TaxTMI 
TaxTMI 
2020 (12) TMI 165
X X X X Extracts X X X X
X X X X Extracts X X X X
....t. 2. The CIT(A) erred in confirming the disallowance of depreciation of Rs. 5,35,215/-on the capitalized value of goods purchased from Durga Iron & Steel Ltd. and Surajbhan Rajkumar Pvt. Ltd. in A.Y. 2003-2004. The Appellants submits that the cost of the goods purchased from the above parties were capitalised as plant and machinery in A.Y. 2003-04 and were used during the year under consideration and hence depreciation u/s. 32 of the Act on such capitalised value of the goods is allowable. 3. The CIT(A) erred in remanding back the appellant's claim of depreciation on office equipment's @ 15%, to the file of the assessing officer for verifying the correctness of classification vis-a-vis the law. The appellant submits that it had submitted complete details of additions to the assets viz. office equipment's which are in the nature of Plant & Machinery and hence the depreciation u/s.32 of the I T Act ought to have been allowed @ 15%. 4. The CIT(A) erred in confirming the disallowance of deduction u/s 80IB(9) of the Act of Rs. 698,07,88,5197- in respect of Refinery SEZ Undertaking by holding that once claim u/s 10AA of the Act ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3) of the Act were satisfied before making an adjustment to the total income of the Appellant; 7.3 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of AO of not demonstrating the motive of the Appellant to shift profits outside of India by manipulating the prices charged in its international transaction, either at the stage of invoking or initiating the assessment or at the stage of framing the assessment; 7.4 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the learned AO in not demonstrating that the course of business between the Appellant and the closely connected person was so arranged that it produces to the Appellant more than ordinary profits which might be expected to arise in its eligible business; 7.5 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the learned AO in not demonstrating the motive of the Appellant, to carry out transactions between an eligible business and other business, to reduce the taxable profits by manipulating the prices of its Spe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... erred in confirming the reduction of deduction by INR 17,52,72,214 claimed under section 80IA of the Act; 10.3 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the learned AO in rejecting the economic analysis or the benchmarking analysis of the Appellant, on the application of internal Comparable Uncontrolled Price Method by the Appellant, without providing any cogent reasons; 10.4 On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the action of the learned AO in accepting the economic analysis of the learned TPO without providing cogent reasons and specifically: The learned AO and CIT(A) failed to appreciate that the turnover of the comparable company is more than 10 times that of the tested transaction; The learned AO and CIT(A) failed to appreciate that the level of market of the comparable transaction adopted by the learned TPO, is different as compared with the level of market in which appellant (manufacturing units) operate; The learned AO and CIT(A) erred by relying on non-contemporaneous data, order dated 29 April 2014, to determine ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to how the facts of those years are similar to the impugned year." 9. "On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in deleting the TP adjustment on support services without appreciating the import of rule 10B(2)(d) as there is no government order against arriving at arm's length price." 10. "On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in relying the agreement between the AE and Khurdish government as it would only serve as evidence for cost incurred and there is no binding bilateral treaty between India and Iraq for not charging mark up on cost." 11. "On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in deleting the mark up on the cost without appreciating the fact that it would lead to base erosion for India." 12. "On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in not appreciating the fact that no party would render support services to an unrelated party at cost without mark up, the concept being very basis of transfer pricing." 13. "On the facts and circumstances of the case and law, the Ld. CIT(A) has erred i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he facts of the case involved and the case law quoted as the amount involved was not share application money and the decision quoted is on share application money." 21. "On the facts and circumstances of the case and law, the Ld. CIT(A) failed to see that the assessee has not demonstrated any rationale in investing in the preference stock of AEs in spite of the fact that AEs are loss making and are not declaring dividends, which no unrelated third party would do so at arm's length which is the very essence of transfer pricing." 22. "On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in not appreciating the fact that assessee which is bound to earn income at fixed coupon rate on preference stock has not received any income in this regard with huge investment which will not be the case in any third party scenario as envisaged in section 92F(ii)." 23. "On the facts and circumstances of the case and law, the Ld. CIT(A) has failed to see the fact even when the AE- RGBV had profits of Rs. 33,31,606/- euro in FY 2009-10, the mandatory fixed income at the coupon rate of 5% on the preference stock was not paid to the assessee." ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....prevailing and various credit risks." 32. "On the facts and circumstances of the case and law, the Ld. CIT(A) failed to demonstrate as to how the rates were arrived at by the assessee based on yield spread method followed by assessee for the impugned AY and has erred on simply accepting the rates adopted by assessee without looking into actual working of the yield spread methodology of assessee." 33. "On the facts and circumstances of the case and law, the Ld. CIT(A) has failed to show as to how assessee followed yield spread method correctly for impugned AY." 34. "On the facts and circumstances of the case and law, the Ld. CIT(A) has failed to give any reason for rejecting the CUP rate adopted by the TPO." 35. "On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in including the comparable M/s Allsec Technologies Ltd. without appreciating the fact that company is loss making in earlier years as well as in subsequent year." 36. "On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in excluding the comparable M/s Axis Integrated Systems Limited without appreciating the fact that Business Su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the provisions of Section 14A of the Act r.w.r. 8D is not applicable while computing book profits u/s. 115JB of the Act, and therefore no disallowance should be made while computing book profit u/s. 115JB of the Act. 4. The learned CIT(A) Mumbai erred in not allowing weighted deduction u/s. 35(l)(ii) of the Act while computing total income under the normal provisions, in respect of amount of Rs. 42,36,570/- contributed to Indian Institute of Technology, Mumbai vide receipt dated 09.10.2012. The appellant submits that CIT(A) ought to have allowed weighted deduction u/s. 35(l)(ii) of the Act while computing total income under the normal provisions. 5. The learned CIT(A) Mumbai erred in allowing the deduction in respect of export profits of SEZ unit u/s 10AA of the Act with reference to the income computed under the head 'profits and gains of business or profession' of the SEZ unit instead of 'gross profits and gains' of SEZ unit, as interpreted by Supreme Court in the recent judgement in the case of Vijay Industries. The Apex court while interpreting the provisions of section 80HH relevant to AY 1979-80 and 1980-81 has held that phrase ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... gave part relief to the assessee. Now Revneue and assessee both are in appeal before us. 8. One issue on which addition was made by the Assessing Officer was bringing to tax sales tax incentive receipt which was claimed by the assessee as capital receipt not liable to tax. Learned CIT(A) had allowed the appeal on this issue by referring to several case laws from ITAT in assessee's own case from A.Y. 2007-08 to 2012-13. 9. Against this order Revenue has filed appeal before us. 10. At the outset, learned Counsel of the assessee submitted that this issue is covered in favour of the assessee by a catena of decisions of ITAT in assessee's own case as well as several other decisions. He further referred that ITAT Special Bench in assessee's own case reported in 88 ITD 273 decided the issue in favour of assessee. 11. Learned Departmental Representative on the other hand could not dispute the above said proposition. The ITAT in assessee's own case in a number of orders for preceding years has decided the issue in favour of the assessee and the same order has not been reversed by Hon'ble Jurisdictional High Court. Accordingly, we follow the doctrine of stare-decisis and uph....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and my ld. predecessors in this Appellant's own case in the preceding years including A.Y. 2001-2002 to A.Y. 2012-2013 wherein a view has been taken that the claim for depreciation cannot be thrust upon the Appellant. Nevertheless, the AO has consistently rejected the claim of the Appellant based on the stand taken at the assessment stage in the earlier years. As far as the current year is concerned, the issue is of consequential nature. The issue as to whether the assessee has option not to claim depreciation does not arise for adjudication for this year. In earlier years, this issue has been decided in favour of the Appellant. In this year, the issue relates to the amount of WDV to be taken as on 01.04.2012. Following the decisions of my predecessors in the Appellant's case in the preceding years and also the decision of the Hon'ble ITAT upto AY 2009-10, the AO is directed to adopt the WDV of the assets as on 01.04.2012 on the basis of effects given to the orders of CIT(A) for the preceding years. The Appellant has worked out the amount of depreciation allowable on the basis of these orders at Rs. 6518,82,98458/-. Similar issue was decided by my predecessors ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... crores and Rs. 211.59 crores being 0.5% of the average value of investments i.e. proportionate administrative and other expenses towards earning of exempt income relying upon rule 8D of the Income Tax Rules which has been inserted w.e.f. 24.03.2008 r.w.s. 14A of the Act. 21. Upon assessee's appeal as regards issue of disallowance on account of interest expenditure learned CIT(A) relied upon the decision of Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd. (313 ITR 340) for the proposition that when assessee's own fund far more exceeded investments made on which exempt income has been earned no disallowance for interest is to be done. So learned CIT(A) directed for deletion of addition on this account. 22. As regards disallowance for other expenses learned CIT(A) referred to several judgements relied upon by the assessee and directed that disallowance should be computed @ 0.5% by taking average value of those investments which have yielded dividend during the year under consideration or the expenses disallowed by the assessee whichever is higher, both in normal provisions as well as book profit u/s. 115JB of the Act. Learned CIT(A) also no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ploration cost incurred in contract area other than KGD has been made in the computation of income u/s 42(l)(a) against the entire income of the assessee company while computing the business income. Thus, the unsuccessful exploration expenses of other blocks were not reduced while working out profits and gains of the eligible undertaking i.e. contract area KGD. 28. The AO has however, rejected the above claim of the assessee and has reduced the amount of Rs. 791.20 crores being the abortive cost of wells incurred in contract areas other than KGD while computing deduction u/s.80IB(9) of the Act in respect of KGD undertaking. 29. Upon assessee's appeal learned CIT(A) decided the issue in favour of the assessee by observing that similar issue has been allowed to the assessee in the immediately preceding assessment year i.e. A.Y. 2012-13. The learned CIT(A) held as under :- "13.3 Decision I have considered the facts of the case and the submissions made by the assessee. The issue for consideration is whether cost of abortive/unsuccessful blocks (other independent undertakings) are be reduced while computing the profits of a successful block (KGD in the assessee&#....
