TaxTMI 
TaxTMI 
2015 (3) TMI 759
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....ppeals are now disposed of in the following manner. 3. We will first take up the appeal filed by the assessee for the assessment year 2007-08 in I. T. A. No. 503/JP/12. 4. Ground Nos. 1 and 2 are on account of reduction in the claim for tax holiday under section 80-IA of the Act in respect of the assessee's power undertaking as a result of modification in the market price of the power captively consumed. 5. Briefly stated, the relevant material facts are that the assessee has claimed deduction under section 80-IA in respect of its power undertaking located in the State of Rajasthan. Power generated by the power undertaking is predominantly used by the assessee captively at its cement unit also in Rajasthan. For computing the profitability of the power captively consumed, in terms of provisions of section 80-IA(8), the assessee has considered the market value or the arm's length value being the value at which independent power supplier, has sold power to power distribution companies (DISCOMs) in the State of Rajasthan. In the order under section 143(3), the Assessing Officer has instead applied rate (being average annual landed cost) at which power is supplied by th....
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....different value only where the value adopted by the assessee does not correspond to the "market value". In the present case, the Assessing Officer has simply substituted one market value with another market value which is neither permissible nor required under the statute. The hon'ble Mumbai Tribunal in Asst. CIT v. Maersk Global Service Center (India) P. Ltd. [2012] 14 ITR (Trib) 541 (Mum) (at paragraph 36) relying upon the decision of the Special Bench of the hon'ble Bangalore Tribunal in Aztec Software and Technology Services Ltd. v. Asst. CIT [2007] 294 ITR (AT) 32 (Bang) [SB] has laid down the following principles : (i) Onus of demonstrating the arm's length price is on the assessee. Once such onus is discharged and still the Assessing Officer propose any variation in the method of comparable of the assessee, he is required to show that the comparable selected by the assessee were, in fact, not comparable. (ii) It is, therefore, manifest that the initial prerogative of choosing the comparable cases is always that of the assessee. It is but natural also for the reason that the assessee is the best judge to know the transactions undertaken and thus finding o....
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.... profits and gains on transfer of assets. One formula which has been adopted by the Assessing Officer and the other formula which is adopted by the assessee. In the absence of a specific provision, out of these two formulas, the formula which is favourable to the assessee should be accepted. -Shantadevi Gaekwad v. Deputy CIT [2012] 250 CTR (Guj) 421 : Held, that when two equally efficacious and acceptable data for the purpose of valuations are available, the one which is beneficial to the assessee should be preferred. This is a well- settled principle which should be followed. 4.0 It is a settled legal position that the assessee is entitled to arrange his affairs so that his taxes are low and it is the prerogative of the assessee to do so The hon'ble apex court in the landmark ruling of Vodafone Interna tional Holdings B.V. v. Union of India [2012] 341 ITR 1 (SC) have held that every taxpayer is entitled to arrange his affairs so that his tax liability is optimised and that he is not bound to choose those patterns, which replen ishes the treasury. Similarly, courts have time and again held that where the law is silent, it is the prerogative of the assessee to be con....
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.... market value. The assessee has adopted one of the market values which is also at the arm's length and the Assess ing Officer has adopted another market value which is also at the arm's length. The learned authorised representative (AR) submits that the Assessing Officer's action is not tenable. c. In support of the above proposition, the authorised representative relied on various decisions in similar situations including the decision of the Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) and other High Court decisions as referred to above, wherein it has been held that when two equally efficacious and acceptable data for the purposes of determining value are available, the one which is beneficial to the assessee should be preferred. d. The authorised representative further submitted that the hon'ble Supreme Court in the case of Vodafone International Holdings B. V. v. Union of India [2012] 341 ITR 1 (SC) have held that the taxpayer is entitled to arrange his affairs so that his tax liability is optimised and he is not bound to chose those patterns which replenishes the treasury. e. Lastly, by way of examples in the case ....
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....id power distribution or trading company in the State of Rajasthan and not only those transactions with the higher rate. c. As regards the submission that grid rate represents the market price, the authorised representative submitted that the assessee has never contended that the grid rate (being average annual landed cost) at which electricity is being supplied by State Electricity Board does not represent market price. Equally it is also not in dispute that the rate adopted by the assessee also represents market price as it is between independent parties, volumes of transaction are substantial, the transactions are actual and real and not hypothetical or fictitious and data regarding the same are available in public domain. Further, the fact that the same does represent market price has also not been disputed by any of the authorities. In fact the same can never be disputed since it represents actual arm's length transaction being entered between unrelated parties. Hence, in such situation, where there are two or more sets of market price available, so long as the assessee has adopted a price which represents "market p....
