ADANI ENTERPRISES LTD.,,AHMEDABAD vs. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1),, AHMEDABAD

आयकर अपीलीय अिधकरण, अहमदाबाद �यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’D’’ BENCH, AHMEDABAD BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER Asstt. Sr.No. ITA No. Name of Appellant Name of Respondent Year Adani Enterprises Ltd., Adani House, Nr. Mithakhali Six Roads, No.2035/Ahd/2016 2011-12 D.C.I.T, Navrangpura, 1-2. & & Circle-1(1)(1), Ahmedabad. No.941/Ahd/2018 2012-13 Ahmedabad PAN :AABCA2804L Adani Enterprises Ltd., Adani House, Nr. No.2030/Ahd/2016 2011-12 D.C.I.T, Mithakhali Six Roads, 3-4 & & Circle-1(1)(1), Navrangpura, No.913/Ahd/2018 2012-13 Ahmedabad Ahmedabad. PAN :AABCA2804L

(Applicant) (Responent) Assessee by : Shri S.N. Soparkar, Sr. Advocate with Shri Vartik Choksi, A.R Shri Parin Shah, A.R Revenue by : Shri Mohd. Usman, C.I.T.DR

सुनवाई क� तारीख/Date of Hearing : 20/04/2022 घोषणा क� तारीख /Date of Pronouncement: 15/07/2022 आदेश/O R D E R PER WASEEM AHMED ACCOUTANT MEMBER:

The captioned appeals have been filed by the Assessee and the Revenue against the separate orders of ld. Commissioner of Income-Tax (Appeals) Ahmedabad arising in the matter of Assessment Order passed u/s 143(3) r.w.s. 144C of the Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Years 2011-12 & 2012-13.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 2

First we take ITA No. 2035/Ahd/2016, an appeal by the assessee for the AY 2011-12

2.1 The assessee has modified ground no.1D which is detailed as under:

1.(D) On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) further erred in rejecting the factual claim made by the appellant-company and supported by documentary evidence, that it had obtained guarantee from ICICI Bank, at a guarantee fee

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 3 of 0.18%, and therefore, without prejudice to the claim that no adjustment can be made u/s.92CA(3) of the I.T. Act, at the most similar rate of 0.18% should be adopted for the purpose of benchmarking in the case of the appellant-company.

4.1 The assessee did not charge any consideration from the AEs for the issuance of these guarantees. During the course of ascertaining, the Arm Length Price of these guarantee transactions, the TPO was of the view that a reasonable guarantee commission ought to have been charged in respect of issuance of these guarantees. The argument of the assessee to this effect that it does not constitute an international transaction was rejected by the TPO. The TPO held that the Arm’s Length Price of these guarantees should be computed @ 3.43% of the guarantee value. The reasoning for the same was set out as follows:- 5.22 Providing guarantee by a parent with a higher rating ensures Improvement in the rating or reduction In credit risk spread to the extent of the rating of the parent- The parent, with its better rating, is able to provide benefit in the form of lower spread to Its AE, such risk spread is effectively treasured by difference in risk spread by differently rated bonds being traded In the market. As discussed above, the credit spread in respect of the assessee and its AE Is proposed to be adopted as above. 5.23 An attempt has been made .to analyze the bond data in US market to arrive at various levels of yields for differently rated bonds in q global" scenario since the US bond, market is a mature one add is freely traded globally. The coupon rate represents yield on various bonds and the rate is directly proportional to the fating given to .the bond. Higher the risk of default by the Issuing company on this bond, higher the coupon rate. Details of these bonds are available on the web. The details of such corporate bonds, are available on www.finanace.yahoo.com (publicly available. On analysis of over 3062 bond data, from where the bonds;" Issued during the FY2010-11 were segregated, it is seen that the difference In coupon rate (yield of interest rate) in respect of A rated bonds and BS rated

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 4 bonds comes to 3,43 %age points, A copy of the working Carried out has been handed over to the assessee alongwith the show cause letter In a CD. In light of the discussion above, based on the credit differential between the AE and the assesses, a fee of 3.43% is found reasonable In the present case. 5.24 Based on this benchmark, the service rendered by the assessee by offering guarantees to the financial institutions on behalf of its AE Is liable to be benchmarked at 3.43% of the amount of guarantee. In light of the above discussion, the contention of the assessee that provision of guarantee is not a service Is not found acceptable and is rejected. TO this extent, the Transfer Pricing Study of the assessee is rejected on this issue under section 92C(3) of the IT Act. Further, the, cost of this service rendered by assesee is fixed at 3.43% of the guarantee issued based on the procedure detailed above. The assessee has pointed out that there are certain errors In the opening balance figure, of guarantees given by the assessee on behalf of the AEs. In light of the documents supplied by the assessee, the opening balance, as mentioned in the notes is adopted for the purpose of computation. The guarantee is computed as below: Opening Closing Average No of days Rate Fee (in Rs.) balance (Rs. balance (Rs. (Rs. Crore) Crore) Crore) Total 135.42 133.95 134.685 365 3.43% 4,61,96,955 guarantees given ( as per annual report) 5.25 An upward adjustment of Rs.4,61,96,955/- is made to the income of the assessee company in light of the benchmark guarantee fee computed in this case.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 5 6. Being aggrieved by the order of the learned CIT (A) both the assessee and the Revenue are in appeal before us. The assessee is in appeal against the upward adjustment of Rs. 2,69,37,000/- sustained by the ld. CIT-A whereas the Revenue is in appeal against the relief provided by the learned CIT(A) for Rs. 1,92,59,955/-. The relevant ground of Revenue’s appeal in ITA No. 2030/Ahd/2016 reads as under: That the Ld.CIT(A) erred in law and on facts in deleting the addition of Rs.1,92,59,955/- u/s.92CA(3) of the Act on account of Transfer Pricing.

8.1 Both the learned AR and the DR vehemently supported the order of the authorities below to the extent favourable to them.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 6 pricing net. To tackle the same, by the Finance Act of 2012 an Explanation to Section 92B[2] of the Act was brought on the statute with retrospective effect from 1st April 2002. The explanation is clarificatory in nature and added certain categories of transactions, inter alia, the transaction as specified under clause (c) of explanation (i) to section 92B of the Act within the ambit of international transactions which is reproduced as under: [Explanation.—For the removal of doubts, it is hereby clarified that— (i) the expression "international transaction" shall include— (a) *********** (b) ************* (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;

9.1 It can be seen that the guarantee was included within the ambit of international transaction by the Finance Act 2012 with retrospective effect. Thus there remains no ambiguity to the fact that corporate guarantee extended by the assessee to its AE is an international transaction and therefore the same has to be benchmarked at the arm length price. However, we note that the different benches of the ITAT have taken different view. Some of them held that the transaction of corporate guarantee is an international transaction whereas some of them held that the transaction of corporate guarantee is outside the purview of the international transaction including the Ahmedabad tribunal in the case of Micro Ink Ltd. vs. Addl. CIT reported in [2015] 63 taxmann.com 353, wherein it was held that the corporate guarantee is not international transaction. The precedent laid out in the case of Micro Ink Ltd (Supra) was also followed in the own case of the assessee for A.Y. 2009-10 in ITA No. 3321 & 3480/Ahd/2014 by the coordinate bench of this tribunal. At the time of hearing, the learned AR heavy relied on this order of the tribunal.

