TaxTMI 
TaxTMI 
2024 (9) TMI 270
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has computed the income of Rs.159,59,35,610/- under the normal provisions of the Act after making various additions / disallowances. 4. Ground No. 1 of the assessee reads as under:- GROUND OF APPEAL NO. 1 with respect to claim of deduction u/s 80IB of the Income Tax Act in respect of Unit at Belur, West Bengal 1. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in allowing deduction under section 80IB of the Income Tax Act, 1961 ("the Act") to the extent of Rs 2,01,22,104, only as against deduction of Rs 3,87,41,881, claimed by the appellant in respect of the SMS 4- Ili Cold Rolling Mill at Belur, West Bengal. 1.1. That the Commissioner of Income Tax (Appeals) erred on facts and in alleging that the appellant has not controverted the finding of the assessing officer that the profits derived by the appellant from the aforesaid units have not been worked out on a reasonable basis. 1.2. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in computing the profit of the aforesaid units eligible for deductio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the deduction u/s 80IB and certificate to this effect been issued to the assessee. It was also the contention of assessee that the profitability statement of the Belur unit, was filed before AO (which has also been filed at page 19 of paper book), is nothing but a profit and loss account only. Thereafter, ld. Counsel also pointed out that ITAT Mumbai for the A.Y.2001-02 on exactly same issue after considering the decision of the Tribunal for A.Y.2002-03 had referred the matter back to the file of the ld. AO to examine the claim u/s.80IB afresh in line with the profitability statement filed for the unit. He pointed out that in the set aside proceedings, ld. AO had allowed the claim in full after verification of the profitability statement for A.Y.2001-02 while allowing full deduction u/s.80IB for the Belur unit and agreed that unit has reported net profit rate @16.29% of the turnover as compared to the normal net profit of 10.23% of the turnover. The ld. AO gave the finding that the net profit ratio of 16.29% of turnover is reasonable keeping in view the global net profit ratio of 10.23% of turnover. Before us, the assessee's contention is that in the present case also the net ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... absence of any defect or manipulation found by the Assessing Officer in the books maintained for Unit No.4 and in the absence of any material to indicate that the amount charged by Unit No.4 from Unit No.1 was not at comparable market rates, it would not be open for the revenue to disregard the profits of Unit No.4 as disclosed by the assessee only on the basis that the profits were significantly higher than profits earned by the assessee from other undertakings. 27. Given the fact that Unit No.4 carries on job work of printing only, the expenses attributable to Unit No.1 which relate to the publishing business cannot be allocated to Unit No.4. Only those expenses which relate to the printing work carried on by the assessee in Unit No.4 are liable to be deducted from the job charges to arrive at the profits eligible for deduction under Section 80-IA of the Act or 80-IB of the Act as the case may be. 10. Thus, this issue stands covered by the decision of the aforesaid judgment of Hon'ble Delhi High Court. It has been informed that the decision of the Tribunal for A.Y.2002-03 partially disallowing assessee's claim u/s.80IB which has been relied upon by the ld. CIT(A) has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of the assessees whose assessments were still pending although such benefit will be available to the assessees whose assessments have already been concluded. In other words, in this type of substantive amendment, retrospective operation can be given only if it is for the benefit of the assessee but not in a case where it affects even a fewer section of the assessees. 27. We, accordingly, quash the impugned amendment only to this extent that the operation of the said section could be given effect from the date of amendment and not in respect of earlier assessment years of the assessees whose export turnover is above Rs.10 crore. In other words, the retrospective amendment should not be detrimental to any of the assessees. 