Income Tax Appellate Tribunal - Mumbai
Dcit Cen Cir 8(3), Mumbai vs Jsw Energy Ltd, Mumbai on 7 November, 2019
1 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 आयकर अपीलीय अिधकरण "के" ायपीठ मुंबई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "K" BENCH, MUMBAI माननीय ी पवन िसं ह, ाियक सद एवं माननीय ी मनोज कुमार अ वाल ,ले खा सद के सम ।
BEFORE HON'BLE SHRI PAWAN SINGH, JM AND HON'BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ I.T.(TP) No.2452/Mum/2017 (िनधा रण वष / Assessment Year: 2011-12) DCIT-8(3) M/s. JSW Energy Ltd.
बनाम/ Mumbai. JSW Center, Bandra Kurla Complex, Vs. Bandra (E), Mumbai-400 051.
थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACJ-8109-N (अ पीलाथ!/Appellant) : ("#थ! / Respondent) & आयकरअ पील सं./ I.T.(TP) No.2316/Mum/2017 (िनधा रण वष / Assessment Year: 2012-13) M/s. JSW Energy Ltd. DCIT-8(3) बनाम/ JSW Center, Bandra Kurla Complex, Mumbai.
Bandra (E), Mumbai-400 051. Vs. थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACJ-8109-N (अ पीलाथ!/Appellant) : ("#थ! / Respondent) Assessee by : S/Shri Rishabh Shah & Rakesh Joshi- Ld. ARs Revenue by : Shri Akhtar H.Ansari- Ld.DR सुनवाई की तारीख/ : 27/09/2019 Date of Hearing घोषणा की तारीख / : 07/11/2019 Date of Pronouncement आदे श / O R D E R Per Manoj Kumar Aggarwal (Accountant Member) 1.1 Aforesaid appeal by revenue for Assessment Year [AY] 2011-12 and by assessee for [AY] 2012-13 contest the orders of lower authorities 2 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 on certain grounds of appeal. Since common issues are involved, we proceed to dispose-off the same by way of this common order for the sake of convenience & brevity. First, we take up revenue's appeal IT (TP) No. 2452/Mum/2017 for AY 2011-12.
Revenue's Appeal IT (TP) No. 2452/Mum/2017 for AY 2011-12 1.2 The revenue contest the order of Ld. Commissioner of Income Tax (Appeals)-56 Mumbai [CIT(A)], Appeal No. CIT(A)-56/ACIT(C)(C)- 46/2016-17/87-J dated 26/12/2016 on following grounds of appeal: -
1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the AO/TPO to work out the ALP of interest by applying only LIBOR instead of LIBOR + credit spread on account of the risk profile of the borrower.
2. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in considering the limits on rate of interest chargeable by the AE to its borrower whereas the comparable transactions are loans given to borrowers in the AE's country, where no restrictions on interest rate is shown.
3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in not appreciating that LIBOR represents the inter bank interest rate, which is of highest credit rating, whereas the loan was given to the AE whose credit profile is certainly lower than borrowers and a risk margin would be certainly applied to LIBOR in arm's length situation.
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO/TPO to adopt only LIBOR rate as ALP and deleting the adjustment u/s.92CA of Rs.4,27,78,520/- made in this regard, relying on the order passed u/s.92CA(3) for A.Y. 2012-13 and A.Y. 2013-14, whereas in the said orders the assessee has offered LIBOR + spread and AO/TPO has also benchmarked the transaction by adopting LIBOR + spread.
5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.76,78,52,562/- made by the AO u/s.14A r.w. Rule 8D ignoring the clarifications issued by the CBDT vide circular No.5 of 2014 dated 11.02.2014 and also erred in directing the Assessing Officer to exclude the addition worked out u/s 14A of the Act r.w. Rule 8D while computing the book profits u/s 115JB of 'the Act.
6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of depreciation claimed on capital expenses to Gremach of Rs.1,01,50,223/- made by the AO relying on the orders passed in the case of the assessee for A.Y. 2008-09 & 2009-10, without appreciating that the said decisions have been challenged before the Hon'ble ITAT."3
M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored."
As evident from grounds of appeal, Ground Nos. 1 to 4 are Transfer Pricing Grounds which are related with determination of Arm's Length Price [ALP] of certain international transactions as carried out by the assessee with its Associated Enterprises [AE]. Ground No. 5 is related with disallowance u/s 14A whereas Ground No. 6 is related with allowance of deprecation on certain capital expenditure incurred by the assessee in earlier years.
2.1 The relevant facts are that the assessee being resident corporate assessee is stated to be engaged in the business of power generation and operation & maintenance of power plants. The company is stated to be working for power solutions in the states of Karnataka, Maharashtra, Rajasthan and Himachal Pardesh. The assessee was assessed for AY 2011-12 u/s 143(3) r.w.s. 144C(3) of the Income Tax Act on 17/04/2014 wherein the income of the assessee was determined at Rs.79.16 Crores under normal provisions after certain adjustments / disallowances as against Nil income filed by the assessee on 29/11/2011 after claiming deduction u/s 80-IA for Rs.886.49 Crores. The Book Profits u/s 115JB were computed at Rs.1166.18 Crores after disallowance u/s 14A for Rs.76.78 Crores as against Rs.1089.39 Crores computed by the assessee in the return of income. The following quantum adjustments / disallowances, as made by Ld. AO in the assessment order but deleted by Learned first appellate authority, are the subject matter of revenue's appeal before us: -
4M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 No. Nature of Addition Amount (Rs.)
1. Transfer Pricing Addition on 427.78 Lacs account of interest on Loan
2. Disallowance u/s 14A 7678.52 Lacs
3. Depreciation on Capital 101.50 Lacs Expenditure First, we deal with corporate tax issues.
Corporate Tax Issues (Ground Nos. 5 & 6) 2.2.1 During assessment proceedings, it transpired that the assessee made suo-moto disallowance u/s 14A for Rs.11.75 Lacs which comprised-off of Salaries of Finance Department & Secretarial Department personnel & Administrative Expenditure etc. The assessee submitted that suo-moto disallowance offered by the assessee was sufficient. However, not satisfied with assessee's workings and keeping in view the magnitude of investments made by the assessee, Ld. AO proceeded to re-compute the same in terms of Rule 8D. The aggregate disallowance as per Rule 8D worked out to be Rs.76.78 Crores which comprised-off of interest disallowance u/r 8D(2)(ii) for Rs.64.15 Crores and indirect expense disallowance u/r 8D(2)(iii) for Rs.12.62 Crores. The same was added to the income of the assessee while computing income under normal provisions as well as while computing Book Profits u/s 115JB.
2.2.2 Before learned first appellate authority, it was contended that learned AO, without appreciating the disallowance offered by assessee, proceeded to apply Rule 8D which could be applied only if Ld. AO was not satisfied with the correctness of claim of the assessee. Another plea raised was the fact that all investments were in subsidiary companies with an intention to facilitate and promote business interest of the 5 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 assessee and not with a view to earning any dividend income. The attention was also drawn to the fact that the assessee did not earn any exempt income during the year and therefore, no disallowance u/s 14A was called for as held by Tribunal in assessee's own case for AY 2010-
11. Reliance was placed on several judicial pronouncements to support the same, which has already been enumerated on page-44 of the appellate order.
