TaxTMI 
TaxTMI 
2022 (1) TMI 1367
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AE -M/s Delhi Brass and Metal Works Pvt Ltd amounting to Rs 1,18,92,158/- is arbitrary, unjust, without any comparable analysis and also contrary to the fact available on record . 3. That TPO and DRP failed to appreciate that Super productivity incentive amounting to Rs 235,01,88,528/- allowed to two promoter Directors namely Sh Harish Ahuja and Mrs Sarla Ahuja in terms of resolution dated 2nd September 2013 is on account of commercial expediency and are basically revenue neutral and consequently the disallowance of Rs 161,38,20,073/- out of managerial remuneration thereby inclusive therein the super productivity incentive is arbitrary, unjust, not based on comparable and bad in law. 4. That the disallowance of deduction u/s 80IA of the Act amounting to Rs 26,20,451/-, as sustained by DRP/ AO out of total deduction claimed by the Assessee of Rs 38,15,24,886/- in respect of steam generating units based on the rates prescribed by the various State Electricity Regulations Authority for purchase of electricity from electricity generating units is arbitrary, unjust and against the provision of section 80IA(8) of the Act and ought to have allowed at the rates on which the State El....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2) of the Act cannot be deemed to be SDT under section 92BA of the Act, and accordingly, no reference can be made by the AO to the TPO for the purpose of benchmarking of the transactions after enactment of Finance Act, 2017. 8. Strong reliance was placed on the decision of the coordinate bench Bangalore in the case of Texport Overseas Pvt Ltd ITA No. 1722/BANG/2017 order dated 22.12.2017, which was affirmed by the Hon'ble Karnataka High Court in ITA No. 392/2018 order dated 12.12.2019. It is the say of the ld. counsel for the assessee that subsequently, the Tribunal Bench at Delhi has followed the judgement of the Hon'ble Karnataka High Court in the case of SMR Automotive Systems India Ltd in ITA 6614/Del/2017 and Yorkn and Tech Pvt. Ltd 635/Delhi/2021. 9. Per contra, the ld. DR vehemently stated that in the decisions of the Hon'ble Karnataka High Court and various decisions of the coordinate bench of the Tribunal, one most important and relevant fact has not been brought before the court, which is that a saving clause was there in section 40A of the Act and, therefore, decisions relied upon by the ld. counsel for the assessee should not be considered. 10. It is the say of the l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctions entered into by domestic related parties or by an undertaking with other undertakings of the same entity for the purposes of section 40A, Chapter VI-A and section 10AA. The concerns of administrative and compliance burden are addressed by restricting its applicability to the transactions, which exceed a monetary threshold of Rs.5 crores in aggregate during the year. In view of the circumstances which were present in the case before the Supreme Court, there is a need to expand the definition of related parties for purpose of section 40A to cover cases of companies which have the same parent company. It is, therefore, proposed to amend the Act to provide applicability of similar pricing regulations (including procedural and penalty provisions) to transactions between related resident parties for the purposes of computation of income, disallowance of expenses, etc., as required under the provisions of sections 40A, 80-IA, 10AA, 80A, where reference is made to section 80-IA, or to transactions as may be prescribed by the Board, if aggregate amount of all such domestic transactions exceeds Rs.5 crore in a year. It is further proposed to amend the meaning of related persons as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e provisions of the Act if such Transfer Pricing Regulations are required to be applied to domestic transactions between related parties under section 40A(2) of the Act." 13. An Identical issue came up before the co-ordinate Bench at Bangalore in the case of Texport Overseas Pvt Ltd IT [TP] [supra]. The relevant extract of the order of the co-ordinate bench reads as under: "10. In the instant case, undisputedly, by the Finance Act, 2017, clause (i) of section 92BA has been omitted w.e.f. 01.04.2017. Once this clause is omitted by subsequent amendment, it would be deemed that clause (i) was never been on the statute. While omitting the clause (i) of section 928A, nothing was specified whether the proceeding initiated or action taken on this continue. Therefore, the proceeding initiated or action taken under that clause would not survive at all. In this legal position, the cognizance taken by the AO under section 92B(i) and reference made to TPO under section 92CA is invalid and bad in law. Therefore, the consequential order passed by the TPO and DRP is also not sustainable in the eyes of law." 14. This Judgment of the co-ordinate bench has been affirmed by the Hon'ble Karnatak....