TaxTMI 
TaxTMI 
2023 (11) TMI 738
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....ry afforestation of Rs. 126,19,08,529/-. (iv) (Ground No.5-5.4)- Disallowance of provision for leave encashment of Rs. 151,18,79,819/- (v) (Ground No.6-6.3)- Disallowance u/s. 14A of the Act r.w.r.8D of Rs. 7,09,74,178/- (vi) (Ground No.7-7.2)- Addition of disallowance u/s. 14A of the Act to book profits u/s. 115JB of the Act of Rs. 7,09,74,178/- (vii) (Ground No.8-8.3)- Claim of deduction of interest on PNCD amounting to Rs. 266,12,54,846/- in computing book profit u/s. 115JB of the Act not granted. (viii) (Ground No.9-9.2)- Disallowance of interest on PNCD amounting to Rs. 266,12,54,846/- in computing book profit u/s. 115JB of the Act. (ix) (Ground No.10-10.1)- AO has not correctly computed book profit u/s. 115JB (x) (Ground No.11-11.1)- AO has not given grant of available MAT credit (xi) (Ground No.12-12.1)- Lastly, AO has erred in not considering the interest u/s. 244A correctly. 3. The assessee is a company engaged in the business of manufacturing of Iron and steel, bearings, Ferro alloys and sale of power and water. In so far as the transfer pricing adjustment of Specified Domestic Transactions made u/....
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.... unit Kalinga Nagar Power Undertaking-I 9,12,73,329 7.64 Jamshedpur Power Undertaking - H 10,44,54,865 8.46 Jamshedpur Power Undertaking - I 8,89,89,942 8.46 7. The ld. TPO to whom the matter was referred to determine the price of sale of power to eligible unit & non-eligible unit, held that the Distribution Companies, (DISCOMs), viz. NESCO and JBVNL in the present case, cannot be regarded as functionally comparable to the Captive Power Plants and therefore, the price at which the State Electricity Distribution Companies sold power cannot be taken as comparable. The TPO however, proceeded to hold that the price at which DISCOMs, viz. NESCO and JBVNL, purchased power at the price determined by the relevant state's electricity regulatory commission as increased by certain other costs incurred by the DISCOMS to be the market value. In working out the costs to be added to the cost of power purchased, the TPO reduced the employee cost to 20% of that incurred by the DISCOMs, denied inclusion of provision for doubtful debts, and denied inclusion of transmission cost. He therefore, computed the price at which the CPPs sold power as under a. For Ka....
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....lly similar to captive unit of the assessee which is manufacturing power i.e. the rate at which power generating undertaking companies sell to the grid as an applicable CUP tariff rate for recommendation of revenue of eligible units of M/s. Tata Steel Ltd. 9. TPO further observed that considering the facts and circumstances, the difference between the captive power plants and DISCOMs and the consequent effect on the pricing of the power, the composite nature of the power unit as described by the assessee catering to specific need can be kept to certain extent but with suitable modifications. Thereafter, he has incorporated the power of cost as submitted by the assessee for various units as discussed by him in detail in the impugned order and made determined ALP per unit at Rs. 4.91/- for Jamshedpur location and Rs. 4.25/- for Kalinga Nagar. 10. The ld. DRP agreed with the ld. AO / TPO that DISCOM cannot be compared to captive power units and therefore, purchase price of electricity is adjusted by certain costs of DISCOM had to be considered as ALP. 11. Before us ld. Counsel has made elaborate submissions which in sum and substance can be summarized as under:- a. I....
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....on and in that case the second option may not be necessary." Apart from that, ld. Counsel has drew our attention to the similarity of facts between the case of M/s. Tata Chemicals Ltd (supra) and that of the assessee and submitted that exactly similar facts are permeating in the case of the assessee. The TP adjustment made by the ld. AO is to be deleted. 12. On the other hand, ld. DR had given his counter submissions / arguments and also with respect to our various queries raised by the Tribunal which for the sake of ready reference is reproduced hereunder:- "2. It is humbly submitted that the crux of the issue in the instant appeal is with respect to the MAM applied to arrive at ALP of power supplied by eligible unit to non-eligible unit. During the hearing on 19.10 2023 before the Hon'ble Bench certain issues came out on which Hon'ble Bench sought written submission. 2.1 Firstly, Hon'ble Bench sought submission with respect to Tested Party selection Assessee has taken non-eligible unit as tested party and has compared the rate at which power is purchased from eligible unit with that of power purchased by non-eligible unit from third party Le, d....
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.... by the Finance Act, 2012 w.e.f. 01.04.2013. Thus, second leg of explanation automatically and logically becomes applicable once the reference is made by AO to TPO u/s 92CA for determining ALP of a given Specified Domestic Transaction. Therefore, action of TPO of applying relevant provisions and Rules for determining ALP cannot be faulted with. Further, without prejudice to whatever stated in paras herein above, even if it is assumed that first leg of explanation applies in the instant case, the meaning of first leg, as drawn by assessee is that, the price that such goods or services would ordinarily fetch in open market' means the price at which the non-eligible unit is buying its power from open market. In this regard it is stated that this self serving meaning drawn by appellant assessee is total improper and out of place. The price that such goods or services would ordinarily fetch in open market' necessarily means the price which the power producing company can get for its product, i.e. power, in open market. The logical meaning, as can be understood from plain reading of text in the context of whole basis of the Section, is as explained above. Therefore, it is humbly ....
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....tory Commission (OERC) and Jharkhand State Electricity Regulatory Commission (JSERC) essentially reflects the fair market value of power/electricity. And the TPO has rightly proposed to apply the same in its show cause. Without prejudice to whatever stated herein above, even if it is assumed that the tariffs determined by respective Commissions are tainted, then the price charged by distribution companies in open market are based on these tainted tariffs only. Typically, distribution companies add their costs and margin on the purchase cost of power (Tariff as determined by respective Commissions) and resultantly the said tariffs are further increased. Therefore, the resultant price i.e. price charged by distribution companies in open market is further inflated which cannot be taken as benchmark for ALP determination of eligible power producing units. 2.6 Further, after considering the submission of assessee in response to the show cause, the TPO has gone further and has considered the distribution function in limited manner. The purchase cost of power by distribution companies is further increased by adding certain applicable costs. And the said resultant price i....
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....g Electricity unit transferred Assessee's Rate per unit AO/ TPO's Rate per unit Adjustment Kalinga Nagar Power undertaking - 1 9,12,73,329 7.64 4.25 30,94,16,585 Jamshedpur Power Undertaking - H 10,44,54,865 8.46 4.91 37,08,14,771 Jamshedpur Power Undertaking - I 8,89,89,942 8.46 4.91 37,08,14,771 Total adjustments 99,61,45,650 14. It is matter of record that non-eligible manufacturing units have not only purchased electricity from the aforesaid three captive power units but also purchased electricity from three DISCOM companies (supra). Thus, the case of the assessee was that this is the price available in the open market which has been paid by the assessee at the same rate on which it has procured power from its three captive power plants. Thus, this is a fair market rate of the electricity. This precise issue and the submissions which has been raised by the ld. DR and also the reasoning given by the ld. TPO has been dealt by this Co-ordinate Bench in the group cases of the assessee in the case of Tata Chemicals Ltd. vs. DCIT in ITA No.468/Mum/2022. Before us a chart has been submi....
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.... of SDT only the ALP under S. 92F [i.e. option (ii)] alone can be regarded as the market value is "myopic" and "cannot be accepted". (Para 14, Page 16) The case of the assessee is that the same conclusion ought to be followed in the case of Tata Steel Ltd. 16. The relevant finding and the observations of the Tribunal reads as under:- "11. The entire controversy germinates from the fact, as to whether the sale of electricity by eligible unit entitled for deduction u/s. 80IA which has supplied 5,23,42,000 KWH units of electricity to the manufacturing unit of TCL at Mithapur at transaction price of Rs. 36,09,44,480/- at the rate of Rs. 6.90/- per unit is at market value or not. In so far as determining market value in terms of Section 80 IA (8), the premise of the ld. TPO is that, firstly, it is a specific domestic transaction u/s. 92BA and therefore, the market value of the electricity supply has to be determined in terms of transfer pricing provisions so as to determine the correct market value and the profits of eligible unit as per ALP within the scope and ambit of Section 80IA (8). Secondly, the ld. TPO has held that since the eligible unit is captive power generat....
