TAURIAN IRON & STEEL CO. P.LTD,MUMBAI vs. ADDL CIT RG 4(3), MUMBAI

आयकर अपीऱीय अधिकरण, म ुंबई न्यायपीठ ‘के’, म ुंबई । IN THE INCOME TAX APPELLATE TRIBUNAL “K”, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI AMIT SHUKLA, JM आमकय अऩीर सं./ITA No.5920/Mum/2012 (नििाारण वषा / Assessment Year : 2008-2009) M/s Taurian Iron & Steel Co. Vs. ADCIT, Range-4(3), Mumbai Pvt. Ltd., 302A, Poonam Chambers, 3rd Floor, Dr. Annie Besant Road, Worli, Mumbai- 400018 स्थामी रेखा सं./ जीआइआय सं./ PAN/GIR No. : AAACT 4814 A (अऩीराथी /Appellant) (प्रत्मथी / Respondent) .. ननधाारयती की ओर से /Assessee by : Shri K.B.Desai याजस्व की ओर से /Revenue by : Shri N.K.Chand सुनवाई की तायीख / Date of Hearing : 15/06/2016 घोषणा की तायीख/Date of Pronouncement 16/09/2016 आदेश / O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee company against the order dated. 30.07.2012 passed by the CIT(Appeals)-15, Mumbai u/s 250(6) of the Income tax act, 1961 (hereinafter referred to as the 'Act'), raising the following grounds of appeal :- "Ground No. 1: Validity of assessment order: 1. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of the Additional Commissioner of Income tax, Range 4(3), Mumbai ("the AO") of passing the assessment order u/s 143(3) of the Act beyond the limitation prescribed under the Act. 2. The Appellant prays that the action of the lower authorities be deleted by holding that : (i) the assessment order is passed beyond the limitation period specified under the Act and as such is illegal, invalid, bad in law and be quashed; and

2 ITA No.5920/12 (ii) the order passed by the Transfer Pricing Officer ("TPO') be treated as illegal, invalid, bad in law and be quashed. Without prejudice to above ground : Ground No. 2 : Reference to Transfer Pricing Officer ("TPO"): 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO of making a reference to the TPO without satisfying the conditions as to what are "necessary or expedient" circumstances existed in the Appellant's case for such a reference. 2. The Appellant prays that the action of the lower authorities be deleted by holding that the reference to TPO as also the order pursuant to such reference be treated as invalid, illegal and bad in law and be quashed. Without prejudice to above grounds: Ground No. 3 : Non compliance with the instruction issued by the Central Board of Direct Taxes ("CBDT"): 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO of referring the Appellant's case to TPO for determination of Arms-Length price ("ALP') contrary to the Instruction No. 3 of 2003 dated May, 20, 2003 issued by the CBDT. 2. That the appellant prays that it be held that the action of the lower authorities be deleted. Without prejudice to the Grounds No. 1 & 2: Ground No. 4 : Share application money treated as loans and advances: 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO of treating remittances by the Appellant to its Associated enterprise ("AE') towards share application money as loans and advances on the ground that there was delay in allotment of shares by such AE. 2. The Appellant prays that the action of the lower authorities be deleted and the transaction be treated as on account of share application money which is not subject to any interest income. Without prejudice to above 3. If at all the action of the lower authorities is upheld then, in that case, only the funds against which no shares have been allotted to the appellant be treated as loan and advances.

3 ITA No.5920/12 Ground No. 5: Addition of Interest I. On the facts and in the circumstances of the case and in law, the CIT(A) erred in partly confirming the action of the AO of making addition of interest to the income of the appellant on basis of six months LIBOR plus 150 basis points. 2. The Appellant prays that the action of the lower authorities of adding interest to the income of the Appellant be deleted. 3. Without prejudice to above, if at all the action of the CIT(A) is upheld then, in that case, interest be calculated only on the amount refunded by the AE against which no shares have been allotted to the appellant. Ground No.6: Disallowance of lease rentals : Rs. 9,70,34,749/-: I. On the facts and in the circumstances of the ease and in law, the CIT(A) erred in confirming the action of the AO of disallowing lease rentals on the ground that the lease transaction executed by the appellant is a finance lease transaction and not operating lease transaction. 2. The Appellant prays that the action of the lower authorities be deleted and the treatment given by the Appellant in its return of income be accepted. Without prejudice to above 3. If at all the action of the lower authorities is upheld then, in that case, the Appellant be allowed finance charges incurred during the year under consideration and depreciation on the assets under lease transaction in accordance with section 32 of the Act. Ground No. 7: Disallowance of loss on forward exchanje contract- Rs. 2,62,65,930/-. 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the action of the A. 0 of disallowing Rs. 2,62,65,9301- being the difference in value of the forward contracts as on the date on which the contract was entered into and the rate prevailing as at the end of the financial year, on the ground that the same represents notional loss. 2. The Appellant prays that the action of the lower authorities be deleted. Without prejudice to above 3. If at all the action of the lower authorities is upheld then, in that case, the Appellant be allowed the loss in the year in which the contract is settled.

4 ITA No.5920/12 Ground No. 8 : Disallowance of provision for leave encashment — Rs. 95,184/-: 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the action of the A.O of disallowing Rs. 95,184/- being provision for leave encashment, u/s 43B(f) of the Act. 2. The Appellant prays that the action of the lower authorities be deleted. Ground No. 9: Disallowance u/s 14A- Rs. 14,495/- 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO of disallowing expenses of Rs. 14,495/- u/s 14A of the Act r.w rule 8D of the Income-tax Rules, 1962 ("the Rules') on the assumption that the Appellant must have incurred some expenses for making investments earning tax free income. 2. The Appellant prays that the disallowance made by the lower authorities be deleted. 3. Without prejudice to above, if at all the action of the lower authorities is upheld, then, in that case, the disallowance be reduced appropriately after taking into consideration the number of transactions related to tax free income. 4. Without prejudice to above, if at all the action of the lower authorities is upheld then, in that case the disallowance already offered to tax by the Appellant be reduced from the disallowance made in the assessment order otherwise it would result in double disallowance i.e firstly, disallowance made in return of income and secondly, disallowance made in the assessment order. 5. Without prejudice to above, if at all the action of the lower authorities is upheld then, in that case, the disallowance either be allowed to be capitalised or be allowed to be deducted from sale consideration in the year of transfer of securities. Ground No. 10: Levi' of interest u/ss. 234B and 234C: 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the AO to levy interest as per law after giving appeal effect. Ground No. 11 : General. The Appellant craves leave to add to, alter and/or amend all or any of the foregoing grounds of appeal."

5 ITA No.5920/12 2. The assessee is a private limited company engaged in the business of trading and processing of iron ore, mining activity of iron ore on contract basis at Jharkhand and generation of wind power. The processed iron ore is sold by the assessee company both in the domestic and international market. The assessee company had e-filed its 'Return of income' on 29.09.2008, declaring income of Rs. 23,66,78,000/-, which was processed as such u/s 143(1) of the Income tax act, 1961 (hereinafter referred to as the 'Ace). The case of the assessee company was taken up for scrutiny proceedings and Notices u/ss. 143(2) and 142(1) of the 'Act' were served on the assessee company. During the course of the assessment proceedings the A.O after perusing the 'Audit report' filed by the assessee company in 'Form 3CEB', referred the computation of the 'Arms length price' ('ALP') as regards the International transactions of the assessee company relating to advance of share application money to its 'Associated Enterprise' (AE), and incurring of expenses in relation to pre and post incorporation of the 'AE', to the Transfer Pricing Officer 11(2), Mumbai ('TPO') u/s 92CA(1) of the 'Act', who vide his order passed u/s 92CA(3) of the 'Act', dt. 15.03.2011, proposed adjustments of Rs. 16,56,556/- as regards the aforesaid International transactions of the assessee company. The A.O following the order of the 'TPO' and carrying out adjustments as regards the International transactions of the assessee company with its 'AE', alongwith certain other additions to the 'returned income' of the assessee company, therein as required u/s 144C(1) of the 'Act', forwarded a 'draft

6 ITA No.5920/12 assessment order' dt. 28.11.20 11 to the assessee company (Page 122 of 'APB'). The assessee company vide its letter dt. 20.12.2011 (Page 121 of 'APB') intimated to the A.O that as the proposed additions/disallowances made in the 'draft order' were not acceptable to it and were to be challenged by way of filing of an appeal u/s 246A of the 'Act' before the CIT(A), therefore requested the A.O to complete the assessment and pass the final assessment order, pursuant whereto the A.O proceeded with and framed the assessment U/s 143(3) of the 'Act' as on 19.01.2012 and assessed the income of the assessee company at an amount of Rs.39,24,44,130/-, as under:- Particulars Amount (A).Profits and Gains from business Rs.23,43,65,006/- and profession (as per computation of income) ADD: Disallowances: (i).Adjustment u/s.92CA(3) Rs.16,56,556/- (ii) Lease Rent on Railways wagons Rs.9,70,34,749/- (iii) Punitive charges Rs.3,06,99,215/- (iv) Loss in forex derivatives Rs.2,62,65,930/- (v) Leave encashment Rs. 95,184/- (vi) Disallowance u/s.14A Rs. 14,495/- Rs.15,57,66,129/- (B) Income from Capital Gain Rs.23,80,492/- LESS: Deduction under Chap.VIA Rs. 67,500/- Total Income Rs.39,24,44,127/- GROUND OF APPEAL 1: 3. The Ld. A.R of the assessee company had at the very outset challenged the validity of the assessment framed by the A.O, by claiming that as the assessment order was passed beyond the period of limitation contemplated under Sec. 153(1) of the 'Act', therefore the same was non est in the eyes of law and thus could not be sustained as such. The Ld. A.R fortifying his contention that the assessment framed by the A.0 u/s 143(3) of the 'Act' was time barred, therein referred to the Second proviso

7 ITA No.5920/12 of Sec. 153(1) of the 'Act' and averred that though the A.0 remained under a statutory obligation to frame assessment in the hands of the assessee company within a period of 33 months from the end of the relevant assessment year, i.e latest by 31.12.2011, however the same having been framed only as on 19.01.2012, therefore the same was barred by limitation and was thus liable to be struck down on the said count itself. The Ld. A.R further rebutting the observations of the Ld. CIT(A)-8, Mumbai, who on the basis of a conjoint reading of Sec. 153 and Sec. 144C of the 'Act', did not find favour with the claim of the assessee company and had concluded that the assessment framed by the A.0 was well within the period of limitation, therein submitted that the Ld. CIT(A) while observing that on perusal of Sec. 153 r.w 144C of the 'Act', the assessment framed by the A.0 was found to be well within the period of limitation, had gravely erred in loosing sight of the fact that as Sec. 144C was in itself made available on the statute vide the 'Finance Act, 2012, w.r.e.f 01.04.2009, therefore the same was to be made applicable for A.Y. 2009-10 and the succeeding years, and as such was not applicable to the year under consideration in the case of the assessee company, pursuant whereto the limitation for framing of assessment in the case of the assessee company was to be gathered only on the basis of the period contemplated in the Second proviso of Sec. 153(1) of the 'Act'. The Ld. A.R further supporting his contention that Sec. 144C was applicable only w.e.f A.Y 2009-10, and thus could not be made applicable to the preceding years, therein culling out the changes brought in by Sec. 144C

8 ITA No.5920/12 of the 'Act', submitted that as the same had changed the law of filing the appeal and has also created new rights and obligations, not only in favour of assessee but also in favour of DRP and concerned assessing officer, therefore by implication the provisions of Sec. 144C would partake the color and character as that of 'Substantive provisions', and resultantly the same would be applicable prospectively from A.Y. 2010-11, and thus would not be applicable to the year involved in the case of the assessee company. In support of the aforesaid contention, the Ld. A.R relied on the judgment of the Hon'ble Supreme Court so passed in the case of : H.V Thakur Vs. State Bank of Maharashtra (1994 AIR 263), wherein the Hon'ble Apex Court settling the issue as to the extent a statutory provision can be allowed to be given a retrospective effect, held as under: "26...N. A statute which effects substantive rights is presumed to be prospective in operation unless made retrospective, either expressly or by necessary intendment, whereas a statute which merely affects procedure, unless such a construction is textually impossible, is presumed to be retrospective in its application, should not be given an extended meaning and should be strictly confined to its clearly defined limits. (ii). Law relating to forum and limitation is procedural in nature, whereas law relating to right of action and right of appeal even though remedial is substantive in nature. (iii,). Every litigant has a vested right in substantive law but nosuch right exists in procedural law. (iv). A procedural statute should not generally speaking be applied retrospectively where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished. (v). A statute which not only changes the procedure but also creates new rights and liabilities shall be construed to be prospective in operation, unless otherwise provided, either expressly or by necessary implication" 4. Thus the Ld. A.R taking support of the aforesaid judgment of the Hon'ble Apex Court, therein submitted that as Sec. 144C which was

9 ITA No.5920/12 made available on the statute vide the 'Finance Act, 2012, w.r.e.f 01.04.2009, though may at first blush appear to be procedural in nature, as the same provides for the procedure to be followed by the A.0 and the assessee in the course of the assessment proceedings, however as new rights and obligations, not only in favour of assessee but also in favour of DRP and concerned assessing officer emerges while giving effect to the provisions of Sec. 144C, therefore the same inescapably, in light of the parameters laid down by the Hon'ble Apex Court in the case of H.V Thakur (supra), have to be construed as 'Substantive provisions', as a result whereof the same could only be given prospective operation, and resultantly would not be applicable to the year under consideration in the case of the assessee company. 5. The Ld. A.R further to drive home his contention that while for procedural provisions are applicable both to future as well as pending proceedings, while for amendments to substantive provisions can only be given a prospective effect, therein in support of the aforesaid proposition, relied on a host of Judgments, as under: (i). Jai Parkash Singh Vs. (219 ITR 737)(SC) (ii). KM Sharma Vs. ITO (254 ITR 772, 779)(SC) (iii). Aditya Cement Staff Club Vs. UOI (266 ITR 70)(Raj) (iv). Associated Cement Co. Vs. CTO (48 STC 466) (v). K. Co. Gopal Rao Vs. CWT (181 CTR 94)(AP) (vi). CWT Vs. R.K Indrajeet Singh(86 Taxman 507)(Raj) (vii). CWT Vs. Man Bahadur Singh (208 ITR 658)(Raj) (viii). Gulabrai Hanumanbux Vs. CWT (198 ITR 13 1)(Guj) (ix). ACIT Vs. Hasmat Rai Raj Pal (167 ITR 794)(A11). (x). CIT Vs. Ochhavalal Lalbhai Dharia (125 I TR 301)(Guj) (xi). CIT Vs. Dharamchand Anand Kumar (128 ITR 219)(MP) (xii). Trilok Chand Jain Vs. Dugi Lal Pindi Lal & Ors (95 ITR 34)(Del). (xiii). CIT Vs. Roshanlal Kathilal (87 ITR 714)(P&H) (xiv). Sedco Forex International Drill Inc and Ors. Vs. CIT (279 ITR 310)

10 ITA No.5920/12 Still further, the Ld. A.R in order to support his contention that as the provisions of Sec. 144C had been made available on the statute w.e.f 01.10.2009, thus the same can be made applicable only w.r.t A.Y. 2010- 11 and subsequent assessment years, relied on the judgment of the Hon'ble Bombay High Court in the case of : Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT (328 ITR 81), wherein the Hon'ble High Court referring to the provisions of Rule 8D as had been notified on 24.03.2008, had therein concluded that the same would be applicable from A.Y. 2008-09 and onwards. The Ld. A.R further referring to the Ileydons rule of interpretation', therein submitted that by taking cognizance of the 'Mischief' which was intended to be plugged by the legislature by making Sec. 144C available on the statute, therein further fortified his contention that the provisions of Sec. 144C could not be made applicable to years prior to A.Y. 2010-11, and as such the A.0 had erred in extending the same to the case of the present assessee company. 6. That during the course of hearing of the appeal, the Ld. A.R further supporting his contention that the provisions of Sec. 144C were applicable w.e.f A.Y. 2010-11, therein drew the attention of the bench to CBDT Circular No. 5 of 2010; dated. 03.06.2010 (Para 45.5), which read as under: - "45.5.Applicability — These amendments have been made applicable with effect from 1st October, 2009, and will accordingly apply inrelation to assessment year 2010-11 and subsequent years. The Dispute Resolution Panel Rules have been notified by S.O. No. 2958(E); dated. 20th November, 2009."

11 ITA No.5920/12 7. The Ld. A.R thus relying on the aforesaid Circular No. 5 of 2010 issued by the CBDT, therein submitted that a bare perusal of the same revealed beyond any scope of doubt that the provisions of Sec. 144C were made available on the statute w.e.f A.Y. 2010-11, and thus could not be made applicable to the year under consideration in the case of the assessee company. The Ld. A.R further submitted that in light of the settled position of law that CBDT Circulars are binding on the Revenue/department, the A.0 in the case of the assessee company had thus grossly erred in adopting a view contrary to the CBDT Circular, and as such erred in extending the scope of applicability of the provisions of Sec. 144C to the years preceding the A.Y. 2010-11. The Ld. A.R further in support of his contention that the Circulars issued by CBDT in exercise of its powers u/s 119 of the 'Act', though are not binding on the assesses or the appellate authorities, but are binding on the Revenue/department, therein relied on the following judgments: (i). CIT Vs. K. Srinivasan and K. Gopalan (23 ITR 87)(SC) (ii). CWT, Central Vs. Balbhadradas Bangur(148 ITR 149)(Cal). (iii). CIT Vs. 0.M.S.S. Sankaralinga Nadar & Co. (147 ITR 332)(Mad). (iv). Charitable Gadodia Swadeshi Stores Vs. CIT (12 ITR 385)(Lahore) (v). CIT Vs. Raja Bahadur Kamakhaya Narayan Singh (16 ITR 325) (Privy council). (vi). Beohar Singh Raghubir Singh Vs. CIT (16 ITR 433)(Nag). (vii). Comm. Of Agri. Income tax Vs.Raja Jagdish Chandra Dhabal (171TR 426)(Cal). (viii). S.D Sharma Vs. CIT (45 ITR 107 )(Mah). (ix). Delhi Flour Mills Co. Ltd. Vs. CIT (95 ITR 151)(Del). (x). A.L.A Firm Vs. CIT (102 ITR 622)(Mad). (xi). Addl. CIT Vs. Mrs. Avtar Mohan Singh (136 ITR 645)(Del). (xii).CIT Vs. Malayala Manorma and Co. Ltd. (143 ITR 29)(Kar). (xiii).Motor Industries Co. Ltd. Vs. CIT (163 ITR 659) (xiv). CIT Vs. Precision Steel and Engg. Works (179 ITR 283)(P&H). (xv). East India Hotels Ltd. Vs. C.R Shekhar Reddy & Anr. (230 ITR 622)(Kar)

12 ITA No.5920/12 (xvi). UCO Bank Ltd. VS. CIT (237 ITR 889)(SC). (xvii).Anjuman M.I1 Ghaswala (252 ITR 1)(SC) (xviii). K.P Varghese (131 ITR 597)(SC) (xix). Dhiren Chemicals (254 ITR 554) (xx). Navnitlal C. Jhaveri (56 ITR 198 at 203)(SC) (xxi). Ellerman Lines Ltd. Vs. CIT (82 ITR 913, at 920-21)(SC) , and thus submitted that as the A.O had erred in not following the CBDT Circular No. 5 (supra), therefore his action may be vacated. 8. The Ld. A.R further referring to another CBDT Circular No. 9; Pt. 19.11. 2013, wherein the anomaly as had crept in Para 45.5 of the Circular No. 5; Pt. 03.06.2010, as regards the date of applicability of the provisions of Sec. 144C was removed by the CBDT by substituting the aforesaid Para 45.5 (supra), and therein clarifying that the provisions of Sec. 144C would be applicable to any order which proposes to make any variation in income or loss returned by an 'eligible assessee' on or after October 1, 2009, irrespective of the assessment year to which it pertains, therein submitted that as the aforesaid CBDT Circular No. 9 (supra) had been issued only as on 19.11.2013, and as such was not available at the time of passing of the assessment order, therefore the A.0 was bound by the Circular No. 5 (supra), which was in force as on the date of framing of the assessment in the hands of the assessee company. It was thus averred by the Ld. A.R that as the A.0 had erred in not following the binding Circular No. 5 (supra), , the same therein had led to surfacing of a view on his part which was glaringly found to be in conflict with the view adopted by the CBDT in its Circular No.5 (supra), as a result whereof the view adopted by the A.0 could not be sustained in the eyes of law and was thus liable to be vacated.

