TaxTMI 
TaxTMI 
2019 (1) TMI 269
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.... 2. That the Hon'ble DRP-2 direction are bad in law to the extent the same are prejudicial to the appellant because: - (a) That the Ld. TPO erred, on facts and in law, in applying lower turnover filter of INR 1 crore for rejecting the independent companies. Without prejudice, the Ld. TPO erred, on facts and in law, in not applying an upper turnover filter to reject companies having significantly higher turnover vis-a-vis the appellant. (b) That the Ld. TPO/Hon'ble DRP have erred, on facts and in law, in rejecting Comprehensive objection filed towards the issue related to the SDT. 3. That the Hon'ble DRP-2 and the Ld. A.O./TPO has erred on facts and law by rejecting the internal CUP method adopted by the appellant towards the internal transfer of power, disallowances of expenses making the entire transfer pricing adjustment of INR 30,91,35,204/- in respect of following specified domestic transactions: (A) The Ld. TPO and Ld. A.O. have erred, in law and facts and making the SDTR adjustment of INR 29,61,28,642/- by erroneously recalculating and re-computing the transfer of Power at the rate on notional basis, which is contrary to pro....
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....es which directly contribute towards company polices merchant banking devices, security and stock broking series, loan syndication/ debt syndication and project consultancy services, investment banking services, institutional equities, insurance brokerage, asset management and wealth management, merger and acquisitions advisory, ESOP advisory, equity/debt placement and restructuring, syndication of finance, portfolio management and mutual fund distribution and do not satisfy the functional, asset and risks ("FAR") analysis test visa- vis the appellant in relation to the specified Domestics I transaction pertaining to provision of advisory services. (C).That the Hon'ble DRP and Ld. TPO/A.O. failed to apply his mind on the nature of expense amounting to Rs. 47,78,634/- for generation of power out of which some portion used in captive power unit and the remaining transmitted in the manufacturing of sponge iron etc. i.e. main business of the appellant which requires a lot of expenses resulting in allocation of Expenses on proportionate basis. 4. The Ld. TPO/Hon'ble DRP have erred on the facts and in law, by making the additions in the nature of by reducing the....
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....see company electronically filed its original return of income on 29.11.2013 for the A.Y.2013-14 declaring total income at Rs. 85,22,71,300/-. Subsequently, the case was selected under CASS for Complete Scrutiny. Notice u/s 143(2) of the I.T. Act, 1961 was issued on 04.09.2014 and duly served upon the assessee company. Thereafter, notice u/s 142(1) of the I.T. Act, 1961 along with questionnaire was issued on 27.08.2015 and duly served upon the assessee company, wherein certain details were called for. In response to these notices, C.A & AR on behalf of the assessee company, attended hearings from time to time and filed the requisite details/information which has been placed on record. Necessary details with regard to CASS reasons were obtained during the course of assessment proceedings and was examined and duly placed on record by the Assessing Officer. As one of the reasons of CASS was "Large value domestic transaction with associated enterprises (Form 3CEB)". As per the instruction No. 15 of 2015, the case was therefore referred to the Assistant Commissioner of Income Tax (Transfer Pricing)-2(3)(1), New Delhi after obtaining approval from Pr. CIT -06, New Delhi for the reference....
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....AR focused his argument directly on the issue involved. 7. As regards Ground Nos. 1 and 2 are general in nature, hence same are dismissed. 8. The Ld. AR submitted that as regards to Ground No. 3 (a), the assessee company is engaged in the business of manufacturing & selling of sponge iron bullets, wires, oxygen gas & generation of power. It has set up power plants primarily for the purpose of generation of electricity for captive consumption inter alia, manufacturing of various iron & steel products. The assessee is regularly claiming deduction u/s 80IA of the Act in respect of profits derived from the captive power plant/ undertaking. The assessee transfers the power for captive use as per the market rate/below on which CSEB selling the power which is @ 4.64 p.u. (per unit). In the previous so many years the department has only one grievances that CSEB rates consists @ Rs. 0.38 p.u. on account of electricity tax, cess and for which the transfer price or power price have to be adjusted to that extent by disallowing to that extent and for the remaining the assessee is entitled for transfer price by treating sale price of power transferred for captive use. The matter travelled ....
