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2022 (7) TMI 888
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.... off by this common and consolidated order. We shall be first take up the cross appeals for A.Y. 2012-13. 3. Taking up first the Assessee's appeal in ITA No. 2471/Ahd/2017 for A.Y. 2012-13. 4. Ground No. 1 and 1.1 relate to the same issue of transfer pricing adjustment made on account of short term advances made by the assessee to its associated enterprises, levying notional interest of Rs. 2,52,319/- thereon. The said grounds read as under: 1. The learned CIT(A) has erred in confirming the addition made by the learned Assessing Officer and the learned Transfer Pricing Officer to the total income of the appellant u/s. 92C to the extent of Rs. 2,52,319. 1.1 The learned CIT(A) has erred in confirming the order of the AO and TPO levying notional interest of Rs. 2,52,319 on short term advance made to its overseas subsidiaries being Kalpataru Power Transmission (Mauritius) Ltd. and Kalpataru Power Transmission (Nigeria) Ltd. It is submitted that the learned CIT(A), AO and TPO failed to appreciate the reasons for making advance as well as the benefits received by the appellant from the same. It be so held now. 5. Taking us through the fact of the case, Ld. Counsel for the ass....
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....r is reproduced hereunder:- "11. We are unable to see any merits in his line of reasoning. As the learned counsel himself accepts, on a conceptual note, several types of debts, particularly long term unsecured debts, and revenue participation investments could be termed as 'quasi capital'. So far as arm's length price of such transactions are concerned, this cannot be 'nil' because, under the comparable uncontrolled price method, such other transactions between the independent enterprises cannot be at 'nil' consideration either. Nobody would advance loan, in arm's length situation, at a nil rate of interest. The comparable uncontrolled price of quasi capital loan, unless it is only for a transitory period and the de facto reward for this value of money is the opportunity for capital investment or such other benefit, cannot be nil. As for the intent of the assessee to treat this loan as investment, nothing turns on it either. Whether assessee wanted to treat this loan as an investment or not does not matter so far as determination of arm's length price of this loan is concerned; what really matters is whether such a loan transaction would have t....
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....d. vs. Dy. CIT (2010) 37 SOT 358 (Delhi) identical issue was discussed and it was pointed out that the argument of loan being quasi capital in nature was rejected on facts since there was no material on record to establish so. From Para 15 of the order, it was pointed out that the Bench noted that in the facts of the case before it, (Micro Inks), it had been demonstrated that the loan was given in place of capital contribution which required the RBI permission. When the RBI permission was ultimately obtained the loan was converted into shares effective from the date when the loan was given. It was also noted by the Bench that the entity which received the interest free advance was not only wholly owned subsidiary of the assessee but also played a significant role in its sales and distribution chain. That in this backdrop the Bench noted that lending of money could not be considered in isolation with these business considerations, and the relationship between the assessee and its AE was not simply that of a lender or borrower. Going forward the Bench thereafter dealt with the applicability of the LIBOR rate for the ALP of interest to be charged on such transaction in the backdrop of....
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....not made for removing the differences. * Reliance is placed also on Gulbrandsen Chemicals (P.) Ltd. vs. DCIT [2019] 104 taxmann.com 253 (Ahmedabad) 10. At this juncture, Ld. Counsel for the assessee was asked at bar to demonstrate with evidence as to how the loan given in the present case would qualify as quasi capital and or given for commercial expediency of the assessee as were the facts in the case of Micro Inks Ltd. (supra) referred to by the Ld. Counsel for the assessee before us. Ld. Counsel was unable to convincingly demonstrate the same except for reiterating his contention before the A.O., that the advances were given to its wholly owned subsidiary newly formed for the purpose of procuring work/business of the assessee in the respective countries where they were set up i.e. Mauritius and Nigeria respectively. 11. In view of the above, the main argument of the assessee against the transfer pricing adjustment made on account of the short term advances given to its subsidiaries in Mauritius and Nigeria, fails. The assessee being unable to demonstrate that the advances were not in the nature of loan/advance but were quasi capital in nature and for commercially expedient p....