9.2 However, we find that the Hon’ble Madras High Court in the case of PCIT vs. Redington (India) Ltd. reported in 122 taxmann.com 136 has held that corporate

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 7 guarantee is covered under the limb of international transaction and having bearing on profit and loss account. The relevant finding of the Hon’ble court reads as under: The concept of bank Guarantees and Corporate Guarantees was explained in the decision of the Hydrabad Tribunal in the case of Prolifics Corpn. Ltd v. Dy. CIT [2015] 55 taxmann.com 226/68 SOT 104 (URO). In the said case, the revenue contended that the transaction of providing Corporate Guarantee is covered by the definition of international transaction after retrospective amendment made by Finance Act, 2012. The assessee argued that the Corporate Guarantee is and additional guarantee, provided by the Parent company. It does not involve any cost of risk to the shareholders. Further, the retrospective amendment of section 92B does not enlarge the scope of the term 'international transaction' to include the Corporate Guarantee in the nature provided by the assessee therein. The Tribunal held that in case of default, Guarantor has to fulfil the liability and therefore, there is always an inherent risk in providing guarantees and that may be a reason that Finance provider insist on non-charging any commission from Associated Enterprise as a commercial principle. Further, it has been observed that his position indicates that provision of guarantee always involves risk and there is a service provided to the Associate enterprise in increasing its creditworthiness in obtaining loans in the market, be from Financial institutions or from others. There may not be immediate charge on profit & loss account, but inherent risk cannot be ruled out in providing guarantees. U1 and adjustment are to be made on guarantee commissions on such guarantees provided by the Bank directly and also on the guarantee provided to the erstwhile shareholders for assuring the payment of Associate Enterprise. In the light of the above decisions, the Tribunal committed an error in deleting the additions made against Corporate and Bank Guarantee and the order passed by the DRP is to be restored. [Para 76]

9.3 Thus in view of the above, we hold that the bank guarantee is an international transaction. Therefore, the same has to be bench marked for determining the ALP. Thus the issue involved on hand is no longer covered as alleged by the learned AR for the assessee in view of the judgment of Hon’ble Madras High Court as discussed above.

9.4 A question may also arise for adjudication whether such amendment is applicable retrospectively i.e. 1-4-2002 though the same was brought the Finance Act 2012. In this regard, we note that the Hon’ble Madras High Court in the case of PCIT vs. Redington (India) Ltd. reported in 122 taxmann.com 136 has held that such amendment was applicable retrospectively. The relevant portion of the judgment reads as under: 72. A new Enactment or an Amendment meant to explain the earlier Act has to be considered retrospective. The explanation inserted in section 92B by Finance Act 2012 with

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 8 retrospective effect from 1-4-2002 commences with the sentence "For the removal of doubts, it is hereby clarified that -" 73. An Amendment made with the object of removal of doubts and to clarify, undoubtedly has to be read to be retrospective and Courts are bound to give effect to such retrospective legislation.

9.5 In view of the above, we hold that the amendment as discussed above was brought by the Finance Act 2012 but the same is applicable retrospectively i.e. 1-4- 2002 including the year under consideration.

9.6 The next aspects arises to determine the benchmarking for working out the ALP of the impugned international transaction. The TPO/AO in the case on hand has worked out the ALP at 3.43% and basis of the same has already been elaborated in TPO order reproduced somewhere in previous paragraph which was reduced by the learned CIT(A) at 2%. In this regard, we find that the Hon’ble Bombay High Court in case of CIT vs. Everest Kento Cylinders Ltd reported in 58 taxmann.com 254 held that while determining the ALP the rate charged by the bank or financial institution cannot be taken as comparable. The relevant finding of the Hon’ble Court reads as under: In the present case, it is assessee-company that is issuing corporate guarantee to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the assessee would make good the amount and repay the loan. The considerations which apply for issuance of a corporate guarantee are distinct and separate from that of bank guarantee and, accordingly, commission charged cannot be called in question, in the manner TPO has done. The comparison is not as between like transactions but the comparisons are between guarantees issued by the commercial banks as against a corporate Guarantee issued by holding company for the benefit of its AE, a subsidiary company. In view of the above discussion, appeal does not raise any substantial question of law and it is dismissed

9.7 Now, the question arises what should be the ALP rate of the commission on corporate guarantee? In this regard we find that The Tribunal in several cases has considered 0.50% (of corporate guarantee given) as ALP rate of Corporate Guarantee commission. Some of these cases are as under: (i) Videocon Industries Ltd. v. Dy. CIT [2017] 79 taxmann.com 216 (Mumbai - Trib.), Parent company charged commission at 0.25 %. The ALP was determined by the Tribunal at 0.50%.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 9

(ii) Hindalco Industries Ltd. v. Addl. CIT [2015] 62 taxmann.com 181 (Mum.), Parent company charged commission at 0.50% which was considered as at ALP. (iii) Manugraph India Ltd. v. Dy. CIT [2015] 62 taxmann.com 347 (Mum. - Trib.), The corporate guarantee was not treated as international transaction by the parent company but the Tribunal treated it as international transaction u/s 92B and upheld the ALP of 0.50%, following the order in the case of the assessee for the earlier year. The Tribunal followed Everest Kento Cylinder Ltd. v. Asstt. CIT [2015] 56 taxmann.com 361 (Mum-Trib). It seems that the decision in Bharti Airtel Ltd. (supra) was not referred to in this case. (iv) Aditya Birla Mincas Worldwide Ltd. v. Dy. CIT [2015] 56 taxmann.com 317/69 SOT 18 (URO) (Mum - ITAT). The assessee had not classified this transaction as international transaction. However, guarantee commission was fixed at 0.50%. (v) Mylan Laboratories Ltd. v. Asstt. CIT [2015] 155 ITD 1123/63 taxmann.com 179 (Hyd. - Trib.). The assessee admitted corporate guarantee as international transaction, then as against 2% fixed by TPO the Tribunal upheld the claim of the assessee at 0.53% following the decision in Prolifics Corpn. Ltd. v. Dy. CIT [2015] 68 SOT 104 (URO)/55 taxmann.com 226 (HYD - Trib.). (vi) Everest Kanto Cylinder Ltd. (supra) - Assessee paid guarantee commission at rate of 0.5 per cent for obtaining guarantee. This was accepted as ALP for all corporate guarantees given by the assessee. (vii) Godrej Consumer Products Ltd. v. Asstt. CIT [2016] 69 taxmann.com 436 (Mumbai - Trib.)- The assessee suo motu benchmarked the commission chargeable on bank guarantee @ 0.25%. It was determined at 0.50%.

9.8 Thus, in view of the above we are also of the opinion that 0.5% of commission on the value of corporate/ bank guarantee will serve the justice to both the assessee and the Revenue. Hence, the ground of appeal raised by the assessee is hereby partly allowed whereas the ground of appeal raised by the Revenue is hereby rejected.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 10

S. Name of the party Nature Amount (in No. Rs.) 1. Good Earth Resources Pvt. Ltd Business 3,20,871/- advance 2. Rajasthan State Co-Op Business 2,14,548/- advance 3. Osian Gems Business 70,00,000/- advance 4. Liabilities no longer required to Bad Debt 43,66,892/- pay 5. Liabilities no longer required Bad debt 82,973/- Total 1,19,85,284/-

12.1 The AO with respect to other two amount of Rs. 43,66,892/- and Rs. 82,973/- observed that nomenclature of the ledger reads as liabilities no longer required to be paid. It is not explained how a liability which was not required to be paid become bad debt or business loss for the assessee.

12.2 The AO also found that a specific query was raised with regard to above parties so as to show that the amount written off were offered as income on earlier occasion which is necessary to claim deduction on account of bad debt under section 36(1)(vii) of the Act, but the same was not furnished by the assessee. Therefore the AO disallowed the amount of bad debt/advance written off against these 5 parties for an amount of Rs. 1,19,85,284/- only and added the same to the total income of the assessee.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 11 13.1 The assessee before the learned CIT (A) submitted that the amount of Rs. 43,66,892/- and Rs. 82,973/- has actually been written off business advances provided to the parties namely RPK Agrotech Pvt. Ltd. and Vazir Polymers Ltd respectively. But, inadvertently, the same was wrongly transferred to the ledger account of Liabilities no longer required. However, on realization same, the accounts were transferred from ledger “Liabilities no longer required” to bad debt/advance written off.

