Tribunal Upholds Major Transfer Pricing, Business Loss, and Tax Deductions for Assessee Steel Manufacturer

ORDER

Pawan Singh, Judicial Member.- This set of three appeals, out of which two cross-appeals by both the parties for A.Y. 2016-17 and one appeal for Revenue for A.Y. 2017-18 are directed against the separate orders of Id. CIT(A) – 56, Mumbai dated 02.04.2025 and 03.04.2025 respectively. In all the appeals certain facts are common, parties have raised common / inter-connected grounds of appeal. Therefore, with the consent of parties all three appeals were clubbed, heard together and are decided by common order to avoid the conflicting decisions. In appeal for A.Y. 2016-17,therevenuehas raised following grounds of appeal:

“1. Whether on the facts and circumstances of the case and in law the Ld. CTT(A) was justified in deleting the transfer pricing adjustment of Rs.2,63,41,360/-on account of addition made by the transfer pricing officer towards interest on loans advanced by the assessee to its Associated Enterprises?

2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the adjustment by relying on the order of Hon’ble ITAT in the case of JSW Energy Ltd v. DCIT, in ITA No. 2316/Mum/2017 without appreciating that the facts of the international transaction of JSW Energy Ltd were different than that of the assessee’s international transaction of loans of currentyear?

3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the adjustment by applying the judgment in the case of the assessee for A.Y 2008-09 to A.Y 2011-12 without considering the fact that the transfer pricing study is highly facts-based exercise based on contemporaneous data and it differs from case to case and that all the factors in Rule 10B have to be considered for every case and every year independently and that a rate decided in a different case for different set off acts and for different year cannot be adopted as such to the instant assessee, which would be violative ofthe specific provisions in Rule 10B?

4. Whether on the facts and circumstances ofthe case and in law, the Ld. CII(A) was justified in directing to restrict the I’P adjustment of Corporate Guarantee to 0.35% instead of2.00% made by the Transfer Pricing Officer on account of corporate guarantee fee issued by assessee in favour of its associated enterprises?

5. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in setting the corporate guarantee rate at 0.35% without considering the fact that in the benchmarking undertaken by the assessee they had arrived at ALP corporate guarantee commission rate which is more than 0.35%, for instance, the assessee has offered a guarantee fee of Rs. 50.66,59,453/- against JSW Steel (Netherlands) B.V. which is 0.63%?

6. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in setting the corporate guarantee rate at 0.35% without considering the benchmarking undertaken by the assessee and the benchmarking undertaken by the TPO?

7. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the adjustment without considering the flaws pointed by the TPO in the benchmarking undertaken by the assessee?

8. Whether on the facts and in the circumstances of the case, the Ld. CII(A) was justified in setting the corporate guarantee rate at 0.35% without giving any findings as to how the judgments relied by Hon’ble ITAT applied to the case ofthe assessee.

9. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the fee for the guarantee issued by the instant assessee for the loans availed by the AE should be fixed at 0.35% placing reliance upon the decision in other cases, without realizing the fact that the transfer pricing study is highly facts-based exercise based on contemporaneous data and it differs from case to case and that all the factors in Rule 10B have to be considered for every case and every year independently and that a rate decided in a different case for different set of facts and for different year cannot be adopted as such to the instant assessee, which would be violative ofthe specific provisions in Rule 10B?

10. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the fee for the guarantee issued by the instant assessee for the loans availed by the AE should be fixed at 0.35% placing reliance upon the decision other cases, which is in violation of provisions of Rule 10B of IT Rules as credit ratings and the interest rate vary every year?

11. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the fee for the guarantee issued by the instant assessee for the loans availed by the AE should be fixed at 0.35% placing reliance upon the decision in other cases, without adopting any of the methods prescribed in Section 92C which is violation of law?

12. Whether on the facts and the circumstances of the case and in law, the Ld. CTT(A) erred in directing the Assessing Officer to consider the gain on prepayment of Sales Tax deferrals of Rs. 247,84,20,566/- as Capital Receipt ignoring the fact that the gain of prepayment of Sales tax was in the nature of incentive/concession and revenue in nature as per the purpose test of Government of Karnataka’s Scheme?

13. Whether on the facts and the circumstances of the case in law, the Ld. CIT(A) erred in directing the Assessing Officer to exclude sales tax subsidy while computing income u/s 115.JB ofthe Act without appreciating the facts and circumstances ofthe case?

14. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance of Rs. 22.29,00,000/- on account of write off of advance against security deposit, without appreciating the facts?

15. Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) is right in holding that the benefit received by the assessee on account of waiver of principal loans and interest payable is capital in nature and is not taxable while ignoring the ratio laid by Hon’ble Apex Court in the case of Commissioner of Income Tax v. T.V. Sundaramlyengar& Sons?

16. Whether on the facts and the circumstances ofthe case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 27,70,55,746/- u/s 28(iv) of the Act on account of write off of Project Creditors, without appreciating the facts as discussed by the Assessing Officer in the Assessment Order?

17. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A erred in deleting the disallowance ws. 144 of the Act, by overlooking the computational procedure prescribed in Rule 8D of the Income Tax Rules, 1962, which must be followed for making any disallowance w/s. 14A?”

18. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting disallowance u/s 144 r.w.r 8D ofthe Act while computing book profit w/s 115.JB ofthe Act without appreciating the facts?

19. “The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”

2. Brief facts of the case are that assessee-company is engaged in the business of production facility of steel in the State of Karnataka, Tamil Nadu and Maharashtra. The assessee manufacturers pellets, slabs, billets, rolled long products, hot rolled coils, hot rolled plates, cold rolled coils and sheets, galvanized products and colour coated products. The assessee is one of the largest steel manufacturing companies in India. The assessee is also eligible for claiming deduction under section 80IA for sale of power (which is one pf the subject matter in AY 2017-18). The assessee filed its return of income for assessment year (A.Y.) 2016-17 on 30.11.2016 declaring loss. The case of assessee was selected for scrutiny. During assessment, the assessing officer (AO) noted that assessee has reported certain international transaction as well as specified domestic transaction (SDT) with its associated enterprises (AE) as reported in Form 3CEB. Consequent upon reporting such international transaction, a reference was made to Transfer Pricing Officer (TPO). The TPO entered into the reference and after allowing opportunity to the assessee, suggested adjustment on account of interest on loans to AE of Rs. 2.63 crore and adjustment on account of corporate guarantee fee of Rs. 50.66 crorein his order dated 01.11.2019. On receipt of report of TPO, the AO passed draft assessment order wherein various other disallowances on various corporate issues were proposed. Copy of draft assessment order was served upon the assessee. The assessee exercised its option to file appeal before ld. CIT(A) instead of filing objections before Dispute Resolution Panel (DRP). Thus, AO passed final assessment order under section 143(3) r.w.s 144C(3) dated 25.02.2020. While passing final assessment order, the AO computed income of the assessee by making following additions / disallowances / adjustment.

3. On appeal before ld. CIT(A), the assessee was allowed relief on transfer pricing adjustment, disallowance on gain on pre-payment of sales tax, disallowance of write off on advance given against security, on disallowance under section 14A and on disallowance on write off project creditors. However, the disallowance of write off of irrecoverable property advances of Rs. 86.63 crore was confirmed. Further, aggrieved both the parties have filed their respective appeals, raising various grounds of appeal which we have recorded above.

4. First, we are taking various grounds of appeal raised by Revenue in its appeal for A.Y. 2016-17. With the consent of both the parties the learned authorised representative (ld AR) of the assessee begins with his submissions. Ground no. 1 & 2 in Revenue’s appeal relates to adjustment/addition of Rs. 2.63 crore on account of interest on loan given to AEs (JSW NRL). The learned Authorised Representative (ld. AR) of the assessee submits that this ground of appeal is covered by the decision of Tribunal in assesses own case for A.Y. 2013-14 to 2015-16 in Dy. CIT v. JSW Steel Ltd.  (Mumbai – Trib.)/ITA Nos. 5188/M/2024, 4223/M/2025 & 5189/M/2024. In all three earlier years, the AO / TPO made similar adjustment on account of interest given to AEs. However, on further appeal before ld. CIT(A), the additions / adjustments were deleted. The TPO and AO benchmarking methodology for determining Arm’s Length Price (ALP) on short term loan extended to its AE during F.Y. 2012-13, resulting in an unwarranted addition of Rs. 2.63 crore. The TPO considered all loans disbursed in F.Y. 2012-13 indiscriminately, without filtering for tenure, nature, or the specifically shortterm, floating rate character of the assesses AE loan. This flawed selection process led to an inaccurate average interest rate, failing to reflect comparable uncontrolled transactions and distorting the true ALP. The TPO grossly erred in summarily rejected assessee’s own benchmarking analysis without giving cogent reasons, and disregarding binding judicial precedents. Courts and Tribunals have consistently held that TPO must demonstrate why the method chose by him is superior to the method adopted by assessee as per section 92C(1) and Rule 10C(2). The methodology adopted by assessee align with successful outcomes in prior assessments. In A.Y. 2008-09 to 2011-12, the approach adopted by assessee was upheld by ld. CIT(A) and rejected TPO’s approach. Further, on identical facts, in sister concern JSW Energy Ltd., similar addition was faced in A.Y. 2011-12 & 2012-13. However, the ld. CIT(A) allowed relief which was upheld by Tribunal that upholding the method of assessee in LIBOR + spread 2.4383 bps over TPO’s Bloomberg/IRS method. The method adopted by TPO is not recognized by Income Tax Act. The Tribunal while allowing relief to the assessee followed the decision of Bombay High Court in CIT v. Tata Autocomp Systems Ltd. [2015]  374 ITR 516 (Bombay), wherein it was held that ALP followed rates in the recipient country. The Tribunal also relied upon the decision of Delhi High Court in CIT v. Cotton Naturals (I) (P.) Ltd.  (Delhi). In alternative and without prejudiced submission, the ld. AR of the assessee submits that Revenue authorities cannot recharacterize or rewrite terms of agreement with AE as has been held in Cotton Naturals (supra) by Delhi High Court in Tax Appeal No. 233/2014. The transfer pricing checks ALP of actual legitimate transaction not restructuring them. AEs are separate entities with agreed terms not to be obliterated. The ld. AR of the assessee submits that similar addition was proposed in the hands of assessee’s sister concern in case of JSW Energy Ltd. (supra) wherein Tribunal held that loan as long term loan, arrived at a fixed interest rate of 6.5%. Thus, same order may be followed.

5. On the other hand, ld. CIT – DR for the Revenue supported the order of AO / TPO.

6. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We find that TPO from Transfer Pricing Study Report (TPSR), noted that during relevant financial year, the assessee had refinanced and amended three existing intra-group loans in order to extend the repayment date. The TPO recorded the outstanding amount, date of refinance, date of maturity and tenure of loan. The TPO noted that assessee adopted CUP method as most appropriate method wherein external benchmarking exercise was carried out using Thomson Reuters LPC Loan Connector (LPC) database. The benchmarking conducted by assessee was summarily rejected by TPO and he applied Bloomberg database rate which provides LIBOR interest rate of loan based on categorical location of both borrower and lender, tenure of loan, security given and interest charged and received, repayment of loan, loan agreement. The TPO considered the interest received by any Indian assessee’s from its AE situated at Mauritius. The TPO determined corresponding rate of interest applicable for loan transaction at LIBOR + 575 bps for loan amounting to USD 10 million and thereafter, an appropriate amount of fixed rate of interest was apportioned using Swap Manager considering the loan given at 0% fixed rate of interest and same was ascertained at 9.402%. The TPO determined corresponding rate of interest applicable for loan transaction at Libor + 600 bps and thereafter appropriate amount of fixed rate of interest was apportioned using Swap Manager considering loan given at 0% fixed rate of interest and the same was ascertained at 8.23% and suggested adjustment of Rs. 2.63 crore. We find that the ld. CIT(A) allowed relief to the assessee by taking view that similar benchmarking of interest addition / adjustment was made in assessee’s own case for A.Y. 2013-14 and 2015-16 and on further appeal before ld. CIT(A), the addition was deleted and on further appeal before Tribunal, the order of ld. CIT(A) was upheld. The ld. CIT(A) quoted the decision of ld. CIT(A) in earlier years and order of Tribunal. We find that in assessees own case, as well as in sister concern cases, similar adjustment was suggested by TPO in earlier years. However, on further appeal before Tribunal, the approach of TPO in disregarding the methodology of assessee was rejected and benchmarking on the basis of LIBOR and accepted the method of computation of ALP by assessee. Thus, respectfully following the same, we do not find merit in the grounds of appeal raised by Revenue as the same is covered in favour of assessee. In the result, ground no. 1 & 2 raised by Revenue are dismissed.

7. Ground no. 3 to 11 relates to addition / adjustment on account of corporate guarantee given on the loan availed by overseas AEs. The ld. AR of the assessee submits that ground no. 3 to 11 are also covered in favour of assessee and against the Revenue in assessee’s own case for A.Y. 2008-09 to 2011-12 wherein the Tribunal has dismissed the similar grounds of appeal and restricted the corporate guarantee commission @ 0.35%. The ld. AR further submits that TPO suggested adjustment @ 2.00% of guarantee fees on outstanding corporate guarantee aggregating USD 440 million provided to overseas subsidiaries, JSW Steel (Netherlands) BV of USD 115 million loan repayment / investment and JSW Steel Holding (USA) Inc. USD 325 million for investments/working capital during FY 2012-13. Such guarantees are continuing from FY 2007-08 / 2008-09 to enable external borrowings from banks like Bank of India (Singapore), ICICI Singapore, SBI, ANZ and Bank of America were characterized as pure shareholder activities or quasi-equity, not international transactions under section 92B as has been held by Ahmedabad Tribunal in Micro Link Ltd. The ld. AR of the assessee submits that assessee has consistently adopted the “Interest Saved Approach” for benchmarking the corporate guarantee extended to its AE based on this method, the assessee arrived at Arms’ Length Rate varying from 0.20% to 1.5% depending upon the specific facts and circumstances of each transaction including the credit profile of the AE, tenure and underlying financial exposure. Such fact is duly recorded by TPO in its order. The ld. AR of the assessee submits that earlier year order may be followed.

