Nishant Thakkar, for the Assessee. Sushil Kumar Mishra, for the Department.

These appeals filed by the assessee, (in short ‘UTCL’) as well as the Revenue against the findings of the Commissioner of Income-tax (Appeals), 47, Mumbai [in short ‘the LD CIT(A)’] relate to Assessment Years 2011-12, 2012-13, 2013-14 and 2014-15 in the matter of order passed under section 153C r.w.s. 144C(3) r.w.s. 143(3) of the Income-tax Act, 1961(IT Act). UTCL has also filed cross objection against the appeal filed by the Revenue. Since these appeals and cross objections filed by the assessee and the revenue for all the four years germinate from the same set of facts, these are taken up together for adjudication and are decided by this common order.

1. Grounds raised by the assessee are as under:

1) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in upholding the disallowance u/s 80IA amounting to Rs.82,61,81,708 for Rail Systems and Rs. 18,91,43,054 for Power Plants. He erred in holding that in respect of Rail Systems and Power Plants transferred from Samruddhi Cement Limited to the appellant Company pursuant to the scheme of amalgamation, the deduction is not allowable as per the provisions of section 80IA(12A) of the income Tax Act 1961.

2) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income tax (Appels) has erred in upholding the disallowance of additional depreciation spilled over from earlier year amounting to Rs 24,12,51,789 u/s 32 (1) of the IT Act in respect of assets was put to use for less than 180 days in FY 2009-10.

3) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income tax (Appeals) has erred in denying the claim of R&D expenses under section 35(2AB) amounting to Rs. 7,50,139.

4) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income tax (Appeals) has erred in not allowing full credit of TDS / TCS, claimed on the basis of certificates filed by the appellant Company.

5) The Appelant craves leave to add, alter, amend or delete the aforesaid grounds of appeal from time to time as it may be advised upto the date of hearings.

Apart from the above, UTCL has also filed following additional grounds:

6) That on the facts and in the circumstances of the case and in law, the Assessing Officer be directed to allow deduction in respect of education cess paid on the amount of income-tax paid during the year.

7) That on the facts and in the circumstances of the case and in law, the Assessing Officer be directed to allow deduction in respect of education cess paid on the amount of dividend distribution tax as per section 115-O of the IT Act.

8) On the facts and in the circumstances of the case and in law, the appellant prays that the Assessing Officer be directed to grant refund in respect of the dividend distribution tax paid under section 115-O in excess of the rate of prescribed under the Double Taxation Avoidance Agreement on dividend paid to non-resident shareholders.

9) Without prejudice to the other grounds, on the facts and in the circumstances of the case and in law, the Learned AO erred in not making a reference to the Learned TPO under Section 92CA(2) of the Act, pursuant to the notice dated 26 November 2014 issued under Section 153C of the Act and accordingly, the order issued under Section 92CA(3) of the Act dated 28 November 2014 by the Learned TPO, in absence of such reference, is bad in law and liable to be quashed.

Revenue’s Appeal- ITA No. 2871/Mum/2018 - Assessment Year 2011-12

2. The grounds taken by the revenue are as under:

1) On the facts and in the circumstances of the case and in law, the Ld. LD CIT(A) erred, in holding that the sales tax exemption benefits of Rs. 19,99,06,000/ - are capital receipts not liable to income tax.

2) On the facts and in the circumstances of the case and in law, the Ld. LD CIT(A) erred, in holding that the sales tax exemption benefits of Rs. 19,99,06,000 / -are capital receipts not liable to income tax in view of the Hon'ble ITAT decision in the assessee's own case in earlier years i.e. 2004-05 to 2010-11 without appreciating the facts that the revenue has not accepted the decision of the Hon'ble, ITAT on this issue and has filed further appeal in the Hon'ble Bombay High Court.

3) On the facts and in the circumstances of the case and in law, the Ld. LD CIT(A) erred, allowing the disallowance of Rs. 136,74,78,762/ - u/ s 80IA on rail system.

4) On the facts and in the circumstances of the case and in law, the Ld. LD CIT(A) erred, in allowing the disallowance of Rs. 136,74,78,762/ - u/ s 80IA on rail "system relying on the decision of the ITAT in earlier years, without appreciating that the department has not accepted the decision of ITAT and further appeal has been filed against the appellate orders.

5) On the facts and in the circumstances of the case and in law, the Ld. CIT(A} erred, in allowing the disallowance of other expense of Rs. 4,14,78,764/ - u/ s 14A.

6) On the facts and circumstances of the case and in law the Ld. LD CIT(A) erred in deleting the treatment of Carbon Credit/ Certified Emission Reduction Receipt of Rs. 1,92,42,384/- as revenue receipt.

7) On the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting the treatment of Carbon Credit/ Certified Emission Reduction Receipt of Rs. 1,92,42,384/- as revenue receipt without appreciating that the decision of the ITAT in the case of the assessee for AY-2008-09, relied upon by the Ld. LD CIT(A) has not been accepted by the revenue and further appeals have been filed.

8) Whether the Ld. LD CIT(A) is right in deciding that provision of guarantee is not an international transaction ignoring the clear provisions of explanation 1(C) u/ s 92B wherein, the same has been specifically identified as an international transaction?

9) Whether the Ld. LD CIT(A) is right in considering it to be a settled matter that guarantee do not have any impact on income, profit, losses or assets of the assessee, ignoring the fact that the Hon'ble ITAT benches have decided otherwise in Everest Canto Cylinder Ltd. Vs. DCIT (LTU), Mumbai (2012-TII-145 ITAT-Mum- TP}, Foursoft Ltd. case ITA No.-1903/ Hyd/ 11, Mahindra & Mahindra Ltd. vs DCJT 55 SOT URO 146 (Hyd) and Prolific Corporation Ltd. vs. DCIT 2015 68 SOT 104 (Hyd).

10) Whether the Ld. LD CIT(A) is right in deciding that provision of Corporate Guarantee is not an international transaction when the assessee itself has clearly declared it as an international transaction in Form 3CEB and charged corporate guarantee fee and included it as part of its returned total income.

11) Whether the Ld. LD CIT(A) is right by deciding the case under the factually incorrect assumption that the assessee has not charged any guarantee commission when the assessee has actually charged the same.

12) Whether the Ld. LD CIT(A) is right in deciding the case by relying on the decision of the Hon'ble ITAT of Videocon Ind. Ltd. vs Addl. CIT in ITA No.- 6662/ Mum/ 2012 ignoring the fact that in that case no guarantee fees were charged and therefore, facts are not identical

CO. No. 129/Mum/2018 - Assessment Year 2011-12

3. The cross objections filed by UTCL against the appeal of the Revenue are as under:

“On the facts and in the circumstances of the case an in law, the learned AO has :

1) erred in challenging the order of the LD CIT(A), wherein LD CIT(A) allowed the sales tax exemption benefits of Rs.19,99,06,000 as capital receipt not chargeable to income tax, without appreciating that the LD CIT(A) has allowed relief by following the decision of the Hon'ble ITAT in case of the Respondent in earlier years from AY 2004-05 to AY 2010-11.

2) erred in challenging the order of the LD CIT(A), wherein LD CIT(A) allowed deduction of Rs. 136,74,78,762 under section 80-1A on rail system, without appreciating that the LD CIT(A) has allowed relief by following the decision of the Hon'ble ITAT in case of the Respondent in earlier years from AY 2004-05 to AY 2010-11.

3) erred in challenging the order of the LD CIT(A), wherein LD CIT(A) allowed the Carbon Credit Certified Emission Reduction receipt of Rs.1,92,42,384 as capital receipt not chargeable to income tax, without appreciating that the LD CIT(A) has allowed relief by following the decision of the Hon'ble ITAT in case of the Respondent in earlier year i.e. AY 2008-09:

4) erred in challenging the order of LD CIT(A) on the above ground no 1 to 3 merely on the ground that Department has not accepted the decision of the Hon'ble ITAT and filed a further appeal before the High Court.

5) erred in challenging the order of the LD CIT(A), wherein LD CIT(A) deleted the disallowance of other expense of Rs. 4,14,78,764 under section 14A, without appreciating that the LD CIT(A) has allowed relief by following the decision of the Hon'ble ITAT in case of the Respondent in earlier years and the order of ITAT in AY 2008-09 which has been approved by Hon'ble Bombay High Court.

6) Without prejudice to Ground No. 8 to 12 in the Department's appeal, in case the provision of corporate guarantee provided by the Respondent is held to be an international transaction under section 92B of the Income-tax Act, 1961, the adjustment on account of corporate guarantee commission should be restricted to some reasonable amount (ie. 0.10 to 0.50%) of the actual loan facility availed by the Associated Enterprise.

7) Without prejudice to Ground No. 8 to 12 in the Department appeal in case the provision of corporate guarantee provided by the Respondent is held to be an international transaction under section 92B of the Income-tax Act, 1961, the amount of corporate guarantee commission should be computed based on the actual loan facility availed by the Associated Enterprise as against the agreement value taken by the AO.”

4. Since most of the grounds raised by the Revenue are already covered in the assessee’s own case in earlier years by the orders of Coordinate Bench of this Tribunal, we shall take the revenue’s appeal and the cross objection filed by UTCL, first.

5. Ground nos.1 and 2 of the Revenue’s appeal relate to the claim of the assessee in treating the sales tax exemption benefit received, amounting to Rs.19,99,06,000/- as capital receipts not liable to tax. Ground no.1 of the assessee’s cross objection is connected with this claim.

6. This issue has been subject matter of appeal in the assessee’s own case from AY 2004-05 onwards and has been decided in favour of the assessee from AY 2004-05 onwards. The latest order on this issue is for AY 2010-11 in ITA No. 7614/Mum/2014 and 7631/Mum/2014 dated 5 April 2017 wherein the Coordinate bench has followed the decisions in earlier years and allowed the plea of the assessee. The Coordinate Bench held as under:

“99. We have considered rival contentions and carefully gone through the orders of the authorities below as well as the order passed by the Tribunal in assessee’s own case in the A.Y.2004-05 to 2006-07. We found that exactly similar issue was considered in detail by the Tribunal and after discussing various judicial pronouncements held that subsidy so received by the assessee was capital in nature, therefore not liable to tax as revenue receipt.”

“100. The facts and circumstances during the years under consideration i.e., 2009-10 & 2010-11 are exactly same, therefore, respectfully following the series of the order of the Tribunal in assessee’s own case, we do not find any infirmity in the order of LD CIT(A) for holding that subsidy was capital in nature therefore, not liable to tax as revenue receipt.”

7. The facts and circumstances during the year under consideration remain the same and hence following the series of the orders of Coordinate Bench of this Tribunal for earlier years in assessee’s own case, we confirm the order of the LD CIT(A) and dismiss this ground raised by the Revenue.

8. Ground nos.3 and 4 of the revenue are concerned with the allowability of deduction under section 80IA in respect of the rail undertakings set up by the assessee. Ground no.2 of the assessee’s cross objection is connected with this claim.

9. This issue was also subject matter of appeal in all the earlier years. The coordinate Bench of this tribunal in AY 2010-11 (ITA No. 7614/Mum/2014 and 7631/Mum/2014) has vide order dated 5.04.2017 analysed the issue in great detail and allowed the claim of the assessee. It has been held that the Rail undertakings are infrastructure facilities and eligible for deduction u/s.80IA of the Act. The Coordinate Bench held as under:

“96. In view of the above discussions and respectfully following the order of the Tribunal in assessee’s own case for A.Y. 2004-05 to 2008-09, we do not find any merit in the action of the Revenue authorities declining the claim of deduction under section 80IA(4). Accordingly, AO is directed to allow the deduction as claimed by the assessee with respect to its rail system. We direct accordingly.”

10. Since the facts and circumstances with regard to this claim of the assessee remain same in this year, following the orders of Coordinate Bench in assessee’s own case for earlier assessment years, especially for AY 2010-11, we uphold the action of the LD CIT(A) and dismiss this ground raised by the Revenue.

11. Ground no. 5 raised by the Revenue relate to relief allowed by the LD CIT(A) by deleting the additions made by the AO u/s.14A of the IT Act. The assessee in its return of income had, u/s.14A of the IT Act, offered for disallowance an amount of Rs.71,50,186/- as indirect expenses incurred for earning exempt income. The AO, however, applied Rule 8D(2)(iii) and computed the disallowance at Rs.4,14,78,764/-. Ground no.5 of the assessee’s cross objection is connected with this claim.

12. This issue is also covered in favour of the assessee in its own case by the orders of coordinate bench of this Tribunal for AY 2007-08 to AY 2010-11, wherein the coordinate bench has accepted the assessee’s plea that the amount suo moto offered for disallowance is appropriate and without pointing out any defect in the workings of the assessee, no further disallowance can be made by the AO. The observation of the coordinate bench in AY 2010-11 is reproduced below:

“104. We had carefully gone through the order of the authorities below as well as the order passed by the Tribunal in assessee's own case for the AY 2007-08 and 2008-09 wherein the Tribunal has restricted the disallowance under Rule 8D(iii) to the extent of amount offered by the assessee as attributable to earning of exempt income. During the year under consideration, we found that assessee has offered expenses on Cost to Company basis of employees, executives and staff those were looking after the profit on investment in the mutual funds amounting to Rs 43,31.541/ Assessee has also offered expenditure indirectly attributable to these employees amounting to Rs. 12,09,391/- thus, total disallowance offered by the assessee amounts to Rs 55.40,932/- which appears to be reasonable looking to the nature of the exempt income vis-a-vis nature of expenses so incurred for earning the same. Respectfully following the decision of the Tribunal in assessee's own case, we restrict the disallowance under Rule 8D(2)(iii) to the extent of Rs 55,40,932/-. Following the same reasoning, we direct AO to restrict disallowance under Rule 8D(2)(iii) to the extent of Rs.64,30,155/- as offered by assessee in the AY 2010-11. We direct accordingly.”

13. It is also noted that for AY 2008-09, on the same issue, the Revenue had approached the Bombay High Court against the order of the Tribunal. The Hon’ble Bombay High Court dismissed the appeal filed by the Revenue vide order dated 14.02.2017 in ITA No.1401 of 2014 and observed as under:

“No fault can be found with the impugned order of the Tribunal holding that the Assessing Officer should show fallacies in the computation of disallowance done by the respondent assessee. Thus, there is no reason to discard the disallowance done by the respondent assessee.”

“So far as the claim with regard to the disallowance made in respect of the other expenditure (other than interest which has been restored to the Assessing Officer to find out the source of funds in the investment made), the impugned order has held it to be reasonable and calling for no further disallowance. This finding of the Tribunal is a finding of fact and the same has not been shown to us to be perverse in any manner.”

14. Further, the Hon’ble Supreme Court has also dismissed the Revenue’s Special Leave Petition (SLP No. 19601/2018) vide order dated 9th July 2018 for AY 2008-09 and upheld the order of the Hon’ble Bombay High Court.

15. We have carefully gone through the order of the AO. He has not pointed out any errors in the amount of disallowance offered by the assessee u/s.14A of the IT Act. The facts in the present case are similar to the facts in the earlier years. For the year under consideration, the disallowance offered by the assessee is in respect of salary cost of the employees looking after the investment activities amounting to Rs.58,84,137 and the indirect cost amounting to Rs.12,66,049 relating to such employees. Therefore, following the decision of Coordinate Bench of this Tribunal in assessee’s own case for earlier year and the Bombay High Court’s ruling for AY 2008-09 against which the SLP filed by the Revenue has been rejected by the Hon’ble Apex Court, we hold that total disallowance for the purpose of section 14A should be restricted to the amount suo moto offered by the assessee i.e. Rs. 71,50,186 and accordingly dismiss the ground raised by the Revenue in this regard.

16. Ground nos.6 and 7 raised by the Revenue relate to treating the receipts on sale of CER certificates as capital receipts instead of revenue receipts. Ground no.3 of the assessee’s cross objection is connected with this claim.

17. We note that this issue has also been decided in favour of the assessee in its own case by the Coordinate Bench of this Tribunal in ITA No. 1348/Mum/2012 for AY 2008-09 vide order dated 28 Feb 2014. The observation of the Tribunal on this issue is as under:

“43. We find that the assessee has shown the sale consideration out of sale proceeds of Carbon Credit under the head 'other income' as revenue receipts which now it wants to claim as capital receipts in the light of the decision of the Tribunal. Since no new facts have to be verified so far as this claim is concerned realization of Carbon Credit are already shown under the head' other income'. Respectfully following the decision of the Tribunal cited hereunder:

1. ITAT Hyderabad Bench in the case of My Home Power Ltd. Vs DCIT in ITA No. l l 14/Hyd/2009

2. ITAT Chennai Bench in the case of Sri Velayudaswamy Spinning Mills (P) Ltd. Vs DCIT in ITA No. 582/Mds/2013

3. ITAT Chennai Bench in the case of Ambika Cotton Mills Ltd. Vs DCIT in ITA No. 1836/Mds/2012;

We direct the AO to treat the Proceeds realized from sale of Certified Emission Reduction (CERs) generated out of Capital Projects registered with UNFCCC as capital receipts. Additional ground No.1 is accordingly allowed.”

18. Since the facts on this issue remains same for the year under consideration, we do not find any reason to interfere with the order of the LD CIT(A). Accordingly, following the decision of the Coordinate Bench of this Tribunal in assessee’s own case for AY 2008-09, this ground of the Revenue is dismissed.

19. Ground no.8 to 12 raised by the Revenue relate to additions made by the AO regarding Corporate Guarantee commission pursuant to the Transfer Pricing order passed by the TPO. Ground nos. 6 and 7 of the assessee’s cross objection is connected with this claim.

20. Since the assessee has also raised an additional ground on this issue, all the grounds are taken up together subsequently for adjudication when we deal with the additional ground.

21. Ground no.4 of the assessee’s cross objection is general in nature and require no separate adjudication.

22. Ld Counsel for the assesse Sri. Nishant Thakkar, briefly stated the following facts involved in the appeal for the assessment year 2011-12. The assessee had filed its original return of income on 25.11.2011, which was subsequently revised on 12.03.2013. Thereafter, notice u/s 153C r.w.s. 153A of the IT Act dated 26.11.2014 was issued by the Dy. CIT, Central Circle -1(4) (AO) and served on the assessee asking it to file return of income for the AY 2008-09 to AY 2014-15. Pursuant to the above notice, the assessee filed its return of income u/s 153C r.w.s. 153A of the IT Act for the year under consideration. The AO initiated proceedings u/s 153C r.w.s. 153A of the IT Act against the appellant and an order dated 29.03.2016 was passed u/s. 153C r.w.s 144(3) r.w.s 143(3) of the IT Act assessing the total income at Rs.15,25,40,74,592/-.

23. Ground no.1 of the appeal filed by the assessee relate to disallowance of claim made by the assessee amounting to Rs.82,61,81,708 for rail system and Rs.18,81,43,054 for power generation. The AO has held that the undertakings which were transferred to the assessee from Samruddhi Cement Limited pursuant to the scheme of amalgamation are not eligible for tax holiday benefit under section 80IA in view of the provisions of sub-section (12A) of section 80IA of the IT Act.

