TRANSFER PRICING: GUARANTEE COMMISSION & INTEREST ON LOANS

“10. TPO noticed that assessee had given Corporate Guarantee to the lenders of the beneficiaries who are AEs of the assessee and for giving the corporate guarantee, assessee had charged guarantee fee of 0.25% aggregating to Rs 2,28,54,407/-. The AEs to whom Corporate Guarantee were issued are listed at Page 5 of the TPO order. It was submitted by the assessee that it has not incurred any cost for provision of the guarantees and that during 10 F.Y. 2013-14, it had obtained a quotation from a Bank whereby the Bank had agreed to provide corporate guarantee to the AEs of the assessee at a service fee of 0.25%. Assessee considered the quotation from the Bank of similar arrangement to be an appropriate CUP to determine the Arm’s Length nature of similar arrangement between the assessee and its AEs. It was therefore the submission of the assessee that the Corporate Guarantee fee charged by the assessee from its AEs could be considered to be at Arm’s Length Price. The submissions of the assessee were not found acceptable to TPO. TPO was of the view that in an uncontrolled transaction like the present one, guarantee fee would have been charged taking into account the credit worthiness of the AE, margins, security or any other consideration relevant for deciding the financial solvency of the AE. He was therefore of the view that the assessee should have been compensated for the guarantee given by it in an arm’s length situation. With respect to the assessee’s contention of the benchmarking of the transaction with the offer received from bank, TPO was of the view that the offer from bank was a mere offer which was not converted into a transaction and therefore it cannot be considered to be a valid CUP. TPO thereafter by applying the interest saved approach and using the data from Bloomberg database, computed the external comparable interest rate range to be 4.45% and the rate at which the AEs obtained funds with corporate guarantee of the assessee at 3.01% and thus computed the interest saved to be at 1.44%. He thereafter worked out the total guarantee fee that should have been charged 11 by using the interest saved rate of 1.44% at Rs.172,00,08,122/-. He noted that since the assessee has already received Rs 22,854,407/-recommended the enhancement of income by AO to the extent of Rs 14,91,53,715/-. AO thereafter in the draft assessment order enhanced the income as suggested by the TPO. Aggrieved by the order of TPO, assessee carried the matter before the DRP. DRP noted that various jurisdictional decisions have held the guarantee fee rate to be near about 0.5% and TPO had not given any reason for applying a higher rate of 1.3% based on SBI general Bank guarantee fee. DRP also noted that in assessee’s own case for A.Y. 2011-12, 2012-13 & 2013-14, DRP has held that the guarantee fee of 0.5% to be fair and just. It further noted that since the facts of the case in the year under consideration being similar to that of A.Y. 2013-14, it accordingly held the guarantee fee to be at 0.5% and accordingly directed AO/TPO to re-compute the adjustment accordingly. AO thereafter made adjustment of Rs 2,28,67,811/-.

11. Aggrieved by the order of DRP, assessee is now before us.

12. Before us, Learned AR reiterated the submissions made before the lower authorities. He thereafter submitted that identical issue arose in assessee’s own case in A.Y. 2010-11, 2012-13 wherein the Coordinate Bench of Tribunal has upheld the corporate guarantee rate @ 0.25%. He further submitted that the Hon’ble ITAT had reversed the order of DRP for A.Y. 2012-13 & 2010-11 in assessee’s own case. He pointed to the relevant orders of the Tribunal placed in the paper book. He therefore submitted that since assessee had charged 0.25% as corporate guarantee fee to its AEs, no adjustment is required and therefore the adjustment proposed by the AO be deleted.

13. Learned DR on the other hand took us to the finding of the DRP and supported the order of DRP.

14. We have heard the rival submissions and perused the materials available on record. The issue in the present ground is with respect to the adjustment made to corporate guarantee fee charged by the assessee from its AEs. We find that identical issue arose in assessee’s own case in A.Y. 2010-11 and the Co-ordinate Bench of Tribunal in SRF Ltd. v. ACIT [ITAppeal No.356(Delji) of 2015, dated 8-2-2018]/ITA No.356/Del/2015 order dated 24.02.2020 decided the issue in favour of the assessee by observing as under:

“12. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. The TPO and DRP has rejected the assessee’s CUP based on the ICICI Bank specific to facts of the assessee and has applied the Indian banks u/s 133(6) of the Act. First of all TPO’S rejection of assessee’s CUP merely on the ground that such quotation are merely offers and hence does not qualify as CUP is not appropriate. The assessee has obtained specific quotation for ICICI bank. The ICICI Bank after due consideration of profile of assessee and its AEs, risk involved and other market factors, issued letter of to extend guarantee to AEs of the assessee. In our view such offer from ICICI Bank does constitutes valid CUP. Further as pointed out ld Counsel, such offer from ICICI Bank is an appropriate comparable data in terms of Rule 10D (3) of the Rules. Therefore, rejection of assessee’s CUP in form of ICICI Bank quotation in not valid.

