TaxTMI 
TaxTMI 
2023 (8) TMI 1630
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.... 2. That on the facts and in the circumstances of the case, the ld. CIT (Appeals) was not justified and erred in confirming the disallowance made by the AO on account of claim of Education Cess of Rs. 5,21,67,086/-. 3. That on the facts and in the circumstances of the case, the ld. CIT (Appeals) was not justified and erred in confirming the disallowance made by the AO on account of profit on sale of investments of Rs. 83,31,72,239/- and profit on sale of fixed assets of Rs. 44,93,014/- while computing book profit u/s 115JB of the Act. 4. That on the facts and in the circumstances of the case, the ld. CIT (Appeals) was not justified and erred in rejecting the claim of deduction u/s 80IA and 80IC while computing book profit u/s 115JB of the Act merely on the contention that such claim has not been made vide the return of income. 5. That on the facts and in the circumstances of the case, necessary direction may be given to the AO to allow the claim of depreciation on leasehold rights u/s 32(1)(ii) being business or commercial right acquired during the year under consideration. 6. That on the facts and in the circumstances of the case,....
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.... total income of Rs. Nil under the normal provisions of the Act and book profit amounting to Rs. 6,96,12,33,525/- under provisions of section 115JB of the Act. The case was taken up for scrutiny. In view of specified domestic transactions, a reference under section 92CA was made to the Transfer Pricing Officer (TPO). The TPO passed an order under section 92CA(3) dated 25.10.2017 of the Act proposing various upward adjustments aggregating to Rs. 4,85,58,87,970/-. The AO after incorporating the proposed adjustments made by the TPO passed draft assessment order under section 144C of the Act on 28.12.2017 determining total income under the normal provisions of the Act at Rs. 453,88,97,023/- and Rs. 842,23,40,345/- under provisions of Section 115JB of the Act. Since the assessee did not intend to exercise the option to file objections before the Dispute Resolution Panel, the AO passed final order under section 144C read with section 143(3) of the Act on 23.02.2018 by making various disallowances/additions to the returned income of the assessee as under :- - Reduction in claim u/s 80IA on power undertakings on account of transfer pricing adjustment of po....
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....ised return, the assessee cannot be permitted to substitute the original return filed under section 139(1). 3.1 In this regard, the ld. A/R during the course of hearing argued that ld. CIT (A) was not justified in dismissing the additional ground filed merely because of the reason that no claim has been made either in the original return or in the revised return. Though the assessee has claimed the deduction and asked the adjustment on Power supply rate on account of commitment towards the Uninterrupted Power Supply to cement unit. Thus the assessee is not raising new claim but revising its claim. He submitted that reliance on the decision of Apex Court in the case of PCIT vs. Wipro Ltd. (2022) 140 taxmann.com 223 (SC) was totally misplaced and out of the context due to the following - (a) Apex Court has nowhere held that new claim cannot be lodged before the appellate authorities. Apex Court was dealing with the provisions of revised return under section 139(5) and held that revised return can only substitute original return under section 139(1) and cannot transform it into loss return under section 139(3) for the purpose of availing the benefit of carry forward or set....
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....declaration was required to be filed within the due date prescribed under section 139(1) which was not complied with and that the original return was filed under section 139(1) and not under section 139(3). Hence, revised return cannot be filed to claim carry forward of losses for the first time. Supreme Court itself at para9 of the order has held that the assessee can file a revised return in a case where there is an omission or a wrong statement. (b) In the case at hand the issue involved is determination of Arms' Length Price (or transfer price) for determining the quantum of deduction under section 80IA already calimed in the original return of income. The judgment of Hon'ble Supreme Court in case ofWipro, is applicable to cases wherein "new claim" is filed by way of revised return for claiming "exemption" under section 10B of the IT Act. In the present case, there is no new claim being lodged but only modification in the existing claim already made in the return of income. (c) The Hon'ble Supreme Court, on plain reading of the section 10B, which is for claiming of exemption, held that " ..... we note that the wording of the section 10B(8) is very clear and un....
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.... VIA via additional ground of appeal. 5.2 We have also gone through the decisions in the case of National Thermal Power Ltd. vs. CIT (1998) 229 ITR 383 (SC) wherein the Hon'ble Supreme Court has held that the ITAT has jurisdiction to examine a question of law which even did not arose before the lower authorities but was raised first time before the ITAT. 5.3 In the case of CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom.) wherein the Hon'ble Bombay High Court has observed that the assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims before them. The appellate authorities have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The words 'could not have been raised' must be construed liberally and not strictly. There may be several factors justifying the raising of a new plea in an appeal and each case must be considered on its own facts. 5.4 In the case of CIT vs. Jai Parabolic Springs Ltd (2008) 306 I....
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.... issue in the case National Thermal Power Co. Ltd. Vs CIT 229 ITR 383. The Apex Court reiterated that "6. In the case of Jute Corporation of India Ltd. v. C.I.T. this Court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. T....
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....an assessment of the total income or loss of the assessee, and determine the sum payable by him on the basis of such assessment." 15. On perusal of the above provision, it is noted the Legislature specifically excluded the A.O.'s power to determine sum 'refundable' to the assessee on completion of assessment under sub-section (3) of Section 143 of the Act. The intention of the Legislature in introducing amended Section 143(3) was explained by the CBDT in Circular No. 549 dated 31.10.1989 wherein the Board stated that under the amended provisions, the ITA No. 679/Kol/2016 Smt. Sharmila Kumar, AY- 2011-12 Assessing Officer in an assessment order passed under section 143(3) cannot assess income at a figure lower than the returned income, nor can loss be assessed at a figure higher than the returned, and therefore no tax paid with reference to the returned income can now be refunded to the assessee on completion of regular assessment. 16. Year 1998 -- The above provision was later on substituted by the Finance (No.2) Act of 1998 and the power to determine 'sum refundable' to the assessee by the Assessing Officers in the proceedings u/s 14....
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....ing. In Goetze (India) Ltd. the Supreme Court held that the assessing Authority's power was limited but not that of the Tribunal in the context of dealing with a claim of the assessee therein not put forward before the Assessing Officer. In Gurjargravures Private Ltd. (supra) the Tribunal itself did not consider to allow the claim for relief. 20. Further, the CBDT Circular No. 14(XL-35 dated 11.04.1955) wherein it is held as under: "3. Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a tax payer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the ITA No. 679/Kol/2016 Smt. Sharmila Kumar, AY- 2011-12 department for it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessees on whom it....
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....The ld. A/R of the assessee has submitted that the captive power plants (CPP) set up by the assessee requires huge capital outflow and were set up with the primary objective of supplying long term uninterrupted power supply to the cement manufacturing units of the assessee. The ld. A/R further submitted that the cement industry being a continuous process industry requires uninterrupted power supply on 24 hour basis which is provided by the CPP of the assessee. The CPP being set up exclusively for the cement manufacturing unit carries a risk of having a single customer. Therefore, service provided for this continuous and uninterrupted supply of power and for carrying this business risk should be accompanied by a charge. The ld. A/R also in his detailed argument contended as below : "Further, the above reliability charge is also valid for the following reasons : (a) Continuous source of power supply - Cement industry is a continuous process industry and hence the quality of power supply has to be reliable to ensure uninterrupted supply. The sole objective of setting up of CPP was to fulfill the huge power requirements of the manufacturing unit of the appellant and p....
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....idering the cost difference in the weighted average rate of short term power and the weighted average rate of long term power purchased by the Discoms, finds the modified proposed reasonable and thus approves the same. Hence the reliability charge shall be Rs. 1.50 / unit subject to the terms and conditions as approved by the Commission in the present order. 8.1 On perusal of above order it is noted that reliability charge of Rs. 2.50 / unit as originally claimed by the Discoms was reduced to Rs. 1.5 /unit which was found to be reasonable by the commission and hence was allowed. Further, Uttarakhand Electricity Regulatory Commission (UERC) while passing order dated 06.05.2013 on approval of business plan & tariff petition for Uttarakhand Power Corporation Ltd. has held as follows : 6. Continuous and Non-continuous supply. (i) Only Continuous Process Industry consumers operating 24 hours a day for 7 days of a week without any weekly off connected on either independent feeders or industrial feeder can opt for continuous supply. For industrial feeder, all connected industries will have to opt for continuous supply and in case any one consumer on ind....
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.... Appellant is the best indicator of the market price of the power for sale of power from CPP units to other units. Thus the Appellant correctly adopted the current year market price of Rs. 7.76 to Rs. 8.64 per unit for transferring the electricity to other units. The TPO/AO, however, adopted @ Rs 2.53 per unit for the relevant year which was the rate for sale to third parties as against HZL rate of Rs. 7.76 to Rs. 8.64 per unit and thereby reduced the claim u/s 80IA of the Act. The Transfer Pricing Officer merely relied on extraneous factors (which are without any basis) to conclude that the cost at which the Appellant purchase/s electricity from SEBs cannot be taken as a comparable. The Transfer Pricing Officer failed to appreciate that in terms of the Electricity Act and RERC/ CSERC guidelines, Appellant is restrained from directly selling generated electricity to the consumers. The Appellant therefore, has no other option but to sell the excess (over and above self-consumption) electricity generated to JVVNL, AVVNL or JdVVNL at the predetermined rates and it cannot charge higher rate from JVVNL, AVVNL, or JdVVNL. The market rate of ....
