TaxTMI 
TaxTMI 
2026 (2) TMI 352
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....reproduce the same here for the sake of brevity and convenience. 3. The Ground Nos. 1 & 8 of the assessee's appeal are general in nature and therefore, the same does not any require adjudication. Hence, the same is hereby dismissed as infructuous. 4. The issue raised by the assessee is Ground No. 2 to 2.5 of the appeal pertains to the addition made for Rs. 30,77,53,817/- on account of determination of ALP specified domestic transaction being supply of Bagasse from sugar division to power division. 5. The relevant facts are that the assessee is a public company and one of the most efficient integrated sugar companies in South India. It is part of the NSL Group, which is engaged in diversified agro-commercial crop businesses. The assessee company has multiple integrated sugar complexes across Karnataka, Telangana, and Maharashtra, engaged in the production of sugar, cogeneration power, distillery products, organic manure, and bio-fertilizer products. 6. During the year under consideration, the assessee entered specified domestic transactions in respect of steam and electricity units produced by the Power Division and bagasse (by-product) generated by the Sugar Division. I....
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....ddition, the assessee also claimed that during the year under consideration it had sold bagasse to a third party at the rate of Rs.1,200 per ton. Therefore, the price of Rs.1,500 per ton charged to the Power Division in the transfer pricing study was claimed to be at arm's length. 8.4 However, the TPO dismissed the assessee's contention that the CERC tariff rate applies only in the context of supply of electricity. The TPO observed that bagasse is a vital input for power generation and, therefore, determination of its input cost is sine qua non. The TPO held that the CERC, after considering various factors such as prevailing market rates, expected market prices, and demand-supply mechanisms, had determined the fuel cost for power generation. The TPO also rejected the assessee's reliance on the KERC tariff order of 2018 on the ground that it pertained to an earlier period, whereas the CERC rate was for the relevant year. Further, the TPO did not accept the assessee's working of bagasse cost based on the FRP of sugarcane, holding that the same was based on estimates. 8.5 With respect to the assessee's claim of third-party sales of bagasse at Rs.1,200 per ton, the TPO observed t....
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....ources and includes transportation costs. In the assessee's case, bagasse is a by-product generated in-house and the power plant is a co-generation plant. Therefore, the CERC notified rate is not applicable to the assessee's facts. 11.3 The assessee further submits that the adoption of CERC rates by the learned TPO results in attributing substantial cost to bagasse, which in turn distorts the cost of production of the main finished product, namely sugar. Since bagasse is only a by-product, its value cannot be equated with the cost or price of the raw material, i.e., sugarcane. 11.4 In view of the above facts and submissions, the assessee submits that the transfer price of bagasse adopted by it at Rs. 1,500 per ton, based on open market quotations, represents a reasonable and arm's length price and deserves to be accepted. 12. Thee learned DRP sought remand report from the TPO in which TPO submitted that in determination of ALP of bagasse it (TPO) relied on credible data from CERC tariff rate. Therefore, the same should be adopted for benchmarking the assessee's transaction. 13. The assessee in rejoinder to the remand report again objected the adoption of CERC tariff rat....
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....wer units. The assessee has adopted a transfer price of Rs.1,500 per ton based on quotations obtained from unrelated third parties and has also demonstrated that similar rates were available in the open market. The TPO rejected this approach and adopted the CERC tariff rate of Rs.2,274 per ton as the benchmark. 18.2 We find merit in the contention of the assessee that the CERC tariff rate is prescribed in the context of determination of tariff for supply of electricity and is based on assumptions such as procurement of bagasse from outside sources and inclusion of transportation and handling costs. In the present case, bagasse is not procured externally but is internally generated as a by-product and transferred to a captive co-generation plant. Therefore, the assumptions underlying the CERC tariff do not fit the factual matrix of the assessee. Mechanical adoption of such regulatory rates, without examining their applicability to the assessee's business model, cannot be upheld. 18.3 We also note that the assessee had relied on the tariff order issued by the Karnataka Electricity Regulatory Commission (KERC), wherein the fuel cost of bagasse was prescribed at Rs.1,161.28 per t....