X X X X Extracts X X X X
X X X X Extracts X X X X
....directed to compute the profits of KGD undertaking on a standalone basis as per the provisions of 80IA(5), for the purpose of claiming deduction under the section 80IB(9) of the Act. The AO is accordingly, directed that cost in respect of abortive/unsuccessful blocks are not be reduced while computing the profits of the undertaking viz; KGD which is eligible for deduction u/s 80IB(9). This ground of appeal is accordingly allowed." 30. Against this order, Revenue is in appeal before us. 31. At the outset on this issue learned Counsel of the assessee submitted that the issue is covered in favour of the assessee by the ITAT on this issue for A.Y. 2011-12 to 2012-13 as under :- "107. We have heard rival contentions on this issue. We have noticed earlier that the Ld CIT(A) has decided this issue in favour of the assessee by holding that each contract is a separate undertaking and hence the expenses relating to aborted blocks of different contracts cannot be reduced from the profit from sale of mineral oil obtained from another contract. The operative portion of CIT(A) on this issue are extracted below:- "49. Decision: I have considered the facts of the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mputing the profits of an 'Undertaking' eligible for deduction u/s. 80IB. Thus, this ground of appeal is allowed and AO is directed to compute the profits of KGD undertaking on a standalone basis as per the provisions of 80IA(5), for the purpose of claiming deduction under the section 80IB(9) of the Act. The AO is accordingly, directed that cost in respect of abortive/unsuccessful blocks are not be reduced while computing the profits of the undertaking viz. KGD which is eligible for deduction u/s. 80IB(9). This ground of appeal is accordingly allowed." 108. We notice that the article/clause 17.2.2 of PSC allows deduction of expenses relating to aborted blocks against the profit arising from other blocks. In our view, the assessee was right in contending that the article/ clause 17.2.2 was concerned with the computation of income at entity level in terms of sec. 42 of the Act. The article/clause 17.2.5 of PSC states that all other provisions of Income tax Act shall apply. The PSC does not deal with the deduction given u/s 80IB(9) of the Act and hence the provisions of the Act shall apply. Hence the deduction u/s 80IB(9) of the Act has to be computed in terms of sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r extraction and exploration of mineral oil i.e. 'Petroleum'. Article 1.73 of the PSC entered into with the GOI defines the term 'Petroleum' as, "Petroleum means crude Oil and/or Natural Gas existing in their natural condition but excluding helium occurring in association with Petroleum or shale." Thus as per the PSC the term 'petroleum' includes crude oil and natural gas. Among other things, the NELP stated that a seven year tax holiday from the date of commercial production would be available to the contractors under NELP. The NELP also stated that a separate Petroleum Tax Guide would be in place to facilitate the investors. This Petroleum Tax Guide is a compilation of the laws relating to Income Tax, Custom Duties, Central Excise and other laws, as applicable to activities connected with prospecting for or extraction and production of petroleum in the upstream sector under PSC entered into on or after 1st January 1999. Paragraph 5 of the guide deals with the Income Tax provisions in relation to PSC participants. Subparagraph 5 (11) reads as under:- "Under Section 80-IA of the Income Tax Act, 1961, PSC Participants who begin Commercial Production of Petroleum....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 80IB for the purpose of deduction under that section. The relevant portion of sub-section (9) reads as under: "(9) The amount of deduction to an undertaking shall be hundred per cent of the profits for a period of seven consecutive assessment years, including the initial assessment year, if such undertaking fulfils any of the following, namely:- (i) is located in North-Eastern Region and has begun or begins commercial production of mineral oil before the 1st day of April, 1997; (ii) is located in any part of India and has begun or begins commercial production of mineral oil on or after 1st day of April, 1997: [Provided that the provisions of this clause shall not apply to blocks licensed under a contract awarded after the 31st day of March, 2011 under the New Exploration Licencing Policy announced by the Government of India vide Resolution No. O-19018/22/95-ONG.DO.VL, dated the 10th February, 1999 or in pursuance of any law for the time being in force or by the Central or a State Government in any other manner;] (iii) is engaged in refining of mineral oil and begins such refining on or after the 1st day of October, 1998 3 [b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inter alia, decided the issue by holding that similar issue has been allowed to the assessee in the immediately preceding year i.e. A.Y. 2012-13 and held that mineral oil for the purpose of claiming deduction u/s. 80IB(9) of the Act include natural gas condensate. He held as under :- "I have considered the facts of the case and submissions made by the assessee. The issue for consideration is whether the term 'mineral oil' u/s 80-IB(9) includes natural gas and condensate. The assessee company is engaged in the business of extraction of natural resources including Petroleum and gas, refining of petroleum products etc. On 12.04.2000 the assessee alongwith M/s Niko Resources Limited entered into a PSC with the Government of India ['GOI'] for obtaining a Petroleum Mining Lease in respect of Development area specified therein namely Block KG-DWN-98/3 (KGD) for extraction and exploration of mineral oil i.e. 'Petroleum'. Although the term 'mineral oil' is defined in section 42, 44BB and 293A of the Act, the same is not defined in Section 80-IB of the Act. When one refers to following statutes dealing with mineral oil, petroleum and natural gas etc, natural ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dingly allowed. Accordingly, this ground of appeal is accordingly allowed." 36. At the outset learned Counsel of the assessee contended that this issue is covered in favour of the assessee by the order of the ITAT for A.Y. 2010-11 to 2012-13. He further submitted that similar issues have been decided in favour of the assessee in following decisions :- (i) Niko Resources Ltd. vs. Union of India (55 taxman.com 455)(Gujarat High Court) (ii) Association of Natural Gas vs. Union of India (Spl. Ref. No. 1/2001)(Supreme Court) 37. We note that ITAT in its order for A.Y. 2010-12 to 2012-13 has decided the issue in favour of assessee as under :- "109. The next issue urged by the revenue in ground no. 7 is relating to the decision of the AO in restricting the deduction u/s 80IB(9) of the Act to the proportionate profit relating to sale of Crude oil. We noticed earlier that the AO did not allow deduction on the profit arising on sale of Natural gas and condensate by holding that the "natural gas" shall not fall under the category of "Mineral Oil" for allowing deduction u/s 80IB(9) of the Act. The Ld. CIT(A), however, held that the mineral oil shall include "na....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the assessee in the case of NIKO Resources Ltd (which holds 10% share in the block) and since the Ld. CIT(A) has followed the same, we do not find any infirmity in the order passed by Ld CIT(A) on this issue." 38. Since facts are identical, following the precedent, we uphold the order of learned CIT(A). 39. Ground No. 7 to 12 urged by the Revenue relate to transfer pricing adjustment of Rs. 2,70,91,004/- on provision of support services to Associated Enterprise-REPDMCC. 40. Brief facts and AO's observation on the issue are as under :- "It is submitted by the Appellant that AE REP DMCC is an operator in various oil and gas exploration blocks in overseas destinations. The AE has entered into Production Sharing Contracts ('PSC) with foreign government for the exploration and development of petroleum in the contract area (as defined in the PSC). In relation to the exploration and development of petroleum contract executed by AE, the Appellant has rendered support services for drilling operations. Pursuant to the various service agreement entered between the Appellant and the AE, in relation to international blocks, the Appellant had undertaken the follo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rder for A.Y. 2011-12, in which it was observed as under :- "We heard the parties on this issue. We notice that the assessee has collected for the supply of materials/equipments and also for providing services in accordance with the PSC entered with foreign governments. The said decision of the assessee is supported by the provisions of Rule 10B(2)(d) of I.T Rules. We further noticed that the TPO did not bring any other comparable to prove that the amount charged by the assessee is not at arm's length. Instead, he has simply marked up the transactions by 12.50%, which is not supported by material. Since the decision taken by the assessee is supported by Rule 10B(2)(d) of I T Rules, the Learned CIT(A) has deleted the impugned addition. Before us, the Ld A.R also placed reliance on the following decisions, wherein the PSC entered with foreign governments were given due importance:- (a) Bharti Airtel Limited (ITA No.5636/Del/2011)(Delhi Trib.) (b) Cotton Naturals (I) Pvt. Ltd (ITA No.233/2014)(Delhi HC) Under these set of facts, we do not find any reason to interfere with the decision taken by Ld CIT(A) on this issue." Referring to this, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t was submitted by the Appellant that since the interest charged from AEs was higher than the market rate, the transaction was at arm's length. The TPO issued a show-cause notice and the Appellant filed a detailed submission. The TPO did not accept the arguments of the Appellant on the following grounds: • As the invoices are payable in fixed tenure, it partakes the character of loan if not paid within the due date • Bank letters are mere quotations Thus, the TPO treated the delayed receipts (outstanding from the AE) as loan to AE, instead of treating the same as a short term credit facility provided in the normal course of business and determined the ALP rate of interest at 6.51% p.a., by adopting the Appellant's weighted cost of total borrowings @ 3.51% p.a. plus an arbitrary mark-up of 3% p.a. for various factors such as currency risk, entity risk and country specific risk. Thus, the TPO made adjustment as under: Name of AE Transaction value (INR) ALP (INR) TP Adjustment RIL USA 22,74,23,850 62,51,84,533 39,77,60,683 47. On this issue learned CIT(A) has decided the issue by referring to earlier years ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... during the year Closing No of Shares Value in AED No of Shares No Value in AED No of Shares Value in AED 1 REP DMCC 24,82,316 2,48,23,16,000 0 24,82,316 2,48,23,16,000 0 0 2 RIME DMCC 3,54,156 35,41,56,000 0 2,90,720 2,90,72,00,000 63,436 6,34,36,000 3 RGBV 6,60,77,27,511 6,60,77,275 0 68,08,96,400 68,06,964 5,92,70,31,111 5,92,70,311 4 RNBV 1,99,000 1,44,200 0 1,99,000 1,44,200 0 0 The Appellant submitted that no fresh investment was made during the FY 2012-13 and that the respective AEs had issued and allotted corresponding preference shares prior to 31 March 2012. Thus, there was no amount outstanding with the AEs as 'share application money' on 31 March 2012, against which the