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.... parties and the details for the same are available in public domain. The issue before us is whether in such situations where there are two or more market values available and if the assessee has adopted a "value" which is "market value", whether it is permissible for the Revenue to still replace the same by another "market value". 12. At this stage, it is necessary to refer to the relevant provisions of the Act, i.e., section 80-IA(8), which states that- "Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the asses see, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of transfer, then for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in ei....
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....her the same is market price or not. The Assessing Officer has the power to adopt the market price only when the price adopted by the assessee does not correspond to market value. In the present case, we find that the assessee has adopted a rate at which actual transactions have been undertaken by unrelated entities. The volumes of transaction as relied upon are also substantial and hence it cannot be said that the assessee has hand picked some transactions, which are beneficial to it. The Departmental representative submitted that since the assessee has itself drawn power from the grid, the grid rate represents the "best market value" and hence the same should only be adopted. We are not agreeable to the above contention of the Department. No doubt the grid rate is market value but there is no concept of "best" market value in law. If by using the said adjective, the Revenue seeks to infer that grid rate is the only market value in the present context, such inference is also clearly not tenable. Further, in case there are options, the option favourable to the assessee is to be adopted. This is a well-settled principle of law laid down by courts time and again including Supreme Cou....
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....ed relief of Rs. 31,11,876 and restricted the disallowance to Rs. 16,00,000. We find that facts for the year under consideration are similar with the facts of the earlier year. Following the decision of the Tribunal, dated December 23, 2009, the disallowance confirmed by the Commissioner of Income-tax (Appeals) is reasoned one and hence we do not find any infirmity therein. Accordingly, ground No. 3 of the appeal preferred by the assessee is dismissed. 17. Ground No. 4 of the assessee relates to disallowance of telephone expenses of Rs. 1,00,000 confirmed by the Commissioner of Income-tax (Appeals) considering the same as personal in nature. We find that the Tribunal in the assessment year 2003-04 in I. T. A. No. 751/JP/07 vide order dated December 23, 2009, had set aside the issue to the file of the Assessing Officer to examine the contention of the assessee as there cannot be disallowance of personal expenditure in the hands of the company. Accordingly, following the order of the earlier year, we set aside this ground to the file of the Assessing Officer to verify the same after giving opportunity to the assessee before deciding the issue. This ground of the assessee is the....
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....e subsidy is to enable the assessee to run the business more profitably then the incentive is on revenue account and if the object of the subsidy is to enable the assessee to set up a new unit or expand the existing unit then the incentive is on capital account. (iii) Based on the purpose test as to why the incentive has been granted, the hon'ble Tribunal have held that incentive under RIPS, 2003 is provided to the assessee to set up a new unit or carry out expansion and not for running the business more profitably. Issue also covered in favour of the assessee by principles laid down in various other decisions Present issue is also settled in favour of the assessee by following judicial pronouncements of the hon'ble apex court, High Courts and Spe cial Bench of the Income-tax Appellate Tribunal : Supreme Court -CIT v. Ponni Sugars and Chemicals Ltd. [2008] 306 ITR 392 (SC). High Courts -CIT v. Siya Ram Garg (HUF) [2011] 237 CTR (P&H) 321. -Shree Balaji Alloys v. CIT [2011] 333 ITR 335 (J & K). -CIT v. Rasoi Ltd. (I. T. A. No. 258 of 2001) [2011] 335 ITR 438 (Cal). -CIT (Deputy) v. Inox Leisure Ltd. [2013] 351 ITR 314 (Guj) Income-tax Appella....
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....tion of sales tax-Rs. 15,727.66 lakhs S. No. Type of units Extent of the percentage of exemption from total tax liability Maximum exemption in terms of percentage of eligible fixed capital investment Maximum time limit of availing exemption from tax 1. New units other than the units mentioned at items 2 and 3 and units going in for expansion or diversification 1st year 100% 3rd year 80% 5th year 60% 7th year 50% 9th year 40% 11th year 30% Eleven years 2nd year 90% 4th year 70% 6th year 50% 8th year 40% 10th year 30% **The eligible fixed capital investment meant for investment in cost of land, cost of new building, cost of new p.m and other fixed assets. This clearly indicate that the sales tax subsidy has been allowed against capital assets for expansion of assessees existing business. The facts of the case are that the assessee-company has collected the sales tax from its customers against sales of manufactured goods and credited the same in its books of account. Here the source of sub....
