TaxTMI 
TaxTMI 
TaxTMI 
2022 (7) TMI 1045
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....he 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 following decisions:- DCIT -vs.- M/s. Adani Gas Ltd. (2018) ITA No. 775/A....
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....y 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 Plywood Unit and Rudrapur MDF Unit are covered by the Excise Notification No. 50/2003 dated 10.06.2003 and the sa....
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....tive 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 Mills Limited (ITA No. 1132 of 2014) order dated 04.01.2017 (Bombay High Court); (v) ACIT -vs.- the Nilgiri Tea Estate Limited (2014) 65 SOT....
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....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 at which the subsidy is paid is also immaterial. It was held that the purpose of the scheme which enabled the grant of subsidy to the assessee was the only material factor in determining the taxab....
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....eemed 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 computation of book profit under Section 115JB of the Income Tax Act, 1961 as contended by the revenue by reiving on the decision in the case of Apollo Tyres Ltd, (supra). 27. In this case since we have already held that in rele....
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....t 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 case of Shree Balaji Alloys (supra) and also affirmed by the Hon'ble Supreme Court, that it will not form part of the income chargeable to tax u/s 4 of the Act and once the same is treated as capital receipt not chargeable to tax under the Income- tax Act, then sam....
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...." 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 shall be excluded in computing book profit u/ s 115JB of the Act. 24. To conclude, (a) Not considering the subsequent interpretation of law through the judgment of the Hon' ble Supreme Court or the Hon' ble jurisdictional High court would constitute a mistake apparent from record. (b) The Excise subsidy refund is to....
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....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 assessee as laid down by the Hon'ble Apex Court in the case of Indo Rama Synthetics (supra) adjustment need to be made to the disclosures made in the notes on accounts forming part of the profit and loss account of the assessee and the profits arrived after such adjustment should be considered for the purpose of computation of book profits u/s 115JB of the Act. 19. In the case ....
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....on 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 copy of Form A (in case of Rudrapur Unit 2) has been enclosed (Refer Page No. 599-683 of Paper Book). 22. In the light of above decision as well as the Memorandum issued by the Ministry of Commerce & Industry, we find that the excise duty exemption is purely capital receipt and is neither chargeable to tax under the normal provisions of the Income Tax Act nor is to be included as part ....
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.... 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 with the amortisation of certain preliminary expenses. Before us, the issue is amortisation of lease amount and the lease premium paid by the assessee. It cannot be equated to preliminary expenses. Therefore, the said expense is not allowable under section 35D of the Act. The question is whether such expenses in the nature of amortisation of lease rental is allowable as revenue expenditure under sect....
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....m 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 following the decisions referred hereinabove, are of the view that the amortization of leasehold land and land development charges of Rs.18,73,242/- deserves to be allowed as an expenditure under section 37 of the Act. Thus the finding of the ld. CIT(Appeals) is reversed and the additional ground raised by the assessee is allowed. 31. In the result, the appeal of the assessee is partly allowed. 32. Now we t....
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....ding 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. Assessing Officer towards Corporate Guarantee given by the assessee to its Associated Enterprises. 34. Brief facts relating to this issue are that during the year under appeal, the assessee-company had following inter-company guarantee arrangements for its Associated Enterprises:- (i) Providing a Corporate Guarantee to Standard Chartered Bank (SCB) for a term loan/letter of credit facility on behalf of Greenlam Asia Pacific Pte. Ltd. ("Greenlam Asia") (referred to pages 446 to 461 of the paper ....
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....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 0.50% 8. Glenmark Pharmaceuticals Limited ITA No. 5013/Mum/2012 and ITA No. 5488/Mum/2012 0.53% 9. Godrej Household Products Ltd. (earlier Godrej Sara Lee Ltd.) TS-330-ITAT2013(Mum)-TP TS-68-ITAT2014(Mum)-TP 0.50% 10. Mahindra & Mahindra Limited TS-324-ITAT-2013(Mum)-TP 0.20% - 0.50% 11. Prolifics Corporation Limited 55 taxmann.com 226 (Hyderabad-Trib.) 0.53% 12. Aditya Birla Minacs Worldwide Ltd. [2015] 56 taxmann.com 317 (Mumbai Trib.) 0.50% 13. Cox and Kings Ltd. -vs.DCIT TS-540-ITAT- 2015(Mum)-TP 0.50% 14. Manugraph India Ltd. TS-463-ITAT- 2015(Mu....
