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TMI Blog2022 (10) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... or expenses disallowed by the assessee - HELD THAT:- As decided in own case [ 2020 (12) TMI 165 - ITAT MUMBAI] findings of the learned CIT(A) are upheld as CIT(A) referred to several judgements relied upon by the assessee and directed that disallowance should be computed @ 0.5% by taking average value of those investments which have yielded dividend during the year under consideration or the expenses disallowed by the assessee whichever is higher, both in normal provisions as well as book profit u/s. 115JB. Computation of book profit under section 115 JB by considering the disallowance under section 14A - HELD THAT:-Since, similar issue has already been decided in assessee s own case for preceding assessment years, therefore, we see no reason to deviate from the view so taken by the coordinate bench of the Tribunal, in absence of any allegation of change in facts and law. Thus, respectfully following aforesaid judicial precedent we direct the AO to delete the adjustment of disallowance under section 14A while computing book profit under section 115 JB of the Act. As a result, ground No. 3 raised in assessee s appeal is allowed. Disallowance of depreciation on the openin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct investments by residents in joint venture and wholly-owned subsidiary abroad are being allowed in terms of section 6(3)(a) of Foreign Exchange Management Act, 1999 read with Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004. As per the aforesaid Master Direction, share certificate or any other document as an evidence of investment in foreign entity is to be received by the Indian party within 6 months from the date of effective remittance. In the present case, in respect of last remittance on 21/03/2016, for the year under consideration, shares were allotted on 19/09/2016 and excess share application money amounting to Rs. 45,76,26,069 was refunded to the assessee. It is not the case of the Revenue that even after issuance of shares on 19/09/2016 excess share application money was withheld by the AE and was refunded subsequently. In this case, much before the issuance of shares on 19/09/2016, in respect of remittance made on 21/03/2016, excess share application money was refunded to the assessee in July 2016. These facts are also not disputed by the Revenue. Thus, in view of the above, when the transaction of subscribing to preference s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 5 raised in Revenue s appeal are dismissed. Deduction u/s 35(2AB) of the Act in respect of R D expenditure - HELD THAT:- It is pertinent to note that prior to the aforesaid amendment, no such authority was granted to DSIR for approving any expenditure for the purpose of claiming deduction under section 35(2AB) of the Act. The pre-amended rules do not prescribe any methodology of approval to be granted by the prescribed authority vis- -vis expenditure from year to year. Since the amendment has come into effect only from 01/07/2016, the same would only apply from assessment year 2017-18. Thus, respectfully following the aforesaid decision of coordinate bench of the Tribunal in M/s. Glenmark Pharmaceuticals Ltd. [ 2019 (8) TMI 1649 - ITAT MUMBAI] . we find no infirmity in the aforesaid findings of learned CIT(A). As a result, ground No. 6 raised in Revenue s appeal is dismissed. Disallowance of long term capital loss and short term capital loss on sale of non-cumulative compulsory convertible preferential shares - HELD THAT:- We find that in assessee s own case for preceding assessment years, investment in NCCPs have been held to be investment in the nature of capital as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) TMI 1433 - ITAT MUMBAI] undoubtedly, one of the critical factors in determining the ALP, as recognized by rule 10B(2)(d), is conditions prevailing in the market in which AEs operate, and once it s a legal condition precedent in entering the transaction in the respective PSC market is that the AE s affiliates are not allowed to have any mark up on a supply of services to the AE, the determination of ALP is required to be having regard to this condition. Viewed thus, the cost to cost rendition of services can be indeed be viewed as an arm s length transaction. - Decided against revenue. Determination of arm s length price for corporate guarantee given to its AE - HELD THAT:- As decided in own case [ 2022 (3) TMI 1433 - ITAT MUMBAI] 50:50 allocation is reasonable, and there is no change in the material facts, we see no reasons to take any other view of the matter than the view so taken by the coordinate benches in assessee s own cases for the preceding assessment years. We, therefore, approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. Ground of Revenue s appeal are dismissed. Selection of comparables for benchmarking the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D of the Income tax Rules, while computing income under normal provisions of the Act without recording any satisfaction for rejection of the disallowance computed by the appellant under section 14A of the Act. 2. erred in directing to make the disallowance u/s 14A being higher of 0.5% of average value of investments which have yielded exempt income during the year or expenses disallowed by the assessee. 3. erred in directing the AO to compute the disallowance under clause (f) of Exp 1 to section 115JB(2) i.e. expenditure relating to exempt income, when no such disallowance ought to have been made while computing book profit u/s 115JB of the Act, relying on Tribunal decision in appellant s own case for AY 2009-10 vide corrigendum order dated 02.04.2008. Disallowance of Depreciation 4. erred in confirming the disallowance of depreciation of Rs.3,28,689/- on the opening WDV of capitalized value of goods purchased from P.K. Agarwal Group concerns Viz (Durga Iron Steel Ltd. and Surajbhan Rajkumar Pvt. Ltd.) in A.Y. 2003-04. The Appellants submits that the cost of the goods purchased from the above parties were capitalised as plant and machinery in A.Y. 2003- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest chargeable on share application money refunded by the Associated Enterprise(AE) Reliance Industries Middle-East DMCC 11. erred in determining the arm s length price (ALP) of interest chargeable in respect of share application money refunded by the AE at INR 50,02,095. 12. erred in re-characterizing the transaction as being in the nature of loan financing on which interest is chargeable without appreciating that the amounts were refunded within 91 days due to business considerations. 13. failed to appreciate that the provision of Chapter X of the Act are not applicable to the transaction of share application money paid for subscription of preference shares being equity in nature. 