TaxTMI 
TaxTMI 
TaxTMI 
2024 (1) TMI 1495
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.... on the facts and in the circumstances of the case and in law, the Appellate Tribunal has erred in deleting the disallowance of Rs. 75,15,081/- on account of depreciation on goodwill, when in fact, no goodwill was created on account of merger of Narmada Chematur Petrochemicals Limited (NPCL) particularly when assessee itself was the promoter of NPCL? (2) Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal has erred in deleting the disallowance of Rs. 17,13,60,400/- u/s. 37(1) of the Act in respect of Corporate Social Responsibility expenses being contribution/donation educational/rural development societies? to (3) Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal was justified in dismissing the appeal of the revenue in relation to downward adjustment amounting to Rs. 86,28,49,633/- without appreciating the approach adopted by TPO? (4) Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal was justified in taking non-eligible unit as tested party and taking rate charged by distribution company as market rate which is not in accordance with the Explanation ....
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....80IA on profits from steam generation and used for captive consumption in manufacturing?" 5. Brief facts of Tax Appeal No. 414 of 2023 are that the assessee is a Joint Sector Company and is engaged in the business of manufacturing, sale and trading of Chemical Fertilizers and Chemical Industrial products. 6. The assessee filed e-return of income for AY 2013-2014 on 29.11.2013 declaring gross total income at Rs. 4,02,59,85,064/-. 7. Case of the assessee was selected for scrutiny assessment and assessment order dated 30.12.2016 came to be passed under section 143(3) read with section 144 of the Act. 8. Being aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals-3), Vadodara who vide order dated 31.08.2018 allowed the appeal of the assessee. 9. Being aggrieved by the order passed by CIT(Appeals), the Revenue filed appeal before the Tribunal who vide impugned order dated 31.10.2022 dismissed the appeal. 10. Brief facts of Tax Appeal No. 424 of 2023 are that the assessee filed e-return of income for AY 2014-2015 on 29.11.2013 declaring gross total income at Rs. 45,56,60,463/-. 11. Case of the assessee was selected for s....
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....rged entity, in proportion of shareholding in merged company as has been done for other shareholders of merged company. These shares so allotted could have been kept by the assessee as treasury stock which could have been sold off in proportion by the assessee whenever deemed fit. The Assessing Officer held that no goodwill has been created on account of merger of amalgamated company rather it is resulted in amalgamation result of Rs. 5266 lakh. As recorded above before Id CIT(A) the assessee filed detailed written submissions. We find that the Id CIT(A) granted relief to the assessee by taking view that his predecessor in assessee own case in assessment years 2009-10, 2010-11 and 2011-12 has allowed depreciation. The Ld. CIT(A) further held that assessee has paid a consideration of Rs. 7849.25 lakhs consisting of Rs. 6,955 lakhs against shares of its own and remaining amount of Rs.894.25 against the share of other shareholders. The assessee has passed entry in its books of account on amalgamation, investment of Rs. 6,955 lakhs shown in "assets side" and equity of Rs. 6,955 shown in "capital side" have been cancelled against each other, which was approved by Hon'ble jurisdictio....
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....jection of Id CIT-DR for the revenue that due to the amendment in section 32, the goodwill is no more depreciable asset, we are of the view that the amendment brought in the Act by way of Finance Act 2021 will be applicable prospectively and not in the year under consideration. In view of the aforesaid factual and legal discussion, we do not find any legality in finding of Ld. CIT(A), which we affirm. In the result, the grounds of appeal raised by the revenue are rejected." 15. Considering the decision of Tribunal in assessee's own case for A.Y. 2007-08 and 2012-13 and by following the principle of consistency, we do not find merit in the grounds of appeal raised by the revenue, hence, we affirm the order passed by the Id. CIT(A). In the result, this ground of appeal is dismissed." 16. Question No. 1 proposed by the Revenue is squarely covered by the following judgments of this Court and Hon'ble Supreme Court: 1) In case of Principal Commissioner of Income Tax-4 v. Zydus Wellness ltd. reported in (2017) 87 taxmann.com 82 (Gujarat), wherein this Court has held as under: "3. The remaining questions no. (E) to (I) relate to the assessee's claim of depreciation. In the return fi....
