ADDL CIT LARGE TAX PAYER UNIT, MUMBAI vs. RELIANCE INDUSTRIES LTD, MUMBAI

आदेश / O R D E R PER BENCH:

3 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., These are the cross appeals filed by assessee and revenue against the order of CIT(A) for the assessment year 2007-08 to 2009-10 in the matter of order passed u/s.143(3) / 147 r.w.s. 143(3) of the IT Act. 2. Most of the grounds are common in all the years under consideration, therefore, all the appeals were heard together and are now decided by this consolidated order. 3. Rival contentions have been heard and record perused. 4. The facts in brief are that assessee company is engaged in the business of Oil & Gas Exploration Refining of Crude Oil, Mfg. & Trading of Petrochemicals, Polyester, Fibre Immediate Textiles, Generation & Distribution of Power and Operation of Jetties and related infrastructure, Retail Marketing and Petroleum Products and Investment. During the course of scrutiny assessment, AO made disallowance u/s.14A. The depreciation on capital value of goods purchased from Durga Iron & Steel Ltd., and Surajbhan Rajkumar Pvt. Ltd., was also disallowed. Claim of deduction u/s.80IA was also declined by AO. AO also disallowed professional fees paid to various companies on the plea of non-genuine. Addition was also made on account of non-funded guarantee given by assessee to bank of America for giving loans to its associated concern. Addition was also made in respect of interest free loans and advances given to subsidiary. Sales Tax incentives received from Government was also added by AO treating the same as revenue receipt. 5. By the impugned order, CIT(A) deleted the addition made on account of notional Sales Tax which has been treated by the AO as revenue receipt.

4 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., Partial relief was given on account of claim of depreciation by directing the AO to adopt WDV as on 01/04/2008. Assessee’s claim for deduction u/s.80IA was also allowed by the CIT(A). Addition made u/s.40(a)(ia) on account of non-deduction of tax u/s.195 was also deleted by CIT(A). By the impugned order CIT(A) restricted the guarantee commission @0.575% in place of 2.60% of non-funded guarantee given by assessee for advancing loans to its associated concern. 6. Against the above order of CIT(A) for the assessment year 2007-08 both assessee and revenue are in further appeal before us. 7. Grounds taken by assessee in the A.Y.2007-08 reads as under:- 1. The learned Commissioner of Income-tax - (Appeals - 15) {hereinafter referred to as CIT(A)} erred in rejecting the Appellant's alternative plea that there is a deemed payment of sales tax and therefore the amount of RS.1538,71, 72,697/- is allowable as per the provisions of Section 43B of the Income- tax Act, 1961. The Appellant submits that there is a deemed payment of Sales tax which is allowable u/s.43B of the Act and the CIT(A) ought to have given a decision on this issue in favour of the Appellant. 2. a. The CIT(A) erred in computing the disallowance out of interest expenditure at Rs.24.12 crores and 0.5 percent of the monthly weighted average value of investment, i.e. proportionate administrative and other expenses of Rs.45.50 crores and thus disallowing RS.69.62 crores u/s.14A of the Act by adopting a method based on rule 8D of the Income tax Rules, being expenditure incurred in relation to the income exempt u/s.10(34)/(35) of the Act while computing income under the normal provisions of the Act (section 28 to 42 of the Act). The appellant submits that no expenditure has been incurred in relation to earning exempt interest income and dividend income and therefore the disallowance of the estimated expenditure ought to be deleted under normal computation of income. b. In the alternative and without prejudice to ground no. 2a above the CIT(A) erred in determining the disallowance u/s.14A by adopting a method based on Rule 8D of the Income-tax Rules.

5 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd.,

The appellant submits that rule 8D was inserted by Finance Act 2008 w.e.f. 24.03.2008 and is not applicable in the case of the appellant and therefore the basis adopted by the CIT(A) is incorrect. c. In the alternative and without prejudice to the above, the appellant submits that the disallowance enhanced by the CIT(A) is excessive and unreasonable. 3. The CIT(A) erred in confirming the disallowance of depreciation of Rs.14,19,106/- on the capitalized value of goods purchased from Durga Iron & Steel Ltd. and Surajbhan Rajkumar Pvt. Ltd. in A.Y. 2003-2004. The Appellants submits that the cost of the goods purchased from the above parties were capitalised as plant and machinery in A.Y. 2003-04 and were used during the year under consideration and hence depreciation u/s. 32 of the I.T. Act on such capitalised value of the goods is allowable. 4. The CIT(A) erred in confirming the disallowance of depreciation of Rs.55,35,000/- in respect of jetties constructed by the appellant and used for the purpose of its business. The CIT(A) has confirmed the order of AO wherein he failed to appreciate that since the jetty was constructed by the appellant at its own cost and was used for the purpose of its business, depreciation as per law was allowable. The appellant prays that depreciation on the jetties of Rs.55,35,000/- as claimed by it be allowed. 5. The CIT(A) erred in confirming the disallowance of an amount of Rs. 5,45,40,000/- being Professional fees paid to various companies as being non-genuine. The Appellant submits that the CIT(A) confirmed the order of AO wherein he has misguided himself in appreciating the evidence gathered and holding the payment of professional fees as non-genuine. The appellant submits the Professional Fees has been paid to various companies for rendering services duly supported by documentary evidences and therefore the claim for deduction of such payment should be allowed. 6. a. The CIT(A) erred in confirming the addition made by the A.O. of Rs.48,82,456/- while determining the arm's length price in respect of commission paid to its associate enterprise Reliance Netherlands B.V.(RNBV) at Rs. 54,32,591/- as against RS.1,03,15,047/- paid by your appellant.

6 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., The Appellant submits that it has rightly calculated the value of international transaction by applying the method prescribed u/s. 92C(1) of the LT. Act and supported by the documentary evidence and hence the disallowance made by AO shall be deleted. b. The CIT(A) erred in confirming the order of the AO in treating the non- funded guarantee given by the appellant to Bank of America for giving loan to its associate concern Trivera Gmbh as International transaction within the meaning of section 92B r.w.S. 92(1) of the Income Tax Act. The Appellant submits that the above transaction does not fall within the definition of "International Transaction" as defined u/s.92B of the Act and hence the addition confirmed by CIT(A) made in the order of AO shall be deleted. c. The CIT(A) erred in confirming the arms length price in respect of non-funded guarantee given by the appellant for advancing loans to its associate concern to the extent of Rs.2,14,98,100/- being 0.575% of the guaranteed amount. d. The CIT(A) erred in confirming the arm's length price in respect of an amount of Rs.13,52,01,303/- being interest payment referable to interest free loans and advances given to its subsidiary companies. The appellant submits that the loans and advances given to subsidiary companies are out of its own funds and given for furthering the business interest of the appellant and hence no disallowance is called for on this amount. 7. Your Appellant reserves the right to add, amend, alter or vary all or any of the above grounds of appeal as they or their representatives may think fit.

7 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not deciding the issue on merits in view of provisions of section 80IA of the Income tax Act, 1961. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that section 801A(8) has clearly defined that "Market Value" means the price of goods/services would fetch, if these were sold by the unit/undertaking in the open market subject to statutory regulations, if any and the assessee had clearly violated this section 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing an amount of Rs. 4,83,25,200/- u/s. 40(a)(ia) of the IT Act, by holding that no tax was withheld U/s. 195 of the IT Act without appreciation the fact that no tax was deducted at source U/s. 194 of the IT Act. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting guarantee commission at the rate of Rs. 0.575% in place of Rs. 2.50% of non funded guarantee given by the assessee for advancing loan to its associate concerns. 7. The appellant therefore, prayed that the order of the CIT(A) be set aside and that of the Assessing Officer be restored". 8. The Appellant craves leave to amend or alter any ground or add a new ground.

8 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., declaring total income of Rs.41,55,02,25,179/- under normal provisions and Rs.143,65,78,86,236/- under section 115JB of the Income Tax Act, 1961. Assessee had plants located at Hazira, Jamnagar, Gandhar, Allahabad and Barabanki, in the states of Gujarat and Uttar Pradesh. The Governments of Gujarat and Uttar Pradesh provided incentives in the form of sales tax exemption amounting to Rs.15,38,71,72,697/-. The benefit of exemption from sales tax was linked to industrial development of the under developed areas with an objective of dispersal of industries. In the schemes under which incentives by way of sales tax exemption have been provided, objective has been made very clear that the State Government have provided these incentives for dispersal of the industries to identified backward areas. The AO has treated the same as revenue receipt. 11. By the impugned order CIT(A) deleted the addition after observing as under:- 4.3 I have considered the facts of the case and submissions of the appellant as against the observation/ findings of the AO in his order. The contentions raised by the appellant in respect of the ground of appeal are being discussed and decided as under: 1. This is a recurring issue in the case of the appellant, In the decision of Hon'ble Special Bench of Mumbai ITAT in Appellant's own case for AY. 19~6-87 (88 ITD273) (S.B.) it was held that: "The question for consideration is whether the Tribunal in the case of Reliance Industries Ltd. (Supra) had correctly appreciated and interpreted the ratio of the decision of the Supreme Court in Sahney Steel & Press -Works Ltd's case (supra). On a careful reading of the order of the. Tribunal in the case of Reliance Industries Ltd. (Supra), it appears to us that the ratio of the judgment in Sahney Steel & Press Works Ltd’s case (supra) has been correctly interpreted and appreciated by the Bench (Para .28)

9 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd.,

The Scheme framed by the Government of Maharashtra in 1979 and formulated by its Resolution dated 5-1-1980 has been analysed in detail by the Tribunal in its order in RlL for the assessment year 1985-86 which we have already referred to an extensor. On an analysis of the Scheme, the Tribunal has come to, the conclusion that the thrust of the Scheme is that the assessee would become entitled for the sales tax- incentive even before the commencement of/he production, which implies that the object of the incentive is to fund a part of the cost of the setting up of the factory in the notified backward area. 'The Tribunal has, at more than-one place, stated in the thrust of the Maharashtra Scheme was a industrial development of the backward districts as well as generation of employment thus establishing a direct nexus with the investment in fixed capital assets. It has been found that the entitlement of the industrial unit to claim eligibility for the incentive arose even while the industry was in the process of being set up. According to the Tribunal, the Scheme was oriented towards and was subservient to the investment in fixed capital assets. The sales tax incentive was envisaged only as an alternative to the cash disbursement and by its very nature was to be available only after production commenced. Thus, in effect, it was held by the Tribunal that the subsidy in the form of sales tax incentive was not given to the assessee for assisting it in carrying out the business operations. The object of the subsidy was to encourage the setting up of industries in the backward area (Page 28). Thus, the 'interpretation of the Tribunal of the ratio laid down in the judgement of the Supreme Court in Sahney Steel & Press Works Ltd's case (supra) cannot be stated to be erroneous. The Tribunal did recognise, as the Supreme Court itself recognised, that the object with which. the subsidy was given is decisive, It did recognise following the distinction pointed out by the 'Supreme Court that if the subsidy is given for setting up or expansion of the industry in a backward area, it will be capital, irrespective of the modality or the source of funds through or from which it is given and that if monies are given for assisting the assessee in carrying out the' business operations only, after, and conditional upon, the commencement of production, it would be revenue: It was only for the purpose of bringing out this distinction that the Tribunal had analysed the features of the Maharashtra Scheme of 1979 and had come to the conclusion that the subsidy given under the Scheme had a direct nexus with the fixed capital investment and that it could not be said that the subsidy was given with the object of assisting or lending a

10 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., helping hand to the assessee in its business operations. (para 29) The Tribunal was thus aware of the distinction between the subsidy given with the object of setting up the industry and the subsidy given after the industry commences of production and conditional upon the commencement of production. Factually, the Tribunal found that the assessee's case which fell under the Maharashtra scheme, was a case where the subsidy was given for the purpose of facilitating the assessee to set up an industry in Patalganga, Raigad District, which is a notified area, The actual disbursement took place after the assessee commenced production, but, according to the Tribunal, it was only a mode of disbursement and had nothing to do with the object for which the subsidy was given. Thus, it was found that the Tribunal did notice The crucial observations of the Supreme Court Sahney Steel & Press Works Ltd.'s case (supra) which gave primacy to the object of the subsidy over the fact that it was given after the commencement of production. (para 30). The Tribunal’s observations made on the. basis of the observations of the Supreme. Court in Sahney Steel & Press Works Ltd. 's case (supra) also show that the Tribunal was alive to the. distinction between the character of the subsidy given with the object of promoting industrial growth in a particular area' under the subsidy given' conditional upon the commencement of" production and after actual commencement of production. .In our opinion also it is not correct to understand the judgement as laying down the broad proposition that wherever the subsidy is given after the commencement of production and conditional upon the same, it should be treated as a revenue receipt In the hands of the assessee,. irrespective of the object for which the subsidy was granted," The object for which the subsidy is granted.' in our opinion also, takes primacy over the fact that it 'was given after the commencement of production and conditional upon the same. That the Supreme Court itself recognised this position has been amply made clear in its observattons. (para 33) . With great respect; we are therefore unable to share the opinion expressed in Bajaj Auto Ltd.'s case (Supra) that the Tribunal in its order in the case of Reliance Industries Ltd. (supra) for the assessment year 1985-86 did not correctly interpret the ratio laid down by the Supreme Court in Sahney Steel & Press Works Ltd. 's case (supra) . (Para 34). "

11 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., ii. The special bench -has also considered the other relevant judicial pronouncements while giving the finding that the subsidy received by the appellant was a capital subsidy not liable to tax. iii. The facts during the year under consideration are the same as in the earlier years, except that this year there is also notional sales tax subsidy claimed as capital receipt from such scheme of UP Govt. The object of the scheme of UP Govt. is' to increase production in certain kinds of goods and thereby fuel investment in such industries in the state which similar to those of Gujarat Govt. which: is fuelling investment in industries in the backward areas. In the immediately preceding year also, following the decision of the Special Bench, the issue was decided in favour of the appellant by the Ld, CIT(A) in the office. Accordingly following the Special Bench decision discussed above, and also relying on the orders of my' Ld. predecessors in preceding assessment years, I am inclined to allow the appellant's claim for treatment of Notional Sales. Tax of Rs, 1538,71,72,697/- as Capital receipt not liable to tax. This ground of appeal is therefore allowed. iv. Since the main contention of the Appellant regarding notional Sales tax being capital in nature not liable to tax has 'been allowed as above, it is not considered necessary to go into the alternative plea of the Appellant claiming the Notional Sales Tax as deductible U/S 43B. However, it may be pointed out that similar alternative plea taken in A.Y. 2003·04 to A.V, 2006-07 has been rejected by my Ld. Predecessors for the reasons that the CBDT circular no, 496 dated 25.09.1987 clarified the position regarding applicability of the provisions of Section 43B only to Sales Tax. Deferral Scheme. This circular did not apply to the Sales Tax exemption scheme availed of by the Appellant. Therefore, the alternate claim made by the appellant seeking deduction under section 43B is rejected. 12. We had considered rival contentions and found that this issue has already been decided by the Tribunal in assessee’s own case in the assessment years 2003-04 to 2006-07, wherein Notional Sales Tax was treated as capital receipt not liable to tax. Relevant observation of Tribunal is contained at Page 5 para 6.5. Precise observation of Tribunal are as under:

12 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 6.5. We have considered submissions of the representatives of the parties and the orders of authorities below as well as earlier order of ITAT dated 28.5.2012 (supra). We consider to reproduce paras 4.2 to 4.7 of earlier order which are as under : "4.2 The assessee claimed deduction of notional sales tax of Rs. 1024,34,61,999/- as capital receipt which was received under various schemes of Government of Maharashtra and Government of Gujarat in respect of assessee's project at Patalganga, Jamnagar and Hazira. The said notional sales tax so received by the assessee was treated as capital receipt not liable to tax. The AO relying upon the decision of ITAT, Mumbai Bench in the case of Bajaj Auto Ltd., in ITA No.49 & 1101/Bom/91 for assessment year 1987-88 treated the said notional sales tax as revenue receipt liable to tax on the ground that such sales tax subsidy is an operational subsidy. The AO also placed reliance on the decision of the Hon'ble Apex Court in the case of Sahani Steel and Press Works Ltd. 228 ITR 253. Being aggrieved the assessee filed appeal before the first appellate authority. 4.3 On behalf of the assessee it was contended that the sales tax exemption given under the schemes by the Government of Maharashtra and Government of Gujarat are towards the objective of dispersal of industry, development of backward area and generating employment opportunities, hence, the same is in the nature of capital receipt not liable to tax. It was contended that the subsidy is not in the nature of operational subsidy intended and supplementing profit of the assessee nor it is in the nature of grant for meeting the cost of plant and machinery. Such subsidy I.T.A. No.4475/Mum/2007 6 and 7 other appeals is in the nature of capital receipt not liable to tax. It was contended that the said issue was considered by Special Bench of ITAT, Mumbai in assessee's own case for A.Y 1986-87 reported at 88 ITD 273(SB) and the Tribunal confirmed its earlier decision in assessee's own case for assessment years 1984-85 and 85-86 that the sales tax subsidy granted to the assessee is in the nature of capital receipt not liable to tax. It was contended that the Tribunal also considered the decision of the Hon'ble Apex Court in the case of Sahney Steel and Press Works Ltd.(supra). He submitted that the Special Bench while deciding the issue in favour of the assessee also considered the decision of another Bench of ITAT Mumbai in the case of Bajaj Auto Limited (supra) which had taken a contrary view that the subsidy is revenue receipt. It was contended that in subsequent assessment years ITAT has allowed similar claim of the assessee and even in the just preceding assessment year 2001-02 the claim for deduction of notional sales tax was held in the nature of capital receipt not liable to tax. The ld. CIT(A) accepted the above contention of the assessee and held that the claim for deduction of notional sales tax of Rs. 1024,34,61,999/- should be allowed as deduction as it is in the nature of capital receipt not liable to tax.