AEs had not issued preference shares. The Appellant also submitted that as per the terms of the issue, the Class A shares issued by the AEs M/s. RGBV and M/s. RNBV has a tenure of 10 years. These Class A shares can be converted into equity shares at any time during the first 5 years at fair value of the equity shares at the conversion date and at any time a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al substance. That AE's making profits in a particular year do not pertain to this year. That each year is separate for the purpose of transfer pricing. He further referred to Hon'ble Bombay High Court decision in the case of M/s. Aegis Ltd. (ITA No. 1248 of 2016) and ITAT decision in Pr. CIT Vs. Auto Components Pvt. Ltd. ( ITA No. 1213/Mum/2014) 54. It is noted that that this Tribunal in assessee's own case in A.Y. 2010-11 to 2012-13 has decided the identical issue as under :- "48. We heard the parties on this issue and perused the record. The Ld D.R strongly supported the order passed by AO, while the Ld A.R supported the order passed by Ld CIT(A). We notice that the Ld CIT(A) has followed the decision rendered by Hon'ble jurisdictional High Court in the case of Besix Kier Dabhol (supra) in order to hold that re-characterisation of transaction is not permissible. In the case of Bharti Airtel Ltd (supra), the Delhi ITAT has held that it is not open to the TPO to recharacterise transaction under Income tax Act, unless it is found to be sham or bogus. It was further held that, even under judge-made law, recharacterisation is possibly only if transactions are found to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed the transaction of subscription of shares into advancing of unsecured loans. The Tribunal did not accept such conclusion, inter-alia on the grounds that the TPO cannot disregard the apparent transaction and substitute the same without any material of exceptional circumstances pointing out that the assessee had tried to conceal the real transaction or that the transaction in question was sham. The Tribunal observed that the TPO cannot question the commercial expediency of the assessee entered into such transaction. 3. We are broadly in agreement with the view of the Tribunal. The facts on record would suggest that the assessee had entered into a transaction of purchase and sale of shares of an AE. Nothing is brought on record by the Revenue to suggest that the transaction was sham. In absence of any material on record, the TPO could not have treated such transaction as a loan and charged interest thereon on notional basis. No question of law arises." 56. Furthermore, we note that as submitted no fresh investment is made during the year. That the shares were allotted in earlier years. The new issue raised by Revenue on the theory of preponderance are not sustainable as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he order of the TPO and the submissions made by the Appellant during the course of the Appellate proceedings. I have also perused the orders of Tribunal and the then CIT (A) for earlier years, it is relevant to highlight that there are two types of guarantees- Short term and Long term. Short term guarantees The Appellant adopted yield spread approach for the first time in AY 2011- 12, it has been accepted by the then CIT (A) by a speaking order for AY 2011- 12 which has been followed in appellate order for AY 2012-13. Yield spread approach is internationally accepted methodology for benchmarking the guarantee commission. The contentions of the TPO in respect of rejection of quotes obtained by the Appellant to find out the differential interest is not found to be acceptable considering the Jurisdictional Tribunal decisions in case of Gulf Energy Maritime. Following the orders of AY 2011-12 and AY 2012-13, the benchmarking done by the Appellant by following the yield spread approach in AY 2013-14 in respect of short term guarantee is accepted. It is further seen that in the orders of the IT AT in Appellant's own case for AY 2005-06 to AY 2009-10, the ITAT has re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the year are held to be at ALP. Thus, the appeal of the Appellant on this issue is partly allowed. 60. Against this order, the Revenue is in appeal. 61. Learned Counsel of the assessee stated that the issue is covered in favour of the assessee by the ITAT decision in assessee's own case for A.Y. 2011-12 and A.Y. 2012-13 and the facts are identical. He submitted that issue has further been clarified in M.A. order for A.Y. 2011-12 & 2012-13. It is further submitted that yield spread approach adopted considering letter of bank issued for F.Y. 2012-13, hence ground No. 30 to 33 is infructuous. In this connection assessee has also drawn support from the following decisions of Hon'ble Bombay High Court :- • CIT Vs. Glenmark Pharmaceuticals Ltd. (ITA No. 1302 of 2014) • CIT Vs. M/S Everest Kento Cylinders Ltd. (ITA No. 1165 of 2013) 62. It has been further submitted that Hon'ble Bombay High Court decision in the case of Glenmark Pharmaceuticals Ltd. (supra) has been upheld by Hon'ble Apex Court in CIT Vs. Glenmark Pharmaceuticals Ltd. It has further been submitted that Hon'ble Bombay High Court in the case of Everest Kento Cylinders Ltd. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ving approach." 65. Thus from the above decision it is amply clear that the assessee yield base approach has been upheld by the ITAT. Further the yield based approach is adopted considering the letter of bank issued for year 2012-13. Hence, the objections of the Revenue are not sustainable. Accordingly, we uphold the order of learned CIT(A). 66. The Revenue's ground No. 35,36 &37are related to ground No. 9 in assessee's appeal. We are dealing with these grounds in ground No. 9 of the assessee dealt with in assessee's appeal. Assessee's appeal: 67. Domestic Issue 68. Ground No.1: "1. The learned Commissioner of Income-tax - (Appeals - 57) {hereinafter referred to as CIT(A)} erred in rejecting the Appellant's alternative plea that there is a deemed payment of sales tax and therefore the amount of Rs. 266,72,89,043/- is allowable as per the provisions of Section 43B of the Income-tax Act, 1961 The Appellant submits that there is a deemed payment of Sales tax which is allowable u/s.43B of the Act and the CIT(A) ought to have given a decision on this issue in favour of the Appellant." 69. At the outset, the Ld. Counsel of the assessee fairly accep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The appellant further submits that the CIT(A) has wrongly interpreted the provisions of the Act and misplaced reliance on various judicial pronouncements which are distinguishable in law and on facts. 75. At the outset, the Ld. Counsel of the assessee submitted that this ground is covered in favour of the assessee by the ITAT order in assessee's own case for A.Y. 2011-12 to 2012-13. 76. Brief facts on this case and A.O.'s observation are as under: This ground of appeal pertains to disallowance of deduction u/s.80IB(9) of the Act of Rs. 6,98,07,88,519/- in respect of Refinery SEZ Unit. The assessee company is engaged in the business of extraction of natural resources including Petroleum and gas, refining of petroleum products, etc. The Company has set up a refinery at Motikhavdi, P. O. Digvijaygram, Jamnagar- 361130 in the Special Economic Zone (SEZ) area for refining of mineral oil. The refinery commenced commercia! production on 01/04/2009. During the year under consideration, the appellant earned profit and gains of Rs. 7530,26,45,346/- (after making adjustment towards Depreciation as per Income Tax Act, 1961, profit/loss on sale of assets and disallowance....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed submission to the AO on the above issue vide its letter no. RIL/ASPRQ/12-13/13, which was not accepted by the AO. The AO has disallowed the assessee's claim of deduction u/s 80IB(9) of the Act of Rs. 698,07,58,520/-, discussed this issue in para 13 of the assessment order. The conclusion of the AO is as under: "13.9 However the assessee has sought to make a claim of further deduction of Rs. 698,07,88,520/- (vide Form No.10CCB) u/s.80IB(9) of the Act, probably by having misconceived notion that profits of undertaking to the extent of Rs. 6832,18,56,826/-only have been claimed and allowed as deduction u/s.10AA of the Act, and the balance (Rs. 7530,26,45,346 MINUS Rs. 6832,18,56,826/-) can further be claimed u/s.80IB(9) of the Act Whereas the fact remains that entire profits of Rs. 7530,26,45,346/- have been claimed and allowed for deduction u/s.10AA, and accordingly no further deduction under any other sections of the Act can be allowed or entertained in respect of the profits of the unit of Rs. 7530,26,45,346/-. "13.10 For the reasons mentioned above in detail, I am of the view that deduction U/s.10AA as claimed by assessee and computed on the basis of "enti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f undertaking or enterprise, as the case may be." The provisions of sec. 80A(4) uses the expression "where any amount of profits ....... of undertaking .....is claimed and allowed as deduction under any of those provisions for any assessment year... deduction in respect of, and to the extent of, such profits shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking...". The expressions "any amount of profits...", "claimed and allowed" and "deduction in respect of and to the extent of such profits" are, in our view, crucial words that need to be understood while interpreting this provision. The expression "any amount of profits....", in our view, would also mean "a portion of profit". The expression "claimed and allowed", in our view, would mean that the deduction actually allowed on the portion of profit. The expression "in respect of and to the extent of such profits", in our view, would mean the portion of profit so allowed as deduction (under sec. 10A or 10AA or 10B or 10BA or any provisions of Chapter VI under the heading "C-deductions in respect of certain incomes") is not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion shall not exceed the profits and gains of the eligible undertaking or unit or enterprise or business, as the case may be. Even if Section 10A/Section 10B are construed as exemption provisions, sub-section (4) of Section 80A cannot defeat such construction. The sole object of the sub-section is to ensure that double benefit does not result to an assessee in respect of the same income, once under Section 10A or Section 10B or under any of the provisions of Chapter-VIA and again under any other provisions of the Act. The Hon'ble Delhi High Court has explained that the objective of sec. 80A(4) of the Act is to ensure that double benefit does not result to an assessee in respect of same income. 78. The decision rendered by Hon'ble Karnataka High Court in the case of Sasken Communication Technologies Ltd (supra) is with regard to the deduction claimed u/s. 10A/10AA and u/s 80HHE of the Act. Both these deductions are related to income derived on export of computer software. The question that was considered was - whether the "export turnover" considered for deduction u/s. 10A/10AA can be included in the total turnover for computing deduction u/s 80HHE of the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... u/s 10AA of the Act was Rs. 4379.13 crores. The difference between the two figures was Rs. 657.22 crores. The assessee claimed deduction of Rs. 421,39 crores u/s 80IB(9) of the Act, which was over and above the amount of Rs. 4379.13 crores claimed u/s.10AA of the Act. The amount of deduction of Rs. 421.38 crores u/s. 80IB(9) of the Act was arrived at by the assessee as under: Profit from Refinery in SEZ - 5036.35 crores Less: Set off brought forward - 4614.96 crores 421.39 crores The assessee was constrained to restrict the deduction u/s. 80IB(9) of the Act to Rs. 421.39 crores on account of the specific provisions contained in sec. 80IA(5), which mandates that the quantum of deduction u/s.80IB of the Act shall be computed as if such eligible business were the only source of income of the assessee. Since the Act provided different methodologies to compute deduction u/s.10AA and u/s.80IB(9) of the Act, the assessee was required to adopt different parameters for computing deduction. 