires to find out the price at which the goods would ordinarily fetch in the open market. Here the word ordinarily is most important i.e. to the extent the market is available, in ordinary situation, the market price has to be worked out. If the extraordinary situations are there and the ‘open market’ is not that open, if compared with the developed countries, and open market is lesser open, it would not mean that the market value is not there.

ITA No. 893/Del/2014 5 Jindal Steel & Power Ltd. web-site of CEA (www.cea.nic.in), the position of revised tariff (as on 1st July 2012) in case of Uttra Mega Power Projects (UMPP) awarded through tariff based competitive bidding is as under:-

PROJECTS AWARDED THROUGH TARIFF BASED COMPETITIVE BIDDING ROUTE (AS ON 1ST JULY, 2012) Name of the Project and Name of the Levelised Tariff Date of LoI capacity as per LoI successful Bidder (Rs/KWH) M/s Tata Power 28.12.2006 2.26 MUNDRA (5x800 MW) Ltd. (Gujarat) SASAN (6x660) M/s Reliance Power 01.08.2007 1.2 (Gujarat) Ltd. M/s Reliance Power 30.11.2007 2.33 KRISHNAPATNAM Ltd. (6X660) (Andhra Pradesh) M/s Reliance Power 12.02.2009 1.77 TILAIYA (6X660) Ltd. (Jharkhand) 8. He noted that rate which is determined by competitive bidding could be said to be the rate in open market. Quantity of power generated by the assessee is minuscule as 'compared to these UMPPs', hence, assessee is bound to be compulsory seller in the market. Therefore, he is bound to get much lower rates than these UMPPs. We are considering rates in financial year 2008-09 in which rates are bound to be lower than the above mentioned rates (which are as on 01.07.2012). Therefore, in my opinion, rate offered to assessee by the State Electricity Board i.e. Rs.2.336 per Unit is more than reasonable to- be adopted for purposes of computation of profits and gains derived from eligible business for the purposes of section 80IA of the Income-tax Act 1961.

ITA No. 893/Del/2014 6 Jindal Steel & Power Ltd. 9. He further observed that as regards reliance placed by assessee on Ld. ITAT Delhi’s order for AY 2001-02 in his case & the order of High Court on the issue, it is mentioned with utmost respect to the adverse order of Hon’ble Punjab & Haryana High Court in the case of assessee that the Department has preferred SLP before the Apex Court on the issues adjudicated by the Hon’ble Punjab & Haryana High Court.

ITA No. 893/Del/2014 7 Jindal Steel & Power Ltd. my opinion, the answer is in negative in view of exposition as follows. The definition of ‘market value’ has to be seen as per the political system and the economy of the country. The Income Tax Act, 1961 is a law passed, by the Central Govt. and hence, the definition of market value used in sub-section 7 of section 80IA has to be found, which is in harmony with the market defined and covered by Electricity Supply Act, 1948 (A Central Act), till the act is amended by the Parliament.

ITA No. 893/Del/2014 8 Jindal Steel & Power Ltd. before it can supply electricity to the end consumer on following heads:-

(i) Huge capital investment in distribution network. (ii) Huge establishment cost related to its employees and the offices set up. (iii) Transmission losses. (iv) Electricity losses due to leakages in our country. (v) Collection charges (Vi) The financial cost of financing the capital infrastructure as well costs related to non-realization of bills from consumers. 14. In case all these costs are considered, the gap charged by SEB from consumers and that paid to assessee company can be easily understood. It is also a fact that most of the Power Distribution Boards in our country are incurring huge business losses.

ITA No. 893/Del/2014 9 Jindal Steel & Power Ltd. assessee for A.Y. 2000-01 in which relief is allowed to the assessee by making observation as under: “At the very outset, we may record that counsel for the revenue has very fairly stated that Question No.3 stands covered against the revenue and we held as such accordingly.” 18. It was observed by the DRP that on inquiry, the assessee could not explain by which order the above said question no.3 is covered against the revenue. Further, it has been noted that SLP is pending in Hon’ble Supreme Court on the issue involved.

ITA No. 893/Del/2014 10 Jindal Steel & Power Ltd. 21. In view of above, DRP was of the view that the AO has rightly taken market value at the price at which power has been sold to SEB.

� Decision of the Tribunal in the Assessee’s own case for assessment years 2000-01 and 2001- 02, as affirmed by this Hon’ble Court; (Kindly refer Pg. 160-206 and 207-215 (para 12-18) (16 SOT 509 (Del)) and pg. 156-158 and 159 of PB Vol. 1) � Decision of the Tribunal in the Assessee’s own case for assessment year 2004-05 (Kindly refer Pg. 216-260 of PB Vol. 1) � Decision of the Tribunal in the Assessee’s own case for assessment year 2002-03 and 2005-06 (Kindly refer Pg. 840-870 of PB Vol. III) 24. On the other hand, the Departmental Representative relied on the orders of the Lower authorities.

ITA No. 893/Del/2014 11 Jindal Steel & Power Ltd. 25. We find that the issue is covered in favour of the assessee by the order of this Bench of the Tribunal in the case of the assessee itself in AY 2001-02 reported in 16 SOT 509 (Del) where it was held as under:- “12. We have carefully considered the submissions of both the parties on this aspect. The crux of the dispute before us relates to the manner of computing profits of the undertakings of the assessee engaged in generation of power for the purposes of relief under Section 80-IA of the Act. The difference between the assessee and the revenue is with regard to the determination of the market value of power so as to record the income accrued to the assessee on supplies made to its own manufacturing units. As noted earlier, in this case, the assessee has utilized the power generated for its captive consumption by way of supplies to its other manufacturing units and also for sale to the State Electricity Board. The dispute essentially relates to the mechanism of Section 80-IA(8) of the Act. Section 80-IA(8) provides that where an assessee, which is eligible for Section 80- IA benefits, transfers its goods or services to a business other than the eligible business, the consideration, if any, recorded for such transfer in the accounts of the eligible business should correspond to the market value of such goods or services. The said section authorizes the assessing officer that where the transfer as recorded in the accounts of the eligible business does not correspond to the market value, the profits declared of the eligible business can be adjusted by the assessing officer on such basis so as to ensure that goods or services transferred to its own unit is done at the market value of such goods or services. Ostensibly, in this case, the assessing officer was of the opinion that the consideration for transfer of power for captive consumption to other units has been recorded at a consideration which does not correspond to its market value. According to the Authorized Representative, the consideration has been recorded at a price higher than the market value, in other words, the assessing officer does

ITA No. 893/Del/2014 12 Jindal Steel & Power Ltd. not perceive Rs. 3.72 per unit as the market value of the power generated by the assessee and instead adopts Rs. 2.32 per unit as the market value, being the price at which the assessee sells power to the Board. 13. Before we proceed further, it is also relevant to understand the implications of the expression "market value" as appearing in Section 80-IA(8) of the Act. In the Explanation below Section 80-IA(8), it is provided that the expression "market value" for the purposes of the sub-section means the price that such goods or services would ordinarily fetch in the open market. In the above context, it therefore becomes important for us to consider as to whether the price charged by the assessee for power supplied to its own manufacturing units at the rate of Rs. 3.72 per unit can be said to be constituting a market value of its goods, namely, power. 14. In the Advanced Law Lexicon by P. Ramanatha Aiyar, 3rd Edition, 2005, the market price or market value has been defined as below: Market price or value is the price fixed by buyer and seller in an open market in the usual and ordinary course of lawful trade and competition; the price or value of the article established or shown by sales, public or private, in the ordinary way of business; the fair value of the property as between one who desires to purchase and one who desires to sell; the current price. Similarly, in the case of Orchard v. Simpson (1857) 2 CBNS 299, the phrase "market value" in a contract for the sale of goods has been understood to mean the price in the market to an ordinary consumer, irrespective of the particular contract. Similarly, in Law Lexicon by P. Ramanatha Aiyar, with reference to U. S. v. Certain : Property in Borough of Manhattan, City County and State of New York, CANY, 403 F.2d800, 802, it has been explained that the market value of an article or piece of property is the price which it might be

ITA No. 893/Del/2014 13 Jindal Steel & Power Ltd. expected to bring if offered for sale in a fair market; not the price which might be obtained on a sale at public auction or a sale forced by the necessities of the owner, but such a price as would be fixed by negotiation and mutual agreement, after ample time to find a purchaser, as between a vendor who is will (but not compelled) to sell and a purchaser who desires to buy but is not compelled to take the particular article or piece of property. 15. Therefore, from the aforesaid, it can be deduced that market value is an expression which denotes a price arrived at between the buyer and the seller in the open market wherein the transactions take place in the normal course of trading and competition in contrast to a situation where the price is fixed between a buyer and a seller in a negotiation done under the shadow of legislatively mandated compulsion. In the case of the former, the price fixed between the buyer and seller can be understood as denoting 'market price' since the elements of trading and competition exist. Whereas in the case of the latter situation, the price fixed between the buyer and seller cannot be understood as denoting the market price since the elements of trade and competition are conspicuous by their absence. 16. To understand the contrasting situations, let us analyze the situation on hand. In this case, the assessee received consent under Section 44A of the Electricity (Supply) Act, 1948 to establish and operate the captive power plant in terms of a Power Purchase-cum-Wheeling of Power Agreement dated 15-7-1999 entered between the State Electricity Board and the assessee. A copy of the said agreement has been placed in the paper book. Now, in terms of the Electricity (Supply) Act, 1948, the Legislature has put restrictions on establishment of power generating units and their functioning. The power generating units are allowed to use power for captive consumption and the surplus available, if any, is to be sold transferred to the State Electricity Boards. Section 43 of the Electricity (Supply) Act, 1948 only authorizes the State Electricity Board to enter into arrangements for

ITA No. 893/Del/2014 14 Jindal Steel & Power Ltd. purchase and sale of electricity under certain conditions. Section 43A of the Electricity (Supply) Act, 1948 also lays down rules and conditions for determining the tariff for the sale of electricity by a generating company to the State Electricity Boards. A perusal of the same reveals that the tariff is determined on the basis of various parameters contained therein. From the aforesaid, it is evident that on one hand it is only upon granting of specific consent that a private person can set up a power generating unit having restrictions on the use of power generated and at the same time the tariff at which a power generating unit can supply power to the Electricity Board is also liable to be determined in accordance with the statutory requirements. In this context it can be safely deduced that determination of tariff between the assessee and the Board can be said to be an exercise between a buyer and seller neither in a competitive environment and nor in the ordinary course of trade and business. It is an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the buying tariff in terms of preset statutory guidelines. Therefore, the price determined in such a scenario cannot be equated with a situation where the price is determined in the normal course of trade and competition. Therefore, the price determined as per the Power Purchase Agreement cannot be equated with market value as understood in common parlance. We see no reason for not holding so for the purposes of Section 80- IA(8) also. 17. In this background, we may make a gainful reference to the decision of the Hon'ble Calcutta High Court in the case of CAIT Vs Manmatha Nath Mukherjee, which has been relied on by the assessee before us. The issue before the Hon'ble Calcutta High Court was in the context of the Bengal Agricultural Income Tax Act, 1944. Shorn of other details, the question considered by the Hon'ble High Court, relevant for the present, was whether the procurement rate of paddy offered by the State could be considered to be the market

ITA No. 893/Del/2014 15 Jindal Steel & Power Ltd. value of paddy. In this back ground, the following observations of the Hon'ble High Court are worthy of notice: A market connotes freedom of bargain. There may be a market, completely circumscribed as regards the rates by price control, but within the limit set by the relevant rule or order, the area of operation would still be a commercially free area. Even where a control price is fixed, it is generally the ceiling which is fixed and not an invariable price. Be that as it may, to say that when agents of the State seize paddy grown by subjects under the authority of some law or regulation and pay for it at some rate fixed by themselves and much below the rate in the open market, they create a regulated or any kind of market at all, is if I may be permitted to use the strong expression, a misuse of language. The Tribunal even speak of the persons whose paddy is seized as "operating" in the regulated market. How any person who is seized by the neck and compelled to deliver his paddy and then dismissed with a trivialsum as its price can be said to operate in the market is beyond my comprehension. From the aforesaid, an analogy that can be safely deduced is that the market value cannot be the result of a transaction which has been entered into between a buyer and a seller in a situation where one of the parties is carrying the compulsive mandate of the Legislature. The situation before us is such wherein the aforesaid analogy can be usefully applied. As we have seen earlier, the price at which the power is supplied by the assessee to the Board is determined entirely by the Board in terms of the statutory regulations. Such a price cannot be equated with the market value as understood for the purposes of Section 80-IA(8) of the Act. The stand of the revenue to the aforesaid effect cannot be approved. 18. Having held so, the natural corollary is to ascertain whether the price recorded by the assessee at Rs. 3.72 pet unit can be considered to

ITA No. 893/Del/2014 16 Jindal Steel & Power Ltd. be the market value for the purposes of Section 80- IA(8) of the Act. The answer, to our mind, is in the affirmative. This is for the reason that the assessee as an industrial consumer is also buying power from the Board and the Board supplies such power at the rate of Rs. 3.72 per unit to its consumers. This is the price at which the consumers are able to procure the power. We may consider hypothetical situation as well. Had the assessee not been saddled with restrictions of supplying surplus power to the State Electricity Board, it would have supplied power to the ultimate consumers at rates similar to those of the Board or such other competitive rates, meaning thereby that price received by the assessee would be in the vicinity of Rs. 3.72 per unit i.e. charged by the Board from its industrial consumers/users. Thus, under the given circumstances, it would be in the fitness of things to hold that the consideration recorded by the assessee's undertaking generating electric power for transfer of power for captive consumption at the rate of Rs. 3.72 per unit corresponds to the market value of power. Therefore, on this aspect, we uphold the stand of the assessee and set aside order of the Commissioner (Appeals) and direct the assessing officer to allow relief to the assessee under Section 80-IA as claimed. Assessee succeeds on this ground.” 26. It is also seen that against this decision, the Department preferred an appeal before the Hon’ble Punjab & Haryana High Court which was dismissed vide order dated 02.09.2008 in ITA No. 53 of 2008 copy of which is placed at page no. 159 of the paper book volume 1 filed by the assessee.