13 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 4.4 The assessee has also taken an alternative submission before the ld. CIT(A) that if the amount of subsidy is regarded as revenue receipt then such sales tax incentives received should be allowed as a deduction under section 43B of the Act while computing the total income of the assessee. It is relevant to state that the ld. CIT(A) has stated that the main contention of the assessee regarding notional sales tax being capital receipt not liable to tax has been allowed, it is not considered necessary to go into the alternative plea of the assessee claiming notional sales tax as deductible under section 43B of the Act. He has also stated that a similar alternative plea taken by the assessee in A.Y 2001-02 had been rejected by his predecessor for the reason that CBDT Circular No.496 dated 25/9/1987 clarified the position regarding applicability of the provisions ofsection 43B only to sales tax deferral scheme. This circular did not apply to the sales tax exemption scheme availed by the assessee. 4.5 Hence, the assessee as well as department are in appeal before the Tribunal. 4.6 At the time of hearing of the appeal, the ld. Representatives of both the parties conceded that deletion of addition on account of sales tax incentives holding the same to be a capital receipt is covered in favour of the assessee by the Special Bench decision of the Tribunal in assessee's own case reported in 88 ITD 273. In the light of the said decision of the Special Bench in assessee's own case, the order of ld. CIT(A) to hold that the claim of deduction of the assessee of notional sales tax of Rs. 1024,34,61,999/- is to be held as capital receipt not liable to tax. 4.7 Respectfully following the above decision of the Special Bench of ITAT in assessee's own case we uphold the order of ld. CIT(A) that the claim for treatment of notional sales tax of Rs. 1024,34,61,999/- is capital receipt. Hence, we uphold the order of ld. CIT(A) on this issue and ground No.1 of the appeal taken by the department is rejected. Since ground No.1 I.T.A. No.4475/Mum/2007 7 and 7 other appeals in assessee's appeal is an alternative ground, we hold that ld. CIT(A) has rightly held that it is not necessary to go into the alternative plea of the assessee as claiming the notional sales tax as deductible under section 43B of the Act. Therefore, ground No.1 of the appeal taken by the assessee is rejected." 6.6 In view of above we agree that issue involved and facts are identical and respectfully following the decision of the Special Bench of ITAT in assessee's own case and the order of Mumbai Bench of the Tribunal in assessee's own case for assessment year 2002-03 dated 28.5.2012 (supra), we uphold the order of ld. CIT(A) that the claim for treatment of notional sales tax is capital receipt. Hence, ground No.1 of the appeal taken by the department is rejected. Since ground No.1 in assessee's appeal is an alternative ground, we hold that ld. CIT(A) has rightly held that it is not necessary to go into the

14 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., alternative plea of the assessee claiming the notional sales tax is deductible under section 43B of the Act. Therefore, ground No.1 of the appeal taken by the assessee is rejected. 13. As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal in assessee’s own case vis-à-vis decision of the Special Bench in case of Reliance Industries Ltd., 88 ITD 273, Shree Balaji Alloys Ltd., 138 DTR 36(SC), Rasoi Ltd., 335 ITR 438(CAL), Bougainvillea Multiples Entertainment Centre (P) Ltd., 373 ITR 014(Delhi), Kirloskar Oil Engines Ltd., 364 ITR 88 (Bom) and Associated Cement Cos. Ltd., ITA No.7594 & 7644/M/04, we do not find any infirmity in the order of CIT(A) for treating the same as capital receipt. Accordingly ground no.1 of revenue’s appeal stand dismissed. 14. The assessee in its return of income has claimed depreciation on fixed assets at Rs.35,29,64,19,750/- The AO has allowed depreciation at Rs.3267,34,84,564/- as against the claim of Rs.3529,64,19,750/- by taking WDV after considering the depreciation thrust upon the assessee in earlier years by the department. 15. By the impugned order CIT(A) directed the AO to allow depreciation as claimed by the assessee as against the depreciation allowed by the AO at Rs.3267.35 crores by directing the AO to adopt the WDV as on 01/04/2008. The precise observation of CIT(A) is as under:- "5.3 I have considered the facts of the case and 'submissions of the appellant as against the observations/ findings of the AO in his order. The contentions raised by the appellant in respect of this ground of appeal are being discussed and decided as under:

15 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., i. This is 'also a recurring issue in the case of the appellant. The only issue for consideration is whether the claim for depreciation for the year under consideration is to be computed' on the basis of the WDV as per the appellant Le. WDV' of the year' after which depreciation had not been 'claimed by the appellant or on the basis of the reduced WDV arrived at by the' AO' after thrusting depreciation upon the appellant in the earlier years. This, issue has: been considered by my Ld. Predecessors in the appellant's case in the preceding years including A.Y. 2001-02 to A.Y. 2006-07, where in view has been taken that the claim for depredation cannot be thrust upon the Appellant. Nevertheless,' the AO has consistently rejected the claim of the Appellant based upon the stand taken at the assessment stage in years. In earlier years, this issue has been decided by my Ld. Predecessors in favour of the appellant. The relevant part of the appellate order in A.Y. 2001-02 is as under: "I have carefully considered the submissions of the Ld. AR and also gone through the impugned order of assessment. This issue relating to the deduction of depreciation while computing profits and gains of business has been settled by the Supreme Court in the case of CIT vs. Mahindra Mills (234 ITR 56). The point that remains to be considered is whether the law laid down by the Supreme Court in the case of Mahindra Mills would also apply subsequent to assessment year 1988-89 when the concept of block of asset was introduced for the purpose of computing claim for depreciation and section 34 requiring filing of prescribed particulars stands omitted. This issue has come up before the Hon'ble lTAT, Mumbai in various appeals cited hereinabove, where after analysing the Supreme Court Judgement in the case of Mahindra Mills, the Hon'ble Tribunal has come to a conclusion that the depreciation can be allowed only when the claim for such deduction is made by the assessee, Moreover, the Hon'ble Tribunal has further observed that even after omission of section 34 and introduction of block 'of asset 'concept from assessment year 1988-89, the ratio had laid down by the Supreme Court still holds good. The claim for depreciation is optional and can be allowed only if claimed by the assessee. The Hon'ble ITAT has further referred to the Explanation -5 inserted in Section 32 of the IT.Act by Finance Act, 2001 with effect from 1/4/2002 and have observed that the Explanation-5 has been prospective in its effect; the principle laid down by the Supreme Court holds good and applies to all the years prior to introduction of said explanation. The various judgements relied upon by the appellant clearly support the appellant's stand to the effect that the claim for depreciation cannot be forced upon the appellant if not claimed while computing total income. Respectfully following

16 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., the various decisions relied upon by the appellant, I hold that the depreciation of Rs.4,83,08,34,782/- cannot be thrust upon the appellant and the claim for deduction u/s. 80lA/80lB shall be allowed without reducing the profit by the amount of depreciation". ii. In this year, the issue relates to the amount of WDV to be taken on 01.04.2006. Following the decision in the appellant's case in the preceding years, the AO is directed to adopt the WDV of the assets as on 01.04.2006 on the basis of effects given to the orders of the CIT(A) for the preceding years. The appellant has worked out the amount of depreciation allowable' on the basis of these' orders at Rs.3529,64,19,750/-. 16. We have considered rival contentions and do not find any infirmity in the order of CIT(A) for directing the AO to allow depreciation by taking WDV of assets as on 01/04/2008, in so far as CIT(A) had followed the orders of Tribunal and Supreme Court in the case of Mahindra Mills. Precise observation of Tribunal in its order dated 13/09/2013 was as under:

17 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., of effect given to the order of ld. CIT(A) for the preceding assessment year and allow depreciation accordingly. Hence, this appeal filed by the department. 19.2 At the time of hearing, ld. DR relied on the order of AO. Whereas, ld.AR submitted that the said issue was considered by the Tribunal in the assessee's own case in assessment year 2002-03 and the Tribunal vide order dated 28.5.2012 confirmed the order of ld. CIT(A) stating that WDV as on 31.3.2001 had to be taken for considering the depreciation to be allowed to the assessee in the assessment year 2002- 03 as the claim for depreciation prior to insertion of Explanation 5 to section 32(1) of the Act inserted with effect from 1.4.2002 as applicable from assessment year 2002-03, the claim for depreciation was optional in view of the decision of the Hon'ble Apex Court in the case of Mahendra Mills(supra). As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal, we uphold the order passed by CIT(A) for allowing assessee’s claim of depreciation. Thus ground no.2 of revenue’s appeal is dismissed. 17. The assessee had claimed the deduction u/s.80IA on power generation undertaking by adopting price which the industrial consumers paid during the year under consideration for electricity purchased from State Power Distribution Agency. However, the Assessing Officer has restricted the claim of deduction u/s.80IA to Rs.34,23,45,990/- by taking 16% return on capital base as per the parameters prescribed by the Regulatory Authorities i.e. State Electricity Board for procuring the electricity. 18. By the impugned Order CIT(A) allowed assessee’s claim of deduction u/s.80IA after having its observation at pages 6.3 of its appellate order. Precise observation is as under:- "6.3 I have considered the facts of the case and submissions of the appellant as against the observation / findings of the AO in his order. The contentions raised by the appellant in respect of the ground of appeal are being discussed and decided as under:- i.This issue also appeared in the assessee’s reopened assessment for the A.Y.2006-07. On the identical set of facts,

18 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., the Ld. CIT(A) in the office while deciding the appellant’s case for A.Y.2006-07 has reached the decision as under: “I have considered the facts of the case, the reasons given by the Assessing 'Officer for restricting 'the deduction claimed by the assessee u/s 80IA in respect of its power generating undertakings and the' submissions of the assessee, in my opinion the question which is required, to be answered in respect of the ground of appeal taken by the assessee is whether the action of the AO of restricting the deduction is correct in the present facts and circumstances of the case.. To answer the question, it would be pertinent to refer to Sec. 80IA(8) of the Act since the said section is relevant in the present case Sec. 80IA(8)reads as follows: "Where any goods (or services) held for the 'purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods (or services) held for the purpose of any other business carried on by the assessee or where any goods (or services) held for the purpose of any other business carried on by the assessee are transferred to the eligible business and, in either case the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods (or services) as on' the date of the transfer, then for the purposes of the deduction under this' section, the profits and gains of such eligible business shall be computed as if the transfer, in either case had been made at the market value of such goods (or services) as on that date . Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents. exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. (Explanation - For the purposes of this sub-section; "market value ", in relation: to any goods 'or services, 'means the price that such goods or services would ordinarily fetch in the open market.) A perusal of the said section reveals that where transfer of any goods or services by the eligible business to any other business carried on by the assessee is not recorded in the books of accounts of the eligible business at the market value of such goods or services as on date of the transfer, then for "the purposes of the deduction, the profits and gains of such

19 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., eligible business is required to be computed as if the transfer has been made at the market value of such goods or services as on that date. As per the Explanation,' 'market value' in relation to the goods would mean the price that such-goods would ordinarily fetch in the open market. The proviso to sub- section(8) of section 80IA would come into operation only' when in the opinion of the Assessing Officer; the computation of profits and gains of the eligible business in the manner provided in the main· sub-section presents exceptional difficulty. It is, therefore, clear that the Assessing Officer, in order to invoke the proviso, must form an opinion based on the material on record that the computation in the manner provided presented exceptional difficulties. If he does not form an opinion, he cannot invoke the proviso to determine the profits & gains of the eligible business. It would, therefore, be required to be seen whether the AO has found based on any material on record, and has brought any evidence or material on record, that the transfer of the goods by the eligible business, i.e. the power generating units, has not been recorded at the market value of such goods. It will also be required to be seen whether the AO has formed any opinion which would justify the invoking of the proviso to Sec, 80lA(B), because it is the proviso that the AO has invoked to work out the deduction available to the assessee u/s. 80lA . Perusal of the facts on record show that the assessee had disclosed that it has sold/transferred electricity to related concerns and, that the said transfer had been done at the fair market value of the goods. In the earlier 'assessment years in the regular assessments, the basis of taking the market value of the goods had been accepted by the Assessing Officer. I find that the Assessing Officer has assumed the power u/s. 80IA(B) without bringing any material on record to show that the price recorded in the books by the eligible business did not correspond to the market value of the goods as on the date of the transfer. It is important to note that for giving a finding that a particular value did not correspond to the market value, the market value has to be found out. Hence, the section pre- supposes that there is another value attached to the said goods which would represent the market value of the goods. I find that there is nothing brought on record to show as to how the price recorded in the Books does not correspond to the market value of goods, when sold in the open market, especially in the light of the reasons given by the 'assessee that such price corresponded to the market value of the goods.

20 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., I find that the Assessing Officer has rejected the value recorded by the eligible business by merely holding that the market value cannot be the purchase value of electricity but the price of the electricity which the assessee can fetch in the open market. There being no open market for electricity during the period under review, the regulatory bodies fixed the price of electricity. He has further held that the tariff fixed for sale by the State. Power Distribution Agency for industrial consumers could not be called as market price as the regulatory fixes the tariff considering the wheeling charges, transmission loss due to leakage, past losses of the distribution agency, etc. In my opinion, the findings of the AO cannot be taken to be correct. Even though there may be 110 open market for the goods, an open market has to be presumed in respect of the goods in question in view of the categorical condition laid down in the provisions itself and the law laid down in this regard by the different Hon’ble Courts of the land and which have/been relied" upon by the assessee in its submissions. The Assessing Officer has not brought any material to show that the price charged was not in consonance with the market value. The AO has also not suggested, leave alone computed as to what the market value of the goods should be. While the assessee has given detailed reasons as to why the price of the goods recorded by it corresponds to till! market value, the Assessing Officer has not given any specific findings to hold as to why such price does not correspond to the market value of the goods and as to what was the market value of such goods. The assessee has contended that the 'rate 'charged to the end user by the State Electricity Board would provide the 'most appropriate basis to arrive at the market value. Since, the eligible unit is, in effect, transferring the goods to another business which is the end consumer, the cost to the end consumer, is required to be considered and not the tariff at which the 'Independent Power Producers' sell to the: 'State Distribution Agency', which in turn sells to the State Electricity Board for further sale to the end users i.e. consumers, at a rate higher than the rate at which the 'State Distribution Agency had procured the electricity, at. 'Another important aspect which is required to be considered is' that the: rate at which the 'Independent Power Producers' sell to the; State - Distribution Agency' under the Electricity Act, 1948 is a regulated rate which is determined ,on the basis' of the normative parameters 'determined by the Government of India under its Notification No, 251 (E) 'dated 30.03.1992. The normative parameters have been fixed by the Government, which is required to be followed by all, and no deviation in fixing the tariff is allowed Hence, even here, the rate cannot be

21 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., taken to be the "price that such goods would ordinarily fetch in the open 'market" as this is the regulated rate fixed by the Government. It is also seen that the Assessing Officer has taken 16% return on capital base to work out the profits of the eligible business of the. assessee eligible for deduction u/s, 80IA of the IT.Act, 1961. 16% return on capital base in Notification No. 251(E) dt .. 30/3/1992 is only an exercise for fixation, of tariff. It is 'one 'of the parameters 'out of many which is required to be taken into consideration for fixing the tariff in relation' to the' rate at which the Independent Power 'Producers sell their power to the - State Distribution Agency. Hence, 16% return on capital base 'alone' would not be relevant while computing the profits of the eligible business under the Act. To sum up under Sec. 80IA(8), the following conditions are required to be satisfied:-

a) Any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee. b) The' consideration if any for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the. date of transfer, c) It is only when condition (b).is satisfied then the Revenue gets a right to determine profits and gains of such eligible business at the market value of such-goods or services. as on the date of its transfer. The Assessing Officer had considered the rate' charged by [he State Distribution Agency as the market value of the goods 'transferred by the eligible business in the original assessment of the assessee, There is nothing on record to show as to how the value of the goods adopted/taken by the assessee do not correspond to the market value of such goods especially in light of the reasons given by the assessee. The Assessing Officer has also not expressed any opinion as to how the computation of profits and gains of the business tn. the manner provided in the main sub-section' presented exceptional difficulties. Hence, proviso to Sec. 80lA could not have been invoked by him. It is also clear that the parameter 'relating to 16% of capital base js only an exercise for fixation of tariff and is only one of the many parameters taken into

22 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., consideration for fixing the tariff under' the Old Electricity Act of 1948, This parameter is for working 'out the' tariff for sale to Distribution agencies and not for sale to the end' consumers and not for computing the profits and gains of the eligible business. In' view of the aforesaid reasons, the order of the AO of working out the profits eligible for deduction on the basis of 16% return on 'capital base cannot be upheld. As regards the submission relating to Sec, 80A(6), I find that same submissions were made by the assessee before the Assessing Officer during the course of the re-assessment proceedings. I find that the AO has not controverted the submissions of the assessee .I am also of the opinion that since the said Sec, 80(6) has been specifically made retrospective from a specific date i.e. w.e.f.01.04.2009, the same would apply only with respect to the A.Y. 2009-10 onwards and would not apply to the A.Y.· 2VUtj-07 in question. This is also clear from the fact that the Explanation 10 Sec. 80IB(10) was inserted by the Finance (No.2) ct, 2009 and was made operational w.r.e.f 01/04/2001 while sec. 80A(6) was also inserted by the Finance (No.2) Act, 2009 and was made operational w.r.e.f 01/04/2009. Further, as per the explanation to Sec. 80A(6), the market value means the price that such goods or services would fetch if these were sold by the undertaking or unit or 'enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any. In the present case, the AO has not brought any material on record to show that the goods supplied by the undertaking were at a price higher than what it was required to supply as a result of any statutory or regulatory restrictions or as to what should have been the rate at which it was required to supply the goods as a result of any statutory or regulatory restrictions. In the case of Reliance Infrastructure Ltd (Supra) Hon'ble jurisdictional Mumbai, Tribunal has held that the price that the unit paid to TPC for purchase of power would be the best basis for working out the profits of the business of generation of power even after the order MERC. In this case, the assessee, other than using power generated from its own captive generating units, was also purchasing power from TPC. In the case of Jindal Steel & Power Ltd. reported in 16 SOT 509 (Del), Hon 'ble Tribunal has held as follows:-

23 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., "Sec: 43A of the Electricity (Supply)Act,1948, lays down rules and conditions for determining the tariff for sale of electricity by a generating company to the State Electricity Boards. A perusal of the same reveals that the tariff is determined on the basis of various parameters contained therein: From the aforesaid, it is evident that on one hand it is only upon granting of specific' consent that a private person call set up a power generating unit having 'restrictions on the use of power generated and at the same time the tariff at which a power generating unit can supply power to the Electricity Board is also liable to 'be determined in accordance with the statutory requirements. In this context it can be safely deduced that determination of tariff between the assessee and the Board can be said to be an exercise between a buyer and seller neither in a competitive environment and nor in the ordinary course of trade and business. It is an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the' buying tariff in terms of scenario cannot be, equated with a situation where the price is determined in the normal course of trade and competition. Therefore, the price determined as per the Power Purchase Agreement cannot be equated with market value as understood in common parlance. There is no reason for not holding so for the purposes of. Section 80IA-(8) also, The price at which the power is supplied by the assessee to the Board is determined entirely by the Board in terms of the statutory regulations. Such a price cannot be equated with the market value as understood for the purposes of s.80-IA(8) The price recorded by the assessee Rs. 3.72 per unit can be considered to be the market value-for the purposes of s. 80- IA(8). This is for the reason that the assessee as an industrial consumer is also buying power from the Board and the Board supplies such power at the rate of Rs.3.72 per unit to its- consumers. This is the price at which the consumers are able to procure the power. Thus, under the given circumstances, it would be in the fitness of things to hold that the consideration recorded by the assessee’s undertaking generating electric power for transfer power for captive "consumption at' the rate of Rs. 3.72 per unit corresponds to the market value of power. The AO is directed to allow relief to the assessee under s.'80IA as claimed:" It is pertinent to note that the assessee is not supplying electricity to the State Electricity Board or to any other power distribution agency.

24 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., In the case of West Coast Paper Mills Ltd. reported in 1000 TT] 833 (Mum), the Hon'ble Tribunal has held as follows: "Having held that the assessee is entitled for the deduction available under s. 80-IA,· the next question is what should be the price attributable to the power generated and consumed by the assesses, The answer to the question is readily available in sub.s(8) of s.80-IA, which reads as below: 80-IA(8) Where any goods held for the purpose of eligible profits are' transferred to any other business carried on by the assessee, or where any goods held for the purposes of any 'other business'. carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods as on the date of transfer, then for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer in either case, had been made at the market value of such goods as' on that date". The above concept of transfer pricing is also apparent in r. 7 of I T Rules, 1962 provided for determining the income from agricultural produces consumed by the agriculturist-assessee in his business as raw material. The rule provides that in the case' of income which is partially agricultural income and partially income chargeable as business income in determining that part which is chargeable to income-tax, the market value of any agricultural produce which has been raised by the assessee and utilized as a raw material in such business shall be deducted at the prevalent market value. This principle has been considered and upheld by the Supreme Court in the case of Thiru Arooran Sugars Ltd. Vs. ClT (1997) -142 CTR (SC) 9; (1997) 227 ITR 432 (SC). Therefore, we direct the assessing authority to work out the profits on the basis of the price of the power generated' by the assessee' at the average of the annual landed cost of electricity 'purchased by the assessee from Karnataka State Electricity Board during the impugned previous year. It may be determined on the basis of 'payment details available from the bills issued by the Karnataka state Electriciiy Board, during the year under consideration ."