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was objected to by the learned counsel for the assessee and filed a objection before the ORP. Having adjudicated the objections. the ORP has issued certain directions and consequently the AO passed an order. Subsequently, by Finance Act, SMR Automotive Systems lndia... vs Addl. Cit, Special Range- 8, New ... on 3 June, 2021 or7 w.e.f . ou.o4.2o17, clause (i) of section 92BA was omitted from the statute. Now the question arises as to whether on account of omission of clause (i) from the statute, the proceedings already initiated or action taken under clause (i) becomes redundant or otiose. In this regard, our attention was invited to judgment of the Apex Court in the case of Kolhapur Cane sugar Works Ltd., (supra) in which the impact of omission of old rule ro and r OA was examined. Having carefully examined the issue in the light of provisions of section 6 of the General Clauses Act, their Lordship has observed that in such a case, the court is to look to the provisions in the rule which has been introduced after omission of the previous rule to determine whether a pending proceeding will continue or lapse. If there is a provision therein that pending proceedings shall contin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....een installed for captive consumption. On the generation of steam, which is considered as power, in view of various judgements of the Tribunal and Hon'ble High Courts as well as DRP, the assessee claimed deduction under section 80IA of the Act. For the purpose of claiming deduction under section 80IA of the Act, the assessee converted steam so generated into electrical units based on chartered engineer's certificate as per technical formula. On the basis of such conversion, total electrical units so generated were worked out. Quantum of steam generation and its conversion based on chartered engineer's formula, is as under: Unit Steam generated (KG) m Coverei on as per Charter Eng. Formula (2) Electricity units (1)*<2M3) Rate of electridty charged for Captive Consumption Total Sales of Electriaty Units (Turnover) as per Audited Finandal (3)*(4W5) Expenses induding Fuel cost, Water Cost etc.(6) Net Profit (5H6H7) Depredation as per Company Act (8) Depredation as per Income tax (9) Net Profit for deduction u/s 80IA as per Certificate (7+8*9H10) FI 12,178,06 0.628 7,647,824 4.85 37,091,944 17,771,76 19320,181 548384 451,701 19,416,76 1 5,09....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sidered view that this contention of the ld. counsel for the assessee is correct. The counsel has applied the rate which it has charged to the electricity board whereas the rate should have been the rate charged by the electricity board to its consumers. We, therefore, set aside this issue to the file of the Assessing Officer. The assessee is directed to furnish the rates charged by the electricity board to its consumers and the Assessing Officer is directed to verify the same and decide the issue afresh. Ground No. 4 is allowed for statistical purposes. 26. Ground No. 5 and Additional Ground relate to the claim of education cess as deductible under section 37 of the Act. 27. This ground was not raised before the lower authorities. But the same is admitted in light of the ratio laid down by the Hon'ble Supreme Court in the case of NTPC 229 ITR 383. 28. This issue has been extensively considered by the Hon'ble High Court of Bombay in the case of Sesa Goa Ltd 117 Taxmann.com 96 wherein the Hon'ble High Court was seized, inter-alia with the following substantial question of law: "Whether on the facts and in the circumstances of the case and in law the Education Cess and Higher an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns of business or profession". 18. In relation to taxing statute, certain principles of interpretation are quite well settled. ln New Shorrock Spinning and Manufacturing Co. Ltd. Vs Raval, 37 ITR 41 (Bom.), it is held that one safe and infallible principle. which is of guidance in these matters- is to read the sords through and see if the rule is clearly stated. If the language employed gives the rule in words of sufficient clarity and precision, nothing more requires to be done lndeed, in such a case the task of interpretation can hardly be said to arise : Absolutt sententia expositore non indiget. The language used by the Legislature best declares its tntention and must be accepted as decisive of it. 19. Besides. when it comes to interpretation of the IT Act, it is well established that no tax can be imposed on the subject without words in the Act clearly showing an intention to lay a burden on him. The subject cannot be taxed unless he comes within the letter of the law and the argument that he falls within the spirit 20. In a taxing Act one has to look