AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (10) TMI 991
X X X X Extracts X X X X
X X X X Extracts X X X X
....essing the income of the assessee at Rs. 49,03,25,520/- instead of the returned income of Rs. 20,64,13.580/-. 3. The reference made by the AO to the TPO suffers from jurisdictional error as the AO has not recorded any reasons in the draft assessment order/ assessment order based on which he reached the conclusion that it was 'necessary or expedient' to refer the matter to the TPO for computation of the arm's length price ('ALP'), as is required under section 92CA(1) of the Act. 4. The AO/TPO/DRP erred in not following the detailed procedure as laid down in Chapter X of the Act read with the Rules, for determining the mechanism for computing the arm's length price, and has not allowed the Assessee the benefit of various provisions as stated in the Act and the Rules. 5. That the AO/ TPO/DRP has erred on facts and in law in disallowing remuneration of Rs. 78.24.682/- paid to Ms. Shallu Jindal, Whole Time Director of the assessee. The said addition is illegal and bad in law. 1. The DRP/TPO/AO have erred in law and facts by erroneously questioning the business prudence thereby making addition on account of managerial remuneration paid to Smt. Shallu Jindal without appreciating t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ances of the case and in law, the AO/DRP/TPO erred in rejecting the comparable analysis/ benchmarking analysis undertaken by the Assessee for purchase of power without appreciating that the same meets the requirement of FAR analysis as per Rule 10B of the Income Tax Rules. 1962. 2. That in view of the facts and circumstances of the case and in law, the TPO/AO/DRP have erred in applying the IEX rate. The said rate is not applicable on the facts of the present case. 3. That, without prejudice, no show cause notice has been issued by the TPO as regards application of IEX. Show cause notice is a mandatory requirement and non-issuance of a notice is an illegality. 4. That, without prejudice, TPO erred in exercising power u/s 133(6) of the Act. Information obtained u/s 133(6) could not have been used. That, in any case, the TPO has used the information obtained u/s 133(6) without confronting the assessee with the same, which is not permitted in law. 5. That, without prejudice, the said addition is highly excessive and has been wrongly worked out. 8. That the AO/DRP has erred on facts and in law in making disallowance of expenditure on Corporate Social Responsibility amounting....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under CASS for Complete Scrutiny. Notice u/s 143 (2) of the Act was issued on 31.08.2015 and duly served upon the assessee company. Thereafter, notice u/s 142(1) of the Act along with questionnaire was issued on 28.07.2016 and duly served upon the assessee company, wherein certain details were called for. In the meanwhile, a reference u/s 92CA was made by the ACIT, Circle - 17(2), New Delhi to determine the Arm's Length Price in respect of specified domestic transactions undertaken by the assessee during the F.Y. 2013-14. Total adjustment made by the TPO vide order dated 04.10.2017 are as follows: On account of managerial remuneration Rs. 78,24,682/- Purchase of power Rs. 26,85,00,090/- Adjustment on account of allocation of expenses Rs. 3,31,20,337/- Total Rs. 30,94,45,109/- The assessee filed objections before the DRP and the DRP vide directions dated 13.09.2018 directed the Assessing Officer to incorporate the findings in respect of various objections in final order. The Assessing Officer vide final Assessment Order wrongly mentioned as draft assessment order dated 24.11.2018 made various additions and assessed the total income at Rs. 49,03,25,520/-. 4. Being aggr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ses. 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. Ground No. 3 (b) is allowed." As regards to contention of the revenue that in earlier Assessment Year, the services provided by the whole Time director was not discussed is not correct as the Tribunal has discussed the same in the findings. Besides the factual aspect in the present year has not changed which is established by assessee from the records. In fact, para 6.1 of the TPO's order the role and responsibilities of the Director was submitted by the assessee. The minutes of meetings were also submitted by the assessee. Therefore, the assessee demonstrated the services provided by the Whole Time Director. Thus, issue is identical in the present year as well. Hence, Groun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 investigation and without collecting any material an arbitrary assessment by holding that expenses in Unit No. I should be proportionate to those in Unit Nos. II and III was made. Assessment based on such inference has to be held as arbitrary. ......... 