25 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., During the course of the appellate proceedings, the assessee has submitted that the sale price of electricity by the captive generating units varies from Rs. 4.55 per KWH to,Rs. 4.52 per KWH and for the sake of uniformity, the same had been taken at the average rate of Rs. 4.54 per KWH for computing the claim u/s. 80IA for the power generating units. The working had been done based on the price of electricity charges by Dakshin 'Gujarat . Vij company, a state owned company which was the only supplier of electricity other than the captive power plants. In views of the decisions of Hon’ble Tribunals as. discussed above, the Assessing. Officer will examine whether the submission of the assessee with respect to the rate taken is correct. If it is found that the rate charged by the suppliers is lower than the role adopted for sale by the captive power generating units of the assessee, such rate would be taken by the Assessing Officer for computing the profits of 'the' eligible-business, eligible for deduction u/s. 80IA. However, if the' rate charged. by the suppliers is the same as the rate adopted for sale' by the 'captive power generating units of the assessee, such rate' adopted should be accepted for' the purpose of working out the deduction u/s. 80IA. Subject to the above, this ground of appeal filed by the assessee is allowed. The facts of the case are similar and issue involved is identical. Accordingly in view of the facts of the case and keeping in view the principles of judicial consistency, it -Is directed that. the Assessing Officer will examine correctness of the-rate taken (Rs. 4.799 per unit) and if it is found that the rate charged by the suppliers is lower than the rate adopted for sale by the captive power generating units of the assessee, such rate would be taken by the Assessing Officer for computing the profits of the eligible business, eligible for deduction u/s. 80IA. However, if the rate charged by the suppliers is the same as the rate adopted for sale by the captive power generating units of the assessee, such rate adopted should be accepted for the purpose of working out the deduction u/s.80-lA.Subject to the above, this ground or- appeal filed by the assessee is allowed.

26 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., and circumstances during the year under consideration are same, respectfully following the order of the Tribunal in assessee’s own case, we do not find any infirmity in the order of CIT(A) for allowing assessee’s claim of deduction u/s. 80IA with reference to power generating undertaking and the power so generated being used mainly for captive consumption. 20. Learned DR has relied on the decision of Calcutta High Court in the case of ITC Ltd., (2015) 64 Taxman.com 214 and contended that distributing expenditure not actually incurred by the assessee increases its profits. Such profit cannot be said to be derived from industrial undertaking, therefore, to this extent deduction u/s.80IA cannot be allowed. 21. In the course of the hearing, the Revenue has relied on the decision of Calcutta High Court in Commissioner of Income tax, Kolkata-III v. M/s. ITC Ltd. (ITA 426 of 2006) for the proposition that the market price determined u/s 80lA of the Act ought not to be determined at the rate at which electricity was supplied to the assesses for its consumption other than for Captive Power plant. According to the Revenue, this decision was therefore in favour of the Revenue and ought to be followed in preference to the decision of the Tribunal referred to earlier in the assessee's own case. 22. We had gone through the decision of the Calcutta High court in M/s.ITC Ltd. and found that it has no connection to the facts of the assessee's case for following reasons:

27 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 23. First, the judgement of the Calcutta High Court was considering the provisions relating to the Electricity Act as they stood prior to the Electricity Act, 2003 as it was dealing with A Y 2002-03. No doubt, the Calcutta High Court has referred to Section 61 & 62 of the Electricity Act, 2003, but that is only in context of discussion relating to the rates fixed by Tariff Regulation Commission for sale of electricity by generating companies. The decision therefore cannot hold the field for A Y 2007-08, 2008-09 and 2009-10 as these Assessment years are years after the Electricity Act came into force on 10.06.2003. 24. It is therefore necessary to see what is the effect of the Electricity Act 2003 and its impact on and regulation of tariffs. The Preamble to The Electricity Act 2003 states as follows: ”An Act to consolidate the laws relating to generation, transmission, distribution, trading and use of electricity and generally for taking measures conducive to development of electricity industry, promoting competition therein, protecting interest of consumers and supply of electricity to all areas, rationalization of electricity tariff, ensuring transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, constitution of Central Electricity Authority, Regulatory Commissions and establishment of Appellate Tribunal and for matters connected therewith or incidental thereto".

28 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., is annexed herewith. Para 4(i) of the Objects and Reasons is particularly important and it reads as under: "Generation is being delicensed and captive generation is being freely permitted. Hydro projects would, however, need approval of the State Government and clearance from the Central Electricity Authority which would go into the issues of dam safety and optimal utilisation of water resources" (Emphasis supplied). 26. Reference is invited to this para to show that captive generation is being freely promoted. With this background, it is necessary to see what is the scope and impact of the Electricity Act 2003. 27. Section 12 provides that no person shall transmit electricity or distribute electricity or undertake trading in electricity unless he is authorised to do so by a licence issued u/s 14 or he is exempt under section 13. 28. It is quite clear that under section 12, a licence is not required for generation of electricity and this is made clear by section 7 which reads as follows: “PART III- GENERA TION OF ELECTRICITY Section 7. (Generating company and requirement for setting up of generating station): Any generating company may establish, operate and maintain a generating station without obtaining a licence under this Act if it complies with the technical standards relating to connectivity with the grid referred to in clause (b) of section 73. Section 8(Hydro Electric generation)" Notwithstanding anything contained in section 7, any generating company intending to set-up a hydrogenating station shall prepare and submit to the Authority for its concurrence, a scheme estimated to involve a capital expenditure exceeding

29 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., such sum, as may be fixed by the Central Government, from time to time, by notification.

30 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., transmissions lines. A bare perusal of section 9(1) would indicate that there is no restriction whatsoever on a person in respect of Captive Generation plant. It is neither required to obtain a licence under section 7 or under section 12 as a generating company if it consumes power within itself. In other words, a Captive Generation Plant does not need to apply for licence under this Act if it complies with the technical standards relating to connectivity with the grid referred to in clause (b) of section 73. 31. The reason for excluding a Captive Generation plant from any of the technical standards for construction of electricity plants relating to connectivity with the grid, is because a person can, without a licence, construct, maintain and operate a Captive Generation plant and use dedicated transmission lines. His generating, transmitting and consuming power within his own jurisdiction neither needs access nor seeks to use the grid and therefore such a Captive Generation Plant is not cabined and cribbed by any regulatory mechanism under the Electricity Act 2003. 32. If however the Captive Generation Plant seeks to supply electricity to any outsider through the grid, the proviso requires that the supply of electricity shall be regulated in the same manner as a generating station of a generating company. The word 'grid' is defined in section 2(32) of the Act as under: (32) "grid" means the high voltage backbone system of inter- connected transmission lines, sub-stations and generating plants;

31 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 33. Thereafter the proviso makes it clear that it is only when the Captive Generation Plant sells to an outsider through the high voltage backbone system of interconnection transmission, that the full vigour and rigour of regulation under the Electricity Act, 2003 will be attracted. The 2nd proviso makes it clear that although no license is required when a Captive Generation plant supplies electricity to a consumer, the rules and regulations of the Act made u/s 42(2) would apply for the sale of electricity by a Captive Generation plant to a consumer other than himself. 34. This fact makes it clear that the provisions of section 42(2) apply only to a Captive Generation plant in respect of sales made or electricity consumed by a third party. This distinction is very significant in as much as there is no regulation of intra department consumption by any person generating electricity. In other words, for a person generating electricity and consuming it there is no obligation and no duty to either obtain a licence to set up a plant or transmit electricity which is self consumed. 35. The Calcutta High Court in page 11 has held "the rate at which electricity was purchased from Andhra State Electricity Board by the paper unit of the assessee can by no means be the market rate at which the power plant of the assessee could have sold its production in the open market. In the open market the buyer would obviously be a distribution company or a company engaged in generation and distribution. Therefore the rate which is sold to any such company can only be the market rate contemplated by the section". In other words, according to the Calcutta High Court, the regulated selling price by a third party to the assessee

32 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., cannot form the selling price by a Captive Generation plant. Whilst this is the absolutely correct and true, it is wholly irrelevant in context of Electricity Act, 2003. In a much as under the Electricity Act 2003, when the Captive Generation plant notionally sells electricity to itself, there is no regulation in respect of market price. In this connection, the decision of Supreme Court in the case of Thiru Arooran Sugars Ltd. v. CIT (1997) 227 ITR 432 is material. In that case, the assessee company was a manufacturer of sugar which purchased sugarcane from the market for crushing. It also had its own cane fields where it cultivated sugarcane, which was entirely consumed by its factory. Since the profit made by the assessee from the sale of sugar arose out of agricultural activities as well as manufacturing activities, the income earned by the assessee was required to be divided into two parts. No tax was leviable on agricultural income, but the profit generated from non-agricultural activities was leviable to be taxed under the Act. Therefore the agricultural income had to be determined and for that market value of the sugarcane consumed in its factory had to be determined. The relevant rule 7 of the Income- tax Rules, 1962 read as follows: "Income which is partially agricultural and partially from business - (1) In the case of income which is partially agricultural income as defined in section 2 and partially income chargeable to income-tax under the head 'profits and gains of business', in determining that part which is chargeable to income-tax the market value of any agricultural produce which has been raised by the assessee or received by him as rent-in-kind and which has been utilised as a raw material in such business or the sale receipts of which are included in the accounts of the business shall be deducted, and no further deduction shall be made in

33 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., respect of any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind.

“(2) For the purpose of sub-rule (1) 'market value' shall be deemed to be (a) where agricultural produce is ordinarily sold in the market in its raw state, or after application to it of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render it fit to be taken to market, the value calculated according to the average price at which it has been so sold during the relevant previous year; (b) where agricultural produce is not ordinarily sold in the market in its raw state or after application to it of any process aforesaid, the aggregate of- (i) the expenses of cultivation; (ii) the land revenue or rent paid for the area in which it was grown; and (iii) such amount as the Assessing Officer finds, having regard to all the circumstances in each case, to represent a reasonable profit. "

34 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 37. According to the Supreme Court, it is not necessary that there must be an actual market where buyers and consumers congregate to purchase 8nd sell Goods Where there is no such open market, an estimate of the market price will have to be done on an estimated hypothetical basis. It stated at page 440, para (f) of 227 ITR 432. The principle that value of a property will be the price which it will fetch if sold in the open market is a well-known method of valuation which has been adopted in a large number of statutes in England and also in India. It is well-settled that existence of an open market is not a pre-condition for application of this principle. There may or may not be an actual market where buyers and sellers congregate to purchase and sell goods. Where there is no such open market, an estimate of the market price will have to be done on a hypothetical basis.

In the case of Ahmed G.H. Ariff v. CWT [1970176 ITR 471 , explaining the phrase 'if sold in the open market' in section 7(1) of the Wealth-tax Act, it was observed by Grover, J., speaking for the Court that the phrase did not contemplate actual sale or the actual state of the market, but only enjoined that it should be assumed that there was an open market and the property could be sold in such a market and, on that basis, the value had to be found out. It was a hypothetical case which was contemplated and the tax officer must assume that there was an open market in which the asset could be sold. In view of the aforesaid, it is very difficult to uphold the contention of Mr. Nariman that in order to find out the market price there has to be an actual market where there will be 'a concourse of buyers and sellers'. 39. Having discussed these principles, it laid down the following criteria for determining the price at which the sugar cane was said to have been sold to the manufacturing unit of the assessee. It noted that the assessee

35 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., company actually bought sugarcane from a large number of growers, year after year in the ordinary course of business. The price at which it buys the sugarcane must be the market price and if the price was controlled, the controlled price will be taken as the market price, because it is at this price that a willing buyer and a willing seller are expected to transact business. Applying, this principle of the facts of the assessee's case, there is only a single buyer for the electricity generated by the Captive Generation Power which is the assessee himself. Just as in Thiru Arooran Sugars Ltd. v. CIT, the sugarcane produced by Thiru Arooran Sugars categorically confirms that there was only a single buyer viz. manufacturing unit of Thiru Arooran Sugars, the Supreme Court there stated that because manufacturing unit also bought from other growers, the price at which they obtain sugar cane should be adopted as market price. Applying this principle to the facts of the assessee's case, the assessee also buys electricity from other supplier viz Gujarat Electricity Board (GEB). It is not relevant whether that price was controlled or not. If the price at which the GEB supplied as controlled then that would be the market price vis-a-vis the assessee. Accordingly, the price charged by GEB should be adopted as market price. Therefore, the decision of Supreme Court in Thriu Arooran Sugars completely covers the situation of the assessee. 40. The Supreme Court at page 441 has stated as under: "These are the principles universally applied to find out the price at which the goods are ordinarily sold in the open market. For determination of market value, there is no pre-requisite that an

36 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., open market where buyers and sellers congregate to buy and sell goods must exist. In the instant case, the assessee-company actually bought sugarcane from a large number of growers year after year in the ordinary course of business. The price at which it buys sugarcane must/be taken to be the market price. If the price is controlled by Sugarcane Control Order, the controlled price will be taken as the market price because it is at this price that a willing buyer and a willing seller are expected to transact business. As Lord Denning pointed out, it does not make any difference to this position that the assessee was the only buyer in the region where its factory was located".

37 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., assessee after the enactment of the Electricity Act, 2003 the Assessee would sell to "any licencee" and is not restricted to selling electricity only to a distribution company or a generating and distribution company.

38 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., companies to outsiders are two different prices. The Electricity Act, 2003 contemplates determination of market price only in respect of licenced generating companies willing to distribute or transmit power to a distribution licensees or to a consumer and it is only those generating companies which are regulated under section 42(2). The self consumption of electricity by a Captive Power Plant is' not regulated under Electricity Act, 2003. In the decision of Supreme Court In Thiru Arooran Sugars also, it is quite clear that self consumption of sugarcane was not regulated and given that circumstance, the Supreme Court held that because the manufacturing unit was purchasing sugar from other growers that price ought to be adopted as market price. Similarly in the case of the assessee, in respect of the electricity produced by Captive Power Plant for consumption, there is no regulation for pricing the price charged by GEB ought to be adopted as market price. The market is therefore hypothetical open market exactly as was contemplated in Rule 7(2)(a) referred to in Thriu Arooran Sugars. 46. We further observe that the Calcutta High Court had referred to section 62 of the Electricity Act 2003, whereby generating companies can recover expected revenue on the basis of tariff fixed by the commission. The provisions of section 62 of the Electricity Act 2003 reads as follows: 62 (1) The Appropriate Commission shall determine the tariff in accordance with provisions of this Act for - (a) Supply of electricity by a generating company to a distribution licensee:

39 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., Provided that the Appropriate Commission may, in case of shortage of supply of electricity, fix the minimum and maximum ceiling of tariff for sale or purchase of electricity in pursuance of an agreement, entered into between a generating company and a licensee or between licensees, for a period not exceeding one year to ensure reasonable prices of electricity; (b) Transmission of electricity; (c) Wheeling of electricity; (d) Retail sale of electricity Provided that in case of distribution of electricity in the same area by two or more distribution licensees, the Appropriate Commission may, for promoting competition among distribution licensees, fix only maximum ceiling of tariff for retail sale of electricity. 47. On perusal of the above, it can be observed that section 62 of the Electricity Act 2003 authorizes commission to determine tariff for (1) Generating company supplying to distribution licensee, (2) Transmission of Electricity (3) Wheeling of electricity (4) Retail sales of electricity. 48. Thus captive power plant and its users are not covered under the four categories mentioned in section 62(1) above. Hence for supply of power by a captive power plant to the captive users or to open access consumers, it is not required to get the tariff approved by the commission as stated in section 86(1 )(a) of the Electricity Act, 2003. 49. Therefore, the decision of the Calcutta High Court cannot be applied to the acts of the assessee in as much as it was delivered in respect of A Y 2002-03 for which the Electricity Act 2003 did not apply and also for the reason that the Honourable Court has not considered the provisions of

40 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., sections 8, 9, 42 and 2(g) of the Electricity Act, 2003. Further the provisions of section 62 of the Electricity Act, 2003 referred to by the Honourable Court are not applicable to the fact of the assessee's case. 50. The Calcutta High Court has dissented from the decision of three different High Court as follows: 1. The decision of Chattisgarh High Court Bilaspur Bench in the case of ACIT v. Godavari Power & Ispat Ltd. - 223 Taxman 234. 2. CIT v. Kanoria Chemicals and Industries Ltd 35 taxmann.com (Cal). 3. CIT v. Graphite India Ltd ITA No ITA No 733 of 2008 (Cal). 4. Madras High Court decision referred to in page 12 (Citation not available).

