Tata Steel Ltd Vs ACIT (ITAT Mumbai)
Summary: The Mumbai Bench of the Income Tax Appellate Tribunal decided the cross-appeals of Tata Steel Ltd. and the Revenue, together with the assessee’s cross-objection, for assessment year 2009-10. The disputes arose from the final assessment order dated 10 January 2014 under section 143(3) read with section 144C(13). The Tribunal deleted a transfer-pricing adjustment of Rs.9,37,03,176 on loans to NatSteel Asia Pte. Ltd. and Tata Steel KZN (Pty) Ltd., holding that the relevant Singapore-dollar and South African-rand benchmarks (SIBOR and JIBAR), not domestic rupee borrowing rates with an ad hoc risk premium, governed arm’s-length interest. The legal and jurisdictional grounds relating to the transfer-pricing reference were kept open.
For section 14A read with rule 8D, the Tribunal accepted that the Assessing Officer had recorded adequate satisfaction to invoke rule 8D, but held that further interest disallowance could not stand because Tata Steel’s own funds substantially exceeded the investments yielding exempt income. For administrative expenditure, only investments that actually yielded exempt dividend income during the relevant previous year were to enter the computation. However, the recomputed disallowance could not fall below the Rs.28,46,76,734 already voluntarily offered by the assessee, absent proof that its own audited allocation was mistaken. Separately, the Tribunal deleted the Rs.36,19,23,266 rule 8D-based addition to book profit under section 115JB because that statutory computation could not automatically be imported into clause (f) of Explanation 1.
The Tribunal allowed the Rs.813,64,79,407 interest deduction on borrowings connected with the acquisition of Corus Group Plc through wholly owned subsidiaries. Following the ruling for assessment year 2008-09, it found a demonstrated commercial nexus with expansion of the existing steel business, including access to technology, overseas markets and operational synergies. The sales-commission disallowance of Rs.25,74,548 was deleted on the supporting payment and service evidence. Depreciation of Rs.7,96,652 on Gopalpur project assets was directed to be allowed subject to verification of their inclusion in the relevant business blocks. The Rs.21,07,65,279 Kalinganagar administrative-expenditure claim was allowed as expenditure connected with expansion of the existing business. The education-cess deduction was rejected in view of the amended law and Supreme Court decisions, while several other grounds were dismissed as not pressed or consequential.
On the alleged excess or illegal mining, the Tribunal deleted the protective addition of Rs.2,223,90,77,276: subsequent determinations by the competent Mining Department did not establish excess production or recoverable cost for the relevant mineral items and year, and no unrecorded sales or receipts were proved. The Revenue’s challenge to the DRP’s treatment of imported designs and drawings also failed because contractual invoices and banking payments supported the capitalised cost notwithstanding nominal customs declarations. A proposed Rs.36 crore enhancement for alleged illegal gratification concerned a new source not included in the draft assessment order; the DRP could not introduce it through section 144C(8), and the Revenue had no appealable DRP direction on that issue under section 253(2A). Consequently, the assessee’s appeal was partly allowed, the Revenue’s appeal dismissed and Tata Steel’s cross-objection allowed.
Cases Discussed
- Sharp Business System v. CIT – [2026] 484 ITR 509 (SC) – commercial expediency.
- DCIT v. Tata Steel Ltd. – [2026] 183 taxmann.com 747 (Mum.) – Corus acquisition borrowing interest.
- Tata Chemicals Ltd. v. DCIT – [2026] 183 taxmann.com 164 (Mum.) – distinguished on business nexus.
- JCIT v. Sesa Goa Ltd. – [2024] 161 taxmann.com 806 (SC) – education cess.
- JSW Steel Ltd. – [2023] 153 taxmann.com 467 (Mumbai-Trib.) – DRP enhancement beyond draft assessment.
- JCIT v. Chambal Fertilisers and Chemicals Ltd. – [2022] 450 ITR 164 (SC) – education cess.
- CIT v. Great Eastern Shipping Co. Ltd. – [2020] 116 taxmann.com 762 (Bom.) – foreign-currency loan benchmarking.
- PCIT v. Concentrix Services (P.) Ltd. – [2019] 111 taxmann.com 269 (Bom.) – business-purpose borrowing.
- ACIT v. Vireet Investment (P.) Ltd. – [2017] 165 ITD 27 (Delhi)(SB) – rule 8D and section 115JB.
- CIT v. Tata Autocomp Systems Ltd. – [2015] 56 taxmann.com 206 (Bom.) – foreign-currency benchmarks.
- CIT v. JSW Energy Ltd. – [2015] 60 taxmann.com 303 (Bom.) – book profit computation.
- CIT v. Aurionpro Solutions Ltd. – ITXA No.1869 of 2014 – foreign-currency benchmarks.
- S.A. Builders Ltd. v. CIT – [2007] 288 ITR 1 (SC) – commercial expediency.
- L.K. Trust v. CIT – Citation not specified in order – business-purpose test.
- CIT v. Bengal Finance & Investments Pvt. Ltd. – ITA No.337 of 2013 – section 115JB.
- VIP Industries Ltd.; Indian Hume Pipe Co. Ltd.; Ramanand Sagar; Goodlass Nerolac Paints Ltd. – Citations not specified in order – sales commission evidence.
