DCIT CEN CIR 8(3), MUMBAI v. JSW ENERGY LTD, MUMBAI

ITA 2452/MUM/2017 | 2011-2012
Pronouncement Date: 07-11-2019 | Result: Partly Allowed

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Appeal Details

RSA Number 245219914 RSA 2017
Bench Mumbai
Appeal Number ITA 2452/MUM/2017
Duration Of Justice 2 year(s) 7 month(s)
Appellant DCIT CEN CIR 8(3), MUMBAI
Respondent JSW ENERGY LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 07-11-2019
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted Not Allotted
Tribunal Order Date 07-11-2019
Assessment Year 2011-2012
Appeal Filed On 06-04-2017
Judgment Text
M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH MUMBAI BEFORE HONBLE SHRI PAWAN SINGH JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL AM ./ I.T.(TP) NO.2452/MUM/2017 ( / ASSESSMENT YEAR: 2011-12) D CIT - 8(3) MUMBAI. / VS. M/S. JSW ENERGY LTD. JSW CENTER BANDRA KURLA COMPLEX BANDRA (E) MUMBAI-400 051. ./ ./PAN/GIR NO. AAACJ-8109-N ( ! /APPELLANT ) : ( '#! / RESPONDENT ) & ./ I.T.(TP) NO.2316/MUM/2017 ( / ASSESSMENT YEAR: 2012-13) M/S. JSW ENERGY LTD. JSW CENTER BANDRA KURLA COMPLEX BANDRA (E) MUMBAI-400 051. / VS. D CIT - 8(3) MUMBAI. ./ ./PAN/GIR NO. AAACJ-8109-N ( ! /APPELLANT ) : ( '#! / RESPONDENT ) ASSESSEE BY : S/SHRI RISHABH SHAH & RAKESH JOSHI- LD. ARS REVENUE BY : SHRI AKHTAR H.ANSARI- LD.DR / DATE OF HEARING : 27/09/2019 / DATE OF PRONOUNCEMENT : 07/11/2019 / 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 M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 2 ON CERTAIN GROUNDS OF APPEAL. SINCE COMMON ISSUES A RE INVOLVED WE PROCEED TO DISPOSE-OFF THE SAME BY WAY OF THIS COMM ON ORDER FOR THE SAKE OF CONVENIENCE & BREVITY. FIRST WE TAKE UP RE VENUES APPEAL IT (TP) NO. 2452/MUM/2017 FOR AY 2011-12. REVENUES APPEAL IT (TP) NO. 2452/MUM/2017 FOR AY 2 011-12 1.2 THE REVENUE CONTEST THE ORDER OF LD. COMMISSION ER 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 GROUN DS 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 SPREA D 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 O F INTEREST CHARGEABLE BY THE AE TO ITS BORROWER WHEREAS THE COMPARABLE TRANSACTI ONS ARE LOANS GIVEN TO BORROWERS IN THE AE'S COUNTRY WHERE NO RESTRICTION S 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 REPR ESENTS THE INTER BANK INTEREST RATE WHICH IS OF HIGHEST CREDIT RATING W HEREAS 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 O NLY 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 HA S OFFERED LIBOR + SPREAD AND AO/TPO HAS ALSO BENCHMARKED THE TRANSACT ION BY ADOPTING LIBOR + SPREAD. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E 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 DIRECTIN G 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 CAS E 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 B EEN CHALLENGED BEFORE THE HON'BLE ITAT.' M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 3 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 DETERMINATIO N OF ARMS LENGTH PRICE [ALP] OF CERTAIN INTERNATIONAL TRANSACTIONS A S CARRIED OUT BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES [AE]. GROU ND NO. 5 IS RELATED WITH DISALLOWANCE U/S 14A WHEREAS GROUND NO. 6 IS R ELATED WITH ALLOWANCE OF DEPRECATION ON CERTAIN CAPITAL EXPENDI TURE 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 KAR NATAKA MAHARASHTRA RAJASTHAN AND HIMACHAL PARDESH. THE ASSESSEE WAS AS SESSED 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 A T RS.79.16 CRORES UNDER NORMAL PROVISIONS AFTER CERTAIN ADJUSTMENTS / DISALLOWANCES AS AGAINST NIL INCOME FILED BY THE ASSESSEE ON 29/11/2011 AFTER CL AIMING DEDUCTION U/S 80-IA FOR RS.886.49 CRORES. THE BOOK PROFITS U/S 115JB WERE COMPUTED AT RS.1166.18 CRORES AFTER DISALLOWAN CE U/S 14A FOR RS.76.78 CRORES AS AGAINST RS.1089.39 CRORES COMPUT ED BY THE ASSESSEE IN THE RETURN OF INCOME. THE FOLLOWING QUA NTUM ADJUSTMENTS / DISALLOWANCES AS MADE BY LD. AO IN THE ASSESSMENT ORDER BUT DELETED BY LEARNED FIRST APPELLATE AUTHORITY ARE THE SUBJE CT MATTER OF REVENUES APPEAL BEFORE US: - M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 4 N O. N ATURE OF ADDITION AMOUNT (RS.) 1. TRANSFER PRICING ADDITION ON ACCOUNT OF INTEREST ON LOAN 427.78 LACS 2. DISALLOWANCE U/S 14A 7678.52 LACS 3. DEPRECIATION ON CAPITAL EXPENDITURE 101.50 LACS 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 & S ECRETARIAL DEPARTMENT PERSONNEL & ADMINISTRATIVE EXPENDITURE E TC. THE ASSESSEE SUBMITTED THAT SUO-MOTO DISALLOWANCE OFFERED BY THE ASSESSEE WAS SUFFICIENT. HOWEVER NOT SATISFIED WITH ASSESSEES WORKINGS AND KEEPING IN VIEW THE MAGNITUDE OF INVESTMENTS MADE BY THE AS SESSEE LD. AO PROCEEDED TO RE-COMPUTE THE SAME IN TERMS OF RULE 8 D. 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) FO R 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 O FFERED BY ASSESSEE PROCEEDED TO APPLY RULE 8D WHICH COULD BE APPLIED O NLY 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 SU BSIDIARY COMPANIES WITH AN INTENTION TO FACILITATE AND PROMOTE BUSINES S INTEREST OF THE M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 5 ASSESSEE AND NOT WITH A VIEW TO EARNING ANY DIVIDEN D INCOME. THE ATTENTION WAS ALSO DRAWN TO THE FACT THAT THE ASSES SEE DID NOT EARN ANY EXEMPT INCOME DURING THE YEAR AND THEREFORE NO DIS ALLOWANCE U/S 14A WAS CALLED FOR AS HELD BY TRIBUNAL IN ASSESSEES OW N CASE FOR AY 2010- 11. RELIANCE WAS PLACED ON SEVERAL JUDICIAL PRONOUN CEMENTS 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 AP PLIED RULE 8D AUTOMATICALLY WITHOUT VERIFYING THE GENUINENESS OF THE ASSESSEES CLAIM IN RESPECT OF EXPENSES INCURRED IN RELATION TO EXEM PT INCOME. THE LEARNED FIRST APPELLATE AUTHORITY ALSO CONCURRED WI TH THE SUBMISSIONS THAT INVESTMENTS MADE IN SUBSIDIARY COMPANIES WERE TO FA CILITATE AND PROMOTE BUSINESS INTEREST OF THE ASSESSEE AND THERE FORE THE EXPENDITURE INCURRED ON THIS ACCOUNT WOULD BE DEDU CTIBLE BUSINESS EXPENSES. LASTLY NOTICING THAT NO EXEMPT INCOME WA S EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND TH EREFORE NO DISALLOWANCE WOULD BE CALLED FOR AS HELD BY THE TRI BUNAL IN ASSESSEES OWN CASE FOR AY 2010-11. SIMILAR VIEW WAS TAKEN BY FIRST APPELLATE AUTHORITY IN ASSESSEES 