24. Before we get into the merits of the claim of the assessee, it is important to understand the facts in the case before us.

i. The assessee is a subsidiary of Grasim Industries Limited (Grasim) with the promoter holding of more than 60%.

ii. During the financial year 2010-11, as per the Scheme of Amalgamation duly approved by the Hon’ble High Courts of Bombay and Gujarat, Samruddhi Cement Ltd. (SCL) was amalgamated with the assessee w.e.f. 01.07.2010 (appointed date). The amalgamating company, viz. SCL was a 100% subsidiary of Grasim.

iii. Pursuant to the sanction of the Scheme by the High Courts and upon coming into effect of the Scheme of Amalgamation from the appointed date, all the estate, assets, properties, rights, claims, title, interest and authorities including accretions and appurtenances comprised in the undertaking of SCL stood transferred to and vested in UTCL, as a going concern.

iv. The abovementioned rights, properties, estates etc. of SCL included Rail undertakings and power plants for which SCL had been claiming tax holiday u/s 80IA.

v. Upon amalgamation of SCL and vesting of its Railway undertakings at Rawan - District Raipur, at Hotgi - District Sholapur, at Shambhupura - District Chittorgarh, and at Dodaballarpur - District Bangalore, into the assessee, the assessee Company claimed a deduction of Rs.82,61,81,708/- u/s 80-IA of the IT Act (as tabulated below) for the period 1st July 2010 to 31st March 2011:

vi. Similarly, the assessee Company also claimed deduction of Rs.18,91,43,054/- u/s 80IA of the IT Act (as tabulated below) with respect to its power generating eligible undertakings which were acquired from SCL:

25. The AO disallowed the claim of the assessee in respect of these Rail systems and power undertakings inherited by the assessee from SCL under the scheme of amalgamation, invoking the provisions of sub- section (12A) of Section 80-IA. In this regard, the AO relied on the Memorandum explaining the provisions of Finance Bill, 2007 which reads as under:

“The existing provisions of section 80-IA provide for 100 per cent deduction for ten years in respect of profits and gains of certain undertakings or enterprises engaged in the business of development, operation and maintenance of infrastructure facility, industrial parks and special economic zones or generation, distribution or transmission of power, laying and operating and similar benefit is proposed for laying and operating a cross-country natural gas distribution network, including gas pipelines and storage facilities being an integral part of the network, etc. Sub-section (12) of the said section 80-IA, inter alia, provides that where any undertaking of an Indian company which is entitled to the deduction under the said section is transferred before the expiry of the period specified therein, to another Indian company in a scheme of amalgamation or demerger, the provisions of the said section 80-IA shall apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place.

It is proposed to insert a new sub-section (12A) in section 80-IA so as to provide that the provisions of sub-section (12) shall not apply to any undertaking or enterprise which is transferred in a scheme of amalgamation or demerger after 31-3-2007.

This amendment will take effect from 1st April, 2008 and will, accordingly, apply in relation to the assessment year 2008-2009 and subsequent years.”

26. The LD CIT(A) upheld the view taken by the AO and noted that amendment provision brought in by the Finance Act, 2007 is free from any ambiguity and pursuant to such amendment, deduction under section 80IA becomes impermissible for the amalgamated company in respect of the undertakings inherited under the scheme of amalgamation.

27. The Ld AR of the assessee, at the outset submitted that it is sub- section (1) of section 80IA of the IT Act, which confers the benefit of tax holiday to the eligible undertakings and sub-section (4) prescribes various businesses for which the undertakings / enterprises are eligible for tax holiday. All the other sub-sections of section 80IA prescribe conditions for the allowance, computation mechanism, extent and period of deduction, options to choose the period of deduction, procedural compliance etc.

28. The Ld AR took us through the provisions of sub-section (1) and submitted that the benefit of tax holiday, as envisaged u/s.80IA, is attached to an ‘undertaking’ and not to the ‘owner’. Accordingly, it was emphasized that the change in ownership has no impact on the availability of deduction in the hands of the successor company. References were made to various decisions discussing availability of similar claims u/s. 80J / Section 84 of the 1922 Act etc. to draw home his point that the benefit of tax holiday remains with the undertaking although the ownership of the same may change hands. We will deal with these references subsequently in this order.

29. According to the Ld AO as well as Ld CIT(A), sub-section (12) of section 80IA of the IT Act, which was inserted by the Finance Act, 1999, with effect from 1st April 2000 was an enabling provision and facilitated the successor to claim the benefit of the tax holiday in the year of reorganisation and thereafter. The Ld AR of the assessee on the other hand, argued that sub-section (12) merely made it explicit what was implicit u/s. 80IA of the IT Act. It, however, made subtle change by providing that in the year of reorganisation, the deduction, which is attached to the undertaking, would not be available to the predecessor company, but such deduction will be available to the successor company.

30. According to the Ld AR of the assessee, sub-section (12) was introduced merely with the intention to put to rest the divergent views taken by the authorities on this issue. It was also pointed out that sub-section (12) to section 80IA did not confer any new right to an assessee to claim the deduction. Sub-section (12) merely clarified that the successor company shall be eligible to claim the deduction for the residual period which according to the AR of the assessee was statutorily vested as per section 80IA(1) of the IT Act.

31. The Ld AO as well as Ld CIT(A) are of the view that with the introduction of sub-section (12A), since the provisions of sub-section (12) shall not apply to the undertakings or enterprises which are transferred in the scheme of amalgamation or demerger after 31-3- 2007, the statute has disabled the enabling provision enshrined in sub- section (12) of Section 80IA of the IT Act.

32. The Ld AR of the assessee on the other hand, as aforementioned, argued that sub-section (12) of section 80IA did not create any new right of tax holiday to the successor entity at the first place. Thus, insertion of sub-section (12A) in section 80IA of the IT Act, which merely disabled the applicability of sub-section (12), cannot be construed as withdrawal of right to claim the deduction by the successor.

33. The Ld AR of the assessee further argued that sub-section (12A) was introduced merely to neutralise the abnormalities brought into the statue by sub-section (12) of section 80IA. According to Ld AR of the assessee following anomalies had arisen on account of introduction of sub-section (12) in section 80IA of the IT Act:

“i. In cases of amalgamation / demerger which are effective on a day other than beginning of a financial year, the predecessor company has no right to claim any deduction despite the income for such period is reported by such predecessor company.

ii. A strict application of sub-section (12A) read with sub-section (12) in case of demerger would disentitle the demerged entity from claiming deduction with respect to other eligible undertakings even when only one or few eligible undertakings are transferred under the demerger process.”

34. According to the Ld AR of the assessee, the intent of introduction of sub-section (12A) was never to deny the deduction to the eligible undertakings but it merely restored the position of law as it was before insertion of sub-section (12) in section 80IA. This is clear from the wordings used in sub-section (12A) viz: the provisions of sub- section (12) shall not apply to any undertaking or enterprise which is transferred in a scheme of amalgamation or demerger after 31-3- 2007.

35. The Ld AR further submitted that sub-section (12) was in fact a disabling provision as it disabled the predecessor entity from claiming deduction in the year of amalgamation on a pro-rata basis. Therefore, sub-section (12A) merely negates the effect of such disabling provision and it does not restrict the eligibility of an undertaking to claim deduction under section 80IA of the IT Act which is granted under sub-section (1) of section 80IA of the IT Act.

36. The Ld AR also submitted that the Scheme of amalgamation under which the undertakings have been transferred to the assessee clearly provided that the associated benefits/ available deductions including tax holiday claims u/s.80IA will vest in the amalgamated entity i.e. assessee. The Scheme has sanction of the High Court of Bombay as well as High Court of Gujarat. Hence, once the scheme of amalgamation of SCL with the assessee has received the approval of the Hon’ble High Courts, conferring the right upon the assessee company to continue to claim deduction u/s. 80-IA in respect of the eligible undertakings for the residual period, the tax authorities cannot deny the deduction in contempt of the order of Hon’ble High Court.

37. Without prejudice to the above arguments, the Ld AR of the assessee also submitted following additional arguments in support of claim:

i. Interpretation of sub-sections (12) & (12A) leads to unjust and discriminatory result in so far as the successor company in case of amalgamation/ demerger would not be eligible for the deduction, whereas a purchaser of unit or a successor pursuant to dissolution/slump sale, conversion of proprietorship /firm into company etc. shall be able to claim the tax holiday. Therefore, the AR submitted that an interpretation which leads to absurd consequences and results in discrimination should be avoided.

ii. Sub-section (12) applies only to an “undertaking” and not to an “enterprise”, therefore sub-section (12A) which negates the applicability of sub-section (12) will not apply to rail systems which are regarded as “enterprise” for the purpose of section 80-IA(4)(i).

iii. Sub-section (12) of section 80IA presupposes that the amalgamating Company/ demerging entity is claiming deduction at the time of reorganisation. As such, the provisions of sub-section (12A) cannot be construed to deny benefit in respect of those undertakings which started claiming deduction only after the date of amalgamation.

38. The Ld DR on the other hand referred to the CBDT Circular no.3 of 2008 dated 12 March 2008 wherein the CBDT has explained the purpose behind introduction of sub-section (12A) in section 80IA. According to the CBDT, the intention of providing benefit under section 80IA was to accord incentive to those who had made initial investment and taken entrepreneurial risk. The amendment, by introducing sub- section (12A), was brought in the statute to disallow such benefit in the hands of someone who has not taken these risks and had only acquired such eligible undertakings much later when the risk had reduced.

39. In the rejoinder, the Ld AR of the assessee submitted that the interpretation of CBDT is contrary to the plain reading of sub-section (12) or (12A), as also the explanatory memorandum to the Finance Bill, 1999 by which sub-section (12) was introduced in the statute and Finance Bill, 2007 by which sub-section (12A) was introduced in the statute. It was further argued that Circulars issued by CBDT are not binding either on the assessee or on the Courts/ Tribunals for the purpose of interpretation of law especially when the language used in the statute is plain and unambiguous. Reliance was placed in this regard on the Supreme Court Ruling in the case of Ratan Melting & Wire Industries (Civil Appeal No.4022 of 1999).

40. Even otherwise, the Ld AR of the assessee was of the view that, in the present case such deduction cannot be denied to the assessee since the assessee has considered the fair value of the undertakings for the purpose of amalgamation and has paid appropriate consideration by way of issue of shares, to the shareholders of SCL. Thus, the assessee has assumed full entrepreneurial risk of investment and operations of the undertakings so transferred. Thus even on that count the deduction cannot be denied.

41. We have carefully gone through the orders of the lower authorities / materials placed before us and considered the arguments of both parties. Grievance of both parties revolve around eligibility of tax holiday claim for units acquired by the assessee Company from SCL pursuant to the Scheme of amalgamation.

42. Before getting into the merits of the dispute, it is worthwhile to briefly touch upon the legal provisions concerning allowability of deduction under section 80IA of the IT Act.

43. Sub-section (1) to section 80IA allows the deduction, in respect of the profits derived from the eligible business (as specified in the section, which includes certain eligible business), in accordance with and subject to the provision of the section. The relevant section is reproduced below:

“[1] Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income of the assessee, deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years”.

44. Sub-section (4) of section 80IA provides as under: any enterprise carrying on the business of (i) developing or(ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions namely :-

Explanation – For the purposes of this clause, “infrastructure facility” means –

(a) a road including toll road, a bridge or a rail system

(iii) An undertaking which,-

(a) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2017;

45. Sub-section (4) provides that the benefit of deduction is attached to an ‘enterprise’ or an ‘undertaking’ and not to the owner thereof. There is no dispute on this aspect that the deduction u/s.80IA is attached to an enterprise or an undertaking.

46. The Hon’ble Madras High Court in the case of Madras Machine Tools Manufacturers Ltd. vs. CIT [1975] 98 ITR 119 while dealing with the question as to whether applicability of deduction under section 84 has to be with respect to a particular undertaking or to the company in general, held as under:

“15. ... It is not the manufacture or production of articles by the company but the manufacture or production by the undertaking, which is different from the company, that is contemplated under the sub-section. A company may own or run many undertakings some of which may be entitled to the benefit of Section 84 and others may not be so entitled. It is not, therefore, possible to equate the undertaking with the company. When a company owns more than one undertaking the application, of Section 84 has to be with respect to the particular undertaking and not to the company in general...”

47. The Hon’ble Delhi High Court in the case of CIT vs. Tata Communications Internet Services Ltd. [2012] 251 CTR 290 dealing with the issue relating to availability of deduction under section 80-IA post change in shareholding pattern of the company, held as under:

“13. Insofar as the objection of the revenue that there had been change in the name of pattern of shareholding it does not make any difference as it is a well settled rule of law that benefit under Section 80IA of the Act is available to an undertaking and not to the assessee since the undertaking continues to carrying on its business without any reconstruction of business already in existence.”

48. A corollary can also be drawn from the provisions of section 10A which provides for deduction to undertakings deriving profits from export of specified article or software. The language used in section 10 is similar to section 80IA where the deduction is prescribed for an undertaking. The Hon’ble jurisdictional High Court in the case of CIT vs. Sonata Software Ltd. [2012] 343 ITR 397 dealing with the issue relating to eligibility of the successor entity which had acquired the eligible undertaking on slump sale basis to claim deduction under section 10A, held as under:

“11. The Tribunal in the present case has come to the conclusion that where a running business is transferred lock, stock and barrel by one assessee to another assessee the principle of reconstruction, splitting up and transfer of plant and machinery cannot be applied. According to the Tribunal the benefit of Section 10A attaches to the undertaking and not to the assessee which owns the undertaking. The benefit of Section 10A was held to have attached itself to the STP unit of the software division which was owned by IOCL till 19 October 1994 and it was owned by the assessee subsequent to that date. What is material, according to the Tribunal, is not who owns the undertaking but whether the undertaking is entitled to the benefit available under Section 10A...”

49. Thus, there is no dispute that the deduction under section 80IA(1) r.w.s. 80IA(4) is available to an undertaking or an enterprise and not to the owner. Having said that, it is necessary to examine whether introduction of sub-section (12) in section 80IA had any implications in terms of the said understanding.

50. Sub-section (12) providing for allowance of deduction in case of a transfer of undertaking, pursuant to amalgamation or demerger, was inserted in section 80IA by the Finance Act, 1999, with effect from 1st April 2000 and read as follows:

“(12) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger –

(a) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and

(b) the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place”.

51. As per sub-section (12) of section 80IA of the IT Act:

i. If an undertaking entitled to the deduction, owned by any Indian company,

ii. is transferred before expiry of the specified period,

iii. the transfer is to another Indian company, pursuant to amalgamation or demerger, then:

iv. in the year of amalgamation or demerger, the amalgamating or the demerged company (‘predecessor co’) would not be entitled to the deduction; and

v. the provisions of the section would apply to the amalgamated or the resulting company (‘successor co’), as if the amalgamation or demerger had not taken place.

52. Sub-section (12) of section 80IA of the IT Act, uses the word ‘undertaking’ signifying that it applies to an undertaking and not to a taxpayer or owner of the undertaking. It provided that in case of amalgamation/demerger, the benefit will flow to the assessee which acquires the undertaking. It is hence important to understand the purpose of introduction of sub-section (12) in the statute.

53. The Memorandum explaining the provisions of the Finance Bill, 1999, stated that the insertion of sub-section (12) in the statute was to neutralise the tax effects of a business reorganisation. Relevant portion of the Memorandum explaining the provisions of the finance Bill was as follows:

“86. With growing liberalisation of the economy has come the need for industrial restructuring so that companies can focus better on their core activities. The corporate sector has been voicing the need for a flexible fiscal policy for regulating business reorganisations. In response to this need, I propose a comprehensive set of amendments to the Income tax Act to make such business reorganisations fully tax neutral.

87. ... Further, it is proposed that all fiscal concessions will survive for the unexpired period in the case of amalgamation and demergers". (Extracts from the speech of Finance Minister)”

The Memorandum further explained as under:

"The business and economic development of the country has thrown up the need for rationalisation of laws relating to business reorganisations for restructuring of production system and a better utilisation of resources which have become necessary with a view to enable the Indian industry to rearrange itself to become globally competitive. It was in this background that tax concessions to conversion of firms into companies were provided ..., which were widely welcomed. With the same end in view, a number of provisions have been conceived for the entire gamut of business reorganisations.

3. With a view to reorganise demergers, slump sales and to rationalise the existing provisions of amalgamation, a number of amendments have been proposed on the basis of the following broad principles:

(a) demergers should be tax neutral and should not attract any additional liability to tax.

(b) in demergers, tax benefits and concessions are available to any undertaking should be available to the said undertaking on its transfer to the resulting company.

With a view to neutralise the tax effects, the Finance Act, 1999, inter alia, carried out amendments in sections 35A, 35AB, 35ABB, 35D, 35E of the IT Act.

54. The amendment was subsequently explained in more detail by the CBDT in Circular No. 779 dated 14-09-1999 under the head Business re-organization – Extensive amendments in relation to amalgamation demerger and slump sale. Relevant portion of the Circular is extracted below:

“56.1 The business and economic environment of the country has thrown up the need for simplification and rationalisation of laws relating to business re-organization, for rationalisation of the production system and better utilization of resources which have become necessary with a view to enabling the Indian industry to restructure itself to become globally competitive. It was in this background that the tax concessions to conversion of firms into companies or proprietary concern into companies were provided in Finance (No.2) Act, 1998 and were widely welcomed. Following this up, the Act has carried out a number of amendments for the entire gamut of business reorganisation. These include rationalisation of the existing provisions relating to amalgamation of companies, new provisions relating to demerger of companies and sale or transfer of business as a going concern through slump sale.

56.2 Amalgamation in relation to the companies has been defined under the existing provisions of the Income-tax Act to mean the merger of one or more companies with another company or the merger of two or more companies to form one company. There are a number of provisions in the Income-tax Act having bearing on amalgamation. Demerger is relatively a new phenomenon in the Indian corporate sector. A demerger is a reorganization of a company where all the existing assets and liabilities are divided into one or more additional entities leading to resulting companies. While there are no specific provisions under the Companies Act governing demergers, some transactions of this nature do take place through schemes of compromise or arrangement under sections 391 to 394 of the Companies Act and these are sanctioned by the High Courts. A slump sale is a form of reorganization where an undertaking or a division is transferred from one person to another for a lump sum consideration without values being assigned to the individual assets and liabilities transferred.

56.3 Extensive amendments in the Income-tax Act have been carried out on the basis of the following broad principles:

a) The restructuring shall not attract additional liabilities to tax and also not result in the withdrawal of relief and concessions available to the existing unit.

b) The tax benefits and concessions available to an undertaking of a company shall continue to be available to the undertaking on transfer of the same while concessions and benefits that are available to the transferor company as an entity and not to the undertaking of the company proposed to be transferred, should remain with the transferor company.

c) Tax benefits to such business reorganizations should be limited to the transfer of business as a going concern and not to the transfer of specific assets which would amount to sale of assets and not a business reorganization.

The Act has substituted section 80I-A by sections 80-IA and 80-IB of the Income-tax Act. The substituted section 80-IA, inter alia, in sub-section (12) provides that where any undertaking of an Indian company entitled to the deduction under this section is transferred to another Indian company in a scheme of amalgamation or demerger before the expiry of the specified period, the deduction shall be availed by the amalgamated company or the resulting company. Identical provision has been enacted in sub-section (12) of section 80-IB in regard to deduction available under that section in the case of an amalgamation or demerger” (emphasis supplied)

55. The memorandum explains that the purpose of introducing sub-section (12) was to make the business reorganisations such as amalgamation and demerger tax neutral. A question, therefore, arises is to understand what was the position prior to insertion of sub-section (12)? In other words, prior of insertion of sub-section (12), whether the taxpayers were allowed or were they denied the benefit of tax holiday, if the undertaking were transferred by one taxpayer to another.