8. On the other hand, ld. CIT-DR for the Revenue submits that Hon’ble Jurisdictional High Court in CIT, Mumbai v. Everest Kento Cylinders Ltd.  (Bombay)/(377 ITR 57 Bom) has upheld corporate guarantee commission at 0.50%. The ld. CIT-DR for the Revenue submits that ld. CIT(A) is not justified in directing the corporate guarantee rate at 0.35% without considering the fact that benchmarking undertaking by assessee has arrived at ALP corporate guarantee commission which is more than 0.35%. The assessee has offered guarantee fees of Rs. 50.66 crore against JSW Steel (Netherlands) BV which is 0.63%. All factors as prescribed in Rule 10B have to be considered for each other case independently and that rate decided in different case on a different set of fact for different year cannot be adopted as such which would be violated to specific provision in Rule 10B.

9. In rejoinder submissions, the ld AR of the assessee submits that the rate of 0.5% cannot be viewed in isolation or as a uniform benchmark but must be understood as falling within a broader range determined on a scientific and transaction specific basis. There cannot be a different treatment in different year when the same corporate guarantee is continuing one.

10. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We find that TPO after detailed analysis suggested to levy a fees @ 2.00% or corporate guarantee and computed the Arm’s Length Price (ALP) accordingly. We find that ld. CIT(A) allowed the relief to assessee on the basis of decision of his predecessor which were upheld by Tribunal in A.Y. 2008-09 to 2011-12. We find that before us, the ld. AR of the assessee made two folds’ submission, firstly that corporate guarantee is not international transaction and secondly such guarantee commission may be restricted to 0.35% on the basis of decision of Tribunal in assesses own case for earlier years. We find that on similar set of fact in assessee’s own case for A.Y. 2008-09 in Dy. CIT v. JSW Steel Ltd (Mumbai – Trib.)/ITA No. 4632/Mum/2017 dated 30.06.2023, co-ordinate bench of Mumbai Tribunal rejected the contention of assessee that corporate guarantee is not international transaction on the basis of decision of Jurisdictional High Court in Everest Kanto Cylinder Ltd. (supra). However, on the basis of various decisions, the Tribunal directed that transaction of corporate guarantee fees be charged at 0.35%. Thus, respectively following the decision of co-ordinate bench of Tribunal and keeping in view that there cannot be a different treatment in other years, when the same guarantee is continuing one from earlier years, hence, we direct the TPO / AO to follow the order of A.Y. 2008-09 which has been followed in various subsequent assessment years. In the result, ground no. 3 to 11 of appeal by Revenue are dismissed.

11. Ground no. 12 relates to repayment of sales tax deferral of Rs. 247.84 core as capital receipt. The ld. AR of the assessee submits that this ground of appeal is also covered in favour of assessee by the decision of earlier years wherein similar sales tax deferral was treated as capital receipt and on appeal before ld. CIT(A) it was allowed as capital receipt. The order of ld. CIT(A) was upheld by Tribunal. Thus, following the principle of consistency, order of earlier years may be followed.

12. On the other hand, ld. CIT-DR for the Revenue supported the order of AO. The ld. CIT-DR for the Revenue submits that definition of income has been changed from April, 2015 and all the subsidies are now treated as income. To support her submission, the ld. CIT-DR relied upon the decision of Mumbai Tribunal in Oricon Enterprises Ltd. v. Dy. CIT Central Wing  (Mumbai – Trib.)/ITA No. 2810/M/2024 dated 16.06.2025 and the decision of Chennai Tribunal in Hyundai Motors India Ltd. v. ACIT [IT (TP) No. 53 (Chny) of 2022].

13. In the rejoinder submission from the ld. AR of the assessee submits that there is consistent order in assessee’s own case for earlier years in treating such sales tax deferral as capital receipt. The ld. AR of the assessee submits that ratio of decision relied by ld. CIT-DR for the revenue is not applicable on the facts of his case. In Oricon Enterprises Ltd. (supra), the Tribunal addressed the taxability of benefit arising from pre-payment of deferral sales tax allowability at net present value. In the said decision, it was held that such pre-payment does not result in assessable benefit under section 28(iv) of the Act as it is a capital receipt rather than a Revenue receipt. In the said case, the benefit accrued at the first stage as well as at the time receipt of eligibility certificates and not in this impugned year. However, in his case benefit has neither accrued at the first stage nor in the impugned year. Further, decision of Chennai Tribunal in Hyundai Motors India Ltd. (supra) is on different issue wherein the said assessee received subsidy. Thus, reliance on both the case laws is mis-placed. The ld. AR of the assessee submits that the Hon’ble Apex Court in CIT-6, Mum. v. Balkrishna Industries Ltd.   (SC), which mirrors the facts and rejected

the Revenue’s stand. The Hon’ble Apex Court upheld the order of Tribunal and High Court, elucidating that premature NPV payment of deferred sales tax treated as a loan payable in future instalments does not satisfy the condition of section 41(1)(a). The ld AR of the assessee submits that Jurisdictional High Court in CIT-8, Mumbai v. Sulzer India Ltd. 273 CTR 400/[2014] 369 ITR 717/[2015] 229  (Bombay), also held that where the assessee made premature payment of deferred sales tax at net present value of certain amount against the total liability and credit balance amounts to its capital reserve account, said credited amount was a capital receipt and could not be remission or cessation of a trading liability under section 41(1).

14. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. we have also deliberated on various case laws relied by the parties. We find that assessing officer during assessment, from the financial statement of assessee noted that assessee has received Rs. 247.84 crore towards gain on pre-payment of sales tax deferrals. The assessee has shown this amount as “other operating revenue” in Note-19 of its annual report. However, while computing tax, the assessee claimed deduction of this amount. On further enquiry, the assessee disclosed that they have received this amount towards gain on pre-payment of sales tax deferrals at net present value. The AO issued show cause notice as to why this amount should not be added as income of assessee. The assessee filed its reply. In the reply, the assessee stated that deferral benefit is granted as incentive from Maharashtra Government under itsindustrial policy for set up of industry in backward areas. The benefit accrued to the assessee is treated as capital receipt not chargeable to tax. The assessee also relied on the decision of Special Bench of Mumbai Tribunal in case of Sulzer India Ltd. v. Jt. CIT – Range 8(3), Mumbai 134 TTJ 385/[2012] 138 ITD 137/[2010] 6 ITR(T) 604/42 SOT 457 (Mumbai), which was upheld by Jurisdictional High Court. The assessee also relied on various other decisions including the decision of Bombay High Court in CIT v. Softworks Computers (P.) Ltd. 354 ITR 16 (Bombay) and the decision of Hon’ble Apex Court in CIT-6, Mum. v. Balkrishna Industries Ltd.  (SC). The reply of assessee was not accepted by assessing officer by taking view that assessee itself has shown the said amount in its profit and loss account as other ‘operating revenue’. So, the decision of Sulzer India Ltd. (supra), is not helpful to the assessee as in Sulzer India Ltd. (supra), the amount was credited in capital reserve account and not in profit and loss account. Further, the decision of Sulzer India Ltd. (supra), is not accepted by department. The assessing officer thereby added Rs. 247.84 crore in the income of assessee and also added while computing book profit under section 115JB. The ld. CIT(A) allowed relief to the assessee on the basis of decision of his predecessor in A.Y. 2013-14 and 2015-16.

15. We find that similar issue was considered by co-ordinate bench of this Tribunal in A.Y. 2008-09 wherein the order of CIT(A) in treating the sales tax subsidy receipt as capital receipt on the basis of decision of Gujarat High Court in Shiv Shakti Flour Mills (P.) Ltd. v. CIT 390 ITR 346 (Gauhati) and Bombay High Court in Pr. CIT v. Welspun Steel Ltd.  (Bombay). We find that similar order was followed by Tribunal in assesses own case in appeal for A.Y. 2009-10 in ITA No. 5325/M/2017 and in A.Y. 2011-12 in ITA No. 5327/M/2017. We also find that Hon’ble Supreme Court in Balkrishna Industries Ltd. (supra), while affirming the decisions of Bombay High Court in Sulzer India Ltd. (supra) also held that paying a deferred sales tax liability prematurely, calculated at its Net Present Value (NPV), does not result in any taxable remission or cessation of trading liability.Thus, respectfully following the aforesaid decision, we do not find any reasons to deviate from the order of earlier years, thus we affirm the order of ld CIT(A) with our additional findings. In the result, this ground of appeal is dismissed.

16. Ground no. 13 relates to adjustment of addition of sale tax deferrals while computing book profit under section 115JB. Considering the fact that we have treated the sales tax deferrals receipt as capital receipt, therefore, this ground of appeal has become infructuous and dismissed as such.

17. Ground no. 14 relates to deleting the disallowance of Rs. 22.29 crore on account of addition of write off advance against security deposit. The ld. AR of the assessee submits that erstwhile Ispat India Ltd. which was merged with assessee-company had provided security deposits to lenders in respect of rented properties prior to its merger with assessee. The ld. AR of the assessee carried us through para 7 of assessment order wherein amounts of advances aggregating of Rs. 22.29 crore is recorded by AO. The ld. AR of the assessee submitted that on expiry of rent agreements, the erstwhile Ispat India Ltdsought refund of deposits. However, the landlords disputed the claims and raised issue of poor maintenance of property and forfeited deposits. The present management was taking over in F.Y. 2010-11 and matter was reviewed and legal proceedings were initiated. The provision was created in F.Y. 2011-12 and subsequently Arbitration proceedings were initiated. The Arbitration Award in favour of assessee in directing the landlords for partial repayment. Thereafter, balance of Rs. 22.29 crore was written off as irrecoverable in the books for the year under consideration. The assessee claimed deduction under section 36(1)(vii). The ld. AR of the assessee submits that once the debt is written off in the accounts, deduction is allowable as per decision of Hon’ble Supreme Court in T.R.F. Ltd. v. CIT [2010] 230 CTR 14/323 ITR 397 (SC). In alternative, the ld. AR of the assessee submits that even if deduction is not allowed as bad debt claim must be allowed under section 37 as it is incidental to the business and deductible. To support such view, the ld. AR relied upon the decision of Supreme Court in Badridas Daga v. CIT [1958] 34 ITR 10 (SC). The ld. AR also relied upon the decision of Bombay High Court in Harshad J. Choksi v. CIT, Bombay City-VII, Mumbai  (Bombay) .

18. On the other hand, ld. CIT-DR for the Revenue supported the order of AO. The ld. CIT-DR relied upon the decision of Delhi High Court in CIT v. Triveni Engineering & Industries Ltd. [IT Appeal No. 56 of 2009, dated 14-9-2010]. The ld. CIT-DR submits that nature of deposit must be keep in mind. The security deposits were not given in the course of business and not allowable as deduction.

19. In the short rejoinder, the ld. AR of the assessee submits that reliance on decision of Triveni Engineering & Industries Limited (supra) is misplaced and based on specific facts. The issue before the Hon’ble Delhi High Court was whether provision made for foreseeable future losses in respect of ongoing project contract was allowable as business deduction. The Hon’ble High Court held that such provision was allowable having referred to the matching concept and accepted method of accounting regularly followed by assessee. However, in the present case, the assessee claimed deduction which arises from a crystallised and ascertained business loss and not from mere accounting provision for possible future expenditure. The assessee pursued regularly and initiated legal proceedings. The matter was referred to Arbitration. The Arbitration Award was passed for partial refund and only thereafter, the assessee write off unrecovered balance.

20. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case laws relied by both the parties. We find that the AO in para 7.2 of order recorded that security deposit was given by Ispat Industries Limited (merged with assessee) for taking various properties on rent. The AO also noted that properties were duly vacated before merger which itself shows that premises were not utilised for the assessee for its business purpose. Hence, there is no point for allowability of advance given by Ispat Industries Ltd. The security advances written off by assessee are capital in nature and cannot be allowed as deduction on revenue expenditure. For claiming bad debts only,the debts which have written off in the books in previous year,on which deduction was claimed and the income was offered in the previous year. We find that ld. CIT(A) allowed relief to the assessee by taking view that to substantiate the claim the assessee has placed on record copy of legal notice issued by law firm, copy of ledger account, copy of Arbitration claim with correspondence and Arbitration Award. From such documents, the ld CIT(A) recorded it is clear that the property was used by assessee (Ispat Industries Ltd.) for conducting business activities and the assessee has correctly claimed differential amount as write off in its books of account. The ld. CIT(A) also held that Supreme Court in TRF Ltd. v. CIT (supra) held that after 01.04.1989 is it not necessary for assessee to establish that debt has in fact become irrecoverable. It would be sufficient if the bad debts are written off as irrecoverable in the accounts of assessee. On the basis of aforesaid view, the ld. CIT(A) deleted the addition. The ld. CIT(A) also allowed in alternative as business loss, on the ratio of decision of Jurisdictional High Court in Harshad J. Choksi (supra) wherein it was held that if the amount claimed as bad debt is held to be not deductible for the want of compliance of condition prescribed under section 36(2), the same could be considered as allowable business loss.

