HINDUSTAN PETROLEUM CORP LTD,MUMBAI vs. DCIT 1(1)(2), MUMBAI

ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 Appellant also craves leave to make further submissions at the time of hearing.”

2.3. In addition, vide letter, dated 16/06/2022, the Assessee has also raised the following Additional Grounds of appeal in :

Additional ground No. 1: On the facts and circumstances of the case and in law, Loss/ Gains arising due to Exchange Rate Variation on Foreign Loans used for creating indigenous assets to be allowed as deduction under 37(1) of the Income Tax Act, 1961, while computing the taxable income. Additional ground No. 2: The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.

2.4. The Revenue has raised the following grounds of appeal in ITA No. 3913/Mum/2019:

“1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in holding that the amount of Rs.69,43,14,416/- being expenditure incurred for supervising and monitoring of execution of new projects are in the nature of revenue expenditure and thereby deleting the said disallowance.

ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 3. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in directing the AO to delete the disallowance made by the AO u/s. 14A r.w.r 8D(2)(1) of Rs. 3.22 crore by treating the said amount as indirect interest expenditure as against direct expenditure as was held by the AO. 4. "On the facts and in the circumstances of the case and in law, the CIT(A) has erred in directing the AO to re-compute the disallowance u/R 8D(2)(iii) by considering investments which had yielded exempt dividend income; without appreciating the fact that there is no such exclusions provided under the Act.

5. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in holding that the forex losses should not be accounted for the purpose of valuation of inventory and thereby deleting the addition of Rs.46,04,86,281/- without considering Accounting Standards based on matching principle.

3. The relevant facts in brief are that the Assessee-Company is engaged in the business of refining of crude oil and marketing of petroleum products. The Assessee filed return of income for the Assessment Year 2014-2015 on 26/11/2014 declaring a taxable profit of INR 1747,64,54,080/- under the normal provisions of the 5 ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 Act and book profit of INR 3319,67,89,179/- under Section 115JB of the Act. The Assessee-Company revised return of income on 30/03/2016 declaring a taxable profit of INR 1890,84,39,361/- under normal provisions of the Act and book profit of INR 3319,67,89,179/- under Section 115JB of the Act. 3.1. The case of the Assessee was selected for scrutiny and the Assessing Officer passed the Assessment Order under Section 143(3) of the Act on 29/12/2017 at total income of INR 2141,19,33,648/- under normal provisions and Book profit of INR 3388,08,86,148/- under Section 115JB of the Act after making addition and disallowances. 3.2. Being aggrieved, the Assessee preferred appeal before the CIT(A) which was partly allowed by the CIT(A) vide order, dated 19/03/2019. The CIT(A), inter alia, granted the following relief to the Assessee - (a) deleted the disallowance of INR 69,43,14,416/- made by the Assessing Officer holding the expenditure incurred on supervision and monitoring of execution of projects as capital in nature; (b) deleted addition of INR 3.22 Crores and INR 42.11 Crores made by the Assessing Officer under Section 14A read with Rule 8D(2)(i) & 8D(2)(ii) of the Income Tax Rules, 1962 [for short „the Rules‟], respectively (c) re-computed the disallowance under Section 14A read with Rule 8D(2)(iii) of the Rules by considering yielding exempt income, and (d) deleted the addition of INR 46,04,86,281/- Crores made by the Assessing Officer in relation to valuation of inventory. However, the CIT(A) confirmed the disallowance of INR 48.26 made by the Assessing Officer in relation to the provision for Leave Encashment of INR 48.26 Crores created during the relevant previous year.

ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 3.3. The aforesaid order, dated 19/03/2019, passed by the CIT(A) was rectified by the CIT(A) vide order, dated 15/04/2019 whereby the CIT(A) deleting the disallowance of INR 48.26 Crores made by the Assessing Officer in relation to Leave Encashment. 3.4. Both the Assessee as well as the Revenue are now in appeal before us against the orders passed by the CIT(A). Appeal by Assessee (

(i) The Assessee filed the details of surplus funds available with the Assessee consisting of Share Capital and Reserves & Surplus along with the comparative data of investments made in each of these years in a tabulated format.

(ii) It was submitted that the profits made in the year of investment were in excess of amount of investment made in the respective year, and therefore, it is beyond doubt that Assessee has invested out of surplus funds. In support, the Assessee filed the details of year-wise Profit after Tax plus Depreciation with a comparative data of investments made in 3911-3913 & 4579/Mum/2019 & ITA Nos. 266 & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 each of these years. As per the cash flow statement prepared as per Accounting Standard -3 issued by the Institute of Chartered Accountants of India (ICAI), the cash flow in the year of investment was more than the investments made in each of the years. Further, it was contended that since interest free funds were available with the Assessee were sufficient to meet the investments made it can be presumed that the investments were made from interest free funds as per the judgment of the Hon‟ble Bombay High Court Judgment in the case of Commissioner of Income Tax-2, Mumbai Vs. HDFC Bank Limited: [2016] 366 ITR 505 & Commissioner of Income Tax Vs. Reliance Utilities & Power Ltd.: [2009] 313 ITR 340. Further, only investment yielding exempt dividend income are to be considered for the purpose of computing the amount of disallowance as per Rule 8D(2)(ii) of the Act. c. It was also submitted that there was no nexus between the exempt income earned and interest cost incurred. No indirect expenses were incurred. Without prejudice to the aforesaid, at most INR 3.22 Crores could be disallowed on the basis of the Chartered Accountant certificate, dated 27/11/2014 filed by the Assessee.