46. It is evident from above that even when the material produced by the assessee is rejected, the authorities cannot proceed to levy whatever tax they may levy. The assessment must be based on some material. If it is not based on any materi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. In the previous years the Revenue disputed CSEB rates consists @ Rs. 0.38 p.u. on account of electricity tax, cess and for which the transfer price or power price was 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 assessee filed appeal before the CIT (A) wherein the CIT (A) allowed the appeal of the assessee. Against the said order the Revenue filed appeal before the Tribunal wherein the Tribunal upheld the finding of CIT (A). The Ld. AR pointed out that as per the new Finance Act, 2013 from A.Y. 2013-14, the domestic transaction took place u/s 92C whereas the Assessing Officer adopted a figure that CSEB purchasing power @ 1.89 p.u. on the basis of the information gathered from the CSEB U/s 133(6). The TPO has not taken into consideration that there are criteria for purchase from State generating station when excess production are there. In such situation, the generating station are under....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctions of the prevailing purchase price and adjustments made to the market price for the electricity thereby adding back the sum of Rs. 3,86,93,638/- as excess deduction u/s 80-IA(8) claimed in its power plant. The assessee is engaged in generation of power and the power so generated is transferred to other units of the assessee captively at the rate at which it is obliged to purchase from the State Electricity of Board. The assessee has made sales of Rs. 51,73,22,855/- from the power plant and the profit has been arrived at Rs. 18,51,63,515/- against which deduction u/s 80IA has been claimed @100%. The sales of power to other units have been considered at the rate of Rs. 3.92, the rate of which CSEB was selling to industrial consumers as on 01.04.2008. AO observed that the rate of Rs. 3.92 included electricity duty @8% of energy charges and cess @ 0.05% per unit. AO also observed that the assessee has not been making "actual sales" to its other units because the power generated is consumed captively by other units. As such, the sale to other units of the assessee can at best be called notional sales. When actual sales are made, duty @8% and cess @0.05% collected from, consumers is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y compute such profits and gains on such reasonable basis as he may deem fit. Explanation.-For the purposes of this sub-seclion, "market value", in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market." From the above provision it is clear that the price at which goods are to be transferred from one business of the assessee to another business should correspond to the market value of such goods for computing the profits of the eligible business. The expression 'market value' has been defined in Explanation to sub-section (8) to section 80-IA of the Act, as the price which such goods would ordinarily fetch when sold in the open market. 3.6.3 In the present case, the power generated by the captive plants was consumed by the manufacturing units of the appellant at Raigarh. The appellant accounted for the revenue/profit on transfer of such power to its captive units at the rate of Rs. 3.92 per unit, which is the price charged by CSEB for supplying power to industrial consumers. This rate of Rs. 3.92 charged b: the CSEB represents the market price. 3.6.4 It is also noteworthy that had the manufacturing....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce received by the assessee would be in the vicinity of Rs. 3.72 per unit i.e. charged by the Board from its industrial consumers/users. Thus, under the given circumstances, it would be in the fitness of things to hold that the consideration recorded by the assessee's undertaking generating electric power for transfer of power for captive consumption at the rate of Rs. 3.72 per unit corresponds to the market value of power. Therefore, on this aspect, we uphold the stand of the assessee and set aside order of the Commissioner (Appeals) and direct the assessing officer to allow relief to the assessee under Section 80-IA as claimed. Assessee succeeds on this ground. " 61. We find the decision of the Delhi Bench of the Tribunal has been upheld by the Hon'ble Punjab & Haryana High Court in ITA No.53/2008. Similarly, the Hon'ble Chattisgarh High Court in the case of CIT vs. Godawari Power & Ispat Ltd. reported in 42 taxmann.com 551 has held that where assessee had established a captive Power Plant in State of Chhattisgarh to supply electricity to its steel division, for purpose of section 80-IA deduction market value of power supplied by assessee to steel division should be compute....