81. In view of the foregoing discussions, we are of the view that the assessee shall be eligible to claim deduction u/s. 80IB(9) of the Act in respect of profit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee has not been able to discharge the onus cast to substantiate that the expenditure was laid out only and exclusively for the business . He observed that it was also noted that assessee has paid the sums to various trusts and claimed that they have performed the CSR activities on assessee's behalf. The assessing officer took adverse inference that the trusts execute activities that are meant for public at large and not specific to any individual or corporate et cetera. Accordingly he concluded that the sums are not incurred for the purpose of business under section 37(1). However the assessing officer allowed 50% of the expenditure under section 80 G of the act by holding that he has considered the respective documents and verified and found them correct. 84. Upon assessee's appeal learned CIT appeals referred to the order of assessing officer and agreed that the expenditure was not incurred wholly and exclusively for the purpose of business to be allowable under section 37 of the IT Act. 85. Against this order, the assessee is in appeal before us. 86. We have heard both the Counsel and perused the records. Learned counsel of the assessee submitted that this issue ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntractual 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 perhaps devoid of senses of compassion, businessman alone would incur in furtherance of his business pursuits. 19. ..............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 in 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 the expenses in question are not incurred under the aforesaid statutory obligation. For this reason also, as also for the basic re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssment order that the assessee has paid the above sum to various trusts and claimed that the trusts have performed CST activities on assessees behalf. It is seen that these trusts are separate legal entities with their own trust deeds etc and are required to perform their activities commensurating the deal. These trust as such execute their activities that art meant for public at large and are not specific to any individual or corporate etc, Assessee has failed to produce any contract, agreement etc which can establish that the payment made by assessee was utilised by them on activities which are directly related to assessee's business. The onus of proof to substantiate the claim, that the expense were laid out wholly and exclusively for the business purpose, is upon the appellant. Since the appellant had failed to establish that the payments made by it were directly related to the appellant's business, the same was rightly disallowed by the AO. Accordingly, this ground of appeal is dismissed. 89. From the above it is evident that ITAT in the case of Jindal Power (Supra) has clearly held that CSR expenditure are allowable under section 37(1)of the IT act and that explana....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(h) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") in respect of interest amounting to Rs. 112,26,74,490/- on Tax Free Bonds while computing total income under the Normal Provisions of the Act and Book Profit u/s 115JB of the Act The appellant submits that CIT(A) ought to have allowed exemption u/s 10(15)(iv)(h) of the Act while computing total income under the normal provisions of the Act and book profit u/s 115JB of the Act. 92. The learned counsel of the assessee submits that this issue is covered in favour of the assessee by ITAT decision in assessee's own case for assessment year 2003-04 and 2012-13. 93. We note that identical ground was dealt with by the ITAT in assessee's own case in its order for assessment year 10-11 to 12-13 as under: 142. The next issue urged by the assessee in Additional Ground no. 1 relates to the exemption u/s.10(15)(iv)(h) of the Act claimed by the assessee on the interest income of Rs. 21.79 crores earned on tax free bonds. The ld. AR submitted that the assessee has inadvertently failed to claim exemption of the above said income in the return of income as well as before the tax authorities. He submitted t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. Alok Industries Limited (supra), in a subsequent decision for A.Ys. 2006-07 to 2011-12 dated 16.07.2020, this tribunal has adjudicated the same issue as under: "5. Another common issue raised in these appeals is that learned CIT(A) erred in directing the Assessing Officer to exclude the interest subsidy while calculating the income under Section 115 JB of the Act. 6. This issue relates to the treatment of subsidy received under TUF for the purpose of computation of book profit under Section 115JB of the Act. The Assessing Officer having noted that the aforesaid sum was duly credited in the Profit and Loss Account of the assessee, has included the same in the computation of book profit. The learned CIT(A) by referring to ITAT order in assessee's own case has directed that the said sum should be excluded while computing the income under Section 115JB of the Act. Against this order, Revenue has filed appeal before us. 7. We have heard both the Counsel and perused the records. Learned counsel of the assessee submitted that the issue is decided in favour of the assessee by the ITAT decisions in assessee's own case, as referred above. 8. Per....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Bom). 3. CIT vs. Adbhut Trading Co. Pvt. Ltd. (2011) 338 ITR 94 (Bom)" Furthermore, we note that Hon'ble Supreme Court in the case of ACIT vs. Saurashtra Kutch Stock Exchange Ltd., 305 ITR 227 (SC) has expounded that non-consideration of jurisdictional High Court decision can render a decision of the Tribunal suffering from mistake apparent from record. 13. Furthermore, we note that honourable Supreme Court in the case of Kapurchand Shrimal vs. CIT, 131 ITR 451 (SC) had expounded that it is the duty of the appellate authority to correct the errors in the orders of the authorities below and remit the matter, with or without directions for their consideration, unless prohibited by law. 14. Considering this present issue on the conspectus of aforesaid discussion and case laws, in our considered opinion, this issue needs to be remitted to the file of learned CIT(A). The learned CIT(A) is directed to consider this issue de novo after taking into account the aforesaid Hon'ble Jurisdictional High Court decisions. Needless to add, the assessee should be granted adequate opportunity of being heard. 98. When confronted in this regard, the learne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Act, and therefore no disallowance should be made while computing book profit u/s. 115JB of the Act. 101. On this issue the subject matter is whether for the purpose of computation of book profit under section 115 JB disallowance under section 14A have to be taken into account or not. The learned counsel of the assessee this regard has referred to ITAT decision in assessee's own case. We note that this issue is covered in favour of the assessee by the decision of honourable Bombay High Court in the case of Commissioner of income tax vs Bengal finance and investment private limited, wherein the honourable High Court by the order dated 5/1/18 held that disallowance under section 14A cannot be added under section 115JB. Respectfully following the precedent from honourable jurisdictional High Court, we decide this issue in favour of the assessee. 102. Additional ground No. 4 The learned CIT(A) Mumbai erred in not allowing weighted deduction u/s. 35(l)(ii) of the Act while computing total income under the normal provisions, in respect of amount of Rs. 42,36,570/- contributed to Indian Institute of Technology, Mumbai vide receipt dated 09.10.2012. The appellant submits ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 30 to 43D of the Act in para (18) and (19) as under:- "It is most humbly submitted that the concept 'profits and gains' is a wider concept than the concept of 'income'. The profits and gains/loss are arrived at after making actual expenses incurred from the figure of sales by the assesses. It does not include any depreciation and investment allowance, as admittedly these are not the expenses actually incurred by the assessee. However, the term 'income' does take into consideration the deductions on account of depreciation and investment allowance. Therefore, the term profits and gains are not synonymous with the term 'income'..... Reading of Section 80HH along with Section 80A would clearly signify that such a deduction has to be of gross profits and gains, i.e., before computing the income as specified in Sections 30 to 43D of the Act." 106. Thus, it has been urged by the assessee by way of the additional ground that the ld. CIT(A), Mumbai erred in allowing the deduction in respect of export profits of SEZ units u/s.10AA of the Act with reference to the income computed under the head 'profits and gains of business' or pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Court relates to the interpretation to section 80HH relevant to AY 1979-80 and 1980-81. The relevant section is reproduced hereunder:- "80HH. Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, he allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof." The assessee in that case claimed deduction on gross profits (without depreciation and investment allowance) of the undertaking stating that "profits and gains" is not the same as "income", whereas revenue claimed that deduction is allowable only on net profits as computed under sections 28 to 43D of the Act. The full bench of the Apex court reproduced the reference order dated 5-11-2014 (referring the matter to full bench) highlighting the observation of Rajasthan High court as under: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... provisions of the Act shall be deemed to income eligible for deduction, are not clarificatory in nature and the provisions of section 80AB are applicable prospectively. Hence the same would not apply to AY 1979-80 and 1980-81. Finally, the Apex Court allowed the appeal of the assessee holding that the phrase "profits and gains" means gross profits of the business in (19) as under: "19) Reading of Section 80HH along with Section 80A would clearly signify that such a deduction has to be of gross profits and gains, i.e., before computing the income as specified in Sections 30 to 43D of the Act." The appellant submits that the wording "profits and gains" used in section 80HH is pari materia with the wording in section 1OAA and, hence, the ratio laid down by the Hon'ble Apex Court in the case of Vijay Industries squarely applies to the case of the assessee. Section 1OAA of the Act, reads as under: Section 10AA of the Income-tax Act provides for tax incentive in respect of profits and gains of a unit set up in a SEZ as under: Special Provisions in respect of newly established Units in Special Economic Zones 10AA (1) Subject to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e depreciation and investment allowance, etc are not actual expense, hence need to be excluded. (4) The provision of section 80AB (i.e. deeming fiction to provide deduction only from income irrespective of language used) is applicable only to sections included in Chapter VIA under the heading "C- deduction in respect of certain income'. It is not applicable to section 10AA as the said section does not come within Part 'C' of Chapter VI-A of the Act. The appellant submits that section 80AB was inserted by the Finance (No2) Act 1980 w.e.f 01 04.1981. Further section 10A was originally inserted w.e.f 01 .04.1981 by the Finance Act 1981. The legislature in its wisdom has not made 80AB applicable to section 10A/10AA/113A5/10B of the Act, even though the said section provide for deduction to be granted to an assessee. Therefore, the appellant submits that section 80AB cannot be applied in the present case to determine the amount of deduction to be allowed under section 10AA of the Act. The appellant submits that as section 80AB is not applicable to section 10AA, the interpretation given by the Supreme Court to the term "profits and gains" must be applied to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies (supra) is not applicable in the facts of the present case. The submissions of the ld. DR in this regard are reproduced as under:- "(ii) This issue was discussed at length during the hearing. In the appellant's case the issue is deduction under section 10AA falling under chapter III of the Act, while in the case of Vijay industries, the issue is deduction under section 80HH falling under chapter VIA of the Act .However the appellant contends that the language of section 80HH is parimateria with the language used in section 10AA.This argument is totally fallacious and the crucial points of departure in the language used in these two sections and the difference in applicability of the provisions of these two section subsequent to the decision in the case of Vijay Industries are discussed hereunder based on the language used in the act, case laws etc. iii) The decision in the case of Vijay Industries Ltd. is rendered on the allowability of deduction u/s. 80HH of the Act, overruling the apex court decision in the case of Motilal Pesticides [243 ITR 26 (SC)]. The decision in the case of Motilal Pesticides (in respect of section 80HH) was rendered in turn relyin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Hon'ble Supreme Court in the case of Vijay Industries Ltd. and contended that the deduction of profits and gains derived from export u/s. 10AA of the Act also would mean gross profits and gains, i.e. before computing the income as specified in Sec. 30 to 43D of the Act. It is contended by the Appellant that the language of Sec. 80HH and the language of Sec. 10AA are identical and, therefore, the decision is applicable to Sec. 10AA also pertaining to "deduction provisions". v) The first contention of the Appellant is that the decision rendered by the Hon'ble apex court in the case of Vijay Industries Ltd. pertaining to deduction allowable u/s. 80HH is applicable to Sec.10AA also. The assessment year in the case of the appellant is AY 2013-14. The relevant section 10AA, 80HH and also section 801A as applicable to the year under consideration needs to be discussed. In this connection, firstly, the relevant part of Sec. 80HH is reproduced as under: "80HH. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accord....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he purposes of the business of the assessee in the manner laid down in subsection (2)." A bare reading of this section shows that the deduction is allowable on the "profits and gains derived" from the undertaking. Thus, a very important word "derived" is used in this section and the deduction is to be allowed only on the "profits and gains "derived" from the undertaking and not from the "profits and gains". This is a very important departure from the language used in the case of section 80HH. In this connection it is worthwhile to note that that similar words as in Sec. 10AA have been used in Sec.801A of the Act applicable for the year under consideration, relevant part of which is reproduced hereunder: "80-IA. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains deri....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "34. As noted earlier, the Apex Court in the case of Mahendra Mills (supra) has neither considered the scope of deduction under Chapter VI-A nor the said decision can be read to mean that by disclaiming current depreciation the assessee can claim enhanced deduction under any other provision in the Act. Therefore, reliance placed on the decision of the Apex Court in the case of Mahendra Mills (supra) in computing the quantum of deduction under section 80-IA of the Act is wholly misplaced. 35. The question then to be considered is, whether on a plain reading of Section 801A read with other relevant provisions in Chapter V/-A, can it be said that the quantum of deduction allowable under Section 80/A depends upon the assessee claiming or not claiming current depreciation ? To be specific, the question is, whether the choice, if any, vested in the assessee in claiming or not claiming current depreciation has any bearing in determining the quantum of deduction allowable under Section 80/A of the Act? 36. In our opinion, the above question is no longer res-integra. The Apex Court in the case of M/s.Liberty India V/s. Commissioner of Income Tax reported in 2009 (12) SCA....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y which arises for determination is: whether the DEPB credit I Duty drawback receipt comes within the first degree sources ? According to the assessee(s), DEPB credit/duty drawback receipt reduces the value of purchases (cast neutralization), hence, it comes within first degree source as it increases the net profit proportionately. On the other hand, according to the Department, DEPB credit, duty drawback receipt do not come within first degree source as the said incentives flow from Incentive Schemes enacted by the Government of India or from Section 75 of the Customs Act, 1962. Hence, according to the Department, in the present cases, the first degree source is the incentive scheme/ provisions of the Customs Act. In this connection, Department places heavy reliance on the judgment of this Court in Sterling Food (supra). Therefore, in the present cases, in which we are required to examine the eligible business of an industrial undertaking, we need to trace the source of the profits to manufacture (see CIT v. Kirloskar Oil Engines Ltd., reported in [1986] 157 ITR 762) 15. Continuing our analysis of Sections 80- IA/80-IB it may be mentioned that sub-section (13) of Section 80-lB pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ould allow them to inflate the profits linked incentives provided under Section 80-IA of the Act which cannot be permitted." The decision in the case of plastiblends is apparently not referred in the decision rendered in the case of Vijay industries. In the case of Vijay Industries Ltd.7 the issue involved was deduction u/s. 80HH as applicable to AN 1979-80,1980-81.The assessment year concerned is 2013-14 and for this year the language of Sec. 10AA is parimateria with Sec. 801A of the Act (and not section 80HH)and therefore decision in the case of Vijay Industries is not applicable as the deduction is now allowable from the profits and gains profits and gain derived from the undertaking in the case of 10AA/801A for the year under consideration, unlike from profits and gains as in section 80HH. Moreover, relying on the decision in the case of Plastiblends India Ltd. (supra) on the issue of "derived from the undertaking", the ground raised by the Appellant is not maintainable and is liable to he dismissed, at the threshold. viii) Further the scenario is also completely changed after insertion of section 80AB w.e.f 1/4/1981, and, therefore also the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t section as specifically pointed out by the Hon'ble Apex Court in para 17 of the order. (xi) Reference is also invited to section 10AA(8) which says that provisions of section 10A(6) are equally applicable which bars giving effect to section 32(2) even in later years. (xii) Further section 10AA being part of chapter III is essentially a exemption section though Post amendment, such exemption is available in form of deduction from profits and gains derived from the undertaking, the interpretation needs to be done strictly as held in the case of Commissioner of Customs (Import) vs. Dilip Kumar and company & Others (SC) Civil appeal number 3327 OF 2007 dated 30/7/2018 and in case of ambiguity the same needs to be interpreted in favour of revenue. 111. The rejoinder of the learned Counsel of the assessee in this regard with respect to the arguments raised by the ld. DR are as under:- "Further, the Learned DR made the following submissions: a. The decision in the case of Vijay Industries is rendered in the context of section 80HH r.w.s 80AB, which is a deduction section under Chapter VI-A and therefore cannot be applied to section 10AA. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....spectively. The appellant further relies on the Explanatory Memorandum' to the Finance Bill 2017, wherein in the context of rationalization of provisions of section 10AA, it was stated that the amendment will take effect from 1St April 2018 and will accordingly apply in relation to assessment year 2018-19 and subsequent years. Hence, the appellant submits that the Explanation to section 10AA is prospective in nature and not retrospective. Without prejudice to the above, the appellant submits that in case the Explanation to section 10AA is held to be pare materia to the provisions of section 80AB, then relying on the Apex Court decision, wherein it was held that the provisions of section 80AB cannot held to be retrospective in nature, the Explanation below 10AA(1) also cannot be applied retrospectively as it is an amendment of substantive nature. Explanation 5 to section 32 The appellant submits that while computing the income under the heard "profits and gains of business" of the assessee, depreciation u/s 32 of the Act has been computed and, hence, Explanation 5 to section 32 is complied with. However, relying on the aforesaid Apex Court dec....