56. The issue about eligibility to claim tax holiday/deduction of the eligible undertaking by a successor, (not necessarily in the context of 80IA but other similar tax holiday provisions) had arisen number of times for adjudication before the Courts prior to insertion of sub-section (12) in section 80IA of the IT Act. We observe that the Courts have taken a consistent view that the deduction was allowable for the residual period to the successor company.

57. In CIT vs. Silical Metallurgic Ltd (324 ITR 29), the facts before Hon’ble Madras High Court were as follows: there were three units at different places being new industrial undertakings eligible for deduction under the applicable provisions. They belonged to different companies assessed separately. The companies were amalgamated into one and the amalgamated company continued to carry on the business of the undertakings. It claimed the deduction of tax holiday for all the eligible undertakings. The AO disallowed the deduction on the ground that it did not set up the aforesaid units and there was no provision in the Act for granting the benefit of deduction to the amalgamated company.

The Ld CIT(A) and the Tribunal upheld the claim of the taxpayer. The Hon’ble Madras High Court confirmed the decision of the Tribunal and observed as follows:

“A reading of the provision of sections 80HH and 80-I of the Act, it is clear that the same has been incorporated to encourage the new industrial undertaking on fulfilment of certain conditions mentioned therein. If the conditions mentioned in the sections are complied with by the assessee, the benefit extended by the provisions has to be granted to the assessee. The amalgamation of one company with the other company cannot be regarded as a splitting up or reconstruction or by a transfer of a new business of the plant and machinery of the old business. With reference to the Companies Act, the amalgamation was also for the benefit of the two companies, i.e., amalgamating and amalgamated company and in the public interest and also in the interest of the shareholders. Viewed from any angle amalgamation cannot be regarded as a splitting up of the company for the purpose of negativing the claim under the Income-tax Act, which has been statutorily conferred on the company, if such companies fulfil the conditions stipulated therein.

Hence, we are of the view that the order of the Tribunal granting the benefit of sections 80HH and 80-I to the assessee-company cannot be stated to be illegal or against the statutory provisions. A similar view has been taken by the Bombay High Court in the case of CIT v. Dandeli Ferro Alloys P. Ltd. [1995] ITR 1, in which the Bombay High Court held that the facts on record clearly established that the amalgamated company was already incorporated and formed and had come into existence on March, 1973 and had become an industrial undertaking carrying on industrial and commercial activities on and from June 20, 1973, i.e., prior to the amalgamation of the amalgamating company with the amalgamated company, which had become effective from October 31, 1973. The amalgamated company was not formed by the splitting up, or the reconstruction, of a business already in existence. Therefore, the Tribunal was right in holding that the assessee company was entitled to relief under sections 80J and 80HH of the Act”.

58. The CBDT had also accepted the above legal position with regard to deduction under section 84 of Income Tax Act, 1922 (Section 80J of Income-tax Act, 1961), way back in 1963 and clarified the matter vide Letter: F No 15/5/63-IT (A-I), dated 13 December 1963, which reads as under:

"The Board agree the benefit of section 84 attaches to the undertaking and not to the owner, thereof. The successor will be entitled to the benefit for the unexpired period of five years provided the undertaking is taken over as a running concern".

59. The Board set out two principles (prima facie, independent of one another or the later dependent on the primary and the first principle):

i. The deduction attaches to the undertaking and not to the owner; and

ii. A successor would be entitled to the deduction, for the residual period, if the undertaking is transferred as a running concern

60. The aforesaid Board Circular have been relied upon by various Courts and its applicability have been upheld. The Hon’ble Allahabad High Court in the case of Prisma Electronics [2015] 377 ITR 207 was concerned with deduction under section 80-IB on conversion of proprietorship concern into partnership firm. In this regard, it was held as under:

“11. From a perusal of the aforesaid provision, it is clear that Section 84 is more or less the same as provided in Section 80-IB of the Act. The Central Board of Direct Taxes issued a circular F. No.15/5/63-IT(A-1) dated 13th December, 1963 indicating that the benefit of Section 84 is attached to the undertaking and not to the owner thereof and, consequently, the successor would be entitled to the benefit for the unexpired period of 5 years provided the undertaking is taken over as a running concern.

12. The same principle is applicable in the instant case. Admittedly, the undertaking was in existence since 2002. The proprietorship concern changed into a partnership firm. The benefit under Section 80-IB of the Act is available to the partnership firm and the conditions imposed under Section 80-IB(2)(i) does not come in the way.”

Thus, the sanctity of the CBDT Circular has been upheld in the context of section 80IB, confirming that the tax holiday moves along with the undertaking and the ownership has no relevance.

61. The said Circular has also been relied upon by the Hon’ble Punjab & Haryana High Court in the case of Mega Packages [2011] 203 Taxman 236 while considering the eligibility of deduction under section 80-IC on conversion of proprietorship concern into a partnership firm. The Hon’ble High Court observed as under:

“9. Adverting to the alternate reason adopted by the Assessing Officer to deny the benefit of Section 80-IC the Act for the remaining period, suffice is to notice that the formation of the partnership from proprietorship business could not be held to be as a result of splitting or reconstruction of a business already in existence which could justify denying benefit by virtue of Section 80-IC(4)(i) of the Act. The Tribunal rejected the said contention as under:-

12. The said circular was issued with reference to Section 84 which was replaced by section 80J w.e.f. 1.4.1968. The said section 80J has been omitted by Finance Act No.2 of 1996 w.e.f. 1.4.1989. However, the provisions of section 84/80J and 80IC are similar in the context of benefit of deduction to be allowed to an undertaking. Reading the provisions of section 84, 80J and 80IC of the Income Tax Act, we find that the provisions of the aforesaid sections are similar and applying the circular issued in respect of section 84 to the provisions of section 80IC, we hold that the benefit of deduction u/s 80IC, which has not withdrawn till date, as a going concern, is to be allowed to an undertaking. The said undertaking being succeeded by a partnership firm, would not disentitle the succeeding person, the benefit of deduction under the aforesaid section. We find support from the ratio laid down in the under mentioned judgment replied upon by the assessee."

10. The interpretation placed by the Tribunal on the provisions of Section 80-IC(4)(i) of the Act being in consonance with law, no fault arises in the view taken by the Tribunal. No ground to interfere with the order of the Tribunal has been made out. Therefore, no substantial question of law arises in this appeal. Accordingly, the present appeal is dismissed.”

62. The issue relating to availability of deduction under section 80J for the unexpired period in case of amalgamation has also been examined by the Hon’ble Bombay High Court in case of Tyresoles Concessionaire (P.) Ltd [1995] 81 Taxman 279. Relevant findings of the High Court while deciding the issue in favour of the assessee were as follows:

“10. So far as the next question is concerned, we find that the amalgamated company claimed relief under section 80J for the period from 1-1-1975 to 31- 3-1975. This relief was refused by the ITO on the ground of non-fulfilment of the conditions of section 80J(5). So far as the fulfilment of the conditions of section 80J(5) is concerned, we find that there is a clear and categorical finding of the Tribunal that all the conditions were fulfilled. The only question to be decided is whether having regard to the provision of section 80J, the assessee-company is entitled to claim development rebate for the balance period of 5 years. We have carefully perused the provisions of section 80J. Relief under that section is available only to those industrial undertakings which fulfil all the conditions specified in sub-section (4) thereof, the relevant conditions for the present purpose being conditions (i) and (ii). ... On a careful perusal of the provisions of section 80J as a whole and the clear and categorical finding of the Tribunal that the assessee-company has fulfilled all the conditions of section 80J, we are of the clear opinion that the assessee-company (amalgamated company) is entitled to relief under section 80J for the balance of the period of 5 years in terms of section 80J.”

63. The crux of all the above decisions fortify that prior to insertion of sub-section (12) in section 80IA / 80IAB of the IT Act, the deduction was allowed to the successor entity to which the undertaking was transferred. We are, therefore, not persuaded to accept the contention of the Revenue that sub-section (12) of section 80IA was an enabling provisions which entitled the successor entity to claim the benefit relating to undertaking transferred in the scheme of amalgamation /demerger. The deduction was available to the successor even prior to insertion of sub-section (12) and pursuant the provisions of sub-section (1) r.w.s. sub-section (4) of section 80IA of the IT Act.

64. We are rather inclined to accept the proposition put forth by the Ld AR of the assessee that sub-section (12) was in the nature of disabling provision in so far as it disentitled the amalgamating / demerged entity to claim any deduction in the year of amalgamation/ demerger.

65. Sub-section (12) of section 80IA provided that:

i. In case of the amalgamating company or the demerged company the deduction would not be admissible, in the year of amalgamation or demerger; and

ii. The provisions of the section, as far as may be, should be applied to the amalgamated company or the resulting company, as would have applied to the amalgamating company or demerged company.

66. Thus, sub-section (12) restricted the rights of the amalgamating/demerged company to claim deduction under section 80-IA for the year in which the amalgamation/demerger takes places, even if such amalgamation/demerger was effected in the middle of the year, and the profits of such undertaking for the period up to the appointed date/demerger are taxed in the hands of the amalgamating company/demerged company.

67. The Coordinate Bench of this Tribunal (Ahmedabad Bench) in ITO vs. SLM Maneklal Industries Ltd. [1986] 17 ITD 515, in the context of section 80J of the Act has held that in case of amalgamation effective during the year, the amalgamating company will be eligible to claim deduction upto the period the undertaking was operated by it and, the amalgamated company will be eligible to claim deduction for the period the undertaking was operated by it after the amalgamation. In this case, the Tribunal was interpreting the provisions of section 80J, which did not have a provision similar to sub-section (12) of section 80IA.

68. In summary, prior to insertion of sub-section (12) in section 80IA, the deduction was allowed to the amalgamating and the amalgamated companies on a pro-rata basis for the year in which the amalgamation took place. Sub-section (12), although allowed the benefit to the successor entity to which the undertaking was transferred, it changed the position a little, by disentitling the amalgamating company to claim any deduction in the year of amalgamation. Therefore, sub-section (12) did not create a new right, since this right was already provided in the statute to the successor. It, in effect, curtailed the rights of the amalgamating company or demerged company by disenabling them to claim any benefit in the year of amalgamation/demerger.

69. We also tend to agree with another proposition put forth by the AR of the assessee that sub-section (12) to section 80IA only made explicit that was implicit in the provisions and therefore withdrawal of sub- section (12) by sub-section (12) cannot withdraw what was implicit in the statue.

70. It is a settled principle that when law makes something explicit, which is implicit in the provisions, the amendment or deletion of the explicit provision does not take away what is implicitly provided. The Hon’ble Delhi High Courtin case of CIT vs. Jindal Exports Ltd. (314 ITR 137) which is approved by the Hon’ble Supreme Court in CIT vs. Tulsyan NEC Ltd. (330 ITR 226) held that the amendment to explanation under section 234B and 234C of the Act was clarificatory since even for the years prior to the amendment the assessee was entitled to get credit of MAT paid under section 115JAA of the Act by virtue of section 140A of the Act. The Hon’ble High Court observed as under:

“42. So, the amendment merely clarifies and makes explicit what was already implicit. Even if the amendment had not been introduced, the expression "such tax" as appearing in section 140A would have reference to the tax payable on the basis of the return minus, inter alia, the MAT credit claimed to be set off in accordance with the provisions of section 115JAA of the said Act.”

71. Similar issue had arisen before the Supreme Court in case of ITO vs. Arunagiri Chettiar 220 ITR 232 wherein the question was whether a partner is liable to pay a demand raised on a firm, pursuant to his retirement but, in respect of an assessment year during which he was acting as a partner. The Kerala High Court decided the question in favour of the assessee holding that nothing in the Act provide that the retired partner would be liable to pay the demand. The Supreme Court reversed the Judgment of High Court and held that the provisions of section 188A made the position explicit which was implicit in law. Therefore, even before the amendment the partner was liable to pay the demand raised on the firm, after his retirement, but relating to the year in which he was acting as a partner. The Hon’ble Apex Court observed as under:

“14. We may mention that by virtue of introduction of section 188A of the Act with effect from 1-4-1989, the controversy of the present nature would not arise where the proceedings for recovery are initiated on or after 1-4-1989. Section 188A reads : "Joint and several liability of partners for tax payable by firm.—Every person who was, during the previous year, a partner of a firm, and the legal representative of any such person who is deceased, shall be jointly and severally liable along with the firm for the amount of tax, penalty or other sum payable by the firm for the assessment year to which such previous year is relevant, and all the provisions of this Act, so far as may be, shall apply to the assessment of such tax or imposition or levy of such penalty or other sum."

72. In our view since the benefit is implicit in sub-section (1) read with sub-section (4) of section 80IA of the IT Act, the discontinuance of subsection (12) by insertion of sub-section (12A) does not take away the benefit provided in sub-section (1) of section 80IA of the IT Act.

73. We may also refer to one more amendment made by the Finance Act, 1999 (by which sub-section (12) was introduced in section 80IA of the IT Act), for the purposes of "tax neutral" business reorganisation i.e. 35AB(3). This amendment relate to an expenditure which was incurred in a particular year and the allowance was spread over a certain number of years. Section 35AB provided that where an assessee paid any lump sum consideration for acquiring any know-how, the allowance thereof would be spread over six years beginning from the year of payment. Sub-section (3) was inserted by Finance Act 1999 which read as follows:

"Where there is a transfer of an undertaking under a scheme of amalgamation or demerger and the amalgamating or the demerged company is entitled to a deduction under this section, then, the amalgamated company or the resulting company, as the case may be, shall be entitled to claim deduction under this section in respect of such undertaking to the same extent and in respect of the residual period as it would have been allowable to the amalgamating company or the demerged company, as the case may be, had such amalgamation or demerger not taken place". (Emphasis supplied)

74. The Notes on clauses (to the Finance Bill, 1999) explains the amendment as follows:

"Clause 17 seeks to amend section 35 AB of the Income tax Act relating to allowance of expenditure on know-how.

Under the existing provisions, any lump sum consideration paid for acquiring know-how is allowed in six years commencing from the previous year in which the expenditure incurred, at the rate of one sixth of the amount. It is proposed to insert a new sub-section (3) to provide in the case of transfer of business under the scheme of amalgamation or demerger, the amalgamated company or the resulting company, as the case may be, shall be entitled to claim deduction under this sub-section for the residual period as if the business or the undertaking had continued". (Emphasis supplied)

75. It may be noted that sub-section (3) "entitles" the amalgamated or the resulting company to claim the deduction. As against that, sub-section (12) did not use the same language. Rather, sub-section (12) provided the manner in which the deduction shall be claimed in the year of amalgamation or demerger and in fact as observed earlier it disabled the existing entity from claiming the deduction in the year of amalgamation/demerger. Thus, sub-section 12 could at best be said to make explicit what was implicit.

76. In the backdrop of above discussion let us now examine the provisions of sub-section (12A) and its applicability to the present case. Sub- section (12A) was inserted by the Finance Act, 2007 w.e.f. 01.04.2008. It reads as follows:

"(12A) Nothing containing sub-section (12) shall apply to an enterprise or undertaking which is transferred in the scheme of amalgamation or demerger on or after the 1st day of April, 2007".

77. Notes on clauses to the Finance Act, 2007 explains it as follows:

“It is proposed to insert sub-section (12A) so as to provide that nothing contained in sub-section (12) shall apply to any undertaking or enterprise which is transferred in a scheme of amalgamation or demerger on or after the 1st day of April, 2007”.

78. The Notes on clauses simply reiterated what has been stated in sub- section (12A). The memorandum explaining the provisions of the Finance Bill 2007, which has been relied upon by the AO as well as LD CIT(A) states as under:

“Tax benefit u/s 80-IA not available to undertakings / enterprises of Indian companies undergoing amalgamation or demerger after 31.03.2007

The existing provisions of section 80-IA provide for 100% deduction for ten years in respect of profits and gains of certain undertakings or enterprises engaged in the business of development, operation and maintenance of infrastructure facility, industrial parks and special economic zones or generation distribution or transmission of power, laying and operating cross-country natural gas distribution network, including gas pipelines and storage facilities being an integral part of the network, etc. Sub-section (12) of the said section 80-IA, inter-alia, provides that where any undertaking of an Indian company which is entitled to the deduction under the said section is transferred before the expiry of the period specified therein, to another Indian company in a scheme of amalgamation or demerger, the provisions of the said section 80-IA shall apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place.

It is proposed to insert a new sub-section (12A) in section 80-IA so as to provide that the provisions of sub-section (12) shall not apply to any undertaking or enterprise which is transferred in a scheme of amalgamation or demerger after 31.03.2007.” (emphasis supplied)

79. The language used in sub-section (12A) simply states that provisions of sub-section (12) shall not apply to undertakings or enterprise transferred in the scheme of amalgamation or demerger after 31.03.2007. Even the notes on clause reiterated the same text. The Explanatory memorandum too has not clarified anything more than what is mentioned in the sub-section (12A) except that the heading under which the said explanation is appearing, stated that the deduction shall not be available after 31-3-2007.

80. As has been held above, sub-section (12) did not confer any new rights to the successor entity when the undertakings were transferred from one taxpayer to another. Sub-section (12A) simply states that in a case of amalgamation or demerger after 31.3.2007, the provisions of sub-section (12) would not be applicable. If the intention of legislature was to curtail the rights of the new owner of the undertaking to claim the tax holiday for residual period, it could have simply stated that benefit u/s 80IA will not be available or it could have stated that the deduction prescribed under sub-section (1) of section 80IA will not be available to the successor. Instead it has used the language to depict that post 31.3.2007, in case of amalgamation/demerger, the provisions of sub-section (12) will have no application. We are of the view that by doing so, the legislature has restored the position that prevailed prior to insertion of sub-section (12) in section 80IA. As discussed above, various Courts have confirmed the availability of benefit of tax holiday claims (although under different sections) and allowed to the successor even prior of specific provisions of sub-section (12) in section 80IA of the IT Act.

81. Wherever the legislature intended denial of any deduction, it expressly so provided. To illustrate, section 10A(9) (since omitted) which sought to deny the deduction under section 10A, where there was a change in shareholding, it was expressly so provided and a reference was drawn to the sub-section conferring the deduction. Sub-section (9) of section 10A of the IT Act read as under:

"(9) Where during any previous year, the ownership or the beneficial interest in the undertaking is transferred by any means, the deduction under sub-section (1) shall not be allowed to the assessee for the assessment year relevant to such previous year and the subsequent years".

82. Thus, a conscious use of different terminology or language is found to be adopted for every amendment and that difference cannot be ignored, for the purposes of interpretation.

83. Looking from another angle, since the provisions of sub-section (12) were disabling in nature, as it disentitled an amalgamating company or a demerged company from claiming deduction in the year of amalgamation or demerger, the insertion of sub-section (12A) merely negated the effect of sub-section (12) and cured the disability created under sub-section (12) of section 80IA of the IT Act. Further, it is also worth noting that the language used in sub-section (12) had another defect. It can be explained with the help of an example: Suppose an entity had 3 eligible undertaking on which tax holiday was claimed and one out of the three was demerged to another entity. By virtue of clause (a) of sub-section (12) which specifies that no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes places, even the other two undertakings which remains with the demerged company could be denied the benefit of tax holiday when only one undertaking is determined. We are, therefore, of the view that the legislature, in all its wisdom, has neutralised the disability enshrined in sub-section (12) by inserting sub-section (12A) in section 80IA of the IT Act.