15. This judgment of the Hon'ble Gujarat High Court has been affirmed by the Hon'ble Supreme Court in the case of Commissioner of Income Tax v. Avani Exports (2015) 277 CTR 460 with the following Observation: 4. Against the High Court judgment these SLPs are filed by the Union of India. Mr Mukul Rohatgi, learned Attorney General for India submits that once the prayer made was to sever the aforesaid two conditions as onerous and ultra vires, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Assessing officer, the assessee could furnish details in respect of Rs. 6,50,34,396/- only. The ld. AO disallowed the expense of commission to the extent of Rs. 3,98,32,604/- in absence of details. During the course of appellate proceedings, the details of entire commission payment was furnished to the ld. CIT(A) by way of Additional evidence. Remand Report for additional evidence was also sought from AO. Entire commission payment details amounting to Rs. 10,48,67,000/- was explained to the satisfaction of ld. CIT(A). The ld CIT(A) substantially deleted the addition made by ld. AO, however, confirmed the addition on account of commission payment amounting to Rs. 28,49,419/. This disallowance of commission payment was with respect to the three commission parties to whom notice u/s 133(6) could not be served. 20. Before us it has been submitted that this issue stands covered by the decision of the Hon'ble Culcutta High Court in the case of Mather & Platt (India) Ltd. v. Commissioner of Income Tax (1987) 168 ITR 493 (CAL), the Hon'ble High Court of Calcutta held that deduction claimed for amount paid as commission cannot be disallowed merely on the ground that the summons served on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....penditure in respect of repairs and replacement of plants and machinery on the ground that the same is capital in nature and cannot be allowed as revenue expenditure. The basis for this was the contention that the assessee itself treated this expenditure to be a capital expenditure in its books of accounts. 25. The ld. CIT (A) upheld the action of ld. AO in treating the said expenditure as capital in nature for the reason that the assessee had capitalized the same in its books of accounts. He held that the assessee could not discharge the onus of treating the said expenditure as revenue expenditure. The ld. CIT(A) also relied on the assessee's own case for the assessment year 2002-03 wherein the Hon'ble Kolkata Bench upheld the action of the AO and the decision of the first appellate authority. 26. Before us ld. Counsel submitted that the decision of the ITAT Kolkata Bench in A.Y.2002-03 in ITA No. 1221/Kol/2006 and ITA No. 1045/Kol/2006 disallowing the assessee's claim for deduction for the expenditure incurred on repairs and replacement of plants and machinery, which was relied upon by the learned CIT(A), has been subsequently set aside by the Hon'ble Calcutta High Court. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he claim of deduction expenditure incurred of repairs and maintenance of plants and machinery back to the ld. AO for verification. However, from the perusal of the details as in the paper book, it is seen that these are small repairs and replacement of part of plant and machinery which is to be allowed u/s. 31 of the Act irrespective whether it is a capital or Revenue in nature. Thus, ld. AO is directed to examine the details in line with the decision of the Hon'ble Supreme Court in the case of IT vs. Sarvana Spinning Mills (supra). Accordingly, this ground is allowed subject to verification by the ld. AO. 29. In the result, ground No.4 raised by the assessee is allowed. 30. Ground of Appeal No.5 with respect to the claim of deduction of amount paid as service charges to BMCL 5. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in disallowing the sum of Rs.5,63,69,000 paid by the appellant to Birla Management Corporation Limited (BMCL) as service charges, alleging that the appellant has failed to furnish evidence of the services rendered by BMCL to substantiate that the said expenditure was incur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6 3. Ratio of Net worth 22 4. Ratio of Net Block 22 100 35. It has been further contended that the BMCL is only recovering the cost of services and it does not charge any mark-up which is evident from the Profit & Loss account of BMCL. The assessee had also filed detailed written submission in this regard before us. 36. First of all it is not in dispute that BMCL is only recovering the cost of services and it does not charge any mark-up for providing net management and administrative services to the member companies. The assessee had submitted all the evidences that expenses have been incurred for availing and sharing common facilities and the sources afforded by BMCL. Before us additional evidence paper book in form of evidence of services which has been furnished at pages number 49 to 63. In subsequent assessment year i.e., AY 2004-05 on the basis of similar evidence of services CIT (A) has granted relief on this ground after considering ITAT order for AY 2002-03 in assessee's own case. Though in 2002-03, this Tribunal had dismissed claim for allowance of BMCL expense for lack of proof of services, but that finding too has been set aside by Hon'ble ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned." The assessee further contends that in present case also there is right to receive services from BMCL. Without prejudice to the stand that services has been availed from BMCL, even if no services has been taken in previous year relevant to assessment year, the charges paid to BMCL on this account is deductible as per judgment of Bombay High Court in the case of Merck India Ltd. The assessee further Contend that in present case, the assessee not only had right to receive various managerial services from BMCL but also have availed the services for which sample evidence is furnished by way of additional evidence as stated above. The assessee further relies upon following various judgement in support of his contention: i. CIT Vs Spencers & Co Ltd 49 taxmann.com 318 ii. Phillips Carbon Black Ltd. [2011] 133ITD 189/16 taxmann.com 64 iii. CIT vs. Oriental Carpet Manufactures (India) P. Ltd. [86 ITR 543(P & H)] iv. Dresser Rend India (P) Ltd vs. ACIT [61 DTR 265 Mumbai] v. Duncan Industries Ltd. vs. ACIT - (ITA No. 905 of 2003) vi. DCIT vs. M/s Eveready Industries (India) Ltd. (ITA No. 455/kol/2003) The assessee h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at payment made to BMCL for rendering service cannot be disallowed by invoking Section 40A (2). Thus, we direct the ld.AO to allow the payment made to BMCL for rendering of services. 39. Accordingly, the ground No.5 raised by the assessee is allowed. 40. GROUND OF APPEAL NO. 6 with respect to the claim of deduction of amount spent by the assessee as community development expense. 1. That the Commissioner of Income Tax (Appeals) erred on facts and in law in disallowing an expenditure of Rs 27,88,975/- incurred by the assessee on account of community development expenses holding the same to be charitable expenditure not incurred for the purposes of the appellant's business. 41. The assessee has debited 27,88,975/- under the head 'community development'. Before the assessing officer, assessee has explained that the expenses were incurred for assistance with respect to drinking water supply, educational support etc. in the neighbouring areas of mine. The ld.AO disallowed the expenses treating it as donation in nature being not connected with business of the assessee. The ld. CIT(A) confirmed the finding of ld.AO at page 81. CIT (A) also relied on assessee's own case f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pent for bringing drinking water as also for establishing or improving the school meant for the residents of the locality in which the business is situated cannot be regarded as being wholly outside the ambit of the business concerns of the assessee, especially where the undertaking owned by the assessee is one which is to some extent a polluting industry. 45. Similarly, the Hon'ble Bombay High Court in the case of Commissioner of Income Tax v. M/s Nicholas Piramal (India) Ltd. in ITA No. 1586 of 2013 has also placed reliance on Madras Refineries Ltd. (supra). The relevant extract is reproduced here in below: 6. The Tribunal while following the decision of the Madras High Court in Commissioner of Income Tax v/s. Madras Refineries Ltd., 266 ITR 170 held that the concept of business is not static and over a period of time, it would include within its fold the care and concern for the society at large which would result in a goodwill being created in its favour leading to better business. The Madras High Court in Madras Refineries (supra) had allowed expenditure incurred on drinking water facilities and aid to the school. Therefore, in the present case also, expenditure in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uce benefits to the assessee- company. The relevant extract is reproduced hereinbelow: 16. In the present case, the corporate membership of Rs.6 lacs was for a limited period of 5 years. The corporate membership was obtained for running the business with a view to produce profit. Such membership does not bring into existence an asset or an advantage for the enduring benefit of the business. It is an expenditure incurred for the period of membership and is not long lasting. By subscribing to the membership of a club, no capital asset is created or comes into existence. By such membership, a privilege to use facilities of a club alone, are conferred on the assessee and that too for a limited period. Such expenses are for running the business with a view to produce the benefits to the assessee. Consequently, it cannot be treated as capital asset. Therefore, the reasoning given by Delhi, Bombay and Gujarat High Courts in respect of members of Clubs is based upon correct enunciations of the principles of law as delineated above in the judgments of the Supreme Court. 51. Therefore, it cannot be said that the assessee's expenditure on subscription to the club for its employees....
