TaxTMI 
TaxTMI 
2017 (5) TMI 729
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....stant case after noticing the assessee to have created capital work in progress of Rs. 3,63,10,080/- without attributing any interest capitalization. He thus quoted assessee's failure in establishing non utilization of interest bearing funds to make the impugned disallowance. 3. The CIT(A) reverses Assessing Officer's findings as under: "4.2 I have carefully considered the contentions of the appellant. I have also perused the assessment order and the submission made by the Ld. A.R. It is seen that for capitalizing interest as per the provisions of proviso to section 36(1)(iii) following conditions should be fulfilled. 1. Capital Borrowed for acquiring capital assets 2. interest is paid in respect of capital borrowed 3. The acquisition of assets should be for the purpose of expansion of an existing business or profession 4. Interest Liability may or may not be capitalized In the instant case, the Ld. A.O. has not brought anything on record to indicate that capital was borrowed for capital work-in-progress. Secondly, no evidence is there on record to indicate that any interest-bearing funds were utilized to create this capital work-in-progress and hence, no inter....
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....refore reworked the relevant depreciation figures. The issue travelled up to the tribunal. A co-ordinate bench upheld Assessing Officer's reasoning. He made the same observations herein as well to restrict assessee's depreciation claim from Rs. 15,87,03,423/- to Rs. 15,74,75,052/-. The differential amount of Rs. 12,28,371/- stood disallowed. The CIT(A) follows his order passed in preceding assessment year 2008-09 on the very issue to delete the abovestated disallowance. 6. Shri Bidari vehemently argues that the Revenue deserves to succeed on the instant issue as per tribunal's decisions in the above two assessment years. He then highlights the fact that this tribunal thereafter decides the impugned question in assessee's favour in assessment year 2009-10 without considering its earlier findings. He thus seeks our agreement in following our findings in assessment years 1996-97 and 1998-99 (supra). Shri Dhinal Shah informs the bench that the relevant figures involved in the impugned assessment year qua this depreciation issue are only consequential to those involved and decided in the immediate preceding assessment year since there is no new addition herein. His case therefore is ....
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....e Revenue's last substantive ground as well as its appeal ITA No.1050/Ahd/2015 fails. 8. We now advert to assessee's CO No.91/Ahd/2015 raising sole substantive ground pleading that the lower authorities have erred in law and facts by not considering its windmill income as an operating income by deleting the above transfer pricing adjustment addition of Rs. 16.84 crores (supra). Its case is that it has itself sold its wind power from Section 80IA eligible undertaking to manufacturing division by availing state electricity undertakings wheeling facility instead of selling it in open market, the same is very much in the nature of an operating income to be included in computing arm's length price. 9. We come to facts relevant to the instant issue. The assessee has installed windmill (s) for generating wind power. It thereafter entered into a wheeling agreement with the state electricity undertaking to sell the above generated wind power to its manufacturing division in lieu of payment of transmission cost computed at the rate as is charged by the state undertaking. For example, if the assessee pays one rupee per unit to state undertaking, it has charged the very rate to the windm....
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....ions with associated enterprises were more than Rs. 5 crores. In the report submitted by the TPO under section 92CA (3) of the Act, he proposed an addition of Rs. 2,60,49,881/- on the ground that the commission and service fees received by the assessee from MCJ did not represent arm's length price. While doing so, the TPO treated the interest income of Rs. 1.72 crores received by the assessee as nonoperating income. Because of this treatment accorded to the interest income, the profits of the companies which were taken for comparison purposes were found to be more than the profits earned by the assessee and accordingly the addition on account of transfer pricing adjustment was made. It was the conclusion of the TPO that the income earned by way of interest by investing the surplus funds of the assessee in interest bearing instruments cannot be used to offset the assured return on costs. 5. The TPO was further of the view that in respect of the services rendered by the assessee, it should be remunerated on a cost-plus basis and the total costs should be made the basis of computing its earnings and not merely the commission and fixed fees paid to it. According to the TPO the commi....
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....mparable companies were more than the profits of the assessee which require an adjustment to the price. Thereafter, he framed the following issues which according to him arose for adjudication on this point: - "i. Whether the interest income of Rs. 1.72 crore is part of operating income or not. ii. Whether loss on sale of fixed assets, interest paid to income tax, office closure cost, amount paid to telephone adalat are abnormal costs and are required to be excluded while computing the operating expenses. iii. Whether business promotion expenses disallowed by the A.O and admitted by the appellant should also be excluded while computing the operating expenses. iv. Whether, the appellant is entitled for adjustments to the operating profit, on account of differences in the working capital position and differences in the risks profile, between the appellant and the comparable companies. v. Whether the appellant is entitled to the benefit of +5% range mentioned in Proviso 92C(2) while computing the Arm's Length Price." 8. The submissions of the assessee before the CIT (Appeals) were mainly these. The parking of the surplus funds in interest bearing securities was a....
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....lso irrelevant, according to the CIT (Appeals) that the interest income was treated as business income in the assessment order. For these reasons, the CIT (Appeals) held that for the purpose of determining the arm's length price in respect of the controlled transaction of the assessee, the interest income of Rs. 1.72 crores was to be considered as nonoperating income. He thus endorsed the decision of the TPO/AO. 10. The assessee carried the matter in further appeal before the Income Tax Appellate Tribunal. After considering the rival contentions and examining the facts, the Tribunal agreed with the income tax authorities, recording the following findings: - (a) The purpose of the exercise before the TPO is to determine the arm's length price of the transactions of the assessee with its associates by comparing the same with un-controlled, comparable transactions and in doing so he has to consider all the components of the operating income from which the costs incurred in earning such income have to be deducted; (b) It was not sufficient to decide whether the interest income fell to be assessed as business income or as income under the residual head for the purpose of making....