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....gain of any business and hence not covered by the provisions of Sec 40(a)(ii) of the Act. The contention of the A.O. that the education cess falls within the mischief of Sec. 40(a)(ii) as it has been specifically provided in the said section that even rate or tax assessed as a proportion of or otherwise on the basis of any such profit and gains is not allowed, is not correct as education cess is neither levied on the profits or gains of any business or profession nor assessed at a proportion of, or otherwise on the basis of, any such profits or gains. In fact it is levied on the amount of tax. Hence, Education Cess is not covered by Sec. 40(a)(ii) of the Act. It is pertinent to refer to sub-section (4) of Sec. 10 of the Income Tax Act, 1922 which is pari materia with Sec. 40(a)(ii) of the Income Tax Act, 1961. The said section reads as under: "10(2)(ix)Any sums paid on account of land revenue, local rates or municipal taxes in respect of such part of the premises as is used for the purposes of the business, profession or vocation." "(xv) Any expenditure [not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, ....
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....- JCIT [In ITA No. 52/2018 dated 31-07-2018] wherein the court relying on the aforesaid CBDT Circular No. 91/58/66 - ITJ(19) dated 18-051967 has held that cess is not a tax for the purpose of Sec. 40(a)(ii) of the Act & hence is an allowable expenditure. Further, relying on the above decision, identical view has been upheld by Hon'ble Bombay High Court in Sesa Goa Ltd. -vs.- JCIT [In TA No. 17 of 2013 dated 28-02-2020]. Retrospective amendment brought vide Finance Act, 2022 is not justified: Vide Finance Act 2022, Explanation 3 to Sec 40(a)(ii) has been inserted with retrospective effect from 01-04-2005 that the term 'tax' as used in Sec. 40(a)(ii) shall include any surcharge or cess levied on such tax. The rationale for bringing such amendment has been clarified by Explanatory Notes to the provisions of Finance Act, 2022 vide Circular No. 23/2022 dated 03-11-2022. As per the aforesaid circular, following clarification has been provided: * ITAT Kolkata in Kanoria Chemicals* & Industries Ltd (ITA No. 2184/ Kol/2018 dated 26-10-2021) after considering the judgement of Bombay HC & Rajasthan HC in Sesa Goa (Supra) & Chambal F....
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....rd to education cess like in Sec. 115JB, where legislature had intention to disallow the claim of surcharge and cess separately. In absence of similar inclusion of the term cess under Sec. 40(a)(ii), same cannot be presumed to be covered within the definition of tax. The ld. A/R prays to kindly consider the amendment brought u/s 40(a)(ii) as prospective in nature and allow the claim of education cess as held by Hon'ble Rajasthan High Court in Chambal Fertilisers (Supra)." 10. On the other hand, the ld. D/R supported the orders of the revenue authorities. 11. We have heard the rival submissions, perused the material available on record and gone through the orders of the revenue authorities and the case law cited by both the parties. The assessee has claimed deduction on account of Education Cess and Secondary & Higher Education Cess of Rs. 5,21,67,086/- relating to Income Tax & Dividend Distribution Tax in accordance with the provisions of Section 40(a)(ii) of the IT Act and in view of the Circular No. 91/58/66-ITJ(19) dated 18.05.1967. The ld. A/R submitted that the issue involved is squarely covered against the assessee by the decision of Hon'ble Jurisdict....
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....of hearing, the ld. A/R of the assessee fairly conceded that the issue is covered against the assessee by the decision of Coordinate Bench of the Tribunal, Jaipur, in assessee's own case in ITA No. 504/JP/2012 dated 27.01.2014 for the assessment year 2008-09 wherein the Coordinate Bench vide para 39 has held as under :- "39. Ground No. 7 of the assessee relates to disallowance of profit on sale of fixed assets of Rs. 11,63,403/- & profit on sale of investment of Rs. 4,13,50,483/- in computing book profit u/s 115JB. This issue is covered against the assessee by the decision of Hon'ble Tribunal in its own case vide order dated 23rd Dec. 2009 in ITA No. 942/JP/08. Respectfully following the above decision of Tribunal, this ground of the assessee is dismissed." We, thus, considering the above decision of the Coordinate Bench in the assessee's own case, (supra) dismiss this ground of the assessee. Ground No. 4 relates to exclusion of deduction under section 80IA & 80IC in computing Book Profit under section 115JB of the Act. 15. Before us, the ld. A/R of the assessee has reiterated the submissions as made before the revenue authorities, ar....
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....ions of sub-s. (4) of s. 115JA and therefore, capital gain arising to an assessee under s. 50 on a depreciable asset is liable to be excluded from calculation of deemed profits under s. 115JA. Exemption/deduction allowed by one provision of the Act cannot be taken away by another provision of the Act. Sec. 115JA, the predecessor to s. 115JB, was introduced to the statute book and the Budget Speech of the Finance Minister while introducing the Bill, House and also to the subsequent Board circular, for levying a minimum alternate tax to those companies which were though paying handsome dividends to its shareholders and had good amount of book profit, was, nevertheless, filing a return of nil income for the purpose of income-tax. 16. When once the assessee-company had developed housing project, where the income is exempted under s. 80-IB(10), the assesseecompany had legitimate expectation to enjoy the benefit of exemption and even a legitimate expectation being in the nature of an assurance in law if it flows out of the statutory provisions, that cannot be denied to the assesseecompany. Reliance is placed on the following judicial pronouncements : (I) MRF Ltd. vs. As....
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.... of any asset. It is further held that what is specifically exempted under s. 54E could not be taxed under s. 115J. This decision supports our contention. 24. Supreme Court in the case of CIT vs. D.P.Sandhu Brothers (supra) held that the receipts which are not taxable cannot brought to tax under any other section. Deduction claimed by assessee in the instant case under s. 80-IB(10) is not taxable under the normal provisions of the Act cannot be treated as part of book profit under s. 115JB, hence, the learned AO has adopted one of the possible views. Thus, income arising from development of housing projects is not taxable; s. 80IB(10) and were excluded from its purview. Therefore, s. 80-IB(10) income will not be part of MAT income and MAT tax. Thus, the assessment order was rightly passed and cannot be termed as erroneous and prejudicial to interest of Revenue." Hon'ble Chennai Tribunal in ACIT -vs.- State Industrial Promotion Corporation of Tamil Nadu Limited [ITA No. 1290/Mds/2011 dated 07-03- 2013] [Pg. No. 99 to 103 of CLPB] has also held that deduction u/s 80-IA is required to be allowed even while computing Book profit u/s 115JB of the Act. ....
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....') of the assessee, which is taxable as per s. 45 of the Act at the rates provided under s. 112 of the Act. There is no provision in the Act to prevent the assessee from claiming indexed cost of acquisition on the sale of asset in case, where the assessee is subjected to s. 115JB of the Act. In any case, since, the indexed cost of acquisition is subjected to tax under a specific provision viz., s. 112 of the Act, therefore, the provisions of s. 115JB of the Act, which is a general provision cannot be made applicable to the case of the assessee. For yet another reason, the assessee has to be given the benefit of indexed cost of acquisition as considering the profits on sale of land without giving the benefit of indexed cost of acquisition results in taxing the income other than actual/real income. In other words, a mere book keeping entry cannot be treated as income." It is humbly submitted that Hon'ble Karnataka High Court in the above case of Best Trading (Supra) have categorically held that capital gain after considering the indexed cost of acquisition is subjected to tax under a specific provision i.e. Sec. 112 of the Act. As regards taxation of capital gains, the provi....
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....the provisions of MAT as well. Reliance in this regard can be placed on the following decisions: In case of Patel Engineering Ltd -vs.- DCIT (ITA No. 9090/Mum/2010 dated 22-05-2019), assessee's share of income of Joint Venture L.G.P. & Patel Joint Venture, was not taxable under normal provisions as the same was already taxed in the hands of the joint venture. Therefore, assessee contented the same not to be taxable under provisions of MAT as well. Hon'ble Mumbai Tribunal in this regard held the following: "This was also never the purpose of section 115JB to tax any income or receipts which is otherwise not taxable under the Act. If the intention of legislature was always that income which is not taxable under the normal provisions of the Act should not be brought to tax under MAT also, then it has to be interpreted that such a benefit has to be given to all and where the income is otherwise not taxable under the Act cannot be brought to be taxed under MAT that when the share of AOP was not taxable in the hands of assessee under the normal provision of the Income Tax Act then the same cannot be brought to be taxed under provisions of MAT as well". In ....
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....us, an item which is not otherwise taxable, cannot be subjected to tax under the MAT provision without any express authority in this behalf." Contention of Ld. CIT (A) to dismiss the additional ground relying upon decision of Hon'ble Supreme Court in Wipro Ltd. (supra) is erroneous and misconstrued: CIT(Appeals) was not justified in dismissing the additional ground filed merely because of the reason that no claim has been made either in the original return or in the revised return. Reliance on the decision of Apex Court in the case of PCIT -vs.- Wipro Ltd. (2022) 140 taxmann.com 223 (SC) was totally misplaced and out of the context due to the following - (a) Apex court has nowhere held that new claim cannot be lodged before the appellate authorities. Apex Court was dealing with the provisions of revised return u/s 139(5) and held that revised return can only substitute original return u/s 139(1) and cannot transform it into loss return u/s 139(3) for the purpose of availing the benefit of carry forward or set off of loss. (b) Issue before the Apex court was on non-compliance of Sec. 10B(8) r.w.s 139(1) of the Act which specifically requires to lo....