FULL TEXT OF THE ORIGINAL ORDER OF ITAT MUMBAI
1. These cross-appeals by the assessee and the Revenue, together with the cross-objection filed by the assessee, arise from the final assessment order dated 10 January 2014 passed by the Assessing Officer under section 143(3) read with section 144C(13) of the Income-tax Act, 1961, in conformity with the directions dated 27 December 2013 issued by the Dispute Resolution Panel for assessment year 2009-10. Since the two appeals and the cross-objection arise from the same assessment proceedings, involve overlapping facts and were heard together, they are disposed of by this common consolidated order. We first take up ITA No.887/Mum/2014, being the assessee’s appeal.
2. The assessee’s grounds, stated concisely, are as follows:
“1. Transfer-pricing adjustment of Rs.9,37,03,176 on interest charged on foreign-currency loans to associated enterprises; the connected jurisdictional and legal objections are also raised.
2. Disallowance of Rs.64,66,00,000 under section 14A read with rule 8D, including the additional disallowance of Rs.36,19,23,266 over the amount offered in the return.
3. Disallowance of interest of Rs.813,64,79,407 on borrowings used for the acquisition of Corus Group Plc through wholly owned subsidiaries.
4. Disallowance of education cess of Rs.58,91,54,770.
5. Disallowance of sales commission of Rs.25,74,548.
6. Disallowance of depreciation of Rs.7,96,652 on assets connected with the Gopalpur project.
7. Protective addition of Rs.2,223,90,77,276 described as windfall gain from alleged excess or illegal mining.
8. Non-grant of additional depreciation arising from capitalisation of expenditure in earlier years.
9. Disallowance of administrative expenditure of Rs.21,07,65,279 relating to the Kalinganagar project.
10. Observations regarding alleged illegal gratification of Rs.36 crore, although no addition was made in the final assessment order.
11. Addition of the section 14A disallowance while computing book profit under section 115JB.
12-13. Levy of interest under sections 234B and 234C; and grounds 14 to 17 concerning tax credits and consequential computations.
The assessee also raised additional legal grounds challenging the transfer-pricing reference and jurisdiction, the validity of the draft and final assessment orders and limitation. At the hearing, these legal grounds were requested to be kept open if the transfer-pricing issue was decided on merits”.
3. The Revenue has raised following grounds of appeal:-
“1. On the facts and in the circumstances of the case and in law, the Hon’ble DRP erred in directing the AO to take the value of capital assets as shown by the assessee in the return of income without appreciating that the assessee itself has declared less value of design before the Custom Authorities and adopted different value for the Income Tax purpose.
2. On the facts and in the circumstances of the case and in law, the Ld. DRP has erred in directing the AO to delete the proposed addition of Rs. 1,483.61 crore, based on show cause notices issued by the Government of Odisha for ‘Excess/illegal’ Mining, without appreciating the detailed fact brought on the record by the AO.
3. On the facts and in the circumstances of the case and in law, the Ld. DRP has erred in not adjudicating on the issue of proposed addition on account of illegal gratification paid by the assessee for the purpose of obtaining mining lease without appreciating the facts furnished by the AO before the Hon’ble DRP through letter dated 08.05.2013.
4. For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO be restored.”
4. In CO No.78/Mum/2014, the assessee has raised the following cross-objection against ground no.3 of the Revenue’s appeal:
“1. The Appellant does not have any authority or power to raise and urge Ground 3, inasmuch as the subject-matter of an appeal preferred by the Assessing Officer under sub-section (2A) of section 253 can only be “any direction issued by the Dispute Resolution Panel under sub-section (5) of section 144C” and a perusal of the directions dated 27 December 2013 of the learned Dispute Resolution Panel establishes cogently that the issue sought to be raised vide the said Ground 3 was not the subject-matter of such directions; consequently, the said Ground 3 is liable, and ought, to be treated as non est and to be struck off the record of this Hon’ble Tribunal.”
5. The brief facts of the case are that the assessee, Tata Steel Limited, is engaged in manufacturing iron and steel, bearings and ferro alloys. It filed its return of income on 30 September 2009 declaring total income of Rs.5,951,05,82,760. The return was processed under section 143(1) and the case was selected for scrutiny. The international transactions concerning interest charged on foreign-currency loans to associated enterprises were referred to the Transfer Pricing Officer, who proposed a adjustment of Rs.9,37,03,176 by applying the assessee’s domestic rupee borrowing cost with a risk premium.
6. The Assessing Officer passed the draft assessment order under section 144C(1) on 27 March 2013 proposing the transfer-pricing adjustment and the other disallowances and additions now in dispute. The assessee filed objections before the Dispute Resolution Panel. Pursuant to its directions dated 27 December 2013, the Assessing Officer passed the final assessment order on 10 January 2014 under section 143(3) read with section 144C(13), retaining the disputed additions and describing Rs.2,223,90,77,276 as a protective addition for alleged windfall gain from excess or illegal mining. No addition was made for the alleged illegal gratification of Rs.36 crore. The assessee challenges the additions sustained in the final order; the Revenue challenges the relief granted by the Panel; and the cross-objection contests the maintainability of ground no.3 of the Revenue’s appeal.
7. We have heard Shri J.D. Mistri, learned Senior Counsel appearing for the assessee, assisted by Ms. Jasmin and Shri Nishant Thakkar, and Shri Ajay Chandra, learned CIT-DR appearing for the Revenue. We have perused the draft assessment order, the order of the Transfer Pricing Officer, the directions of the Dispute Resolution Panel, the final assessment order, the written submissions and the paper books placed before us. We first take up the assessee’s appeal.
