TaxTMI 
TaxTMI 
2024 (3) TMI 1195
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....r transaction in respect of transfer of power/electricity. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) had failed to appreciate the analysis undertaken by the TPO while concluding the said transaction were not at the arm's length. 3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) had failed to appreciate that, even if we consider the electricity board rate i.e. rate at which assessee purchases power from the distributors, for transfer pricing purpose, adequate adjustment has to be made for the costs which the distributors incurs towards transmission of power and other additional costs for arriving at arm's length price. 4. That on the facts and circumstances of the case and in law, the Ld. CIT(A) had erred in deleting the downward adjustment made by the TPO/AO pertaining to the exaggerated profit of captive power generating unit by claiming higher rate than the cost price or market price as determined in tariff order of electricity board for independent power generating units. 5. Whether on the facts and circumstances of the case as well as in Law, the Ld. CIT(A) erred in holding that ....
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.... disallowance computed u/s. 14A read with rule 8D. 14. That the appellant craves for leave to add, delete and modify any of the grounds of appeal before or at the time of hearing." 3. Ground Nos.1 to 5 - A perusal of the above reproduced grounds No. 1 to 5 of the appeal would reveal that the sole issue raised by the revenue through these grounds is relating to the action of the CIT(A) in deleting the addition of Rs. 124,76,75,528/- made by the Assessing Officer on account of transfer pricing adjustment in respect of the price of the power transferred by the section 80IA eligible captive power plant of the assessee to the non-eligible manufacturing units of the assessee and thereby, reducing the claim of deduction claimed by the assessee u/s 80IA of the Income Tax Act. 3.1 Both the ld. representatives have submitted that the Ground No.1 to 5 are covered in favour of the assessee by various decisions of the Tribunal in the own cases of the assessee in relation to earlier assessment years. The ld. counsel for the assessee, in this respect, has submitted that earlier the issue was decided vide common order of the Tribunal dated 25.08.2017 passed in the own cases of the a....
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.... For the State of Rajasthan, the ld. AO referred to an order dated November 16, 2010 passed by the Regulatory Commission of that State determining the annual fixed charges and energy charge in accordance with the statutory parameters and norms in respect of power generated by Rajasthan Rajya Vidyut Utpadan Nigam at its different generating stations and supplied to electricity distribution companies. The tariff was separately determined for each generating station based on different elements of cost incurred at each such station. For the State of Madhya Pradesh, the ld. AO referred to an order dated March 3, 2010 passed by the Regulatory Commission of that State determining, in accordance with the statutory parameters and norms, the fixed charges and energy charges for each generating station of the Madhya Pradesh Power Generating Company Limited which it could charge in respect of electricity supplied to electricity distribution companies. The working made by the ld. AO on such basis resulted in losses for both the power plants. As such, the ld. AO held that no deduction was available to the assessee under section 80IA. On appeal, the ld. CIT(A) accepted the assessee's working and ....
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....t rates higher than that paid to the State Electricity Board, the prices charged by the State Electricity Board were a very good indication of the market value of electricity. This Hon'ble Tribunal thus concluded that the assessee did not commit any error in adopting such prices for working out the amount eligible for deduction under section 80IA of the Act. 11.3. The Hon'ble Tribunal by an order dated September 13, 2017 for the assessment year 2010-11 (Page 153, at Pp 159- 162 of the Paper Book, paragraph 3 at paragraphs 13-16) followed the said decision for the assessment years 2008-09 and 2009-10 on this issue. 11.4. It is further submitted that against the said decision of the Hon'ble Tribunal dated August 25, 2017 for the assessment years 2008-09 and 2009-10 the department preferred appeal before the Hon'ble Calcutta High Court under section 260A of the Act, being ITA No. 125/2019 (Question (iii)-Page 11 at page 25 of the Compilation of Case Laws). The Hon'ble High Court, by an order dated September 12, 2019 (Page 9-10 of the Compilation of Case Laws) was pleased not to admit the appeal on this issue. The department also preferred appeal against the decision ....
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....the basis of the provisions of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948 that were in force up to the year 2003. It was pointed out before the Tribunal that The Electricity Act, 2003 (hereinafter referred to as "the 2003 Act") repealed the erstwhile legislation and the new legislation came into force on June 10, 2003. The 2003 Act was applicable and in force during the previous years relevant to the Asst Years 2009-10. It was also pointed out before the Tribunal as per the provisions of the 2003 Act and the regulations made in terms thereof by the States of Madhya Pradesh and Rajasthan, it was open to an assessee having a captive power plant to sell electricity even to a consumer at a mutually agreed rate. In other words, under the provisions of the 2003 Act and the regulations made there under it is not the position that a captive power plant can sell electricity only to a distribution company or a company which is engaged in both generation and distribution. The Tribunal after making reference to the various provisions of the Electricity Act 2003 and the determination of Tariff under the new legislation in the state of Rajasthan and Madhya Pradesh, as claime....
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.... at rates higher than that paid by it to the State Electricity Board, the price charged by the State Electricity Board would be a very good indication of the market value of electricity and the assessee did not commit any error in adopting such price for working out the amount eligible for deduction u/s 80IA of the Act." 14. After coming to the conclusion that the decision of the Hon'ble Calcutta High Court in the case of ITC Ltd. (supra) would not be applicable to the case of the Assessee, the Tribunal thereafter went into the question as to what would be appropriate rate to the adopted as sale price by the TPP unit of the Assessee to its Cement manufacturing units. The Tribunal thereafter referred to the decision of the Hon'ble Supreme Court in the case of Thiru Arooran Sugars Ltd. v CIT, (1997) 227 ITR 432 (SC), as to the meaning of the word "Market Price" wherein in the context of market price of sugarcane which was also a commodity whose price was subject to control by the Government held that the price at which a manufacturer buys sugarcane must be taken to be the market price. The Hon'ble Supreme held that if the price is controlled by the Sugarcane Control Order, t....