13 ITA No.5920/12 9. The Ld. A.R further buttressing his contention that the provisions of Sec. 144C would have to be accorded a prospective application, and as such would be applicable only w.e.f A.Y. 2010-11, therein submitted that going by the 'Rule of Strict literal interpretation', it can safely and rather inescapably be gathered that the provisions of Sec. 144C are to be made effective from A.Y. 2010-11, and no interpretation howsoever meaningful it may so appear, can therein be permitted to substitute the plain and literal interpretation of the said statutory provision. 10. The Ld. D.R on the hand rebutting the aforesaid averments of the assessee company, relied on the order of the Ld. CIT(A) and submitted that the provisions of Sec. 144C which were made available on the statute vide the 'Finance (No. 2) Act, 2009, w.r.e.f 01.04.2009, were applicable as regards any order which the A.O proposes to make as a consequence of the order of the TPO uls 92C(3) of the 'Act', therein effecting variation in income or loss returned by an eligible assessee on or after October 1, 2009, irrespective of the assessment year to which it pertains. It was further submitted by the Ld. D.R that the aforesaid scope and gamut as regards the period of applicability of the provisions of Sec. 144C had been clarified vide Circular No. 9; Dt. 19.11.2013 issued by the CBDT, wherein the anomaly as had crept in Para 45.5 of its earlier Circular No. 5; Pt. 03.06.2010, as regards the date of applicability of the provisions of Sec. 144C had been removed by the CBDT, therein making it clear beyond any scope of doubt that the 'Cut off date of October 1, 2009, as regards the applicability of the provisions of Sec. 144C of the 'Act' is to be construed

14 ITA No.5920/12 and understood in context and reference of the date on which the A.O proposes to make an order as a consequence of the order of the TPO u/s 92C(3) of the 'Act', therein carrying out variation in the income or loss returned, which is prejudicial to the interest of the assessee, irrespective of the assessment year involved therein. The Ld. D.R strongly objected to the self suiting inference drawn by the Ld. A.R as regards the period of applicability of the provisions of Sec. 144C of the 'Act', and therein submitted that there was nothing in the 'Act' from where it could be gathered that Sec. 144C of the 'Act' was to be made applicable only w.e.f A.Y. 2010-11. 11. We have considered the rival submissions of either side and perused the relevant materials on record, including the orders of the authorities below and are of the considered opinion that the genesis of the controversy as to whether the assessment framed by the A.O is within the period of limitation contemplated under the 'Act' or not, mainly revolves around the issue of the period of applicability of Sec. 144C of the 'Act'. In this regard it would be relevant and pertinent to point out that the adjudication of the issue as to whether the assessment framed by the A.0 vide his order u/s 143(3), dt. 19.01.2012, is within the period of limitation as contemplated under the 'Act' or not, has to be carried out in background of the fact that the A.0 in the present case had applied the provisions of Sec. 144C of the 'Act' and issued 'draft assessment' order to the assessee company, as provided u/s 144C(1) of the 'Act', and the assessee company vide its letter dt. 20.12.2011 (Page 121 of 'APB')

15 ITA No.5920/12 intimated to the A.O that as the proposed additions/disallowances made in the 'draft order' were not acceptable to it and were to be challenged by way of filing of an appeal u/s 246A of the 'Act' before the CIT(A), therefore the final assessment order may be passed. We are of the considered view that though it is the settled position of law as had been so laid down by the Hon'ble Supreme Court in the case of : H.V Thakur Vs. State Bank of Maharashtra (1994 AIR 263), as well as appreciated in the host of other judgments relied upon by the Ld. AR, that a statute which effects substantive rights is presumed to be prospective in operation unless made retrospective, either expressly or by necessary intendment, whereas a statute which merely affects procedure, unless such a construction is textually impossible, is presumed to be retrospective in its application, however are convinced that the said proposition would not help the assessee company to support its contention that Sec. 144C being substantive in nature, therefore the same would be applicable prospectively w.e.f A.Y. 2010-11, because to our understanding Sec. 144C has only brought about a procedural amendment therein providing the tax payer an alternate dispute resolution mechanism, exercise of which too is optional at the end of the tax payer. Rather, as a matter of fact, neither the said statutory provision is compulsory, nor the same causes any prejudice of any kind to the tax payer, and thus it can be safely concluded that the applicability of the same from the date of notification cannot be construed to be of any detriment to the tax payer, pursuant whereto the claim of the assessee company that as the insertion

16 ITA No.5920/12 of Sec. 144C had created new rights and obligations, not only in favour of assessee, but also in favour of DRP and concerned assessing officer, therefore by implication the said statutory provision would partake the color and character as that of a 'Substantive provision', is not found to be acceptable and is hereby rejected. 12. We have further carefully perused Sec. 144C(1),which is relevant for adjudication of the issue under consideration, and reads as under:- "144C(1). The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the r day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee" , and find our self to be persuaded by the observations of the Ld. CIT(A), and in agreement with the contention of the Ld. DR that the 'Cut off' date of 01.10.2009 provided in Sec. 144C(1) had been used in context of and in reference to the date on which the A.0 consequent to the order of the TPO u/s 92C(3) of the 'Act', proposes to make any variation in the income or loss returned, which is prejudicial to the interest of the assessee, independent of the assessment year involved therein. There is nothing provided for in the aforesaid statutory provision from where it could be gathered that the 'Cut off' date of 01.10.2009 is to be construed to mean that that the statutory provisions contemplated u/s 144C of the 'Act' are to be made applicable w.e.f A.Y. 20 10 11, and are not to be made applicable to the preceding years. We though find our self principally in agreement with the contention of the Ld. A.R, as had been emphasized

17 ITA No.5920/12 by him by placing reliance on host of judgments, that a statutory provision going by the 'Rule of Strict Literal interpretation', has to be construed in light of its simple and plain meaning, and no violence can be done to its literal interpretation in the garb of giving it a better meaning and arriving at the underlying object behind the enactment, but are unable to persuade our self to interpret the scope and gamut of the period of applicability of Sec. 144C(1) of the 'Act' by divorcing the 'Cut off' date of 01.10.2009 from the text in which it has been used, and therein reading the same in isolation. We are of the considered opinion that as Sec. 144C which had been inserted vide the Finance (No. 2) Act, 2009, w.r.e.f 01.04.2009, nowhere makes any mention that the said statutory provision would only be applicable to A.Y. 2010-11 and onwards, therefore the same would be applicable in the cases where the A.0 on or after the 1st day of October, 2009, as a consequence of the order of the TPO u/s 92CA(3) of the 'Act', proposes to make any variation in the income or loss returned, which is prejudicial to the interest of the assessee, independent of the assessment year involved therein. That as regards the reliance placed by the Ld. A.R on Para 45.5 of the CBDT Circular No. 5; Pt. 03.06.2010, to support his contention that the provisions of Sec. 144C were applicable w.e.f A.Y. 2010-11, we are of the considered view that without prejudice to the fact that that the CBDT Circulars are not binding on the appellate authorities, and as such are not binding on us, however even otherwise the fact as it so remains is that the anomaly in the CBDT Circular No. 5 ; Dt. 03.06.2010, Para 45.5 (supra), as regards the date of applicability of Sec.

18 ITA No.5920/12 144C of the 'Ace, which was wrongly mentioned in the said circular as being w.e.f A.Y. 2010-11, and read as under:- "45,5 Applicability — These amendments have been made applicable with effect from ft October, 2009, and will accordingly apply in relation to assessment year 2010-11 and subsequent assessment years. The Dispute Resolution Panel rules have been notified by S. 0 No. 2958 (), dated. 20'h November, 2009." benefit of which inadvertent drafting error is attempted to be taken by the assessee company to drive home its contention that the provisions of Sec. 144C were not applicable to A.Y. 2008-09 involved in its case, had thereafter been rectified by the CBDT vide its Circular No. 9; 19.11.2013, wherein the Para 45.5 had been substituted, and therein reads as under: "2. Explanatory Circulars for the Finance (No. 2) Act, 2009, i.e Circular No. 5 of 2010 ,dated. 03.062010, in Para 45 has explained the said new section 144C and the consequential amendments made in other sections ofIncome tax Act. Para 45.5. of the Circular No. 5 of 2010, dated. 03-06-2010 reads as under:- "45.5 Applicability - These amendments have been made applicable with effect from Ft October, 2009, and will accordingly apply in relation to assessment year 2010-11 and subsequent assessment years. The Dispute Resolution Panel rules have been notified by S. 0 No. 2958 (E), dated. 20th November, 2009." In the above extracted para 45.5 there has been an inadvertent error in stating the applicability of the provisions of section 144C inserted vide Finance (No. 2) Act, 2009 that amendments will apply in relation to the assessment year 2010-11 and subsequent assessment years. Accordingly, para 45.5 is replaced with the following:- "45.5. Applicability — Section 144C has been inserted with effect from ist October, 2009. Accordingly, the Assessing Officer is required to forward a draft assessment order to the eligible assessee, if he proposes to make, on or after the r day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. In other words section 144C is applicable to any order which proposes to make variation in income or loss returned by an eligible assessee, on or after ft October, 2009, irrespective of the assessment year to which it pertains. Amendments to other sections of the Income-tax act

19 ITA No.5920/12 referred to in para 45.3 of the Circular No. 5 of 2010, dated 3'd June, 2010, shall also apply from 1st October, 2009." 13. Thus in light of the fact that an inadvertent drafting error as had crept in Para 45.5 of Circular No. 5 ; Dt. 03.06.2010, therein wrongly stating that the provisions of section 144C inserted vide Finance (No. 2) Act, 2009 were in relation to the assessment year 2010-11 and subsequent assessment years, had in itself been taken cognizance of as being an 'Inadvertent mistake', and rectified by the CBDT by substituting Para 45.5 (supra), vide its Circular No. 9; 19.11.2013, pursuant thereto the support taken by the assessee company on the basis of Para 45.5 of the Circular No. 5 of 2010, dated 3rd June, 2010, therein falls to ground. We are also not impressed by the claim of the Ld. A.R that as the CBDT Circular No. 9; dt. 19.11.2013 (supra) was not there before the A.0, therefore the latter was bound by the Circular No. 5 ; Dt. 03.06.2010 (supra), which was then in force. Though it remains as a matter of fact that the CBDT Circular No. 9; dt. 19.11.2013 (supra) was not before the A.0, however we cannot also loose sight of the fact that the said Circular No. 9 (supra) had only removed an 'Inadvertent mistake' as had crept in the body of the earlier Circular No. 5 (supra), and had not taken away or diluted any substantive right as was conferred or vested upon the assessee by the said earlier circular. We cannot be persuaded to arrive at a finding that a mistake should be allowed to perpetuate on technicalities, but rather remaining under a solemn duty to impart justice, herein reject this contention of the assessee company. However, before parting, we herein deprecate the irresponsible drafting of the Circular No. 5 of 2010,