2.2.3 The learned first appellate authority, after considering the same, concurred with the submissions that Ld. AO applied Rule 8D automatically without verifying the genuineness of the assessee's claim in respect of expenses incurred in relation to exempt income. The learned first appellate authority also concurred with the submissions that investments made in subsidiary companies were to facilitate and promote business interest of the assessee and therefore, the expenditure incurred on this account, would be deductible business expenses. Lastly, noticing that no exempt income was earned by the assessee during the year under consideration and therefore, no disallowance would be called for as held by the Tribunal in assessee's own case for AY 2010-11. Similar view was taken by first appellate authority in assessee's case for AYs 2008-09 & 2009-10. Keeping in view the aforesaid factors, Ld. AO was directed to delete the disallowance u/s 14A. Aggrieved the revenue is under appeal before us. 2.2.4 The adjustment of the said disallowance u/s 14A, while computing Book Profits u/s 115JB as made by Ld. AO, was deleted by Ld. CIT(A) following the decision of this Tribunal in assessee's own case for AYs 2006-07 & 2010-11. The revenue's appeal against the order for 6 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 AY 2006-07 already stood dismissed by Hon'ble Bombay High Court.
Further, following the decision of Tribunal in AY 2006-07, similar disallowance was deleted by first appellate authority for AYs 2008-09 & 2009-10. Aggrieved the revenue is under appeal before us. 2.3.1 The issue of depreciation on capital expenditure stem from the fact that during earlier AYs 2008-09 & 2009-10, the assessee had claimed to have procured certain services from an entity namely M/s Gremach Infrastructure Equipments & Projects Ltd. for execution of certain projects. It was found in the earlier years that no work was done by the said entity and therefore, the said payments were not for the purpose of assessee's business and the same could not be allowed as deduction to the assessee. Since the assessee had capitalized those amounts in its books of accounts and claimed depreciation against the same, the depreciation claimed for the year under consideration amounting to Rs.101.50 Lacs was disallowed and added back to the income of the assessee.
2.3.2 The Ld. CIT(A) allowed the assessee's depreciation claim by relying upon the decision of its predecessor in assessee's own case for AYs 2008-09 & 2009-10. Aggrieved, the revenue is in further appeal before us.
2.4 Upon hearing rival submissions, it is admitted fact that both the above stated issues are covered in assessee's favor by the earlier orders of the Tribunal. The copies of the orders have been placed on record. The Ld. CIT-DR is unable to controvert the submissions made by Ld.AR. In the light of the said fact, our adjudication to the issues would be as follows.
7M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 2.5 So far as disallowance u/s 14A while computing normal income is concerned, it is undisputed position that no exempt income has been earned by the assessee during this year under consideration. In such a case, no disallowance would be attracted in the hands of the assessee. The aforesaid proposition is duly fortified by catena of judicial pronouncements, few of which could be enumerated in the following manner: -
No. Case Law Judicial Authority Citation 1. CIT Vs. Holcim India P. Ltd. Hon'ble Delhi High Court 111 DTR 158 2. Cheminvest Ltd Vs CIT Hon'ble Delhi High Court 378 ITR 33 3. PCIT Vs IL&FS Energy Dev. Co. Hon'ble Delhi High Court 84 Taxmann.com 186 Ltd. 4. PCIT Vs Empire Package Pvt. Ltd. Hon'ble Punjab & Haryana High Court 81 Taxmann.com 108 5. CIT Vs Lakhani Marketing Inc. Hon'ble Punjab & Haryana High Court 2015 4 ITR-OL 246 6. CIT Vs Hero Cycles Ltd Hon'ble Punjab & Haryana High Court 323 ITR 518 7. CIT Vs. Winsome Textiles Ind. Ltd. Hon'ble Punjab & Haryana High Court 319 ITR 204 8. CIT Vs Corrtech Energy Pvt Ltd Hon'ble Gujarat High Court 223 Taxmann.com 130
The revenue is unable to bring on record any contrary judgment. Further, Tribunal in assessee's own case for AY 2008-09 vide ITA No. 1334/Mum/2015 order dated 02/06/2017 has deleted the additional disallowance as made by Ld. AO and accepted the suo-moto disallowance offered by the assessee. Similar is the view of the Tribunal for AY 2010-11 vide ITA No. 1336/Mum/2015 order dated 22/07/2016 wherein at para-6 wherein it has been held that in the absence of any exempt income, no disallowance u/s 14A is merited. Nothing on record would suggest that the aforesaid ruling is not applicable to the facts of the present case. Therefore, respectfully following the cited judicial pronouncements as well as consistent view of Tribunal in assessee's own case for earlier years, revenue's ground, to that extent, stand dismissed.
8M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 2.6 So far as the adjustment of disallowance u/s 14A while computing Book Profits u/s 115JB is concerned, the same would not survive since we have, in the preceding para, has already deleted the disallowance u/s 14A in view of the fact that the assessee has not earned any exempt dividend income. Nevertheless, we find that this issue also already stood covered in assessee's favor by the order of this Tribunal for AY 2006-07 rendered after following the decision of Tribunal in the case of Essar Teleholdings Ltd. V/s DCIT, ITA No.3850/Mum/2010 dated 27/07/2011. The department's appeal against the order of Tribunal for AY 2006-07 has already been dismissed by Hon'ble Bombay High Court in ITA No.1468 of 2013 dated 30/04/2015. Noticing the same, the Tribunal in AY 2008-09 vide ITA No. 1334/Mum/2015 order dated 02/06/2017 held that no adjustment u/s 115JB would be warranted on account of disallowance u/s 14A. Similar is the view of the Tribunal in AY 2010-11 vide ITA No. 1336/Mum/2015 order dated 22/07/2016. Nothing on record would suggest any change in material facts and nothing has been demonstrated before us to establish that the aforesaid ruling is not applicable to the facts of the present case. Keeping in view the consistent view of the Tribunal, no infirmity could be found in the impugned order on the issue of adjustment of disallowance u/s 14A while computing Book Profits u/s 115JB. Accordingly, ground No. 5, to that extent, stands dismissed.
2.7 So far as the issue of depreciation on capital payment made to M/s Gremach Infrastructure Equipments & Projects Ltd., for execution of certain projects, is concerned, we find that appellate authority provided relief to the assessee by relying upon the order of its predecessor in AYs 9 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 2008-09 & 2009-10. It has been brought to our notice that revenue challenged the decision in AY 2008-09 before this Tribunal vide ITA No. 1334/Mum/2015 order dated 02/06/2017 wherein the issue raised by revenue was dismissed. Nothing on record would suggest that the aforesaid ruling is not applicable to the facts of the present case. Therefore, respectfully following the decision of co-ordinate bench, we confirm the stand of first appellate authority in the impugned order. Accordingly, Ground No. 6 stands dismissed.