ITA No. 893/Del/2014 17 Jindal Steel & Power Ltd. “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 Ltd. v. Addl. CIT [2011] 9 taxmann.com 186 (Mum. - Trib.). Learned counsel for the assessee had placed on record a copy of the judgment of the Tribunal in case of Reliance Infrastructure limited. In such judgment an identical issue came 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

ITA No. 893/Del/2014 18 Jindal Steel & Power Ltd. case. We therefore dismiss ground No.4 of the revenue." 7. Counsel for the assessee pointed out that the judgment of the Tribunal in case of Reliance Infrastructure Ltd. (supra) was carried in appeal by the revenue before the High Court in Income Tax Appeal No.2180 of 2011, such 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.

ITA No. 893/Del/2014 19 Jindal Steel & Power Ltd. 9. Additionally, we also notice that similar issue came up for consideration before Chhattisgarh High Court in case of CIT v. Godawari Power & Ispat Ltd. [2014] 42 taxmann.com551/223 Taxman 234, in which the Court held and observed as under: "31. The market value of the power supplied to the Steel-Division should be computed considering the rate of power to a consumer in the open market and it should not be compared with the rate of power when it is sold to a supplier as this is not the rate for which a consumer or the Steel-Division could have purchased power in the open market. The rate of power to a supplier is not the market rate to a consumer in the open market. 32. In our opinion, the AO committed 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 value of power supplied to a consumer." 10. Gujarat High Court in case of Pr. CIT v. Gujarat Alkalies & Chemicals Ltd. [2017] 395 ITR 247/88 taxmann.com 722 also had occasion to examine such an issue. It referred to earlier order in case of Asstt. CIT v. Pragati Glass Works (P.) Ltd. [Tax Appeal No. 1646 of 2010, dated 30-1-2012] in which following observations were made:— "7. To our mind, Tribunal has committed no error. Assessing Officer and CIT (Appeals) while adopting Rs. 4.51 per unit as the value of electricity generated by eligible unit of assessee and supplied through its non eligible unit only worked out 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

ITA No. 893/Del/2014 20 Jindal Steel & Power Ltd. required to be ascertained is the market value of the goods transferred by the eligible business, when such transfer is by eligible business to another non eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not correspond to market value of such goods. Term "Market Value" is further explained in explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. To our mind sum of Rs. 4.51 per unit of electricity only represented cost of electricity generation to the assessee and not the market value thereof. It is not in dispute that the GEB charged Rs. 5 per unit for supplying electricity to other industries including non eligible unit of the assessee itself. Tribunal therefore, while adopting the said base figure and excluding excise duty therefrom to work out Rs. 4.90 as the market value of the electricity generated by the assessee, to our mind, committed no error. 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 CIT v. ITC Ltd. [2016] 236 Taxman 612/[2015] 64 taxmann.com 214 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.”

ITA No. 893/Del/2014 21 Jindal Steel & Power Ltd. 28. Hence, respectfully following the above decisions we set aside the orders of the lower authorities and vacate the reduction in allowance of deduction of Rs. 166,68,40,374/- under section 80IA of the Act and allow this ground of appeal of the assessee.

ITA No. 893/Del/2014 22 Jindal Steel & Power Ltd. assessee and observed that they are misplaced. The DRP observed that the decision of the Hon'ble Supreme Court in the case of M/s Goetze India Limited v/s C.I.T. reported in 284 ITR 324(SC), is the law of the land and the A.O.'s action being fundamentally based on the said decision of the Hon'ble Supreme Court, calls for no interference. The DRP also observed that assessee had ample opportunities to claim the deduction in the original return as well as in the revised return, but, the assessee, at no point of time, made any effort in the direction.

ITA No. 893/Del/2014 23 Jindal Steel & Power Ltd.

"After a careful consideration of the details the DRP are of the view that the Assessing Officer was fully justified in rejecting the claim of the assessee in the light of the judgement in the case of Goetze India Ltd., Vs. CIT (SC). Accordingly, the objection of the assessee is rejected." 33. The Assessing Officer for the reasons given above and the directions of the ld. D.R.P., disallowed the claim of deduction u/s 80IB amounting to Rs.77,81,08,987/-.

a. That the claim of deduction u/s 80-IB of the Act made by the assessee was not a fresh claim, but mere enhancement of its existing claim of deduction under the provision of the Act as 80-IB was claimed on other units. b. The Supreme Court, made it clear in the decision itself that Goetze India (supra) was restricted to the power of AO to entertain a claim for deduction otherwise than by a revised return and the same did not impinge on the power of the Tribunal u/s 254 of the Act to permit a new claim. c. The Hon’ble Jurisdictional High Court in the case of CIT v. Ramco International [2011] 332 ITR 306 (P&H), after discussing the decision of Goetze India (supra), upheld the Tribunal’s decision which had, interalia, upheld the decision of CIT(Appeals) allowing the Assessee to claim the benefit of Section 80-IB through Form 10CCB and other documents which were furnished before the AO during the course of assessment proceedings. The Hon’ble High Court, while

ITA No. 893/Del/2014 24 Jindal Steel & Power Ltd. considering the following substantial question, decided the issue (at para 5) in favor of the Assessee. d. The judgment of Goetze India (supra) was noted by the Mumbai Bench of the Tribunal in the case of Chicago Pneumatic India Ltd. v DCIT: 15 SOT 252. In that case, the assessee revised the claims for deduction u/s 80HH and 80-I of the Act during the course of assessment proceedings without filing a revised return. The Tribunal considered Circular no. 14(XL-35) of 1955 [Pg. 271 to 273 of PB-1], as well as the decision of the Supreme Court in the case of Goetze India (supra) and held as under: “the A.O. may grant reliefs/refunds suomotu or can do so on being pointed out by the assessee in the course of assessment proceedings for which assessee has not filed revised return, although, as per law, the assessee is required to file the revised return”. e. That from the facts of Goetze India (supra)it is inferred that it was a case of ‘fresh claim’ whereas the assessee case is of the ‘enhancement of its existing claim’. Hence, the decision of Goetze India (supra) is not applicable at all. 35. It is submitted that by way of revised computation of income filed along with letter dated 28.03.2012, the assessee merely enhanced its existing claim of deduction u/s 80IB of the Act by claiming deduction under that Section with respect to profits derived from Rail Universal Beam Mill unit as in the return 80IB deduction for Mini Blast Furnance Unit had already been claimed. Also, during the course of assessment proceedings, on identical facts, deduction for Ferro Chromo Unit was claimed under Section 80IB, which had not been claimed in the Return of Income and that it was allowed to the

ITA No. 893/Del/2014 25 Jindal Steel & Power Ltd. Assessee. These facts find mention in para 4.2 of the draft assessment order.

ITA No. 893/Del/2014 26 Jindal Steel & Power Ltd. � CIT vs Arvind Mills Ltd.: ITA No. 1407 of 2011 (Guj.) � CIT vs M/s. Pruthvi Brokers & Shareholders: ITA NO. 3908 OF 2010 (Bom.) � JCIT vs Hero Honda Finlease Ltd.: 115 TTJ 752 (Del. ITAT) (Third Member) 39. Furthermore, it was contended that a claim which is admissible in appellate proceedings should be allowed in assessment proceedings as well, in order to avoid a multiplicity of proceedings and avoid complexities. For this reliance was placed on the following decisions:-

� Chicago Pneumatic India Ltd. v DCIT: 15 SOT 252 (Mum. ITAT) � Kisan Discretionary Family Trust v ACIT: 113 TTJ 918 (Ahmedabad ITAT) � Oman International Bank SAOG vs ACIT: ITA No.1981/Mum/2001 (Mum. ITAT) 40. It was also argued that there is no bar/ prohibition on the power of an Appellate Authority to consider fresh claim made by the assessee for which reliance was placed on the following decisions :- � Franco-Indian Pharmaceuticals (P.) Ltd. v. Income-tax Officer [2010] 195 TAXMAN 30 (MUM.) (MAG) � Hon’ble Delhi ITAT in the case of JCIT vs Hero Honda Finlease Ltd.: 115 TTJ 752 (Del. ITAT) � CIT vs Jai Parabolic Springs Ltd.: 306 ITR 42 (Del. HC) � CIT vs Ramco International: 332 ITR 306 (P&H). � CIT vs Pruthvi Brokers and Shareholders (P) Ltd.: 208 Taxman 498 (Bom.) � CIT vs Arvind Mills LTD: ITA No. 1407 of 2011 (Guj.) � Aishwarya Rai vs DCIT: ITA No. 1159/Mum/04 � CIT v. Sam Global Securities Ltd. [2014] 360 ITR 682 (Delhi)

ITA No. 893/Del/2014 27 Jindal Steel & Power Ltd. 41. Reliance was placed on the Circular no. 14(XL-35) of 1955 issued by the Board of Revenue under the Income-tax Act, 1922 explaining the role to be played by the AO’s while conducting assessments. The said circular provided that the AO’s must not take advantage of ignorance of the assessee and in case, the assessee omits to claim any relief or refund, which he is entitled to, the AO should draw attention of the assessee towards such omitted claim/ relief/ refund.

ITA No. 893/Del/2014 28 Jindal Steel & Power Ltd. 44. Further, it was submitted that Department has not alleged the correctness of the revised computation of income made by Assessee.

ITA No. 893/Del/2014 29 Jindal Steel & Power Ltd. 48. After considering the rival submissions and perusing the materials on record we find that the assessee before the Assessing Officer had categorically submitted that in the relevant assessment year, the said unit earned profits of Rs.77,81,08,987/- which were eligible for deduction u/s 80IB of the Act. The said deduction was, inadvertently, not claimed by assessee in original/ revised return of income. In the ‘Notes to Account No. 7’ filed along with the return of income, the eligibility of deduction u/s 80IB was categorically mentioned. Accordingly, the deduction was claimed during assessment proceedings for relevant assessment year, vide letter dated 28.03.2012 along that with Form 10CCB certifying the said claim of deduction. From the assessment order it is seen that the AO allowed a similar deduction u/s 80IB with respect to Ferro Chrome Unit (SAF), which was mentioned in the notes to the account, and not claimed in the Return of Income, was allowed during the course of assessment and to that extent, the facts are identical. It is also seen from record that allowability of the claim on merits is not disputed by the AO and in fact deduction on this unit has been allowed in subsequent year also. However, the only reason why the AO did not allow the deduction is on account of a Supreme Court decision in the case of Goetze India Limited vs CIT (284 ITR 323) (SC). The Hon’ble Supreme Court, made it clear that the decision in Goetze India (supra) was restricted to the power of AO to entertain a claim for deduction otherwise than by a revised return and the same did not impinge on the power of the Tribunal u/s 254 of the Act to permit a new claim. In any case, this order has been subject matter of decision in various other cases, wherein interpreting this issue, it has been held

ITA No. 893/Del/2014 30 Jindal Steel & Power Ltd. in favour of the Assessee by observing that the power of the Tribunal in deciding appeals is very wide. Hon’ble Punjab and Haryana High Court in the case of CIT v. Ramco International [2011] 332 ITR 306 (P&H), after discussing the decision of Goetze India (supra), upheld the Tribunal’s decision which had, inter alia, upheld the decision of CIT(Appeals) allowing the Assessee to claim the benefit of Section 80-IB though Form 10CCB and other documents which were furnished before the AO during the course of assessment proceedings. The Hon’ble High Court, while considering the following substantial question, decided the issue in favour of the Assessee:

"1.Whether, on the facts and in the circumstances of the case and in law, the ITAT was right in law in allowing assessee's claim for deduction u/s 80-IB, which the assessee had neither claimed in the return of income nor through a revised return of income? 2. Whether on the facts and in the circumstances of the case, the decision of ITAT is not contrary to the law as spell out by the Hon'ble Supreme Court in Goetze (India) Limited v. CIT 284 ITR 323 (SC) and Additional Commissioner of Income-tax v. Gurjargravures (P.) Ltd. 111 ITR 1 (SC)?" ........................................ “5. In view of the finding that the assessee was not making any fresh claim and had duly furnished the documents and submitted Form for claim u/s 80-IB, there was no requirement for filing any revised return. The judgment relied upon was not applicable.” Reliance in this regard is further placed on the decision of the Mumbai Bench of the Tribunal in Oman International Bank SAOG vs ACIT: ITA No.1981/Mum/2001. On further appeal, the Tribunal

ITA No. 893/Del/2014 31 Jindal Steel & Power Ltd. upheld the claim of the assessee by holding as under: “We have heard both the parties on this issue. The impugned amount claimed by the assessee is not a deduction but it is an expenditure. It is not the case of the revenue that these expenditures are not allowable in the regular course of business of the assessee. The claim is supported by the audit report. Therefore, we are of the opinion, that Ld. CIT(A)has rightly granted relief to the assessee. The aforementioned decision of Hon’ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT (supra) is not applicable to the facts of this case. Therefore, we decline to interfere in the relief granted by the Ld. CIT(A). This ground of the revenue for both the years is dismissed.” Furthermore, reliance is also placed in the case of Franco-Indian Pharmaceuticals (P.) Ltd. v. Income- tax Officer [2010] 195 TAXMAN 30 (MUM.) (MAG) – Hon’ble ITAT after considering the decision in the case of Goetze India (supra) observed that “12. On a consideration of the arguments, we hold that the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. (supra) makes it clear that the powers of the Tribunal as laid down in the case of National Thermal Power Co. Ltd. (supra) are not affected by this decision. Thus, the Tribunal has the power to admit an additional ground or claim made by the assessee, when all the facts are on record. In this case, the facts have been brought on record before the AO by the assessee in the letter dated 24-7-2006 itself. Thus, as the facts are on record, we admit this claim of the assessee made before us by applying the ratio of the decision of the Hon’ble Supreme Court in the cases of National Thermal Power Co. Ltd. (supra) as well as case of Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688. 1 Thus, this alternative argument of the assessee is allowed.” Moreover, Hon’ble Delhi ITAT in the case of JCIT vs Hero Honda Finlease Ltd.: 115 TTJ 752 (Del. ITAT)