8. Ground no.1 relates to the transfer-pricing adjustment of Rs.9,37,03,176 in respect of interest received on loans advanced to two associated enterprises, namely NatSteel Asia Pte. Ltd., Singapore and Tata Steel KZN (Pty) Ltd., South Africa. The loan to NatSteel was denominated in Singapore dollars. Interest was charged with reference to SIBOR plus 100 basis points. The loan to Tata Steel KZN was denominated in South African rand and interest was charged with reference to JIBAR plus 133 basis points. The assessee applied the comparable uncontrolled price method and treated the transactions as being at arm’s length.
9. The Transfer Pricing Officer did not accept the foreign-currency benchmarks. He noticed that the assessee’s weighted average cost of domestic rupee borrowings was 8.93 per cent. To that rate he added 3 per cent towards currency, country and entity risks and adopted 11.93 per cent as the arm’s-length rate. On that basis, interest was computed at Rs.28,37,91,057 as against Rs.19,00,87,881 reported in Form 3CEB and the difference of Rs.9,37,03,176 was proposed as an adjustment. The Dispute Resolution Panel followed its directions for assessment year 2008-09 and upheld the adjustment.
10. Learned AR submitted at the outset that ground no.1.1 and the additional grounds raise jurisdictional objections concerning the reference to the Transfer Pricing Officer, the approval under section 92CA(1), and the competence of the officer who discharged the functions of the Transfer Pricing Officer. He stated that if ground no.1 is allowed on merits, those legal grounds may be left open. Learned DR did not object to this course. We accordingly keep the jurisdictional and legal grounds open and proceed to adjudicate ground no.1 on merits.
11. Learned AR submitted that the loan to NatSteel Asia Pte. Ltd. was denominated in Singapore dollars and carried interest at SIBOR plus 100 basis points. This was not a fresh transaction introduced in the year under appeal. The very same loan facility had been examined in assessment years 2005-06 and 2006-07, when the assessee’s rate was compared with the third-party HSBC facility dated 26 May 2005 carrying SIBOR plus 45 basis points, and no adjustment was made. Likewise, the advances to Tata Steel KZN were denominated in South African rand and carried interest at JIBAR plus 133 basis points. The internal comparable furnished for that facility was a contemporaneous Standard Chartered Bank proposal linked to JIBAR. The same KZN facility and benchmarking method were accepted in the subsequent assessment years, including assessment years 2012-13 to 2015-16. Thus, according to learned AR, both loans before us are continuing facilities whose arm’s-length pricing has already been examined and accepted in the assessee’s own assessments.
12. Learned AR relied upon CIT v. Tata Autocomp Systems Ltd. [2015] 56 com 206 (Bom.), CIT v. Great Eastern Shipping Co. Ltd. [2020] 116 taxmann.com 762 (Bom.) and CIT v. Aurionpro Solutions Ltd. (ITXA No.1869 of 2014) for the proposition that a foreign-currency loan must be benchmarked by reference to the lending rate for that currency.
13. Learned DR submitted that the funds originated in India and were sourced from the assessee’s Indian pool. According to him, an independent lender situated in India would first recover its domestic borrowing cost and thereafter charge a suitable risk premium. He further submitted that acceptance of a method or rate in another assessment year does not operate as res judicata.
14. We have considered the rival submissions. The transaction to be benchmarked is the lending to the foreign associated enterprise. The economic price of a loan is materially affected by the currency in which it is denominated and repayable. A rupee borrowing carries Indian currency and market risks, whereas a Singapore-dollar or South African-rand loan carries the risks and market conditions of the respective currency. A domestic rupee rate is therefore not a comparable uncontrolled price merely because the lender is resident in India or deploys funds from a common Indian pool.
15. The TPO proceeded from the assessee’s domestic rate of 8.93 per cent and superimposed an ad hoc premium of 3 per cent, without bringing on record an uncontrolled foreign-currency lending transaction or market data supporting the resulting rate of 11.93 per cent. In contrast, the assessee furnished currency-specific benchmarks linked to SIBOR and JIBAR and, for NatSteel, the third-party HSBC facility. This approach accords with the principle approved by the jurisdictional High Court in Tata Autocomp Systems Ltd. and followed in Great Eastern Shipping Co. Ltd. and Aurionpro Solutions Ltd.
16. More importantly, both impugned transactions are the very same continuing loans considered in other years. The NatSteel Singapore-dollar facility, carrying SIBOR plus 100 basis points, was examined and accepted in assessment years 2005-06 and 2006-07. The Tata Steel KZN rand facility, carrying JIBAR plus 133 basis points, was examined on the basis of the same currency-linked banking comparable and accepted in the later assessment years referred to above. Although res judicata does not strictly govern income-tax assessments, a departure in an intervening year from the accepted treatment of the same borrower, same facility, same currency and same pricing formula must rest on a demonstrated change in facts or a defect in the earlier benchmark. The Revenue has shown neither. Earlier-year acceptance is not being treated as conclusive by itself; it materially reinforces the arm’s-length conclusion independently reached from the proper currency benchmark.
17. We therefore hold that the rates actually charged—SIBOR plus 100 basis points to NatSteel and JIBAR plus 133 basis points to Tata Steel KZN—satisfy the arm’s-length standard. The domestic rupee-rate adjustment of Rs.9,37,03,176 is deleted. Ground no.1 is allowed on merits, while the jurisdictional and other legal grounds, including the additional grounds, are expressly kept open.
18. Ground no.2 concerns the disallowance under section 14A read with rule 8D. During the year, the assessee earned exempt interest of Rs.10,02,386 and exempt dividend income of Rs.183,53,52,685. In the tax audit report and the return of income, it voluntarily disallowed Rs.28,46,76,734, comprising Rs.28.17 crore of indirect interest expenditure and Rs.30 lakh of administrative expenditure. The Assessing Officer computed the aggregate disallowance at Rs.64.66 crore, consisting of Rs.51.07 crore under rule 8D(2)(ii) and Rs.13.59 crore under rule 8D(2)(iii). After reducing the amount already offered, an addition of Rs.36,19,23,266 was made and confirmed by the Dispute Resolution Panel.
