AI Drafter 
TaxTMI 
TaxTMI 
2022 (7) TMI 1045
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.... (2) That on the facts and in the circumstances of the case, the ld. CIT(A) was not justified and grossly erred in not allowing exclusion of Excise Duty Exemption as capital receipt amounting to Rs.87,98,09,432/- availed during the year under consideration in computing book profit as per section 115JB of the Act". 2(i). The assessee has also raised an additional ground of appeal on 29th September, 2021, which reads as follows:- "Claim for deduction of Amortization of Leasehold Land expenses Rs.18,73,242/- In the computation of total income for the instant assessment year, the assessee has debited Amortization of Leasehold land expenses amounting to Rs.18,73,242/-. The Assessing Officer in the assessment order has disallowed the above expenditure. The disallowance made by the ld. Assessing Officer was upheld by the ld. CIT(Appeals). However, ld. CIT(Appeals) gave relief to the appellant by correspondingly increasing the deduction under section 80IC/80IE of the Act for the lease rentals attributable to the units eligible for deduction under section 80IC/80IE of the Act The assessee pleads that the expenditure shall be allowed as a deduction in view of the ....
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....gh this ground, it is claimed that the ld. CIT(Appeals) grossly erred in not allowing exclusion of Excise Duty Exemption as capital receipt amounting to Rs.87,98,09,432/- availed during the year under consideration in computing book profit as per section 115JB of the Act. 6. Brief facts relating to the issue are that the assessee claimed excise duty exemption in terms of Excise Notification No. 50/2003 dated 10.06.2003, as for the Manufacturing units of the appellant namely Rudrapur Plywood Unit and Rudrapur MDF Unit located at Plot No. 2, Sector 9, IIE, Pantnagar, Rudrapur, Uttrakhand, which commenced commercial production on 02.05.2006 and 31.03.2010 respectively, and are thus eligible for 100% excise duty exemption in respect of goods manufactured and cleared from such units for a period of 10 years from the date of commencement of commercial production. In the impugned order, ld. CIT(Appeals) has allowed the deduction under the normal provisions of the Act but the order is silent on the exclusion of the said incentive while computing book profit under section 115JB of the Act. 7. Ld. counsel for the assessee stated that the two units owned by the assessee namely Rudrapur ....
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....usion of capital receipt in the form of excise duty exemption in the computation of MAT would defeat the very objective of introduction of section 115JA and 115JB of the Act. Further Coordinate Bench of this Tribunal in the case of Sunrise Biscuit Co. Pvt. Limited -vs.-ITO (ITA No. 92/GAU/2019) held that source of subsidy is immaterial, form of subsidy is equally immaterial and the time at which the subsidy is paid is also immaterial. Reliance was also placed on the decision of the Coordinate Bench of Kolkata in the case of DCIT -vs.- M/s. Century Plyboards (I) Limited (ITA No. 2149/KOL/2019), wherein it was held that subsidies cannot be regarded as income even for the purpose of book profits u/s 115JB of the Act though credited in the profit and loss account and have to be excluded for arriving at the book profits under section 115JB of the Act. Reliance was further placed on the following decisions:- (i) Uflex Limited -vs. ACIT (2022) (1) TMI 731- ITAT, Delhi, (ii) M/s. BR Agrotech Limited -vs.- ACIT (2021 (9) TMI 233- ITAT, Delhi; (iii) ACIT -vs.- Shree Cement Limited (ITA No. 614/JP/2010) order dated 09.09.2011; (iv) CIT -vs.- Harinagar Sugar....
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....hile computing the book profit under section 115JB of the Act, therefore, the issue is for our examination that "whether the excise duty exemption which is a capital receipt and not chargeable to tax under the normal provisions of the Act, is to be considered as a part of book profit for computing the book profit under section 115JB of the Act". 11. We will like to first go through the judicial jurisprudence available for the issue in hand. We find that in the case of Sunrise Biscuit Co. Pvt. Limited -vs.- ITO, ward -1(5), Guwahati ITA No. 92/Gau/2019 (page 87102 of the case law paper book), the Hon'ble Guwahati Tribunal was dealing with the issue whether subsidy received by the assessee was capital in nature and, therefore, not exigible to income-tax, both under normal computational provisions as well as book profit u/s 115JB. The Hon'ble ITAT relied upon of the judgement of the Hon'ble Supreme Court in the cases of Sahney Steel & Press Works (supra) & Ponni Sugar & Chemicals Ltd. (supra) and had held that the object or purpose for which the subsidy was given was relevant. It was held that the source of subsidy is immaterial, form of subsidy is equally immaterial and the time a....