14. without prejudice to the above, erred in upholding functionally dissimilar companies selected by the TPO as comparables, in arriving at the ALP of the of interest chargeable in respect of share application money refunded by the AE. 15. erred in upholding the rate of interest determined by the TPO by adopting Libor based spreads, and then in applying the float to fixed swap. 16. without prejudice to the above, should have directed to benchmark the interest basis th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g invoked . It cannot, therefore, be said that the Assessing Officer has proceeded to make the disallowance under section 14A r.w.r 8D without recording satisfaction for rejection of the disallowance computed by the assessee . 6. The learned Authorised Representative ( learned AR ) could not show us any reason to deviate from the aforesaid decision rendered in assessee s own case and no change in facts and law was alleged in the relevant assessment year. Thus, respectfully following the judicial precedent in assessee s own case cited supra, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, ground No. 1 raised in assessee s appeal is dismissed. 7. As regards ground No. 2, raised in assessee s appeal, we find that similar findings were upheld by the coordinate bench of the Tribunal in assessee s own case in Reliance Industries Ltd vs ACIT, in ITA No. 7299/Mum/2017, vide order dated 10/11/2020, for assessment year 2013 14, by observing as under: 22. As regards disallowance for other expenses learned CIT(A) referred to several judgements relied upon by the assessee and directed that disallowance should be computed @ 0.5% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regard has referred to ITAT decision in assessee s own case. We note that this issue is covered in favour of the assessee by the decision of honourable Bombay High Court in the case of Commissioner of income tax vs Bengal finance and investment private limited, wherein the honourable High Court by the order dated 5/1/18 held that disallowance under section 14A cannot be added under section 115JB. Respectfully following the precedent from honourable jurisdictional High Court, we decide this issue in favour of the assessee. 25. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. Respectfully following the same, we direct the Assessing Officer to delete the impugned adjustment for disallowance under section 14 A in the book profit computed under section 115JB. The assessee gets the relief accordingly. 11. Since, similar issue has already been decided in assessee s own case for preceding assessment years, therefore, we see no reason to deviate from the view so taken by the coordinate bench of the Tribunal, in absence of any allegation of change in facts and law. Thus, respectfully following aforesaid judicial precedent, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 265,38,24,122 due to orders passed subsequently. During the course of assessment proceedings, the assessee was asked to show cause as to why interest on income tax refund ought not to be added to book profit under section 115 JB of the Act. In reply, assessee submitted that there was no certainty with the quantum of interest on income tax refund, as the assessee as well as Department are in appeal on multiple issues before appellate forums, thus no finality has been obtained with respect to assessment. Therefore, interest on income tax refund was not credited to profit and loss account as per the policy consistently followed by the assessee. The assessee further submitted that once the financial statement have been prepared under the Companies Act following the accounting policies and Accounting Standard then the book profit needs to be computed as per the profit and loss account, since the financial statement cannot thereafter be altered for making adjustment. The AO did not agree with the submissions of the assessee and held that once the income tax refund has been issued and the same is accounted in the books though not in the profit and loss account directly, the same ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the normal provisions of the Act. However, since the said interest was not routed through the profit and loss account, the same was not offered to tax under section 115 JB of the Act. As per the assessee since corresponding appeals, relating to the income tax refunds on which interest has been received, are pending at different forums, therefore, there is no finality as to the assessed income of the assessee. Thus, interest on income tax refund is not crystallised and accordingly the same was not credited to the profit and loss account as per the policy consistently followed by the assessee. Further, the said financial statement has been prepared as required under Companies Act. The assessee further submitted that the financial statement of the assessee has been duly scrutinised and audited by the statutory auditors and have also been approved in the annual general meeting. The said financial statement has also been filed with ROC and other statutory authorities. 21. We find that following issue came up for consideration before the Hon ble Supreme Court in Apollo Tyres Ltd (supra): Can an the Assessing Officer while assessing a company for income-tax under section 115J of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losed by the assessee in its annual accounts and thus could not be said to be approved in the AGM or filed with the ROC and other statutory authorities, we find that no evidence has brought on record to the effect that because of such non-disclosure the accounts of the assessee were not maintained as per the provisions of Companies Act and other relevant rules and regulations. Further, no such objection by the statutory auditor or ROC or other statutory authority has been brought to our notice. In the present case, there is no dispute on the fact that assessee has offered interest on income tax refund to tax while filing its return of income and same has also been assessed under the normal provisions of the Act. Accordingly, we find no merits in addition of interest on income tax refund for computing the book profit under section 115 JB of the Act and the AO is directed to delete the same. As a result, ground No. 5 raised in assessee s appeal is allowed. 24. The learned AR wish not to press grounds No. 6 10, raised in assessee s appeal. Therefore, these grounds are dismissed as not pressed. 25. The issue arising in ground No. 11 16, raised in assessee s appeal, is pertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessee, excess share application money of Rs. 45,76,26,069 out of the remittance made on 21/03/2016 of Rs. 4,42,25,21,250, was refunded to the assessee in July 2016. It is only in respect of this part share application money, which was returned by the AE without issuance of preference shares, the learned CIT(A) has upheld the levy of interest. Since, the assessee has remitted the share application money to AE in UAE, reliance has been placed upon Master Direction No. 15/2015 16 dated 01/01/2016, issued by Reserve Bank of India on Direct Investment by Residents in Joint Venture/Wholly-Owned Subsidiary abroad . From the perusal of aforesaid Master Direction issued by RBI, it is evident that direct investments by residents in joint venture and wholly-owned subsidiary abroad are being allowed in terms of section 6(3)(a) of Foreign Exchange Management Act, 1999 read with Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004. As per the aforesaid Master Direction, share certificate or any other document as an evidence of investment in foreign entity is to be received by the Indian party within 6 months from the date of effective remittance. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,05,91,912/- 3.1 Whether, on the facts and in the circumstances of the case and in law, the Id CIT(A) erred in not accepting the decision of AO that Mineral Oil does not include Natural Gas and condensate for the purpose of claiming deduction under section 801B(9)(ii). - Nil 3.2 Whether, on the facts and in the circumstances of the case and in law, the Id.CIT(A) erred in not accepting the decision of AO to restrict the deduction u/s 80IB(9)(ii) to the extent of ratio of production of oil. - Nil 4. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing AO to grant deduction u/s 10AA with reference to profits and gains as determined by Hon ble Supreme court in the case of Vijay Industries v. CIT [2019] 412 ITR 1 (SC) in Civil Appeal No 1581-1582 of 2005. Rs.347,32,20,835/- 5. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was right in directing AO to grant deduction u/s 10AA with reference to profits and gains of SEZ unit for manufacture of Polypropylene and other petrochemical products as determined by Hon ble Supreme court in the case of Vijay Industries v. CIT [2019] 41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) to unveil the transaction under the prism of unrelated parties under uncontrolled conditions, BEPS Action 8 to 10 and various case-laws including the one stated in ground 2.30 above?(Included in 7) 7.4 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the following sufficient and adequate vital facts brought on record in the TP order of the impugned year (which are more fully stated in the grounds under 2 above) to hold that the transaction of preference shares with the AEs RGBV and RIME is sham to recharacterize the transaction as loan transaction and therefore the capital loss arising out of the said transaction is not allowable?: (Included in 7) (i) The said preference shares of AE-RGBV were claimed as compulsorily convertible , but at no point of time the said shares were converted into equity shares till the time of winding up of the said AE-RGBV, indicating its dubious nature; (Included in 7) (ii) The said preference shares of AE-RGBV were claimed as compulsorily convertible , but much of the said investment was redeemed periodically, losing its character of compulsory conversion , further indicating its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting the TP adjustment of Rs. 13,20,48386/- in respect of debts receivable from the AEs made by the TPO, based on earlier years decisions which is in violation of Rule 10B(4) on contemporaneous nature of comparable data, as interest rate vary every year? (Included in 7) 8.1 Whether on the facts and circumstances of the case and in law, Ld. CIT(A) is correct in not considering the cost of borrowing for the assessee adopted by the TPO to benchmark the interest chargeable on receivables, and in holding that ad-hoc 1 month Libor plus spread of 200 bps as adopted by the assessee is correct, and also holding that interest as in offer letters for short term loans from various banks to provide buyers/supplier credit facilities @ 0.75% to 0.95% is comparable when the trade receivables are entirely different financial transactions compared to short term loans, which violates all comparability factors laid down in Rule 10B(2)? (Included in 7) 8.2 Whether on the facts and circumstances of the case and in law, Ld. CIT(A) is correct in not considering the cost of borrowing for the assessee adopted by TPO to benchmark interest chargeable on receivables when the sale price is determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating the difference in the facts of the case and ignoring following vital exceptional facts and circumstances in the instant case? (Included in 7) 9.5 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the vital fact that though the said investment is stated to be compulsorily convertible preference shares the assessee said to have redeemed 50 crore number of such shares or 16.04.2013, 183.27 crore number of such shares on 06.06.2014 and 27.66 crore number of such shares on 28.10.2014 at the same face value at 0.01 euro per share without any arm s length return from the AE RGBV, proving the claim of compulsorily convertible as dubious, which shows the investment in the AE is essentially interest free loan in nature? (Included in 7) 9.6 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the fact that the assessee redeemed the investment as above, though the investment was stated to be made only few months back in the FY 2013-14, on 10.03.2014, 262,13,30,100 number of preference shares (Rs.222,66,88,853) in RGBV at the same face value of 0.01 euro per share without any ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng any return as the stipulated 5% coupon rate, which no unrelated party in uncontrolled circumstances would have done within the meaning of section 92F(ii)? (Included in 7) 9.11 Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in ignoring the fact that the AE RIME has been making losses continuously from calendar year 2010 to 2014 and though its net worth is negative, the assessee has shown to have invested in the said preference shares, which is not an arm s length behavior, which no unrelated party would have done so looking from the angle section 92F(ii)? (Included in 7) 9.12 Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in ignoring the fact that the situation in the case of the AE-RGBV is much worse and it has been making very meager profit during the FYs 2010-11 to 2012-13 and loss during the FYS 2013-14 and 2014-15 and has been in liquidation process from FY 2014-15 and its networth is also negative only, and in spite of that the assessee claimed to have made investment in said preference shares, which is not an arm s length behavior which no unrelated party would have done so looking from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence share transaction is a sham one with a motive of avoiding taxation of interest, as the real nature of the transaction is interest free loan? - (Included in 7) 9.17 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in not appreciating the sham nature of the nomenclature and form of the transaction compulsorily convertible preference share , when the investment was redeemed losing the significance of compulsorily convertible ; never ever been convert into equity shares at any point of time further losing its nature; and never ever received the coupon rate of return losing the nature of preference share, thus rendering the transaction essentially an interest free loan? (Included in 7) 9.18 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in ignoring the fact that an amount of Rs.3163 crores (Rs 2746 crores in the case of RIME Rs 417 crores in the case of RGBV) has flown out of India in the garb of preference share investment in the AES without any return leading to base erosion in India, which cannot be an arm s length situation in uncontrolled circumstances as mandated in Section 92F(ii)? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yield accrued interest which is income for the purposes of section 92(1), so as to be dealt under Chapter X of the Income tax Act? (Included in 7) 9.25 Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in ignoring the essential character of the transaction is loan in substance which the assessee camouflages as preference share in order to avoid tax liability on the interest that accrues coupled with the base erosion in India by shifting of huge amount of Rs.3163 crores (Rs 2746 crores in the case of RIME Rs 417 crores in the case of RGBV) out of India without any return? (Included in 7) 9.26 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the BEPS (Base Erosion and Profit Shifting) Action Plan 8-10 of which India is a party which mandates that transactions can be disregarded for TP purposes where they lack commercial rationality, as far as proper return on investments is concerned? (Included in 7) 9.27 Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in ignoring the BEPS Action Plan which emphasizes substance over form, economic realit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been held recharacterisation is possible when the transaction is sham or substantially at variance with the stated form, and ignoring that there are enough pointers as detailed in the above grounds for the impugned year to show that the transaction is loan which is substantially at variance with the stated form of preference share? (Included in 7) 9.32 Whether, on the facts and circumstances of the case and in law, the and order of the Ld. CIT(A) is not bad in law in not realizing that Hon ble Supreme Court in the landmark case of Mc Dowell Company Limited vs The Commercial Tax Officer (SC) (1985) held, proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally, or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax ; and in the present case, it can be clearly seen that the form of preference share investment was given to the transaction which was in substance, advancing money to the AEs, so as to avoid tax on interest and so, the form given to the transaction by the assessee was a device to avoid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome tax Act? (Included in 7) 10.5 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in accepting the cost-to-cost basis of support services to the AE, without understanding the basic tenet of the transfer pricing u/s 92F(ii) that no unrelated assessee in uncontrolled circumstances in third party situation would have rendered services on cost-to-cost basis, leading to base erosion in India? (Included in 7) 10.6 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in relying on ITAT order for AY 2011-12 in which it has been observed by the ITAT that the TPO did not bring any other comparable to prove that the amount charged by the assessee is not at arm s length. Instead, he has simply marked up the transaction by 12.50%, which is not supported by material , which will not apply to the impugned AY 2016-17 as mark-up has been arrived at 7.07% by adopting separate set of comparables for the given year, thus rendering the order of the CIT(A) violative of Rule 108(4), without appreciating that the transfer pricing study is highly facts-intensive and vary from year to year and thus the CIT(A) should have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which clearly shows that the CIT(A) has not verified the YSM adopted by the assessee? (Included in 7) 11.2 Whether on the facts and circumstances of the case and in law, Ld. CIT(A) is correct in contradicting himself in stating in one place that he accepted the yield spread method as followed by assessee and at another place relying on the Hon ble ITAT s decision for a y 2005 2006 to 2009-2010 wherein assessee followed CUP method, which again clearly shows that the CIT(A) has not verified the YSM adopted by the assessee? (Included in 7) 11.3 Whether on the facts and circumstances of the case and in law, L.d. CIT(A) is correct in failing to demonstrate as to how the rates were arrived at by the assessee based on yield spread method followed by assessee for impugned AY and has erred on simply accepting the rates adopted by assessee without looking into actual working of the yield spread methodology of assessee? (Included in 7) 11.4 Whether on the facts and circumstances of the case and in law, Ld. CIT(A) is correct in failing to show as to how assessee followed yield spread method correctly for impugned AY? (Included in 7) 11.5 Whether on the facts and circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal and the CIT(A) s order for earlier year in assessee s own case, which is violative of Rule 10B(4) on the need to be contemporaneous nature of the comparable data? (Included in 7) 11.10 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in restricting the rate ignoring the fact that the rate depends on various variables such as risk profile, credit profile, place of loan, time period rate of interest and that all these variables vary from company to company and one rate cannot be applied in an ad hoc manner to all the AEs across the board which will be violative of provisions of Rule 108? (Included in 7) 11.11 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in accepting the rate arrived at by the assessee dividing the interest differential between the assessee and the AEs at 50:50 in an ad hoc unscientific manner, instead of dividing it on the basis of FAR analysis between the assessee and the AEs? (Included in 7) 11.12 Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in accepting the assessee s division of interest differential 50:50 betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 7) 11.19 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in accepting the 50:50 split of interest differential based on earlier years orders of AY 2011-12 to AY 2015-16 without understanding the fact that the FAR analysis could vary year-on-year and passing order without depending on independent FAR analysis done for the impugned AY 2016-17? (Included in 7) 11.20 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in accepting the same method of benchmarking for both corporate guarantee and performance guarantee transactions when in fact they are two completely different transactions? (Included in 7) 11.21 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in accepting the interest saving method/yield spread method adopted by the assessee to benchmark the performance guarantee transaction when there cannot arise an interest saving that can be distributed between the AE and the assessee in case of a performance guarantee? (Included in 7) 12. Whether on the facts and circumstances of the case and in law, the Incl Ld. CIT(A) is right in excluding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is change in law from the impugned AY 2013-14 by way of insertion of section 92BA and amendment of market value in the Explanation to section 801A(8)? 