ITA No. 893/Del/2014 32 Jindal Steel & Power Ltd. (Third Member), after considering the decision in the case of Goetze India (supra) observed: “I have carefully considered the questions, the orders of the IT authorities and the rival contentions. The precise difference between the two learned Members is regarding the question whether the CIT(A) ought to have first decided the question of entertainability of the assessee's higher claim of depreciation by a letter and not by a revised return, before deciding the merits of the claim. In Goetze (India) Ltd. v. CIT [2006] 284 ITR 323/157 Taxman 1 (SC), the Supreme Court held that the assessee can make a claim for deduction, which has not been claimed in the return, only by filing a revised return within the time allowed. In the same decision, it was made clear that the power of the Tribunal to admit an additional ground under s. 254 is not affected by its decision. It was however clarified that the case was concerned with only the power of the assessing authority and not the appellate authority. Under s. 250(5), the CIT(A) has the power to allow the appellant to go into any ground of appeal not specified in the grounds of appeal if he satisfied that the omission of the ground from the form of appeal was not wilful and unreasonable. Dealing with such a power, the Bombay High Court in Prabhu Steel Industries (P) Ltd. (supra), held that where a claim for special deduction was made by the assessee not in his return but in the course of the assessment proceedings and the ITO failed to consider the same, it was open to the AAC to entertain the claim. In CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC), it was held by the Supreme Court that the powers of the CIT(A) sitting in appeal over an assessment were plenary and co-terminus with those of the AO and that he can do what the ITO can do and also direct him to do what he has failed to do. In the light of the law laid down in this judgment by the Supreme Court, it was open to the CIT(A) to consider the assessee's claim on merits by virtue of his co-extensive power over the assessment proceedings and also by virtue of s. 250(5). That apart, the judgment of the Supreme Court in Goetze (supra) is distinguishable on facts because in that case the claim was made for the first time in the

ITA No. 893/Del/2014 33 Jindal Steel & Power Ltd. letter filed by the assessee in the course of the assessment proceedings whereas in the present case the claim of depreciation on the trucks @ 20 per cent was already made in the return of income and it was merely enlarged to 40 per cent on the footing that the assessee was running the trucks on hire” Furthermore, as has been held by various Court and including a CBDT Board Circular (Circular no. 14(XL- 35) of 1955), the Assessing Officer is duty bound to apply relevant provisions of the Act in order to arrive at the true figure of the assessee’s taxable income. The Hon’ble Bombay High Court in the case of CIT v. Archana R. Dhanwatay 136 ITR 355[Pg. 297 to 300 of PB-1] upheld the order of the Tribunal wherein it was held by the Tribunal that it was the duty of the ITO to consider whether the assessee was entitled to deduction, even when it was not claimed by the assessee. Similar observation was made by the Hon’ble Delhi High Court in the case of CIT v. Bharat General Reinsurance Co. Ltd. [1971] 81 ITR 303 (DELHI)] and in CIT v. Sain Processing &Wvg. Mills (P.) Ltd]. Lastly, we also agree with the contention of the counsel for the Assessee, that Goetze India (supra) is distinguishable as that was a case of ‘fresh claim’ whereas the assessee’s case is of the ‘enhancement of its existing claim’. Hence, the decision of Goetze India (supra) is not applicable at all. For this proposition, we derive support from the decision of Hon’ble Delhi ITAT in the case of JCIT vs Hero Honda Finlease Ltd.: 115 TTJ 752 (Del. ITAT) (Third Member) (supra) and the decision of ITO vs. Efextra Esolutions Pvt. Ltd. [ITA No. 313/Del/2012]. In the present case, it is seen that in the original as well as revised returns of income filed by the assessee, the assessee has claimed deduction u/s 80- IB of the Act. In fact in notes to account no. 7, the Assessee has mentioned about the eligibility of deduction u/s 80IB in respect of Rail Universal Beam Mill. Similarly, in notes to account no. 6, the assessee had mentioned about eligibility of deduction u/s 80IB for Ferro Chrome Unit (SAF) which was not also

ITA No. 893/Del/2014 34 Jindal Steel & Power Ltd. claimed at the time of filing of return of income or revised return of income, however, deduction on the said unit (SAF) was claimed by the assessee during the course of assessment and the same has been allowed by the AO. It is pertinent to note here that there is no justification for the AO to treat the deduction claimed in respect of Ferro Chrome Unit (SAF) and Rail Universal Beam Unit, differently by allowing deduction claimed in respect of one unit and denying it in respect of another, when admittedly facts are identical. This can be seen from para 4.2 of the draft assessment order, which has been placed before us. Even otherwise, allowability of the claim is not doubted nor disputed by the Assessing Officer. Report of Chartered Accountant in Form No. 10CCB for this unit has also been placed on record, a copy of which is in the Paper book before us also. In this regard, we also wish to consider a recent Delhi High Court judgment wherein on identical facts Hon’ble High Court of Delhi in the case of Pr. Commissioner of Income Tax vs. Oracle(OFSS) BPO Services ITA 593/2018 – Judgment dated 17th January, 2019 while adjudicating the identical facts as involved in the facts of the present case Hon’ble High Court held that Amendment to 80A (5) of the Act does not bar the assessee from revising the computation for deduction made under the provision. The Court held that- “Did the Income Tax Appellate Tribunal (ITAT) fall into error in holding that the revised computation of deduction under Section 10A of the Income Tax Act, 1961 (“the Act‟) for short) was permissible having regard to Section 10A (5) and Section 80A(5) of the Act?” 11. The contention of the revenue is that the revised computation should not have been accepted, for which reliance is placed on the judgment of the Supreme Court in Goetze (India) Ltd. Vs. Commissioner of Income Tax (2006) 284 ITR 323 (SC). It was also submitted that the first Appellate Authority and the Tribunal have failed to take notice of the amendment to Section 80A (5) vide Finance

ITA No. 893/Del/2014 35 Jindal Steel & Power Ltd. Act, 2009 w.e.f. 1st April, 2003. In support, reference was made to the judgment of this court in Nath Brothers Exim International Ltd. Vs. Union of India &Ors., (2017) 394 ITR 577 (Del.). 20. In the facts of the present case, we do not think Sub-section 5 to Section 80A would be attracted and should be applied……….. 21. Sub-section 5 to Section 80A states that if assessee has failed to make its claim on return under 10AA or 10B or any other provisions of Chapter VIA, no deduction shall be allowed to him thereunder. This bars and prohibits the assessee from claiming the deduction under Sections 10A and 10B and Chapter VIA if no such claim was made in the return of income. It is also mandatory that the return of income for claiming such deduction should be filed within the time stipulated under Section 139 (1) of the Act, as was held in the case of Nath Brothers Exim International (Supra). In the said case the assessee in the return for the assessment year 2007- 08 had not claimed any exemption under Section 10B of the Act. This deduction was claimed for the first time in the revised return. On being denied this claim, constitutional vires of Sub-section 5 to Section 80A, as inserted by Finance Act, 2009 and 4th proviso of Section 10B (1) of the Act, were challenged. The challenge was rejected by the Division Bench of this Court holding that the amendment made cannot be faulted and quashed on the ground that it was discriminatory, arbitrary, unreasonable and violative of Article 14, observing that it was within the legislative domain to prescribe the limitation period and also stipulate that the assessee to claim deduction must file returns during the limitation period, so as to enable the Department to take up these cases for scrutiny assessment. Plea of arbitrariness was rejected. The decision and ratio is distinguishable as the respondent-assessee had claimed deduction under Section 10A of the Act in the return of income filed within the limitation period. It was, therefore, not a new claim. Question of revision of deduction was not the issue and question raised

ITA No. 893/Del/2014 36 Jindal Steel & Power Ltd. and answered in Nath Brothers Exim International (supra). 22. Our attention was, however, drawn to the observations of the Division Bench that the objective behind the amendment was to defeat multiple claims of deduction and ensure better compliance. Certainly, the amended provisions ensure better compliance of the statutory provisions. Reference to the expression “multiple claims of deduction” would be with reference to the stipulation that deduction should be claimed under a particular provision and it cannot be shifted and treated as deduction claimed under the other provision. Language of Sub-section 5 to Section 80A does not state that the deduction once claimed under a particular section cannot be corrected and modified before the Assessing Officer. Indeed, the Assessing Officer can examine the claim for deduction and can make adjustment/ disallowance. We would not read in the amended provision, a stipulation barring and restricting the assessee from revising the computation/ claim for deduction made in accordance with Section 80A (5) of the Act.“ Hence, taking into consideration all the relevant judgments as cited above by us and also considering the fact that the allowability of the claim on merits is not disputed by the Assessing Officer and more importantly, on identical facts, in case of another Unit, 80IB deduction was allowed by the Assessing Officer himself, during the course of assessment proceedings as mentioned in para 4.2 of the draft order, we see no reason to not allow this claim of the Assessee. Hence, the Assessing Officer is directed to allow the deduction u/s 80IB of the Act on this unit of Rail Universal Beam Mill.” 49. In view of the above discussions, we set aside the orders of the Lower Authorities. As AO has not examined the quantum of deduction allowable under section 80IB being profit derived from Rail Universal Beam Mill we direct the AO to allow deduction under section 80IB in respect of income derived

ITA No. 893/Del/2014 37 Jindal Steel & Power Ltd. from that unit after verification of the eligible amount as per law. Needless to mention that the AO before determining the eligible amount of deduction shall allow reasonable opportunity of hearing to the assessee. Thus, the ground no.3 of the appeal of the assessee is treated as allowed.

ITA No. 893/Del/2014 38 Jindal Steel & Power Ltd. appropriation of taxable profit by an amount of Rs.50,03,98,228/- towards sales-tax subsidy/capital Reserve and also of reduction at the time of computation of income at Rs.39,35,77,228/- and Rs.31,34,53,398/- in respect of so called Entry-tax and Electricity Duty subsidy in lieu of tax exemptions are disallowed. Thus, addition of Rs. 1,20,74,28,854/- (50,03,98,228/- + 39,35,77,228/- + 31,34,53,398/-) is made to the income for the purpose of arriving at assessed income.

ITA No. 893/Del/2014 39 Jindal Steel & Power Ltd. the above acts of claiming unallowable reduction/deduction, in respect of Sales Tax, Entry Tax and Electricity Duty, the assessee has made active attempt to evade tax.

ITA No. 893/Del/2014 40 Jindal Steel & Power Ltd. as capital receipts and accordingly, were not offered to tax in the return of income for relevant assessment year. It is the case of the Assessee that exemption on account of 1.3. sales tax, entry tax and electricity duty aggregating to Rs.120,74,28,854/-.in respect of industrial unit at Raigarh, Madhya Pradesh is a capital receipt not liable to tax and should, therefore, be directed to be excluded from the total income of the assessee for the assessment year under consideration. In this regard, Ld. AR placed reliance on a number of judgments, including few Supreme Court judgments also. The Assessee has also filed before us additional evidence in this regard in form of an application filed under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 running from Paperbook pg. 1024 to 1105, the contents of which are reproduced hereinbelow- The applicant / assessee craves leave for admission of the 1.4. following documents (placed in paper book – from pages 1024 to 1105) as additional evidences under Rule 29 of the Income-tax (Appellate Tribunal), 1963 in connection with the captioned appeals : S.No. Particulars Page No.: (PB) (PB) Re : Capital Subsidy 106. Copy of Notification dated 03.06.1993 issued 1024-1031 by Government of Madhya Pradesh for issuing scheme for Rs.1000 crores plus integrated steel plants 107. Copy of Notification No.A-3-24-94-ST-V 1032-1046 (108) dated 06.10.1994 issued by the Government of Madhya Pradesh pursuant to Industrial Policy and Action Plan, 1994 108. Copy of relevant extracts (Preface) of 1047-1050 Industrial Promotion Policy-2004 and Action Plan issued by Government of Madhya Pradesh showing that Industrial Policy, 1994 was applicable till 2003 109. Copy of Notification No.A-31295STV(96) 1051-1062 dated 07.11.1997 issued by the Government of Madhya Pradesh in respect of exemption of sales entry tax (not applicable on assessee)

ITA No. 893/Del/2014 41 Jindal Steel & Power Ltd. 110. Copy of correspondence made by assessee 1063-1080 to then Chief Minister of Madhya Pradesh / senior officials of Madhya Pradesh State Industrial Development Corporation during July 1998 to Nov. 1999 for formulation of special incentive package for the assesse 111. Copy of letters written by assessee to then 1081-1082 Chief Minister and Government official post issue of specific notifications dated 24.04.2000 granting exemption to the assessee 112. Copy of letter dated 17.05.2002 by assessee 1083-1084 to Secretary Energy, Chhatisgarh requesting for grant of exemption from electricity duty for 15 years as against 10 year granted vide notification dated 29.07.2000. 113. Notification issued by Government of 1085-1086 Chhatishgarh for granting duty exemption for a period of 15 years 114. Copy of Memorandum of Understanding 1087-1091 dated 21.05.2001 entered into between assessee and Government of Chhattisgarh whereby the incentives / benefits given by the Government of Madhya Pradesh have been approved / adopted by the Chhattishgarh Government. 115. Copy of letter dated 02.05.2002 issued by 1092 Department of Commerce and Industry, Government of Chattisgarh approving the incentive / subsidies granted vide notification dated 24.04.2000 issued by the earlier Government of Madhya Pradesh. 116. Copy of letter dated 11.11.2004 issued by 1093 Commercial Tax Department, Raigarh certifying investment of Rs.1027 crores by the assessee till the year 2003-04. 117. Copy of notice issued by the Commercial Tax 1094-1095 Department in March 2013 for F.Y.2008-09 requiring the assessee to show cause as to why the Central Sales Tax may not be recovered for non-fulfillment of conditions in Notification No. (40) dated 24.04.2000. 118. Copy of reply dated 07.05.2013 filed by the 1096-1098 assessee in response to aforesaid notice

ITA No. 893/Del/2014 42 Jindal Steel & Power Ltd. issued by Commercial Tax Department 119. Copy of order dated 25.09.2013 passed by 1099 the Commercial Tax Department dropping aforesaid proceedings. 120. Copy of notice issued by the Commercial Tax 1100-1101 Department in March 2013 for F.Y.2008-09 requiring the assessee to show cause as to why the Entry Tax may not be recovered for non-fulfillment of conditions in Notification No. (40) & (41) dated 24.04.2000 121. Copy of reply dated 07.05.2013 filed by the 1102-1103 assessee in response to aforesaid notice issued by the Commercial Tax Department 122. Copy of order dated 25.09.2013 passed by 1004 the Commercial Tax Department dropping aforesaid proceedings. 123. Copy of assessment order dated 16.04.2012 1105 passed by the Commercial Tax Department, Raigarh duly quantifying the sales exempt from central sales tax of Unit II made by the assessee for year ending 31.03.2009 55. We find from the records that this is a repetitive year issue and in all fairness, it may be pointed out that this issue of treatment of subsidy as capital or revenue receipt has been decided against the Appellant by the Hon’ble Delhi Bench of the Tribunal in appellant’s own case for assessment year 2004-05 in ITA No. 3319/ Del/ 2008 and also in the decision of the Assessee for AY 2008-09 wherein the aforementioned additional evidence has been admitted and thereafter this issue has been decided against the Assessee. Tribunal has held that:- “1.5 The Ld. AR also stated that the decisions of the Tribunal are only in the context of Unit II and are not at all in the context of Unit III, which was set up subsequently in the State of Chhattisgarh. Therefore, the Ld. AR submitted that the eligibility of the Appellant to claim exemption in respect of Unit III may kindly be considered independent of the decision of the Tribunal in the context of other units. However, it is seen that the general principle is the same as regards taxation and determination of subsidy as revenue receipt vis-à-vis capital receipt and thus, we are inclined to

ITA No. 893/Del/2014 43 Jindal Steel & Power Ltd. follow the order of ITAT as adjudicated in Assessee’s own case for earlier year.” 56. Facts being identical, respectfully following the precedent we confirm the order of the AO and dismiss the ground no. 4 of appeal of the assessee.