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 UNDE R 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 ASSESSEES OWN CASE FOR AYS 2006-07 & 2010-11. THE REVENUES APPEAL AGA INST THE ORDER FOR M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 6 AY 2006-07 ALREADY STOOD DISMISSED BY HONBLE BOMBA Y HIGH COURT. FURTHER FOLLOWING THE DECISION OF TRIBUNAL IN AY 2 006-07 SIMILAR DISALLOWANCE WAS DELETED BY FIRST APPELLATE AUTHORI TY FOR AYS 2008-09 & 2009-10. AGGRIEVED THE REVENUE IS UNDER APPEAL BEFO RE US. 2.3.1 THE ISSUE OF DEPRECIATION ON CAPITAL EXPENDI TURE STEM FROM THE FACT THAT DURING EARLIER AYS 2008-09 & 2009-10 THE ASSESSEE HAD CLAIMED TO HAVE PROCURED CERTAIN SERVICES FROM AN E NTITY 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 ASSESSEES BUSINESS AND THE SAME COULD N OT BE ALLOWED AS DEDUCTION TO THE ASSESSEE. SINCE THE ASSESSEE HAD C APITALIZED THOSE AMOUNTS IN ITS BOOKS OF ACCOUNTS AND CLAIMED DEPREC IATION AGAINST THE SAME THE DEPRECIATION CLAIMED FOR THE YEAR UNDER C ONSIDERATION AMOUNTING TO RS.101.50 LACS WAS DISALLOWED AND ADDE D BACK TO THE INCOME OF THE ASSESSEE. 2.3.2 THE LD. CIT(A) ALLOWED THE ASSESSEES DEPREC IATION CLAIM BY RELYING UPON THE DECISION OF ITS PREDECESSOR IN ASS ESSEES 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 ASSESSEES FAVOR BY THE EARLIER ORDERS OF THE TRIBUNAL. THE COPIES OF THE ORDERS HA VE 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 ADJUDICAT ION TO THE ISSUES WOULD BE AS FOLLOWS. M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 7 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 CONSI DERATION. IN SUCH A CASE NO DISALLOWANCE WOULD BE ATTRACTED IN THE HAN DS OF THE ASSESSEE. THE AFORESAID PROPOSITION IS DULY FORTIFIED BY CATE NA OF JUDICIAL PRONOUNCEMENTS FEW OF WHICH COULD BE ENUMERATED IN THE FOLLOWING MANNER: - THE REVENUE IS UNABLE TO BRING ON RECORD ANY CONTRA RY JUDGMENT. FURTHER TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2008-09 VIDE ITA NO. 1334/MUM/2015 ORDER DATED 02/06/2017 HAS DELETED TH E ADDITIONAL DISALLOWANCE AS MADE BY LD. AO AND ACCEPTED THE SUO-MOTO DISALLOWANCE OFFERED BY THE ASSESSEE. SIMILAR IS TH E VIEW OF THE TRIBUNAL FOR AY 2010-11 VIDE ITA NO. 1336/MUM/2015 ORDER DAT ED 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 APPL ICABLE TO THE FACTS OF THE PRESENT CASE. THEREFORE RESPECTFULLY FOLLOWING THE CITED JUDICIAL PRONOUNCEMENTS AS WELL AS CONSISTENT VIEW OF TRIBUN AL IN ASSESSEES OWN CASE FOR EARLIER YEARS REVENUES GROUND TO TH AT EXTENT STAND DISMISSED. NO. CASE LAW JUDICIAL AUTHORITY CITATION 1. CIT VS. HOLCIM INDIA P. LTD. HONBLE DELHI HIGH COURT 111 DTR 158 2. CHEMINVEST LTD VS CIT HONBLE DELHI HIGH COURT 3 78 ITR 33 3. PCIT VS IL&FS ENERGY DEV. CO. LTD. HONBLE DELHI HIGH COURT 84 TAXMANN.COM 186 4. PCIT VS EMPIRE PACKAGE PVT. LTD. HONBLE PUNJAB & HARYANA HIGH COURT 81 TAXMANN.COM 108 5. CIT VS LAKHANI MARKETING INC. HONBLE PUNJAB & H ARYANA HIGH COURT 2015 4 ITR-OL 246 6. CIT VS HERO CYCLES LTD HONBLE PUNJAB & HARYANA HIGH COURT 323 ITR 518 7. CIT VS. WINSOME TEXTILES IND. LTD. HONBLE PUNJA B & HARYANA HIGH COURT 319 ITR 204 8. CIT VS CORRTECH ENERGY PVT LTD HONBLE GUJARAT H IGH COURT 223 TAXMANN.COM 130 M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 8 2.6 SO FAR AS THE ADJUSTMENT OF DISALLOWANCE U/S 14 A 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 E ARNED ANY EXEMPT DIVIDEND INCOME. NEVERTHELESS WE FIND THAT THIS IS SUE ALSO ALREADY STOOD COVERED IN ASSESSEES FAVOR BY THE ORDER OF THIS TR IBUNAL FOR AY 2006-07 RENDERED AFTER FOLLOWING THE DECISION OF TRIBUNAL I N THE CASE OF ESSAR TELEHOLDINGS LTD. V/S DCIT ITA NO.3850/MUM/2010 DA TED 27/07/2011. THE DEPARTMENTS APPEAL AGAINST THE ORDER OF TRIBUN AL FOR AY 2006-07 HAS ALREADY BEEN DISMISSED BY HONBLE BOMBAY HIGH C OURT 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 0 2/06/2017 HELD THAT NO ADJUSTMENT U/S 115JB WOULD BE WARRANTED ON ACCOUNT OF DISALLOWANCE U/S 14A. SIMILAR IS THE VIEW OF THE TR IBUNAL 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 NOTH ING HAS BEEN DEMONSTRATED BEFORE US TO ESTABLISH THAT THE AFORES AID RULING IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. KEEPIN G IN VIEW THE CONSISTENT VIEW OF THE TRIBUNAL NO INFIRMITY COULD BE FOUND IN THE IMPUGNED ORDER ON THE ISSUE OF ADJUSTMENT OF DISALL OWANCE U/S 14A WHILE COMPUTING BOOK PROFITS U/S 115JB. ACCORDINGLY GROU ND 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 APPELL ATE AUTHORITY PROVIDED RELIEF TO THE ASSESSEE BY RELYING UPON THE ORDER OF ITS PREDECESSOR IN AYS M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 9 2008-09 & 2009-10. IT HAS BEEN BROUGHT TO OUR NOTIC E THAT REVENUE CHALLENGED THE DECISION IN AY 2008-09 BEFORE THIS T RIBUNAL VIDE ITA NO. 1334/MUM/2015 ORDER DATED 02/06/2017 WHEREIN THE IS SUE RAISED BY REVENUE WAS DISMISSED. NOTHING ON RECORD WOULD SUGG EST THAT THE AFORESAID RULING IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF C O-ORDINATE BENCH WE CONFIRM THE STAND OF FIRST APPELLATE AUTHORITY IN T HE IMPUGNED ORDER. ACCORDINGLY GROUND NO. 6 STANDS DISMISSED. NOW WE PROCEED TO DEAL WITH TRANSFER PRICING ISSUE S. TRANSFER PRICING ISSUE (GROUND NOS. 1 TO 4) 2.8 CERTAIN INTERNATIONAL TRANSACTIONS AS CARRIED O UT BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES [AE] AND AS REPORTE D IN FORM 3CEB WERE REFERRED TO LD. TRANSFER PRICING OFFICER-1(3) MUMB AI [TPO] FOR DETERMINATION OF ARMS LENGTH PRICE [ALP]. THE DETA ILS OF THE TRANSACTIONS WHICH ARE SUBJECT MATTER OF PRESENT A PPEAL BEFORE US ARE AS FOLLOWS: - NO. N ATURE OF TRANSACTION AMOUNT (RS.) BENCHMARKING METHOD USED BY ASSESSEE 1. INTEREST RECEIVED ON LOANS GIVEN TO ASSOCIATED ENTERPRISES 13.83 LACS CUP INTEREST RECEIVED ON LOANS GIVEN TO ASSOCIATED ENTE RPRISES 2.9.1 IT TRANSPIRED THAT THE ASSESSEE ADVANCED INT RA-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 M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 10 REPAYMENT WAS SAID TO BE IN US DOLLARS. THE INTERES T 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 C HARGED AT 3 MONTHS AVERAGE LIBOR RATE RANGING BETWEEN 0.29% TO 0.30% F OR ACTUAL NUMBER OF DAYS FOR WHICH THE LOAN WAS USED BY THE AE. 2.9.2 THE ASSESSEE