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..... AR further submitted that during the proceeding pending before TPO/DRP a comprehensive submissions on the issue involved was filed but the same was not considered in right prospective and even the tariff was not considered as provided by the CSRC that neither there are any occasion to distribute the books of account maintained by the assesse nor any adverse view on the submission and evidence place on record. The Ld. AR relied upon various case laws like Godawari Power, Kanoria Chemicals, Jindal Steels, Deepak Fertilizers, Mumbai bench of West Cost papers and crux of all the citation are that on Section 80IA (8) with respect to market rate. The Ld. AR submitted that the IEX rate was even not properly considered. In support thereof, the Ld. AR placed on record of IEX rate for May 2018 as appeared in the newspaper of business standard dated 08.06.2018 wherein it categorically appeared that there are 3 types of rates namely average, minimum, maximum. Therefore SDTR adjustment of INR 29,61,28,642 which is erroneously recalculating and re-computing the price of purchase on notional basis are liable to be deleted. 11. The Ld. DR submitted that the assessee do not have license to sal....
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....ket price of power for the purposes of computing deduction admissible to power units u/s 80-1A of the I.T. Act. We find the assessee in the instant case has sold the electricity to its captive plant at the rate of Rs. 3.92 per unit i.e. rate at which CSEB was selling to industrial consumers as on 01.04.2008. The above rate of Rs. 3.92 included electricity duty at the rate of 8% of energy charges and cess of Rs. 0.05 paise per unit. Since according to the Assessing Officer, the assessee has not been making actual sales to its other units because the power generated is consumed captively by other units. According to him, since the assessee is only generating power but it does not have the licence to distribute it, it cannot charge the electricity duty at the rate of 8% and cess 0.05% on the transfer of power. Thus, according to him, the assessee has inflated the sale of power by Rs. 0.293 per unit and has accordingly inflated the deduction u/s 80IA by a sum of Rs. 3.63 per unit. We find the Id. CIT(A) following various decisions including the decision of the Delhi Bench of the Tribunal in the case of Jindal Steel & Power Limited reported in (2007) 16 SOT 509 decisions of the Mumbai B....
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....ated the deduction u/s 80IA by a sum of Rs. 3,86,93,638/- which is accordingly added back to the total income of the assessee as excess deduction u/s 80IA(8) claimed in its power plant. 3.6.2 Therefore, the issue is whether the AO is justifiable in excluding Rs. 0.2932 per unit while computing "market price" of power for the purpose of computing deduction admissible to power units under section 80IA of the Act. In this regard sub-section (8) of section 80-1 A of the Act which provides for determination of profits derived from an industrial undertaking where goods from one eligible business are transferred to another business carried on by the assessee reads as under: "(8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried. Off by the assessee, 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 the transfer....
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....adopted the price at which power is sold by the SEB as the transfer/ market price power. Hon'ble 1TATDelhi, while approving the profits so computed by the assessee, observe as under: "15. Therefore, from the aforesaid, it can be deduced that market value is an expression which denoted a price arrived at between the buyer and the seller in the open market wherein the transactions take place in the normal course of trading and competition in contrast to a situation where the price is fixed between a buyer and seller can b understood as denoting 'market price' since the elements of trading and competition exist. Whereas in the case of the latter situation, the price fixed between the buyer and seller cannot be understood as denoting the market price since the elements of trade and competition are conspicuous by their absence." ........ 18. Having held so, the natural corollary is to ascertain whether the price recorded by the assessee at Rs. 3.72 per unit can be considered to be the market value for the purposes 0 Section 80- IA(8) of the Act. The answer, to our mind is in the affirmative. This is for the reason that the assessee as an industrial....
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....siness in terms of section 80-1 A(8) of the I.T. Act. 63. We find the Mumbai Bench of the Tribunal in the case of Deepak Fertilizers in ITA No.2116/2013 order dated 30.01.2015 for the assessment year 2010-11 while deciding an identical issue has also taken similar view. The Chennai Bench of the Tribunal in the case of Sri Matha Spinning Mills (P.) Ltd. vs. DCIT reported in (2013) 141 ITD 238 has also taken identical view in favour of the assessee. Under these circumstances, we do not find any infirmity in the order of the Id. CIT(A) in deleting the disallowance made by the Assessing Officer u/s 80-IA(8) of the I.T. Act. We, therefore, dismiss the grounds raised by the Revenue on this issue. Since the identical issue was decided in favour of the assessee for A.Y. 2009-10 wherein similar facts are involved, there is no need to adopt a different approach as the Ld. DR could not point out the different factual matrix in the present Assessment Year. Therefore, Ground No. 3(a) is allowed. 13. As regards to Ground No. 3 (b), the Ld. AR submitted that the DRP has erroneously questioned the business prudence resulting partial additions on account of managerial remunerat....