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.... CIT (A) on Sec. 115JB(5) is erroneous in law. It is further submitted that if the contentions of the Ld. CIT (A) are held to be correct then all the capital receipts which are not chargeable to tax at all shall also be subjected to tax u/s 115JB. However, in the assessee's own case in earlier years, Hon'ble Rajasthan High Court has held that capital receipts not liable to tax cannot be subjected to MAT and hence are required to be excluded while computing Book Profit u/s 115JB of the Act. Similar view has been taken by various courts as follows: * In ITO -vs.- Suraj Jewellery (India) Ltd. [2008] 21 SOT 79 (Mum.), Hon'ble Mumbai Tribunal held that capital receipts which do not constitute income under the Act cannot be brought to tax net by employing the mechanism of section 115JB. The Tribunal further held that section 115JB has not intended to bring all non-income items within the domain of the Act. * In Sutlej Cotton Mills Ltd. -vs.- Asstt. CIT [1993] 45 ITD 22 (Cal.) (SB) held that what is specifically exempted u/s 54E could not be taxed u/s. 115J. * Hon'ble Calcutta High Court in PCIT -vs.- Ankit metal & Power Ltd. [2019] 416 ITR 591 (Cal.) h....
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....n under Chapter VI-A, will be subjected to tax u/s 115JB. It is not the case of the assessee that it is exempted from the levy of tax u/s Sec. 115JB on the ground that it is eligible for tax holiday under Chapter VIA. Similarly, in all other judgements of Hon'ble High Court as relied by the Ld. CIT (A) i.e Jaintia Alloys (P) Ltd. - vs. - UOI (2010) 320 ITR 442 (Gau), Bishnu Kumar Shrestha -vs- CIT (2019) 414 ITR 405(Raj), Sidcul Industrial Association -vs.- State of Uttrakhand (2011) 199 Taxman 75 (Uttaranchal), pertained to Writ Petition filed challenging the Vires of the Section 115JB. The Hon'ble Courts in those case, did not examined the section 115JB(5), which otherwise also cannot be done in case of Writ Petition challenging the vires of the section itself. Hence it is humbly submitted that the aforesaid decisions cannot be applied to the present appeal as the vires of section 115JB has not been challenged. - In the said decisions, contention of the assessee before the courts was that provisions of Sec. 115JB should not apply at all where the assessees were entitled to avail special deductions. Sec. 115JB, which seeks to impose tax at the rate of 7.5% on boo....
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.... is a part of the Act now and the exemption allowed by one provision of the Act cannot be taken away by another provision of the Act. - It is a settled principle that a decision which is per incuriam is not a binding judicial precedent. It is also well settled that when it is not open to a High Court Bench to differ from the decision of a bench of equal strength, it cannot also be open to a bench of this Tribunal to differ from the view taken by a co-ordinate bench of equal strength. The only option in case one doubts the correctness of such a decision is to refer the matter for constitution of a larger Bench. A decision ignoring this rule of precedent, which is duly approved by the Hon'ble Courts from time to time, cannot but be viewed as per incuriam. Such a decision of the coordinate bench was of no precedence value. Above view is supported by the following decisions : o Mehratex India Ltd. -vs. - DCIT (2005) 3 SOT 539 (Mum) o J K T Fabrics -vs.- DCIT (2005) 4 SOT 84 (Mum) o ITO -vs.- Modern International (ITA No. 1253/Kol/2011) dated 17-02-2012. While rendering the above decisions, Hon'ble Tribunals followed the decision of Hon'....
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....lied in the present case of the assessee : It is humbly submitted that it is a settled principle of interpretation that the Court should neither add nor delete words from a statute. Where the words of a statute are absolutely clear and unambiguous, recourse cannot be taken to the principles of interpretation, other than the literal rule. In Prakash Nath Khanna -vs.- C.I.T (2004) 266 ITR 1 (SC), it was held by the Hon'ble Apex Court that the language employed in a statute is the determinative factor of the legislative intent. The legislature is presumed to have made no mistake. The presumption is that it intended to say what is has said. Assuming there is a defect or an omission in the words used by the legislature, the Court cannot correct or make up the deficiency, especially when a literal reading thereof produces an intelligible result. Relevant extract is stated below: "14. It is a well settled principle in law that the Court cannot read anything into a statutory provision which is plain and unambigous. A statute is an edict of the Legislature. The language employed in a statute is the determinative factor of legislative intent. The first and primary rule of c....
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....) has held that Sec. 115JB is a charging section and a self-contained code. In this regard it is humbly submitted that in the case of Commissioner of Customs -vs.- Dilip Kumar & Co. & Others (2018) 9 SCC 1, Hon'ble Supreme Court in 5 Member Bench Constitution after relying on Collector of Customs and Central Excise, Guntur and Ors. -vs.- Surendra Cotton Oil Mills and Fertilizers Co. and Ors., 2001 (1) SCC 578 held that in the matter of interpretation of charging section of a taxation statute, strict rule of interpretation is mandatory and if there are two views possible in the matter of interpretation of a charging section, the one favourable to the assessee need to be applied. In the present case as well, while interpreting Sec. 115JB(5), what is mentioned in the Statute should be considered. In case of conflicting views appearing, view favourable to the assessee should be considered. Non-obstantive clause referred in Sec 115JB(1) is only relevant for sub section (1) and does not extend to entire Section of 115JB It is humbly submitted that Sub-section (1) of Sec. 115JB has non-obstantive clause. The said sub section (1) provides that in case of a company, if the....
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....he provisions of subsection (5) and also by Hon'ble Madras & Karnataka HC in the case of Metal & Chromium (supra) & Best Trading (supra). Prayer The appellant humbly prays to allow deduction u/s 80-IA & 80-IC while computing Book Profit u/s 115JB of the Act." 16. On the other hand, the ld. D/R relied on the finding of the lower authorities and submitted that the provisions of section 115JB are very clear and sub section (6) along with the proviso thereto makes it clear that the MAT provisions are applicable to the assessee company from A.Y 2012-13 onwards and there is no basis for the assessee to claim exemption as per the provisions of sub-section (5) of section 115JB of the Act. He accordingly supported the findings of the revenue authorities. 17. We have heard the rival submissions, perused the material available on record and gone through the orders of the revenue authorities. We have also gone through the judgments relied upon by the ld. A/R. However, we are unable to concur with the arguments of the ld. A/R. The issue of allowability of deduction under section 80IA while computing MAT provisions under section 115JB of the Act has already been decided a....
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....apply to the assessee company for the assessment year beginning assessment year 2012-13 onwards. Therefore, while passing the assessment order u/s 143(3), where the Assessing officer has forgot to invoke the provisions of section 115JB of the Act, the matter clearly falls within purview of section 154 of the Act and the same can be rectified as mistake apparent from record. 15. Now, coming to another contention of the ld AR that in view of sub-section (5) to section 115JB of the Act, the entire income of the assessee cannot be brought to tax under Section 115JB given that the income of the assessee company is exempt as per the provisions of section 10AA of the Act. In this regard, we refer to sub-section (5) to section 115JB of the Act which reads as under: "(5) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section." 16. The above provisions thus provide that all other provisions of this Act shall apply to the assessee company subject to any thing otherwise provided in or barred by section 115JB of the Act. The said provisions have been explained in CBDT Circu....
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....r provisions contained in the Income Tax Act except specifically barred by that section itself. It was accordingly held that section 115JB admits grant of relief under section 54EC of the Act. In the instant case, the assessee company is eligible for relief under Section 10AA of the Act however the subsection (6) specifically provides that MAT provisions continue to apply to the assessee company beginning assessment year 2012-13 onwards. In other words, the application of other provisions of the Act as so provided in sub-section (5) has been barred by virtue of subsection (6) to section 115JB of the Act. Therefore, this decision of the Hon'ble Madras High Court doesn't support the case of the assessee company rather our reading of the provisions of sub-section (5) to section 115JB has been fortified by this decision. 19. In case of Neha Home Builders (P) Ltd vs CIT (Supra), the issue for consideration before the Co-ordinate Bench was whether the ld CIT has jurisdiction to issue directions u/s 263 of the Act to the Assessing officer not to allow deduction u/s 80IB(10) while computing book profits u/s 115JB of the Act. In that context, referring to provisions of sub-section ....