41 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 2. Eveready Spinning Mills (P) Ltd v. ACIT, Circle-1, Tirupur - 17 Taxmann 254 (AY 2007-08) Chennai ITAT. 3. Assam Carbon Products Ltd v. ACIT - 100 TT J 224 (IT AT Kolkatta) 4. West Coast Paper Mills Ltd V. JCIT -100 TTJ 833 (Mum) Mumbai ITAT 5. Add!. CIT v. Jindal Steel & Power Ltd - 16 SOT 509 (ITAT Delhi). 6. Shree Cement Ltd v. The Addl. CIT Jaipur-ITA NO.503/JP/2012 (Jaipur ITAT)

42 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 3. CIT v. Naga Hills Tea Co. Ltd - 89 ITR 236 (SC) In view of the above discussion, the Calcutta High Court can have no application to the assessee’s case. 56. In view of the above, we respectfully follow the order of the Tribunal in assessee’s own case and confirm the order of CIT(A). 57. In the course of assessment AO made addition u/s.14A r.w.r. 8D. Facts in brief are that during the A.Y. 2007-08, dividend income of Rs.107.81 crores was claimed by assessee as exempt u/s.10(34) of the Act. Investment in the shares, which yielded the dividend income were made out of net owned funds. The learned AO has disallowed estimated expenditure of Rs.69.16 crores under normal provisions of Income tax Act and under section 115JB of the Act, presuming it to be incurred in relation to earning of the said exempt dividend income by invoking the provisions of section 14A of the Income-tax Act r.w.r. 8D of the Income tax Rules. The assessee had added back an amount of Rs.2.26 crores in the return being expenditure incurred for earning the exempt dividend income, however, the AO has failed to appreciate the same. 58. By the impugned order, CIT(A) computed disallowance of interest at Rs.24.12 crores and 0.5% of the monthly weighted average value of investment, i.e. proportionate administrative and other expenses of Rs.45.50 crores and thus disallowing RS.69.62 crores u/s.14A. 59. Learned AR placed on record the order of the Tribunal in assessee’s own case for the assessment year 2006-07 wherein disallowance of other expenses was restricted to 1% of the exempt income. However,

43 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., disallowance of interest was deleted. Precise observation of Tribunal was as under:-

61.2 We observe that the above ground has been considered by the Tribunal vide paras 9.1 to 9.8 hereinabove. The Tribunal vide para 9.6 by following its earlier order I.T.A. No.4475/Mum/2007 77 and 7 other appeals dated 28.5.2012 in assessee's own case for preceding assessment year 2002-03 on similar facts has held that proportionate disallowance of interest is not justified as the assessee's own funds are far in excess than the interest free advances given by assessee and the investment made which is giving exempt income to the assessee. 61.3 At the time of hearing, ld. Representatives of the parties have categorically stated the findings given in assessment year 2003-04 will be applicable for this assessment year 2006-07 as well. Since, we have held vide para 9.6 that ld. CIT(A) is not justified to make proportionate disallowance of interest as assessee's own funds are far in excess interalia than the investment made which is giving exempt income to the assessee, and have held that the disallowance of interest as computed by ld. CIT(A) by applying Rule 8D read with section 14A of the Act is not justified. 61.4 In so far as disallowance of administrative expenses u/s 14A of the Act, we have held vide para 9.7 that it is fair and reasonable to restrict the disallowance to 1% of the exempt income. Since in the assessment year under consideration, the assessee has earned interest income of Rs.88.01 crores which is exempt u/s 10(23G) of the Act and Rs.22.44 crores being dividend income exempt u/s 10(34) of the Act aggregating to Rs.110.45 crores, we restrict disallowance to 1% of the said exempt income which works out to Rs.1,10,45,000/- for the purpose of computing the total income under the normal provisions of Act. In regard to disallowance u/s 14A for computing the book profit u/s 115JB of the Act, we have held hereinabove in para 9.7 that while computing the book profit u/s 115JB of the Act, the provisions of section 14A cannot be imported and therefore no disallowance u/s 14A of the Act can be considered while computing the book profit u/s 115JB of the Act. 61.5 In view of above ground No.2 of the appeal of assessee is allowed in part by restricting the disallowance to Rs.1,10,45,000/- u/s 14A of the Act while computing total taxable income under the normal provisions of Act but no disallowance under section 14A be considered while computing the book profit u/s 115JB of the Act. 60. The learned AR submitted that the AO has not identified any expenditure which is directly incurred in relation to the earning of exempt

44 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., dividend income. Without finding any business expenditure as having been incurred in relation to exempt dividend income, the AO cannot make any disallowance out of the claim of business expenditure. It was also submitted that assessee had not incurred any part of interest expense for earning the exempt income. It was stated that the interest bearing borrowed funds were invested in the normal course of carrying on the business. The assessee submits that its own funds are far greater than investment and interest free advances available, hence, it is proved that investments have been made out of own funds. In this connection, the assessee had relied on the Judgement of Bombay High Court in the case of CIT vs Reliance Utilities and Power Limited (313 ITR 340) and HDFC Bank vs DCIT [383 ITR 0529]. In the light of above facts and judicial pronouncements, the assessee prayed that the disallowance made by the AO and confirmed by the CIT(A) should be deleted and the same shall be restricted to the disallowances offered by the Assessee. 61. Rival contentions have been heard and record perused. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us in the context of factual matrix of the case. During the A.Y. 2007-08 we found that the total interest free own funds of the assessee are as under:

45 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., Particulars 31.03.2007 Rs in Crore Own Funds: Shareholder Funds 63,967.13 (Share Capital + Reserves) (Refer page 6 of the paper book): Less: Investments yielding exempt 14,954.12 income (Refer page 69 of the assessment order) Excess of own Fund 49,013.01

i) HDFC Bank Limited vs Dy. Commissioner of Income tax - 2(3), Mumbai & Ors. (Writ Petition No.1753 of 2016) (ii) CIT vs HDFC Bank Limited [ITA 330/2012 Bom HC] (iii) CIT Vs. Reliance Utilities & Power Ltd reported in 313 ITR 340 [Bombay HC] (iv) CIT vs GUJARAT STATE FERTILIZERS & CHEMICALS LTD [ITA 82 of 2013]

46 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., considering the dlsallowances made in the preceding assessment years. In view of earlier orders of ITAT for A.Y. 2006-07 on similar facts and circumstances when rule 8D was not applicable, we direct the AO to restrict the disallowance u/s. 14A of the Act out of administrative expenses to the extent of 1% of exempt Income for the purpose of computation of income under normal provisions of Act in so far as Rule 8D is not applicable to A.Y. 2007-08 under consideration. We direct accordingly. 66. AO has also disallowed depreciation of Rs.14.19 lakhs on the capitalised value of goods purchased from Durga Iron and Steel and Surajbhan Rajkumar Pvt. Ltd. By the impugned order CIT(A) confirmed the same. 67. At the outset, learned AR fairly conceded that the issue has been decided against assessee by Tribunal in the assessment year 2006-07. As the facts and circumstances during the year under consideration are same, we confirm the action of lower authorities for disallowance of depreciation in the A.Y. 2007-08, 2008-09 & 2009-10. 68. In ground No.4 assessee alleged disallowance of depreciation of jetties. The AO has disallowed the depreciation in respect of jetties constructed by assessee and used for the purpose of its business. By the impugned order CIT(A) confirmed the action of the AO. 69. We have heard the rival contentions and found that exactly similar issue has been decided in favour of assessee by the Tribunal in

47 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., assessee’s own case for the assessment year 2004-05 after having the following observation:- 87. We observe that on identical facts, the Tribunal considered similar issue in the case of Reliance Ports and Terminals Ltd., and allowed the claim for depreciation on the cost incurred by the assessee on construction of jetties at Sikka Port, Gujarat, for GMB. In the said case, the assessee constructed jetties at Sikka Port, Gujarat of GMB primarily to serve imports of group companies at the port. As per the agreement entered into, the assessee was entitled to concession in wharfage charges i.e., land / shipping fee on use of jetty, which was to be set-off against capital investment made by the assessee. The assessee treated this right to use the jetty as an intangible asset and claimed depreciation on the cost incurred @ 25%. The Assessing Officer stated that the assessee was not entitled to depreciation on the cost of construction of jetty as the entire cost being reimbursed by GMB by way of rebate on the wharfage charges which otherwise the assessee was liable to pay in full. Further, the right to use the jetty was not in the nature of any business or commercial right similar to normally accepted intangible asset such as knowhow, patents, copy rights, trade marks, license, franchises or any other business or commercial rights in similar nature. That entire investment in the jetty was quantifiable and the return from the investment was specified based on which the rebate on wharfage charges was determined. It is relevant to state that in the said case, as per the agreement, the ownership of the jetty was to be with GMB although, the cost of building and jetty was made by the assessee. In the said case also, the assessee was required to pay landing and shipping fees (known as wharfage charges) @ 20% of the actual landing and shipping fees specified in the schedule of port charges. The balance 80% was required to be set-off against the capital investment i.e., the cost of the construction of jetties. After the capital investment was recovered through such set-off, the assessee was required to pay landing and shipping fees at normal rate. The agreement was to remain in force for a period of 25 years or till such time such aggregate of the rebate obtained by the assessee in wharfage charges equaled the amount of construction of the jetties, whichever is earlier. The assessee spent ` 14,25,63,02,471, and treated the same as intangible asset under section 32(1) of the Act on the reasoning that it was license and also represent business and commercial right on which the assessee claimed depreciation @ 25%. The Assessing Officer did not agree with the assessee and disallowed the claim. The first appellate authority also confirmed the action of the Assessing Officer. Further, the Commissioner (Appeals) held that the expenditure to be allowed proportionately over a period of 25 years. Being aggrieved, the assessee filed appeal before the Tribunal. The Tribunal, after considering the submissions of the Representatives of the parties, held that by virtue of the terms

48 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., of agreement, the assessee only acquired the commercial right or license and they are really an intangible asset within the meaning of section 32(1) of the Act. Thereafter, the Tribunal, vide Para-32, of the said order, held that the assessee is entitled for the depreciation by treating the expenditure as part of block of intangible asset. The relevant Para- 32 of the said order, reads as follows:- "32. The question is whether the present expenses incurred by the assessee can be said satisfy the tests of being licences, franchises or any other business or commercial rights being intangible assets within the meaning of the aforesaid provisions. In our view, the Tribunal in the earlier year has already concluded that this expenditure is question is incurred wholly and exclusively for the purpose of business and the terms of the agreement which are extracted hereinabove clearly shows that the assessee has acquired some business or commercial right by incurring this expenditure. This expenditure has not resulted in the acquisition of any tangible asset like building, machinery, plant or furniture. Any other expenditure which did not result in the acquisition of these intangible assets can only be treated as intangible assets. In our view, substantial expenditure incurred by the assessee is for certain commercial considerations and business interest has resulted in business advantage to the assessee in the form of priority user of the infrastructure facility that was badly needed by the assessee and its associates concerns. The assessee would have been forced to incurred extra expenditure if this expenditure were not incurred by the assessee. After all the businessman does not incur any expenditure unless it gives some business advantage and the huge expenditure incurred by the assessee is only to get such business advantage like priority user by the assessee company and right to claim rebate on the wharfage charges payable or to guard against the possible increase in the wharfage charges that may be necessitated by efflux of time or economic inflation. All points are considered together, in our view, the expenditure in question give rise to acquisition of licence or other business or commercial right which are really in the nature of intangible asset and are fully covered within the meaning of section 32(1) of the Act. In the light of the above discussion, the contention of the assessee that the said expenditure is to be treated as an intangible asset, and therefore, the assets are entitled for appropriate depreciation by treating the said expenditure as part of the block of intangible asset is fair, reasonable and in accordance with the amendment provisions of law in this regard." 88. We observe that the terms of agreement of the assessee before us are similar to the terms of agreement which was considered in the case of Reliance Ports & Terminals Ltd. (supra) and entered into with GMB. The benefit which the assessee before us is entitled to get on account of construction of jetty are similar to the case considered by the Tribunal, vide its order dated 26th November 2007 (supra).

49 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., The learned Departmental Representative, during the course of his submissions, has not pointed out any distinguished facts in the case before us viz-a-viz in the above case of Reliance Ports and Terminals Ltd. (supra). We observe that the decision in above case squarely apply to the facts of the case before us. Therefore, respectfully following the earlier order of the Tribunal dated 26th November 2007 (supra), we hold that the assessee is entitled for depreciation at the rate as applicable on the cost incurred for construction of jetty at Dahej. Hence, we allow ground no.3, of the appeal filed by the assessee by reversing the orders of the authorities below".

50 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., in the statement given by Shri S. K. Gupta and the said disallowance has been confirmed by the CIT(A). 73. From the record we found that during the subjected year assessee has availed the services of Shri S. K. Gupta and paid the professional fees and also reimbursed expenses to his companies. The payments towards professional services charges and reimbursement of expenses were contended to be genuine and incurred for business purposes, hence, the same was claimed as deduction u/s 37 of the Act. We found that identical issue has been decided by Tribunal in favour of the assessee in preceding year i.e. A Y 2006-07 (Reopened) in ITA No.536/Mum/2012 order dated 29/05/2015, wherein the ITAT has deleted the disallowance following the decision of DCIT Vs. M/s. Link Engineers Pvt Ltd (ITA No.968 & 2248/Del/2011). 74. As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal, we direct the AO to delete the disallowance of professional fee paid to various companies. 75. In ground No.6a, assessee is aggrieved by the action of CIT(A) confirming the addition made by AO of Rs. 48,82,456/- while determining the arm's length price in respect of commission paid to its associate enterprise Reliance Netherlands at Rs. 54.32 lakhs as against Rs.103.15 lakhs paid by the assessee. 76. At the outset, learned AR fairly agreed that issue has been decided by the Tribunal in assessee’s own case for the assessment year 2004-

51 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 05 against assessee after having observation at page 54. Respectfully following the order of Tribunal in assessee’s own case, we do not find any infirmity in the order of CIT(A) for confirming the addition in the A.Y.2007-08 & 2008-09. 77. In Ground No.6b, assessee is aggrieved by the action of CIT(A) in confirming the order of the AO in treating the non funded guarantee given by the assessee to the Bank of America for giving loan to its associated concern Trivera Gmbh as international transaction. It was pleaded by learned AR that above transaction does not fall within the definition of international transaction as defined u/s. 92B of the Act. Hence, the addition confirmed by CIT(A) is not correct. 78. Relevant facts giving rise to above grounds of appeal are that during the year under consideration, the assessee provided corporate guarantee to Bank of America in connection with loans of Euro 65 Million taken by its associated enterprise viz Trivera GmbH. Assessee has not charged any guarantee feel commission to Trevira GmbH for providing said guarantee. The assessee explained that it has not incurred any cost for providing guarantees and the same have been provided as part of normal commercial practice followed by bank of taking guarantee of parent company and / or directors for lending the loan to subsidiary company. The assessee also contended that the transaction does not fall within the definition of an "international transaction" u/s 92B of the Act as it has no bearing on income of the assessee.

52 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 79. We found that exactly similar issue has been considered by tribunal in assessee’s own case in assessment year 2005-06 & 2006-07 wherein addition on account of guarantee commission has been restricted to 0.385% after having the following observation. 80. Relevant observation of the Tribunal in the assessment year 2005-06 in its order dated 13/09/2013 was as under:- 52.2 Relevant facts giving rise to above grounds of appeal are that during the previous year, the assessee provided corporate guarantee to Bank of America in connection with loans of Euro 80 Million taken by its associated enterprises viz Trevira GmbH. TPO has stated that assessee has not charged any guarantee fee/commission to Trevira GmbH for providing said guarantee. The assessee stated that guarantees have been provided by it to Banks which are not its associated enterprises. That the assessee has not incurred any cost for providing guarantees and the same have been provided as part of normal commercial practice followed by bank of taking guarantee of parent company and /or directors. The assessee also contended that the transaction of providing guarantee does not fall within the definition of "international transaction"under section 92B of the Act. 52.3 TPO did not accept above contention of the assessee. He stated that providing guarantee to its associated enterprises by assessee is a clear evidence of benefit being provided. That if Trevira GmbH had requested any bank or third party to provide such guarantee for its loans, it would have had to pay guarantee fee/commission. 52.4 The assessee cited an instance where it itself had paid guarantee commission of 0.25% per annum to ICICI in respect of guarantee provided to it. Without prejudice to the above contention, the assessee submitted to TPO that the same rate may be applied in the instant case also, as the above comparable relates to assessee's own loan transaction within India with the ICICI Bank, Mumbai. 52.5 TPO has stated that assessee has submitted only a comparable in which ICICI Bank, Mumbai granted loan to RIL which is a well established company with well established credentials in India. That the assessee's Associated Enterprises (AE) is based in Germany. That the details with regard to risk profile and the credit profile of its AE, Trevira GmbH with regard to the said loan transaction has not been submitted. Thus, TPO stated that assessee's contention that 0.25% guarantee fee should be applied cannot be accepted as it does not factor in certain essential variables such as place of the loan transaction and the normal range of guarantee fee charged there,

53 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., the I.T.A. No.4475/Mum/2007 66 and 7 other appeals risk profile and the credit profile of the parties involved etc. Similarity of geographical region is one of the cardinal principles in application of CUP. Finally, TPO after considering that a public company with limited liability of 51% being held by Dutch State, FMO, (Nederlandse Financierings-Maastschappij Voor Ontwikkelingslanden N.V.) who charged 2.5% in a case of Rabo India Finance Pvt. Ltd. and stated that entities in Netherland and Germany belong to one common market, i.e. EU. Therefore, TPO considered the said rate as comparable uncontrolled price (CUP) for benchmarking this transaction. Accordingly, TPO considered the ALP of grantee fee at the rate of 2.5% on the guarantees of Euro 80 Million granted by assessee which works out to 11,27,00,000/- on this transaction. Since assessee has not charged any guarantee fee/commission, TPO suggested the said amount as adjustment payable to the assessee and the AO made the addition. Being aggrieved, assessee filed appeal before the First Appellate Authority. 52.6 On behalf of the assessee, it was contended that assessee provided guarantee to the Bank against the loan given by them to assessee's subsidiary as normal commercial practice in the capacity of parent company. The assessee reiterated its submissions as made before TPO that the transaction of providing guarantee by a parent company for the loan taken by its associated enterprises does not constitutes an "international transactions" as defined in section 92B read with section 92(1) of the Act. It was also contended that assessee had given non funded corporate guarantee to the bank which is not comparable with independent instances relied upon by the TPO/AO for computing ALP of 2.5% guarantee commission as comparable case. It was also contended that guarantee was given as a part of commercial exigency. Since such incidental benefit attributable solely to its being a part of a larger concern, it cannot be considered as providing any services or giving rise to any income which could be considered for application of transfer pricing provisions. The assessee also furnished details regarding guarantee commission charged by bank in India for giving non funded guarantees and it varies from 0.25% to 0.6%, the details thereof are given by ld. CIT(A) in table at page 43 of its impugned order as under : S.No. Document Name of Bank Name of Company Guarantee date providing fees/commission guarantee payable 1 13.01.2005 HSBC Reliance Industries 0.25% Ltd., 2 06.08.2007 HDFC Bank Reliance Industries 0.35% Ltd., Ltd., 3 04.10.2007 ICICI Bank Reliance Gas 0.25% Ltd., Transportation Infrastructure Ltd., 4 10.12.2007 Canara Bank Reliance Gas 0.50% Transportation

54 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., Infrastructure Ltd., 5 11.12.2007 ABN AMRO Bank Reliance Industries 0.60% Ltd., 6 12.03.2005 Standard Reliance Industries 0.25% Chartered Ltd., Bank 7 27.04.2005 Bank of Reliance Industries 0.25% America Ltd., 8 18.12.2004 HSBC Reliance Industries 0.25% Ltd., 9 05.02.2008 Bank of Trevira GmbH 0.50% America 10 06.02.2008 Commerzbank Trevira GmbH 0.65%

52.6 It was also contended in the alternative that guarantee commission in the given set of facts cannot be considered more than 0.25% p.a. which is comparable with the rates prevailing in the market in similar kind of guarantees given by bank. 52.7 Ld. CIT(A) considered the submissions of the assessee and vide paragraph 15.6.7 has directed the AO to take rate of 0.38% as guarantee commission payable and thus restricted the addition to Rs. 1,71,30,400/- and given relief of Rs. Rs.9,55,69,600/- . The said para reads as under : "15.6.7 I have considered the submission of the appellant. The appellant's contentions are not acceptable so far as the issue relating to the case that the transaction of providing guarantee by a parent company for the loan taken by its associated enterprise does not constitute an international transaction as defined in section 92Br.w. 92(1) of the Act. Since the guarantee has been provided by the appellant on behalf of its associate enterprise viz. Trevira GmbH, the international transaction therefore is between the two associated enterprises. In case of providing guarantees there is a clear evidence of a benefit being provided and therefore the above transaction clearly constitutes an International Transaction as defined in section 92B of the Act. However, I find that the TPO has grossly erred in applying the rate of 2.5% since as per the above cited table, from the 10 cases given the average rate on which the appellant has paid guarantee commission to third parties is 0.38%. Therefore, in my view the rate of 0.38% is the appropriate rate. In view of above discussion I direct the AO to take the rate of 0.38% as guarantee commission payable by the appellant. The addition is thus restricted to Rs.1,71,30,400/- and the appellant gets a relief of Rs.9,55,69,600/- (11,27,00,000 - 1,71,30,400)." Being aggrieved the assessee as well as department, both are have raised this issue in their respective appeal before the Tribunal. 52.8 On behalf of the assessee, the ld. AR submitted that the assessee had given guarantee to the bank for the loan given to its associated enterprises because of business interest. Ld. AR submitted that the assessee has given guarantee to the bank I.T.A. No.4475/Mum/2007