EXPLAINED THAT NON-RESIDENTS WH O WISHED TO INVEST IN SOUTH AFRICA BY MEANS OF LOAN CAPITAL NEE DS APPROVAL FROM SOUTH AFRICAN RESERVE BANK PARTICULARLY WITH REFERE NCE TO INTENDED REPAYMENT DATES AND INTEREST RATES. THE RESERVE BAN K WILL NOT AGREE TO INTEREST RATES IN EXCESS OF PRIME RATE BEING CHARGE D BY NON-RESIDENT SHAREHOLDERS ON LOANS TO THE SOUTH AFRICAN SUBSIDIA RIES 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 A FRICA SINCE JSWEMML FURTHER ADVANCED THE SAID LOAN TO JSW ENERGY SOUTH AFRICA LTD. [JSWENRSAL] AND IN VIEW OF THE SOUTH AFRICAN RESERV E BANK REGULATION THE MAURITIUS ENTITY WOULD NOT BE ABLE TO CHARGE ANY INTEREST MORE THAN LIBOR FROM SOUTH AFRICAN ENTITY. IN THE A FORESAID BACKGROUND IT WAS SUBMITTED THAT THE INTRA GROUP T RANSACTION WAS TO ACQUIRE THE ASSET IS SOUTH AFRICA AND THEREFORE TR ANSACTION WAS AT ARMS LENGTH PRICE AS PRESCRIBED IN THE INDIAN REGULATION S. IN NUTSHELL IT WAS SUBMITTED THAT DUE TO REGULATORY RESTRAINTS OF SOUT H AFRICA THE INTEREST RATE COULD NOT BE MORE THAN LIBOR RATE FOR ANY BORR OWINGS FROM ANY GROUP COMPANIES OUTSIDE SOUTH AFRICA. M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 11 2.9.3 WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS THE ASSESSEE BENCHMARKED THE LOAN TRANSACTION ON THE BASIS OF EX TERNAL COMPARABLE UNCONTROLLED PRICE [CUP] METHOD BY COMPARING THE IN TEREST RATES AT WHICH THE INDEPENDENT PARTIES WITH SIMILAR CREDIT R ATINGS WOULD BE ABLE TO OBTAIN INTRA-GROUP LOANS. THE AE WAS SELECTED AS TH E TESTED PARTY AND ITS CREDIT RATING WAS DETERMINED TO BE BAA1 (MOODY; EQU IVALENT TO S&P BBB+) WHICH FALL IN THE LOWER MEDIUM INVESTMENT GRADE. SELECTING THE BORROWER COUNTRY TO BE MAURITIUS / SOUTH AFRICA / U SA THE ASSESSEE ARRIVED AT MEAN ALP MARGIN OF 243.83 BASIS POINTS O VER LIBOR. APPLYING THE SPREAD OF 243.83 BASIS POINT TO LIBOR THE ALP INTEREST WAS COMPUTED TO BE US DOLLARS 367598 (INR EQUIVALEN T RS.164.13 LACS) AS AGAINST RS.13.82 LACS CHARGED BY THE ASSES SEE FROM ITS AE. THE ASSESSEE IN SUPPORT OF LIBOR ALSO SUBMITTED T HAT THE LOANS WERE ADVANCED FROM INTERNAL ACCRUALS AND IT DID NOT HAVE ANY FOREIGN BORROWINGS. THE WEIGHTED AVERAGE OF DOMESTIC BORROW INGS 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 AFRI CAN REGULATIONS WOULD NOT BE DETERMINATIVE SINCE THE LOAN WAS ADVAN CED TO MAURITIUS ENTITY AND NOT TO SOUTH AFRICAN ENTITY. FURTHER TH E REGULATORY AUTHORITY OF ANY COUNTRY WOULD NOT TAKE INTO ACCOUNT THE TRANSFE R PRICING PROVISIONS TO DETERMINE THE APPROPRIATE RATES WHICH COULD BE CONS IDERED AS ARM LENGTH PRICE FOR INTEREST PAYMENT. DRAWING ANALOGY FROM THE DECISION RENDERED IN COCA-COLA INDIA INC. 309 ITR 194 THAT T HE ROYALTY RATES PERMITTED BY RBI WOULD NOT REPRESENT ALP OF ANY INT ERNATIONAL TRANSACTIONS LD. TPO OPINED THAT DETERMINATION OF ALP WAS TO BE M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 12 EXAMINED FROM THE POINT OF VIEW OF TRANSFER PRICING PROVISIONS UNDER THE INCOME TAX ACT. 2.9.5 PROCEEDING FURTHER FINDING DEFECTS IN THE A SSESSEES METHODOLOGY TO BENCHMARK THE SAME BY EXTERNAL CUP I N VIEW OF THE FACT THAT COMPARABLE ENTITIES WERE BASED IN USA WHEREAS THE LOANS WAS ADVANCED TO MAURITIUS ENTITY AND FURTHER THE CREDI T RATING OF MAURITIUS AE WOULD BE MUCH LOWER THAN BBB+ AS ADOPTED BY THE ASS ESSEE FOR BENCHMARKING LD. TPO CONCLUDED THAT THE SEARCH PRO CESS WAS NOT PROPER AND WAS REQUIRED TO BE REJECTED. THE ARGUMEN T THAT THE LOANS WERE ADVANCED FROM INTERNAL ACCRUALS WAS ALSO REJEC TED SINCE THE ASSESSEE IN THE OPINION OF LD. TPO FAILED TO PROV E NEXUS BETWEEN INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE VIS --VIS LOANS ADVANCED TO ITS AE. 2.9.6 THE LD. TPO ALSO CAME TO A CONCLUSION THAT I NTEREST ON OUTBOUND LOAN WAS NOT TO BE BENCHMARKED WITH LIBOR SINCE NO COMPANY WOULD LIKE TO ADVANCE LOANS OUTSIDE INDIA W ITHOUT SECURITY AS THE INTEREST RATE IN INDIA WOULD BE HIGHER THAN THO SE 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 RELIA NCE 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. R ATHER 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 M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 13 SHOULD EARN INCOME WHICH IT WOULD HAVE EARNED BY AD VANCING LOANS TO THIRD PARTIES. 2.9.7 FINALLY LD. TPO PROCEEDED TO WORK OUT THE M EAN ALP RATE ON THE BASIS OF ABOVE FACTORS. THE ASSESSEE WAS TAKEN AS THE TESTED PARTY AND EXTERNAL CUP METHOD WAS USED FOR BENCHMARKING T HE AFORESAID TRANSACTION. EXTERNAL CUP AS PER LD. TPO COULD BE THE BANK PRIME LENDING RATE [PLR] CORPORATE BOND RATES OR THE COS T OF BORROWINGS IN THE DOMESTIC MARKET. APPLYING THE AVERAGE SPREAD OF 2.89% TO ASSESSEES COST OF BORROWING I.E. 10.14% COST OF D OMESTIC BORROWINGS WAS WORKED OUT TO BE 13.03%. RELYING UPON SAFE HARB OR 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%. FINA LLY THE MOST CONSERVATIVE RATE I.E. 10.5% OUT OF THREE RATES W AS 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 TPOS ORDER. ADJUSTING THE INTEREST OF RS.13.82 LAC S AS CHARGED BY THE ASSESSEE FROM ITS AE THE NET TP ADJUSTMENT THUS P ROPOSED 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 PAN EL AND EXPRESSED ITS INTENTION TO CONTEST THE SAME THROUGH NORMAL APPELL ATE CHANNEL OF LD. CIT(A). ACCORDINGLY THE ASSESSMENT ORDER WAS PASSE D BY LD. AO ON 17/04/2014 WHICH WAS SUBJECTED TO FURTHER APPEAL BE FORE LD. FIRST APPELLATE AUTHORITY. M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 14 2.10 BEFORE LD. FIRST APPELLATE AUTHORITY THE ASSE SSEE INTER-ALIA DREW ATTENTION TO THE FACT THAT SIMILAR BENCHMARKING IN ASSESSEES OWN CASE FOR IMMEDIATELY SUCCEEDING YEAR I.E. AY 2012-13 HA S BEEN DONE BY LD. TPO HIMSELF IN ITS SUBSEQUENT ORDER DATED 29/01/201 6 ADOPTING LIBOR RATES AS THE BASE RATES AND RULED OUT THE APPLICATI ON OF CORPORATE BOND RATE SBI PLR RATE OR COST OF BORROWING RATE ETC. R ELIANCE WAS PLACED INTER-ALIA ON THE DECISION OF HONBLE DELHI HIGH COURT RENDERE D IN CIT V/S COTTON NATURALS (I) PVT. LTD. [55 TAXMANN.COM 5 23] TO SUPPORT THE SUBMISSIONS THAT LIBOR WOULD BE APPROPRIATE BENCHMA RKING RATE ON SUCH OUTBOUND LOAN TRANSACTIONS. THE LIST OF OTHER DECISIONS WHICH HAS ALSO AFFIRMED THE SAID VIEW AS RELIED UPON BY ASSE SSEE DURING