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... VIA of the Act i.e. after computing the gross total income of the eligible undertaking under Chapter IV of the Act. (7) There is clear evidence in the Act that whenever the legislature wanted to allow a deduction as a percentage or fraction of the income computed under the head 'Profits and Gains from Business or Profession' it has specifically provided for the same. Thus section 33ABA reads, inter alia as follows: "33ABA. (1) Where an assessee is carrying on business consisting of the prospecting for, or extraction or production of, petroleum or natural gas or both in India and in relation to which the Central Government has entered into an agreement with such assessee for such business, has before the end of the previous year- (a) deposited with the State Bank of India any amount or amounts in an account (hereafter in this section referred to as the special account) maintained by the assessee with that Bank in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) approved in this behalf by the Government of India in the Ministry of Petroleum and Natural Gas: or (b) deposited ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction in computing the total income of the assessee, hence the deduction is to be allowed for the total income of the assessee as computed in accordance with the provision of the Act before giving effect to the provisions of section 10AA. However, courts have taken a view (while deciding the matter pertaining to section 10A which also contains similar provision) that the deduction is to be allowed from the total income of the undertaking and not from the total income of the assessee. In view of the above, it is proposed to clarify that the amount of deduction referred to in section 10AA shall be allowed from the total income of the assessee computed in accordance with the provisions of the Act before giving effect to the provisions of the section 10AA and the deduction under section IOAA in no case shall exceed the said total income. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent assessment years. [Clause 7]" Hence as long as the assessee has a positive total income the deduction under section 10AA must be granted. It does not deal with the method by which the ded....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the submissions and perused the records. Before proceeding further it may be gainful here to refer to the decision of Hon'ble Supreme Court in the case of Vjay Industries (supra) which read as under :- " JUDGMENT A.K. Sikri, J. - Leave granted. Delay condoned. 2. In all these appeals issue relates to the interpretation that is to be accorded to the provisions of Section 80HH of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). Section 80HH and other related provisions, as it existed at the relevant time, are to be taken note of since we are concerned with the Assessment Years 1979-80 and 1980-81. Section 80HH provides deduction from income at specified rates in respect of certain industrial undertakings which are covered by the said provision. Issue is limited, namely, while computing the deduction whether it is to be available out of 'income' as computed under the Act or out of 'profits and gains', without deducting therefrom 'depreciation' and 'investment allowance'. Language of sub-section (1) of Section 80HH will have to be seen, in order to comprehend the aforesaid issue. It reads: "80HH....
X X X X Extracts X X X X
X X X X Extracts X X X X
....I) (P.) Ltd. v. CIT [2000] 111 Taxman 83/243 ITR 26 has taken the view which is favourable to the Department. This view is followed by the High Court in the impugned judgment thereby dismissing the appeals of the appellants/assessees herein. The assessees in these appeals submit that the aforesaid view taken in Motilal Pesticides (I.) (P.) Ltd. case (supra) is not a correct view as it ignores certain earlier judgments on this very issue. Therefore, according to them, Motilal Pesticides (I.) (P.) Ltd. case (supra) needs a re-look. 5. These appeals had come up for hearing before a Devision Bench of this Court. After hearing the arguments advanced by the counsel for the parties on the aforesaid lines, the Division Bench noted the conflict and passed orders dated 5th November, 2014, thereby referring the matter to a larger Bench. That is how the matters have come up before this Bench. 6. In order to appreciate the controversy, we would have to go through certain provisions of the Act in order to understand broadly the scheme of taxation on the income of assessees. 7. Section 4 of the Act is a charging Section which makes total income of the previous year of e....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... though Chapter VIA also allows certain deductions in computing total income, these provisions are not clubbed with the provisions of part of Chapter IV of the Act. There is a reason for doing so. The provisions made in Chapter IV are for the purposes of computing total income qua income under the head 'profits and gains' from business or profession. Various deductions which are specified to be given from the gross total income are in the nature of expenses incurred or to be treated as expenses. It may be rents paid, insurance premium paid for building, expenditure incurred on scientific research, various other kinds of expenditures etc. The purpose is to arrive at true income after making such expenditure admissible for deduction. Deductions provided under Chapter VIA, on the other hand, are largely in the nature of incentives. For example, under Section 80CCA deductions provided is in respect of deposits under National Savings Scheme or payment to a deferred annuity plan purpose is to encourage the assessees to make deposits under these Schemes. Likewise, under Section 80CCC, deduction is given in respect of contribution to certain Pension funds. The deductions are also g....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... gains of Industrial Undertakings'. The terms 'profits and gains' and 'income' are not same but are different. The term 'profits and gains' has not been defined under the provisions of the Act whereas the term 'income' has been defined. It is further submitted that there are a number of provisions under Chapter VIA, some of which refer to the term 'profits and gains'. Whereas some other refer to the term 'income'. Thus, in some of the provisions of Chapter VIA, the deduction is intended to be given out of 'profits and gains', whereas in some other sections, the deduction has been provided to be given out of 'income'. When the term 'profits and gains' has not been defined under the Act, in that case, its meaning has to be understood as is being understood in commercial world. 13. The aforesaid arguments is countered by Ms. Vibha Datta Makhija, learned senior counsel who appeared for the Revenue. She argues that the judgment in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) noted in the Reference Order, is on Section 80E of the Act which has no bearing in the instant case th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o this Court and this appeal was allowed by the judgment delivered in Cloth Traders case. This Court overruled the view taken by the Gujarat High Court and held that the deduction required to be allowed under Section 80-M must be calculated "with reference to the full amount of dividends received from a domestic company and not with reference to the dividend income as computed in accordance with the provisions of the Act, that is, after making deductions provided under the Act". This decision was given by the Court on May 4, 1979." 13. Now, according to Parliament, this interpretation placed on Section 80-M by the summit court was not in conformity with the legislative intent and it resulted in considerable unjustified loss of revenue. Parliament therefore immediately proceeded to set right what according to it was an interpretation contrary to the legislative intent and with a view to setting at naught such interpretation. Parliament, by Section 12 of Finance (No.2) Act, 1980, introduced in the Income Tax Act, 1961, Section 80-AA with retrospective effect from April 1, 1968, that is, the date when Section 80-M was originally enacted, providing that the deduction required ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....et-off of unabsorbed losses of earlier year?"...... 5. Reference may be made at this stage to the provisions of Section 80-P which falls in Chapter VI-A of the Act. Sub-section (1) of Section 80-P, which is relevant for the purpose of the case, provides as follows: "80-P. (1) Where in the case of an assessee being a cooperative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee." 6. For the purpose of Chapter VI-A the expression "gross total income" is defined in clause (5) of Section 80-B in the following terms: " 'gross total income' means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter." 7. If Section 80-P(1) is read with the definition of the expression "gross total income" contained in Section 80-B(5), it has to be held that for the purpose of making deduction under Section 80-P it is necessary to first determine the gross total income in accordance....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 1979-1980 and Assessment Year 1980-1981. The High Court of Rajasthan by the impugned judgment dated 17th May, 2004 construed Section 80-HH of the Income Tax Act, 1961 following a judgment of this Court in Motilal Pesticides(I) Pvt. Ltd. v. Commissioner of Income Tax, Delhi-II [2000] 9 SCC 63. The High Court noticed an argument made before it to the following effect: "It is most humbly submitted that the concept 'profits and gains' is a wider concept than the concept of 'income'. The profits and gains/loss are arrived at after making actual expenses incurred 2 from the figure of sales by the assessee. It does not include any depreciation and investment allowance, as admittedly these are not the expenses actually incurred by the assessee. However, the term 'income' does take into consideration the deductions on account of depreciation and investment allowance. Therefore, the term profits and gains are not synonymous with the term 'income'." However, the High Court correctly felt that it was bound by the judgment of this Court. 2. Motilal Pesticides(I) Pvt. Limited (Supra) is a Judgment of this Court which affirmed the Judgm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....computing the total income of the company. (2) This section applies to (a) an Indian Company; or (b) any other company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India. But does not apply to any Indian Company referred to in Clause (1), or to any other company referred to in clause (b), if such Indian or other company is a company referred to in Section 108 of its total income as computed before applying the provisions of sub-section (1) does not exceed twenty-five thousand rupees". 6. It will be noticed that in marked contrast to the Section under consideration in this appeal i.e. 80-HH, Section 80-E uses the expression "total income [as 5 computed in accordance with the provisions of this Act]" and goes on to speak of any profits and gains, so computed, for the purpose of deduction under Section 80-E. It will be seen in the present case the said words are conspicuous by their absence in Section 80-HH even though the expression "profits and gains" is the same expression used in section 80-E. 7. The finding in paragraph 4 in Motilal Pesticides (supra) t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gated to arrive at profits and gains of the assessee. Section 29 thereof mentions the method of arriving at 'income' which is to be computed in accordance with the provisions contained in Sections 30-43D of the Act. Sections 30-43D contain deductions of various kinds which are in the nature of expenditure or the like nature. After providing the deductions admissible in these provisions, one arrives at the figure of net profits which would become the net income under the head 'profits and gains of business or profession'. In contrast, as mentioned above, under Chapter VI-A of the Act certain deductions are given by way of incentives. Assessees may earn these deductions on fulfilling the eligibility conditions contained therein, even when they are not in the nature of any expenditure incurred by the assessee. Here, Section 80A of the Act provides that in computing the total income of assessee, there shall be allowed from his gross total income, in accordance with the subject of the provisions of this Chapter, the deductions specified in Sections 80C to 80U. As mentioned above, Sections 80C to 80U contain different subject matters and also specify particular percentage....