19. Learned AR submitted that the Assessing Officer did not record the objective satisfaction required under section 14A(2) before rejecting the assessee’s working. It was further submitted that the assessee’s own funds of Rs.30,071.19 crore were substantially higher than the investments yielding exempt income of Rs.2,504.19 crore and, therefore, no further interest could be attributed to those investments. Without prejudice, only investments which actually yielded exempt income during the relevant year could be considered under rule 8D. Reliance was placed on the decisions cited in the written submissions, including ACIT v. Vireet Investment (P.) Ltd. [2017] 165 ITD 27 (Delhi)(SB).
20. Learned DR supported the findings of the Assessing Officer and the Dispute Resolution Panel. He pointed out that the assessee had itself stated that investments were made from a mixed pool and that individual utilisation could not be identified. He submitted that investment decisions required the time of directors, senior executives and supporting staff and, therefore, the assessee’s allocation of only Rs.30 lakh towards administrative expenditure was not acceptable. According to him, once the assessee’s computation was found incorrect, rule 8D had to be applied.
21. We have considered the rival submissions. The assessment order records the assessee’s explanation, the treatment of mutual-fund investments, the existence of a common pool, the involvement of the management and the reasons for rejecting the assessee’s computation. We are therefore unable to accept the contention that there is a complete absence of the satisfaction contemplated by section 14A(2). Such satisfaction permits recourse to rule 8D; it does not, however, dispense with the requirement that each limb of the computation must conform to the applicable legal principles.
22. Coming first to the interest component, the balance sheet shows own funds of Rs.30,071.19 crore, whereas the investments which yielded exempt income amounted to Rs.2,504.19 crore. The Revenue has not brought on record any material showing that a specific borrowing was utilised for any identified tax-free investment. Where interest-free funds are substantially in excess of the investments and both form part of a common pool, the settled presumption is that the investments were made from the interest-free funds. The absence of a one-to-one correlation does not displace that presumption. The further disallowance made under rule 8D(2)(ii) therefore cannot be sustained.
23. As regards the administrative-expenditure component under rule 8D(2)(iii), the issue concerning the relevant investment base is directly covered by the orders of the coordinate bench in the assessee’s own case for assessment years 2016-17 and 2017-18 in ITA No.1340/Mum/2021 and ITA No.2374/Mum/2022. In those orders, the Tribunal held that only those investments which actually yielded exempt dividend income during the relevant previous year are to be considered for computing the average value of investments under rule 8D. The same principle was laid down by the Special Bench in ACIT v. Vireet Investment (P.) Ltd. [2017] 165 ITD 27 (Delhi)(SB). Respectfully following the orders in the assessee’s own case, we direct the Assessing Officer to exclude the investments which did not yield dividend income during the year.
24. The Assessing Officer shall accordingly recompute the disallowance under rule 8D by deleting the further interest attribution under rule 8D(2)(ii) and by considering, for rule 8D(2)(iii), only those investments which yielded exempt dividend income during the relevant previous year.
25. It is only at this stage that the effect of the assessee’s suo motu disallowance requires consideration. The amount of Rs.28,46,76,734 did not originate in an estimate made by the Assessing Officer. It was quantified in the tax audit report, incorporated in the return of income and comprised Rs.28.17 crore of indirect interest expenditure and Rs.30 lakh of administrative expenditure. The assessee thus accepted, on the basis of its own accounts, that expenditure to that extent related to the exempt-income activity. Although an admission is not conclusive and a lawful claim may be raised in appellate proceedings, the assessee has not demonstrated any mistake in the factual data underlying its own allocation or furnished a revised factual working showing why the amount offered in the return was erroneous.
26. Section 14A embodies the principle that expenditure incurred in relation to income not forming part of total income cannot be allowed against taxable income. The Explanation inserted by the Finance Act, 2022 also reflects the legislative intent that the applicability of section 14A is not made dependent upon the actual receipt of exempt income in a particular year. We do not apply that Explanation retrospectively to create a fresh liability for assessment year 2009-10; its object is noticed only while considering the request to withdraw an amount which the assessee itself identified and offered as relatable expenditure. In the absence of material establishing that the audited allocation was factually or legally mistaken, the appellate challenge to the Assessing Officer’s additional computation cannot by itself reduce the disallowance below the sum voluntarily offered.
27. The Assessing Officer is accordingly directed to recompute the disallowance under section 14A read with rule 8D by taking into consideration only those investments which have actually yielded exempt income during the relevant previous year. The disallowance so recomputed shall, however, be subject to the amount already disallowed suo motu by the assessee in its return of income. In other words, the disallowance shall not be reduced below the amount voluntarily offered by the assessee. The ground is partly allowed for statistical purposes.
28. Ground no.3 relates to the disallowance of interest of Rs.813,64,79,407 on borrowings connected with the acquisition of Corus Group Plc through the assessee’s wholly owned subsidiaries. The Assessing Officer treated the expenditure as relating to a capital investment made to acquire controlling interest and held that it was not incurred for the assessee’s business. The Dispute Resolution Panel affirmed the disallowance.