84. We now refer to the contention of the DR where he has relied on the contents of the Circular No. 3 of 2008 dated 12 March 2008 issued by CBDTto explain the provisions of newly inserted section 80IA(12A). The circular provided as under:

“35. Tax benefit u/s 80IA not available to undertaking / enterprise of Indian companies undergoing amalgamation or demerger after 31.03.2007

35.1 Sub-section (12) of section 80-IA provides that where any undertaking of an Indian company which is entitled to the deduction under the said section is transferred before the expiry of the period specified therein, to another Indian company in a scheme of amalgamation or demerger, the provisions of the said section 80-IA shall apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place. The main intention in providing benefit u/s 80-IA had been to provide incentive to those who had taken initial investment and entrepreneur risk. Hence, it was felt that there was no justification for passing on the benefit to someone who had not taken these risks and had only acquired the eligible undertaking much later when the risks had reduced. Hence, a new sub-section (12A) has been inserted in section 80-IA so as to provide that the provisions of sub-section (12) shall not apply to any undertaking or enterprise which is transferred in a scheme of amalgamation or demerger after 31.03.2007. Thus, if an undertaking or an enterprise is transferred in a scheme of amalgamation or demerger after 31.03.2007, the benefits of deduction u/s 80-IA will not be available to the amalgamated or demerged undertaking or enterprise. The content of this circular will supersede whatever contrary has been stated, on this issue, in any other circular, issued by the Central Board of Direct Taxes earlier. (Emphasis supplied)

35.2 Applicability – this amendment will take effect from 01.04.2008 and will accordingly apply in relation to the assessment year 2008-09 and subsequent years.”

85. TheLd DR contended that the intention of providing benefit under section 80-IA was to accord incentive to those who had made initial investment and taken entrepreneurial risk. He accordingly submitted that the amendment was brought in by introducing sub-section (12A) to disallow such benefit in the hands of someone who has not taken these risks and had only acquired the eligible undertaking much later when the risk had reduced.

86. The CBDT in this circular has tried to clarify something which is nowhere stated either in the language of newly inserted sub-section (12A) or in the Notes to Clause or explanatory memorandum to Finance Bill 2007. Sub-section (12A) simply prescribes that from a particular date the provisions of sub-section (12) shall not apply to the undertaking which are transferred under a scheme of amalgamation or demerger. Further, as we have already held, sub-section (12) of section 80IA did not confer any new rights to the tax payer and hence its non-applicability cannot be construed to mean withdrawal of a right which is conferred under separate provisions of Section 80IA i.e. sub- section (1) r.w.s. (4) of section 80IA of the IT Act.

87. If the intention of tax holiday under section 80IA was to provide incentive to only original investor, the legislature would have never inserted sub-section (12) in the statute. At least, the memorandum explaining the provisions of Finance Bill 2007, regarding insertion of sub-section (12) in Section 80IA should have clarified why the legislature thought fit to deviate from the its basic intent of providing incentive to the original investor and provide benefit to the successor. We have seen earlier, the memorandum explaining the provisions of Finance Bill 2007 has no such reference. It is, therefore, difficult to accept the contention of the Revenue and accept the contents of Circular no. 3 of 2008 to be depicting correct intention.

88. In our view, therefore, the clarification provided in the circular for insertion of sub-section (12A) cannot be extended beyond what is unambiguously stated in the provisions of the IT Act. Sub-section (12A) simply states that from a particular date i.e. 31 March 2007 the provisions of sub-section (12) shall not apply in the specified situations. There cannot be any other meaning to such simple provision of the IT Act.

89. We are not inclined to take cognisance of the contents of this Circular since the language of sub-section (12A) is plain and unambiguous. The Hon’ble Supreme Court in case of Ratan Melting & Wire Industries (Civil Appeal No. 4022 of 1999) has held as under:

“6. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/ circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the Court to declare what the particular provision of statute says and it is not for the Executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law.”

90. We also place reliance on the decision of the Allahabad High Court in a case Shivangee Crafts Limited vs. State of UP. A writ petition was filed by assessee in reference to UP Trade Tax Act, 1948, wherein the Court has held that till such time as a clarification or amendment by the Legislature or by Ordinance is not incorporated in the statute, no notification or circular of the Department can override the statutory provisions of the Act. It would not be permissible to read words into the statute, which prima facie is very plain and straight.

91. Even if one has to assume that the real intent of insertion of sub- section 12(A) was to accord incentive to those who had made initial investment and taken entrepreneurial risk, then also deduction under section 80IA cannot be denied to the successor taxpayer entities since successor entities would pay due and fair consideration for the value of the undertakings taken over, which includes the price for assumption of full risk of investment and operations. In other words, the entrepreneurial risk of the undertaking would also travel with the undertaking and the new owner of the undertaking would also bear the same risk as the original investor. The original investor will recover the price from the new investor in respect of the higher risk which he would have assumed at the initial stage.

92. Further, even if this intention is considered as relevant, such claim cannot be denied in case of amalgamation and demerger since:

i. In case of demerger, there may not be any change in ownership of the entity. The same shareholders or atleast three fourth in the value of shares of the demerged company become the shareholders of the resulting company.

ii. Similarly, in the case of amalgamation, the shareholders of the amalgamating company or atleast three fourth in the value of shares, become shareholders of the successor/amalgamated company along with the existing shareholders of the predecessor company.

Thus, in both the situations, there is no change in the risk bearing entities or at least the majority of initial investor continue to bear the risk as they become shareholder of the successor entity. Thus, even on this count it is difficult to accept the contents of Circular no.3 of 2008 which clarified that sub-section (12A) was inserted to disentitle the successor entity the benefit of tax holiday since the entrepreneurial risk gets transferred from the original investor in the scheme of amalgamation or demerger.

93. While we reject the contention of the Revenue that intention of the legislature in introducing sub-section (12A) was to deny the benefit to the successor in the scheme of amalgamation or demerger, it is also worth noting that in the present case, the initial investment in eligible undertakings /enterprises was made by Grasim (the holding company of the assessee). These undertakings were demerged by Grasim to its wholly owned subsidiary, viz. SCL. Subsequently, SCL was amalgamated with the assessee w.e.f. 1 July 2010. Accordingly, even after the amalgamation of SCL with the assessee, there is no change in the entity which made the initial investment since Grasim still retains the entrepreneurial risk with itself as the ultimate shareholder of the assessee company. Therefore, even assuming that the CBDT Circular is to be relied upon, the conditions prescribed by the CBDT for denial of deduction is not fulfilled in the present case. Accordingly, even on this count, the deduction should continue to be available to the assessee company.

94. We are also inclined to draw reference to one more argument of the AR of the assessee. The scheme of amalgamation of SCL with the assessee was duly approved by the Hon’ble High Courts of Bombay and Gujarat. The Hon’ble Courts in its order has explicitly conferred upon the assessee, being the amalgamated company, a right to claim deduction under section 80-IA in respect of the eligible undertakings for the residual period. The relevant extract of the scheme is reproduced below for reference:

“... all the rights and benefits that have accrued or which may accrue to the Transferor Company, whether on, before or after the Appointed Date, including income-tax benefits and exemptions including the right to deduction under Section 80-IA of the Income-tax Act, 1961 (or any statutory modification or re-enactment thereof for the time being in force), shall, under the provisions of section 391 to 394 of Act and all other applicable provisions, if any, without any further act, instrument or deed, cost or charge be and stand transferred to and vest in and/ or deemed to be transferred to and vested in and be available to the Transferee Company so as to become licenses, permits, entitlements, quotas, approvals, permissions, registrations, incentives, sales tax deferrals, exemptions and benefits, subsidies, concessions, grants, rights, claims, leases, mining leases, prospecting licenses, tenancy rights, liberties, special status and other benefits or privileges of the Transferee Company and shall remain valid, effective and enforceable on the same terms and conditions.”

95. We would be sitting on the judgment and wisdom of the Hon’ble Courts if we were to deny the benefit especially sanctioned by the Hon’ble High Courts.

96. The Kolkata Bench of the Tribunal in case of Electrocast Sales India Ltd. vs. DCIT [2018] 170 ITD 507, has held that merger scheme approved by the Hon'ble High Court having in mind the larger public interest, cannot be disturbed by the revenue. We concur with the view taken by the coordinate Bench to hold that since the scheme of amalgamation was approved by the Hon'ble High Court only after ensuring that the same is not prejudicial to the interests of its members or to the public interest, the same cannot be challenged by the Revenue subsequent to the approval. If at all, they could have raised the objection when the Court had sought their comments on the scheme.

97. In view of the above discussion, we hold that sub-section (12A) of section 80IA of the IT Act, merely neutralises applicability of sub- section (12) and does not disentitle the successor entities to claim deduction in accordance with section 80IA of the IT Act. Accordingly, AO is directed to allow the deduction as claimed by the assessee with respect to eligible units acquired from SCL. Accordingly, Ground no.1 of the assessee is allowed.

98. Ground no.2 of the assessee relate to disallowance of additional depreciation under section 32(1)(iia) of the IT Act in respect to assets installed during the FY 2009-10 (i.e. AY 2010-11) and are used for a period less than 180 days in that year (spill over depreciation).

99. The Ld CIT(A) upheld the action of the AO and has held as under:

“It can be seen that there is no explicit provision like section 32(2) to deal with depreciation that cannot be claimed due to statutory restriction. The restriction to 10 % (one half of 20 %) arose as a result of not using the asset on which additional depreciation is claimed more than 180 days. What has not been claimed gets absorbed to closing WDV and for next year depreciation is claimed on the opening WDV. There is no provision in law to cull out a specific portion out of opening WDV and claim the same in the next year in a manner not prescribed by law. Whatever legal arguments are given, in absence of specific provision in law, the claim is inadmissible. From the submission made before me citing judicial decisions, it is not clear whether the Courts/ITAT has ordered allowing 10% of preceding years depreciation not claimed + depreciation on basis of opening WDV or depreciation after including the spill over depreciation in Opening WDV. The restriction to 50% was made in Finance Act 2002 and clearly objects of amendment brought about by Finance Act mentions " Such further sum shall be deductible from the written down value of the assets. The legislative intent gets defeated besides resulting in allowance of an ineligible deduction if the claim is admitted. In view of foregoing decisions, I uphold the decision of the Assessing Officer. He shall however work out depreciation for the year corresponding to correct opening WDV.”

100. The assessee, in its original return filed u/s 139(1), claimed an amount of Rs.24,12,51,789/- towards additional depreciation u/s. 32(1)(iia) of the IT Act. The above depreciation was in respect of assets installed in FY 2009-10 (relevant to AY 2010-11) but used for less than 180 days during that year.

101. The learned AR of the assessee submitted that the additional depreciation allowable u/s 32(1)(iia) is an incentive in the nature of accelerated deduction, which has been earned in the year of acquisition though restricted for that year to 50% on account of its usage for less than 180 days. The balance incentive so earned must, therefore, be made available to the assessee in the subsequent year. The overall deduction of depreciation u/s 32 shall definitely not exceed the total cost of plant and machinery. Therefore, there is no excess allowance of depreciation / additional depreciation. The DR on the other hand sought support from the order of the lower authorities.

102. It is worth noting that there has been considerable dispute on this issue leading to persistent litigation between the assessees and the tax department. The Finance Ministry took cognizance of this fact and made an amendment in the IT Act in order to remove the incongruity and the related difficulty faced by the assessees. Accordingly, Finance Act, 2015 has amended Section 32(1) of the Act, by inserting a proviso to allow additional depreciation on the plant and machinery used for less than 180 days in the succeeding assessment year.

103. Prior to such amendment, there have been various Courts decisions wherein it has been held that beneficial legislation should be given liberal interpretation so as to benefit the assessee. The Hon’ble Courts have held that the accelerated depreciation as per clause (iia) to Section 32(1) is a benefit granted to the assessee, the law cannot be read in a manner to make such benefit void merely because it is not explicitly provided.

104. The Division Bench of the Madras High Court in case of CIT vs T. P. Textiles Pvt. Ltd. [394 ITR 483], took note of the amendment vide third proviso to clause (ii) of sub-section 1 of Section 32 of the Act and observed as under:

“10.1:- The plain language of section 32(1)(iia) read along with relevant proviso would have us come to the conclusion that, there is no limitation in the assessee claiming the balance 10 per cent of additional depreciation in the succeeding assessment year.

10.2:- As a matter of fact, with effect from April 1, 2016, the ambiguity, if any, in this regard, in the mind of the Assessing Officer, stands removed by virtue of the Legislature, incorporating in the Statute, the necessary clarificatory amendment.

11:- We may only indicate that during the course of the arguments, our attention was drawn to the “Memorandum explaining the provisions in Finance Bill, 2015” whereby, the aforementioned amendment was brought about.

11.1:- The relevant part of the memorandum is extracted hereafter:“ .. To remove the discrimination in the matter of allowing additional depreciation on plant or machinery used for less than 180 days and used for 180 days or more, it is proposed to provide that the balance 50 per cent of the additional depreciation on new plant or machinery acquired and used for less than 180 days which has not been allowed in the year of acquisition and installation of such plant or machinery, shall be allowed in the immediately succeeding previous year.

This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.”

11.2:- A perusal of the extract of the memorandum relied upon would show that the legislature recognized the fact that the manner in which the Revenue chose to interpret the provision, as it stood prior to its amendment would lead to discrimination, in respect of plant and machinery, which was used for less than 180 days, as against that, which was used for 180 days or more.

11.3:- In our opinion, as indicated above, the amendment is clarificatory in nature and not prospective, as is sought to be contended by the Revenue. The memorandum cannot be read in the manner, in which, the Revenue has sought to read it, which is, that the amendment brought in would apply only prospectively.

11.4:- We are, clearly, of the view that the memorandum, which is sought to be relied upon by the Revenue, only clarifies as to how the unamended provision had to be read all along.

11.5:- In any event, in so far as the Court is concerned, it has to go by the plain language of the unamended provision, and then, come to a conclusion in the matter. As alluded to above, our view, is that, upon a plain reading of the unamended provision, it could not be said that the assessee could not claim balance depreciation in the assessment year, which follows the assessment year, in which, the machinery had been bought and used, albeit, for less than 180 days.”

105. The above decision of the Madras High Court has been followed by the jurisdictional Bombay High Court in the case of Pr. CIT v/s Godrej Industries Ltd. [ITA 511 of 2016]. The 50% of the balance additional depreciation claim has been allowed by the Hon’ble High Court in the succeeding AY where the asset was purchased and put to use for less than 180 days. The Hon’ble Bombay High Court also relied on the decision rendered by the Karnataka High Court in Rittal India Pvt. Ltd. (380 ITR 423) and Madras High Court ruling in T.P. Textiles Pvt. Ltd. (supra), to hold that amendment made vide insertion of third proviso to Sec.32(1)(ii) w.e.f. April 1, 2016 (which allows claim in succeeding year), is clarificatory in nature and would apply to all pending cases.

106. We also find that the Coordinate Bench of this Tribunal in the case of Grasim Bhiwani Textiles Limited vs ACIT (ITA 790 & 791/Mum/2014), has also allowed the claim of spill over depreciation observing as under:

“6. The issue under consideration is also squarely covered by the order of coordinated bench in the case SIL Investment Ltd., 73 DTR 0233, wherein it was held that additional depreciation, which was restricted in the year of purchase to the extent of 50% on the plea of machinery having been put to use for a period of less than 180 days, the balance of additional depreciation is required to be allowed in the succeeding year. In view of the above, we do not find any merit for disallowing assessee’s claim for depreciation.”

107. Considering above views of different High Courts and Tribunal and respectfully following decision of the Hon’ble jurisdictional High court in the case of Pr.CIT vs. Godrej Industries Ltd. (supra) on this issue, we allow the appeal of the assessee and accordingly direct the assessing officer to delete this addition.

108. Ground no.3 of the appeal relate to denial of claim by the AO under section 35(2AB) in respect of R&D expenses incurred by the assessee amounting to Rs. 7,50,139/-, on the basis of report received from Department of Scientific and Industrial Research (DSIR).

109. The assessee has in-house Research and Development facilities at three locations, Khor (MP), Kharia Khangar (Rajashthan) and Taloja (Maharashtra) which are approved by the DSIR and entitled to deduction u/s 35(2AB) of the IT Act. During the year the assessee claimed revenue expenditure amounting to Rs.2,02,93,591/- under section 35(2AB) of the IT Act. The AO disallowed the claim to the extent of Rs.7,50,139 on the ground that DSIR has not approved the said expenditure in a report submitted by it to the tax officer in Form 3CL. The LD CIT(A) confirmed the above disallowance.

110. The AR of the assessee submitted that as per section 35(2AB) of the IT Act, the DSIR is only empowered to approve the R&D facility. For the year under consideration there was no provision mandating the DSIR to approve the expenditure. It was further submitted that once the R & D facility is approved by the prescribed authority, i.e. DSIR by issuing Form No.3CM, the expenses incurred by the assessee have to be allowed u/s 35(2AB) of the IT Act. It was also submitted that Rule 6(7A) of the Income Tax Rules, 1962 was amended much later to provide that DSIR shall furnish a report in Form 3CL quantifying the expenditure allowable on in-house R&D facility.

111. The DR, on the other hand, apart from relying on the order of the lower authorities, submitted that the amendment to Rule 6(7A) of the IT Rules by Finance Act, 2016 with effect from 01.07.2016 is only procedural and the same is applicable to the relevant assessment year.

112. We have heard the rival contentions and perused the material on record. To understand the controversy, it’s important to examine the requirements of Section 35(2AB)(1) which reads as under :

"(2AB)(1) Where a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to one and two times of the expenditure so incurred."

113. It is clear from the provisions of section 35(2AB) that once R&D facility is approved by the DSIR, the expenses incurred by the assessee have to be allowed. If the law wanted the expenditure to be approved by the prescribed authority, same would have been expressly provided in the section.

114. The Bangalore Tribunal in case of Natural Remedies Pvt. Ltd. vs. ACIT (2021) 61 CCH 0005 has held that for the period prior to the Income Tax (Tenth Amendment) Rules, 2016, with effect from 01.07.2016, which amended Rule 6(7A) of the IT Rules, deduction u/s 35(2AB) of the IT Act has to be allowed on the basis of the expenditure as recorded by the assessee in the books of account. Relevant finding of the Tribunal is reproduced below:

“8.5 In view of the aforesaid reasoning and in the light of judicial pronouncements, cited supra, we hold that in the present case since the deduction is with reference to assessment year 2016-2017 (where the law applicable is the 1st day of April, 2016), which is prior to the Income Tax (Tenth Amendment) Rules, 2016, with effect from 01.07.2016 of Rule 6(7A) of the I.T.Rules, deduction u/s 35(2AB) of the I.T.Act has to be allowed on the basis of the expenditure as recorded by the assessee in the books of account. Admittedly, the Assessing Officer has not disputed the correctness of the claim of expenditure incurred on Scientific Research. The contention of the DR that the amendment to Rule 6(7A) is procedural cannot be accepted, since the amended rule stipulates a condition that apart from approval of in-house R & D facility of assessee, the expenditure also has to be quantified by the prescribed authority for weighted deduction u/s 35(2AB) of the I.T.Act. Therefore, the amended Rule 6(7A) effect the substantive right of the assessee and cannot be termed merely as procedural. Moreover, the co- ordinate Bench of Bangalore Tribunal in case of M/s.Mahindra Electric Mobility Ltd. v. ACIT (supra) and M/s.Indfrag Limited v. ACIT (supra) have clearly held that prior to 01.07.2016 Form 3CL has no legal sanctity and it is only w.e.f. 01.07.2016 with the amendment to Rule 6(7A) of the I.T.Rules, that the quantification of weighted deduction u/s 35(2AB) of the I.T.Act has significance. Therefore, we hold that the deduction u/s 35(2AB) of the I.T. Act be granted as claimed by the assessee instead of restricting it to the quantum of claim as mentioned in .Form No.3CL by the prescribed authority. It is ordered accordingly.”