13.2 The assessee further submitted that all these amount represent business advances which can be established from the perusal of ledger account available on record. Accordingly, when such advances to supplier become irrecoverable, the same was claimed as business loss allowable under section 28 of the Act. Hence the observation of the AO that condition prescribed under section 36(1)(vii) was not satisfied is based on wrong assumption of facts.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 12 and aggregate of credit balance of ledger account liability no longer required written back is shown as part of "other income" in Schedule - 15 of Audited Annual Accounts. By passing these accounting entries, profit of the year under consideration has remained unchanged and Assessing Officer presumed that credit balance in above account was transferred to bad debt account which is factually incorrect for the reasons stated heren above. Considering this observation, addition of Rs.44,49,866/- is deleted. In the nutshell, addition of Rs.1,19,85,284/- is restricted at Rs.75,35,418/-. This ground of appeal is partly allowed.

16.1 The learned AR with respect to the business advances given to M/s Ocean Gems of ₹70 Lacs which was written off in the books of accounts, contended that all the details were furnished before the authorities below to justify that the impugned advance represents the business advance. Therefore, the same is also eligible for deduction under section 28 of the Act. The learned AR in support of his contention has drawn our attention on pages 331 to 333 of the paper book where the copy of the ledger/ inter office memo was placed.

16.2 The learned AR with respect to the advances given to the parties namely RPK Agrotech Pvt. Ltd. and Vazir Polymers Ltd was wrongly classified under the head as “liability no longer required” whereas the impugned amount was representing the

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 13 advances given to these parties. The learned AR in support of his contention has drawn our attention on pages 334 to 342 of the paper book where the copy of the ledger from 1 April 2006 to 31 March 2011 was placed.

19.1 The contention raised by the learned DR at the time of hearing that there was no evidence furnished by the assessee to establish that the impugned amount was representing the business advances is devoid of any merit. It is for the reason that the authorities below have nowhere doubted the nature of the advances. As such, the doubt of the authorities below was this that there was no evidence to suggest that these business advances were actually written of in the books of accounts. In this connection, we have perused the relevant details/copies of the

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 14 ledgers filed by the learned AR for the assessee on different pages of the paper book cited above and found that the effect for writing of the advances have been duly given in the books of accounts. Thus there remains no confusion to draw an inference against the assessee that these advances were not actually written off in the books of accounts. Thus the ground of appeal of the assessee is allowed.

19.2 With respect to the grounds of appeal raised by the revenue, we note that the assessee has wrongly classified the advances given by it under the head ‘liability no longer required written back’. Admittedly, the advances given by the assessee namely M/s RPK Agrotech Pvt. Ltd. and Vazir Polymers Ltd. were not representing the liabilities rather these were representing the current advances in the books of accounts of the assessee. But the assessee inadvertently clubbed these accounts with respect to the liabilities. However, it is the settled position of law that the nomenclatural given by the assessee rightly or wrongly will not determine the actual character of the transaction. Indeed, the actual character of transaction represents the advances given by the assessee in the course of the business and this fact has not been disputed by the authorities below. Accordingly, we are of the view that claim of the assessee cannot be denied merely based on the nomenclatural, though the same was rectified as contended by the assessee before the authorities below. The learned DR at the time of hearing has not brought anything on record contrary to the finding of the learned CIT-A. Accordingly, we do not find any reason to interfere in the finding of the learned CIT-A. Thus the ground of appeal of assessee is allowed and ground of appeal of the revenue is hereby dismissed

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 15 claimed 1/5th of the same being an amount of Rs. 8,77,57,017 as deduction under section 35-D of the Act.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 16 25. The learned CIT(A) after considering the facts in totality allowed the alternative contention of the assessee by observing as under: 12.3 I have carefully considered the assessment order and submission filed by appellant. The undisputed facts of present case are that during the year the assessee increased its Authorized Share Capital from Rs. 100.00 Crores to Rs. 320.82 Crores. Further, it is seen from computation of income that the assessee has claimed 1/5th expenses u/s 35D of the Act amounting to Rs. 8,77,57,017/- incurred on account of QIP issue expenses. The Assessing Officer observed that appellant has claimed travelling expenditure, bank charges, vehicle charges etc which are not covered by deduction u/s 35D of the Act hence Assessing Officer made disallowance of Rs 39,47,698, On the other hand, appellant has argued that Assessing Officer's view that Section 35D(2)(c)(iv) contained an exhaustive list of expenses is entirely misplaced and expenditure incurred by appellant in connection with QIP expenses is allowable as deduction u/s 35D of the Act. The appellant has alternatively claimed that as it has only claimed 1/5th of expenditure u/s 35D, disallowance should be restricted to Rs 7,89,540. On careful consideration of entire facts, it is observed that provisions of section 35D(2)(cJ(iv) reads as under: (iv) in connection with the issue, for public subscription, of shares in or 'debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus;" The language of section 35D is very clear and there is no ambiguity in such language and expenses incurred and referred in clause (iv) is allowable as deduction u/s 35D f the Act and as expenditure incurred by appellant for Rs 39,47,698/- does not fall in list of above expenditure, disallowance made by Assessing Officer is upheld. However, it is observed that appellant has incurred QIB expenses in aggregate for Rs 43.87 crore and claimed 1/5th of such expenses being Rs 8.77 crore in Return of Income and Assessing Officer has identified aggregate expenditure of Rs 39,47,698/- not eligible for deduction u/s 35D and appellant has claimed only 1/5th of such expenditure in Return of Income, disallowance is restricted to Rs.7,89,540/- The Assessing Officer is directed to make balance 4/5th disallowance in subsequent four assessment years. This ground is partly allowed.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 17 expenses incurred by it should be allowed as deduction in the manner as provided under section 35D(2)(c) of the Act.

30.1 A perusal of the judgment reveals that the expenses which have been specified under the provisions of section 35D(2)(c)(iv) of the Act are illustrative in nature, meaning thereby, the list of the expenses given therein is not exhaustive or restrictive. In other words, the expenses which have not been specified under section 35D(2)(c)(iv) of the Act, but the same were incurred in connection with the public issue are eligible for deduction in the manner as provided therein. The above

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 18 judgment of the Hon’ble Madhya Pradesh High Court was cited by the assessee at the time of hearing before the learned CIT (A) but the same was not considered by him in giving his finding on the issue on hand. Even at the time of hearing, the learned DR appearing on behalf of the revenue has not brought anything on record against the argument advanced by the learned AR for the assessee. It is also pertinent to note that the genuineness of the expenses and the nature of the expenses that these were incurred in connection with the public issue have not been doubted. In view of the above, we hold that the assessee is entitled for all the expenses incurred by it as discussed above in the manner provided under section 35D(2)(c)(iv) of the Act. Hence the ground of appeal of the assessee is allowed whereas the ground of appeal of the revenue is by dismissed.

30.2 In the result, the appeal of the assessee is partly allowed.

Coming to ITA No. 2030/AHD/2016, an appeal by the Revenue for the AY 2011-12

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 19 (8) That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs. 73,533/- made on account of disallowance of Aircraft Hire Charges. (9) That the ld.C!T(A) erred in law and on facts in deleting the addition of Rs.2,35,09,994/' made u/s 41(1) of the Act. being cessation of liability. (10) That the Id.CIT(A) erred in law and on facts in deleting the addition of Rs39,47,698/-made u/s 35D of the Act being OIP issue expenses. (11) That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs.50,52,354/- made u/s.115JB of the Act. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary.