29. Learned AR submitted that the issue is covered by the decision of the coordinate bench in the assessee’s own case for assessment year 2008-09, being the first year of the Corus acquisition, reported as DCIT v. Tata Steel Ltd. [2026] 183 com 747 (Mum.). He explained that the assessee was carrying on the steel business; Corus was in the same line of business; and the acquisition enabled the assessee to enter mature overseas markets, leverage the research and development capabilities and technology of Corus and obtain operational and procurement synergies. Thus, the investment was made to expand the assessee’s existing business and was not a passive investment.
30. Learned DR relied on Tata Chemicals Ltd. v. DCIT [2026] 183 com 164 (Mum.) and submitted that the borrowed money was infused as equity in subsidiaries. The assessee did not directly acquire a plant or other operating asset and the immediate return on the investment could only be dividend.
31. Learned AR distinguished Tata Chemicals Ltd. and submitted that it did not consider the decisions of the Supreme Court in Sharp Business System v. CIT [2026] 484 ITR 509 (SC) and K. Trust v. CIT. He emphasised that the statutory test under section 36(1)(iii) is the purpose of business and commercial expediency and not whether the borrowing directly produces income.
32. We find that the transaction is the continuation of the very same Corus acquisition and financing structure examined by the coordinate bench for assessment year 2008-09. The Tribunal examined the board papers, financing agreements, structure of the wholly owned subsidiaries and the commercial advantages contemplated at the time of acquisition. It recorded a categorical finding that Corus was in the same line of business and that the acquisition gave the assessee access to mature markets, superior technology, research and development capabilities and operational synergies. It further found that the acquisition was undertaken for expansion of the assessee’s existing steel business and was not a passive investment for dividend or capital appreciation.
33. The coordinate bench, after considering PCIT v. Concentrix Services (P.) Ltd. [2019] 111 com 269 (Bom.), S.A. Builders Ltd. v. CIT [2007] 288 ITR 1 (SC) and Sharp Business System, concluded as under:
“In the conspectus of the above detailed discussion including factual matrix of the case, provisions of the Act and judicial pronouncements, we hold that interest expenditure incurred by the assessee towards acquisition of Corus through its step-down wholly owned subsidiaries is for the purpose of business and therefore, allowable u/s. 36(1)(iii) of the Act. Disallowance so made by the ld. Assessing Officer for making an addition to the total income is deleted.”
34. The above factual findings apply with equal force to the year under consideration. The Revenue has not pointed out any change in the financing structure, end use of the borrowed funds or the business purpose. The fact that the funds moved through wholly owned subsidiaries does not sever the commercial nexus where the corporate structure was the chosen means of acquiring an overseas enterprise in the same line of business. It is not for the tax authority to substitute its preferred form of expansion for the commercial decision taken by the board of the assessee.
35. Tata Chemicals Ltd. turned upon its own factual finding that the borrowing merely facilitated acquisition of controlling interest in subsidiaries and that the necessary nexus with the assessee’s business operations was absent. The present case stands on a materially different factual footing because the business advantages and expansion nexus have been affirmatively established and accepted in the assessee’s own case. Sharp Business System reiterates that the transfer or deployment of borrowed funds has to be viewed from the standpoint of commercial expediency and not merely by asking whether it immediately earns profit. L.K. Trust explains that the expression “for the purposes of business” in section 36(1)(iii) is wider than the direct income-earning test applicable under section 57(iii).
36. Judicial consistency also requires that the decision in the first year of the same borrowing and acquisition be followed unless its facts are shown to have altered or the decision is stayed or reversed. No such circumstance has been brought to our notice. Respectfully following the order for assessment year 2008-09 and applying the binding commercial-expediency test, we direct deletion of the disallowance of Rs.813,64,79,407. Ground no.3 is allowed.
37. Ground no.4 concerns the claim for deduction of education cess of Rs.58,91,54,770. Learned AR fairly conceded that the issue is now covered against the assessee in view of the amendment made by the Finance Act, 2022 and the subsequent decisions of the Supreme Court, including JCIT v. Chambal Fertilisers and Chemicals Ltd. [2022] 450 ITR 164 (SC) and JCIT v. Sesa Goa Ltd. [2024] 161 com 806 (SC). In view of this fair concession and the law now settled, ground no.4 is dismissed.
38. Ground no.5 relates to commission on sales of Rs.25,74,548 paid to H.J. Mehta and Universal Consultants & Agencies. The corresponding sales were made to Indian Card Clothing Co. Ltd. and Maharashtra State Electricity Distribution Co. Ltd. The Assessing Officer disallowed the expenditure substantially on the basis that the purchasers did not acknowledge the involvement of an agent. The Dispute Resolution Panel followed the treatment adopted in the preceding year.
39. Learned AR submitted that the identity of the agents, their confirmations, details of the sales and payments through account-payee instruments were placed on record. The agents approached the customers as representatives of Tata Steel and, therefore, the customers might not have perceived them as independent third parties. It was pointed out that the Tribunal had allowed the same nature of commission in the assessee’s own case for assessment year 2005-06 in ITA Nos.5616 and 4043/Mum/2012 and that no disallowance was made in assessment year 2007-08 after examination of the details. Reliance was also placed on VIP Industries Ltd., Indian Hume Pipe Co. Ltd., Ramanand Sagar, Goodlass Nerolac Paints Ltd. and other decisions cited in the written submissions.
40. Learned DR relied upon the orders of the lower authorities. We find that the payees are identified, confirmations were furnished and the payments and corresponding sales are recorded in the regular books. The Assessing Officer has not shown that the amount returned to the assessee or that the agents were non-existent. A purchaser’s inability or unwillingness to acknowledge the involvement of the assessee’s representative is a relevant circumstance, but it cannot by itself displace the direct evidence of payment and services, particularly where the representative dealt with the customer in the name of the assessee.