13.1 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the adjustment on inter-unit transfer of power of Rs. 113,76,65,177/- by merely placing reliance on the Hon. ITAT s order in the assessee s own case for AY 2013-14 which in turn placed reliance on the orders of earlier years from AY 2005-06 onwards without appreciating that that the case was referred to the TPO in view of the new section 92BA and the Assessing officer was making additions in the earlier AYS on the Return on Capital employed by the unit, whereas the facts were entirely different for the impugned AY wherein the TPO has determined the arm s length value of the transaction and therefore, the CIT(A) cannot rely on the earlier years orders of the Tribunal? (Included in 7) 13.2 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the fact and position of law that comparability of the specified domestic transaction (SDT) with uncontrolled transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... choosing the matching FAR comparable; (e) Only when the FAR of the power generating unit is tested against a comparable transaction having a similar FAR, will we be able to reach the correct profitability of the power generation activity; only then the object of section 801A will be achieved through the mechanism of TP provisions which was the entire object of enacting the provisions relating to SDT; (f) Looking at the commencing phrase of section 80IA(8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee..... and definition of market value in Explanation (i) of section 801A(8) market value means (i) the price that such goods or services would ordinarily fetch in the open market , what is to be seen and tested with comparable is the price that the electricity generated by the eligible unit would ordinarily fetch in the open market if sol in the open market and not the rate at which non-eligible unit could procure the electricity in the open market from a distribution company and therefore, only the eligible unit alone can be taken as tested party and its power rate has to be com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tricity by CPPs is lesser, adoption of CPP s sale rat of electricity equal to the Power Distributor s sale rate notionally leads to more than ordinary profits to the eligible unit claiming deduction on the same and at the same time, it leads to lesser taxable profits in the hands of the non-eligible unit due to the notionally hike cost of electricity for it and the intention of the legislature is to allow the deduction only to the extent of ordinary profits, and precisely for this reason, the Hon ble Supreme Court in the Glaxo case (supra) had given advisory to the legislature to extend transfer pricing principles to such domestic transactions also, which led to the amendment in Explanation to Section 80IA(8) and insertion of Section 92BA? (Included in 7) 13.10 Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the fact and position of law that as per Section 92F(ii) on arm s length principle, the veil of relatedness is to be lifted and seen, and that independent enterprise under uncontrolled conditions would not take pains investing its time labour and capital for establishing CPPs, if it has to procure the electricity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing the decisions of coordinate bench of the Tribunal in assessee s own case as well as its own predecessors, directed the AO to adopt the WDV of the assets as on 01/04/2015 on the basis of orders giving effect to the orders of CIT(A) of preceding years. Being aggrieved, the Revenue is in appeal before us. 36. Having heard both the parties and perused the material available on record, we find that this is a recurring issue and has been decided in favour of the assessee in preceding assessment years. We further find that in assessment years 2014 15 and 2015 16, coordinate bench of the Tribunal vide order dated 08/03/2022, observed as under: 11. Having heard the rival contentions, and having perused the material on record, we see no reasons to interfere in the conclusions arrived at by the learned CIT(A) on this aspect either. The first appellate order for the assessment year 2013-14, based on which the impugned relief was granted by the CIT(A), has since come up for consideration before a coordinate bench of this Tribunal, and the coordinate bench has approved the said order of the CIT(A). While doing so, the coordinate bench has observed as follows: We find that le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour of assessee by observing as under: 17. As regards the Assessing Officer‟s grievance that the learned CIT(A) has erred in directing the Assessing Officer to take into account only such investments as having yielded dividends during the year under consideration, we find that this issue is covered, in favour of the assessee, by several decisions of the coordinate benches, in assessee‟s own case, for the assessment years 2010-11 to 2012-13. Learned Departmental Representative does not dispute this position, nor does he point out any specific reasons for our not following these coordinate bench decisions, but he relies upon the stand of the Assessing Officer nevertheless. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches, in assessee‟s own cases for the assessment years 2010-11, 2011-12 and 2012-13, and, respectfully following the same, we confirm the conclusions arrived at by the learned CIT(A) on this point as well, and decline to interfere in the matter. 40. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee s own case and no change in facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KGD 6. The AO vide assessment order did not agree with the submissions of the assessee and held that the argument of the assessee is completely against the express provisions of Production Sharing Contract and the Act. The AO further held that the deduction of the entire profits derived by the assessee company cannot be allowed under section 80 IB(9) of the Act and deduction under the said section are to be computed without any regard to the losses on aborted exploration. The learned CIT(A) vide impugned order by following the decision of the coordinate bench of the Tribunal rendered in assessee s own case in preceding assessment years directed the AO to compute the profits of KGD undertaking on a standalone basis as per the provisions of 80 IA(5), for the purpose of claiming deduction under section 80 IB(9) of the Act. Accordingly, the AO is directed that cost in respect of abortive/unsuccessful blocks are not to be reduced while