115. As can be noted above, the Tribunal relied on another decision of the same Bench in the case of M/s Mahindra Electric Mobility Ltd. vs ACIT [ITA No.641/Bang/2017 - order dated 14.09.2018] wherein it was observed as under:

"20. From the above discussion it is clear that prior to 1.7.2016 Form 3CL had no legal sanctity and it is only w.e.f 1.7.2016 with the amendment to Rule 6(7A)(b) of the Rules, that the quantification of the weighted deduction u/s.35(2AB) of the Act has significance. In the present case there is no difficulty about the quantum of deduction u/s.35(2AB) of the Act, because the AO allowed 100% of the expenditure as deduction u/s.35(2AB)(1)(i) of the Act, as expenditure on scientific research. Deduction u/s.35(1)(i) and Sec.35(2AB) of the Act are similar except that the deduction u/s.35(2AB) is allowed as weighted deduction at 200% of the expenditure while deduction u/s.35(1)(i) is allowed only at 100%. The conditions for allowing deduction u/s.35(1)(i) of the Act and under Sec.35(2AB) of the Act are identical with the only difference being that the Assessee claiming deduction u/s.35(2AB) of the Act should be engaged in manufacture of certain articles or things. It is not in dispute that the Assessee is engaged in business to which Sec.35(2AB) of the Act applied. The other condition required to be fulfilled for claiming deduction u/s.35(2AB) of the Act is that the research and development facility should be approved by the prescribed authority. The prescribed authority is the Secretary, Department of Scientific Industrial Research, Govt. Of India (DSIR).

It is not in dispute that the Assessee in the present case obtained approval in Form No.3CM as required by Rule 6 (5A) of the Rules. In these facts and circumstances and in the light of the judicial precedents on the issue, we are of the view that the deduction u/s.35(2AB) of the Act ought to have been allowed as weighted deduction at 200% of the expenditure as claimed by the Assessee and ought not to have been restricted to 100% of the expenditure incurred on scientific research. We hold and direct accordingly and allow the appeal of the Assessee."

116. Similar view has been taken by various other Tribunals in the following cases:

i. M/s.Indfrag Limited v. ACIT [ITA No.98/Bang/2018 - order dated 30.07.2020]

ii. M/s.Sun Pharmaceutical Industries Ltd. v. Pr.CIT, reported in (2017) 162 ITD 484 (Ahmedabad Trib.) – This has been subsequently confirmed by Hon’ble Gujarat High Court

iii. Cummins India Limited v. DCIT [ITA No.309/Pun/2014 - order dated 15.05.2018]

117. The AO in the present case has not disputed the correctness of the claim made by the assessee. In view of the above discussions and judicial precedents on this issue, we hold that the claim of the assessee must be granted as made in its return of income. It cannot be restricted to the extent of claim as approved in Form No.3CL by DSIR since there was no such requirement either under the Act or in the Rules for the assessment year 2011-12. We accordingly allow the appeal of the assessee Company on this ground and direct the AO to delete the disallowance in this regard.

118. Ground no.4 filed by the assessee is with respect to short grant of TDS / TCS credit claimed by the assessee on the basis of certificates available with the assessee.

119. The learned AR of the assessee submitted that it claimed credit towards TDS / TCS on the basis of entries appearing in Form 26AS and also on the basis of original TDS certificates available with them. The claim of credit was, however, restricted by the AO only to the extent of entries appearing in Form 26AS. The AR of the assessee also submitted that it produced copies of the TDS / TCS certificates before the AO on sample basis and was willing to furnish all the TDS / TCS certificates with respect to its claim made in the ROI.

120. It was further submitted that some of the TDS/ TCS certificate are issued in the name of amalgamating company (i.e. SCL/ Grasim Industries). Due to the amalgamation during the year under consideration, some of these TDS/ TCS certificates were issued by the parties in the name of the erstwhile entity.

121. It was confirmed that neither Grasim Industries nor SCL has claimed any credit of such TDS or TCS in its return of income for any year. The AR also referred to clause 11(d) at page no. 27 of the Scheme of Amalgamation, wherein it has been mentioned that all taxes paid/ payable by the Transferor Company (including TDS) shall be deemed to be paid by the Transferee Company. Accordingly, credit in respect of TDS/ TCS deposited in the name of the amalgamating company ought to be allowed to the assessee as it is rightfully claimed and allowable.

122. Our attention was invited to the decision of coordinate Bench of Ahmedabad Tribunal in case of Adani Gas Ltd. vs. ACIT (ITA No. 2241/Ahd/2011) wherein it has been observed as under:

“13. ... We conclude accordingly that once the demerged gas distribution undertaking no more exists w.e.f. 01-01-2007 coming to be the appointed day, the assessee-resulting company is entitled for all the pro rata adjustments of TDS, advance tax and MAT credits as per law; to be utilized in former’s account. The net result of our above discussion is that assessee’s arguments in principle are accepted in view of clauses of the above stated demerger scheme, sections 391 to 394 of the Companies Act, Section 2(19AA) of the Income Tax Act and the case law discussed hereinabove. We direct the Assessing Officer to compute pro rata quantification of the demerged undertaking MAT, TDS and advance tax credits as per law after affording adequate opportunity of hearing.”.

123. We have heard the rival submissions. The controversy relates to denial of credit of TDS / TCS since the entries are not appearing in Form 26AS. We refer to the decision of Delhi High Court in a PIL moved by the Hon’ble Court on its Own motion vs Commissioner of Income Tax [2013(352) ITR 273]. The Hon’ble Court issued a mandamus directing the CBDT to issue directions to give credit of unmatched and mismatched TDS certificates. Pursuant to the said decision of the Delhi High Court, the CBDT has issued instruction No.5 of 2013, dated 8.7.2013 directing that where the assessee approaches the assessing officer with requisite details and particulars in the form of TDS certificate as an evidence against any mismatch amount, the assessing officer would verify whether or not the deductor had made payment of the TDS in the government account and, in the event, the payment had been made, credit of the same would be given to the assessee.

124. We also refer to the decision of Allahabad High Court in Civil Misc Writ Petition (Tax) No.657 of 2013 Rakesh Kumar Gupta Vs. Union of India and another, wherein the High Court has held that assessee cannot be denied credit for TDS on the ground of Form 26AS mismatch, since the mismatching is not attributable to the assessee and the fault solely lay with the deductor.

125. We also refer to the decision of Coordinate Bench of this Tribunal in the case of LSG Sky Chef (India) (P.) Ltd. [2014] 45 taxmann.com 256, wherein the taxpayer assessee had claimed credit in respect of TDS on the basis of TDS certificates available with it which were submitted to the AO. However, the AO denied credit of TDS to the extent of entries not appearing in Form 26AS. In this regard, the Hon’ble Tribunal held as under:

“4.3 ... In our view, though Form 26AS (r/w r.31AB and ss. 203AA and 206C (5)) represents a part of a wholesome procedure designed by the Revenue for accounting of TDS (and TCS), the burden of proving as to why the said Form (Statement) does not reflect the details of the entire tax deducted at source for and on behalf of a deductee cannot be placed on an assessee-deductee. The assessee, by furnishing the TDS certificate/s bearing the full details of the tax deducted at source, credit for which is being claimed, has in our view discharged the primary onus on it toward claiming credit in its respect. He, accordingly, cannot be burdened any further in the matter. The Revenue is fully entitled to conduct proper verification in the matter and satisfy itself with regard to the veracity of the assessee's claim/s, but cannot deny the assessee credit in respect of TDS without specifying any infirmity in its claim/s. Form 26AS is a statement generated at the end of the Revenue, and the assessee cannot be in any manner held responsible for any discrepancy therein or for the non-matching of TDS reflected therein with the assessee's claim/s. Where so, no doubt a matter of concern, is one which is to be investigated and pursued by the Revenue, which is suitably armed by law therefor. The plea that the deductor may have specified a wrong TAN, so that the TDS may stand reflected in the account of another deductee, is no reason or ground for not allowing credit for the TDS in the hands of the proper deductee. The onus for the purpose lies squarely at the door of the Revenue.

4.4. the Revenue is obliged to grant the assessee credit for the TDS of which he is able to satisfactorily prove to the A.O. the factum of deduction of tax at source and its deposit to the credit of the central government, subject of-course to the conditions of sections 198 and 199. The A.O. is accordingly directed to allow the assessee credit for the impugned shortfall, subject to the said verification/s and condition/s. We decide accordingly.”

126. We are, therefore, of the view that credit for TDS / TCS should be allowed to the assessee on the basis of TDS/ TCS certificates available although no entry for the same appears in Form 26AS. The mismatch cannot be attributed to the assessee as it has no control over Form 26AS.

127. Accordingly, we direct the AO to grant credit of TDS / TCS credit for certificates produced by the assessee including the certificates which may be in name of Grasim / SCL. The AO can satisfy himself to the effect that the claim in respect of the said certificates are not made by the Grasim / SCL in their ROI. This ground is remitted back to Ld AO and accordingly it is allowed for statistical purpose.

128. Ground no. 5 is general in nature and does not require separate adjudication and hence accordingly dismissed.

129. The assessee has filed four additional grounds vide applications dated 14 January 2020 (Ground No. 6 and 7) and 5 November 2020 (Ground No. 8 and 9).

130. With respect to admissibility of additional ground the AR relied on the judgment of the Hon’ble Apex Court in the case of National Thermal Power Co. Ltd. Vs CIT (1998) 229 ITR 383 to contend that since the grounds are purely legal in nature it should be admitted for adjudication.

131. The Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra) observed as under:

“5. Under Section 254 of the Income-tax Act, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.

6. In the case of Jute Corporation of India Ltd. v. C.I.T. this Court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also.

7. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income-tax (Appeals) takes too narrow a view of the powers of the Appellate Tribunal [vide, e.g., C.I.T, v. Anand Prasad (Delhi), C.I.T. v. Karamchand Premchand P. Ltd. and C.I.T. v. Cellulose Products of India Ltd. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.

8. The reframed question, therefore, is answered in the affirmative, i.e., the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. We remand the proceedings to the Tribunal for consideration of the new grounds raised by the assessee on the merits.”

132. At the outset, we may point out that the DR did not raise any objection towards admissibility of the additional grounds. We are of the view that a legal plea can be raised by the affected party at any point of time in the matter pending for adjudication. Further, it is settled proposition of law that mere procedural lapse, or omission on the part of the assessee, cannot lead to denial of substantive benefit/eligible claim in the hands of the assessee. Keeping in view, of above discussion and decision of the Hon’ble Apex Court, the additional grounds filed by the assessee are accepted and taken up for adjudication.

133. Ground nos. 6 and 7 are the additional grounds filed by the assessee with regard to claim of deduction towards the education cess and secondary and higher education cess.

134. We find that this issue is squarely covered by the decision of the Hon’ble Rajasthan High Court in the case of Chambal Fertilizers and Chemicals Ltd. vs. JCIT in Income Tax Appeal No.52 & 68 of 2018 dated 31/07/2018. The Hon’ble Rajasthan High Court had taken into account the CBDT Circular dated 18/05/1967 and held that the education cess, secondary and higher education cess should be allowed as deduction. Their Lordships had held that Section 40a(ii) of the Act applies only to taxes other than cess. This issue is also decided in favour of assessee by Jurisdictional High Court in case of Sesa Goa Limited vs. JCIT (Tax Appeal No. 17 of 2013) order dated 28 Feb 2020, which has been followed in various Tribunal orders subsequently.

135. Respectfully following the above decisions, the ground raised by the assessee is allowed. We direct the AO to allow deduction towards education cess and secondary and higher education cess to the extent of actual payment made by the assessee. These grounds are accordingly allowed.

136. Ground no. 8 is the additional ground filed by the assessee with regard to refund of dividend distribution tax paid in excess of the rate prescribed under DTAA on dividend paid to non-resident shareholders.

137. The AR of the assessee submitted that in case of dividend distributed by it to the non-resident shareholders, the dividend distribution tax (DDT) has been paid at the rates prescribed under section 115-O as against the rates provided in the respective tax treaties. In this regard reliance has been placed on the decision of the Hon’ble Coordinate Bench of this Tribunal in the case of Asian Paints (ITA No. 2754/Mum/2014), wherein it was held as under:

“22. In the third additional ground numbered as ground no. 5, the assessee has raised the issue of applicability of beneficial rate as per the applicable DTAA to the dividend distribution tax (DDT) paid under section 115-O of the Act and has claimed refund of the excess amount.

23. Having considered rival submissions, we restore the issue to the Assessing Officer for examining assessee’s claim of applicability of beneficial rate of tax as per the applicable DTAA to the DDT paid under section 115-O of the Act. This ground is allowed for statistical purposes.”

138. We are in agreement with the findings of the coordinate Bench of this Tribunal. We restore the issue to the AO for examining assessee’s claim of applicability of beneficial rate of tax as per the applicable DTAA to the DDT paid under section 115O of the IT Act. If the amount quantified as DDT liability based on the tax treaty rate is lower than the actual DDT paid by the assessee, then the same should be refunded back to the assessee. Accordingly, this ground of appeal is allowed for statistical purposes.

139. Ground no. 9 is the additional ground of the appeal wherein the assessee has contended that the order passed by the Transfer Pricing Officer is not valid. Accordingly, the addition made in the assessment pursuant to such order is also invalid. Ground nos. 8 to 12 of the Revenue’s appeal and Ground no. 6 and 7 of assessee’s cross objection for the subject year are also related to additions made by the AO on Corporate Guarantee commission pursuant to the Transfer Pricing order passed by the TPO. All these grounds are taken up together for adjudication.

140. The relevant facts are, an addition was made in the assessment towards corporate guarantee commission in respect of corporate guarantee extended by the assessee to the bankers of its subsidiaries in middle east. During AY 2011-12, the assessee had acquired stakes in Star Cement LLC., Middle East, through its wholly owned subsidiary in Dubai, viz., UltraTech Cement Middle East Investment Limited (UCMEIL). For the purpose of overseas acquisitions, the assessee had given corporate guarantee to the bankers of its Associated Enterprises (AEs) for providing loan to the AE for the purpose of capital commitments and working capital facility availed by them.

141. Guarantee for an amount of USD 156 Millions was given in respect of foreign currency loans taken by UCMEIL, for the purpose of overseas acquisitions. Further, corporate guarantee for an amount of USD 215 Millions was given on behalf of Star Cement, for the purpose of capital commitments and working capital facility availed by them.

142. The TPO computed an amount of Rs.23,65,27,390/- being commission chargeable on the Corporate Guarantees provided by the assessee to the bankers for providing loan to the AEs of the assessee and recommended adjustment in this regard. The AO while passing the assessment order has added the said amount as notional income.

143. The AR of the assessee submitted that transfer pricing order passed for the subject year is bad in law on the following grounds:

i. Reference to TPO u/s. 92CA(1) of the IT Act, was made during original assessment proceedings and no fresh reference was made after initiation of the proceedings u/s.153C of the IT Act.

ii. Transfer pricing order u/s. 92CA(3) of the IT Act, was passed prior to issuance of notice u/s. 143(2) of the IT Act.

iii. Transfer pricing order u/s. 92CA(3) of the IT Act, was passed prior to filing of ROI in response to notice u/s.153C of the Act.

144. Before we get into merits of plea raised by the assessee, it will be worthwhile to first list the chronology of event and various dates related to transfer pricing proceedings for the year:

145. It is observed that the AO issued notice dated 26 November 2014 initiating a fresh proceeding u/s.153C read with section 153A of the IT Act. The 1st proviso to section 153C provides that for the purpose of abatement of assessment and reassessment the date on which the AO receives the books of accounts or documents shall be considered. Consequently, the date on which notice u/s.153A of the IT Act was issued, the assessment proceeding initiated u/s.143(2) of the IT Act prior to such notice based on the original return filed and the transfer pricing proceeding initiated by reference dated 5 July 2013 got abated and ceased to exist. The Bombay High Court in the case of JSW Steel Limited ([2020] 115 taxmann.com 165 has held that once proceeding is initiated under section 153A of the Act, the original return of income and the assessment pending on that date loses its validity and, a fresh return of income is required to be filed which the AO is obliged to assess afresh. The relevant extract of the judgement is reproduced below:

“12... Further sub section(a) of section 153A(1) provides for issuance of notice to the persons searched under section 132 of the Act to furnish a return of income. However, the second proviso to section 153A of the said act makes it clear that assessment relating to any assessment year filed within a period of the six assessment years pending on the date of search under section 132 of the Act shall abate. Thus if on the date of initiation of search under section 132, any assessment proceeding relating to any assessment year falling within the period of the said six assessment years is pending, the same shall stand abated and the Assessing Authority cannot proceed with such pending assessment after initiation of search under section 132 of the said Act.

13... It is fortified that once the assessment gets abated, the original return which had been filed looses its originality and the subsequent return filed under section 153A of the said Act (which is in consequence to the search action under section 132) takes the place of the original return. In such a case, the return of income filed under section 153A(1) of the said Act, would be construed to be one filed under section 139(1) of the Act and the provisions of the said Act shall apply to the same accordingly. If that be the position, all legitimate claims would be open to the assessee to raise in the return of income filed under section 153A(1).

14. We would further like to emphasis on the judgment passed by this Court in the case of Continental Warehousing Corpn (Nhava Sheva) Ltd. (supra) which also explains the second proviso to Section 153A(1). The explanation is that pending assessment or reassessment on the date of initiation of search if abated, then the assessment pending on the date of initiation of search shall cease to exist and no further action with respect to that assessment shall be taken by the AO. In such a situation the assessment is required to be undertaken by the AO under section 153A(1) of the said Act.”

146. Since, in the instant case, the original assessment proceedings ceased to exist, and fresh proceedings u/s. 153C r.w.s. 153A was initiated, the assessee was required to file a fresh return and the AO could have only proceeded against such fresh return. The TPO has passed the order u/s.92CA(3) of the Act based on the old reference made to it dated 5 July 2013. No fresh reference was made by the AO after issuance of notice dated 26 November 2014 under section 153C of the Act. In fact, the Transfer Pricing officer passed the order even prior to the filing of return against the 153C proceedings. The Hon’ble Supreme Court in the case of Laxman Das Khandelwal ([2019] 108 taxmann.com 183 [SC]) held that even in the proceedings initiated u/s.153A of the IT Act, the AO is duty bound to issue notice u/s.143(2) of the IT Act and in the absence of such notice the assessment proceedings are invalid. Applying the same analogy, after the issue of notice under section 153C of the IT Act, the AO was required to make a fresh reference under section 92CA(1) of the IT Act. Since no fresh reference has been made the order passed by TPO dated 28 November 2014 is bad in law as it is based on the abated proceedings. The order of the TPO is, therefore treated as non-est.

147. Further, in the present case the notice under section 143(2) of the IT Act pursuant to fresh proceedings under section 153C was issued on 8 January 2015. The order of the TPO has been passed on 28.11.2014 i.e. before the assessment proceedings initiated by issue of notice u/s.143(2). The Pune Bench of the Tribunal in the case of Maximize Learning Private Limited (ITA No. 2234/PN/2012 dated 2 February 2015) has observed that the law is quite clear i.e. TPO gets the jurisdiction to pass an order under section 92CA(3) of the Act only after the return is selected for scrutiny under section 143(2) and reference is made under section 92CA(1) of the Act after the issuance of notice under section 143(2) of the Act. Since in the instant case, the TPO had passed the order even before issuance of notice under section 143(2) of the Act, the order passed under section 92CA(3) of the Act is without jurisdiction.