Now, we proceed to deal with Transfer Pricing issues. Transfer Pricing Issue (Ground Nos. 1 to 4) 2.8 Certain International Transactions as carried out by the assessee with its Associated Enterprises [AE] and as reported in Form 3CEB were referred to Ld. Transfer Pricing Officer-1(3), Mumbai [TPO] for determination of Arm's Length Price [ALP]. The details of the transactions, which are subject matter of present appeal before us, are as follows: -
No. Nature of Transaction Amount (Rs.) Benchmarking Method used by assessee
1. Interest Received on Loans 13.83 Lacs CUP given to Associated Enterprises Interest Received on Loans given to Associated Enterprises 2.9.1 It transpired that the assessee advanced intra-group unsecured loans of Rs.115.19 Crores [US Dollars 25.8 Million] to one of its AE namely M/s JSW Energy Minerals Mauritius Ltd [in short 'JSWEMML'] and was in receipt of interest of Rs.13.82 Lacs against the same. The said loan was in the nature of unsecured Term Loan having tenure of 3 years. The currency of interest payment as well as principal 10 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 repayment was said to be in US Dollars. The interest rate was stated to be floating interest rate which was to be computed as per [London Inter-
Bank Offered Rates] LIBOR. The loan was advanced in 5 tranches during the year and accordingly, the interest was charged at 3 months' average LIBOR rate ranging between 0.29% to 0.30% for actual number of days for which the loan was used by the AE.
2.9.2 The assessee explained that non-residents who wished to invest in South Africa by means of loan capital needs approval from South African Reserve Bank particularly with reference to intended repayment dates and interest rates. The Reserve Bank will not agree to interest rates in excess of prime rate being charged by non-resident shareholders on loans to the South African subsidiaries but loans from non-residents other than shareholder may be allowed to carry interest at prime +2%. The relevant extracts of the regulations were provided to Learned TPO. It was submitted that intra-group loan advanced to Mauritius Entity was ultimately utilized in South Africa since JSWEMML further advanced the said loan to JSW Energy South Africa Ltd. [JSWENRSAL] and in view of the South African Reserve Bank regulation, the Mauritius entity would not be able to charge any interest more than LIBOR from South African Entity. In the aforesaid background, it was submitted that the intra group transaction was to acquire the asset is South Africa and therefore, transaction was at Arm's Length Price as prescribed in the Indian Regulations. In nutshell, it was submitted that due to regulatory restraints of South Africa, the interest rate could not be more than LIBOR rate for any borrowings from any group companies outside South Africa.
11M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 2.9.3 Without prejudice to the above submissions, the assessee benchmarked the loan transaction on the basis of External Comparable Uncontrolled Price [CUP] Method by comparing the interest rates at which the independent parties with similar credit ratings would be able to obtain intra-group loans. The AE was selected as the tested party and its credit rating was determined to be Baa1 (Moody; equivalent to S&P BBB+) which fall in the lower medium investment grade. Selecting the borrower country to be Mauritius / South Africa / USA, the assessee arrived at mean ALP margin of 243.83 basis points over LIBOR. Applying the spread of 243.83 basis point to LIBOR, the ALP interest was computed to be US Dollars 367598 (INR Equivalent Rs.164.13 Lacs) as against Rs.13.82 Lacs charged by the assessee from its AE. The assessee, in support of LIBOR, also submitted that the loans were advanced from internal accruals and it did not have any foreign borrowings. The weighted average of domestic borrowings was computed as 10.14% as per the workings submitted by the assessee. 2.9.4 However, upon due consideration, the Ld. TPO opined that the regulatory restriction imposed under South African Regulations would not be determinative since the loan was advanced to Mauritius entity and not to South African entity. Further, the regulatory authority of any country would not take into account the transfer pricing provisions to determine the appropriate rates which could be considered as Arm' Length Price for interest payment. Drawing analogy from the decision rendered in Coca-Cola India Inc. 309 ITR 194 that the royalty rates permitted by RBI would not represent ALP of any international transactions, Ld. TPO opined that determination of ALP was to be 12 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 examined from the point of view of Transfer Pricing Provisions under the Income Tax Act.
2.9.5 Proceeding further, finding defects in the assessee's methodology to benchmark the same by External CUP in view of the fact that comparable entities were based in USA whereas the loans was advanced to Mauritius entity and further, the credit rating of Mauritius AE would be much lower than BBB+ as adopted by the assessee for benchmarking, Ld. TPO concluded that the search process was not proper and was required to be rejected. The argument that the loans were advanced from internal accruals was also rejected since the assessee, in the opinion of Ld. TPO, failed to prove nexus between interest free funds available with the assessee vis-à-vis loans advanced to its AE.
2.9.6 The Ld. TPO also came to a conclusion that interest on outbound loan was not to be benchmarked with LIBOR since no company would like to advance loans outside India without security as the interest rate in India would be higher than those prevailing in the developed country. Therefore, the rates prevailing in India would be an appropriate benchmark to determine the ALP of loans advanced by Indian entities. Although the assessee placed reliance on certain judicial pronouncements for the submission that LIBOR would be appropriate benchmark rate, however Ld. TPO opined that certain vital aspects remained to be considered in the cited decisions. Rather reliance was placed on the decision of Tribunal rendered in Aurionpro Solutions Ltd. [ITA No 7872/Mum/2011] for the conclusion that lending should not be below the cost of the borrowings of the assessee and the assessee 13 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 should earn income which it would have earned by advancing loans to third parties.
2.9.7 Finally, Ld. TPO proceeded to work out the mean ALP rate on the basis of above factors. The assessee was taken as the tested party and External CUP method was used for benchmarking the aforesaid transaction. External CUP, as per Ld. TPO, could be the Bank Prime Lending Rate [PLR], Corporate Bond Rates or the cost of borrowings in the domestic market. Applying the average spread of 2.89% to assessee's cost of borrowing i.e. 10.14%, cost of domestic borrowings was worked out to be 13.03%. Relying upon safe harbor rules, Prime Lending Rate was worked out to be 10.50%, which was nothing but 3% spread over State Bank of India base rate of 7.5%. The ALP based on Corporate Bond Rates was worked out to be 15%. Finally, the most conservative rate i.e. 10.5%, out of three rates, was adopted to benchmark the stated transactions. The ALP interest, thus, worked out to be Rs.441.61 Lacs as per computations made in para 5.8 of learned TPO's order. Adjusting the interest of Rs.13.82 Lacs as charged by the assessee from its AE, the net TP adjustment, thus proposed, worked out to be Rs.427.78 Lacs.
2.9.8. The aforesaid TP adjustment was incorporated in assessment order dated 17/04/2014. The assessee submitted that it did not want to pursue the matter before Ld. Dispute Resolution Panel and expressed its intention to contest the same through normal appellate channel of Ld. CIT(A). Accordingly, the assessment order was passed by Ld. AO on 17/04/2014 which was subjected to further appeal before Ld. first appellate authority.
14M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 2.10 Before Ld. first appellate authority, the assessee, inter-alia, drew attention to the fact that similar benchmarking, in assessee's own case for immediately succeeding year i.e. AY 2012-13, has been done by Ld. TPO himself in its subsequent order dated 29/01/2016 adopting LIBOR rates as the base rates and ruled out the application of Corporate Bond Rate, SBI PLR Rate or Cost of Borrowing rate etc. Reliance was placed, inter-alia, on the decision of Hon'ble Delhi High Court rendered in CIT V/s Cotton Naturals (I) Pvt. Ltd. [55 Taxmann.com 523] to support the submissions that LIBOR would be appropriate benchmarking rate on such outbound loan transactions. The list of other decisions which has also affirmed the said view, as relied upon by assessee during appellate proceedings, has also been tabulated on page nos. 18-19 of the appellate order. Concurring with assessee's submissions, Ld. CIT(A) allowed assessee's ground by observing as under: -
I have considered the submissions of the assessee, the views of the AO in the assessment order and the material on record.