41. The commission is also insignificant when compared with the corresponding sales. The commercial necessity and the amount of commission are matters primarily for the businessman unless the expenditure is shown to be sham, prohibited or unrelated to business. The identical claim has been allowed by the Tribunal in assessment year 2005-06 and the Revenue has not identified any distinguishing fact. Respectfully following the earlier order and considering the evidence placed on record, we direct deletion of Rs.25,74,548. Ground no.5 is allowed.
42. Ground no.6 relates to depreciation of Rs.7,96,652 on non-factory buildings, computers, furniture and other equipment associated with the Gopalpur project. The assessee explained that the assets were acquired and used in connection with the proposed expansion of its existing steelmaking business, though the larger project was subsequently shelved. The Dispute Resolution Panel directed the Assessing Officer to allow depreciation after verifying whether the assets were used for the ongoing steel business. The Assessing Officer nevertheless rejected the claim on the ground that the Gopalpur project itself had not commenced production.
43. Learned AR submitted that the assets were not an independent new business but formed part of an expansion of the existing steel business. Similar claims had been allowed in the assessee’s own case for assessment years 1997-98 to 2004-05 and in the final assessment order for assessment year 2010-11. Learned DR relied on the requirement that an asset must be put to use and supported the final assessment order.
44. Once an asset has entered an existing block of assets used for business, depreciation is allowed on the block and not by repeatedly testing the independent use of each item. Further, an asset kept ready for use in the course of an existing business satisfies the passive-use test where non-use is attributable to commercial circumstances. The Gopalpur activity represented an expansion of the assessee’s existing steel business and not a new and unrelated business. The mere shelving of the larger project does not retrospectively convert the use of office, computer or other assets for business planning and implementation into a non-business use.
45. The Dispute Resolution Panel had already directed verification of actual use for the ongoing steel projects. The final order could not disregard that binding direction merely by repeating that the proposed production unit had not commenced. Consistent with the orders in the assessee’s own case, we direct the Assessing Officer to verify that the assets form part of the relevant existing blocks and, on such verification, allow depreciation of Rs.7,96,652. Ground no.6 is allowed for statistical purposes in the above terms.
46. Ground no.7 challenges the protective addition of Rs.2,223,90,77,276 described as windfall gain from excessive or illegal mining. In the draft assessment order, the Assessing Officer relied upon show-cause notices dated 30 October 2012 issued by the Government of Odisha and proposed an addition of Rs.1,483.61 crore. The Dispute Resolution Panel observed that the notices had not attained finality and that the Assessing Officer had not produced a final finding of the competent mining authority. It therefore held that an addition at that stage was premature.
47. In the final assessment order, the Assessing Officer compared quantities in the original show-cause notices with the auditors’ certificates and made a protective addition. He also changed the valuation basis from cost in the draft order to the sale price in the final order, increasing the figure to Rs.2,223.91 crore. Learned AR drew our attention to the subsequent final/revised orders dated 15 February 2014 passed by the Deputy Director of Mines after considering the assessee’s reply and hearing. He submitted that, for the mines and mineral items used by the Assessing Officer in the present assessment year, those later orders record neither excess production nor any recoverable cost.
48. Learned DR relied upon the original show-cause notices and the working in the assessment order. He submitted that the protective assessment was made to safeguard the Revenue pending final determination by the competent mining authority.
49. We have examined the later Mining Department record. The year-wise statement forming part of the subsequent order for Joda West Iron & Manganese Mines, the mine and mineral items relied upon in the assessment computation records the following position for 2009-10: (i) iron ore: no actual production is shown as excess, the excess-production column is blank and the cost assessed is nil; and (ii) manganese ore: actual production is 69,224 MT, against approved quantities of 2,11,765 MT under the mining plan and 1,80,000 MT under the environmental clearance and consent to operate; consequently, the excess-production column and the assessed-cost column are both nil. The later competent-authority determination thus does not sustain any excess production or demand for the relevant year in respect of those items. It is not a mere continuation of the prima facie allegation in the notice; it is the post-hearing, year-wise determination on which the allegation had to stand or fall.
50. A show-cause notice states a prima facie allegation and invites an explanation; it is not proof of the allegation. Once the statutory authority possessing technical jurisdiction over the mining quantities passes its later order on the very subject, the income-tax assessment cannot continue to treat the superseded prima facie figures as established facts without confronting the later determination. Here, the later statement affirmatively shows that the relevant manganese production was within the approved limit and records no excess or assessed cost for either mineral item in assessment year 2009-10.
51. Independently, the assessment order identifies no unaccounted purchaser, dispatch, sale invoice, receipt or stock discrepancy corresponding to the alleged quantity. The accounts record production and consumption of ore in the assessee’s steel business. Applying a sale price to a disputed quantity, without proof of an unrecorded sale or realisation, assumes extraction, sale and receipt all at once and taxes a hypothetical gross receipt rather than established real income or profit.
52. Nor does the label ‘protective’ cure the defect. Protective assessment is ordinarily invoked where the same identified income is substantively assessable elsewhere. The Revenue has shown no substantive assessment of this alleged income and, after the later Mining Department order, no subsisting competent-authority finding of excess for the relevant items and year. The final order also could not use the protective label to enlarge the draft variation from Rs.1,483.61 crore to Rs.2,223.91 crore on a changed valuation basis after the Dispute Resolution Panel had held the underlying allegation premature.
