TaxTMI 
TaxTMI 
2019 (11) TMI 1046
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 94,90,362/- 2. Deletion of addition on account of CSR expenses, community welfare expenses, etc of Rs. 24,35,192/ 3. Deletion of addition on account of excess sale of power plant. 4. Deletion of addition on account of allocation of expenses between power plant unit and caustic plant." 4. The assessee has raised the following grounds: " 1. On the facts and circumstances of the case, the Id. CIT (A) had grossly erred in dismissing the ground of appeal that the Id. AO was not justified in travelling beyond the show cause notice issued u/s 263 by saying that this ground is general in nature and does not require any specific comment. 2. On the facts' and circumstances of the case, the Id. CIT (A) had grossly erred in confirming the disallowance of Rs. 15,000/- on ad hoc basis i.e.10% of 1,50,000/- claimed by your appellant on account of club expenditure. 3. On the facts and circumstances of the case, the Id. CIT (A) had grossly erred in confirming the disallowance of Rs. 2,02,082/- on ad hoc basis i.e. 10% of 20,20,825/- claimed by your appellant on account of other staff welfare expenses. 4. On the facts and circumstances of the case, the ld. CIT (A) had grossly e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er had disallowed these expenses on the ground that same were not incurred in connection with the business of the assessee company. However, ld CIT(A) restricted the disallowance to 10% of the total expenses on adhoc basis without giving any valid reason. Ld A.R. also relied on the decision of this Bench of the Tribunal in assessee's own case for the assessment years 2003-04 and 2004-05 in ITA Nos. 192 & 194/Ran/2008, wherein, on similar facts and circumstances of the case, the Tribunal following the decision of Patna Bench of the Tribunal in assessee's own case in ITA No.441/2005 for the assessment year 2000-2001 has deleted the disallowances made by the lower authorities. Hence, it was his submission that the disallowances restricted by the CIT(A) under the different heads deserve to be deleted. 9. Replying to above, ld CIT DR supported the order of the CIT(A). He further submitted that even though the findings of the AO that these expenses had no connection with the business of the assessee company, but the CIT(A) has taken a liberal view to restrict the disallowance to 10% considering the locality of the assessee company being naxal affected area and also other business expedi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elevant facts of the case are like this. During the assessment proceedings, the Assessing Officer noticed that the assessee claimed deduction u/s. 80- IA for its unit of a captive power plant amounting to Rs. 16,58,48,283/- (restricted to Rs. 13,47,08,499/-) for assessment year 2006-07. The AO also observed that the assessee for its power plant had taken sale value amounting to Rs. 61,39,17,000/-, which had been arrived at by taking the tariff rate of JSWEB @ Rs. 3.6158/ unit. Therefore, the Assessing Officer required the assessee to give reason/justification of valuation of power produced on the basis of JSEB rate. After considering the submission of the assessee, the AO relying on sub-section(5) of Section 80IA, observed that the word derived from cannot have a wide import and derivation of income must be directly connected with the business in the sense that the income is generated by the business. Thereafter the Assessing officer referred to sub-section (8) of Section 80IA, observed that it was clear that one had to take the consideration at the market value which in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the ope....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch reduces the profit claimed u/s. 80IA of the Act by the same amount. Ld CIT DR also submitted that Ground No.3 of appeal of the revenue for assessment year 2006-07 has to be taken into consideration while deciding Ground No.8 of appeal of the assessee. Ld CIT DR pressing said Ground No.3 of revenue submitted that the assessee has calculated the sales of its steam boiler unit at production cost + 20% mark up but in the case of its power plant instead of taking the same logic, the assessee has taken sale value of Jharkhand State Electricity Board (JSEB) as its sale rate which is not correct. Ld CIT DR submitted that the CIT(A) was not right in deleting the said addition on the ground that the value should be taken at market value of goods as per State Electricity Board. Ld CIT DR submitted that there is no justified reason or basis in the CIT(A)'s order as to why sale value could not have been taken as cost of production + 20% mark up in stead of taking JSEB value which includes transmission cost, operational cost/insufficiency of JESB which has no bearing to the exempt plant of the assessee. Ld CIT DR also submitted that the CIT(A) on one hand while deciding the issue of expenses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the CIT(A) pertaining to the electricity duty should also be allowed to the assessee. 