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....to existence any new asset. The subsidies were granted year after year, only after the setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assessee. The subsidies were of revenue nature and would have to be taxed accordingly.' The facts of the above case are exactly matching with the case of the assessee under question. In this case also the assessee has expanded its installed capacity by more than 25 per cent. of the existing capacity and sales tax exemption was allowed from date of first sale and not mere setting up/expanding of new units. This means that exemption has been allowed by the Government by way of sales tax subsidy, only after starting its commercial production to assist it in carrying on its trade or business. This fact get supports from the deci sion of the hon'ble Income-tax Appellate Tribunal Bench 'D' Delhi in I.T. Appeal No. 1404(Del) of 2007 in the case of L. G. Electronics India Ltd. v. Addl. CIT [2010] TIOL-222-ITAT-Del, which, inter alia, held that the sales tax subsidy availed of by the assessee is a revenue receipt si....
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....he sales tax sub sidy as capital receipt, on the ground that the same has been received against investment made in the eligible fixed assets for expanding of its existing business, then how come the assessee-company has not reduced such subsidy (claimed to have been received against eligible assets as per certificate issued by Sales Tax Officer) from the actual cost of the assets, as the cost of the assets to that extend has not been met by the assessee. These facts have been made abundantly clear, in Explanation 10 of sub-section (1) of the section 43 of Income-tax Act, 1961, which read as under : 'where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or a grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee : Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acqu....
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....f the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee.' Explanation 10 to section 43(1) was introduced to nullify the judg ment of the hon'ble Supreme Court in the case of CIT v. P. J. Chemi cals Ltd. [1994] 210 ITR 830 (SC), where it was held that subsidy granted by the Government as an incentive for setting up industries in backward area at a percentage of cost of capital assets in not a payment for meeting any portion of the cost of the capital assets within the contemplation of section 43(1) of the Income-tax Act, 1961 and the same is not to be deducted in computation of actual cost of the assets for the purpose of grant of depreciation allowance, etc. Position of subsidy up to assessment year 1998-99 : Up to assess ment year 1998-99 if the subsidy was given by the Government for any particular asset, it was deductible from the cost of the said asset, whereas if a subsidy was given to set up an industrial unit in a back ward ar....
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....tive has also confirmed that issues in the current year are identical to that of the earlier years. With the help of reasoning given in the orders by this Tribunal for the earlier years in the assessee's own case (assessment year 2004-05 to assessment year 2006-07 in I. T. A. Nos. 614, 615 and 635/JP/2010] and respectfully following the same, we reject the argument of the Department and hold that receipt on account of sales tax subsidy is capital in nature and not chargeable to tax. This ground of Revenue is thus dismissed. 24. Ground No. 2 of the Revenue's appeal relates to the relief granted by the Commissioner of Income-tax (Appeals) on account of expenditure incurred on gifts following the decision of the Tribunal in the assessee's own case for the earlier years. We have already held while dealing with the assessee's appeal, that the disallowance confirmed and relief granted by the Commissioner of Income-tax (Appeals) on account of expenditure incurred on gifts is a reasoned one. Accordingly, this ground of the Revenue is dismissed. 25. Ground No. 3 of the Revenue's appeal relates to grant of interest under section 244A on minimum alternate tax credit.....
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....s, we hold that the assessee is entitled to interest under section 244A on refund arising to the assessee after minimum alternate tax credit. Consequently, this ground raised by the Revenue is dismissed. 27. Now we take up the assessee's appeals for the assessment year 2008-09 in I. T. A. No. 504/JP/2012. 28. Ground Nos. 1 and 2 in this appeal are same as ground Nos. 1 and 2 for the assessment year 2007-08 on deduction under section 80-IA. The learned authorised representative for the assessee submitted that for the assessment year 2008-09, the facts are similar to the facts for the assessment year 2007-08. In this year also the assessee has considered the value at which independent power supplier has sold power to DISCOMs during the relevant period in the State of Rajasthan where the eligible unit is located, as the market value of the power captively consumed by the cement unit of the assessee. These grounds have been extensively dealt with in paragraphs 2 to 14 above while dealing with the assessee's appeal for the assessment year 2007-08 in I. T. A. No. 503/JP/12 and in the light of our findings recorded therein, we hold that the disallowance in this year also nee....