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.... submitted that the claim of depreciation on leasehold right though not lodged in the Return of Income, the aforesaid ground raised being purely legal in nature may kindly be admitted since no new facts are brought on record. Details of acquisition of leasehold rights are already available in the audited accounts filed with the return of income. Reliance was placed on the decisions of Apex Court in the case of National Thermal Power Corporation Ltd. vs. CIT (1998) 229 ITR 383 (SC) and Jute Corporation of India Ltd. vs. CIT (1991) 187 ITR 688 (SC). 19. On the other hand, the ld. D/R supported the orders of the revenue authorities. 20. We have heard the contention of the AR of the assessee. We note that this issue was not raised before the Assessing Officer during the course of assessment proceedings or before the Ld. CIT(A). It is noted that the leasehold rights has been capitalized in the books under the head 'leasehold land'. The aforesaid audited accounts was also submitted before the Assessing officer during the course of assessment proceeding, hence the claim of depreciation on expenditure incurred in respect to acquisition of leasehold rights on land is purely a legal is....
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....tion by the assessee in respect to leasehold rights on land acquired by it from the State governments for carrying out manufacturing activities. The Ld. A/R of the assessee submitted that such expenditure on lease-hold rights being in nature of intangible asset i.e. business or commercial right of similar nature, depreciation under section 32(1)(ii) should be allowed to the assessee. 21.1 In support of the said contention, the Ld. A/R. relied on the decisions of Hon'ble Delhi Tribunal in the case of Hero Moto Corp Ltd. vs. National e-Assessment Centre (ITA No. 706/Del/2021 dated 26-11-2021), and Vasant Chemicals Pvt Ltd. vs. ITO (ITA No. 2182 of 2017/Hyd dated 17-08-2021(Hyd). 21.2 We have gone through the principles rendered in judicial decisions relied upon by the ld. A/R of the assessee. The said issue has been dealt by Coordinate Bench of Delhi Tribunal in the case of Hero Moto Corp Ltd (supra). In the said decision the Tribunal has observed that premium paid for acquisition of leasehold rights on land to be used for the purpose of business is an asset which is different from land and would be considered as an intangible asset in the nature of business or co....
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....d AY 2011-12 wherein the Tribunal held that lease premium charges were not allowable revenue deduction. However, the Tribunal allowed the alternate plea raised by the assessee company and held the premium paid for acquisition of lease hold rights to be an intangible asset, independent from the land itself, eligible for depreciation under section 32(1)(ii) of the Act. Accordingly, we hold that the assessee is eligible for depreciation at 25% on lease hold rights acquired in Haridwar and Neemrana. As regards the land at Haridwar, the AO is directed to allow the claim of depreciation as per opening WDV carry forward from the earlier years. In so far as the depreciation of land at Neemrana is concerned the same shall be allowed after verification of the relevant payments claimed to have been made by the assessee. In view of the above, the aforesaid issue is squarely covered in favour of the appellant by orders passed by the Hon'ble Tribunal for assessment years 2009-10 to 2011-12, 2013-14 and 2015-16. 81. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that the assessee has though not claim the amorti....
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.... of the land. The lessee is liable to return the land to its original owner after the expiry of the lease and does not have ownership rights over the land. On such facts, courts have held that such rights acquired by the assessee which is used for the purpose of its business is an intangible asset in the nature of business or commercial right. Such intangible assets being "business or commercial right" is entitled to depreciation u/s 32(1)(ii) of the Act. Hence, AO is directed to grant depreciation @25% on such leasehold rights acquired of Rs. 14,93,25,916/- in accordance with section 32(1)(ii) of the Act. The additional ground no. 1 raised by the assessee is allowed. Ground No. 6 (additional ground no. 2) of the assessee's appeal raised by the ld. A/R of the assessee is in relation to allowability of interest paid on late deposit of TDS amounting to Rs. 7,99,142/- as business expenditure under section 37(1) of the I.T Act. 22. The brief facts of the case are that the assessee during the assessment year under appeal had paid interest of Rs. 7,99,142/- on late deposit of TDS, which has been added back in the computation of income while computing total incom....
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....the Hon'ble High Court has not discussed anything on merit considering the fact6 that the case Bharat Commerce Industries Ltd. vs. CIT (1985) 20 Taxman 302/153 ITR 275 was pending before Hon'ble Supreme Court and it observe that even in the case of Bharat Commerce Industries Ltd. the issue involved is relating to interest paid on late payment of advance-tax. Therefore, the issue involved in the present case is not relating to late remittance of advance-tax but late remittance of TDS. Therefore, the issue involved is whether the interest paid by the assessee to the government can be termed as compensatory or penal in nature. In our considered view the assessee has deducted the tax on behalf of the third party and failed to remit the same within the due date and the interest charged on such amount is only compensatory in nature. 6. Being consistent with the above decision of the co-ordinate bench, we hold that the interest paid on delayed payment of TDS u/s 201(1A) is an allowable deduction." 24.1 Further on going through the recent decision of Kolkata Tribunal in the case of Welkin Telecom Infra (P) Ltd. (supra) aforesaid principles have been fully accepted as below :- ....
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....ovisions of the Act. 24.3 We, therefore, taking into consideration the facts and circumstances of the case as discussed herein above, and also following judgment of the Hon'ble High Court and the consistent view taken by the Coordinate Benches of the Tribunal, allow the claim of the assessee but as the same is not so far agitated or verified by the lower authorities to the fact that the same was claimed or not. Therefore, AO is directed to verify the claim of the assessee. The ground of the assessee is allowed. 25. In the result, appeal of the assessee is partly allowed. ITA NO. 142/JP/2023 (REVENUE) : 26. We now take up the appeal of the Revenue for adjudication as under : Ground No. 1 relates to allowing the appeal of the assessee by deleting the disallowance of Rs. 2,89,07,63,321/- on account of deduction u/s 80IA in respect of captive power plant. 27. The facts in brief are that the assessee is engaged in the business of manufacture and sale of cement and generation and sale of power. The power undertakings of the respondent are eligible for deduction under section 80-IA of the IT Act. The assessee in the return of income had claimed deduction ....
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....he same is reproduced below: - "(b) the value at which State Grid has sold power to the Cement Unit of the Assessee (average annual landed cost) also constitute 'market value' in terms of explanation to Section 80IA(8) but the value at which State Grid or third party has purchased power from the Power Unit of the Assessee, which represents its power which is sold when not required by the Cement Unit, does not constitute 'market 3 | P a g e value' in terms of explanation to Section 80IA(8). It is the 'principle' and not the 'quantum' which is deciding factor; (c) where a basket of 'market values' are available for the relevant period and relevant geographical area where the eligible unit is situated, the assessee has discretion to adopt any one of them as market value; and (d) If the value adopted by the assessee is 'market value' as explained above, it is not permissible for Revenue to recompute the profits & gains of the eligible unit by substituting the said value (as adopted by the Assessee) by any other 'market value'." [Emphasis Added] The above principle has also been followed by the Hon'ble Tribunal in A.Y. 2010-11 (ITA No. 445/JP/2014 dated 2....
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....A of the Act. Post introduction of Sec. 92BA of the Act, the definition of 'market value' under the provisions of Sec. 80-IA (8) has been amended to provide the respondent with an option to compute the market value of goods or services based on the price that such goods or services would fetch in the open market or the arm's length price as defined in clause (ii) of Sec. 92F. The relevant extract of the provisions are reproduced below: "Explanation. -For the purposes of this sub-section, "market value", in relation to any goods or services, means- i. the price that such goods or services would ordinarily fetch in the open market; or ii. the arm's length price as defined in clause (ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA." [Emphasis Added] Since the statute has itself provided the assessee with an option to compute market value under either of the two clauses, market value computed based on clause (i) i.e., the price that such goods or services would ordinarily fetch in the open market still holds good. Hence, there has been no change in defi....
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....c element of price being ordinarily determined by the market forces, clearly continues even in the amended definition of market value. Accordingly, all the judicial pronouncements rendered in context of the market value of 'power' prior to introduction of specified domestic transactions would still hold good. 8.14 Therefore, price which is considered to be at 'market value' prior to the amendment cannot be said to be NOT 'market value' post introduction of Sec. 92BA of the Act. The definition of 'market value' as per Sec. 80-IA(8) means the market value of goods or services based on the price that such goods or services would fetch in the open market; or the arm's length price as defined in clause (ii) of Sec. 92F. Therefore, it is observed that the intent of the law remains same even after introduction of Sec. 92BA. This view has been duly upheld in DCIT vs. M/s Balarampur Chini Mills Limited [ITA No. 1672/Kol/2019] for AY 2016-17 and also in Star Paper Mills Limited vs. DCIT [ITA No. 127/Kol/2021 (AY 2016-17) dated 26-10-2021] wherein it is held as under: "24. The contention of the Ld. CIT, DR that the above referred decisions are not applicable since ....
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....cal location between AE and non-AE transaction. d) M/s Shahi Exports Pvt. Ltd vs. ACIT (supra): ITAT, Delhi held that that for the purpose of claiming deduction under section 80IA of the Act the rate should have been the rate charged by the electricity board to its consumers..... As these judgements dealt with the identical issue of 'market value' u/s 80IA(8) and facts are also similar as the case of the appellant, therefore, appellant's reliance on these judgement is found correct and applicable to the present case. 8.16 Thus, the finding of the TPO that the appellant has not complied with the provisions of Sec. 80A(6) is found to be not correct. Sec. 80A(6) states that the 'market value' of goods or services means the arm's length price as defined in Sec. 92F(ii) of the Act, if it is a specified domestic transaction. Meaning of arm's length price is identical to the meaning of open market value and it produces the same result. Hence, method adopted by the appellant for computation of transfer price of power is in accordance with the provisions of Sec. 80A(6) and 80-IA(8) r.w. Sec. 92F of the Act. " Chapter X of Income Tax Act contains provision....