APPELLATE PROCEEDINGS HAS ALSO BEEN TABULATED ON PAGE NOS. 1 8-19 OF THE APPELLATE ORDER. CONCURRING WITH ASSESSEES SUBMISS IONS LD. CIT(A) ALLOWED ASSESSEES 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 I NTRA-GROUP LOAN WAS TO ACQUIRE THE ASSET COMPANY IN SOUTH AFRICA AND IT IS CLEARLY EVI DENT THAT THE JSWEMML WAS NOT ABLE TO CHARGE THE INTEREST MORE THAN LIBOR FROM JS W SOUTH AFRICA LTD. (JSWENRSAL) WHICH HAD A DIRECT IMPACT ON THE INTER EST REPAYMENT CAPABILITY OF JSWEMML TO JSWEL OF NOT MORE THAN LIBOR. FURTHER THE ASSESSEE SUBMITTED THAT WITH RESPECT T O CROSS BORDER TRANSACTIONS THE INTEREST RATE IS DETERMINED BY USING FOREIGN CURREN CY RATE (LIBOR/EURIBOR) AND THE SAME HAS BEEN UPHELD AS AN APPROPRIATE BENCHMAR KING RATE IN VARIOLOUS JUDICIAL DECISIONS WHICH HAVE BEEN MENTIONED ABOVE. THUS CONSIDERING THE ABOVE VIEW TAKEN BY THE APPEL LANT AND THE VIEW TAKEN BY THE TPO IN APPELLANTS OWN CASE FOR LATER YEARS I.E. AY 12-13 & AY 13-14 THE TRANSACTION OF INTEREST ON LOAN HAS BEEN BENCHMARKE D 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 A PPEAL BEFORE US. M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 15 2.11 THE LD. CIT-DR SUPPORTED THE REASONING OF LD . AO / LD. TPO AS ENUMERATED BY US IN THE PRECEDING PARAGRAPHS WHE REAS LD. AR DREW ATTENTION TO THE FACT THAT THE ISSUE OF BENCHMARKIN G THE TRANSACTIONS USING LIBOR STOOD COVERED IN ASSESSEES FAVOR BY CA TENA OF JUDICIAL PRONOUNCEMENTS AS ENUMERATED IN THE IMPUGNED ORDER. 2.12 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMIS SIONS AND PERUSED RELEVANT MATERIAL ON RECORD. THE UNDISPUTED FACT THAT EMERGES ARE THAT THE ASSESSEE HAS ADVANCED CERTAIN INTRA-GR OUP 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 FA CT 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. TP O DISREGARDING THE ASSESSEES METHODOLOGY OPINED THAT THE RATES P REVAILING IN INDIA WOULD BE AN APPROPRIATE BENCHMARK TO DETERMINE THE ALP OF THE SAME DISREGARDING THE BINDING JUDICIAL PRONOUNCEMENTS HO LDING THE FIELD FOR OUTBOUND INVESTMENTS. THE LEARNED FIRST APPELLATE A UTHORITY ACCEPTED THE ASSESSEES SUBMISSIONS INTER-ALIA BY OBSERVING THAT THE BENCHMARKING IN SUCCEEDING AYS I.E. 2012-13 & 2013-14 HAS BEEN A DOPTED 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 CAR RYING OUT THE BENCHMARKING ANALYSIS ON SIMILAR SET OF FACTS AND C IRCUMSTANCES. 2.13 SO FAR AS THE APPLICATION OF BENCHMARKING RAT E IS CONCERNED WE FIND THAT THE CATENA OF JUDICIAL PRONOUNCEMENTS AS CITED IN THE IMPUGNED ORDER SUPPORTS THE BENCHMARKING OF OUTBOUN D LOANS ON THE BASIS OF LIBOR. THE HONBLE DELHI HIGH COURT IN IN CIT V/S COTTON M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 16 NATURALS (I) PVT. LTD. [55 TAXMANN.COM 523] WHILE CONFIRMING THE SAID VIEW HAS OBSERVED THAT THERE COULD NOT BE DIFFEREN T PARAMETERS TO BENCHMARK OUTBOUND AND INBOUND LOANS. THE HONBLE B OMBAY 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 IN TER ALIA HAS FOLLOWED THE DECISIONS OF THE BOMBAY BENCH OF THE TRIBUNAL IN CA SES 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 TH E 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 COUN TRY WHERE THE LOAN IS RECEIVED/CONSUMED. MR. SURESH KUMAR THE LEARNED COU NSEL 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 REVENU E SEEKS TO TAKE A DIFFERENT VIEW IN RESPECT OF THE IMPUGNED ORDER FROM THAT TAK EN IN VVF LTD. ( SUPRA ) AND TECH MAHINDRA LTD . ( SUPRA ) . THE REVENUE NOT HAVING FILED ANY APPEAL HAS IN FAC T 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 O F 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 HONBLE COURTS HAS CONFIRMED THE VIEW THAT THE ALP RATE OF INTERES T IN CASE OF LOANS ADVANCED TO ASSOCIATE ENTERPRISES WOULD BE DETERMIN ED 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 JUD GMENTS RENDERED BY VARIOUS BENCHES OF TRIBUNAL WHICH HAVE ALREADY BEEN ENUMERATED IN THE IMPUGNED ORDER. THEREFORE THE CONCLUSION TO THE EX TENT THAT THE LOAN TO AE WAS TO BE BENCHMARKED ON THE BASIS OF LIBOR WOUL D NOT REQUIRE ANY INTERFERENCE ON OUR PART. 2.14 NOW THE ONLY QUESTION THAT SURVIVES FOR OUR C ONSIDERATION IS THE DETERMINATION OF ALP RATE KEEPING IN VIEW THE F ACTS AND M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 17 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 OPI NION 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 BE NCHMARKING THE TRANSACTIONS. THE SAID RATING REPRESENTS LOWER MED IUM INVESTMENT GRADE RATING. THEREFORE THE DETERMINATION OF ALP MERELY ON THE BASIS OF LIBOR IN OUR CONSIDERED OPINION WOULD NOT BE JUST IFIED. 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. TPOS ORDER. THE COMPUTATION O F THE SAME HAS NOWHERE BEEN DISPUTED BY THE REVENUE. APPLYING LIBO R + SPREAD-OVER ALP INTEREST HAS BEEN WORKED OUT TO BE RS.1 64 13 2 41/-. WE ARE OF THE CONSIDERED OPINION THAT THIS SPREAD OVER AS COMPUTE D BY THE ASSESSEE WAS UNDISPUTED QUITE FAIR AND REASONABLE AND THE S AME WAS TO BE ACCEPTED. ACCORDINGLY WE CONFIRM THE ALP RATE OF LIBOR + 2.4383% AS COMPUTED BY THE ASSESSEE IN THE ALTERNATIVE SUBMISS IONS 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 PART LY ALLOWED. 2.15 THE APPEAL OF THE REVENUE STANDS PARTLY ALLOWE D IN TERMS OF OUR ABOVE ORDER. M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 18 ASSESSEES APPEAL FOR AY 2012-13; IT(TP) NO. 2316/M UM/2017 3.1 THE ASSESSMENT FOR THIS YEAR WAS FRAMED ON 30/0 1/2017 U/S 143(3) R.W.S. 144C(13) PURSUANT TO THE DIRECTIONS OF LD. D ISPUTE RESOLUTION PANEL-1 MUMBAI [DRP] U/S 144C(5) DATED 23/12/2016. THE FINAL ASSESSMENT ORDER WAS PASSED BY LD. DEPUTY COMMISSIO NER OF INCOME TAX-CENTRAL CIRCLE 8(3) MUMBAI [AO]. AGGRIEVED BY CERTAIN ADDITIONS / ADJUSTMENTS IN THE FINAL ASSESSMENT ORDER THE ASSE SSEE 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 RECEIV ABLE ON LOANS TO ITS ASSOCIATED ENTERPRISES. 2) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N 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 EXPENS ES. 3) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AN D 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 RESP ECT OF ITS SBU II. 4) WITHOUT PREJUDICE TO GROUND 3 ABOVE IN THE F ACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE DRP ERRED IN CONFI RMING THE ACTION OF LEARNED ASSESSING OFFICER IN MAKING THE SAID DISALLOWANCE O F 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 H ON'BLE DRP ERRED IN IGNORING THE FACT THAT PRINCIPLE OF CONSISTENCY NEE DS TO BE FOLLOWED WHILE DECIDING ON THE ALLOWANCE OF SUCH DEDUCTION. 6) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AN D 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 FA CTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE DRP ERRED IN CONFIR MING THE ACTION OF LEARNED ASSESSING OFFICER IN MAKING DISALLOWANCE UNDER SECT ION 14A WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAD NOT EARNED ANY EXEM PT 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 OFFICE R 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 IN COME TAX ACT 1961 WHILE COMPUTING THE BOOK PROFITS UNDER SECTION 115JB OF T HE ACT. 10) WITHOUT PREJUDICE TO THE GROUND 9 ABOVE IN TH E FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE DR P ERRED IN CONFIRMING THE ACTION OF LEARNED ASSESSING OFFICER IN MAKING ADDITION AS COMPUTED U/S 14A WHILE M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 19 COMPUTING BOOK PROFIT FOR THE PURPOSE OF MAT U/S 11 5JB WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAD NOT EARNED ANY EXEMPT I NCOME DURING THE YEAR UNDER CONSIDERATION WHICH WAS CREDITED TO ITS PROFIT & L OSS ACCOUNT. 11) IN THE FACTS OF THE CASE AND IN LAW THE LEARN ED 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 AR E RELATED WITH ISSUE OF DEDUCTION U/S 80-IA. GROUND NOS. 6 TO 10 ARE REL ATED WITH DISALLOWANCE U/S 14A WHILE COMPUTING INCOME UNDER N ORMAL PROVISIONS AS WELL AS WHILE COMPUTING BOOK PROFITS U/S 115JB. GROUND NO.11 CONTEST LEVY OF INTEREST U/S 234C. THE SAME BEING M ANDATORY AND CONSEQUENTIAL IN NATURE WOULD NOT REQUIRE ANY INTE RFERENCE ON OUR PART. IN GROUND NO.12 THE ASSESSEE IS AGGRIEVED BY NON-G RANT OF TDS CREDIT OF RS.5 34 630/-. GROUND NO.13 IS GENERAL IN NATURE . 3.2 AS EVIDENT FROM FINAL ASSESSMENT ORDER THE INC OME OF THE ASSESSEE HAS FINALLY HAS BEEN DETERMINED AT RS.112. 47 CRORES UNDER NORMAL PROVISIONS AFTER CERTAIN ADJUSTMENTS / DISAL LOWANCES AS AGAINST NIL INCOME FILED BY THE ASSESSEE ON 29/11/2012 AFTER CL AIMING 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 AR E THE SUBJECT MATTER OF ASSESSEES APPEAL ARE AS FOLLOWS: - NO. N ATURE OF ADDITION A MOUNT (RS.) 1. TRANSFER PRICING ADJUSTMENTS ON ACCOUNT OF INTEREST ON LOAN & REIMBURSEMENT OF EXPENSES 1563.90 LACS 2. DISALLOWANCE U/S 14A 1033.95 LACS M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 20 3. DENIAL OF DEDUCTION U/S 80-IA 15364.35 LACS THE ASSESSEE IS ALSO AGGRIEVED BY SHORT CREDIT OF T DS 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 DISREGARD ING THE SAME APPLYING RULE 8D LD. AO WORKED OUT INDIRECT EXPENSE DISALLOWANCE U/R 8D(2)(III) FOR RS.1047.22 LACS BE ING 0.5% OF AVERAGE INVESTMENTS AND ADDED THE DIFFERENTIAL AMOUNT (NET OF SUO MOTO DISALLOWANCE OF RS.13.26 LACS OFFERED BY THE ASSESS EE) OF RS.1033.95 LACS TO THE INCOME OF THE ASSESSEE. THE AMOUNT OF R S.1047.22 LACS WAS ALSO ADDED WHILE COMPUTING BOOK PROFITS U/S 115 JB SINCE THE ASSESSEE HAS NOT ADDED THE SUO-MOTO DISALLOWANCE WH ILE COMPUTING THE SAME. THE LEARNED DRP INTER-ALIA RELYING UPON CBDT CIRCULAR NO. 05/2014 DATED 11/02/2014 HELD THAT DISALLOWANCE WO ULD 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 T HAT EMERGES IS THE FACT THAT NO EXEMPT INCOME HAS BEEN EARNED BY T HE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. FACTS BEING PARI-MATERIA THE SAME OUR OBSERVATIONS AND CONCLUSIONS AS GIVEN FOR AY 2011-1 2 IN REVENUES 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 M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 21 STAND DELETED. ALSO THE ADJUSTMENT OF RS.1047.22 L ACS AS MADE BY LD. AO WHILE COMPUTING BOOK PROFITS U/S 115JB STAND D ELETED. 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 ASSESSEES COMPUTATION OF IN COME IT TRANSPIRED THAT THE ASSESSEE CLAIMED 100% DEDUCTION U/S 80-IA IN RESPECT OF TWO UNITS WHICH WERE STATED TO BE INVOLV ED IN THE GENERATION OF POWER. ONE UNIT BEING SBU-1 (2X130 MW) CLAIMED DEDU CTION OF RS.41.98 CRORES WHEREAS ANOTHER UNIT I.E. SBU-2 (2X 300 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 TRAN SPIRED THAT AFORESAID UNIT SBU-2 (2X300 MW) BEING M/S JSW (VIJAYNAGAR) LT D. (HEREINAFTER REFERRED TO AS JSWEVL) WAS IN FACT MERGED WITH TH E ASSESSEE UNDER A SCHEME OF AMALGAMATION THAT BECAME EFFECTIVE FROM 1 1/12/2008. 3.4.2 NOTICING THAT IN VIEW OF THE INSERTION OF NE W SUB-SECTION (12A) BY THE FINANCE ACT 2007 WITH EFFECT FROM 01/04/200 8 THE PROVISIONS OF SECTION 80-IA(12) WOULD NOT APPLY TO ANY UNDERTAKIN G OR ENTERPRISE WHICH IS TRANSFERRED IN A SCHEME OF AMALGAMATION OR DEMER GER 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 WO ULD NOT BE AVAILABLE TO THE ASSESSEE AND ACCORDINGLY THE SAID FACT WAS CONFRONTED TO THE ASSESSEE. 3.4.3 THE ASSESSEE VIDE SUBMISSIONS DATED 21/03/2 016 INTER-ALIA SUBMITTED THAT UNIT SBU-2 COMPRISED-OFF OF 2 POWER GENERATING M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 22 UNDERTAKINGS OF 300 MW EACH. THIS WAS THE THIRD YEA R OF CLAIMING THE SAID DEDUCTION AGAINST THIS UNIT AND THIS DEDUCTION WAS ALLOWED TO THE ASSESSEE IN EARLIER TWO YEARS AFTER THOROUGH EXAMIN ATION IN SCRUTINY PROCEEDINGS U/S 153A AFTER CALLING FOR EXTENSIVE DE TAILS / DOCUMENTS EXPLANATIONS REGARDING ELIGIBILITY AND QUANTUM OF D EDUCTION AND THEREFORE FOLLOWING RULE OF CONSISTENCY THE SAID DEDUCTION WAS AVAILABLE TO THE ASSESSEE. RELIANCE WAS PLACED INTER-ALIA ON THE DECISION OF HONBLE 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 A LLOWABILITY 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 SO ME FICTITIOUS INTERPRETATION OF LAW WHICH WAS NOT SUPPORTED BY AN Y JUDICIAL AUTHORITY. THE ATTENTION WAS FURTHER DRAWN TO THE FACT THAT ME RGER AS PER THE ORDER OF HONBLE 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 INST ALLING NEW PLANT & MACHINERY WHICH WERE NOT USED EARLIER FOR ANY PURPO SES. THE ATTENTION WAS FURTHER DRAWN TO THE FACT THAT ONE OF THE SAID UNDERTAKING OF ERSTWHILE JSWEVL GOT COMMISSIONING APPROVAL FROM GOVERNMENT O F 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 CEI G THE POWER M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 23 PLANTS OF ERSTWHILE JSWEVL WOULD NOT HAVE COMMENCED POWER GENERATION. THE ATTENTION WAS ALSO DRAWN TO THE FAC T THAT ALTHOUGH THE ASSESSEE WAS ELIGIBLE TO CLAIM DEDUCTION TO THE EXT ENT OF RS. 41.98 CRORES & RS.153.64 CRORES AGAINST SBU-1 & SBU-2 RES PECTIVELY 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 STATU TORY PROVISIONS THE ASSESSEE WAS ELIGIBLE TO CLAIM THE SAID DEDUCTION. THE TIME FRAME TO CLAIM THE DEDUCTION STARTS FROM THE YEAR IN WHICH T HE ELIGIBLE UNDERTAKING BEGINS TO GENERATE POWER FROM THE ELIGIBLE POWER GE NERATING UNDERTAKING AND THE SAME WOULD BE AVAILABLE TILL 15 YEARS FROM SUCH COMMENCEMENT. FURTHER THE STARTING POINT OF DEDUCTION TO BE CLAI MED 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 ENTERPRI SE / ASSESSEE COMMENCES THE OPERATION OF ELIGIBLE BUSINESS. IT WA S FURTHER SUBMITTED THAT SUB-SECTION (12A) DENIES DEDUCTION ONLY TO THO SE ENTITIES WHICH WERE ALREADY ENTITLED TO CLAIM THE DEDUCTION AND ARE TRA NSFERRED BY WAY OF AMALGAMATION OR DEMERGER DURING THE PRESCRIBED PERI OD WHICH WOULD BE NOTHING BUT THE BLOCK PERIOD OF TEN CONSECUTIVE YEA RS 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 PROVISI ONS WOULD NOT BE APPLICABLE TO THE ASSESSEE. M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 24 3.4.4 HOWEVER THESE SUBMISSIONS COULD NOT FIND FA VOR WITH LD. AO WHO DENIED THE DEDUCTION OF RS.153.64 CRORES IN RES PECT 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 TH E 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 T HE INITIAL AND SUBSTANTIAL INVESTMENT IN THE UNIT WAS MADE BY JSWEVL. HENCE I N VIEW OF THE CIRCULAR NO. 3/2008 DATED 12.03.2008 (ISSUED AS EXPLANATORY NOTE S TO THE PROVISIONS OF FINANCE ACT 2007) TAX BENEFITS U/S 80IA OF THE IT ACT 196 1 WOULD NOT BE AVAILABLE TO THE UNDERTAKING WHICH HAS UNDERGONE AMALGAMATION / DEME RGER AFTER 31.03.2007. THE CIRCULAR HAS STATED THAT THE MAIN INTENTION IN PROV IDING BENEFIT U/S 80IA HAD BEEN TO PROVIDE INCENTIVE TO THOSE WHO HAD MADE INITIAL INV ESTMENT 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 RIS KS AND HAD ONLY ACQUIRED THE ELIGIBLE UNDERTAKING MUCH LATER WHEN THESE RISKS HA D 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 A NY UNDERTAKING OR ENTERPRISE WHICH IS TRANSFERRED IN A SCHEME OF AMALGAMATION OR DEMER GER 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 ENTERPRI SE. 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 ENTREPR ENEURIAL RISK WAS TAKEN BY JSWEVL. THE ASSESSEE HAS ALSO NOT CONTESTED THE FACT THAT T HIS 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 TH E 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 UND ERTAKING 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 (12 A) APPLY TO ONLY THE ENTITLED UNDERTAKINGS AND NOT TO ELIGIBLE UNDERTAKINGS WH ETHER THESE ARE ENTITLED OR NOT. THE CIRCULAR VERY CATEGORICALLY STATES THAT IF AN U NDERTAKING 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. H ENCE SINCE IN THIS CASE THE DEMERGER HAS TAKEN PLACE AFTER 31.03.2007 THE PROV ISIONS OF SUB-SECTION (12) OF THE SECTION 80IA WILL NOT APPLY. DEDUCTION CLAIMED BY T HE ASSESSEE U/S 80IA WOULD THEREFORE NOT AVAILABLE TO IT. THE A.O. HAS RIGHTL Y DENIED THE BENEFITS OF DEDUCTION M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 25 CLAIMED BY THE ASSESSEE U/S 80IA OF THE IT ACT 196 1. 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 BEF ORE US SUBMITTED THAT THE MERGED ENTITY I.E. JSWEVL A SUBSIDIARY OF ASSESSEE WAS IN THE PROCESS OF SETTING UP 2X300 MW POWERPLANTS AT VIJAY NAGAR AT AN ESTIMATED COST OF RS.1 860 CRORES. AS ON 31/03/2008 THESE PLANTS WERE UNDER CONSTRUCTION STAGE WITH CAPITAL WORK-IN-PROGR ESS OF RS.1129.16 CRORES. UNDER A SCHEME OF MERGER ARRANGEMENT AS APP ROVED BY HONBLE BOMBAY HIGH COURT JSWEVL GOT MERGED WITH THE ASSES SEE W.E.F. 01/04/2008. POST-MERGER THE DEVELOPMENT OF POWER P LANTS WAS UNDERTAKEN BY THE ASSESSEE AND A FURTHER AMOUNT OF RS.686.58 CRORES WAS EXPANDED BY THE ASSESSEE TO SET UP THE POWER PL ANT COMPLETELY. THESE TWO POWER PLANTS GOT COMMISSIONING APPROVAL F ROM GOVERNMENT OF KARNATAKA (CEIG) VIDE ITS LETTERS DATED 18/07/20 09 & 19/09/2009 WHICH WERE ISSUED IN THE NAME OF THE ASSESSEE COMPA NY ONLY. THE COMPANY VIDE ITS LETTER DATED 23/11/2009 INTIMATED TO CHIEF ENGINEER OPERATION & PERFORMANCE DIVISION CENTRAL ELECTRICI TY AUTHORITY REGARDING COMMISSIONING OF COMMERCIAL OPERATION OF UNIT-1 (1X 300 MW) ON 01/07/2009 AND THAT OF UNIT-2 (1X300MW) ON 01/09/20 09 THE COPIES OF WHICH WERE DULY FURNISHED TO THE LOWER AUTHORITIES. THE SAID FACT OF COMMENCEMENT OF POWER PLANT AT SBU-II STOOD FORTIFI ED 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 A PPARENT 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 M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 26 IT HAS BEEN SUBMITTED THAT CIRCULAR NO.3/2008 EXPLA INING THE AMENDMENT OF SECTION 80-IA(12A) WOULD HAVE NO APPLICATION SIN CE THE SAID CIRCULAR POSTULATES EXISTENCE OF AN UNDERTAKING WHICH HAS ST ARTED CLAIMING DEDUCTION U/S 80-IA WHICH IS NOT THE CASE HERE SIN CE NEITHER THE ASSESSEE NOR THE MERGED ENTITY WAS AN ELIGIBLE UNDE RTAKING ENTITLED TO CLAIM THE SAID DEDUCTION. SINCE THE UNDERTAKING I.E . POWER PLANTS WERE SET UP ONLY DURING JULY 2009 AND SEPTEMBER 2009 A ND 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 DEDUC TION 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 P ERFECTLY IN ORDER. THE ATTENTION HAS BEEN DRAWN TO THE FACT THAT THE M ERGED ENTITY WAS A SUBSIDIARY OF ASSESSEE COMPANY COUPLED WITH THE FAC T THAT MAJOR INVESTMENT AS WELL AS ENTREPRENEURIAL RISK WAS BORN E 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 STAR TING FROM AY 2010-11 AND THIS WAS THE THIRD YEAR OF CLAIMING THE SAID DE DUCTION. THE ASSESSEES ELIGIBILITY AS WELL AS QUANTUM OF DEDUCT ION WAS EXAMINED THOROUGHLY BY LD. AO DURING SCRUTINY ASSESSMENT PRO CEEDINGS OF EARLIER YEARS AND THE CLAIM WAS ALLOWED AFTER DUE VERIFICAT ION AND AFTER CALLING FOR EXTENSIVE DETAILS DOCUMENTS EXPLANATIONS ETC. THEREFORE IF THE DEDUCTION WAS ALLOWED IN INITIAL ASSESSMENT YEAR T HERE BEING NO CHANGE IN FACTS THE REVENUE WAS DEBARRED