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....uarantee 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) observed as under:- "5.3. I have carefully considered the matter. Assessee's contention regarding CG being beyond the pall of international transaction is not correct. Finance Act, 2014 had amended the provision of Section 92B with retrospective effect. Present position of law is that Corporate Guarantee is part of international transaction consequent to amendment introduced by Finance Act, 2014. Hence the objection has not basis. 5.3.1. Appellant's argument that the CG given by it to AE did not bring any benefit to AEs is fallacious. In this regards, it may be stated that the lending banks to AEs had insisted on guarantee from appellant. There will be definite benefit to AEs due to guarantee given by appe....
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.... 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 performance or carrying out of service to cover the risk of default for which "price" has to be charged. Even the OECD Transfer Pricing Guidelines 2010 supports this view in para 7.13 where it is explained that where higher credit rating of Associated Enterprise is due to a guarantee by another group member, such association positively enhances the profit making potential of that Associated Enterprise. We, therefore, find ourselves in agreement with the contention of the Id. D.R. that there was a clear benefit accrued to the Associated Enterprises by the guarantee provided by the assessee and when such benefit was passed on by the assessee to the said Associated Enterprises, guarantee commission should have been charged at arm's ....
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....s 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-330-ITAT, 2013 (Mum)-TP) In view of substantial numbers of decisions of Hon'bie Tribunal in similar matter, CG fee should be benchmarked at 0.5% in the guarantee amount". 40. The above finding of the ld. CIT(Appeals) is duly supported by the settled judicial precedence and the ld. D.R. failed to bring before us any other binding precedence in favour of the revenue. Therefore, respectfully following the decision of the Coordinate Bench, Mumbai in the case of Everest Kento Cylinder Ltd. (supra), we confirm the view taken by the ld. CIT(Appeals), who has rightly held that the arm's length guarantee commission charge should be restricted at 0.5% of the guaranteed amount. Thus no interference is called for in the order of ld. CIT(Appeals) and the grounds no. 1 to 4 raised by the ....
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....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, ld. TPO was not satisfied for the reason that firstly the assessee in the form 3CEB claimed the CUP method for benchmarking in the transactions between eligible and non-eligible units and subsequently as per ld. TPO's study report, the assessee has taken TNMM method as most appropriate method and secondly observed that the margin in non-eligible units is lower than that of eligible units. As per the TPO, operating profit margin of the eligible unit (Tizit Unit) is 24.41% and that of non-eligible unit is 4.65%. Ld. TPO suggested for the downward pricing adjustment at Rs.5,11,01,207/- and the same was confirmed by the ld. Assessing Officer but thereafter certain apparent mistakes were found in the calculation of the said downward adjustment, which was accepted by the ld. Assessing Officer and the revised amount of downward adjus....
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.... 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. It is not in dispute that the percentage of total purchase of veneer at Rudrapur eligible units and Tizit eligible unit is 5.82% and 9.33% of the total cost operation. The operating profit margin of Rudrapur Unit is 19.35 and that of Tizit Unit is 17.64. Even after making the arm's length adjustment, the operating profit of the two units would remain 18.49 and 16.43 respectively. We also note that the purchase of veneer from non-eligible units had a nominal impact upon the operating margins of the eligible units due to very low volume of purchases. Eligible units were earning higher profit than the benchmark rate of 4.65%. 49.We further find that the ld. TPO failed to take note of the fact that the eligible units were newly established in the industrial area developed by Uttranchal Pradesh, Industrial Development Corporation Ltd., which....