21. On independent appreciation of facts, we find that there is no much dispute on the fact. The parties have their difference on the allowability or disallowance of write off. We find that the assessing officer has not disputed about creation of tenancy or the amount of security deposit. The AO was of the view that the properties were not utilised by the present management of assessee as those were vacated before merger of Ispat Industries Limited. It is settled legal position that once, Ispat Industries Ltd was merged with the assessee all existing asset, rights and liabilities are transferred in favour of assessee. So, the finding of AO to that effect is misplaced. We find that before ld CIT(A), the assessee placed sufficient evidence in the form of legal notice by law firm, copy of ledger account, copy of Arbitration claim with correspondence and Arbitration Award, establish that the properties were used by Ispat Industries Ltd. for conducting business activities and the assessee has correctly claimed differential amount as write off in its books of account. from the evidences placed before lower authorities, the assessee has proved such fact.

22. Even, otherwise, we find that Jurisdictional High Court in Harshad J. Choksi (supra), held thatan amount not deductible as a “bad debt” can still be claimed as an allowable “business loss” if it was incurred in the ordinary course of business.So, far as reliance by ld CIT-DR for the revenue in case of Triveni Engineering & Industries Limited (supra), we find that Hon’ble Delhi Court also recognise the business loss in the said case. Thus, the assessee is also liable to succeed on alternative claim of business loss. Hence, we affirm the order of ld CIT(A) with our additional findings. In the result, this ground of appeal is dismissed.

23. Ground no. 15 & 16 relates to deleting the addition of Rs. 27.70 crore on account of write off of project creditor. The ld. AR of the assessee submits that this ground of appeal is also covered in favour of assessee in assessee’s own case for A.Y. 2012-13 in JSW Steel Ltd. v. Dy. CIT  (Mumbai – Trib.)/ITA No. 2116/Mum/2017 dated 29.03.2023 which was followed in 2013-14 & 2014-15. The ld. CIT(A) while allowing relief to the assessee followed the order of Tribunal.

24. On the other hand, ld. CIT-DR for the Revenue supported the order of Assessing Officer. The ld. CIT-DR for the Revenue submits that principal amount of loan for purchase of plant & machinery is capitalised and forms part of actual cost of asset. The assessee claimed depreciation in the block of asset.

25. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We find that during assessment the AO noted that assessee claimed an amount of Rs. 27.70 crore as provision no longer required written back in respect of project creditors. On show cause, the assessee explained that this amount is on account of waiver of principle amount of loan utilised for purchase of plant & machinery. The AO further issued show cause notice that why addition of this amount be made in accordance with additions in the preceding years. Though before the AO, the assessee claimed that similar issue was held in favour of assessee by ld. CIT(A) in AY 2004-05 and on appeal before Tribunal, the action of ld. CIT(A) was upheld. The AO despite recording such fact held that principal of loan amount was for purchase of plant & machinery which was capitalised and assessee claimed depreciation. Though receipt of loan of capital receipt, the amount changes its character when it became its own money because of contractual arrangements. The credit balance on losing its character of a liability is written back in the profit and loss account is required to be taxed as income of assessee under section 28(iv) of the Act. The AO also referred certain case law. We find that ld. CIT(A) allowed relief to the assessee on the basis of decision of Tribunal in A.Y. 2013-14 & 201516 in favour of assessee. We find that similar addition was made by AO in A.Y. 2012-13 on identical basis. On filing objection before DRP, the action was confirmed. However, on further appeal before Tribunal, similar addition was deleted by Tribunal by following the order of coordinate bench in A.Y. 2004-05 in JSW Steel Ltd. v. Asstt. CIT, Circle 11(5), Bangalore  (Mumbai)/ITA No. 930/Bang/2009 dated 13.01.2017. The co-ordinate bench of Tribunal also considered the decision of Solid Container Ltd. vs DCIT (308 ITR 417 )and Mahindra & Mahindra Ltd. v. CIT [2003] 182 CTR 34/261 ITR 501 (Bombay)/(260 ITR 180).InSolid Containers Ltd. v. Dy. CIT, Spl. Range-1, Mumbai [2009] 222 CTR 455/308 ITR 417  (Bombay), the Bombay High Court held that when a loan taken for business/trading purposes is waived or written back, the written-back amount assumes the character of income and is taxable. However, in Mahindra & Mahindra (supra) the Jurisdictional High Court held that a loan which is originally taken for capital expenditure, if waived, will not give rise to taxable income either under section 41(1) or under section 28(iv). Similar view was taken by Madras High Court in Iskraemeco Regent Ltd. v. CIT-I  (Madras) and Delhi High Court in CIT v. Tosha International Ltd. [2011] 331 ITR 440/[2009]   (Delhi). Thus, respectfully following the decision of co-ordinate bench and decision other High Courts recorded above, we affirm the order of CIT(A) with our additional finding.

26. Ground no. 17 relates to deleting the disallowance under section 14A and Ground no. 18 relates to making addition thereof to book profit. The ld AR of the assessee submits that during relevant financial year the assessee received dividend income of Rs. 18.29 crore from its investment against which the assessee made suo moto disallowances under section 14A of Rs. 2.58 Crore, while filing return of income. The AO invoked the provisions of Rule 8D and made an addition of Rs. 77.89 Crore. The additions made by AO are flawed. The disallowance under section 14A is not automatic and can be applied if the AO records dissatisfaction about the suo moto disallowance. There are series of decisions wherein it has been consistently held that the AO before invoking provisions of Rule8D must record its satisfaction about the correctness of suo moto disallowances offered by the assessee.No satisfaction was recorded by AO thus, the suo moto disallowances remains valid. The AO made disallowance of direct expenditure of Rs. 9,585/- only (Rule 8D2(i). It was further argued that the reserve and surplus of assessee including share application money available with the assessee are in far excess of investment for earning exempt income. The assessee share application, reserve and surplus of Rs. 21,752,96 Crore, whereas the assessee made total investment of Rs. 4,473.63 Crore only. Thus, there is presumption that the assessee made investment from interest free funds available with the assessee. Hence no disallowance under Rule 8D(ii) is to be made. To support his submissions, the ld AR relied on the decision of Apex Court in CIT v. Reliance Industries Ltd. 410 ITR 466  (SC)/(SLP No. 37 /2019 and Bombay High Court in CIT-2, Mumbai v. HDFC Bank Ltd. [2016] 284 CTR 409/[2014] 366 ITR 505  (Bombay)/(165 ITD 659 Bom)andCIT v. Suzlon Energy Ltd. 354 ITR 630 (Gujarat). The ld AR of the assessee further submits that while calculating disallowances the AO considered all the investment appearing in the books of assessee. The assessee made investment in partnership firm and not earned any exempt income thereof. The assessee earned exempt income of Rs. 18.29 crore from investment in JSW Energy Ltd. (supra), The assessment made investment in Rs. 220.61 crore in JSW Energy Ltd. (supra), As per decision of special bench of Delhi Tribunal in Asstt. CIT v. Vireet Investment (P.) Ltd.165 ITD 27 (Delhi – Trib.) (SB) only those investments which yielded exempt income is to be considered for the purpose of disallowance under Rule 8D(iii). Thus, the disallowance under section Rule 8D(iii) will be of Rs. 1.10 crore. The assessee has already disallowed Rs. 2.58 crore. Thus, no further disallowance is called for. The ld. AR further submits that this ground of appeal is also covered by the decision of Tribunal in A.Y. 2008-09 to 2011-12 in ITA Nos. 4632, 5325, 5326 & 5327/M/2017 and ITA No. 2287, 5457, 5458 & 5459/M/2017 dated 30.06.2023. The disallowance under section 14A which is based on notional or adhoc computation is beyond the scope of section 115JB.

27. On the other hand, the ld. CIT-DR for the Revenue supported the order of AO on both the grounds of appeal.

28. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities. We have also seen the order of Tribunal for A.Y. 2008-09 to 2011-12 dated 30.06.2023. We find that during the relevant financial year; the assessee has shown dividend income of Rs. 18.29 crore. The assessee has suo moto disallowed Rs. 2.58 crore under section 14A. Before lower authorities as well as before us, the assessee contended that the assessee earned exempt income of Rs. 18.29 crore from investment in JSW Energy Ltd. The assessment made investment in Rs. 220.61 crore in JSW Energy Ltd and as per decision of Special Bench of Delhi Tribunal in Vireet Investment Private Ltd. (supra), only those investments which yielded exempt income is to be considered for the purpose of disallowance under section 14A r.w.r. Rule 8D. We find that the AO made disallowance under section 14A r.w.r. 8D by disregarding the suo moto disallowance offered by assessee. The AO invoked the provision of Rule 8D and made total disallowance of Rs. 80.48 crore which consist of direct expenses of Rs. 9,585/- under Rule 8D(2)(i), Rs. 67,63,69,870/- on account of interest expenses under Rule 8D(2)(ii) and of Rs. 12,84,93,726/- 0.5% of average investment under Rule 8D(2)(iii). The ld. CIT(A) allowed relief to the assessee on the basis of various decision of Higher Courts wherein it was held that when interest free funds are in far excess of investment then the investment for earning exempt income, no disallowance under Rule 8D(2)(ii) is to be made. Further, only those investments which yielded exempt income is to be considered as per decision of Special Bench of Delhi Tribunal. It was noted that assessee has made disallowance of section 14A r.w.r. 8D of Rs. 2.58 crore. The ld. CIT(A) also directed the AO to delete the disallowance @ .5% of average value of investment which did not yield exempt income and to consider only those investments which yielded exempt income and accordingly allowed part relief to the assessee. On our independent appreciation of fact, we find that decision of ld. CIT(A) is based on various judicial precedent. The ld. CIT(A) also followed the decision of Tribunal in assessee’s own case for A.Y. 2013-14 & 2015-16 as recorded in para 19.11 of his order. Thus, we do not find any infirmity or inconsistency for our interference. Hence, we affirmed the order of ld. CIT(A). We also affirm the order of ld. CIT(A) that addition / disallowance under section 14A cannot be added while computing the book profit under section 115JB as has been held by Special Bench of Delhi Tribunal in Vireet Investment (P) Ltd. (supra) and Delhi High Court in Pr. CIT v. Bhushan Steel Ltd. [IT Appeal No. 593 of 2015, dated 29-9-2015]. In the result, ground no. 17 & 18 of the appeal are also dismissed.

29. In the result, appeal of the Revenue is dismissed.

30. The assessee has raised following ground of appeal;

On the facts and circumstances of the case as well as in law, the Ld. CIT(A) has erred in confirming the action of the Ld. Assessing Officer in making a disallowance of Rs. 86,63,00,000/- on account of write off of irrecoverable property advance, without considering the facts and circumstances of the case.

31. Brief facts leading to disallowance of Rs. 86.63 crore are that during assessment, the AO noted that assessee claimed deduction in respect of irrecoverable property advance written off on show cause, the assessee explained that advance made to Naitri and BPM was towards commercial expediency and be treated as business loss as allowable deduction. The advances were made for the purpose of business. The AO recorded the summary of such advances on page 5 in para 6 of his order. It was explained before AO that erstwhile Jindal Vijayanagar Steel Limited entered into an agreement with Naitri Properties Private Ltd. in March, 1998 to participate in the funding of the construction of a property at Malabar Cumballa Hill Division, Bombay for constructing residential complex named “Naman Enclave”. Participation of funding in a project with a view to acquire first right of refusal of 20 residential flats admeasuring 2100 sq. ft. Build up area aggregating total 42,000 sq. ft. For residential need of its executive. Copy of agreement was furnished. The estimated market value of 20 residential unit was of Rs. 63 crores. There were other term and condition for such agreement. The assessee also explained agreement with Naman Developer Private Ltd. to acquire 48 residential unit having 1250 sq. ft. built up area per unit with right to refusal and other conditions. The assessee paid Rs. 25.50 crore. The assessee also explained about agreement of Jindal Vijayanagar Steel Ltd. with BPM Industries Ltd. to whom the assessee paid Rs. 31.13 crore. The assessee also explained that due to unprecedented recession in real estate and stoppage of construction activities, the assessee relinquished right in the said property and could recover 18.33 crore and balance of 31.13 crore was irrecoverable and right of in the books of assessee. Copies of ledger accounts were also furnished. The assessee explained that decision of acquiring residential flat or commercial space as well as abandoning the same was conscious business decision. Due to deteriorating financial position and not servicing debts to banks and financial institutions, Jindal Vijayanagar Steel Ltd. went into corporate debt restructuring (CDR) wherein one of the conditions in CDR was that Jindal Steel Ltd. (supra) (assessee) shall undertake to sell the land / real estate proposed to be hived off within one year time frame and deposit the proceeds in the trust and retention account. Copy of CDR conditions were also furnished. The assessee contended that advances were given for commercial expediency and be treated as business loss as allowable deduction. The advances were made fur furtherance of business hence loss incurred constitute business loss. To support such view the assessee relied on decision in TRF Ltd. (supra). The assessee has shown written off advances of 86.63 crore in its books of account and explained in Note – 24 “Other expenses”. The reply of assessee was not accepted by AO by taking view that such claim of deduction in respect of irrecoverable property advances written off is not a revenue receipt. Rather it is a capital advance. Further, as per clause 10 of agreement between Neitri Property and Jindal Steel Ltd. dated 24.03.1998, the assessee was having option to exercise the right to direct Neitri Property to sale any flat those rights are reserved by assessee any time. Such condition clearly shows that advances were made for investment purpose and not for the purpose of business. The assessee company is in the business of manufacturing of steel hence investment in building cannot be considered as advance for business purpose. Further, nominee clause in respect of sale of flats also exists in agreement with Naman Builder and BPM Industries. The written off advances given to them cannot be allowed as capital advance. The assessee has not provided any documentary evidences which can justified that necessary efforts were made to collect the advances given nor any evidence is filed for substantiating the nature of advance.