ITA No. 893/Del/2014 44 Jindal Steel & Power Ltd. 59. It was submitted that the DRP rejected the objections of the assessee by observing as under:-

"The DRP considered the facts of the case carefully. It was noticed that in the earlier assessment years, such amount clamed as deduction by the assessee was not allowed by the Assessing Officer, which was affirmed in appeal by the CIT(A). Against the order of the CIT(A), the assessee has preferred appeal before the ITAT, Delhi which is pending adjudication. Since, the issue stands decided in favour of the revenue, by the CIT(A), the objection of the assessee is rejected." 60. The Assessing Officer following the above directions of the DRP, held that no cognizance is taken in respect of the above sum of Rs.3,92,93,000/- written back by the assessee on account of Employee Stock Option Scheme. Even, if the assessee accepts the version of the Department in earlier years, this sum of Rs.3,92,93,000/- cannot be reduced from the assessed income because in those years the assessee is claiming deduction (without any out-going from the profit) over and above normal income and department is just rejecting such claim. Hence, there is no "addition" in those years.

ITA No. 893/Del/2014 45 Jindal Steel & Power Ltd. exercise such grant is with the employees on which the Assessee has no control. Since such liability towards employee compensation, on the grant of option, can be estimated with reasonable certainty, a liability towards the said compensation definitely arises on the grant of option.

ITA No. 893/Del/2014 46 Jindal Steel & Power Ltd. � Religare Commodities Ltd. v. ACIT and Ors. – ITA No. 2283/DEL/2013 64. It was further submitted that, without prejudice, the AO/DRP have erred on facts and in law in not allowing deduction in respect of written back amount in this year consistent with the finding in the earlier assessment years that deduction is not allowable in respect of deferment of employee compensation expenditure. That, while disallowing the deduction, the stand of the Revenue in earlier assessment years to not allow deduction on account of discount on ESOP, actually supports the claim of the assessee for allowing deduction in the present assessment year. In the relevant assessment order, AO ought to have allowed deduction of write back of the aforesaid amount of Rs.3,92,93,000/-, consistent with the finding in the earlier assessment years that deduction is not allowable in the year of grant of options.

ITA No. 893/Del/2014 47 Jindal Steel & Power Ltd. 9.2.6 There is no doubt that the amount of share premium is otherwise a capital receipt and hence not chargeable to tax in the hands of company. The Finance Act, 2012 has inserted clause (viib) of section 56(2) w.e.f. 1.4.2013 providing that: 'where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares', then such excess share premium shall be charged to tax under the head 'Income from other sources'. But for that, the amount of share premium has always been understood and accepted as a capital receipt. If a company issues shares to the public or the existing shareholders at less than the otherwise prevailing premium due to market sentiment or otherwise, such short receipt of premium would be a case of a receipt of a lower amount on capital account. It is so because the object of issuing such shares at a lower price is nowhere directly connected with the earning of income. It is in such like situation that the contention of the learned Departmental Representative would properly fit in, thereby debarring the company from claiming any deduction towards discounted premium. It is quite basic that the object of issuing shares can never be lost sight of. Having seen the rationale and modus operandi of the ESOP, it becomes out-and-out clear that when a company undertakes to issue shares to its employees at a discounted premium on a future date, the primary object of this exercise is not to raise share capital but to earn profit by securing the consistent and concentrated efforts of its dedicated employees during the vesting period. Such discount is construed, both by the employees and company, as nothing but a part of package of remuneration. In other words, such discounted premium on shares is a substitute to giving direct incentive in cash for availing the services of the employees. There is no difference in two situations viz., one, when the company issues shares to public at market price and a part of the premium is given

ITA No. 893/Del/2014 48 Jindal Steel & Power Ltd. to the employees in lieu of their services and two, when the shares are directly issued to employees at a reduced rate. In both the situations, the employees stand compensated for their effort. If under the first situation, the company, say, on receipt of premium amounting to Rs. 100 from issue of shares to public, gives Rs. 60 as incentive to its employees, such incentive of Rs. 60 would be remuneration to employees and hence deductible. In the same way, if the company, instead, issues shares to its employees at a premium of Rs. 40, the discounted premium of Rs. 60, being the difference between Rs. 100 and Rs. 40, is again nothing but a different mode of awarding remuneration to employees for their continued services. In both the cases, the object is to compensate employees to the tune of Rs. 60. It follows that the discount on premium under ESOP is simply one of the modes of compensating the employees for their services and is a part of their remuneration. Thus, the contention of the ld. DR that by issuing shares to employees at a discounted premium, the company got a lower capital receipt, is bereft of an force. The sole object of issuing shares to employees at a discounted premium is to compensate them for the continuity of their services to the company. By no stretch of imagination, we can describe such discount as either a short capital receipt or a capital expenditure. It is nothing but the employees cost incurred by the company. The substance of this transaction is disbursing compensation to the employees for their services, for which the form of issuing shares at a discounted premium is adopted. 9.2.7 Now we espouse the second part of the submission of the ld. DR in this regard. He canvassed a view that an expenditure denotes "paying out or away" and unless the money goes out from the assessee, there can be no expenditure so as to qualify for deduction u/s 37. Sub-section (1) of the section provides that any expenditure (not being expenditure in the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and

ITA No. 893/Del/2014 49 Jindal Steel & Power Ltd. exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". To put it differently, an expenditure must be laid out or expended wholly and exclusively for the purpose of business so as to be eligible for deduction u/s 37(1). There is absolutely no doubt that section 37(1) talks of granting deduction for an 'expenditure', and the Hon'ble Supreme Court in Indian Molasses Co. (P.) Ltd. (supra) has described 'expenditure' to mean what is 'paid out or away' and is something which has gone irretrievably. However, it is pertinent to note that this section does not restrict paying out of expenditure in cash alone. Section 43 contains the definition of certain terms relevant to income from profits of business or profession covering sections 28 to 41. Section 37 obviously falls under Chapter IV-D. Sub-section (2) of section 43 defines "paid" to mean: "actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head 'profits and gains of business or profession'." When we read the definition of the word "paid" u/s 43(2) in juxtaposition to section 37(1), the position which emerges is that it is not only paying of expenditure but also incurring of the expenditure which entails deduction u/s 37(1) subject to the fulfilment of other conditions. At this juncture, it is imperative to note that the word 'expenditure' has not been defined in the Act. However, sec. 2(h) of the Expenditure Act, 1957 defines 'expenditure' as : 'Any sum of money or money's worth spent or disbursed or for the spending or disbursing of which a liability has been incurred by an assessee……'. When section 43(2) of the Act is read in conjunction with section 37(1), the meaning of the term 'expenditure' turns out to be the same as is there in the aforequoted part of the definition under section 2(h) of the Expenditure Act, 1957, viz., not only 'paying out' but also 'incurring'. Coming back to our context, it is seen that by undertaking to issue shares at discounted premium, the company does not pay anything to its employees but incurs obligation of issuing shares at a discounted price on

ITA No. 893/Del/2014 50 Jindal Steel & Power Ltd. a future date in lieu of their services, which is nothing but an expenditure u/s 37(1) of the Act.” 66. It was submitted that following the, Mumbai Tribunal decision in DCIT vs. Kotak Mahindra Bank Ltd. – [2018] 89 taxmann.com 223(Mum), the 'Special Bench' of the Tribunal in the case of Biocon Ltd. v. Dy. CIT (LTU) [2013] 144 ITD 21/35 taxmann.com 335 (Bang.) after deliberating at length on the issue as to whether the assessee was entitled to claim the discount on ESOS as an expenditure under section 37(1), or not, had therein answered the said issue in affirmative and concluded that the same was allowable as an expenditure under section 37(1) in the hands of the assessee.

ITA No. 893/Del/2014 51 Jindal Steel & Power Ltd. to the assessee in the assessment of earlier years. In our considered view when an amount is not allowed as deduction when its provision was made in the year of provision then write back of the very same amount in the subsequent year cannot be included in the total income of the subsequent year. We therefore set aside the orders of the lower authorities on this issue and restore the matter back to the file of the AO for adjudication afresh in light of the above observation. The AO shall verify whether the amount written back this year was allowed as deduction or not in the year in which provision for the same was made by the assessee. Further, the assessee has submitted before us that the disallowance made in earlier years when provision was made is challenged in appeal and the appeal is pending before the appellate authority. We would like to clarify here that if after appeal the assessee is allowed deduction in the year of provision in the appeal then while giving effect to that order the AO shall bring the corresponding amount of write back in the year under consideration to tax .Thus, this ground no. 5 of the appeal of the assessee is treated as allowed.

ITA No. 893/Del/2014 52 Jindal Steel & Power Ltd. sections (2) and (3) of that section were not satisfied.” 70. The Assessing Officer observed that from the perusal of the Balance-Sheet of the assessee company for the period ending as on 31.03.2010, it was noticed that the assessee has shown other investments at Rs.1233 crore on which dividend income has been earned. Since, the dividend income is exempt u/s 10(33)/(34) of the Income-tax Act, 1961 and not includable in the total income, expenses corresponding to the said investment are not allowable u/s 14A of the Act. Assessee was, therefore, asked to show cause as to why the expenses attributable to the aforesaid investment should not be disallowed as per the provisions of Section 14A of the Act r.w.r. 8D of the Income-tax Rules, 1962.

ITA No. 893/Del/2014 53 Jindal Steel & Power Ltd. 73. The Assessing Officer observed that instead of giving specific details as to what was source of said money with respect to statement of bank account from where the said payment has been made and description of entries responsible for building up of the balance from which particular payment was made, the assessee gave general description.

ITA No. 893/Del/2014 54 Jindal Steel & Power Ltd. 76. The Assessing Officer also observed that the DRP rejected the objections of the assessee by observing that once the Assessing Officer is satisfied that some expenditures has been incurred in relation to earning off exempt income, he is empowered to compute disallowance u/s 14A of the Act r.w.r. 8D. Therefore, the AO made addition of Rs.21.54 crores u/s 14A of the Act which was computed by him under Rule 8D of the Income-tax Rules, 1962 which comprised of disallowance of interest of Rs.15.87 crores and addition of 0.5% of average value of investment of Rs.5.67 crores.

ITA No. 893/Del/2014 55 Jindal Steel & Power Ltd. 78. The Ld. Authorized Representative of the assessee further contended that even in the preceding assessment year 2008-09 in the order passed u/s 143(3), the AO accepted the suo moto disallowance of Rs. 1,37,568/-, which was made on similar basis and there is no change in the investment in this year. As regards purported interest expenditure, the Ld. AR contended that it is a settled legal position that in the event the Assessee has own funds, the same would be taken to have been used for making investment, and therefore, no disallowance on account of interest expenditure ought to be made, especially when the available funds exceed the quantum of investment yielding exempt income. It was submitted that as against the total investment of Rs. 1233.40 Crores, the Assessee had available funds of Rs. 4585.85 crores. The Hon’ble Bombay High Court in the case of CIT v. HDFC Bank Ltd. Reported in 366 ITR 505 (Bom) and Reliance Utilities Ltd vs. CIT reported in 313 ITR 340 (Bom) has held that there is presumption that the investments are made from self owned funds unless the contrary is proved. Moreover, on the peculiar facts of the present case, it will kindly be appreciated that the Assessee Company promoted Jindal Power Limited (JPL) to build 1000 MW Power Project in Raigarh District in the State of Chattisgarh considering the increasing requirement of power in the Assessee’s steel manufacturing activities. Thus the business of the assessee company and JPL is linked and assessee company acquired a definite business advantage or benefit from such investment and so the dividend yield on such investment is not the sole benefit earned from such investment, however, the same is on account of commercial expediency. Lastly and without prejudice to the above, the

ITA No. 893/Del/2014 56 Jindal Steel & Power Ltd. Assessee submits that the AO has erred in application of Rule 8D of the Rules, with regard to calculation of the average value of investment prescribed in the formulae. In this regard, the Assessee places reliance on the decision of the Hon’ble Delhi High Court in ACB India Ltd vs. ACIT [374 ITR 108 (Delhi)] and in the case of PCIT v. M/s Caraf Builders & Constructions Pvt. Ltd. [ITA No. 1260 of 2018]. Delhi ITAT Special Bench decision in the case of ACIT v. Vireet Investment Pvt. Ltd. [[2017] 165 IT 27 (SB)] has taken the same view.

“In the present case, however, the Assessing Oficer (‘AO’) without recording required satisfaction on “having regard to the accounts of the Assessee, as placed before him, it is not possible to be generate the requisite satisfaction with regard to the correctness of the claim of the Assessee”, had invoked and applied Rule 8D as a mandatory provision applicable in all cases of exempt income. Action of the AO was contrary to law, and therefore, there is no merit in the present appeal.”