X X X X Extracts X X X X
X X X X Extracts X X X X
....- on this account. Because of such write down of investment, the original cost of the unit was brought down from Rs. 44,33,00,000/- to Rs. 34,13,57,004/-. The Assessee further clarified that the said write down of investment amounting to Rs. 10,19,42,996/- was offered to tax in the return of income of AY 2002-03 because write down of investment is not a permissible deduction. 56. In subsequent year (the current assessment year), the said investments were sold for Rs. 36,36,69,236/- which resulted into profit in the accounts to the tune of Rs. 2,32,12,230/-, as cost of the units as per books were brought down to Rs. 34,13,57,004/- because of provision of write down. However, as per income tax calculation, the original cost was taken as actual historical cost i.e., Rs. 44,33,00,000/- giving loss of Rs. 7,96,30,763/-. The assessee further contended that mischief of 94(7) is not applicable in this case as holding period of these units were for a period were long enough to come out of mischief of 94(7). Thus lower authorities have completely disregarded these facts. 57. Further, assessee submitted that a loss on account of K bond wholesale plan bonus option should have been allowe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ould be allowed as there is no application of section 94(8) in year under appeal. So far as loss on account of dividend striping is concerned, the ld. AO will examine the holding period of units and decide the issue to examine the issue of losses because Section 94(7) is not attracted due to adequate holding period. Accordingly, this ground is partly allowed for statistical purposes. 61. In the result, ground No.13 is partly allowed for statistical purposes. 62. GROUND OF APPEAL NO. 14 with respect to the expenditure incurred on maintenance and depreciation of aircraft "14. That the Commissioner of Income Tax (Appeals) erred on facts and in law in sustaining the disallowance of Rs 36,00,000 and Rs 1,05,39,094 relating to expenditure on maintenance and depreciation respectively of the aircraft jointly owned by the appellant, holding that the same was not used for the purpose of the business of the appellant." 63. The ld. AO had disallowed the assessee's claim of depreciation on aircraft and expenditure incurred on maintenance of aircraft on account of absence of any proof of its acquisition and failure to furnish any evidence with respect to commissioning of aircra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to be seen that the machinery must be "used" for the purpose of the business and keeping in mind the wider meaning ascribed by various decisions of various courts to the term "use", even trial production of a machinery would fall within the ambit of "used for the purpose of business". Further, as the statute does not prescribe a minimum time limit for "use" of the machinery, the assessee cannot be denied the benefit of depreciation on the ground that the machinery was used for a very short duration for trial run." 66. Thus, the trial run is held as use for the purpose of business, then the maintenance expenses should also be allowed as deductible. The assessee had also furnished flight details for the year under consideration which has been enclosed at pages 50 to 53 of paper book which clearly shows that it was a trial run and for training of the flights. Thus, depreciation and maintenance at the aircraft is held to be allowed. In the result, ground No.14 is allowed. 67. Ground No.15 relating to disallowance on adhoc basis of Rs.10,00,000/- u/s.40A(2)(b) in respect of amount paid and reimbursed by the assessee to M/s. Hindalco Industries Ltd. has not been pressed due to smal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....puted based on book profit as per profit and loss account and not based on business income as per Section 28(D) to 44D. Since assessee has not given any working and neither such claim was made before the ld. AO because assessee had computed the book profit under MAT and not under normal provision of computation of income, therefore, this issue is remanded back to the ld. AO to be decided in accordance with law in line with the decision of the Hon‟ble Supreme Court in the case of Bhari Information Technology (supra). 72. Additional Ground No.2 raised by the assessee is as under:- "That for calculating book profit u/s 115JB, 100% of the eligible profit is to be deductible u/s 80HHC." 73. The assessee company while calculating deduction u/s 80HHC, from book profit under MAT, only 50% of eligible profit was claimed. The assessee relied upon the judgement of Hon‟ble Supreme Court in the case of Ajanta Pharma Ltd. vs. Commissioner of Income Tax wherein the Hon‟ble Court held that deduction on account of 80HHC for the purpose of computing book profit under MAT shall be 100% of the profit eligible for deduction u/s 80HHC and not to be computed as per phased....
X X X X Extracts X X X X
X X X X Extracts X X X X
....should be given to further rectification of application u/s.154 of the Act. Thus, the additional ground Nos.3&4 are dismissed as not pressed. 78. In Revenue's appeal wherein following grounds have been raised:- 1.(a) That on the facts and in the circumstance of the case Ld. C.I.T.(A) has erred in allowing relief to the assessee by adopting the price of electricity expenses of Rs.2.63 per unit against adopted by A.O. of Rs. 0.77 per unit in calculating deduction us. 801A of 1.T. Act 1961. 1.(b) That on the fact and in the circumstance of the case Ld. C.LT.(A) has erred in accepting the sale price of power @ Rs. 2.63 per unit as against selling price of power to Grid Corporation of Orissa Ltd @ Rs. 0.77 per unit 1(c) That on the fact and in the circumstance of the case Ld. C.LT. (A) has erred in accepting assessee's determination of power price @ Rs. 2.63. per unit in the case consumption of power by it's own unit as against selling price of power to Grid Corporation of Orissa Ltd. 79. The assessee company has made a claim of deduction u/s 80IA in respect of its power plant at Hirakud, Orissa amounting to Rs. 17,86,56,581. This is a matter of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t such goods would ordinarily fetch on sale in the open market observed and held as under:- 15.6 Sub-section (8) says that where any goods held for the purposes of the eligible business are transferred to any other business carried on by the assessee or where any goods held for the purposes of any other business carried on by the assessee are transferred to the eligible business but the consideration for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods as on the date of the transfer. then for the purposes of deduction under section 80- IA, the profits and gains of such eligible business shall be computed as if the transfer had been made at the market value of such goods as on that date. The proviso says that if the assessing officer finds exceptional difficulties in computing the profits and gains of the eligible business in the manner specified in sub- section (8), then in such a case, the assessing officer may compute such profits and gains on such reasonable basis as he may deem fit. The explanation below the proviso defines "market value" for the purpose of sub-section (8) It says that market value....