20 ITA No.5920/12 dated 3rd June, 2010 by the CBDT, and are surprised to find that such a serious infirmity in the circular had been allowed to perpetuate and remain as such for a long period of about 3 1/2 years by the CBDT. We herein direct the CBDT to be careful as regards drafting of the Circulars/Instructions and carry out thorough vetting of the same before putting up the same in the public domain. 14. Thus in light of our aforesaid observations, now when in the present case, the A.O on receipt of the order of the TPO u/s 92CA(3) of the 'Act', dated: 15.03.2011, had thereafter passed a 'draft assessment' order as on 28.11.2011 (i.e subsequent to the 'Cut off' date of 01.10.2009), therefore no infirmity as regards the applicability of the provisions of Sec. 144C of the 'Act' can be related with the case of the present assessee company. 16. We now in light of our aforesaid observations that the provisions of Sec. 144C had rightly been applied by the A.0 in the case of the assessee company, thus now advert to the issue as to whether the assessment framed by the A.O u/s 143(3) of the 'Act', vide his order dated.19.01.2012, is within the period of limitation as stands contemplated under the 'Act', or not. The Ld. A.R of the assessee company had during the course of hearing of the appeal averred at length that as per the time limit contemplated in the Second proviso of Sec. 153(1) of the 'Act', the A.0 remained under a statutory obligation to frame assessment in the hands of the assessee company within a period of 33 months from the end of the relevant assessment year, i.e latest by 31.12.2011, however as the same was framed only as on 19.01.2012, therefore the same was barred by

21 ITA No.5920/12 limitation and was thus liable to be struck down on the said count itself That the Ld. D.R on the other hand rebutting the aforesaid contention and relying on the order of the Ld. CIT(A), therein submitted that in the case of the assessee company, the A.0 by resorting to the provisions of Sec. 144C of the 'Act' therein remained under a statutory obligation to frame assessment within the time period contemplated U/s 144C(4) of the 'Act', and as the assessment framed by the A.O in the hands of the assessee company was found to be within the parameters contemplated u/s 144C(4) of the 'Act', therefore no infirmity as regards the limitation for framing of the assessment was liable to be drawn. 15. We have considered the rival submissions of either side and perused the relevant materials on record, including the orders of the authorities below and are of the considered opinion that as the time period involved in framing of an assessment where the provisions of Sec. 144C are invoked, in light of the multiple sequence of events following therein, as under: - (i). Preparation of a 'draft assessment' order by the A.0 and forwarding of the same to the assessee; (ii)Communication by the assessee of his acceptance to the variations proposed by the A.0, OR filing of objections to the proposed variations with both the `DRP' and the A.0 (for which a time period of 30 days is allowed); (iii). Framing of the assessment by the A.0 on the basis of the 'draft assessment' order, i.e within a period of 'One month' from the date of receipt of acceptance, in case the assessee had accepted the proposed variations, OR 'One month' from the expiry of the period stipulated for filing of objections, in case no objections are received by the A.O within the stipulated time period from the assessee; (iv). The 'DRP' in case of receipt of objections to the proposed variations from the assessee, shall within a period of 'Nine months' from the end of the month in which the 'draft assessment' order had

22 ITA No.5920/12 been forwarded to the eligible assessee, issue 'directions' for the guidance of the A.O, which the latter has to follow while completing the assessment; (v). The A.O shall within a period of 'One month' from the end of the month in which 'direction' had been received from the 'DRP', frame assessment in the hands of the assessee, though without affording any opportunity of being heard to the latter. is thus found to be substantially more time consuming, pursuant whereto the legislature in all its wisdom had provided for a separate and distinct period of limitation for framing of assessments in cases where the provisions of Sec. 144C of the 'Act' had been invoked. In this regard it would be relevant to point out that the overriding and superseding effect of the 'time limits' for framing of assessments in the cases where the provisions of Sec. 144C of the 'Act' had been invoked, as against the 'time limit' for framing of a normal assessment as contemplated in Sec. 153 of the 'Act', can be gathered beyond any scope of doubt on a bare perusal of sub sections of Sec. 144C. That for the sake of clarity, the relevant sub- sections which therein regulate the time limit' for framing of assessment in a case where the provisions of Sec. 144C had been invoked, are reproduced as under:- "Sec. 144C(4). The Assessing Officer shall, notwithstanding anything contained in Sec. 153 [or Section 153B], pass the assessment order under sub-section (3) within one month from the end of the month in which- (a). the acceptance is received; or (b). the period of filing of objections under sub-section (2) expires. 16. Thus a bare perusal of Sec. 144C(4), which starts with the non obstante clause "The Assessing Officer shall, notwithstanding anything contained in Sec. 153 " and provides for an independent 'time limit' of 'One month' which is to be reckoned from the end of the month, in which

23 ITA No.5920/12 either the acceptance to the variations is received by the A.0 from the assessee, or the stipulated period of filing of objections had expired, therein puts the matter to rest, beyond any scope of doubt, that the time limitation for framing of an assessment where the provisions of Sec. 144C had been invoked, is separately provided for in the body of Sec. 144C itself, and the time limitations contemplated as per provisions of Sec. 153C shall not put any fetters to the framing of any such assessment, which as mentioned hereinabove is to be reckoned in light of the 'time limits' provided in Sec. 144C itself. In this regard it may further be pointed out that in a case where the assessee files objections to the variations proposed by the A.0, in that case the time limit' for framing of the assessment by the A.0, which too is independent of the 'time limit' contemplated u/s 153 of the 'Act', would stand regulated by Sec. 144C(13), which reads as under: "144C(13). Upon receipt of directions under sub-section (5), the Assessing Officer shall in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 [or section 153B] , the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received." 17. Thus in the background of the aforesaid clear position of law, wherein it stands inescapably gathered that in a case where the provisions of Sec. 144C had been invoked, there the 'time limitation' for framing of assessment shall be regulated by that as provided in Sec. 144C itself, thus now when in the case of the present assessee company, which on receipt of 'draft assessment' order, had therein intimated to the A.O that as the proposed additions/disallowances made in the draft order'

24 ITA No.5920/12 were not acceptable to it, and were to be challenged by way of filing of an appeal u/s 246A of the 'Act' before the CIT(A), therefore the final assessment order be passed, it can safely be gathered that the assessee company had not filed any objections to the proposed variations with the 'DRP and the A.O, pursuant whereto the period of limitation for framing of assessment in its case, is regulated by Sec. 144C(2)(b) r.w Sec. 144C(3)(b), which on the basis of facts involved in the case of the assessee company, is reckoned as under:- Date Particulars 15.03.2011 Order of TPO u/s.92CA(3) proposing adjustments of Rs.16,56,556/- 28.11.2011 Draft assessment order proposing additions forwarded to the assessee company, as required u/s.144C(1) of the Act. 28.12.2011 The assessee company was required to file its 'Objections' to the 'draft assessment' order of the A.O, as required u/s 144C(2) of the 'Act'. 31.01.2012 The A.O remained under a statutory obligation to frame assessment u/s 143(3) in the hands of the assessee company, as required u/s 144C(4)(b) of the 'Act'. 18. Thus now in the case of the assessee company, the A.0 who remained under a statutory obligation to frame the assessment, not later then 31.01.2012, is found to have framed the same as on 19.01.2012, therefore the same is within the period of limitation. Thus the claim of the assessee company that the assessment framed by the A.0 is barred by limitation, is rejected, and consequent thereto the 'Ground of appeal No. 1' of the assessee company is dismissed. GROUND OF APPEAL 2 & 3: 19. The Ld. A.R of the assessee company during the course of the hearing of the appeal had therein submitted that 'Ground of appeal No. 2'

25 ITA No.5920/12 and 'Ground of appeal No. 3' are not being pressed, as a result whereof the same are dismissed as being not pressed. GROUND OF APPEAL 4 & 5:. 20. The Ld. A.R of the assessee company had assailed the order of the Ld. CIT(A) who had confirmed the action of the AO/TPO of treating remittances of US $ 8,60,000/- (Rupee equivalent of Rs. 1,51,18,263/-) by the assessee company to its 'AE', i.e M/s Taurian CISA at Abdidjan Ivory Coast of South Africa (the 'WOS' of the assessee company) towards 'Share application' money, as loans and advances, and in the said background had made an adjustment/addition aggregating to Rs. 15,82,636/- towards impugned interest computed @14% p.a w.r.t the aforesaid amount in the hands of the assessee company, which addition/adjustment in light of the RBI Master Circular No. 02/2007-08; dated. 01/07/2007, though had been directed by the Ld. CIT(A) to be worked out by adopting rate of interest as 6 months LIBOR plus 150 basis point for the period of delay involved in allotment of shares and receipt of the payments by the assessee company from its aforesaid WOS/AE. 21. That at the very outset it was submitted by the Ld. A.R that the assessee company had remitted an amount aggregating to US $ 8,60,000 (rupee equivalent of Rs. 1,51,18,263/-) by way of 'Share application' money to its wholly owned subsidiary company (for short 'WOS') viz, Taurian CISA at Abdidjan Ivory Coast of West Africa under the automatic route of 'Foreign Exchange Management Act, 1999' (for short TEMA') for overseas direct investment in terms of Notification No. FEMA 1201RB-

26 ITA No.5920/12 2004; dt. 07/07/2004 r.w Clause (a) of Sub-section (3) of Sec. 6 of the TEMA'. It was further submitted by the Ld. A.R that as against the aforesaid amount of US $ 8,60,000 (supra), an amount aggregating to US $ 2,00,000 was refunded by the 'WOS' as under :- Date USD INR 30.12.2009 US $ 1,00,000 Rs. 46,62,428/- 25.01.2010 US $ 1,00,000 Rs. 45,97,506/- Total US $ 2,00,000 Rs. 92,59,934/- , while for as against the balance amount of US $ 6,60,000, shares numbering 31,120 were allotted to the assessee company as on 10/12/2009. It was submitted by the Ld. A.R that the assessee company on being confronted and called upon to put forth an explanation by the TPO as to why interest should not be charged on the amounts remitted to the 'WOS', though submitted before the TPO that as the aforesaid amounts had been remitted to the 'WOS' by way of share application money for allotment of shares, wherein as against part of the amount 31,120 shares were allotted to the assessee company, while for the balance amount of the share application money was refunded, thus the said remittance not being in the nature as that of a loan advanced to the WOS, therefore in view the color and character of the transaction, no adverse inference as regards the same were liable to be drawn in the hands of the assessee company. The Ld. A.R further submitted that the amount of 'Share application' money so remitted to the 'WOS' was to be used by the latter for the purpose of obtaining mining contracts in Africa, and therefore till the mining contracts were finalized, the money was kept in the bank by the 'WOS' and it was only after the finalization of the

27 ITA No.5920/12 contracts, the amount which was not required by the WOS for the aforesaid purpose were refunded to the assessee company. 22. The TPO not finding favour with the submissions of the assessee company, therein held the remittances of US $ 8,60,000/- (Rupee equivalent of Rs. 1,51,18,263/-) by the assessee company to its 'AE', i.e M/s Taurian CISA at Abdidjan Ivory Coast of South Africa (the 'WOS' of the assessee company) , as a loan transaction, on which the TPO observed that the assessee company ought to had charged interest. The TPO rejecting the contention of the assessee company that as the amount remitted to the 'AE' was towards share application money, therefore the TPO was precluded from determining the arm's length interest on the said interest free loan, therein relied on the order of the ITAT, Delhi 'F' Bench in the case of : Perot Systems TSI (India) Ltd. Vs. DCIT (2010) 130 TTJ 685 (Del), wherein the Tribunal held as under : "Lending or borrowing money between two cross border AE's comes within the ambit of International transaction and it has to be considered as to whether the same is at ALP, when interest free loan is given to an overseas AE, income on account of interest cannot be excluded from the arms length consideration" . , and thus concluded that the issue regarding the conversion of loan into equity does not preclude the TPO to determine the arm's length interest on the loans given to the AE's. The TPO referring to and taking cognizance of the manifold factors, Le the various varieties of risks involved in advancing of the amounts, loss of opportunity to the assessee company to earn income on the amount advanced, coupled with the fact that if the said amounts would had been advanced as loans to unrelated

28 ITA No.5920/12 parties in the similar circumstances, then interest would had accrued to the assessee company, thus on the basis of conjoint perusal of the aforesaid circumstances, in light of the fact that the assessee company had borrowed funds @12% p.a, therein adopted the rate of interest @14% p.a and applying the same to the period starting from the date of remittance made by the assessee company during the year under consideration, till March 31,2008, made an adjustment/addition of Rs. 15,82,636/- on the aforesaid count in the hands of the assessee company. The A.O on receipt of the order of the TPO u/s 92CA(3) of the 'Act', wherein the latter had made the aforesaid adjustments to the ALP of the above said International transaction of the assessee company with its 'AE', therein referring to the provisions of Sec. 92CA(4) of the 'Act', made an addition of Rs. 15,82,636/-(supra) in the hands of the assessee company. 23. That on appeal by the assessee company, the Ld. CIT(A) referring to the provisions of Sec. 73(2) and Sec. 73(2A) of the Companies Act, 1956, which provides for refund of money in the absence of any permission of Stock exchange to deal in with shares within 8 days, failing which the company stands liable to pay money with interest at the rate of not less than 4% but not exceeding 15%, and further taking support from certain other regulations of the SEBI (Issue of Capital and Disclosure Requirement) Regulations of 2009, though upheld the order of the A.O, but however directed the latter to workout interest at the rate of 6 month LIBOR plus 150 basis points.

29 ITA No.5920/12 24. That during the course of hearing of the appeal before us, the Ld. A.R of the assessee company, in order to drive home his contention that the remittance made by the assessee company to its WOS/AE was towards share application money, after satisfying all the requisite, parameters under law, which was duly recognised and approved as such, therein referred to the Resolution dated. 21/03/2006 of the 'Board of Directors' of the assessee company wherein consent was given to incorporate the WOS/AE in the name of Taurian CISA with the Share capital of CFA 1,00,00,000/- at Abidjan in Ivory Coast of African Continent (Page 157 of 'APB'), and further drew the attention of the bench to the RBI letter dated 24/08/2006 (Page 161 of 'APB'), whereby RBI had allotted identification number to WOS/AE outside India, wherein at Para 6 of the said letter it was mentioned that the investment by the assessee company by way of equity contribution in WOS/AE shall be covered by FEMA, 1999 and relevant rules and directions issued there under. The Ld. A.R in order to further fortify his aforesaid contention, therein took us through the details of remittances report issued by the dealer viz., State Bank Of India, wherein it was mentioned that the remittances for the year under consideration were towards additional share capital of WOS/AE (Page 136, 139, 142, 145, 150, 153 and 155 of the 'APB'), as well as referred to the details of the remittances aggregating to US $ 8,60,000 made by the assessee company, against which 32,120 shares worth US $ 6,60,000 were issued, while for the balance amount of US $ 2,00,000 was refunded by the WOS/AE to the assessee company (Page 126 of 'APB'), and still

30 ITA No.5920/12 further drew our attention to the 'Share Certificates' issued by the WOS/AE (Page 127-128 of 'APB'). It was thus submitted by the Ld. A.R that as against the remittance of US$ 8,60,000 the assessee company was allotted 31,120 shares worth US $6,60,000, which therein represented 77% of the total remittances. It was thus averred by the Ld. A.R that in light of the aforesaid factual background, the TPO/A0 had erred in treating the remittance made by the assessee company towards share application money, as a loan transaction, and in light of the said factual background so averred by him, therein submitted that the said re- characterization of the transaction and the consequential addition of Rs. 15,82,636/- so made in the hands of the assessee company may therein kindly be vacated. 25. The Ld. A.R further to support his following three contentions:- (a).That a re-characterization of a share application money as a loan due to delay in allotment of shares is not permissible in the eyes of law; (b).That remittances towards share application money cannot be treated as "International transaction" within the meaning of Sec. 92B of the 'Act; AND (c).That it is not permissible for revenue authorities to re-characterize the transaction unless the same is shown to be sham or bogus transaction. , therein relied on a host of orders of different benches of the Tribunal, as under:- (i). Bharti Airtel India Vs. ACIT (63 SOT 113)(Del) (ii). Aditya Birla Vs. DCIT (69 SOT 18)(Mum) (iii) Allcargo Global Logistics Ltd.Vs. ACIT (150 ITD 651 )(Mum) (iv) Parle Biscuits (P) Ltd. Vs. DCIT (46 taxmann.coml 1)(Mum) (v). Vijay Electricals Ltd. Addl. CIT (60 SOT 77)(Hyd) (vi). Micro Inks Ltd. Vs. ACIT (144 ITD 610)(Ahd) (vii).Prithvi Information Solutions Ltd. Vs. ACIT (49 Taxmann.com 176)(Hyd). (viii).Hill Country Properties Ltd. Vs. Addl. CIT (48 Taxmann.com.94)(Hyd).

31 ITA No.5920/12 (ix). ITO Vs. Sterling Oil Resources (P) Ltd. (67 Taxmann.com 2)(Mum). 26. The Ld. A.R to further support his aforesaid contention that the lower authorities had seriously erred in re-characterizing the transactions of remittance of share application money as a loan, in light of the fact that the genuineness of the aforesaid transactions, i.e as that of being in the nature of remittance towards share application money had duly been accepted and had never been held to be sham or bogus, therein relied on a judgment of the Hon'ble High Court of jurisdiction in the case of :- Director of Income Tax (Intl. Taxation) Vs. Besix Kier Dabhol SA (26 taxmann.com 169)(Bom) wherein the Hon'ble High Court recording the findings of the Tribunal, as under:- "Before the Tribunal the case of the Revenue was that the debt capital was required to be re-characterized as equity capital. However, the Tribunal held that in India as the law stands that there are no rules with regard to thin capitalization so as to consider debt as an equity. The Tribunal allowed the payment of interest." therein held as under:- "There is no fault with the finding of the Tribunal. There were not at the relevant time, and even today there are no thin capitalization rules in force." 27. The Ld. A.R further addressing the issue under consideration on a different footing, therein submitted that as the business of a 'WOS' is to be treated as the business of the 'Holding company', therefore going by the said position of law, as the fruits of the investment by the assessee company in its 'WOS' were solely to belong to the assessee company (i.e the 'Holding company'), as the latter remained the sole and absolute owner of the 'WOS', therefore for the said reason, on giving of money to the 'WOS' and on use of the said money by the latter, the assessee

32 ITA No.5920/12 company in its status as that of being the sole owner of the subsidiary company, is beneficiary of all the gains of the subsidiary company, therefore non allotment of the shares to the assessee company during the period of payment of the share application money till the actual date of allotment, would therefore not go to prejudice the position of the assessee company in any way. The Ld. A.R in support of his aforesaid contention, therein relied on the following Judgments/orders:- (i). CIT Vs. United Breweries (89 ITR 17)(High Court of Mysore) (ii). Bright Enterprises Ltd. Vs. CIT (381 ITR 107)(P&H) (iii). ITO Vs. Sterling Oil Resources (P) Ltd. (67 taxmann.com 2) 28. The Ld. A.R further in order to fortify his contention that re- characterization of a transaction is permissible in only two situations, as under:- (i). Where the economic substance of a transaction differs from its form; and (ii).Where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner, therein relied on the following judicial pronouncements:- (i). CIT Vs. EKL Appliances Ltd. (24 Taxmann.com 199)(Delhi) (ii). ITO Vs. Sterling Oil Resources (P) Ltd. (67 taxmann.com 2) 29. Alternatively, it was further submitted by the Ld. A.R that even if the aforesaid remittance of share application money was to be treated as a loan transaction, then only the funds against which no shares have been allotted be treated as a loan transaction and interest thereon be considered based on LIBOR plus 150 points as determined by the Ld. CIT(A).

33 ITA No.5920/12 30. The Ld. D.R on the other hand had strongly relied on the order of the Ld. CIT(A) and had averred that the color and character of the remittances made by the assessee company to its WOS/AE was not to be gathered merely as per its hollow claim, but rather the same was to be arrived at on the basis of conjoint perusal of the facts involved right from the remittance of the amounts to the WOS/AE, specific purpose beyond the remittance, allotment of shares against part of the remittance and refund of the balance amount of remittance and the substantially abnormal delay in allotment of shares and refund of the amount by the WOS/AE in contravention of the parameters contemplated under the various statutory provisions. The Ld. D.R further submitted that not only the circumstances attending right from the remittance of amounts by the assessee company to its WOS/AE, till the allotment of shares and refund of the balance amount, in itself did not inspire much confidence as regards characterisation of the said transaction as that of being in the nature as that of remittance towards share application money, but rather even otherwise, the very fact that the remittances made by the assessee company to its WOS/AE were clearly stated to be for the purpose of obtaining of mining contracts by the WOS/AE in Africa, which funds as per the arrangements made between the assessee company and its WOS/AE were to remain in the latters bank account till the finalization of the mining contracts, and it was only thereafter the amounts which were not required by the WOS for the aforesaid purpose were to be refunded to the assessee company, thus submitted that in the backdrop of the aforesaid

34 ITA No.5920/12 factual position, wherein not only the allotment and refund of the impugned share application money was beyond the parameters contemplated under the statutory provisions as had duly been taken note of and appreciated by the Ld. CIT(A) in the body of his order, but rather the peculiar arrangement entered into between the assessee company and the WOS/AE, wherein in order to facilitate obtaining of mining contracts by the WOS/AE in Africa, there was a specific purpose oriented remittance of funds by the assessee company to its WOS/AE, as per which arrangement the funds so remitted were to remain as such with the WOS/AE, as long as the mining contracts were not finalized, which thereafter was to be followed up by refund of that part of the amount which was no more further required by the WOS/AE, in itself revealed that it was not a case of remittance of funds by the assessee company to its WOS/AE by way of share application money in simpliciter, as such, but it was a specific purpose oriented remittance of funds by the assessee company in order to facilitate financial assistance of the WOS/AE, in the garb of remittance towards share application money. The Ld. D.R in order to buttress his contention that the TPO had rightly concluded that the remittance made by the assessee company to its WOS/AE was clearly in the sum and substance as that of an interest free loan transaction, and no infirmity as regards such observation of the TPO did surface, therein submitted that in light of the settled position of law that re- characterization of a transaction is permissible on the part of the Revenue, where either the economic substance of a transaction differs

35 ITA No.5920/12 from its form, or where the form and substance of the transaction though are the same, but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner, thus submitted that in the case of the assessee company not only the economic substance of the transaction pertaining to remittance of funds, which as claimed by the assessee company was towards share application money, clearly differed from its form, but rather even otherwise, the peculiar arrangement and the circumstances attending to the remittance of funds by the assessee company, as claimed by the latter to be towards share application money, viewed in their totality, seriously differed from those which would have been adopted by the assessee company with an unrelated concern, behaving in a commercially rational manner, therefore in light of the aforesaid factual position, no infirmity could be saddled with the observation of the TPO who had made necessary adjustments/additions in the hands of the assessee company by treating the said remittance of funds by the assessee company to its WOS/AE, as an interest free loan. 31. We have considered the rival submissions of either side and perused the relevant materials on record, including the orders of the authorities below and are of the considered opinion that though it is claimed that amounts aggregating to US $ 8,60,000 had been remitted by the assessee company by way of 'Share application' money to its wholly owned subsidiary company (for short `WOS') viz, Taurian CISA at

36 ITA No.5920/12 Abdidjan Ivory Coast of West Africa under the automatic route of 'Foreign Exchange Management Act, 1999' (for short TEMA') for overseas direct investment in terms of Notification No. FEMA 120/RB-2004, dt. 07/07/2004 r.w Clause (a) of Sub-section (3) of Sec. 6 of the TEMA', after due compliance of the statutory provisions contemplated under law, however it also remains a matter of fact that as against the remittance of US $ 8,60,000 (rupee equivalent of Rs. 1,51,18,263/-), shares numbering 31,120 worth US $ 6,60,000 only were allotted to the assessee company, while for the balance amount of US $ 2,00,000 (supra) was refunded by the 'AMOS' to the assessee company. Thus the adjudication as regards the color and character of the remittance by the assessee company to its AE/WOS has to be gathered in the backdrop of the aforesaid factual position. Though we are in agreement with the contention of the assessee company that re-characterization of a transaction is permissible only where the economic substance of a transaction differs from its form, and where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner, pursuant whereto it is not permissible on the part of the Revenue/Department to carry out re- characterization of a share application money as a loan due to delay in allotment of shares, however in light of the facts involved in the case of the present assessee company, though we find ourselves to be in agreement with the contention of the Ld. A.R that to the extent 31,120

37 ITA No.5920/12 shares worth US $ 6,60,000 had been allotted to the assessee company, the re-characterization by the AO/TPO of the remittance made by the assessee company by way of share application money to its `WOS' to the said extent, as a loan due to delay in allotment of shares is not permissible in the eyes of law, but are unable to persuade ourselves to accept the contention of the Ld. A.R that a similar treatment is also to be accorded to the balance amount of US $ 2,00,000 (supra) which had been refunded by the WOS to the assessee company. In other words, to be brief and explicit, to the extent the remittance of US $ 6,60,000 made by the assessee company to its `WOS' by way of share application money is concerned, against which 31,120 shares had been allotted to the assessee company, though involving some delay, to the said extent the AO/TPO had erred in re-characterizing the share application money, as a loan due to delay in allotment of shares. The aforesaid view so arrived at by us is fortified by the judgment of the Hon'ble High Court of jurisdiction so passed in the case of Director of Income Tax (Intl. Taxation) Vs. Besix Kier Dabhol SA (26 taxmann.com 169)(Bom). However, as regards the balance amount of remittance of US $ 2,00,000 (supra) made by the assessee company to its `WOS', against which no shares were allotted and the amount was refunded to the assessee company, we are of the considered view that the factum of advancing of the said amount by the assessee company to its `WOS', and the refunding of the same by the `WOS' after enjoying the said amounts, as such, would safely fall within the realm of a simpliciter advance, which therein would render the color

38 ITA No.5920/12 and character to such transaction, as that of being a 'loan transaction'. In this regard it would be relevant and pertinent to point out that the host of decisions/orders of different benches of the Tribunals so relied upon by the Ld. A.R of the assessee company to support his contention that re- characterizing of the share application money remitted by the assessee company to its 'WOS', even to the extent where no shares had been allotted against the same and amounts had been refunded to the assessee company, is found to be absolutely misconceived, because a bare perusal of the said orders/decisions therein reveals that in the said cases, shares had been allotted to the respective assesses, while for in the case of the present assessee company, the fact as it so remains is that to the extent remittance of US $ 2,00,000 had been made by the assessee company to its 'WOS', no shares were allotted to the assessee company, but rather after a substantial delay the said amount was refunded by the 'WOS'. That still further it can safely and inescapably be concluded that as the remittance of US $ 2,00,000 made by the assessee company to its 'WOS' did not see the light of the day and thus never crystallized into allotment of any shares to the assessee company, but rather as a matter of fact culminated into refund of the said amount to the assessee company, therefore on consideration of the said transaction in totality, as such, the same at no stage could be characterized as a remittance towards share application money, pursuant whereto the issue of any re-characterization would never arise. In this regard it would further be relevant and pertinent to point out that now when the economic

39 ITA No.5920/12 substance of the remittance of US $ 2,00,000 (supra) by the assessee company to its 'WOS' towards share application money, can safely and inescapably be held to be in the nature of a transaction different from its form, and rather as a matter of fact the arrangements made in relation to the aforesaid transaction, viewed in their totality, differ from those which would have been adopted by the assessee company behaving in a commercially rational manner, no embargo under such factual circumstances can be placed as regards re-characterization of such remittance towards share application money as a loan transaction. 32. That still further we are not impressed by the contention of the Ld. A.R of the assessee company that as the business of a `WOS' is to be treated as the business of the 'Holding company', therefore going by the said position of law, as the fruits of the investment by the assessee company in its `WOS' were solely to belong to the assessee company (i.e the 'Holding company), as the latter remained the sole and absolute owner of the said `WOS', thus giving of the money to the 'WOS' and use of the said money by the latter, the assessee company in its status as that of being the sole owner of the subsidiary company, remains the beneficiary of all the gains of the subsidiary company, therefore non allotment of the shares to the assessee company during the period of payment of the share application money till the actual date of allotment, would therefore not go to prejudice the position of the assessee company in any way. The reliance placed upon by the Ld. A.R of the assessee company on the judgments of the Hon'ble High Courts, is found to be

40 ITA No.5920/12 misconceived, as the same are found to be delivered in context of Sec. 36(1)(iii) of the 'Act' and in reference of the issue under consideration in the present case. 33. That in light of our aforesaid observations, we herein set aside the order of the Ld. CIT(A), to the extent the latter had upheld the order of the A.0 treating remittances to the extent of US $ 6,60,000/- by the assessee company to its 'AE', i.e M/s Taurian CISA at Abdidjan Ivory Coast of South Africa (the 'WOS' of the assessee company) towards 'Share application' money, as loans and advances, and on the said basis had thus sustained the consequent adjustment/addition towards impugned interest computed @14% p.a w.r.t the said amount in the hands of the assessee company. That the order of the Ld. CIT(A), to the extent relatable to remittance of US $ 2,00,000 to its aforesaid 'WOS', and the consequent adjustment/addition as regards the same is however sustained, however the A.O/TPO is herein directed to work out and restrict the said adjustment/addition by adopting rate of interest as 6 months LIBOR plus 150 basis point for the delayed receipt of the payments by the assessee company from its aforesaid WOS/AE. Thus in light of our aforesaid observations, the Ground of appeal no. 4 and Ground of appeal no. 5 so raised by the assessee company, are thus partly allowed. GROUND OF APPEAL 6 34. That the assessee company vide its 'Ground of appeal No. 6' had challenged the order of the Ld. CIT(A) who had upheld the disallowance of 'lease rentals' made by the A.O and had concurred with the A.O that

