Tribunal Rulings: Assessments, Capital Receipts, Transfer Pricing, Disallowances

Electrosteel Castings Ltd. Versus Deputy Commissioner of Income-Tax (And Vice Versa)

Electrosteel Castings Ltd. Versus Deputy Commissioner of Income-Tax (And Vice Versa) - [2017] 53 ITR (Trib) 5 Issues Involved:

1. Scope of proceedings under section 153A of the Income-Tax Act.
2. Claim of sales tax remission as capital receipt.
3. Disallowance under section 80-IA.
4. Transfer pricing adjustments.
5. Disallowance under section 14A.
6. Forfeiture of share warrants.
7. Adjustment of refund and credit for tax deducted at source (TDS).
8. Additional depreciation under section 32(1)(iia).
9. Sales proceeds of Carbon Emission Reduction (CER) units as capital receipts.
10. Depreciation on account of sales tax remission and industrial promotion assistance (IPA).

Detailed Analysis:

1. Scope of Proceedings under Section 153A:
The Tribunal held that in assessments under section 153A, if there is no incriminating material found during the search, the Assessing Officer cannot make any additions and must adopt the total income already determined in the unabated assessment under section 143(3). This conclusion is supported by judicial precedents, including CIT v. Kabul Chawla and CIT v. Continental Warehousing Corporation.

2. Claim of Sales Tax Remission as Capital Receipt:
The Tribunal concluded that sales tax remission is a capital receipt not chargeable to tax. This decision aligns with judicial precedents such as CIT v. Ponni Sugars and Chemicals Ltd., which emphasize the purpose test to determine the nature of the subsidy. The subsidy was intended to assist in setting up new units or expanding existing units, thus qualifying as a capital receipt.

3. Disallowance under Section 80-IA:
The Tribunal remanded the issue to the Assessing Officer to determine the profits and gains of the undertaking generating power on a reasonable basis. The Tribunal emphasized that the market value should be computed considering statutory controls on the price of power, applying the proviso to section 80-IA(8).

4. Transfer Pricing Adjustments:
The Tribunal directed the use of LIBOR rates for benchmarking loans given in foreign currency, rejecting the use of domestic lending rates. Additionally, the Tribunal found that the safe harbor rules for credit spread were not applicable, and the Transfer Pricing Officer's arbitrary credit rating adjustments were invalid.

5. Disallowance under Section 14A:
The Tribunal directed the Assessing Officer to consider only those investments which yielded dividend income during the previous year and to exclude strategic investments while computing the average value of investments for disallowance under section 14A read with rule 8D.

6. Forfeiture of Share Warrants:
The Tribunal held that the amount received on forfeiture of share warrants is a capital receipt not liable to tax. This conclusion is based on judicial precedents such as Graviss Hospitality Ltd. v. Deputy CIT, which clarify that such receipts are not trading receipts and should be treated as capital in nature.

7. Adjustment of Refund and Credit for TDS:
The Tribunal directed the Assessing Officer to verify TDS certificates and give credit for taxes deducted at source, ensuring compliance with the Dispute Resolution Panel's directions.

8. Additional Depreciation under Section 32(1)(iia):
The Tribunal allowed the carry forward of unclaimed additional depreciation to the subsequent year, aligning with judicial precedents such as CIT v. Rittal India Pvt. Ltd. (No. 1), which support the liberal interpretation of beneficial legislation.

9. Sales Proceeds of CER Units as Capital Receipts:
The Tribunal upheld that receipts from the sale of CER units are capital receipts not chargeable to tax, supported by judicial precedents like CIT v. My Home Power Ltd.

10. Depreciation on Account of Sales Tax Remission and IPA:
The Tribunal held that the subsidy in question was a capital receipt not chargeable to tax and that the action of reducing the depreciation claim by adjusting the written down value was improper.

Conclusion:
The Tribunal provided detailed directions on each issue, emphasizing adherence to judicial precedents and statutory provisions. The appeals were decided with specific instructions for reassessment and verification, ensuring a thorough and fair resolution of the disputes.