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.... Ltd. vs. Commissioner of Income-tax (supra) and that is how various High Courts have viewed the dictum of the decision in the case of Goetze (India) Ltd. vs. Commissioner of Income-tax (supra). When it comes to the power of Appellate Commissioner or the Tribunal, the Courts have recognized their jurisdiction to entertain a new ground or a legal contention. A ground would have a reference to an argument touching a question of fact or a question of law or mixed question of law or facts. A legal contention would ordinarily be a pure question of law without raising any dispute about the facts. Not only such additional ground or contention, the Courts have also, as noted above, recognized the powers of the Appellate Commissioner and the Tribunal to entertain a new claim for the first time though not made before the assessing officer. Income Tax proceedings are not strictly speaking adversarial in nature and the intention of the Revenue would be to tax real income. 39. This is primarily on the premise that if a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come,....
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....hares & Securities (P) Ltd were transferred to and vest in the company. In the process goodwill has arisen in the books of the company." It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities Private Limited [Amalgamating Company] should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in order to retain its existing clientele. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 ['Act', for short]. We quote hereinbelow Explanation 3 to Section 32(1) of the Act: "Explanation 3.-- For the purposes of this sub-section, the expressions 'assets' and 'block of assets' shall mean-- [a] tangible assets, being buildings, machinery, plant or furniture; [b] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature." Explanation 3 states that the expression 'asset' shall mean an intangible asset, being know-ho....
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....nses by taking view that payments was not made for the purpose of business. However, the assessing officer held that such payment was made to approved institution and allowed 50% of the amount under section 80G. The Id CIT(A) allowed relief to the assessee by taking view that such contribution was not for doing any charity but for sound business consideration and in building brand image of assessee. We find that nature of expenses is not in dispute. Further it is not in dispute that the assessee was setup by State Government and incurring similar expenses in earlier years. We find that similar issue has been decided by this combination in assessees own case for the A.Y. 2012-13 in ITA No. 432/Srt/2018 order dated 22/08/2022 wherein following order has been passed: "27. We have considered the submissions of both the parties and have gone through the orders of the lower authority. We have also deliberated on the various case laws relied by the Id AR for the assessee. We find that during the course of assessment proceedings the assessing officer noted that the assessee-company has incurred expenditure of Rs.35,68,134/-in fulfilment of social corporate responsibility and claimed the ....
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....hropy instead it should be imbibed in the corporate culture that leads to responsible business. The assessee stated that the CSR contribution has helped in building brand image of the company and publicity among the agrarian community. The activities implemented in the rural areas are publicized on account of large scale so message reaches to the masses. To ensure that the assessee-company gets better publicity, representatives from its team participates in every event like designing the programme, discussion with sarpanch & gram Sabha, Bhoomi Pooja, concurrent monitoring & evaluation, inauguration event, etc., for the said project. To get wider acceptability, the assessee also installs inaugural stone, boards, banners, etc. wherever and whenever applicable and said project implemented by assessee helps to build a good rapport among the villagers and the agrarian masses. The assessee relied on the judgment of Hon'ble jurisdictional High Court in assessees own case for assessment years 1996-97 to 1997-98 in Appeal No. 78 of 2008, wherein the Hon'ble jurisdictional High Court relied on the judgment of Hon'ble Supreme Court in the case of Sri Venkata Satyanarayana Rice Mil....
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...., entertained the claim separately under section 80G(5) of the Act. In assessee's appeal before Commissioner (Appeals), it was pointed out that actually the donation had been given to NIRDES as per order of the Gujarat State Government who was a major shareholder in the assessee company. Moreover, it was in the interest of the company also because the assessee company being a fertilizer producing company, the future prospects for the assessee were better because of expansion of irrigated area of land and the prospective demand of fertilizer for agricultural activities therein. It was contended that if these things are taken into consideration, the expenditure is in the nature of commercial expediency and should be allowed to the assessee under section 37(1) of the Act. Reliance was placed upon the decision of the Apex Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. Commissioner of Income Tax, 223 ITR 101 (SC) wherein contribution to the Public Welfare Fund at the instance of the Government authorities was allowed as a deduction on the ground that it was motivated by commercial consideration. 24.2 The Commissioner (Appeals) accepted the submissio....
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....ch a donation, whether voluntary or at the instance of the authorities concerned, when made to a Chief Minister's Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assessee's business, cannot be regarded as payment opposed to public policy. It is not as if the payment in the present case had been made as an illegal gratification. There is no law which prohibits the making of such a donation. The mere fact that making of a donation for a charitable or public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under section 37(1) of the Act when such payment had been made for the purpose of the assessee's business." In the light of the concurrent findings of fact recorded by both the Commissioner (Appeals) as well as the Tribunal, it is apparent that the ratio of the above decision would be squarely applicable to the facts of the present case. In the circumstances, the order of the Tribunal being in consonance with the law laid down by the Supreme Court in the above r....
