TaxTMI 
TaxTMI 
2021 (4) TMI 449
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....n to income which does not form part of total income under the Act as mandated by Section 14A(1) of the Act. (c) That the learned CIT (Appeals) has erred in law and in the circumstances of case in not taking into account the various submissions made by the appellant during the course of hearing before him and erroneously upheld an addition amounting to Rs. 39,55,351/-. (d) That the addition of Rs. 39,55,351/- upheld u/s 14A read with rule 8D is bad in law and is prayed to be deleted as rule 8D is not applicable in the current year. 2 (a) That the learned CIT (Appeals) has erred in law, on facts and in the circumstances of the case in upholding an addition of Rs. 44,77,914/- on account of transfer pricing u/s 9C of the Income Tax act based on the order of the TPO dated 15.10.2010 on wholly illegal, erroneous and untenable grounds. (b) That the learned CIT (Appeals) has failed to appreciate that the transaction of the appellant with its AE SRFO Dubai was at arm's length as per Chapter X of the Income Tax Act. The learned TPO and CIT (Appeals) have failed to appreciate that as per provisions of Chapter X no addition was called for on the tr....
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....Group. SRF Group is one of the largest manufacturers of industrial yarn and fabrics in the world and is the seventh largest manufacturer of Nylon Tyre Cord Fabric and the fifth largest manufacturer of belting fabrics in the world. 4. The assessee has raised both transfer pricing issue (in ground no.2) and non-transfer pricing issues before us. We proceed to deal with each ground in seriatim. Ground no.1 [(a)-(d)]-Disallowance u/s 14A read with Rule 8D-Rs. 39,55,351/- 5. Regarding disallowance u/s 14A r.w.r. 8D, the facts in brief are that, assessing officer took note of the fact that assessee has received dividend income to the tune of Rs. 1,49,06,665/- which has been claimed as exempt by the assessee and no disallowance has been made by the assessee u/s 14A in respect of such dividend income received. The assessing officer relying upon the judgment of ITAT Mumbai (Special Bench) in case of ITO v. Daga Capital [117 ITD 169] held that Rule 8D notified vide notification no.45/2008 dated 24th March, 2008 are procedural and clarificatory in nature and thus has retrospective operation including the relevant year under consideration i.e. AY 2007-08. The AO proposed the disall....
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....T in assessee's own cases for AY 2006-07, AY 2008-09, AY 2010-11 and AY 2012-13. In his written synopsis he has also submitted the year wise summary of findings of ITAT starting from AY 2006-07. 10. On merits of case, the assessee reiterated that out of total of investments of Rs. 10410.22 lakhs, amount pertaining to investment made in foreign subsidiaries dividend from whom is taxable is Rs. 8756.86 lakhs. Of the remaining investments of Rs. 1653.36 Lakhs, Rs. 1254.19 Lakhs pertained to investment made in earlier years and thus, only Rs. 399.17 Lakhs pertains to the investment made in the financial year under consideration. As regards the loans, the assessee has given a comparative chart of loans taken/repaid during the previous four years including current year, which is reproduced hereunder:- Rs. In Lakhs Financial Year Increase /(Decrease) in Borrowing Increase / (Decrease) in investment from which income exempt 2003-04 (3,002) 0 2004-05 18,903 (500) 2005-06 17,707 (243) 2006-07 (12,020) 299 He pointed out that during the said period of four years, the assessee had borrowed approx. Rs. 36,608 lakhs for various reasons whi....
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....n recoded by the assessing officer in its order. 13. The learned DR on the other hand relied on the order of assessing officer and CIT (A) and submitted that looking to the exempt income some disallowance has to be made and Ld. CIT (A) on facts has sustained part of disallowance which is justified. 14. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. It is worthwhile to note that this Tribunal in assessee's own case for past and future years has dealt with the identical issue covering several aspects. The findings of this tribunal for AY 2006-07 are reproduced hereunder:- ITA No. 2181/Del/2009 A.Y. 2006-07 Para 9- "We have carefully considered the rival contentions and fully agree that for the impugned assessment year, the provisions of Rule 8D of Income Tax Rules, 1962 which has been made applicable with effect from assessment year 2008-90 only and does not apply to the impugned assessment year under appeal before us. Therefore, no disallowances under section 14A of the Income Tax Act, 1961 can be made in hands of the assessee for this assessment year based on computa....