148. In view of the above, we hold that the transfer pricing order passed by the TPO for the subject year is without jurisdiction and hence invalid. The addition made consequent to TPO order therefore does not hold any ground. Accordingly, this ground of the assessee is allowed. Consequently, Ground nos.8 to 12 in the appeal filed by the revenue and Ground nos.6 and 7 in the CO bearing CO 129 /Mum/2019 are dismissed since the TPO order is held to be invalid.

Assessee’s Appeal – ITA No. 1412/Mum/2018 – Assessment Year 2012-13

149. Ground no. 1 of the appeal relate to disallowance of claim amounting to Rs.1,40,80,74,900/- for rail system and Rs.29,52,99,959/- for power generation in view of provisions of section 80IA(12A) of the IT Act. 150. This ground is similar to Ground no.1 of the assessee’s appeal in ITA No. 1413/Mum/2018 for AY 2011-12. We have discussed this issue at length, hereinabove, while disposing the assessee’s appeal for AY 2011-12 and allowed the ground of the assessee. Since facts relating to this ground of appeal remain same for AY 2012-13 also, we allow ground no.1 of the assessee’s appeal and direct the AO to delete the disallowance.

151. Ground no. 2 of the appeal for AY 2012-13 relate to disallowance u/s.14A of the IT Act r.w. Rule 8D of the IT Rules amounting to Rs. 2,36,25,581. As per the assessee the disallowance needs to be restricted to Rs.81,58,878 towards other expenses as the balance disallowance was made inadvertently in the Return of Income.

152. From the perusal of the assessment order, it is observed that the assessee in its return of income had inadvertently disallowed entire amount of interest paid on its cash credit facility amounting to Rs.1,54,66,689 under the provisions of section 14A of the IT Act. This interest amount along with the other expenses amounting to Rs.81,58,878 was offered for disallowance u/s.14A of the IT Act while filing the return of income. During the course of assessment proceeding this fact was brought to the notice of the tax officer and request was made to restrict the disallowance under section 14A of the IT Act only to Rs.81,58,878 as against Rs.2,36,25,581 made in the return of income.

153. The AO duly verified the cash flow statement submitted during the course of assessment proceeding and noted that assessee had sufficient fund of its own for making investment. Accordingly, the AO agreed with the assessee’s contention that no interest is required to be disallowed u/s 14A of the IT Act. As for the other expenses, the AO has disregarded the submission of the assessee. Applying Rule 8D(2)(iii) the AO reworked the computation of disallowance at Rs. 1,81,80,007. The AO has not given any specific findings or reasons for rejecting the assessee’s computation of other expenses offered for disallowances. Having computed the quantum of disallowance u/s.14A to Rs.1,81,80,007/-, the AO did not make any separate addition to the returned income since the assessee had suo moto disallowed an amount of Rs.2,36,25,581/- in its computation. This was despite the fact that AO agreed with the assessee’s contention that no disallowance is required with regard to interest.

154. The LD CIT(A) agreed with the contention of the assessee and restricted the disallowance to Rs.81,58,878/-. The LD CIT(A) followed the decision of Coordinate Bench of this Tribunal in assessee’s own case for the earlier years and allowed the appeal of the assessee.

155. We have dealt with the issue of disallowance of other expenses in Ground no. 5 of the Revenue’s appeal for AY 2011-12 in ITA No. 2871/Mum/2018. Relying on the order of the Coordinate Bench of this Tribunal in earlier years in the assessee’s own case as also the decision of Hon’ble jurisdictional High Court for AY 2008-09 (Revenue’s SLP against such order of the High Court is rejected by the Hon’ble Supreme Court), we hold that total disallowance for the purpose of section 14A should be restricted to Rs.81,58,878/- i.e. amount suo moto offered by the assessee.

156. Coming to the claim of Rs.1,54,66,703/- (i.e. Rs.2,36,25,581/- minus Rs.81,58,878/-) which has erroneously crept in the computation of total income, we are of the view that the same cannot be sustained merely because the assessee has made this disallowance suo moto in its return of income. This is especially so when the AO himself has accepted the assessee’s contention that no disallowance was required u/s.14A in respect of interest. The Courts have even held that the assessing officers are in fact required to help the tax payers in making legitimate claim if they have missed out on some such claims since they are required to obtain only legitimate tax from the tax payers. Accordingly, if an assessee has actually made mistake in its return of income and offered excess disallowance, which in the present case has been also accepted by the tax officer, he should have reduced such erroneous disallowance suo moto even without assessee pointing out the same. We accordingly direct the AO to reduce the taxable income by Rs.1,54,66,703/-.

157. Ground no.3 of the appeal relate to disallowance of additional depreciation u/s. 32(1)(iia) of the IT Act amounting to Rs.31,37,50,105/- in respect of assets put to use for less than 180 days in FY 2010-11.

158. This ground is similar to Ground no.2 of the assessee’s appeal in ITA No. 1413/Mum/2018 for AY 2011-12. In that appeal, discussed above, following the decision of Hon'ble Bombay High Court in Pr.CIT vs. Godrej Industries Ltd. (supra), we have already held that the additional spill over depreciation should be allowed to the assessee. Since the facts relating to this ground remains same as in AY 2011-12, we direct the AO to allow the deduction claimed by the assessee in this regard.

159. Ground no.4 of the appeal relate to denial of claim by the AO u/s. 35(2AB) in respect of R&D expenses amounting to Rs.38,87,646/- on the basis of report received from DSIR.

160. This ground is similar to Ground no.3 of the assessee’s appeal in ITA No. 1413/Mum/2018 for AY 2011-12. In that year, discussed above, we have already taken a view that the amended Rule 6(7) of the IT Rules was applicable from AY 2016-17. There was no requirement for the AO to obtain specific report from the DSIR approving the expenses for the year under consideration. Accordingly, since the AO has not found any defect in the expenses incurred by the assessee, the same should be allowed as deduction.

161. Ground no.5 of the appeal relate to short grant of TDS/TCS credit claimed by the assessee on the basis of certificates and for which entries are not found in Form 26AS.

162. This ground is similar to Ground no.4 of the assessee’s appeal in ITA No. 1413/Mum/2018 wherein we have directed the AO to grant credit for TDS/TCS on the basis of certificates available with the assessee (including certificates which are in name of Grasim/SCL) since mismatch with Form 26AS cannot be attributed to the taxpayer. Following our decision in AY 2011-12, we direct the AO to grant credit for TDS/TCS for which the assessee produces certificates including the certificates in the name of erstwhile entities. The AO can satisfy himself to the effect that the claim in respect of the same certificates are not made by the erstwhile entities. This ground is restored to the file of AO and allowed for statistical purpose.

163. Ground no.6 is general in nature and does not require separate adjudication and hence accordingly dismissed.

164. The assessee has filed additional grounds vide application dated 10 January 2020 (Ground nos.7 and 8) and 5 November 2020 (Ground nos.9 and 10). Similar grounds were filed as additional grounds for AY 2011-12 also in ITA No. 1413/Mum/2018.

165. Following the Supreme Court Ruling in the case of National Thermal Power Co. Ltd. Vs CIT (1998) 229 ITR 383, we admitted and adjudicated the additional grounds filed for AY 2011-12 since those were merely legal plea which did not require any factual investigation. Accordingly, we admit the additional grounds for AY 2012-13 filed by the assessee and have taken up the same for adjudication.

166. Additional Ground nos.7 and 8 relate to the claim of deduction towards education cess and secondary and higher education cess in computing the total taxable income.

167. These grounds are similar to Ground no.6 and 7 of the assessee’s appeal in ITA No. 1413/Mum/2018 for AY 2011-12. We have allowed the assessee’s appeal on this ground and directed the AO to allow the deduction towards education cess and secondary and higher education cess, to the extent of actual payment made by the assessee, in computing its taxable income. Following our decision in AY 2011-12, we direct the AO to allow the deduction of actual payment of education cess and secondary and higher education cess in computing the taxable income for this year as well.

168. Additional Ground no. 9 of the appeal relate to refund of DDT paid in excess of the rate prescribed under DTAA on dividend paid to the non- resident shareholders.

169. This ground is similar to Ground no. 8 of the assessee’s appeal in ITA No. 1413/Mum/2018 for AY 2011-12. We have allowed the assessee’s appeal in AY 2011-12 and have given direction to the AO to verify the assessee’s claim. In case the rate of tax as per tax treaty on dividend is lower and the rate of DDT paid by the assessee, the excess should be refunded to the assessee. Following our decision in AY 2011-12, we direct accordingly.

170. Additional Ground nos. 10 of the appeal relate to the validity of transfer pricing order passed by the learned TPO. The assessee has questioned the validity of transfer pricing proceedings and the consequent order passed by the TPO raising a plea that the same should be treated as non-est.

171. This ground is similar to additional Ground no.9 filed by the assessee in ITA no.1413/Mum/2018 for AY 2011-12. Incidentally the Revenue has also raised Ground nos.5 to 10 in ITA no 2872/Mum/2018 for AY 2012-13 against the relief allowed by LD CIT(A) in respect of additions made with regard to commission on corporate guarantee. Against the said grounds of Revenue, the assessee has also filed cross objection and Ground nos.4 and 5 in CO No. 130/Mum/2019 relate to the same matter. The Grounds raised by the Revenue and the CO filed by the assessee on this issue are similar to Ground nos.8 to 12 of the Revenue’s appeal in ITA no 2871/Mum/2018 for AY 2011-12 and Ground no. 6 and 7 in CO No.129/Mum/2019 of the CO filed by the assessee for AY 2011-12.

172. We have disposed of the Revenue’s appeal and the assessee’s appeal including their cross objection on this issue for AY 2011-12, together. Since in this year also the issue raised in all the ground pertain to common matter, we are disposing them together.

173. The chronology of event and various dates related to transfer pricing proceedings for this year is listed below:

174. We have allowed the additional ground no.9 of the assessee in AY 2011-12 in ITA no.1413/Mum/2018 and held that the order passed by the TPO based on the reference made in the original assessment proceedings was non-est. The AO was required to make fresh reference subsequent to the proceedings initiated under the block assessment u/s. 153C r.w.s. 153A of the IT Act. Since he failed to do so, the order passed by the TPO was not valid and the additions made based on the invalid order passed by the TPO cannot survive.

175. The facts in AY 2012-13 are no different. For AY 2012-13, the reference was made by the AO to TPO on 18.12.2013. The proceedings for block assessment u/s.153C r.w.s. 153A of the IT Act was initiated vide notice dated 26.11.2014. All the pending assessment/ proceedings prior to such date got abated and AO required the assessee to file fresh return of income. The TPO passed the transfer pricing order on 09.12.2015 i.e. prior to even the filing of fresh return of income by the assessee on 02.01.2015. We have discussed this issue in details in AY 2011-12 above and have held that since the order passed by TPO is based on the old proceedings which already got abated, the order has to be treated as invalid. The facts remaining same, we follow our findings in AY 2011-12 and hold that the order passed by TPO for AY 2012-13 is invalid. Consequently, the additions made by the AO pursuant to the recommendation in the order of the TPO also does not survive. This ground of the assessee is accordingly allowed.

176. Having allowed the ground of the assessee, the grounds filed by the Revenue on this issue (Ground nos.8 to 12) in ITA no. 2872/Mum/2018 as well as Ground nos. 4 and 5 of the cross objection filed by the assessee in CO 130/Mum/2019 becomes infructuous and does not require any separate adjudication. Revenue’s Appeal – ITA No. 2872/Mum/2018 – Assessment Year 2012-13

177. Ground nos. 1 and 2 of the Revenue’s appeal relate to claim of the assessee in treating sales tax exemption benefits received amounting to Rs.1,79,49,21,867/- as capital receipts not liable to tax. Ground no.1 of the assessee’s cross objection is connected with this claim.

178. These grounds are similar to Ground nos.1 and 2 of the Revenue’s appeal in ITA No. 2871/Mum/2018 and assessee’s cross objection in CO no. CO 129/Mum/2019 for AY 2011-12. We have already decided this issue in favour of the assessee by following the order of Tribunal in assessee’s own case for earlier years. Since the facts relating to this ground remain same, following our decision in AY 2011-12, we reject this ground raised by the Revenue.

179. Ground nos. 3 and 4 of the Revenue’s appeal relate to availability of deduction under section 80IA of the IT Act with respect to the rail system developed, operated and maintained by the assessee, amounting to Rs.1,48,44,82,911/-. Ground no.2 of the assessee’s cross objection is connected with this claim.

180. These grounds are similar to Ground nos.3 and 4 of the Revenue’s appeal in ITA No. 2871/Mum/2018 and assessee’s cross objection in CO No. 129/Mum/2019 for AY 2011-12. We have already decided this issue in favour of the assessee by following the order of Tribunal in assessee’s own case for earlier years, particularly AY 2010-11. Since the facts relating to this ground remain same, following our decision in AY 2011-12, we reject this ground raised by the Revenue.

181. Ground nos. 5 to 10 of the Revenue’s appeal and Ground nos. 4 and 5 of assessee’s CO have been already disposed off along with Ground no.9 of the assessee’s appeal.

Assessee’s Appeal – ITA No. 2461/Mum/2018 – Assessment Year 2013-14

182. Ground no. 1 of the appeal relate to disallowance of claim for rail system and for power generation in view of provisions of section 80IA(12A) of the IT Act.

183. This ground is similar to Ground no.1 of the assessee’s appeal in ITA No. 1413/Mum/2018 for AY 2011-12. We have discussed this issue at length, hereinabove, while disposing the assessee’s appeal for AY 2011-12 and allowed the ground of the assessee. Since facts relating to this ground of appeal remain same for AY 2013-14 also, we allow ground no.1 of the assessee’s appeal and direct the AO to delete the disallowance.

184. Ground no. 2 of the appeal relate to disallowance of additional depreciation u/s. 32(1)(iia) of the IT Act in respect of assets put to use for less than 180 days in FY 2011-12.

185. This ground is similar to Ground no.2 of the assessee’s appeal in ITA No. 1413/Mum/2018 for AY 2011-12. In that appeal, discussed above, following the decision of Hon'ble Bombay High Court in Pr.CIT vs. Godrej Industries Ltd. (supra), we have already taken a stand that the additional spill over depreciation should be allowed to the assessee. Since the facts relating to this ground remain same as in AY 2011-12, we direct the AO to allow the deduction claimed by the assessee in this regard

186. Ground no. 3 of the appeal relate to denial of claim by the AO u/s. 35(2AB) in respect of R&D expenses on the basis of report received from DSIR.

187. This ground is similar to Ground no.3 of the assessee’s appeal in ITA No. 1413/Mum/2018 for AY 2011-12. In that year, discussed above, we have already taken a view that the amended Rule 6(7) of the IT Rules was applicable from AY 2016-17. There was no requirement for the AO to obtain specific report from the DSIR approving the expenses for the year under consideration. Accordingly, since the AO has not found any defect in the expenses incurred by the assessee, the same should be allowed as deduction.

188. Ground no. 4 of the appeal relate to short grant of TDS/TCS credit claimed by the assessee on the basis of certificates and for which entries are not found in Form 26AS.

189. This ground is similar to Ground no.4 of the assessee’s appeal in ITA No. 1413/Mum/2018 wherein we have directed the AO to grant credit for TDS/TCS on the basis of certificates available with the assessee (including certificates which are in name of Grasim/SCL) since mismatch with Form 26AS cannot be attributed to the taxpayer. Following our decision in AY 2011-12, we direct the AO to grant credit for TDS/TCS for which the assessee produces certificates including the certificates in the name of erstwhile entities. The AO can satisfy itself to the effect that the claim in respect of the same certificates are not made by the erstwhile entities.

190. Ground no.5 is generic in nature and does not require separate adjudication and hence accordingly dismissed.

191. The assessee has filed additional grounds vide applications dated 14 January 2020 (Ground nos.6 and 7) and 5 November 2020 (Ground no. 8). Similar grounds were filed as additional grounds for AY 2011-12 also in ITA no. 1413/Mum/2018.

192. Following the Supreme Court Ruling in the case of National Thermal Power Co. Ltd. Vs CIT (1998) 229 ITR 383, we admitted and adjudicated the additional grounds filed for AY 2011-12 since those were merely legal plea which did not require any factual investigation. Accordingly, we admit the additional grounds for AY 2013-14 filed by the assessee and have taken up the same for adjudication.

193. Additional Ground no.6 and 7 relate to the claim of deduction towards education cess and secondary and higher education cess in computing the total taxable income.

194. These grounds are similar to Ground no.6 and 7 of the assessee’s appeal in ITA No. 1413/Mum/2018 for AY 2011-12. We have allowed the assessee’s appeal on this ground and directed the AO to allow the deduction towards education cess and secondary and higher education cess, to the extent of actual payment made by the assessee, in computing its taxable income. Following our decision in AY 2011-12, we direct the AO to allow the deduction of actual payment of education cess and secondary and higher education cess in computing the taxable income for this year as well.

195. Additional Ground no. 8 of the appeal relate to refund of DDT paid in excess of the rate prescribed under DTAA on dividend paid to the non- resident shareholders.

196. This ground is similar to Ground no. 8 of the assessee’s appeal in ITA No. 1413/Mum/2018 for AY 2011-12. We have allowed the assessee’s appeal in AY 2011-12 and have given direction to the AO to verify the assessee’s claim. In case the rate of tax as per tax treaty on dividend is lower and the rate of DDT paid by the assessee, the excess should be refunded to the assessee. Following our decision in AY 2011-12, we direct accordingly.

Revenue’s Appeal – ITA No. 2873/Mum/2018 – Assessment Year 2013-14

197. Ground nos.1 and 2 of the Revenue’s appeal relate to claim of the assessee in treating sales tax exemption benefits received as capital receipts not liable to tax. Ground no.1 of the assessee’s cross objection is connected with this claim.

198. These grounds are similar to Ground nos.1 and 2 of the Revenue’s appeal in ITA No. 2871/Mum/2018 and assessee’s cross objection in CO no. 129/Mum/2019 for AY 2011-12. We have already decided this issue in favour of the assessee by following the order of Tribunal in assessee’s own case for earlier years. Since the facts relating to this ground remain same, following our decision in AY 2011-12, we reject this ground raised by the Revenue

199. Ground nos. 3 and 4 of the Revenue’s appeal relate to availability of deduction under section 80IA of the IT Act with respect to the rail system developed, operated and maintained by the assessee. Ground no.2 of the assessee’s cross objection is connected with this claim.

200. These grounds are similar to Ground nos.3 and 4 of the Revenue’s appeal in ITA No. 2871/Mum/2018 and assessee’s cross objection in CO no. 129/Mum/2019 for AY 2011-12 for AY 2011-12. We have already decided this issue in favour of the assessee by following the order of Tribunal in assessee’s own case for earlier years, particularly AY 2010-11. Since the facts relating to this ground remains same, following our decision in AY 2011-12, we reject this ground raised by the Revenue.

201. Ground no. 5 of the appeal relate to relief allowed by the LD CIT(A) by deleting additions made by the AO under section 14A of the IT Act r.w. Rule 8D of the IT Rules amounting to Rs.51,42,831/-. Ground no.4 of the assessee’s cross objection is connected with this claim

202. We have dealt with the issue of disallowance of other expenses in Ground no. 5 of the Revenue’s appeal for AY 2011-12 in ITA No. 2871/Mum/2018. Relying on the order of the Coordinate Bench of this Tribunal in earlier years in the assessee’s own case as also the decision of Hon’ble jurisdictional High Court for AY 2008-09 (Revenue’s SLP against such order of the High Court is rejected by the Hon’ble Supreme Court), we hold that total disallowance for the purpose of section 14A should be restricted to Rs.51,42,831/- i.e. amount suo moto offered by the assessee.