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....dictional Hon'ble Calcutta High Court in the case of Pr.CIT Vs Ankit Metal and Power Ltd (416 ITR 591) held that subsidies received for setting up new industry is not in the nature of income and therefore cannot be deemed as income for the purposes of computing book profit u/s 115JB of the Act. In the decided case the assessee had received interest subsidy under the WB Incentive Scheme, 2000 and power subsidy under the Power Intensive Industries Scheme, 2005 for setting up Sponge Iron Plant in Bankura. Before this Tribunal, the assessee claimed that receipt of such subsidies in form of remission of interest and power/electricity duty payments etc. was capital receipt not liable to tax both under the normal computational provisions as well as book profit u/s 115JB of the Act. The Tribunal answered the issue in favour of the assessee. On appeal by the Revenue, the Hon'ble High Court upheld the order of this Tribunal by observing as under: "26. Now the second issue which requires adjudication is as to whether the aforesaid incentive subsidies received by the assessee from the Government of West Bengal under the schemes in question are to be included for the purpose of computa....
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....- DCIT T20171 186 TTJ 289 (Kol.) (Refer Page 123-150 of the Case Law Paper book) wherein it has been held that subsidies cannot be regarded as income even for the purpose of book profits u/s.115JB of the Act though credited in the profit and loss account and have to be excluded for arriving at the book profits u/s. 115JB of the Act. 13. Coordinate Bench Delhi in case of Uflex Limited -vs.- ACIT 2022 (1) TMI 731 - ITAT Delhi held that CENVAT credit, as received by the Assessee, in accordance with the incentive scheme for J & K as formulated by the Central Government is a capital receipt not liable to tax, accordingly the same cannot be part of book profit under Section 115JB also. Relevant extract of the order of the Hon'ble ITAT is reproduced below: "14. Regarding issue raised vide Ground No. 7, that the aforesaid subsidy being capital in nature it will also not form part of the book profit u/s 115JB. Before us the Ld. Counsel for the assessee submitted that the CENVA T credit as received by the appellant under the incentive scheme for J&K as formulated by the Central Government and treated the same as a capital receipt not liable to tax by the J&K High Court in the cas....
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....y the same cannot be part of book profit under Section 115JB also. Consequently, ground No. 7 is also allowed. " 14. Coordinate Delhi ITAT in case of M/S BR Agrotech Ltd, -vs.- ACIT (2021 (9) TMI 233 - ITAT DELHI) decided in favour of the Assessee holding that only that receipt which forms part of the "income" are to be taxed. The capital receipts which are otherwise not subject to tax under the normal provisions of the Act are not envisaged to be taxed under the provisions of "Minimum Alternate Tax". Once a receipt is not considered as income, the same cannot be subjected to tax under this Act as such receipt naturally classified under capital receipt, which was never meant to be taxed cannot be taxed even u/ s 115 JB. Relevant extract of the order of the ITAT is reproduced below: "23. The similar view has been taken by various Co- ordinate Benches of IT AT, to mention a few, IT AT Delhi in the case of Montage Enterprises Pvt. Ltd. vs. DCIT in IT A No 5124/Del/2011, in the case of Malana Power Co. Ltd. in ITA No. 3957 & 1550/Del/2015 and ITAT Mumbai in the case of Shivalik Venture Pvt. Ltd. vs. DCIT in ITA No. 2008/ Mum/2012 wherein it was held that capital subsidy sha....
