TaxTMI 
TaxTMI 
2025 (5) TMI 2226
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....25 2015-16 DIN & Order No. ITBA/APL/S/250/2024-25/1070549379(1) dated 22.11.2024 3 ITA No. 267/ Chny/2025 2016-17 DIN & Order No. ITBA/APL/S/250 /2024-25/1070549661(1) dated 22.11.2024 All the above appeals are centering around common issues and hence for the purposes of convenience were heard and are adjudicated together. 2.0 The first common issue raised by the Revenue in ITA No. 265, 266 & 267 for AY. 2014-15 to 2016-17 is regarding the action of the Ld. CIT(A) in deleting the addition made by the Ld. AO on account of Royalty payment u/s 40A(2)(a) of the Act. The appellant revenue has conceded that the addition to all the three years is resting on identical facts . Therefore, as the issue is common to all the three years and is resting on identical facts, we will consider the figures for the AY-2015-16 as lead year. The decision of AY-2015-16 shall apply mutatis mutandis in both the ITA 265 & 267 also. 3.0 The Ld. DR relied upon the order of the Ld.AO for the reasons mentioned therein. 4.0 The Ld. Counsel for the assessee submitted that the Ld.AO had made an addition of Rs. 4,35,41,770/- on account of Royalty payment to M/s. CRI amalgamation private....
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....its turnover as royalty for the trade mark "CRI" which was assigned to M/s. CRI Amalgamations through assignment deed executed between CRI Industries Pvt. Ltd. & CRI Amalgamation Pvt. Ltd. The Scheme of Amalgamation was duly sanctioned by the Hon'ble Madras High Court vide its order dated 25.09.2007 w.e.f. 31.03.2007. While approving the Scheme of Amalgamation, the Hon'ble High Court has specifically provided that the transfer of all assets of the transferor companies to the transferee company, except those set out in clause 5.6 of Schedule G of the Scheme. As per Assignment Deed executed on 31.03.2007, the assignor M/s. CRI Industries Private Limited consist of several manufacturing and non-manufacturing companies have agreed to give away the trade mark "CRI" for a consideration of Rs..1,000/- to M/s. CRI Amalgamation Pvt. Ltd. However, the damages proposed to be paid by M/s. CRI Amalgamation Pvt. Ltd. for using the trade mark "CRI" was not mentioned in the assignment deed. However, through a User Agreement executed on 02.04.2007 between the CRI Amalgamations Pvt. Ltd. and the assessee have agreed for payment of royalty to the proprietor with effect from 01.04.2007 a sum e....
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....l to 0.50% of monthly turnover by the User company for using the trade mark "CRI". In the earlier years the assessee has been paying royalty to M/s. CRI Industries regularly and was accepted by the Department and allowed it as revenue expenditure. M/s. C.R.I. Industries, the receipt of royalty payments till assessment year 2007-08 has been offering the same to tax which was accepted by the Department. Moreover, for the assessment year 2008-09, the royalty recipient company M/s. C.R.I. Amalgamations (P) Ltd. has offered to tax the royalty received from the assessee of Rs..1,60,97,339/-. 4.8 The main contention of the ld. DR is that the sum of royalty paid by the assessee attracts the provisions of section 40A(2)(b) of the Act without giving any appropriate reasons. Just because the Assessing Officer was of the opinion that such expenditure is excessive or unreasonable, the expenses towards royalty, deduction cannot be denied. The provisions of section referred to by the ld. DR relates and shall have effect notwithstanding anything to the contrary contained in any other provision of the Income Tax Act relating to the computation of income under the head "Profits and gains of....
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....paid as royalty. Thus, the ground raised by the Revenue is dismissed." 8. In this view of the matter and consistent with the view taken by the co-ordinate bench in assessee's own case for earlier assessment years, we are of the considered view that the assessee is entitled for deduction towards royalty payment to holding company for using brand name CRI and thus, we are inclined to uphold the findings of the Ld. CIT(A) and reject the ground taken by the Revenue ..... " 7.0 We have also noted that the facts of the present appeals are identical to those adjudicated by this tribunal in ITA No.430/Chny/2018 Supra. Accordingly, in respectful compliance to the decision above, we are of the considered view that there is no case for intervention in the order of the Ld. CIT(A). The findings of the Ld.CIT(A) are upheld and all the grounds of appeal raised by the Revenue on this Royalty issue are dismissed. 8.0 Since the facts are identical, the decision in ITA No. 265 for AY- 2014-15 shall apply mutatis mutandis to ITA nos. 266 & 267 for AY-2015- 16 to 2016-17 and therefore findings of the Ld. CIT(A) for these appeals are also upheld and all the grounds of appeal raised by....