203. Ground nos.6 to 11 of the appeal relate to addition made by the AO regarding Corporate Guarantee commission in pursuant to the order passed by the TPO.

204. Unlike AY 2011-12 and AY 2012-13, the order passed by the TPO is based on the reference made by the AO subsequent to the proceedings initiated u/s. 153C r.w.s. 153A of the IT Act. Accordingly, the TPO order passed is pursuant to the valid proceedings. We are, therefore, adjudicating the grounds raised by the Revenue on this issue on merits of the matter.

205. During financial year 2010-11 (AY 2011-12), the assessee had acquired stakes in Star Cement LLC., Middle East, through its wholly owned subsidiary in Dubai, viz., UltraTech Cement Middle East Investment Limited (UCMEIL). For the purpose of overseas acquisition, the assessee Company had given corporate guarantee to the bankers of its Associated Enterprises (AEs) for providing loan to the AE for the purpose of capital commitments and working capital facility availed by them.

206. The assessee had out of abundant caution offered an amount of Rs.5,79,80,032/-.in its return of income as corporate guarantee commission although nothing was recovered as corporate guarantee commission from its AE’s. A claim was made in the return by way of notes as well as during assessment proceeding that nothing should be taxed towards corporate guarantee commission and amount offered for addition should be deleted

207. The Ld AO added as notional income an amount of Rs.25,41,59,209/- being commission chargeable on the Corporate Guarantee provided by the assessee Company to the bankers for providing loan to the AEs of the assessee Company. The LD CIT(A), however, deleted the addition on the ground that the provision of guarantee cannot be considered to be an international transaction as it had no impact on the profits, income or assets of the assessee company. Reliance was placed on the decision of earlier years wherein LD CIT(A) had relied upon the decision of Coordinate Bench of this Tribunal in case of Videocon Industries Limited vs. ACIT ITA No. 6662/Mum/2012.

208. The AR of the assessee submitted that as part of the assessee Company’s expansion plan and foraying into business outside India, the assessee Company had acquired stakes in Star Cement LLC., Middle East, through its wholly owned subsidiary in Dubai, viz., UltraTech Cement Middle East Investment Limited (UCMEIL)

209. The assessee was of the view that no guarantee fees/ commission was chargeable from its Associated Enterprises (‘AEs’) in respect of aforesaid corporate guarantees, since it is in the nature of shareholder’s activity of the Assessee.

210. The Ld AR of the assessee also contended that the corporate guarantee transaction has no bearing on the profits, income, losses or assets of the assessee hence it will be outside the ambit of transfer pricing provisions as it is not an international transaction within the meaning of section 92B of the Act.

211. On the other hand, the Ld DR submitted that no third-party would provide guarantee without compensation and accordingly, an adjustment for the corporate guarantee provided by the assessee was warranted.

212. We have taken into consideration the contentions advanced by the Ld counsels for both the parties, perused the orders of the lower authorities and the material available on record, and also taken note of the judicial pronouncements pressed into service by them in order to drive home their respective contentions in context of the aforesaid issue in question. As far as the contention of the AR that provision of corporate guarantee is not an international transaction, we are not convinced with it. A reading of Explanation–1(c) of section 92B of the Act, makes it clear that the provision of any kind of guarantee will come within the ambit of international transaction under section 92B of the Act.

213. Further, this issue also stands covered by the decision of the Hon’ble jurisdictional Bombay High Court’s judgment in the case of CIT vs Everest Kento Cylinders Ltd [(2015) 58 taxmann.com 152 (Bom)], wherein the High Court had upheld determination of arm’s length price at 0.5% by observing as follows:

“In the matter of guarantee commission, the adjustment made by the TPO were based on instances restricted to the commercial banks providing guarantees and did not contemplate the issue of a Corporate Guarantee. No doubt these are contracts of guarantee, however, when they are Commercial banks that issue bank guarantees which are treated as the blood of commerce being easily encashable in the event of default, and if the bank guarantee had to be obtained from Commercial Banks, the higher commission could have been justified. In the present case, it is assessee company that is issuing Corporate Guarantee to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the assessee would make good the amount and repay the loan. The considerations which applied for issuance of a Corporate guarantee are distinct and separate from that of bank guarantee and accordingly we are of the view that commission charged cannot be called in question, in the manner TPO has done. In our view the comparison is not as between like transactions but the comparisons are between guarantees issued by the commercial banks as against a Corporate Guarantee issued by holding company for the benefit of its AE, a subsidiary company.”

214. The adequacy of the ALP of corporate guarantee fee at 0.5% can also safely be gathered by drawing support from the following judicial pronouncements:

- Aditya Birla Minacs Worldwide Ltd. vs. JCIT (2016) 47 CCH 760 (Mum Tribunal)

- Godrej Household Products Ltd. vs. Addl. CIT 41 taxmann.com 386 (Mum Tribunal)

- Nimbus Communications Limited vs. Addl. CIT (2014) 149 ITD 0508 (Mum Tribunal)

- Hindalco Industries Ltd. vs. Addl. CIT (62 taxmann.com 181) (Mum Tribunal)

- Manugraph India Ltd. vs. DCIT (2015) 43 CCH 348 (Mum Tribunal)

- Prolific Corporation Ltd. Vs. DCIT (55 taxmann.com) (Hyd. Tribunal)

- Thomas Cook (India) Limited (2016) 47 CCH 0162 (Mum Tribunal)

215. We see no reasons to take any other view of the matter than the view so taken by Hon’ble jurisdictional High Court and coordinate Benches and therefore we reject the determination of arm’s length price reduced to Nil by the Ld CIT(A) and direct the AO to adopt 0.5% as an arm’s length consideration for the corporate guarantee issued by the assessee in favour of its AEs.

216. The grounds raised by the Revenue and the CO filed by the assessee are disposed off accordingly.

Assessee’s Appeal – ITA No. 2462/Mum/2018 – Assessment Year 2014-15

217. Ground no. 1 of the appeal relate to disallowance of claim for rail system and for power generation in view of provisions of section 80IA(12A) of the IT Act.

218. This ground is similar to Ground no.1 of the assessee’s appeal in ITA No. 1413/Mum/2018 for AY 2011-12. We have discussed this issue at length, hereinabove, while disposing the assessee’s appeal for AY 2011-12 and allowed the ground of the assessee. Since facts relating to this ground of appeal remains same for AY 2014-15 also, we allow ground no.1 of the assessee’s appeal and direct the AO to delete the disallowance

219. Ground no. 2 of the appeal relate to disallowance of additional depreciation u/s. 32(1)(iia) of the IT Act in respect of assets put to use for less than 180 days in FY 2012-13.

220. This ground is similar to Ground no.2 of the assessee’s appeal in ITA No. 1413/Mum/2018 for AY 2011-12. In that appeal, discussed above, following the decision of Hon'ble Bombay High Court in Pr.CIT vs. Godrej Industries Ltd. (supra), we have already held that the additional spill over depreciation should be allowed to the assessee. Since the facts relating to this ground remains same as in AY 2011-12, we direct the AO to allow the deduction claimed by the assessee in this regard

221. Ground no.3 of the appeal relate to denial of claim by the AO u/s. 35(2AB) in respect of R&D expenses amounting to Rs.39,52,000/- on the basis of report received from DSIR.

222. This ground is similar to Ground no.3 of the assessee’s appeal in ITA No. 1413/Mum/2018 for AY 2011-12. In that year, discussed above, we have already taken a view that the amended Rule 6(7) of the IT Rules were applicable from AY 2016-17. There was no requirement for the AO to obtain specific report from the DSIR approving the expenses for the year under consideration. Accordingly, since the Ld AO has not found any defect in the expenses incurred by the assessee, the same should be allowed as deduction.

223. Ground No.4 of the appeal filed by the assessee relates to disallowance of claim of investment allowance under section 32AC of the Act.

224. During the year under consideration, the assessee Company claimed in its original return filed u/s 139(1) an investment allowance u/s. 32AC of the IT Act on account of investment in plant and machinery.

225. The Finance Act, 2013 introduced a new section 32AC in the IT Act with effect from 1 April, 2014, which provides that a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new asset amounting to Rs.100 crores or more, after the 31st day of March, 2013 but before the 1st day of April, 2015, then such company is entitled to an investment allowance of 15 percent of the investment in such new assets. The intention of the legislature was to provide incentive to the taxpayers making substantial investments in plant or machinery and thereby boost the manufacturing sector in the economy.

226. The assessee claimed the amount of Rs.3,43,97,11,256/- as deduction u/s. 32AC which includes Rs.248,65,65,041/- towards cost of components of plant or machinery lying as CWIP as on 1.4.2013 but aggregated and installed as ‘plant’ or ‘machinery’ during the FY 2013-

14. Further an amount of Rs.8,32,42,289/- was claimed in respect of the assets which are eligible for depreciation at the rate of 100 per cent but installed and put to use for less than 180 days and hence depreciation was claimed to the extent of only 50% of its actual cost during the FY 2013-14.

227. The AO rejected the claim of the assessee on the following grounds:

“i. The word “and” signifies that both acquisition and installation of assets should be after 31/03/2013 and not merely the installation.

ii. The assets which are eligible for 100% depreciation even though put to use for less than 180 days are not eligible for investment allowance in view of provisions of section 32AC(4)(v).”

228. On further appeal, the LD CIT(A) has upheld the order of the AO with regard to deduction claimed in respect of cost of components of plant or machinery lying as Capital Work In Progress (CWIP) as on 1 April 2013 amounting to 248,65,65,041/- but allowed the claim amounting to Rs. 8,32,42,289/- with respect to assets which were eligible for depreciation at the rate of 100 per cent but installed and put to use for less than 180 days and hence claimed at 50%. The dispute therefore relates to only value of component of plant and machinery lying in capital work in progress as on 1st April 2013.

229. The learned AR submitted that assessee is entitled to deduction under section 32AC of the Act as:

i. The term ‘plant’ has to be read in the manner in which it is generally understood and accordingly, a plant can be said to have been acquired on or after 1st April 2013 since it came into existence only after all the machinery and components were assembled and commissioned together. The plant was brought into existence from the components lying in CWIP only after 1st April 2013 when it was assembled and installed. Thus, according to the AR of the assessee, plants were acquired and installed after 1st April 2013.

ii. The word “acquired and installed” has to be interpreted as “acquired or installed” since it is impossible to acquire and also install any plant or machinery valuing Rs.100 crores or more in a span of one year. Such a situation is not intended by the legislature and therefore the word “and” has to be read as “or” to arrive at the intended consequences.

230. The provisions of section 32AC is reproduced below for better understanding of the issue:

“32AC. (1) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new asset after the 31st day of March, 2013 but before the 1st day of April, 2015 and the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees, then, there shall be allowed a deduction,-

(a) for the assessment year commencing on the 1st day of April, 2014, of a sum equal to fifteen per cent of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2014, if the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees; and

(b) for the assessment year commencing on the 1st day of April, 2015, of a sum equal to fifteen per cent of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2015, as reduced by the amount of deduction allowed, if any, under clause (a).

(1A) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new assets and the amount of actual cost of such new assets acquired and installed during any previous year exceeds twenty-five crore rupees, then, there shall be allowed a deduction of a sum equal to fifteen per cent of the actual cost of such new assets for the assessment year relevant to that previous year:

Provided that no deduction under this sub-section shall be allowed for the assessment year commencing on the 1st day of April, 2015 to the assessee, which is eligible to claim deduction under sub-section (1) for the said assessment year.

(1B) No deduction under sub-section (1A) shall be allowed for any assessment year commencing on or after the 1st day of April, 2018........”

231. The intention behind introduction of section 32AC can be discerned from the speech of the Hon’ble Finance Minister while presenting the Finance Bill 2013, wherein the Hon’ble Minister stated as under:

“New Investments

59. To attract new investment and to quicken the implementation of projects, I propose to introduce an investment allowance for new high value investments. A company investing `100 crore or more in plant and machinery during the period 1.4.2013 to 31.3.2015 will be entitled to deduct an investment allowance of 15 percent of the investment. This will be in addition to the current rates of depreciation. There will be enormous spill-over benefits to small and medium enterprises.”

Thus, the intention behind introduction of section 32AC and provide investment allowance was to attract new investment as well as to quicken the implementation of projects.

232. The explanation regarding introduction of this new section in the Memorandum explaining the provisions of the Finance Bill, 2013 was stated under the head “Measures to Promote Socio-Economic Growth” and the opening portion of the relevant clause of the Memorandum read as under:

“Incentive for acquisition and installation of new plant or machinery by manufacturing company”

In order to encourage substantial investment in plant and machinery, it is proposed to insert a new section 32AC in the income tax Act....” [clause 5].

233. It is also worth noting that section 32AC was further amended by Finance Act, 2014 whereby subsection (1A) was introduced with effect from 1 April 2015. The relevant extract of the budget Speech 2014 in respect of such amendment is reproduced below:

“198. The manufacturing sector is of paramount importance for the growth of our economy. This sector has multiplier effect on creation of jobs. Last year, an incentive in the form of investment allowance to a manufacturing company that invests more than Rs.100 Crore in plant and machinery during the period from 01.04.2013 to 31.03.2015 was announced. Considering the need to incentivize smaller entrepreneurs, I propose to provide investment allowance at the rate of 15 percent to a manufacturing company that invests more than Rs.25 Crore in any year in new plant and machinery. This benefit will be available for three years i.e. for investments up to 31.03.2017. The Scheme announced last year will continue to operate in parallel till 31.03.2015.”

234. The memorandum explaining the provision of Finance (No.2) Bill, 2014 in respect of the aforesaid amendment stated as under:-

“FINANCE (No. 2) BILL, 2014 PROVISIONS RELATING TO DIRECT TAXES Investment Allowance to a Manufacturing Company

In order to encourage the companies engaged in the business of manufacture or production of an article or thing to invest substantial amount in acquisition and installation of new plant and machinery, Finance Act, 2013 inserted section 32AC in the Act to provide that where an assessee, being a company, is engaged in the business of manufacture of an article or thing and invests a sum of more than Rs.100 crore in new assets (plant and machinery) during the period beginning from 1st April, 2013 and ending on 31st March, 2015, then the assessee shall be allowed a deduction of 15% of cost of new assets for assessment years 2014-15 and 2015-16.

As growth of the manufacturing sector is crucial for employment generation and development of an economy, it is proposed to extend the deduction available under section 32AC of the Act for investment made in plant and machinery up to 31.03.2017. Further, in order to simplify the existing provisions of section 32AC of the Act and also to make medium size investments in plant and machinery eligible for deduction, it is also proposed that the deduction under section 32AC of the Act shall be allowed if the company on or after 1st April, 2014 invests more than Rs.25 crore in plant and machinery in a previous year. It is also proposed that the assessee who is eligible to claim deduction under the existing combined threshold limit of Rs.100 crores for investment made in previous years 2013-14 and 2014-15 shall continue to be eligible to claim deduction under the existing provisions contained in sub-section (1) of section 32AC even if its investment in the year 2014-15 is below the proposed new threshold limit of investment of Rs. 25 crores during the previous year. [Clause 11]”

235. The Finance Minister’s Speech and the Explanatory Memorandum, at the time of introduction of the incentive in 2013 as well as while extending the benefit w.e.f. 1 April, 2015, stressed on the term “investment” in new “plant” or “machinery”. The intention was to give impetus to the manufacturing sector making substantial investment including in the stalled projects.

236. The term ‘acquire’ used in section 32AC has to be read in conjunction with the term ‘assets’, i.e. ‘plant’ or ‘machinery’, and not in isolation. A new ‘plant’ or ‘machinery’ can be said to have been acquired when the individual components of the plants are aggregated and installed together so that the resulting equipment takes the character of ‘plant’ or ‘machinery’ as is generally understood. “Acquisition” of plant or machinery cannot be read to mean mere purchase/ ownership/ possession of individual items or components of a plant or machinery. Restricting the meaning of acquisition of plant or machinery to mere purchase of individual components of ‘plant’ in piecemeal, which are accounted under the head ‘Capital Work-in-Progress’ will give absurd results not intended by the legislature.

237. The assessee is the largest cement manufacturer in the country having plants across various location in India. Huge plant and machineries are required for the manufacturing of cement. These plants are in the nature of complex machineries. Various components purchased by the assessee are to be assembled and commissioned together which takes substantial amount of time given the complexity, size and nature of the machinery/ project/ plant required for the business. The sheer size of various plants/ machineries constructed and put to use during the year is evident from the fact that as on 1 April 2013, the capital work- in-progress of the assessee was Rs.1,657 crores and to convert them into plant, additional purchase of individual components worth Rs.635 crores was made during the year. Unless and until the machinery are assembled and commissioned together, the plant does not come into existence. Therefore, the meaning of word “acquisition” will have to be considered in light of the nature of various plants the assessee was constructing. The plant is acquired only when all the components of machinery are assembled and commissioned together.

238. In this regard it is worth noting the first proviso to sub-section (1A) of section 32AC. It is provided that where installation of the new assets are in a year other than the year of acquisition, the deduction under this sub-section shall be allowed in the year in which new assets are installed. This amendment was brought by the Finance Act, 2016. We are of the view that the intention of the legislature was to cure the discrepancy in the provision and to obviat the unintended hardship faced by the taxpayers in completing both the condition of “acquisition” and “installation” in the same year. Therefore, such proviso being curative in nature must apply retrospectively.

239. An analogy can also be drawn from the second proviso to section 32(1) which restricts the claim of depreciation to 50% in case of assets “acquired during the previous year” and “put to use” for a period of less than 180 days in that previous year. The provisions of second proviso are reproduced as under:

“Provided further that where an asset referred to in clause (i) or clause (ii) or clause (iia) or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii) or clause (iia), as the case may be”.

240. For the purpose of second proviso to section 32, the plant is considered as “acquired” only after all the machines and components are assembled and commissioned together and the plant is ready for use. The Revenue has never allowed depreciation on any individual component of plant/machineries acquired before the previous year since the process of assembling and commissioning was completed during the year. The claim of depreciation commences only from the day the plant is fully installed including on the value of component lying in capital work in progress but capitalised as plant and machinery on completion of installation. Thus, the meaning of the term “acquired” used in section 32 is considered as fulfilled only when the plant / machinery is “installed”. The language used in section 32AC being similar to the language used in second proviso to section 32(1), we must give the same interpretation.

241. We further note that the issue relating to availability of additional depreciation under section 32(1)(iia) wherein the phrase used is “acquired and installed after the 31st day of March” has been subject matter of litigation. The Coordinate Bench of this Tribunal in the case of Euro Pratik Ispat Pvt. Ltd. vs. ACIT (ITA No. 1682/Mum/2011) has observed as under :

“In our opinion machinery was installed in the AY under appeal, though acquisition of the P&M had started in earlier year AY. Till a machine is not assembled in a manner that it could be used to manufacture, it cannot be held that it had been installed. Mere purchasing or shifting it to factory premises is not enough. Assessee had claimed additional depreciation @ 10%, as the P&M had worked for a period less than one year. It is a common phenomenon that in big projects, installation of machinery takes very long time because of the sheer volume of the work to be carried out. If an assesse is not successful in installing P&M in one year and carries forward the installation work in subsequent year / years it cannot be denied any benefit on the ground that it had acquired the P&M in earlier year. The intent of the legislature was to attract investment, so in our opinion the section can be termed as benevolent provision. In the case under consideration production started from 01.01.2006. Before that fabrication and completion of P& M was going on. Treatment given by the assesse in the books of accounts to the P&M was in accordance with the Accounting Standards (AS) and the AO has not denied the fact that the assessee was following AS. Therefore, in our opinion, assesse was entitled to claim additional depreciation @10%.”