53. In view of the subsequent Mining Department determination reproduced above, the absence of any demand or excess production for the relevant items in assessment year 2009-10, and the absence of evidence of unrecorded sales or receipts, the protective addition has no surviving factual foundation. We direct deletion of Rs.2,223,90,77,276. Ground no.7 is allowed.
54. Ground no.8, relating to additional depreciation claimed through a revised depreciation chart for additions made in earlier assessment years, was not pressed by learned AR. It is dismissed as not pressed.
55. Ground no.9 relates to administrative expenditure of Rs.21,07,65,279 incurred for the Kalinganagar project. The claim was made before the Assessing Officer through the assessee’s submission dated 22 March 2013 but was not dealt with in the draft order. The Dispute Resolution Panel directed the Assessing Officer to verify whether the expenditure had been allowed in assessment year 2008-09 and, if so, to accord the same treatment. In the final assessment order, the claim was rejected on the footing that it had not been allowed in assessment year 2008-09.
56. Learned AR drew our attention to the computation and assessment record for assessment year 2008-09 and submitted that the expenditure was claimed and no separate disallowance was made. It was also submitted that the same nature of expenditure was allowed in assessment years 2010-11, 2011-12, 2013-14 and 2014-15, while in assessment year 2012-13 the claim made in the return was not disturbed. Learned DR relied upon the final assessment order.
57. The material placed before us shows that the claim was made in assessment year 2008-09 and was not disallowed. The factual premise recorded in the final assessment order is therefore incorrect. The Assessing Officer was bound to implement the direction of the Dispute Resolution Panel; he could not nullify it on an erroneous reading of the earlier record. Kalinganagar was an expansion of the assessee’s existing steel business. The expenditure in question consists of administrative expenditure and is not shown to have brought into existence an identifiable capital asset.
58. The consistent treatment in the immediately preceding and succeeding years is also relevant. Although each assessment year is separate, a recurring expenditure arising from the same business project should not receive a different character in one intervening year without a change in facts. No such change has been shown. We accordingly direct the Assessing Officer to allow Rs.21,07,65,279 in accordance with the Dispute Resolution Panel’s direction. Ground no.9 is allowed.
59. Ground no.10 concerns the alleged payment of illegal gratification of Rs.36 crore for recommendation of a mining lease. The information was received by the Assessing Officer after the draft assessment order had been forwarded. He requested the Dispute Resolution Panel, by letter dated 8 May 2013, to enhance the income, but the Panel did not make the proposed enhancement. The Assessing Officer expressly recorded in the final order that no addition could be made and, in fact, made no disallowance on this account.
60. Since the final assessment order contains no variation adverse to the assessee on this issue, there is no addition for us to delete in the assessee’s appeal. The legality of the Revenue’s request for enhancement is considered while deciding ground no.3 of the Revenue’s appeal. Ground no.10 of the assessee is dismissed as infructuous.
61. Ground no.11 relates to the addition of Rs.36,19,23,266, being the additional disallowance computed under section 14A, while determining book profit under section 115JB. Learned AR relied upon the Special Bench decision in ACIT v. Vireet Investment (P.) Ltd. [2017] 165 ITD 27 (Delhi)(SB), CIT v. Bengal Finance & Investments Pvt. Ltd. (ITA No.337 of 2013), CIT v. JSW Energy Ltd. [2015] 60 com 303 (Bom.) and the orders in the case of Kalimati Investment Co. Ltd., since merged with the assessee. Learned DR supported the adjustment.
62. Section 115JB is a self-contained computation provision. The net profit disclosed in the profit and loss account can be increased or reduced only by the items specifically enumerated in Explanation 1. Clause (f) permits addition of expenditure relatable to exempt income, but it does not incorporate the machinery of section 14A or rule 8D. The Special Bench in Vireet Investment held that the amount computed under rule 8D cannot, merely for that reason, be imported into the computation of book profit. Any adjustment under clause (f) must be determined with reference to the expenditure debited in the profit and loss account and the accounts of the assessee.
63. In the present case, the Assessing Officer has not identified, independently from the books, expenditure of Rs.36,19,23,266 falling within clause (f). The adjustment is only the difference generated by applying rule 8D for the normal provisions. Such a notional statutory computation cannot be added to book profit. This conclusion is not affected by our decision to retain the assessee’s voluntary disallowance under the normal provisions, because the two computation codes operate independently. Respectfully following Vireet Investment and the jurisdictional authorities cited above, we direct deletion of Rs.36,19,23,266 from the computation under section 115JB. Ground no.11 is allowed.
64. Ground nos.12 and 13 concern interest charged under sections 234B and 234C. The levy is mandatory but consequential. The Assessing Officer shall recompute the interest, if any, while giving effect to this order. Ground nos.14 to 17 were not pressed and are dismissed as not pressed.
65. We now take up ITA No.1650/Mum/2014 filed by the Revenue. Ground no.1 challenges the direction of the Dispute Resolution Panel to accept the value of imported designs and drawings capitalised by the assessee. Information received from the Investigation Wing showed that in certain customs documents the designs and drawings were declared at nil or nominal value. On that basis, the Assessing Officer proposed to restrict their value to Rs.11,711 and reduce Rs.37,02,88,289 from capital work-in-progress.
66. The Dispute Resolution Panel examined the purchase orders, invoices and payments and found that the contractual amounts were actually billed and paid. It therefore directed the Assessing Officer to accept the amount recorded by the assessee.
67. Learned DR submitted that the assessee could not adopt one value before the Customs authorities and another for income-tax purposes. According to him, the nominal value declared in the customs documents constituted relevant evidence of the actual value of the imported designs and drawings.