It is apparent from the above that the end use of intra-group loan was to acquire the asset company in South Africa and it is clearly evident that the JSWEMML was not able to charge the interest more than LIBOR from JSW South Africa Ltd. (JSWENRSAL), which had a direct impact on the interest repayment capability of JSWEMML to JSWEL of not more than LIBOR.
Further, the assessee submitted that with respect to cross border transactions, the interest rate is determined by using foreign currency rate (LIBOR/EURIBOR) and the same has been upheld as an appropriate benchmarking rate in variolous judicial decisions which have been mentioned above.
Thus, considering the above view taken by the appellant and the view taken by the TPO in appellant's own case for later years i.e. AY 12-13 & AY 13-14, the transaction of interest on loan has been benchmarked using the LIBOR Rate and also it is a well settled law that with respect to the cross border transactions, LIBOR has been considered as an appropriate benchmarking and thus, this ground of appeal raised by the assessee is allowed.
Aggrieved as aforesaid, the revenue is in further appeal before us.15
M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 2.11 The Ld. CIT-DR supported the reasoning of Ld. AO / Ld. TPO as enumerated by us in the preceding paragraphs whereas Ld. AR drew attention to the fact that the issue of benchmarking the transactions using LIBOR stood covered in assessee's favor by catena of judicial pronouncements as enumerated in the impugned order. 2.12 We have carefully considered the rival submissions and perused relevant material on record. The undisputed fact that emerges are that the assessee has advanced certain intra-group loans of US Dollar 25.8 million in different tranches to its AE situated in Mauritius.
The assessee has charged interest against the same on LIBOR which is as per the contractual terms. Another undisputed fact is that as per the terms of the contract, the currency of principal as well as interest repayment was denominated in US Dollars. The Ld. TPO, disregarding the assessee's methodology, opined that the rates prevailing in India would be an appropriate benchmark to determine the ALP of the same, disregarding the binding judicial pronouncements holding the field for outbound investments. The learned first appellate authority accepted the assessee's submissions, inter-alia, by observing that the benchmarking in succeeding AYs i.e. 2012-13 & 2013-14 has been adopted by Ld. TPO on the basis of LIBOR+some spread-over only, which goes on to show the inconsistency in the stand of Ld. TPO while carrying out the benchmarking analysis on similar set of facts and circumstances. 2.13 So far as the application of benchmarking rate is concerned, we find that the catena of judicial pronouncements as cited in the impugned order supports the benchmarking of outbound loans on the basis of LIBOR. The Hon'ble Delhi High Court in in CIT V/s Cotton 16 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 Naturals (I) Pvt. Ltd. [55 Taxmann.com 523] while confirming the said view, has observed that there could not be different parameters to benchmark outbound and inbound loans. The Hon'ble Bombay High Court in CIT V/s Tata Autocomp Systems Ltd. [56 Taxmann.com 206] has concluded the issue as under: -
7. We find that the impugned order of the Tribunal inter alia has followed the decisions of the Bombay Bench of the Tribunal in cases of VVF Ltd. v. Dy. CIT [IT Appeal No. 673 (Mum.) of 2006] and Dy. CIT v. Tech Mahindra Ltd. [2011] 12 taxmann.com 132/46 SOT 141 (Mum.) (URO) to reach the conclusion that ALP in the case of loans advanced to Associate Enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. Mr. Suresh Kumar the learned counsel for the revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra) on the above issue.
No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). The Revenue not having filed any appeal, has in fact accepted the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra).
8. In view of the above we see no reason to entertain the present appeal as in similar matters the Revenue has accepted the view of the Tribunal which has been relied upon by the impugned order. Accordingly, we see no reason to entertain the proposed questions of law.
A perusal of the above case laws would reveal that the Hon'ble Courts has confirmed the view that the ALP rate of interest in case of loans advanced to Associate Enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received / consumed. Similar is the ratio of several other judgments rendered by various benches of Tribunal which have already been enumerated in the impugned order. Therefore, the conclusion to the extent that the loan to AE was to be benchmarked on the basis of LIBOR would not require any interference on our part.
2.14 Now the only question that survives for our consideration is the determination of ALP rate keeping in view the facts and 17 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 circumstances of the case. The Ld. first appellate authority has confirmed the determination of ALP on the basis of LIBOR only without any spread-over. However, the said rate, in our opinion, represent inter- bank rates which are applicable in case of entities having highest credit rating. The same is also fortified by the fact that the assessee, itself, has assigned a rating of Baa1 / BBB+ to its AE while benchmarking the transactions. The said rating represents 'lower medium investment grade rating. Therefore, the determination of ALP merely on the basis of LIBOR, in our considered opinion, would not be justified. During the course of proceedings before Ld. TPO, the assessee had arrived at mean spread of 243.83 basis points over LIBOR which is evident from page nos. 5-6 of Ld. TPO's order. The computation of the same has nowhere been disputed by the revenue. Applying LIBOR + spread-over, ALP interest has been worked out to be Rs.1,64,13,241/-. We are of the considered opinion that this spread over as computed by the assessee was undisputed, quite fair and reasonable and the same was to be accepted. Accordingly, we confirm the ALP rate of LIBOR + 2.4383% as computed by the assessee in the alternative submissions made before Ld. TPO. The impugned order stand modified to that extent. The Ld. TPO / Ld. AO is directed to recompute the income of the assessee in terms of our direction. Accordingly, Ground Nos. 1 & 2 stands dismissed. Ground No.3 stand allowed. Ground No. 4 stands partly allowed. 2.15 The appeal of the revenue stands partly allowed in terms of our above order.
18M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 Assessee's Appeal for AY 2012-13; IT(TP) No. 2316/Mum/2017 3.1 The assessment for this year was framed on 30/01/2017 u/s 143(3) r.w.s. 144C(13) pursuant to the directions of Ld. Dispute Resolution Panel-1, Mumbai [DRP] u/s 144C(5) dated 23/12/2016. The final assessment order was passed by Ld. Deputy Commissioner of Income Tax-Central Circle 8(3), Mumbai [AO]. Aggrieved by certain additions / adjustments in the final assessment order, the assessee is before us with following grounds of appeal: -
1) In the facts and circumstances of the case and in law, the Hon'ble DRP erred in confirming the action of Learned Assessing Officer in making an upward adjustment of Rs. 12,22,63,704/- on account of interest receivable on loans to its associated enterprises.
2) In the facts and circumstances of the case and in law, the Hon'ble DRP erred in confirming the action of Learned Assessing Officer in making an adjustment of Rs. 3,41,26,622/- on account of reimbursement of expenses.
3) In the facts and circumstances of the case and in law, the Hon'ble DRP erred in confirming the action of Learned Assessing Officer in making a disallowance of deduction u/s. 801A of Rs. 1,53,64,35,918/- in respect of its SBU II.
4) WITHOUT PREJUDICE TO GROUND 3 above, in the facts and circumstances of the case and in law, the Hon'ble DRP erred in confirming the action of Learned Assessing Officer in making the said disallowance of deduction u/s. 80IA for SBU II which has been allowed since AY 2010-11 and no new facts or law has emerged since then.
5) WITHOUT PREJUDICE TO GROUND 3 & 4 above, the Hon'ble DRP erred in ignoring the fact that principle of consistency needs to be followed while, deciding on the allowance of such deduction.