computing the profits of undertaking namely, KGD which is eligible for deduction under section 80 IB(9) of the Act. Being aggrieved, the Revenue is in appeal before us. 44. Having heard both the parties and perused the material available on record, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0IB(9) of the Act, the provisions of section 80IA(5) are applicable, which provide that for the purposes of determining the quantum of deduction, the profits and gains of the eligible business shall be computed as if such eligible business were the only source of income of the assessee. Accordingly, the assessee has correctly not reduced the unsuccessful exploration cost incurred in contract area other than KGD, which has been made in the computation of income u/s 42(l)(a) against the entire income of the assessee company while computing the business income. The AO has however, rejected the above claim of the assessee and has reduced the amount of Rs.2042.69 crores being the abortive cost of wells incurred in contract areas other than KGD while computing deduction u/s. 80IB(9) of the Act in respect of KGD undertaking. In doing so, he has relied on the provisions of Article 17.2.2. of the Production Sharing Contract (PSC). However, on harmonious reading of the provisions of Article 17 of the PSC, it can be concluded that the deduction under Article 17.2.2 in respect of abortive/unsuccessful blocks is to be allowed to a Company while computing its profits and gains fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at by the learned CIT(A) on this point as well, and decline to interfere in the matter. 45. Thus, respectfully following the aforesaid decision in assessee s own case, we find no infirmity in the findings of the learned CIT(A) on this issue. Accordingly, ground No. 3 raised in Revenue s appeal is dismissed. 46. The issue arising in grounds No. 3.1 and 3.2, raised in Revenue s appeal, is pertaining to grant of deduction under section 80 IB (9)(ii) of the Act in respect of natural gas and condensate . 47. The brief facts of the case pertaining to this issue are: Although, no deduction was claimed by the assessee under section 80 IB(9) of the Act in respect of KGD6 block on account of loss of Rs. 972,48,51,991 as submitted by the assessee itself, in order to keep the issue alive and considering that this is the last year of claim, the assessee was asked to show cause as to why the profit derived from sale of natural gas and condensate should be allowed as deduction under section 80 IB(9) of the Act. The AO following the approach adopted in assessment year 2011-12 computed the deduction under section 80 IB of the Act. The learned CIT(A) vide impugned order, following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icability of the Act to the continental shelf of India f) New Exploration Licensing Policy g) Petroleum Tax Guide published by the Ministry of Petroleum and Natural Gas, Government of India The issue is whether natural gas is mineral oil and is eligible for deduction u/s. 801B(9) of the Act has already been considered by the Hon ble Income Tax Appellate Tribunal Ahmedabad Bench in the case of NIKO Resources Limited Vs. DCIT [22 DTR 225] and held that natural gas is mineral oil eligible for deduction u/s 80IB(9) of the Act. The above decision of the ITAT has been further confirmed by the Hon ble Gujarat High Court (reported in 374 ITR 369) by placing reliance upon the decision of the Supreme Court in the case of Association of Natural Gas Ors.Vs Union of India Ors.(2004) 4 SCC 489. The Hon ble Gujarat High Court has also held that the insertion of sub-clause (iv) to Section 80-IB(9) does not mitigate against meaning attributed to the expression mineral oil by the Apex Court, Entry 53 of List I does not refer to Natural Gas separately. Further, Hon ble Gujarat High Court has also rejected the contention raised by the Department, that petroleum products and nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st Rs. Nil claimed in the return of income and for PP SEZ, the assessee has claimed deduction of Rs. 619,27,43,122 under section 10 AA of the Act as against Rs. 595,55,56,796 claimed in the return of income. The AO vide assessment order did not agree with the submissions of the assessee in support of its aforesaid revised claim and held that Hon ble Supreme Court decision in Vijaya Industries 412 ITR 1, on which reliance has been placed by the assessee, is not applicable to the facts of the case and accordingly, rejected the revised claim of the assessee under section 10 AA of the Act with respect to Refinery SEZ and PP SEZ filed during the course of assessment proceedings. The learned CIT(A) vide impugned order, following the decision of coordinate bench of Tribunal in assessee s own case for assessment year 2013-14 directed the AO to grant deduction under section 10 AA with respect to profit and gains as determined by the Hon ble Supreme Court in Vijaya Industries (supra). Being aggrieved, the Revenue is in appeal before us. 52. We find that the coordinate bench of the Tribunal in the immediately preceding assessment years i.e. 2014 15 and 2015 16, vide order dated 08/03/2022, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial available on record. In the present case, it is evident that the AO has not doubted the incurrence of research and development expenditure by the assessee and its purpose. The same is evident from the fact that AO has granted deduction to the assessee under section 35 of the Act, but had only restricted the weighted deduction to the amount approved by DSIR and disallowed the additional claim made by the assessee. The learned CIT(A) vide impugned order held that the amendment to provisions of Rule 6(7A)(b) of the Rules with effect from 01/07/2016, whereby prescribed authority can quantify the expenditure eligible for weighted deduction under subsection (2AB) of section 35 of the Act, would apply only from assessment year 2017-18. The relevant findings of learned CIT(A) on this issue are as under: I have carefully considered the submissions of the appellant and the case law relied upon before me. I agree with the submission made by the appellant that prior to the amendment in Rule 6(7A), no such authority was granted to DSIR [i.e. the prescribed authority under Rule 6(1B) for approving any expenditure for the purpose of claiming deduction us 35(2AB). The pre-amended r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The pre-amended rules do not prescribe any methodology of approval to be granted by the prescribed authority vis- -vis expenditure from year to year. Since the amendment has come into effect only from 01/07/2016, the same would only apply from assessment year 2017-18. Thus, respectfully following the aforesaid decision of coordinate bench of the Tribunal in M/s. Glenmark Pharmaceuticals Ltd. (supra), we find no infirmity in the aforesaid findings of learned CIT(A). As a result, ground No. 6 raised in Revenue s appeal is dismissed. 