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....en compared to other companies. The Ld. AR also pointed out that Ms. Shallu Jindal is professionally qualified as she possess a Diploma in Business Management and also has Entrepreneurship skills and therefore it should be learnt from her primary responsibilities that her role is to promote and develop strategies leading to efficient and smooth running of business activities of the company at present as well as in coming years. The Ld. AR further pointed out that the comparison done by the Assessing Officer between the remuneration paid by the assessee company to Ms. Shallu Jindal with the remuneration paid by Essar Steel Ltd to Sh. Ashutosh Agarwala is not justified and is incorrect considering the facts that on the one hand the assessee company is a profit making venture whereas on the other hand Essar Steel Ltd. is incurring losses year on year. It should also be noted that the 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 Ld. AR made reference to Circular No.....
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....nce 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. Ground No. 3 (b) is allowed. 16. As regards to Ground No. 3(c) relating to addition on account of allocation of common expenses u/s 80IA, the TPO reduced amount of Rs. 44,76,197 and DRP directed to enhance the said amount to Rs. 47,78,634. The Ld. AR submitted that all the additions are baseless as the submissions made on these issues have not been properly considered and appreciated. In relation to the allocation of expenses the Assessing Officer/TPO allocated the following expenditures in the ratio of turnover between eligible and non-eligible units alleging that the said expenses had not been apportioned by the assessee: A. Director remuneration amounting to Rs. 97,24,981; B. Salary paid to employees amounting to Rs. 741.40 lakhs; C. Repairs incurred on building amounting to Rs. 1,15,41,000; and D. Internal audit fee paid of Rs. 5, 00,000. The Ld. AR submitted that in the above four expenditures the Assessing Officer/TPO/DRP did not appreciated th....
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....I. Entire case of AO in both the assessment years is based on surmises and conjectures. The learned CIT(A) had passed a fair, rationale and just order. There was no scope to interfere with the impugned orders as rightly held by the learned AM in his proposed order. On similar facts claim in earlier years was allowed to the assessee. ......... 43. I see some parallel between the facts of the abovecited case and case in hand, because profit was disclosed in Unit Nos. II and III on which deduction under s. 80-I was claimed and no profit was disclosed in Unit No. I on which no such deduction was permissible and expenses in aforesaid Unit No. I were much higher than in the other two units. It was probable that more expenses were claimed in Unit No. I and some of the expenses of Unit Nos. II and III were diverted and claimed in Unit No. I. But no presumption under the law could be raised that expenses were so diverted. The assessee has produced accounts and details and, therefore, correct position "could have been ascertained from the material statement of relevant persons including management and staff of the assessee could have been examined." But without any investig....
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....price and therefore, resulted the entire addition made just on presumption and assumption. Therefore, the Ld. AR submitted that the finding of Assessing Officer is liable to be deleted. 20. The Ld. DR relied upon the order of the TPO, directions of the DRP and Assessment Order. 21. We have heard both the parties and perused all the relevant material available on record. The Revenue authorities reduced the selling price of power even as well as increased the expenses towards the claim of deduction u/s 80IA(8) instead of reducing the claim u/s 80IA(8) of the Act. To arrive at this conclusion, none of the authorities have given any plausible explanation in the orders. The Assessing Officer/TPO while not allowing the benefit of downward adjustment as provided in the proviso of Section 92C of the Act from the Arm's length price, has not given any reason while making this addition. This addition is based on presumption and assumption which is not permissible under the Income Tax Act, 1961. Thus, Ground No. 4 is allowed. 22. As regards to Ground No. 5 relating to Bank Guarantee commission of Rs. 1,14,085/-, the DRP directed for the deletion by following the CBDT Circular on t....
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....nses, Distribution Expenses, Vehicle Hiring, construction of school building, devasthan /temple, drainage, barbed wire fencing, educational schemes and distributions of clothes etc voluntarily. In this background, and without much of a discussion on the factual aspects, the Assessing Officer disallowed the claim of CSR expenses even without disputing the factual matrix or bringing on record any adverse material. 30. The Ld. AR submitted that the AO/TPO as well as the DRP has erred on facts and law by not properly appreciating that Corporate social responsibility, also called corporate conscience, corporate citizenship, social performance, or sustainable responsible business/ Responsible Business is a form of corporate self regulation integrated into a business model. CSR policy functions corporate self-regulating mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards and international norms. The goal of CSR is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the pu....