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rties and perused all the relevant material available on record. The Tribunal in A.Y. 2013-14 held as under: "34. We have heard both the parties and perused all the relevant material available on record. The Ld. AR relied upon the decision of the Tribunal in case of Jindal Power Ltd. (supra). The Tribunal held as under: "16. We have noted that fundamental objection of the Assessing Officer is that the expenses is voluntary, not mandatory and not for business purposes. As for the contention that the expenses being in the nature of voluntary expenses, which are not mandatory, and which the assessee was not statutorily required to incur, are not admissible deduction in computation of business income, we are of the considered view that as long as expenses are incurred wholly and exclusively for the purposes of earning the income from business or profession, merely because some of these expenses are incurred voluntarily, i.e. without there being any legal or contractual obligation to incur the same, those expenses do not cease to be deductible in nature. In other words, it is not necessary that every expense that could be allowed as a deduction should be such as a hardnosed, and per....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee can claim deduction under s. 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the legislative history of s. 37 of the IT Act, 1961, which corresponds to s. 10(2)(xv) of the Act. An attempt was made n the IT Bill of 1961 to lay down the "necessity" of the expenditure as a condition for claiming deduction under s. 37. Sec. 37(1) in the Bill read "any expenditure, laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed." The introduction of the word "necessarily" in the above section resulted in public protest. Consequently, when s. 37 was finally enacted into law, the word "necessarily" came to be dropped. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under s. 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law." 17. The next issue is whether it is for the purposes of business or not. We may, in this regard, usefully refer to the observations of a coordinate bench of this Tribunal, speaking....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as payment opposed to public policy It is not as if Tie payment in the present case had been made as an illegal gratification. There is no law which prohibits the making of such a donation. The mere fact that making of a donation for charitable or public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under section 37(1) of the Act when such payment had been made for the purpose of assessee's business. 8. In the case of CIT v. Madras Refineries Ltd. [2004] 266 ITR 170 1, Hon'ble Madras High Court has upheld deductibility of the amount spent by the assessee even on bringing drinking water to locality and in aiding local school. While doing so, Their Lordships observed as follows: The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and the locality in which business is located in particular. Being a good corporate citizen brings goodwill of the local community as also with the regulatory agencies and soc.ety at large, thereby creating an atmosphere in whic....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 20 3 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession", the expenses incurred in discharging corporate social responsibility are not deductible in computation of business income. Learned Departmental Representative submits that this amendment should be treated as clarificatory in nature, as it is stated to be in so many words, and we should, therefore, hold that the expenses in discharging corporate social responsibility were outside the ambit of expenses deductible under section 37(1). 19. We are unable to see legally sustainable merits in this plea either the amendment in the scheme of Section 37(1), which has been introduced with effect from 1st April 2015, cannot be construed as to disadvantage to the assessee in the period prior to this amendment. This disabling provision, as set out in Explanation 2 to Section 37(1), refers only to such corporate social responsibility expenses as under Section 135 of the Companies Act, 2013, and, as such, it cannot have any application for the period not covered by this statutory provision which itself came into existence in'2013. Explanation 2 to Section 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orporate 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, in the course of his business are not allowed deduction in the computation of income. This disallowance is restricted to the expenses incurred by the assessee under a statutory obligation under section 135 of Companies Act 2013, and there is thus now a line of demarcation between the expenses incurred by the assessee on discharging corporate social responsibility under such a statutory obligation and under a voluntary assumption of responsibility. As for the former, the disallowance under Explanation 2 to Section 37(1) comes into play, but, as for latter, there is no such disabling provision as long as the expenses, even discharge of corporate social responsibility on voluntary basis, can be said to be "wholly and exclusively for the purposes of business''. There is no dispute that he expenses in question are not incurred under the aforesaid statutory obligation. For this reason also, as also for the basic reason that the Explanation 2 to Section 37(1) comes into play with ....