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.... not satisfied on this count after referring to the accounts, determine the disallowance. The Ld. AO has failed in his duty to do so. In view of this, we direct the AO to delete the disallowance of Rs. 54,76,618/- made u/s 14A of the Act. In view of this, we reverse the order of the Ld. CIT (A) on this ground." 15. Whence, in assessee's own case for AY 2006-07, Tribunal has given a clear finding that provisions of Rule 8D cannot be invoked for any assessment year prior to assessment year 2008-09, then in A.Y.2007-08 also same cannot be held to be applicable. Nevertheless, the issue is settled in view of judgment of Apex Court in case of Essar Teleholdings Ltd. (TS-35-SC-2018) that Rule 8D cannot be enforced prior to AY 2008-09 for making disallowance u/s 14A of the Act. Further, in A.Y. 2011-12 (ITA no.356/Del/2015) and AY 2012-13 (ITA no.5784/Del/2016), this Tribunal has upheld deletion of disallowance u/s 14A r.w.r. 8D in view of sufficiency of assessee's own surplus funds in form of reserves and surplus over the value of investments. 16. As has been brought to our attention that in the year under consideration, the reserve and surplus are much higher than the investments a....
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.... the benefit of +5% holding that benefit cannot be availed in case of single price. Further, the TPO also proposed to reject the assessee's alternative CUP from Technon Orbichem Price Monitor. The TPO proposed an adjustment of Rs. 44,77,914/- in respect of captioned transaction. What TPO has done is that he has taken note of the transaction on daily basis and if on any day the price is less than the price charged from the third party is more, he has made the adjustments. However, he has ignored the other days when price charged from AE is more than the third party. The Comparable price has been reproduced in his order at pages 14 to 20. 20. On appeal, the Ld. CIT (A) rejected the benefit of +5% and upheld the adjustment made by the TPO. 21. During the course of hearing, the ld. Counsel's main objection against the above adjustment was that, while computing the arm's length price of above international transactions, the TPO cannot pick and choose the transactions with the same AE with an objective of making an adjustment. He took us through the chart of transactions reproduced in the TPO's order at page no. 14 to page no.20 to bring out the fact that there are number of transa....
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....-125-ITAT-2015(Mum)-TP] * Goldstar Jewellery Ltd.[TS-14-ITAT-2015(Mum)-TP] * Boskalis International-Dredging International CV [TS-215- ITAT-2014 (Mum)-TP] * Taj Sats Air Catering Ltd [TS-256-ITAT-2013 (Mum)-TP] * Bank of Tokyo Mitsubishi UFJ Ltd v DDIT [2020-TII-91- ITAT-Del-Intl] * Gulbrandsen Chemicals Pvt Ltd [TS-1026-ITAT-2016(Ahd)- TP] * Luwa India Pvt. Ltd. [TS-687-ITAT-2016(Bang)-TP] * MTU Industries Ltd [TS-132-ITAT-Pune]; Heavy reliance was also placed on Mumbai ITAT ruling in the case of Rohm and Haas India Pvt. Ltd. [TS-926-ITAT- 2019(Mum)-TP ] wherein it was held that : Je us. 25. The ld. AR also drew our attention to the fact, that during the year the assessee has raised a debit note amounting to Rs. 36,95,456/- which has not been considered by the TPO and CIT(A). This would go to further reduce adjustment if any. 26. Lastly, on use of Technon Orbichem Price Monitor as comparable, the ld. AR submitted that though the TPO has refused to consider it as comparable data under CUP, he himself has used such data while computing the arm's length price as evident from the chart given in its TPO's order.....
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....rged which is on lower side; and where, the assessee's transaction price was higher than the TPO's comparable price in all such transactions, TPO chose to ignore all such transactions and no benefit or set-off has been given by him for the same. This action of TPO is not warranted as he cannot pick and choose certain transactions and leave other transactions while determining arm's length price of transactions or group of transactions. This precise issue has already been dealt by the Mumbai Tribunal in the case of Boskalis International Dredging C.V vs. DDIT reported in 67 SOT 118, which decision has been subsequently approved by the Hon'ble Bombay High Court reported in TS-1310- HC-2018. 23. We reiterate that the transactions under consideration are in the nature of export of nylon yarn and chafer by the assessee to its AE and the nature of transaction is same and homogeneous and is with the same AE. These transactions are continuous transactions and are closely linked transactions. Though each international transaction is required to be benchmarked separately, however, the word "transaction" as defined under Rule 10A (d) of Income-tax Rules, 1962, includes within its ambit a n....