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.... directed for Asst Years 2008-09 and 2009-10 herein. Accordingly, the grounds raised by the assessee in this regard deserve to be allowed and that of the revenue deserve to be dismissed." 16. The aforesaid decision of the tribunal would apply to the present AY also. Respectfully following the order of the Tribunal we allow grounds 2 to 4 & 6 raised by the assessee in its appeal and dismiss ground no. l raised by the revenue in its appeal." 11.5. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee's own case for preceding assessment year i.e. AY 2010-11 and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 2 for AY 2011- 12 & AY 2012-13 raised by the Revenue is dismissed." 9.4. We, further, observe that ld. CIT(A) after considering the facts of the case for the year under appeal as well as the decision of this Tribunal in assessee's own case for the preceding years deleted the addition towards transfer pricing adjustment of Rs. 107,46,72,729/- observing as follows: "08....
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....on the power tariff orders issued the relevant SECs was the most relevant indicator of the arm's length price for power supplied by CPPs. Apart from relying on the orders of the regulatory authorities determining the tariff, the Ld. TPO also took into account the judgment of the Hon'ble Calcutta High Court in ITC Limited reported in (2015) 64 Taxman.com 214 wherein the Hon'ble Court had held that the CPPs were not permitted to sell power to anyone else but to power distribution companies and that too at the controlled rates notified by the regulatory authorities. The Ld. TPO also took into consideration the fact that during the relevant year the appellant itself had sold 3,32,891 units generated by CPP in Rajasthan on IEX where per unit price realized was Rs. 4.95. Keeping in view these facts and documents the Ld. AO concluded that the rates adopted by the appellant at Rs. 6.76/6.85 per unit & Rs. 6.79/Rs.6.84 per unit for the CPPs at Rajasthan & Madhya Pradesh was excessive and did neither represent fair market value nor the ALP of the power supplied by CPP. On the contrary he adopted Rs. 4.13 per units Rs. 2.45 per unit as the ALP for the power generated by Units loca....
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....t the power which the eligible undertaking supplied to non- AEs did not even constitute 0.11% of the total power generated by the CPP during the relevant year. In the circumstances therefore the rate at which the transaction was conducted by the eligible unit with non-AEs cannot be considered to be reliable data because the facts indicate that such sale was more in nature of reducing effective cost of generation by selling the excess power generated rather than incurring the generation loss. On the contrary however, in the case of CPP at Rajasthan also it is noted that the cement manufacturing undertaking to which the eligible unit supplied power, had procured substantial quantity of power throughout the year from unrelated enterprise i.e. SEB and therefore the tariff at which the said AE, i.e. non-eligible unit purchased power from SEB represented reliable internal CUP. I therefore find that even after introduction of domestic transfer pricing provisions to specified domestic transactions and becoming applicable to the appellant, the ratio laid down by the Hon'ble ITAT, Kolkata in the appellant's own case for AYs 2008-09 & 2009-10 remains equally valid. 5. For the....
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....y the tested party from SEB. The assessee also duly reported these transactions in the audited report in Form 3CEB. Accordingly to the TPO the average rate of Rs. 3.47 per unit calculated on the basis of sale data of power by independent CPPs/IPPs as determined by various tariff orders would be the ALP of the domestic specified transactions. Accordingly the TPO recommended adjustment to the tune of Rs. 6,75,22,00,000/- and the AO passed the draft assessment accordingly. According to the assessee the internal CUP has to be used for the determination of ALP at which the non-eligible units/manufacturing units procured the power from unrelated party i.e. SEB. Now the issue before us whether the CUP method can be applied to bench mark specified domestic transactions of transferring power by CPPs to non eligible units. We have also perused the provisions as contained in Rule 10B of the Income Tax Rules which provide as to where the CUP can be and has to be applied. We observe from the said rule 10B that we have to see the price at which the property, goods or service has been acquired under similar market conditions. It is also settled that choice of tested party is of lesser significanc....
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....(supra) and Reliance Infrastructure Ltd. in ITA No. 2180 of 2011 (Bombay-High Court) and the decision of Coordinate Bench of Kolkata in the case of DCIT vs. Birla Corporation Ltd. in ITA No. 971/Kol/2012 for AY 2008-09. We note that in all the above decisions, the AALC at which the power is purchased by the non-eligible unit of the assessee was considered to be the fair market value / transfer price of power supplied by the eligible unit to the non-eligible unit. Before us, the Ld. A.R also argued that non-eligible units has to be held as a tested party and AALC at which the power was purchased by the tested party from SEB/ third party is the most appropriate ALP to bench mark the transfer of power supplied by eligible unit to noneligible unit. The said view of the assessee is squarely covered by the two decisions of Hon'ble Benches namely Star Paper Mills Ltd. vs. DCIT (supra) and DCIT vs. Balrampur Chini Mills Ltd. (supra). Having considered the ratio laid down, we are of the view that there is no infirmity in the order of Ld. CIT(A) which is a very reasoned and speaking order passed after following the decision of various Hon'ble High Courts and decision of Co-ordinate B....
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.... its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 2 for AY 2013-14 & 2014-15 regarding transfer pricing adjustment made for deduction u/s 80IA of the Act raised by the Revenue are dismissed." 4. Both the ld. representatives have submitted that the issue is squarely covered in favour of the assessee by the above decision of the Tribunal in the own case of the assessee for earlier assessment years. Therefore, respectfully following the same, for the sake of consistency, this issue is decided in favour of the assessee and against the revenue. Ground Nos.1 to 5 of Revenue's appeal are hereby dismissed. 5. Ground No.6 - Vide Ground No.6, the revenue has assailed the order of the CIT(A) in allowing the claim of balance additional depreciation of Rs. 12,19,30,258/-. 6. The brief facts relating to the issue are that the assessee purchased and installed new plant and machinery in the preceding year but put to use the same for a period less than 180 days in that year. In view of the 2nd Proviso to section 32(1) of the Act, for the assessment year 2014-15, the assessee claimed only 50% initial depreciation and the remaining 50% was claim....
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....entical claim of the assessee for the assessment year 2007-08 was allowed by the Hon'ble Tribunal by an order dated December 8, 2014 (page 83 at Pp 86-88 of Paper Book-paragraphs 10 at 15-18). The Hon'ble Tribunal also allowed the said claim for the assessment years 2008-09 and 2009-10 by a consolidated order dated August 25, 2017 (Page 140 at Pp 142-144 of Paper Book-paragraphs 7 at 7.2) and for the assessment year 2010-11 by an order dated September 13, 2017 (Page 180 at Pp 182-185 of Paper Book paragraphs 46 at 52-53). The orders of this Hon'ble Tribunal for the assessment years 2008-09, 2009-10 and 2010-11 were passed after taking into consideration the judgment of the Hon'ble Karnataka High Court in CIT v. Rittal India (P) Limited, (2016) 380 ITR 423 (Karn). Subsequently, the Hon'ble Madras High Court in CIT vs. Shri T.P. Textiles (P.) Ltd., [2017] 394 ITR 483 (Mad) [Page 1 at Pp 4-8 of Compilation of Case Laws] has agreed with the Hon'ble Karnataka High Court. The issue is thus covered in favour of the assessee. We find that this Tribunal in assessee's own case for AY 2010-11 dealt with this issue and decided in assessee's favour observing as follows: "52. Aggrieved ....
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....ional depreciation under section 32(l)(iia) of the Act in the corresponding assessment year 2007-OS for the reason that the new machinery was acquired after 01-10-2006. The relevant portions at page no 's at 9 and 10 of which is reproduced herein below for below for better understanding: "The language used in clause (iia) of the said section clearly provides that "a further sum equal to 20 per cent, of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii)". The word "shall" used in the said clause is very significant. The benefit which is to be granted is 20 per cent, additional depreciation. By virtue of the proviso referred to above, only 10 per cent, can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10 per cent, additional deduction can be availed of in the subsequent assessment year, otherwise the very purpose of insertion of clause (iia) would be defeated because it provides for 20 per cent, deduction which shall be allowed. It has been consistently held by this court, as well as the apex court, that the beneficial leg....
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....is applicable to the present case, thus we hold that the assessee is entitled to claim remaining 50% depreciation of such 20% which is equal to the actual cost of new plant and machinery, accordingly ground no-I raised by the assessee is allowed." Respectfully following the same, we dismiss Ground No. 2 raised by the revenue". Respectfully following the said decision supra, we hold that the assessee is entitled for remaining portion of additional depreciation in the asst years 2008-09 and 2009-10 and accordingly the grounds raised by the assessee in this regard are allowed." 53. Respectfully following the decision of the Tribunal the assessee is entitled to additional depreciation (remaining portion). Thus ground no. 1 raised by the assessee is allowed." 10.2. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee's own case for preceding assessment year i.e. for AY 2010-11 referred above and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 1 for AY 2011-12 & AY 2012-13....
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.... 9.1. The Assessing Officer, however, disallowed the claim of the said expenditure by observing that the same was capital expenditure in nature. The ld. CIT(A), however, decided this issue in favour of the assessee following the orders of the Tribunal in assessee's own case for A.Y 2006-07 to 2010-11. The ld. counsel for the assessee has submitted that this issue has been consistently decided in favour of the assessee by the Coordinate Benches of the Tribunal in the earlier assessment years. He, in this respect, has relied upon the latest decision of the Tribunal 07.02.2023 passed in ITA Nos.2142&2143/Kol/2018 in relation to Assessment Years 2013-14 & 2014-15, wherein, the identical ground raised by the department has been dismissed by the Tribunal relying upon the earlier decision of the Tribunal in the own case of the assessee. The relevant part of the order of the Tribunal dated 07.02.2023 (supra) is reproduced as under: "Revenue's common Ground no. 3 for AY 2013-14 & 2014-15 relating to the claim of compensation paid for obtaining limestone connected to mining activity: 10. We have heard rival contentions and perused the records placed before us. We find tha....
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....e Department's appeal for the assessment years 2007-08 (Pages 97-98 of the Paper Book, paragraphs 33 at 34) and assessment years 2008-09 and 2009-10 (Page 106 at Pp 107-108 of the Paper Book, paragraphs 2 at 2.2), by following its order for the assessment year 2006-07. The Hon'ble Tribunal dismissed the Department's appeal for the assessment year 2010-11 (Page 163 at Pp 164-165 of the Paper Book-paragraphs 18 at 22-23) by following its order for the assessment years 2008-09 and 2009-10. 12.3. The Department preferred appeals before the Hon'ble Calcutta High Court against the orders of this Hon'ble Tribunal for the assessment years 2007-08 [ITAT 80/2015 and GA 1714/2015 - Page 47 at 52 - Question 2(c) of the Compilation of Case Laws] and for the assessment year 2010-11 [ITA 124/2019-Supplementary Affidavit affirmed by the Department - Page 36 at Page 43 - Question 14(c) of the Compilation of Case Laws]. The Hon'ble High Court, by orders dated September 26, 2019 (Pages 45-46 of the Compilation of Case Laws) and March 11, 2020 (Page 29 at Page 30 of the Compilation of the Case Laws) respectively, was pleased not to admit the said appeals filed by the department on this issue ....