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....t the investments from which no exempt dividend income is received during the year are also includible while computing disallowance u/s. 14A on the ground that other investments have yielded exempt income. It is submitted that section 14A has to be applied separately for each investment. It be so held now. 2.5 Without prejudice to above, the learned CIT(A) has erred in not directing the learned AO in excluding all investments which generates income chargeable to tax from value of average investments, in calculating amount to be disallowed as per clause (iii) of Rule 8D(2) of the Income Tax Rules, 1962. 15. Drawing our attention to the facts of the case, it was pointed out that the assessee had earned dividend income of Rs. 8,18,54,250/- during the year, mainly from its subsidiary namely JMC Projects India Ltd., which was claimed as exempt u/s. 10 of the Act. The assessee had made suo moto disallowance of Rs. 60,000/- of administrative expenses u/s. 14A of the Act. The A.O. however noting that the assessee was holding substantial investments at the beginning and end of the year amounting to Rs. 39,558.01 lacs and Rs. 40,493.58 lacs respectively applied Rule 8D of the Income Tax R....
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....infirmity in the stand so taken by the Assessing Officer. The conditions of Section 14A(2) are clearly fulfilled. The CIT(A) has granted the impugned relief on the basis that the AO has not given any finding about incorrectness of the disallowance offered by the assessee, but this is, as we can see from the extracts from the assessment order, factually incorrect. As regards learned counsel's reliance on Priya Exhibitors Pvt. Ltd. vs. DCIT [(2012) 54 SOT 356 (Del)], we find that the coordinate bench had specifically stated that "..... Their I.T.A. No.: 538/Ahd/2013 Assessment year: 2009-10 Lordships has held that the Assessing Officer must in the first instance determine whether the claim of the assessee is correct and determination must be made having regard to the accounts of the assessee. The legislature directs him to follow rule 8D only where the Assessing Officer is not satisfied with the claim of assessee. In the present case, the Assessing "Officer has not fulfilled his onus of recording his findings". The facts in the present case are diametrically opposed to the said factual position. It is a case, as evident from the reproductions set our earlier in this order, in whi....
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..... Saraswat Co-operative Bank Limited in UA No. 8622/Mumbai/2010 dated 31st October, 2016, decision of Chennai ITAT in the case of Voltech Engineers Pvt. Limited Vs. DOT (HA No. 1801/Mds/2016), dated 20th February, 2017 and decision of Hon'ble Punjab & Haryana High Court in the case of Punjab Tractors Limited Vs. CIT 246 taxman 31(17). (iii) The appellant has also taken one more argument that investments from which exempt dividend income is not received should be excluded for the purpose of section 14A. The decisions of Hon'ble Gujarat High court and other court relied upon by appellant states that when no exempt dividend income is earned, 14A disallowance should not be made but nowhere state that 14A should be restricted only on those investments from which exempt income is earned. (iii) The Appellant has also submitted that investments considered by AO include investment in foreign subsidiary companies from which taxable dividend income is earned hence disallowance under Section 14A should not be made on such investments. The Hon'ble Gujarat High Court in the case of CIT Vs. Suzlon Energy Limited 33 taxmabn.com 151 have decided similar issue in favour of Assessee a....
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....by the assessee, it was claimed that the investments held by the company have been held for business purpose and the same have been made out of the own funds of the company available with it in form of share capital and share premium Further, it was submitted that the assessee-company has disallowed a sum of Rs. 60,000/- in computation of total income towards administrative and other expenditure for earning of exempt income as per Statement of Total Income submitted during the course of hearing. 10.2 However, the assessee did not provide for the details of the manner in which such disallowance was computed. The assessee has merely made an ad hoc disallowance under section 14A of the Act. Further, the assessee is holding investments of Rs. 40,493.58 lacs as at 31.03.2012. Further, the investments as at 31.03.2011 stood at Rs. 39,558.01 lacs. This clearly implies that the assessee is maintaining huge investment portfolio resulting in significant exempt income as dividend. Moreover, there is significant activity in the investment portfolio of the assessee company. 20. On perusing the same, it was noted that the assessee had given no basis for making a suo moto disallowance of Rs. 6....