6) In the facts and circumstances of the case and in law, the Hon'ble DRP erred in confirming the action of Learned Assessing Officer in making a disallowance of Rs. 10,33,95,630/- u/s. 14A r.w. Rule 8D of the Income Tax Act, 1961.
7) WITHOUT PREJUDICE TO GROUND 6 above, in the facts and circumstances of the case and in law the Hon'ble DRP erred in confirming the action of Learned Assessing Officer in making disallowance under section 14A without appreciating the fact that the appellant had not earned any exempt income during the year under consideration.
8) WITHOUT PREJUDICE TO THE GROUNDS 6 & 7 above, in the facts and circumstances of the case, Learned Assessing Officer erred in not allowing deduction u/s 80IA on the enhanced total income on account of disallowance u/s 14A of the Act.
9) In the facts and circumstances of the case and in law, the Hon'ble DRP erred in confirming the action of Learned Assessing Officer in adding the disallowance as worked out under section 14A r. w Rule 8D of the Income Tax Act,1961 while computing the book profits under section 115JB of the Act.
10) WITHOUT PREJUDICE TO THE GROUND 9 ABOVE, in the facts and circumstances of the case and in law the Hon'ble DRP erred in confirming the action of Learned Assessing Officer in making addition, as computed u/s 14A, while 19 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 computing book profit for the purpose of MAT u/s 115JB, without appreciating the fact that the appellant had not earned any exempt income, during the year under consideration, which was credited to its Profit & Loss account.
11) In the facts of the case and in law, the Learned Assessing Officer erred in charging interest u/s 234C on the assessed income.
12) In the facts of the case the Learned Assessing Officer erred in not granting credit of TDS of Rs. 534630/- to the appellant.
As evident from grounds of appeal, Ground Nos. 1 & 2 are related with Transfer Pricing Adjustments. Ground Nos. 3 to 5 are related with issue of deduction u/s 80-IA. Ground Nos. 6 to 10 are related with disallowance u/s 14A while computing income under normal provisions as well as while computing book profits u/s 115JB. Ground No.11 contest levy of interest u/s 234C. The same being mandatory and consequential in nature, would not require any interference on our part. In Ground No.12, the assessee is aggrieved by non-grant of TDS Credit of Rs.5,34,630/-. Ground No.13 is general in nature. 3.2 As evident from final assessment order, the income of the assessee has finally has been determined at Rs.112.47 Crores under normal provisions after certain adjustments / disallowances as against Nil income filed by the assessee on 29/11/2012 after claiming deduction u/s 80-IA for Rs.86.53 Crores. The Book Profits u/s 115JB were computed at Rs.305.25 Crores after disallowance u/s 14A for Rs.10.47 Crores as against Rs.294.78 Crores computed by the assessee in the return of income. The quantification of adjustments / disallowances, as made by Ld. AO in the assessment order and which are the subject matter of assessee's appeal, are as follows: -
No. Nature of Addition Amount (Rs.)
1. Transfer Pricing Adjustments on 1563.90 Lacs
account of interest on Loan &
reimbursement of expenses
2. Disallowance u/s 14A 1033.95 Lacs
20
M/s JSW Energy Limited
Assessment Years: 2011-12 & 2012-13
3. Denial of Deduction u/s 80-IA 15364.35 Lacs
The assessee is also aggrieved by short credit of TDS for Rs.5.34 Lacs. First, we take up corporate tax issues.
Corporate Tax Issues (Ground Nos. 3 to 12) 3.3.1 Disallowance u/s 14A (Ground Nos. 6 to 10) The disallowance u/s 14A stem from similar factual matrix. The assessee had offered suo-moto disallowance of Rs.13.26 Lacs as tabulated in para 5.1 of the quantum assessment order. However, disregarding the same, applying Rule 8D, Ld. AO worked out indirect expense disallowance u/r 8D(2)(iii) for Rs.1047.22 Lacs, being 0.5% of average investments and added the differential amount (net of suo moto disallowance of Rs.13.26 Lacs offered by the assessee) of Rs.1033.95 Lacs to the income of the assessee. The amount of Rs.1047.22 Lacs was also added while computing Book Profits u/s 115JB since the assessee has not added the suo-moto disallowance while computing the same. The Learned DRP, inter-alia, relying upon CBDT circular No. 05/2014 dated 11/02/2014, held that disallowance would be called for even if no exempt income was earned by the assessee during the year. Aggrieved, the assessee is under appeal before us. 3.3.2 The undisputed position, as in AY 2011-12, that emerges is the fact that no exempt income has been earned by the assessee during the year under consideration. Facts being pari-materia the same, our observations and conclusions as given for AY 2011-12 in revenue's appeal, shall mutatis-mutandis apply to this year also. Accordingly, the additional disallowance of Rs.1033.95 Lacs as made by Ld. AO in the final assessment order while computing income under normal provisions 21 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 stand deleted. Also, the adjustment of Rs.1047.22 Lacs as made by Ld. AO, while computing Book Profits u/s 115JB, stand deleted. Accordingly, Ground Nos. 6,7,9 & 10 stands allowed while Ground No. 8 becomes infructuous.
Deduction u/s 80-IA (Ground Nos. 3 to 5) 3.4.1 Upon perusal of assessee's computation of income, it transpired that the assessee claimed 100% deduction u/s 80-IA in respect of two units which were stated to be involved in the generation of power. One unit being SBU-1 (2x130 MW) claimed deduction of Rs.41.98 Crores whereas another unit i.e. SBU-2 (2x300 MW) claimed deduction of Rs.153.64 Crores during the year under consideration. The dispute before us is only with respect to unit SBU-2. Upon perusal of Annual Accounts for financial year 2008-09, it transpired that aforesaid unit SBU-2 (2x300 MW) being M/s JSW (Vijaynagar) Ltd. (hereinafter referred to as JSWEVL) was, in fact, merged with the assessee under a scheme of amalgamation that became effective from 11/12/2008. 3.4.2 Noticing that in view of the insertion of new sub-section (12A) by The Finance Act, 2007 with effect from 01/04/2008, the provisions of Section 80-IA(12) would not apply to any undertaking or enterprise which is transferred in a scheme of amalgamation or demerger after 31/03/2007, Ld. AO opined that deduction u/s 80-IA in respect of unit SBU-2 belonging to merged entity i.e. M/s JSWEVL would not be available to the assessee and accordingly, the said fact was confronted to the assessee.