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....fter considering the judgment of the Hon'ble Supreme Court in Enterprising Enterprises v Deputy Commissioner, (2007) 293 ITR 437 (SC). The said order of the Hon'ble Tribunal has been followed in first appeal for the assessment years 2007-08 (page 3, para 4), 2008-09 (page 55, para 4) and 2009- 10 (page 110, para 5). It was submitted that in this year also, the compensation amount of Rs. 23,71,3401- should be held to be revenue in nature and an admissible deduction. 21. The CIT(A) deleted the addition made by the AO by following the order of the Tribunal in ITA No. 1936/Kol of 2010. Aggrieved by the order of the CIT(A), the revenue has raised Gr.No.2 before the Tribunal. 22. At the time of hearing, it was brought to our notice that identical issue was considered by the Tribunal in assessee's own case for A.Y.2008-09 and 2009-10 in ITA Nos. 971/Kol/2012 & 298/Kol/.2013 and this tribunal on an identical issue held as follows: "2.2. We have heard the rival submissions. We find that the issue under dispute is squarely covered by the decision of this tribunal in assessee's own case for the Asst Year 2006-07 wherein it was held that "We have hea....
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....xcept the change of figures and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 3 for AY 2013-14 & 2014-15 raised by the Revenue are dismissed. 10. Both the ld. representatives have submitted that the issue is squarely covered in favour of the assessee by the above decision of the Tribunal in the own case of the assessee for earlier assessment years. Therefore, respectfully following the same for the sake of consistency, this issue is decided in favour of the assessee and against the revenue. Ground No.7 of Revenue's appeal is hereby dismissed. 11. Ground No.8 - Vide Ground No.8, the revenue has assailed the decision of the CIT(A) in holding that the amount received by the assessee of Rs. 31,86,63,403/- as industrial promotion assistance from the State Govt. is capital in nature as against the observation of the Assessing Officer that the same was a revenue receipt liable to taxation. The ld. counsel, in this respect, has submitted that the assessee undertook expansion of its cement unit in Durgapur, West Bengal at a cost of about Rs. 100 cro....
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....ilities and incentives were to be given to all the new industrial undertakings which commenced production on or after 1-1-1969 with investment capital not exceeding Rs. 5 crores. The incentives were to be allowed for a period of five years from the date of commencement of production. The incentives were not available unless and until production had commenced. The Assessing Officer included the said amount in the assessable income of the assessee and that was affirmed by the Commissioner (Appeals). On further appeal, the Tribunal deleted the additions holding that the refund was a development subsidy in the nature of a capital receipt. On reference, the High Court set aside the order of the Tribunal. On further appeal by assessee Hon'ble SC held while distinguishing the decision of Hon'ble M.P. High Court on identical facts- "34. The Madhya Pradesh High Court in the case of CIT v. Dusad Industries 162 ITR 734, dealt with a case where Government had framed a scheme for granting sales tax subsidies to industries set up in backward areas. The High Court was of the view that the object of the scheme was not to supplement the profits made by industries. In that view of ....
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....atest decision of the Tribunal 07.02.2023 passed in ITA Nos.2142 & 2143/Kol/2018 in relation to Assessment Years 2013-14 & 2014-15, wherein, the identical ground raised by the department has been dismissed by the Tribunal, relying upon the earlier decision of the Tribunal in the own case of the assessee. The relevant part of the order of the Tribunal dated 07.02.2023 (supra) is reproduced as under: "Revenue's common Ground no. 4 for AY 2013-14 & 2014-15 regarding the issue of treating of industrial promotion assistance from the State Government as capital receipt: 11. We have heard rival contentions and perused the records placed before us. We find that this Tribunal in assessee's own case for AY 2011- 12 & 2012-13 has dealt with this issue and decided in assessee's favour observing as follows: "13. We have heard rival contentions and perused the records placed before us. The fourth common ground of the Department's appeal relates to the assessee's claim that industrial promotion assistance of Rs. 16,94,84,638/- received from the West Bengal State Government is a capital receipt and cannot be subjected to tax. The said amount was received by the assessee ....
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....ted August 25, 2017 (Page 115 at Pp 122-125 of Paper Book paragraphs 4 at 4.3) and for the assessment year 2010-11 by an order dated September 13, 2017 (Page 165 at Pp 168-171 of Paper Book-paragraphs 25 at 29-30). The Department had preferred appeal against the said order dated August 25, 2017 passed by this Hon'ble Tribunal for the assessment years 2008-09 and 2009-10 before the Hon'ble Calcutta High Court under section 260A of the Act being ITA No. 125/2019, GA No. 3548/2018 (Page 11 at Pp 23-24 - Question 10(i) of the Compilation of Case Laws). The Hon'ble High Court by an order dated September 12, 2019 was pleased not to admit the said question (Page 9-10 of the Compilation of Case Laws). 13.4. The identical question involving the 2000 Scheme came up for consideration recently before the Hon'ble Calcutta High Court in PCIT vs. Budge Budge Refineries Limited, (2022) 139 taxmann.com 124 (Calcutta) and the revenue's appeal against the order of the Hon'ble Tribunal was dismissed. We find that this Tribunal in assessee's own case for AY 2010-11 dealt with this issue and decided in assessee's favour observing as follows: "29. At the time of hearing, it was agreed b....
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.... Explanation 10 to Sec. 43(1) of I.T.Act. Revenue Ground No. 2 That Ld.CIT(A)-VI Kolkata has erred in law as well as on facts by deleting the addition made by the AO on account of Sales Tax Subsidy received by the assessee as revenue income of Rs 12,38,000/-. The decision rendered thereon by this tribunal is as under: 7. We have heard rival contentions on this issue and gone through the facts and circumstances of the case. We find that the facts are discussed in detail and which are undisputed. It is admitted that the assessee's issue of Sales Tax Incentive is capital in nature for the reason that the very scheme under which the expansion of the unit and subsidy under Rajasthan Sales Tax Scheme, 1998 was received explains the purpose of the scheme as incurring capital expenditure for installation of plant and machinery and for eligible for fixed capital investment. Even the issue of assessee is covered in its favour by Tribunal's decision in assessee's own case all along from AYs 2002-03 to 2006-07. It is not brought to our notice by the Revenue that the matter has been decided by Hon'ble Calcutta High Court, despite a query from the ....
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....g depreciation. As per Hon'ble Supreme Court, law is that if the subsidy is asset-specific, such subsidy goes to reduce the actual cost. If the subsidy is to encourage setting up of the industry, it does not go to reduce the actual cost, even though the amount of subsidy was quantified on the basis of the percentage of the total investment made by the assessee. The law is already settled on the subject. Now, the only wavering is with reference to Explanation 10 provided under sec.43(l) of the Act. The said Explanation provides that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. It is further, provided thereunder, that where such subsidy or grant or reimbursement of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total s....
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....d from the cost of the assets and under Explanation 10 to section 43(1) of the Act. We accordingly allow ground no.7 raised by the assessee in its appeal." 13.5. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee's own case for preceding assessment year i.e. AY 2010-11and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 4 for AY 2011- 12 & AY 2012-13 raised by the Revenue is dismissed." 11.1. Since the issues raised before us are squarely covered by the decision of this Tribunal in assessee's own case for preceding AYs 2011- 12 & AY 2012-13 except for the change in figure and Revenue being unable to controvert this fact by placing any other binding precedence in its favour, we fail to find any infirmity in the finding of ld. CIT(A). Thus, common ground no. 4 for AY 2013-14 & 2014-15 raised by the Revenue are dismissed." 14. So far as the reliance of the ld. DR on the decision of the Hon'ble Supreme Court in "Sahney Steel & Press Works Ltd. v. CIT" (supra) is concerned, it is to be....
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....t that Sahney Steel was followed and the test laid down was the "purpose test". It was specifically held that the point of time at which the subsidy is paid is not relevant; the source of the subsidy is immaterial; the form of subsidy is equally immaterial. Applying the aforesaid test contained in both Sahney Steel as well as Ponni Sugar, we are of the view that the object, as stated in the statement of objects and reasons, of the amendment ordinance was that since the average occupancy in cinema theatres has fallen considerably and hardly any new theatres have been started in the recent past, the concept of a Complete Family Entertainment Centre, more popularly known as Multiplex Theatre Complex, has emerged. These complexes offer various entertainment facilities for the entire family as a whole. It was noticed that these complexes are highly capital intensive and their gestation period is quite long and therefore, they need Government support in the form of incentives qua entertainment duty. It was also added that government with a view to commemorate the birth centenary of late Shri V. Shantaram decided to grant concession in entertainment duty to Multiplex Theatre Comp....
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....t. In that once the object of the subsidy was to industrialize the State and to generate employment in the State, the fact that the subsidy took a particular form and the fact that it was granted only after commencement of production would make no difference." 15. We may further add here that the decision of the Hon'ble Jammu & Kashmir High Court in the case of 'CIT Vs. Shri Balaji Alloys & Ors' (supra) has been upheld by the Hon'ble Supreme Court reported in (2016) 95 CCH 0249 SCC / (2016) 138 DTR 0036 (SC) 16. In view of the above referred two decisions, this issue is decided in favour of the assessee and against the revenue. This Ground of the revenue's appeal is hereby dismissed. 17. Ground No.9 -Vide this Ground of Appeal, the revenue has agitated the action of the CIT(A) in holding that the amount received by the assessee as interests subsidy from the state government was capital in nature as against the revenue receipt treated by the Assessing Officer. 18. The ld. counsel for the assessee, in this respect, has submitted that the nature of the interest subsidy was same i.e. Capita Receipt as noted above in respect of investment incentives given by the Govt....
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....as to enable the setting up of a new unit or expansion of an existing unit and was a capital receipt. The said decision was rendered after taking into consideration the judgment of the Hon'ble Supreme Court in CIT v. Ponni Sugar and Chemicals Limited, (2008) 306 ITR 392 (SC). The said decision for the assessment year 2007- 08 was followed in the assessee's own case for the assessment years 2008-09 and 2009-2010 decided by a consolidated order dated August 25, 2017 (Page 137 at pages 139-140 of the Paper Book - paragraphs 6 at 6.2). In the order dated August 25, 2017, the Hon'ble Tribunal also considered the judgment of the Hon'ble Jammu & Kashmir High Court in Shree Balaji Alloys v. CIT, (2011) 333 ITR 335 (J & K) and the judgment of the Hon'ble Supreme Court on appeal therefrom reported as CIT v. Shree Balaji Alloys, (2017) 80 taxmann.com 239 (SC) as also the judgment of the Hon'ble Supreme Court in CIT v. Meghalaya Steels Limited, (2016) 383 ITR 217 (SC).The order dated August 25, 2017 for the assessment years 2008-09 and 2009-10 was followed by the Hon'ble Tribunal for the assessment year 2010- 11 decided by an order dated September 13, 2017 (Page 190 at pages 193-194 of the Pap....