34.1 The assessee in the books of account has shown prior period expenses of Rs. 29,83,227/- and credited prior period income of Rs. 69,292/-. Thus, the assessee claimed net prior period expenditure of Rs. 29,13,937/- in the books of accounts. However, the same was disallowed by the assessee in the computation of income prepared under the Act.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 20 35. The AO found that the assessee failed to establish based on evidences that the prior period expenditure claimed during the year were actually crystalized in the year under consideration. As such these expenses were contingent in previous year. Therefore, the entire prior period expenditure i.e. 29,83,227/- was required to be deleted whereas assessee only disallowed 29,13,937/- only.

35.1 Likewise, the AO was of the view that income is taxable on the principles of accrual or receipt. The prior period income was received in the year under consideration and therefore, the same was required to be offered to tax on receipt basis as the same was not taxed in earlier year. But the assessee failed to offer the same.

35.2 Accordingly the AO made the addition of Rs. 1,38,592/- being prior period income and Rs. 69,296/- being prior period expenses which was not disallowed by the assessee in the computation of income.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 21

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 22 was claimed as deduction relating to prior period expenses the disallowance for prior period expenses could not be more than Rs. 12,44,744/-. We therefore modify the orders of the lower authorities and restrict the disallowance to Rs. 12,44,744/- on account of prior period expenses in place of Rs. 35,80,404/- Thus this ground of appeal of the Assessee is partly allowed.

40.1 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in own case of assessee the we hold that only net prior period expenditure i.e. after adjustment of prior period income can be disallowed and the assessee has already disallowed the same. Therefore no additional disallowance needs to be made. Hence we do not find any reason to interfere in the order of the learned CIT (A). Thus, the ground of appeal raised by the Revenue is hereby dismissed.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 23 43. Aggrieved assessee preferred an appeal before learned CIT(A), who deleted the addition made by the AO by observing as under: 5.4 On careful consideration of entire facts it is observed that Appellant is maintaining separate Treasury Division for its investment activities. The Profit & Loss Account for such Division includes exempt income in form of dividend, profit from partnership firm and taxable income in the form of income from mutual fund and income from current investments. The Appellant has shown expenditure of Rs.3.27 crores in such division which includes salary, professional fees, rates & taxes, etc. and such accounts are audited by Chartered Accountant. The above expenditure does not include any interest expenditure. The expenditure of such Division is disallowed in Return of Income and same is certified by CA in his report at Clause No. 17(1). The entire working was submitted by Appellant to Assessing Officer. However, the Assessing Officer has this working is not correct on following two grounds: (i) Though Appellant has shown and identified expenditure of treasury division, . same is not disallowed in Return of Income. (ii) The Appellant has argued that it has not utilized interest bearing funds to make the investment which fetch exempt income but same was not acceptable on the ground that Appellant has not established utilization of interest-free funds for making such investments. The investment activity is indivisible activity and funds are common and funds of Treasury Department are flowing from general pool. Considering this, Appellant has not made correct claim for expenditure incurred j for earning exempt income. 5.5 So far first observation of Assessing Officer is concerned that Appellant has not disallowed expenditure of Treasury Department in Return of Income, it is observed that such expenditure is already disallowed in Return of Income and even Assessing Officer himself at para 4.15 of his order has given credit of suo motto disallowance of Rs. 3.27 crores. Considering these facts, the first contention of Assessing Officer for rejecting correctness of claim of Appellant regarding expenditure incurred in relation to exempt income cannot be accepted. It is pertinent to note that even Appellant had maintained similar set of Books of Account in earlier Assessment Year being A.Y. 2010-11 but has not made disallowance of expenditure of such Division in Return of Income hence current year is different from A. Y. 2010-11. j 5.6 So far as second observation of Assessing Officer is concerned, Appellant has categorically stated that it has sufficient own funds of Rs.9J68.17/- crores which exceeds investments made by it. The Assessing Officer has not pointed out any defect in this argument. The Hon'ble Bombay High Court in the case of HDFC Bank Ltd V/s DCIT 67 Taxman.com 42 (A. Y. 2008-2009) wherein it is held as under "Section 14Aof the Income-tax Act, 1961, read with rule 8D of the Income-tax Rules, 1962 - Expenditure incun-ed in relation to income not includible in total income (Binding precedent) - Assessment year 2008-09 - Tribunal confirmed , section 14A disallowance in case of assesses in spite of issue being concluded in assessee's favour by co-ordinate bench of High Court in its own case for assessment year 2001-02; wherein it had been held that when there were sufficient own funds, there was a presumption that investment in tax-free securities was made out of own funds - Whether Tribunal could not have refused to follow an earlier decision on ground that it was incorrect and/or rendered on misinterpretation, for reason that decision of a coordinate bench wodld continue to be binding till it is corrected by a higher Court - Held, yes - Whether since Tribunal by impugned order had chosen to disregard and/or circumvent binding decision of this Court in respect of same assesses for an eariier assessment year, it was a clear case of judicial indiscipline and creating confusion and hence impugned order of

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 24 Tribunal was to be set aside and restored back for fresh adjudication - Held, yes [Paras 23 to 25] [Matter remanded/In favour of assessee]" Hon'ble Punjab & Haryana High Court in the case of CIT V/s Abhishek Industries Limited [2015] 56 taxmann.com 391 has held that where Assessing Officer disallowed an amount by holding that interest bearing funds had been used to earn tax free dividend, etc., but there was no tangible material to record his satisfaction, disallowance made was unjustified- The Hon'ble Court has held as under: "Section 14A requires the Assessing Officer to record satisfaction that interest bearing funds have been used to earn tax free income. The satisfaction to be recorded must be based upon credible and relevant evidence. The onus, therefore, to prove that interest bearing funds were used, lies squarely on the shoulders of the revenue. Thus, if the Assessing Officer is able to refer to relevant material while recording satisfaction that borrowed funds were used to earn interest free income as opposed to the assessee's own funds, the Assessing Officer may legitimately disallow such a claim. The Assessing Officer, however, cannot, by recording general observations, particularly where the assessee has denied using interest bearing funds, proceed to infer that interest bearing income must has been used to earn exempted income. Section 14A being in the nature of an exception, has to be construed strictly and only where the Assessing Officer records satisfaction, on the basis of clear and cogent material, shall an order be passed under section 14A, disallowing such a claim. As there is no tangible material on record that could have enabled the Assessing Officer to record satisfaction in terms of section 14A, findings recorded by the Commissioner (Appeals) and the Tribunal that the Assessing Officer has failed to discharge this onus are neither perverse nor arbitrary and, therefore, do not call for interference." The SLP filed by Department against above decision is dismissed by Hon'ble Supreme court on 28"1 September2015[2015] 63 taxmann.com 299. It is also observed that Assessing Officer has considered interest expenditure (after reducing specific borrowing) of Rs.39.34 crores while making disallowance under Section 14A. However, Appellant in its written submission at Para 1.2 has categorically submitted that it has earned taxable interest income of Rs. 226,84,17,698/- which is in excess of interest expenditure debited in Profit & Loss Account. The following Courts I have categorically held that for the purpose of making disallowance under Section 14A only net interest expenditure is required to be considered whereas in Appellant's case, there /s positive taxable income:- Hon'ble Ahmedabad I.T.A.T., in case of Safal Reality P. Ltd V/s ACIT (OSD) (AY 2010-11) in ITA No. 1842/Ahd/2013 vide its order dated 29/11/2013 has held as under: "5.3 Under the totality of the facts and circumstances of the case, we are of the considered opinion that when the interest income was more than the interest expenditure then the AO was not justified to invoke the provisions of Section 14A read with Rule 8D of IT Act. We hereby reverse the findings of the authorities below and direct to delete the disallowance." Hon'ble Ahmedabad I.T.A.T,, in case oflTO V/s, Adani Infrastructure Services Pvt Ltd. (AY 2009-10) in ITA No. 1943/Ahd/2012 vide its order dated 17/07/2015 has held as under: "7. We find that in the case of Morgan Stanley India Securities Ltd Vs ACIT (ITA Nos 5072/Mum/2005 and 6774/Mum/2008; order dated 13th April 2011), a co-ordinate bench of this Tribunal has held that for the purpose of disallowance under section 14A what is to be taken into account is net amount debited in the profit and loss account and not the gross interest debited to the profit and loss account. Same was the view of another coordinate bench in the case ofDCIT Vs Trade Investments Ltd (ITA No. 1277/Kol/2011; order dated 30th March 2012). Viewed thus, the action of the CIT(A) was fully justified in taking into account only the net figure which was nil in this case."