32. Before ld. CIT(A) the assessee explained that they had given advancement to acquire share in commercial space and in residential flat for its employee in Bombay and Bangalore. The assessee has paid advances of Rs. 104.96 crore in earlier year. Bifurcation of amount was furnished, which consists of payment of Rs. 49.46 crore to BPM Industries Ltd. and Rs. 55.50 crore to Naman Enterprises. Only Rs. 18.33 crore were recovered over various financial years. The decision of acquiring of proposed commercial and residential flats and abandoning thereof, were deliberate business decision made with the intention of streamlining operations during the period of financial difficulties. The assessee also reiterated the similar submission as submitted before AO. The assessee also relied on certain case laws wherein it was held that if advances were given for acquiring land for set up of factory and land was not acquired that is no capital asset has been acquired, therefore, such payment is to be allowed as business loss.

33. The ld. CIT(A)upheld the action of AO that investment in building cannot be considered as advance for the purpose of business. For claiming applicability of write off under section 36(2), no income in respect of such advances has been offered by the assessee in earlier years. The assessee has not provided any documentary evidence which can justify the fact that necessary efforts were made to collect the given or any evidence to substantiate the nature of advance.

34. The ld. AR of the assessee submits that assessee made agreement with Naman Enterprises and BPM Industries Ltd. to acquire share in commercial and residential flat for its business purpose and for residential need of its employee. The assessee made advances for business expediencies. The advances were made in furtherance of business activities for acquiring residential flats for effective business operations. The assessee is eligible for right of such advances and in alternative for business loss.

35. On the other hand, the ld. CIT-DR for the Revenue supported the order of lower authorities. The ld. CIT-DR submits that advance given by assessee was on account of capital. The assessee is engaged in the business of manufacturing of steel. Investment and building cannot be considered for business purpose. The Hon’ble Apex Court on similar set of facts in Pr. CIT v. Khyati Realtors (P.) Ltd. (SC), held that assessee cannot claim a deduction for an unrealised advance as a “bad debt” under Section 36(1)(vii) unless they conclusively prove that their business includes money lending or that the advance was integrated into their ordinary trading operations. Furthermore, if a claim specifically fails the statutory parameters of a bad debt, it cannot be alternatively routed and allowed as a general business expense under the residual provision of Section 37(1). Thus, the assessee is not eligible even for alternative relief under section 37 of the Act.

36. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. On careful consideration of claim of assessee and the finding of lower authority, we find force in the submission of ld. CIT-DR for the Revenue thatassessee cannot claim a deduction for an unrealised advance as a “bad debt” under Section 36(1)(vii) unless it is conclusively proved that their business includes money lending or that the advance was integrated into their ordinary trading operations. Furthermore, if a claim specifically fails the statutory parameters of a bad debt, it cannot be alternatively routed and allowed as a general business expense under the residual provision of Section 37(1). Before us, neither the assessee has filed any evidence in the form of agreement with the builders nor any corroborative evidence to substantiate the fact that such advances for acquisition of commercial or residential property was made in the course of his business activity or it does not fall into a capital stream. We find that ratio of decision of Hon’ble Apex Court in similar set of fact in Khyati Realtors Private Ltd. (supra) wherein it was held that assessee cannot claim a deduction for an unrealised advance as a “bad debt” under Section 36(1)(vii) unless they conclusively prove that their business includes money lending or that the advance was integrated into their ordinary trading operations. In our view the ratio of this decision is square applicable on the facts of present case. In the result, the ground of appeal raised by assessee is dismissed. In the result, appeal of assessee is dismissed.

37. The Revenue in its appeal for A.Y. 2017-18 has raised following grounds of appeal;

1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was justified in deleting the transfer pricing adjustment of Rs.2,26,42,530/- on account of addition made by the transfer pricing officer towards interest on loans advanced by the assessee to its Associated Enterprises?

2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the adjustment by relying on the order of Hon’ble IIAT in the case of JSW Energy I.td v. DCIT, in ITA No. 2316/Mum/2017 without appreciating that the facts of the international transaction of JSW Energy Ltd were different than that of the assessee’s international transaction of loans of currentyear?

3. Whether on the facts and in the circumstances ofthe case, the Ld. CTT(A) was justified in deleting the adjustment by applying the judgment in the case of the assessee for A.Y 2008-09 to A.Y 2011-12 without considering the fact that the transfer pricing study is highly facts-based exercise based on contemporaneous data and it differs from case to case and that all the factors in Rule 10B have to be considered for every cases and every year independently and that a rate decided in a different case for different set of facts and for different year cannot he adopted as such to the instant assessee, which would be violative ofthe specifie provisions in Rule 10B?

4. Whether on the facts and circumstances of the case and in law, the Ld. CFT(A) was justified in directing to restrict the TP adjustment of Corporate Guarantee to 0.35% instead of 2.00% made by the Transfer Pricing Officer on account of corporate guarantee fee issued by assessee in favour of its associated enterprises?

5. Whether on the facts and circumstances of the case and in law, the Ld. CTT(A) is justified in setting the corporate guarantee rate at 0.35% without considering the fact that in the benchmarking undertaken by the assessee they had arrived at ALP corporate guarantee commission rate which is more than 0.35%, for instance, the assessee has offered a guarantee fee of Rs. 88,05,93,940- against JSW Steel (Netherlands) B. V. which is 0.63%?

6. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in setting the corporate guarantee rate at 0.35% without considering the benchmarking undertaken by the assessee and the benchmarking undertaken by the TPO?

7. Whetheron the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the adjustment without considering the flaws pointed by the TPO in the benchmarking undertaken by the assessee?

8. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in setting the corporate guarantee rate at 0.35% without giving any findings as to how the judgments relied by Hon’ble ITAT applied to the case of the assessee.

9. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the fee for the guarantee issued by the instant assessee for the loans availed by the AE should be fixed at 0.35% placing reliance upon the decision in other cases, without realizing the fact that the transfer pricing study is highly facts based exercise based on contemporaneous data and it differs from case to case and that all the factors in Rule 10B have to be considered for every case and every year independently and that a rate decided in a different case for different set of facts and for different year cannot be adopted as such to the instant assessee, which would be violative of the specific provisions in Rule 10B?

10. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the fee for the guarantee issued by the instant assessee for the loans availed by the AE should be fixed at 0.35% placing reliance upon the decision other cases, which is in violation of provisions of Rule 10B of IT Rules as credit ratings and the interest rate vary every year?

11. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the fee for the guarantee issued by the instant assessee for the loans availed by the AF should be fixed at 0.35% placing reliance upon the decision in other cases, without adopting any of the methods prescribed in Section 92C which is violation of law?

12. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the adjustment on inter-unit transfer of power from captive power plant of Rs. 12,35.69.20,904/-?

13. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in relying on the decision of Hon’ble Supreme Court in the case of CTT . Jindal Steel and Power Limited (C A. No. 13771 of 2015), when the case of the assessee pertains to AY 2015-16 and therefore the said judgment of the Hon’ble Supreme Court which pertains to years prior to the introduction of Section 80A(6) vide Finance Act, 2009 and the amendments in Section 804(6) and sec 80-14(8) vide Finance Act, 2012 is not applicable to the facts ofthe assessee?

14 Whether on the facts and circumstances of the case and in law, the Ld. CTT(A) is correct in not appreciating the fact and position of law that comparability of the specified domestic transaction (SDT) with uncontrolled transaction has to be established in terms of parameters contained in Rule 10B(2). by which the price charged by a power generating company cannot be compared to the price of a Distributor, more so since the Functions performed, Assets employed and Risks assumed (FAR) are entirely different?

15. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the fact that the assessee has adopted the price charged by a power distributing company (MSEDCL) to its non-eligible unit as comparable transaction and that the margin earned by the power distributor for the functions performed, assets employed and risks assumed by it are embedded in the said price, as against same, the assessee does not perform any function on account of power distribution nor does it employ any huge asset relating to distribution nor does it assume any risk connected with distribution and therefore. adoption of the price charged by a distributor as comparable for the price charged by the assessee which is generator is not correct, as the assessee would be attributed with costs and profits on account of distribution activity,which it has not performed?

16. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the following facts and position of law that the power consuming unit cannot be taken as tested party for choosing the comparable as done by the assessee, but only the power generating unit can be taken as tested party for choosing the matching FAR comparable:

17. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the purport of the Explanatory Memorandum to Finance Bill 2012 which introduced SDT and the provisions relating to SDT were enacted so that the mechanism provided under the Transfer Pricing provision could be applied in respect of domestic transactions as suggested by the Hon’ble Supreme Court in the case of CIT v. Glaxo Smithkline Asia (P) Ltd ([TS- 47-SC-2010-TP1?

18. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not recognizing the principles laid down by the Hon’ble Kolkata High Court in the case of CIT v. ITC Ltd [2015 which clearly ruled that the rate at which electricity was purchased from Power Distributor by non-eligible unit of the assessee can by no means be the market rate at which the power plant of the assessee could have sold its production in the open market, especially considering the amendments in the Act from AY 2013-14?

19. Whether on the facts and circumstances of the case and in law, the Id. CIT(A) was justified in deleting the disallowance claim of loans advanced to overseas subsidiaries written off amounting to Rs. 34.64,76,24.603/-without appreciating the facts?

20. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance Long Term Capital Loss claimed on account of liquidation of overseas subsidiary and on reduction of capital by overseas subsidiary amount to Rs. 2025,02,47,008/-without appreciating the facts?

21. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting disallowance of Short Term Capital Loss claimed on reduction of capital by overseas subsidiary amounting to Rs. 699.57,99,932/-without appreciating the facts?

22. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified to allow the assessee ‘s alternate claim that investment written off on reduction of capital of overseas subsidiary and liquidation of overseas subsidiary amount to Rs. 1778 cr as business loss/deduction without appreciating the facts?

23. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting disallowance of Cargo handling expenses being non-business expenses u/s 69C of the Act amounting to Rs. 44,40,00.000/-without appreciating the facts?

24. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance w/s. 144 ofthe Act, by overlooking the computational procedure prescribed in Rule 8D of the Income Tax Rules, 1962, which must be followed for making any disallowance w/s. 14A?”

25. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting disallowance u/s 14A r.w.r 8D ofthe Act while computing book profit u/s 115.JB ofthe Act without appreciating the facts?

26. Whether on the facts and circumstances of the case and in law. the Ld. CIT(A) was justified in allowing assessee to claim an amount of Rs. 49,13.64.795/- on account of ESOP expenses without filing a revised ITR?

27. “The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”

38. We find that Ground No. 1 & 2 relates to deleting to Transfer Pricing adjustment on account of interest on loans which is similar to ground no. 1 & 2 in appeal for A.Y. 2016-17, which we have already dismissed by confirming the order of ld. CIT(A) hence, by following the principle of consistency, these grounds of appeal are also dismissed with similar directions.

39. Ground no. 3 to 11 relates to deleting the transfer pricing adjustment on account of corporate guarantee issued by assessee in favour of its AE. We find that these grounds of appeal are similar to ground no. 3 to 11 in appeal for A.Y. 2016-17, which we have already dismissed by confirming the order of ld. CIT(A) hence, by following the principle of consistency, these grounds of appeal are also dismissed with similar direction.

40. Ground no. 12 to 18 relates to deleting the adjustments in respect of inter unit transfer of power from captive power plant. The ld. AR of the assessee submits that these grounds of appeal are covered in favour of assessee in assessee’s group case JSW Steel Coated Products Ltd. v. DCIT [IT Appeal Nos. 5142 & 5143 (Mum) of 2024, dated 30-1-2026] wherein the order of third member / special bench in Aditya Birla Nuvo Ltd. v. DCIT [IT Appeal No. 563 (Mum) of 2018, dated 18-9-2025], was followed. The special bench considered all the objections and submissions of revenue as has been raised in ground no. 13 to 18.

41. On the other hand, the ld. CIT-DR for the Revenue supported the order of AO. The ld. CIT-DR submit that she is aware about the decision of special bench in Aditya Birla Nuvo Ltd. (supra) yet to keep the issue alive and to test it before the Hon’ble High Court, she fully supports the order of AO.

42. We have considered the rival submissions of both the parties.Before TPO, the assessee contended that they have adopted the price charged by power distributing company (State Government Electricity Co.) to its non-eligible unit as comparable transaction. The TPO disregarded such contention and while suggesting adjustment on account of transfer of power from captive power plant to assessee, adopted at which State Power Distribution Companypurchased electricity from captive power plants.The ld. CIT(A) allowed relief to the assessee on the basis of decision in assessee’s group case in JSW Energy Limited (supra) in A.Y. 2013-14 & 2015-16.On independent considering the order of lower authorities and the submission of both the parties, we find that the issue raised in ground no. 12 to 18 is squarely covered by the decision of Special Bench / Third Member in Aditya Birla Nuvo Ltd. (supra), wherein all earlier decision including decision of Hyderabad Tribunal in Sanghi Industries Ltd. v. CIT was considered by Special Bench. The Hon’ble Special Bench has held that price at which the assessee (industrial units) purchased power from the State Electricity Board can be applied as a valid CUP for determining the ALP of sale/supply of power by the CPP to its other unit. It was also held that that price at which the assessee (industrial units) purchased power from the State Electricity Board can be applied as a valid CUP for determining the ALP of sale/supply of power by the CPP to its other unit. In view of aforesaid factual and legal discussion, we affirmed the order of ld. CIT(A) with our additional findings. In the result, ground no. 12 to 18 raised by Revenue are dismissed.