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....usiness shall be computed as if the transfer had been made at the market value of such goods or services. The relevant specimen reads as under:- 8) Where any goods for services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services]held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the "market value of such goods "or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the "market value of such goods "or services" as on that date: Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he ....
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....all the transactions falling u/s. 80IA(8) will be specified domestic transactions only. If that is the only opinion which is to be upheld, then, ostensibly the entire exercise of ld. TPO is justified, that is, the whole process of determining, who is the tested party, what should be the FAR analysis of the tested party vis-à-vis the comparables under uncontrolled transactions and whether particularly in this case the price charged by the distribution entity can be said to be arm's length price or the comparable has to be from the entities which are generating power, which here in this case one comparable has been chosen i.e. M/s. Torrent Power Ltd. (TPL). In our opinion it will be too myopic view to give an interpretation that all the transaction covered u/s. 80IA(8) has to be compulsorily determined under transfer pricing provision, cannot be accepted. Because, the statute has clearly provided two options or two manner in which market value of the goods and services can be determined. The phrase "or" does not give mean that the second mechanism provided in clause (ii) of Explanation alone can be applied after introduction of SDT from 01.04.2013. The use of the word "or" can....
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....anufacturing unit of the assessee also buys electricity from GEB at the same price of Rs. 6.90/- per unit and the same price is being paid to the eligible unit also. The case of the department is that since assessee is generating electricity and supplying it to the manufacturing unit, therefore, functionally it is similar to entities which are generating electricity and not which are into distribution of electricity. What is required to be seen u/s. 80IA (8) is that, where any goods or services provided by the eligible business or transfer to any other business carried on by the assessee, the same should correspond to market value of such goods and services. The market value has to be seen qua the price in which such goods or services would ordinarily be fetched in the open market, i.e., whether in the open market the price of such goods and services are available or not? Here assessee is a captive service provider for generating electricity and to supply and distribute to the manufacturing unit which otherwise would have bought from the open market. The price has to be seen what the manufacturing unit is paying in the open market. This precisely has been dealt by the Hon'ble Gujar....
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....ty sold to the consumers. Here the assessee has paid the purchase power to DISCOMs at the same rate which it has paid to its captive power plants. Thus, this contention raised by the Revenue is dismissed. 19. Secondly, coming to the contention of the safe harbor rules have to be applied but we have already held that there is no application of safe harbor rules to Clause (i) of the Explanation to Section 80IA and accordingly, the decision of the Hon'ble Jurisdictional High Court in the case of Reliance Industries Ltd. reported in 421 ITR 686 would clearly apply. 20. Lastly, so far as average market value in Indian Energy Exchange platform is less than Rs. 7.64 and Rs. 8.46 adopted by the assessee and therefore, the rate of purchase of power by DISCOMs is more than fair, however, there is no such data which has been provided to us and apart from that, the rates on which power is available through Indian Energy Exchange cannot be applied, because these are not the rates to the consumers but rates to the DSICOMs. Thus, our same reasoning given in the decision of M/s. Tata Chemicals Ltd. will apply to the case of the assessee. Accordingly, following the ratio in the decision of M/....
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....A.Y. 2016-17 and 2017-18 in ITA No.1340/Mum/2021 and 2374/Mum/2022. 24. Both the parties have admitted that this issue is covered by the decision of the Tribunal in earlier years. The relevant observation of the Tribunal reads as under:- "4.4 In respect of ground no. 4 relating to disallowance of interest paid on Perpetual Non-Convertible Debentures, the learned AR submits that interest on debentures was disallowed in proceedings u/s 263 of the Act in assessment years 2011-12 and 2012-13. The assessee assailed the findings of Principal Commissioner of Income Tax in appeal before the Tribunal in ITA No.1315/MUM/2022 for AY 2011- 12 and in ITA No.1316/MUM/2022 for AY 2012-13. The Tribunal vide common order dated 23/12/2022 held that interest paid on debentures is allowable deduction u/s 36(1)(iii) of the Act. The debentures under reference are the same that were subject to matter of dispute in proceedings u/s 263 in AYs 2011-12 and 2012-13". 25. Since this precise issue is covered in favour of the assessee on similar facts and reasoning by the ITAT orders of the earlier years, therefore, same is followed in this year also. Accordingly this issue is decided in favour of....