FROM DENYING THE SAME IN SUBSEQUENT YEARS AS PER THE JUDGMENT OF HONBLE DELHI HIGH COU RT IN CIT V/S TATA M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 27 COMMUNICATIONS INTERNET SERVICES LTD. [17 TAXMANN.C OM 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 FA CT 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 C LAIM DEDUCTION U/S 80-IA. 3.4.10 THE LEARNED CIT-DR ON THE OTHER HAND PLACE D RELIANCE ON THE STAND OF LOWER AUTHORITIES. THE FACT THAT THE I SSUE 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 SUBMISSION S 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 HONBL E 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 MER GED ENTITY AND THE SAID ENTITY WAS ASSESSEES 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 M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 28 CAPITAL WIP STOOD AT RS.1129.16 CRORES WHICH WOULD STRENGTHEN THE FACT THAT THE ASSESSEE NOT ONLY MADE MAJOR INVESTMENT BU T 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 G RANTED BY GOVERNMENT OF KARNATAKA (CEIG) ONLY DURING THE MONTH OF JULY 2009 AND SEPTEMBER 2009. THIS IS FURTHER FORTIFIED BY THE FACT THAT U PON COMPLETION OF PLANT THE ASSESSEE STARTED CLAIMING DEDUCTION AGAINST THE SAME FOR THE FIRST TIME STARTING FROM AY 2010-11. THIS IS ALSO SUPPOR TED BY THE FACT THAT SUBSTANTIAL INVESTMENTS WERE MADE BY THE ASSESSEE P OST-MERGER. THE AFORESAID FACTS WOULD LEAD US TO CONCLUDE THAT AT THE TIME OF MERGER NEITHER ASSESSEE NOR THE MERGED ENTITY WAS AN ELIGI BLE 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 CONSIDER ED OPINION POSTULATES EXISTENCE OF AN UNDERTAKING WHICH HAS ALREADY START ED CLAIMING DEDUCTION U/S 80-IA WHICH IS NOT THE CASE HERE SIN CE NEITHER THE ASSESSEE NOR THE MERGED ENTITY ON THE DATE OF MERG ER WAS AN ELIGIBLE UNDERTAKING ENTITLED TO CLAIM THE DEDUCTION WITH RE SPECT TO UNIT SBU-II. RATHER IT WAS THE ASSESSEE WHO UPON COMMISSIONING OF THE PLANT BECAME ELIGIBLE TO CLAIM THE STATED DEDUCTION FOR T HE FIRST TIME STARTING FROM AY 2010-11. ACCORDINGLY WE FIND SUBSTANTIAL F ORCE IN THE ARGUMENTS ADVANCED BEFORE US BY LD. AR IN THIS REGARD. M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 29 3.4.13 ANOTHER ASPECT OF ISSUE WOULD BE THAT THE IM PUGNED YEAR IS THE THIRD YEAR OF CLAIMING AFORESAID DEDUCTION BY T HE ASSESSEE U/S 80-IA AGAINST SBU-II. THE DEDUCTION WAS CLAIMED FOR THE F IRST TIME DURING AY 2010-11 WHICH WAS ALLOWED AFTER THOROUGH EXAMINATIO N OF THE CLAIM AFTER CONSIDERING VARIOUS DETAILS DOCUMENTS EXPLANATION S FURNISHED BY THE ASSESSEE. FROM ASSESSMENT ORDER FOR AY 2011-12 IT IS QUITE EVIDENT THAT THE SAID CLAIM WAS INITIALLY ALLOWED TO THE ASSESSE E IN THAT YEAR ALSO. ACCEPTING THE OBJECTIONS RAISED BY COMPTROLLER & AU DITOR GENERAL (CAG) LEARNED CIT INVOKED REVISIONAL JURISDICTION U/S 26 3 FOR AY 2011-12 THE VALIDITY OF WHICH CAME UP UNDER CHALLENGE BEFORE TH E COORDINATE BENCH OF THIS TRIBUNAL VIDE ITA NO. 3659/MUM/2017 ORDER D ATED 15/12/2017. ONE OF THE ISSUES TO TRIGGER JURISDICTION U/S 263 W AS IRREGULAR ALLOWANCE OF DEDUCTION U/S 80IA WITH RESPECT TO POWER PLANT U NIT SBU-II. THE CO- ORDINATE BENCH AFTER CONSIDERING DETAILED SUBMISSI ONS ON SIMILAR LINES AND AFTER RELYING UPON THE DECISION OF HONBLE DELH I 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 DECIS ION 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 A CT CONSEQUENTLY IT CANNOT BE DENIED DEDUCTION FOR THE SUBSEQUENT YEARS . IN AS MUCH AS RESTRAINT OF SECTION 80IA(3) CANNOT BE CONSIDERED F OR 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 EXA MINED THE ISSUE THOROUGHLY CALLED FOR VARIOUS DETAILS IN THE INITI AL ASSESSMENT YEAR BEING ASSESSMENT YEAR 2010-11 AND ALLOWED THE CLAIM OF TH E ASSESSEE EVEN DURING THE CURRENT ASSESSMENT YEAR I.E. SUBSEQUENT TO 2010-11 THE SAME CANNOT BE REVISED UNLESS THERE IS CHANGE IN FACTS O R CHANGE IN LAW. M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 30 3.4.14 KEEPING IN VIEW THE AFORESAID FACTS AND CIRC UMSTANCES AND FOLLOWING THE RATIO LAID DOWN BY COORDINATE BENCH O F THE TRIBUNAL IN CITED DECISION IN ASSESSEES OWN CASE WE HOLD THAT THE A SSESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S 80-IA WITH RESPECT TO UNIT S BU-II. ACCORDINGLY WE DIRECT LOWER AUTHORITIES TO GRANT THE SAME TO THE A SSESSEE AND RECOMPUTE ITS INCOME AS PER LAW. GROUND NOS. 3 TO 5 STANDS A LLOWED. 3.5 TDS CREDIT (GROUND NO.12) THE ASSESSEE IS AGGRIEVED BY SHORT CREDIT OF TDS FO R RS.5 34 630/- AND CERTAIN DIRECTIONS ARE SOUGHT IN THIS REGARD BY L D. AR FROM US. KEEPING IN VIEW THE SAME IT WOULD SUFFICE ON OUR PART TO I SSUE DIRECTIONS TO LD. AO TO VERIFY THE TDS CREDIT CLAIM OF THE ASSESSEE A ND GRANT THE DUE CREDIT AS PER LAW. THIS GROUND STAND ALLOWED FOR S TATISTICAL 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 B Y THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WERE REFERRED TO LD. TPO FOR DETERMINATION OF ARMS LENGTH PRICE [ALP]. THE ASSE SSEE HAD REPORTED FOLLOWING TRANSACTIONS IN FORM NO. 3CEB WHICH WERE SUBJECTED TO DETERMINATION OF ARMS LENGTH PRICE BEFORE LD. TPO: - NO. N ATURE OF TRA NSACTION AM O UNT (RS.) BENCHMARKING METHOD USED BY ASSESSEE 1. INTEREST RECEIVED ON LOANS GIVEN TO ASSOCIATED ENTERPRISES 81.16 LACS CUP 2. RECOVERY OF EXPENSES (REVERSAL) 341.27 LACS TNMM INTEREST RECEIVED ON LOANS GIVEN TO ASSOCIATED ENTE RPRISES 3.7.1 APART FROM EXISTING LOAN OF RS.115.19 CRORES AS ADVANCED BY THE ASSESSEE IN AY 2011-12 PURSUANT TO LOAN AGREEME NT DATED 26/07/2010 THE ASSESSEE HAS ADVANCED A FURTHER LOA N UNDER THE SAME M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 31 AGREEMENT FOR US DOLLARS 13.82 MILLION [INR 62.98 C RORES APPROX.] IN 4 TRANCHES DURING THE YEAR UNDER CONSIDERATION. THE A SSESSEE IN SIMILAR MANNER AS PER CONTRACTUAL TERMS HAD CHARGED INTER EST AGAINST THE SAME ON THE BASIS OF LIBOR WHICH RANGED BETWEEN 0.25% TO 0.47%. THE TOTAL INTEREST THUS DETERMINED ON AGGREGATE LOANS ADVANC ED IN AY 2011-12 AS WELL AS IN AY 2012-13 WORKED OUT TO BE USD 1565 72 (INR RS.81.15 LACS). THE WORKING OF THE SAME HAS BEEN TABULATED O N PAGES NOS. 3 & 4 OF LEARNED TPOS ORDER. DURING PROCEEDINGS BEFORE L D. TPO THE ASSESSEE WITHOUT PREJUDICE BENCHMARKED THE SAME I N 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 RESP ECTIVELY WHICH GAVE ALP INTEREST OF RS.491.07 LACS. AFTER ADJUSTIN G 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 RAT ES WERE TO BE PREFERRED OVER PLR BASED RATES SINCE THE FORMER PRO VIDE LIBOR RATE BASED ON GEOGRAPHICAL LOCATION OF BOTH THE LENDER A ND THE BORROWER. USING THE SAID DATABASE LEARNED TPO ARRIVED AT FOL LOWING RATES: - NO. ASSESSMENT YEAR FLOATING RATE OF INTEREST FIXED RATE OF INTE REST 1. 