242. Again, the Coordinate Bench of this Tribunal in the case of JCIT vs. Lotus Energy (India) Ltd [2016] 68 taxmann.com 364 upheld the view of the taxpayer to allow additional depreciation in the year of installation. It was observed as under:

“10. We have heard the rival contentions and also perused the material available on record. We have observed that Section 32(1)(iia) of the Act was amended by Finance Act, 2005. It is stated in the Memorandum to the Finance Bill 2005 that the provisions are amended in order to encourage new investment, the initial depreciation on new machinery and plant was proposed to be increased to 20 per cent from the existing level of 15 percent and consequently the initial depreciation will be available to all new plant and machineries except those referred to in the proviso to the clause (iia) of section 32 of the Act. The requirement of creating a minimum increase of 10 percent in installed capacity for availing the initial depreciation is also proposed to be eliminated. We have also observed that section 32(1)(iia) of the Act stipulates that new machinery and plant should be acquired and installed after 31-3-2005 by an tax-payer and a further sum equal to twenty percent of the actual cost of such machinery or plant shall be allowed as deduction. Provisions of Section 32(1)(ii) of the Act are a piece of beneficial legislation being incentive provision is a piece of beneficial legislation is to be liberally construed to grant the benefit to the tax-payer to fulfill the mandate of legislation which is to promote investment in business of manufacturing or production of any article or thing or in the business of generation or generation or distribution of power, rather than in the manner which may frustrate the object. Reference can be drawn to the following observations of Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 (SC): “The provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; since the provision for promoting economic growth has to be interpreted liberally, restrictions on it too has to be construed so as to advance the objective of the provisions and not to frustrate it.”

“The words used u/s 32(1)(iia) of the Act are ‘acquired and installed’ after 31st day of March 2005. The assessee company did purchased new machineries and plant prior to 31-03-2005 as well after 31-03-2005 for the coke production plant being set up by the assessee company but the installation of the entire new plant and machineries as an integrated activity for setting up industrial project for coke production plant which started in financial year 2004-05 were completed after 31- 03-2005 and commercial production of the new coke production plant being set up by the assessee company started in April 2005 i.e. in financial year 2005-06 when the new coke production plant set up by the assessee company became operational, which is an admitted position by the Revenue. The assessee company was incorporated on 2nd September 2004 i.e. in the financial year 2004-05, and was engaged in setting up new industrial unit being coke production plant for the setting up of which new plant and machineries were acquired by the assessee company starting from financial year 2004-05, which process of acquiring plant and machineries also continued in the financial year 2005-06 as an integrated activity with the sole and common objective for setting up new industrial unit of coke production plant and finally concluded with the completion of installation of the said new plant and machineries in April 2005 and commencement of the commercial production of LAM coke in April 2005 i.e. financial year 2005-06 when new coke production plant became operational. Once a new industrial project is initiated by an enterprise to be set up, then the entire composite plant and machineries which are acquired and installed are an integrated activities as the said plant and machineries can only function when they are integrated together as per technical requirements and specifications which can there-after lead to successful commissioning of the project to produce or manufacture the desired products/articles. The plant and machineries so acquired cannot be visualized and seen in the individual and itemized context as they are in-capable of production or manufacture of desired products/articles unless these itemized plant and machineries are integrated together as per technical requirements and specifications to achieve the manufacturing or production of desired products. Since, the assessee company was engaged in setting up new coke production plant which activity of setting up new industrial unit started in financial year 2004 - 05 and concluded in financial year 2005- 06, the entire set of new machineries and plant were acquired by the assessee company as an integrated activity with the sole and common objective towards the setting up of new coke production plant which was carried out in financial year 2004-05 and in financial year 2005-06, with the installation of said new plant and machineries getting completed in April 2005 with the commencement of commercial production of LAM coke in April 2005 when the said new plant became operational and acquisition of said machineries and plant cannot be seen and visualized in itemized manner as unless these new plant and machineries are integrated together they will not achieve the desired results. The assessee company has finally installed the entire new plant and machineries in April 2005 i.e. after 31-3-2005 and assessee company is entitled to the benefit u/s 32(1)(iia) of the Act for claiming additional depreciation in the impugned assessment year because what is relevant is that new machineries and plant which were acquired before 31-03-2005 and also post 31-03-2005 were all purchased as an integrated activity connected with the common and sole objective directed towards activity of the assessee company to set up new coke production plant which become operational in financial year 2005-06 with completion of installation of these new plant and machineries in April 2005 when all these machineries and plant were put to use after installation with start of commencement of commercial production of LAM coke in April 2005 when the new coke production plant become operational and their acquisition which concluded in financial year 2005-06 is to be seen in composite manner rather than in itemized manner as in an itemized capacity said new plant and machineries are not capable of producing the desired articles/products being LAM coke. It is pertinent to mention that on perusal of the Balance Sheet for financial year 2004-05 and 2005-06 (placed in paper book) will reveal that the assessee company has purchased new plant and machinery in financial year 2004-05 which is undisputed and the same was shown in the Balance Sheet as at 31-03- 2005 under the head 'Capital Work in Progress' and the same was capitalized in financial year 2005- 06 along with those new plant and machineries which were acquired in financial year 2005-06 and the assessee company has not claimed any depreciation in the financial year 2004-05 on these new plant and machineries so acquired in financial year 2004- 05. Thus, acquisition of the entire set of new machineries and plant whether acquired prior to or post 31-03-2005 was an integrated event in the chain of activity undertaken with common and sole goal of setting up new coke production plant by the assessee company which process got completed in April 2005 i.e. financial year 2005-06 with the completion of installation of the entire new machineries and plant as composite, so acquired by the assessee company whether pre or post 31-03-2005 with the commencement of the production of coke production plant becoming operational in April 2005. We find that the conditions as stipulated u/s 32(1)(iia) of the Act are duly complied with by the assessee company and the assessee company cannot be denied the benefit of the claim of additional depreciation merely because new plant and machinery was acquired partly prior to 31-3-2005 and partly post 31-03-2005 as the entire activity of acquisition of new plant and machinery was an integrated and composite activity in the chain of events with the common and sole objective of setting up new coke production plant by the assessee company, as the installation of new machinery and plant which started in financial year 2004-05 got completed after 31-3-2005 with the commencement of commercial production starting in financial year 2005- 06 i.e. post 31-03-2005 with the plant becoming operational. Thus, in our considered view, the assessee company is entitled for claim of additional depreciation u/s 32(1)(iia) of the Act amounting to Rs.83,55,387/- during the assessment year 2006-07.”

243. The Hon’ble Gujarat High Court in the case of PCIT vs. IDMC Ltd. [2017] 393 ITR 441 also took a similar view on the issue and has observed as under:

“Applying law laid down by the Supreme Court in various decisions to the facts of the case on hand, if the submission on behalf of the revenue is accepted, it will lead to an absurd and unjust result and the purpose and object of granting the additional depreciation will be frustrated. If the contention on behalf of the revenue is accepted, in that case, the assessee shall never get the additional depreciation as provided under section 32(1)(iia). In the facts and circumstances of the case, the twin conditions of the acquired and installed shall never be satisfied in a year and therefore, the assessee shall never get any depreciation. The purpose and object of granting additional depreciation under section 32(1)(iia) is to encourage the industries by permitting the assessee setting up the new undertaking/ installation of new plant and machinery and to give a boost to the manufacturing sector by allowing additional depreciation deduction. Thus, as rightly held by the Tribunal the provisions of section 32(1)(iia) are required to be interpreted reasonably and purposively as the strict and literal reading of section 32(1)(iia) would lead to an absurd result denying the additional depreciation to the assessee though admittedly the assessee has installed new plant and machinery. Under the circumstances, no error has been committed by the Tribunal in allowing the additional depreciation at the rate of 20 per cent on the plant and machinery installed by the assessee after 31-3-2005 i.e. the year under consideration.”

244. As can be noted, the Hon’ble Gujarat High Court and the Hon’ble Bench of Coordinate Bench of this Tribunal have consistently taken a view that the twin condition of “acquired and installed” have to be read in the manner to give it a meaningful, reasonable and purposive interpretation. The twin condition can be said to have been satisfied on the day these huge plant and machineries are installed and become useful for production. Since, the language of section 32AC is similar to the language used in section 32(1)(iia), the ratio laid down in the above cases squarely applies to the facts of the instant case in the context of section 32AC.

245. The AR of the assessee also contended that if a strict interpretation is adopted for the word “and” used in the term “acquired and installed”, to understand it in its normal grammatical sense, i.e. a conjunctive, then there may be a large number of instances where the assessee, even after making required investment in plant and machinery, would not be able to claim deduction under section 32AC of the Act. The assessee may invest in designs, plans, drawings, bottles, books, etc. which are considered as “plant” for the purpose of section 32 of the Act. If the interpretation of the Revenue is accepted that only plant acquired and installed is eligible for deduction under section 32AC of the Act then, it would lead to absurd results as the aforesaid assets which have been considered by the Supreme Court and the High Courts falling within the meaning of “plant” would not be eligible for deduction under section 32AC of the Act since the aforesaid assets are incapable of installation. Designs, plans, drawings, bottles, books, etc. by their very nature are not required to be installed and on their acquisition, they are ready to be put to use. Therefore, a manufacturer who is acquiring designs, drawings, plans which are considered as plant and machinery for the type of business they are in, will not be eligible to claim deduction under section 32AC since according to the Revenue the designs, drawing, plans are not installed by the assessee.

246. It is fairly well settled law that where the word "and" as is understood leads to unintended results, then it should be interpreted to mean “or”.

The Supreme Court in the case of CIT vs. Ram Kishan Dass 413 ITR 337 (2019) SC has held:

“Secondly, the alternate construction of the proviso is that the expression "and for any good and sufficient reason" should be read to mean "or for any good and sufficient reason". As a matter of statutory interpretation, it is well settled that the expression "and" can in a given context be read as "or" (see in this context Ishwar Singh Bindra v. State of UP AIR 1968 SC 1450). This submission was opposed on behalf of the assessees by urging that in the context of sub-section (2A), it has been held by this Court in Sahara India (Firm), Lucknow (supra) that the word "and" is used in the conjunctive sense. Undoubtedly the expression "and" in subsection (2A) has been held to the conjunctive, while delineating the circumstances on the basis of which an opinion can be arrived at by the assessing officer. This would not necessarily furnish an index to how the expression "and" in the proviso to subsection (2C) should be construed. The interpretation of the expression must be based on the context in which it is used. In the proviso to sub-section (2C), the expression "and" is used in connection with the grant of an extension of time and not in the context of the formation of an opinion for ordering a special audit.”

247. We are, therefore, inclined to accept the contention of the AR of the assessee that the words “acquired and installed” have to be read as “acquired or installed” to give effect to the intention of the legislature.

248. We refer to the decision in the case of Jupiter Radios vs. DCIT [2017] 88 taxmann.com 93 (Delhi) relied upon by the DR during the course of hearing. We have gone through the case but find no relevance to the issue before us. The Hon’ble Delhi High Court in that case was concerned with the issue relating to availability of development rebate/ allowance under section 32A/ 34(3) the language in which are not pari materia with the provisions of section 32AC of the Act. Secondly, the Court was not at all concerned with the interpretation of the words “acquired and installed” and the question before the High Court was whether the partnership firm can continue to claim deduction under section 34A/ 34(3) of the Act if the plant and machinery is given to a partner on his retirement from the firm during the statutory holding period of 8 years. Therefore, the aforesaid decision is not relevant to decide the issued involved in the present appeal.

249. In view of the above we have no hesitation to hold that the assessee is entitled to deduction u/s 32AC of the Act on the value of cost of components of plant or machinery lying as CWIP as on 1 April 2013 but installed during the financial year 2013-14. We therefore direct the AO to allow deduction as investment allowance u/s 32AC of the IT Act.

250. Ground no.5 of the appeal relate to short grant of TDS/TCS credit claimed by the assessee on the basis of certificates and for which entries are not found in Form 26AS.

251. This ground is similar to Ground no.4 of the assessee’s appeal in ITA No. 1413/Mum/2018 wherein we have directed the AO to grant credit for TDS/TCS on the basis of certificates available with the assessee (including certificates which are in name of Grasim/SCL) since mismatch with Form 26AS cannot be attributed to the taxpayer. Following our decision in AY 2011-12, we direct the AO to grant credit for TDS/TCS for which the assessee produces certificates including the certificates in the name of erstwhile entities. The AO can satisfy itself to the effect that the claim in respect of the same certificates are not made by the erstwhile entities.

252. Ground no. 6 is general in nature and does not require separate adjudication and hence accordingly dismissed.

253. The assessee has filed additional grounds vide applications dated 14 January 2020 (Ground nos. 7 and 8) and 5 November 2020 (Ground no. 9). Similar grounds were filed as additional grounds for AY 2011-12 also in ITA No. 1413/Mum/2018.

254. Following the Supreme Court Ruling in the case of National Thermal Power Co. Ltd. Vs CIT (1998) 229 ITR 383, we admitted and adjudicated the additional grounds filed for AY 2011-12 since those were merely legal plea which did not require any factual investigation. Accordingly, we admit the additional grounds for AY 2012-13 filed by the assessee and have taken up the same for adjudication.

255. Additional Ground no. 7 and 8 relate to the claim of deduction towards education cess and secondary and higher education cess in computing the total taxable income.

256. These grounds are similar to Ground no.6 and 7 of the assessee’s appeal in ITA No. 1413/Mum/2018 for AY 2011-12. We have allowed the assessee’s appeal on this ground and directed the AO to allow the deduction towards education cess and secondary and higher education cess, to the extent of actual payment made by the assessee, in computing its taxable income. Following our decision in AY 2011-12, we direct the AO to allow the deduction of actual payment of education cess and secondary and higher education cess in computing the taxable income for this year as well.

257. Additional Ground no. 9 of the appeal relate to refund of DDT paid in excess of the rate prescribed under DTAA on dividend paid to the non- resident shareholders.

258. This ground is similar to Ground no. 8 of the assessee’s appeal in ITA No. 1413/Mum/2018 for AY 2011-12. We have allowed the assessee’s appeal in AY 2011-12 and have given direction to the AO to verify the assessee’s claim. In case the rate of tax as per tax treaty on dividend is lower and the rate of DDT paid by the assessee, the excess should be refunded to the assessee. Following our decision in AY 2011-12, we direct accordingly

Department’s Appeal – ITA No. 3764/Mum/2018 – Assessment Year 2014-15

259. Ground nos. 1 and 2 of the Revenue’s appeal relate to claim of the assessee in treating sales tax exemption benefits received amounting to Rs.1,86,51,36,228/- as capital receipts not liable to tax. Ground nos.1 and 3 of the assessee’s cross objection is connected with this issue.

260. These grounds are similar to Ground nos.1 and 2 of the Revenue’s appeal in ITA No. 2871/Mum/2018 and assessee’s cross objection in CO No. 129/Mum/2019 for AY 2011-12. We have already decided this issue in favour of the assessee by following the order of Tribunal in assesse’s own case for earlier years. Since the facts relating to this ground remain same, following our decision in AY 2011-12, we reject this ground raised by the Revenue

261. Ground nos.3 and 9 of the Revenue’s appeal relate to availability of deduction under section 80IA of the IT Act with respect to the rail system developed, operated and maintained by the assessee, amounting to Rs.1,05,45,74,078/-. Ground nos.2 and 3 of the assessee’s cross objection is connected with this claim.

262. These grounds are similar to Ground nos.3 and 4 of the Revenue’s appeal in ITA No. 2871/Mum/2018 and assessee’s cross objection in CO No. 129/Mum/2019 for AY 2011-12 for AY 2011-12. We have already decided this issue in favour of the assessee by following the order of Tribunal in assesse’s own case for earlier years, particularly AY 2010-11. Since the facts relating to this ground remain same, following our decision in AY 2011-12, we reject this ground raised by the Revenue.

263. Ground no. 4 to 6 of the appeal relate to relief allowed by the LD CIT(A) by deleting additions made by the AO under section 14A of the IT Act r.w. Rule 8D of the IT Rules amounting to Rs.1,26,79,264/-. Ground no.4 of the assessee’s cross objection is connected with this issue.

264. We have dealt with the issue of disallowance of other expenses in Ground no. 5 of the Revenue’s appeal for AY 2011-12 in ITA No. 2871/Mum/2018. Relying on the order of the Coordinate Bench of this Tribunal in earlier years in the assessee’s own case as also the decision of Hon’ble jurisdictional High Court for AY 2008-09 (Revenue’s SLP against such order of the High Court is rejected by the Hon’ble Supreme Court), we hold that total disallowance for the purpose of section 14A should be restricted to Rs.73,27,969/- i.e. amount suo moto offered by the assessee.

265. Ground no. 7 and 8 of the appeal relate to claim of expenses on account of Employee Stock Option Scheme. Ground nos.5 and 6 of the assessee’s cross objection is connected with this claim

266. This issue has been subject matter of appeal in assessee’s own case for AY 2008-09. The Tribunal in AY 2008-09 had remanded back the issue to the AO with a limited direction to allow the appeal if the facts of the assessee matched with the facts in the case of Biocon Ltd. [251 ITR (Trib.) 602]. The relevant para of the Hon’ble Tribunal order is reproduced hereunder:

“36. .... In our considerate view, the allowability of the claim of the assessee has to be considered afresh in the light of the findings of the Special Bench (supra). We therefore restore this issue back to the files of the AO. The AO is directed to consider the claim of the assessee in the light of the decision of the Special Bench of ITAT in the case of Biocon Ltd (supra) after making necessary verification and after giving a reasonable opportunity of being heard to the assessee. Ground No. 2 is allowed for statistical purpose.”

267. The facts and circumstances during the year under consideration remain the same. Respectfully following the order in the assessee’s own case for earlier year, we do not find any infirmity in order of the LD CIT(A) and accordingly dismiss the ground raised by the revenue. We direct the AO to allow the claim of the assessee if the facts of the assessee matches with the facts in the case of Biocon Ltd. We may add here that the case of Biocon has been now upheld by the Hon’ble Karanataka High Court in 131 taxmann.com 187.

268. Ground no. 10 and 11 of the appeal relate to the addition made by the AO regarding Corporate Guarantee commission in pursuant to the order passed by the TPO. Ground no.7 and 8 of the assessee’s cross objection is connected with this claim

283. We have decided this issue while adjudicating Ground No.6 to 11 of the Revenue’s appeal in ITA No.2873/Mum/2018 for AY 2013-14. Since facts in this year remain same with the one discussed earlier, we direct the AO to adopt 0.5% as an arms’ length consideration for the corporate guarantee issued by the assessee in favour of its AEs.

284. The grounds raised by the Revenue and the CO filed by the assessee is accordingly disposed off.

285. In the result appeals and Cross Objection of the assessee for Assessment Years 2011-12, 2012, 2013-14 and 2014-15 are partly allowed as indicated above. Appeals of the revenue for Assessment Years 2011-12, 2012-13 are dismissed and appeals for Assessment Years 2013-14 and 2014-15 are partly allowed as indicated above.

Order pronounced on 14.12.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board.

Sd/- Sd/-

(S. RIFAUR RAHMAN) (C.N. PRASAD)

ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai / Dated 14/12/2021