TaxTMI 
TaxTMI 
TaxTMI 
2024 (7) TMI 1682
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....e) received under the West Bengal Incentive Scheme- Rs. 51,39,36,062/- The learned CIT (A) erred in upholding the taxing of subsidy (Industrial Promotion Assistance IPA") of Rs. 51,39,36,062/- received under the West Bengal Incentive Scheme and in not following the decisions of the Hon'ble Tribunal in ITA No 2148 and 2163/ MDS/2015 and the decision of the Calcutta High Court in Rasoi Ltd. (2011) 335 ITR 438, wherein it was held that the incentive received under the WB Incentive Scheme is capital in nature. 2. The learned Commissioner of Income Tax (Appeals) erred in incorrectly applying the decision of the Supreme Court in Sahney Steel and Press Works Limited Vs. CIT (1997)228 ITR 253 (SC), though the said decision has been specifically held to be inapplicable to the West Bengal IPA subsidy by the Calcutta High Court in Rasoi Ltd. (2011) 335 ITR 438, cited supra. 3. The learned CIT (A) committed factual errors in failing to note that the West Bengal Govt. abolished all sales tax related incentives with effect from 1st Jan 2000 and in holding that the subsidy was given "without any specified purpose", while in fact it was given to the Appella....
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....on expenses-Rs.6,51,55,269/- 10. The learned CIT (A) erred in holding that the power transmission charges paid to TANGEDCO amounting to Rs. 6,51,55,269/- is capital in nature on an incorrect reasoning that the power transmission system is for the exclusive use of the Appellant company which is contrary to facts and documents on record. The Appellant submits that since the facts on record expressly prohibit any rights of ownership or exclusive right of use to the Appellant, the conclusion of the CIT (A) is contrary to facts and law. 11. The learned CIT (A) failed to note that the aforesaid expenditure were incurred by your Appellant to strengthen TANGEDCO's Singapuram and Thullukapatti sub-stations, both of which are property belonging to TANGEDCO, located in TANGEDCO's premises, and not meant for the exclusive use of your Appellant. 12. The learned CIT (A) failed to consider the provisions of the relevant Accounting Standards that prescribe that expenses incurred on construction of enabling assets (such as the roads, culverts, bridges, railway sidings, electricity transmission lines etc.), of which the assessee is not the owner, are not in th....
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....pellant vide revised return dated 29/03/2016. As is evident, the issues that fall for our consideration are - (i) Taxability of Industrial Promotion Assistance (incentive) received under West Bengal Incentive Scheme; (ii) Disallowance of railway sidings expenses; (iii) Disallowance of power transmission expenses; (iv) Disallowance u/s. 14A in normal profits as well as u/s. 115JB; (v) Short credit of TDS. 2. The Ld. AR advanced arguments along with case laws to support the case of the assessee. The Ld. CIT-DR also made arguments and supported the stand of lower authorities. The written submissions have also been filed by both the sides which have duly been considered while adjudicating the appeals. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. The assessee being resident corporate assessee is stated to be engaged in manufacturing and sale of cement. 3. Industrial Promotion Assistance (incentive) received under West Bengal Incentive Scheme 3.1 The assessee received captioned incentive with respect to clinker grinding unit at Kolaghat in West Bengal. A sum of Rs. 51.39 Crores accrued to the assessee being 90% of S....
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....ck to Ld. AO to consider the claim in the light of the decision of Hon'ble Supreme Court in Sahney Steel & Press Works Ltd. (supra). In set aside proceedings, Ld. AO held the same to be taxable and the assessee's appeal, in this regard, is pending before Ld. CIT(A). 3.4 The Ld. AR submitted that Tribunal in its subsequent order dated 27-04-2018, in the case of assessee's sister concern viz. Ramco Industries Ltd. held that same very subsidy to be non-taxable. The copy of decision has been placed on record. 3.5 The Ld. AR has further submitted that reliance on the decision of Sahney Steel & Press Works Ltd. (supra) is incorrect since the applicability of said decision to IPA subsidy received under WB incentive Scheme was specifically examined by Calcutta High Court in the case of Rasoi Limited (supra). This decision has become final since Special Leave Petition (SLP) of the department has been dismissed by Hon'ble Supreme Court. Following the decision on Rasoi Limited (supra), similar view has been taken by Hon'ble Calcutta High Court in subsequent decisions. The Ld. AR further submitted that Hon'ble Supreme Court has laid down purpose test. In the present case, the purpose of ....