59. The issue arising in grounds No. 7- 7.4, raised in Revenue s appeal, is pertaining to deletion of disallowance of long term capital loss and short term capital loss on sale of non-cumulative compulsory convertible preferential shares. 60. The brief facts of the case pertaining to this issue are: During the year under consideration, the assessee has sold 593,90,00,000 non-cumulative compulsory convertible preferential (NCCP) shares of M/s Reliance Global Business BV to M/s Reliance Industries (Middle East). Out of these 331,76,69,900 NCCP shares were held for more than 36 months and balance 262,13,30,100 NCCP shares were held for less than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the orders passed by the coordinate bench of the Tribunal in assessee s own case determined the arm s length rate of interest in respect of delayed realisation of receivables at LIBOR + 150 bps and accordingly accepted the benchmarking done by the assessee and deleted the adjustment made by the TPO. Being aggrieved, the Revenue is in appeal before us. 64. Having considered the submissions of both the sides and perused the material available on record, we find that coordinate bench of Tribunal in assessee s own case for assessment years 2014 15 and 2015 16 vide order dated 08/03/2022 decided similar issue in favour of assessee by observing as under: 63. We find that in the immediately preceding assessment years, consistently this approach of the assessee, at the even lower spread of 150 bps, has been all along accepted by the coordinate benches. In any case, no case has been made out that the spread of 200 bps is lower than the arm s length price. As regards the cost-plus method on the cost of funds, we find it is fundamentally flawed inasmuch as it treats all the types of borrowing at par and proceeds on the erroneous assumption that the arm s length price of the debt h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riance with the stated form. In the absence of any such finding and also in the absence of anything on record to show that unrelated applicant was to be paid interest for the period ending till the date of allotment of shares, the ITAT deleted the addition. In the case of Bharti Airtel Ltd (supra), there was delay in allotment of shares and still, the Tribunal held that re- characterisation is not permissible. In the instant case, it is seen that the preference shares have been allotted within the year itself. The AO/TPO has not shown that the transactions are sham or bogus nor it was shown that the apparent is not real. It was also not shown that the unrelated share applicant has been paid any interest for the period commencing from date of subscription to the date of allotment of shares. It has been held that the amendment made by Finance Act 2012 including capital financing transactions as international transactions cannot be applied retrospectively. The Ld A.R further submitted that the Preference shares carry coupon rate of 5%, which is higher than the 6 months Libor plus 300 bps. We further note that it has been submitted before us that the above decision is squarely ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd. As pointed out by the learned Counsel of the assessee the examples mentioned in the grounds above do not relate to current year and it is trite that every year is different for transfer pricing purpose. Subsequent year instances cannot give a carte blanche to the Assessing Officer to make adjustment and render the Tribunal decision ceasing to be a precedent. Accordingly in the background of the aforesaid decision and precedent we uphold the order of learned CIT(A) 69. We are in considered agreement with the views so expressed by the coordinate bench. In any event, the subscription for compulsorily convertible preference shares cannot be compared with a simple loan because it is a case of quasi capital and the significant reward for this investment by the assessee is the opportunity to own the equity- something inherently incompatible with a loan transaction simpliciter. It cannot be open to the revenue authorities to ignore this aspect of the matter and compare the rewards on a compulsorily convertible preference share with the rewards on a loan transaction. The rewards for the investment for a limited period, i.e. the period till the conversion into shares takes place, ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision rendered in assessee s own case and no change in facts and law was alleged in the relevant assessment year. Thus, respectfully following the judicial precedent in assessee s own case cited supra, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, grounds No. 9-9.32 raised in Revenue s appeal are dismissed. 69. The issue arising in ground No. 10 10.8, raised in Revenue s appeal, is pertaining to transfer pricing adjustment for drilling support services provided by the assessee to its AE pursuant to agreement with Kurdish government. 70. The brief facts of the case pertaining to this issue are: The assessee s AE had entered into production sharing agreement with the Government of Kurdistan for exploration and development of petroleum in certain contract area. Pursuant to said agreement, any professional or administrative services provided by AE s affiliate shall be on cost-to-cost basis. The assessee provided support services for drilling operations carried out by the AE and charged the AE on cost to cost basis. Assessee submitted that since the transaction would get covered by Rule 10 B(2)(d), the amount charged by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed CIT(A), following the orders of the coordinate benches in assesee s own cases for the assessment years 2011-12 and 2012-13 and following his predecessor s order for the assessment year 2013-14, deleted the ALP adjustment of Rs 58,16,290. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 77. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 78. We find that the decision of the CIT(A) for the assessment year 2013-14, on the basis of which impugned relief was granted by the CIT(A), has already been approved by a coordinate bench. The issue is thus covered in favour of the assessee by decisions of the coordinate benches in assessee s own cases for the assessment years 2011-12, 2012-13 and 2013-14. No reasons as to why we must not follow the decision have been pointed out to us. Undoubtedly, one of the critical factors in determining the ALP, as recognized by rule 10B(2)(d), is conditions prevailing in the market in which AEs operate, and once it s a legal condition precedent in entering the transaction in the respective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that this is a recurring issue and has been decided in favour of the assessee in preceding assessment years. We further find that in assessment years 2014 15 and 2015 16, coordinate bench of the Tribunal vide order dated 08/03/2022, observed as under: 82. Having heard the rival contentions and having perused the material on record, we find that this is a purely factual matter, which permeates from year to year, and once the coordinate benches have consistently held, right from 2011-12 onwards, that 50:50 allocation is reasonable, and there is no change in the material facts, we see no reasons to take any other view of the matter than the view so taken by the coordinate benches in assessee s own cases for the preceding assessment years. We, therefore, approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. 