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....ree Cement Limited (Supra), carbon credit being a capital receipt was held to be excludible while computing Book Profit in the following cases- ACIT -vs.- Shree Cement Ltd. NTA No. 504/JP/2012, order dtd. 27-01- 2014 ACIT -vs.-M/s L.H. Sugar Factory Limited NTA No. 417 & 418/LKW/2013, order dtd. 09-02-2016. 17. Hon'ble Bombay High Court in the case of CIT -vs.- Harinagar Sugar Mills Ltd. (ITA No. 1132 of 2014), order dtd. 04-01-2017 (Refer Page No. 752-755 of Paper Book) has held that the object or purpose of the subsidy decides its character - whether on revenue or capital account. The point of time at which subsidy is paid and the source of subsidy are immaterial. Where the receipt was on capital account, the same needs to be excluded in computing Book Profit u/s 115JB. 18. In the case of DCIT -vs.- Binani Industries Ltd. (ITA No. 144/Kol/2013, order dtd 02-03-20161. (Refer Page No. 772-789 of Paper Book), it was held that receipt from forfeiture of share warrants credited to the P & L A/c and disclosed in the notes to accounts being a capital receipt shall be excluded in computing Book Profit. It held that in order to determine the real profit of the asse....
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....dy given for establishing the units in backward areas and to generate employment opportunities. The said fact is evident from the office memorandum dated 07.01.2003 of Ministry of Commerce and Industry, which reads as under:- 3.4 On perusal of the above, it can be seen that incentive in the form of Excise Duty Exemption has been given with an objective to achieve industrialization in the backward areas of Himachal Pradesh and Uttaranchal and to generate employment opportunities. The object of the assistance was not to enable the businessman to run the business more profitably but encourage a businessman to set up a new unit or expand the existing unit for overall economic development of the state. Hence, the incentives granted by the Government of India vide Office Memorandum No. 1(10)/2001-NER issued by DIPP, Ministry of Commerce and Industry, GOI dated 07-01-2003 read with Notification No. No.50/2003- CE dated 10-06-2003, will be treated as capital receipt and not liable to tax. In this regard, statement showing computation of excise duty exemption received during the year aggregating to Rs. 87,98,09,432/- alongwith copy of Excise Returns (in case of Rudrapur Unit 1) and....
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....g period. 25. Per contra, ld. D.R. vehemently argued supporting the order of the lower authorities. 26. We have heard the rival contentions and perused the relevant material available on record. The issue raised in the additional ground by the assessee is that the ld. CIT(Appeals) erred in not allowing the claim of expenses of RS.18,73,242/- for amortisation of leasehold land. We notice that the appellant has taken various lands on lease for a long period ranging upto 99 years, which are used to carry out on business. Upfront lease premium is paid in the first year and, therefore, normal lease rentals are paid every year. The assessee follows Accounting Standard 19 issued by the Institute of Chartered Accountants of India which provides for mechanism of amortising such lease premium. A detailed calculation of amortisation of lease premium paid during the year along with the yearly rental is placed before us in paper book at pages 30 and 31. 27. The ld. Assessing Officer has denied the claim stating that the assessee's such claim cannot be made under section 35D of the Act and the said expense is also not allowable under section 37 of the Act. Section 35D of the Act deals w....
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....ture and entire lease rent amount would not be allowed during the relevant year. 29. Similarly Coordinate Bench Ahmedabad in the case of Adani Gas Limited (supra) confirmed the decision of ld. CIT(Appeals) relying on the judgment of the Hon'ble Gujarat High Court in the case of DCIT -vs- Sun Pharmaceuticals Industries Limited (2009) 227 CTR 206 (Guj.) holding that - "Amortization is an accounting term that refers to the process of allocating the cost of an asset over a period of time and hence it is nothing else than depreciation. The allowability of costs towards amortization of leasehold land is in question. Having heard the rival submissions on the issue, we find that the CIT(A) has rightly appreciated the facts lin perspective and concluding the issue in favour of assessee in the light of decision of Hon'ble Gujarat High Court in the case of DCIT -vs.- Sun Pharmaceuticals Industries Ltd. (2009) 227 CTR 206 (Guj.). We do not see any infirmity in the reasoning given by the CIT(A) while deleting the aforesaid disallowance of amortization leasehold lands. We thus decline to interfere". 30. We, therefore under the given facts and circumstances of the case and respectfully foll....