43. Ground no. 19 to 22 relates to deleting the disallowance of write off loans advance to foreign subsidiaries of Rs. 3464.76 crore, deleting the disallowance of long-term capital loss of Rs. 2025.02 crore and short-term capital loss of Rs. 699.57 crore. And alternate claim of written off of reduction of capital of overseas subsidiary and liquidation of overseas subsidiaries of Rs. 1778 Crores.

44. Brief facts leading to aforesaid additions are that during assessment the AO noted that for expansion of overseas business operation, the assessee made various investment in various jurisdiction across the globe through its subsidiaries viz JSW Steel (Netherland) BV. The JSW Steel (Netherland) BV has various overseas subsidiaries in USA, Chile (Latin America), UK, Mauritius etc. The AO after recording the details of subsidiary of JSW (Netherland) in various location in a diagram as mentioned at page no. 4 of assessment order, recorded that assessee acquired plate and pipe manufacturing entity at Baytown, Texas during the year 2007 and later on group has acquired several iron ore mining in Chile in 2008 and thereafter in 2010 the Group has acquired coal mining interests in West Virginia (USA). All the said businesses were under the control of JSW Steel (Netherlands) B.V. through investment in the said entities / subsidiaries. The plates and pipe plants were purchased by JSW Steel (USA) Inc, a subsidiary company of JSW Steel Holding (USA) Inc. The said plant was acquired by purchasing three companies in USA i.e. Jindal United Steel Corporation (JUSC), Saw Pipes USA (SPU) and Jindal Enterprise LLC (JE), all of which are located in Baytown, Texas. It was also recorded that from time to time the assessee company has provided/extended loan to JSW Steel Holding (USA) INC. The AO prepared year wise chart of loan given to its various subsidiaries as recorded on page no. 5 of assessment order. For appreciation of fact, the details of year wise loans are as under:

45. The AO further recorded that case of assessee was specifically selected on account of “large any other amount claimed as deduction under schedule business and profession”. The AO issued show cause notice to assessee to provide break up of claim of amount of Rs. 55,91,61,56,387/-, as claimed in income tax return. The assessee was also asked to justify the allowability of such claim. The AO recorded that assessee filed reply dated 21.06.2021 that such amount of Rs. 5242.99 crore pertains to write back of provision of investment / loans and advances provided to subsidiaries which were made during the FY 2015-16. This provision was added back and offered to tax by the Company in FY 2015-16 in normal as well as under Minimum Alternative Tax (MAT) computation. The assessee in its submission stated that the assessee company had made provision for loans and investments in relation to its overseas subsidiaries aggregating to Rs. 5860 crores during the FY 2015-16. This provision was added back and offered to tax by the Company in FY 2015-16 in normal as well as MAT computation. During the FY 2016-17, out of the aforesaid provisions, the company has written back provisions to the extent of Rs. 5,243 Crore (written back of provision for investment – Rs. 1,778.23 Crore and loan – Rs. 3,464.76 Cr). As the above provision was added back while computing taxable income under normal provision and under section 115JB in FY 2015-16, the write back of said provision of Rs. 5,243.62 Crore during the year has been reduced while computing income under normal provisions as well as Income under section 115JB during the year under consideration. The detailed break-up of write back of Rs. 5,243.62 Crore was provided to AO in the following manner:

46. The assessee further stated that they have written off Rs. 3465 Crore towards Loans given to overseas subsidiaries and written off investment of Rs. 1778 crores during the year under consideration. The write off of investments was added back while computing Income under normal provisions. The write off of loan given by the Company to its overseas subsidiaries is allowable as business loss, since the assessee company has substantial interest in the business operations of these subsidiaries which forms integral and essential part of steel making business of the Company. Accordingly, the said loans were advanced in the ordinary course of its business. The assessee company has already offered the interest income earned by it from the aforesaid loan as ‘business income’, and accordingly, activity of lending money to its subsidiaries should be treated as business activity. To support their contention from reliance was made on decision of Hon’ble Karnataka High Court in assesses own case for AY 1995-96inCIT v. JSW Steel Ltd. [IT Appeal No. 385 of 2010, dated 13-2-2010].

47. The AO further noted that on correlating the submission filed by the assessee with the computation of income, it has been gathered that, in the return of income the assessee had claimed the above written off of investment / loans and advances as expenses during the year under consideration. Further, in revised return of income in addition to the above, they had also claimed the long-term capital loss / short term capital loss on written-off of investment in subsidiaries under the head “Income from Capital Gain”. The detailed breakup of write -off of loans and investments and loss claimed of long-term capital loss / short term capital loss on reduction in share capital was also recorded by AO. On seeking explanation, the assessee explained that there is long term capital loss on capital reduction of equity share of shares of JSW Netherland of Rs. 2023.44 crore. (indexation benefit has been taken) and long-term capital loss (LTCL) on cancellation of equity shares on liquidation of JSW USA of Rs. 1.59 crore. (Indexation benefit has been taken). Further, there is short term capital loss (STCL) on capital reduction of preference shares of JSW Netherlands of Rs. 699.58 crores. On considering the details furnished by assessee, the AO was of the view that prima facie,claim of assessee is inadmissible in law, as there was no sufficient basis for the same. The AO issued notice under section 142(1) of the Act to substantiate the said claim, with financials of the overseas subsidiaries whose investments and loans were written off along with the purpose and basis of writing off of the said investment and also justification for the allowability. The AO also issued notice to the assessee to gather the information on the overseas business. The AO recorded that assessee filed reply on 26.02.2021 and furnish the required details. The extracts of reply of assessee are recorded from page no. 8 to 36 of assessment order. The assessee in its submissions on writeback of provision on impairment of loan given to overseas subsidiary and investment in overseas subsidiaries submitted that it has reduced provision on impairment of loans and investment written back amounting to Rs. 5,242.99 crores (comprising of Rs. 3,464.76 Crores as loan given to its overseas subsidiary and Rs.1,778.23 Crores) towards investments in overseas subsidiaries, which has been shown in the financial statement while computing the taxable income. It was submitted that the above provision was made in FY 2015-16 and the same was added back while computing the taxable income of FY 2015- 16 relevant to AY 2016-17. In the FY 2015-16, Rs. 5,860 crores was added back towards provision of loans and investments in the computation of income. Copy of the computation of income for AY 2016-17 was furnished. On allowability of on write-off of loan given to overseas subsidiary and loss on liquidation of JSW Steel Holding (USA) Inc. (‘US Hold Co.’) and on capital reduction of JSW Steel B. V. Netherlands (JSW Netherlands), the assessee submitted that it has written off loan of Rs. 3,464.76 crores towards loan given to overseas subsidiary and also written off investments of Rs. 1,778.23 crores, which is shown in Note 33 ‘Other Expenses’ of the financial statement for the FY 2016-17. The Assessee submitted that the write off of loan of Rs. 3,464.76 crores given to JSW Steel Holding USA has been claimed as a deduction under the head profits and gains from business and the loss of Rs. 1778.23 crores on liquidation of JSW Steel Holdings USA and on reduction of Equity and preference capital of JSW Steel Holdings BV, Netherlands has been claimed under the head “capital gains”. The assessee also given detail justification regarding reduction in the equity that assessee is one of the India’s leading steel producer companies, listed with National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). With a view to expanded overseas business operation, the assessee has made investment in various jurisdiction for the purpose of business interest of the assessee company. All such business operations are included in the minutes of board meeting. Copy of minutes of board meeting was provided. The assessee funded the overseas subsidiaries / operations through equity capital, preference capital and or debt instruments, either directly or through JSW BV, depending upon the regulatory requirements / restrictions applicable in the investment jurisdiction and the overseas investment regulations in India. It was submitted that as per Assessee’s Memorandum of Association (‘MOA’), the main object is to engage in business of steel and the objects incidental or ancillary to the main objects include lending of money, acquisition companies engaged in similar line of business of which directly/indirectly benefit the Assessee, to guarantee performance of any contract etc. Copy of MOA of assessee company was furnished. All the subsidiaries were set-up / acquired with a view to secure the sourcing of coal, iron ore and expand the existing business of the assessee, to act as medium through which the products manufactured by the assessee are sold in the overseas market and to provide value added products through the plant facilities in overseas jurisdictions. The business of the assessee and the entities set-up / acquired were inter-related, and to bring advantage or benefit to the business carried on by assessee. The assessee also explained set up of JSW Steel (Netherland) and JSW Steel Holding (USA), Perima Holding LLC through US Holding Company and setting up of Inversions Eroush Limitada (‘IEL’), Chile and Santa FE Mining (Chile) (invested through JSW B.V. and another subsidiary. All the investments in such subsidiaries made with the objective to acquire iron ore or cooking coal or other raw material. All such entities were set up with objective of expanding its presence and tapping business opportunities in such jurisdictions.

48. The assessee further explained that there was global slowdown of steel market and business in overseas market. The global market of steel industry was confronted with an unprecedented level of overcapacity resulting into several distortions and threatened the viability of several steel producers across the world. Such crisis had a significant impact on the USA markets especially the steel industry. By the end of July 2016, the production for pipes and tube mills (in USA) operated at only 24.10% of the total capacity and hence, several thousands of workers were laid off. Further, the global steel industry failed to address the underlying problems and further added capacity thereby resulting into massive level of excess capacity which eventually resulted into steep decline in iron and steel prices. The growing gap between the steelmaking supply and demand ratio led to deterioration in the financial situation of the steelmakers worldwide including the assessee-company and raised concerns regarding the long-term economic viability and efficiency of the steel industry. On account of the aforesaid global slowdown in steel industry, the past financial performance of JSW BV and US Hold Co. reflected losses and eventually resulted into negative net worth. The details of the same have been provided to the AO. The global slowdown particularly in the USA market and negative margins on account of lower prices significantly impacted the operations of assessee’s overseas entities in the USA and the desired capacity utilization could not be achieved. Further, global fall in iron ore prices and weakening of demand of steel and other industries also resulted in overall losses for the Chilean operations. Pursuant to the same, resulted into substantial losses in the USA and Chilean operations, since acquisition and hence, has significantly impacted the investments held by JSW BV and US Hold Co. Most of the facilities were either not operational or had significantly reduced their production and the purpose for which they were acquired could not fructify. The assessee made continuous efforts to revive the financial performance of the above said entities through infusion of additional funds as equity / debt. Despite the continuous efforts of the assessee, the said entities were not able to revive or generate positive returns for the Assessee and its Group. The assessee also obtained valuation reports of JSW BV and its subsidiaries from an independent valuer to assess the fair value of its overseas investment. Based on the future earnings projections of the underlying investments of JSW BV in the operating entities in USA, UK, Latin America and other jurisdictions, the valuer arrived at a negative value of USD 99.20 Mn. Thus, with a view to simplify the holding structure, revive its operations and derive better value for the overseas investments, the assessee relooked at its holding and operating structure and undertook internal restructuring. On account of the internal restructuring, broadly the assessee undertaken liquidation of the US Hold Co. including write back of loan availed from the assessee. Capital reduction at the JSW BV level involving cancellation of shares held by the Assessee.

49. The assessee also furnished copy of application for restructuring application made to Reserve Bank of India (RBI). The Board of Directors of the assessee, after considering the financial position of JSW BV and other subsidiaries and various other commercial parameters, approved the said restructuring and considered writing off investments/ loans & advances granted to such subsidiaries. The copy of the said Board resolution was furnished. Further, in term of Regulation 16A of Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations, 2004 as amended from time to time, the Assessee was required to obtain an approval from the RBI with regards to restructuring of balance sheet of JSW BV involving write-off of capital in excess of 25%. Therefore, the assessee had filed an application with the RBI for the requisite approval and submitted the relevant underlying reasons along with relevant documents to substantiate the capital reduction at the JSW BV level and subsequent cancellation of shares. The application made by the assessee and the business reasons provided there under for the said restructuring had been accepted by the RBI. The RBI after considering several parameters, requisite approval for write-off investments in JSW BV was provided to the assessee, vide its letter dated March 17, 2017. This justifies the grim operational and financial condition at overseas entity level which required JSW to write-off the loans in its books as duly acknowledged by RBI. The RBI while granting approval for write-off of investments in JSW’s books also considered financial conditions of overseas entity. The copy of the approval obtained from the RBI was also furnished to AO.

50. With regard to write off on account of liquidation of US Holdco, the assessee submitted that JSW India is a listed entity with a net worth exceeding Rs. 100 crores, the assessee-company submitted that, in terms of Regulation 16 of Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations 2004, as amended by Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2013 (‘Outbound Regulation’), the contemplated write-off of debt and equity investment pursuant to liquidation of US Hold Co falls under the automatic route and does not entail a specific approval from the RBI. The Company has also obtained confirmation in this regard from its authorised dealer; copy of the same was also furnished to AO. On the basis of aforesaid explanation, the assessee submitted that they have write off of total of Rs. 5242.99 crore in respect of following loan or loss on cancellation of share on liquidation of JSW Holding (USA) and loss on capital reduction of equity share of JSW (Netherland) and loss of capital reduction of preference share of JSW (Netherland) in the following manner.