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Act (before making any deduction under Chapter VIA) and not with reference to the gross amount of such income, subject, however, to the other requirements of the respective sections. Notwithstanding the same, this circular also categorically mentions that it will take effect from April 01,1981. Following portion of this circular is relevant: "The new section 80AB will take effect from 1st April, 1981, and will accordingly apply in relation to the assessment year 1981-82, and subsequent years. It should be carefully noted that the new section 80AB, unlike section 80AA, will not have any retrospective operation." 21. It is, thus, clear that change in legal position is brought about only, with the insertion of Section 80AB and made applicable from Assessment Year 1981-82. In view thereof, judgments in the case of Cloth Traders (P.) Ltd. (supra) relied by the Revenue will be of no relevance. Likewise, judgment in Kotagiri Industrial Co-Operative Tea Factory Ltd. case (supra) decided altogether different question, which can be discerned from the passages extracted therefrom and will have no application to the instant case. 22. As a result, all these ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s are given by way of incentives. Assessee's may earn this deductions on fulfilling the eligibility conditions contained therein, even when they were not in the nature of expenditure incurred by the assessee. Here section 80A of the act provides that in computing the total income of assessee there shall be allowed from his gross total income in accordance with the subject of the provisions of this chapter the deductions as specified in section 80C to U. As mentioned above section 80 C to 80 U contain different subject matters. 119. The Hon'ble Apex Court expounded that reading section 80 HH along with section 80A would clearly signify that deduction has to be of gross profits and gains that is before computing the income as a specified in section 30 to 43D. Thereafter honourable court held that the judgement of Motilal pesticides is erroneous in as much as the language of 80 M and 80H are materially different and hence the same was overruled. Thereafter the honourable court held that provisions of section 80 AB are perspective. 120. From the above exposition it is amply clear that honourable Supreme Court significantly brought out difference between computation of income i.e.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose in any backward area; (iv) it employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power. Explanation.-Where any machinery or plant or any part thereof previously used for any purpose in any backward area is transferred to a new business in that area or in any other backward area and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (iii) of this sub-section, the condition specified therein shall be deemed to have been fulfilled. (3) This section applies to the business of any hotel, where all the following conditions are fulfilled, namely :- (i) the business of the hotel has started or starts functioning after the 31st day of December, 1970 but before the 1st day of April, 1990, in any backward area; (ii) the business of the hotel is not formed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther case, had been made at the market value of such goods as on that date : Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the industrial undertaking or the business of the hotel in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.-In this sub-section, "market value" in relation to any goods means the price that such goods would ordinarily fetch on sale in the open market. (7) Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the business of the industrial undertaking or the hotel to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in the business of the industrial undertaking or the hotel, the Assessing Officer shall, in computing the profits and gains of the industrial undertaking or the hotel for th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the next five consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the "Special Economic Zone Re-investment Reserve Account") to be created and utilized for the purposes of the business of the assessee in the manner laid down in sub-section (2). Explanation.-For the removal of doubts, it is hereby declared that the amount of deduction under this section shall be allowed from the total income of the assessee computed in accordance with the provisions of this Act, before giving effect to the provisions of this section and the deduction under this section shall not exceed such total income of the assessee.] (2) The deduction under clause (ii) of sub-section (1) shall be allowed only if the following conditions are fulfilled, namely :- (a) the amount credited to the Special Economic Zone Re-investment Reserve Account is to be utilised- (i) for the purposes of acquiring machinery or plant which is first put to use before the expiry of a period of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny free trade zone or export processing zone is subsequently located in a Special Economic Zone by reason of conversion of such free trade zone or export processing zone into a Special Economic Zone, the period of ten consecutive assessment years referred to above shall be reckoned from the assessment year relevant to the previous year in which the Unit began to manufacture, or produce or process such articles or things or services in such free trade zone or export processing zone : Provided also that where a Unit initially located in any free trade zone or export processing zone is subsequently located in a Special Economic Zone by reason of conversion of such free trade zone or export processing zone into a Special Economic Zone and has completed the period of ten consecutive assessment years referred to above, it shall not be eligible for deduction from income as provided in clause (ii) of sub-section (1) with effect from the 1st day of April, 2006. (4) This section applies to any undertaking, being the Unit, which fulfils all the following conditions, namely:- (i) it has begun or begins to manufacture or produce articles or things or provide services ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve effect for the assessment year beginning on the 1st day of April, 2006 and subsequent assessment years. (8) The provisions of sub-sections (5) and (6) of section 10A shall apply to the articles or things or services referred to in sub-section (1) as if- (a) for the figures, letters and word "1st April, 2001", the figures, letters and word "1st April, 2006" had been substituted; (b) for the word "undertaking", the words "undertaking, being the Unit" had been substituted. (9) The provisions of sub-section (8) and sub-section (10) of section 80- IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80-IA. (10) Where a deduction under this section is claimed and allowed in respect of profits of any of the specified business, referred to in clause (c) of subsection (8) of section 35AD, for any assessment year, no deduction shall be allowed under the provisions of section 35AD in relation to such specified business for the same or any other assessment year. Explanation 1.-For the purposes of this section,- (i) "e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....age of profit and gains derived from.... 128. Now it was the meaning of above referred "profit and gains" derived that honourable Supreme Court expounded that the same refers to profits which are commercial profit and without deducting the depreciation and investment allowance as per the income tax act. 129. Thus the contention of the learned counsel of the assessee that languages of both the above section are pari materia is to be accepted. The submission of the learned departmental representative that the languages are different is not at all sustainable in light of the above said discussion. The distinction brought out by the learned departmental representative is not based upon a proper and full reading of the concerned section. The suggestion of the learned departmental representative that section 80 HH does not deal with profit and gains derived is totally fallacious. The term derived has been very much used and the same in facts controls the provision of section 80 HH. Hence learned departmental representative submission in this regard is not sustainable. 130. The submission of the learned departmental representative and the stand of the revenue will succeed only wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons in this regard is not at all sustainable. This decision of honourable Supreme Court in the case of Vijaya Industries (supra) is a recent decision rendered by the larger bench of 3 of their Lordships from the honourable court. By no stretch of imagination it can be said that the subject dealt with by the elaborate speaking and reasoned recent order by this larger bench of the honourable Supreme Court is to be overlooked by referring to other decisions of lesser strength in judicial hierarchy. Hence the learned departmental representative submission that while rendering this decision other decisions were not referred is not at all acceptable. It is settled law that decision rendered by the honourable Supreme Court is the law of the land and is totally binding upon all the other courts and tribunals. Furthermore the submission of learned Departmental Representative that other decisions have not been considered by the Hon'ble Supreme Court is without any substance. Moreover, as cogently brought by learned Counsel of the assessee in para 9 of his submisison, the reference to decision of Plastibends India Ltd. (supra) here is not applicable. Suffice is to reiterate here that it d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sion of learned departmental representative year also doesn't succeed. The last claim of The learned departmental representatives submission is that decision of honourable Supreme Court in the case of Commissioner of Customs (Import) versus Dilip Kumar and company and others Civil Appeal No. 3327 of 2007 dated 30/7/2018 provides that interpretation needs to be done strictly and in case of ambiguity the same needs to be interpreted in favour of the revenue. Here we find that it cannot be said that after the elaborate and well reasoned and speaking order rendered by the recent larger bench of three of their Lordships of the honourable Supreme Court there can be any scope of ambiguity in the interpretation of the meaning of word profit and gains with reference to which the discussion is being made here. Accordingly the submission of the learned departmental representative does not oxygenate the revenue's stand. 136. Accordingly in the background of aforesaid discussion and the precedent from the Hon'ble Supreme Court we direct the assessing officer to grant the deduction under section 10 AA with reference to the profit and gains as determined by the honourable Supreme Court in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d AO in not demonstrating the motive of the Appellant, to carry out transactions between an eligible business and other business, to reduce the taxable profits by manipulating the prices of its Specified Domestic transactions, either at the stage of invoking or initiating the assessment or at the stage of framing the assessment. 