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.... verified and certified by the Det Norske Veritas Certification Ltd. The project entails reduction of clinker content of the Portland Pozzolanic Cement (PPC) produced by increasing fly ash content in the cement. The project activity would therefore reduce direct on-site emissions from clinkerisation and direct off site emissions from power generation at the thermal power plants, per unit of cement produced. The above project has generated CERs against which the assessee has received Rs. 16,02,32,595 during the year under consideration which has been claimed as "capital receipt". 35. In the assessment order, the Assessing Officer has held that (a) carbon credit is not a capital receipt, (b) cost of acquisition of carbon credit is NIL and (c) entire receipt is taxable as capital gain. However, in the computation, it has been added as business income. The learned Commissioner of Income-tax (Appeals) has held that receipt from CER's is in the nature of benefit arising from the business of the assessee and is taxable as "business income" under section 28(iv) of the Act. 36. The authorised representative for the assessee submits as under : (a) Issue squarely covered in the a....
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....and/or selling any product, bi-product or for rendering any service for carrying on the business. In our opinion, carbon credit is entitlement or accretion of capital and hence income earned on sale of these credits is capital receipt. For this proposition, we place reliance on the judgment of the Supreme Court in the case of CIT v. Maheshwari Devi Jute Mills Ltd. [1965] 57 ITR 36 (SC) wherein it is held that transfer of surplus loom hours to other mill out of those allotted to the assessee under an agreement for control of production was capital receipt and not income. Being so, the consideration received by the assessee is similar to consideration received by transferring of loom hours. The Supreme Court considered this fact and observed that taxability of payment received for sale of loom hours by the assessee is on account of exploitation of capital asset and it is capital receipt and not an income. Similarly, in the present case the assessee transferred the carbon credits like loom hours to some other concerns for certain consider ation. Therefore, the receipt of such consideration cannot be considered as business income and it is a capital receipt. Accordingly, we are of the ....
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....nsidered as revenue receipts chargeable to tax as business income, or the net amount after deduction of expenditure if any, incurred for the same should be considered as chargeable to tax under the head capital gains. 38. In reply the authorised representative submits that carbon credit in the present case has been awarded due to reduction in emission of green house gases consequent to the optimum utilisation of clinker project undertaken by the assessee. The assessee has been provided entitlement/ incentive in the form of carbon credit. Hence, this receipt does not have the element of income or profit embedded to it. Further, the above incentive has been granted as per Kyoto Protocol to incentivise the industry in the developing countries for reduction of carbon emission. Hence, the same needs to be considered as capital receipt not chargeable to tax. As regards the contention of the Departmental representative that the same is chargeable to tax as business income or as capital gains, the authorised representative submitted that the above issue has already been considered by the hon'ble Hyderabad Tribunal that the said receipt is not chargeable to tax as it does not fall un....
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....Jp/2010. The hon'ble Tribunal in the said case have held that capital receipt in the form of sales tax subsidy, needs to be excluded in computation of book profit all the more since they do not have any element of profit embedded in it. We find that carbon credit is also capital receipt, which does not have any element of profit embedded in it. Even Hyderabad Tribunal in My Home Power Ltd. [2013] 21 ITR (Trib) 186 (Hyd) have upheld the above principles. Hence, in the present case, receipt on account of carbon credit, being purely capital in nature needs to be excluded in computation of the book profit. The Assessing Officer is accordingly directed to delete the addition made on account of carbon credit in computing book profit under section 115JB of the Act. This ground is accordingly decided in favour of the assessee. 42. Now we take up the Revenue's appeal for the assessment year 2008-09 vide I. T. A. No. 569/JP/2012. 43. Ground No. 1 is on account of disallowance of sales tax incentive as capital receipt. The facts of the above issue are identical to Ground No. 1 for the assessment year 2007-08 of the Revenue's appeal. This ground has been extensively dealt wit....
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....7, 2008 as per (a) above. However, for the period from June 28, 2008 to August 29, 2008 he has adopted IEX market value for power sold on the power exchange (by adopting all India rate instead of N2 region rate applicable to Rajasthan where the assessee's unit is located) and for the subsequent period, the Assessing Officer has adopted rate at which power is sold by the assessee's power unit to third parties, when not required by its cement unit. We have extensively dealt with the dispute on adaptation of market value for power captively consumed in paragraphs 2 to 14 above while dealing with the assessee's appeal for the assessment year 2007-08 in I. T. A. No. 503/JP/12 and in the light of our findings and decision recorded in paragraph 13 above, we hold that the disallowance in this year also needs to be deleted. The assessee's grounds are therefore allowed and corresponding disallowance under section 80-IA is deleted. 48. Ground No. 3 of the assessee relates to disallowance of telephone expenses of Rs. 1,00,000 confirmed by the Commissioner of Income-tax (Appeals). The facts of this issue are exactly similar to the facts as discussed in the assessment year 200....