ITA No. 893/Del/2014 57 Jindal Steel & Power Ltd. 80. This issue was discussed in detail in HT Media vs. CIT [399 ITR 576] wherein Delhi High Court held that- “30. Rule 8D(1) states more or less what Section 14 A (2) of the Act states. It requires the AO to first examine the accounts of the Assessee and then record that he is not satisfied with (a) the correctness of the Assessee's claim of expenditure or (b) the claim made by the assessee that no expenditure has been incurred. Unless this stage is crossed i.e. the stage of the AO recording that he is not satisfied with the clam of the Assessee in the manner indicated i.e. after examining the Assessee's accounts, the question of applying the formula under Rule 8D (2) does not arise. That this is a mandatory pre-requisite for applying Rule 8D (2) is fairly well-settled.” 81. The same has also been held by Hon’ble Apex Court in the case of Godrej and Boyce Manufacturing Co vs. CIT [394 ITR 449] and same view has also been taken by Punjab and Haryana High Court. Applying this Delhi Bench of the Tribunal in the case of Associated Law Advisers vs. ITO - [2017] 87 taxmann.com 148 (Delhi - Trib.) has held that-

“16. We have heard the rival submissions and also perused the relevant find given in the impugned order. The assessee before the Assessing Officer had categorically submitted that the looking to the nature of expenditure debited in the profit & loss account as well as pointed from other details like bank statements and balance sheet that no expenditure whatsoever has been incurred for earning of income by way of dividends which very paltry sum. It was further submitted that the income in respect of units of mutual funds and gross amount of income has been offered for taxation. After such a claim, under the provisions of sub section (2) & (3) of section 14, it was incumbent upon the Assessing Officer having regard to the accounts of the assessee and the nature of expenses debited, to examine the correctness of the claim that whether any expenditure in relation to the exempt income has

ITA No. 893/Del/2014 58 Jindal Steel & Power Ltd. been incurred or not. If the Assessing Officer fails to satisfy himself in this regard, then ostensibly he cannot proceed to apply rule 8D. The law does not envisages that wherever there is an exempt income, expenditure has to be disallowed. It is required to be seen, whether expenditure has been incurred by the assessee in relation to the earning of exempt income or not and this can be examined having regard to the accounts of the assessee and the nature of expenditure debited. Here in this case, the Assessing Officer has failed to satisfy himself about the correctness of the assessee's claim and, therefore, in view of the principle laid down by the Hon'ble Delhi High Court in the case of H.T. Media Ltd. v. Pr. CIT [2017] 85 taxmann.com 113 (Delhi), the Assessing Officer cannot proceed to make disallowance under section 14A. The Hon'ble Jurisdictional High Court has once again reiterated that it is mandatory and incumbent upon the Assessing Officer to record such satisfaction and in the absence of such 'satisfaction' no disallowance can be made under section 14A. The Hon'ble High Court concluded that; firstly, where there was a failure by Assessing Officer to comply with mandatory requirement of section 14A(2) read with rule 8D(1)(a) to record his satisfaction as required thereunder, then question of applying rule 8D(2)(iii) does not arise; and secondly, where Assessing Officer had failed to establish any direct nexus between investments made by assessee and interest expenditure incurred, then it not correct to remand the matter concerning deletion of disallowance of interest under clause (ii) of rule 8D(2) to Assessing Officer for fresh determination. Accordingly, on the facts of the present case disallowance of Rs. 71,122/- made by the Assessing Officer is directed to be deleted. Accordingly, the appeal of the assessee is allowed.” 82. On the other hand, the ld. Departmental Representative relied on the orders of the lower authorities.

ITA No. 893/Del/2014 59 Jindal Steel & Power Ltd. 83. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case the assessee company earned dividend income of Rs.90.14 crores which is exempt income and includible in the total income. Against the said income the assessee Suo-moto disallowed expenses to the tune of Rs.2,65,715/- in the return of income under section 14A of the Act. The AO in the impugned order worked out the amount disallowable under section 14A read with rule 8D at Rs.21.54 crores. We find that the condition precedent for invoking provisions of rule 8D is that the AO must record a satisfaction that the amount of disallowance claimed in the return of income is not correct. Without recording such a satisfaction the AO cannot invoke provisions of Rule 8D. Above view finds support from the decision of the Hon’ble Jurisdictional High Court in the case of COMMISSIONER OF INCOME TAX-I vs. ABHISHEK INDUSTRIES LTD. Reported in 360 ITR 652 and COMMISSIONER OF INCOME-TAX vs. KAPSONS ASSOCIATES reported in 381 ITR 204. In the instant case on perusal of the impugned order of assessment we notice that no such satisfaction was arrived at by the AO. In the circumstances disallowance under section 14A of the Act of Rs.21.54 crores in place of Rs.2,65,715/- claimed by the assessee in the Return Income is bad in law and unsustainable. We therefore delete the same and direct the AO to restrict the disallowance under section 14A of the act to Rs.2,65,715/-. Thus, this ground no. 6 of the appeal of the assessee is allowed.

ITA No. 893/Del/2014 60 Jindal Steel & Power Ltd. 84. Ground No. 7 of the appeal of the assessee reads as under: “7. That the assessing officer/ DRP erred on facts and in law in disallowing an amount of Rs.42 lacs on account of depreciation on alleged non-functional units. 7.1 That the assessing officer/ DRP erred in law in not appreciating that the assets of rion-functional units were used by the appellant during the relevant assessment year. 7.2 That the DRP erred on facts and in law in alleging that the appellant failed to establish that the non-functional units were ready to use. 7.3 That the assessing officer/ DRP erred in law in disallowing the aforesaid claim of depreciation without appreciating that the said claim had consistently been allowed by the Revenue in assessment orders passed for preceding assessment years. 7.4 Without prejudice, the assessing officer erred on facts in disallowing Rs.42 lacs in respect of depreciation on non-functional. units, without appreciating that the said amount represents depreciation under the Companies Act, 1956, which was suo Motu disallowed by the appellant in the return of income, and disallowance, if any, could have been made for depreciation claimed under the provisions of the Act.” 85. The Assessing Officer observed that during the year, the assessee has claimed depreciation on non-functional units A, B & C. The assessee was required to explain as to why depreciation on non-functional Units should not be disallowed. The assessee submitted that Part-A consist of 2 DG Sets of capacity 3.5 MW/hour. These are stand by DG sets maintained by the assessee for generation of electricity in case need

ITA No. 893/Del/2014 61 Jindal Steel & Power Ltd. arises. During the assessment year 2009-10, the assessee has claimed only depreciation of Rs.0.42 crore. It has been held in various judgments that the user of the asset should be understood in wide sense so as to embrace passive as well as active user. An asset can be said to be in use when it is kept ready for use. If a machinery is kept ready for use at any moment in a particular factory, under an express agreement, from which taxable profits are earned, the machinery can be said to be “used” for the purpose of business which earns profits, although in fact it has not worked during the year.

ITA No. 893/Del/2014 62 Jindal Steel & Power Ltd. use as the same was in the nature of standby asset to avoid disruptions in business operation. In absence of the same, the Assessing Officer was not misdirected in disallowing depreciation.

� CIT vs. Viswanath Bhaskar Sathe (1937) 5 ITR 621 (Bom) � CIT vs. Dalmia Cement Ltd. (1945) 13 ITR 415 (Pat) � Machinery Manufacturers Corporation Ltd. v. CIT: 31 ITR 203 (Bom.) � Whittle Anderson Ltd. vs. CIT (1971) 79 ITR 613 (Bom) � Capital Bus Service P. Ltd. vs. CIT, (1980) 123 ITR 404 (Del) � CIT vs. Vayithri Plantations Ltd. (1981) 128 ITR 675 (Mad) � CIT vs. G.N. Agrawal (Individual): 217 ITR 250 (Bom.) � CIT vs. India Tea & Timber Trading Co. 221 ITR 857(Gau) � CIT vs. Geo Tech Construction Corpn: 244 ITR 452 (Ker.) � CIT vs. Refrigeration and Allied Industries Ltd. (2001) 247 ITR 12 (Del) � CIT V. Swarup Vegetable Products India Limited: 277 ITR 60 (All.) � ReflexionsNarayani Impex (P) Ltd. v. ITO: 2013 (3) TMI 434

ITA No. 893/Del/2014 63 Jindal Steel & Power Ltd. � CIT vs. OswalWoollen Mills Limited: 206 CTR 141 (P&H) � CIT vs. Norplex Oak India : 198 Taxman 470 (Cal) � CIT vs. Premier Industries (India) Ltd.: 323 ITR 672 (MP) � CIT vs. Panacea Biotech Ltd.: 324 ITR 311 (Del.) � CIT vs. Yamaha Motor India Pvt. Ltd. (2010) 328 ITR 297 (Del) � ACIT v. Chennai Petroleum Corporation Ltd.: 126 TTJ 865 (Chennai) (ITAT) 91. It was further submitted by AR that assets of Part A of non-functional units were kept as standby assets for the purpose of smooth functioning of business of the Assessee. It is, however, to be noted that the units of the Assessee were kept ready for use since the same were meant to be used in case of an exigency. The units were meant to be operational to avoid any disruption arising in case of any failure, which itself corroborates that the units were ready to use or else the whole purpose of meeting an emergency stands defeated. The AO has also stated that when they visited the premises during the course of survey, they did not find it. The Ld. AR explained this and said that the survey was conducted in 2013 and it was then that the premises were visited by the Department. However, at present we are referring to FY 2008-09. Furthermore, this DG set was sold in AY 2010-11 and relevant documents for this were already filed during the course of assessment proceedings for AY 2010-11 and hence these documents were already in record of the AO. Furthermore, this issue has been adjudicated in a number of cases whereby it has been held that depreciation is allowable even on account of passive use/ready to use assets. The jurisdictional High Court in the case of CIT vs. Nahar Exports Ltd. 163 Taxman 518 (P&H) reiterated that even where the machinery is kept ready

ITA No. 893/Del/2014 64 Jindal Steel & Power Ltd. for use, depreciation is admissible under Section 32 of the Act. Hon’ble High Court in the case of CIT v. Pepsu Road Transport Corpn: 253 ITR 303 held that depreciation claimed by a transport undertaking on spare engines kept in store for use in the case of need, could not be disallowed on the ground that the same were not used by assessee. Hence, following these two direct jurisdictional High Court decisions, depreciation should be allowed to the Assessee.”

ITA No. 893/Del/2014 65 Jindal Steel & Power Ltd. “8. That the assessing officer/ DRP erred on facts and in law in disallowing a sum of Rs.54,03,885 incurred by the appellant towards employee welfare expenses under section 40A(9) of the Act. 8.1 That the assessing officer/ DRP erred on facts and in law in holding that the aforesaid expenses were in no way linked to business expediency and were disallowable under section 40A(9) of the Act. 8.2 That the assessing officer/ DRP failed to appreciate that the provisions of section 40A(9) of the Act were not applicable to the aforesaid expenditure incurred by the appellant.” 95. The Assessing Officer observed that while computing the income in the original return, the assessee has itself disallowed Rs.54,03,885/- u/s 40A(9) of the Income-tax Act, 1961. However in the revised return the expenses have been claimed as deduction. The assessee was required to show cause addition of Rs. 54,03,885/- should not be made. The assessee filed written reply as under:-

"As regarding your query relating to sum paid by the assessee as employer of Rs.5403885/- towards employee welfare scheme, it is submit that during the previous year the employer has contributed Rs.54,03,885/- towards welfare of employee i.e. towards providing financial assistance to the needy employee/his family in case of death/permanent total disablement of an employee; Medical treatment to self & dependents; retirement on attaining the age of superannuation etc. Further amount of Rs. 15,50,361/- actually utilized on welfare activities is attached as per Annexure-3 alongwith the detail of expenses. Therefore, there would not be any disallowance under section 40A(9) of the Income-tax Act, 1961. 87. After considering the submissions of the assessee the AO observed that it is found to be not

ITA No. 893/Del/2014 66 Jindal Steel & Power Ltd. tenable. The Auditor in his Tax Audit Report in Form No.3CD in column 17(g) has made the following observations:- "Any sum paid by the assessee as an employer not allowable under section 40A(9) - Annexure-j (reproduced below) :- Employer's contribution made to employees Welfare Scheme:- Raigarh 4072542.71 Delhi 260708.50 Raipur 245732.73 Tensa 115574.70 Tamnar 66613.00 B argil 32546.00 Angul 317297.73 Total: 5403885.37 96. The Assessing Officer there after observed that Assessee did not submit any further details or supporting evidence. Whatever is on record shows that the payments have nothing to do with the business exigencies, like the assessee has debited Rs.75,000/- with the following narration:- S.No. Na me of the e mpl oyee De signat ion Cla im f or Am ount disease 1 S.S.M La kra Officer Self 75,00 0/- Artifici al inse mina tio n 97. The Assessing Officer observed that there cannot be any connection between the 'Artificial insemination' and the business of the assessee company. The statutory Auditor has already applied his mind and segregated expenses of Rs.54,03,885/- (out of total of such expenses of Rs. 1,55,50,361/-) as-disallowable u/s 40A(9) of the Income-tax Act, 1961 as these are not basically related to business exigencies. In fact, the assessee has furnished minimal details before the Assessing Officer. It is understood that sufficient

ITA No. 893/Del/2014 67 Jindal Steel & Power Ltd. details were available before the statutory auditor and statutory Auditor has reached logical conclusion after applying his mind as well as provisions of law. Therefore, the Assessing Officer inclined to go with the opinion of the statutory Auditor and a sum of Rs. 54,03,885/- was proposed to be disallowed u/s 40A(9) of the Income-tax Act, 1961.

ITA No. 893/Del/2014 68 Jindal Steel & Power Ltd. “9. That the assessing officer/ DRP erred on facts and in law in disallowing lease rent amounting to Rs.1,83,93,480 holding the same to be capital expenditure. 9.1 That the assessing officer/ DRP erred on facts and in law in holding that the aforesaid payment was towards cost of the capital asset and therefore, the same could not he allowed as revenue expenditure. 9.2 That the assessing officer/ DRP failed to appreciate that similar lease rents had been allowed as deduction in earlier assessment years and therefore, there was no reason to deviate from the accepted position during the year under consideration. 9.3 Without prejudice, the assessing officer/ DRP erred on facts and in law in not allowing depreciation on the total cost/ value of the assets taken on lease, consistent with the finding that the capital assets were acquired by the appellant on finance lease.” 102. The Assessing Officer observed that during the previous year 2004-05, the company has taken an aircraft on lease from GE capital services India, the lease payment excluding finance charges have not been debited to Profit & Loss Account as per the provisions of AS-19 issued by the ICAI. The finance charges debited to the Profit & Loss Account have been initially added to the income for the purpose of computation of tax and deduction of lease rental including the financial charges in the cumulative sum of Rs. 1,16,91034/- has been claimed as an expenses as per the provisions of the Act.