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....Ld. Counsel for the assessee before us, we hold that there was valid satisfaction of the A.O. for rejecting the explanation of the assessee. The argument of the Ld. Counsel for the assessee therefore that the A.O. had recorded no satisfaction before proceeding to apply Rule 8D for calculating the disallowance to be made u/s. 14A, is therefore dismissed. 23. The next contention raised by the Ld. Counsel for the assessee before us was that the investment in SPVs and those investments which did not earn any dividend income during the year should not be considered for the purpose of applying Rule 8D. Reliance was placed on the following decisions in this regard: Ground No. 2.4 & 2.5 - Disallowance as per Rule 8D should be revised * Investments in SPVs (Jhajjar KT Transco Pvt. Ltd.) should be excluded while applying Rule 8D since the investment was mandatory requirement for executing the EPC contract awarded. * Hence, the investment in SPV should be excluded from the value of total investments while computing disallowance under Rule 8D * Reliance is placed on decision of * ACIT, Circle 13(1) vs. M/s. Oriental Structural Engineers (P) Limited ITA No. 4245/Del/2011 * CIT vs. ....
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....axopp Investment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Keeping this objective behind Section 14A of the Act in mind, the said provision has to be interpreted, particularly, the word 'in relation to the income' that does not form part of total income. Considered in this hue, the principle of apportionment of expenses comes into play as that is the principle which is engrained in Section 14A of the Act. This is so held in Walfort Share and Stock Brokers P Ltd., relevant passage whereof is already reproduced above, for the sake of continuity of discussion, we would like to quote the following few lines therefrom. "The next phrase is, "in relation to income which does not form part of total income under the Act". It means that if an income does not form part of total incom....
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....Kalpataru Power Transmission, USA, for its services in identifying projects in the US market. 32. The assessee had reported international transaction of Liaison Service Fee of Rs. 2,57,27,549/- paid to its associate enterprise Kalapatru Power Transmission USA Inc. and had bench marked it using CUP method in its report filed in Form No. 3CEB. The TPO in his order passed u/s. 92CA(3) rejected the bench marking adopted by the assessee and adopted the bench marking of Liaison support Service Fee @ 2% in the case of Cadila Health care Ltd. approved by the ITAT Ahmedabad Bench. Accordingly the difference amounting to Rs. 1,04,85,761/- was proposed to be adjusted by way of reduction in the liaison fees so paid by the assessee. The same was accordingly adjusted by the A.O. in his order passed u/s. 143(3). 33. Ld. CIT(A) however, it was pointed out, deleted the same noting that the liaison fees paid to Pharmaceutical Company i.e. Cadila could not be said to be comparable for the assessee which was engaged in the business of designing High end transmission lines towers and providing turnkey solutions. The relevant findings of the CIT(A) at para 6.2 of his order is as under: 6. 2 I have c....
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....tly used the US Census Bureau data published to benchmark the success fee. TPO on one hand has stated that the figures of the US Census Bureau is not applicable since the nature of service/product dealt by the appellant is totally different. Thereafter, he goes on to compare the appellant with a pharmaceutical company and benchmark the entire transactions at 2%. The data compiled by the US Census Bureau in respect of electronics market, commission agents etc. has also been compiled vide Annexure-G of the Paper-book. The data collection methodology has been elaborately described and it is seen that it is not merely an estimate but it is actual collection of data from various organizations in different fields of activities. At this juncture, it is relevant to refer to Rule 10D(3) which gives a statutory support to use a Government publication in/the benchmarking process. Clause (a) of Rule 10D(3) categorically specifies that the assessee can use official publications, reports, studies, database from the Government of the country of residence of the AE. The TPO has simply rejected the CUP method and has compared the Appellant Company engaged in the business of designing high-end trans....