13. It is pertinent to note that even TPO has used general bank rates obtained from various Indian banks. These bank guarantee rates are also in the nature of offers which are general rates and not specific to the assessee. Therefore, the approach of assessee’s specific quotation saying the same as offers while on the other hand he himself uses the general bank guarantee rates which are again the offers and that too far from being comparable to the case.

14. Further the issue of using bank guarantee rates for benchmarking corporate guarantee transaction has been put to rest by the Hon’ble Supreme Court in case of Glenmark Pharmaceuticals Ltd. (SC), where in the judgment of Hon’ble Bombay High Court was upheld. Further, DRP in assessee’s own case in subsequent years rejected the TPO’s approach of using India band guarantee rates for benchmarking corporate guarantee. Therefore, bank guarantee rates as applied by the TPO is not an appropriate comparable while benchmarking the said transaction and hence approach of TPO is rejected.

15. In the instant case, the AEs to whom corporate guarantees have been extended are wholly owned subsidiaries of the assessee. The existence of special relationship between holding and its subsidiary cannot be ignored. The assessee being a parent entity is responsible for survival and growth of its subsidiary and hence extended corporate guarantees to secure funds needed for survival and growth of its subsidiaries. Further as submitted by AR, by extending corporate guarantees to secure funds needed for survival and growth of its subsidiaries.

16. Therefore in view of the above discussions, the corporate guarantee fee at the rate of 0.25% voluntary offered to tax by the assessee is upheld as the arm length price and the addition over and above this of Rs.56,17,984/- is hereby deleted.”

15. We further find that in assessee’s own case for A.Y. 2012-13 in ITA No.5784/Del/2016 order dated 24.02.2020, the Coordinate Bench of Tribunal by relying on the order in assessee’s own case for A.Y. 2010-11 had held that the transaction of corporate guarantee fee charged at 0.25% by the assessee from its AEs to be at Arm’s Length rate and accordingly deleted the addition made by TPO. Before us, Revenue has not pointed to any distinguishing feature in the facts of the case in the year under consideration and that of the earlier years. Revenue has also not placed any material on record to demonstrate that the aforesaid decision of the Co-ordinate Bench of Tribunal in assessee’s own case for A.Y. 2010-11 & 2012-13 has been stayed/ set aside/ overruled by higher judicial forum. In view of the aforesaid facts, on relying on the decision of the Co-ordinate Bench of Tribunal for A.Y. 2010-11 in assessee’s own case, we hold that the AO was not justified in making adjustment of Rs.2,28,67,811/-. We therefore, set aside the addition made by TPO. Thus the ground of assessee is allowed.”

Saurashtra Cement Ltd.

“38. It thus becomes clear that the decision of the Supreme Court in the case of Goetze (India) Ltd. (supra) is confined to the powers of the assessing officer and accepting a claim without revised return. This is what Supreme Court observed in the said judgment while distinguishing the judgment in the case of National Thermal Power Co. Ltd.(supra) and that is how various High Courts have viewed the dictum of the decision in the case of Goetze (India) Ltd.(supra). When it comes to the power of Appellate Commissioner or the Tribunal, the Courts have recognized their jurisdiction to entertain a new ground or a legal contention. A ground would have a reference to an argument touching a question of fact or a question of law or mixed question of law or facts. A legal contention would ordinarily be a pure question of law without raising any dispute about the facts. Not only such additional ground or contention, the Courts have also, as noted above, recognized the powers of the Appellate Commissioner and the Tribunal to entertain a new claim for the first time though not made before the assessing officer. Income-tax proceedings are not strictly speaking adversarial in nature and the intention of the Revenue would be to tax real income.

39. This is primarily on the premise that if a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come, merely because it is raised for the first time before the appellate authority without resorting to revising the return before the assessing officer.