55 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 68 and 7 other appeals and thus transaction is between the assessee and the bank, and it is unrelated party. It is not a transaction between the assessee and its associated enterprises and thus, cannot be termed as "international transaction" under section 92B of the Act. During the course of hearing the attention of the ld. AR was drawn to the amendment made by Finance Act, 2012 with retrospective effect from 1.4.2002 by way of Explanation to Section 92B whereby guarantee commission is now considered to be "international transaction", the ld. AR submitted that if any adjustment is to be made the guarantee commission could be considered at the lowest rate paid by assessee i.e. 0.25% and Rule 10B(1)(a) does not permit for taking the average rate while applying CUP method for making any adjustment on account of transactions with associated enterprises. Ld. AR submitted that rate of guarantee of 2.5% as considered by TPO is in respect of the parties where both are outside India and relates to furnishing guarantee in case of a finance company. He submitted that charging of guarantee commission depends on various factors. Ld. AR submitted that business strategy should be taken into consideration while making any Transfer Pricing adjustment in respect of such transaction. Hence, said rate of 2.5% is not comparable and the ld. CIT(A) should have taken the rate of guarantee commission at 0.25% as ALP which is comparable for similar kind of guarantee given by bank in India. 52.9 On the other hand, ld. DR while supporting the order of TPO submitted that the transaction of giving guarantee by the assessee to its Associate Enterprise is "International Transaction" and the same was not benchmarked by the assessee. He referred the amendment made by the Finance Act, 2012 with retrospective effect from 1.4.2002 by way of Explanation added in section 92B of the Act and submitted that payment of guarantee fee is included in the expression "international transaction" in view of Explanation-(i) (c ) to section 92B of the Act. He submitted that once guarantee fee falls within the meaning of "International Transaction", the methodology provided in the Rules becomes applicable. The ld. DR submitted that TPO has benchmarked the rate of guarantee commission by applying CUP method to take an incident of a company situated in Netherlands which is situated in same common market r.e. EU. Therefore, rate of TPO be confirmed as compared to the average rate taken by ld. CIT(A) of internal comparables of the guarantee commission paid by assessee to its bank for providing guarantee. 52.10 We have carefully considered the submissions of ld. Representatives of the parties and the orders of ld. CIT(A) as well as TPO. There is no dispute to the fact I.T.A. No.4475/Mum/2007 69 and 7 other appeals that for providing guarantee by the assessee to Bank of America against the financial assistance given to assessee's AE Trevira GmbH, the assessee has not charged any commission. In this regard, the assessee firstly contended that providing of guarantee by the assessee to the bank on behalf of its AE does not constitute an "international transaction" and the said transaction is between the

56 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., assessee company and the bank, who are unrelated parties and not between the two associated enterprises. We are of the considered view that the above contention of the ld. AR has rightly been rejected by authorities below and particularly in view of the amendment made by Finance Act, 2012 with retrospective effect from 1.4.2002 by way of Explanation -(i) (c) of section 92B to include guarantee in the Expression "international transaction". Therefore, the contention of the ld. AR that providing of guarantee to the bank on behalf of its AE does not fall in the definition of "international transaction" has no merits. We agree with TPO that there is a benefit to assessee's AE by providing of guarantee by the assessee for the loan taken from bank by Trevira GmbH. The assessee has undertaken a risk on behalf of its AE, which in any case, of third party consideration, the same would not have been undertaken or would have charged a consideration for it by the assessee. Now, the question arises as to what should be the rate of guarantee commission at ALP. Ld. CIT(A) has given the details of guarantee commissions charged by bank in India for giving non-funded guarantees to third party and it varies from 0.25% to 0.6% per annum. On the other hand, TPO has compared the rate bearing risk at 2.5% by considering an external comparables of a finance company. However, it is a fact that while applying the external comparables, the TPO has not brought out any thing on record that under which terms and conditions and circumstances the said public company has charged 2.5% rate of guarantee commission for providing guarantee on behalf of the Finance Company. The charging of a guarantee commission depends upon transaction to transaction and mutual understanding between the parties. There may be a case where bank may not charge any guarantee commission, depending upon it's evaluation of relationship with a particular client. Therefore, universal application of rate of 2.5% for guarantee commission cannot be considered a market rate as it largely depends upon the terms and conditions on which loan has been given, risk undertaken, relationship between bank and the client, economic and business interest etc. In the case, before us when the assessee has itself paid guarantee commission at the rate varying from 0.25% to 0.6% per annum to third party and considering the fact that assessee has stated that it has not incurred any cost for providing guarantee to the bank for the loan given to its I.T.A. No.4475/Mum/2007 70 and 7 other appeals subsidiary, we are of the considered view that applying the rate of 2.5% by TPO based on external comparables is not justifiable and cannot be confirmed. 52.11 We also agree with ld. DR that the contention of the assessee that there could not be any cost or charge or guarantee fee for providing corporate guarantee on behalf of its AE to a bank cannot be accepted because there is always an element of benefit or cost by way of risk and the assessee itself has paid guarantee commission to the bank in India. That the rates varies from 0.25% to 0.6% as mentioned hereinabove.

57 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 52.12 We are of the considered view that the ld. CIT(A) on the facts and circumstances of the case has rightly taken average rate on which the assessee has paid guarantee commission to third party, which comes to 0.38%. Hence, we uphold the order of ld. CIT(A) to charge guarantee commission at the rate of 0.38% being ALP for the guarantee given by the assessee to Bank of America on behalf of its AE Trevira GmbH. In view of above, we reject Ground No.9 of the appeal taken by assessee as well as Ground No.6 of the appeal taken by the department. 81. Similarly in the assessment year 2006-07, the Tribunal observed as under:- 64.3 We have considered the above submissions of ld. Representatives of the parties and orders of authorities below. We agree with the ld. Representatives of the parties that similar issue has been considered by the Tribunal in preceding assessment year i.e. assessment year 2005-06 in paras 52.2 to 52.12 hereinabove. Since the facts and the issue in this assessment year i.e assessment year 2006-07 are identical to assessment year 2005-06, we for the reasons mentioned in paras 52.10 to 52.12 hereinabove uphold the order of ld. CIT(A) to charge guarantee commission at the rate of 0.385% being ALP for the guarantee given by the assessee to Bank of America on behalf of its AE Trivera GmbH. Hence Ground No.5 of the appeal taken by assessee as also Ground No.5 of the appeal taken by department, both are rejected.

58 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 84. As discussed above, the Tribunal in the assessment year 2005-06 and 2006-07 have restricted the addition at Rs.0.38%. Respectfully following the order of the Tribunal, we direct the AO to restrict the addition on account of non-funded guarantee to 0.38% in all the years under consideration. 85. In Ground No.6d, assessee is aggrieved by the action of CIT(A) in confirming arm’s length price in respect of an amount of Rs.13,52,01,303/- being interest payment referable to interest free loans and advances given to its subsidiary companies. 86. Relevant facts giving rise to above grounds of appeal are that during the subjected year, the assessee has given interest free loans to two of its subsidiary companies viz. RNBV, Reliance India Middle East DMCC (RIME) and purchase consideration amounting to USD 25,356,458 for participating Interest in Oman Block - 18 and Yemen Block - 9 transferred to Reliance Exploration and Production DMCC (REP DMCC) as a loan due from 28 March 2007, which was outstanding at the end of the relevant financial year. No interest has been charged by the assessee since the amounts were given as temporary advances to the above companies for the purpose of meeting their urgent business requirements and further the companies are 100% subsidiaries of the assessee which contribute to furthering the business interest of the assessee. The TPO has not accepted the explanation given by the assessee and held that the assessee ought to have charged the interest on the said loans at the market rate prevailing on the date on which such loans and made the

59 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., adjustment of interest @ 5.3% which worked out to Rs. 13,52,01,303/-. The CIT(A) upheld the adjustment of Rs. 13,52,01,303/- made by the TPO. 87. Contention of learned AR was that loans and advances given to the subsidiary companies are out of its own funds are given for furthering the business interest of the assessee and hence no disallowance is called for. 88. We have considered rival contentions and gone through the orders of lower authorities. We found in the case of Taurian Iron & Steel Co. Pvt. Ltd., v/s. ADCIT (ITA No.5920/Mum/2012) similar adjustment has been restricted at LIBOR + 1.50%. In the case of Golawal Diamonds v/s. ACIT (ITA No. 518/Mum/2014) also adjustment has been restricted at LIBOR + 1.50%. Respectfully following the verdicts laid down by Tribunal in these cases under similar facts and circumstances, we direct the AO to restrict adjustment at LIBOR + 1.50%. We direct accordingly. 89. In Ground No.5 of the department appeal, the department is aggrieved by action of CIT(A) for allowing an amount of Rs. 4,83,25,200/- u/s. 40(a)(ia) of the Act, by holding that no tax was withheld U/s. 195 of the Act. 90. Brief facts of the case are that during the year under consideration the Income tax Officer (IT) TDS Range-2, Mumbai had passed an order u/s.201 (1) r.w.s. 201(1A) dated 25.10.2007 holding that the assessee company had paid an amount of RsA,S3,25,2001- being interest in FY 2006-07 without deduction of withholding tax u/s 195 of the Income tax Act, 1961. Accordingly, the ITO TDS held that the assessee had failed

60 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., to comply with the provisions of section 195 of the act by not deducting and remitting the withholding tax. 91. Learned AR placed on record the order of the Tribunal in assessee’s own case in ITA No.4595/Mum/2010 dated 08/06/2012 wherein the appeal of the revenue on this ground was dismissed after having the following observation. 3. The relevant facts as culled from the order of CIT(A) are that M/s Reliance Industries Ltd. had raised foreign currency loans of USD 100 million through the issue of 10.5% Foreign Currency notes lead managed by Merrill Llynch & Morgan Stanley for the purpose of financing the import of capital goods and services. All payments made under the loan agreement are net of taxes. ECB loan were raised and the approval from Government of India was obtained for taking the loans through following letters. Sl. Letter No. and Dated Amount (USD) Million No. F. No.6(50)/93-ECS, dated 19.07.1995 and 150 subsequent letter dated 22.09.1995 and 15.02.1996 (Loan Key No.1995145) F.No.6(358)/95-ECB, dated 22.08.1995 and 150 subsequent letter dated 19.02.1997. F. No.6(578)/95-ECB, dated 28.05.1996 200 (Sanction No.60) F. No.6(578)/95-ECB, dated 28.05.1996 100 superseded by letter dated 30.07.1996 (Sanction No.61) F. No.6(578)/95-ECB, dated 06.01.1997 and 100 subsequent letter dated 10.02.1997 (Sanction No.666) F. No.6(578)/95-ECB, dated 06.01.1997 and 214 subsequent letter dated 10.02.1997 (Sanction No.667) F. No.6(49)/97-ECB, dated 21.07.1997 and Trenches subsequent letter dated 31.07.1997 for both I:BP 150 Million Tranches I & II II:USD 150 Million Total not to exceed USD 405 million The appellant was required to pay interest of USD 10,98,300 to DB Services Tennessee Inc. vide debt service invoice dtd. 23/1/2007. Approval for the above referred ECB was obtained from the Government of India, Ministry of Finance, Department of Economic Affairs (GOI) vide their letter dt.30/07/1996. Appellant made remittance of above mentioned interest without deduction of tax at source. The AO did not agree and after

61 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., considering the appellant’s contention, held that the tax was required to be deducted at source. The AO computed the tax to be deducted at Rs.1,32,89,430/- and held appellant to be liable for default u/s.201 and further levied interest u/s.201(A), for the default in remittance, of Rs.11,96,049/- for the delay of nine months. 4. Before the CIT(A), the assessee submitted that this issue has been examined by the ITAT in the assessee’s own case in ITA Nos.5966, 5967, 5968/Mum/2002 vide order dated 23-3-2006 and ITA No.s 5407 & 5408/Mum/2007, vide order dated 15-4-2009. Learned CIT(A) after analyzing the issue in detail and the decision of the ITAT as have been relied upon, allowed the assessee’s appeal. 5. We have carefully considered the impugned orders and material on record. It is noticed that this issue has been decided in a bunch of appeals vide order dated 23-9-2011, passed in ITA Nos.2046, 2057, 2058, 2059/Mum/2008, ITA Nos.5167, 5168, 5193, 5176, 5195 & 5196/Mum/2008 and further vide order dated 28-9-2011, passed in ITA Nos.824, 825, 1000, 1001 & 1002/Mum/2008. The relevant findings as given in order dated 28-9-2011 are reproduced herein below :- 8. Having carefully heard the submissions of the rival parties and perusing the material available on record we find that the facts are not in dispute inasmuch as it is also not in dispute that on the identical issue in the case of Reliance Industries Ltd V/s Dy. Director of Income Tax (IT) 2(1) ITA No.516/Mum/2002 dated 8.2.2005; (2005) 98 TTJ (Mum); (2005) 3 SOT 501(Mum.), the Tribunal has decided the matter in favour of the assessee vide finding recorded in paragraphs 13 to 22 of the report which are reproduced as under : “13. We have carefully heard the submissions of both the sides at length and thoroughly examined the factual as well as legal aspect of the issue raised before us on proper perusal of the material placed before us. The appellant was aggrieved and the issue arises from an order passed u/s. 195(2) of IT Act dated 13/2/02, relevant portion already reproduced supra, through which the assessee was directed to remit the interest only after deducting with holding tax @ 20%. In fact the appellant has moved an application seeking a “No Objection Certificate” in respect of remittance of interest of US $ 1,05,902.78 to M/s. Deutsche Bank, AG London without deduction of with holding tax at source. This request was rejected by the concerned authority i.e Dy.Director of Income Tax (International Taxation), Mumbai vide impugned order u/s.195(2) of IT Act on the ground that the exemption u/s./10(15)(iv)(f) in respect of interest payment had already been withdrawn by Government of India vide its communication dated 5/2/2000. So the interest was held to be liable to with holding tax in India. The first appellate authority has also dismissed the plea of the assessee and affirmed the action of the A.O in a brief order, relevant portion already reproduced supra. We have also narrated in above paras the facts and figures of the External Commercial Borrowings (in short ECB) availed in respect of a project of Petro Chemical Complex at Hazira and Jamnagar. To resolve this issue it is in the interest of justice to first of all streamline the question to be answered by us which according to us are as follows: (1) What is the implication of Hon’ble Delhi High Court decision as well as the SLP filed before the Hon’ble Apex Court on the jurisdiction of the Tribunal.?

62 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., (2) What is the scope of Section 10(15)(iv)(f) and whether the exemption was rightly withdrawn considering the utilization of ECB and merits of the case? (3) Whether the A.O was right in directing the assessee to deduct withholding tax @ 20% vide an order u/s.195(2) of IT Act 14. Even before we proceed to answer the above questions it is pertinent to examine the contents of section 248 of IT Act, which according to both the parties is the only section under which an appeal lies against such-direction as made in the impugned order u/s.195 of IT Act. The section 248 reads as follows: “Appeal by person denying liability to deduct tax: 248. Any person having in accordance with the provisions of section 195 and 200 deducted and paid tax in respect of any sum chargeable under the Act, other than interest, who denies his liability to make such deduction may appeal to the Commissioner (Appeals) to be declared not liable to make such section.” From plain reading of this section there is no ambiguity that an appeal is provided to a person who, having deducted tax and paid the sum, denies his liability to make such deduction. A person who denies liability to deduct tax u/s.195 on the amount payable to a nonresident is entitled to appeal u/s248 and the CIT(A) has the jurisdiction to quantify the amount on which alone the tax is deductible. In the case of CIT vs. Wesman Engineering Co. Pvt. Ltd., 188 ITR 327(SC) it was held that, “language of section 248 is wide enough to cover any order passed u/s.195”. In an another decision Hon’ble Karnataka High Court in the case of ACIT vs. Motor Industries Co., 249 ITR 141 has also entertained this argument that where an assessee was denying the very liability to deduct tax, the Tribunal was justified in entertaining the appeal in respect of the liability u/s.195 of IT Act and appeals relating to levy of interest. These two decisions are sufficient and suffice to state that the first appellate authority as well as the Tribunal both are competent to decide this issue being duly authorized by the above cited provision of IT Act. 15. Now, we have to answer the first question about the jurisdiction of this Tribunal keeping in view the order of Hon’ble Delhi High Court and the SLP decided by the Hon’ble Apex Court. On careful reading of the order of the Delhi High Court it is implicit that the Court was aware of the fact that vide an order u/s.195(2) dated 13/2/02 the application of the assessee had been rejected. Further the Hon’ble Court was also aware that an appeal had been preferred by the appellant against the said rejection before the first appellate authority i.e Ld. CIT (A) vide para-13 the Hon’ble Court in the said order has clearly mentioned about these facts. Being fully aware of the entire situation and the circumstances under which the exemption was withdrawn resulting into direction of 20% deduction of tax the Hon’ble Court at page-159 placitum “H” has observed as follows: “The question which survives for consideration now is as to whether by reason of the impugned order the Central Government issued any direction to the statutory authorities. In the instant case no action had been taken as a result whereof the quasi-judicial authorities became denuded of their quasi-judicial power. Merely communicating the impugned judgment to the effect that such exemption had been withdrawn is communication of a foundation of fact. If, according to the petitioner, the order of the quasi judicial authority suffers from any illegality they could have carried the matter high up.” So the Hon’ble Court has viewed that the quasi-judicial authorities cannot be denuded of their quasi judicial power. Mere communication of withdrawal of

63 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., exemption, according to the view expressed was a foundation of fact to be adjudicated by quasi-judicial authority to determine whether such an order suffers from any illegality. After expressing this view the Hon’ble Court has concluded as follows vide placitum “C” and “D” on page – 160. “There cannot be any doubt whatsoever that the assessing authority and the appellate authority are quasi-judicial authorities. By reason of the order impugned in the writ petition the Central Government has in no way curtailed the power of a judicial or quasijudicial authority (c) It is well known that the jurisdiction of judicial review of this court is limited. Having regard to the facts and circumstances, we do not find that there exists any illegality, irrationality or procedural impropriety in the decision. This court is not concerned with the merits of the decision.” (D) After hearing the submissions of both the sides and on threadbare reading of the order of the Hon’ble Delhi High Court we find force in the arguments of ld. A.R. Having read the paras of the said order it can be culled out that final direction of the Delhi High Court was that this issue be decided by the assessing authority and the appellate authority who are the quasi-judicial authorities. Due to this reason the Hon’ble Court has not shown its concern with the merits of the decision. On a conjoint reading of the two paras it is amply clear that the matter was left open to be decided by quasi-judicial authorities after taking into account the merits of the decision of withdrawal of exemption challenged before the Hon’ble Court. So we have to act upon accordingly and following the direction of the Hon’ble Court hereby we are authorized as well as empowered to decide this appeal. 16. At this juncture, even after deciding the issue of jurisdiction whether lies with the Tribunal, or not, in above para, still we deem it proper to consider a step further that whether the Tribunal has jurisdiction to look into the question as whether the decision of the Central Government and withdrawal of exemption was correct. In this connection an argument was placed before us that an Act is the supreme considering the hierarchical levels i.e the supreme is the Act then comes the rule made there under, next is the position of notification and the last is letters or approvals. It was argued with supporting case laws that the rules must be sub-servient to the provisions of the section enacted in a statute. In the case of CIT vs. New Citizen Bank of India, 58 ITR 468 the Hon’ble Bombay High Court has also observed, “when a rule is made under a particular section it is the section which controls and governs the rule and the rule must be construed in the light of the decision and not view-versa”. So the basic question is that once because of the letter or notification the provisions of the statute have been negated or diminished by an executive order then what is the course left to a tax payer. Naturally the answer is that a tax payer has no option but to knock the door of the judiciary. In a plethora of decisions it was unequivocally held that the full effect of the provision has to be given in preference to supporting legislature such as rules, notifications, approvals etc. Some of the decisions in this regard are worth quoting as follows: (i) CIT vs. Abdul Hussein Essaji Arsiwalla, 69 ITR 38 (Bom) wherein the Hon’ble Court at page-44 has observed as under: “It is a cardinal principle of interpretation that it is this main statute which will govern the rules made under the rule making power given under the Act and not view versa. If the interpretation of the provision of the statute is