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....ltantly, the corresponding grounds of appeal raised by revenue are dismissed." 21. This Court in case of the Principal Commissioner of Income Tax, Vadodara I v. Gujarat Fluorochemicals Ltd (judgment dated 17.06.2019 in Tax Appeal No. 11 of 2018 and allied matter) has held as under : "25. The fourth question proposed by the revenue is with respect to the deduction under section80IA(4) of the Act at the rate on which the GEB supplied power to its customers ignoring the rate at which the power generating company supplied to the GEB. This issue is directly covered by the decision of this Court in the case of CIT Vs. Gujarat Alkalies and Chemicals Ltd.; 395 ITR 247. It is also covered by the decision of the Supreme Court in the case of M/s. Alembic Ltd. (Tax Appeal No. 553 & 554 of 2017. It appears that Special Leave Petitions filed by the revenue are pending before the Supreme Court questioning the correctness of the view taken by this Court in the aforesaid two judgments. So far as the Gujarat Alkalies and Chemicals Ltd, (supra) is concerned, it takes the view as under: "3. In both the tax appeals though slightly differently worded, the questions concerning the same assessee are ....
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....enue authority. 6. Under sub-Section(8) of Section 80IA of the Act, if it is found that 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 business and in either case the consideration for such transfer does not correspond to the market value of such goods as on the date of the transfer, then for the purposes of deduction under Section 80IA in case of the eligible business as if the transfer had been made at the market value of such goods or services. It is in this context that the question of substituting the actual consideration by the market value comes into picture." 26. The fifth question proposed by the revenue whether the income from the Carbon Credits is capital in nature. This issue is squarely covered by the following decisions: (1) M/s. Alembic Ltd. Tax Appeal No. 553 & 554 of 2017 (2) CIT Vs. My Home Power Ltd. [2014] 46 Taxmann.com 314 (3) Subhash Kabini Power Corporation Ltd. (KHC) [2016] 69 Taxmann.com 394 27. We quote the relevant obse....
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....essee. 29. We take notice of the fact that the ITAT answered this question in favour of the assessee keeping in mind the peculiar facts and circumstances of the case. Though the decision of this Court in the case of GSRTC (supra) is against the assessee." 22. The Hon'ble Supreme Court in case of Commissioner of Income tax v. Jindal Steel & Power Ltd. reported in (2023) 157 taxmann.com 207(SC), has held as under: "15. Since the core issue is relatable to Section 80-IA of the Act, it would be apposite to advert to and analyse the aforesaid provision. Section 80-IA deals with deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development etc. Let us first take up sub-section (1), which reads as under: (1) Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or an enterprise referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits a....
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....s of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating any infrastructure facility which fulfils all the following conditions, namely :- (a) it is owned by a company registered in India or by a consortium of such companies; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as t....
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....nce were not so transferred to the transferee undertaking; (iv) an industrial undertaking which,- (a) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2003; (b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of April, 1999 and ending on the 31st day of March, 2003: Provided that the deduction under this section to an industrial undertaking under sub-clause (b) shall be allowed only in relation to the profits derived from laying of such network of new lines for transmission or distribution. 15.4. As per sub-section (4) (iv), Section 80-IA is applicable to an industrial undertaking which is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period commencing on the 1st day of April 1993 and ending on the 31st day of March, 2003; and starts transmission or distribution by laying a network of new transmissio....
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.... of the eligible business in the manner specified in sub-section (8), then in such a case, the assessing officer may compute such profits and gains on such reasonable basis as he may deem fit. The explanation below the proviso defines "market value" for the purpose of sub-section (8). It says that market value in relation to any goods means the price that such goods would ordinarily fetch on sale in the open market. 15.7. Thus, Section 80IA (8) provides that where goods or services held for the purposes of eligible business are transferred to any other business carried on by the assessee, the price charged for such transfer should correspond to the market value of such goods or services as on the date of transfer. If the price of goods or services transferred is overstated in comparison to the market value, the assessing officer has the competence to recompute the profit by substituting the market value of such goods. The explanation below sub-section (8) defines the expression "market value" to mean the price that such goods or services would ordinarily fetch in the open market. That takes us to the expression "open market" which is however not defined. 15.8. Since the express....