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....bject to statutory or regulatory restrictions, if any; (iii) in relation to any goods or services sold, supplied or acquired means the arm's length price as defined in clause (ii) of section 92F of such goods or services, if it is a specified domestic transaction referred to in section 92BA. It is humbly submitted that unlike Sec. 80-IA(8), Sec. 80A(6) specifically requires that when goods or services transferred from the eligible unit to other units of the assessee whether sold or acquired falls within the category of specified domestic transactions of Sec. 92BA then in such case it is mandatory to adopt market value as per clause (iii) of Sec. 92F of the Act. Since, Ld CIT (A) after relying on various judicial pronouncements has already held vide its order dated 20-01-2023 that the transfer price of power as adopted in the instant case of the assessee is as per provisions of Sec. 92F of the Act, the transaction has to be at arm's length price in terms of Sec. 80A (6) of the Act as well. Sale rate of power undertaking to 3rd parties is not market driven and hence not a market value for the purpose of transfer pricing : TPO has adopted the averag....
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....lly held that the sale of balance power i.e. power unutilised by the CMU, to the third parties is a distress sale and such sale rate does not represent actual market value as below: - "8.18 The appellant in its submissions has also explained as to why the rates adopted by the TPO should not be considered ....... (2) Rate of Sale of power by the captive power plant - The price at which power units of the appellant supplies power to third parties is a distress sale and CPPs are forced to sell power at the rates offered by the local buyers, thereby resulting in a lower sale price. In order to achieve economies of scale the appellant has to operate at optimum level which results in surplus power. Further, the rate at which power is sold to third parties by CPPs cannot be considered for the purpose of determination of ALP in view of the order of the Jurisdictional High Court for AY 2007-08 to 2010-11 wherein it has been held that 'the value at which State Grid or third party has purchased power from the Power Unit of the Assessee, which represents its power which is sold when not required by the Cement Unit, does not constitute 'market value' in terms of expla....
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....trictions it is not appropriate to compare the rates at which the generating companies sell power to other licensees as these licensees are not the ultimate consumers as in the case of assessee where the CPPs transfer power directly to the ultimate industrial consumer i.e. the manufacturing units. Considering the aforesaid submissions, Ld. CIT (A) has held that the sale rate of Generating Companies to Distribution Companies does not represent actual market value. The relevant extract of the same is reproduced below for your kind reference:- (Pg No. 31 to 32 of the Order) "8.18 The appellant in its submissions has also explained as to why the rates adopted by the TPO should not be considered. ............................ (3) Rate of sale of power by the generating companies - The rate at which Adani Power Rajasthan Ltd. ('APRL') and Raj West Power Limited ('RWPL') supplies power to distribution companies is a regulated price which is determined by the State Electricity Regulatory Commission. It is therefore not a market driven rate determined by forces of demand and supply and also does not denote rate available in the open market. Power sold....
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....erving at para 2.12 to 2.15 as under :- "2.12. We have carefully gone through the orders of the Tribunal in assessee's own case for the above assessment years wherein issue with regard to deduction u/s 80IA has been dealt with by the Tribunal in its order dated 27-01-2014 for the A.Y. 2007-08 to 2009-10 at page 15 in para 13 and at page 39 in para 46 of the order. Similarly for the A.Y. 2010-11, the Tribunal has dealt with the issue in its order dated 27-04-2016 at pages 7 & 8 of its order. 2.13. The precise order of the Tribunal dated 27-10-2014 at page 15 reads as under:- "13. In the light of the aforesaid, we hold that- (a) the value adopted by the Assesse be it value as per independent third party trading transactions or as per Power Exchange (IEX etc.) or any other independent transaction (for the relevant period and which has taken place in the relevant area where the eligible unit is located) constitute market value' in terms of explanation to Section 80IA(8); (b) the value at which State Grid has sold power to the Cement Unit of the Assessee (average annual landed cost) also constitute market value' in terms of explan....
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....recorded in Para 13 above, we hold that the disallowance in this year also needs to be deleted. Assessee's Grounds are therefore allowed and corresponding disallowance u/s 80IA is deleted." 2.15. We had also gone through the order of Hon'ble Rajasthan High Court dated 22-08-2017 wherein the order of the Tribunal was confirmed by Hon'ble Rajasthan High Court for all the three years i.e. A.Y. 2007-08 to A.Y. 2009-10. We also observe that provisions of Section 80IA(8) read with Section 80A(6) require that the value of captive consumption of goods supplied by eligible undertaking to any other undertaking has to correspond with market value and that once the value adopted by the assessee is termed as market value there is no provision under the law for substituting market value adopted by the assessee with any other value. The AO is not permissible to substitute the said rate with another sale rate in spite of acknowledging that the method adopted by the assessee also constitutes market value. Now coming to the method adopted by the Ld.CIT (A) vide his order dated 15-11-2019, we observe that the Ld.CIT (A) has adopted average annual landed cost of electricity purcha....
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....ate Bench of Tribunal (supra), we delete the disallowance, as made by the AO u/s 143(3) and partly upheld by ld. CIT (A) on account of deduction claimed u/s 80IA of the Act." 30.3. However, at this point it would be pertinent to refer to the contention raised by the TPO that the Grid Rate as adopted by the assessee cannot be held to be the market value of power post introduction of Section 92BA of the Act. As per TPO in view of amended definition of Section 80IA(8), market value of power is required to be computed as per the provisions of Section 92F of the Act and hence the decisions of Jaipur Bench of the Tribunal & Hon'ble Rajasthan High Court are not applicable in the year under consideration. 30.4 Before proceeding, it would be pertinent to refer to the provisions of Section 80-IA(8), Section 80A(6) and Section 92F of the Act which are reproduced herein below: Sec 80IA(8) "(8) Where any goods or 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 busine....
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....r unit or enterprise or 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. Explanation. - For the purposes of this sub-section, the expression "market value", - (i) in relation to any goods or services sold or supplied means the price that such goods or services would fetch if these were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any; (ii) in relation to any goods or services acquired, means the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the open market, subject to statutory or regulatory restrictions, if any; (iii) in relation to any goods or services sold, supplied or acquired means the arm's length price as defined in clause (ii) of section 92F of such goods or services, if it is a specified domestic transaction referred to in section 92BA. 30.5. The ld. A/R of the assessee during the course of the hearing pleaded that Section 80IA(8) & Section 80A(6) prio....
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....ther, Para 1.2 of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (July 2017) (OECD Guidelines) also provides that the commercial) relation in a transaction between two independent enterprises are ordinarily determined by market forces. Hence, the basic element of price being ordinarily determined by the market forces, clearly continues even in the amended definition of market value. Accordingly, all the judicial pronouncements rendered in context of the market value of power prior to introduction of specified domestic transactions would still hold good. 8.14 Therefore, price which is considered to be at market value prior to the amendment cannot be said to be NOT 'market value' post introduction of Sec. 92BA of the Act. The definition of market value as per Sec. 80-1A(8) means the market value of goods or services based on the price that such goods or services would fetch in the open market; or the arm's length price as defined in clause (ii) of Sec. 92F. Therefore, it is observed that the intent of the law remains same even after introduction of Sec. 92BA. This view has been duly upheld in DCIT vs. M/s Balarampur Chini M....
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....ata ITAT held that the key factor in the application of CUP method is 'product comparability'. Since manufacturing units procured power throughout the year from CPP as well as unrelated external party i.e. Grid in the same geographical location, it fulfills the internal CUP parameters based on similarity of geographical location between AE and non-AE transaction. d) M/s. Shahi Exports Pvt. Ltd vs. ACIT (supra): ITAT, Delhi held that that for the purpose of claiming deduction under section 80IA of the Act the rate should have been the rate charged by the electricity board to its consumers ...... As these Judgements dealt with the identical issue of 'market value' u/s 80IA(8) and facts are also similar as the case of the appellant, therefore, appellant's reliance on these judgement is found correct and applicable to the present case. 8.16 Thus, the finding of the TPO that the appellant has not complied with the provisions of Sec. 80A(6) is found to be not correct. Sec. 80A(6) states that the 'market value' of goods or services means the arm's length price as defined in Sec 92F(ii) of the Act, if it is a specified domestic transaction. Meaning of arm....
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.... the open market valuation standards by the High Courts in the above decided cases (supra) are consistent with the considerations and guidelines under the arm's length standards set out in Chapter X of the Act and therefore the ratio laid down in the above decisions (supra) indeed applies in the present case as well. 27. For the reasons set out above and following the above cited decisions (supra), we thus hold that the benchmarking analysis undertaken by the assessee to ascertain the arm's length transfer price of power by eligible unit to non-eligible unit at Rs. 8.41/unit was justified" Mumbai Tribunal in case of Reliance Industries Ltd vs. ACIT [IT.A. No. 7299/Mum/2017 (AY 2013-14)) dated 10-11-2020 has held the following: "177. Thus we find that the view of the authorities below that the definition of the market value shall change for the purpose of domestic transfer pricing regimen is not at all sustainable. Accordingly, in the background of the aforesaid discussion and precedent, we set aside the orders of the authorities below and decide issue in favour of the assessee." 30.9. In light of above, we can conclude that ld. CIT (A....