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....2CA(3) of the Act. 38. Ground of appeal No. 1 is therefore dismissed. 39. Ground No. 2 reads as under: 2. Whether on the facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition made on profit on sale of carbon credit of Rs. 5,25,41,076/-. 40. The issue relates to taxability of Carbon Credit i.e. CER certificate (Carbon Credits) issued to the assessee for saving emission of carbon. The assessee had two biomass based power generation plant using agricultural waste as fuel at Padampur and Tonk in Rajasthan State. The assessee had earned the following income/incurred expenditure in relation to the CER Certificates earned in the impugned year. Particulars Padampur Tonk Total CERs 94,64,058 4,15,34,675 5,09,98,733 Exchange Gain on CERs . 20,63,672 57,07,462 77,71,134 Expenditure -18,59,929 -43,68,862 -62,28.791. Net Income 96,67,801 4,28,73,275 5,25,41,076 Actual receipt on sale of CERs approved by UNFCC Nil Nil Nil 41. While filing the return of income the assessee had excluded the income pertaining to CER and added back the expenditure incurred for earning such income in its total income on ....
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....aph 6 of its order (supra) has dealt with the issue at length and square held that the carbon credits are generated out of environmental concerns which does not have any character of trading activity; therefore, any receipt from an activity which is not a trading activity is capital in nature by following observation:- 19.1 The Hon'ble High Court further relied on the judgment of Hon'ble Andhra Pradesh High Court in the case of CIT vs. My Home Power Ltd. [2014] 46 taxmann.com 314/365 ITR 82 and the judgment of Hon'ble Karnataka High Court in the case of CIT vs. D.G. Gopala Gowda, [2013] 354 ITR 501, which have taken the same view on realization of carbon credits as capital receipt. There is no contrary judgment and the two Hon'ble High Courts, i.e. Andhra Pradesh High Court and Karnataka High Court, having taken a concurrent view on this matter, are to be followed in judicial discipline 19.2 The Ld. Departmental Representative, on the other hand, contends that the realization from carbon credits has been treated by the appellant itself as revenue income and offered to tax and in fact in actualities they are revenue receipt. However, no adverse judgment on this h....
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....ellant, AO has taxed CERs on accrual basis even though there was no sale of such CERs. The said addition was deleted by CIT (Appeals) and Hon'ble Ahmedabad ITAT confirmed the order of CIT(A) deleting the addition, however, on a different ground that no income on account of CERs accrued during the relevant year. As regards characterization of CERs as capital or revenue receipts, the Hon'ble ITAT made certain observations. However, upon appeal filed by the Appellant, Hon'ble Gujarat High Court (TAXAP/73/2017) has quashed the observations made by TTAT in respect of taxability" of the CERs and observed as under: [5.0] Having heard learned Counsel appearing on behalf of the respective parties and considering the impugned judgment and order passed by the learned Tribunal, we are of the opinion that as such the learned Tribunal has materially erred in proceeding further to examine the taxability of the income from sale of CERs in future year. It is not in dispute that so far as the year under consideration for which the appeal was before the learned Tribunal, the learned Tribunal has confirmed, the order passed by the learned CIT(A) deleting the addition of Rs. 5,78,28,058 b....
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....tion 28(1) of the Income-tax Act, 1961 - Business income-Chargeable as (Carbon credits) - Assessment year 2007-08 - Appellant-company was 'engaged in business of power generation through biomass power generation unit - It received carbon credits, namely, carbon Emission Reduction Certificates for its project activity of switching off fossil fuel from naptha and diesel to biomass - It transferred said carbon credits and offered receipt from said transfer: as capital receipt - However/Assessing Officer treated said receipt as business income and brought same to tax - Tribunal held that carbon credit not being an offshoot: of business but an offshoot of environmental concern, amount received on their transfer had no element of profit or gain - Whether since carbon credit was not even linked with power generation, Tribunal was justified in its decision-Held, yes [Para 2] [In favour of appellant] (ii) Decision of Hon'ble ITAT Chennai in case of Sri Velayudhaswamy Spinning Mills (P.) Ltd. Vs. DCIT [2013] [40 taxmann.com 141]: Section 4 of the Income-tax Act, 1961 - Income - Chargeable, as [Carbon credits] Assessment year 2009-10 - Appellant was engaged in business of manufact....