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 25

It is also observed that even in Appellant's own case my predecessor CIT (Appeals) vide his order dated 5"1 June, 2015 has held that only net interest expenditure is required to be considered for making disallowance under Section 14A. In view of above discussion, it is observed that in Appellant's case no proportionate interest disallowance of Rs. 6,27,01,615/- can be made under Rule 8D(2)(ii) and on this basis, Appellant has not made any disallowance of proportionate interest expenditure nor debited such expenditure in Treasury Department hence Assessing Officer is incorrect in observing that he is not satisfied with correctness of the claim of Appellant in relation to expenditure incurred for earning exempt income. 5.7 In view of above discussion it is clear that Appellant has identified expenditure of Rs. 3.27 crores incurred for earning exempt income and separately debited in Treasury Division and such identification is not found to be incorrect by Assessing Officer with cogent reasoning hence it is held that Assessing Officer has not recorded proper satisfaction for rejecting claim of Appellant regarding expenditure incurred in relation to income which does not form part of total income and on this basis Assessing Officer is incorrect in applying provisions of Rule 8D straightaway.

47.1 The provisions of sub-section (2) and (3) to Section14A, which empower the AO to compute disallowance as per the provisions of Rule 8D of the Income-tax

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 26 Rules, 1962 ('Rules') with effect from Assessment Year ('AY') 2008-09, provides that the disallowance under Rule 8D can be computed, only if the AO, having regard to the accounts of the assessee, is not satisfied with the claim of the assessee regarding the expenditure claimed to have been incurred/not incurred in relation to the exempt income. In this context, it is important to make reference to the provisions of Section14A of the Act. The provisions read as under: "14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act: Provided that nothing contained in this section shall empower the Assessing Officer either to reassess undersection 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee undersection 154, for any assessment year beginning on or before the 1st day of April, 2001." 47.2 As per the provisions of sub-section (1) of Section14A of the Act, the AO is empowered, not to allow the assessee any deduction with regard to any such expenditure which has been incurred by the assessee in relation to income which does not form part of its total income, i.e. the income which is exempt. The provisions of sub-section (2), which was inserted by the Finance Act, 2006 with effect from 01 April, 2007 further provides that if the AO is not satisfied with the correctness of claim of assessee in respect of expenditure in relation to exempt income, the AO is to determine the amount of such expenditure incurred in accordance with the method as prescribed. At this point in time, it will be appropriate to allude to Rule 8D, which was introduced in the Rules with effect from 24 March, 2008. The Rule provides for a mechanism of computing the expenditure to be disallowed by the AO under Section14A. Sub-section (3) of Section14A further states that the provisions of sub-section (2) are also applicable in a scenario where the assessee claims that no expenditure has been incurred in relation to earning of exempt income. This means that even after the introduction of the computation

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 27 mechanism provided for in Rule 8D from AY 2008-09 and onwards, it is only if the AO, having regard to the accounts of the assessee, reaches to a finding/satisfaction that the claim of assessee regarding expenditure incurred in relation to exempt income is incorrect, that he can compute the disallowance under Section14A as per the provisions of Rule 8D.

47.3 The Supreme Court of India in the case of Maxopp Investment Ltd. v. CIT [2018] 402 ITR 640/254 Taxman 325/91 taxmann.com 154 has also come to a conclusion that the language of Section 14A(2) makes it clear that before applying the theory of apportionment, the AO needs to record its satisfaction that having regard to the accounts of the assessee, the suo motu disallowance made by assessee underSection14A was not correct. The Apex Court has further stated that if the assessee in its return of income has himself apportioned certain expenditure or claims to have incurred no expenditure in relation to exempt income, in that eventuality, the AO will have to record its satisfaction to this effect, after examining the nature of loan taken by assessee for purchasing shares/making investments and the nexus thereof with the actual investments made from which the income derived will not be included in the total income.

47.4 Coming to the facts of the case, there is no ambiguity to the fact that the assessee has suo-moto made the disallowance under the provisions of section 14A of the Act amounting to Rs. 3,26,91,096/-. Now the onus has been shifted upon the AO to reject the suo-moto disallowance made by the assessee based on the cogent reasons before invoking the provisions of rule 8 the. In this regard we note that, the AO has given a finding in the assessment order as reproduced below: 4.10 As has been discussed above in this case, there exists a proximate relationship between the expenses claimed and the exempt income. As the assessee has actually incurred expenditure and not disallowed any expenditure under section 14 A as per the method laid down in Rule 8D, the undersigned is not satisfied with the correctness of the claim of the assessee, disallowance under section 14A needs to be made. Regarding the interest expense, assessee could not fully explain the source of all investments in the shares and Mutual funds which either give rise to exempt income or having potential of yielding exempt income, have not been fully explained. Thus, it is apparent that certain amount of interest expenditure claimed by the assessee as deduction against the taxable income is actually incurred which is required to be worked out as per Rule 8D. Details of specific purpose

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 28 borrowings and the interest on general borrowings have been worked out. It is seen that the there is interest income after taking in to account the specific borrowings for the year. As regards, the administrative expenditure, the claim that the Treasury Dept. has identifiable expenses has no relevant here. The expense of Treasury Department has been ultimately claimed as expenditure in P & L account of the company and not disallowed in the computation of income statement.

47.5 However, the finding of the AO is contrary to the facts available on record. It is for the reason that the AO on one hand saying that the assessee has not made suo-moto disallowance with respect to the Treasury Department expenses and on the other hand the AO while computing the income of the assessee has given benefit to the assessee for the expenses which were disallowed by it. All these facts can verified from the order of the AO. Thus it appears that the AO has not derived correct satisfaction before making the disallowance under the provisions of section 14A of the Act r.w. rule 8D of Income Tax Rule.

47.6 In addition to the above, we note that the own fund of the assessee exceeds the investment made by it. We find that own fund of the assessee stands at Rs. 9768.17/- crores whereas total investment of the assessee stands 1529.80 crores. Thus it can be safely concluded that the assessee was having sufficient own fund to make investment. It is settled position of law by several competent court that if there are mixed funds then the power of presumption would be that the investments have been made out of interest free funds. In holding so we draw support and guidance from the judgment of Hon’ble jurisdictional High court in the case of CIT vs. Torrent Power Ltd reported in 363 ITR 474 where it was held as under: It was noted from records that the assessee was having share holding funds to the extent of 2607.18 crores and the investment made by it was to the extent of`Rs.195.10 crores. In other words, the assessee had sufficient funds for making the investments and it had not used the borrowed funds for such purpose. This aspect of huge surplus funds is not disputed by the revenue which earned it the interest on bonds and dividend income. [Para 7] 47.7 Likewise the interest expenses incurred by the assessee were less than the income by way of interest shown by the assessee in the financial statements. The total interest expenses were claimed by the assessee in profit loss account stand at Rs. 66.39/- crores and AO worked out the interest expenses which are not related to specific borrowing at Rs. 39.34 crores where the assessee offered taxable interest

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 29 income at Rs. 226.84 crore which far more than expenses. This tribunal in several cases held that for calculating the disallowances of interest expenses under the provision of section 14A of the Act only net interest expenses after adjusting with interest income should be considered. In the given case, the interest income exceeds expenses. Therefore, the AO was not justified in making disallowances on account of interest expenses.