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.... to treatment of Industrial Promotion Assistance (IPA) as capital receipt or revenue receipt supra in Para 4 above, we have already held it to be a capital receipt and the same need not be reduced from the cost of assets as per Explanation 10 to Section 43(1) of the Act. We find that the subsidy amount was adjusted against the sales tax liability and was not used directly or indirectly to acquire the assets and hence the cost of assets cannot be reduced by the amount of subsidy. We also find that the Hon'ble Jammu and Kashmir High Court in the case of Shree Balaji Alloys vs. CIT, (2011) 333 ITR 335 (J&K) at page 346 held interest subsidy to be a capital receipt. On further appeal by the revenue, the Hon'ble Supreme Court by an order dated 19.4.2016 in Civil Appeal No.10061 of 2011 held that the interest subsidy was a capital receipt in view of its decision in Ponni Sugars (supra) and further held that even if it was treated as a revenue receipt, then the assessee was entitled to deduction under section 80IB/80IC as profits derived from eligible business according to its judgment in CIT v Meghalaya Steels Ltd., (2016) 383 ITR 217 (SC). Hence respectfully following the said decision ....
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....ng of tax-exempt income. 20.1. The ld. counsel for the assessee has submitted that the assessee was in receipt of exempt income of Rs. 3,86,49,083/- by way of dividend on its investment in shares and units of mutual funds. The assessee offered a disallowance of Rs. 9,77,888/- as expenditure incurred in relation to the exempt income. The disallowance offered by the assessee comprised salary and other employee related costs on proportionate basis as also establishment expenses. The Assessing Officer, however, invoked rule 8D and worked out the disallowance @0.5% of the average of the opening and closing values of investment amounting to Rs. 6,62,97,455/-. After deducting the disallowance of Rs. 9,77,888/- made by the assessee, the Assessing Officer further disallowed Rs. 6,53,19,567/-. 20.2. On appeal, the Commissioner of Income Tax (Appeals) following the decisions of the Tribunal in the assessee's own case for the assessment years 2008-09 to 2010-11 directed the Assessing Officer to consider only those investments which yielded dividend income but excluding investments in subsidiary companies, for computing the disallowance under section 14A read with rule 8D(2)(iii). 21. ....
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....irtue of clause (i) of sub-rule (2) of Rule 8D. The indirect expenditure, where it is by way of interest, is computed through the principle of apportionment, as indicated above. And, in cases where the indirect expenditure is not by way of interest, a rule of thumb figure of one half percent of the average value of the investment, income from which does not or shall not form part of the total income, is taken. The Hon'ble Court, thus made it clear that in cases where the applicability of Section 14A, which is based on the theory of apportionment of expenditure between taxable and non-taxable income, read with Rule 8D is triggered, a rule of thumb amount would have to be calculated at the prescribed percentage of the investment, income from which does not or shall not form a part of the total income, to arrive at the quantum of disallowance. Therefore, a it is clear from a conjoint reading of the two judgements quoted above that the Ld.CIT(A) was not justified in directing the AO to compute the disallowance u/r 8D(2)(iii) by considering only the dividend bearing investments and by excluding the strategic investments. This decision deserves to be reversed and the lo....
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....e disallowance offered by the assessee u/s 14A of the Act and he erred in invoking and applying Rule 8D: 13. We have heard rival contentions and perused the records placed before us. We find that this Tribunal in assessee's own case for AY 2011- 12 & 2012-13 dealt with this issue of disallowance u/s 14A of the Act and decided in assessee's favour observing as follows: "15. We have heard rival contentions and perused the records placed before us. The sixth common ground of the department's appeal relates to disallowance under section 14A read with rule 8D. The assessee has filed an additional ground in its appeal in respect of the disallowance under the said provisions. As such, both the said grounds can be conveniently taken up together. 15.1. The assessee was in receipt of exempt income of Rs. 12,84,34,263/- by way of dividend on its investment in shares and units of mutual funds. The assessee offered a disallowance of Rs. 6,40,792/- as expenditure incurred in relation to the exempt income. The disallowance offered by the assessee comprised salary and other employee related costs on proportionate basis as also establishment expenses. The ld. AO invoked r....
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....ts without physically receiving the warrants. Only 11 warrants for an aggregate sum of Rs. 1,38,09,310/- were physically received and had to be deposited in the bank. Breakup as on March 31, 2011 and March 31, 2010 of the assessee's investments which yielded dividend during the year and those which did not yield or were incapable of yielding dividend is tabulated under: (Rs. in lakh) Particulars As at 31.3.11 As at 31.3.10 Average Percentage 1. Investments in mutual fund schemes and shares which yielded dividend 20,676.51 27,630.32 24,513.42 20.90 % 2. Investments in shares which did not yield any dividend 1,385.67 1,385.49 1,385.58 1.20% 3. Investments in growth schemes of mutual funds and other investments which were incapable of yielding any dividend 94,858.73 85,149.41 90,004.07 77.90% 116,920.91 114,165.22 115,543.07 100.00% 15.4. It would be seen from the above that 77.90% of the assessee's investments (including in non-equity oriented mutual fund growth schemes) did not provide for payment of any dividend. Upon redemption/disposal of all such investments, the assessee would be liabl....
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.... the assessee's investment portfolio was correctly tabulated by it in the statement submitted to ld. AO. The said statement includes not only the concerned employees' remuneration but also other office expenses. No other infrastructure of the assessee was utilised in connection with the management/maintenance of its investment portfolio. In the facts of the assessee's case, the quantum of investment or the amount of investment income are not at all determinative of the quantum of expenditure incurred by the assessee in connection therewith. Further, Section 14A(2) of the Act enables ld. AO to determine the amount of expenditure incurred in relation to exempt income in accordance with the method prescribed by rule 8D only if the ld. AO is not satisfied with the correctness of the assessee's claim of expenditure. Rule 8D also so provides. 15.7. It is submitted that in the instant case, there was no material to doubt the correctness of the assessee's claim of expenditure incurred in connection with management/maintenance of its investment portfolio. This is apparent from the findings of the ld. AO in paragraphs 11.2 and 11.3 at page 15 of the assessment order: "11.2 ....
