2022 (8) TMI 440 - AT - Income Tax

Tribunal affirms CIT(A) decision on Income-tax Act appeal, emphasizes legal precedent & correct application

The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal and vacating the disallowances made by the AO under Sections 80IA(8) and 14A of ... Deduction u/s 80IA(8) - power supplied to the steel division - Whether CIT(A) was justified in holding that the market value of the power is the rate of power available in the open market namely the price charged by the Electricity Board? - Whether goods of one unit of a company can be transferred to another unit at a notional figure? - whether or not the A.O had rightly triggered the provisions of Section 80IA(8) of the Act by adopting the domestic purchase price of electricity by CSEB as the “market rate” and justifiably scaled down the assessee’s claim for deduction u/s.80IA(4)(iv)(a) ? - HELD THAT:- As claimed by the Ld. AR, and rightly so, the aforesaid issue as on date is squarely covered by the order of the Tribunal in the assessee’s own case for the assessment year 2008-09, i.e. ACIT-1(2) Vs. Mahindra Sponge and Power Limited [2015 (6) TMI 1243 - ITAT RAIPUR] - In its aforesaid order the Tribunal had after drawing support from the judgment of the Hon’ble High Court of Chhattisgarh in the case of CIT Vs. Godawari Power & Ispat Ltd. (2013 (10) TMI 5 - CHHATTISGARH HIGH COURT], found favor with the claim of the assessee and observed, that the “market value” of the power supplied by the assessee to its steel division was rightly computed by considering the rate at which power was available in the open market, namely, the price that was charged by the electricity board. We, thus, in terms of our aforesaid observations finding no merit in the declining of the assessee’s claim for deduction u/s. 80IA(4)(iv)(a) by the A.O which had rightly been vacated by the CIT(Appeals), uphold the latters order. Thus, the Grounds of appeal Nos. (a) to (c) raised by the Revenue are dismissed in terms of our aforesaid observations. Disallowance of claim u/s.14A r.w. Rule 8D(2)(ii) & (iii) - HELD THAT:- As the assessee company during the year under consideration had not earned any exempt income, therefore, on the said count itself no disallowance of any part of the expenditure could have been made u/s.14A of the Act. Thus no infirmity in the deletion of the disallowance under Sec. 14A by the CIT(Appeals), uphold his order. - Decided in favour of assessee. Issues Involved:1. Deletion of disallowance of the claim for deduction u/s 80IA(8) of the Income-tax Act, 1961.2. Determination of the market value of power for the purpose of deduction u/s 80IA(8).3. Transfer pricing of goods between units of the same company.4. Deletion of disallowance made u/s 14A of the Income-tax Act.5. Consideration of provisions of Section 14A(3) while deleting the addition.6. Reliance on judicial precedents and their applicability.Issue-wise Detailed Analysis:Issue 1: Deletion of Disallowance of the Claim for Deduction u/s 80IA(8)The department challenged the deletion of the disallowance of Rs.4,38,73,880/- made on account of power supplied to the steel division. The assessee, engaged in manufacturing and trading of sponge iron, steel ingots, and power generation, had claimed a deduction under Section 80IA(4)(iv)(a) of the Act. The AO observed that the assessee transferred electricity to its steel division and associate concerns at a higher rate than the rate at which it sold to the State Electricity Board (CSEB). The AO concluded that this inflated the profits of the power division, which was eligible for deduction, and reduced the profits of the steel division. The CIT(A) vacated the disallowance, and the Tribunal upheld this decision, citing that the issue was covered by the Tribunal's order in the assessee's case for AY 2008-09 and the judgment of the Hon'ble High Court of Chhattisgarh in CIT Vs. Godawari Power & Ispat Ltd.Issue 2: Determination of the Market Value of Power for Deduction u/s 80IA(8)The AO contended that the market value should be the rate at which power was sold to CSEB, which was lower than the rate at which it was transferred to the steel division. The assessee argued that the tariff for sale to CSEB was regulated and not comparable to the market value for internal transfers. The Tribunal, following the precedent set in the assessee's earlier case and the judgment of the Chhattisgarh High Court, held that the market value should be the rate charged by the Electricity Board to consumers, not the rate at which power was sold to CSEB.Issue 3: Transfer Pricing of Goods Between Units of the Same CompanyThe AO's disallowance was based on the premise that the assessee inflated the power division's profits by transferring power at a higher rate. The Tribunal, however, upheld the CIT(A)'s decision, stating that the market value should be based on the rate charged by the Electricity Board to consumers, aligning with the precedent set by the High Court and the Tribunal's earlier order.Issue 4: Deletion of Disallowance Made u/s 14AThe AO disallowed Rs.5,73,515/- u/s 14A r.w. Rule 8D, attributing interest and administrative expenses to investments in exempt income-yielding shares. The CIT(A) vacated this disallowance, noting that the AO failed to correlate the interest paid with the investments and did not record dissatisfaction before applying Rule 8D. The Tribunal upheld the CIT(A)'s decision, emphasizing that no disallowance u/s 14A is warranted if no exempt income is earned during the year, supported by judicial precedents.Issue 5: Consideration of Provisions of Section 14A(3) While Deleting the AdditionThe AO argued that provisions of Section 14A(3) were not considered by the CIT(A). The Tribunal found that since the assessee did not earn any exempt income during the year, no disallowance under Section 14A was justified, thus affirming the CIT(A)'s deletion of the disallowance.Issue 6: Reliance on Judicial Precedents and Their ApplicabilityThe AO did not follow the Tribunal's earlier order or the High Court's judgment, citing ongoing appeals. The Tribunal reiterated that unless set aside or stayed by a higher court, these judgments must be followed. The Tribunal dismissed the Revenue's grounds, upholding the CIT(A)'s order in favor of the assessee.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that vacated the disallowances made by the AO. The Tribunal emphasized adherence to judicial precedents and proper application of legal provisions, particularly in determining market value for internal transfers and disallowances under Section 14A.