4.3. However, the Assessing Officer, not being convinced, rejected the above contentions of the Assessee and recomputed the amount of disallowance under Section 14A of the Act by invoking the provisions of Rule 8D of the Rules giving the following reasoning: a. The presence of share capital and free reserves & surplus does not prove that the investments were made out of own funds 3911-3913 & 4579/Mum/2019 & ITA Nos. 266 & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 b. Free cash flow provided by the Assessee is not supported by documents c. Investments have been made out of common pool of funds. It cannot be presumed that out of common pool of funds only own funds were utilized for making investment while the borrowed funds were used for business purposes. The Assessee has failed to prove that the investments were not made out of borrowed funds d. Disallowance made by the Assessee was quantified by the chartered accountant after elaborate exercise and therefore, it is evident that the expenses related to exempt income incurred by the Assessee have not been accounted in a manner that the same can be identified easily. Therefore, it was a fit case to invoke the provisions of Rule 8D of the Rules. 4.4. The Assessing Officer computed aggregate disallowance as per Rule 8D at INR 71.63 Crores consisting of disallowance of INR 3.22 Crores under Rule 8D(2)(i), INR 42.11 Crores under Rule 8D(2)(ii) and INR 26.31 Crores under Rule 8D(2)(iii). 4.5. Being aggrieved, the Assessee carried the issue in appeal before CIT(A) who granted partial relief. The CIT(A) deleted disallowance of INR 3.22 Crores made by the Assessing Officer holding that the Assessing Officer erred in treating the expenses of INR 3.22 Crores as quantified in the report issued by the Chartered Accountant as direct expenses related to earning exempt income whereas the contention of the Assessee was that no direct expenses related to earning of exempt income had been incurred during the relevant previous year. The CIT(A) also deleted the disallowance under Rule ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 8D(2)(ii) of the Rules holding that Assessee‟s own non-interest bearing funds by way of Share Capital and Free Reserve & Surplus were more than the investments made by the Assessee and therefore, as per the judgment of the Hon‟ble Bombay High Court in the case of Reliance Utilities & Power Limited (supra) and HDFC Bank Limited (supra), it can be presumed that the investments were made out of interest free funds. As regards, computation of disallowance as per Rule 8D(2)(iii) of the Rules, the CIT(A) directed the Assessing Officer to re-compute the quantum of disallowance by taking into consideration only the investments which yielded exempt income. 4.6. Now, both, the Assessee and the Revenue are in appeal before us. The Revenue is aggrieved by the deletion of disallowance made by the Assessing Officer as per the provisions of Rule 8D(2)(i) and 8D(2)(ii) of the Rules. While the Assessee, not being satisfied with the partial relief granted by the CIT(A), contends that the entire disallowance made by the Assessing Officer as per Rule 8D(2)(iii) of the Rules should also have been deleted. 4.7. We have given thoughtful consideration to the rival submissions advance by the parties, perused the material on record and analyzed the position in law. 4.8. We would first take up Ground No. 3 and 2 raised by the Revenue. We are of the considered view that the Revenue has failed to dislodge the factual findings returned by the CIT(A) while deleting the disallowance in terms of Rule 8D(2)(i) and 8D(2)(ii) of the Rules. The CIT(A) has returned a findings that the Assessing Officer had incorrectly treated the indirect expenses of INR 3.22 Crores stated in the report, dated 27/11/2014, issued by the Tax Auditor 11 ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 as direct expenses. On perusal of the aforesaid report issued by the Tax Auditor, we find that the Tax Auditor had quantified INR 3.22 Crores as the expenses that could, at best, be disallowed as indirect expenses incurred in relation to exempt income. The Assessing Officer moved on the premise that INR 3.22 Crores represented direct expenses and proceeded to disallow the same as per Rule 8D(2)(i) of the Rules without identifying any direct expenses related to earning of exempt income. Thus, we do not find any infirmity in order passed by the CIT(A) deleting the disallowance of INR 3.22 Crore made by the Assessing Officer as per the provisions of Rule 8D(2)(i) of the Rules. Similarly, the factual finding returned by the CIT(A) that the interest-free own funds of the Assessee were more than the investment has also gone uncontroverted during the appellate proceedings. On the other hand, the claim of the Assessee was supported by the documents/details filed by the Assessee during appellate proceedings before CIT(A). Therefore, as per the judgment of the Hon‟ble Bombay High Court in the case of HDFC Bank Limited (supra), the CIT(A) was correct in drawing presumption that the investments were made by the Assessee out of the interest-free own funds. In absence of any material placed before us by the Revenue to rebut the aforesaid presumption, we are not inclined to interfere with the order passed by the CIT(A) in this regard. Accordingly, we do not find any infirmity in the order passed by the CIT(A) deleting the addition made by the Assessing Officer invoking the provisions of Rule 8D(2)(i) and Rule 8D(2)(ii) of the Rules, respectively. In view of the aforesaid, Ground No. 3 and 2 raised by the Revenue are dismissed. 4.9. As regards, Ground No. 1 raised by the Assessee and Ground No. 4 raised by the Revenue pertaining to the disallowance made by the 12 ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 Assessing Officer as per Rule 8D(2)(iii) of the Rules are concerned, we find that the CIT(A) has directed the Assessing Officer to recomputed the quantum of disallowance by taking into consideration only the investments yielding exempt income. We note that before the CIT(A), the thrust of the submissions made by the Assessee, as recorded in paragraph 5.2 of the order passed by CIT(A), was on the availability of interest free own funds. Accepting the aforesaid contention of the Assessee, the CIT(A) deleted the disallowance made by the Assessing Officer under Section 14A of the Act read with Rule 8D(2)(ii) of the Rules. The order of the CIT(A) to this extent has been confirmed in paragraph 4.8 above. We find merit in the contention advanced by the Learned Senior Counsel appearing for the Assessee that the Assessing Officer has proceeded on incorrect understanding of facts while recording dissatisfaction and invoking provisions of Rule 8D of the Rules. In paragraph 2.4 of the assessment order, the Assessing Officer has made a general statement – “in this facts of matter, I am satisfied, that this is a fit case for invoking provisions of Section 14A of the IT Act”. While doing so the Assessing Officer has also made reference to the report issued by the Tax Auditor wherein the disallowance has been quantified. However, no specific observations have been recorded regarding the indirect expenses or administrative expenses disallowed by the Assessee (except for the interest expenses). A perusal of the Assessment Order shows that the Assessing Officer had rejected the computation of suo motu disallowance of INR 3.22 Crores by recording dissatisfaction regarding interest expenses incurred by the Assessee during the relevant previous year. According to the Assessing Officer the aforesaid interest expenses should have been disallowed by the Assessee. As noted ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 hereinabove, while recording the aforesaid dissatisfaction the Assessing Officer proceeded on the incorrect premise that the expenses of INR 3.22 Crores stated in the report issued by the Tax Auditor were direct expense. As regards, administrative expenses, apart from the general observation made by the Assessing Officer that the Assessee must have incurred some expenses related to earning of exempt income, no dissatisfaction was recorded by the Assessing Officer in relation to suo motu disallowance of INR 1.69 Crores offered for disallowance by the Assessee being part of indirect expenses INR 3.22 Crores disallowed under Section 14A of the Act in the computation of income. Even before CIT(A) it was contended by the Assessee that the disallowance under Section 14A of the Act should be restricted to the suo motu disallowance offered by the Assessee and that the Assessing Officer was not correct in rejecting the computation of suo motu disallowance offered by the Assessee without assigning any reasons. However, without dealing with the aforesaid contentions, the CIT(A) accepting the alternative contention of the Assessee, directed the Assessing Officer to recomputed disallowance by taking into consideration only the investments yielding exempt income. We note that no reference to any administrative/other expenditure debited to the profit and loss account has been made by the Assessing Officer to support rejection of the aforesaid computation. On the other hand, we note that the computation made by the Assessee is based upon report given by the Tax Auditor. Further, we note that the CIT(A) has in appeal preferred by the Assessee for the preceding assessment years (i.e. Assessment Years 2010-11 to 2013-14) has also accepted similar computation supported by the report of the tax auditor. In view of the aforesaid facts and circumstances, we conclude that the ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & ITA Nos. 266 & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 Assessing Officer erred in not accepting the computation of suo motu disallowance and failed to record proper reasoning and/or dissatisfaction before invoking, inter alia, provisions contained in Rule 8D(2)(iii) of the Rules. Accordingly, we delete the disallowance of INR 26.31 Crores under Section 14A of the Act read with Rule 8D(2)(iii) of the Rules sustained by the CIT(A). Ground No. 1 raised by the Assessee is, therefore, allowed and Ground No. 4 raised by the Revenue is dismissed. Additional Ground No. 1 raised by the Assessee

5.1. The Ld. Senior Counsel appearing for the Assessee submitted that all the details related to the ERV form part of the assessment records and therefore, adjudication of the Additional Ground would not require enquiring into new set of factual not on record. It was submitted that the Assessee is a public sector undertaking and had capitalized ERV of INR 539,09,00,445/- in the Books of Accounts and had not claimed deduction for the same as revenue expenditure or by way of depreciation. In the return of income, the Assessee did not claim deduction for the year end ERV in so far as it related to liability to repay the principal amount of loan taken by the Assessee in the form of External Commercial Borrowings (ECBs). By way of Additional Ground No. 1, the Assessee has claimed deduction for the year end ERV of INR 539,09,00,445/- under Section 37(1) of the Act contending that the same pertain to borrowings utilized for 3911-3913 & 4579/Mum/2019 & ITA Nos. 266 & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 acquisition of assets domestically in compliance with guidelines/approvals issued by the Reserve Bank of India and were therefore, not hit by the provisions contained in Section 43A of the Act. It was pointed out that while deciding appeal preferred by the Assessee for the Assessment Year 2016-17, the CIT(A) has decided identical issue in favour of the Assessee and the Revenue is in appeal before the Tribunal. 5.2. Per contra, the Ld. Departmental Representative submitted that the issue has been raised first time before the Tribunal. Neither the Assessing Officer nor the CIT(A) had the opportunity to verify the factual averments made before the Tribunal. While the relevant facts may be on record, the claim raised for the first time by the Assessee before the Tribunal would require verification/examination and therefore, opportunity must be granted to the Revenue for the same. Learned Departmental Representative further submitted that the Revenue is in appeal before the Tribunal against the order passed by the CIT(A) for the Assessment Year 2016-17 which forms part of the present batch of appeals. 5.3. Having considered the rival submissions and on perusal of record, we admit the Additional Ground No. 1 raised by the Assessee in view of the judgment of the Hon‟ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT: 229 ITR 383. However, we find merit in the contention advanced in behalf of the Learned Departmental Representative that the factual basis on which the Assessee has set up his claim for deduction would require examination of underlying facts. The utilization of ECBs for the purchase of assets from India would need to be verified from the assessment records. Therefore, keeping in view of the above ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 submissions of the Ld. Departmental Representative, we remand the issue back to the file of Assessing Officer for adjudication after verification of facts as averred on behalf of the Assessee and after taking into consideration the decision of the Tribunal in the case of Cooper Corporation Pvt. Ltd. Vs. Deputy Commissioner of Income Tax, Satara: 159 ITD 165. In terms of the aforesaid, Additional Ground No. 1 raised by the Assessee is allowed for statistical purposes. Additional Ground No. 2 raised by the Assessee 6. Additional Ground No. 2 raised by the Assessee does not require separate adjudication and the same is dismissed as being general in nature. Appeal by Revenue (ITA No. 3913/Mum/2019, AY 2014-15) 7. We would now take up the balance grounds raised by the Revenue in ITA No. 3913/Mum/2019. Ground No. 1

8. Ground No. 1 raised by the Revenue is directed against the order of CIT(A) deleting the disallowance of INR 69,43,14,416/- as capital/revenue expenditure. 8.1. In the return of income the Assessee had claimed deduction for INR 69,43,14,416/- being establishment expenses incurred on Projects Department which oversaw the execution of various Projects undertaken by the Assessee. According to the Assessee, the aforesaid establishment expenses were in the nature of salary etc. incurred on various personnel engaged in supervision and monitoring of various projects at refineries and marketing locations.

ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 The aforesaid projects were purely in respect of existing line of business undertaken with the purposes of improving efficiency and expanding refinery infrastructure/market network, and not for setting up a new line of business. Therefore, the Assessee claimed the establishment expenses to be revenue in nature, even though the same were debited to Capital Work-In-Progress Account in the books of account. However, the Assessing Officer was not convinced. Following the assessment order passed in the preceding assessment years, the Assessing Officer concluded that since the Assessee had accounted for establishment expenses in the books of accounts as capital expenditure, and the Assessee was bound to treat the same as capital expenditure unless it was proved by the Assessee that entries made in books of accounts were erroneous or contrary to legal position. Since the Assessee had failed to do so, the Assessee‟s claim for deduction for establishment expenses could not be allowed under Section 37(1) of the Act. Therefore, the Assessing Officer made addition of INR 69,43,14,416/- holding the establishment expenses to be capital in nature. 8.2. In appeal preferred by the Assessee on this issue, the CIT(A) decided the issue in favour of the Assessee and deleted the addition by relying upon the decision of the Tribunal in the case of the Assessee for the 2003-04, 2004-05 and 2005-06, [ITA No. 2736/Mum/2007, 649/Mum/2009, 1186/Mum/2009, 699/Mum/2009 & 1187/Mum/2009, dated 23/11/2016] as well as the decision of Commissioner of Income Tax (Appeals) in appeals preferred by the Assessee for the Assessment Years 2012-13 and 2013-14. 8.3. Being aggrieved by the above relief granted by the CIT(A), the Revenue carried the issue in appeal before us.

ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 8.4. During the course of hearing, both, sides agreed that the identical issue stood decided by the Tribunal in favour of the Assessee and against the Revenue in the preceding assessment years. We note that the CIT(A) had deleted the disallowance treating the establishment expenses as being revenue in nature by following the decision of the Mumbai Bench of the Tribunal in Assessee‟s own case in appeals for the Assessment Years 2003-04, 2004-05 and 2005-06, [ITA No. 2736/Mum/2007, 649/Mum/2009, 1186/Mum/2009, 699/Mum/2009 & 1187/Mum/2009] decided by way of common order, dated 23/11/2016. The relevant extract of the aforesaid decision of the Tribunal reads as under: “17. Ground No.8 relates to the establishment expenses charged to Capital Work in-progress. The ld. AR of the assessee argued that the assessee had claimed deduction on normal business expenses e.g. salary, travelling, conveyance etc. incurring in connection with capital work-in-progress for ongoing project in the same business line as revenue expenditure. However, the Revenue authorities has disallowed the claim on the ground that the assessee has charged, thus, expenditure pertaining to capital work-in-progress and is not proved as revenue in nature but the same is capital in nature. The ld. DR for Revenue supported the order of authorities below.

concurred with the finding of AO.

19. The Hon‟ble Supreme Court in Tuticorin alkali Chemicals and Fertilizers Ltd. vs. CIT (227 ITR 172(SC) held that when the question is whether a receipt of money is taxable or not, or whether certain deduction from receipt are permissible in law or not. The question has to be decided according to the principle of law and not in accordance with the accounting practice. The Hon‟ble Apex Court held that Accounting Practices cannot be override section 56 or any other provisions of the Act. The assessee incurred expenses on ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 various personnel/ employee in the project for supervision and monitoring the various project and marketing allocation and refineries which is certainly allowable as business expenditure u/s 37(1) of the Act. Expenses were made on account of salary, Dearness Allowance (DA), Conveyance Expenses, postal charges, bank charges, rent for housing accommodation, Motorcar etc. which is certain of revenue expenditure. Thus, the Ground No.8 raised by the assessee is allowed.” (Emphasis Supplied) 8.5. In view of the above decision of the Tribunal, we do not find any infirmity in the order passed by the the CIT(A) accepting Assessee‟s claim for deduction of establishment expenses of INR 69,43,14,416/- holding the same to be revenue in nature. Therefore, Ground No. 1 raised by the Revenue is dismissed. Ground No. 5 9. Since Ground No. 2, 3 and 4 were taken up and adjudicated Ground No. 1 raised by the Assessee in , we proceed to take up the next ground. Ground No. 5 raised by the Revenue is directed against the order of CIT(A) deleting the adjustment of INR 46,04,86,281/- made by the Assessing Officer on account of inclusion of foreign exchange losses or the Exchange Rate Variation (ERV) in the value of inventory. 9.1. During the assessment proceedings, by placing reliance upon the Assessment Order for the Assessment Year 2013-14, the Assessing Officer formed a view that the value of inventories should include the foreign exchange loss or ERV. Therefore, a notice was issued to the Assessee to show cause as to why for the Assessment Year 2014-2015 also inventories should not be valued in the same manner by inclusion of ERV. In response, the Assessee filed submissions which did not find favour with the Assessing Officer.

ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 The Assessing Officer noted that his predecessors have taken a view that substantial part of raw material being crude oil is imported and the cost of import necessarily includes loss/gain due to foreign exchange loss or ERV. As per Indian Accounting Standard - IND AS 23, the borrowing costs and financial charges can be made part of inventory cost. Therefore, the valuation of inventory should include actual cost to Assessee which would be the landed cost inclusive of foreign exchange loss or ERV. Therefore, the Assessing Officer made an adjustment of INR 46,04,86,281/- holding as under: “3.2 I have considered Assessee's reply. I find that the same issue was decided against the assessee in respect of its assessment proceedings relevant to A.Y 2014-15. Relying upon the reasoning given in the assessment order of AY 2013-14, the sum of Rs. 813,955,831/- is added to the taxable Income of the assessee. The methodology adopted in AY 2013-14 in arriving at the disallowance of Rs. 127,44,42,112/- is followed in AY 2014- 15 which is as under:

Particulars Assessment Year Assessment Year 2013-14 2014-15 Sales (net of subsidy) 1,90,039 2,16,337 Inventories 16,439 18,775 Inventory as %age of 8.65% 8.68% sale Exchange rate Variation 1473 938 (forex loss) Disallowance on account 127.44 81.40 of ERV However, while adding forex loss in closing stock it is imperative to reduce forex loss in opening stock amounting to Rs. 127,44,42,112. Accordingly, a Net deduction of Rs. 460,486,281 3911-3913 & 4579/Mum/2019 & ITA Nos. 266 & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 is carried out.” (Emphasis Supplied) 9.2. Being aggrieved, the Assessee carried the issue in appeal before CIT(A). Following the order, dated 30/12/2016, and 26/07/2017 passed by his predecessor in appeals preferred by the Assessee for the Assessment Year 2012-13 and 2013-14, respectively, the CIT(A) accepted the valuation of inventories as done by the Assessee and deleted the adjustment of INR 46,04,86,281/- made by the Assessing Officer. 9.3. Being aggrieved, the Revenue is now in appeal before us. 9.4. We have heard the rival submissions and perused the material on record. We note that the Assessing Officer had made adjustment relying on the assessment order for the Assessment Year 2013-14. During the appellate proceedings before the CIT(A), it was contended on behalf of the Assessee that: a) As per Accounting Standard 2 – „Valuation of Inventories‟ the Inventory Valuation is to be done at cost or market price, whichever is lower. Even if the cost of inventory was to be increased as contended by the Revenue, the same would have to be compared with Market Value as aforesaid, which exercise, was not carried out by the Assessing Officer. b) The disallowance has been hurriedly made on incorrect understanding of the applicability of the provisions Indian Accounting Standard - AS 23 on Borrowing Costs without appreciating that the said IND AS Standards was (i) applicable effective the financial year commencing on April 01, 2016, and (ii) had not even been notified by the Ministry of Corporate Affairs at the relevant time. c) Even if it were to be applicable, the said IND AS 23 itself has scoped out its applicability on Inventories. In Paragraphs 2 to 4 of Ind AS 23, under the heading 'Scope', it has been stated that the aforesaid accounting standard is not to be applied to Inventories that are manufactured/processed in large ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 quantities on a repetitive basis. The relevant extract of IND AS 23 reads as under: “Scope 2. An entity shall apply this Standard in accounting for borrowing costs.