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....;ble High Courts of Karnataka and Andhra Pradesh holding CER receipts as capital in nature and income earned there from also being capital receipt. The Ld. D.R. unable to distinguish the case laws. 44. In view of the above, we see no reason to interfere in the order passed by the Ld. CIT(A) deleting the addition made on profit of sale of Carbon Credits of Rs. 5,25,41,076/-. 45. Ground of appeal No. 2 is dismissed. 46. Ground No. 3 reads as under: 3. Whether on the facts & circumstances of the case, the Ld. CIT(A) was justified in allowing the Additional depreciation of Rs. 26,41,911/-. 47. The issue relates to claim of additional depreciation @ 50% of the rate applicable which was allowed in the preceding year on account of the fact that the asset so qualifying was purchased and put to use for less than 180 days and the balance was accordingly claimed by the assessee in the impugned year, which was disallowed by the A.O. but allowed by the Ld. CIT(A). The assessee had claimed additional depreciation of Rs. 26,41,911/- u/s. 32(1)(iia) of the Income Tax Act during the impugned year i.e. A.Y. 2012-13, on the assets which were put to use in A.Y. 2011-12 for a period less than 182....
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.... addition without there being any claim in the return of income, and secondly, not allowing the legally valid claim made by way of a communication dated 17/3/2014 is erroneous. The appellant has made written submissions and challenged the addition/disallowance made on account of depreciation claimed by the Appellant during the assessment proceeding towards additional depreciation u/s. 32(1)(iia) on the assets installed during the preceding assessment year used for a period less of than 182 days during the preceding assessment year. The Appellant has claimed the additional depreciation of Rs. 7,91,852/- u/s. 32(1)(iia) of the Income Tax Act, 1961 during the assessment proceeding of Asst. Tear 2011-12, on the assets which were put to use during the assessment year 2010-11 for a period less than 182 days and therefore additional depreciation was calculated at 50% of the applicable rate during the assessment year 2010-11. The balance amount of additional depreciation was not claimed by the Appellant at the time of filing the return of income and therefore such additional depreciation was claimed by submitting the letter No. 933 dated 17.03.2014 clarifying the reason thereof. However, t....
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.... not in dispute that the assessee has acquired and installed the machinery after 31-03-205. IT is also not in dispute that the assessee is engaged in the manufacture of article or thing. Therefore the assessee is eligible for additional depreciation which is equivalent to 20% of the actual cost of such machinery. The dispute is the year in which the depreciation has to be allowed. The assessee has already claimed 10% of the depreciation in the earlier assessment year since the machinery was used for less than 180 days and claiming the balance 10% in the year under consideration. Section 32(1)(iia) does not say that the year in which the additional depreciation has to be allowed. It simply says that the assessee is eligible for additional depreciation equal to 20% of the cost of the machinery provided the machinery or plant is acquired by the machinery or plant is acquired and installed after 31-03-2005. Proviso to section 32(1)(iia) says that if the machinery was acquired by the assessing during the previous year and has put to use for the purpose of business less than 180 days, the deduction shall be restricted to 50% of the amount calculated at the prescribed rate. Therefore, i....
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....e allowed". Thus, the assessee had earned the benefit as soon as he had purchased the new machinery and plant in full but it is restricted to 50% in that particular year on account of period usages. Such restrictions cannot divest the statutory right. Law does not prohibit that balance 50% will not be allowed in succeeding year. The extra depreciation allowable u/s. 32(1)(iia) in an extra incentive which has been earned and calculated in the year of acquisition but restricted for that year to 50% on account of usage. The so earned incentive must be made available in the subsequent year. The overall deduction of depreciation u/s. 32 shall definitely not exceed the total cost of machinery and plant. In view of this matter, we set aside the orders of the authorities below and direct to extend the benefit. We allow ground No. 2 of the assessee's appeal. Since we have decided ground No. 2 in favour of assessee, there is no need to decide the alternative claim raised in ground No. 3. The same is dismissed." * Asstt. CIT v. SIL Investment Ltd. 26 taxmann.com 78 (Delhi) * 40. There is nothing on record to show that the directions given by Ld. CIT(A) are not proper. The eligibility ....