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....ax. The TPO observed on the basis of external CUP method that the arithmetic mean of the rates of bank guarantees was 2.19% and valued the additional risk assumed by the appellant at a conservative figure of 2% of the value of corporate guarantee. The appellant stated that it enjoyed an excellent credit score with zero defaults in the repayment of credit facilities availed and hence the rates obtained by the TPO based on external CUP will not be a good comparable as the financial bank guarantees are dependent on the credit worthiness of the customer. It was further submitted that when an internal comparable transaction is available, such transaction should be given preference in benchmarking. I have considered these submissions. It has been held in a plethora of decisions that bank guarantees are not akin to corporate guarantees. TPO cannot determine arm's length price of corporate guarantee by mechanically picking up bank guarantee rates from the public domain; however, said rates may turn out to be appropriate CUPs if they are properly benchmarked after making due adjustments in accordance with provisions of Rule 10B of 1962 Rules as has been held by the Hon'ble Mumbai Tr....
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.... and Banking the surplus energy. 16.0 The Ld. DR submitted that the reliance of Ld. CIT(A) upon the decision of the Hon'ble Apex Court in the case of Jindal Steel and Power Limited 16 SOT 509 was misplaced and that the relief has been wrongly given. The Ld. DR vehemently argued that the decision of Jindal Steel is not applicable to Electricity Act of 2003 which provides sale of electricity to private persons also. 17.0 The Ld. Counsel for the assessee argued that there is no change in the electricity act regulation and that the decision of Jindal Steel is squarely applies to its case. In support of its contentions, the Ld. Counsel for the assessee relied upon the decision in the case of SJLT Textiles vide I.T.A. Nos. 686, 687 & 688/Chny/2023 for Assessment Years: 2015-16, 2017-18 & 2018-19 dated 17.05.2024 of this tribunal. It was contended that the impugned decision has been taken after full consideration of various facets of the electricity act, fair market value of energy produced as well as the decision of Jindal Steel supra. 18.0 We have heard the rival submissions in the light of material available on records. We have noted that in the SJLT Textiles case supra, t....
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...., 2003, the issue in this regard about determining the market value is settled. The Id. CIT(A), in his order, referred to the decision of Hon'ble High Court of Chhattisgarh and Gujarat in the case of CIT v. Godawari Power & Ispat Ltd. [2014] 42 taxmann.com 551] and PCIT v. Gujarat Alkalies & Chemicals Limited [2017] 88 taxmann.com 722] respectively. Further, he also referred to the decision of the Hon'ble High Court of Bombay in the case of CIT v. Reliance Industries Ltd. [2020] 421 ITR 686 and held that the rate at which the state electricity board or power generation and distribution companies sell power to industrial and consumers should be adopted as open market value so as to determine the market value of electricity transferred. The Id. AR placed on record the recent decision of the Hon'ble Supreme Court in the case of CIT v. Jindal Steel & Power Limited in Civil appeal No. 13771 of 2015 dated 06.12.2023. The relevant portion of the above judgement from para 25 to 31 are reproduced herein below: 25. Therefore, the expression "market value" in relation to any goods as defined by the explanation below the proviso to sub-section (8) of Section 80 IA would me....
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....een 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 units of the assessee did not have the option of obtaining power from the captive power plants of the assessee, then in that case it would have had to purchase electricity from the State Electricity Board. In such a scenario, the industrial units of the assessee would have had to purchase power from the State Electricity Board at the same rate at which the State Electricity Board supplied to the industrial consumers i.e. Rs. 3.72 per unit. 28. Thus, market value of the power supplied by the assessee to its industrial units should be computed by considering the rate at which the State Electricity Board supplied power to the consumers in the open market and not comparing it with the rate of power when sold to a supplier i.e., sold by the assessee to the State Electricity Board as this w....
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....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. The State Electricity Board's rate when it supplies power to the consumers have to be taken as the market value for computing the deduction under Section 80-IA of the Act. 31. That being the position, we hold that the Tribunal had rightly computed the market value of electricity supplied by the captive power plants of the assessee to its industrial units after comparing it with the rate of power available in the open market i.e., the price charged by the State Electricity Board while supplying electricity to the industrial consumers. Therefore, the High Court was fully justified in deciding the appeal against the revenue. 14. On careful reading of the above, we note that the Hon'ble Supreme Court held the expression "market value" in relation to ....
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....n 80IA of the Act. By respectfully following the decision of the Hon'ble Supreme Court in the case of CIT v. M/s. Jindal Steel & Power Ltd. (supra), the claim of the assessee is allowed. The order of the ld. CIT(A) is justified and the grounds raised by the Revenue are dismissed. 17. Now we shall take up appeal in ITA No. 687/Chny/2023 for AY 2017-18: 18. Ground Nos. 1 to 3 raised by the Revenue is general in nature and requires no adjudication. 19. Grounds No. 4 & 5 raised by the Revenue are similar to the grounds No. 4 & 5 in I.T.A. No. 686/Chny/2023 for assessment year 2015-16, wherein, we took a view that the rate at which State Electricity Board supplied electricity to the industrial consumers would have to be taken as market value for computing deduction under section 80IA of the Act and the same is equally applicable to ground Nos. 4 & 5 of this appeal. Thus, the grounds raised by the Revenue are dismissed. 20. ITA No. 688/Chny/2023 for AY 2018-19: 21. Ground Nos. 1 to 3 raised by the Revenue is general in nature and requires no adjudication. 22. Grounds No. 4 & 5 raised by the Revenue are similar to the grounds No. 4....