2024 (3) TMI 952 - HC - Income Tax

Revenue appeal dismissed on section 80-IA deduction, transfer pricing, and common expense allocation issues

The Delhi HC dismissed the revenue's appeal on multiple tax issues. The court upheld ITAT's decision allowing deduction under section 80-IA(8) for ... Disallowance of deduction u/s 80-IA(8) - computation of the market value or electricity - Scope of expression “market value” in relation to any goods - ITAT justification in holding that the price at which State Electricity Board sells electricity to industrial consumer in representative of the price that electricity would ordinarily fetch in the open market in terms of section 80-IA(8) - HELD THAT:- We note that the issue would stand concluded in light of the judgment rendered [2024 (1) TMI 1252 - DELHI HIGH COURT] wherein as accepted the alternative plea of the assessee and remanded the matter with a direction to the Ld. AO to deduct the sale proceeds of those items from the cost of raw materials used in the manufacturing process and then accordingly determine the profit of the undertaking to allow the deduction under section 80 IB as per the revised profits so computed. TP Adjustment - Excessive remuneration to a related party - HELD THAT:- No disallowance in this regard have been made in the earlier years as held comparison done by the AO between the remuneration paid by the assessee company on account of managerial remuneration to Ms. Shallu Jindal with the remuneration paid by Essar Steel Ltd to Sh. Ashutosh Agarwala is not proper as well considering the facts that the assessee company is a profit making venture whereas Essar Steel Ltd. is incurring losses. It should also be noted that the assessee company has also complied with all the provisions of the Companies Act, 1956, relating to the payment of managerial remuneration to its managerial personnel appointed and the said payment of managerial remuneration has also been approved by the Board of Directors. The reference made to Circular No. 6P dated 08.07.1968 issued by the CBDT is apt in the present case. Thus, the Assessing Officer was not correct in making addition on account of managerial remuneration. Allocation of common expenses u/s 80-IA to eligible and non-eligible unit on the basis of ratio between eligible and non-eligible units - HELD THAT:- As decided in [2024 (1) TMI 1252 - DELHI HIGH COURT] from perusal of the Assessment Order/Order of the TPO/Directions of the DRP, in the present case none of the authorities have doubted that there was no expenses. In facts, the Assessing Officer/TPO/DRP re-allocated the expenditure in the ratio of turnover between eligible and non-eligible units without bringing into the light the flaw or inaccuracy or any suitable explanation involved in relation to the method of allocation adopted by the assessee company. Non deduction of TDS on bank guarantee commission u/s 40(a)(ia) - As decided by ITAT DRP has directed to delete the bank guarantee commission and without appreciating the same, the Assessing Officer made an addition which is unsustainable. Therefore, we direct the Assessing Officer to comply with the directions of the DRP and grant the relief to the Assessee. We find no justification to entertain the instant appeal on this solitary question. Issues Involved:1. Justification of ITAT's decision regarding the market value of electricity under Section 80-IA(8) of the Income Tax Act.2. Deletion of adjustment made on account of managerial remuneration.3. Allocation of common expenses under Section 80-IA of the Income Tax Act.4. Allowance of bank guarantee commission under Section 40(a)(ia) of the Income Tax Act.Summary:Issue 1: Market Value of Electricity under Section 80-IA(8)The court noted that the issue of the market value of electricity supplied by the assessee's captive power plants to its industrial units is concluded by the Supreme Court's decision in Commissioner of Income Tax v. M/s. Jindal Steel & Power Ltd. The Supreme Court held that the market value should be computed based on the rate at which the State Electricity Board supplies power to industrial consumers, not the rate at which power is sold to the State Electricity Board. Consequently, the court found no substantial question of law in this regard and upheld the ITAT's decision.Issue 2: Managerial RemunerationThe ITAT found that the remuneration paid to Ms. Shallu Jindal was justified as she was a key personnel involved in policy decisions, as reflected in the minutes of board meetings. The remuneration had not been disallowed in past years, and the company complied with the provisions of the Companies Act, 1956. The court noted no challenge to these facts and upheld the ITAT's decision to allow the remuneration, finding no substantial question of law.Issue 3: Allocation of Common ExpensesThe ITAT concluded that the expenditures were allocated based on generally accepted accountancy principles and identified cost drivers. The Assessing Officer (AO), Transfer Pricing Officer (TPO), and Dispute Resolution Panel (DRP) re-allocated the expenditures without any investigation or material evidence. The ITAT referenced a similar case (DCIT vs. Delhi Press Samachar Patra (P) Ltd.) and found the re-allocation arbitrary. The court upheld the ITAT's decision, finding no substantial question of law.Issue 4: Bank Guarantee CommissionThe ITAT directed the AO to comply with the DRP's directions to delete the bank guarantee commission addition. The court found no justification to entertain the appeal on this issue, as the AO is bound by the DRP's directions. The appeal was dismissed on these terms.Conclusion:The court dismissed the appeal, finding no substantial questions of law in the issues raised and upheld the ITAT's decisions on all counts.