76. Since, this is a recurring issue, therefore, we see no reason to deviate from the conclusion so reached by the coordinate bench of the Tribunal in assessee s own case in preceding assessment years, in absence of any allegation of change in facts and law. Thus, we find no infirmity in the findings of the learned CIT(A) on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under 85. Learned representatives fairly agree that so far as this issue is concerned, it is also now covered in favour of the asseseee inasmuch as in the immediately preceding assessment year in assessee s own case, a coordinate bench has upheld the exclusion of BVG India Limited, as a comparable, and inclusion of Empire Industries Limited as a comparable. Once BVG is excluded and Empire Industries is included, in the valid comparables for the purpose of the benchmarking analysis under the TNMM- as has been done in this case, learned representatives agree that the adjudication on comparability of Spectrun Business Solutions Ltd and ICRA Management Consulting Services Ltd will become academic. 86. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench in assessee s own case for the immediately preceding assessment year. Respectfully following the same, and subject to the observations as above, we uphold the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. 80. Since, the aforesaid companies were tested for the purpose of comparability only on the basis of functionality, therefore, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jarat State Electricity Corp Ltd and thereby adopted external CUP. Accordingly, the TPO made an adjustment of Rs. 113,76,65,177. The learned CIT(A) vide impugned order allowed the appeal filed by the assessee on this issue by following the decision of coordinate bench of Tribunal in preceding assessment year. Being aggrieved, the Revenue is in appeal before us. 85. Having heard both the parties and perused the material available on record, we find that this is a recurring issue and has been decided in favour of the assessee in preceding assessment years. We further find that in assessment years 2014 15 and 2015 16, coordinate bench of the Tribunal vide order dated 08/03/2022, observed as under: 124. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position. 125. We find that the learned CIT(A) s order for the assessment year 2013-14, based on which the impugned ALP adjustment has been sustained, has come up for consideration before a coordinate bench which has, reversing the stand of the learned CIT(A), observed as follows: 168. We have heard both the counsel and peru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of 80IA(8), the rate of electricity as taken by the assessee has been consistently approved by the ITAT and Hon ble Jurisdictional High Court also. We may refer here the provisions of section 80IA(8):- Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. 80-IA. (8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date: Provided that where, in the opinion of the Assessing Officer, the computation of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent an identical issue came up for consideration. The Tribunal by detailed judgment had held and observed as under:- 44. In the given facts and circumstances of the case, we are of the view that the profits of the business of generation of power worked out by the Assessee on the basis of the price that it paid to TPC for purchase of power continues to be the best basis even after the order of MERC and therefore the same has to be accepted as was done in the past and as approved by the ITAT in Assesssee s case. We therefore dismiss ground. 7. Counsel for the assessee pointed out that the judgment of the Tribunal in case of Reliance Infrastructure limited (supra) was carried in appeal by the revenue before the High Court in Income Tax Appeal No.2180 of 2011, such appeal was dismissed making following observations:- 6. As far as question (d), namely, the claim relating to purchase price from Tata Power Company is concerned and that was for the deduction under Section 80IA, the ITAT in paragraph 21 onwards has noted the factual findings and also referred to the order of the Maharashtra Electricity Regulatory Authority (for short MERC ). Paragraph 36 set outs as to ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer and CIT(Appeals) while adopting Rs.4.51 per unit as the value of electricity generated by eligible unit of assessee and supplied through its non eligible unit only worked out cost of such electricity generation. In fact CIT(Appeals) in terms recorded that Rs.4.51 was computed as the reasonable value of the electricity generated by eligible unit of assessee. This amount included Rs.4.17 per unit which was the cost of electricity generation and Rs.0.34 per unit which was duty paid by the assessee to GEB for such power generation. Thus the sum of Rs.4.51 per unit only represented the cost of electricity generation to the assessee. In Section 80IA(8) of the Act what is required to be ascertained is the market value of the goods transferred by the eligible business, when such transfer is by eligible business to another non eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not correspond to market value of such goods. Term Market Value is further explained in explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... themselves by relying upon Calcutta High Court decision in this regard. This decision has not found favour with honourable jurisdictional High Court. 177. Thus we find that the view of the authorities below that the definition of the market value shall change for the purpose of domestic transfer pricing regimen is not at all sustainable. Accordingly, in the background of the aforesaid discussion and precedent, we set aside the orders of the authorities below and decide issue in favour of the assessee. 126. Once the very decision, based on which the impugned decision of the CIT(A) has its foundational basis, stands disapproved by a coordinate bench, the stand of the learned CIT(A) cannot meet our judicial approval. In any event, we are in considered agreement with the view taken by the coordinate bench in the assessee s own case for the immediately preceding assessment year, and we are unable to see any legally sustainable basis for rejection of internal CUP on the facts of this case. Respectfully following the views so expressed by the coordinate bench, which, in turn, follows the views of other coordinate benches and Hon ble jurisdictional High Court in assessee s own c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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