47.8 In view of the above, we do not find any infirmity in the order of the learned CIT-A and accordingly we decline to disturb the finding of the learned CIT-A. Hence the ground of appeal of the revenue is hereby dismissed.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 30 and order of this tribunal in the own case of the assessee for AY 2006-07 and 2007- 08 in ITA No. 2078/Ahd/2011 and 558/Ahd/2012.

54.1 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. Thus, respectfully following the order

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 31 this tribunal in own case of assessee the ground of appeal raised by the revenue is hereby dismissed.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 32 (i) The assessee has submitted that commercial vehicle as defined in Note-6 of Appendix- l of I. T. Rules, has to be understood as heavy goods vehicle, heavy passenger vehicles, light motor vehicle, etc. The assessee has further taken help of Section-2 of Motor Vehicle Act, 1988 in order to interpret light motor vehicle. (ii) I do not fully agree with the above argument of the assessee since by a conscious decision, the word) "Commercial" has been introduced by the Notification dated 21.04.2009 by the CBDT. Apart from taking help of the Motor Vehicle Act, it is also observed that 'commercial1 also connotes the use and the purpose which is distinguished from 'personal' and 'ordinary use'. The assessee has not demonstrated how this BMW Car is used for the purpose of business particularly its commercial use when it is purely an ultra-luxurious vehicle, capable of being used for non-commercial purpose. 7.1.6 In view of the above, I hold that for BMW Car, the assessee is eligible for depreciation at the normal rate of 15% and therefore, excess depreciation of Rs.21,38,124/- is hereby disallowed and added to the total income of the assessee.

59.1 Likewise the assessee claimed depreciation on office equipment such as electrical fittings, exhaust fan, electrical fan, electronic machine, electrical wires, cables, switches, plugs etc. @ 15% by treating the same as plant and machinery. The assessee submitted that these items are integral part of plant and machinery and cannot function independently. Therefore, the same is eligible for deprecation at the rate available to plant and machinery i.e. 15%.

59.2 However, the AO restricted the depreciation to the extent of 10% by treating the same as furniture and fixture. Thus, the AO added the excess deprecation of Rs. 26,74,033/- on office equipment to the total income of the assessee.

59.3 Likewise, the AO found that assessee was claiming depreciation on UPS @ 60% under the block computer. However, the AO restricted the depreciation @ 15% by holding that the UPS is not the integral part of computer. As such, it is used only for power supply in case of power failure. The AO in this regard also referred the order of Delhi Tribunal in case of Nestle India Limited reported in 111 TTJ 498. Thus the AO added the excess deprecation of Rs. 12,53,059/- only. In aggregate, the AO disallowed the excess depreciation of Rs. 60,65,216/- (Rs. 21,38,124 + 26,74,033 + 12,53,059) claimed on car, office equipment and UPS and added to the total income of the assessee.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 33 60. Aggrieved assessee preferred an appeal before the learned CIT(A) who deleted the disallowances/addition made by the AO by following the order of his predecessor in the own case of the assessee for AY 2010-11.

64.1 The first controversy before us is whether the BMW car purchased by the assessee is a commercial vehicle eligible for depreciation @ 50%? In this regard we note that the car was purchased in the F.Y. 2009-10 corresponding to the A.Y. 2010- 11, hence it is second year of claim. In the first year, the controversy reached to the ITAT level where the coordinate bench of this tribunal in ITA NO. 2305/Ahd/2015 observed as under: 138. On a perusal of the impugned order passed by the CIT(A), we find that the CIT(A) has simply followed the decision dated 22nd March 2013 passed by a coordinate bench of this Tribunal in the case of Voltemp Transformers Limited (ITA No. 1676/Ahd/12) and extensively reproduced from the same. Neither the learned Departmental Representative has demonstrated any distinguishing features in the said case vis-à-vis the case before us , but

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 34 has vehemently relied upon the stand of the Assessing Officer. We see no reasons to take a different view of the matter in this case and must, therefore, follow the coordinate bench. Respectfully following the same, we confirm the action of the CIT(A) and decline to interfere in the matter.

64.2 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the higher Judicial Authorities. Therefore, in our considered view when in very first year of the acquisition of vehicle being BMW Car, depreciation was allowed @ 50% then in subsequent year depreciation claimed on WDV cannot be disturbed unless there is change in law. Hence the addition made by the AO on account of excess deprecation on car directed to be deleted.

64.3 Coming to next controversy whether the office equipment being electrical fittings, exhaust fan, electrical fan, electronic machine, electrical wires, cables, switches, plugs etc. are part & Parcel of the plant and machinery or same should be treated as furniture and fixture? We find this controversy also arises in earlier year in the own case of the assessee and the coordinate bench of this tribunal in ITA No 2305 & 2531/Ahd/2015 has decided the issue in favour of the assessee by observing as under: 141. So far as this grievance is concerned, we find that the assessee had granted depreciation on office equipment as furniture and fittings, and thus declining the claim of the assessee for 15% depreciation. In appeal, it was pointed out by the assessee that the equipment were in the nature of electric fan, electric machine, LCD, TV, projector, water purifiers etc which must be included in the definition of plant. The judicial precedents in support of this proposition were also cited. It was in this backdrop, and following the judgment of Hon’ble Bombay High Court in the case of CIT Vs Park Davis India Ltd (214 ITR 587), learned CIT(A) held the office equipment to be eligible for 15% depreciation. Accordingly, depreciation disallowance of Rs 13,84,895 was deleted. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 142. Having heard the rival contentions, and having perused the material on record, we find that this issue is also covered, in favour of the assessee, by a decision of the coordinate bench in the case of Cera Sanitaryware Ltd Vs DCIT [42 ITR (Trib) 334 (Ahd)]. Respectfully following the same, we confirm the conclusions arrived at by the CIT(A) and decline to interfere in the matter.

64.4 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the higher Judicial Authorities. Before us, Revenue has not

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 35 placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in own case of assessee the addition made by the AO on account of excess depreciation on office equipment directed to be deleted.

64.5 Coming to next controversy whether the UPS is integral part of the computer and eligible for deprecation @ 60%? We find this controversy also arises in earlier year in the own case of the assessee and the coordinate bench of this tribunal in ITA No 2305 & 2531/Ahd/2015 held the issue in favour of the assessee by observing as under: 145. Learned representatives fairly agree that this issue is also covered, in favour of the assessee, by Hon’ble Delhi High Court’s judgment in the case of CIT Vs BSES Yamuna Power Ltd (358 ITR 47), even as learned Departmental Representative vehemently relied upon the stand of the Assessing Officer. There is non contrary judicial precedent pointed out to us. In this view of the matter, and respectfully following the esteemed views of Hon’ble Delhi High Court in the case of BSES Yamuna Power (supra), we confirm the order of the CIT(A) on this point as well, and decline to interfere in the matter.

64.6 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in own case of assessee the addition made by the AO on account of excess depreciation on office equipment directed to be deleted.

64.7 In view of the above discussion and respectfully following the order this tribunal in own case of assessee the ground of appeal raised by the Revenue is hereby dismissed.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 36 65. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 2,56,69,111/- made on account of unutilized CENVAT credit under section 145A of the Act.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 37 70. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 38 75. The AO during assessment proceeding found that the director of the assessee company frequently used hired aircraft for traveling. The AO found the assessee failed to substantiate that all the trip made by the director was wholly and exclusively for the business purpose. Therefore, the AO disallowed the same in part for Rs. 73,533.00 being 10% of aircraft hire charges as personnel in nature.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 39

80.1 Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in own case of assessee the ground of appeal raised by the revenue is hereby dismissed.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 40

Name of the party Amount Shri Laxmi Balaji Import & Export 2009235 Athens Granite & marble Co. 1622860 Global Software 3909 Voltas Ltd. 91836 Wastage Logistics Pvt. Ltd. 102559 Rashtriya Ispat Nigam Ltd. 18756595 Total 23509994

82.1 The AO found that there was not furnished any material by the assessee to establish that these sundry creditor are still alive. The AO also found that as per the provision of part-1 of division -1 of Limitation Act 1963 liability with regard to current account ceases after completion of 3 years from end of the year in which last transaction entered in the account. The AO further found that these sundry creditors become untraceable. Therefore the AO held that outstanding liability has ceased to exist and added the same to the total income of the assessee under the provision of section 41(1) of the Act.

11.3 I have carefully considered the assessment order and submission filed by appellant. The Assessing Officer has observed that appellant has shown outstanding liability in the name of various parities for a period exceeding three years and same has not been paid off even after lapse of three years which means that liability has ceased to exit as per Part 1 of Division 1 of the Limitation Act, 1963. The Assessing Officer has referred to provisions of section 41(1) of the Act and contended that where some benefit in respect of trading liability has been obtained by assessee, it shall be deemed to be profits and gains of business & profession. On the other hand, Appellant has argued that as it has not written back above liability in it its books of account and continued to be shown as liability in books of account,

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 41 such amount cannot be taxed u/s. 41(1) of the Act for which it has relied upon decisions of Hon'ble Gujarat High Court referred supra. 11.4 On careful consideration of observation of Assessing Officer and contention of appellant, I observe that that outstanding balance is creditors account are shown as liability in its books of account and such amount is not written back in Profit & Loss Account hence applying provisions of section 41(1), no such addition can be even though debt is time barred or outstanding for more than three years. On identical facts, Hon'ble Gujarat High Court in the case of CIT v/s. Bhogilal Ramjibhai Atara (2014) 43 taxmann.com 55 has held as under- "Section 41(1) of the Income-Tax Act, 1961 - Remission or cessation of trading liability (Cessation of liability) - Assessment Year 2007-08 - in return of income for Assessment Year 2007-08, assesses had shown a certain amount by way of his debts. He supplied details of 27 different creditors. Assessing Officer undertook exercise to verify records of so called creditors and found that creditors had no dealing with assesses. Assessing Officer further having found that debts were outstanding since several years applied section 41(1) and added above amount in income of assesses as deemed income. There was nothing on record to suggest that there was remission or cessation of liability that too during previous year relevant to Assessment Year 2007-08. Whether in peculiar facts of case amount in question could not be added back in income of assesses as deemed income under section 41(1). Held, yes (para 8) (in favour of assessee,)" Further, Hon'ble Gujarat High Court in the case of CIT v/s. Nitin S. Garg 208 taxman 16 has also held as under: "Section 41(1) of the Income-Tax Act, 1961 - Remission or cessation of trading liability (Cessation of liability) - Assessment Year 2001-02 to 2003-04 and 2006-07 - in course of assessment, Assessing Officer noticed from balance sheet that various creditors were very old and no interest had been paid on those various loans - Assessing Officer gave various opportunities to assessee to furnish details of such creditors viz., confirmation as well as creditworthiness but assessee failed to produce necessary information and details in that regard of aforesaid liabilities. On further appeal, Tribunal deleted addition on ground that assessee had continued to show admitted amounts as liabilities in its balance sheet and thus it could not be treated as a case of cessation of liabilities. Whether merely because liabilities were outstanding for last many years, it could not be inferred that said liabilities had ceased to exist. Held, yes, whether even otherwise, since assessee had continued to show admitted amounts as liabilities in its balance sheet, Tribunal was justified in deleting impugned addition made by Assessing Officer - Held yes (in favour of assesses,)" Following the decisions of Hon'ble Gujarat High Court referred supra, disallowance made Assessing Officer u/s. 41(1) for Rs. 2,35,09,994/- is deleted. This of appeal is allowed.

84.1 The learned DR before us vehemently supported the stand of the authorities below by reiterating the findings contained in the respective orders which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 42

84.2 On the other hand the learned AR submitted that the issue is covered in its favor. The ld. AR vehemently supported the order of the ld. CIT-A.

Profits chargeable to tax. 41. 14[ 15(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,—

(a) the first-mentioned person has obtained 16, whether in cash or in any other manner whatsoever, any amount in respect of such 16 loss or expenditure 16 or some benefit in respect of such trading liability 16 by way of remission or cessation thereof 16, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or

(b) the successor in business has obtained 16, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof 16, the amount obtained 16 by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year.

85.1 A plain reading of the aforesaid provisions reveals that it is applicable with respect to the trading liabilities which ceases to exist in the books of accounts. In this regard we draw support and guidance from the judgment of Hon’ble Gujarat High Court in the case of PCIT vs. Babul Products (P.) Ltd. reported in 96 Taxman.com 82 wherein it was held as under:

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 43 The factual matrix, which came to be considered by the learned Tribunal is that the learned Tribunal while deleting the addition made under Section 41(1) of the Income Tax Act on account of cessation of the liability, namely, the assessee had not written off the liability in the books of accounts, and therefore, the liability with respect to debtors is not ceased is concerned, considering the aforesaid factual matrix and when in the books of accounts the assessee carried forward and continued the liability and has not written off, no error has been committed by the learned Tribunal in deleting the addition of Rs.54,24,294/- made by the learned Assessing Officer under Section 41(1) of the Income Tax Act on account of cessation of liability.

85.2 We also place our reliance on the judgment of Hon’ble Gujarat High Court in the case of CIT vs. Nitin S. Garg reported in 208 Taxman 16 wherein it was held as under:

It had not been established that the assessee had written off the outstanding liabilities in the books of account. The Tribunal was justified in taking the view that the assessee had continued to show the admitted amounts as liabilities in its balance sheet, the same could not be treated as cessation of liabilities. Merely because the liabilities were outstanding for last many years, it could not be inferred that the said liabilities has ceased to exist. The Tribunal had rightly observed that the Assessing Officer would have to prove that the assessee had obtained the benefits in respect of such trading liabilities by way of remission or cessation thereof. Merely because the assessee obtained benefit of reduction in the earlier years and balance was carried forward in the subsequent year, it would not prove that the trading liabilities of the assessee had become non-existent. [Para 15]

85.3 In the given case the assessee has not written off the liability and still intended to pay the same. Therefore, in view of the above we do not find any infirmity in the order of learned CIT (A) and accordingly, we decline to interfere in his order. Hence the ground of appeal of the revenue is dismissed.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 44 88. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 50,52,354/- in the book profit under section 115JB of the Act on account of provision for leave encashment.

13.2 I have carefully considered the assessment order and submission filed by appellant. The Assessing Officer has made addition of Rs.50,52,354/- being provision on account for leave encashment while computing book profit u/s.115JB of the Act without making any discussion in assessment order. On the other hand, appellant has argued that as provision for leave encashment is made on the basis of actuarial valuation, such provision for ascertained liability and no addition u/s.115JB is called for. It is observed that Hon'ble Gujarat High court in the case of DCIT V/s Inox Leisure Ltd [2013] 30 taxmann.com 127 has held as under: "II. Section 115JB of the Income-tax Act, 1961- Minimum Alternate Tax -Provision for gratuity - Assessment year 2003-04 - Whether provision for gratuity liability made on basis of actuarial valuation cannot be stated to be an unascertained liability so as to add it back in terms of clause (c) to Explanation I to section 115JB - Held, yes [Para 21] [ln favour of assessee] The Hon'ble Himachal Pradesh High court in the case of CIT v/s H.P. Tourism development Corpn. Ltd [2013] 35 taxmann.com 450 has held that "Since provision made towards leave encashment of employees was in respect of ascertained and definite liability, same would not be added while computing book profit for purpose of levy of MAT under section 115JB". The appellant has also made provision for leave encashment on the basis of actuarial

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 45 valuation, addition made by Assessing Officer for R$ 50,52,354/- is deleted. This ground of appeal is allowed.