139. These are general grounds. Ground No.7.1 to 7.3 not been pressed by the learned counsel of the assessee. For ground No. 7.4 the learned counsel of the assessee placed reliance upon several case laws. 140. The proposition canvassed is that as mandated under section 80IA(10) the assessing officer/transfer pricing officer has failed to prove the existence of arrangement between the assessee and its related party. That there cannot be any adverse inference just because the assessee's margins are better. 141. As regards ground No. 7.5, the learned counsel of the assessee submits that the same is general ground. 142. Upon careful consideration we find that these are general grounds and that they are with reference to other Transfer Pricing addition partly sustained by learned CIT appeals in subsequent grounds. We shall be dealing this issue&#....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss (Reliance Refinery SEZ) of the assessee for a service fee of cost plus a mark-up of 5% on cost of services. As per assessee, the BSS provided by RCITPL is a low end services and routine in nature. In order to render the service no special skill set or intangibles are involved while rendering the services. 147. As per assessee, the assessee has benchmarked the transaction by applying TNMM as the MAM and selecting AE as the tested party. Using the external database the assessee has selected the following comparables: Sr. No. Company Name NCP (%) 1 Empire Industries 4.32 2 HGS Business Services Pvt. Ltd. 15.33 3 ICRA Management Consulting Services Ltd. 2.10 4 Spectrum Business Solutions Ltd. 1.82 Arithmetic Mean 5.90 The 5% margin earned by AE is within the tolerance range, hence it was contented that RIL Refinery SEZ is not making more than ordinary profits and the specified domestic transactions between RCITPL with RIL Refinery SEZ related to provision of Business Support Services were consistent with the arm's length standard from Indian transfer pricing regulations perspective. 148. The TPO rejected the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... industries. This segment is functionally comparable to that of the tested party. The other segment is engaged in developing, leasing, managing, and maintaining industrial real estate properties and also operates vending machines under the name 'Grabbit, which vend food and non-food product The company has various business segments and low end business support service segment of trading and indenting is comparable with the business activity of the Appellant. The segmental audited accounts of the relevant segment is available and accordingly it can be reliably used for benchmarking analysis and is therefore accepted as comparables. Cameo Corporate Services Limited The company is an established service provider, Providing business support services to a wide range of clients. Its main businesses are in the areas of Document Management, Medical Transcription, Data Conversion and Registry & Share Transfer. The TPO has not discussed. So no opinion can be given. Neilsoft Limited The Company, along with its subsidiaries in USA, Germany and branch located in UK provides Software engineering services to its clients. The Company provides solutions across a range of en....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d., • Neilsoft Limited • Goldmine Advertising Limited. 153. In this regard, the learned counsel of the assessee relied upon several case laws. It is the further contention of the learned counsel of the assessee that Cameo Corporate Services Ltd. and Goldmine Advertising Limited, need to be considered for benchmarking purposes, as they are providing business support services and that the entire object of Transfer Pricing studies to determine the ALP of transaction. Therefore, if an assessee mistakenly includes and/or excludes a company from the list of comparables it is not irrevocable or irreversible. The learned counsel of the assessee also submits that assessee is aggrieved that learned CIT (A) erred in confirming the action of the assessing officer in cherry picking the non-comparable company namely Asian Business Exhibition and Conference Ltd. It is the submission that this comparable is to be rejected as the employee cost total operational cost ratio is only 12.83% and that of the assessee's 66.6%. That low cost of the employees cost implies that company would not be providing services by employing its own sources and is following a different b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ack of comparability. However the AO may examine the factual aspect in this regard. Hence the issue stands remitted the file of Transfer Pricing officer. The TPO should consider the issue afresh in light of our observations as above. Needless to add assessee should be granted adequate opportunity of being heard. 157. Ground No. 10 reads as under: 10. Inter-unit transfer of Power: 10.1 On the facts and in the circumstances of the case and in law, the learned AO erred in making and the learned CIT(A) erred in confirming the transfer pricing adjustment of INR 32,45,02,729 in relation to the transaction of inter-unit transfer of Power from the Captive Power Plant ('CPP') to Other Manufacturing Division ('OMD') by computing the arm's length rate at INR 6.155 per KHW without considering INR 6.45 per KHW as determined by the Appellant; 10.2 On the facts and in the circumstances of the case and in law, the learned AO erred in reducing and the learned CIT(A) erred in confirming the reduction of deduction by INR 17,52,72,214 claimed under section 80IA of the Act; 10.3 On the facts and in the circumstances of the case and in law, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., in domestic tariff area, draws Power from these four Power generating units. 160. The aforesaid four power generating units have transferred Power to other units of the assessee for the consideration which is tabulated below:- Transferring Unit Receiving Unit Amount in INR CPP GTG VIII - Hazira RIL Hazira Complex 1,59,44,24,817 CPP GTG IX - Hazira RIL Hazira Complex 1,48,71,16,083 STG - II - Hazira RIL Hazira Complex 82,51,56,395 CPP II - Gandhar Complex RIL Gandhar/Dahej Complex 3,17,29,70,085 The power units have supplied power to other manufacturing units of RIL @ 6.45 per KWH. The TPO held that this transaction was reported as specified domestic transaction under Section 92BA(iii) r.w.s 80-1A(8) of the Act. The assessee has benchmarked the above transaction on application of CUP method as MAM and adopting an internal comparable where by the electricity rate at which the Power was sold by Dakshin Gujarat Vij Company Limited ('DGVCL') to the Manufacturing Division. The DMD unit pays to third Party i.e. DGVCL at the rate of INR 6.45 KHW. Hence, the transaction is at arm's length. 161. The learned TPO issued show-c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....PO in para 3.3.22 agreed with the submission of the appellant that the actual purchase rate is 4.70 per KWH. The appellant has further contended that only gas based plants can be taken for comparison and the TPO accordingly has considered only gas based plant and arrived at ALP of Rs. 6.155 per KWH and made adjustments accordingly. Detailed submissions of the appellant has been reproduced by the AO in the asst. order. The submission during appellate proceedings is also reproduced above. The TPO has discussed provision of section 92BA, 92K, 10B(2) and 80IA (B) of IT act 1961 in para 3,3.3 in his order. The TPO in para 3.3.8 contended that the power generating units should be noted as the tested party and should be tested against similar comparable with similar FAR. The power generating units do not conduct any distributing activity and therefore cannot be compared with the price charged by the distributing company DGVCL to the end customer. Therefore for fulfilling the object of 80IA through the mechanism of TP provisions the transaction should be benchmarked as done by the TPO. Reliance is also placed on the decision in the case of CIT Vs ITC Ltd 64 taxmann. Com 214 (Cal) in appeal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....el of the assessee that he will not press this ground if ground No. 10.3 is decided in favour of the assessee. 172. In this ground the assessee contends that assessee's CPP is supplying power to the manufacturing unit that is the customer and learned Transfer Pricing officer has applied rate at which power generating unit is selling to power distribution which will then sell to the end consumer. Hence the level of market is different. 173. It is further contended that rate which electricity is supplied by GEB to the end consumer is to be considered as the market rate at which the captive power plant can sell power to other unit. 174. Upon careful consideration we find that for the purpose of 80IA(8), the rate of electricity as taken by the assessee has been consistently approved by the ITAT and Hon'ble Jurisdictional High Court also. We may refer here the provisions of section 80IA(8):- Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. 80-IA. (8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e profits arising out of such activity. Obviously, therefore the attempt on the part of the assessee was to claim larger profit under the unit which was eligible for such deduction as against this, attempt of the revenue would be see that the ineligible unit shows greater profit. 6. The Tribunal in the impugned judgment extracted extensively from the order of CIT (Appeals) and independent reasons for confirming the same. In such order CIT (Appeals) had placed reliance on an earlier judgment of the Tribunal in case of Reliance Infrastructure Limited Vs. Addl. CIT, Range 1(1), Learned counsel for the assessee had placed on record a copy of the judgment of the Tribunal in case of Reliance Infrastructure limited. In such judgment an identical issue came up for consideration. The Tribunal by detailed judgment had held and observed as under:- "44. In the given facts and circumstances of the case, we are of the view that the profits of the business of generation of power worked out by the Assessee on the basis of the price that it paid to TPC for purchase of power continues to be the best basis even after the order of MERC and therefore the same has to be accepted as was....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... when it is sold to a supplier as this is not the rate for which a consumer or the Steel-Division could have purchased power in the open market. The rate of power to a supplier is not the market rate to a consumer in the open market. 32. In our opinion, the AO committed an illegality in computing the market value by taking into account the rate charged to a supplier. it should have been compared with the market 10. Gujarat High Court in case of Principal Commissioner of Income-Tax Vs. Gujarat Alkalies and Chemicals Ltd. also had occasion to examine such an issue. It referred to earlier order in case of Asst. CIT Vs. Pragati Glass Works Pvt. Ltd.2 in which following observations were made:- "7. To our mind, Tribunal has committed no error. Assessing Officer and CIT(Appeals) while adopting Rs. 4.51 per unit as the value of electricity generated by eligible unit of assessee and supplied through its non eligible unit only worked out cost of such electricity generation. In fact CIT(Appeals) in terms recorded that Rs. 4.51 was computed as the reasonable value of the electricity generated by eligible unit of assessee. This amount included Rs. 4.17 per unit which was the ....