3.4.3 The assessee, vide submissions dated 21/03/2016, inter-alia, submitted that unit SBU-2 comprised-off of 2 power generating 22 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 undertakings of 300 MW each. This was the third year of claiming the said deduction against this unit and this deduction was allowed to the assessee in earlier two years after thorough examination in scrutiny proceedings u/s 153A after calling for extensive details / documents, explanations regarding eligibility and quantum of deduction and therefore, following rule of consistency, the said deduction was available to the assessee. Reliance was placed, inter-alia, on the decision of Hon'ble Bombay High Court rendered in CIT V/s Gopal Purohit [336 ITR 287] and Afroni Commercial Ltd. V/s CIT [WP No.137 of 2014 dated 11/02/2014] for the said submissions. In the above background, it was submitted that once the eligibility regarding allowability of deduction u/s 80-IA in respect of aforesaid power generating unit was claimed and allowed in earlier two consecutive years, facts and law remaining the same, there was no reason to revisit the same on some fictitious interpretation of law which was not supported by any judicial authority. The attention was further drawn to the fact that merger, as per the order of Hon'ble Bombay High Court was effective from 01/04/2008. At that point of time, JSWEVL was in the process of setting up 2x300 MW Power Plants at Vijaynagar. It was the assessee who, after merger, finally set up and commenced the Unit SBU-2 by installing new Plant & Machinery which were not used earlier for any purposes. The attention was further drawn to the fact that one of the said undertaking of erstwhile JSWEVL got commissioning approval from Government of Karnataka, Electrical Inspectorate (CEIG) vide approval letter dated 18/07/2009 and the other undertaking got such approval only on 19/09/2009. Therefore, without having such commissioning approval from CEIG, the power 23 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 plants of erstwhile JSWEVL would not have commenced power generation. The attention was also drawn to the fact that although the assessee was eligible to claim deduction to the extent of Rs. 41.98 Crores & Rs.153.64 Crores against SBU-1 & SBU-2 respectively, however, the assessee could claim deduction only to the extent of Rs.86.53 Crores due to inadequacy of profits in the year under consideration. It was pleaded that as per the statutory provisions, the assessee was eligible to claim the said deduction. The time frame to claim the deduction starts from the year in which the eligible undertaking begins to generate power from the eligible power generating undertaking and the same would be available till 15 years from such commencement. Further, the starting point of deduction to be claimed would be at the option of the assessee and it has to be claimed for 10 consecutive years out of 15 years from the year in which the enterprise / assessee commences the operation of eligible business. It was further submitted that sub-section (12A) denies deduction only to those entities which were already entitled to claim the deduction and are transferred by way of amalgamation or demerger during the prescribed period which would be nothing but the block period of ten consecutive years in which the deduction is claimed. Further, the power generating undertaking would be entitled to claim deduction only after it begins generation of power and not prior to that. Since both assessee as well as the merged entity i.e. JSWEVL were not entitled to claim deduction on the effective date of amalgamation i.e. 01/04/2008, the aforesaid provisions would not be applicable to the assessee.
24M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 3.4.4 However, these submissions could not find favor with Ld. AO who denied the deduction of Rs.153.64 Crores in respect of SBU-2 in the draft assessment order.
3.4.5 The Ld. DRP confirmed the stand of Ld. AO by observing as under: -
5.3 We have considered the facts of the case and the submissions made by the assessee. There is no dispute to the fact that the merged unit in question was initially set up by JSWEVL. It was only towards the fag end of setting up of the unit that it got merged with the assessee company. All the initial and substantial investment in the unit was made by JSWEVL. Hence, in view of the Circular No. 3/2008 dated 12.03.2008 (issued as explanatory notes to the provisions of Finance Act, 2007) tax benefits u/s 80IA of the IT Act, 1961 would not be available to the undertaking which has undergone amalgamation / demerger after 31.03.2007. The circular has stated that the main intention in providing benefit u/s 80IA had been to provide incentive to those who had made initial investment and taken entrepreneurial risk. Hence, it was felt that there was no justification for passing on the benefit for someone who had not taken these risks and had only acquired the eligible undertaking much later when these risks had reduced. Hence, a new sub-
section (12A) has been inserted in sub-section 80IA so as to provide that the provisions of sub-section (12) shall not apply to any undertaking or enterprise which is transferred in a scheme of amalgamation or demerger after 31.03.2007. Thus, if an undertaking or an enterprise is transferred in a scheme of amalgamation or demerger after 31.03.2007, the benefit of deduction u/s 80IA will not be available to the amalgamated or demerged undertaking or enterprise. There is no dispute to the fact that the demerger of the new unit is after 31.03.2007. There is also no dispute to the fact that the initial investment and entrepreneurial risk was taken by JSWEVL. The assessee has also not contested the fact that this unit was an eligible unit when the demerger took place. Its only objection is that the unit was not entitled to the deduction at the time when the demerger took place and, hence, it will not be impacted by sub-section (12A) of Section 80IA of the I.T. Act, 1961. We do not agree to such contention of the assessee. The Board's Circular categorically shows that the circular is applicable to the eligible undertaking as has been highlighted in italics while discussing the circular of the Board. We also note that the circular at no place states that the provisions of sub-section (12A) apply to only the "entitled" undertakings and not to "eligible" undertakings, whether these are entitled or not. The circular very categorically states that if an undertaking or enterprise is transferred in a scheme of amalgamation or demerger after 31.03.2007, the benefit of deduction u/s 80IA will not be available to the amalgamated or demerged undertaking or enterprise.
5.4 The AO us bound by the Circular of the Board. Hence, since in this case, the demerger has taken place after 31.03.2007, the provisions of sub-section (12) of the Section 80IA will not apply. Deduction claimed by the assessee u/s 80IA, would, therefore, not available to it. The A.O. has rightly denied the benefits of deduction 25 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 claimed by the assessee u/s 80IA of the IT Act, 1961. His action is upheld. The objection filed by the assessee is dismissed.
Aggrieved, the assessee is in further appeal before us. 3.4.6 The Ld. AR, putting forth factual matrix before us, submitted that the merged entity i.e. JSWEVL, a subsidiary of assessee, was in the process of setting up 2x300 MW powerplants at Vijaynagar at an estimated cost of Rs.1,860 Crores. As on 31/03/2008, these plants were under construction stage with Capital Work-in-Progress of Rs.1129.16 Crores. Under a scheme of merger arrangement as approved by Hon'ble Bombay High Court, JSWEVL got merged with the assessee w.e.f. 01/04/2008. Post-merger, the development of power plants was undertaken by the assessee and a further amount of Rs.686.58 Crores was expanded by the assessee to set up the power plant completely. These two power plants got commissioning approval from Government of Karnataka (CEIG) vide its letters dated 18/07/2009 & 19/09/2009 which were issued in the name of the assessee company only. The company vide its letter dated 23/11/2009 intimated to Chief Engineer, Operation & performance division, Central Electricity Authority regarding commissioning of commercial operation of Unit-1 (1x300 MW) on 01/07/2009 and that of Unit-2 (1x300MW) on 01/09/2009, the copies of which were duly furnished to the lower authorities. The said fact of commencement of power plant at SBU-II stood fortified by the copy of report for April,2010 issued by Government of India, Ministry of Power. In the light of the said factual matrix, it would be apparent that there was no existing eligible undertaking on the date of merger as referred to in Section 80-IA(12) as well as Section 80-IA(12A). In the said background, 26 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 it has been submitted that Circular No.3/2008 explaining the amendment of Section 80-IA(12A) would have no application since the said circular postulates existence of an undertaking which has started claiming deduction u/s 80-IA, which is not the case here since neither the assessee nor the merged entity was an eligible undertaking entitled to claim the said deduction. Since the undertaking i.e. power plants were set up only during July, 2009 and September, 2009 and came into existence after that period, there was no eligible unit at the time of merger and therefore, the assessee was entitled to claim the deduction. 3.4.7 The Ld.AR has further pleaded that the deduction u/s 80-IA has been claimed by the assessee for the first time from AY 2010-11 after commissioning of the plant and the same was perfectly in order. The attention has been drawn to the fact that the merged entity was a subsidiary of assessee company coupled with the fact that major investment as well as entrepreneurial risk was borne by the assessee company.
