2016 (7) TMI 1582 - AT - Income Tax

Tribunal dismisses Revenue's appeal, upholds deletions, partially allows assessee's appeal.

M/s. Thiru Arooran Sugars Ltd. Versus The Assistant Commissioner of Income Tax, Company Circle III (2), Chennai. AND Vice-Versa

M/s. Thiru Arooran Sugars Ltd. Versus The Assistant Commissioner of Income Tax, Company Circle III (2), Chennai. AND Vice-Versa - TMI Issues Involved:1. Deletion of addition towards the difference in profit from the value of bagasse and power transferred.2. Deletion of addition in respect of the sale of molasses.3. Deletion of addition made as deemed dividend under section 2(22)(e) of the Income Tax Act.4. Deletion of addition on account of export sales to Agrocorp.5. Sustaining the addition under section 14A read with Rule 8D of the Income Tax Act.Detailed Analysis:1. Deletion of Addition Towards Difference in Profit from the Value of Bagasse and Power Transferred:The Revenue's appeal contested the deletion of an addition of Rs. 11,03,84,378/- made by the AO towards the difference in profit from the value of bagasse transferred to and power received from M/s. Terra Energy Ltd. The assessee, engaged in sugar manufacturing, had a barter agreement with its subsidiary, Terra Energy Ltd. (TEL), for the supply of bagasse in exchange for steam and electricity. The AO added the difference in market value of bagasse and power received to the income of the assessee. The CIT(A) confirmed this addition. However, the Tribunal referenced its earlier decision in the assessee's case, where it was held that the cost of steam received should be considered, and since the Revenue could not rebut the findings of the CIT(A) on the valuation of steam, the Tribunal decided in favor of the assessee, dismissing the Revenue's ground.2. Deletion of Addition in Respect of Sale of Molasses:The AO added Rs. 30,09,770/- to the assessee's income, comparing the sale price of molasses to that of another company, Trichy Distilleries and Chemicals Ltd. The CIT(A) deleted this addition, noting that the price of molasses depends on its quality and demand-supply dynamics, and the AO had not established that the assessee sold molasses below the market price. The Tribunal upheld the CIT(A)'s decision, noting that the Departmental Representative could not controvert the CIT(A)'s findings, and confirmed the deletion of the addition.3. Deletion of Addition Made as Deemed Dividend Under Section 2(22)(e) of the Income Tax Act:The AO treated Rs. 28,60,00,000/- received from Shree Ambika Sugars Ltd. (SASL) as deemed dividend under section 2(22)(e) of the Act. Upon rectification, Rs. 20 crores were excluded, leaving Rs. 8.6 crores as deemed dividend. The CIT(A) deleted the addition, observing that the transactions represented a trading relationship and were in the ordinary course of business. The Tribunal upheld the CIT(A)'s decision, citing the Jurisdictional High Court's ruling that trade advances in the nature of money transacted for commercial transactions do not fall within the ambit of section 2(22)(e).4. Deletion of Addition on Account of Export Sales to Agrocorp:The AO added Rs. 7,59,38,975/- to the assessee's income, citing discrepancies in export sales to M/s. Agrocorp. The CIT(A) deleted the addition, noting that the export turnover was properly accounted for and reflected in the sales reported in the P&L account. The Tribunal confirmed the CIT(A)'s decision, as the Departmental Representative could not controvert the findings, and there were no adverse findings regarding the recording of export sales.5. Sustaining the Addition Under Section 14A Read with Rule 8D of the Income Tax Act:The AO disallowed Rs. 5,48,15,816/- under section 14A read with Rule 8D, related to the assessee's investment portfolio. The CIT(A) reduced the disallowance to Rs. 4,39,92,362/-, considering interest on Inter-Corporate Deposits and other factors. The Tribunal, referencing various judgments, held that interest on borrowings for specific business purposes and investments in sister concerns should not be considered for disallowance under Rule 8D. The Tribunal remitted the issue to the AO for fresh consideration, instructing the AO to consider the assessee's own funds and exclude investments in subsidiaries.Conclusion:The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes, providing detailed reasoning for each issue and ensuring that the legal principles and facts were thoroughly considered.