40. Therefore, any ground, legal contention or even a claim would be permissible to be raised for the first time before the appellate authority or the Tribunal when facts necessary to examine such ground, contention or claim are already on record. In such a case the situation would be akin to allowing a pure question of law to be raised at any stage of the proceedings.”

“5.0 We have carefully considered the rival contentions and have perused the orders of the lower authorities and judgments relied upon by the revenue and the Ld. AR on the issue under consideration. As observed in various judgments, the ‘Carbon credits’ or CERs represent the ‘privilege /entitlement’ given to the businesses for its efforts resulting in reduction of emission of greenhouse gases. Such CERs are tradable commodity and one party to Kyoto protocol is benefited by selling such entitlement to other parties to Kyoto protocol which are in deficit. During the year under consideration, the assessee has also received certain sum on account of sale of certain CERs entitlement to other parties. All such parties are foreign parties and the amount has been received in foreign currency. The question that we are really required to adjudicate upon is whether such money received by the assessee on sale of CERs/ carbon credits is taxable under Income-tax Act or not. The Hyderabad bench of the Tribunal in case of My Home Power Ltd (supra) while dealing with the similar issue held as under:

“24. We have heard both the parties and perused the material on record. Carbon credit is in the nature of “an entitlement” received to improve world atmosphere and environment reducing carbon, heat and gas emissions. The entitlement earned for carbon credits can, at best, be regarded as a capital receipt and cannot be taxed as a revenue receipt. It is not generated or created due to carrying on business but it is accrued due to “world concern”. It has been made available assuming character of transferable right or entitlement only due to world concern. The source of carbon credit is world concern and environment. Due to that the assessee gets a privilege in the nature of transfer of carbon credits. Thus, the amount received for carbon credits has no element of profit or gain and it cannot be subjected to tax in any manner under any head of income. It is not liable for tax for the assessment year under consideration in terms of sections 2(24), 28, 45 and 56 of the Income-tax Act, 1961. Carbon credits are made available to the assessee on account of saving of energy consumption and not because of its business. Further, in our opinion, carbon credits cannot be considered as a byproduct. It is a credit given to the assessee under the Kyoto Protocol and because of international understanding. Thus, the assessees who have surplus carbon credits can sell them to other assessees to have capped emission commitment under the Kyoto Protocol. Transferable carbon credit is not a result or incidence of one’s business and it is a credit for reducing emissions. The persons having carbon credits get benefit by selling the same to a person who needs carbon credits to overcome one’s negative point carbon credit. The amount received is not received for producing and/or selling any product, bi-product or for rendering any service for carrying on the business. In our opinion, carbon credit is entitlement or accretion of capital and hence income earned on sale of these credits is capital receipt. For this proposition, we place reliance on the judgement of the Supreme Court in the case of CIT v. Maheshwari Devi Jute Mills Ltd. (57 ITR 36) wherein held that transfer of surplus loom hours to other mill out of those allotted to the assessee under an agreement for control of production was capital receipt and not income. Being so, the consideration received by the assessee is similar to consideration received by transferring of loom hours. The Supreme Court considered this fact and observed that taxability of payment received for sale of loom hours by the assessee is on account of exploitation of capital asset and it is capital receipt and not an income. Similarly, in the present case the assessee transferred the carbon credits like loom hours to some other concerns for certain consideration. Therefore, the receipt of such consideration cannot be considered as business income and it is a capital receipt. Accordingly, we are of the opinion that the consideration received on account of carbon credits cannot be considered as income as taxable in the assessment year under consideration. Carbon credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated due to environmental concerns. Credit for reducing carbon emission or greenhouse effect can be transferred to another party in need of reduction of carbon emission. It does not increase profit in any manner and does not need any expenses. It is a nature of entitlement to reduce carbon emission, however, there is no cost of acquisition or cost of production to get this entitlement. Carbon credit is not in the nature of profit or in the nature of income.”

“25. Further, as per guidance note on accounting for Self- generated Certified Emission Reductions (CERs) issued by the Institute of Chartered Accountants of India (ICAI) in June, 2009 states that CERs should be recognised in books when those are created by UNFCCC and/or unconditionally available to the generating entity. CERs are inventories of the generating entities as they are generated and held for the purpose of sale in ordinary course. Even though CERs are intangible assets those should be accounted as per AS-2 (Valuation of inventories) at a cost or market price, whichever is lower. Since CERs are recognised as inventories, the generating assessee should apply AS-9 to recognise revenue in respect of sale of CERs.”