68. Learned AR submitted that the customs declaration related to the physical medium, or to the customs treatment of designs transmitted electronically, whereas the value stated in the purchase orders represented the engineering and intellectual content supplied under the contracts. It was pointed out that the contractual amounts were invoiced and paid through banking channels and that service tax was discharged on the full purchase-order value.
69. The value stated for a particular customs purpose is a relevant piece of evidence but is not conclusive of actual cost under the Income-tax Act. The enquiry for income-tax purposes is whether the expenditure was incurred, whether the consideration was genuine and whether it related to the project asset. The Dispute Resolution Panel found, on examination of the primary documents, that the amounts stated in the purchase orders were invoiced and paid. The Revenue has not shown that the consideration was fictitious, excessive, returned to the assessee or unrelated to the designs and drawings.
70. Designs and drawings embody technical and intellectual content; their commercial value cannot necessarily be equated with the value of the physical media through which they are transmitted or imported. The payment of service tax on the full purchase-order value is also consistent with the assessee’s explanation that the consideration was for technical services and engineering content. In the absence of any contrary valuation or evidence disputing the payments, the nominal customs figure cannot displace the actual contractual cost. We therefore find no infirmity in the direction of the Dispute Resolution Panel. Ground no.1 of the Revenue is dismissed.
71. Ground no.2 of the Revenue challenges the deletion of the proposed addition of Rs.1,483.61 crore based on the Odisha Government’s show-cause notices for alleged excess or illegal mining. This issue arises from the same facts considered in ground no.7 of the assessee’s appeal. We have found that the revised orders of the competent Mining Department do not report excess mining for the relevant previous year in respect of the items relied upon by the Assessing Officer and that no unrecorded sale, receipt or stock discrepancy has been established. For the detailed reasons recorded in paragraphs 46 to 53 above, ground no.2 of the Revenue is dismissed.
72. Ground no.3 of the Revenue concerns the Dispute Resolution Panel’s refusal to make an enhancement of Rs.36 crore on account of alleged illegal gratification for obtaining a mining lease. This ground is taken up together with CO No.78/Mum/2014 filed by the assessee, since the solitary cross-objection specifically challenges the authority of the Revenue to raise ground no.3. Learned DR submitted that section 144C(8) authorises the Panel to confirm, reduce or enhance a proposed variation and that the information forwarded by the Assessing Officer through letter dated 8 May 2013 ought to have been adjudicated.
73. Learned AR submitted that the alleged payment did not form part of any variation proposed in the draft assessment order and constituted an altogether new source. He relied upon the decision of the coordinate bench in JSW Steel Ltd. [2023] 153 com 467 (Mumbai-Trib.) It was further submitted in support of the cross-objection that an appeal by the Assessing Officer under section 253(2A), as applicable to the year under consideration, could be preferred only against a direction issued by the Dispute Resolution Panel under section 144C(5). Since the alleged gratification was not the subject-matter of any direction in the order dated 27 December 2013, ground no.3 of the Revenue’s appeal was stated to be beyond the authority conferred by section 253(2A).
74. We have considered the rival submissions and the cross-objection. Under section 144C, the eligible assessee’s right to object and the Panel’s jurisdiction originate in the draft assessment order containing the variations prejudicial to the assessee. Section 144C(8) empowers the Panel to confirm, reduce or enhance a variation arising from the assessment proceedings; the provision does not convert the Panel into an original assessing authority for a wholly new source which was never proposed in the draft order. The expression ‘arising out of the assessment proceedings’ has to be read consistently with the statutory requirement that the assessee must first receive a draft of the proposed variation and be afforded the prescribed opportunity to object.
75. The information concerning the alleged payment of Rs.36 crore was received after the draft assessment order and was forwarded to the Panel by the Assessing Officer’s letter dated 8 May 2013. The matter was not a different facet or quantification of an existing proposed variation, but a new source founded upon another person’s assessment and a statement before the Enforcement Directorate. Introducing such a source through a subsequent communication to the Panel would bypass the draft-order stage and the opportunity contemplated by section 144C(2). The coordinate bench in JSW Steel Ltd. has similarly held that the power of enhancement cannot be used to introduce a new source which is absent from the draft assessment order. The Assessing Officer himself recorded in the final order that no addition could be made and, in fact, made none.
76. The cross-objection raises a further and anterior objection to the maintainability of Revenue ground no.3. Under section 253(2A), the Assessing Officer could appeal against a direction issued by the Dispute Resolution Panel under section 144C(5). The alleged gratification was not the subject-matter of a variation in the draft assessment order or of an adverse direction issued by the Panel. What the Revenue seeks is adjudication of a fresh proposal made by the Assessing Officer after the draft order. Such a proposal cannot be converted into an appealable direction merely because the Panel declined to entertain it. We therefore find merit in the cross-objection. Ground no.3 of the Revenue’s appeal is dismissed and the solitary ground raised in CO No.78/Mum/2014 is allowed. Ground no.4 of the Revenue is general and requires no separate adjudication. Consequently, the Revenue’s appeal is dismissed.
77. Before parting, we clarify that the observations made while deciding each ground are confined to the material and issue arising in that ground. The Assessing Officer shall give effect to the directions in accordance with law after granting the assessee a reasonable opportunity wherever arithmetical verification has been specifically directed.
78. In the result, the appeal filed by the assessee in ITA No.887/Mum/2014 is partly allowed; the appeal filed by the Revenue in ITA No.1650/Mum/2014 is dismissed; and the cross-objection filed by the assessee in CO No.78/Mum/2014 is allowed.
Order pronounced in the open court on 18/09/2026.
