2021 (11) TMI 220 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions, dismisses Revenue's appeals. Assessee's appeal partly allowed for AY 2015-16.

The Tribunal dismissed the Revenue's appeals for AYs 2012-13, 2014-15, and 2015-16, upholding the CIT(A)'s decisions on all contested issues. The ... Employee's contribution to PF/ESI deductible if deposited before filing of return under section 139(1) - Section 14A and Rule 8D(2)(iii) - computation of disallowance in relation to investments yielding exempt dividend - Comparable Uncontrolled Price (CUP) Method - Arm's length price in specified domestic transactions - Section 80-IA(8) - valuation of intra-unit transfers for deduction under Section 80-IA - Internal CUP versus external CUP and product comparability - Judicial consistency / estoppel by prior Tribunal ordersEmployee's contribution to PF/ESI deductible if deposited before filing of return under section 139(1) - Judicial consistency / estoppel by prior Tribunal orders - Deletion of addition made for delayed deposit of employees' contribution to PF and ESI where such contributions were remitted before the due date of filing of return under section 139(1). - HELD THAT: - The Tribunal, following binding decisions of the Hon'ble Calcutta High Court and its own precedent, held that where employees' contribution to PF/ESI, though paid after statutory due-dates under respective Acts, was deposited with statutory authorities on or before the due date for filing the return of income under section 139(1), such amounts are allowable as deduction and the AO's addition is unsustainable. The Tribunal relied on the Calcutta High Court decisions (including Vijayshree Ltd. and Akzo Nobel India Ltd.) and consistent coordinate-bench jurisprudence of the Tribunal, and found no infirmity in the CIT(A)'s deletion of the addition. [Paras 6]Order of the CIT(A) deleting the addition is confirmed and the Revenue's ground is dismissed.Discounts and brokerage - treatment of trade (upfront) discounts and post-sale conditional discounts - Judicial consistency / estoppel by prior Tribunal orders - Deletion of AO's disallowance of discount & brokerage debited to Profit & Loss Account where post sale conditional discounts are shown separately and historically accepted in earlier assessment years. - HELD THAT: - On identical facts, this Tribunal had earlier held that trade discounts (netted against sales) are distinct from conditional/post sale discounts (prompt payment, turnover, slab discounts etc.) which are debited separately to P&L and accepted in prior scrutiny assessments; in absence of any change in material facts or rejection of books under section 145(3), the AO cannot adopt a contrary stand in a later year. Applying the principle of judicial consistency (RadhasoamiSatsang), the Tribunal followed its own prior order in the assessee's case and upheld the CIT(A)'s deletion of the disallowance. [Paras 10]CIT(A)'s deletion of the disallowance of discount & brokerage is upheld and Revenue's ground dismissed.Section 14A and Rule 8D(2)(iii) - computation of disallowance in relation to investments yielding exempt dividend - Validity of CIT(A)'s direction to restrict Rule 8D(2)(iii) computation to those investments which actually yielded dividend in the relevant year and to limit disallowance to the lesser of recomputed amount and sum voluntarily disallowed. - HELD THAT: - Following this Tribunal's earlier lead order in the assessee's own case, the CIT(A) directed recomputation of Rule 8D disallowance by considering only those investments that actually yielded dividend during the year (opening and closing balances) and, after recomputation, to restrict addition to the voluntary disallowance if the recomputed figure is lower. The Tribunal found the facts analogous to earlier years and endorsed the CIT(A)'s approach, remitting computation to the AO in accordance with those directions. [Paras 15, 35]CIT(A)'s order is upheld; matter remitted to AO for recomputation as directed by CIT(A), with disallowance capped as stated.Comparable Uncontrolled Price (CUP) Method - Arm's length price in specified domestic transactions - Section 80-IA(8) - valuation of intra-unit transfers for deduction under Section 80-IA - Internal CUP versus external CUP and product comparability - Whether the transfer price (ALP) of electricity supplied by the assessee's captive power plants (CPPs) to its non-eligible units should be determined by internal CUP (landed cost at which non-eligible unit purchased from SEB or rates at which CPP sold to unrelated parties) or by external CUP based on tariff orders for sale to distribution companies. - HELD THAT: - The Tribunal held that the CUP Method requires high product comparability and, where reliable internal comparable data exists, internal CUP is the most appropriate method. On facts, reliable internal data existed: (a) in Karnataka (Vasavdatta) the CPPs sold substantial power to unrelated parties at rates comparable to the assessee's intra-unit transfer rates; (b) in Hooghly the non eligible unit procured power from SEB throughout the year so its landed cost from SEB satisfied internal CUP parameters. The TPO's reliance on tariff rates applicable to sale by generating companies