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07-11-2019, JSW Energy, Section 14A, 8D, 115JB, Tribunal Mumbai

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4 days 14 hours ago #11359 by amit
Section - 14A, 8D, 115JB, 80-IA(12)
Order Date - 07-11-2019
Favouring - Partly
Court - Tribunal Mumbai
Appellant - DCIT
Respondent - JSW Energy Ltd.
Citation - 1119Taxpundit94
Appeal No. - I .T.(TP) No.2452/Mum/2017
Asstt. Year - 2011-12


PER : Manoj Kumar Aggarwal

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 on certain grounds of appeal. Since common issues are involved, we proceed to dispose-off the same by way of this common order for the sake of convenience & brevity. First, we take up revenue’s appeal IT (TP) No. 2452/Mum/2017 for AY 2011-12. Revenue’s Appeal IT (TP) No. 2452/Mum/2017 for AY 2011-12

1.2 The revenue contest the order of Ld. Commissioner of Income Tax (Appeals)-56 Mumbai [CIT(A)], Appeal No. CIT(A)-56/ACIT(C)(C)- 46/2016-17/87-J dated 26/12/2016 on following grounds of appeal: -

1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the AO/TPO to work out the ALP of interest by applying only LIBOR instead of LIBOR + credit spread on account of the risk profile of the borrower.

2. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in considering the limits on rate of interest chargeable by the AE to its borrower whereas the comparable transactions are loans given to borrowers in the AE's country, where no restrictions on interest rate is shown.

3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in not appreciating that LIBOR represents the inter bank interest rate, which is of highest credit rating, whereas the loan was given to the AE whose credit profile is certainly lower than borrowers and a risk margin would be certainly applied to LIBOR in arm's length situation.

4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO/TPO to adopt only LIBOR rate as ALP and deleting the adjustment u/s.92CA of Rs.4,27,78,520/- made in this regard, relying on the order passed u/s.92CA(3) for A.Y. 2012-13 and A.Y. 2013-14, whereas in the said orders the assessee has offered LIBOR + spread and AO/TPO has also benchmarked the transaction by adopting LIBOR + spread.

5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.76,78,52,562/- made by the AO u/s.14A r.w. Rule 8D ignoring the clarifications issued by the CBDT vide circular No.5 of 2014 dated 11.02.2014 and also erred in directing the Assessing Officer to exclude the addition worked out u/s 14A of the Act r.w. Rule 8D while computing the book profits u/s 115JB of 'the Act.

6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of depreciation claimed on capital expenses to Gremach of Rs.1,01,50,223/- made by the AO relying on the orders passed in the case of the assessee for A.Y. 2008-09 & 2009-10, without appreciating that the said decisions have been challenged before the Hon'ble ITAT."

The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.”

As evident from grounds of appeal, Ground Nos. 1 to 4 are Transfer Pricing Grounds which are related with determination of Arm’s Length Price [ALP] of certain international transactions as carried out by the assessee with its Associated Enterprises [AE]. Ground No. 5 is related with disallowance u/s 14A whereas Ground No. 6 is related with allowance of deprecation on certain capital expenditure incurred by the assessee in earlier years.

2.1 The relevant facts are that the assessee being resident corporate assessee is stated to be engaged in the business of power generation and operation & maintenance of power plants. The company is stated to be working for power solutions in the states of Karnataka, Maharashtra, Rajasthan and Himachal Pardesh. The assessee was assessed for AY 2011-12 u/s 143(3) r.w.s 144C(3) of the Income Tax Act on 17/04/2014 wherein the income of the assessee was determined at Rs.79.16 Crores under normal prov sions after certain adjustments / disallowances as against Nil income filed by the assessee on 29/11/2011 after claiming deduction u/s 80-IA for Rs.886.49 Crores. The Book Profits u/s 115JB were computed at Rs.1166.18 Crores after disallowance u/s 14A for
Rs.76.78 Crores as against Rs.1089.39 Crores computed by the assessee in the return of income. The following quantum adjustments / disallowances, as made by Ld. AO in the assessment order but deleted by Learned first appellate authority, are the subject matter of revenue’s appeal before us: -

First, we deal with corporate tax issues. Corporate Tax Issues (Ground Nos. 5 & 6)

2.2.1 During assessment proceedings, it transpired that the assessee made suo-moto disallowance u/s 14A for Rs.11.75 Lacs which comprised-off of Salaries of Finance Department & Secretarial Department personnel & Administrative Expenditure etc. The assessee submitted that suo-moto disallowance offered by the assessee was sufficient. However, not satisfied with assessee’s workings and keeping in view the magnitude of investments made by the assessee, Ld. AO
proceeded to re-compute the same in terms of Rule 8D. The aggregate disallowance as per Rule 8D worked out to be Rs.76.78 Crores which comprised-off of interest disallowance u/r 8D(2)(ii) for Rs.64.15 Crores and indirect expense disallowance u/r 8D(2)(iii) for Rs.12.62 Crores. The same was added to the income of the assessee while computing income under normal provisions as well as while computing Book Profits u/s 115JB.

2.2.2 Before learned first appellate authority, it was contended that learned AO, without appreciating the disallowance offered by assessee, proceeded to apply Rule 8D which could be applied only if Ld. AO was not satisfied with the correctness of claim of the assessee. Another plea raised was the fact that all investments were in subsidiary companies with an intention to facilitate and promote business interest of the

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