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....te determined by forces of demand and supply and also does not denote rate available in the open market Power sold by generating company to a distribution company is a totally different business model as compared to the sale of power by the CPP, thus, it does not satisfy the comparability factors laid down in Rule 10B(2) and 10B(3) of the Income Tax Rules, 1962." 30.12. The ld. A/R of the assessee also submitted that the rates at which power is purchased by distribution companies from generation companies are the rates charged by generation companies to middlemen (i.e. B2B business models) which are governed by altogether different level of market and are therefore not comparable to the rates which are charged to ultimate consumer (B2C Business Models), Further, each of the entities involved in the power market (engaged in generation of power, transmission, distribution as well as trading of power) are regulated by separate regulatory provisions thus it is not appropriate to compare the rates at which the generating companies sell power to other licensees as these licensees are not the ultimate consumers as in the case of assessee where the CPPs transfer power directly to the ul....
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.... 31. The brief facts of the case are that the assessee is engaged in manufacturing of Pozzolana Portland Cement (PPC) and Ordinary Portland Cement (OPC). Apart from using gypsum and clinker as raw materials in the cement production, respondent also uses treated pond ash/fly ash ('treated solid waste') as a substitute of clinker in the production of cement. The said treated solid waste is provided by the solid waste management system being the infrastructure facility set up by the respondent. This treated solid waste is used by cement manufacturing units as substitute of clinker in the production of cement. The assessee claimed deduction u/s 80-IA on its Solid Waste Management System (SWMS) of Rs. 1,46,48,22,897. In terms of Sec. 80-IA(8) r.w.s. 92F of the Act, the transfer price of treated solid waste has been determined by taking average landed cost of clinker saved by the Cement Manufacturing Unit (CMU) of the assessee. The aforesaid computation has been certified by a Chartered Accountant vide his Report in Form 10CCB filed along with the return of income. The TPO vide his order u/s 92CA(3) dated 25-10-2017 (Pg. No. 24-32 of the Order) rejected the benchmarking of t....
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.... AY 2015-16 to AY 2017-18. (Page no. 104-160 for AY 2015-16, 161-204 for AY 2016-17 & 205-239 for AY 2017-18 of CLPB). Ld. CIT (A) vide para 9.5, 9.10 to 9.12 of his Order dated 20-01-2023 [Refer Pg 46 to 48 of the Order] took note of the aforesaid facts and upheld the aforesaid methodology of transfer pricing as follows: "9.5 The AR filed orders of TPO passed for subsequent AYs i.e. AY 2015- 16, AY 2016-17 and AY 2017-18. It was pointed out by the AR that in all these years, the TPO has accepted the approach adopted by the appellant, though with certain modifications. It is only the current assessment year i.e. AY 2014-15, that the TPO has rejected the method adopted by appellant. It was therefore contended that since in earlier years as well as in later years, TPO has not disputed the method, there was no reason for disputing the same in this year. ................. 9.10 It is very relevant to note fact that TPO has accepted the computation method adopted by appellant in earlier year as well as in later years. When year after year, department has not disputed the computation method adopted by appellant, rejecting the same in one particular year....
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.... decision of Supreme Court in Radhasoami Satsang. vs. CIT [1992] 193 ITR 321 (SC) that the principle of consistency is applicable in tax matters." Treated Solid waste used by the respondent is a 100% substitute of clinker and thus realisable market value of clinker may be used to determine the transfer price of treated solid waste. Solid Waste Management Facility of the respondent undertakes a series of processes to treat the solid waste acquired from nearby thermal plants to convert it into a suitable product and makes it fit for consumption by the Cement Manufacturing Unit in the manufacture of cement. Such processes carried out by the SWMS are unique and as per the information available in public domain, are not carried out by any other 3rd party in the market. Therefore, no transfer price is readily available in respect of such treated solid waste in the market. Further, the solid waste so treated is a 100% substitute of clinker which can be used in the manufacture of cement. In view of same, SWMS has adopted the transfer price based on cost saved by the CMU by replacing it with clinker. TPO modified the method adopted based on wrong and erroneous ass....
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....e usable." Cost Savings Approach is a recognized Method in Transfer Pricing & TPO has erred in stating that for determining the transfer price, functionally comparable products cannot be considered The concept of adoption of savings approach to determine revenue has been recognized in various international TP literatures and has also been given recognition by the Indian Government. The respondent relies upon Para 1.139 to 1.143 and 9.126 to 9.131 of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (July 2017) ('OECD Guidelines') [Page no. 248-252 of CLPB] and Para B.1.10.14, B.1.10.15 and D.3.7.1 of United Nations Practical Manual on Transfer Pricing for Developing Countries, 2017 ('UN Manual') [Page no. of 240-244 of CLPB] wherein concept of location savings and its allocation among the MNE group has been recognised. Further, reliance is placed on Para 1.109 of the OECD Guidelines [Pg No. 247 of CLPB] wherein it has been stated that uncontrolled transactions involving different product but having similar functionality may be considered as a comparable. Hence, assessee adopting transfer price of treated solid....
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....However, the organization has been supporting efforts of tax administration in India to properly and effectively administer and implement Transfer Pricing Policy. A useful reference can always be made to OECD Guidelines, for the purposes of resolving dispute of transfer pricing in India, subject, however, to statutory regulations. The aforesaid contention of the assessee has been upheld by the Ld. CIT (A) vide para 9.6 to 9.8 of Order [Refer Pg 46 & 47 of the Order] as follows: "9.6 The appellant has computed the income of the Solid Waste Management System by following the cost saving approach wherein revenue has been recognised based on savings on account of using treated pond ash as a substitute of clinker for manufacture of cement. The concept of adoption of savings approach to determine revenue has been recognized in various international TP literatures. Further, India recognizes the concept of location savings which is evident from Chapter D.3 i.e. 'Transfer Pricing Practices and Challenges in India' of the UN Manual. Hence, savings approach adopted by the appellant cannot be out-rightly rejected. For the purpose of applying savings approach, comparison needs....
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....33. On the other hand, the ld. D/R supported the order of the Assessing Officer and submitted that the order of the ld. CIT (A) be quashed to the extent of deletion of addition. 34. We have heard the rival submissions, perused the material on record and gone through the orders of the revenue authorities and the case laws cited before us. On perusal of the record, we noticed that similar claim of the assessee has been allowed by the AO for the preceding assessment year 2013-14 vide order dated 16.12.2014 passed under section 143(3) of the IT Act, 1961, and for the subsequent assessment years viz. 2015-16 to 2017-18, the TPO has accepted the method adopted by the assessee for computing transfer price. Thus we do not find any scope left for any dispute after TPO has himself accepted the computation method adopted by assessee in earlier year as well as in later years. When year after year, department has not disputed the computation method adopted by assessee, rejecting the same in one particular year, without any change in the facts and law, is not justified. This settled principle follows from the decision of Hon'ble Apex Court in the case of Radhasoami Satsang vs. CIT (1992) 193 ....
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....he concept of adoption of savings approach to determine revenue has been recognized in various international TP literatures. Further, India recognizes the concept of location savings which is evident from Chapter D.3 i.e. 'Transfer Pricing Practices and Challenges in India' of the UN Manual. Hence, savings approach adopted by the appellant cannot be out-rightly rejected. For the purpose of applying savings approach, comparison needs to be made with a product which can be used as a substitute of another product (clinker and treated pond ash in instant case). 9.7 From perusal of the assessment order, it can be seen that the TPO has nowhere doubted the functional comparability w.r.t. clinker and in-fact himself applied the margin earned on sale of clinker for determination of transfer price of SWMS. TPO's rejection of CUP method on the contention that strict comparability is required for applying the said method also is not correct. OECD Guidelines at Para 1.109 clearly states that uncontrolled transactions involving different product but having similar functionality may be considered as a comparable. Guidelines also states that it may be acceptable to broaden the sc....
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....fact that TPO has accepted the computation method adopted by appellant in earlier year as well as in later years. When year after year, department has not disputed the computation method adopted by appellant, rejecting the same in one particular year, without any change in the facts and law, is not justified. As, pond ash in its raw form cannot be used in the manufacture of cement and that it requires a series of processes to make it usable, it is not reasonable to treat transfer of treated waste in the form of pond ash and fly ash from SWMS to Cement Manufacturing Unit of the appellant at NIL value. 9.11 Coming to the next question of what should be the benchmarking of the treated solid waste transferred by SWMS. Since, treated solid waste is not readily available in the market, the appellant applying the functionality test has compared the product with the product being replaced i.e. clinker and adopted the rate based on the savings approach. TPO himself has agreed that the product of the appellant is comparable to that of clinker based on functionality test and accordingly has applied the margin of clinker. Since, in manufacture of cement, the solid waste is replacing c....
