TaxTMI 
TaxTMI 
2022 (1) TMI 1367
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....Rs 14,92,534/- in relation to the purchases made from 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....
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.... of section 92BA of the Finance Act 2017, transactions contemplated under section 40A(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....
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.... assessees which may not be desirable. Therefore, the transfer pricing regulations need to be extended to the transactions 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....
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....d by Central Board of Direct Taxes (`CBDT', for short). We are informed that the matter has been examined by CBDT and it is of the view that amendments would be required to the 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....
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....e prescribed limit it becomes the specified domestic transaction for which reference was made by the AO to the TPO under section 92CL for determination of the ALP. Consequently, the TPO submitted a report which 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 t....
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....ting to Rs. 38,15,24,886/-. 20. Representatives of both the sides were heard at length. Case records carefully perused. 21. The underlying facts in this issue are that the assessee is having 11 units all over India where boilers have been 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) D....
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....n of steam, in the relevant Assessment Year by taking the same 5 comparables, as chosen by the TPO in the case of the assessee in Assessment Year 2017-18 and by taking the average power purchase cost [Rs./kwh] of these comparable companies in the relevant Assessment Year." 24. Before us, the Id. AR stated that the rate applied by the assessee is not correct. It is the say of the counsel that the rate charged by the electricity board to its consumers should be taken as rate for eligibility of deduction under section 80IA of the Act. 25. We are of the considered 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....
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....pression "any rate or tax levied' as it appears in Section 40(a)(ii) of the IT Act includes "cess". The Appellant - Assessee contends that the expression does not include "cess" and therefore, the amounts paid towards "cess" are liable to be deducted in computing the income chargeable under the head "profits and gains of business or pro{ession'1 However, the Respondent - Revenue contends that "cess" is also included in the scope and import of the expression "any rate or tax levied' and consequently, the amounts paid towards the"' cess" be not liable for deduction in computing the income chargeable under the head "profits and gains 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 h....
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....he IT Act. 23.If the legislature intended to prohibit the deduction of amounts paid by a Assessee towards say, "education cess" or any other "cess', then, the legislature could have easily included reference to "cess" in clause (i) of Section 40(a) of the IT Act. The fact that the legislature has not done so means that the legislature did not intend to prevent the deduction of amounts paid by a Assessee towards the "cess", when it comes to computing income chargeable under the head "profits and gains of business or profession". 24. The legislative history bears out that the Income Tax Bill, 196I , as introduced in the Parliament, had Section 40(a)(ii) which read as follows : "(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 pr....
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....ount of 'any cess, rate or tax levied on the profits or gains of any business or profession'. In the corresponding Section 40(a)(ii) of the IT Act, 1961 the expression "cess" is quite conspicuous by its absence. In fact, legislative history bears out that this expression was in fact to be found in the Income Tax Bill, 1961 which was introduced in the Parliament. However, the Select Committee recommended the omission of expression "cess" and consequently, this expression finds no place in the final text of the provision in Section 40(a)(ii) of the IT Act, 1961. The effect of such omission is that the provision in Section 40(a)(ii) does not include, "cess" and consequently, "cess" whenever paid in relation to business, is allowable as deductable 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....
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....469 and 1470/Kol/2019 decided on 5th December, 2019 by the ITAT, Calcutta; (ii) DCIT Vs. Graphite India Ltd. (ITA No. 472 and 474 Co. No. 64 and 66/Kol/2018 decided on 22nd November, 2019) by the ITAT, Calcutta; (iii) DCIT Vs. Bajaj Allianz General Insurance (ITA No. 1111 and 1112/PUN/2017 decided on 25th July, 2019) by the ITAT, Pune. 32. Again, Ms. Linhares, learned Standing Counsel for the Revenue was unable to say whether the Revenue had instituted the appeals in the aforesaid matters. Mr. Ramani, learned Senior Advocate for the Appellant submitted that to the best of his research, no appeals were instituted by the Revenue against the aforesaid decisions of the ITAT. 33. The ITAT, in the impugned judgment and order, has reasoned that since "cess" is collected as a 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 t....
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....ore relied upon the decision of the Supreme Court in Goetze (India) Ltd. Vs. Commissioner of Income Tax (2006) 284 ITR 323 (SC)1157 taxman I (SC) to submit that the Assessing Officer, was not only quite right in denying such a deduction, but further the Assessing Officer had no power or jurisdiction to grant such a deduction to the Appellant - Assessee. She submits that this is what precisely held by the ITAT in its impugned judgments and orders and therefore, the same, warrants no interference. 38. Although, it is true that the Appellant-Assessee did not claim any deduction in respect of amounts paid by it towards "cess" in their original return of income nor did the Appellant-Assessee file any revised return of income, according to us, this was no bar to the Commissioner (Appeals) or the ITAT to consider and allow such deductions 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 o....