26. Thus, sale of carbon credits is to be considered as capital receipt. This ground is allowed.”

5.1 The above order of the Hyderabad Bench has been confirmed by the Hon’ble High Court of Andhra Pradesh. Next, the judgment of Hon’ble High Court of Gujarat in case of Gujarat Flourochemicals Ltd. [ITA Nos. 11/2019 & 28/2019], wherein the facts as noted by the Tribunal are similar with the facts of the assessee, has held the issue in favour of assessee. Undoubtedly, the facts of said case are similar to the case of the assessee which goes a long way to support the claim of the assessee.

5.2 The coordinate bench in case of Malana Power Co. Ltd. [ITA Nos. 2281/Del/2013, 1550/Del/2015 & 3957/Del/2015] while adjudicating the additional ground of carbon credits held as under:

5. We have heard the rival submissions in respect of the assessee’s plea for admission of additional grounds and it is our considered opinion that the additional grounds raise a purely legal issue, the facts of which are already available on record. It is well settled that legal ground can be raised any time as per the ratio laid down by the Hon’ble Supreme Court in the case of NTPC Ltd. v. CIT reported in(SC)/[1998] National Thermal Power Co. Ltd. v. CIT ITR 383 (SC) (SC) (SC), therefore, these are admitted.”

“6. Coming to the merits of the additional grounds of appeal raised by the assessee, we find that this issue is covered in favour of the assessee by the judgment of the Hon’ble Allahabad High Court in the case of Pr. Commissioner of Income Tax v. L.H. Sugar Factory Pvt. Ltd. reported in 392 ITR 568 (All.) wherein the Hon’ble Allahabad High Court had held that income from sale of carbon credits/profits from sale of carbon credits is capital in nature. We also find that ITAT Bangalore Bench in the case of Subhash Kabini Power Corpn. Ltd. v. CIT reported in (2015) 37 ITR (T)106 (Bang.Trib.) had held that once the Assessing Officer had allowed the assessee’s claim of deduction u/s 80-IA in respect of income derived from sale of carbon credits, such order was not amendable u/s 263 of the Act. This order of ITAT, Bangalore Bench was also upheld by the Hon’ble Karnataka High Court.”

“6.1 Further, ITAT Hyderabad Bench in the case of CIT v. My Home Power Ltd. Hyderabad in ITA No. 1114/Hyd/2009 held that carbon credit receipts are capital in nature. This order of ITAT Hyderabad Bench was subsequently upheld by the Hon’ble Andhra Pradesh High Court in 365 ITR 82.”

“6.2 Accordingly, respectfully following the ratio of the settled judicial precedent as aforementioned, we allow the additional grounds raised by the assessee and hold that the income from sale of carbon credits is capital in nature.”

5.3 Coming to the judgments relied upon by the AO and the Ld. CIT(A) and which have been further relied by the Ld. DR, we are of opinion that such cases do not support the case of revenue. As pointed out by the Ld. AR, the order of the Cochin Bench of the Tribunal in the case of Apollo Tyres Ltd. (Cochin Trib.))had already been analyzed by the Hon’ble Allahabad High Court in the case of L.H. Sugar Factory Pvt. Ltd. (supra) which held it ‘not to be good in law’. The other order of the ITAT Ahmedabad Bench in the case of Kalpataru Power Transmission Ltd.(Ahm. Trib.))has been overruled by the later judgment of same bench of Ahmedabad Bench of the Tribunal in the same case of Kalpataru Power Transmission Ltd.[2019-TIOL-1424-ITAT-AHM].In view of the fact that case laws relied upon by the revenue have already been overruled by higher court or by the same court in later judgment, we are not inclined to consider those judgments while adjudicating the issue under consideration.

5.4 We also borrow some reasoning from the fact that Ministry of Finance has inserted a specific provision in form of section 115BBG in the Act which is effective from 1st April, 2018 and will accordingly apply from assessment year 2018-19 and subsequent years. The rate of taxation provided in said section is 10% (in addition to applicable surcharge and education cess). This also corroborates the case of the assessee that CERs are not regular business receipts arising from business of the assessee and this fact has also been recognized by the Government and, therefore, need arose to bring a special provision under the Act and that too at concessional rate of tax. Further, in any case, in view of amendment being applicable from assessment year 2018-19, the taxability in year concerned, which is AY 2006-07, is not governed by said provisions and hence the taxability of carbon credits need to be decided in light of extant judicial position.

5.5 We are in complete agreement with the Ld. AR that the issue in no longer res integra in view of several judgments of Hon’ble High Courts. In the following cases, the Hon’ble High Courts have decided the issue in favour of assessee by holding carbon credits as capital receipts not liable to tax:

5.6 Further, we are not aware of any contrary judgment of any High Court on the issue nor the Ld. DR could point out any contrary judgment on the issue. Therefore, respectfully following the ratio of the Hon’ble High Courts as discussed above as well the orders of the ITAT including the jurisdictional bench of the Tribunal, we are of the view that carbon credits/CERs are in nature entitlement accrued to the assessee on account of its efforts to reduce the emission of harmful greenhouse gases. They have arisen due to environmental concerns and therefore cannot be said to be ‘connected with’ or ‘incidental to’ the business activities of assessee. The assessee is engaged in the business of refrigerants, engineering plastics and industrial yarns etc. and is not into the business of trading of carbon credits. All these findings of facts have been given by the coordinate bench in assessee’s own case in subsequent years in AY 2007-08 and AY 2010- 11 which have been placed before us. We, therefore, hold that carbon credits are not offshoot of business but offshoot of environmental concerns and hence not chargeable to tax. The receipts arising from transfer of carbon credits are in the nature of capital receipts not subjected to tax in terms of section 28(iv) read with section 2(24)(vd) of the Act. The claim of the assessee raised in grounds of appeal from 1 to 3 is hereby allowed.

6.0 Connected with the above, another issue raised by the assessee, by way of additional ground of appeal no.4, is the exclusion of carbon credits from the book profits computed under section 115JB of the Act. It was submitted that the above additional ground is legal ground, all the facts are available on record. The learned authorised representative relied upon the several judicial precedents on this issue.

……………..

6.4 It is a settled law that a capital receipt is not liable to tax under the Act unless it is specifically included in the definition of income u/s 2(24) of the Act and chargeable under any of the charging provisions of the Act. Once a particular receipt is treated as capital receipt, the same cannot be brought to tax in garb of ‘minimum alternative tax’ applicable on book profits computed u/s 115JB of the Act. The ratio of judgment delivered by the Hon’ble High Court of Calcutta in case of Ankit Metal & Power Ltd. (Cal) is worth mentioning. In Para no. 27, the Hon’ble Court held that:

“27. In this case since we have already held that in relevant assessment year 2010-11 the incentives ‘Interest subsidy’ and ‘Power subsidy’ is a ‘capital receipt’ and does not fall within the definition of ‘Income’ under Section 2(24) of Income Tax Act, 1961 and when a receipt is not on in the character of income it cannot form part of the book profit under Section 115JB of the Act, 1961. In the case of Apollo Tyres Ltd. (supra) the income in question was taxable but was exempt under a specific provision of the Act as such it was to be included as a part of the book profit. But where a receipt is not in the nature of income at all it cannot be included in book profit for the purpose of computation under Section 115JB of the Income Tax Act, 1961. For the aforesaid reason, we hold that the interest and power subsidy under the schemes in question would have to be excluded while computing book profit under Section 115 JB of the Income Tax Act, 1961.”

6.5 Further ITAT, Lucknow Bench, in case of L.H. Sugar Factory Ltd. (ITA No. 717 & 418/LKW/2013 and others), held as under: –

“4. We have considered the rival submissions. We find that the issue in dispute as per Ground No. 1 of appeal is regarding nature of receipt on account of sale of carbon credit and in the case of CIT v. My Home Power Ltd. (supra) also, the dispute before Hon’ble Andhra Pradesh High Court was this as to whether the amount received by the assessee on transfer of carbon credit is capital receipt or Revenue receipt. It was held by Hon’ble Andhra Pradesh High Court in that case that carbon credit is not an offshoot of business but an offshoot of environmental concerns and no assets is generated in the course of business but it is generated due to environmental concerns and therefore, it was held that the Tribunal has correctly held that this is a capital receipt and it cannot be business receipt of income and in this manner, Hon’ble Andhra Pradesh High Court has upheld the Tribunal’s order in that case. The dispute in the present case is also regarding nature of receipt on account of transfer of carbon credit. Ld. DR of the Revenue could not point out any difference in facts in the present case and in the case of CIT v. My Home Power Ltd. (supra) and therefore, respectfully following this judgment of Hon’ble Andhra Pradesh High Court, we decline to interfere in the order of Ld. CIT(A) on this issue. Accordingly, Ground No.1 of the Revenue is rejected.”