64 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., clear, a rule framed under the rule making power given under the statute cannot affect it. It is well-settled that rules must be interpreted in the light of the section under which it is made and no exercise of the rule-making power can affect or derogate from the full operative effect of the provisions of the statue.” (ii) CIT vs. Taj Mahal Hotel, 82 ITR 44(SC), wherein vide para-49 the Hon’b;e Court has observed as under: “It has been rightly observed that the Rules meant only for the purpose of carrying out the provisions of the Act and they could not take was what was conferred by the Act or whittle down its effect” (iii) M.C.T. Muttaiah Chettiar Family Trust vs. 4th ITO, 86 ITR 282(Mad) wherein at page 88 observed as under: “The role of subordinate or delegated legislation and the part it could play as an ancillary body to the primary legislative authority is very well channalised by rules of interpretation. Any such delegated power being essentially subordinate in its nature, is limited by the terms of the enactment where under it is delegated. It is, therefore, necessary that the delegated authority must be exercised strictly in accordance with the powers creating it and in the light and spirit of the parent or enabling statute. It cannot be postulated that the right of delegation can be unlimited in its scope…………………………………………….. All rules or forms which are creatures of such rules, prescribed for the purpose of effectuating the policy of the statute, must be read in the light of the statutory provisions in the main enactment under which they are made and therefore, such rules or forms cannot contradict or create an irreconcilable position resulting in an anomalous situation. The primary and the only object of the income-tax Act is to tax, tax and tax the income. If the legislature in its wisdom grants a concession and by creating a concession a reciprocal right or privilege is vested in a assessee, such a reciprocal right cannot be wildly dealt with so as to negate its usefulness by making a rule which cannot be reconciled with the main statutory provision. The object of the subordinate legislature is to carry out the statutory provisions effectively and not to neutralize or contradict them. The rules made under the rule-making power should strictly conform with the intendment of the main provisions of the statute and can be consistent therewith………………………………” (iv) CIT vs. Bombay State Transport Corporation, 118 ITR 399 (Bom), wherein vide page 405 observed as under: “It would appear to us that there is much to be said in favour of the view that it is not within the competence of the rule-making authority. To put it in other words the rule made in this manner which provides for a nil percentage of depreciation on a certain class of asset, or in class of cases, to use the language of s 10(2)(vi), cannot be accepted as a rule made for carrying out the purposes of the Act, indeed, such a rule may be regarded as patently violate of the purposes of the Act, i.e of s 10(2). (iv) CIT vs. Hyderabad Asbestos Cement products Ltd, 172 ITR 762(AP) wherein the Hon’ble Court at page No.775 & 776 has observed as under: “Learned Counsel for the assessee invited our attention to the decision of the Supreme Court in CIT vs. S. Chenniappa Mudaliar (1969), 74 ITR 41. Relying on this decision, learned counsel represented that if the notification should be held to be inconsistent in any manner, it should

65 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., given way to the statutory provisions contained in section 36(1)(iv) of the Act and, therefore, it is not strictly necessary for this court to strike down conditions Nos. 2 and 3 of the notification in question………………………………………………………… ... In all these cases, the courts were dealing with the constitutional validity of the provisions as opposed to the validity of subordinate legislation with reference to the provisions of the Act itself. Learned standing counsel does fairly admit that the Supreme Court decision referred to above does provide that even in a reference proceeding, if the subordinate legislation is held to be in excess of the power conferred, it could be ignored and the matter decided keeping in mind the provisions of the Act which are paramount. We think that in the facts and circumstances of this case, we must invoke the doctrine of “reading down” and apply the principle enunciated by the Supreme Court in the above referred case. We may refer to the following observation of the Supreme Court (p.48). “It is true that the Tribunal’s powers in dealing with the appeals are of the widest amplitude and have, in some cases been held similar to, and identical with the powers of an appellate court under the Civil Procedure Code.” (vi) CIT vs. Sirpur Paper Mills, 237 ITR 41(SC), as per the head notes relevant observation of the Hon’ble Court is as follows. “The section states that the deduction shall be wholly allowed. It permits the Board to specify conditions but these conditions cannot have the effect of curtailing the scope of the deduction granted by the section. The amplitude of the deduction permitted by the section cannot be cut down under the guise of imposing a “condition”. In fact, this is not a condition but an impermissible attempt to rewrite the section. The last condition imposed by the said notification is that the deduction shall be spread out equally over a period of five years commencing with the assessment year relating to the previous year in which the amount was paid. This too is n “condition” but a provision super added to the section which does not contemplate any such distribution of the deduction. Under the section the deduction is available in the assessment year relating to the previous year in which the payment was made and it must be so granted. The second and third conditions aforesaid are not valid”. 17. The purpose of above discussion by reproduction of relevant extracts of certain precedents is to ascertain whether the Tribunal has its role in deciding the issue cropped up on account of a rule or notification or any such decision taken by sub-ordinate quasi-judicial authority. On careful reading of the above decisions it is implicit that the Tribunal does have the power to deal with the validity of such rules or notification and by applying the doctrine of “reading down” can strike down such rules if held to be in contradiction with the provisions of the statute itself. The gist of all the above decisions is that the rules are made only for the purpose of carrying out the provisions of the Act which cannot be taken away or whittle down the effect conferred by the statute. With the result we hereby agree with the contentions of ld. A.R that the ITAT has both the power and duty to deal with such rules or notification and decide whether the same are in agreement with the main provisions of the statute. In view of above discussion, in the present appeal, now we have to decide the

66 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., validity of the withdrawal of exemption as has been done by the subordinate competent authority. For this purpose first of all we have to examine the language of the relevant section and its scope as well as its application. 18. The section under with exemption is granted is section 10(15)(iv)(f) of IT Act, reads as follows: “Income not included in total income 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included (15) ……………………………………………………………………. (iv) Interest payable --- (f) by an industrial undertaking in India on any money borrowed by it in foreign currency from sources outside India under a loan agreement approved by the Central Government having regard to the need for industrial development in India, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having, regard to the terms of the loan and its repayment.” On plain reading of this section it is clear that certain conditions are required to be fulfilled for availing the tax exemption such as, firstly the person taking the loan must be an industrial undertaking, secondly the loan must be in foreign currency from sources outside India, thirdly the loan agreement must be approved by the Central Government having regard to the need for industrial development in India and lastly the rate of interest payable on the said loan should not exceed the rate approved by the Central Government having regard to the terms of the loan and its repayment. While considering the arguments of ld. A.R. Supra, we have examined the procedure adopted by the appellant as well as the prescribed authority before approving the loan. The company has raised foreign currency loan in the past as an External Commercial Borrowings (ECB). In this regard several correspondence has been made with the Government of India and the loan was approved by the Director (ECB), Department of Economic Affairs, Ministry of Finance, North Block, New Delhi. As far as the approval of loan and the sanctioning of agreement is concerned the same is not in dispute and it is an admitted fact supported by several correspondence and letters written may back since 1993 onwards. There is a reference of such correspondence in the above paras of this order and the paper book contains the copies of all those letters and approvals. To finance its project of Jamnagar Petro Chemical Complex, External Borrowings were made in terms of the policy of Government of India granting permission for ECB to be utilized by industrial undertakings in India. Under this plan the company had made several application to Government of India from time to time and obtained permission to raise ECB loans in foreign exchange. Further an application was moved to raise the loans upto US $ 4.25 million. In this regard Dy.Director (ECB) vide a letter dated 6/10/97 has raised a question about the utilization of ECB already sanctioned in the Hazira Phase-II Expansion Project. The utilization ECB was explained by the company that out of the US $ 914 million ECB received, US $ 205.35 million was yet to be utilized as on 31/1/97. The explanation was given in

67 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., respect of the said unutilized ECB that there were letters of credit to the tune of US$224.88 million. So at that time it was mentioned that the conditions were satisfied as the entire amount of ECB obtained for Hazira Phase-II Project was either utilized in the Project or kept for Forex commitment. On page 15 of the compilation placed on record there is a detailed working of the amount utilized and also kept for Forex commitment. Subsequently a request was made to grant permission to pre-pay/ buy back to 20% of outstanding ECB per year. A proposal was made to the concerned Ministry in the year 1998. In response to this proposal of buy back of ECB a show cause was issued by the Ministry of Finance on 12/4/99. After prolonged correspondence between the appellant company and the Ministry there was a proposal from Dy.Director ECB for withdrawal of tax exemption granted u/s.10(15)(iv)(f). The main objection of the appellant in this regard is that the concerned authorities have arbitrarily decided to withdraw the exemption though there was no withdrawal as far as the approval of loan and agreement was concerned. The basic objection of the appellant company is that the approval originally granted in the year 1997 remained intact and the same was not rejected or withdrawn, however, the Dy.Director (ECB) had decided to withdraw the exemption. The consequence of the said withdrawal was that the assessee company wanted to remit interest to a foreign bank, already mentioned above, without deduction of tax at source. That application was rejected by the impugned order u/s.195(2) dated 13/2/02 and it was directed to deduct tax @ 20%. The pertinent question which is to be answered is whether it was justifiable on the part of the Dy.Director (ECB) to change the rules in midway when the entire scheme was near to its completion and the appellant company had sought permission of pre-payment. The plea before us is that once the Government had granted the approval and there was no change in the conditions prescribed then it is functous officio. It was pleaded that once a loan agreement was approved them it was obligatory in law to grant exemption to such interest which became payable as a result of a loan agreement. It is also stressed before us that not only the exemption was withdrawn but in the mid way a condition of end use of ECB proceeds was arbitrarily and illogically imposed. Arguments in this regard was that there was no such condition of specific end use of ECB proceeds in the provisions of the statute. As there was no such condition laid down in the statute itself, then a rule or any such direction should not be imposed which happened to be in contradiction of the main governing section, in this regard several case laws were cited. The provision of the statute provides in an unambiguous terms to grant exemption in respect of interest payable to an international investor who has lent money to industrial undertaking in India under a loan agreement as approved by the Central Government. The Counsel from the side of the appellant has emphasized the phase “having regard to the need for industrial development in India” used in the said provision. The Government of India has properly regarded the need for industrial development only thereafter issued the notification and floated this scheme of ECB. The arguments have further been advanced that whenever or wherever the legislation decides to ascertain the usage of money the suitable language is used in the body of the statute itself. For

68 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., example section 10(15)(iv)(c) has mentioned the end used of money borrowed and specifically directed to be “in respect of the purchase outside India or raw material or capital plant and machinery”. So the end use in the said section is categorically specified. Few more sections have also been quoted in support of this argument, therein also the phrase was distinctly used. Another example cited of the phraseology used in section 10(15) (iv) (e) wherein the language used is, “where the moneys are borrowed either for the purpose of advancing loan to industrial undertakings in India for purchase outside India or raw material or capital plant and for the purpose of importing any goods”. So the section clearly laid down the purpose of utilization of monies borrowed. Thus the arguments before us is that the purpose of utilization of ECB is missing in the statute, therefore, imposition of such condition through a letter by Dy. Director (ECB) was illegal and against the intention of the legislature. 19. We have examined the several connected provisions referred supra and also the case laws in this regard and arrived at the conclusion that the Revenue Authorities have to act upon in the light of the statute and the provisions of the Act and not empowered to exercise discretion by making the rules or notification / order which derogate or deviate from the provisions of the statute. It is a cardinal principle, as made by several Hon’ble Courts that it is the main statute which will govern the rules provided under an Act and not vice versa. As far as the section now for our consideration is concerned it is amply clear that no criteria has been laid down for the end use of the money borrowed. The term used in that section is “having regard to the need for industrial development in India”, in contrast to the phrase used in other section wherein the utilization as well as the purpose is mentioned and also directed the end use of the monies borrowed. So we can safely state that by imposing a condition by Dy. Director (ECB) during the progress of the scheme was like changing the rules of the game in mid way and the change of the rule was in respect of a game already played to alter its outcome. A retrospective or ex-post facto change in such a manner is an arbitrary approach having no legal sanctity. 20. Nevertheless, on merits as well it was argued that the funds were rightly utilized as prescribed under the scheme. While discussing the arguments of ld. A.R in above paras we have noticed that an explanation was offered about the utilization of ECB. In these paras we have noted that ld. A.R has referred certain letters addressed to the Dy. Director (ECB) giving details of the utilization of ECB. For the same of brevity there is no need to reiterate again the submissions in this regard. On page-40 of the compilation there is a letter dated 26/11/96 issued by Ministry of Finance seeking details of utilization of ECB proceeds and therein para (ii) was specifically mentioned, verbatim reproduced herein above, through which it was indicative that the authorities were aware about the utilization of ECB by adopting two modes i.e funding through foreign currency and also utilization of own resources. In para (i) of the said letter dated 26/11/96 the Dy. Director (ECB) has indicated the utilization of foreign currency expenditure. Ld. A.R has informed that Director (ECB) has made it clear that the foreign currency expenditure incurred after the date of application but before the date of borrowing was considered as eligible expenditure for utilization of ECB. The

69 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., subsequent para also approved as per ld. A.R, the expenditure incurred on item for which ECB was proposed which had been made from the appellant’s own resources incurred upto 22/11/95. So it was argued that it was very much within the knowledge of the concerned authority about the fungibility of funds. The said mixed method of utilization of funds was in a way accepted by the Ministry in the past. As far as the concept of fungibility of funds is concerned this is not a new concept and it is approved by several judicial authorities. We have persued the precedents cited in this regard in the light of the prevailing circumstances of the appeal in hand. In one of the case of Woolcombers of India Ltd 134 ITR 219 (cal) the concept of fungibility was considered and it was held that the profits were sufficient to meet the advance tax liability as the profits were deposited in the overdraft account, so the taxes were not paid out of overdraft but out of the profits of the relevant year. An another case of Hon’ble Supreme Court has also been cited, decided in the case of J.B. Boda & CO., 2323 ITR 271, wherein Their Lordship have expressed that, “A two way traffic is unnecessary. To insist on a formal remittance first and thereafter to receive the commission from the foreign reinsurer, will be an empty formality and a meaningless ritual on the facts of this case.”. In that case the assessee was a reinsurance company. The gross premium was payable in foreign exchange and the assessee retained the commission and then remitted US dollars equal to premium. The broker claimed that the brokerage retained was convertible foreign exchange and the mere fact that it was designated in rupees would not detract from the position that it was in effect foreign exchange. It was contended that the assessee instead of remitting the entire amount to the foreign reinsurers and then receiving remittance in foreign currency from the said reinsurers the commission due to it, entered into an agreement with the foreign reinsurers, that while remitting the reinsurance premium, the assessee would retain the fee due to it for the technical services rendered. The Supreme Court upheld the contention of the assessee and held that two way traffic was unnecessary. To insist on a formal remittance to the foreign reinsurers first and thereafter to receive the commission from the foreign reinsurer would be an empty formality and a meaningless ritual. The statement of remittance having been filed with the Reserve Bank of India, in effect the income was received in convertible foreign exchange in a lawful and permissible manner. 21. On relying upon these decisions the alternate plea as made before us is that even assuming that end user restriction could have been imposed by the Central Government ex-post facto even then the appellant company had in fact invested or utilized far more foreign currency in US dollar for capital goods and services in respect of the Jamnagar Petro Chemical Complex. To establish the total utilization of funds certain facts and figures in the form of charts have been placed before the concerned authorities and it was argued that the figures shown were not in dispute. It is also argued that the undisputed and unchallenged factual position was that the total utilization of funds was much more the ECB availed under the scheme. Let it remain undisputed and without entering into dispute which is more in the nature of findings of fact we have to concentrate on the core issue of withdrawal of exemption. The legislature has granted exemption to the lender i.e the foreign institution and not to

70 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., the borrower i.e the appellant company. If there was a mistake, for arguments, if at all the committed by the borrower even then the lender cannot be punished by withdrawal of exemption. This view of ours gets fortified by a decision of Hon’ble Apex Court in the case of CIT vs. Chotatingrai Tea Estate Pvt. Ltd. & Others, 258 ITR 259. 22. After an elobrate discussion made herein above we deem it proper to summarize the gist of those elongated paras. First of all we want to observe that if the bureaucracy or executive is acting in an unjustifiable manner then the only course left to a citizen is to approach the judiciary for legitimate redressal. This is what exactly had been done in this appeal by the appellant company. At first the company had tried to convince the authorities concerned i.e Dy. Director (ECB) about the utility of foreign currency loan already approved, but on failure knocked the door of the judiciary by filing a writ to Hon’ble Delhi High Court. Special Leave Petition has also been filed, however, the Hon’ble Apex Court vide an order dated 31/5/02 has observed as follows: “Be that as it may, since the issue of utilization or pre-payment of the ECBs is not before us, we will not go into that question, if the petitioners are aggrieved by any such action of the respondents by which their utilization or pre-payment of the ECBs are also restricted, it is open to them to challenge the same in appropriate proceedings if permissible in law.” A mere dismissal of SLP does not mean that the judgment of a High Court stands affirmed by the Supreme Court. The effect of dismissal is that no appeal was permitted and not that an appeal against the said judgment was dismissed by the Supreme Court affirming the view of the High Court, nor does it mean that the judgment of High Court has been approved by the Supreme Court on merits as indicated by the Hon’ble Apex Court, case laws relied upon are J.K. Charitable Trust vs. WTO 222 ITR 523(All) and CIT (A) vs. Quality, 224 ITR 77 (Pat). Both the Hon’ble Courts have expressed that it is open to the appellant company to challenge the same in appropriate proceedings if permissible in law. Following the view expressed by Their Lordship in the said judgment the appellant company has thereafter approached the quasi judicial and judicial authorities step by step. All such attempts of redressal remained unsuccessful so the issue has now reached upto the stage of second appeal i.e before us. In other words, an order u/s. 195(2) was passed which was challenged by invoking the provisions of section 248 before the first appellate authority i.e ld. CIT (A) and on rejection of appeal the matter was carried further, so the jurisdiction of the Tribunal does lie to adjudicate upon this appeal. An ancillary issue of withdrawal of exemption was raised and it was necessary to first settle that issue to arrive at a right conclusion to get this appeal decided. As we have already observed the executive has changed the rules of the scheme in mid way which had already been followed as well as acted upon and the change was such to alter its outcome altogether. As we have observed supra the issue of utilization of ECB funds was for the first time raised when the entire scheme was at its fag end. According to the company the time had come for repayment or buy back of the outstanding loans. It was a commercial decision taken by the company in the capacity of a prudent businessman. At that juncture the clock could not be set into reverse