"The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain."

95.1 In view of the above we hold that the liabilities in respect of which the assessee has made the provisions in the books of accounts was not unascertained liability and therefore such provision is outside the purview of the adjustments provided under the provisions of section 115JB of the Act. Thus we do not find any infirmity in the order of the learned CIT (A) and accordingly, we deny to interfere

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 46 in the order of the learned CIT (A). Hence the ground of appeal of the revenue is by dismissed.

95.2 In the result the appeal filed by the revenue is dismissed.

Coming to ITA number ITA No. 941/Ahd/2018 an appeal by the assessee for the A.Y. 2012-13

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 47 consideration i.e. AY 2012-13. The appeal of the assessee for the assessment 2011- 12 has been decided by us vide paragraph Nos. 9 to 9.8 of this order partly in favour the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2012-13. Hence, the grounds of appeal filed by the assessee is hereby partly allowed.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 48 consideration i.e. AY 2012-13. Hence, the grounds of appeal filed by the assessee is hereby allowed.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 49

9.4 In present case, at the time of declaration of dividend by appellant, subsidary company has not paid any dividend or paid DOT but dividend has been declared subsequently hence as per express provisions of section 115O(1) & 115O(1A) which require specific working of DOT, appellant company has to pay entire DOT on dividend declared by it. The provisions of section 115O is silent on the issue when dividend is declared by subsidiary company after payment of DOT by holding company hence claim of appellant that such excess payment is required be treated as advance tax cannot be accepted. Even ITR form submitted by appellant, no where says that excess payment of DOT is advance tax and even provisions of Income Tax is silent on this aspect hence claim of appellant to treat excess DOT as advance tax is not acceptable. It is observed that if assessee has made excess payment of DOT or taxes which are not due from it, it can make separate application u/s 237 of the Act before prescribed authority but as there is no provision for treating excess payment of DOT as advance tax either in ITR or income tax, claim of appellant cannot be accepted. The claim of appellant for treating excess payment of DOT for Rs.7,55,52,891/- is rejected. This ground of appeal is dismissed.

109.1 Under the scheme of Constitution, the Government cannot retain even a single pie from the assessee as tax, when it is not authorized by an authority of law. Therefore, the excess tax by the assessee under Dividend Distribution tax either should be refunded or adjusted as advance tax. We note that the Hon’ble Supreme Court in case of Hemlatha Gargya vs. CIT reported in 259 ITR I where assessee paid

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 50 tax under voluntary disclosure scheme 1997 but the application for the acceptance of the voluntary discloser of the assessee was not accepted by the commissioner of Income Tax due to certain failure on the part of the assessee. The Hon’ble bench of SC while adjudicating the issue held that once the commissioner rejected the application of the assessee under VDISc, the revenue authority has no right to retain the tax paid by the assessee under such scheme. Therefore the Hon’ble bench directed the Revenue authority of either refund the tax or adjust the same with other tax liability of the assessee. The relevant part of the judgment of Hon’ble Supreme court extracted here under:

As a consequence, the appeals preferred by the assessees were dismissed whereas the appeals preferred by the revenue authorities were allowed. However, having held that the assessees were not entitled to the benefit of the scheme since the payments made by them were not in terms of the scheme, the revenue authorities were directed to refund or adjust the amounts already deposited by the assessees in purported compliance with the provisions of the scheme to the concerned assessees in accordance with law. [Para 14]

109.2 Coming to the fact of the assessee on hand, the assesse was only liable to pay DDT after adjusting the amount of DDT paid on the dividend received by it from its subsidiary. However the assessee paid excess DDT due to time gap between dividend declared by it and its subsidiary. In our considered view the Revenue is not entitle to collect any excess tax other than what is authorized under the law. The finding given by the Hon’ble Supreme Court in above referred case was in relation to the income declared by the assessee in the scheme which was not approved by the revenue and therefore the refund was granted the assessee. But the ratio is applicable to the case on hand. Thus we set aside the finding of the learned CIT(A) and direct the revenue authority either to refund the excess DDT paid by the assessee or adjust the same with advance tax paid by the assessee. Hence the ground of appeal of the assessee is allowed.

109.3 In the result appeal of the assessee is partly allowed.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 51 Coming to ITA number ITA No. 913/Ahd/2018 an appeal by the Revenue for the A.Y. 2012-13

(1) That the Id. CIT(A) erred in law and on facts in deleting the addition of Rs.l,3&,888/- made on account of prior period expenses. (2) That the Id. C1T(A) erred in law and on facts in deleting the addition of Rs. 14,60,00,510/~ made on account of disallowance n/s 14A r.w. Rule 8D of the Act under normal provision of the Act as well as book profit n/s H5JB of the Act. (3) That the hi CIT(A) erred in law and on facts in deleting the addition of Rs.5,30,010/- made on account of disallowance of depreciation on Shares. (4) That the Id. C1T(A) erred in law and on facts in deleting the addition of Rs.61,62,897/- made on account of disallowance of excess depreciation claim on BMW Car, Office Equipment and UPS. (5) That the Id, CIT(A) erred in law and on facts in deleting the addition of Rs.2,02,63,859/- made n/s 1I5JB of the Act on account of provision for Leave Encashment. (6) The appellant craves, to leave, to amend and/or to alter any ground or add a new ground which may be necessary.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 52 113. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowance of Rs. 14,60,00,510/- under the provision of section 14A of the Act as well as well as under the provision of 115JB of the Act.

114.1 Coming to next controversy where the AO while computing the book profit under section 115JB of the Act made addition by the amount of disallowances made under section 14A of the Act.

115.1 However, we note that in the recent judgment of Special Bench of Hon’ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 53 Taxmann.com 415 has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the net profit u/s 115JB of the Act. The relevant portion of the said order is reproduced below:

“In view of above discussion, the computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962.” 115.2 The ratio laid down by the Hon’ble Tribunal is squarely applicable to the facts of the case on hand. Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 to section 115JB of the Act.

115.3 However, it is also clear that the disallowance needs to be made with respect to the exempted income in terms of the provisions of clause (f) to section 115JB of the Act while determining the book profit. In holding so, we draw support from the judgment of Hon’ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. in GO No.1501 of 2014 (ITAT No.47 of 2014) dated 19.11.14 wherein it was held that the disallowance regarding the exempted income needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. The relevant extract of the judgment is reproduced below:-

“We find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal. We accept the submission of Mr. Khaitan, learned Senior Advocate that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act.” 115.4 Given above, we hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon'ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. (Supra).

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 54 115.5 Now the question arises to determine the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. In this regard, we note that there is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income. However, the assessee admittedly has made the sumo disallowance while calculating the book profit amounting to Rs.14,60,00,510.00 as evident from the working of the profit made by the AO in the assessment order. As such the AO has calculated the amount of disallowance under the normal provisions of the Act amounting to ₹17,05,23,574.00 which was reduced by the amount of sumo disallowance made by the assessee amounting to Rs. 2,45,23,064. Thus the AO made the effective disallowance at ₹14,60,00,510.00 and the same amount was also added to the book profit. The act of the AO suggests that the assessee has also made the sumo disallowance in the computation of the profit. However, in our considered view the AO was under the obligation to reject the disallowance made by the assessee before substituting the amount of disallowance. Thus we find no reason to interfere in the finding of the learned CIT-A. Hence the ground of appeal of the revenue is hereby dismissed.

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 55

ITA No.2030/Ahd/2016 and 3 others A.Y. 2011-12 56 222. Other grounds raised by the Revenue are general in nature and do not required any separate adjudication. Hence the same are dismissed being infructuous.

In the Result appeal of the Revenue is hereby dismissed

Order pronounced in the Court on 15/07/2022 at Ahmedabad.

Sd/- Sd/- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER

(True Copy) Ahmedabad; Dated 15/07/2022 Manish