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....nal jurisdiction on the same issue. The matter travelled to the Tribunal. The Tribunal vide order dated 23/12/2022 (supra) held as under: "4.7. We find that the assessee during the course of assessment proceedings itself had submitted the entire facts of the case by placing on various provisions of the Companies Act and SEBI Regulations and had also taken efforts to explain the meaning of the term "debentures", "debts", "bonds", "shares" etc., under provisions of various Acts. The assessee had specifically pointed out in para 5 of its reply filed before the Id. AO vide letter dated 27/02/2015 filed on 02/03/2015 thatthe purpose of issue of this Hybrid Securities is clearly set out in page 39of the Information Memorandum wherein it specifies that utilisation of funds proposed to be raised through this private placement will be for general corporate purposes, however, excluding specifically acquisition or purchase of land, investment in equity/capital markets. The main case of the Revenue is only that the perpetual debentures issued are akin to equity and hence, it does not fall under the ambit of borrowing and accordingly, no interest would become allowable on the said alle....
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.... made by the assessee was as under: a) Amount discharged of prior period liability after the date of furnishing Return of income for FY 18 till 31/03/2019 Rs. 123,99,28,630/- (b) Amount paid subsequent to 31/03/2019 but before the date of furnishing Return under section 139(1) of the Act: Rs. 200,28,17,876/- 32. The AO and DRP following their finding for AY 17-18 denied the claim of the assessee. In doing so the AO has erroneously proceeded on the footing that the assessee had made a claim in excess of the amount actually paid. During the course of the hearing, this Bench has required the assessee to demonstrate from the paper book that the claim made by the assessee in its return of income did not exceed the amount paid by it as contemplated under section 43B(f) of the Act, i.e., upto the date of filing of the return of income for AY 2019-20. 33. Before us ld. Counsel for the assessee drew our attention to page 13 of the paper book which is Appendix VI to the tax audit report giving information of all amounts covered under section 43B of the Act which have remained payable as on the date of filing of the return of income for AY 19-20. Item 26 of the table a....
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....the amounts that are paid during the year and before the filing of the return of A.Y. 2019-20. Further, this issue is squarely covered by the decision of the Tribunal in assessee's own case for A.Y. 2017-18. 35. After hearing both the parties and on perusal of the facts and material placed on record, we find that assessee in the computation of income has added back sum of Rs. 816,68,51,587/- in the manner provided above. In so far as the amount which has been claimed of Rs. 324,27,46,507/- which has been certified by the auditor comprises of amounts actually paid during the year before the filing the return for A.Y. 2019-20 which is also evident from note 2 of the TAR. Once the claim has been made towards leave encashment on payment basis alone and there is no excess claim of the amount which has been paid during the year and the same has to be allowed. This issue has also been decided by the Tribunal in A.Y. 2016-17 and 2017-18 which reads as under:- 10. We have heard the submissions made by rival sides on the issue of disallowance of provisions for leave encashment. A perusal of the draft assessment order reveals that the AO in para 10.2 of the draft assessment order ....
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.... in tax audit report. The basis of computation and allocation of particulars of expenses have been given in detail by the Chartered Accountant in detail after analyzing various heads of income. However, the ld. AO proceeded to make the disallowance of Rs. 7,09,74,178/- after making addition of Rs. 1,18,20,115/- by taking 1% of average of monthly investments. 38. After hearing both the parties, we find that before the ld.AO assessee has given the entire basis of computation of disallowance which was based on allocation of administrative and management expenses which included employee cost, rent expenses, electricity charges, maintenance expenses and other office overheads and other allocable expenses. Based on that following allocation of expenditure has been given for the purpose of disallowance u/s 14A:- SI. No. Expense Head Amount (Rs.) Remarks I Demat Expenses 7.12,863 Direct expenses 2 Employee Cost 2.94,20,726 Allocation as per para 4 A 3 Rent Expenses 86.16,473 Allocation as per para 4 B 4 Electricity Charges 6,71,897 Allocation as per para 4 C 5 Maintenance Expenses and Other Office Overheads 58.03,978 ....