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....clause (iia) of the said section 32(1) of the Act. And it is because of the second proviso assessee claimed only 50%; additional depreciation for AY 2006-07 and accordingly, claimed the balance amount of additional depreciation in the immediately subsequent year i.e. the year under consideration AY 2007-08. We are in full agreement with the argument of Shri J.P. Khaitan, Senior Advocate that a bare reading of section 32(1)(ha) clearly shows that the assessee is eligible for additional depreciation in case the new machinery and plant was acquired and installed after 31-03-2005. There is no restrictive condition in the clause for the eligibility of the assessee to claim additional depreciation. When the assessee is eligible for depreciation @ 20%, in the absence of any specific provision, the AO cannot cut down the scope of deduction by referring to second proviso to section 32(1)(ii) of the Act. He also pointed out that even if there is any contradiction between sections 32(1)(iia) and second proviso to section 32(1)(ii), it has to be reconciled so as to give harmonious effect to the legislative intent. The benefits conferred on the assessee by way of incentive provision cannot be t....
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....nvenience the relevant portion of the order is as under: "17. We have heard both the sides on this issue. Section 32(1)(iia) inserted by Finance (No. 2) with effect from 1.4.2003. In speech of Finance Minister this clause was inserted to provide incentive for fresh investment in industrial sector. This clause was intended to give impetus to new investment in setting up a new industrial unit or for expanding the installed capacity of existing units by at least 25% thereafter these provisions were amended by the Finance (No. 2) Act of 2004 w.e.f. 1.4.2005 and provided that in the case of any machinery or plant which has been acquired after the 31st day of march, 2005 by an assessee engaged in the business of manufacture of production of any article or thing a further sum equal 15% of actual cost of such machinery or plant shall be allowed as deduction under clause (ii) of section 32(1). This additional allowance u/s. 32(1)(iia) is made available as certain percentage of actual cost of new machinery and plant acquired and installed. This provision has been directed to the setting up new industrial undertaking making or for expansion of the industrial undertaking by way of making mor....
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....sonably, liberally and purposive to make the provision meaningful while granting the additional allowance. This additional benefit is to give impetus to industrialization and the basic intention and purpose of these provisions can be reasonably and liberally held that the assessee deserves to get the benefit in full when there is no restriction in the statute to deny the benefit of balance of 50% when the new plant and machinery were acquired and use for less than 180 days. One time benefit extended to assessee has been earned in the year of acquisition of new plant and machinery. It has been calculated @ 15% but restricted to 50% only on account of usage of these plant & machinery in the year of acquisition. In section 32(1)(iia) the expression used is "shall be allowed". Thus the assessee had earned the benefit as soon as he had purchased the new plant and machinery in full but it is restricted to 50% in that particular year on account of period of usages. Such restrictions cannot divest the statutory right. Law does not prohibit that balance 50% will not be allowed in succeeding year. The extra depreciation allowable u/s. 32(1)(iia) in an extra incentive which has been earned an....
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....appeal is accordingly dismissed. 48. In view of the above, since identical issue stands adjudicated in favour of the assessee by the ITAT in preceding years. We see no reason to interfere in the order passed by the Ld. CIT(A) deleting the disallowance of additional depreciation of Rs. 26,41,911/-. 49. Ground No. 3 is dismissed. 50. Ground No. 4 reads as under: 4. Whether on the facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance made u/s. 14A rws Rule 8D of Rs. 2,05,15,540/-. 51. The issue relates to disallowance of expenses pertaining to exempt income earned as per the provisions of Section 14A of the Act and the revenue is aggrieved by the order of the Ld. CIT(A) deleting the disallowance of expenses pertaining to foreign investment made by the assessee. The Ld. CIT(A) had directed exclusion of foreign investment made for the purpose of computation of disallowance u/s. 14A as per Rule 8D of the Income Tax Rules 1962 holding that the dividend earned from the said foreign investment was not exempt from tax. 52. The Ld. D.R. was unable to controvert the above findings of the Ld. CIT(A). 53. In view of the above, we see no reason to in....