51. The assessee submitted that following amount is claimed in the income tax return for A.Y. 2017-18 in the following manner:

52. The assessee also submitted that business loss on account of loans and advances written off on account of the aforesaid liquidation of US Hold Co., the loans & advances to US Hold Co. became irrecoverable, and the investments were completely eroded. For the year under consideration, the assessee claimed deduction on account of write-off of loans and advances to US Hold Co, as business loss in the return of income for AY 2017-18. The Assessee claims that the loss of INR 3,464.76 crores on account of write-off of non-recoverable loans is deductible in computing the business income of AY 2017-18 under section 28 of the Act. On long term capital loss on account of liquidation of US Hold Co., the assessee further submitted that loss of Rs. 1.59 crores on cancellation of shares on account of liquidation of US Hold Co. should be regarded as transfer of a capital asset under section 2(47) of the Act and accordingly the loss of Rs. 1.59 crores will be a capital loss under section 45/46(2) read with section 48 of the Act. On long term capital loss on account of reduction of shares held in JSW BV, the assessee submitted that the aforesaid restructuring also resulted into write-off of equity and / or preference capital on account of capital reduction at JSW BV level and thereby resulting into reduction of existing capital of the assessee in JSW BV. under the capital reduction scheme, 17,42,37,650 equity shares and 9,36,94,334 preference shares held by the assessee were cancelled for Nil consideration. The assessee has claimed the loss upon cancellation of shares as capital loss in its revised return of income for AY 2017-18. The details of the amount claimed as capital loss on account of write-off of investments of Rs. 2723 crore, which includes short term capital loss on account of cancellation of preference share of Rs. 699.57 crore and long-term capital loss on account of cancellation of equity share of Rs. 2023.43 crore, detailed working was also furnished to AO. The assessee submitted that capital reduction at JSW BV level and subsequent cancellation of shares for a Nil consideration will be regarded as transfer of a capital asset under section 2(47) of the Act and accordingly the loss of Rs. 2,723.00 crores will be a capital loss under section 45 read with section 48 of the Act. In without prejudice submissions, the Assessee submitted that loss of Rs. 0.89 crores on account of liquidation of US Hold Co. and Rs. 1,777.34 on account capital reduction at JSW BV level aggregating to Rs. 1778.23 crores should be deductible in computing the business income of AY 2017-18 under section 28 or section 37 of the Act, since the investment was made with a view to increase, protect and promote business of the assessee. The Assessee submits that the loss arising to it, on account of write off of loans and advances given to JSW Steel Holding USA of Rs. 3,464.76 crores, is inextricably linked to and arising out of the operations/ business of the Assessee and ought to be allowed as business loss under section 28(i). To support their submission, the assessee relied on a number of decisions of various High Courts and Supreme Court as has been recorded by AO in his order.

53. The submissions of assessee were not accepted by AO. The AO held that the assessee’s contention that the main reason for the reduction in capital was non utilization of the production capacity of the plants which was due to excess supply of the steel in the global market compared to demand. The assessee group has started its business operation in USA from 2007 itself and after that the group has started slowly to acquire the industry from which they can get the raw material. The basic raw material required for manufacturing of steel pipes is iron ore and coal only. The AO on the basis of report on certain websites and was of the view that there was a downfall in the steel consumption in US market only in the year 2009 and year 2015. There is a year-on-year growth in the steel consumption in steel market every year except the above two years. The AO also scanned the copy of screen shot of website in his order at page no. 38 of his order. The AO was of the view that there was positive growth in the USA market after acquisition of plant steel by assessee. The assessee group has set up one of the top steel manufacturing companies out of ten steel producers in USA. The AO recorded that during the year under consideration the assessee company has decided to merge all its business in USA under a single entity i.e. Periama Holding LLC (Delaware Corporation). Before the said merger, the assessee company claimed that they had appointed various independent valuers to calculate the value of investments made by the assessee through JSW B.V. The said independent valuershave derived the valuation of JSW B.V. by taking the fair value of all the investments made by the JSW B.V. For valuing the fellow subsidiaries in which actual business was undertaken by the assessee group the valuer has considered ‘Discounted Cash Flow Method’ (i.e. DCF) and for the valuation of investment companies, the valuer has adopted ‘fair value method’. The assessee group has taken the valuation of the downstream subsidiaries when mining reserves are intact and no mining has been undertaken and the value of mining reserves has in fact increased. It is not known how the assessee claimed impairment in mining assets when the said mines were never operated. Since, the mines were never operated by the assessee group and the rights of the said mines are still with the group only, then how could in the projections of future cash flows, the assessee group can identify that there would be loss to the group due to said activities / the generation of reserves from the said would be less than the investment cost. It is a clear factor that the future cash flows are calculated on the basis of past cash flow of the company; however, the mines were not operated in past, then how future cash flows are determined, is not known. The AO of the view that various valuation reports are not having any scientific basis. The AO scanned the copy of part of valuation report in his order and concluded that assessee tried to justify the claim by stating that valuation is done by an independent valuer. The methodology is followed in every downstream subsidy and subsequently, the value derived on DCF was used for valuing the investment subsidiaries of the group. The AO by making reference of certain decision held that the valuation given by the valuer mainly on the basis of future projections of the fellow subsidiaries has created impairment of assets in their books of accounts and accordingly the ultimate holding company of all the US entities i.e. JSW Steel (Netherlands) B.V. has cancelled its ordinary shares which were hold by the assessee company. Against the cancellation of shares the assessee company has claimed capital loss during the year under consideration stating that the same was on account of reduction in equity and preference capital. Apart from the reduction of capital, the assessee has wind up JSW Steel Holding (USA) Inc after transferring the business to Periama Holding LLC (Delaware Corporation). There are flaws in the valuation report furnished by assessee. The valuer has not physically reviewed the plants / mines of the assessee. The same is not in accordance with technical guide on share valuation published by Institute of Chartered Accountant of India (ICAI). The AO also referred certain financial report of group entities in his order also noted that losses were created and booked only to fulfil the requirement of accounting standard. The mines were non-functional temporary shut down due to less demand is merely a temporary decision of management. The auditors have classified that all the subsidiaries companieshas going concern. The relevant extract of audited financial of some of the company is mentioned on page no 65 & 73 of assessment order. The AO further held that during the year under consideration JSW Steel Holding (USA) Inc. has transferred all the assets mainly, the investments held in JSW Steel (USA) Inc. at the impaired cost lying in the accounts. Due to transferring of assets at lower value, there was a notional loss which was outstanding in the books of JSW Steel Holding (USA) Inc. and to adjust the said notional loss, JSW Steel Holding (USA) Inc. has written off loan received from the assessee company. As the loan was adjusted to nullify the books results and give effect to the notional loss in the books of accounts, it cannot be considered that the said loan is not recoverable or the Group has incurred huge losses in its US subsidiaries. On the basis of such observation, the AO was of the view that restructuring activities carried out by assessee with a clear intention of evasion of tax. The AO also recorded that purpose mentioned in restructuring agreement is to “take advantage of certain favourable laws” under the jurisdiction of Delaware. However, the agreement nowhere describes what those laws are and how this restructuring is going to bring benefits to the group concerns under those laws. In other words, the very purpose of restructuring is vague, ambiguous and without any clarity and certainty about the benefit it is going to bring to the group concern. The reorganisation agreement does not speak about any financial loss incurred by the overseas entities. The AO also held that all the assets/rights held by holding companies are intact. The intention of the assessee group by way of said restructuring was to avoid tax liabilities in India and the said transaction is a colourable transaction. The AO was also of the view that even capital loss either long term or short term cannot be allowed.

54. On the basis of which the AO of the view that the assessee company has claimed a notional loss, however there was no extinguishment of rights. The assessee company still holds the 100% voting power of M/s JSW Steel (Netherlands) B.V. Thus, there is no sale nor exchange nor extinguishment of rights. Therefore, long term capital loss of Rs. 20,23,43,43,446/- and shortterm capital loss of Rs. 6,99,57,99,932/- was disallowed and added back to income of the assessee The AO also disallowed long term and short term capital loss and write off loans of Rs. 3464.76 crore.

55. On appeal before ld. CIT(A), the assessee filed detail written submissions reiterating the stand taken before AO. The ld. CIT(A) allowed relief to the assessee on all such claims. The ld. CIT(A) allowed relief to the assessee by holding that in F.Y. 2015-16, the assessee made provision of Rs. 5860 crores for impaired loans and investment which was added back to taxable income. In A.Y. 2017-18 the assessee company write off Rs. 5242.99 crore including Rs. 3464.76 crore as bad debt and capital losses from share cancellation. The assessee claimed this write off as business loss and capital loss under section 36(1)(vii), 45 & 46 of Income Tax Act. The assessee has demonstrated that interest earned from loan to JSW Steel Holding (USA) Inc. was duly offered to tax. The summary of tax on interest from A.Y. 2012-13 to A.Y. 2017-18 was recorded in para 6.5.1 of order of ld. CIT(A). The ld. CIT(A) further noted that AO raised objection that assessee is not in the business of landing of loans and advances, thus, the loans provided to its subsidiaries should not be qualified for bad debts as deduction. The ld. CIT(A) noted that assessee has shown through its Memorandum and Articles of Association that landing money is a permitted business activity of assessee company. The assessee also relied on decision of Karnataka High court in JSW Steel Limited (supra) for A.Y. 1995-96 on similar issue wherein it was concluded that advance given is in fact acceptable business activity of the assessee. The ld. CIT(A) held that as per section 36(1)(vii), bad debts written off irrecoverable in the accounts are deductible while computing business income. The provision does not require proof of recoverability; it is sufficient if debts are deductible if it has been taken into account in computation of income for relevant or any earlier assessment year. The ld. CIT(A) also referred the decision of Bombay High Court in CIT v. Pudumjee Pulp & Paper Mills Ltd. [2015] (Bombay),CIT v. T. Veerabhadra Rao155 ITR 152 (SC) and Delhi High Court in CIT v. Bonanza Portfolio Ltd. [2010] 320 ITR 178 (Delhi). The ld. CIT(A) also noted that assessee has consistently offered interest income on the loans to JSW Steel Holding (USA) Inc. as a part of business income. Loans and investments were written off as irrecoverable in the books of assessee and the provisions of section 36(1)(vii) and 36(2)(i) have been fully complied with. The business activities of assessee are defined in its article of association which clearly includes landing money which supports the claim of assessee. On the basis of such finding, the ld. CIT(A) allowed relied on deduction of bad debts of Rs. 3464.76 crore as bad debt. In alternative claim of business loss, the ld. CIT(A) held that loss is inextricably link to the business operation of assessee and it should be allowed as a business loss under section 28(i) of the Act. The ld. CIT(A) relied upon the decision of Bombay High Court in CIT v. Colgate Palmolive (India) Ltd. 370 ITR 728 (Bombay) and in Vassanji Sons & Co. (P.) Ltd. v. CIT [1980] 125 ITR 462 (Bombay), Kolkata High Court in ld. CIT v. Gillanders Arbuthnot & Co. Ltd.  31/[1992] 195 ITR 331 (Calcutta) and Madras High Court in CIT v. Spencers and Co. Ltd. (No.1) [2013] 359 ITR 612 (Madras).

56. On disallowance of long-term capital loss and short-term capital loss of Rs. 2724.59 crore and Rs. 699.57 crore respectively, the ld. CIT(A) noted that assessee contended that said capital losses arose due to cancellation of shares as a result of liquidation and capital deduction in certain overseas subsidiaries. The assessee explained that shares of JSW Holding Company (USA) were cancelled following the liquidation of company, resulting in long term capital loss of Rs. 1.59 core (with indexation). Further, due to capital deduction in case of JSW Steel (Netherland) BV, where both equity and redeemable cumulative preference shares were cancelled. The assessee company claimed long term capital loss of Rs. 2023.43 crore and a shortterm capital loss of 699.57 crore respectively. The cancellation of these shares led to the extinguishment of right of assessee company as shareholder and claimed capital loss which is allowable under section 45/46(2) read with section 48. The ld. CIT(A) also referred definition of “transfer” with regard to capital asset, which includes extinguishment of rights in a capital asset as a form of transfer. The cancellation of share, as a result of liquidation, resulted capital reduction, which leads to extinguishment of rights of assessee as a shareholder, thereby qualifying as a transfer under section 2(47) of the Act. The ld. CIT(A) by referring the decision of Hon’ble Supreme Court in Pr. CIT v. Jupiter Capital (P.) Ltd. 472 ITR 616 (SC), wherein it was held that reduction in share capital and subsequent proportionate reduction in shareholding would amount to “sale, exchange or relinquishment” of an asset under section 2(47). The ld. CIT(A) also referred the decision of Gujarat High Court in Anarkali Sarabhai v. CIT[1982] 138 ITR 437 (Gujarat), wherein it was held that redemption preference shares result in a transfer of capital asset. On the basis of aforesaid legal view, the ld. CIT(A) further noted that it is case of assessee that long term capital loss and short-term capital loss arisen from capital reduction and liquidation transaction should be allowed. The ld. CIT(A) by giving an example that when an assessee holds a 100% stake in its subsidiary, company A. However, company A has been incurring losses. Subsequently, management of such company-A decides to reduce its capital to address the accumulated losses. As a result, of this merger, the valuation of such company has decreased. Although, the assessee still retain control over company A, it has effectively lost its entitlement to the higher valuation due to this decline. Consequently, if the assessee chooses to sale its share in company A in the future, the value it would receive from the sale would be lower, reflecting the reduced valuation leading to extinguishment of rights. On the basis of aforesaid example, the ld. CIT(A) held that claim of assessee of long-term capital loss and short-term capital loss arising from the cancellation of share in the line with the interpretation of “transfer” as explained by Hon’ble Apex Court and various High Courts in the case laws cited (supra) and deleted the disallowance of long term and short-term capital loss aggregating Rs. 2724.59 crore. Aggrieved by the order of ld. CIT(A), the Revenue has challenged the deletion.