16. On careful consideration of the rival submissions, first of all, we find it appropriate and necessary to reproduce the relevant operative para 9.4 of the CIT(A)'s order, wherein, he has allowed part relief to the assessee and partly confirmed the difference of Rs. 33,95,748/- between the sale price as per books and as per working noted in the CIT (A)'s order to calculate the profit earned by 80IA eligible unit as under: "9.4. I have considered the submission of the appellant and perused the assessment order as well as remand report of the Ld. A.O. It is noted that the company has claimed deduction u/s 80-IA for its unit of a captive power plant amounting to Rs. 16,58,48,283/- for A.Y.2006-07 and for its power plant it has taken sale value amounting to Rs. 61,39,17,000/- which has been arrived by taking the tariff rate of JSEB @Rs. 3.6158 per unit. It is noted that the appellant has computed deduction to the tune of Rs. 16,57,98,146/- as profit generated from the captive power plant and the computation is done by adopting the transfer price of power captively consumed at Rs. 3.61 per unit ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant company is too as industrial consumer is buying power from JSEB at a rate of 3.61 per unit. It is also noted that the appellant has argued that had it not been generating power from its captive power plant for its own consumptions, the same power would have been purchased from JSEB at a rate of 3.61 per unit. Further, it is also noted that for adaptation of cost plus mark up as transfer pricing for power, the A.O. has relied on the decision of Bombay High Court in the case of Atul Durga House Ltd. 211 ITR 604, it is important to mention here that the decision was given in the context of claim u/s 80J of the Income Tax Act I961 as applicable prior to 1.4.1976 and the said section was not containing any provision similar to sub-section 8 of section 80-IA which requires computation of profits by taking market value of goods transferred from eligible unit to another unit. The present case is clearly distinguishable as the sub section 8 of Section 80-IA clearly mandates the adoption of market price for inter unit transfers. Thus adoption of cost plus mark up is clearly in contradiction of sub section 8 of section 80-IA. It is also noted that the Ld. A.O. has also mentioned M/s. Damo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s electricity to industrial consumers is representative of the price that electricity would ordinarily fetch in the open market and i.e. the price has been adopted by the assessee for the electricity generated by the eligible business transferred to its other business for the purpose of computation of profits and gains of the eligible business in terms of Section 80-IA(8) of the Act." In this regard it is noted that the Hon'ble Mumbai Tribunal in the case of the West Coast Paper Mills Ltd. Vs. Asstt. Commissioner of Income Tax [2006] 103 ITD 19 MUM [2006] 286 ITR 252 MUM has noted that the rate to be adopted for the power generated and supplied to assessee's paper division for the purpose of working of the profit for the purpose of 80IA of the Income Tax Act would be linked to the purchase price of power paid by the assessee to KSEB. The Hon'ble Tribunal concluded that the price should be worked out on the basis of average unit price of power purchased by assessee from KSEB during the whole year minus certain extraneous charges such as electricity duty etc. which is not connected to the business of the assessee. Applying these guidelines of Hon'ble Mumbai Tribunal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s the profit claimed u/s.80IA by the same amount and hence the same is added back to the total income of the assessee company." 18. In view of above observation of the AO, it is clear that even at the time of framing of assessment order and making addition, the AO was not sure about the cost of production of power and he assumed the same at Rs. 2.5 per unit with a rider that same may be revised later if the assessee furnishes details of cost of production of power alongwith necessary evidence. Be that as it may, from the order of the Hon'ble Chhattisgarh High Court in the case of Godawari Power & Ispat Ltd., (supra), we observe that Their Lordships speaking for the Hon'ble High Court explicitly held that where the assessee had established a captive power plant to supply electricity to its Steel Division, then for the purpose of section 80IA of the Act, deduction of market value of power supplied by assessee to Steel Division should be computed considering rate of power charged by Chhattisgarh State Electricity Board for supply of electricity to industrial consumers. Further, ITAT Kolkata in its order in the case of Graphite India Ltd (supra) referring to the decision of Hon'ble Gu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....round No.(iv) of the revenue, we have heard the rival submissions and perused the relevant materials placed on the record of the Tribunal. 22. Ld counsel for the assessee submitted that the Assessing Officer has apportioned 45.68% of the claim of the assessee pertaining to Director sitting fees and business head office expenses pertaining to exempt unit, which was wrongly confirmed by the CIT(A). Ld counsel vehemently pointed out that no basis has been given by the Assessing Officer or CIT(A) for making the estimated apportionment and no such disallowance has been made in other assessment years. Ld counsel placing reliance on the decision of ITAT Ranchi Circuit Bench in the case of the assessee dated 2.12.2010 for assessment year 2005-06 in ITA No.236/Ran/2009 para 9 of the order submitted that the assessee maintains separate books of account for its 80IA eligible units and power generation unit and both the sets of accounts were also duly audited. Ld counsel contended that both the sets of books of account of the assessee were submitted before the authorities below and after examination of such books of account, they could not bring on record any specific expenses which were rela....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gement of company. It has also been argued that the apportionments of certain expenses made by the learned A.O. between 80-IA and other plants is totally baseless, assumptive and have no reasoning at all. The head wise details and explanation of expenses relocated by the Ld. A.O. is given hereunder:- Expenses head Amount Reallocated amount of 80IA plant Clarification Director sitting fee Rs. 1,60,000/- 73,088/- The Board of Directors reviews the performance of the Company and governance practices at the company and this was being done even before commissioning of 80-IA plant working since it's a captive plant. The mainline of business of the company is to manufacture & sale chemicals and therefore, review in Board meetings are done for chemical plants. Sales promotion Rs. 1,55,000 70,804/- Sales promotion expenses are incurred for promoting the sale of various chemicals manufactured by the company. It does not at all have any relevance to captive power plant which is a 80-IA plant. Hence, allocation of sales promotion expenses to 80-IA plant is not warranted. Business Head Office expenses Rs. 72,00,000/- 32,88,960 Business Head Office Expenses are sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Director's remuneration has been proportionately in the profit and loss account of captive power plant while claiming deduction u/s 80-IA and in schedule '14 of the profit and loss account of captive power plant it is mentioned as directors' remuneration. It is also noted that similarly, CSR expenses, employee's welfare expenses and other overhead and miscellaneous expenses directly related to power plant or having relevance to power plant are debited in power plant division and the same can be verified from profit and loss account of captive power plant. Therefore, it is claimed that as per the arrangement, the expenses are incurred specifically for chemical business, these expenses have no nexus with the power and steam units, therefore, no portion of this expenditure is allocated to power generating unit and these expenses are not in the nature of common corporate expenditure incurred for the benefit of all the units. Hence, reallocation done by A.O. on this account is erroneous and not justified. The stand of appellant is also supported by the judgment of Hon'ble Calcutta High Court in the case of Tide Water oil co (India) Ltd Vs CIT, 353 ITR 300 in which it w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....observation and conclusions arrived at by the CIT(A), we are of the considered view that the Assessing officer has apportioned the expenses of principal unit and captive power plant on the ground that the assessee was claiming deduction u/s. 80IA of the Act in respect of captive power plant but there were certain services and amenities which were used by Section 80IA unit in order to carry out day to day functioning and the financial management or related activities and services being provided by the head office of the assessee. Undisputedly, the assessee had prepared separate profit and loss account for its captive power unit and steam generation hydrogen boiler unit. The authorities below that expenses such as sales promotion, sales overhead expenses, business promotion /development expenses are attributable to those businesses whose products are sold in market, thus for the power and steam units whose productions are captively consumed, no allocation of marketing expense is required to be made as no marketing efforts are required for sale of products of such captive units. During assessment proceedings, the assessee explained to the AO that the Managing Director's remuneration ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d captive power plant, which was duly audited and submitted before the authorities below. Keeping in view these facts, the CIT(A) has allowed part relief to the assessee pertaining to the addition made by the AO on account of sales promotion expenses, business promotion and development expenses. Further, the CIT(A) has confirmed the addition made by the AO on apportioned amount pertaining to exempt unit at 45.68% in regard to Directors sitting expenses and business head office expenses. In the order for assessment year 2005-06, we are unable to see any findings of the Tribunal that apportionment of Directors sitting fees and head office business expenses has been dismissed by the Tribunal. Therefore, we decline to accept the contention that there is finding in favour of the assessee in the appeal for assessment year 2005-06 on this issue. 28. From a vigilant and careful perusal of assessment order and first appellate order, we are inclined to hold that the Directors sitting fees of Rs. 1,60,000/- and head office expenses of Rs. 72,00,000/- need to be apportioned on the basis of turnover of the assessee and the authorities below has done on the same line. Therefore, we are of the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d "rebate and claim" and all such deductions pertain to current year. On consideration of the submissions of the assessee, the ld CIT(A) called for a remand report from the Assessing Officer. The Assessing Officer sent his report on 4.8.2014. The CIT(A) after considering the remand report as well as the submission of the assessee, deleted the addition of Rs. 94,90,362/-, by observing as under: "I have considered the submission of the appellant and perused the assessment order passed by the Ld. A.O. and remand report of the Ld. A.O. It is noted that Hindalco Industries Ltd. (HIL) is one of the major customers of caustic soda lye. It is also noted that the assessee company following volumetric method to weigh caustic soda lye which is appropriate method to weigh this type of product as per its technical team but Hindalco Industries Ltd follows simple weight bridge method to weigh caustic soda lye hence, differences arise in weights at both ends. Hindalco Industries Ltd. accepts only that quantity which it receives at their end as per its weighment practice and payment releases only for quantity which it shown to receive. It is noted that the assessee has calculated the total short....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... account of CSR expenses and community welfare expenses. 