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....xable has, in principle, been now widened under section 14A." 35. The Delhi High Court, therefore, correctly observed that prior to introduction of Section 14A of the Act, the law was that when an assessee had a composite and indivisible business which had elements of both taxable and non-taxable income, the entire expenditure in respect of said business was deductible and, in such a case, the principle of apportionment of the expenditure relating to the non-taxable income did not apply. The principle of apportionment was made available only where the business was divisible. It is to find a cure to the aforesaid problem that the Legislature has not only inserted Section 14A by the Finance (Amendment) Act, 2001 but also made it retrospective, i.e., 1962 when the Income Tax Act itself came into force. The aforesaid intent was expressed loudly and clearly in the Memorandum explaining the provisions of the Finance Bill, 2001...." "Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the ass....
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....ble Tribunal was approved: "...Even in a case where the AO rejects the claim of the assessee that no expenses were incurred to earn the exempt income, it is not mandatory for him to invoke the method of calculation prescribed by Rule 8D(2) of the Rules and is free to make the disallowance on any reasonable basis. By applying the Rule 8D of the Rules blindly sometimes absurd disallowances would result. In our view, therefore while examining the claim of the assessee regarding expenditure incurred in earning the exempt income including a claim that no expenses were incurred, the AO is bound to take note of such absurdities and refrain from invoking the method of disallowance of expenses as prescribed by Rule 8D(2) of the Rules. It is for this reason that the satisfaction of the AO regarding expenses incurred for earning exempt income is to be objective satisfaction. In other words, it is only when no reasonable and proper parameters for making disallowance can be arrived at, that resort to Rule 8D(2) can be had by the AO. Rule 8D(2) will thus be a last resort when it becomes impossible to arrive at a just conclusion on the amount of expenses that has to be disallowed as attr....
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....on the ground that no exempt income was earned. That is not the controversy in the instant case. In the instant case, the dispute is whether any expenditure over and above the sum of Rs. 6,40,792/- was actually incurred by the assessee. In any event, the said amendments are effective only from AY 2022-23 and have no application for the earlier years as held by the Hon'ble Delhi High Court in PCIT v. Era Infrastructure (India) Ltd, (2022) 141 taxmann.com 289 (Del). 15.12. Though the ld. Counsel for the assessee has pleaded that in lack of proper satisfaction recorded by ld. AO questioning the correctness of the claim of disallowance suo moto made by the assessee, the alleged disallowance is uncalled for and had also made an alternate plea that if the main plea is not accepted and at least the alternate plea that the disallowance under Rule 8D(3) of the I.T. Rules may be restricted only to the extent of 0.5% of the average investments yielding dividend income, we find that for the preceding AY 2010-11 also same issue under identical facts was there before this Tribunal and after considering the ratios laid down by the Hon'ble Court's directions are given to ld. AO to con....
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.... such schemes are also not equity oriented. We find that the ld. A R also made an alternative argument that only dividend bearing investments should be reckoned for disallowance under Rule 8D(2)(iii) of the Rules and that strategic investments should be excluded We find lot of force in the alternative argument of the Id AR that only dividend bearing investments are to be considered for making disallowance u/s 14 A of the Act. In this regard, the reliance placed by the Id A R on the decision of this tribunal in the case of REI Agro Ltd. reported in 144 ITD 141 (Kol) is very well founded wherein it was held that: 8.1 Thus, not all investments become the subject-matter of consideration when computing disallowance under section 14A read with Rule 8D. The disallowance under section 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. Under the circumstances, the computation of the disallowance under section 14A read with rule 8D(2)(iii), which is issue in the assessee's appeal....
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.... expense and interest attributable to the investments made by the appellant in the PSVs can be disallowed u/s 14A r.w. Rule 8D because it cannot be termed as expense/interest incurred for earning exempted income. Under the circumstances, Ld. Commissioner of Income Tax (Appeals) is correct in holding that disallowance of a further sum of Rs 40,556/- calculated @ 2% of the dividend earned is sufficient. Under the circumstances, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (Appeals), hence we uphold the same. On going through the above observations we are of the view that this is merely a question of fact and does not involve any question of law much less a substantial question of law, as the Tribunal held that the expenses which have been claimed by the assessee were not towards the exempted income. The disallowance, therefore, was rightly limited to a sum of Rs 40,556/-. The question of interpreting Rule 8D is not in dispute and the only dispute is with regard to facts which have been settled by the Tribunal. In view of the aforesaid findings and respectfully following the judicial precedents relied upon, we deem it fit and approp....
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....sallowance u/s 14A r.w.r 8D(2)(iii) by considering all investments including investments in subsidiary companies which yielded dividend income. This Ground of the revenue's appeal is partly allowed, whereas, the cross-objection of the assessee on this issue is hereby dismissed. 25. Ground Nos.11 & 12 - The revenue vide Ground Nos.11 and 12 has assailed the order of the CIT(A) contending that the CIT(A) has erred to exclude the subsidy from the books profits assessable u/s 115JB of the Act. 26. The ld. counsel for the assessee, in this respect, has submitted that the issue is squarely covered by the decision of the Tribunal in the assessee's own case in the latest decision of the Tribunal 07.02.2023 passed in ITA Nos.2142&2143/Kol/2018 in relation to Assessment Years 2013-14 & 2014-15, wherein, the identical ground raised by the department has been dismissed by the Tribunal relying upon the earlier decision of the Tribunal in the own case of the assessee. The relevant part of the order of the Tribunal dated 07.02.2023 (supra) is reproduced as under: Revenue's Ground no. 7 for AY 2013-14 and ground nos. 7 & 8 for 2014-15 relating to the issue that whether subsidy/incen....