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....n has been rendered after considering the decision of Sahney Steel & Press Works Ltd. (supra). In the absence of any contrary decision shown to us, we would hold that the impugned incentive as received by the assessee was capital in nature. We order so. The corresponding grounds stands allowed. 4. Disallowance of railway sidings expenses 4.1 The assessee incurred expenditure of Rs. 129.09 Lacs for extension of railway tracks Rs. 169.43 Lacs for replacement of railway sleepers at Jayanthipuram and Rs. 796.45 Lacs for construction of track for clinker wagon loading at Ariyalur. The expenditure aggregated to Rs. 1094.98 Lacs. Such expenditure, though capitalized in the books, was claimed in the computation of income as revenue expenditure. In support, the assessee submitted that the aforesaid asset does not belong to the assessee but it was the property of railways which is clear from clause-21 of Railway siding agreement which provide that the assessee has no right to assign or transfer or sublet or permit to be used or enjoyed by any other person in any manner whatsoever any of the rights of benefits conferred upon the assessee. Such assignment, transfer or....
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.... covered in assessee's favor. The issue in AY 2011-12 was restored back since relevant agreements were not available on record. Therefore, concurring with aforesaid submissions, we direct Ld. AO to allow the expenditure as revenue expenditure after verifying the fact that the assessee has not claimed depreciation on the same in Income Tax Computations in any of the years. The assessee is directed to demonstrate the same. The corresponding ground stand allowed accordingly. 5. Disallowance of Power Transmission expenses 5.1 The assessee spent an amount of Rs. 651.55 Lacs as power transmission expenses. Though the same was capitalized in the books, it was claimed as revenue item in the computation of income. The amount of Rs. 307.82 Lacs was spent for upgrading cement grinding unit at Vazhapadi wherein existing 22KV feeder was converted into 110KV feeder between Singapuram sub-station and Vazhapadi Plant. The amount of Rs. 343.72 Lacs was incurred due to the fact that the assessee proposed to export 10MW power from Thermal Plant to TANGEDCO Grid. For the said purpose, it proposed to convert existing Thulukapatti sub-station from non-grid sub-station to grid sub-st....
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....penditure is in the nature of development charges, extension charges etc. and there was no creation of any capital asset. Therefore, this expenditure would be allowable as revenue expenditure subject to verification by Ld. AO that no depreciation has been claimed under Income Tax Act in any of the years. The assessee is directed to demonstrate the same. 5.4 So far as the expenditure of Rs. 343.72 Lacs is concerned, it is primarily incurred so as to facilitate the assessee to export power to TANGEDCO grid. For the said purpose, it has converted non-grid substation to grid sub-station enabling TANGEDCO to receive exported power from assessee's thermal plant. The expenditure is on account of erection and commissioning charges which is clearly capital in nature so as to enlarge the profit making apparatus of the assessee. The fact that the assessee does not have ownership right over the same would be immaterial. This cost is in the nature of cost of laying supply line, bay extension work, construction of control room, cable duct, meter arrangements at the power plant which would bring enduring benefit to the assessee. Therefore, this expenditure, in our considered opinion, is c....