41 ITA No.5920/12 the 'lease transaction' executed by the assessee company was a Finance lease' and not an 'Operating lease'. 35. The facts pertaining to the issue under consideration are that the assessee company which is engaged in the business of mining and wind power had in the period relevant to A.Y. 2006-07 and 2007-08 taken railway wagons (2 rakes) on lease, and treating the said lease transaction as an 'Operating lease', had thus claimed the lease rental charges as an expenses as per the provisions of the 'Act', while filing its 'Return of income' for both of the aforesaid assessment years. However, the assessee company following the 'Accounting Standard 19' (AS 19) on lease (both for 'Operating lease' and 'finance lease') as issued by the ICAI, had therein in its 'Books of accounts' treated the same as a 'Finance lease' and accordingly the value of assets taken on lease were capitalized as 'Fixed assets' and 'Interest' and 'depreciation' on the said assets., i.e wagons were debited in the 'P &. loss a/c' as an expense. The assessee company while filing its 'Return of income' for the year under consideration, disallowed the 'depreciation' and the expenses in the 'Computation of income' and claimed the 'lease rental' of Rs. 9,70,34,749/- as an expense by treating the lease as on 'Operating lease'. During the course of the assessment proceedings, the assessee company justifying its entitlement towards the 'lease rentals' therein submitted that the treatment of the lease as a 'Finance lease' in the 'Books of accounts', as per AS-19 (supra) was not to have any impact on allowability of the said 'lease rental' as an expense in the hands of the assessee company,

42 ITA No.5920/12 and in support of its aforesaid contention relied upon the CBDT Circular No. 2; dated. 09/02/2001, which therein provided that as per the new 'Accounting standards' issued by the ICAI, the lessees were required to carry out capitalization of the assets in lease transactions. The assessee company in order to drive home its contention that the lease transaction was in the nature as that of an 'Operating lease' and not a 'Finance lease' transaction, therein during the course of the assessment proceedings referred to certain articles provided for in the 'Lease agreement' with M/s SREI Infrastructure Finance Ltd., who as per the assessee company was the sole and absolute owner of the wagons. The assessee company in its attempt to further fortify its contention therein submitted before the A.0 that in the period relevant to A.Y. 2006-07 they had entered into a similar transaction for one wagon and had given same treatment in the 'Books of accounts' and the 'Return of income', as was so done by it during the year under consideration, which after thorough perusal was accepted by the A.0 while framing the assessment u/s 143(3) for A.Y. 2006-07 in the hands of the assessee company. It was however fairly conceded by the assessee company during the course of the assessment proceedings for the year under consideration, that unlike the acceptance by the A.0 of the lease transaction as an 'Operating lease transaction' in A.Y. 2006-07 and allowing of the lease rental as an expenditure in the hands of the assessee company, as claimed by the latter in its 'Return of income', the A.0 while framing of assessment in the hands of the assessee company for A.Y. 2007-08, did not find favour with the claim of the assessee

43 ITA No.5920/12 company as regards the 'lease rentals', and thus disallowed the same by holding that the lease transaction was a 'Finance lease' transaction, aggrieved with which an appeal was filed with the Ld. CIT(A), who though vide his order dated. 08/12/2009 upheld the order of the A.0 and concluded that the lease transaction was a 'Finance lease', but directed the A.0 to allow the claim of the assessee company towards 'depreciation' and 'Interest'. 36. That the A.O while framing the assessment in the hands of the assessee company for the year under consideration, not finding favour with the contentions of the assessee company that the 'lease transaction' was in sum and substance an 'Operating lease' and not a 'Finance lease', therein referring to various articles of the 'Lease agreement', Schedules to the 'Balance sheet' of the assessee company [Schedule 3, Schedule 19 — Note 5 & Note 1(h), Schedule II of the 'Balance sheet', i.e Note to the annexures of 'Fixed assets'], which did go to prove beyond any scope of doubt that the assessee company was the sole and absolute owner of the wagons, therein held that the assessee company thus had rightly capitalized the value of assets as 'Fixed assets', which as per the A.0 was the correct position of law. The A.0 further referring to the AS-19 which provides for guidelines both for the 'Finance lease' and 'Operating lease' ,and referring to various clauses of the 'Lease agreement' (supra), therein concluded that the assessee company had misconceived the scope of CBDT Circular No. 2; dt. 09/02/2011, because according to the A.0 though the circular undoubtedly provided that the accounting standards by

44 ITA No.5920/12 itself will not have any implication on the allowance of depreciation on assets under the provisions of the Income tax act, however the same could not be stretched to mean that in case of a 'Finance lease' the payments made would be allowed as a revenue expenditure. Thus the A.0 observing that the lease transaction of the assessee company, as per the various clause of the 'lease agreement', disclosures made by the assessee company in its 'Financial statements' etc., proved beyond any scope of doubt that the same was a 'Finance lease', which finding of his predecessor in A.Y. 2007-08 had also been upheld by the Ld. CIT(A), therefore proceeded with and disallowed the amount of Rs. 9,70,34,749/- so claimed by the assessee company as a revenue expenditure. That as regards the 'depreciation' and 'Interest' of Rs. 2,68,14,392/- and Rs. 73,67,890/-, respectively, as had been claimed by the assessee company in its `13 & Loss a/c', the A.0 refused to take cognizance of the same for the reason that the assessee company itself had given up the said claim. The A.0 while declining to consider the entitlement of the assessee company towards 'depreciation' and 'Interest', therein fortified his act by placing reliance on the judgment of the Hon'ble Supreme Court in the case of : Goetz India Ltd. Vs. CIT (2006) 157 Taxmann 1 (SC), on the basis of which the A.0 concluded that he was divested of his power to entertain a claim of the assessee after filing of the 'Return of income', as such a claim could only be entertained by him on the basis of a revised 'Return of income' filed by an assessee.

45 ITA No.5920/12 37. That on appeal the Ld. CIT(A) referring to the observations of the A.0 as regards the issue under consideration, coupled with the fact that the assessee company though had raised a specific 'Ground of appeal No. 8' as regards the disallowance of the 'Lease rentals' of Rs. 9,70,34,749/-, alongwith an alternative plea that in case the addition was to be upheld, then the assessee company be allowed the 'finance charges' and 'depreciation', as per the provisions of the 'Act', however during the course of proceedings before him, no submission in support of the aforesaid contentions was raised by the Ld. A.R of the assessee company, except for stating that the issue was covered against it as per the order of the Ld. CIT(A) in A.Y. 2007-08, therefore relying on the order of his predecessor for A.Y. 2007-08, proceeded with and dismissed the ground of appeal pertaining to the issue under consideration. 38. That before us the Ld. AR had submitted that the lease transaction was in the nature as that of a 'Operating lease' and the authorities below erred in taking the same as a 'Finance lease' and had wrongly disallowed the Rs. 9,70,34,749/- so claimed by the assessee company as a revenue expenditure. Alternatively, it was submitted by the Ld. AR that in case the disallowance was to be upheld by treating the same as a 'Finance lease', then the assessee company be allowed the 'finance charges' and 'depreciation', as per the provisions of the 'Act'. That the Ld. D.R on the other hand relied on the order of the Ld. CIT(A) and averred that the latter had rightly concurred with the observations of the A.O that as the assessee company was the owner of the wagons, therefore the lease

46 ITA No.5920/12 transaction was in the nature as that of 'finance lease' and not an 'Operating lease'. The Ld. D.R further submitted that in the immediately preceding year, i.e A.Y. 2007-08, the A.O had taken a similar view on the issue under consideration, which thereafter was upheld by the Ld. CIT(A), and following the said order of his predecessor, the Ld. CIT(A) while disposing of the appeal of the assessee company for the year under consideration, had taken the same view and dismissed the appeal of the assessee company as regards the issue under consideration. It was thus submitted by the Ld. D.R that the order of the Ld. CIT(A) be upheld and the ground of appeal of the assessee company as regards the issue under consideration be dismissed. 39. We have considered the rival submissions of either side and perused the relevant materials on record, including the orders of the authorities below and after perusing the material on record find ourselves to be in agreement with the findings of the lower authorities that as the assessee company as per various articles of the 'Lease agreement', Schedules to the 'Balance sheet' of the assessee company [Schedule 3, Schedule 19 - Note 5 & Note 1(h), Schedule II of the 'Balance sheet', i.e Note to the annexures of 'Fixed assets'], is proved beyond any scope of doubt to be the sole and absolute owner of the wagons, therefore the lower authorities have rightly held that the lease transaction was in the nature as that of a 'Finance lease' and not an 'Operating lease', pursuant whereto the 'lease rental' of Rs. 9,70,34,749/- claimed by the assessee company as an expense in the 'Computation of income' had rightly been

47 ITA No.5920/12 disallowed by the A.0 and upheld by the Ld. CIT(A). Thus to the extent the disallowance of the 'lease rental' of Rs. 9,70,34,749/- by the A.0 had been sustained by the Ld.CIT(A), we uphold the order of the Ld. CIT(A) to the said extent. However, we are not persuaded to accept the finding of the authorities below that despite the fact that the assessee company following the 'Accounting Standard 19' (AS 19) on lease as issued by the ICAI, in its 'Books of accounts' had reflected the value of wagons as 'Fixed assets' in its 'Balance sheet' and categorically raised its claim towards 'Interest' and 'depreciation' on the said assets., and debited the same in its `13 & loss a/c' as an expense, but being of the view that the lease transaction was a 'Operating lease', had thus while filing the 'Return of income' for the year under consideration, disallowed the 'depreciation' and the 'Interest' in the 'Computation of income' and claimed the 'lease rental' of Rs. 9,70,34,749/- as an expenses by treating the lease as on 'Operating lease', however now when the said claim of the assessee company had not found favour with the lower authorities who therein held that the lease transaction was in the nature as that of a Finance Lease and not an operating lease and on the said basis disallowed the claim of the assessee company as regards lease rental' of Rs. 9,70,34,749/-, pursuant thereto we are of the view that the assessee company was duly entitled towards the 'depreciation' and 'Interest' of Rs. 2,68,14,392/- and Rs. 73,67,890/-, respectively, as had been reflected/claimed by it in its 'I' & Loss a/c'. That as regards the entitlement of the assessee company towards its claim of 'depreciation', it would be relevant and pertinent to