2011-12 LIBOR+332 BPS 6.54% 2. 2012-13 LIBOR+575 BPS 8.34% SINCE THE ASSESSEE HAD CHARGED INTEREST BUT THE SAM E 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.8 1.15 LACS REPORTED BY THE ASSESSEE IN FORM NO. 3CEB. M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 32 3.7.3 BEFORE LD. DRP THE ASSESSEE POINTED OUT TO INCORRECT PARAMETERS ADOPTED BY LD. TPO WHILE WORKING OUT FIX ED 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 TENU RE OF LOAN WAS TAKEN TO BE 6 YEARS AS AGAINST 3 YEARS OF THE TESTED TRANSAC TION. IT WAS SUBMITTED THAT THE TERMS AND CONDITIONS OF THE COMMERCIAL BUS INESS RELATIONSHIP AS AGREED AND UNDERTAKEN BETWEEN THE DOMESTIC AE AND F OREIGN AE COULD NOT BE REWRITTEN OR OBLITERATED AND RECLASSIFICATIO N OR SUBSTITUTION OF THE TRANSACTION WAS NOT PERMITTED. HOWEVER NOT SATISFI ED LD. DRP CONFIRMED THE STAND OF LD. TPO AGAINST WHICH THE A SSESSEE IS IN FURTHER APPEAL BEFORE US. BOTH THE REPRESENTATIVES HAVE ADV ANCED 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 B ASIS OF WRONG PARAMETERS AS POINTED OUT BY THE ASSESSEE BEFORE LO WER AUTHORITIES COMPLETELY DISREGARDING THE CONTRACTUAL TERMS. IT I S SETTLED POSITION THAT THE CONTRACTUAL TERMS AGREED TO BETWEEN THE PARTIES COULD NOT BE REWRITTEN OR OBLITERATED AND RECLASSIFICATION OR SU BSTITUTION OF THE TRANSACTION WAS NOT PERMITTED. NOTHING ON RECORD RE BUT THE FACTS THAT AS PER THE TERMS OF THE CONTRACT THE BORROWER HAD AGR EED TO PAY THE LENDER INTEREST AT RATES EQUAL TO 3 MONTHS LIBOR PREVAILI NG ON THE DATE OF EACH INTEREST PAYMENT UP TO 31/03/2012. THE SAID FACT HA S ALSO BEEN NOTED BY LD. DRP AT PARA 2.29 OF ITS DIRECTIONS. THE ONLY AL LEGATION IS THAT THE M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 33 ORIGINAL AGREEMENT DATED 26/07/2010 WAS NOT PRODUCE D BEFORE LD. DRP. HOWEVER THE SAME WOULD NOT MAKE MUCH DIFFERENCE SI NCE 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 WORKI NGS MADE BY THE ASSESSEE DURING PROCEEDINGS BEFORE LEARNED TPO. ACC ORDINGLY WE DIRECT LOWER AUTHORITIES TO ACCEPT ALTERNATIVE TP A DJUSTMENT OF RS.491.07 LACS AS WORKED OUT BY THE ASSESSEE DURING PROCEEDIN GS BEFORE LD. TPO BASED ON LIBOR + SPREAD OF 243.88 BPS / 163.8 BPS F OR 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 O F AN OVERSEAS THIRD- PARTY ENTITY NAMELY CIC ENERGY. FOR THE SAID PURPOS E THE ASSESSEE INCORPORATED ITS OVERSEAS SUBSIDIARY I.E. JSW ENERG Y NATURAL RESOURCES (BVI) LTD. [JENRL] WHICH WAS TO ACQUIRE CIC ENERGY. DURING FY 2010- 11 THE ASSESSEE ENGAGED VARIOUS THIRD-PARTY CONSUL TANTS / EXPERTS TO PERFORM LEGAL FINANCIAL AND OPERATIONS LEVEL DUE D ILIGENCE IN RESPECT OF PROPOSED ACQUISITION. SUCH THIRD-PARTY CONSULTANTS / EXPERTS THEN RAISED BILL DIRECTLY ON THE ASSESSEE FOR WORK UNDERTAKEN B Y THEM. DURING FY 2010-11 THE ASSESSEE HAD PASSED BOOK ENTRIES PROPO SING TO RECOVER SUCH COST FROM JENRL. HOWEVER THE ACQUISITION OF C IC ENERGY COULD NOT MATERIALIZE AND THEREFORE THE ASSESSEE REVERSED TH OSE ENTRIES IN THE M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 34 BOOKS DURING THE YEAR. BEFORE LEARNED TPO THE ASSE SSEE EXPLAINED THE NATURE OF TRANSACTIONS AND SUBMITTED THAT THESE EXP ENSES WERE INCURRED ON ACCOUNT OF SHAREHOLDER ACTIVITY. HOWEVER LEARNE D TPO FORMED AN OPINION THAT THE ASSESSEE FAILED TO EXPLAIN HOW THE LIABILITY OF THE AE SHIFTED SHOULDERS. SINCE THE ASSESSEE HAD NOT BENCH MARKED THE STATED TRANSACTIONS INVOKING THE PROVISIONS OF SECTION 92 C THE ALP OF THE TRANSACTIONS WAS DETERMINED AS NIL. ACCORDINGLY AN AMOUNT OF RS.341.26 LACS WAS PROPOSED AS TP ADJUSTMENT ON TH IS COUNT. 3.8.2 THE LEARNED DRP CONCLUDED THAT THE SAID EXPE NDITURE WAS NOT IN THE COURSE OF THE BUSINESS OF THE ASSESSEE A ND THE EXPENDITURE WAS IN RESPECT OF BUSINESS OF A COMPANY WHICH HAD A SEPARATE LEGAL ENTITY. THEREFORE THE EXPENDITURE COULD NOT BE TER MED AS AN EXPENDITURE OF THE ASSESSEE. ACCORDINGLY THE SAID ADJUSTMENT W AS CONFIRMED. IN THE ALTERNATIVE LD. DRP OPINED THAT THE SAID AMOUNT WA S NOT ALLOWABLE EVEN U/S 37(1) SINCE THE EXPENDITURE BELONGED TO ASSESSE ES 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 SUBMI SSIONS. THE UNDISPUTED FACT THAT EMERGES ARE THAT THE SAID EXPE NDITURE WAS INCURRED BY THE ASSESSEE IN EARLIER AY 2011-12 AND THE PAYME NT WAS MADE TO THIRD PARTY CONSULTANTS / EXPERTS. NO PAYMENT WAS M ADE 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 AGA INST THIS EXPENDITURE IN THAT YEAR. THE TRANSACTIONS REPORTED IN YEAR UNDER M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 35 CONSIDERATION IS MERE REVERSAL OF THOSE BOOK ENTRIE S. ANOTHER FACT IS THAT EVEN THOUGH THE ASSESSEE HAS NOT BENCHMARKED THE SA ME 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 INTE RNATIONAL TRANSACTIONS AND IT WAS NOT FOR LEARNED TPO TO DECIDE WHETHER TH E EXPENDITURE WAS ELIGIBLE FOR DEDUCTION OR NOT. SO FAR AS THE DIRECT IONS OF LEARNED DRP INVOKING THE PROVISIONS OF SECTION 37(1) IS CONCERN ED IT IS EVIDENT FROM PERUSAL OF FINAL ASSESSMENT ORDER THAT THE SAID PRO VISIONS HAVE NOT BEEN INVOKED BY LEARNED AO WHILE MAKING THE DISALLOWANCE S. 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 CIRCUMSTAN CES 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 OU R ABOVE ORDER. CONCLUSION 4. BOTH THE APPEALS STAND PARTLY ALLOWED IN TERMS O F OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH NOVEMBER 2019. SD/- SD/- (PAWAN SINGH) (MA NOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 07/11/2019 SR.PS JAISY VARGHESE M/S JSW ENERGY LIMITED ASSESSMENT YEARS: 2011-12 & 2012-13 36 ! / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT 3. * ( ) / THE CIT(A) 4. * / CIT CONCERNED 5. + '%- - / DR ITAT MUMBAI 6. ./ / GUARD FILE / BY ORDER / (DY./ASSTT.REGISTRAR) / ITAT MUMBAI.