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....y making a sale on a single day may create a suspicion but that is not the conclusive to reject the contention of the assessee unless the revenue brings some contrary material on record. Hence, we are of the view that the price of Rs.1,500 per ton adopted by the assessee is reasonable and satisfies the arm's length principle. Accordingly, we set aside the directions of the learned DRP, and the consequent adjustment made by the TPO. The Assessing Officer/TPO is directed to accept the transfer price of bagasse adopted by the assessee. The grounds raised by the assessee on this issue are allowed. 19. The next issue raised by the assessee through Ground No. 3 of the appeal is that the AO and the learned DRP erred in disallowing the claim of loan and advances w/o for Rs. 3,79,70,871/- only. 20. During the relevant assessment year, the assessee had written off an amount of Rs.3,79,70,871 being loans/advances given to its wholly owned subsidiary in Ghana, namely NSL Sugars and Industries Limited. The advances were made over earlier years by the assessee by directly making payments to the vendors of the subsidiary and were reflected as loans in the books of the assessee. The subsidia....
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....as also not allowable under section 37, as the assessee failed to establish commercial expediency or prove that the expenditure was incurred wholly and exclusively for its own business. It was noted that the payments were made abroad on behalf of the subsidiary, without RBI approval, and related to expenses such as professional fees, audit fees and guest house rent, which were not shown to have any direct nexus with the assessee's business. The AO distinguished the case laws relied upon by the assessee as being factually different, since those cases involved equity investments, whereas in the present case the amounts were treated as loans/advances. Accordingly, the write-off of Rs.3,79,70,871 was treated as capital in nature and disallowed. 21. The aggrieved assessee preferred to file objection before the learned DRP. 22. Before the learned DRP, the assessee reiterated that it had incorporated a wholly owned subsidiary in Ghana with the sole objective of expanding its existing sugar manufacturing business beyond India. The subsidiary was engaged in the same line of business as the assessee, as evident from its Memorandum of Association. In the initial years, the subsidiary ha....
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....e and the comments of the AO in the remand report and the rejoinder filed by the assessee, the Panel is of the opinion that the assessee has not directly made investments in the form of equity in its subsidiary but has paid to the vendors of the subsidiaries and the payments are in the nature of professional charges, accountancy charges, Audit fees and guest house rent. It is not a case of investment in the subsidiary and hence it can be inferred that there is no commercial expediency for the Parent company to pay off the vendors of the subsidiary directly. Hence the assessee's contention that it is a business loss is not acceptable. Grounds rejected. 23. Being aggrieved by the order of the learned DRP direction and the assessment order, the assessee is appeal before us. 24. The learned AR before us reiterated the contentions made before the authorities below. On the other hand, the learned DR vehemently supported the orders passed by the authorities below. Accordingly, no interference by the Tribunal is called for. 25. We have heard the rival contentions of both the parties and perused and examined the materials placed on record. The undisputed facts are that the assessee....
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.... arising from investment in a wholly owned subsidiary made for business purposes is allowable as a business loss. The ratio laid down therein applies to the present case as well. The distinction sought to be made by the lower authorities between equity investment and loan/advance is, in our view, not material when the underlying purpose and business nexus are the same. Similar principles have also been laid down in CIT v. Colgate Palmolive (India) Ltd., (Supra) Cosmos Industries Ltd. v. DCIT (Supra) and Refex Industries Ltd. v. DCIT (Supra). 25.5 We also find no merit in the objection regarding non-applicability of section 36 of the Act, since the assessee has never claimed the deduction as a bad debt. The claim has rightly been made under section 37(1) of the Act as a business loss. The fact that the assessee is not engaged in money-lending business is therefore irrelevant for deciding the present issue. In view of the above discussion, we hold that the write-off of Rs.3,79,70,871 representing loans/advances given to the wholly owned subsidiary in Ghana is a business loss incurred on grounds of commercial expediency and is allowable as a deduction under section 37(1) of the Act....
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.... deduct tax at source as required under section 194C and, therefore, disallowed 30% of the harvesting charges amounting to Rs.12,39,31,892 under section 40(a)(ia) of the Act. 28. The aggrieved assessee preferred to file objection before the learned DRP 29. Before the learned DRP, the assessee submitted that it had paid Rs.41,31,06,305/- towards harvesting and transportation charges of sugarcane on behalf of the farmers. Such payments were not claimed as independent expenditure of the assessee but were adjusted against the sugarcane purchase price and accounted for as part of the cane purchase cost. Therefore, the assessee contended that the provisions of section 40(a)(ia) of the Act have no application to the facts of the case. 29.1 It was further submitted that harvesting and transportation charges are an integral part of sugarcane procurement and are deducted from the amounts payable to farmers. The assessee merely discharged the payments on behalf of the farmers, and hence there was no liability on the assessee to deduct tax at source. Accordingly, the provisions of section 194C of the Act were stated to be not applicable to such payments. 29.2 The assessee also subm....