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.... rule 8D for purpose of section 14A. Accordingly, such a disallowance made by the ld. AO is deleted. 40. Whether the issue relates to addition u/s. 14A to book profit u/s. 115JB. This issue is now stands covered by the decision of assessee's won case for the A.Y. 2016-17 and 2017-18 and the decision of Hon'ble Bombay High Court in the case of CIT vs. Bengal Finance & Investment P. Ltd. (ITA No.337 of 2013). Thus, disallowance u/s. 14A in the book profit is deleted. 41. In so far as claim of deduction of interest of PNCDs in the computation u/s. 115JB not granted, this issue is set aside to the file of the ld. AO in view of the decision of the Tribunal in assessee's own case for A.Y. 2016-17 and 2017-18. Accordingly, following the same line, this issue is set aside. 42. Coming to the issue raised in ground No. 9,10,11 & 12 with regard to computation of book profit u/s. 115JB, ld. Counsel submitted that already rectification application u/s 154 has been filed before the ld. AO which is pending. He thus requested that direction to be given to the ld. AO to dispose of the rectification application. Accordingly, we direct the ld.AO to dispose of the rectification application fi....
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....ry afforestation (Ground No. 4), the Hon'ble Bench has inadvertently reproduced the relevant extracts of the decision of the Hon'ble ITAT for AY 2016-17 and AY 2017-18 pertaining to allowability of deduction of interest on Perpetual Non-Convertible Debentures (PNCD) (Paragraph 28, Page 27] instead of reproducing the extract pertaining to allowability of compensatory afforestation. The relevant extracts of the Hon'ble ITAT order for AY 2016-17 and AY 2017-18 in relation to allowability of compensatory afforestation is as under "6.6 We find that the Tribunal in assessee's own case for assessment year 2006-07 in ITA No. 1447/MUM/2020 (supra) has held that contribution towards Compensatory Afforestation Fund is an allowable expenditure. The relevant extract of the findings of the Co-ordinate Bench on this issue are reproduced herein below: "4. We have heard the rival submissions and perused the material before us. We find that the CIT had invoked the provisions of section 263 of the Act with regard to three issues. that after due verification the AO had dropped two issues out of the three and had passed order about the first issue ie contribution to CA....
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....on of Coordinate Bench in assessee's own case in AY 2006- 07, we hold that contribution towards Compensatory Afforestation Fund by the assessee during the impugned AY is allowable. We hold and direct, accordingly. Thus ground no. 5 of the appeal is allowed. A copy of the ITAT order for AY 2016-17 and AY 2017-18 is enclosed as Annexure 4 for your easy reference In view of the above, we humbly pray that Paragraph 28 of the captioned order be suitably modified by inserting the correct extract as highlighted pertaining to the allowability of compensatory afforestation expense (Ground No. 4) hereinabove. The Appellant would also like to draw your attention to the fact that the contents of current Paragraph 28 may be shifted before Paragraph 25 since it pertains to the Ground No. 3 with respect to the issue of disallowance of interest paid on perpetual nonconvertible debentures 3. Prayer We humbly pray that this Hon'ble Bench be pleased to issue/ pass a corrigendum order suitably modifying the relevant typographical/ inadvertent errors in paragraphs 26 and 28 as highlighted above as also shift paragraph 28 above paragraph 25 of the present orde....
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....ure-a has made the following observation. "We find force in the submission of the learned counsel that pavements to the Government are to be paid once the mining lease is obtained and such payments are governed by various acts along with the Apex Court making a ruling for State Governments to participate in the granting of mining lease by recovering compensation when their forests are uprooted Therefore, for this purpose, the funds are used for a natural regeneration which the assessee participates indirectly Therefore, at no point of time could it be said that the assessee had incurred capital expenditure giving the assessee a benefit of enduring nature for the purpose of earning segmented income to render the same to income tax. In other words, the authorities below have not pointed out the income generated against the purported deferred revenue expenditure so proposed by them in their impugned orders. The amount was incurred as a revenue expenditure to be allowed in the year it has been incurred." 4. It is not in dispute that the said payment was made as contribution to compensator afforestation as per the directions of the Supreme Court. It is not permissible ....