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....e is confirmation of disallowance u/s. 14A as made by Ld. AO in an order passed u/s. 143(3) r.w.s. 263 on 25-09-2015. The assessee earned exempt dividend income of Rs. 105.68 Lacs. The Ld. AO applied Rule 8D and computed interest disallowance of Rs. 26.83 Lacs u/r 8D(2)(ii) and indirect expense disallowance of Rs. 33.39 Lacs u/r 8D(2)(iii). The same aggregated to Rs. 60.22 Lacs. During appellate proceedings, the assessee submitted that no fresh investments were made during the year. In the alternative, the assessee offered disallowance of 2% of exempt income. The Ld. CIT (A) concurred that there was no fresh investments, however, application of Rule 8D was mandatory. Facts being pari-materia the same as in AY 2014-15, we direct Ld. AO to delete interest disallowance. The indirect expense disallowance would be restricted on investments which have actually yielded any exempt income during the year. This disallowance would not be made u/s. 115JB. The appeal stand partly allowed. Assessee's Appeal for AY 2012-13 10. The only grievance of the assessee is confirmation of disallowance u/s. 14A as made by Ld. AO in an order passed u/s. 143(3) on 31-03- 2015. The a....
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.... Calcutta High Court in Rasoi Ltd. (supra). Aggrieved, the revenue is in further appeal before us. This issue has been decided by us in assessee's favor in AY 2014-15. Facts being identical, taking the same, view, we dismiss the corresponding grounds urged by the revenue. This issue arises in revenue's appeal for AY 2013-14 also which stand dismissed on similar lines. 14. The last issue that arises for our consideration is claim of excessive electricity expenditure. The facts are that the assessee made equity investments in Andhra Pradesh Gas Power Corporation Ltd. (APGPCL) which entitled the assessee to source 6MW of power from APGPCL at economical rates. The proportionate shares equivalent to 4.15 MW Power was held jointly by the assessee with related party. Accordingly, APGPCL would supply the power to these related parties also for which the charges would be paid by related parties directly. The assessee was entitled to receive 10 paisa per unit of power consumed by them by virtue of the joint ownership of shares. 15. However, Ld. AO, upon perusal of relevant data, held that the assessee did not fully utilize the benefit of economical rates for its own business. The asses....
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....notional interest rate of 12%, Ld. AO made disallowance of Rs. 223.10 Lacs. The Ld. CIT (A) deleted the same on the ground that the investment was made during FY 1999-2000. Further, in the current year, the assessee had surplus fund in the form of equity capital and reserves. It could not be said that the borrowed funds were diverted for nonbusiness purposes. Aggrieved, the revenue is in further appeal before us. Since Ld. CIT (A) has rendered factual finding which is uncontroverted, we confirm the same. The corresponding grounds stand disposed-off on the same lines as in AY 2012-13. Department's Appeal for AY 2013-14 19.1 The remaining ground in revenue's appeal is Transfer Pricing (TP) Adjustment of Rs. 3334.85 Lacs as proposed by Ld. TPO in its order dated 27-10-2016. The assessee carried out certain specified domestic transactions with its associated enterprises which were subjected to determination of Arm's Length Price (ALP) before Ld. TPO. One of the transactions was transfer of electricity by Alathiyur Thermal Plant of the assessee for captive consumption. This unit was enjoying exemption u/s. 80-IA. The assessee benchmarked the same using CUP method. The el....
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....g power consumed internally at rates which were far less than the Arm's length price determined for sale to outside entities. It was further submitted that Ld. TPO refused to value even the saleable portion being 29.15% of his categorization at ALP offered for assessment at Rs. 6.52 per unit for the reason that the price did not exclude transmission and wheeling charges. It was also submitted that average price realization from outsiders at Rs. 7.15 per unit excludes transmission and wheeling charges. The assessee further stated that the price fixed by the regulatory commission for purchase of power of TANGEDCO was not comparable uncontrolled price (CUP) in view of the state undertaking being a persistent Loss making unit. It was further submitted that reducing the claim u/s. 80IA to a loss by downward* adjustment would not arise when the profit of final product viz., cement was not achieved without substantial contribution from captive units producing electricity. The consumption of electricity, a key input for cement production, result in the cost savings made by not purchasing electricity from electricity Board or from outside parties, which profits (saving) contri....