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....td. (1925) 10 Tax Cases 155 (HL) was referred by the Ld. AR which was taken into consideration by the Hon'ble Supreme Court in the case of CIT vs Chandulal keshavlal & co. (1960) 38 ITR 601 (SC). 32. The Ld. AR further submitted that in view of insertion of explanation 2 to section 37(1), with effect from 1st April 2015, the expenses incurred in discharging corporate social responsibility are not deductible in computation of business income. The Ld. AR further submitted that the amendment should not be treated as clarificatory in nature. The amendment in law, which was accompanied by the statutory requirement with regard to discharging the corporate social responsibility, is a disabling provision which puts an additional tax burden on the assessee in the sense that the expenses that the assessee is required to incur, under a statutory obligation. The amendment u/s 37(1) which has been introduced with effect from 01.04.2015 cannot be construed as to disadvantage to the assessee in the period prior to the amendment. In the course of assessee's business deductions are not allowed in the computation of income. This disallowance is restricted to the expenses incurred by the asses....
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....ich reads as follows: "It was made clear in the above cited cases of Usher's Wilshire Brewery vs. Bruce (supra) and Smith vs. Incorporated Council of Law Reporting (1914) 5 Tax Cases 477 that a sum of money expended not with a necessity and with a view to direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order to indirectly facilitate, carrying on of business may yet be expended wholly and exclusively for the purpose of the trade; and it appears to me that the findings of the CIT in the present case, bring the payment in question within that description. They found (in words which I have already quoted) that payment was made for the sound commercial purpose of enabling the company to retain the existing and future members of staff and for increasing the efficiency of the staff; and after referring to the contention of the Crown that the sum of Sterling Pound 31,784 was not money wholly and exclusively laid out for the purpose of the trade under the rule above referred to, they found deduction was admissible-thus in effect, though not in terms, negativing the Crowns contentions. I think that there was ample material to supp....
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....ions are not mutually exclusive' Thus, there are overlapping areas between the donations given by the assessee and the business expenditure incurred by the assessee. In other words, there can be certain amounts, though in the nature of donations, and nonetheless, these amounts may be deductible under section 37(1) as well. Therefore, merely because an expenditure is in the nature of donation, or, to use the words of the CIT(A), 'promoted by altruistic motives', it does not cease to be an expenditure deductible under section 37(1). In Mysore Kirloskar Ltd.'s case (supra), Their Lordships have observed that even if the contributions by the assessee is in the forms of donations, but if it could be termer) as expenditure of the category falling in section 37(1), then the right of the assessee to claim the whole of It as a deduction under section 37(1) cannot he declined. What is material in this context is whether or not the expenditure in question was necessitated by business considerations or not. Once it is found that the expenditure was dictated by commercial expediencies, the deduction under section 37(1) cannot be declined As to what should be relevant for examining this aspect o....
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.... incurred in view of specific directions of the Government of India. This factual aspect is no. even disputed or challenged by the Revenue at any stage, it cannot but be in the business interest of the assessee-company to abide by the directions of the Government of India which also owns the assessee-company. In any event, as observed by the Hon'ble Madras High Court in Madras Refineries Ltd.'s case (supra), monies spent by the assessee as a good corporate citizen and to earn the goodwill of the society help creating an atmosphere in which the business can succeed in a greater measure with the help of such goodwill. The monies so spent therefore are required to be treated as business expenditure eligible for deduction under section 37(1) of the Act. What is the expenditure for the implementation of 20-point plant after all? It is solely for the welfare of the oppressed classes of society, for which even the Constitution of India sanctions positive discrimination, and for contribution to all around development of villages, which has always been the central theme of Government's development initiatives. An expenditure of such a nature cannot but be, to use the words emplo....
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....ious rules guiding how legislation has to be interpreted, one established rule is that unless a contrary intention appears, legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit: law looks forward not backward. As was observed in Phillips vs. Eyre [, a retrospective legislation is contrary to the g rural principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law." It may appear to be some kind of a dichotomy in the tax legislation but the we....