ITA No. 893/Del/2014 69 Jindal Steel & Power Ltd. the Agreement termed as End of Lease purchase option, the lessee has been given right to purchase the Aircraft but subject to conditions specified. As per Annexure-E of the Rental Agreement, final rental schedule has been drawn for 84 months giving the breakup of monthly rental split into interest and principal.

ITA No. 893/Del/2014 70 Jindal Steel & Power Ltd. 108. The Assessing Officer further observed that since, the department is treating this transaction as purchase, the depreciation on the same could be allowed provided assessee accepts the departmental stand and makes a claim of depreciation. The same would be allowed u/s 154, promptly.

ITA No. 893/Del/2014 71 Jindal Steel & Power Ltd. therefore direct the AO to allow depreciation as per law in respect of cost of Asset. Thus this ground of appeal of the assessee is treated as partly allowed.

Sr. No. Particulars Amount Date Hiring of Helicopter -Badaun-Delhi 223976/- 26.08.2008 1 2 4,10,606/- 17 to 19.03.2009 Paid to Sanjeev Toward Flight Exp Bills 113. The assessee was required to prove the genuineness of journey and complete details of clients with whom the meeting was held and the transactions entered into. The assessee furnished written reply, which is as under:-

“Hiring charges of Helicopter from Dehradun-Delhi- Rs. 240833/-Please find attached the bill as

ITA No. 893/Del/2014 72 Jindal Steel & Power Ltd. Annexure-5. Please note that these expenses have been incurred towards hire charges for visit to customers site in U.P. Various payments to Sanjeev Totaling Rs.3,90,906/- in various dates between 16 March, to 19th March, 2009 - Please note that Mr. Sanjeev is a cashier and these payments have been made to Mr. Sanjeev for reimbursement of various petty cash expenses incurred by the pilots during flights like statutory payment of duties, hotel bills, fooding bills, charges paid to Air India, Medical Kit etc. Please find attached the sample copies of bills as Annexure-ii." 114. The Assessing Officer observed that the reply of the assessee has been considered carefully and is found to be not tenable. The assessee could not furnish complete details of clients and transactions entered into. In an absence of such details expenses cannot be said to be incurred for business purpose. As regard the payment made to Sanjeev expenses have been incurred towards the end of the year and all the payments are below Rs. 20,000/- within a period of five days. The bills of the expenses have been raised in the month of March. It is beyond comprehension how such expense would occur only in the Month of March, 2009. Hence, the sum of Rs. 6,34,582/- was proposed to be disallowed as the assessee has been unable to prove the business utility of the above expenditure.

ITA No. 893/Del/2014 73 Jindal Steel & Power Ltd. 116. Therefore, the Assessing Officer disallowed Rs.6,34,582/- and added to the income of the assessee.

ITA No. 893/Del/2014 74 Jindal Steel & Power Ltd. and copy of sample invoices in respect of reimbursements made by Sanjeev which is placed at Page No. 603-606 and 607-610 of Paper book Vol. 2. When the evidences, invoices and vouchers have been duly submitted, there was no reason to disallow this expenditure specially considering the fact that the Assessee has been able to support this claim with enough material on record and the Assessing Officer had only made an ad hoc disallowance. Thus, the Assessing Officer be directed to delete this addition.

ITA No. 893/Del/2014 75 Jindal Steel & Power Ltd. company itself in the AY 2001-02 has held that travelling expenses incurred to meet customers and prospective customers is allowable as business deduction. In respect of expense of Rs.4,10,606/- it was explained that the expenditure was incurred in connection with the above journey and all are supported by bills and vouchers. These are incidental expenses like airport duty and taxes and hotel charges for stay of pilot etc. The Ld. DR could not controvert the submission of the assessee. Thus, we find that the expenses were incurred by the company out of commercial expediency. We therefore delete the disallowance of Rs.6,34,582/-. Thus, this ground of appeal is allowed.

ITA No. 893/Del/2014 76 Jindal Steel & Power Ltd. 11.4 That the DRP erred in alleging that the appellant failed to file necessary details to establish that the aforesaid expenses were incurred for business purposes.” 122. The Assessing Officer observed that from the perusal of the Profit & Loss Account filed alongwith the return, it was noticed that the assessee claimed foreign travelling expenses of Rs. 8,87,25,778/-. From the examination of the said details, it was noticed that the assessee has debited of Rs.38,48,859/- on account of Plane hire on 22.07.2008. On being required to explain as to how the expenses were incidental to business, the assessee's counsel replied that that plane hire charges of Rs. 38,48,859/- were incurred by the assessee for exploring raw material from Mines at overseas location at Bolivia.

17.07.2008 Air ticket bill of Sh. Rana & Family Rs. 970958/- 19.11.2008 Foreign expense, Singapore Rs.353464/- Rs.992549/- 23.07.2008 Sh. Naveen Jindal 124. These are only some of the instances. The assessee could not furnish the copies of the Tickets and bill issued by the travelling agent on the ground that the same are not traceable. Accordingly, the assessee was specifically asked vide letter dated 22.02.2012 to furnish the following details Name of the persons and their family members, duration, purposes of journey and whether ITDS deducted on the plane hire expenses, names of the client to whom met, copies of bills, tickets, boarding and lodging expenses, business deals/transactions.

ITA No. 893/Del/2014 77 Jindal Steel & Power Ltd. 125. The assessee furnished written reply as under: "Please note that plane hire charges of Rs. 38,48,859/- were incurred by the assessee for exploring raw material from Mines at overseas location at Bolivia. Kindly note that the foreign travelling expenses were incurred on travel of Mr. Naveen Jindal, EVC & MD, in most of the cases are with, senior management team of the company, for the business purpose of the assessee like exploring sources for continuous supply of raw material like coal, iron ore; exploration of new customers at various locations; meeting with various supplier; attending international business /economic summits etc.” 126. The Assessing Officer observed that the assessee has not furnished any supporting evidence as to what was the outcome of the visit; the details of clients whom contacted and the transactions conducted on account of the above journey. The expenses on account of travel of family members can not at all be said to be incurred for business purpose. The assessee has admittedly failed to prove the genuineness of his claim; as the assessee is not having any bill or supporting vouchers in respect of the expenses claimed. The expenses incurred for exploration of raw materials at Bolivia cannot be said to be incurred for existing business and are at best related to new business set up or expansion of business.

ITA No. 893/Del/2014 78 Jindal Steel & Power Ltd. 37(1) of the Act. The Hon'ble Apex Court has held in the case of Vijay Laxmi sugar Mills Ltd. Vs CIT (1991) 191 ITR 641 that where there is no nexus between the business and expenditure, the expenditure is not allowable. In this regard, he drew support from the judgement of the Hon'ble Supreme Court, delivered in the case of Aluminum Corporation of India Ltd. Vs CIT 86 ITR 11, wherein, it was held that for allowing any expenditure there must be commercial expediency. In view of the above discussion, it is clear that - firstly these are personal expenses, which remain to be verifiable in the absence of any bills and vouchers and secondly the tour expenses are not in any way incidental to business of the assessee and hence these are not at all allowable.

ITA No. 893/Del/2014 79 Jindal Steel & Power Ltd. 131. The Authorized Representative of the assessee submitted that the Assessee had incurred travelling expenses of Rs.8,87,25,778/- which were claimed as business expenditure under section 37(1) of the Act, out of which a sum of Rs. 61,65,830/- has been disallowed by the AO, on the ground of genuineness as well as lack of commercial expediency, despite the fact that the Assessee submitted details/ information/ documents/ evidences as required by the AO in support of travelling expenses, which included relevant accounts, internal travel approval forms, and sample invoices of travel undertaken by the officials of the Assessee for business purposes.

ITA No. 893/Del/2014 80 Jindal Steel & Power Ltd. locations, meeting with various suppliers, attending international business / economic summits, etc.

� Setabganj Sugar Mills Ltd. Vs. CIT: 41 ITR 272 (SC)

ITA No. 893/Del/2014 81 Jindal Steel & Power Ltd. � CIT Vs. Prithvi Insurance Co. Ltd. : 63 ITR 632 (SC) � L.M.Chhabda & Sons Vs. CIT: 65 ITR 639 (SC) � Produce Exchange Corporation Ltd. Vs. CIT: 77 ITR 739 (SC) � B .R.Ltd. Vs. V.P.Gupta CIT Bombay: 113 ITR 647 (SC) � Veecumsees Vs. CIT 220 ITR 185 (SC) � DCIT, Baroda Vs. Gujarat Alkialier & Chemicals Pvt. Ltd.: 299 ITR 85 (SC) � DCIT Vs. Core health Care Ltd. : 298 ITR 194 (SC) � CIT Vs. Modi Industries Ltd. (No. 3): 200 ITR 341(Delhi) � CIT Vs. Triveni Engineering and Industries Limited. : 181Taxman 5 (Delhi) � CIT Vs. Relaxo Footwears Ltd. : 293 ITR 231 (Delhi) � CIT Vs. Usha Iron & Ferro Metal Corp. Ltd. : 296 ITR 140 (Delhi) � CIT Vs. Rane (Madras) Ltd. : 293 ITR 459 (Delhi) � Indo rama Synthetics (I) Ltd.Vs. CIT: 228 CTR 278 (Delhi) � Jay Engineering works ltd. Vs. CIT: 311 ITR 405 (Delhi) � CIT Vs. Monnet Industries Ltd. : 221 CTR 266 (Delhi) � CIT Vs. havells India Limited: 352 ITR 376 (Delhi) 137. It is thus settled position that expenditure incurred for the purpose of expansion/extension of the existing business is allowable revenue expenditure.

ITA No. 893/Del/2014 82 Jindal Steel & Power Ltd. 139. Even assuming that such expenditure was incurred for expansion of the existing business, since the said activity was undertaken under the control and supervision of the existing management and out of the existing available funds of the assessee, the expenses incurred were still allowable as deduction. Reliance was placed on following decisions:

� Indorama Synthetics Ltd. : 333 ITR 18 (Delhi) � CIT Vs. Vardhman Spinning & General Mills : 176 Taxman 157 (P&H) 140. It was therefore submitted that the expenditure incurred was allowable as business deduction.

� CIT v. Dalmia Cement (P.) Ltd: 254 ITR 377 (Del.) � CIT V. Bharti Televentures Ltd: 331 ITR 502 (Del.) � D & H Secheron Electrodes Pvt. Ltd. vs. CIT: 149 ITR 400 (MP). 142. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. We find that the AO has disallowed Rs 61,65,830/- out of Foreign travel expenses mainly on the ground that the purpose of the related travel was not furnished and therefore the commercial expediency of the said expenditure was not established. On the other hand the assessee has filed copies of

ITA No. 893/Del/2014 83 Jindal Steel & Power Ltd. invoices and details of expenses at page nos. 611 to 670 of volume 2 of the paper book and contended that these documents were filed before the AO to show business connection of the expenditure in question. However, the AO has not considered the same. The Ld. DR could not controvert the above submission of the assessee. In the circumstances in our considered opinion it shall be in the interest of the justice to restore this issue back to the file of the AO for adjudication afresh after taking into consideration the said documents by passing a speaking order. Needless to mention that the AO shall allow reasonable opportunity of hearing to the assessee before adjudicating the issue afresh. Therefore, the ground no. 11 of the appeal is allowed for statistical purposes

Sr. No. Particulars Amount Date 1 Gift for Press Reporter 87400/- 23.04.2008 Diwali Gift Purchase for VIP 551800/- 24.10.2008 2 3 Diwali Gift Purchase for VIP 1050600/- 24.10.2008 4 Diwali Gift Purchase for VIP 329606/- 24.10.2008

ITA No. 893/Del/2014 84 Jindal Steel & Power Ltd. Purchase from Anoop Chand 5 Jewelers 999025/- 12.11.2008 Mishri Lai la Chand 446732/- 12.11.2008 6 7 Anoop Chand Trilok Chand 954188/- 30.11.2008 Expenses on Diwali for Pardeep 8 office 234599/- 31.12.2008 9 Gift for office guest 365620/- 31.03.2009 100000/- Shooting equipment vidya Devi 10 28.08.2008 Jindal School, Hisar Platinum support Ent Odissa 500000/- 15.10.2008 11 1204026/ 12 Beli Ram Tara chand 03.11.2008 - 13 Faquir Chand & Sons 748800/- 03.11.2008 166373/- 21.02.2009 Civil work of shooting Range at 14 Sonipat 145. The assessee was required to furnish specific details of the beneficiaries and to prove the genuineness and business exigencies of the above expenditure. In response to this, the assessee furnished written reply which as under:- "Diwali gifts of Rs. 5,51,800/- & Rs. 10,50,600/- - Please note that these expenses have been incurred on Diwali Gifts which are given to bankers, Customers etc. on the occasion of Diwali. Please find attached the details of the payments made as Annexure-2." Civil work- of Shooting Range - Rs, 166373/- - Please find attached the bill as Anneuxre-3. These expenses have been incurred for providing sport facilities to employees and various other stake holder in the company etc." Expenses of Authentic creation - Rs. 29,92,100/-, Beli Ram Tara Chand- Rs. 12,04,026/-, Gifts for guests, Diwali gifts for VIP's, Fire work done, Diwali gifts from anop Chand Jewellers, Diwali gifts from Mishri Lai Chand, Diwali gifts (sweets & Watch) - Please note that these are all Diwali gifts which are given to Bankers, customers, suppliers, employees and various other stake holders in the company etc. on the occasion of Diwali."

ITA No. 893/Del/2014 85 Jindal Steel & Power Ltd. Gifts for Press reporters - Various press conferences need to be held and these are customary gifts given to all news agencies which attend press conference." 146. The Assessing Officer observed that reply of the assessee has been considered carefully and is not tenable. The assessee could not furnish the necessary details like complete narration of these expenses, details of beneficiaries. The assessee could not furnish the name and addresses of the person to whom the gifts were distributed. The assessee's factory premises are located at Raipur and Raigarh. The Registered Office of the assessee is situated at Hisar and Delhi. The shooting range is being set up at Sonepat. So-the business utility of setting up shooting range at Sonepat is not established. The assessee could not prove the genuineness of these expenses. The assessee also could not prove that the same are incurred wholly and exclusively for business purposes. Hence, a sum of Rs. 77,33,850/- was proposed to be disallowed out of Promotion Expenses in the draft order.

ITA No. 893/Del/2014 86 Jindal Steel & Power Ltd. of business promotion expenses. In the Assessment Order, the AO has proceeded to doubt the genuineness and business expediency of the said expenditures and thus an amount of Rs. 77,33,850/- has been disallowed.

ITA No. 893/Del/2014 87 Jindal Steel & Power Ltd. 152. On the other hand, the ld. Departmental Representative relied on the orders of the lower authorities.

ITA No. 893/Del/2014 88 Jindal Steel & Power Ltd. 154. Ground No. 13 of the appeal of the assessee reads as under: “13. That the assessing officer erred on facts and in law in making an adjustment of Rs.21,06,39,195 to the arm's length price of the 'international transactions' of interest received from loan advanced to associated enterprise, on the basis of the order passed under section 92CA(3) of the Income-tax Act, 1961 ("the Act"), by the TPO. 13.1 That the assessing officer/ TPO erred on facts and in law in computing the arms length rate of interest charged on the international transaction of loan extended to\ the AE's, viz., Jindal Steel & Power (Mauritius) Ltd. and Jindal Minerals & Metals Africa Ltd., at the rate of 16% p.a. as against 8% p.a. charged by the appellant based on conjectures and surmises and by incorrect determination of arm's length price under the Transfer Pricing regulations. 13.2 That the assessing officer / TPO erred on facts and in law in appropriately determining the arm's length rate of interest in respect of international transaction of loan extended to the AE applying CUP method by comparing the aforesaid Prime Lending Rate (PLR) of SBI for the previous year 2008-09 at 12.75%with a mark-up of 325 base point as the benchmark for determining the arm's length rate of interest in respect of international transaction extended in foreign currency. 13.3 That the assessing officer / TPO erred on facts and in law in not appreciating that 'considering the comparable uncontrolled benchmark, placed on record by the appellant, the international transaction of loan extended to the AE was established to be at arm's length interest rate. 13.4 That the assessing officer/ TPO erred on facts and in law in not appreciating that the interest charged by the appellant at 8% p.a. is higher than the interest charged by banks on external commercial borrowings from the appellant in a range of I.63%-

ITA No. 893/Del/2014 89 Jindal Steel & Power Ltd. 3.72% and the transaction of receipt of interest is to be considered being at arm’s length rate. 13.5 That the assessing officer/TPO erred on facts and in law in disregarding the fact that the loan was advanced by the appellant to its associated enterprise in foreign denominated currency and accordingly, loan available in the international market with interest rate computed considering Libor rates shall he applied for benchmarking. 13.6 That the assessing officer/TPO erred on facts and in law in considering the average Prime Lending Rate of SBI as the arms length rate of interest without appreciating that such rate is applicable on loans availed in India in domestic currency. 13.7 That the assessing officer/TPO erred on facts and in law in not appreciating that the credit of the appellant is `AA+' and since the associated enterprise is a wholly, owned subsidiary of appellant, the same credit rating shall apply to its associated enterprise also. 13.8 That the assessing officer / TPO erred on facts and in law in not appreciating that the interest rate of 8%, charged by the appellant in respect of foreign currency loan to the AE, was higher than the un-rated bond issued in Singapore Dollar by Tata Communication (Netherlands) BV at 4.25%. 13.9 That the assessing officer/TPO erred on facts and in law in not appreciating that even considering the yield on bonds issued by unrelated Indian companies in Indian currency having an yield of 2.917%-6.877%, no adjustment is warranted on this account. 13.10 That the assessing officer/TPO erred on facts and in law in not appreciating that the loan advanced by the appellant is for expanding its business in new horizons and having regard to the economic substance of the transaction, the said transaction shall be considered in the nature of quasi equity and accordingly shall not he benchmarked applying rates

ITA No. 893/Del/2014 90 Jindal Steel & Power Ltd. applicable on commercial loan loans provided by banks. 13.11 Without prejudice, the assessing officer/TPO erred on facts and in law in further adding a markup of 325 bps in the PLR rate of SBI, on account of adjustment for security and single customer risk, without appreciating that the appellant itself is the holding company of its associated enterprise and accordingly posses the charge of all assets of its associated enterprise. 13.12 That the DRP erred on facts and in law in summarily upholding the Transfer Pricing adjustment made by the TPO in the order passed under section 92eA(3) of the Act in respect of international transaction of loan advanced to the associated enterprise of Rs.21,06,39,195 without recording reasoned finding.” 155. The Assessing Officer observed that during the preceding years, JSPL has granted loan amounting to Rs.4,14,07,06,500 to Jindal Steel & Power (Mauritius)Ltd. and Rs.46,71,31,785 to Jindal Minerals & Metals Africa Limited. JSPL has granted these loans for business purposes and it is charging interest @8% annually. Accordingly, in the relevant financial year, JSPL received interest amounting to Rs.18,16,45,581/- and Rs. 2,89,94,354/- on loan granted to Jindal Steel & Power (Mauritius) Limited and Jindal Mineral Metal Africa Limited respectively.

ITA No. 893/Del/2014 91 Jindal Steel & Power Ltd. 157. The TPO calculated arm’s length price of the interest @ 16% per annum as under: Name of the Rate of Arm’s Amount of Arm’s Length Shortfall Loan amt. AE interest Length rate interest amt. of being charged of interest charged interest adjustment u/s 92CA 4140706500 16% 181645581 363291162 181645581 Jindal Steel & 8% Power (Mauritius) Ltd. 8% 16% 28994334 57988668 28994334 Jindal Minerals 462131785 & Metals Africa Ltd.

ITA No. 893/Del/2014 92 Jindal Steel & Power Ltd. 160. The DRP therefore held that the TPO is right in making the above adjustment. The TPO has given elaborate and sufficient reasons to make this addition. The use of CUP as the most appropriate method in the facts and circumstances of the case is also justified.

ITA No. 893/Del/2014 93 Jindal Steel & Power Ltd. international transaction of receipt of interest by JSPL at 8% was higher than compared to comparable uncontrolled prices for similar uncontrolled transactions, the ‘international transaction’ of interest received was considered to be at arm’s length applying Comparable Uncontrolled Price method.

ITA No. 893/Del/2014 94 Jindal Steel & Power Ltd. comparable data for benchmarking analysis in preference over the external benchmark. The Benches of the Tribunal consistently held that the Rule itself provides that while undertaking a benchmarking analysis, internal comparable uncontrolled transactions is to be preferred over the external comparable uncontrolled transactions.

ITA No. 893/Del/2014 95 Jindal Steel & Power Ltd. 168. In the present case, the Appellant has appropriately justified the said international transaction of receipt of interest on the aforesaid loan of USD 8,12,70,000 advanced to Jindal Steel &Power (Mauritius) Limited and USD 90,70,300 to Jindal Minerals & Metals Africa Limited by way of interest paid on ECBs taken from various banks at the rate of interest ranging from 1.63% to 3.72% p.a.

ITA No. 893/Del/2014 96 Jindal Steel & Power Ltd. (LIBOR).In the instant case loan is given in USD and there is no dispute on the same.

ITA No. 893/Del/2014 97 Jindal Steel & Power Ltd. 176. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the assessee granted loan of USD 8,12,70,000 to Jindal Steel & Power (Mauritius) Ltd. And of USD 90,70,300 to Jindal Minerals & Metals Africa Ltd. Who are the Associated Enterprises of the assessee during the year under consideration. On these loans, the assessee charged interest @ 8% per annum and received Rs.18,16,45,581/- from M/s Jindal Steel & Power (Mauritius) Ltd. And Rs.2,89,94,334/- from Jindal Minerals & Metals Africa Ltd. The assessee benchmarked this transaction of loan by applying CUP methods. According to the assessee, as per Rule 10B(1)(a) of Income Tax Rules, CUP method compares the price charged for property or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction. As per the revised OECD transfer pricing guidelines issued on 22.07.2010 internal comparable data for benchmarking analysis should be preferred over external benchmark. The issue was decided by the Hon’ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P.) Ltd. Vs CIT reported in 374 ITR 118 (Del.) that internal comparable was more dependable and reliable and should be used where data for the same is available. Further, the Hon’ble High Court in the case of CIT Vs Cotton Naturals I. P. Ld. Reported in 276 CTR 445 (Del.) held that PLR rate was not applicable and LIBOR rate was to be applied when the loan was in foreign currency. Hence, the TPO/AO was not justified in applying PLR rate of State Bank of India in determining the ALP of foreign currency loan given by the assessee to its two Associated Enterprises. Further, the

ITA No. 893/Del/2014 98 Jindal Steel & Power Ltd. Chennai Bench of Tribunal in the case of Siva Industries and Holdings Ltd. Vs ACIT in ITA No. 2148/MDS./2018 held that once the transaction between the appellant and the Associated Enterprises was in foreign currency and was an international transaction than it should be looked upon by applying commercial principle in regard to international transaction. It was argued that since the assessee has charged higher interest rate of 8% than the LIBOR rate, therefore, the transaction of the assessee was at Arm’s Length.

ITA No. 893/Del/2014 99 Jindal Steel & Power Ltd. to adjudicate the issue completely. Hence, we have no other alternative but to remand the matter back to the file of the AO to adjudicate the issue afresh after examination in line with the discussions made hereinabove. Thus, the ground of appeal is allowed for statistical purposes.

ITA No. 893/Del/2014 100 Jindal Steel & Power Ltd. proposed on this account shall be restricted to 0.125% p.a. applying CUP method. 14.5 Without prejudice, the assessing officer/TPO erred on facts and in law in charging a markup of 200 bps on the average rate of commission charged by various banks on account of adjustment for lending business risk and single customer1 risk without providing cogent reasons and on the basis of conjecture and surmises. 14.6 That the DRP erred on facts and in law in summarily upholding the Transfer Pricing adjustment made by the TPO in the order passed under section 92CA(3) of the Act in respect of corporate guarantee issued to the lenders on behalf of the associated enterprise of Rs. 2,16,00,060 without recording reasoned finding.” 180. The Assessing Officer observed that the assessee company has given a Bank Guarantee worth Rs.18 Million $ on behalf of the AE Jindal Steel. The above transaction is an independent class of international transaction and the same is included in definition of international transaction as per amendment made u/s 92B of the Act. Hence, it was proposed to charge arm’s length price of providing the services by the assessee in the shape of Bank Guarantee by considering the rates prevalent in independent transaction. Hence, in order to determine arm’s length price in relation to international transactions the case was referred to Transfer Pricing Officer after obtaining the prior approval of CIT, Hisar.

ITA No. 893/Del/2014 101 Jindal Steel & Power Ltd. (Rs. In Cr.) charged by (%) (Rs.) Banks (%) 1 USD Million 45.86 2.71 ( refer 4.71 2,16,00,06 dated Annex.1) 0 15.12.2007

ITA No. 893/Del/2014 102 Jindal Steel & Power Ltd. obligation which is only being executed via Jindal Steel, Bolivia.

ITA No. 893/Del/2014 103 Jindal Steel & Power Ltd. incurred in connection with benefit, service provided by one or more of such enterprises admittedly does not exist in the present case.

ITA No. 893/Del/2014 104 Jindal Steel & Power Ltd. Manugraph I.T.A. Mumbai 431 – 486 of the 9. India Ltd. Vs. No.2631/Mum/2015 ITAT TP CLC (relevant DCIT pg. 444) 190. In view of the aforesaid, it is submitted that the transaction of issue of corporate guarantee is not required to be benchmarked under section 92(1) of the Income Tax Act and hence, notional income proposed to be imputed is liable to be dropped.

ITA No. 893/Del/2014 105 Jindal Steel & Power Ltd. empower the Revenue authorities to bring to tax any notional / hypothetical income.

ITA No. 893/Del/2014 106 Jindal Steel & Power Ltd. 197. It submitted that provision of guarantee is to be regarded as a shareholder activity which is enjoyed by the AEs just being a part of the group. Hence, the question of determining an arm’s length price does not arise. As a business practice, guarantees to subsidiaries formed especially for purposes of acquisition or holding investments are typically provided by the parent company as part of the shareholder activity.

ITA No. 893/Del/2014 107 Jindal Steel & Power Ltd. 200. The Hon’ble Ahmadabad Bench of the Tribunal in the case of Micro Ink Ltd vs Addl. CIT (ITA No 2873/Ahd/10) while relying on the OCED guidelines held that activity which is solely undertaken because of the ownership interest in the subsidiary would not justify a charge from the subsidiary.

ITA No. 893/Del/2014 108 Jindal Steel & Power Ltd. maximization of gains for the recipient entity and thus the MNE group as a whole.

ITA No. 893/Del/2014 109 Jindal Steel & Power Ltd. market reputation of the Appellant, a markup on account of risk adjustment is unwarranted and liable to be reduced from the arms length rate of interest so determined.