to distribution companies (external data) was rejected because market conditions and participant functions (generation-to-distributor rates) differ from the consumer-facing market; prior Tribunal and High Court decisions bearing on valuation under Section 80-IA(8) and post Electricity Act, 2003 factual changes were followed. Consequently, the TPO's transfer pricing adjustments were held unsustainable and deleted. [Paras 26, 31, 32]CIT(A)'s deletion of TPO/AO transfer pricing adjustments in respect of the CPPs at Vasavdatta and Hooghly is upheld and the Revenue's grounds are dismissed.Miscellaneous departmental grounds lacking nexus to lower authorities' orders - Relevance and admissibility of grounds raised by Revenue that did not emanate from or correspond to any disallowance or finding by the AO or CIT(A). - HELD THAT: - The Bench queried the provenance of certain grounds (e.g., share dealing losses) and the Department conceded that those grounds were not rooted in the orders of lower authorities. Such grounds are therefore irrelevant and cannot be entertained on appeal. [Paras 38]Irrelevant grounds not emanating from lower authorities' orders are dismissed.Final Conclusion: All Revenue appeals for A.Y. 2012-13, 2014-15 and 2015-16 are dismissed. The assessee's appeal for A.Y. 2014-15 is dismissed; the assessee's appeal for A.Y. 2015-16 is allowed for statistical purposes. Specific directions: deductions for employees' PF/ESI contributions deposited on or before filing due date are upheld; discount & brokerage disallowances are deleted; Rule 8D disallowance is to be recomputed by the AO limited to investments yielding dividend (with cap as directed); and all transfer pricing adjustments to intra unit power transfers under Section 80 IA(8) are deleted in accordance with the Tribunal's reasoning. Issues Involved:1. Delayed deposit of employees' contribution to PF and ESI.2. Disallowance of discount and brokerage debited to the Profit & Loss Account.3. Disallowance under Section 14A of the Income Tax Act.4. Transfer pricing adjustments related to the claim of deduction under Section 80-IA.Detailed Analysis:1. Delayed Deposit of Employees' Contribution to PF and ESI:The Revenue challenged the deletion of an addition of Rs. 67,16,882/- made by the AO due to delayed deposit of employees' contribution to PF and ESI. The Tribunal noted that although there was a delay, the sums were deposited before the due date of filing the return under Section 139(1). The Tribunal referenced the consistent view of the Hon'ble Calcutta High Court, which allows such deductions if deposits are made before the return filing deadline. Citing cases like M/s. Akzo Nobel India Ltd. Vs. CIT and CIT Vs. Vijayshree Ltd., the Tribunal upheld the CIT(A)'s decision to allow the deduction.2. Disallowance of Discount and Brokerage:The Revenue contested the deletion of a disallowance amounting to Rs. 3,13,86,883/- related to discounts and brokerage. The Tribunal noted that the assessee provided both upfront/trade discounts and conditional/post-sales discounts, which were debited separately in the Profit & Loss Account. The AO's disallowance was based on the assumption that no further discounts could be given post-sales. However, the Tribunal referenced its own decision in the assessee's case for AY 2008-09, which upheld the treatment of such discounts. The Tribunal found no new material facts to warrant a change and upheld the CIT(A)'s deletion of the disallowance.3. Disallowance under Section 14A:For AY 2014-15, the assessee's appeal contested the disallowance under Section 14A read with Rule 8D(2)(iii). The AO had computed a higher disallowance than the assessee's self-assessed amount. The CIT(A) directed the AO to re-compute the disallowance considering only those investments that yielded dividend income. The Tribunal upheld this approach, referencing its own decision in the assessee's case for AY 2008-09 and 2009-10, which supported considering only dividend-bearing investments for such disallowances.4. Transfer Pricing Adjustments Related to Section 80-IA:The Revenue appealed against the CIT(A)'s deletion of transfer pricing adjustments made by the TPO to the claim of deduction under Section 80-IA. The TPO had re-computed the transfer price of power supplied by the assessee's captive power plants (CPPs) to non-eligible units using external CUP data. The CIT(A), however, upheld the assessee's method of using the average landed cost of power procured from State Electricity Boards (SEBs) as the benchmark. The Tribunal agreed with the CIT(A), noting that reliable internal CUP data was available, and the rates used by the assessee were comparable to the rates at which power was sold to unrelated parties. The Tribunal referenced similar decisions in the assessee's case for earlier years and other relevant cases, concluding that the assessee's benchmarking analysis was justified.Conclusion:The Tribunal dismissed the Revenue's appeals for AYs 2012-13, 2014-15, and 2015-16, and upheld the CIT(A)'s decisions on all contested issues. The assessee's appeal for AY 2014-15 was also dismissed, while the appeal for AY 2015-16 was allowed for statistical purposes, directing the AO to re-compute the disallowance under Section 14A.