merely at what is clearly said. There is. no room for any intendment. There is no equity about a tax. There is no presu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llows : "(d) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains" 25. However, when the matter came up before the Select Committee of the Parliament, it was decided to omit the word "cess" from the aforesaid clause from the Income-tax Bill, 1961. The effect of the omission of the word "cess" is that only any rate or tax levied on the profits or gains of any business or profession are to be deducted in computing it income chargeable under the head "profits and gains of business or profession". Since the deletion of expression "cess" from the lncome-tax Bill. 1961, was deliberate, there is no question of reintroducing this expression in Section 40(a) of IT Act and that too, under the guise of interpretation of taxing statute. 26. ln fact" in the aforesaid precise regard, reference can usefully be made to the Circular No. F. No. 91158166-lTJ(19), dated 18th May, 1967 issued by the CBDT which reads as follows :- "Interpretation of provision of Section 40(a)(ii) of IT Act, 1961 - Clarification regarding.- "Recently a case has co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le expenditure. 29. In Kanga and Palkhivala's "The Law and Practice of Income Tax" (Tenth Edition), several decisions have been analyzed in the context of provisions of Section 40(a)(ii) of the IT Act, 1961. There is reference to the decision of Privy Council in CIT Vs. Gurupada Dutta 14 ITR 100, where a union rate was imposed under a Village Self Government Act upon the assessee as the owner or occupier of business premises, and the quantum of the rate was fixed after consideration of the 'circumstances' of the assessee, including his business income. The Privy Council held that the rate was not 'assessed on the basis of profits' and was allowable as a business expense. Following this decision, the Supreme Court held in Jaipuria Samla Amalgamated Collieries Ltd. Vs. CIT [82 ITR 580] that the expression 'profits or gains of any business or profession' has reference only to profits and gains as determined in accordance with Section 29 of this Act and that any rate or tax levied upon profits calculated in a manner other than that provided by that section could not be disallowed under this sub-clause. Similarly, this sub-clause is inapplicable, and a dedu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....part of the income tax and fringe benefit tax, therefore, such "cess" is to be construed as "tax". According to us, there is no scope for such implications, when construing a taxing statute. Even, though, "cess" may be collected as a part of income tax, that does not render such "cess", either rate or tax, which cannot be deducted in terms of the provisions in Section 40(a)(ii) of the IT Act. The mode of collection, is really not determinative in such matters. 34. Ms. Linhares, has relied upon M/s. Unicorn Industries Vs. Union of India [20I9] I I 2 taxmann.com I 27 (SC) in support of her contention that "cess" is nothing but "tax" and therefore, there is no question of deduction of amounts paid towards "cess" when it comes to computation of income chargeable under the head profits or gains of any business or profession. 35. The issue involved in Unicorn Industries (supra) was not in the context of provisions in Section 40(a)(ii) of the IT Act. Rather, the issue involved was whether the 'education cess, higher education cess and National Calamity Contingent Duty (NCCD)' on it could be construed as "duty of excise" which was exempted in terms of Notification dated 9th Sep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns to the Appellant-Assessee in the facts and circumstances of the present case. The record bears out that such deduction was clearly claimed by the Appellant-Assessee, both before the Commissioner (Appeals) as well as the ITAT. 39. In CIT Vs. Pruthvi Brokers & Shareholders Pvt. Ltd. 349 ITR 336,1208 Taxman 498123 tanmann.com 23 (Bom)one of the questions of law which came to be framed was whether on the facts and circumstances of the case, the ITAT, in law, was right in holding that the claim of deduction not made in the original returns and not supported by revised return, was admissible. The Revenue had relied upon Goetze (supra) and urged that the ITAT had no power to allow the claim for deduction. However, the Division Bench, whilst proceeding on the assumption that the Assessing Officer in terms of law laid down in Goetze (supra) had no power, proceeded to hold that the Appellate Authority under the IT Act had sufficient powers to permit such a deduction. In taking this view, the Division Bench relied upon the Full Bench decision of this Court in Ahmedabad Electricity Co. Ltd. Vs. CIT (199 ITR 351/66 Taxman 27 (Bom.) to hold that the Appellate Authorities under the IT Act ha....