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....uld not be verified in the absence of specific details which were not furnished by the assessee. Grounds rejected. 30. Being aggrieved by the direction of the learned DRP and the assessment order, the assessee is in appeal before us. 31. The learned AR before us reiterated the contentions made before the authorities below. On the other hand, the learned DR vehemently supported the orders passed by the authorities below. 32. We have heard the rival contentions of both the parties and perused the materials available on record. The undisputed facts are that the assessee paid harvesting and transportation charges amounting to Rs.41,31,06,305 in connection with procurement of sugarcane. These amounts were not claimed as a separate expenditure in the Profit and Loss Account but were adjusted against the purchase price of sugarcane and treated as part of cane purchase cost. 32.1 The consistent stand of the assessee is that harvesting and transportation charges are integral to sugarcane procurement and are paid on behalf of farmers. The assessee has merely facilitated such payments, which are ultimately adjusted against the price payable to farmers. Therefore, the payments do n....
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....under section 40(a)(ia) is warranted. Accordingly, the disallowance of Rs.12,39,31,892 made by the Assessing Officer and sustained by the learned DRP is directed to be deleted. The ground raised by the assessee is allowed. 33. The next issue raised through Ground No. 5 of the appeal is that the revenue authorities erred in making disallowances under section 43B of the Act for Rs. 4,15,61,438/- only. 34. On perusal of the assessee's financial statements, the AO observed that the assessee had claimed a substantial amount of interest expenditure payable to banks and financial institutions during the relevant previous year. Accordingly, the assessee was required to substantiate whether such interest was actually paid during the year or before the due date of filing of return of income, failing which the same would be liable for disallowance under section 43B of the Act. 34.1 In response to the notice, the assessee furnished a statement showing interest allegedly paid during FY 2020-21 aggregating to Rs.11,93,89,046 and claimed that the interest was allowable. The assessee specifically claimed that interest of Rs.93,53,056 relating to a term loan from M/s L&T Infra Finance was ....
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....re Finance Ltd. under section 133(6) of the Act, without appreciating the assessee's books of account and documentary evidence. Merely because the lender reported a lower amount of interest billed or stated non-receipt, the deduction cannot be denied when the assessee has demonstrated actual payment before the due date of filing the return. The assessee cannot be penalised for non-response or partial response of banks or lenders to notices issued by the department. 36.2 The assessee further submits that the Assessing Officer granted only one day's time to respond to the show cause notice dated 27.12.2023, which is in gross violation of the principles of natural justice. The addition has been made in undue haste without granting reasonable opportunity, without allowing cross-examination of the lender, and without rejecting the assessee's books of account. Such an approach renders the disallowance unsustainable. Reliance is placed on the following judicial precedents: * Income Tax Appellate Tribunal in Kesha Appliances Pvt. Ltd. v. ITO, ITA No. 2715/Del/2016, AY 2012-13 (order dated 09.03.2018), wherein it was held that deduction under section 43B of the Act cannot be den....
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....te and proper correlation between bank payments, loan accounts, and interest certificates could not be placed before the Assessing Officer. 39.1 The learned AR fairly submitted that the assessee is in a position to furnish complete loan-wise reconciliation, bank statements, interest computation, and explanations for differences arising on account of timing or appropriation of payments. In the interest of justice, the learned AR requested that the matter be set aside to the file of the Assessing Officer with a direction to verify the claim afresh after affording reasonable opportunity of being heard to the assessee. 40. On the other hand, the learned DR before us submitted that he has no objection if the issue is restored to the file of the Assessing Officer for fresh examination, provided the assessee is directed to fully cooperate in the proceedings and furnish all relevant documentary evidence to substantiate its claim of actual payment of interest in terms of section 43B of the Act. 41. We have heard the rival submissions and perused the materials available on record. We note that the dispute relates to verification of actual payment of interest under section 43B of the....