ITAT Mumbai on JSW Steel: Infrastructure Deduction, CER Income and Sales Tax Deferral Gains Upheld as Per Earlier Years

1. Background and Procedural History

The batch of matters before the ITAT Mumbai involved three departmental appeals and corresponding cross-objections filed by JSW Steel Limited for AY 2013-14, AY 2014-15 and AY 2015-16. The core controversy revolved around:

• Transfer pricing adjustments on:
  • Interest on loans to Associated Enterprises (AEs), and
  • Corporate guarantee commission
• Eligibility of Section 80-IA deduction for:
  • Rail system, and
  • Water supply system
• Deduction on income from sale of Certified Emission Reductions (CERs) under Section 80-IA
• Taxability of gains from prepayment of deferred sales tax liabilities
• Taxability of write-back of old project creditors under Section 28(iv)
• Disallowance under Section 14A and its impact on Section 115JB

The assessee, a large integrated steel manufacturer, had already litigated most of these issues in earlier assessment years. Those earlier rounds had resulted in favourable decisions by coordinate benches of the ITAT, many of which had attained finality.

Recognising that the facts and legal issues were substantially overlapping across the three years, the Tribunal treated AY 2013-14 as the lead year and disposed of all appeals and cross-objections by a consolidated order, applying the principle of consistency and judicial discipline.

2. Cross-Objections – Delay and Limitation Plea

For AY 2013-14, the assessee filed a cross-objection with a delay of 55 days, raising a legal ground that the assessment under Section 143(3) r.w.s. 144C(3) was time-barred.

• The delay was explained through an affidavit of a senior officer of the company, stating that additional time was required to obtain legal advice on the limitation issue.
• The Department did not oppose condonation.

ITAT’s approach: Considering the explanation and absence of objection from the Revenue, the Tribunal condoned the delay and proceeded to hear the matter on merits.

3. Transfer Pricing – Interest on Loans to AEs

3.1 Adjustment by TPO

For all three years, the TPO made additions on the footing that the interest charged by the assessee on loans to its AEs was below Arm’s Length Price (ALP). The TPO relied on Bloomberg data and adopted a rate of LIBOR + 600 bps, computing upward TP adjustments (e.g. Rs. 80,59,129/- in AY 2013-14).

3.2 CIT(A)’s View

The CIT(A) deleted the additions by holding that:

• For the assessee’s group entity, JSW Energy Ltd vs DCIT, ITA No. 2316/Mum/2017, the ITAT had already accepted interest rates linked to LIBOR based on the location of the borrower.
• In the present case, the assessee had actually charged better rates, such as:
  • LIBOR + 500 bps from February 2013, and
  • LIBOR + 350 bps from April 2012.

Hence, the interest was considered in line with, or more favourable than, what the Tribunal had already approved in the sister concern’s case.

3.3 Tribunal’s Decision

The ITAT observed:

• The co-ordinate bench had held in several decisions, including in the group case of JSW Energy Ltd vs DCIT, that ALP for foreign currency loans is to be benchmarked by reference to the jurisdiction of the borrower, i.e., LIBOR-based rates.
• The assessee’s actual charged rates were not lower than the rates accepted as ALP by the coordinate bench.

Accordingly, the TP adjustment for interest on loans to AEs was deleted for:

• AY 2013-14
• AY 2014-15
• AY 2015-16

The Revenue’s grounds on this issue were dismissed for all three years, following consistency with earlier Tribunal rulings.

4. Transfer Pricing – Corporate Guarantee Commission

4.1 TPO’s Benchmark

For the relevant years, the TPO applied higher guarantee commission rates on corporate guarantees issued by the assessee for its AEs, including:

• 2% in some years
• 1% in AY 2015-16

The TPO justified this on earlier internal orders and benchmarking done by the department.

4.2 Assessee’s Contention and CIT(A)’s Order

The assessee argued that: