TaxTMI 
TaxTMI 
2015 (11) TMI 1805
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....pose of business; b) Addition of Cenvat Credit of Rs. 3,11,32,910/;- and 3. The assessee is engaged in the business of manufacturing and selling of petrochemical products. The first issue relates to the disallowance of depreciation claimed on Jettys constructed by the assessee. The assessee had constructed a jetty at Narmada estuary at Dahej on behalf of Gujarat Maritime Board (GMB). The entire cost of Jetty was to be borne by the assessee and in lieu thereof, the assessee was entitled, firstly, to priority user of the said Jetty and secondly, to rebate by way of lower wharfage charges/landing charges on the goods imported by the assessee through the Jetty. The assessee claimed depreciation of Rs. 1,44,71,000/- on the construction cost so incurred @ applicable to Pland & machinery. The AO took the view that the rebate in wharfage/landing charges availed by the assessee should have been reduced from the cost of the asset before claiming depreciation. It was noticed that the rebate in wharfage charges claimed during the year amounted to Rs. 2.02 and cumulatively, it amounted to Rs. 16.68 crores. Since the rebate was more than the depreciation claimed by the assessee, the AO disal....
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....entitled to depreciation on the cost of construction of jetty as the entire cost being reimbursed by GMB by way of rebate on the wharfage charges which otherwise the assessee was liable to pay in full. Further, the right to use the jetty was not in the nature of any business or commercial right similar to normally accepted intangible asset such as knowhow, patents, copy rights, trade marks, license, franchises or any other business or commercial rights in similar nature. That entire investment in the jetty was quantifiable and the return from the investment was specified based on which the rebate on wharfage charges was determined. It is relevant to state that in the said case, as per the agreement, the ownership of the jetty was to be with GMB although, the cost of building and jetty was made by the assessee. In the said case also, the assessee was required to pay landing and shipping fees (known as wharfage charges) @ 20% of the actual landing and shipping fees specified in the schedule of port charges. The balance 80% was required to be set-off against the capital investment i.e., the cost of the construction of jetties. After the capital investment was recovered through such se....
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....ed in business advantage to the assessee in the form of priority user of the infrastructure facility that was badly needed by the assessee and its associates concerns. The assessee would have been forced to incurred extra expenditure if this expenditure were not incurred by the assessee. After all the businessman does not incur any expenditure unless it gives some business advantage and the huge expenditure incurred by the assessee is only to get such business advantage like priority user by the assessee company and right to claim rebate on the wharfage charges payable or to guard against the possible increase in the wharfage charges that may be necessitated by efflux of time or economic inflation. All points are considered together, in our view, the expenditure in question give rise to acquisition of licence or other business or commercial right which are really in the nature of intangible asset and are fully covered within the meaning of section 32(1) of the Act. In the light of the above discussion, the contention of the assessee that the said expenditure is to be treated as an intangible asset, and therefore, the assets are entitled for appropriate depreciation by treating the ....
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....hat, in its books, the assessee did not debit the cenvat paid on purchase of raw material to the Profit and Loss account but carried the same to cenvat account and at the time of sale the cenvat payable by the assessee was reduced by the amount of cenvat credit available from the purchase of raw material. In case such cenvat credit remained unutilized the same was reflected in the balance sheet as an asset being in the form of receivable. Accordingly it was submitted that even if the inclusive method was followed the effect on the profit would be NIL. The ld.CIT(A) took into consideration the submissions of the ld.AR, the provisions of Accounting Standard-2, the provisions of section 145 of the Act and the decision of his predecessor for the assessment year 2004-05, in which he had held that "...........However, no fault with the action of the AO in including this amount to the closing stock can be found. Under the circumstances, it is directed that the AO shall allow this duty/tax on actual payment basis in the year of payment u/s 43B of the Act". Accordingly, the ld. CIT(A) confirmed the action of the AO and gave similar directions to the AO. Hence the assessee is in appeal befor....
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.... the valuation at one end, there must necessarily be a corresponding change at the other end otherwise the true picture would not be reflected. In the case of Mahavir Aluminium Ltd. (supra), the issue related to closing valuation of adjustment of unutilised MODVAT credit. The Tribunal allowed the adjustment and in appeal the Hon'ble High Court confirmed the order of the Tribunal. The Hon'ble Jurisdictional High Court, after considering its earlier decision in the case of Melmould Corporation Ltd. (supra), and the decision of the Hon'ble Delhi High Court in the case of Mahavir Aluminium Ltd. (supra), has held as under:- "We are in respectful agreement with the reasoning and the finding given by the Delhi High Court." 96. In view of the above, we hold that if the closing stock to be increased on account of unutilised MODVAT credit, the corresponding opening stock of that year is also to be increased, as the Department has not disputed the fact that the purchases have been debited exclusive of the excise duty element i.e., by adopting net method of purchases. If the value of closing stock is increased by the MODVAT, the purchases should also be increased by a similar amoun....
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....see. The ld. DR reiterated the facts of the case and relied on the assessment order. 17. We find that similar issue had come up before the co-ordinate bench of Tribunal and the Tribunal vide paras 59 to 64 of the order (supra) has decided this issue in favour of the assessee. Consistent with the view taken by the co-ordinate bench in the assessee's own case on identical issue in the earlier years, we uphold the order of Ld CIT(A) on this issue. 18. The next issue pertains treatment of sales tax exemption received from the Gujarat Government as capital receipt by Ld CIT(A). The AO observed that the assessee has received an amount of Rs. 60,65,07,100/- on account of sales tax exemption granted by the Government of Gujarat and the assessee treated it as capital receipt. The AO, by following the decision of the Hon'ble Supreme Court in the chase of Sahney Steels and Press Works reported in 228 ITR 253(SC), treated it as revenue receipt and added the same to the total income of the assessee. 19. Before the ld.CIT(A), the assessee submitted that an identical issued had been before the Ahmedabad Bench of Tribunal in ITA No.3896/Ahd/2003, 437/Ahd/2007 and 3054/Ahd/2007 (AYs 2000-01 to 2....
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....ssee. Therefore, the ld.counsel prayed that by applying the same decision the ground raised by the revenue be dismissed. The ld.DR relied upon the order of AO. 25. We find that the issue urged by the revenue has been decided against the revenue by the co-ordinate Bench of the Tribunal in ITA No.744/Ahd/2008 (AY-2003-04) dated 29.6.2012. We find it convenient to reproduce para 58 of the order for sake of brevity: "58. We have considered the orders of the authorities below and earlier years order of the Tribunal in assessee's case (cited supra) and also the judgment of Hon'ble Gujarat High Court in the appeals filed by the Department against the order of the Tribunal for assessment year 1995-96 and 1996-97, copies placed at Pages-95 to 100 and 101 to 105 of the paper book. We observe that the lease rent paid by the assessee on the boiler has been allowed in the preceding assessment years. Respectfully following the earlier orders of the Tribunal and as confirmed by the Hon'ble Gujarat High Court (cited supra), we uphold the order of the Commissioner (Appeals) and dismiss ground no.1, raised by the Revenue". Consistent with the view taken by the co-ordinate bench of Tribunal, we ....
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....9 lakhs in respect of its Captive Power Plant at Gandhar complex. The assessee claimed the deduction u/s 80IA in respect of power generation undertaking by taking price which the industrial consumers paid during the year under consideration for electricity purchased from State Power Distribution Agency. The AO initially took the view that the assessee is not eligible for benefit u/s 80IA in respect of Captive Power Plant, by holding that the circular no.178/28/2001-ITAI dated 3.10.2001 issued by Ministry of Finance, Department of Revenue, CBDT is not applicable to the assessee. Without prejudice to the above stand, the AO held that the market rate adopted by the assessee to compute the profit of the unit is not correct. Accordingly the AO adopted the average rate fixed by the Regulatory Authority for procuring power generated by private operators as market value within the meaning of section 80IA(8) of the Act and accordingly worked out the profit. The workings made by the AO resulted in negative profit and hence the AO held that the assessee is not eligible to claim deduction u/s 80-IA of the Act and accordingly disallowed the claim of Rs. 86,51,99,227/- made by the assessee. 32.....
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.... convenience, we extract below the relevant observations made by Ld CIT(A) on this issue:- "A perusal of the said section reveals that where transfer of any goods or services by the eligible business to any other business carried on by the assessee is not recorded in the books of account of the eligible business at the market value of such goods or services as on the date of the transfer, then for the purposes of the deduction, the profits and gains of such eligible business is required to be computed as if the transfer has been made at the market value of such goods or services as on that date. As per the Explanation, 'market value' in relation to the goods would mean the price that such goods would ordinarily fetch in the open market. The proviso to sub-section (8) of sec. 80IA would come into operation only when in the opinion of the Assessing Officer, the computation of profits and gains of the eligible business in the manner provided in the main sub-section presents exceptional difficulty. It is, therefore, clear that the Assessing Officer, in order to invoke the proviso, must form an opinion based on the materials on record that the computation in the manner provide....
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....gency for industrial consumers could not be called as market price as the regulatory fixes the tariff considering the wheeling charges, transmission loss due to leakage, past losses of the distribution agency, etc. In my opinion, the findings of the AO cannot be taken to be correct. Even though there may be no open market for the goods, an open market has to be presumed in respect of the goods in question in view of the categorical condition laid down in the provisions itself and the law laid down in this regard by the different Hon'ble Courts of the land and which have been relied upon by the assessee in its submissions. The Assessing Officer has not brought any material to show that the price charged was not in consonance with the market value. The AO has also not suggested, leave alone computed, as to what the market value of the goods should be. While the assessee has given detailed reasons as to why the price of the goods recorded by it corresponds to the market value, the Assessing Officer has not given any specific findings to hold as to why such price does not correspond to the market value of the goods and as to what was the market value of such goods. The assessee has....
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....goods or services as on the date of the transfer. c) It is only when condition (b) is satisfied then the Revenue gets a right to determine profits and gains of such eligible business at the market value of such goods or services as on the date of its transfer. The Assessing Officer had considered the rate charged by the State Distribution Agency as the market value of the goods transferred by the eligible business in original assessment of the assessee. There is nothing on record to show as to how value of the goods adopted/taken by the assessee do not correspond to the market value of such goods, especially in light of the reasons given by the assessee. The AO has also not expressed any opinion as to how the computation of profits and gains of the business in the manner provided in the main sub-section presented exceptional difficulties. Hence, proviso to sec. 801A(8) could not have been invoked by him. It is also clear that the parameter relating to 16% of capital base is only an exercise for fixation of tariff and is only one of the many parameters taken into consideration for fixing the tariff under the old Electricity Act of 1948. This parameter is for working out the tari....
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....rmining the tariff for the sale of electricity by a generating company to the State Electricity Boards. A perusal of the same reveals that the tariff is determined on the basis of various parameters contained therein. From the aforesaid, it is evident that on one hand it is only upon granting of specific consent that a private person can set up a power generating unit having restrictions on the use of power generated and at the same time the tariff at which a power generating unit can supply power to the Electricity Board is also liable to be determined in accordance with the statutory requirements. In this context it can be safely deduced that determination of tariff between the assessee and the Board can be said to be an exercise between a buyer and seller neither in a competitive environment and nor in the ordinary course of trade and business. It is an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the buying tariff in terms of preset statutory guidelines. Therefore, the price determined in such a scenario cannot be equated with a situation where the price is determined in the normal course o....
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....ble business shall be computed as if the transfer, in either case, had been made at the market value of such goods as on that date." The above concept of transfer pricing is also apparent in r. 7 of IT Rules, 1962 provided for determining the income from agricultural produces consumed by the agriculturist-assessee in his business as raw material. The rule provides that in the case of income which is partially agricultural income and partially income chargeable as business income, in determining that part which is chargeable to income-tax, the market value of any agricultural produce which has been raised by the assessee and utilized as a raw material in such business shall be deducted at the prevalent market value. This principle has been considered and upheld by the Supreme Court in the case of Thiru Arooran Sugars Ltd. vs. CIT (1997) 142 CTR (SC)9 (1997) 227 ITR 432(SC). Therefore, we direct the assessing authority to work out the profits on the basis of the price of the power generated by the assessee at the average of the annual landed cost of electricity purchased by the assessee from Karnataka State Electricity Board during the impugned previous year. It may be determined ....