ITA No. 893/Del/2014 110 Jindal Steel & Power Ltd. of Siro Clinpharma Pvt. Ltd., v. DCIT (order dated 31st March, 2016). The bench observed that transfer pricing is a legislation seeking the tax-payers to organize their affairs in a manner compliant with the norms set- out. In short, it is an anti abuse legislation which tells you as to what is the acceptable behaviour but it does not trigger levy of tax in a retrospective manner because no party can be asked to do an impossibility. Analyzing further the Bench observed that though Explanation to Section 92B is stated to be c1arificatory, it has to be necessarily treated as effective from the A.Y. 2013- 2014 and in this regard, relied upon the observations of the Hon'ble Delhi High Court in the case of Skies Satellite. We have also analyzed the case law relied upon by the Ld. D.R. and also the provisions of the Act. In our considered opinion, the view taken by the Delhi Bench of ITAT in the case of Bharati Airtel Ltd. (supra) is one of the possible views on the matter and so long as there is no binding decision of any other Higher Forum taking a contrary view, the one which is favourable to the assessee has to be adopted even though other Benches have taken a different view. We, therefore, hold that the Explanation to Section 92B cannot be applied retrospectively and for the years under consideration the assessee having not incurred any costs in providing corporate guarantee it would not constitute "International Transaction" within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect." 210. Similar finding was given in the case of Rusabh Diamonds vs. ACIT ([2016] 68 taxmann.com 141 (Mumbai - Trib.)) wherein it was held as follows:-

“38. Well, if the 2012 amendment does not add anything or expand the scope of international transaction defined under section 92B, assuming that it indeed does not- as learned Departmental Representative contends, this provision has already been judicially interpreted, and the matter rests there unless it is reversed by a higher

ITA No. 893/Del/2014 111 Jindal Steel & Power Ltd. judicial forum. However, if the 2012 amendment does increase the scope of international transaction under section 92B, as is our considered view, there is no way it could be implemented for the period prior to this law coming on the statute i.e. 28th May 2012. The law is well settled. It does not expect anyone to perform an impossibility. Reiterating this settled legal position, Hon'ble Supreme Court has, in the case of Krishnaswamy S. Pd. v. Union of India [2006] 281 ITR 305/151 Taxman 286, observed as follows: "The other relevant maxim is, lex non cogit ad impossibilia—the law does not compel a man to do what he cannot possibly perform. The law itself and its administration is understood to disclaim as it does in its general aphorisms, all intention of compelling impossibilities, and the administration of law must adopt that general exception in the consideration of particular cases. [See : U.P.S.R.T.C. v. Imtiaz Hussain 2006 (1) SCC 380, Shaikh Salim Haji Abdul Khayumsab v. Kumar & Ors. 2006 (1) SCC 46, Mohammod Gazi v. State of M.P. & Ors. 2000 (4) SCC 342 and Gursharan Singh v. New Delhi Municipal Committee 1996 (2) SCC 459]." 39. It is for this reason that the Explanation to Section 92B, though stated to be clarificatory and stated to be effective from 1st April 2002, has to be necessarily treated as effective from at best the assessment year 2013-14. In addition to this reason, in the light of Hon'ble Delhi High Court's guidance in the case of New Skies Satellite BV (supra) also, the amendment in the definition of international transaction under Section 92B, to the extent it pertains to the issuance of corporate guarantee being outside the scope of 'international transaction', cannot be said to be retrospective in effect. The fact that it is stated to be retrospective, in the light of the aforesaid guidance of Hon'ble Delhi High Court, would not alter the situation, and it can only be treated as prospective in effect i.e. with effect from 1st April 2012 onwards.”

ITA No. 893/Del/2014 112 Jindal Steel & Power Ltd. 211. A similar view has been taken by Jaipur ITAT in the case of KGK Enterprises vs. ACIT ([2017] 88 taxmann.com 264 (Jaipur - Trib.) wherein the Court held that- “50. We find that the Coordinate Bench in Rushabh Diamonds (supra) has examined at length the effect of the amendment brought in by the Finance Act 2012, considered the decision of the Hon'ble Delhi High Court in case of New Skies Satellite BV and has held that explanation to Section 92B which increases the scope of international transaction, has to be necessarily treated as effective prospectively from the assessment year 2013-14 though stated to be clarifcatory and stated to be effective from 1st April 2002. We have also gone through other Coordinate Bench decisions in case of Gitanjali Exports Corporation (supra) and Siro Clinpharm Private limited (supra) where similar view has been taken. The decision of Hon'ble Bombay High Court in case of Patni Computer Systems Ltd. has been rightly analysed by the Coordinate Bench in Rushabh Diamonds (supra) and it was held that "rather than answering this question on merits, and with the consent of both the parties, Their Lordships sent the matter back for fresh consideration of the Tribunal" and to this extent, the decision of the Coordinate Bench in case of Ameriprise India Pvt Ltd which has equally relied on the said decision of the Bombay High Court is distinguishable. In light of the same, following the decision of the Coordinate Bench in Rushabh Diamonds and in absence of any contrary higher authority on the subject, we agree with the contention raised by the ld. AR that such amendment by way of an explanation to section 92B is an amendment to a substantive law as it has resulted in enhancement of the scope of international transactions as envisaged u/s 92B of the Act. Accordingly, the subject transaction if at all, it has to be considered as an international transaction in light of decision in case of Kusum Healthcare (supra), which it is not, in the facts of the present case, as we have held above, it has to be considered as an international transaction from AY 2013-14 onwards and for the years under consideration being AY 2007-

ITA No. 893/Del/2014 113 Jindal Steel & Power Ltd. 08, 2008-09 and 2009-10, the same will thus not qualify as an international transaction.” 212. On the other hand, the ld. Departmental Representative relied on the order of the authorities below.

“29. It was argued that the ITAT, Delhi Bench in the case of Bharati Airtel Ltd. (supra) has considered an identical issue which was re-affirmed in the case of Siro Clinpharma Pvt. Ltd., v. DCIT (order dated 31st March, 2016). The bench observed that transfer pricing is a legislation seeking the tax-payers to organize their affairs in a manner compliant with the norms set- out. In short, it is an anti abuse legislation which tells you as to what is the acceptable behaviour but it does not trigger levy of tax in a retrospective manner because no party can be asked to do an impossibility. Analyzing further the Bench observed that though Explanation to Section 92B is stated to be c1arificatory, it has to be necessarily treated as effective from the A.Y. 2013- 2014 and in this regard, relied upon the observations of the Hon'ble Delhi High Court in the case of Skies Satellite. We have also analyzed the case law relied upon by the Ld. D.R. and also the provisions of the Act. In our considered opinion, the view taken by the Delhi Bench of ITAT in the case of Bharati Airtel Ltd. (supra) is one of the possible views on the matter and so long as there is no binding decision of any other Higher Forum taking a contrary view, the one which is favourable to the assessee has to be adopted even though other Benches have taken a different view. We, therefore, hold that the Explanation to Section 92B cannot be applied retrospectively and for the years under consideration the assessee having not

ITA No. 893/Del/2014 114 Jindal Steel & Power Ltd. incurred any costs in providing corporate guarantee it would not constitute "International Transaction" within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect." 214. Further, the Mumbai Bench of the Tribunal in the case of Rusabh Diamonds vs. ACIT ([2016] 68 taxmann.com 141 has held as follows:- “38. Well, if the 2012 amendment does not add anything or expand the scope of international transaction defined under section 92B, assuming that it indeed does not- as learned Departmental Representative contends, this provision has already been judicially interpreted, and the matter rests there unless it is reversed by a higher judicial forum. However, if the 2012 amendment does increase the scope of international transaction under section 92B, as is our considered view, there is no way it could be implemented for the period prior to this law coming on the statute i.e. 28th May 2012. The law is well settled. It does not expect anyone to perform an impossibility. Reiterating this settled legal position, Hon'ble Supreme Court has, in the case of Krishnaswamy S. Pd. v. Union of India [2006] 281 ITR 305/151 Taxman 286, observed as follows: "The other relevant maxim is, lex non cogit ad impossibilia—the law does not compel a man to do what he cannot possibly perform. The law itself and its administration is understood to disclaim as it does in its general aphorisms, all intention of compelling impossibilities, and the administration of law must adopt that general exception in the consideration of particular cases. [See : U.P.S.R.T.C. v. Imtiaz Hussain 2006 (1) SCC 380, Shaikh Salim Haji Abdul Khayumsab v. Kumar & Ors. 2006 (1) SCC 46, Mohammod Gazi v. State of M.P. & Ors. 2000 (4) SCC 342 and Gursharan Singh v. New Delhi Municipal Committee 1996 (2) SCC 459]." 39. It is for this reason that the Explanation to Section 92B, though stated to be clarificatory and

ITA No. 893/Del/2014 115 Jindal Steel & Power Ltd. stated to be effective from 1st April 2002, has to be necessarily treated as effective from at best the assessment year 2013-14. In addition to this reason, in the light of Hon'ble Delhi High Court's guidance in the case of New Skies Satellite BV (supra) also, the amendment in the definition of international transaction under Section 92B, to the extent it pertains to the issuance of corporate guarantee being outside the scope of 'international transaction', cannot be said to be retrospective in effect. The fact that it is stated to be retrospective, in the light of the aforesaid guidance of Hon'ble Delhi High Court, would not alter the situation, and it can only be treated as prospective in effect i.e. with effect from 1st April 2012 onwards.” 215. A similar view has been taken by Jaipur ITAT in the case of KGK Enterprises vs. ACIT ([2017] 88 taxmann.com 264 (Jaipur - Trib.) wherein the Court held that- “50. We find that the Coordinate Bench in Rushabh Diamonds (supra) has examined at length the effect of the amendment brought in by the Finance Act 2012, considered the decision of the Hon'ble Delhi High Court in case of New Skies Satellite BV and has held that explanation to Section 92B which increases the scope of international transaction, has to be necessarily treated as effective prospectively from the assessment year 2013-14 though stated to be clarifcatory and stated to be effective from 1st April 2002. We have also gone through other Coordinate Bench decisions in case of Gitanjali Exports Corporation (supra) and Siro Clinpharm Private limited (supra) where similar view has been taken. The decision of Hon'ble Bombay High Court in case of Patni Computer Systems Ltd. has been rightly analysed by the Coordinate Bench in Rushabh Diamonds (supra) and it was held that "rather than answering this question on merits, and with the consent of both the parties, Their Lordships sent the matter back for fresh consideration of the Tribunal" and to this extent, the decision of the Coordinate Bench in case of Ameriprise India Pvt Ltd which has equally relied on the said decision of the Bombay

ITA No. 893/Del/2014 116 Jindal Steel & Power Ltd. High Court is distinguishable. In light of the same, following the decision of the Coordinate Bench in Rushabh Diamonds and in absence of any contrary higher authority on the subject, we agree with the contention raised by the ld. AR that such amendment by way of an explanation to section 92B is an amendment to a substantive law as it has resulted in enhancement of the scope of international transactions as envisaged u/s 92B of the Act. Accordingly, the subject transaction if at all, it has to be considered as an international transaction in light of decision in case of Kusum Healthcare (supra), which it is not, in the facts of the present case, as we have held above, it has to be considered as an international transaction from AY 2013-14 onwards and for the years under consideration being AY 2007- 08, 2008-09 and 2009-10, the same will thus not qualify as an international transaction.” 216. Still, further, the Jaipur Bench of the Tribunal in the case of KGK Enterprises vs. ACIT ([2017] 88 taxmann.com 264 has held as under:- “50. We find that the Coordinate Bench in Rushabh Diamonds (supra) has examined at length the effect of the amendment brought in by the Finance Act 2012, considered the decision of the Hon'ble Delhi High Court in case of New Skies Satellite BV and has held that explanation to Section 92B which increases the scope of international transaction, has to be necessarily treated as effective prospectively from the assessment year 2013-14 though stated to be clarifcatory and stated to be effective from 1st April 2002. We have also gone through other Coordinate Bench decisions in case of Gitanjali Exports Corporation (supra) and Siro Clinpharm Private limited (supra) where similar view has been taken. The decision of Hon'ble Bombay High Court in case of Patni Computer Systems Ltd. has been rightly analysed by the Coordinate Bench in Rushabh Diamonds (supra) and it was held that "rather than answering this question on merits, and with the consent of both the parties, Their Lordships sent the matter back for fresh consideration of the Tribunal"

ITA No. 893/Del/2014 117 Jindal Steel & Power Ltd. and to this extent, the decision of the Coordinate Bench in case of Ameriprise India Pvt Ltd which has equally relied on the said decision of the Bombay High Court is distinguishable. In light of the same, following the decision of the Coordinate Bench in Rushabh Diamonds and in absence of any contrary higher authority on the subject, we agree with the contention raised by the ld. AR that such amendment by way of an explanation to section 92B is an amendment to a substantive law as it has resulted in enhancement of the scope of international transactions as envisaged u/s 92B of the Act. Accordingly, the subject transaction if at all, it has to be considered as an international transaction in light of decision in case of Kusum Healthcare (supra), which it is not, in the facts of the present case, as we have held above, it has to be considered as an international transaction from AY 2013-14 onwards and for the years under consideration being AY 2007- 08, 2008-09 and 2009-10, the same will thus not qualify as an international transaction.” 217. Respectfully, following the decisions quoted above we hold has held that the amendment made to Section 92B by the Finance Act 2012 is prospective in operation and accordingly applicable in the Assessment Year 2013-14 and subsequent years, and not applicable in the impugned assessment year which is the Assessment Year 2009-10. We, therefore, hold that the issuance of corporate guarantee cannot be considered as an international transaction for the year under consideration. Therefore, the addition made of Rs.2,16,00,060/- is deleted. Thus, this ground of appeal of the assessee is allowed.

ITA No. 893/Del/2014 118 Jindal Steel & Power Ltd. “15. That the Assessing Officer/DRP erred on facts and in law in not allowing MAT credit under Section 115JAA of the Act. 219. We have heard the rival submission and perused the orders of the lower authorities and materials available on record. The Ld. AR of the assessee claimed that MAT Credit as eligible under section 115JAA of the Act has not been allowed to the assessee company. We therefore direct the AO to verify the claim of the assessee as per record and allow credit under section 115JAA of the Act as allowable as per law.

ITA No. 893/Del/2014 119 Jindal Steel & Power Ltd. excluded from book profits under section 115JB of the Income Tax Act, 1961.” 223. The Authorized Representative argued that in the light of the law laid down by Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383, there cannot indeed be any objection to an Assessee raising a new legal plea at this stage. This is a pure legal issue and all facts for adjudication of this ground are already on record. Furthermore, the Assessee submitted that this has been allowed by the Assessing Officer himself in AY 2014-15 and AY 2015-16 and the issue on merits stands covered by various Tribunal and High Court judgments.

ITA No. 893/Del/2014 120 Jindal Steel & Power Ltd. 227. In the result, the appeal of the assessee is partly allowed. (Order Pronounced in the Court on 29th day of April, 2019 at New Delhi)

Sd/- Sd/- (Bhavnesh Saini) (N. S. Saini) Judicial Member Accountant Member Dated: 29/04/2019 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR