DCIT (LTU)-1, MUMBAI vs. ADITYA BIRLA NUVO LTD, MUMBAI

3 & 5935/Mum/2017 Aditya Birla Nuvo Limited Additional Treating fertilizer subsidy as a capital receipt and therefore not Ground No.4 charging it to tax under normal provisions of the Act and excluding it while computing book profits u/s 115JB of the Act. Additional Treating freight subsidy as a capital receipt and therefore not Ground No.5 charging it to tax under normal provisions of the Act and excluding it while computing book profits u/s 115JB of the Act Additional Treating sales tax subsidy as a capital receipt and therefore not Ground No.6 charging it to tax under normal provisions of the Act and excluding it while computing book profits u/s 115JB of the Act.

Revenue Ground No. Issues 1 Disallowance u/s 14A of the Act 2 Disallowance u/s 40(a)(ia) on year end provisions 3 Deleting the addition on account of CENVAT Credit on valuation of stock 4 Erred in allowing the of provisions made for leave salary / compensated absence 5 Erred in holding that the HO expenses cannot be allocated to profits derived from 100% EOU falling u/s. 10B and directing to reduce interest income (Department ground is wrongly worded, allocation of HO expenses were to 80IA Unit) 6 Allowing additional depreciation u/s 32(1)(iia) in the succeeding assessment year where the assets were put to use for less than 180 days in relevant previous year 7 Deletion of addition made on account of ESOP expenses 8 Erred in allowing the claim of assessee of depreciation of goodwill 9 Erred in allowing the claim of the assessee of sale of certified emission receipt 10 Erred in directing to treat interest subsidy from TUF as capital in nature 11 Erred in restricting the ALP of guarantee fees in respect of corporate guarantee given to AE to 0.5% as against 2.42% as held by AO/TPO 12 Erred in restricting ALP of performance guarantee fees to 0.5% as against 1.74% as held by AO/TPO. 13 & 14 General

ITA No. 5848/Mum/2017-Assessee's appeal.

Disallowance under section 14A of the Act and adding the disallowance to book profits under section 115JB of the Act. – Ground No. 1 & 2. 4. During the year under consideration the assessee has received an amount of Rs. 77,89,81,486/- as dividend income. The assessee has made a suo-moto disallowance of Rs. 7,17,17,809 in the return of income which consisted of 5 & 5935/Mum/2017 Aditya Birla Nuvo Limited Rs.5,99,75,725 towards interest cost attributable to investment activities and Rs.1,17,42,084 in connection with expenses attributable to exempt investments. The AO accepted the suo-moto disallowance made towards interest cost but made a disallowance towards indirect expenses of Rs. 26,51,41,708 under section 14A r.w.r. 8D(2)(iii). Before the CIT(A) the assessee raised a fresh plea that disallowance towards interest on borrowings which are suo-moto made by the assessee to the tune of Rs. 5,99,75,725 should not be made for the reason that these investments are strategic in nature for the purpose of gaining controlling interest in those companies and not for the purpose of earning dividend income. With regard to the additional disallowance made under Rule 8D(2)(iii) the assessee submitted the break up of indirect expenses to the tune of Rs.22,39,05,880 to pray that the same should be considered proportionately for the purpose of disallowance towards indirect expenses. The assessee also submitted that the AO is not correct in applying 0.5% of the investments without basis since the investments majorly include those made in subsidiaries for strategic purposes. The CIT(A) accepted the contention of the assessee and allowed the deduction of Rs. Rs.5,99,75,725 but confirmed the disallowance of Rs. Rs.22,39,05,880 towards indirect expenses. With regard to the contention of the assessee that disallowance under section 14A should not be added to the book profits under section 115JB, the CIT(A) upheld the decision of the AO.

(a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:—

(i) the amount of expenditure directly relating to income which does not form part of total income; and (ii) an amount equal to half per cent of the annual average of the monthly average of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income :

Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee.”

8 & 5935/Mum/2017 Aditya Birla Nuvo Limited 8. From the combined reading of the above provisions, it is clear that for the purpose of application of section 14 r.w.r 8D(2)(iii) the AO has to record reasons as to why he is not satisfied with the correctness of the claim of expenditure by the assessee. In order to understand whether the AO has recorded satisfaction for the year under consideration in assessee's case, we need to look at AO's relevant findings which are extracted below – “3.2 From examination of the return, It was observed that the assessee has received an amount of Rs. 77,89,81,486/- as dividend during the year which has been claimed as exempt u/s 10 of the I.T. Act, 1961. Since the assessee has not apportioned any expenses as having been incurred for earning this exempt income, I am not satisfied with regard to correctness of the claim of expenditure made by the assessee and provisions of Rule 80 of Income Tax Rules are being invoked. Therefore, vide questionnaire dated 04.12.2015, the assessee was asked to furnish details of dividend income earned and expenses incurred as per provisions of section 14A and Rule 8D on earning this income. “3.3. ……… 3.4 The above submissions of the assessee is considered but the contention of the assessee is not acceptable for the following reasons: (i) to (iii). ………. iv) It is known fact that investment is a most scientific and research-oriented activity, it requires expertise and deep knowledge of not only company where investments are made, but also various other factors, like future prospect of a particular sector and industry, political scenario-domestic as well as international, Government policies, the competition from similar other products and services, and competition from other companies etc., and various other factors. Therefore, for keeping a track of all these aspects and activities, not only highly professionally qualified, trained and experienced staff are required but also highly technological infrastructure is also required to keep them abreast with the day to day developments at not only national level but also globally. Since the investments or purchase and sale of shares are of high quantum value, for taking such decisions regarding the timely purchase, sale or investments, it needs razor sharp decision, for which only trusted and highly trained decision makers are required. To feed them, a well equipped research department with back office is a must, to which most of the indirect expenses are related. The assessee cannot say that its indirect expenses are entirely for some other purposes, and not related to dividend income.

9 & 5935/Mum/2017 Aditya Birla Nuvo Limited v) It may further be added that earning dividend is extremely important criteria in making a decision of investment or purchase of shares & securities. In other words, while purchasing shares & securities, one cannot ignore the dividend paying capacity of particular company. Hence a part of indirect expenses also allocable towards the expenses incurred for earning exempt dividend income. In the absence of any submission on the part of the assessee, related to the expenses, which has been reasonably incurred for earning the dividend income, it is difficult to allocate the amount that assessee would have spent in order to earn tax-free income, mare se from the nature of business carried on by the assessee. In order to estimate the amount spent for earning dividend, it is essential to identify the various types of expenses that assessee would have incurred directly as well as indirectly. It is also essential to understand that dividend is one of essential criteria in an investment decision. vi ) Considering the difficulty in arriving at the expenditure attributable to the earning of exempted income, the legislature in his wisdom has introduced an amendment to Section 14A(2). This amendment has prescribed the methodology for determining the expenditure attributable to earning of exempted income. By insertion of this amendment the powers vested with the A.O, are not left to his discretion rather this power of determining expenditure as per his will and whims has been diluted. This has also helped in overcoming the difficulties faced by both tax payer and tax administrators, Further it is a uniform method prescribed by the statute, which is binding in nature, the A.Q came to conclusion that some part of the expenditure is attributable to exempt income.”

10 & 5935/Mum/2017 Aditya Birla Nuvo Limited “41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO.”

10. In view of the above Hon'ble Apex Court judgment, it is clear that no disallowance can be made u/s 14A of the Act read with Rule 8D(2)(iii), where the A.O. failed to record dissatisfaction of correctness of the claim of the assessee. Accordingly we hold that the disallowance towards indirect expenses should be restricted to Rs.1,17,42,084/- as computed by the assessee suo-moto.

“9. With regard to disallowance under section 14A being added to the book profits under section 115JB of the Act, the ld. AR submitted that this issue has also been considered by the decision of Co-ordinate Bench in assessee's own case for AY 20110-11 (supra) where it has been held that – 7. We find merit in the contentions of the ld. Authorized Representative for the assessee. For the purpose of computation of book profits under section115JB, disallowance made under section 14A r.w.r. 8D cannot be added. The Hon'ble Jurisdictional High Court in the case of CIT vs. Bengal Finance & Investment Pvt. Ltd.(supra) while answering the substantial question of law on this issue affirming findings of Tribunal observed : "4. So far as Question (b) is concerned, the impugned order of the Tribunal followed its decision in M/s Essar Teleholdings Ltd. v/s.

11 & 5935/Mum/2017 Aditya Birla Nuvo Limited DCIT in ITA No. 3850/Mum/2010 to held that an amount disallowed under Section 14-A of the Act cannot be added to arrive at book profit for purposes of Section 115JB of the Act. The Revenue's Appeal against the order of the Tribunal in M/s. Essar Teleholdings (supra) was dismissed by this Court in Income Tax Appeal No. 438 of 2012 rendered on 7th August, 2014. In view of the above, question (b) does not raise any substantial question of law". The Special Bench of the Tribunal in the case of Vireet Investments Pvt. Ltd.(supra) reiterated the view by holding that 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 r.w.r. 8D. Thus, in the light of the above decisions, ground No.2 of the appeal by the assessee is allowed.

13. The ld. AR submitted that the issues contended in Ground 3 onwards including additional grounds are similar to AY 2011-12 and since the facts for the year under consideration are identical, the decision of the coordinate bench would be applicable for the year under consideration also. The ld DR on the other hand submitted that the decision of the Tribunal has not reached finality and therefore the ld DR supported the orders of the lower authorities.

Deduction under section 80IA of the Act – Ground No.3 14. The assessee has claimed deduction under section 80IA of the Act towards its power plants located in Veraval and Chennai. The AO noticed that the 12 & 5935/Mum/2017 Aditya Birla Nuvo Limited assessee has not allocated the Head Office expenses to the units and worked out on prorate basis a sum of Rs. 41,46,206/- to be reduced from the profits eligible for deduction under section 80IA. The AO further noticed that the assessee has shown the expenses without including the component of excise / CENVAT / service tax, etc and called on the assessee to submit the details of the tax component on the expenses on consumption of raw-materials and other services in relation to these power plants. Based on the details furnished by the assessee, the AO computed an amount of Rs. 6,98,57,541/- to be deducted from the profits computed for the purpose of claiming deduction under section 80IA. On further appeal, the CIT(A) confirmed the deductions made by the AO from the profits eligible for section 80IA of the Act. The CIT(A) with regard to the deduction made towards excise / CENVAT / VAT directed the AO to rework the deduction based on actual expenditure and restrict the disallowance accordingly. Aggrieved the assessee is in appeal before the Tribunal.

13 & 5935/Mum/2017 Aditya Birla Nuvo Limited as standalone unit and in computing all the business expenses including duties and taxes has to be taken into account to arrive at correct and true profits of the 80-1A units Accordingly, AO reduced the deduction u/s 801A of Rs 2,17 27,798/- and added back to the total income of the appellant. 6.4 During appellate proceeding, the appellant submitted that if stand of the AO is accepted i.e. VAT component on expenditure incurred by the 801A eligible unit is to be considered as an expenditure actually incurred by the 801A eligible units, then such VAT credit allowable to main plant should also be treated as income of the eligible unit as the Appellant while determining the revenue of 801A eligible unit has adopted rate charged by State Electricity Board to manufacturing plant as market price of electricity generated by the power plant and has made no adjustment on account of VAT credit allowable to main plant on account of electricity purchased by main plant from 801A eligible unit. Accordingly, there will be no impact in the deduction u/s 801A claimed by the Appellant as one side expenditure of eligible unit will be increased and on other side income of the eligible unit will be increased. The appellant also submitted that the cenvat credits are in the nature of reimbursements and bear a direct nexus to the business of the eligible unit and therefore would qualify for the deduction w/s 801A of IT Act, 1961. 6.5 I find that the issue had been settled by Hon'ble Apex court and High Courts in favour of the appellant. The Hon'ble Apex Court in the case of CIT vs. Meghalaya Steels Ltd reported in 383 ITR 217 had decided that the subsidies reimbursed to the assessee for element of cost relating to manufacture or sale of their products bear a direct nexus between profits of assessee's business and reimbursement of such subsidies and therefore such subsidies are eligible for deduction u/s 8018 rws. 801C of IT. Act, 1961. The relevant finding of Hon'ble Apex Court is as under :- "Assistance by way of subsidies which are reimbursed on the incurring of costs relatable to a business, do not fall under the head "income from other sources", which is a residuary head of income that can be availed only if income does not fall under any of the other four heads of income. Section 28(iiib) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head "profits and gains of business or profession" If cash assistance received or receivable against exports schemes are 14 & 5935/Mum/2017 Aditya Birla Nuvo Limited included as being income under the head "profits and gains of business or profession", it is obvious that subsidies which go to reimbursement of cost in the production of goods of a particular business would also have to be included under the head "profits and gains of business or profession", and not under the head "income from other sources" The Hon'ble Delhi High Court in the case of CIT vs. Dharam Pal Prem Chand Ltd reported in 317 ITR 353 had decided that: "The finding of the authorities below was that the refund of excise duty was pivoted on the manufacturing activity carried on by the assessee. Once such a finding of fact had been returned, there was no need to go further and to examine the immediate and proximate source of refund of excise duty. As a matter of fact, in the questions proposed by the revenue, there was no specific question that the said finding of the authorities below was perverse. There was of course a very broad-based and general question that the order passed by the Tribunal was perverse, in law, and on facts. Such a question was vague. [Para 5] Further, the language appearing in section 80-1B is 'profit and gains derived from any business'. Therefore, the test of proximity, i.e., direct nexus with the industrial activity is not necessary while claiming a deduction under section 80-1B. [Para 5.2] In the circumstances, the judgment of the Tribunal deserved to be sustained." The Hon'ble Madhya Pradesh High Court in the case of CIT vs. Siddharth Tubes Ltd reported in 296 ITR 221 had decided that :- "Held that from the facts placed on record one was not able to say that any refund had been diverted for the purpose other then the business of the industrial undertaking and, therefore, there was no hesitation in holding that the amount refunded had the result of inflating the profits and gains of the industrial undertaking. As the duty of excise had the effect of increasing the profits and gains of the industrial undertaking within the parameters of sections 80HH and 80-1, the relief could be given. Therefore, refund of excise duty was includible in its profits computed for the purpose of deductions under sections 80HH and 80-I.

15 & 5935/Mum/2017 Aditya Birla Nuvo Limited The Hon'ble Gujarat High Court in the case of CIT vs. Shah Alloys Ltd reported in 396 ITR 711 had decided that "Whether interest received on margin money placed for business purpose cannot be treated as income from other sources and, therefore, eligible for deduction under section 80-IA being incidental to business of assessee-Held, yes." The Hon'ble Meghalaya High Court in the case of Pr. CIT vs. Shree Mahabir Foods Ltd reported in 282 CTR 112 had decided that "Deduction under section 80-18 would be allowed on the transport subsidy recen from the Government when it was not the case of revenue that the transport subsidy had no bearing on the cost of production of the industrial undertaking of the assessee." The Hon'ble Delhi ITAT in the case of JK. Aluminium Co. vs. ITO reported in 292 CTR 112 had decided that “As we have observed from the papers in the paper book, the exempt amount has been paid as is evident from the orders granting the refund which are placed. The Supreme Court after examining the affidavits passed on 11.01.2010 in the case of CIT vs. Dharam Pal Prom Chand Ltd. and after hearing both the parties, eventually dismissed the appeal of the Department against order of Delhi High Court on 22.02.2010. As is clear, the Notification dated 14.11.2002 exempts the amount of paid ensure proper control over the transactions, the Notification only requires the manufacturers to first deposit the excise duty and then claim the refund of the same next month. Thus the refund is assessee's own money itself in a way security deposit which is being refunded on submission of the evidence depositing the same. Therefore, in our view this is not an income at all. Therefore, the A.O, in our view, was not justified in making a separate addition of income and thereby denying the relief eligible u/s 80.IB of the Act on that amount." Thus, respectfully following the judicial decisions cited supra and considering the facts of the case, hold that the appellant is eligible to claim the deduction u/s 80IA of I.T. Act. 1961, I direct the AO to delete the disallowance of deduction u/s 80IA of Rs.2.17.27.798/- made in the assessment order. Accordingly, Ground No 2 is hereby Allowed.

16 & 5935/Mum/2017 Aditya Birla Nuvo Limited 3.11. We further find that the similar issue had arose before this Tribunal in the case of Ambuja Cements Ltd vs. Addl. CIT in ITA No.2384 & 3475/Mum/2019 and 1241/Mum/2018 for A.Y. 2010-11, 2011-12 and 2012-13 and ITA Nos. 2958 and 3843/Mum/2019 and 1889/Mum/2018 for A.Yrs. 2010-11, 2011-12 and 2012-13 vide consolidated order dated 07/11/2022 wherein this Tribunal had held as under:- 99. In ground no. 6, the assessee has raised the following grievances: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified and grossly erred in confirming the action of the AO in treating CENVAT credit availed on inputs and capital goods used in the undertakings eligible for deduction u/s 801A as cost of the eligible undertakings.

by the Revenue are dismissed.”

16. We further notice that a similar view is held by the coordinate bench in assessee's own case for AY 2011-12 also. We also notice that the facts for the year under consideration are identical and therefore respectfully following the decisions of Co-ordinate Bench in assessee's own case, we allow the issue in favour of the assessee. Treating corporate advertisement as capital expenditure – Ground No.4

18. We also noticed that a similar view has been held by the co- ordinate Bench in assessee's own case for AY 2009-10 also, the facts of the year under consideration being identical respectfully following the above decision of the co-ordinate bench, we allow the grounds raised by the assessee and delete the addition made in this regard”

20 & 5935/Mum/2017 Aditya Birla Nuvo Limited 19. We notice that the above view has been consistently held by the co- ordinate Bench in assessee's own case for AY 2009-10 also. Since the facts of the year under consideration are identical we are of the considered view that the above decision of the co-ordinate bench is applicable to the year under consideration also and accordingly we delete the addition made in this regard. The ground raised by the assessee is hereby allowed.

Disallowance of lease equalization charges – Ground No.5

25 & 5935/Mum/2017 Aditya Birla Nuvo Limited lease. As a result of straight-lining recommended by the accounting standard, there was a requirement to make provisions for scheduled rent increase. Such provision relating to the year under consideration was of Rs. 4,06,47,000/-. The accounting standard was not in conflict with any provision of the Act or notification made by the Central Government u/s 145(2) of the Act. It is also not the case of the assessing officer that the system of accounting followed by the assessee was such that the correctness and completeness of accounts was to be doubted. Rather, the assessee has followed accounting standard issued by ICAL. The assessee had made the claim in the assessment proceedings and the assessing officer has neither allowed nor given reason for its rejection. In the remand report dated 03.01.2014, the assessing officer has objected to the assessee's claim on the ground that such claim was not made by way of filing revised return. Apparently, be intends to draw strength from the decision of the Hon'ble Supreme in the case of Goetze India Ltd. 284 ITR 323, though he has not specifically mentioned the same. However, in the said decision itself, Hon'ble Supreme Court has clarified that the bar on claiming a deduction not claimed in the return does not apply on the appellate authority. In the decisions in the case of National Thermal Power Co Ltd. (xupro) and Jute Corporation India Ltd. (supra) Hon'ble Supreme Court has held that appellate authority has power even to admit a claim not made in the proceedings before the lower authority. Power of CIT(A) to consider claim not made in the return has also been upheld in the decision of Delhi High Court in the case of CIT v. Jindal Saw Pipes Ltd. 328 ITR 338 and by Bombay High Court in the case of CIT v. Pruthvi Brokers and Shareholders P. Ltd. 349 ITR 336. It is also noted, that jurisdictional bench of tribunal, in the case of DCIT, Circle-50, Kolkata v. Ramesh Chandra Kedia ITA No. 2072/Kol/2007, has held after considering various decisions, including in the case of Goetze India Ltd. (supro) that CIT(A) has power to admit additional ground claiming relief not claimed in the return and without filing revised return, even if the same results in assessed income going below the returned income. In his report dated 3.1.2014, the assessing officer has not given any comment or adverse remark on merit of the claim and not pointed out any defect or shortcoming in the same. In the light of the facts discussed earlier, the assessee is entitled for deduction of Rs. 4,06,47,000/-, The assessing officer is directed to allow the same." We do not find any infirmity in the order of ld CIT(A) in allowing the claim of the assessee in respect of lease rent of Rs.4,06,47,000/-, therefore, we decline to interfere in the order of ld CIT(A), his order on 26 & 5935/Mum/2017 Aditya Birla Nuvo Limited this issue is hereby accepted and the ground No. 5 raised by the Revenue in ITA No.77/kol/2014, is dismissed. 24. We also notice that a similar view is held by the coordinate bench of the Tribunal in the case of M/s. HDFC Securities Limited vs DCIT (ITA No.3137 & 3502 /Mum/2014 dated 19.02.2016). The relevant observations of the Tribunal are extracted below – 6.Effective ground of appeal

,raised by the AO is about deleting the addition of Rs.1.08 Croees. During the assessment proceedings,the AO found that the assessee had claimed the above mentioned amount under the head Rent being AS 19. Provisions.He called for justification for allowing the same.After considering the reply of the assessee,the AO held that the disputed amount was nothing but prepaid expenses which ought to have been claimed in the relevant financial year to which it belonged,that the amount was a balance-sheet item and not a P&L A/c.item.Finally,he treated the amount in question as prepaid expense and made a disallowance of Rs.1,08,45,878/- 7.Before the FAA,the assessee made elaborate arguments and produced additional evidences. He called for remand report from the AO.After considering the Report and rejoinder to the report of the AO,the FAA held that lease expenses were nothing but expenses that accrued to the assessee and were computed as per the provisions of Accounting Standard-19(AS-19),that the assessee had to follow the AS compulsorily, that AS-19 had been prescribed by the ICAI to claim lease expenses,that the expenses were claimed in accordance with accounting standard,that AO was not justified in treating the expenses as contingent/unconfirmed,that the claim made by the assessee was based on scientific method,that the assessee was following the same method in earlier years.Finally,he held that the lease payment under the operating lease should be recognised as an item of the P&L A/c on a straight line basis over the lease period.He deleted the addition made by the AO. 8.Before us,the DR supported the order of the AO.AR relied upon the order of the FAA and stated that the assessee followed the mandate of AS-19, that the provision was made on a scientific basis, that rent payable was allowable as per the section 30 of the Act. 9.We find that the AO had made the disallowance as he was of the opinion that it was a prepaid expense and that it could not be claimed during the year under appeal, that the assessee had claimed the expenditure as per the provisions of AS-19, that the agreement entered into by the assessee was in the nature of operating lease as defined in AS-19, as per the accounting standard in such cases the payments have to be considered as an item of P&L account on a straight line basis over the lease period. The FAA had given a categorical 27 & 5935/Mum/2017 Aditya Birla Nuvo Limited finding of fact that the provision of Rs.1.08 crores was in respect of the liability that had accrued during the FY 2009-10.We are of the opinion that, by following AS-19 the assessee has complied with the provisions of the Act, that AS-19 provides that in case of operating leases, the lease rent payment has to be treated as an allowable expenditure. Therefore, in our opinion, the order of the FAA does not require any interference from our side.

25. Considering that the facts in assessee's case being identical, we place reliance on the above decisions, to hold that the lease rent claimed by the assessee as per AS-19 is to be allowed as a deduction and the AO is directed to delete the disallowance made in this regard.

22. Respectfully following the above decision of the Tribunal is assessee's own case we delete the disallowance made by the AO towards lease equalisation charges. The ground raised by the assessee in this regard is allowed.

Treatment of interest liability as part of Electricity Tax for the purpose of section 43B – Ground No.6 23. The assessee through a note submitted before the AO claimed the interest on electricity tax to the tune of Rs. 25,90,428/- which have been disallowed under section 43B while filing the return of income should be allowed as a deduction for the reason that interest is not part of the electricity charge payable and therefore, should be allowed as deduction with respect of the status of actual payment. The ld. AO denied the claim of the assessee first on the ground that the claim is made not in the return of income by relying on the decision of Hon'ble Supreme Court in the case of Goetze India (supra). On merits, the AO did not allow the claim stating that there is direct nexus between the tax and the interest and both are very well the statutory liability which shall be allowable only on payment under section 43B of the Act. The AO in this regard relied on the decision of the Hon'ble Rajasthan High Court in the case of

29 & 5935/Mum/2017 Aditya Birla Nuvo Limited 30. We notice that the Cuttack Bench of the Tribunal in the case of National Aluminium Co. Ltd vs DCIT [(2006) 153 Taxman 18 (Cuttack)] has considered a similar issue in the context of interest on Electricity Duty and held that the interest on electricity duty is compensatory in nature and has to be allowed as a general business expenditure and also that the provision of Section 43B is not applicable for such interest. The Tribunal while holding so placed reliance on the decision of Hon'ble Calcutta High Court in the case of CIT v. Orient Beverages Ltd and CIT v. E.L. Properties (P) Ltd. The relevant observations of Hon'ble High Courts as stated in the Tribunal's order are extracted below – 41. We further find that Hon'ble Calcutta High Court in the case of CIT v. Orient Beverages Ltd. (supra) has held that: Interest payable for arrears of municipal taxes is compensatory in nature and not a penalty or tax and, therefore, unpaid amount of interest is not liable to be disallowed under Section 43B.

7. In Mahalakshmi Sugar Mills Co. v. CIT (supra), as noted herein earlier, the Supreme Court, while considering a case under Section 3(3) of the U.P. Sugarcane Cess Act, 1956, on arrears of cess payable held that the interest payable did not fall within the scope of Section 10(2)(xv) of the Indian IT Act, 1922, because it was paid by way of penalty or infringement of the Cess Act. In that actual situation the Supreme Court held that the interest payable

30 & 5935/Mum/2017 Aditya Birla Nuvo Limited under Section 3(3) of the Cess Act was not a penalty paid for an infringement of law and was an allowable deduction under Section 10(2)(xv) of the Act. At p. 434 of the said decision, the Supreme Court has made the following observation : In truth, the interest provided under Section 3(3) is in the nature of compensation paid to the Government of delay in the payment of cess. It is not by way of penalty. From the above it is clear that in this decision the Supreme Court has made it clear that the interest paid under the Cess Act is not a penalty but a compensation paid to the Government. Mr. Agarwal, learned advocate appearing on behalf of the Department, however, seeks to distinguish this decision on the footing that this decision was rendered on a different fact situation. This argument of Mr. Agarwal, we are afraid, is not acceptable because on the similar question subsequent decision was rendered by a Division Bench of this Court in Russels Properties (P) Ltd. v. CIT (supra) following the aforesaid decision of the Supreme Court in Mahalakshmi Sugar Mills Co. v. CIT (supra), in the said case, Their Lordships also came to a conclusion that interest paid under the Calcutta Municipal Act, 1951, which is also a matter for consideration by us in this case, is not for defiance of law and, therefore, this is an allowable deduction under the Act. At p. 365 of the said decision, Sabyasachi Mukherjee, J. observed as follows: The Supreme Court was of the view that interest payable on arrears of cess under Section 3(3) was in reality part and parcel of the liability to pay cess. It was an accretion to the cess. The arrears of cess, according to the Supreme Court, if the cess was not paid within the prescribed period, a larger sum would become payable as cess. We have not noticed the nature of Sub-section (3) of Section 236 of the Calcutta Municipal Act, which is more or less on similar terms. It is also a like expression as used in Section 3(3) of the U.P. Sugarcane Cess Act, 1956, which enjoins that 'interest shall be payable'. The Supreme Court was of the view 'that in truth the interest provided under Section 3(3) of the U.P. Sugarcane Cess Act, 1956, was in the nature of compensation paid to the Government for delay in the payment of cess. It was not by way of penalty for which provision has been separately made by Section 3(5). From the above, we cannot agree with Mr. Agarwal, learned advocate for the Revenue, that since the principle laid down in the said decision of the Supreme Court cannot be applied to the facts of this case, as we find that Sabyasachi Mukherjee, J. (as His Lordship then was) in the aforesaid 31 & 5935/Mum/2017 Aditya Birla Nuvo Limited Division Bench decision considered the Cess Act as well as the Calcutta Municipal Act, with which we are not therefore (sic), it cannot be disputed that the decision of Hindustan Motors Ltd. (supra), as rendered by Sabyasachi Mukherjee, J. (as His Lordship then was) was so rendered applying the principles laid down in the aforesaid decision of the Supreme Court and the submission of Mr. Agarwal that the decision of the Supreme Court was not applicable in this case, cannot be alleged. That apart, we are also fortified by a recent decision of this Court in the case of Hindustan Motors Ltd. v. CIT . It appears that there was a difference of opinion on the question mentioned above between the Hon'ble Chief Justice Mr. K.C. Agarwal (as His Lordship then was) and the Hon'ble Justice Mrs. Ruma Pal (while she was in this Court). The matter was referred to a Third Judge, the Hon'ble Justice Prabir Kumar Majumdar (as His Lordship then was). His Lordship by his order dt. 20th Feb., 1995, agreed with the views expressed by Ruma Pal, J. and held that he was not inclined to agree with the answer put forward by the Hon'ble Chief Justice K.C. Agarwal, but on the other hand, he accepted and agreed with the answer proposed by Ruma Pal, J. There is yet another Division Bench decision of this Court in CIT v. Padmavati Raja Cotton Mills Ltd. , which also laid down the same principle following the Division Bench decision just now referred to above in the case of Hindustan Motors Ltd. v. CIT (supra). In the case of Pratibha Processors and Ors. v. Union of India and Ors. (1966) 11 SCC 101, in para 13, the Supreme Court has observed as follows : In fiscal statutes, to import of the words 'tax', 'interest', 'penalty', etc.' are well known. They are different concepts. Tax' is the amount payable as a result of the charging provision. It is a compulsory extraction of money by a public authority for public purposes, the payment of which is enforced by law. Penalty is ordinarily levied on an assessee for some contumacious conduct in character and is imposed on an assessee, who has withheld payment of any tax and when it is due and payable, the levy of interest is geared to actual amount of tax withheld and the extent of the delay in paying the tax in the due date. Essentially, it is compensatory and duty for penalty-- which is penal in character. In view of our discussion made hereinabove, it is, therefore, clear that the interest payable for arrears of principal taxes is really compensatory in nature and not a penalty/tax.

32 & 5935/Mum/2017 Aditya Birla Nuvo Limited It is settled beyond dispute that interest on late payment of municipal rates is not in the nature of a payment of penalty, and is thus clearly deductible as a general business expenses under Section 37. The requirement of Section 43B that even for assessees following the mercantile system, payments by way of tax, duty, cess, etc. cannot be claimed as deductions unless actual payment has been made in the previous year, is also not applicable in this case, because the words of the section encompass the municipal rates but interest thereon--CIT v. Padmavati Raje Cotton Mills Ltd. and Hindustan Motors Ltd. v. CIT followed. Interest payable on unpaid municipal rates is not in the nature of penalty and therefore, it is clearly deductible under Section 37; Section 43B is also not attracted as it is applicable to municipal rates and not to interest thereon.

31. We also notice that the Hon'ble High Court of Telangana & Andhra Pradesh in the case of CIT vs Andhra Sugars Ltd ([2014] 52 taxmann.com 61 (Andhra Pradesh and Telangana)) while considering the allowability of interest on purchase duty has held a contrary view that if actual tax, duty, or cess can be deducted only on payment, interest thereon can be deducted only on making payment and that the provisions of section 43B are applicable to interest payable on purchase duty. Further the Hon'ble Rajasthan High Court in the case Shree Pipes vs DCIT ([2007] 162 Taxman 442 (Rajasthan)) had held a similar view in the context of interest on sales tax. However in the absence of decision of the jurisdictional High Court, when two contrary views are expressed by the non- jurisdictional High Courts, the view favourable to the assessee need to be followed. We place reliance in this regard on the decision of the Hon’ble Supreme Court in the matter of CIT vs. Vegetable Products Ltd. ((1972) 88 ITR 192 (SC)) where the Hon’ble Supreme Court has laid down a principle that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted". Accordingly we hold that the interest on Electricity Tax which is compensatory in nature is to be allowed as a deduction under section 37 and that the interest on Electricity Tax not to be considered as part of tax for the provisions of section 43B.

Transfer Pricing Adjustment – Ground No.7

33 & 5935/Mum/2017 Aditya Birla Nuvo Limited 26. The Transfer Pricing Officer (TPO) made a TP Adjustment of Rs. 5,26,17,801/- with respect to the corporate and performance guarantee provided by the assessee to its Associated Enterprises (AE) as per details given below – “5.2 Details of corporate guarantees: Name of AE Bankers from Country of Date on Guarantee Loan o/s Purpose as on 31st whom AE borrower which the Amount borrowed the guarantee March funds given 2012 (Rs. In Crs.) Aditya Birla Minacs Bank of Canada 1.4.2021 CAD 40 207.68 Working Worldwide Inc. America Million Capital Loan Canada Aditya Birla Bank of 12.08.2011 CAD 51.92 Working America 15 Million Capital Loan Minacs Worldwide Inc. Canada Aditya Birla Bank of 28.11.2011 CAD 129.80 Working America 28 Million Capital Loan Minacs Worldwide Inc. Canada Aditya Birla DBS Bank 11.08.2011 USD 55 255.78 Term Loan Minacs Worldwide Million Inc. Minacs Group ANZ Bank USA 11.08.2011 USD 22 102.31 Term Loan (USA) Inc. Million 747.50

34 & 5935/Mum/2017 Aditya Birla Nuvo Limited of the assessee that the it is not an international transaction. This contention of the assessee is accordingly dismissed. Further we notice that the co-ordinate Bench in assessee's own case for AY 2010-11 & AY 2011-12 has considered the similar issue and upheld the guarantee commission and @ 0.5% by relying on the decision of the Bombay High Court in the case of Everest Kanto Cylinder Ltd. (supra). The facts being identical for the year under consideration, we see no reason to interfere with the decision of the CIT(A). This, ground of the assessee is dismissed.

31. Additional ground no 3 to 6 pertain to treatment of incentives under Market Linked Focus Product Scheme, fertilizer subsidy and sales tax subsidy as capital receipt under normal provisions of the Act as well as for the purpose of book profits under section 115JB of the Act. We notice that the assessee has raised similar grounds as additional grounds for AY 2011-12 and the coordinate bench while considering the additional grounds has held that -

36 & 5935/Mum/2017 Aditya Birla Nuvo Limited receipt back to the AO for a denovo examination. The AO is directed to call for necessary details and keep in mind the judicial pronouncements rendered in this regard to decide in accordance with law. Needless to say that the assessee be given an opportunity of being heard.

Revenue's Appeal Disallowance under section 14A- Ground No. 1

Disallowance under section 40A(ia) – Ground No.2

Deleting the addition on account of CENVAT CREDIT – Ground No.3

39 & 5935/Mum/2017 Aditya Birla Nuvo Limited 272). The AO rejected the submissions of the assessee and proceeded to make an adjustment of Rs. 25,03,57,966/-. On further appeal, the CIT(A) deleted he addition by placing reliance on the decision of his predecessors who have been consistently holding the issue in favour of the assessee from AY 2005-06 to AY 2010-11.

57. Respectfully following the above decision, we see no reason to interfere with the findings of the CIT(A) on this issue”

40 & 5935/Mum/2017 Aditya Birla Nuvo Limited 41. The facts for the year under consideration being similar, we respectfully follow the above decision we see no infirmity in the findings of the CIT(A) on this issue.

Deleting the disallowance made on account of provisions for leave salary / compensated absence – Ground No.4 42. We notice that the issue is covered by the decision of the co-ordinate bench in assessee's own case for AY 2011-12 where it is held that “58. Ground No.7 is with regard to the deletion of disallowance made by the AO towards provision made for leave salary / compensated absence. We notice that the issue is covered by the decision of the co-ordinate bench in assessee's own case for AY 2010-11 where it is held that 30. We observed that that the Co-ordinate Bench of the Tribunal while deciding the appeal of the assessee for assessment year 2008-09 decided the issue on merits in turn by placing reliance on Tribunal order for A.Y. 2008- 09. The Tribunal allowed relief to the assessee by following the decision of the Hon'ble Apex Court in the case of Bharat Earth Movers vs. CIT reported as 245 ITR 428(SC). Dehors the issue of constitutional validity of clause(f) to section 43B of the Act, the Co-ordinate Bench after considering the issue on merits has deleted the addition. Taking into consideration, entirety of facts we respectfully follow the decision of Tribunal in assessee's own case for assessment year 2008-09 and confirm the findings of CIT(A) in deleting the disallowance. Consequently, ground No.4 of the appeal by the Revenue is dismissed.

by the Revenue”

43. Respectfully following the above decision, we see no reason to interfere with the findings of the CIT(A) on this issue. Accordingly the ground raised by the revenue in this regard is dismissed.

Allowance of allocation of Head Office expenses for the purpose of deduction under section 80IA – Ground No.5

42 & 5935/Mum/2017 Aditya Birla Nuvo Limited 61. The CIT(A) for the year under consideration also has granted relief relying on his own decision for the earlier years since the facts are identical. Accordingly respectfully following above decision of the co-ordinate Bench, we dismissed the ground raised by the Revenue”

45. The CIT(A) for the year under consideration also has granted relief relying on his own decision for the earlier years since the facts are identical. Accordingly respectfully following above decision of the co-ordinate Bench, we dismissed the ground raised by the Revenue.

Allowance of additional depreciation u/s 32(1)(iia) – Ground No.6

46. The ground raised by the revenue is with regard to CIT(A) allowing additional depreciation u/s 32(1)(iia) in the succeeding assessment year where the assets were put to use for less than 180 days in relevant previous year. We notice that the AO has made a similar disallowance in the earlier years also i.e. AY 2010-11 and AY 2011-12 and that the coordinate bench has upheld the relief given by the CIT(A). For the year under consideration the revenue did not bring any new material on record and therefore we see no reason to take a different view from the view taken for the earlier years. Accordingly we uphold the decision of CIT(A) and dismiss the ground raised by the revenue.

Allowance of ESOP expenses – Ground No.7

47. We notice that this is a recurring issue in assessee's case and that the coordinate bench has been consistently holding the issue in favour of the assessee. The relevant observations of the coordinate bench on this issue in assessee's own case for AY 2010-11 is as follows –

Allowance of depreciation on Goodwill – Ground No.8

Treatment of certified emission receipt as capital receipt – Ground No.9

" 70. Ground No.13 is with regard to CIT(A) allowing the claim of the assessee of sale of certified emission receipt. The ld AR submitted that this issue is also covered by the decision of the coordinate bench in assessee's

44 & 5935/Mum/2017 Aditya Birla Nuvo Limited own case for AY 2010-11 and facts being identical, the decision is squarely applicable for the year under consideration also. The ld AR drew our attention to the relevant observations of the coordinate bench as extracted below – 33. Ground No.7 : 7. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the proceedings from sale of certified emission reduction of Rs. 4,11,58,512/- relying upon the decision in the case of My Home Power Ltd vs. DCIT, Central Circle - 7 (2012) 27 taxmann.com.27, without appreciating the facts of the case." 33.1 This issue is identical to the one already adjudicated by the Tribunal in assessee's own case for assessment year 2009-10. The relevant extract of the finding of the Tribunal on this issue read as under:- "16. The ground No.3 raised by the revenue is with regard to challenging the action of the ld. CIT(A) in treating the receipt on account of sale of certified emission as capital receipt (Carbon Credit receipts). We find that the Hon'ble Andhra Pradesh High Court in the case of CIT vs. My Home Power Ltd. reported in 365 ITR 82; Hon'ble Karnataka High Court in the case of CIT vs. Subhash Kabini Power Corporation Ltd reported in 385 ITR 592; Hon'ble Allahabad High Court in the case of PCIT vs L.H. Sugar Factory Pvt. Ltd. reported in 392 ITR 568 had held that Carbon Credit receipts are to be construed as capital receipts. When this was put to the ld. DR, the ld. DR fairly conceded that this issue is covered in favour of the assessee by various High Courts, but he however, prayed for verification of these figures by the ld. AO. The ld. AR also fairly agreed that verification of the figures by the ld. AO be made. Accordingly, we deem it fit and appropriate, to set aside this issue to the file of the ld. AO, to verify the actual figures of carbon credit receipts and decide the taxability of the same in the light of the aforesaid decisions of the Hon'ble High Courts. Accordingly, the ground No.3 raised by the revenue is allowed for statistical purposes" The CIT(A) in the impugned Assessment Year granted relief to the assessee by following the order of his predecessor for assessment year 2009-10, which has now been confirmed by the Tribunal. Since, there has been no change in the facts in the Assessment Year under consideration, this ground of appeal by Revenue is dismissed for similar reasons

45 & 5935/Mum/2017 Aditya Birla Nuvo Limited 71. Considering the fact that for the year under consideration CIT(A) granted relief relying on his own decision for the earlier years we dismiss the ground raised by the Revenue.

51. Respectfully following the above decision of the coordinate bench we dismiss the ground raised by the Revenue for similar reasons.

Treatment of interest subsidy from TUF as capital in nature – Ground No.10

by the Revenue is dismissed

53. The facts for the year under consideration being identical we see no reason to interfere with the decision of the CIT(A). Accordingly the ground raised by the Revenue is dismissed.

Restricting the ALP of guarantee fees in respect of corporate guarantee and performance given to AE – Ground No.11 & 12

54. Through these grounds the revenue is contending the decision of the CIT(A) to restrict the ALP of guarantee fees in respect of corporate guarantee and performance given to AE to 0.5% as against 2.42% and 1.74% as held by AO/TPO. We have while considering Ground No.7 of the assessee's appeal have already upheld the decision of the CIT(A) by placing reliance on the decision of the jurisdictional High Court in the case of Everest Kanto Cylinder Ltd (supra). Therefore these grounds of the revenue are dismissed.

Order pronounced in the open court on 01-07-2024.