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....d lower cost of production. (vii) The Ld. CIT(A) has erred on facts and law in the circumstances of the case by admitting new facts based on new evidence/document which has not passed the test of Rule 46A of the Income Tax Rules, 1962. (viii)The Ld. CIT(A) has erred on facts and law in the circumstances of the case without showing the sufficient cause which prevented the assessee from production such facts and evidences during the Transfer Pricing Audit proceeding before the TPO and thereby violates Rule 46A of the Income Tax Rules, 1962. (ix)The Ld. CIT(A) has erred on facts and low in the circumstances of the case by accepting PLI (Profit Level Indicator) of 17.64% and 19.35% of the eligible units and not considering that it is diversion of profit from non-eligible to eligible unit. (x) The Ld. CIT(A) has erred on facts and law in the circumstances of the case by accepting higher profit margin of the eligible units by only examining some limited factors namely Excise Duty, VAT & Lower cost of production without giving an opportunity of examining assessee's claim by the TPO. 33. First we will take up the issue of addition made by the ld. Asse....
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....the submissions made before the ld. CIT(Appeals), the finding of the ld. CIT(Appeals) are also referred to the following decisions of Coordinate Benches determining the arm's length guarantee fees within the range of 0.3% to 0.5% of the amount:- Sr. No. None of the Hon'ble Tribunal Ruling Citation No. Guarantee fee 1. CIT (LTU) vs Glenmark Pharmaceuticals vs Addl CIT (Refer to page 385 to 387 of the Legal Compendium to TP) TS-1268-SC2018-TP 0.50% 2. Pr. CIT vs. Couceutrix Services India Pvt. Ltd. (refer to page 388 to 396 of the Legal Compendium to TP) TS-960-HC- 2018(BOM)-TP 0.50% 3. Everest Kento Cylinders ltd. (Refer to page 397 to 408 of the Legal Compendium to TP) TS-200-HC- 2015(Mum)-TP 0.50% 4. Reliance Industries Ltd. (Refer to page 409 to 490 of the Legal Compendium to TP) TS-260-ITAT2013(Mum) -TP, 2013-TII-185-ITAT Mum-TP 0.38% 5. Asian Paints Limited ITA No. 408/Mum/2010 and ITA No. 1937/Mum/2010 0.25%, 0.35% 6. Everest Kanto Cylinder Limited TS-714-ITAT-2012(Mum)-TP 0.50% 7. Nimbus Communication Limited TS-167-ITAT2013(Mum)- TP, ITA No. 6816/Mum/2010 and ITA No. 7105/Mum/2011 ....
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....e guarantee has been provided by the assessee on behalf of the Associated Enterprise and is in the nature of a downstream guarantee, where the guarantee is provided by the parent company for obligations of its subsidiary. So far as the issue that the present transaction of giving corporate guarantee falls under the category of international transaction, it is not under the dispute before us, as it was held against the assessee by the ld. CIT(Appeals) and against the said view, the assessee has not filed any appeal or Cross Objection. 39. The only issue remains is the computation of quantum of Corporate Guarantee fee adjustment to be made in the hands of assessee. Transfer Pricing Officer levied the Corporate Guarantee fees @ 1.22%, 1.69% & 1.27% on the above referred three loans, which has been guaranteed by the assessee. For computing the Corporate Guarantee Fees, ld. TPO selected the comparables from USA, whereas Associated Enterprises are not operating in USA but are operating in Asia Pacific Region. Ld. TPO failed to bring any comparable form to this region. Considering these facts and the non-availability of comparables in the Asia Pacific Region, the ld. CIT(Appeals) obser....
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....and (or defend) its market share might temporarily incur 4 ITA 6816/M/10 & 7105/Mum/2011 higher costs and hence achieve lower profit levels than other taxpayers operating in the same market. In our opinion, the relevant facts of the present case do not indicate that there was any such business strategy adopted by the assessee in not charging commission in respect of guarantees issued for its Associated Enterprises. As a matter of fact, there is nothing to suggest that any such business strategy was adopted by the assessee with specific intention or motive and the case has been sought to be made out merely on the basis of commercial expediency by claiming that the assessee was benefited as a result of giving the guarantees in the form of commercial benefits secured for future. In our opinion, such commercial expediency cannot be equated with business strategy, which is specific and well laid out. As rightly held by the Id. CIT(A), a financial loan guarantee is a commitment entered into by the assessee company with a third party lender of its Associated Enterprises which obliges the assessee company to cover the risk of default by its Associated Enterprise and this act thus involves ....