48 ITA No.5920/12 point out that Explanation 5 to Section 32 of the 'Act' provides that the provisions of sub-section (1) of Sec. 32 shall apply, whether or not the assessee has claimed the deduction in respect of depreciation at the time of computing his total income, or not. Now when in the present case the A.0 had disallowed the claim of the assessee company towards 'lease rentals' of Rs. 9,70,34,749/-, by holding that as the assessee company was the sole and absolute owner of the wagons and thus the lease transaction was in the nature as that of a 'finance lease' and not an 'operating lease', therefore as a consequence thereto, it was obligatory on the part of the AO to have allowed 'depreciation' on the wagons owned by the assessee company and used by the latter for the purpose of its business. 40. We are further not impressed by the order of the Ld. CIT(A) who vide his observations recorded at Page 42 —Para 9.3 of his order, had upheld the disallowance by the A.0 of the 'Lease rentals' of Rs. 9,70,34,749/- so claimed by the assessee company, by holding that the 'lease transaction' was a 'Finance lease' and not an 'Operating lease', and while so concluding had strongly relied on the order so passed by his predecessor while disposing of the appeal of the assessee company for the immediately preceding year, i.e A.Y. 2007-08, vide appeal no. CIT(A)- 8/Cir-4/234/0-9-10, however while placing reliance on the order of his predecessor, the Ld. CIT(A) gravely erred in losing sight of the fact that his predecessor though had confirmed the disallowance of 'lease rentals', but while so doing had categorically allowed the claim of the assessee

49 ITA No.5920/12 company towards its entitlement towards 'Interest' and 'depreciation'. Thus the half hearted approach to the issue under consideration by the Ld. CIT(A) is deprecated and we are constrained to hold that the Revenue authorities while following and adopting the orders of their predecessors should be careful and in case if such findings are to be adopted, then those have to be adopted in sum and substance, and not on the basis of a self suiting whimsical piece meal manner. That as regards the reliance placed by the A.0 on the judgment of the Hon'ble Supreme Court in the case of : Goetz India Ltd. Vs. CIT (2006) 157 Taxmann 1 (SC), which debars the A.0 to allow a new claim of an assessee, which the latter had not raised in its 'Return of income', except by way of filing a revised 'Return of income', without going into the issue as to whether the claim raised by the assessee company in the present case towards 'depreciation' and 'Interest', and duly reflected by the latter in the `13 & Loss a/c', but had been added back by the assessee company in its 'Computation of Income', being of the view that the lease transaction was in the nature as that of an 'Operating lease' and not a 'Finance lease', could in the backdrop the said factual position be held to be in the nature as that of 'New claim', therein debarring the A.0 to allow the said claim of the assessee company, we being of the view that in light of the fact that the lease transaction is in the nature as that of a 'Finance lease' and not an 'Operating lease', therefore the assessee company would duly stand entitled towards the consequential claim of 'depreciation' and 'Interest' as had been so raised by it in its 'I' & loss a/c'. That as regards the judgment

50 ITA No.5920/12 of Hon'ble Apex Court in the case of Goetz India Ltd.(supra), it would be relevant and pertinent to point out that the Hon'ble Supreme Court had clearly held that the observations in the said judgment were in context of the powers of the A.0 and the same were not to impinge on the powers of the Tribunal, and had held as under:- "We make it clear that the issue in this case is limited to the powers of the Assessing authority and does not impinge on the powers of Tribunal under S. 254 of the Income tax act, 1961." 41. Thus in light of our aforesaid observations, we herein set aside the order of the Ld. CIT(A) to the extent the latter had upheld the order of the A.0 who despite holding the lease transaction as that being in the nature as that of a 'Finance lease', had however declined to allow the claim of the assessee company towards 'depreciation' and 'Interest', and herein direct the A.0 to verify the amount of loan and the amounts of interest payments made by the assessee company during the year under consideration towards such loans taken for purchase of railway wagons through finance lease method and allow the claim of interest payment accordingly. Still further the A.O is directed to verify the rate and amount of depreciation on the railway wagons to which the assessee company would stand entitled as per Sec. 32(1) of the 'Act' r.w the Income tax rules and allow depreciation in the hands of the assessee company. Thus the 'Ground of appeal No. 6' is partly allowed in light of our aforesaid observations. GROUND OF APPEAL 7: 42. The assessee company had vide the aforesaid ground of appeal averred that the Ld. CIT(A) had erred in confirming the action of the A.O

51 ITA No.5920/12 of disallowing Rs. 2,62,65,930/-, being the difference in value of the forward contracts as on the date on which contract was entered into and the rate prevailing as at the end of the financial year, on the ground that the same represents notional loss. The assessee company had further alternatively submitted that if the order of the lower authorities is upheld, then in that case the appellant be allowed the loss in the year in which the contract is settled. 43. The facts relating to the issue under consideration are that the assessee company which is engaged in the business of processing and trading of iron ore, carrying out mining activity of extracting iron ore on contract basis, generation of wind power and trading in iron ore in domestic as well as international market, was recognized as a Star export house during the year under consideration. The assessee company in order to safeguard against the loss on account of foreign exchange fluctuation with respect to export receivables, had therein entered into hedging contracts. The said contract was settled in the immediately succeeding year, i.e period relevant to AN 2009-10. However, the assessee company on the basis of the guidelines issued by the ICAT, claimed the same as an allowable deduction in the 'Return of income' for the year under consideration. The A.0 however treated the impugned loss as notional loss on the ground that the contract was settled in the next assessment year, which order of the A.0 was thereafter upheld by the Ld. C1T(A).

52 ITA No.5920/12 44. That before us it was at the very outset submitted by the Ld. A.R for the assessee company that as the A.0 vide his assessment order dated. 26/03/2013 so passed for A.Y. 2009-10, had allowed the impugned loss in the said year, therefore the same may not be allowed in the year under consideration. We have considered the aforesaid submission of the Ld. A.R and in the background of the said factual position, going by the statement of the Ld. A.R that as the impugned loss had been allowed by the A.0 while framing assessment in the hands of the assessee company for A.Y. 2009-10, therefore the same may not be allowed in the year under consideration, the said ground of appeal is dismissed as not pressed by the assessee company, in terms of our aforesaid observations. GROUND OF APPEAL 8: 45. The assessee company during the year under consideration had made a provision of leave salary of Rs. 1,97,087/-, out of which an amount of Rs. 1,01,903/- had been paid before the 'due date' of filing of the 'Return of income'. The A.0 being of the view that the assessee company by relying on the judgment of the Hon'ble High Court of Calcutta in the case of : Exide Industries Ltd. Vs. UO1 (292 ITR 470)(Cal), had thus not disallowed the provision on leave encashment, therein observed that as the said judgment of the Hon'ble Calcutta High Court had been assailed by the Revenue/department before the Hon'ble Supreme Court and was pending on the date of assessment, he therefore disallowed the

53 ITA No.5920/12 amount of Rs. 95,184/- (i.e Rs. 1,97,087/- (-) Rs. 1,01,903/-) and added the same to the total income of the assessee company. 46. That during the course of hearing of the appeal the Ld. A.R for the assessee company reiterated the submissions made before the Ld. CIT(A). The Ld. A.R fortified its entitlement towards claim of provision for leave encashment amounting to Rs. 95,184/-(supra), by relying on the judgment of the Hon'ble Supreme Court in the case of : Bharat Earth Movers Vs. CIT (292 ITR 470) , wherein it was held that if a business liability had definitely arisen in the accounting year, then the deduction should be allowed, although the liability may have to be quantified and discharged at a future date. Thus it was submitted by the Ld. A.R that in background of the facts involved in the present case r.w the aforesaid settled position of law, now when the business liability of the assessee company w.r.t leave encashment had definitely arisen during the year under consideration, therein the said provision for leave encashment, irrespective of the fact that the said liability is to be quantified and discharged at a future date, as claimed by the assessee company, may therein be allowed. The Ld. D.R on the other hand relied on the order of the CIT(A) and submitted that as the matter was pending adjudication before the Hon'ble Supreme Court and the operation of the judgment of the Hon'ble Calcutta High Court in the case of : Exide Industries Ltd. (supra) had been stayed by the Hon'ble Supreme Court, therefore the appeal of the assessee company on the said issue was liable to be dismissed.

54 ITA No.5920/12 47. We have considered the rival submissions of either side and perused the relevant materials on record, including the orders of the authorities below and are of the considered view that as the issue pertaining to the allowability of provision for leave encashment u/s 43B(f) is pending before the Hon'ble Supreme Court, wherein on a `SLP' filed before the Hon'ble Supreme Court against the judgment of the Hon'ble Calcutta High Court in the case of : Exide Industries Ltd. Vs. UOI (292 ITR 470)(Cal), and the Hon'ble Apex Court had stayed the operation of the judgment of the Hon'ble Calcutta High Court, in rem, by observing as under:- "We further make it clear that the assessee would, during the pendency of this Civil Appeal, pay tax as if Section 43B(f) is on the statute book but at the same time would be entitled to make a claim in its returns." thus we are of the considered view that in light of the fact that the issue under consideration is pending before the Hon'ble Supreme Court, therefore the issue involved in the present appeal of the assessee company is restored to the file of the A.O with a 'direction' that the same be disposed of in conformity with the judgment of the Hon'ble Supreme Court which is pending adjudication as on date. Thus the aforesaid ground of appeal of the assessee company is disposed of in light of our aforesaid observations. GROUND OF APPEAL 9: 48. The Ld. A.R of the assessee company during the course of hearing of the appeal had therein submitted that in light of the smallness of amount involved as regards the issue under consideration, the same is

55 ITA No.5920/12 not being pressed, as a result whereof the same is dismissed as being not pressed. GROUND OF APPEAL 10: 49. That a perusal of the assessment order reveals recording of a clear direction by the A.O as regards charging of Interest ui's 234B and 234C of the 'Act'. Thus in light of the aforesaid direction of the A.O as already stands embodied in the body of the assessment order r.w the settled position of law that levy of Interest u/s 234A, 234B and 234C is mandatory, automatic and consequential, no infirmity can be attributed to the general observation of the CIT(A) therein directing the A.0 to levy interest at the time of giving appeal effect to his order. Thus this Ground of appeal is dismissed. GROUND OF APPEAL 11: 50. That as the assessee company had at no stage of the hearing of the appeal sought leave to add to, alter and/or amend all or any of the grounds of appeal, therefore this 'Ground of appeal' being general in nature, is thus dismissed. 51. In the result, appeal of the assessee is partly allowed, in terms indicated hereinabove. Order pronounced in the open court on this 16/09/2016. Sd/- Sd/- AMIT SHUKLA R.C.SHARMA न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 16/09/2016 प्र.कु.मभ/pkm, नन.स/ PS

56 ITA No.5920/12 आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai. 3. आमकय आमुक्त / CIT 4. ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. गार्ा पाईर / Guard file. 6. आदेशाि सार/ BY ORDER, सत्मावऩत प्रनत //True Copy//

उप/सहायक पुंजीकार (Asstt. Registrar) आयकर अपीऱीय अधिकरण, भुंफई / ITAT, Mumbai