2021 (11) TMI 1 - AT - Income Tax

Appeal Partially Allowed: Adjustments Deleted, Club Expenses Allowed, Mandi Fees Disallowed

Star Paper Mills Limited Versus DCIT, Circle-4 (2), Kolkata

Star Paper Mills Limited Versus DCIT, Circle-4 (2), Kolkata - TMI Issues Involved:1. Validity of the assessment order under Section 143(3) read with Section 144C of the Income Tax Act, 1961.2. Claim of deduction under Section 80IA of the Income Tax Act, 1961.3. Disallowance of club expenses under Section 37(1) of the Income Tax Act, 1961.4. Deduction of entry tax under Section 43B of the Income Tax Act, 1961.5. Deduction of mandi fees under Section 43B of the Income Tax Act, 1961.6. Re-computation of set-off and carry forward of unabsorbed business loss and depreciation.Detailed Analysis:1. Validity of the Assessment Order:The appellant contested that the final assessment order was void ab initio due to non-compliance with the mandatory procedure prescribed in Section 144C of the Income Tax Act, 1961, and being barred by limitation. However, these grounds were not pressed during the hearing and were dismissed.2. Claim of Deduction under Section 80IA:The appellant's captive power plant (CPP) generated power consumed by its paper manufacturing unit. The Transfer Pricing Officer (TPO) adjusted the transfer price of power from Rs. 8.41 per unit to Rs. 3.73 per unit, resulting in a downward adjustment of Rs. 13,71,40,567. The Tribunal concluded that the internal Comparable Uncontrolled Price (CUP) method used by the appellant, which benchmarked the transfer price against the rate at which the non-eligible unit procured power from the State Electricity Board (SEB), was appropriate. The Tribunal held that the SEB rate represented the market rate, and the TPO's comparison with the rate at which power generating stations sold electricity to distribution companies was not applicable. The Tribunal directed the deletion of the transfer pricing adjustment.3. Disallowance of Club Expenses:The AO disallowed club expenses of Rs. 8,65,913, considering them personal in nature. The Tribunal allowed Rs. 3,61,164 spent on trade associations as business expenses and Rs. 5,04,479 spent on club memberships for directors, citing that these were business expenses under Section 37 of the Act. The Tribunal noted that the club expenses were considered non-monetary perquisites in the directors' taxable salaries, thus allowable as business expenditure.4. Deduction of Entry Tax:The appellant claimed a deduction for entry tax of Rs. 62,90,188 paid under protest during the relevant year under Section 43B. The AO, following the DRP's direction, allowed the deduction but failed to reflect it in the final computation. The Tribunal directed the AO to allow the deduction in the computation of total income, acknowledging this as an apparent mistake.5. Deduction of Mandi Fees:The appellant claimed that mandi fees of Rs. 33,80,641 were not in the nature of tax, duty, or cess under Section 43B and should be allowed on a mercantile basis. The Tribunal rejected this claim, noting that post-amendment by the Finance Act, 1988, mandi fees fall within Section 43B and are allowable only on actual payment basis. The Tribunal dismissed this ground.6. Re-computation of Set-off and Carry Forward of Unabsorbed Business Loss and Depreciation:The Tribunal directed the AO to re-compute the set-off and carry forward of unabsorbed business loss and depreciation brought forward from earlier years while giving effect to the appeal, allowing this ground for statistical purposes.Conclusion:The appeal was partly allowed, with specific directions to delete the transfer pricing adjustment, allow club expenses and entry tax deductions, and re-compute set-off and carry forward of losses and depreciation. The disallowance of mandi fees was upheld.