4. An entity is not required to apply the Standard to borrowing costs directly attributable to the acquisition, construction or production of: (a) a qualifying asset measured at fair value, for example, a biological asset within the scope of IND AS 41 Agriculture; or (b) inventories that are manufactured, or otherwise produced, in large quantities on a repetitive basis” d) The Assessing Officer has also failed to appreciate that Section 43(1) of the Act defines „Actual Cost‟ is in the context of fixed assets and therefore, reliance upon Section 43(1) of the Act read with Explanation 8 thereto was misplaced. 9.5. The CIT(A) took note of the facts that his predecessor had, after accepting identical submission made on behalf of the Assessee in appeal before CIT(A) pertaining to Assessment Year 2012-13 and 2013-14, set aside the adjustment made in the value of the inventories holding that (i) Section 43A deals with only capital asset, (ii) IND-AS 23 has given specific exclusion for the entire manufacturing or producing in large quantity on a repetitive basis for the purpose of valuing the closing stock, and (iii) Press release of Ministry of Corporate Affairs on 02/01/2015, which is relied by ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 assessing officer, was applicable with effect from 01/04/2016. Following the aforesaid orders passed by his predecessor in appeals for the Assessment Year 2012-13, the CIT(A) set aside the adjustment made by the Assessing Officer in the valuation of the inventories. 9.6. We concur with the conclusion reached by the CIT(A) that the adjustment in the valuation of inventories as made by the Assessing Officer cannot be sustained on account of the following reasons. Firstly, the methodology adopted by the Assessing Officer is flawed. It does not take into account the fact that in addition to imports, the crude oil is also purchased by the Assessee from the domestic market. The inventories may include crude oil imported as well as crude oil procured from domestic market. Further, the methodology adopted by the Assessing Officer proceeds on the understanding that the inventories are to be valued at cost without taking into consideration the Fair Market Value, or the Net Realizable Value, as the case may be. Secondly, the Revenue has failed to controvert the finding returned by the CIT(A) that IND AS 23, on which reliance has been placed by the Assessing Officer, comes into effect with effect from 01/04/2016, Thirdly, Section 43 of the Act provides definition of terms used in Section 28 to 41 of the Act. On perusal of the aforesaid sections it becomes clear that the expression „actual cost‟ has been used therein in relation to asset used by an assessee for the purpose of business and not in the context of an asset held as inventory for trade. Accordingly, we are in agreement with the CIT(A) that the reliance placed by the Assessing Officer on Explanation 8 to Section 43(1) of the Act is clearly misplaced. In view of the aforesaid, we do not find any infirmity in the order passed by the CIT(A) on this issue and decline to interfere with the 24 ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 same. Accordingly, Ground No. 5 raised by the Revenue is dismissed. Ground No. 6 10. Ground No. 6 raised by the Revenue pertains to computation of Book Profits under Section 115JB of the Act. While framing assessment, the Assessing Officer had made disallowance of INR 71.63 Crores under Section 14A of the Act read with Rule 8D of the Rules. Therefore, while computing Book Profit under Section 115JB of the Act, the Assessing Officer increased the profits as shown in the Profit & Loss Account by the aforesaid amount of INR 71.63 Crores by invoking the provisions of Clause (f) of Explanation 1 to Section 115JB(2) of the Act. 10.1. In appeal preferred by the Assessee, the CIT(A) restricted the above amount to be added to the profits as shown in Profit & Loss Account in terms of Clause (f) of Explanation 1 to Section 115JB(2) of the Act to INR 3.22 Crores by accepting the computation filed by the Assessee during the assessment proceedings supported by the report issued by the Tax Auditor. 10.2. Being aggrieved by the above relief granted by the CIT(A), the Revenue is now in appeal before us. 10.3. We have heard the rival contention and perused the material on record. 10.4. We note that the CIT(A) has, following the decision of Special Bench of the Tribunal in the case of Assistant Commissioner of Income Tax Vs. Vireet Investment Pvt. Ltd. : [2017] 165 ITD 27 (Delhi –Trib) (SB), concluded as under:

ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 “14.3 I have considered the A.O.‟s order as well as the appellant‟s submissions. I find that the disallowance made by the Assessing Officer is based on importing the provisions of Section 14A to Section 115JB of the Act. In the decision of the ITAT Delhi Bench „H‟ Bench), in case of Asstt. CIT v. Vireet Investment (P.) Ltd. [2017] 165 ITD 27/82 taxmann.com 415 it has been held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to computation as contemplated under section 14A read with rule 8D. Following the said decision it is held that the addition towards clause (f) of Explanation to Section 115JB is to be restricted to Rs.322,48,484/-, as done by the appellant. Ground No. 11 is allowed.” 10.5. We do not find any infirmity in the order passed by the CIT(A) since the CIT(A) has followed the binding decision of the Special Bench of Tribunal wherein it has been held that computation in terms of Clause (f) of Explanation 1 to Section 115JB(2) is to be made without resorting to computation as contemplated under Section 14A of the Act read with Rule 8D of the Rules. We note that the CIT(A) has restricted the amount of disallowance to the amount of suo-motu disallowance under Section 14A of the Act offered to tax by the Assessee. The Revenue has failed to point out any infirmity in the computation furnished by the Assessee which is supported by the report issued by the Tax Audit. Accordingly, we decline to interfere with the order passed by the CIT(A) on this issue. Ground No. 6 raised by the Revenue is, therefore, dismissed. Appeal by Revenue (ITA No. 4579/Mum/2019, AY 2014-15) 11. We would now take up the Grounds raised in appeal for the Assessment Year 2014-15 heard with the consent of both the sides along with the other appeals for the Assessment Year 2014-15. Ground No. 1 & 2

12. Ground No. 1 & 2 raised by the Revenue are directed against the ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 rectification order, dated 15/04/2019, whereby the CIT(A) had deleted the addition of INR 48.26 Crores made by the Assessing Officer on account of disallowance of provision for Leave Encashment under Section 43B(f) of the Act. 12.1. The relevant facts, in brief, are that the Assessee had taken a Group Leave Encashment Scheme of Life Insurance Corporation (LIC) to provide for and discharge of its liability on account of leave encashment. The Assessee funded the leave encashment liability with LIC of India on annual basis after determining the liability through actuarial valuation at period end of every financial year. The liability so determined by actuary was then compared with balance in fund with LIC and the difference, if any, was funded by the Assessee. For the relevant previous year, the liability of the Assessee for Leave Encashment was computed at INR 577.36 Crores as per the actuarial valuation report. Since there was increase of INR 48.26 Crores as per against the liability of INR 529.09 Crores as on 31/03/2013, a provision of INR 48.26 Crores for Leave Encashment was created in the books of accounts by the Assessee. The Assessing Officer disallowed the aforesaid provision for Leave Encashment created by the Assessee. In appeal preferred by the Assessee on this ground, the CIT(A) vide order, dated 19/03/2019, passed under Section 250 of the Act confirmed the disallowance by, inter alia, observing that the no payment was made by the Assessee to LIC during the relevant previous year. Subsequently, in the rectification application filed by the Assessee, CIT(A) rectified the order and allowed Assessee‟s claim for deduction for 48.26 Crores observing that the Assessee had made payment of INR 48.38 Crores to LIC during the relevant previous year. 27 ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 12.2. It is the contention of the Revenue that since the Assessee has merely created a provision for Leave Encashment deduction for the same cannot be allowed. The payment of contribution to LIC cannot be treated at par with the „actual payment‟. Therefore, as per the provisions of Section 43B(f) of the Act, deduction could not have been allowed to the Assessee. 12.3. On the other hand, the contention advanced on behalf of the Assessee was that from the statement of fund maintained with LIC as on 31/03/2014 payment of INR 48.38 Crores was made by the Assessee to LIC on 26/09/2013 and therefore, the CIT(A) was correct in taking note of the aforesaid facts and allowing deduction under Section 43B(f) of the Act. The payment to LIC constituted actual payment by the Assessee for Leave Encashment. 12.4. We have heard both the sides on this issue and perused the material on record. 12.5. On perusal of the assessment order, we find that during the assessment proceeding, the Assessee made the following submissions: “Considering that the fund maintained with LIC already has a balance in excess of Rs.577.36 Crore, Le. Rs. 637.19 Crore, the additional provision of Rs.48.26 Crore has not been separately funded. A certificate from LIC on balance in Fund maintained with them is attached and marked as "Annexure 1" Once it got disallowed in one of the years, this has been continuing routinely thereafter despite Assessee having furnished the Scheme/Accounting Entries/Proof of Payment to LIC etc. from time to time. In our considered view, the same is allowed during AY 2013-14. We state that on funding of the amount to LIC, it is to be ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & ITA Nos. 266 & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 construed that provisions of Section 43B(f) have been met with. The liability being a certainty, it cannot be called a contingent, merely because the liability was to be discharged at a future date. It is pertinent to note that Calcutta High Court, in case of Exide Industries Limited and Another us. Union Of India and Others (292 ITR 470) has struck down the provisions of Section 43B(f), being arbitrary, unconscionable, unconstitutional and endorsed the Apex court's decision in the case of Bharat Earth Movers [2000] (245 ITR 428).”

12.6. Thus, before the Assessing Officer the Assessee took a position that the additional provision of INR 48.26 Crores was not separately funded. However, during the appellate proceedings before the CIT(A) the Assessee has submitted that a payment of INR 48.38 Crores was made to LIC during the relevant previous year, i.e., on 26/09/2013. Before us the Assessee reiterated the aforesaid position. 12.7. We note that in the case of Union of India Vs. Exide Industries Limited: [2020] 425 ITR 1 (SC)[24-04-2020], the Hon‟ble Supreme Court has, while upholding the constitutional validity of provisions contained in Section 43B(f) of the Act, held as under: “32. Both the grounds are ill-founded. In the basic scheme of section 43B, there is no direct or indirect limitation upon the power of legislature to include only particular type of deductions in the ambit of section 43B. To say that section 43B is restricted to deductions of a statutory nature would be nothing short of reading the provision in a purely imaginative manner. As already discussed above, from 1983 onwards, section 43B had taken within its fold diverse nature of deductions, ranging from tax, duty to bonus, commission, railway fee, interest on loans and general provisions for welfare of employees. An external examination of this journey of section 43B reveals that the legislature never restricted it to a particular category of deduction and that intent cannot be read into the main section by ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 the Court, while sitting in judicial review. Concededly, it is a provision to attach conditionality on deductions otherwise allowable under the Act in respect of specified heads, in that previous year in which the sum is actually paid irrespective of method of accounting.” 12.8. On perusal of the above it can be seen that 43B(f) of the Act attaches conditionality of actual payment to a deduction otherwise allowable as per the provision of the Act. As per the judgment of the Hon‟ble Supreme Court in the case of Bharat Earth Movers Vs. Commissioner of Income Tax: [2000] 245 ITR 428 (SC) provision created for meeting liability towards Leave Encashment was allowable as deduction under Section 37(1) of the Act as the same cannot be regarded as a provision for contingent liability. Therefore, deduction for provision created for Leave Encashment on the basis of actuarial valuation is allowable as deduction under Section 37(1) of the Act. However, Section 43B(f) of the Act provides that even if deduction for provision for Leave Encashment created during the relevant previous year is otherwise allowable [under Section 37(1) of the Act] as per the method of accounting followed by the assessee, deduction for the same can only be allowed on actual payment. Therefore, in a case where an assessee accounts for expense (covered by the provisions contained in Section 43B of the Act) on accrual basis and the same is allowable as deduction on accrual basis, however, in case the assessee does not make payment towards the same during the relevant previous year, then irrespective of the previous year in which the expenses were incurred, the deduction for the same is allowable under Section 43B of the Act on actual payment for the assessment year relevant to the previous year in which actual payment is made. 12.9. Reverting to the facts of the present case, we are of the view even ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 contribution made by the Assessee to LIC would constitute payment as it not disputed that on making such contribution to LIC, the Assessee would not have any control over the funds so contributed; and that the amount of leave encashment would be paid by LIC to the employee when the same becomes payable to the employees. Meaning thereby, the liability of the Assessee to make payment towards Leave Encashment would get discharged by making payment to LIC for the purpose of Section 43B of the Act. However, the issue that arises for consideration is whether the payment of INR 48.38 made by the Assessee to LIC corresponds to the provisions of INR 48.26 Crores created by the Assessee during the relevant previous year. From the material on record, it is not clear whether the payment of INR 48.38 made by the Assessee on 26/09/2013 corresponds to the provision for leave encashment of INR 48.26 Crores created during the relevant previous year. Before the Assessing Officer the Assessee took a position that provision of INR 48.26 created during the relevant previous year was not funded separately. However, before the CIT(A) the Assessee relied upon statement wherein payment of INR 48.38 was reflected. The submission of the Assessee before the Assessing Officer that the fund maintained with LIC already had a balance in excess of Rs.577.36 Crore, i.e. Rs. 637.19 Crore, and therefore, the provision of INR 48.26 Crores was not separately funded was not taken into consideration by the CIT(A). Accordingly, in the facts and circumstances of the case we remit this issue back to the file of the Assessing Officer with the directions to allow deduction for INR 48.26 Crores, being provisions for leave encashment, to the Assessee during the relevant previous year in terms of Section 37(1) read with Section 43B(f) of the Act provided the Assessee is ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 able to establish before the Assessing Officer that the payment of INR 48.38 Crores made by the Assessee to LIC during the relevant previous year (i.e., on 26/09/2013) corresponds to the provision created during the relevant previous year. In terms of the aforesaid, Ground No. 1 raised by the Revenue is allowed for statistical purposes, and Ground No. 2 raised by the Revenue is dismissed as being infructuous. (Assessment Year 2015-16) 13. We will now take up cross-appeals for the Assessment Year 2015- 16. These cross-appeals arise from the common order, dated 22/03/2019, passed by the CIT(A) whereby the CIT(A) had partly allowed the appeal preferred by the Assessee against the Assessment Order, dated 29/12/2017, for the Assessment Year 2015-16 passed under 143(3) of the Act. 13.1. The Assessee has raised the following grounds of appeal in ITA No. 3196/Mum/2019:

1. Disallowance under Section 14A(2) read with Rule 8D. The Appellant submits that on the facts and in the circumstances of the case and true interpretation of the provisions of Section 14A, a. CIT(A) erred by not giving ground of rejection of Appellant's own disallowance Instead directly applied Rule 8D in his order. b. CIT(A) erred in applying provisions of Sec 14A(2) read with Rule 8D of the Income Tax Rules when it is recorded and accepted in the Order that Appellant had sufficient funds and AO also acknowledged elaborate quantification of suo moto disallowance by Appellant based on CA certificate. c. CIT(A) erred in applying Rule 8D(iii) i.e. 0.5% of average investment which is nothing but notional indirect disallowance when Appellant suo moto had taken Indirect expense ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & ITA Nos. 266 & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 disallowance and duly recorded by CIT(A) in his order.

2. Disallowance of Provision for leave encashment Rs. 21,09,88,131/- - The Appellant submits that on the facts and in the circumstances of the case and on a true and proper Interpretation of the provisions of Section 43B of Income Tax Act, 1961, the CIT (A) erred in confirming the disallowance of the AO, of legitimate business expenditure. a. CIT(A) erred on the fact that AO in assessment disallowed the amount by observing "found nothing new in the reply except as few additional details like actuary valuation report/ some accounting entries etc., hence the amount of Rs.21,09,88,131/- of provision disallowed and added to income. CIT(A) recorded the fact that AO has not discussed Section 43B(f) thus erred in interpreting and justify such disallowance u/s 438(b) as if interpreted and justified by AO in assessment order, even though no such reason is recorded in assessment order by AO nor applied such section by AO. a. CIT (A) erred in disallowing u/s 43B (b) on the ground that even though provision is based on actuarial valuation can be allowed only on payment basis. However also recorded that fund created with LIC had sufficient or more than the required balance, and hence fulfils the requirement of availability of funds in separate fund account maintained with LIC. b. CIT(A) erred and failed to appreciate that actuarial report is the best scientific method to account for liability and hence at given date, books need to reflect actual payable and accordingly provision was required as per prudent accounting policies. As LIC fund already had more than the required amount to be paid, the condition of payment gets satisfied and hence allowable u/s 37(1). c. CIT(A) observed and justified disallowance by stating that even if not covered by Section 438(b), no liability exists during the year considering fund had balance more than determined. He failed to appreciate that actuarial report is the best scientific method to account for liability and hence at given date, books need to reflect actual payable and accordingly provision was required as per prudent accounting policies. As LIC fund already had more than the required amount to be paid, the condition of payment gets satisfied and hence ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 allowable u/s 37(1). d. CIT(A) failed to appreciate the fact that LIC fund comprises of interest on the amount funded on regular basis and such interest component offered to tax on regular basis and also for the period in question and thus would amount to funded to LIC. e. CIT(A) failed to appreciate that interest earned offered to tax and if provision is also disallowed, would again entail tax. Thus, there would be double taxation on the same amount, first on interest offered to tax and second on the amount representing provision to meet the shortfall as required to be accounted in the books as per Actuarial report. The Appellant submit that as CIT(A) decided applicability of Sec 438(b), and based on CIT(A) own observation, Fund had more than the accrued liability, condition of Sec 438(b) gets satisfied and hence disallowance by CIT(A) is not justified and Appellant is entitled for a deduction.. Appellant craves leave to rely on the information and explanation given to CIT(A) and to the Respondent during the Appeal/Assessment proceedings and the averments made in the above grounds. Appellant also craves leave to make further submissions at the time of hearing. Appellant also craves leave to add to, alter, amend or modify the abovementioned grounds.” 13.2. The Assessee has also raised the following Additional Grounds of appeal [ITA No. 3196/Mum/2019] vide letter dated 16/06/2022:

Additional ground No. 1: On the facts and circumstances of the case and in law, Loss/ Gains arising due to Exchange Rate Variation on Foreign Loans used for creating indigenous assets to be allowed as deduction under 37(1) of the Income Tax Act, 1961, while computing the taxable income. Additional ground No. 2: The Appellant craves leave to add, alter, amend or withdraw all or 3911-3913 & 4579/Mum/2019 & ITA Nos. 266 & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.

13.3. The Revenue has raised the following grounds of appeal in ITA No. 3911/Mum/2019:

1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in holding that the amount of Rs. 107,04,78,000/- being expenditure incurred for supervising and monitoring of execution of new projects are in the nature of revenue expenditure and thereby deleting the said disallowance."

2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in directing to delete the disallowance made u/s. 14A r.w. rule 8D(2)(ii) of the IT Act holding that since investment of assessee is less than own funds therefore, presumption arises that investment are sourced from own funds thereby rejecting the application of rule 8D; and also by applying the ratio of decision given in the case of HDFC Bank Ltd. (2016) 67 Taxmann.com 42 (Bom.) and (2014) 366 ITR 505 (Bom.) which has the impact of making the statutory rule redundant and entering into the legislative realm of redrafting the mandatory rule made by the Parliament.

3. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in directing the AO to delete the disallowance made by the AO u/s. 14A r.w.r 8D(2)(1) of Rs. 3.65 crore by treating the said amount as indirect interest expenditure as against direct expenditure as was held by the AO.

4. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in directing the AO to re-compute the disallowance u/R 8D(2)(iii) by considering investments which had yielded exempt dividend income; without appreciating the fact that there is no such exclusions provided under the Act.

5. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in holding that the forex losses should 35 3911-3913 & 4579/Mum/2019 & ITA Nos. 266 & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 not be accounted for the purpose of valuation of inventory and thereby deleting the addition of Rs.87,68,03,979/- without considering Accounting Standards based on matching principle."

6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.68,16,10,308/- made by the AO being the expenditure incurred in relation to income to which section 10 of the Act applies; while computing the income under section 115JB of the Act.” 13.4. During the course of hearing both the sides had adopted the arguments made in relation to corresponding grounds raised in appeal for the Assessment Year 2014-15 and agreed that our findings/adjudication in appeal for the Assessment Year 2014-15 shall also apply mutatis mutandis to grounds raised in appeal preferred by the Assessee/Revenue in appeals for the Assessment Year 2016-17.

Appeal by Assessee (ITA No. 3196/Mum/2019, AY 2015-16) 14. We would first take up the grounds raised by the Assessee in the appeal along with the connected grounds raised by the Revenue in the cross appeal. Ground No.1 of Appeal by Assessee along with Ground No. 2, 3 & 4 of Appeal by Revenue

15. All the grounds under consideration pertain to disallowance under Section 14A of the Act made by the Assessing Officer by invoking the provisions of Rule 8D of the Rules. 15.1. The facts relevant for adjudication of the grounds under consideration are that during the assessment proceedings, the 3911-3913 & 4579/Mum/2019 & ITA Nos. 266 & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 Assessing Officer noted that the Assessee has earned dividend income amounting to INR 55,09,19,633/- which was claimed to be exempt from tax in the return of income. On verification of the computation of total income, the Assessing Officer noticed that the Assessee had made suo motu disallowance of INR 3.65 Crore under Section 14A of the Act. However, the Assessing Officer rejected the aforesaid sou motu disallowance offered by the Assessee and computed aggregate disallowance as per Rule 8D at INR 71.81 Crores consisting of disallowance of INR 3.65 Crores under Rule 8D(2)(i), INR 39.10 Crores under Rule 8D(2)(ii) and INR 29.06 Crores under Rule 8D(2)(iii). 15.2. Being aggrieved, the Assessee carried the issue in appeal before CIT(A) who granted partial relief. The CIT(A) deleted disallowance of INR 3.65 Crores made by the Assessing Officer holding that the Assessing Officer erred in treating the expenses of INR 3.65 Crores, being indirect expenditure attributable to earning exempt income quantified in the report issued by the Chartered Accountant, as the direct expenses related to earning exempt income whereas the contention of the Assessee was that no direct expenses related to earning of exempt income had been incurred during the relevant previous year. The CIT(A) also deleted the disallowance under Rule 8D(2)(ii) of the Rules holding that Assessee‟s own non-interest bearing funds by way of Share Capital and Free Reserve & Surplus were more than the investments made by the Assessee and therefore, as per the judgment of the Hon‟ble Bombay High Court in the case of Reliance Utilities & Power Limited (supra) and HDFC Bank Limited (supra), it can be presumed that the investments were made out of interest free funds. As regards, computation of disallowance as per Rule 8D(2)(iii) of the Rules, the CIT(A) directed 37 ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 the Assessing Officer to re-compute the quantum of disallowance by taking into consideration only the investments which yielded exempt income. 15.3. Now, both, the Assessee and the Revenue are in appeal before us. Ground No. 1 raised in appeal by the Assessee pertains to the disallowance made by the Assessing Officer under Section 14A of the Act read with Rule 8D(2)(iii) of the Rules to the extent sustained by the CIT(A), while Ground No. 4 raised by the Revenue pertain to the disallowance under Section 14A of the Act read with Rule 8D(2)(iii) of the Rules to the extent reduced by the CIT(A). Ground No. 3 and 2 raised by the Revenue pertain to the disallowance under Section 14A of the Act read with Rule 8D(2)(i) & 8D(2)(ii) of the Rules, respectively, deleted by the CIT(A). 15.4. Both the sides agreed that our finding/adjudication in relation of corresponding grounds raised in appeal for the Assessment Year 2014-15 shall apply mutatis mutandis since there is no change in the relevant facts and circumstances of the case. Accordingly, in view of our finding/adjudication and the reasoning thereof contained in paragraph 4.8 and 4.9 above, Ground No. 1 raised by the Assessee is allowed while Ground No. 2, 3 & 4 raised by the Revenue are dismissed. Ground No. 2

16. Ground No. 2 pertains to disallowance of provision for Leave Encashment amounting to INR 21,09,88,131/-. 16.1. Both the sides adopted the arguments advanced in relation to Ground No. 1 & 2 raised by the Revenue in appeal (ITA No. 4579/Mum/2019) for the Assessment Year 2014-15.

ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 16.2. We note that, as was the case for Assessment Year 2014-15, during the previous year relevant to Assessment Year 2015-16, the Assessee created provision for Leave Encashment of INR 21.10 Crores. However, the Assessing Officer disallowed the same in view of the fact that similar disallowances were made in the preceding assessment years and there was nothing new in the reply furnished by the Assessing Officer. The CIT(A) also confirmed the disallowance. Being aggrieved, the Assessee in now in appeal before the Tribunal. While deciding Ground No. 1 raised by the Revenue in appeal (ITA No. 4579/Mum/2019) for the Assessment Year 2014-15 in paragraph 12 to 12.9 above, we have remitted the identical issue back to the file of the Assessing Officer with directions. Since both sides agreed that our finding/adjudication in relation to Ground No. 1 raised by the Revenue in appeal (ITA No. 4579/Mum/2019) for the Assessment Year 2014-15 shall apply mutatis mutandis to the ground under consideration, we remit the issue raised in Ground No. 2 back to the file of the Assessing Officer with the directions to allow deduction for INR 21.10 Crores, being provisions for leave encashment, to the Assessee in terms of Section 37(1) read with Section 43B(f) of the Act provided the Assessee is able to establish before the Assessing Officer that the payment of INR 21.10 Crores was made by the Assessee to LIC during the relevant previous year which corresponded to the provision for leave encashment of INR 21.10 Crores created during the relevant previous year. In terms of the aforesaid, Ground No. 2 raised by the Assessee is allowed for statistical purposes. Additional Ground No. 1 raised by the Assessee

17.1. Both the sides adopted the arguments made in relation to Additional Ground No.1 raised by the Assessee in appeal for the Assessment Year 2014-15. Since both the sides had agreed during the course of hearing that our findings/adjudication in relation to the aforesaid Additional Ground No. 1 raised by the Assessee in appeal for the Assessment Year 2014-15 shall apply mutatis mutandis to Ground No. 1 raised in appeal preferred by the Assessee for the Assessment Year 2015-16, Additional Ground No. 1 raised by the Assessee is admitted in view of the judgment of the Hon‟ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT: 229 ITR 383. However, in view of our findings/adjudication in paragraph 5 to 5.3 above, the issue raised in Additional Ground No.1 is remitted back to the file of Assessing Officer for adjudication after verification of factual averments made on behalf of the Assessee and after taking into consideration the decision of the Tribunal in the case of Cooper Corporation Pvt. Ltd. Vs. Deputy Commissioner of Income Tax, Satara: 159 ITD 165. In terms of the aforesaid, Additional Ground No. 1 raised by the Assessee is allowed for statistical purposes. Additional Ground No. 2 raised by the Assessee 18. Additional Ground No. 2 raised by the Assessee does not require separate adjudication and the same is dismissed as being general in nature. Appeal by Revenue (ITA No. 3911/Mum/2019, AY 2015-16)

ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 19. We would now take up grounds raised by the Revenue in the cross appeal. Ground No. 1

20. Ground No. 1 raised by the Revenue is directed against the order of CIT(A) deleting the disallowance of INR 107,04,78,000/- as capital/revenue expenditure. 20.1. In the return of income the Assessee had claimed deduction for INR 107,04,78,000/- being establishment expenses incurred on Projects Department which oversaw the execution of various Projects undertaken by the Assessee. The Assessing Officer disallowed the aforesaid expenses holding the same to be capital in nature. In appeal preferred by the Assessee on this issue, the CIT(A) agreed with the Assessee allowed claim for deduction as revenue expenditure. The Revenue is now in appeal before us. 20.2. While adjudicating Ground No. 1 raised in appeal (ITA No. 3913/Mum/2019) for the Assessment Year 2014-15 preferred by the Revenue in paragraph 8 to 8.5 above, we have accepted the contention of the Assessee that the aforesaid expenses are revenue in nature. Since there is no change in facts and circumstances during the relevant previous year, taking a view consistent with the view taken while deciding identical issue in appeal for the Assessment Year 2014-15, we confirm the order of CIT(A) deleting the disallowance of INR 107,04,78,000/- holding the same to be expenses of revenue nature by following the decision of the Mumbai Bench of the Tribunal in Assessee‟s own case in appeals for the Assessment Years 2003-04, 2004-05 and 2005-06, [ITA No. 2736/Mum/2007, 649/Mum/2009, 1186/Mum/2009, 699/Mum/2009 ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 & 1187/Mum/2009] decided by way of common order, dated 23/11/2016. Accordingly, Ground 1 raised by the Revenue is dismissed. Ground No. 5 21. Since Ground No. 2, 3 and 4 were taken up and adjudicated Ground No. 1 raised by the Assessee (ITA No. 3196/Mum/2019), we proceed to take up Ground No. 5 raised by the Revenue which is directed against the order of CIT(A) deleting the adjustment of INR 87,68,03,979/- made by the Assessing Officer on account of inclusion of foreign exchange losses or the Exchange Rate Variation (ERV) in the value of inventory. 21.1. We have already dismissed identical ground raised by the Revenue in appeal for the Assessment Year 2014-15 in paragraph 9 to 9.6 above. Since there is no change in the facts and circumstances of the case and both the sides had made identical submission, we decline to interfere with the order passed by the CIT(A) on this issue. Accordingly, Ground No. 5 raised by the Revenue is dismissed. Ground No. 6

22. Ground No. 6 raised by the Revenue pertains to computation of Book Profits under Section 115JB of the Act. 22.1. Identical ground raised by the Revenue in appeal for the Assessment Year 2014-15 stands dismissed in paragraph 10 to 10.5. above. Since there is no change in facts and circumstances during the relevant previous year, taking a view consistent with the view taken while deciding identical issue in appeal for the ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 Assessment Year 2014-15, we do not find any infirmity in the order passed by the CIT(A) by following the binding decision of the Special Bench of the Tribunal in the case of Assistant Commissioner of Income Tax Vs. Vireet Investment Pvt. Ltd. : [2017] 165 ITD 27 (Delhi –Trib) (SB). Accordingly, Ground No. 6 raised by the Revenue is dismissed. (Assessment Year 2016-17) 23. We will now take up cross-appeals for the Assessment Year 2016- 17. 23.1. These cross-appeals arise from the common order, dated 22/11/2019, passed by the CIT(A) whereby the CIT(A) had partly allowed the appeal preferred by the Assessee against the Assessment Order, dated 30/12/2018, for the Assessment Year 2016-17, passed under 143(3) of the Act. 23.2. The Assessee has raised the following grounds of appeal in ITA No. 266/Mum/2020:

1. Disallowance under Section 14A(2) read with Rule 8D. The Appellant submits that on the facts and in the circumstances of the case and true interpretation of the provisions of Section 14A, a. CIT(A) erred by not giving ground of rejection of Appellant's own disallowance instead directly applied Rule 8D in his order. b. CIT(A) erred by not appreciating the fact that Assessing Authority has not recorded any findings on suo moto disallowance basis CA certificate by Appellant with regard to indirect expenses except for interest free funds for which CIT(A) recorded his finding as not applicable.

ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 c. CIT(A) erred by not offering any observation / discussion on Hon'ble ITAT order in Appellant's own case for AY 2006-07 wherein Assessing Authority directed to consider / allow after examining CA certificate deduction for AY 2010-11 to AY 2012- 13, even though recorded in his Order on page 13, para 5.2.1. d. CIT(A) erred in applying Rule 8D (ii) i.e. 0.5% of average investment which is nothing but notional indirect disallowance when Appellant suo moto had taken indirect expense disallowance and duly recorded by CIT(A) in his order.”

23.3. The Revenue has raised the following grounds of appeal in ITA No. 806/Mum/2020:

1. "On the facts and in the circumstances of the case and in law, the CIT(A) has erred in holding that the amount of Rs.80,99,68,307/- being expenditure incurred for supervising and monitoring of execution of new projects are in the nature of revenue expenditure and thereby deleting the disallowance" LA.

2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing to delete the disallowance made u/s 14A r.w.r 8D(2)(ii) of the I Tact holding that since investment of assessee is less than own funds therefore, presumption arises that investment are sourced from own funds thereby rejecting the application of rule 8D; and also by applying the ratio of decision given in the case of HDFC Bank Ltd. (2016) 67 Taxmann.com 42 (Bom.) and (2014) 366 ITR 505 (Bom.) Which has the impact of making the statutory rule redundant and entering into the legislative realm of redrafting the mandatory rule made by the Parliament.

3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.79,87,30,469/- made by the AO being the expenditure incurred in relation to income to which section 10 of the Act applies; while computing the income under section 115 JB of the Act.

4. On the facts and in the circumstances of the case and in law, 44 3911-3913 & 4579/Mum/2019 & ITA Nos. 266 & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 the Ld. CIT(A) erred in law in holding that in the computation of book profits under section 115JB of the Income Tax Act, disallowance under section 14A was impermissible, contrary to Explanation 1 (f) to section 115JB of the Act.

5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the forex losses should not be accounted for the purpose of in valuation of inventory and thereby deleting the addition of Rs.35,03,47,309/- developed considering Accounting Standards based on matching principle.