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.... Ld. TPO into saleable and non-saleable unit was not warranted since the very purpose of Sec. 80IA(8) was to grant relief for captive consumption in equal measure with sale to outsiders so long as the claim u/s. 80IA was not inflated when compared with market value. The relief could not be worked out differently for captive consumption of electricity. Further, Ld. TPO's reliance on Electricity Board purchase rate of 4.43 per unit for valuation was not appropriate since the assessee's transaction of captive consumption was not subjected to any price controls as in the case in Sugar Industry. The relevant Section 62 of the Electricity Act 2003 does not seek to regulate the price of captive units and hence not subjected to price controls as in the case of sugar industry. The TPO comparison of tariff rates by regulatory commission was not derived from actual transaction which was a primary requirement under CUP method and hence it was not a valid comparison. The Ld. TPO did not question the CUP method adopted by the assessee. The Hon'ble Bombay High Court in the case of Thyssen Krupp Industries (P) Ltd (388 ITR 612) held that the transaction of a public sector unit could not be held to....
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....ther been submitted that the assessee has been permitted to set-up its own CPP on the condition that it consume at least 51% of generated power for own production process. In other words, 51% of power would be for captive consumption whereas 49% of power could be sold to others. The assessee has charged unit rate of Rs. 6.52 for power transferred to cement plant. It has charged rate of Rs. 6.15 per unit for power sold to related parties whereas it has charged rate of Rs. 6.84 per unit for power sold to third parties. The Ld. CIT (A) has further submitted that the power transferred for captive consumption has been bifurcated into two parts i.e., 51% of units (9.99 Crores) which are not permitted to be sold by the assessee and remaining units (5.71 Crores) of power which is permitted to be sold by the assessee but used for captive consumption by the assessee. The Ld. CIT-DR submitted that the power sold to related parties @6.15 per unit has been accepted to be at arm's length since it is less than average rate of 6.84 per unit as realized by the assessee from third-parties. Accordingly units which are for captive consumption (51%) is subjected to determination of ALP. ....
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....mers has to be taken as the market value for computing deduction under section 80-IA of the Act. 29. Section 43A of the 1948 Act lays down the terms and conditions for determining the tariff for supply of electricity. The said provision makes it clear that tariff is determined on the basis of various parameters. That apart, it is only upon granting of specific consent that a private entity could set up a power generating unit. However, such a unit would have restrictions not only on the use of the power generated but also regarding determination of tariff at which the power generating unit could supply surplus power to the concerned State Electricity Board. Thus, determination of tariff of the surplus electricity between a power generating company and the State Electricity Board cannot be said to be an exercise between a buyer and a seller under a competitive environment or a transaction carried out in the ordinary course of trade and commerce. It is determined in an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the buying tariff in terms of the extant statutory guidelines. Therefore, t....
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....st the assessee. On going through the judgment, we find that facts of that case are clearly distinguishable from the facts of the present batch of appeals. It is noticeable that though an opportunity was granted by the assessing officer to the assessee to adduce evidence to justify the price of electricity sold by it to its paper unit, the same could not be availed of by the assessee. The electricity generated was sold by the assessee entirely to its paper unit. There was no surplus electricity to be supplied to the State Electricity Board and consequently, there was no contract between the assessee and the State Electricity Board determining the rate of tariff for the electricity supplied by the assessee to the State Electricity Board. On the other hand, it was noticed that the Electricity Act, 2003 had come into force whereby and whereunder, the rate at which electricity could be supplied is determined, notably by Sections 21 and 22 thereof. That apart, there is the tariff regulatory commission which has the mandate for fixing the rates for sale and purchase of electricity by the distribution licensee. Thus it was noted that there is an inbuilt mechanism to ensure permissible pro....