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....preme Court and Hon'ble High Courts and also considering the detailed order of the ld. CIT (A), we are of the view that the ld. CIT (A) has passed a reasoned order and no interference is required. Accordingly the order of the ld. CIT (A) is upheld. This ground of the Revenue is dismissed. Ground No. 3 relates to allowing the appeal of the assessee by deleting the disallowance of Rs. 14,68,08,695/- on account of deduction u/s 80IA on account of Water Treatment System. 35. The brief facts of the case are that the assessee has developed and is operating and maintaining a separate Water Treatment System ('WTS') at Beawar and Ras for processing of raw water into purified drinking water and providing the same for captive consumption by other units of the assessee. The said water treatment system is 'Infrastructure Facility' as defined in Explanation to section 80IA(4)(i) and is eligible for tax holiday u/s 80-IA of the Act. For determining the profitability of the said Infrastructure Facility, the assessee has computed transfer price of water by applying the provisions of Sec. 80-IA(8) r.w.s 92F of the Act i.e. at Arm's Length price of such water. Realisable market value ....
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....ment's stand in earlier years is the most appropriate method to determine arm's length price to compute transfer price of treated water. Although the quotations received by the assessee is for Rs. 3.50/Lt, the assessee has itself made an adjustment of 15% (Rs. 0.50/-) in line with the stand taken by the A.O. in earlier years. Following the principle of consistency, Ld. CIT (A) allowed the claim of WTS by adopting a transfer price of Rs 3/ltr in respect to treated water. Relevant extract of the order is stated as under: - "10.12 In view of the above discussion, I am of the considered view that the benchmarking analysis adopted by the appellant based on quotations received from Bisleri India Pvt Ltd. after making necessary adjustments on account of department's stand in earlier years is the most appropriate method to determine arm's length price to compute transfer price. Although the quotations received by the appellant is for Rs. 3.50/Lt, the appellant has claimed to have made an adjustment of 15% (Rs. 0.50 p) in line with the stand taken by the TPO in earlier years. In AY 2013-14, the quotation from Bisleri was Rs 3/- per Lt and TPO considered ALP as Rs 2.75/ Lt....
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....ulf Energy Maritime Services Pvt. Ltd. -vs.- ITO [(2016) 136 DTR 0130 (Mum - Trib.) Ld. CIT (A) in its order has upheld the methodology adopted by the assessee for computation of transfer price of water based on quotation received from BIPL. Ld. CIT (A) at Para 10.6 & 10.7 held the following [Pg no. 57 of the Order] "10.6 The TPO has rejected the benchmarking analysis of appellant on the ground that bulk purchase cannot be compared with the retail purchase and quotations cannot be considered as basis for determining the price of articles produced for captive consumption. However, the appellant has shown relying upon Hon'ble Delhi High Court in PCIT vs. Toll Global Forwarding India Pvt Ltd. [(2016) 381 ITR 38 and Gujarat High Court in CIT vs. Adani Wilmar Ltd. (2014) 363 ITR 0338 that benchmarking on the basis of quotations received from third parties is a recognised method under Rule 10AB of the Income Tax Rules, 1962. 10.7 It is observed that TPO has not questioned the genuineness of the quotation but has merely ignored the quotation in view of his opinion that bulk purchase cannot be equated with the retail purchases. Thus, the TPO has not doubted the genuinenes....
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.... - There is inherent uncertainty about the accounting conventions used by comparable companies for classifying cost items between direct/indirect cost of services rendered and operating expenses under Indian Generally Accepted Accounting Principles, such that gross profit margins can be reliably computed. - It is not possible to make adjustments on account of different accounting practices. Hence, TPO was not justified in considering the GP margin of the comparable companies and hence the application of CPM is incorrect. Companies selected by the TPO are not functionally Comparable to the assessee TPO rejected the benchmarking analysis carried out by the assessee and substituted the same with Cost Plus Method [CPM] based on profit margins of various package drinking water companies such as Bisleri International Pvt. Ltd, Global Acqua Pvt Ltd., Parle Agro Pvt Ltd and Orient Beverages Ltd. The companies selected by the TPO are not comparable to the respondent due the following reasons: (i) Turnover of the companies selected by the TPO is too high as compared to Water Treatment Plant of the respondent. (ii) The companies....
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....5/ltr for the assessment years 2011-12 and 2013-14 respectively determining the Fair Market Value of Water consumed captively, allowed the claim of the assessee. The method adopted by the appellant for determination of realizable market value of water was consistently accepted by the departmental authorities from assessment years 2011-12 to 2013-14. In this regard, reference may be made to the decision of ITAT Kolkata in the case of A T & S India (P) Ltd vs. DCIT (2018) 94 taxmann.com 16 (Kol.Trib.) wherein it was held that when the department has been consistently accepting the assessee's method of benchmarking for 3 consecutive previous years, the revenue authorities are bound to have consistency in its views. However, for the assessment year under consideration, we find that the AO determined the ALP based on a fresh analysis even when there was no change in facts for AY 2014-15 as compared to earlier years. In support of its case, the ld. A/R placed reliance on the following judicial pronouncements :- -Radhasoami Satsang vs. CIT, 193 ITR 321 (SC) -CIT vs. Neo Poly Pack (P) Ltd, 112 Taxman 363 (Del.) -PCIT vs. Quest Investment Advisors Pvt. Ltd. - ITA ....
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.... has shown relying upon Hon'ble Delhi High Court in PCIT vs. Toll Global Forwarding India Pvt Ltd. [(2016) 381 ITR 38 and Gujarat High Court in CIT vs. Adani Wilmar Ltd. (2014) 363 ITR 0338 that benchmarking on the basis of quotations received from third parties is a recognised method under Rule 10AB of the Income tax Rules, 1962. 10.7 It is observed that TPO has not questioned the genuineness of the quotation but has merely ignored the quotation in view of his opinion that bulk purchase cannot be equated with the retail purchases. Thus, the TPO has not doubted the genuineness of the quotation. As could be noted from the said quotations, purchase requirement is of 140 KL of water per day which by no standard can be considered a retail quote but has to be taken as a bulk purchase quote only. 10.8 The TPO has noted that the appellant has applied CUP method in disguise of Any Other Method' and the CUP method requires exact similarity of the product. However, this view is not justified in accordance with OECD Guidelines. The OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (July 2017) (OECD Guidelines') states as under....
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..... When year after year, department has not disputed the method adopted by appellant, rejecting the same in one particular year is not justified. As there is no change in the facts and circumstances of the case in the current year, in view principle of consistency laid down by Apex Court in Radhasoami Satsang vs. CIT [[1992] 193 ITR 321 (SC), the TPO's action in rejecting the benchmarking model of the appellant and proceeding to do a fresh analysis in current year is not found to be sustainable. 10.12 In view of the above discussion, I am of the considered view that the benchmarking analysis adopted by the appellant based on quotations received from Bisleri India Pvt Ltd. after making necessary adjustments on account of department's stand in earlier years is the most appropriate method to determine arm's length price to compute transfer price. Although the quotations received by the appellant is for Rs. 3.50/Lt, the appellant has claimed to have made an adjustment of 15% (Rs. 0.50 p) in line with the stand taken by the TPO in earlier years. In AY 2013-14, the quotation from Bisleri was Rs 3/- per Lt and TPO considered ALP as Rs 2.75/ Lt. Accordingly. ALP in....
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....td., 64 SOT 0122 (Ahd - Trib.) as affirmed by Hon'ble Gujarat High Court in CIT vs. Adani Wilmar Ltd., 363 ITR 0338 (Guj-HC). 39. We, therefore, considering the detailed findings of the ld. CIT (A) along with the judicial precedents of the Hon'ble Supreme Court, Hon'ble High Courts and the various benches of the Tribunal, find no infirmity in the order of the ld. CIT (A), accordingly the order of the ld. CIT (A) is upheld. The ground of the Revenue is dismissed. Ground No. 4 relates to deleting the disallowance of Rs. 26,69,07,312/- as against total disallowance made by the AO at Rs. 34,32,56,010/- on account of deduction u/s 80IA of Rail system due to adjustment of Transfer Pricing. 40. The brief facts of the case are that the assessee was operating and maintaining a separate Rail Infrastructure Facility System (RIFS) at Beawar, Rajasthan for procurement of principal raw materials i.e., clinker, coal and pet coke and for the purpose of cement dispatches to its customers. The said infrastructure facility is eligible for deduction u/s 80-IA of the Act. In the Return of Income, the assessee had claimed deduction u/s 80-IA of Rs. 34,32,56,010/- in respect ....
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.... no. 297-299 of CLPB] * AY 2013-14: Though the savings approach was accepted, but A.O. was of the view that the assessee had given lower weightage to the cement units for functions performed, assets employed and risks undertaken by RIFS as RIFS alone cannot make such huge profit without relying on the cement unit for its proper working. Hence, based on the effective FAR analysis, 65.52% of the profits was allocated to RIFS and 34.48% of the profits were allocated to the CMU. [Page no. 75-97 of CLPB] In order to avoid any litigation no further appeal was preferred against the said order of A.O. for AY 2013-14. Ld. CIT (A) vide Para 11.11 of the order dated 20-01-2023 [Refer Pg 66 of the Order] held that RIFS cannot generate the entire profit (100%) by itself and certain portion of the profits needs to be attributed to the Cement Manufacturing Unit (CMU) based on functions, assets and risk analysis carried on by the two entities, i.e., RIFS & CMU. Ld. CIT (A) observed that in earlier year, Department has quantified a split of 65.52% to the RIFS and balance to the CMU based on FAR analysis which has been accepted by the assessee by not preferring any further appeal o....