71 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., motion. Certain steps already taken by the appellant company which were well within the knowledge of the concerned authority could not be retracted. As the facts indicates retrospectively the mode of utilization of the funds could not be altered. Rather the sanctioning authority has not checked at that very point of time when according to them, if at all, there was mis-utilization of ECB borrowings. On the contrary the claim of the assessee was that the utilization was in accordance with the scheme though by the process of fungible funds, the obligations were satisfied and the conditions were fulfilled. So according to us, at that stage, it was catastrophic to withdraw the exemption already granted u/s.10(15)(iv)(f). Due to the withdrawal of the exemption the impugned order u/s.195(2), now under dispute was passed directing to deduct with holding tax @ 20%. To arrive at a logical conclusion first we hold that, considering the totality of the facts, circumstances, conditions of the scheme, evidences of utility of the funds and the legal matrix of the case, the withdrawal of exemption was unwarranted. Consequent there upon we also hold that the appellant company was not liable to deduct withholding tax @ 20% in respect of the interest payment of US $ 1,05,902 to M/s.Deutsche Bank – AG. With the result, we hereby quash the order passed u/s.195(2) of IT Act as well as reverse the findings of ld. CIT(A). We order accordingly. Here it is necessary to mention that in paragraph 22 of the above referred order, the Tribunal has mentioned the date of order of the Hon’ble Apex Court of dismissal of Special Leave Petition as 31.5.2002 whereas as per order of Hon’ble Supreme Court the date is 25.2.2003. 9. We further find that the above decision of the Tribunal has been consistently followed by the Coordinate Benches of the Tribunal in (i) Assistant Director of Income Tax (IT) 3(1) V/s Reliance Industries Ltd in ITA No.901/Mum/2008, (AY-2003-04) dated 29.9.2009; (ii) Assistant Director of Income Tax (IT) 2(2) V/s Reliance Industries Ltd in ITA Nos.5407 & 5408/Mum/2007, (AY-2003-04) dated 15.4.2009 and iii) Reliance Industries Ltd V/s Dy. Director of Income Tax (IT) 2(1) in ITA Nos.5966, 5967 & 5968/Mum/2002 & ITA No.4118/2003, dated 23.3.2006. We further find that the Revenue has challenged the above orders of the Tribunal before the Hon’ble Jurisdictional High Court and the High Court has also dismissed the Revenue’s Notice of Motion vide decision dated 20.6.2011. 10. The Hon’ble Supreme Court in Radhasoami Satsang V/s CIT (1992) 193 ITR 321(SC) has held (head note, page 322): ITA No : 4595/Mum/2010 19 “Strictly speaking, res judicata does not apply to income tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 11. For the reasons as discussed above and in the absence of any contrary decision brought on record by the Revenue and keeping in view the consistency, we respectfully following the decision of the Tribunal and Hon’ble Supreme Court (supra) uphold the order of the ld. CIT(A) in

72 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., allowing the appeals of the assessee and reject the grounds taken by the Revenue in all these appeals. 12. In the result, the Revenue’s appeals stand dismissed”. 6 Thus, respectfully following the aforesaid decisions, we find no merit in the present appeal filed by the department. Hence, the grounds taken by the revenue are dismissed. 7. In the result, the appeal filed by the department is dismissed

73 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., The Appellant submits that there is a deemed payment of Sales tax which is allowable u/s.43B of the Act and the CIT(A) ought to have giver a decision on this issue in favour of the Appellant. 2. a. The CIT(A) erred in confirming the disallowance of RS.101.93 crores i.e. out of interest expenditure at RS.22.76 crores and 0.5 percent of average value of investment, i.e. proportionate administrative and other expenses of RS.79.17 crores computed by the AO u/s.14A of the Act r.w.r. 8D of the Income tax Rules, as against Rs.3,30,60,894/- computed and disallowed by the appellant, being expenditure in relation to the income exempt u/s.10(34) of the Act while computing income under the normal provisions of the Act (section 28 to 42 of the Act). The appellant submits that an expenditure of Rs.3,30,60,894/- has been incurred in relation to earning exempt dividend income and therefore the disallowance of the estimated expenditure ought to be restricted to Rs.3,30,60,894/- under normal computation of income. b. The CIT (A) erred in confirming the action of the AO in disallowing expenditure u/s.14A of the Act r.w.r. 8D of the Income tax Rules. i) without recording satisfaction on the correctness of expenditure disallowed by the appellant with regards to the accounts of the appellant. ii) with reference to investments in shares of subsidiary companies which are made for strategic purpose. iii) with reference to investments in shares and securities which have not given rise to exempted income. c. In the alternative and without prejudice to the above, the appellant submits that the disallowance made by the AO and confirmed by the CIT(A) is excessive and unreasonable. 3. The CIT(A) erred in confirming the disallowance of depreciation of Rs.12,06,240/- on the capitalized value of goods purchased from Durga Iron & Steel Ltd. and Surajbhan Rajkumar Pvt. Ltd. in A.Y. 2003-2004. The Appellants submits that the cost of the goods purchased from the above parties were capitalised as plant and machinery in A.Y. 2003-04 and were used during the year under

74 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., consideration and hence depreciation u/s. 32 of the I.T. Act on such capitalised value of the goods is allowable. 4. The CIT(A) erred in confirming the reduction of profits of the business of the undertaking while computing deduction under section 10B of the Act by an amount of Rs.7,56,20,473/- being recoveries of various expenses incurred and charged to Profit and Loss Account of the undertaking. The appellant submits that the other income of Rs.7,56,20,473/- represents recoveries of expenses incurred and debited to Profit & Loss Account of the undertaking and therefore the same has been rightly included in the profit of the business of the undertaking while computing deduction under section 10B of the Act. 5. The CIT(A) erred in confirming the disallowance made by the AO of Rs.6,79,77,588/- being Professional Fees Paid to various parties, holding that the parties have not rendered any services to the appellant and the appellant has not been able to establish the nature of consultancy services rendered by these parties. The appellant submits the Professional Fees has been paid to various parties for rendering Liasioning services in the normal course of business and ought to have been allowed u/s.37 of the Act. 6. a. The CIT(A) erred in confirming the addition made by the A.O. of Rs.17,45,988/- while determining the arm's length price in respect of commission paid to its associate enterprise Reliance Netherlands BV.(RNBV) at Rs.26,18,980/- as against Rs.43,64,968/- paid by your appellant.

The Appellant submits that it has rightly calculated the value of international transaction by applying the method prescribed u/s. 92C(1) of the I.T. Act and supported by the documentary evidence and hence the disallowance made by AO shall be deleted. b. The CIT(A) erred in confirming the order of the AO w.r,t. determining the arm's length price of the guarantee commission, in respect of non-funded guarantee provided to Reliance Europe Ltd, UK @ 2.50%p.a. instead of 0.30% p.a. adopted by the Appellant.

75 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., The Appellant submits that the guarantee commission rate, adopted by the appellant @0.30% p.a. is comparable with guarantee commission rates prevailing in the market for similar kind of guarantees given by banks, for which comparable cases were furnished by the appellant. c. The CIT(A) erred in determining the arm's length price of the guarantee commission, in respect of non-funded guarantee provided to Trevira Gmbh, Germany @0.575% p.a. instead of 0.30% p.a. adopted by the Appellant. The Appellant submits that the guarantee commission rate, adopted by the appellant @0.30% p.a. is comparable with guarantee commission rates prevailing in the market for similar kind of guarantees given by banks, for which comparable cases were furnished by the appellant. d. The CIT(A) erred in determining the arm's length price of interest, (in respect of interest free loans and advances given to its subsidiary companies) @ LlBOR + 150 basis points (if average maturity period of loan is 3 to 5 yrs) and @ LlBOR + 250 basis points (if average maturity period of loan is more than 5 yrs). The appellant submits that the loans and advances given to subsidiary companies are out of its own funds and given for furthering the business interest of the appellant and hence no disallowance is called for on this amount. 7. Your Appellant reserves the right to add, amend, alter or vary all or any of the above grounds of appeal as they or their representatives may think fit. Grounds taken by revenue in ITA NO.815/Mum/2013 for the A.Y. 2008-09 reads as under:

76 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., being depreciation on plants at Hazira, Patalganga Cracker Unit at Hazira, Oil & Gas division , SBM Refinery and Polypropylene and Paraxylene complex at Jamnagar and also erred in allowing consequential change of the claim of deduction u/s.80IA & U/s.80IB of the IT. Act. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not deciding the issue on merits in view of provisions of section 80lA of the Income Tax Act, 1961. 4. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that section 80IA(8) of the IT. Act. has clearly defined that "market value" means "the price the goods/services would fetch if these were sold by the unit/undertaking in the open market subject to statutory regulations, if any," and the assessee had clearly violated this section. 5. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing an amount of Rs.101.93 crores u/s.14 A of the LT. Act r.w.r. 8D of the Income Tax Rules, being expenditure incurred in relation to the income exempt u/s.10(34) of the Act while computing book profit u/s.115JB of the I.T.Act 6. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing depreciation of Rs.47,05,000/- in respect of jetties constructed by the assessee without appreciating the fact of the case. 7. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing of Rs.6,08,48,652/- out of the lease rent/gas transportation charges paid in respect of all pipeline utilized for the purpose of its business without appreciating the facts of the case. 8. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in restricting guarantee commission at the rate of 0.575% in place of 2.5% of non funded guarantee given by the assessee for advancing loan to its associate concerns regarding guarantee given to Trevira GmbH Germany on account of transfer pricing adjustments. 9. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition on account of guarantee commission which is made by the A.O. at 2.5% of non funded guarantee given by the assessee for advancing loan to its

77 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., associate concerns regarding guarantee given to Recorn (Malaysia) SDN BHD on account of transfer pricing adjustments. 10. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing to accept the transfer pricing adjustment in computing Arm's Length Price by adopting the rate of interest @ 4.95 % p.a. instead of adopting the rate of interest @ 7.5 % based on RBI circular without appreciating the rate calculated by the TPO as per the market rate for loan advance to M/s.RIME OMCC, UAE. 11. The appellant prays that the order of the Learned CIT(A) on the above grounds be set aside and that of the A.O. is restored. 12. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.

78 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., determined an amount of Rs.101.93 crores being expenditure relatable for earning the exempt income u/s.14A of the Act r. w. Rule 8D of the IT Rules, i.e. proportionate disallowance out of interest on borrowed funds of Rs.22.76 crores and Rs.79.17 crores being 0.5% of the average value of investments, towards administrative and other expenses. After considering the amount already disallowed by the assessee, the AO disallowed the sum of Rs. 98.62 crores u/s.14A of the Act r.w. Rule 8D of the IT Rules. The CIT(A) has confirmed the disallowance. 98. We have considered rival contentions and found that during the year under consideration assessee has incurred interest and administrative and other expenses in the normal course of carrying on its business of Oil & Gas Exploration, Refining of Crude Oil (EOU/SEZ), Manufacturing & Trading of Petrochemicals, Polyester, Fibre Intermediates, Textiles, Generation & Distribution of Power, Operation of Jetties and related Infrastructure, Retail Marketing of Petroleum Products, Fabrication and Investments. No part of interest is allocable toward earning of exempt income as the interest expenses have been incurred for business purposes only. The AO has not identified any expenditure which is directly relatable to the earning of dividend income. We also found that assessee's own funds are far in excess of the investment made in exempt income giving securities which is evident from the audited accounts of the assessee wherein the own funds are Rs.81,448.60 Cr as against the exempt income giving securities of Rs.17,219.01 Cr. Therefore, no

79 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., interest expense can be attributable for making disallowance U/S 14A r.w. Rule 8D of the I.T. Act. 99. From the record we found that the total interest free own funds of the assessee as on 31/03/2008 are as under:- Particulars 31.03.2008 Rs in Crore Own Funds: Shareholder Funds 81,448.60 (Share Capital + Reserves) (Refer page 5 of the paper book): Less: Investment (Refer page 42 of 17,219.01 the assessment order)

Excess of own Fund 64,229.59

80 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., interest therein, and there was no intention of earning exempt income therefrom for the purposes of calculating the disallowance under Rule 8D(2)(ii) and 8D(2)(iii) of the IT. Rules only those investment has to be considered on which the assessee has received the dividend for this purpose reliance can be placed on the decision of Hon'ble Delhi High Court in the case of ACB India Limited [TS-176-HC-201S-Del). 103. It was argued by learned AR that exempt income is Rs.17.62/- crore only whereas the disallowance made by the AO is Rs.101.93 crores, which is far in excess of exempt income earned by the assessee. The disallowance u/s 14A of the IT. Act cannot exceed the exempt income. For this purpose reliance was placed on the judgment of Hon 'ble Delhi High Court in the case of JOINT INVESTMENTS PVT LTD vs CIT [TS-92- HC-20I5-Del). 104. We have considered rival contentions. With regard to disallowance under Rule 8D (2)(iii), we observe that the investments in the subsidiary companies have been made for strategic purpose of having controlling interest therein, and there was no intention of earning exempt income therefrom. Hence the investment made for strategic control should not be considered for making disallowance u/s 14A r.w. Rule 8D(2)(iii) of the I.T. Rules. In support of the above contention, we rely on the following judgment: - M/s. J.M. Financial Limited vs Addll. CIT [ITA 4521/Mum/2012] - CIT Vs. Oriental Structural Engineers Pvt. Ltd [ITA 605/2012] - Mls Garware Wall Ropes Limited Vs. Add!. CIT [ITA No. 5408/Mum/2012

81 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 105. Furthermore, for the purposes of calculating the disallowance under Rule 8D(2)(ii) and 8D(2)(iii) of the I.T. Rules only those investment have to be considered on which the assessee has received the dividend. 106. In view of the above average of value of investment, income from which does not or shall not form part of the total income" has to be considered and not all the investments as done by the AO. We rely on the judgment of Hon'ble Delhi High Court in the case of ACB India Limited [TS-176- HC-2015-Del]. If only investments on which dividend was received were to be considered, then the disallowance in respect of administrative expenses by applying the provisions of under rule 8D(2)(iii) of the IT. Act @ 0.5% of the value of investments would work out to Rs. 3.37 crore. Accordingly, we direct AO to restrict disallowance of other expenses to Rs.3.37 crores. 107. In view of the above, we delete the disallowance made on account of interest and restrict the disallowance under Rule 8D (2)(iii) to the extent 0.5% of average value of investment which have yielded dividend during the year under consideration which works out to Rs.3.37 crores. We direct accordingly. 108. In ground No.3, assessee is aggrieved for disallowance of depreciation of capitalized value of goods purchased from Durga Iron and Steel Ltd., and Surajbhan Rajkumar Pvt. Ltd., in the A.Y.2003-04. We have already considered this issue in assessee’s appeal for the A.Y.2007- 08 hereinabove. AO is directed accordingly.

82 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 109. Ground No.4 pertains to reduction of profits of the business of the undertaking while computing deduction under section 10B of the Act by an amount of Rs.7,56,20,473/- being recoveries of various expenses incurred and charged to Profit and Loss Account of the Undertaking. 110. We have considered rival contentions and found from record that the assessee in the return of income had claimed exemption u/s.l0B of the Income tax Act with reference to Refinery and Petrochemicals Undertaking. While computing the deduction u/s.10B of the Act, other income of Rs.98S,83, 198/- was considered as part of the eligible profit as the same was derived from the business of export. However the AO in the assessment order has excluded the amount of other income of Rs.985,83,198/- while computing deduction u/s.l0B of the Act by observing that the nature of these receipts clearly indicates that they are not derived from the export of goods by Export Oriented Unit. Further, relying on the Supreme Court judgement in the case of Liberty India (317 ITR 218) wherein it has been held that the other income cannot be considered as income derived from the export of goods, the AO excluded the other income while computing the deduction u/s.l0B of the Act. The action of the AO has been upheld by the CIT(A). 111. We had verified the details of various income amounting to Rs.985 crores which were identified by the AO as income from other sources. We found that a sum of Rs.7,56,20,473/- credited under the head miscellaneous recoveries are received for Purging, Degassing Charges for Railway wagons & tankers of IOCL, BPCL and HPCL and recovery of

83 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., cost on account of infrastructures facilities provided to GAlL and others. Further a detailed working of per-unit cost incurred for purging and degassing and recoveries made from IOCL, BPCL and HPCL totalling to Rs.1,70,50,000/- was also filed. The recoveries from the above oil companies were on account of cleaning expenses paid to contractors. The cost incurred has been debited to P&L account, which are recovered from IOCL, BPCL & HPCL and shown as other income in the P&L account of the undertaking. The other income though recovered from the above parties and shown as income in the P&L account of the undertaking goes to reduce expenses and increase export profits eligible for deduction u/s.10B of the IT Act,1961. 112. Further more recovery of Rs.5,85,70,473/- for cost incurred on Infrastructure facilities provided to GAlL (India) Limited and others, was towards reimbursement of expenses incurred for providing these facilities. The same was debited to P&L account. The reimbursement of the same by GAlL goes to reduce the cost incurred by the assessee. 113. In view of the above discussion, we restore the matter back to the file of the AO for finding out the exact nature of income and for deciding the issue afresh as per law. 114. Ground No.5 relates to disallowance of professional fees paid to various parties on the plea that these parties have not rendered services to the assessee. 115. Rival contentions have been heard and record perused.

84 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 116. Brief facts relating to the issue are that the assessee had availed the services of AVNI LIASIOING SERVICES(Proprietor - Shri Vijay Kumar Gupta), ARNAV LIASIONING & COORDINATION (Proprietor - Shri Anish Kumar Gupta) for liasioning and coordination services. Liasioning and coordination was required to be done at Delhi and North India for liasioning with various Government Departments in connection with business related matters to be followed up in Government offices. The assessee paid fees and reimbursed cost incurred of Rs.6,79,77,588/- to the above parties for rendering the aforesaid services which was debited to Profit and Loss account under professional fees. All the payments concerning the above services rendered by these companies were made by Alc. Payee Cheques. The AO however, disallowed the amount of Rs.6,79,77,588/- being reimbursement of expenses and professional fees paid by the assessee, on the basis that no services were rendered by above parties to the assessee. The disallowance made by the AO has been confirmed by the CIT(A). 117. It was contended by learned AR that the AO has made the disallowance just on the basis of the letter received from Income tax Officer, Ward 37(1), New Delhi. The assessee has furnished the details of professional services rendered by the above parties, and the bills given by them for rendering the services. The assessee also submitted that the aforesaid two parties have rendered liasioning and coordination services like maintaining cordial relationship with various agencies and departments, Delhi being capital of the country there are various offices

85 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., located at Delhi where lot of procedural work is required. The liasioning and coordination services are required for keeping good relationship with these offices so as to facilitate the procedural work in these offices. The assessee was running retail business through its 100% subsidiary Reliance Retail Ltd having retail stores at Punjab, Delhi and National Capital Region as per the list attached with the invoices submitted during the course of proceedings. The stores are located at Ludhiana, Jalandhar, Amritsar, Chandigarh, Punjab, Delhi and National Capital Region (NCR). The AR submitted that the invoices with its enclosures filed as a part of the paper book clearly spells out the nature of liasioning work attended by the consultant. The aforesaid parties who have been paid fees and reimbursed cost incurred on behalf of the assessee for liasioning work have rendered services which are in the nature of maintaining good relations with all local authorities where the retail stores are situated for smooth functioning of business. These authorities include Police, Transportation Dept., District Administration, Octroi Dept., Municipal Corporation, Electricity Dept, Fire Fighting Dept. etc. and various other business agencies with whom liasioning is required for smooth functioning of the Retail Stores and obtaining various approvals required for running the stores. The expenditure are incurred in the normal course of business and wholly and exclusively for the purpose of running the business; therefore, the disallowance made by the AO shall be deleted. 118. The AR further submitted that all the payments concerning the above services rendered by these parties were made by A/c. Payee Cheque and

86 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., were duly supported by bills and vouchers. The above two parties have confirmed that they have rendered the liasioning and coordination services to the assessee and incurred expenses which have been reimbursed. 119. Learned AR placed on record the orders passed Delhi IT AT in the case of above parties in appeal nos. 117 - 119IDel/13 for A.Y. 2007-08 to 2009-10 (Shri Vijay Kumar Gupta) wherein the ITAT has restored the matter back to the file of AO for fresh adjudication after providing due and proper opportunity to the assessee. 120. We had carefully gone through the order of the ITAT Delhi Bench in case of Shri Vijay Kumar Gupta dated 22/07/2016 wherein ITAT held as under:-