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.... TPO. While the aforesaid net positive after giving the effect of debit note the same gets enhanced to Rs. 51,53,489/-. Hence there is no scope left for any ALP adjustment in these facts. We therefore, allow the claim of the assessee of benchmarking the entire transaction of export of nylon yarn and chafer using the aggregation approach which has been duly confirmed in various decisions cited supra and accordingly, the assessee's international transactions of export of Nylon Yarn and Chafer are held at arm's length. Thus, transfer pricing adjustment made by the TPO/AO and upheld by CIT (A) amounting to Rs. 44,77,914 is hereby deleted. Ground no.3-Receipt on account of transfer of Carbon emission reduction (CER) certificates: 26. The assessee has received carbon emission reduction ('CER' or 'carbon credits') certificates on account of its efforts to reduce the emission of greenhouse gases in terms of Kyoto Protocol. During the relevant year the assessee transferred 45,49,000 of such certificates for a consideration of Rs. 4,91,53,00,344/-. 27. The assessee initially included the above CER receipts in its total income while filing the return of income. Subsequently bef....
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....its order (ITA no.805 and 2744/Ahd/2017) are worth discussing. The appellant in said case was operating a HCFC-22 plant at village Ranjitnagar, District Panchmahals, Gujarat. During the production of HCFC-22, waste gas called HFC-23 was also generated. Appellant's CDM project consisted of incinerating HFC-23 instead of allowing it to bevented into the atmosphere, and thereby reducing GHG emissions. Due to reduction in emission of HFC-23, CERs were awarded to the appellant. The appellant raised the issue of exclusion of CER from total income before the DRP for the first time, which refused to entertain the claim of the assessee primarily relying on the judgment of Hon'ble Supreme court in Goetze (India) Limited vs CIT 284 ITR 323. The tribunal taking note of the facts and judgments on the issue allowed the appeal of the assessee with following findings:- "41. Thus, taking into consideration resolution of litigation on this issue by the Legislature itself, which had made provision for taxation of such receipts at the rate of 10% from the assessment year 2018-19 as well as authoritative pronouncements of Hon'ble jurisdictional High Court, we are of the view that receipts ....
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....v. My Home Power Limited reported in (2014) 365 ITR 82 (AP) have held that receipts of carbon credit are in nature of revenue receipts. Following the decision of said two High Courts, this question is also not considered." 31. We have observed that facts of the assessee are similar to the case of Gujarat Flourochemicals Ltd (Supra). Further, in other cases too, the Hon'ble High Courts have held CER as the capital receipts not liable to tax. This tribunal in earlier years also has dealt with this issue in the case of assessee and remitted the matter to the file of AO. The observation of the tribunal in assessee's own case for AY 2010-11 (ITA no.356/Del/2015) is reproduced herein below for reference: "60. On the aspect of claim of the assessee that receipt of CER is capital nature, we find force in the argument of the Ld. AR that cause of action had arisen in the case by virtue of the decision in My Home Power Ltd. (supra). The claim of assessee is bonafide and has been raised before AO as well as DRP. The assessee is not in the business of trading in CERs but in business of technical textile, chemicals, refrigerant gaseous etc. The assessee has been granted CERs....
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....r of the Income-tax Appellate Tribunal under section 254 of the Income-tax Act, 1961. There shall be no order as to costs." The Hon'ble Apex Court in case of NTPC Ltd. (Supra) held: "Under section 254 of the Income-tax Act, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a nontaxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). B....
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....the hands of recipient assessee has to be decided with respect to the purpose for which subsidy is granted. If the subsidy is received to enable the assessee to run its business more profitably then such subsidy is revenue in nature. While, if the subsidy has been received by the assessee to set up a new unit or for expansion of existing unit then such subsidy would be capital in nature. We find form the objective of TUF scheme that interest subsidy under such scheme was granted for expansion of capacities, modernisation and up gradation of facilities. In case of CIT v. Sham Lal Bansal (Supra), the Hon'ble Punjab & Haryana High Court on similar facts held subsidy received under TUF Scheme as capital receipt. Since the issue under hand is related to additional claim which was not entertained by the lower authorities, we therefore allow the assessee's ground for entertainment of above additional claim and remit the issue back to the file of AO to decide the same in accordance with law after granting a reasonable opportunity of being heard to the assessee. The assessee shall be free to file such documents, explanations, submissions as it deems fit in respect....