6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.580,36,54,174/-on account of foreign exchange loss incurred on acquiring capital assets; 7. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in considering the return filed u/s 139(5) as a valid return without considering the rulings in the cases of CIT versus Andhra Cotton Mills Ltd. 219 ITR 404 (AP) and Sunanda Ram Deka vs CIT 210 ITR 988 (Guwahati) relied upon by the AO; 8. On the facts and in the circumstances of case and in law, the Ld. CIT(A) erred in holding that loss accrued to the due to foreign exchange fluctuation in respect of external credit borrowings taken for acquisition of indigenous assets is a revenue loss.” 23.4. During the course of hearing both the sides had adopted the arguments made in relation to corresponding grounds raised in appeal for the Assessment Year 2014-15 and agreed that our findings/adjudication in appeal for the Assessment Year 2014-15 shall also apply mutatis mutandis to grounds raised in appeal preferred by the Assessee/Revenue in appeals for the Assessment Year 2016-17. Appeal by Assessee (ITA No. 266/Mum/2020, AY 2016-17)

ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 24. We would first take grounds raised by the Assessee in the appeal. Ground No.1

25. Ground No. 1 raised in appeal by the Assessee pertains to the disallowance under Section 14A of the Act read with Rule 8D(2)(iii) sustained by the CIT(A).

26. Identical ground raised by the Revenue in appeal for the Assessment Year 2014-15 stands dismissed in paragraph 4.9 above. Since there is no material change in facts and circumstances during the relevant previous year, taking a view consistent with the view taken while deciding identical issue in appeal for the Assessment Year 2014-15, we delete the disallowance under Section 14A of the Act read with Rule 8D(2)(iii) of the Rules to the extent is was sustained by the CIT(A). In view of the aforesaid, Ground No. 1 raised by the Assessee is allowed. Appeal by Revenue (ITA No. 806/Mum/2020, AY 2016-17)

27. We would now take up grounds raised by the Revenue in the cross appeal. Ground No. 1

28. Ground No. 1 raised by the Revenue is directed against the order of CIT(A) deleting the disallowance of INR 80,99,68,307/- being the nature of revenue expenditure. 28.1. In the return of income the Assessee had claimed deduction for INR 80,99,68,307/- being establishment expenses incurred on Projects Department which oversaw the execution of various Projects undertaken by the Assessee. The Assessing Officer disallowed the ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 aforesaid expenses holding the same to be capital in nature. In appeal preferred by the Assessee on this issue, the CIT(A) agreed with the Assessee allowed claim for deduction as revenue expenditure. The Revenue is now in appeal before us. 28.2. We note that while adjudicating Ground No. 1 raised in appeal (ITA No. 3913/Mum/2019) for the Assessment Year 2014-15 preferred by the Revenue in paragraph 8 to 8.5 above, we have accepted the contention of the Assessee that the aforesaid expenses are revenue in nature. Since there is no change in facts and circumstances during the relevant previous year, taking a view consistent with the view taken while deciding identical issue in appeal for the Assessment Year 2014-15, we confirm the order of CIT(A) deleting the disallowance of INR 80,99,68,307/- holding the same to be expenses of revenue nature by following the decision of the Mumbai Bench of the Tribunal in Assessee‟s own case in appeals for the Assessment Years 2003-04, 2004-05 and 2005-06, [ITA No. 2736/Mum/2007, 649/Mum/2009, 1186/Mum/2009, 699/Mum/2009 & 1187/Mum/2009] decided by way of common order, dated 23/11/2016. Accordingly, Ground 1 raised by the Revenue is dismissed. Ground No. 2 29. Ground No. 2 raised by the Revenue is directed against the order of CIT(A) deleting the disallowance under Section 14A of the Act read with Rule 8D(2)(ii) of the Rules. 29.1. Both the sides adopted the arguments made in relation to Ground No. 2 raised by the Revenue in appeal for the Assessment Year 2014-15 and agreed that our findings/adjudication in relation to the ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 aforesaid Ground No. 2 shall also apply mutatis mutandis to Ground No. 2 raised in appeal preferred by the Revenue for the Assessment Year 2016-17. Accordingly, since there is no material change in facts and circumstances during the relevant previous year, taking a view consistent with the view taken while deciding identical issue in appeal for the Assessment Year 2014-15, we confirmed the order of the CIT(A) deleting the disallowance under Section 14A of the Act read with Rule 8D(2)(ii) of the Rules. In view of the aforesaid, Ground No. 2 raised by the Revenue is dismissed. Ground No. 3 & 4 30. Ground No. 3 & 4 raised by the Revenue pertains to computation of Book Profits under Section 115JB of the Act. 30.1. Identical ground raised by the Revenue in appeal for the Assessment Year 2014-15 stands dismissed in paragraph 10 to 10.5. above. Since there is no change in facts and circumstances during the relevant previous year, taking a view consistent with the view taken while deciding identical issue in appeal for the Assessment Year 2014-15, we do not find any infirmity in the order passed by the CIT(A) by following the binding decision of the Special Bench of the Tribunal in the case of Assistant Commissioner of Income Tax Vs. Vireet Investment Pvt. Ltd. : [2017] 165 ITD 27 (Delhi –Trib) (SB). Accordingly, Ground No. 3 & 4 raised by the Revenue is dismissed. Ground No. 5

31. Ground No. 5 raised by the Revenue is directed against the order of CIT(A) deleting the addition of INR 35,03,47,309/- made by the Assessing Officer on account of inclusion of foreign exchange losses ITA Nos. 3195-3196, 3911-3913 & 4579/Mum/2019 & ITA Nos. 266 & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 or the Exchange Rate Variation (ERV) in the value of inventory.

32. We have already dismissed identical ground raised by the Revenue in appeal for the Assessment Year 2014-15 in paragraph 9 to 9.6 above. Since there is no change in facts and circumstances during the relevant previous year, taking a view consistent with the view taken while deciding identical issue in appeal for the Assessment Year 2014-15, we hold that there is no infirmity in the order passed by the CIT(A) on this issue as the CIT(A) was correct in accepting the valuation of inventory as done by the Assessing Officer. Accordingly, we decline to interfere with the order passed by the CIT(A) on this issue. Ground No. 5 raised by the Revenue is dismissed. Ground No. 6 & 7

33. Ground No. 6 & 7 raised by the Revenue is directed against the order of CIT(A) are directed against the order of CIT(A) accepting the fresh claim for deduction of INR 580,36,54,174/- under Section 37(1) of the Act is respect of the loss arising due to Exchange Rate Variation (for Short „ERV‟) on Foreign Loans used for creating indigenous assets made by the Assessee in the revised return.

33.1. Both the sides adopted the arguments made in relation to Additional Ground No.1 raised by the Assessee in appeal for the Assessment Year 2014-15. Since both the sides had agreed during the course of hearing that our findings/adjudication in relation to the aforesaid Additional Ground No. 1 raised by the Assessee in appeal for the Assessment Year 2014-15 shall apply mutatis mutandis to Ground No. 6 raised in appeal preferred by the Revenue for the Assessment Year 2016-17. For the Assessment Year 2014-15 and 2015-16 we 3911-3913 & 4579/Mum/2019 & ITA Nos. 266 & 806/Mum/2020 AYs 2014-15, 2015-16 & 2016-17 have already remitted identical issue to the file of the Assessing Officer with directions. Accordingly, in view of our findings/adjudication in paragraph 9 to 9.6 above, the issue raised in Ground No.6 is remitted back to the file of Assessing Officer for adjudication after verification of factual averments made on behalf of the Assessee to the effect that the ECBs were utilized for purchasing assets indigenously from the Indian domestic market and after taking into consideration the decision of the Tribunal in the case of Cooper Corporation Pvt. Ltd. Vs. Deputy Commissioner of Income Tax, Satara: 159 ITD 165. In terms of the aforesaid, Ground No. 6 raised by the Revenue is allowed for statistical purposes. 33.2. As regards Ground No. 7 raised by the Revenue is concerned, we do not find merit in the contention of the Revenue that the additional claim for deduction is respect of the loss arising due to ERV on Foreign Loans stated to have been used for creating indigenous assets could not have been raised in the revised return. The finding returned by the CIT(A) that the Assessing Officer had accepted the revised return as a valid return and has, thereafter, issued notice under Section 143(2) of the Act. Therefore, we concur with the CIT(A) that, having accepted the revised return as a valid return, the Assessing Officer fell in error in rejecting the claim for deduction for ERV loss Assessee by holding that the claim for ERV loss could not have formed a valid basis of filing the revised return. We do not find any infirmity in the order passed by the CIT(A) on this issue. Ground No. 7 raised by the Revenue is, therefore, dismissed.

Order pronounced on 16.01.2024.