6.6 We, therefore, respectfully following the aforesaid ratio of Hon’ble High Court hold that Carbon credits being the capital receipts cannot be brought to tax as book profits and are, thus, liable to be excluded from the computation of book profits u/s 115JB. The additional ground of appeal no.4 of the assessee is thus allowed.”

“Claim 2. Interest subsidy under Technology Upgradation Fund (TUF) Scheme:

23. During the year, Assessee had obtained loan of Rs. 6,250 Lacs from SBI and Rs. 3,500 Lacs from State Bank of Mysore under TUF Scheme issued by the ministry of textile, Government of India. Whether the Loan was utilized as per the scheme is not under question. Under the TUF scheme, the assessee was eligible for 5% Interest subsidy calculated on the loan outstanding which amounted to Rs. 3,08,96,338/-. The assessee made such additional claim vide letter dated 16.02.2016 before the AO. The AO did not entertain the additional claim of the assessee. The DRP did not admit the additional claim of the assessee relying on the judgment in Goetzee (India) Limited v. CIT 284 ITR 323.

24. Going into the details, the Ld. Counsel argued that the Objective of the subsidy/incentive under TUF scheme was expansion of capacities, modernisation and up-gradation of facilities and hence nature of subsidy was capital in nature not revenue in nature. The assessee also placed reliance on the following judgments wherein such subsidy was held to be as a capital receipt:

25. The ld. AR has further submitted the department has in subsequent years accepted the assessee’s claim of interest subsidy on TUF scheme as capital in nature as no addition has been made in subsequent years.

26. Ld DR relied upon the orders of authorities below.

27. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. It is a settled position that purpose of subsidy or incentive and not the nomenclature of such incentive have to be seen for the purpose of deciding its nature as capital or revenue. In the judgment of Ponni Sugars & Chemicals Ltd. (supra), the Hon’ble Apex Court have held that character of the receipt of a subsidy in the hands of recipient assessee has to be decided with respect to the purpose for which subsidy is granted. If the subsidy is received to enable the assessee to run its business more profitably then such subsidy is revenue in nature. While, if the subsidy has been received by the assessee to set up a new unit or for expansion of existing unit then such subsidy would be capital in nature. We find from the objective of TUF scheme that interest subsidy under such scheme was granted for expansion of capacities, modernisation and up gradation of facilities. In case of CIT v. Sham Lal Bansal (supra), the Hon’ble Punjab & Haryana High Court on similar facts held subsidy received under TUF Scheme as of capital receipt. Since the issue under hand is related to additional claim which was not entertained by the lower authorities, we therefore allow the assessee’s ground for entertainment of above additional claim and remit the issue back to the file of AO to decide the same in accordance with law after granting a reasonable opportunity of being heard to the assessee. The assessee shall be free to file such documents, explanations, submissions as it deems fit in respect of this claim.”

“44. The facts as submitted are that assessee claimed additional depreciation @10% (half of 20%) amounting to Rs.18,67,13,454/- on assets being the plant and machinery put to use for less than 180 days during the relevant assessment year 2010-11. The assessee claimed that in respect of additional 180 days or more is not applicable. Therefore in view of assessee, it is eligible to claim to full additional depreciation @20% on value of assets put to use during the year irrespective of timing of such put to use during the balance 10% left unclaimed – Rs.18,67,13,454/-, the assessee filed an additional claim during assessment proceedings for A.Y. 2010-11 however the same was neither entertained by AO nor by DRP.

45. The Ld. Counsel has placed reliance on following judicial pronouncements:

“This additional benefit in the form of additional allowance under section 32(1)(iia) is onetime benefit to encourage the industrialization and in view of the decision of Supreme Court in the case of Bajaj Tempo Ltd. v. CIT , the provision related to it have to be constructed reasonably, liberally and purposively to make the provision meaningful while granting the additional allowance.”