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....e assessee could not supply the same to any third-party consumer. Therefore, in terms of the provisions of Section 43A of the 1948 Act, the assessee had entered into an agreement dated 15.07.1999 with the State Electricity Board as per which, the assessee had supplied the surplus electricity to the State Electricity Board at the rate of Rs. 2.32 per unit determined as per the agreement. Thus, for the assessment year under consideration, the assessee was paid at the rate of Rs. 2.32 per unit for the surplus electricity supplied to the State Electricity Board. We may mention that the State Electricity Board had supplied power (electricity) to the industrial consumers at the rate of Rs. 3.72 per unit 18. There is also no dispute that the assessee or rather, the captive power plants of the assessee are entitled to deduction under Section 80-IA of the Act. For the purpose of computing the profits and gains of the eligible business, which is necessary for quantifying the deduction under Section 80-IA, the assessee had recorded in its books of accounts that it had supplied power to its industrial units at the rate of Rs. 3.72 per unit which rate is disputed by the revenue as not being t....
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....s confirmed by the CIT (A). 21. We have noticed that the Tribunal had rejected such contention of the revenue which has been affirmed by the High Court. In this proceeding, we are called upon to decide as to which of the two views is the correct one. 22. Reverting back to sub-section (8) of Section 80-IA, it is seen that if the assessing officer disputes the consideration for supply of any goods by the assessee as recorded in the accounts of the eligible business on the ground that it does not correspond to the market value of such goods as on the date of the transfer, then for the purpose of deduction under Section 80-IA, the profits and gains of such eligible business shall be computed by adopting arm's length pricing. In other words, if the assessing officer rejects the price as not corresponding to the market value of such good, then he has to compute the sale price of the good at the market value as per his determination. The explanation below the proviso defines market value in relation to any goods to mean the price that such goods would ordinarily fetch on sale in the open market. Thus, as per this definition, the market value of any goods would mean the price that such....
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....948 Act, a contract was entered into between the assessee and the State Electricity Board for supply of the surplus electricity by the former to the latter. The price for supply of such electricity by the assessee to the State Electricity Board was fixed at Rs. 2.32 per unit as per the contract. This price is, therefore, a contracted price. Further, there was no room or any elbow space for negotiation on the part of the assessee. Under the statutory regime in place, the assessee had no other alternative but to sell or supply the surplus electricity to the State Electricity Board. Being in a dominant position, the State Electricity Board could fix the price to which the assessee really had little or no scope to either oppose or negotiate. Therefore, it is evident that determination of tariff between the assessee and the State Electricity Board cannot be said to be an exercise between a buyer and a seller in a competitive environment or in the ordinary course of trade and business i.e., in the open market. Such a price cannot be said to be the price which is determined in the normal course of trade and competition. 27. Another way of looking at the issue is, if the industrial uni....
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.... a situation where the price is determined in the normal course of trade and competition. Consequently, the price determined as per the power purchase agreement cannot be equated with the market value of power as understood in the common parlance. The price at which the surplus power supplied by the assessee to the State Electricity Board was determined entirely by the State Electricity Board in terms of the statutory regulations and the contract. Such a price cannot be equated with the market value as is understood for the purpose of Section 80IA (8). On the contrary, the rate at which State Electricity Board supplied electricity to the industrial consumers would have to be taken as the market value for computing deduction under Section 80 IA of the Act. 30. Thus on a careful consideration, we are of the view that the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity. It should not be compared with the rate of power sold to or supplied to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. Th....
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....ore, it was held by the High Court that the assessee's generating unit could not claim any benefit under Section 80-IA of the Act computing the profits and gains on the basis of the rate chargeable by the distribution licensee from the consumer and that the benefit could only be claimed on the basis of the rates fixed by the tariff regulatory commission for sale of electricity by the generating company. Facts being clearly distinguishable, this decision can be of no assistance to the revenue. 33. Before parting with this issue, we may mention that reliance placed by Mr. Rupesh Kumar, learned counsel for the revenue on the definition of the expression "market value" as defined in the explanation below sub-section (6) of Section 80 A of the Act is totally misplaced inasmuch as sub-section (6) was inserted in the statute with effect from 01.04.2009 whereas in the present case we are dealing with the assessment year 2001-2002 when this provision was note even borne. 34. That being the position, we have no hesitation in answering this issue in favour of the assessee and against the revenue." 23. With regard to question no. 5, Tribunal has held as under after upholding the findings ....