X X X X Extracts X X X X
X X X X Extracts X X X X
....et" to mean a market in which any buyer or seller may trade and in which prices and product availability are determined by free competition. P Ramanatha Alyer's Advanced Law Lexicon has also defined the expression "open marker" to mean a market in which goods are available to be bought and sold by anyone who cares to. Prices in an open market are determined by the laws of supply and demand. 25. Therefore, the expression "market value" in relation to any goods as defined by the explanation below the proviso to sub- section (8) of Section 80-1A would mean the price of such goods determined in an environment of free trade or competition. "Market value" is an expression which denotes the price of a good arrived at between a buyer and a seller in the open market ie, where the transaction takes place in the normal course of trading. Such pricing is unfettered by any control or regulation: rather, it is determined by the economics of demand and supply 26. Under the electricity regime in force, an industrial consumer could purchase electricity from the State Electricity Board or avail electricity produced by its own captive power generating unit. No other entity could....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... units of the assessee would have had to purchase power from the State Electricity Board at the same rate at which the State Electricity Board supplied to the industrial consumers i.e. Rs. 3.72 per unit. 28. Thus, market value of the power supplied by the assessee to its industrial units should be computed by considering the rate at which the State Electricity Board supplied power to the consumers in the open market and not comparing it with the rate of power when sold to a supplier le, sold by the assessee to the State Electricity Board as this was not the rate at which an industrial consumer could have purchased power in the open market. It is clear that the rate at which power was supplied to a supplier could not be the market rate of electricity purchased by a consumer in the open market. On the contrary, the rate at which the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under section 80-IA of the Act. 29. Section 43A of the 1948 Act lays down the terms and conditions for determining the tariff for supply of electricity. The said provision makes it clear that tariff is determined....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd the principle laid down by the Hon'ble Supreme Court we hold that rates charged by Orissa State electricity board to its industrial consumer which was taken at Rs. 2.63 per unit as Transfer price to Aluminum unit is accepted to be at Market rate. Accordingly, ground No.1 raised by the Revenue is dismissed. 86. Ground No.2 relating to restricting the disallowance to Rs.28,49,914/- against Rs. 3,98,32,604/- made by A.O on account of commission paid to different parties. This issue has already been decided in assessee's appeal and also in the remand report, ld. AO himself has accepted the payments under the head 'commission' which has been accepted by the ld. CIT(A), accordingly ground No.2 raised by the Revenue is dismissed. 87. Ground 3 raised by the Revenue reads as under:- "3(a) That on the fact and in the circumstance of the case Ld. C.I.T.(A) has erred in deciding appeal in favour of assessee for statistical purposes by directing the AO to allow deduction after allowing opportunity to the assessee to prove the factum of payment to the Dy. Conservator of Forest amounting to Rs.11,47,000/- when the A/R of the assessee has expressed his inability to produce any ev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for on estimated basis. Thus, order of the ld. CIT(A) is confirmed and ground No.4 is dismissed. 92. The ground No.5 raised by the Revenue reads as under:- "That on the fact and in the circumstance of the case Ld. C.I.T.(A) has erred in allowing the appeal in favour of assessee by directing the AO to verify the contention of the assessee that the assessee has already offered for taxation Rs.4,26,31,807/- u/s.43B of the IT Act in assessment years 1995-96 to 2002-03 on account of Sales Tax, Octroi, Bonus & provison for Excise Duty without any supporting evidence." 93. The assessee company has claimed a sum of Rs. 5,19,77,835/- as amount written back in profit and loss account for statutory and other dues covered by section 43B and were not allowed in earlier years. AO made an addition of Rs. 4,26,31,807/- as amount written back on the ground that write back of an amount does not amount to payment of statutory liability. Therefore, as per the assessing officer, the same is not allowable deduction. Before the CIT(A), the assessee contended that Rs. 4,26,31,807/- had been offered for taxation in AY 1995-96 to AY 2002-03 on account of sales tax, octroi, bonus for excise du....