3.4.8 The Ld. AR further pleaded that deduction u/s 80IA was claimed against unit SBU-II for the first time starting from AY 2010-11 and this was the third year of claiming the said deduction. The assessee's eligibility as well as quantum of deduction was examined thoroughly by Ld. AO during scrutiny assessment proceedings of earlier years and the claim was allowed after due verification and after calling for extensive details, documents, explanations etc. Therefore, if the deduction was allowed in initial assessment year, there being no change in facts, the revenue was debarred from denying the same in subsequent years as per the judgment of Hon'ble Delhi High Court in CIT V/s Tata 27 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 Communications internet Services Ltd. [17 Taxmann.com 241] which has subsequently been followed in CIT V/s International Tractors Ltd. [84 Taxmann.com 132 20/07/2017] & also in Pr.CIT V/s Macquarie Global Services Ltd. [102 Tamxann.com 272 04/12/2018]. 3.4.9 The Ld. AR also drew our attention to the fact that revisional proceedings u/s 263 were invoked, on the said issue, for AY 2011-12. However, finding merits, the said proceedings were quashed by the Tribunal vide ITA No. 3659/Mum/2017 order dated 15/12/2017. A copy of the order has been placed on record.
In the above background, Ld. AR advanced arguments in support of the submission the assessee was very much entitled to claim deduction u/s 80-IA.
3.4.10 The Learned CIT-DR, on the other hand, placed reliance on the stand of lower authorities. The fact that the issue under consideration, on merits, was already considered by the Tribunal in the cited order, remained undisputed.
3.4.11 We have carefully heard the rival submissions and perused relevant material on record. Upon due consideration, we find that the facts enumerated by is in the preceding paragraphs are undisputed facts. The erstwhile entity i.e. JSWEVL got merged with assessee company under a merger scheme as approved by Hon'ble Bombay High Court w.e.f. 01/04/2008. It is also undisputed fact that the assessee was major shareholder (to the extent of 74%) in the merged entity and the said entity was assessee's subsidiary. Further, out of total estimated cost of Rs.1,860 Crores, the assessee had expanded more than 35% of the total cost, which is evident from the fact that, on the date of merger, 28 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 Capital WIP stood at Rs.1129.16 Crores which would strengthen the fact that the assessee not only made major investment but also undertook entrepreneurial risk.
3.4.12 Undisputedly, the units under consideration were at the construction stage only when the merger took place which is evident from fact that the approval to both the units was granted by Government of Karnataka (CEIG) only during the month of July, 2009 and September, 2009. This is further fortified by the fact that, upon completion of plant, the assessee started claiming deduction against the same, for the first time, starting from AY 2010-11. This is also supported by the fact that substantial investments were made by the assessee post-merger. The aforesaid facts would lead us to conclude that, at the time of merger, neither assessee nor the merged entity was an eligible undertaking within the meaning of Section 80-IA and hence, the circular as relied upon by lower authorities would have no application under the given circumstances and reliance upon the same by revenue, would be misplaced. The circular No. 3/2008, in our considered opinion, postulates existence of an undertaking which has already started claiming deduction u/s 80-IA, which is not the case here since neither the assessee nor the merged entity, on the date of merger, was an eligible undertaking entitled to claim the deduction with respect to unit SBU-II. Rather, it was the assessee, who upon commissioning of the plant, became eligible to claim the stated deduction for the first time starting from AY 2010-11. Accordingly, we find substantial force in the arguments advanced before us by Ld. AR, in this regard.
29M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 3.4.13 Another aspect of issue would be that the impugned year is the third year of claiming aforesaid deduction by the assessee u/s 80-IA against SBU-II. The deduction was claimed for the first time during AY 2010-11 which was allowed after thorough examination of the claim after considering various details, documents, explanations furnished by the assessee. From assessment order for AY 2011-12, it is quite evident that the said claim was initially allowed to the assessee in that year also. Accepting the objections raised by Comptroller & Auditor General (CAG), learned CIT, invoked revisional jurisdiction u/s 263 for AY 2011-12, the validity of which came up under challenge before the coordinate bench of this Tribunal vide ITA No. 3659/Mum/2017 order dated 15/12/2017. One of the issues to trigger jurisdiction u/s 263 was irregular allowance of deduction u/s 80IA with respect to Power Plant Unit SBU-II. The co- ordinate bench, after considering detailed submissions, on similar lines and after relying upon the decision of Hon'ble Delhi High Court rendered in CIT V/s Tata Communications internet Services Ltd. [17 Taxmann.com 241], finally held as under: -
51. Therefore, as could be seen from the above decision the eligibility of a claim for deduction u/s. 80IA and the bar if any is to be considered only in the first year of claim for deduction made under u/s. 80IA of the Act. It was held that since the assessee had been granted claim of deduction right from the Assessment Year 2004-05 u/s. 80IA of the Act consequently it cannot be denied deduction for the subsequent years. In as much as restraint of section 80IA(3) cannot be considered for every year of claim of deduction but can be considered only in the year of formation of business.
In the case on hand since the Assessing Officer examined the issue thoroughly, called for various details in the initial Assessment Year being Assessment Year 2010-11 and allowed the claim of the assessee even during the current Assessment Year i.e. subsequent to 2010-11, the same cannot be revised unless there is change in facts or change in law.
30M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 3.4.14 Keeping in view the aforesaid facts and circumstances and following the ratio laid down by coordinate bench of the Tribunal in cited decision in assessee's own case, we hold that the assessee was entitled to claim deduction u/s 80-IA with respect to unit SBU-II. Accordingly, we direct lower authorities to grant the same to the assessee and recompute its income, as per law. Ground Nos. 3 to 5 stands allowed. 3.5 TDS Credit (Ground No.12) The assessee is aggrieved by short credit of TDS for Rs.5,34,630/- and certain directions are sought, in this regard, by Ld. AR from us. Keeping in view the same, it would suffice on our part to issue directions to Ld. AO to verify the TDS credit claim of the assessee and grant the due credit, as per law. This ground stand allowed for statistical purposes. Now, we deal with Transfer pricing issues raised in the appeal. Transfer Pricing Issue (Ground Nos. 1 & 2) 3.6 The international transactions as carried out by the assessee during the year under consideration, were referred to Ld. TPO for determination of Arm's Length Price [ALP]. The assessee had reported following transactions in Form No. 3CEB which were subjected to determination of Arm's Length Price before Ld. TPO: -
No. Nature of Transaction Amount (Rs.) Benchmarking Method used by assessee
1. Interest Received on Loans 81.16 Lacs CUP given to Associated Enterprises
2. Recovery of Expenses (reversal) 341.27 Lacs TNMM Interest Received on Loans given to Associated Enterprises 3.7.1 Apart from existing loan of Rs.115.19 Crores as advanced by the assessee in AY 2011-12 pursuant to loan agreement dated 26/07/2010, the assessee has advanced a further loan under the same 31 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 agreement for US Dollars 13.82 Million [INR 62.98 Crores approx.] in 4 tranches during the year under consideration. The assessee, in similar manner, as per contractual terms, had charged interest against the same on the basis of LIBOR which ranged between 0.25% to 0.47%. The total interest thus determined, on aggregate loans advanced in AY 2011-12 as well as in AY 2012-13, worked out to be USD 156572 (INR Rs.81.15 Lacs). The working of the same has been tabulated on pages nos. 3 & 4 of learned TPO's order. During proceedings before Ld. TPO, the assessee, without prejudice, benchmarked the same in similar fashion as done in AY 2011-12 and worked out spread of 243.88 bps & 163.8 bps on loans advanced in AYs 2011-12 & 2012-13 respectively which gave ALP interest of Rs.491.07 Lacs. After adjusting the interest of Rs.81.15 Lacs already offered by the assessee, net TP adjustment was worked out to be Rs.409.91 Lacs.