36. The facts in brief are that the Assessing Officer noticed that the assessee has claimed expenses of Rs. 24,35,192/- under the head "gardening/horticulture expenses, CSR expenses and community welfare expenses". The Assessing officer required the assessee to substantiate its claim with documentary evidences, to which, the assessee furnished details in the form of ledger accounts. The Assessing Officer observed that specific details has not been furnished in respect of the expenditures except mentioning that expenditure has been incurred for social reforms, infrastructural development, watershed development, programme coordination, etc . From the above, the AO opined that it is not clear from the above narration as to whether the expenditure has actually been incurred for the purposes of the business of the assessee. The AO further observed that the assessee has incurred expenditure through the trust named "Jan Seva Trust", which is a separate entity having registration u/s.12A of the Act, then the amount should be treated as donation and not business expenditure. Considering the above, the Assessing officer disallowed Rs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... It is seen that towards CSR expenses the appellant claimed Rs. 18,39,493/-. It is true that people of the naxal affected area disturb employees of the company, transportation of incoming and outgoing materials, person coming from outside to deal with company to purchase or sale goods etc. It is also noted that the CSR activities change the mind set of naxal people towards company and feel that company is taking care of their development and if they would disturb the working of the company they would loose these helps and so they come forward help the company. In these days Corporate are under compulsion under the law to spent a percentage of their annual profit in CSR activities. In view of these facts it cannot be said to have been incurred for other than business purposes. It is also noted that the expenses claimed by the appellant under this head are on higher side. The Ld. A.O. had disallowed entire amount being Rs. 18,39,493/- which is 100% of the claim of assessee under this head. In view of this, it would be reasonable to disallow 5% of the CSR expenses amounting to Rs. 91,975/- as against disallowance of Rs. 18,39,493/- and 10% of community development expenses amounting ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rred in confirming the disallowance of Rs. 1,51,080/- on ad hoc basis i.e. 10% of Rs. 15,10,800/- claimed by your appellant on account of education and health care expenses. 6. On the facts and circumstances of the case, the Id. CIT (A) had grossly erred in confirming the disallowance of Rs. 1,02,093/- on ad hoc basis i.e. 10% of Rs. 10,20,926/- claimed by your appellant on account of entertainment expenses (others) 7. On the facts and circumstances of the case, the Id. CIT (A) had grossly erred in confirming the disallowance of Rs. 40,158/- on ad hoc basis i.e. 10% of Rs. 4,01,579/- claimed by your appellant on account of subscription." 43. We have heard the rival submissions and perused the relevant materials placed on the record of the Tribunal. Similar issues have been considered by us while deciding ground nos.2 to 7 of assessee's appeal for assessment year 2006-07 (supra). In line with our detailed discussion therein, these grounds of appeals of the assessee are allowed. 44. The revenue in its appeal has raised the following grounds: "1. Deletion of addition of Rs. 55,95,993/- made u/s.40(a)(ia) of the Act. 2. Deletion of addition of depreciation claimed on power pl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed that the Ld. A.O. has observed that the tax should have been deducted u/s 194 J instead of u/s 194C and therefore, expenditure of Rs. 55,95,993/- should be disallowed u/s 40(a)(ia) is immaterial in the view of the fact that the said expenditure was incurred for construction of an assets during the year under consideration i.e. F.Y. 2006-07 relevant to A.Y. 2007-08 and, therefore, even no depreciation was claimed on such assets. It is also noted that the assessee company has neither booked this amount as revenue expenditure u/s 37(1) nor there is question of disallowance of Rs. 55,95,993/-arises u/s 40(a)(ia). It is also noted that provisions of Section 40(a)(ia) does not apply to cases where expenditure has not been claimed u/s 37(1) of the I. T. Act, 1961. It is noted that Hon'ble ITAT Kolkata Bench T3' in [2011J 15 Taxmann.com 289 (kol.) in the case of DCIT, Circle-33, Kolkata Vs. S.K. Tekriwal has held ..........the provisions of Section 40(a)(ia) of the Act has two limbs, one is where, inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Government Account. There is nothing in the said section to treat,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cannot be said that the assessee has not complied with the provisions of TDS. Keeping in view the proposition rendered by the ITAT Kolkata in the case of S.K.Tekriwal (supra), we are unable to see any valid reason to interfere with the order of the CIT(A). Accordingly, we uphold the same. Ground No.1 of revenue is dismissed. 50. Apropos Ground No.2 of appeal of revenue, ld CIT DR submitted that the Assessing Officer has made addition u/s 32 of the Act on the basis of rate of depreciation and facts and circumstances of the case. Ld CIT DR further explained that the assessee had two Divisions viz; Caustic Division and (ii) Power Plant Division (eligible for exemption u/s.80IA) of the Act. Ld CIT DR submitted that the Assessing officer rightly disallowed the depreciation on account of power plant on the ground that said unit was exempt but the CIT (A) granted relief to the assessee by holding that depreciation was first allowed on the basis of Company Act which the assessee ahs added back and given relief on the basis of I.T.Act. Ld CIT DR strenuously contended that the assessee has been able to claim depreciation on account of power plant unit which is already exempt u/s.80IA of th....