57. The Id. AR of the assessee submits that before AO the assessee explained that assessee has made investment and extended loans to its overseas subsidiaries as a measure of commercial expediency, with the objective of furthering its core business operations, including backward and forward integration, securing raw materials, and expanding its global footprint. The subsidiaries were thus not independent investment avenues but constituted an integral extension of the assessee’s business operations. The assessee has consistently earned interest on loan given to JSW Steel Holding (USA) Inc for the year under consideration as well as previous years and offered the same to tax. The details of interest recognised and offered to tax in the previous year, which was furnished before AO along with the closing balance of the said years are explained, we tabulated as under:

58. The ld. AR of the assessee submits that the interest earned by assessee from loan provided to JSW Holding has been shown in the return of income. Such treatment is in accordance with the decision of Karnataka High Court in assessee’s own case (JSW Steel Limited) (supra) for A.Y. 1995-96, wherein appeal of revenue was dismissed. The ld. AR of the assessee submits that loan given to US based entity became irrecoverable and investments were completely eroded, thus, it was decided to write off such amount. To support his submissions, the ld. AR relied upon the decision of Hon’ble Apex Court in TRF(supra), Veerabhadra Rao (supra), Delhi High Court in Bonanza Portfolio Ltd. (supra) and Bombay High Court in Colgate Palmolive (India) Ltd. (supra). In alternative, it was submitted that the said loss is independently allowable as business loss under section 28(i) being incidental to business. To support such view, the ld. AR relied upon the decision of Supreme Court in Badridas Daga (supra).

59. To support the allowability of long term and short-term capital loss, the ld. AR relied upon the decision of ld. CIT(A). The ld. AR submits that such losses are arising from capital reduction and liquidation extinguishing proportionate shareholder rights. These qualify as “transfer” under Section 2(47)(ii)extinguishment of rights in capital assets triggering capital gains/loss computation under Section 45 read with Section 46(2) (deemed distribution on liquidation/reduction) and Section 48 (indexation for LTCL). To support such view, the ld. AR relied upon the decision of Hon’ble Apex Court in Jupiter Capital (P) Ltd. (supra) and Gujarat High Court CIT v. Jaykrishna Harivallabhdas [1998] 231 ITR 108 (Gujarat). The decision of Hon’ble Apex Court is the binding precedent on all the force being law of the land. In alternative, the ld. AR submits that loss arising out of investment write off is also allowable as business loss under section 28(i). Considering the strategic and business-oriented nature of such investments and their direct nexus with the assessee’s business. Reliance is placed on the decision of Karnataka High Court in ACE Designers Ltd. v. Addl. CIT [2020]  (Karnataka), wherein it was held that where assessee-company made investment in its wholly owned subsidiary outside India for business purpose i.e for enhancement of its business activity in global market, however, said subsidiary could not perform up to company’s expectations and same was wound up, loss arising from investment made in subsidiary was to be allowed as business loss of assessee.

60. On the other hand, the CIT-DR for the Revenue supported the order of AO. The ld., CIT-DR for the Revenue submits that while passing assessment order the AO has clearly held thatduring the year under consideration JSW Steel Holding (USA) Inc. has transferred all the assets mainly, the investments held in JSW Steel (USA) Inc. at the impaired cost lying in the accounts and due to transferring of assets at lower value, there was a notional loss which was outstanding in the books of JSW Steel Holding (USA) Inc. And only to adjust the said notional loss, JSW Steel Holding (USA) Inc. has written off loan received from the assessee company. The loans were adjusted to nullify the books and give effect to the notional loss in the books of accounts. It cannot be held that the said loan is not recoverable or the Group has incurred huge losses in its US subsidiaries. The AO clearly held that restructuring activities carried out by assessee with a clear intention of evasion of tax. The purpose for restructuring agreement is to take advantage of favourable laws under the jurisdiction of Delaware. The agreement nowhere describes what those laws are and how this restructuring is going to bring benefits to the group concerns under those laws. In other words, the very purpose of restructuring is vague, ambiguous and without any clarity and certainty about the benefit it is going to bring to the group concern. The AO has clearly brought the facts on record that reorganisation agreement does not speak about any financial loss incurred by the overseas entities. The AO also held that all the assets/rights held by holding companies are intact and the intention of the assessee group by way of said restructuring was to avoid tax liabilities in India and the said transaction is a colourable transaction. The AO was also of the view that even capital loss either long term or short term cannot be allowed. Thus, the assessee is not eligible for any such claims. The assessee has not proved the facts that the loans have become irrecoverable. The claims of short term and long-term loss are based on report managed by assessee which is not based on scientific method or the method prescribed by Institute of Chartered Accountant of India. The assessee is not eligible either for write off of claims nor any short term or long-term capital loss. The ld. CIT-DR for the revenue carried us through the contents of different sub-paras of para-5 of assessment order and prayed for restoration of order of AO.

61. We have considered the rival submissions of both the parties and have gone through the orders of authorities carefully. The basis of disallowance of write off and long term and short-term capital loss and alternate claim of reduction of capital in overseas subsidiary has been recorded by us in para 44 to 54 of this order. The basis of allowing relief to the assessee is also recorded by us in para 55 to 57 of this order, which is not repeated here for the sake of brevity. We have independently considered the facts of the case qua these grounds of appeal. We find that AO disallowed the claim of assessee based on information gathered from website, which is allegedly available on the public domain. The AO has not brought any official information either from US State Authority or from official data maintained by Government of India about the market conditions of steel industry in India or USA. Further, there is no narration of such facts in the assessment order that, if the information available on website was confronted to the assessee before relying upon. The AO disregarded all the valuation of various Law Firms or Chartered Accountant Firms without bringing any report of expert on the subject. The AO himself acted as an expert on valuation reports. The conclusion of AO that such reports were prepared by CA Firms as per requirement of management is uncalled for, unless matter is referred to Special Auditor for verification of such report. The assessee specifically raised plea that assessee obtained permission of Reserve Bank of India in term of Regulation 16A of foreign exchange management (transfer of issue of any foreign security) (amendment) Regulation 2004, as required to obtain approval from RBI with regard to restructuring of balance sheet of JSW BV involving write off of capital in excess of 25%. No comments were made by AO on such statutory permission granted by RBI. The write off loans in its books of account were duly acknowledged by RBI. Copy of such approval were provided to the AO. We find that AO conveniently ignored such approval granted by RBI. No adverse comments were made by AO on various other confirmation furnished by assessee from authorised dealer with regard to write off on account of loans or loss on cancellation of shares on liquidation of JSW Holding (USA) and loss on capital reduction of equity share of JSW Netherland and loss of capital reduction of preference share of JSW Netherland except holding that adjustments were made only to give fact to the notional loss in the books of account.

62. We find that Hon’ble Supreme Court in TRF Ltd. (supra), held that post amendment from 01.04.1989, it is sufficient if the bad debt is written off in the books of account and it is not necessary to establish recoverability. We find that the assessee has offered the interest income from loan to subsidiaries in earlier years. Otherwise, this fact is not disputed by AO.Thus, the condition under Section 36(2) stands satisfied once the interest income on such loans had already been offered to tax. Similar view was taken in T. Veerabhadra Rao (supra), wherein it has been held that once income from the debt has been offered to tax, the requirement of Section 36(2) is fulfilled. Similarly, the Hon’ble Delhi High Court in Bonanza Portfolio Ltd. (supra) has held that even if a part of the debt has been taken into account in computing income, the condition of Section 36(2) stands satisfied. Further, Hon’ble Bombay High Court in Pudumjee Pulp & Paper Mills Ltd. (supra), also took the similar view.Further on the same issue, the jurisdictional High Court in Colgate Palmolive (India) Ltd. (supra), has categorically held that financial assistance given to a subsidiary out of commercial expediency is inextricably linked to the business of the assessee, and any loss arising on write-off thereof is allowable as business loss.

63. Further, this issue is no longer res-integra after the decision of Hon’ble Apex Court in the case of Jupiter Capital (P.) Ltd (supra), wherein it was held that reduction in share capital of subsidiary company and subsequent proportionate reduction in shareholding of assessee would be squarely covered within ambit of expression ‘sale, exchange or relinquishment of asset’ used in section 2(47). Section 2(47) of Income Tax Act defines the transfer which includes relinquishment or extinguishment without requiring sale/exchange. We also find merit in the submission of ld. AR of the assessee that loss arising out of investment write off is also allowable as business loss under section 28(i), keeping in view the fact that assessee made strategic and business-oriented nature of investment and their direct nexus with the assessee’s business. We find that Hon’ble Karnataka High Court on similar facts in ACE Designers Ltd (supra), held that where assessee-company made investment in its wholly owned subsidiary outside India for business purpose i.e. for enhancement of its business activity in global market, however, said subsidiary could not perform up to company’s expectations and same was wound up, loss arising from investment made in subsidiary was to be allowed as business loss of assessee. The Hon’ble Jurisdictional High Court in Harshad J. Choksi (supra), also held that an amount not deductible as a “bad debt” can still be claimed as an allowable “business loss” if it was incurred in the ordinary course of business. The stand of assessee-company though out the proceedings is that investments were made for the purpose of business.Thus, in view of aforesaid factual and legal positions, we affirm the order of ld. CIT(A) with our additional findings. No contrary facts or law is brought to our notice to take other view. In the result, ground no. 19 to 22 of Revenue’s appeal are dismissed.

64. Ground no. 23 relates to deleting the disallowance of cargo handling expenses under section 69C of Rs. 44.40 crore. Brief facts leading to disallowance of such expenses that during assessment, the AO noted that he has an information received in case of Archisha Steels Private Ltd. and other related concern from DDIT(Inv.) that a survey action was carried out on such related concern. During survey proceeding, it was found that Geetaporam Port Services Ltd. (GPSL) has entered into agreement with JSW Ispat Steel Ltd., which merged with assessee for rendering cargo handling services at JSW Jetty till 31.03.2019 and has received fund in advance of Rs. 240.00 crore during F.Y. 2012-13. Such funds were utilised for investment in Archisha Steels Private Ltd. through North-East Natural Resources Private Ltd. and various entities. During the course of survey statement of Milind Mande, who is one of the directors in GPSL was recorded under section 131. In response to various questions, Milind Mande stated that iron ore, pellets, lime stone, coal and scrap was imported by JSW Ispat Ltd. from foreign countries through large ships which were halted more than 1000 kms from port. The imported material was carried through barges to the port and then transported to JSW Ispat Ltd. It was also stated that GPSL have not hire the barges to do jetty work. He was unable to submit bills of loading and unloading and copy of gate pass permission. On the basis of such information, the AO was of the view that no actual work was executed by GPSL and only invoices were raised. On the basis of such view, the AO issued show cause notice as to why expenses of 44.40 crore claimed during the year should not be disallowed. The assessee filed its reply and submitted that they have not dealt with Archisha Steel Private Ltd. nor any company mentioned in the show cause notice wherein alleged survey carried out by Investigation Unit, therefore, unable to comment on any finding unless a survey report is provided. The assessee also denied their relation with Milind Mande, the director of GSPL. In without prejudiced submission, the assessee submitted that JSW Ispat Steel Ltd. was engaged in the business of manufacturing steel at its steel plant at Dolbi District Raigarh and owned a captive jetty, earlier known as Ispat Jetty and now JSW Jetty at Dharamtar Village Dolbi for handling inbound cargo of bulk raw material including iron ore, coal, coke and limestone and outbound cargo finished goods viz. Long and flat products of iron and steel which was transported through barges along Amba River and unloaded / loaded onto mother vessels at Bombay floating lights (port area). GPSL was engaged in service of management of jetty operation in the nature of inter alia loading and unloading stevedoring and wharfage, scheduling and maintenance of structure at jetty situated at Dharamtar village Dolvi, District Raigarh vide agreement dated 20.06.2009 executed between Ispat Industries Ltd. and GPSL. Agreement was amended in July, 2010 and further in September, 2012 with present management of assessee. GPSL collectively handled approximately 57.50 million metric tons of cargo at the jetty. Details were also provided. Copies of sample bills of entry were also provided. The cargo movement at the jetty passes through Customs station which is also recorded by Customs EDI systems. The assessee explained that JSW Jetty is a captive jetty for handling inbound and outbound cargo of the integrated steel plant in district Raigarh. The entire jetty has been designated in Customs area for controlled and supervision of jetty by Customs Officers. Entry of all persons within port area is regulated by Customs and Securities Staff as per Customs Area Regulation 2009. Each and every person required permission from Customs Officers. In 2013, Customs Department issued show cause notice for procedural violation. Penalty was imposed on assessee which was set aside by CESTAT in order dated 14.03.2014. Another notice for non-compliance was issued against three companies namely GSPL, assessee and JSW Dharmantar Port Private Ltd. The Additional Commissioner of Customs vide his order dated 23.05.2017 regularise the permission of outsourcing. As per agreement with GPSL, the assessee paid advance of Rs. 278 crore on which applicable TDS was made and deposited with the Government. Service tax payable on such payment on advance as per rules was also discharged. All the invoices raised by GPSL post 01.10.2012 have been adjusted against these advances and there was no requirement of TDS on the same amount again. On the basis of such submission, the assessee stated that allegation between GPSL and then then Ispat Industries Ltd. are bogus or that there is no receipt of any service under the contract is incorrect and not tuneable as per the evidence on record. The assessee also stated that details sought are voluminous in nature and involving in multiple years for about 13 years. Due to Covid Pandemic private officers have been closed by State Government. The assessee will collect the required information and will submit as soon as possible. The reply of assessee was not accepted by AO. The AO reiterated that during course of survey Milind Mande, Director of GPSL Ltd. has stated that no services were provided only advance invoices were raised. The AO after preparing summary of cargo handling and applying average rate for handling such material recorded that agreement was valid till March, 2019 but after June, 2017 no amount was paid to GPSL. However, due to implementation Goods and Services Tax (GST) from July, 2017 they have stock billing through GPSL but cargos were handled by JSW Infrastructure Ltd. Further, average rates have gradually declined from 200 per metric ton to 155 per metric ton. The AO held that routing expenses through GPSL was merely a suspicious transaction without any actual services provided. On the basis of such observation, the AO disallowed claim of Rs. 44.00 crore on account of cargo handling charges.