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.... year 2016-17. In paragraph 5.3 of Circular No. 19 dated November 27, 2015 containing explanatory notes to the provisions of the Finance Act, 2015, it is stated that the said amendment takes effect from April 1, 2016 and would accordingly apply to assessment year 2016- 17 and subsequent assessment years [(2015) 379 ITR (St.) 19 at 35, 36]. The assessment year involved herein is 2011-12 before the amendment of section 2(24). Having regard to the decisions holding the field, subsidy received on capital account was not income within the meaning of the Act at least till the assessment year 2015-16. It is submitted by ld. Counsel for the assessee that since the said subsidies are not income within the meaning of section 2(24) of the Act, the same cannot also form part of the total income or be subjected to tax under section 115JB of the Act. The subject matter of taxation under the Act is "income". The charging section 4 of the Act provides for levy of tax in respect of "total income". "Total income" is defined in section 2(45) of the Act to mean "the total amount of income referred to in section 5, computed in the manner laid down in this Act". The material portion of section 5 reads a....
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....e case of Appollo Tyres Ltd. (supra) the income in question was taxable but was exempt under a specific provision of the Act as such it was to be included as a part of the book profit. But where a receipt is not in the nature of income at all it cannot be included in book profit for the purpose of computation under Section 115JB of the Income Tax Act, 1961. For the aforesaid reason, we hold that the interest and power subsidy under the schemes in question would have to be excluded while computing book profit under Section 115 JB of the Income Tax Act, 1961. The third issue involve in the instant appeal which requires adjudication is whether the action of Tribunal entertaining / allowing the claim which was made by the assessee before the Assessing Officer by filing a revised computation instead of filing a revised return since the time to file the revised return was lapsed, for claiming to treat the incentive subsidies in question as capital receipts instead of revenue receipts as claimed in original return. The Assessing Officer had denied this claim. Revenue has attacked the order of the tribunal by relying on the decision in the case of Goetze (India) Ltd. (supra). ....
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...." 27. Both the ld. representatives have submitted that the issue is squarely covered in favour of the assessee by the above decision of the Tribunal in the own case of the assessee for earlier assessment years. Therefore, respectfully following the same, for the sake of consistency, this issue is decided in favour of the assessee and against the revenue. Ground Nos.11 & 12 of Revenue's appeal are hereby dismissed. 28. Ground No.13 - Vide Ground No.13, the revenue has agitated the action of the CIT(A) in deleting the upward adjustment made to book profit on account of disallowance of expenditure computed u/s 14A of the Act r.w.r. 8D of the Income Tax Rules. 29. The ld. counsel for the assessee, in this respect, has relied upon the decision of the Tribunal in the assessee's own case dated 07.02.2023 passed in ITA Nos.2142 & 2143/Kol/2018 in relation to Assessment Years 2013-14 & 2014-15, wherein, the identical ground raised by the department has been dismissed by the Tribunal relying upon the earlier decision of the Tribunal in the own case of the assessee. The relevant part of the order of the Tribunal dated 07.02.2023 (supra) is reproduced as under: "Revenue's com....
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.... taken up as such. We find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal. We accept the submission of Mr. Khaitan, learned Senior Advocate that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act." (emphasis added) 17.2. The same view was taken by the Hon'ble Karnataka High Court in CIT v. Gokal Das Images Private Limited, (2020) 429 ITR 526 (Karn) - paragraph 10 at page 533 of the Reports (Page 156 at page 163 of the Compilation of the Case Laws). Relevant portion of the decision of the Karnataka High Court in Gokaldas Images' case (supra) is extracted hereinbelow: "10. The Commissioner of Income-tax (Appeals) has held that as per section 115JB of the Act, the assessee being a company is liable to tax on book profits in accordance with the aforesaid pro....
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....olkata High Court has also expressed a similar view by holding that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act. Hon'ble Kolkata High Court has further held that the computation of the amount of expenditure relatable to exempt income of the assessee must be made independently by applying clause (f) of Explanation (1) under section 115JB of the Act where the assessee has not claimed such expenditure to be nil. Respectfully following the said decision of the Hon'ble Jurisdictional High Court in the case of Jayshree Tea Industries Ltd. (supra), we set aside the impugned orders of the Ld. CIT(A) on this issue and restore the matter to the file of the A.O. for computing the amount of expenditure relatable to the exempted income of the assessee independently for all the four years under consideration by applying clause (f) of Explanation (1) under section 115JB of the Act without resorting to section 14A or Rule 8D." (Emphasis provided) 31. We have considered the rival submissions and gone through the record. The ld. DR has placed reliance on Explanation 1 Clause (f) to sec....
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.... leave encashment actually paid. The ld. counsel for the assessee, in this respect, has relied decision of the Tribunal in the assessee's own case dated 07.02.2023 passed in ITA Nos.2142 & 2143/Kol/2018 in relation to Assessment Years 2013-14 & 2014-15, wherein, the identical issue has been adjudicated and the matter has been restored to the file of the assessing officer with the direction to allow the claim of leave encashment actually paid by the assessee during the relevant assessment year. The relevant part of the order of the Tribunal dated 07.02.2023 (supra) is reproduced as under: "21. Ground no. 2 & 3 for AY 2013-14 and ground no. 1 & 2 for AY 2014-15 raised by the assessee relates to deduction of provision made for leave encashment and the allowability of the deduction u/s 43B(f) of the Act for the amount actually paid. 21.1. The assessee had claimed deduction on account of provision made for leave encashment relying upon the decision of the Hon'ble Calcutta High Court in Exide Industries Limited v. Union of India, (2007) 292 ITR 470 (Cal) whereby clause (f) of Section 43B of the Act was held unconstitutional. Ld. AO disallowed the claim by observing that....