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....k for which assessee gave corporate guarantee. The loan was for working capital as well as capital expenditure. Assessee had charged guarantee commission @ 0.5%. The AO took external comparable and benchmarked the rate at 3%. Before the Hon'bie Tribunal, it was stated that assessee itself paid 0.6% to ICICI Bank for guaranteeing a separate loan for assessee. Hon'bie Tribunal took the view that 0.5% guarantee fee is reasonable in view of the fact that rate of interest paid by AE was much lower than interest paid by assessee itself. TP adjustment made by TPO was accordingly deleted. The rate of 0.5% was followed by Hon'bie Mumbai Tribunal in the case of Nimbus Communication (Supra). Series of decisions have been rendered by the different benches of Mumbai Tribunal wherein it is held that arm's length guarantee commission charge should be taken at 0.5%. Some of the cases decided are given below: (i) Glenmark Pharmaceuticals Ltd. (ITA No. 5031/M/2013 dated 13.11.2013) (ii) Godrej Household Products Ltd. (ITA Nos. 7369/M/2010) (iii) Prolific Corporation Ltd. (ITA No. 237/Hyd/2014 dated 31.12.2014). (iv)Manugraph India Ltd. Us. ACIT(TS-....
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....tice for the calculation of downward adjustment in respect of purchase of eligible units from noneligible units alleging that the eligible units of the assessee has earned more than the ordinary profit than it could have actually earned had the transaction between eligible and non-eligible units were undertaken at an arm's length. In reply, the assessee filed detailed submission stating that raw material was utilized for the purpose of manufacturing finished products and these were procured from third parties also and were transferred between different units on need basis. To benchmark the said transaction, the CUP method was considered as the most appropriate method for determining the arm's length nature of the purchase/sale of raw materials and in support for this, details were filed. Details of purchase of veneer were also filed. But later on in the proceedings itself before the ld. Assessing Officer, the assessee stated that application of the CUP method becomes unviable in view of the differences in the products and the said transaction was benchmarked by application of internal TNMM instead of the CUP method in the transfer pricing report maintained by the assessee. However,....
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..... 47. We have heard the rival contentions, perused the relevant material available on record and carefully gone through the submissions made by the assessee before the lower authorities and before the Tribunal. Revenue is aggrieved with the finding of the ld. CIT(Appeals) deleting the arm's length price adjustment of Rs.2,48,39,215/- made by the ld. Assessing Officer on the basis of report of ld. Transfer Pricing Officer as per section 92CA(3) of the Act on account of purchase transaction of the product veneer between the assessee an eligible units and its non-eligible Associated Enterprises. 48.We observe that the eligible units run by the assessee claiming deduction of profits under section 80IA(10) of the Act, purchased raw material, namely Vineer from non-eligible units located at Kriparampur and Rajkot Unit. The assessee while furnishing the annual audited accounts along with the relevant report on Form 3CEB adopted the CUP method for computing the arm's length price of the transactions between the eligible and non-eligible units. But subsequently during the course of proceedings before the ld. TPO, the assessee has adopted TNMM method to compute the arm's length price. ....
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....hey enjoyed lower cost of productions. 6.3.1. From data analysis given, it is seen that purchases of eligible units from related parties were 5.82% and 9.33% respectively by Rudrapur Unit & Tizit Unit. Therefore, statistically speaking, 94.18% and 90.67% respectively of Rudrapur & Tizit Unit was attributable unit of purchases from non-related parties. The units at Rudrapur and Tizit incurred operational cost of Rs. 365.6 crore & Rs. 127.52 crore respectively. In view of scale of Operation, it will not be fair to conclude that out of operational profit of Rs. 93 odd crore, Rs. 4.67 crore arose out of purchase of Rs. 17,17,16,696/-. From this angle also, the TP adjustment cannot be sustained. 6.3.2. From the above discussion, it is seen that the downward adjustment of profit of eligible cannot be sustained. The TPO had not disagreed with the TNMM method adopted by assessee. Only reason given was that eligible units were earning more profit than that of non-eligible unit. The standpoint taken by the AO on the matter had been repelled by facts and figures furnished. In view of this, the reduced adjustment of Rs. 2,92,06,510/- also cannot be sustained. Ground taken is ....