65. Before ld. CIT(A), the assessee reiterated its submission. The assessee also stated that AO made addition on the basis of statement of Milind Mande. Despite request neither statement was provided nor was opportunity to cross-examine allowed. Not allowing cross-examination is a series flow and makes the order nullity. The payments to GPSL were made pursuant to agreement dated 03.09.2012. On advance of Rs. 278 crore, TDS was made as per applicable rate. The allegation of cargo handling services contract is bogus or that no services were carried out are incorrect.

66. The ld. CIT(A) on considering the submission of assessee noted that there was super vision of Customs Department over the operation of JSW Jetty. Jetty was a designated as a Customs area and all contractors including GPSL, JSWIL and JSW Dharamtar Private Ltd. operated under full knowledge and control of Customs Department. The show cause notice was issued for procedural violation and later on violation was resolved and outsourcing was regularised. Rs. 278 crore was made in accordance with service agreement and applicability TDS and service tad obligations were duly complied at the time of payment. No additional TDS was required on invoices raised post October, 2012 as payments were adjusted against the advance already made. GPSL has not raised an invoice post July, 2017 and as such no further payments or expenditure was booked by assessee. On the basis of such observation, the ld. CIT(A) concluded that service contract between GPSL and Ispat Industries Ltd. was legitimate and in accordance with applicable loss and regulation. The assessee made full compliance of tax obligation, regulatory supervision supported with documentation. Reliance on the statement of Milind Mande without allowing opportunity of cross examination constitute a series breach of law, violating of principle of natural justice and rendering reliance on such statement as invalid. On the basis of such categorical finding, the ld. CIT(A) deleted the disallowance of Rs. 44.00 crore.

67. Before us, the ld. AR of the assessee by carrying us through show cause notice issued by Principal Commissioner of Customs submits that such show cause notice was issued regarding certain violation of handling of cargo in Customs area regulation, 2009 which later on regularise. The ld. AR further submits that AO has erred in relying upon the statements of one Mr. Milind Mande, allegedly the director of GPSL, for making additions towards unexplained expenditure in the hands of the assessee. The assessee has no knowledge of any such individual, nor any connection with him. Despite repeated requests made vide notice under section 142(1) dated 12.04.2021, seeking copies of all statements and reports relied upon, and further requesting an opportunity to cross-examine such individuals, the same was not provided. It is now settled law that denial of cross-examination of third parties whose statements are relied upon violates principles of natural justice. Reliance is placed on the judgment of the Hon’ble Supreme Court in Andaman Timber Industries v. CCE, Kolkata-II 314 ELT 641/52 GST 355/[2016] 38 GSTR 117 (SC)/(Civil Appeal No. 4228 of 2006), wherein it was held that non-grant of cross-examinations constitutes a serious flaw rendering the order a nullity. The ld AR of the assessee submits that during the contract period 01.10.2012 to 31.03.2019, the service providers GPSL, JSWIL, and JSW Dharamtar Port Pvt. Ltd collectively handled approximately 57.50 million metric tonnes of cargo at the jetty. Even prior to this, GPSL handled about 3.10 million metric tonnes between 01.04.2012 and 30.09.2012. Cargo movement was duly recorded in the Customs EDI System, and sample bills of entry were furnished during assessment. The JSW Jetty is a captive customs-notified area under supervision of customs officers. Entry of persons and contractors is regulated by customs and security staff. Under the Handling of Cargo in Customs Area Regulations, 2009, permission of the Commissioner of Customs is required for outsourcing operations. In 2013, customs issued a show cause notice for procedural violation of Regulation 6(2) by GPSL, which led to a penalty later set aside by CESTAT on 14.03.2014. Another show cause notice dated 11.12.2015 was issued when customs noticed GPSL, JSWIL, and JSW Dharamtar Port Pvt. Ltd functioning at the port. Subsequently, vide order dated 23.05.2017, the Additional Commissioner of Customs regularised permission for outsourcing cargo handling to these parties. Thus, operations were always within the knowledge and supervision of statutory authorities.Inwithout prejudice, and in alternative he submits that under the amended agreement dated 03.09.2012, JSW Ispat Steel Ltd advanced Rs. 278 crores to GPSL, on which TDS was duly deducted and deposited, and service tax discharged.Invoices raised after 01.10.2012 were adjusted against this advance, hence no further TDS was required. Payments to JSWIL and its subsidiary were also subject to regular TDS deduction. The contract expired on 31.03.2019, and notably, GPSL has not raised any invoice since 01.07.2017, nor has JSW Steel Ltd booked any expenditure thereafter. On the basis of the above facts, agreements, evidences, and statutory records the allegation that the cargo handling contract between GPSL and Ispat Industries Ltd was bogus, or that services were not rendered, is wholly untenable. The additions made by the Ld. AO are based on unverified third-party statements without affording cross-examination, contrary to law and principles of natural justice. Hence, he fully supports the order of ld CIT(A).

68. On the other, hand the ld CIT-DR for the revenue supported the order of AO.The ld CIT-DR for the revenue submits that the AO has specific information that a survey action was carried out on in case of Archisha Steels Private Ltd. and other related concern from DDIT(Inv.) During such survey action it was found that GPSL has entered into agreement with JSW Ispat Steel Ltd., which later on merged with assessee for rendering cargo handling services at JSW Jetty till 31.03.2019 and has received fund in advance of Rs. 270.00 crore during F.Y. 2012-13. Such funds were utilised for investment in Archisha Steels Private Ltd. through North-East Natural Resources Private Ltd. and various entities. Statement of Milind Mande, director in GPSL was recorded under section 131. It was also stated that GPSL have not hire the barges to do jetty work and he was unable to submit bills of loading and unloading and copy of gate pass permission. On the basis of such information, the AO was of the view that no actual work was executed by GPSL and only invoices were raised. The AO treated such expense as unexplained. The ld CIT(A) allowed relief to the assessee on the basis of submissions of assessee, without actual verification of facts. Hence, the action of ld CIT(A) appeal may be reversed and order of Ao may be restored.

69. We have considered rival submissions of the parties. We find that the AO made addition on the basis of information from Investigation Wing, which was based on a survey action on GPSL. The AO while making disallowance of cargo handling expenses solely relied upon the statement of Milind Mande. The copy of survey report and statement of Milind Mande was not provided to the assessee. Further, no cross examination of Milind Mande was provided. The assessee furnished copy of agreement with GPSL for cargo handling services. The assessee deducted TDS on payments made to GPSL. Payment was made in advance so invoices raised by GPSL after 01.10.2012 were adjusted against the advance amount. The assessee specifically stated that as per amended agreement, the assessee has paid Rs. 278 crores to GPSL on which TDS was made as per applicable rates. Service tax was also paid on such advance. The AO has not given any finding nor is any adverse material brought on record. The AO simply held that GPSL has not raised any invoice from 01.07.2017 nor the assessee has booked any expenditure. Cargo handling process is regulated under the Customs Act and handling process are monitored as per handling of cargo in Customs Area Regulation 2009. No investigation of fact was carried out as claimed by AO that there were no cargo handling activities. The assessee furnished that invoices raised by GPSL and corresponding payment adjusted thereto. We find that action of AO is simply based on third party information and doubting the transaction without bringing adverse material on record. The ld. CIT(A) allowed relief to the assessee on the basis of material evidence available on record proper documentation compliance of tax obligation and statutory supervision of Customs Authority. In our view, statement of a person cannot be termed as evidence against third party unless it is tested by cross examination. In other words, the statement per se cannot be treated as evidence unless it is tested by cross examination and corroborative with material evidence. No comments were made on the agreement between the assessee and GPSL. No material evidence is brought on record to prove the expenses of cargo handling as bogus except reliance on third party statement. In view of aforesaid factual discussion, we affirm the order of ld. CIT(A) with our additional observation. In the result, ground no. 23 of appeal is dismissed.

70. Ground no. 24 relates to deleting the disallowance under section 14A and Ground no. 25 relates to adjustment of disallowance under section 14A to book profit under section 115JB.

71. Brief facts leading to disallowance under section 14A are that during assessment the AO noted that assessee has shown dividend income of Rs. 18.29 crore from investment. The assessee made suo moto disallowance of Rs. 87,58,886/-. The AO invoked the provision of Rule 8D and computed disallowance under section 14A r.w.r. 8D at Rs. 3,08,21,732/- and after allowing set off of suo moto disallowance disallowed Rs. 2,20,62,846/-. Before ld. CIT(A) the assessee stated that no satisfaction was recorded about suo moto disallowance was not correct. The assessee further stated that only those investments which yielded the exempt income, is to be considered for calculating average investment for disallowance under Rule 8D(2)(iii), which is Rs. 220.61 crore. So far as interest disallowance is concerned, the reserve and surplus of assessee is of Rs. 21752.96 crore whereas total investment is only Rs. 4473.63 crore, thus, interest free funds are in far excess of investment. The assessee has not utilised any part of borrowed fund for making investment, thus, interest disallowance is warranted. The assessee also relied upon certain case law. The disallowance under section 14A cannot be added to book profit under section 115JB. To support such view, the assessee relied upon the decision of Delhi Tribunal in Vireet Investment Private Ltd. (supra) . The ld. CIT(A) after considering the submission of assessee held that no interest disallowance under section 14A is required. Further, as per decision of Special Bench of Delhi Tribunal, only 1% of average value of thoseinvestments which yielded income during the year is to be considered after considering the suo moto disallowance. It was also held that similar issue in case of assessee’s group concern was followed in A.Y. 2013-14 & 2015-16.

72. We find that grounds No. 24 & 25 of appeal is similar to the ground No. 17 & 18 of appeal for AY 2016-17, which we have dismissed, thus, following the principal of consistency these grounds of appeal are dismissed with similar observation.

73. Ground No. 26 relates to deleting the disallowance of ESOP expenses.

74. Brief facts leading to of ESOP expenses are that during assessment the assessee filed revised computation of income and seek additional claim of Rs. 49.13 Croreon account of expenses incurred for the benefits of its employee under the head “ESOP” expenses. The AO recoded that the assessee has not claimed such deduction in original as well as in revise return. The AO by referring the decision of Supreme Court in Goetze (India) Ltd. v. CIT284 ITR 323 (SC), held that such additional claim is not allowable. On appeal before ld CIT(A), the assessee contended that as per decision of Jurisdictional High Court in CIT v. Pruthvi Brokers & Shareholders 349 ITR 336 (Bombay), the appellate authorities are empowered to admit addition claim. The ld CIT(A) admitted the additional claim of ESOP expenses. The ld CIT(A) after referring the decision of Karnataka High Court in CIT, LTU v. Biocon Ltd. [2020]  (Karnataka), wherein it was held discount on issue of ESOP was allowable as deduction under section 37(1) as primary object was not to waste capital but to earn profit by securing consistent services of employee. On the basis of above findings, the ld CIT(A) directed the AO to verify and examine the claim of assessee and to allow credit as per law.

75. The ld AR of the assessee submits that ld CIT(A) after admitting additional claim the ld CIT(A) directed the AO to verify such claim and there is no infirmity in the order of ld CIT(A) in giving such direction as the issue is in favour of the assessee.

76. On the other hand, the ld CIT-DR for the revenue supported the order of AO.

77. We have considered the contentions of both the parties and find that the AO was not entitled to entertain additional claim in absence of revise return, however, such restrictions are not applicable on the jurisdiction of appellate authorities as per the decision of Jurisdictional High Court in Prithvi Broker and Sharebrokers (supra). We find that on admitting such additional claim, the ld CIT(A) directed to AO to verify such facts and allow relief to the assessee. On independent consideration of facts, we do not find any illegality or infirmity in the order of ld CIT(A) is giving such direction which is in accidence of decision of Jurisdictional High Court in Prithvi Broker and Sharebrokers (supra). Even otherwise, ESOP expenses are allowable deduction under section 37 (1) as has been held by Tribunal and High Courts.

In the result, this ground of appeal is also dismissed.

78. In the result, the appeal of the revenue for AY 2017-18 is also dismissed.