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....ces Ltd. - vs.- ACIT [(2007) 107 ITD 141 (BANG.) (SB- Tri)] it has been held that although India is not a Member of the Organization for Economic Cooperation & Development (OECD). However, the organization has been supporting efforts of tax administration in India to properly and effectively administer and implement Transfer Pricing Policy. A useful reference can always be made to OECD Guidelines, for the purposes of resolving dispute of transfer pricing in India, subject, however, to statutory regulations. Indian Railways has a monopoly in operation of Railways in India and accordingly determines the tariff with respect to the same. Indian Railways would never set up a Railway Infrastructure Facility System for respondent's captive use. Also, there is no other independent party which would install a Railway Infrastructure Facility System similar to that set up by the respondent nearby to its plant locations for captive handling of inward and outward materials. Further, the railway freight tariff is the charge for normal movement of goods without having created a specific infrastructure facility for a customer. If the Railway Authorities provides any specific facility to i....
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....ch road is not owned by the appellant would not be relevant." TPO's contention that RIFS cannot generate profit is incorrect: TPO had rejected the savings approach adopted by assessee on the contention that the railways ought to have charged concessional freight from the assessee on account of infrastructure provided by the assessee and in doing so no profit actually accrues to the Rail Infrastructure Facility of the assessee. The assessee humbly submits that the aforesaid contention of TPO is addressed by OECD Guidelines, relevant extract of which are as follows [Pg No. 314 of CLPB]: "B.2.3.2 Considerations on including a profit element 7.35 Depending on the method being used to establish an arm's length charge for intra-group services, the issue may arise whether it is necessary that the charge be such that it results in a profit for the service provider. In an arm's length transaction, an independent enterprise normally would seek to charge for services in such a way as to generate profit, rather than providing the services merely at cost. The economic alternatives available to the recipient of the service also need to be taken into accou....
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.... quashed to the extent of deletion of addition. 43. We have heard the rival submissions, perused the material on record and gone through the orders of the revenue authorities and the case laws cited before us. On perusal of the record, we noticed that similar claim of the assessee has been allowed by the AO for the preceding assessment years 2012-13 and 13-14 vide order dated 30.01.2014 and 16.12.2014 respectively. On the similar ground, the AO has accepted the claim of the assessee for the preceding assessment year 2012-13 by holding in para (iii) at page 12 of the assessment order, as under :- "As the rail system is used at assessee's own undertaking, hence provision of section 80-IA(8) are applicable. On going through Form 10CCB for this facility for the year under consideration as submitted by the assessee company it was found that assessee company has adopted transfer price for using the services of this infrastructure facility at the average transportation and handling charges expenses for this type of services that would have been incurred by the assessee company if this infrastructure facility in the form of rail system would have not been there. In view of abov....
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.... installed by the appellant, the appellant would have transported its goods through road. Thus, installation of the said Rail Infrastructure Facility System has resulted in substantial cost savings which has been considered as revenue. 11.5 It has been contended that u/s 92C(3) of the Act, the AO may proceed to determine the ALP in relation to an international transaction or specified domestic transaction on the basis of material or information or document available with him, if any one of the four conditions are satisfied: a) The price charged or paid in an international transaction/SDT has not been determined in accordance with Sections 92C(1) and 92C(2) of the Act; b) Proper documentation has not been maintained in terms of Section 92D(1) r.w Rule 10D of the Income Tax Rules, 1962; c) The information or data used in computation of ALP is not reliable or correct; d) Failure to furnish any information or document, as required by the AO/TPO during the course of assessment proceedings. 11.5.1 It is observed that the TPO has not substantiated that any of the above four conditions was applicable in this case. Therefore, I am of the....
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....y the appellant would not be relevant. 11.9 Another reason for the TPO to reject the savings approach adopted by appellant is the observation that the railways ought to have charged concessional freight from the appellant on account of infrastructure provided by the appellant, and in doing so no profit actually accrues to the Rail Infrastructure Facility of the appellant. This opinion of TPO is also not correct. OECD Guidelines addresses this issue, relevant extract of which are as follows : "B 2.3.2 Considerations on including a profit element 7.35 Depending on the method being used to establish an arm's length charge for intra-group services, the issue may arise whether it is necessary that the charge be such that it results in a profit for the service provider. In an arm's length transaction, an independent enterprise normally would seek to charge for services in such a way as to generate profit, rather than providing the services merely at cost The economic alternatives available to the recipient of the service also need to be taken into account in determining the arm's length charge." 11.10 It is seen that in the present case the....
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....3-14 has been accepted by the appellant and it has not filed any appeal on this issue. Since in the preceding year, above split has been computed by TPO at 65,52%, there is no reason why the appellant should be granted 84.83% profits as attributable to RIFS in the current year. 11.12 In view of above, applying the split of 65.52% in the current year, profits attributable to rail system comes to Rs. 25,90,55,755/- as against Rs. 33,54,04,453/- and eligible deduction u/s 80IA comes to Rs. 26,69,07,312/- as against Rs. 34,32,56,010/- as claimed by the appellant in its return of income. The AO is therefore directed to allow deduction u/s 80IA on account of Rail Infrastructure Facility System of Rs. 26,69,07,312/- and disallowance of Rs. 7,63,48,698/- made by the AO is confirmed and balance disallowance is deleted. The AO is directed to re-check this working carefully while giving appeal effect. These grounds are therefore partly allowed." After considering the detailed findings of the ld. CIT (A) and also considering the judgment of the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt. Ltd. vs. CIT, 55 taxma....
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....hushkhera and for setting up of new unit at Suratgarh and (ii) under RIPS, 2010 on account of setting up of new unit at Jaipur in State of Rajasthan. The purpose of aforesaid schemes was to incentivise setting up of new unit or expansion of existing unit and to generate employment opportunities. Since the subsidy has been granted to the assessee on making fixed capital investments and generating employment as specified in the Schemes, the same has to be considered as capital receipts not chargeable to tax under the normal provisions as well as under the provisions of Section 115JB. 3.0 Issue has been decided in favour of Assessee in earlier years Subsidy received under RIPS, 2003 has been allowed as capital receipts under Normal Provisions and while computing book profits u/s 115JB in assessee's own case by Hon'ble Jaipur Tribunal in AY 2006-07 [Page no. 323-358 of CLPB] wherein following has bene held: "17. Ground No. 1 and Additional Ground raised by the Revenue are identical to Ground No. 1 and Additional Ground for A.Y. 2004-05 in ITA No. 614/Jp./2010 Ld. Counsel for the assessee fairly submitted in his key submissions filed before us, ....
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....ds to be excluded while computing total income under Normal provisions as well as under MAT provisions. Copy of order of the Hon'ble High Court for AY 2006-07 to AY 2009-10 is enclosed at Page no. 1-16 for AY 2009-10, 17-25 for AY 2007-08, 2008-09 & 2010-11, 318-322 for AY 2006-07 of CLPB. Ld. CIT (A) vide his order dated 20-01-2023 after analysing all the schemes under which incentives has been granted to the appellant has held that since the objective of RIPS, 2010 & customised package under RIPS 2010 is similar to the objective of the scheme under RIPS, 2003, the above decisions of Hon'ble Jurisdictional High Court and Hon'ble Jaipur Tribunal taken in earlier years shall mutatis mutandis apply to subsidy received by the assessee under RIPS, 2010 and hence is in the nature of capital receipt not chargeable to tax. [Refer Para 13.7 & 13.9 of CIT (A) order dated 20-012023]. Reliance in this regard may also be placed on the decision of Hon'ble Pune Tribunal in Jain Irrigation Systems Ltd. vs DCIT in ITA No. 227/Pun/2018 dtd. 22-12-2022 wherein subsidy received under RIPS 2010 has also been held to be capital receipts not chargeable to tax. Ld. CIT (A) at Para ....
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.... by the Revenue are identical to Ground No. 1 and Additional Ground for A.Y. 2004-05 in ITA No. 614/Jp./2010 Ld. Counsel for the assessee fairly submitted in his key submissions filed before us, that besides the subsidy as dealt with in earlier years, the assessee also received further subsidy under "Rajasthan Investment Promotion Policy 2003" for expansion of its undertaking at Ras in the state of Rajasthan, the purpose of incentive where under is also to encourage setting up of new unit or expansion of existing units. Copy of the scheme as Ill as eligibility certificate dated 08- 09-2006 granted pursuant to the said scheme has been filed at pg 26-40 and pg 41 of Paper Book respectively. I further find that the object of the above scheme is identical with the purpose of the other scheme examined by the Tribunal and us in AY 2003- 04 & 2004-05. On examination of the scheme as filed by the assessee and eligibility certificate issued under RIPS 2003, I find that on completion of the expansion of the Ras unit of the Assessee during the year wherein it made capital investment of more than Rs. 200 Crs., it becomes eligible for incentive to be availed over a period of seve....