3.7.2 The Ld. TPO held that Bloomberg database rates were to be preferred over PLR based rates since the former provide LIBOR rate based on geographical location of both the lender and the borrower. Using the said database, learned TPO arrived at following rates: -
No. Assessment Year Floating Rate of Interest Fixed Rate of Interest
1. 2011-12 LIBOR+332 bps 6.54%
2. 2012-13 LIBOR+575 bps 8.34% Since the assessee had charged interest but the same was not received from its AE, it was assumed that the loan was given at zero % fixed interest rate. Accordingly, applying fixed rates of 6.54% & 8.34% for AYs 2011-12 & 2012-13 respectively, the TP adjustment, thus, worked out to be Rs.1222.63 Lacs after adjusting interest of Rs.81.15 Lacs reported by the assessee in Form No. 3CEB.32
M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 3.7.3 Before Ld. DRP, the assessee pointed out to incorrect parameters adopted by Ld. TPO while working out fixed rate of interest. The attention was drawn, inter-alia, to the fact that interest repayment was considered to be on annual basis as against the fact that interest rates were to be reset quarterly. Further, the tenure of loan was taken to be 6 years as against 3 years of the tested transaction. It was submitted that the terms and conditions of the commercial business relationship as agreed and undertaken between the domestic AE and foreign AE could not be rewritten or obliterated and reclassification or substitution of the transaction was not permitted. However, not satisfied, Ld. DRP confirmed the stand of Ld. TPO, against which the assessee is in further appeal before us. Both the representatives have advanced arguments to support their respective stand.
3.7.4 Upon careful consideration, we find that the facts of this year are pari-materia with the facts of AY 2011-12. The loan transactions arise out of same contractual terms and conditions. We also find force in the submissions that learned TPO proceeded on the basis of wrong parameters as pointed out by the assessee before lower authorities, completely disregarding the contractual terms. It is settled position that the contractual terms agreed to between the parties could not be rewritten or obliterated and reclassification or substitution of the transaction was not permitted. Nothing on record rebut the facts that as per the terms of the contract, the borrower had agreed to pay the lender interest at rates equal to 3 months' LIBOR prevailing on the date of each interest payment up to 31/03/2012. The said fact has also been noted by Ld. DRP at para 2.29 of its directions. The only allegation is that the 33 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 original agreement dated 26/07/2010 was not produced before Ld. DRP. However, the same would not make much difference since we have already confirmed the application of floating rates of interest for AY 2011-12. Since in AY 2011-12, we have upheld the working made by assessee, taking the same view, we upheld the workings made by the assessee during proceedings before learned TPO. Accordingly, we direct lower authorities to accept alternative TP adjustment of Rs.491.07 Lacs as worked out by the assessee during proceedings before Ld. TPO based on LIBOR + spread of 243.88 bps / 163.8 bps for AYs 2011-12 & 2012-13 respectively. The interest already charged by the assessee would be adjusted from the same and the net amount shall be the amount of TP adjustment for the impugned AY. Ground No.1 stand partly allowed.
Recovery of Expenses 3.8.1 The second TP adjustment stem from the fact that during FY 2010-11, the assessee was considering acquisition of an overseas third- party entity namely CIC Energy. For the said purpose, the assessee incorporated its overseas subsidiary i.e. JSW Energy Natural Resources (BVI) Ltd. [JENRL] which was to acquire CIC Energy. During FY 2010- 11, the assessee engaged various third-party consultants / experts to perform legal, financial and operations level due diligence in respect of proposed acquisition. Such third-party consultants / experts then raised bill directly on the assessee for work undertaken by them. During FY 2010-11, the assessee had passed book entries proposing to recover such cost from JENRL. However, the acquisition of CIC energy could not materialize and therefore, the assessee reversed those entries in the 34 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 books during the year. Before learned TPO, the assessee explained the nature of transactions and submitted that these expenses were incurred on account of shareholder activity. However, learned TPO formed an opinion that the assessee failed to explain how the liability of the AE shifted shoulders. Since the assessee had not benchmarked the stated transactions, invoking the provisions of Section 92C, the ALP of the transactions was determined as Nil. Accordingly, an amount of Rs.341.26 Lacs was proposed as TP adjustment, on this count. 3.8.2 The learned DRP concluded that the said expenditure was not in the course of the business of the assessee and the expenditure was in respect of business of a company which had a separate legal entity. Therefore, the expenditure could not be termed as an expenditure of the assessee. Accordingly, the said adjustment was confirmed. In the alternative, Ld. DRP opined that the said amount was not allowable even u/s 37(1) since the expenditure belonged to assessee's AE and it was to be capitalized in the books of accounts. Aggrieved, the assessee is in further appeal before us. Both the representatives have advanced arguments to support their respective view-points. 3.8.3 We have carefully considered the rival submissions. The undisputed fact that emerges are that the said expenditure was incurred by the assessee in earlier AY 2011-12 and the payment was made to third party consultants / experts. No payment was made directly to its AE. The said transactions were already benchmarked in AY 2011-12 using CUP method. It is also evident from the order of learned TPO for AY 2011-12 that no adjustment has been proposed against this expenditure in that year. The transactions reported in year under 35 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 consideration is mere reversal of those book entries. Another fact is that even though the assessee has not benchmarked the same during the year, learned TPO has also not benchmarked the same using any of the prescribed methods. In our considered opinion, the domain of learned TPO was limited to determination of ALP of the international transactions and it was not for learned TPO to decide whether the expenditure was eligible for deduction or not. So far as the directions of learned DRP, invoking the provisions of Section 37(1) is concerned, it is evident from perusal of final assessment order that the said provisions have not been invoked by learned AO while making the disallowances. This being so, the action of lower authorities in making the said adjustment, could not be upheld.
3.8.4 Considering the overall facts and circumstances, the action of lower authorities in proposing TP adjustment of Rs.341.26 Lacs could not be sustainable under law. By deleting the said adjustment, we allow ground No.2 of the appeal.
3.9 The appeal stands partly allowed in terms of our above order. Conclusion
4. Both the appeals stand partly allowed in terms of our above order.
Order pronounced in the open court on 07th November, 2019.
Sd/- Sd/-
(Pawan Singh) (Manoj Kumar Aggarwal)
ाियक सद / Judicial Member लेखा सद / Accountant Member मुंबई Mumbai; िदनां क Dated : 07/11/2019 Sr.PS, Jaisy Varghese 36 M/s JSW Energy Limited Assessment Years: 2011-12 & 2012-13 आदे शकी ितिलिपअ!ेिषत/Copy of the Order forwarded to :
1. अपीलाथ!/ The Appellant
2. "#थ!/ The Respondent
3. आयकरआयु*(अपील) / The CIT(A)
4. आयकरआयु*/ CIT- concerned
5. िवभागीय"ितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Mumbai
6. गाड/ फाईल / Guard File आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकरअपीलीयअिधकरण, मुंबई / ITAT, Mumbai.