TATA CHEMICALS LTD.,MUMBAI vs. DY CIT 2 (3)(1), MUMBAI

ITA 7912/MUM/2019Status: DisposedITAT Mumbai04 February 2026AY 2015-16144 pages
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What did the Tribunal hold?

The Tribunal addressed the issues raised by the assessee. Regarding Ground No. 1 (Transfer Pricing), the Tribunal noted that the assessee's investment in preference share capital of AE was treated as a loan by the TPO, leading to an adjustment. The facts regarding the nature and redemption of these shares were detailed. Regarding Ground No. 2 (Disallowance u/s 14A), the Tribunal examined the AO's computation of disallowance under Section 14A read with Rule 8D, which resulted in a total disallowance of Rs. 4,96,40,588/-. The assessee had suo motu disallowed Rs. 9,46,335/-, leading to a net addition of Rs. 4,86,94,253/-. The assessee argued for restricting the disallowance, citing a previous year's order from the CIT(A) and the Bombay High Court decision in *HDFC Bank Ltd.*. The DRP had upheld the AO's disallowance, following its own previous year's directions. The Tribunal's decision on this issue and others is not fully provided in the excerpt. The excerpt ends with the DRP's reasoning for upholding the disallowance under Section 14A, noting that the issue had come up in previous assessment years and that the AO was satisfied that expenditure was incurred for earning exempt income. The Tribunal's final findings and operative directions for all grounds are not present in the provided text.

What were the facts?

The assessee, Tata Chemicals Ltd., is appealing against the final assessment order dated October 30, 2019, passed by the Dy. Commissioner of Income-tax, Circle-2(3)(1), Mumbai, pursuant to directions from the Dispute Resolution Panel (DRP). The assessment year in question is 2015-16. The assessee is engaged in manufacturing and selling inorganic chemicals, fertilizers, and bio-fuels. The Assessing Officer (AO) made several additions to the assessee's total income, including transfer pricing adjustments, disallowance under Section 14A, disallowance of deduction under Section 80-IA, disallowance of interest paid, assessment of interest income as 'Income from Other Sources', disallowance of post-retirement medical benefits, disallowance of expenditure on in-house scientific research, non-allowance of provision for bad and doubtful debts, and denial of foreign tax credit. The DRP had issued directions on September 30, 2019, which the AO followed in the final assessment order.

What were the issues?

The Tribunal had to decide on nine grounds of appeal raised by the assessee: 1. **Transfer Pricing Adjustment:** Whether the AO erred in adding Rs. 3,62,01,946/- by recharacterizing the assessee's investment in preference share capital of an Associated Enterprise (AE) as a loan and imputing notional interest, contrary to Section 92 of the Act and the order of the TPO under Section 92A(3). 2. **Disallowance u/s 14A:** Whether the AO erred in computing the disallowance under Section 14A read with Rule 8D at Rs. 4,96,40,588/-, resulting in a net addition of Rs. 4,86,94,253/-, when the assessee had already disallowed Rs. 9,46,335/-. 3. **Disallowance u/s 80-IA:** Whether the AO erred in disallowing the deduction of Rs. 40,04,53,625/- under Section 80-IA for the captive power plant, relying on observations from earlier assessment years regarding inflated profits and captive use of power. 4. **Disallowance of Interest Paid:** Whether the AO erred in disallowing Rs. 146,73,00,000/- of interest expenditure by treating it as capital expenditure for acquiring controlling interest in subsidiary companies, and by not following the Supreme Court decision in *Core Health Care Ltd.*, and whether the DRP's decision was contrary to law. 5. **Interest Income:** Whether the AO erred in assessing Rs. 9,55,00,000/- of interest income from intercorporate deposits and staff loans under the head 'Income from Other Sources' instead of 'Business & Profession'. 6. **Post-retirement Medical Benefit:** Whether the AO erred in disallowing Rs. 6,37,00,000/- for post-retirement medical benefits by considering it under Section 43B, allowing deduction only on a payment basis. 7. **Scientific Research u/s 35(2AB):** Whether the AO erred in disallowing Rs. 4,24,13,526/- for in-house scientific research and development under Section 35(2AB) based on an auditor's certificate stating expenses were beyond DSIR guidelines, which allegedly contradicted the Act's provisions. 8. **Provision for Bad and Doubtful Debts:** Whether the AO erred in not allowing the claim of Rs. 9,70,98,738/- for provision for bad and doubtful debts. 9. **Foreign Tax Credit:** Whether the AO erred in not granting credit for taxes withheld in foreign countries amounting to Rs. 15,71,220/- under Section 91. **Assessee's Contentions:** The assessee argued on all grounds, generally contending that the AO's actions were erroneous and contrary to law, provisions of the Act, and judicial precedents. Specific arguments included the recharacterization of preference shares, the applicability and computation of Section 14A, the validity of Section 80-IA deduction, the nature of interest expenditure, the head of income for interest, the allowability of post-retirement benefits, the interpretation of Section 35(2AB), the allowability of bad debt provisions, and the entitlement to foreign tax credit. **Revenue's Contentions:** The revenue, represented by CIT-DR Mr. Ajay Chandra, did not have its arguments recorded in the provided excerpt.

Which sections of the Income-tax Act were involved?

Section 92,Section 92A,Section 92CA,Section 144C,Section 14A,Section 80-IA,Section 43B,Section 35(2AB),Section 91

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Income Tax Appellate Tribunal, MUMBAI BENCH “H” MUMBAI

Before: SHRI OM PRAKASH KANT & SHRI RAHUL CHAUDHARY

For Appellant: Mr. Nitesh Joshi a/w, Mr. Vanish Bhansali &, Mr. Samkit Chaudhary
For Respondent: Mr. Ajay Chandra, CIT-DR
Hearing: 06/11/2025Pronounced: 04/02/2026

PER OM PRAKASH KANT, AM This appeal by the assessee is directed against final assessment order dated 30.10.2019 passed by the Ld. Dy. Commissioner of Income-tax, Circle-2(3)(1), Mumbai [hereinafter shall be referred as ‘the Assessing Officer’] pursuant to the direction of the Ld. Dispute Resolution Panel (in short the ld DRP) dated 30.09.2019. The grounds raised by the assessee are reproduced as under:

1.

Transfer Pricing - adjustments:- Rs. 3,62,01,946/- On the facts and in the circumstances of the case and in law, the learned Assessing Officer grossly erred in adding a sum of Rs. 3,62,01,946/- u/s 92 of the Act, based on t

The order continues below.

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