2.The assessee has raised similar grounds of appeal in all the three appeals. However, at the very outset of the hearing of the arguments, the ld. AR submitted that the issues involved in all these three appeals stand covered vide order of this Tribunal in the case of assessee’s sons Shri Anish Kumar Gupta and Shri Ashish Kumar Gupta in ITA Nos. 120 & 121/Del/2013 for A.Ys 2007- 08 and 2008-09, a copy of which has been furnished on record. The ld. AR further submitted that neither the ld. CIT(A) nor the AO was justified in coming to a haste and arbitrary conclusion without appreciating the facts and circumstances of the case and without verifying the confirmations of the assessee of the assessee placed on record. The ld. AR contended that he has no objection if the matter is restored to the file of the AO for fresh adjudication and prayed that the AO may be directed to verify the confirmations before passing order. 3.On careful consideration of above submissions, at the outset, from the copy of the order of the Tribunal dated 9.1.2014, passed in the cases of Shri Anish Kumar Gupta and Shri Ashish Kumar Gupta in ITA Nos. 120 to 121/Del/2013 and 112 to 114/Del/2013 for ay 2007-08 to 2009-10 [supra] as relied upon by the ld. AR of the present assessee, we observe that in the appeal of Shri Anish Kumar Gupta, the issue is restored to the file of the AO with the following observations: “13. We have duly considered the rival contentions and gone through the record carefully. The stand of the assessee is that he has entered into an agreement with M/s. Reliance Industries for providing certain services on a monthly payment of Rs.10,000 plus reimbursement of the actual expenditure. Now, the assessee has pointed out that he has received a sum of Rs.378,93,279 in assessment year 2007-08 and sum of Rs.340,66,623 in assessment year 2008- 09. These are the gross receipts. The payer has given a confirmation disclosing

87 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., the fact that assessee has incurred a sum of Rs.371,52,574 under various heads in assessment year 2007-08 and Rs.333,41,778 in assessment year 2008-09. The payer has observed that it is reimbursing the expenses incurred by the assessee on its behalf. In this situation, the amount to this extent is neither a loan to the assessee nor a gift. He has not kept this amount in his pocket. If the Assessing Officer has any doubt that these expenses are not genuine expenditure then they are to be examined in the hands of the payer. It is to be seen in the case of Reliance Industries as to for what purpose these expenses have been incurred and if they are not for business purposes then they can be disallowed in the hands of Reliance Industries. The other angle could be that if Reliance Industries denies that these expenditures do not pertain to it then its genuineness could be examined in the hands of the assessee. In that case, if it is proved that these are not business expenditure, assessee has received this money and kept in his pocket, only then, it can be assessed in the hands of the assessee. We also find that in assessment year 2008-09, learned Assessing Officer has observed that these amounts are to be added in the income of the assessee on protective basis. Therefore, learned Assessing Officer has misguided himself in examining this issue in the hands of the assessee. Learned Assessing Officer can examine veracity of assessee’s claims with regard to the balance amount i.e. the difference between Rs.378,93,277 minus Rs.3,71,525 and Rs.340,66,623 minus Rs.333,41,778. How the total amount can be added in the hands of the assessee is not ascertainable in the assessment order. The confirmation of Reliance Industries is available on pages 53 and 63 of the paper book. We have gone through these documents. This issue is also set aside to the file of the Assessing Officer for readjudication. Learned Assessing Officer shall keep in mind that similar additions are deleted by Learned CIT(Appeals) in assessment year 2006-07 and ITAT has affirmed the order of Learned CIT(Appeals). He shall also keep in mind that in the case of Anish Gupta, he himself made addition on protective basis.

“16. The brief facts with regard to these grounds are that Shri Ashish Gupta was running a proprietorship concern, namely, “Arnav Lisioning Services”. He entered into an agreement with Reliance Industries Ltd. on 5th day of April 2006 for providing consultancy services. The Reliance Industries supposed to pay consultancy fee of Rs.15,000 per month. According to the assessee, he has received a sum of Rs.283,83,450 from Reliance Industries Ltd. towards expenditure in assessment year 2007-08. The assessee had incurred a sum of

88 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., Rs.276,98,340. In its confirmation, Reliance Industries has confirmed that this much amount was towards reimbursement of expenditure. Learned Assessing Officer has made analysis of these expenses under various heads and thereafter he made an addition of Rs.274,76,043 which represents reimbursement of expenditure. Learned Assessing Officer is of the opinion that these expenses are for non-business purposes. Apart from this amount, learned Assessing Officer has made addition of Rs.2,02,476. This is an expense which was payable by the assessee. Similarly, in assessment year 2008-09, Reliance Industries has paid Rs.255,77,109 and the reimbursement of expenses out of this amount is of Rs.249,03,984. Learned Assessing Officer has observed that the expenditure were for non-business purposes. He also assessed the income on protective basis with regard to the receipts from M/s. Reliance Industries. Learned Assessing Officer further made an addition of Rs.7,99,012 which is challenged by the assessee in ground No.3. This amount represents TDS credit claimed by the assessee at Rs.6,19,012 plus Rs.1,80,000 i.e. consultancy fee of 12 months. Learned Assessing Officer has made an addition of Rs.247,78,097 on protective basis which is an amount worked out by debiting the total receipts paid by the Reliance Industries at Rs.255,77,109 minus Rs.7,99,012.

89 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., also not properly considered the submissions and facts of the case and simply followed the AO’s conclusion and dismissed the appeals of the assessee. We further note that the ld. CIT(A) too has not given due opportunity of being heard to the assessee. The ld. DR has supported the order of the ld. CIT(A). However, he raised no serious objection if the appeal is restored to the file of AO for fresh adjudication of first appeal. Therefore, in the interest of justice, we deem it fit to restore the grounds of appeal raised by the assessee in all the three appeals to the file of the AO for fresh adjudication. Needless to mention that the AO shall provide due and proper opportunity of being heard to the assessee, without being prejudiced with the earlier impugned order. Grounds of appeal raised by the assessee are allowed for statistical purposes.

90 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 124. Ground No. 6(d) pertains to determining the arm's length price of interest, (in respect of interest free loans and advances given to its subsidiary companies) @ LIBOR + 150 basis points (if average maturity period of loan is 3 to 5 yrs) and @ LIBOR + 250 basis points (if average maturity period of loan is more than 5 yrs). 125. We have considered rival contentions. The facts and circumstances during the year under consideration are same as discussed by us while deciding ground No.6 (d) for the A.Y.2007-08 in ITA No.4379/Mum/2012. AO is directed to follow the reasoning and conclusion given by us hereinabove in the A.Y.2007-08. 126. Ground No.1 of department’s appeal pertains to addition of the National Sales Tax. The issues have been discussed by us elaborately in the A.Y.2007-08. AO is directed to delete the same reasoning given in the A.Y.2007-08. 127. Ground No.2 of Revenue’s appeal refers to allowing depreciation as claimed by assessee at Rs.3228,00,I8,444/- against the depreciation allowed at Rs.3012,64,26,001/- by directing to adopt the WDV of the assets as on 01/04/2007 and thereby disallowing Rs.215,35,92,443/- being depreciation on plants at Hazira, Patalganga, Cracker Unit at Hazira, Oil & Gas division, SBM Refinery and Polypropylene and Paraxylene complex at Jamnagar and also erred in allowing consequential change of the claim of deduction u/s.80IA & U/s.80IB of the IT. Act.

91 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 128. We have considered rival contentions. The facts and circumstances are same as discussed by us in ground No.2 of department’s appeal for A.Y.2007-08. Following the same reasoning, AO is directed accordingly. 129. Ground No. 3 & 4 of department’s appeal refers to not deciding the issue on merits in view of provisions of section 80lA of the Income Tax Act, 1961 wherein it is clearly defined that "Market Value" means the price of goods/services would fetch, if these were sold by the unit/undertaking in the open market subject to statutory regulations, if any and the assessee had clearly violated this section. 130. We have considered rival contentions. As the facts and circumstances are same as discussed by us in ground No.3 & 4 of department’s appeal for the A.Y.2007-08, the grounds raised by revenue are dismissed. 131. This is with reference to disallowance u/s.14A read with Rule 8D have already been discussed by us while deciding ground No.2 of assessee’s appeal. Following the same reasoning, we dismiss the ground raised by the Revenue. 132. Ground No.6 refers to decline of depreciation in respect of jetties we have already considered in length this issue in the A.Y.2007-08 while deciding ground No.4 of assessee’s appeal. As the facts and circumstances are the same, following the same reasoning, we dismiss the ground raised by the Revenue.

92 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 133. Ground No. 6 relates to the disallowance of part of the lease rent of Rs 6,08,48,652/-, being portion of lease rent held to be repayment of principal. The disallowance has been made in respect of the two pipelines, i.e. Hazira-Dahej pipeline and Dahej-Baroda pipeline, following the reasoning adopted in the assessments for AY s 2003-04 and 2004-05. 134. We have considered rival contentions and found that this issue was decided in favour of the assessee by ITAT Mumbai in the case of Indian Petrochemicals Corp. Ltd. a company merged with the assessee company vide its order in ITA Nos. 1426/Ahd/2009 & 3921/Mum/2009 for A Y 2005-06 and IT No.4005/Mum/2013 for A Y 2006-07 vide order dated 18.11.2015. As the facts and circumstances are identical; therefore, the disallowance deleted by the CIT(A) deserves to be confirmed. 135. Ground No. 8 & 9 of Revenue’s appeal relates to adjustments made to ALP on guarantee commission at the rate of 0.575% in place of 2.5% of non funded guarantee given by the assessee for advancing loan to its associate concerns. 136. We have elaborately discussed this issue while deciding ground 6(b) and (c) of assessee’s appeal hereinabove, following the same reasoning, we dismiss this ground of revenue’s appeal. 137. Ground No.10 refers to CITCA)'s direction to accept the transfer pricing adjustment in computing Arm's length Price by adopting the rate of interest @ 4.95% p.a. instead of adopting the rate of interest

93 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., @ 7.5% based on RBI circular without appreciating the rate calculated by the TPO as per the market rate for loan advance to M/s RIME DMCC, UAE). 138. We have considered rival contentions. This issue has been considered elaborately by us while deciding the ground No. 6(d) of assessee’s appeal, following the same reasoning, AO is directed accordingly. ITA5770/Mum/2013 (A.Y.2009-10)(Reopened) Grounds taken by assessee are as under:- 1. The learned Commissioner of Income Tax (Appeals)-LTU, Mumbai {hereinafter referred to as CIT(A)} erred in confirming the action of the Addl. Commissioner of Income tax -L TU, Mumbai (hereinafter referred to as AO) in re-opening of the assessment by invoking the provisions of section 147 read with section 148 of the Income-tax Act, 1961. The Appellant submits that the notice u/s.148 for re-opening the assessment is bad in law, illegal, ultra-virus, in excess of and/or in want of jurisdiction and otherwise void. 2 The CIT(A) erred in confirming the action of the AO in disallowing an amount of Rs.83,75,235/- being Professional Fees Paid to various parties by holding that the parties have not rendered any services to the appellant and the appellant has not been able to establish the nature of consultancy services rendered by these parties. The appellant submits the Professional Fees has been Paid to various parties for rendering Liasioning services duly supported by documentary evidences and therefore ought to have been allowed u/s.37 of the Act. 3 The CIT(A) erred in confirming the action of the AO in reducing the profits of the business of the undertaking while computing deduction under section 10B of the Act by an amount of Rs.11,17,23,864/- being recoveries of various expenses incurred and charged to Profit and Loss Account of the undertaking. The appellant submits that the other income of Rs.11, 17,23,864/- represents recoveries of expenses incurred and debited to Profit & Loss Account of the undertaking and therefore the same has been rightly included in the profit of the business of the undertaking while computing deduction under section 10B of the Act. 4. The appellant reserves the right to add, amend, alter or vary all or any of the above grounds of appeal as they or their representatives may think fit.

94 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 139. In this appeal, assessee is aggrieved for reopening of assessment as well as merit of the addition so made. It was contended by learned AR that notices u/s.148 is bad in law for want of jurisdiction. After going through the reasons recorded for reopening, we do not find any infirmity in the order of lower authorities for reopening of assessment. 140. In ground No.2, assessee is aggrieved for disallowance of Rs.83,75,235/- being Professional Fees Paid to various parties by holding that the parties have not rendered any services to the assessee and the assessee has not been able to establish the nature of consultancy services rendered by these parties. 141. We have considered rival contentions and found that while deciding assessee’s appeal for the A.Y.2008-09, we have elaborately discussed the issue while disposing ground No.5. As the facts and circumstances during the year under consideration are same, following the same reasoning, we restore the matter back to the file of AO for deciding afresh. 142. Ground No.3 pertains to action of the AO in reducing the profits of the business of the undertaking while computing deduction under section 1OB of the Act by an amount of Rs.11,17,23,864/- being recoveries of various expenses incurred and charged to Profit and Loss Account of the undertaking. 143. We have considered rival contentions. We have already dealt with this issue while disposing Ground No.4 of assessee’s appeal for the A.Y.2008-09, following the same reasoning, matter is restored back to the file of the AO for deciding afresh.

95 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd.,

ITA NO.1892/Mum/2014 (A.Y.2009-10) The following grounds have been taken by assessee:- 1. The learned Commissioner of Income-tax - (Appeals - 11) {hereinafter referred to as CIT(A)} erred in rejecting the Appellant's alternative plea that there is a deemed payment of sales tax and therefore the amount of Rs.679,97,97,429/- is allowable as per the provisions of Section 438 of the Income-tax Act, 1961. The Appellant submits that there is a deemed payment of Sales tax which is allowable u/s.438 of the Act and the CIT(A) ought to have given a decision on this issue in favour of the Appellant. 2. a. The CIT(A) erred in confirming the disallowance of Rs.87.85 crores i.e. out of interest expenditure at Rs.5.02 crores and proportionate administrative and other expenses of Rs.82.82 crores u/s.14A of the Act r.w.r. 8D of the Income tax Rules, as against Rs.3,45,01,874/- computed and disallowed by the appellant, being expenditure in relation to the income exempt u/s.1 0(34) of the Actwhile computing income under the normal provisions of the Act (section 28 to 42 of the Act). The appellant submits that an expenditure of Rs.3,45,01,874/- has been incurred in relation to earning exempt dividend income and therefore the disallowance of the estimated expenditure ought to be restricted to Rs.3,45,01,874/- under normal computation of income. b. The CIT(A) erred in confirming the disallowance of Rs.87.85 crores u/s.14A of the Act r.w.r. 80 of the Income tax Rules, as against Rs.50,384/- disallowed by the appellant, being expenditure incurred in relation to the income exempt u/s. 10(34/35) of the Act while computing book profit u/s.115JB of the Act.

The appellant submits that an expenditure of Rs.50,384/- has been worked out as incurred in relation to earning exempt dividend income and further the provisions of Section 14A of the Act r.w.r. 8D is not-applicable while computing book profits u/s. 115JB of the Act, therefore the disallowance of the estimated expenditure ought to be restricted to Rs.50,384/- for computing book profit u/s. 115JB of the Act. c. The CIT (A) erred in confirming the action of the AO in disallowing expenditure u/s.14A of the Act r.w.r. 80 of the Income tax Rules, i) without recording satisfaction on the correctness of expenditure disallowed by the appellant with regards to the accounts of the appellant. ii) with reference to investments in shares of subsidiary companies which are made for strategic purpose. iii) with reference to investments in shares and securities which have not given rise to exempted income.

96 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd.,

d. In the alternative and without prejudice to the above, the appellant submits that the disallowance made by the AO and confirmed by the CIT(A) is excessive and unreasonable.

97 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd.,

c. The CIT(A) erred in confirming the action of the AO in determining the arms length price at Rs. 29,61,74,7231- being interest chargeable in respect of interest free loan of USD 70,000,000 (equivalent to Rs. 3,55,04,00,000) and Euro 12,946,245 (equivalent to Rs. 81,91,00,000), advanced to its AE i.e. M/s. RIME DMCC, UAE. d. The CIT(A) erred in confirming the action of the AO in computing an arms length interest on the aforesaid loan of USD 70,000,000 (equivalent to Rs.3,55,04,00,000) which was converted into 5% Non-cumulative compulsory convertible preference shares of the AE, allotted to the appellant, as on 31st March 2009, which was duly substantiated by share certificate issued by the AE. Further, the balance loan of Euro 12,946,245 (equivalent to Rs. 81,91,00,000) was advance to the AE for furthering the business interest of the appellant by enabling to expand itself in international markets through indirect acquisition of majority stake in the GAPCO group companies. e. Without prejudice to the above, the CIT(A) erred in confirming the action of the AO for computing the arms length price by adopting the rate of interest @ 7.5% p.a. instead of adopting the average rate of interest charged in the case of third party comparables @ 5% p.a. [ i.e.Loan provide by Axis Bank (in the range of 3.25% p.a. to 5% p.a.) which averages @ 4.13% p.a. and the composite average rate (risk plus risk free) published by Bloomberg Reuters @ 5.83% p.a.] and which also, is the weighted average cost of borrowing of the Appellant during the financial year 2008-09. The appellant submits that the loans and advances given to subsidiary companies are out of its own funds and given for furthering the business interest of the appellant and hence no disallowance is called for on this amount. 7. Your appellant reserves the right to add, amend, alter or vary all or any of the above grounds of appeal as they or their representatives may think fit. ITA NO.2549/Mum/2014 (A.Y.2009-10) The following grounds have been taken by revenue:- 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of sales tax incentives/ subsidy of Rs.679,97,97,429/- holding it as being capital in nature. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing depreciation as claimed by assessee holding that the claim of depreciation for the year was optional in nature. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to adopt the rate followed by the assessee for

98 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., working out deduction u/ s 80lA, without appreciating that the AO has correctly worked out the profit on the basis of return on capital. 4. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing of Rs.3,46,45,OS3/- being the principal component of the lease rent paid on leased pipelines without appreciating that the assessee had capitalized the assets and had claimed only finance charges in its accounts. 5. On the facts and circumstances of the case and in law, the Ld. CJT(A) erred in allowing expenses of Rs.35,32,00,000/- arising out of mark to market transaction in foreign exchange derivates without appreciating the facts of the case. 6. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to adopt the rate of 0.575% as the ALP of the guarantee commission without appreciating the facts of the case. 7. The appellant prays that the order of the ld. CIT(A) on the above ground be set aside and that of the Assessing Officer restored. 8. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 144. All the above grounds are similar to the grounds raised in the A.Y. 2007-08 and 2008-09 which we have elaborately discussed hereinabove. Following the same reasoning, we direct the AO to follow the same. In Ground No.2, assessee is aggrieved for disallowance u/s.14A r.w.R.8D. We found that assessee was having sufficient interest free funds during this year also. Following the reasoning given by us in the A.Y. 2008-09, we direct for deleting the disallowance of interest. With regard to disallowance under Rule 8D(2)(iii), AO is directed to follow the procedure given in the A.Y. 2008-09 for excluding investment made for strategic purposes and also to exclude the investment income from which does not form part of total income for computing disallowance under Rule 8D(2)(iii). We direct accordingly.

99 ITA No.4361/Mum/2012 M/s. Reliance Industries Ltd., 145. In the result, appeals of the Revenue are dismissed whereas appeals of the assessee are allowed in part in terms indicated hereinabove.

Order pronounced in the open court on this 12/04/2017 Sd/- Sd/- (RAVISH SOOD) (R.C.SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 12/04/2017 Karuna Sr.PS Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. BY ORDER, Guard file. 6. सत्यापित प्रतत //True Copy// (Asstt. Registrar) ITAT, Mumbai