Similarly in case of TCPL Packaging Ltd. (supra), the Mumbai Bench has held that remaining additional depreciation claimed can be allowed in immediately succeeding year which could not be allowed in the year of acquisition on the ground that new plant and machinery has been put to use for less than 180 days.

46. The Finance Act, 2015, has amended the law by inserting third proviso to section 32(1)(iia) – applicable w.e.f 1st April 2016 to allow the claim of additional depreciation for assets put to use for less than 180 days in subsequent Assessment Year.

47. The AO is thus, directed to consider the claim of the assessee and give his findings thereon. For this purpose this issue is set aside to the file of AO. The AO shall be free to call for such information and explanation as he deems fit in order to adjudicate this claim of the assessee after granting reasonable opportunity to the assessee of being heard. The assessee will be at liberty to file such documents, explanations, submissions as it deems fit in respect of this claim.”

“63. Since the facts of the case in the year under consideration are identical to that of A.Y. 2014-15, we for the reasons given while deciding the issue A.Y. 2014-15 and for similar reasons, restore the issue back to the file of AO and direct him to decide the issue afresh in accordance with law. The AO shall be free to call for such information and explanations as he deems fit to adjudicate the claim of the assessee. Assessee shall also be free to file such documents, explanations, submissions as it deems fit in respect of this claim. Needless to state that the AO shall grant adequate opportunity of hearing to the assessee”.

“21. We have heard the rival submissions and perused the materials available on record. The issue in the present ground is with respect to interest for Foreign Currency Loan granted by the assessee to its AEs. We find that identical issue arose in assessee’s own case in A.Y. 201011 and the Co-ordinate Bench of Tribunal in assessee’s own case decided the issue observing as under:

“22. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. There is no dispute that assessee has granted loan to its AE in foreign currency, i.e. USD. The Ld TPO applied the imputed interest rate @ 6.89% obtained from various Indian Banks w/s 133(6). It is now well settled in view of Jurisdictional High Court judgment in case of Cotton Naturals (I) Pvt. Ltd. (supra) that Indian lending rates cannot be applied in case of foreign currency lending. The appropriate rate for benchmarking is rate prevailing in the country where the loan has been utilized. Correctly stated by Ld. AR is that LIBOR is an international benchmark used globally as interest benchmark. Various courts have held that LIBOR is an appropriate benchmark for foreign currency loan granted to overseas AE(s). The AE has also availed loan in its home country rate of which is also denominated in LIBOR. In our view LIBOR rate should be used while undertaking the benchmarking analysis in respect of foreign currency loans extended to AE. Well the assessee has charged 250 basis points over such benchmark viz. LIBOR. Therefore, no addition is justified and the entire addition of Rs.2,18,98,274/- is hereby deleted.”

“Para 9:- In facts, under section 143(3) of the Act, the AO while making the assessment of total income or of total loss, in case of any assessee, on the basis of such assessment is bound to consider the following points:

(iii) Any evidence produced by the assessee on the dates specified in the notice from time to time and such other evidence, as the AO may require the assessee to produce on specified points, and

(iv) All relevant material gathered by him even deduction or exemption or relief not claimed in the return, can be claimed under scrutiny proceedings.”

“Para 10:- When a notice under section 143(2) has been issued and proceedings of Assessment under section 143(3) are in progress, the assessee can put forth any claim for deduction or exemption or relief, which was not claimed in the return of income and the same shall have to be considered by the AO. Under section 143(2), the Assessing Officer can verify any understated income, excessive loss claimed or underpaid tax, in any manner, can be verified by the Assessing Officer under section 143(3). The Assessing Officer has to ensure that on the basis of evidence obtained during proceedings of regular assessment, he has to compute correct income of the assessee. ”

“Para 11:- Accordingly, we allow the appeal of the assessee, and direct the AO to compute the income on the basis of revised computation field by the assessee during the assessment proceedings”.

“An obligation is imposed on the ITO by section 84 of the IT Act, 1961, to grant relief thereunder and the relief cannot be effused merely because the assessee had omitted to claim the relief, but the mere existence of such an obligation on the ITO is not sufficient. Precise factual material and clear data must be contained in the record sufficient to enable the ITO to consider whether the relief should be granted under section 84. In the absence of such material, no fault can be found with the ITO for not making an order under section 84 favoring the assessee. ”