2022 (3) TMI 1433 - ITAT MUMBAI

Addition of sales tax incentive/subsidy holding it as capital in nature - HELD THAT:- As decided in own case A.Y.2013-14 [2020 (12) TMI 165 - ITAT MUMBAI] allow the assessee's claim for treatment of Notional Sales tax as Capital receipt not liable to tax.

Depreciation claim - Whether the claim of depreciation for the year was optional in nature? - HELD THAT:- CIT(A) noted that current year issue is consequential. Accordingly, following earlier orders of ITAT in assessee‘s own case, he decided the issue in favour of the assessee. It is not the case that earlier years decision of ITAT has been reversed by Hon'ble High Court. Learned Departmental Representative also did not dispute that this issue is covered in favour of the assessee. Hence, we uphold the order of learned CIT(A). The Revenue‘s ground is dismissed.

Disallowance u/s 14A r. w. Rule 8D(2)(iii) - AO grievance that CIT(A) has erred in directing the Assessing Officer to take into account only such investments as having yielded dividends during the year under consideration - HELD THAT:- We find that this issue is covered, in favour of the assessee, by several decisions of the coordinate benches, in assessee’s own case, for the assessment years 2010-11 to 2012-13. DR does not dispute this position, nor does he point out any specific reasons for our not following these coordinate bench decisions, but he relies upon the stand of the Assessing Officer nevertheless. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches, in assessee’s own cases for the assessment years 2010-11, 2011-12 and 2012-13, and, respectfully following the same, we confirm the conclusions arrived at by the CIT(A) on this point as well, and decline to interfere in the matter.

MAT computation - disallowance u/s 14A r.w Rule 8D(2)(iii) to the amount calculated by the assessee for the purpose of income u/s. 115JB - HELD THAT:- We find that in the immediately preceding assessment year in assessee’s own case note that this issue is covered in favour of the assessee by the decision of honourable Bombay High Court in the case of Commissioner of income tax vs Bengal finance and investment private limited [2015 (2) TMI 1263 - BOMBAY HIGH COURT] wherein the honourable High Court by the order dated 5/1/18 held that disallowance u/s 14A cannot be added under section 115JB - Decided in favour of assessee.

Deduction u/s. 80IB(9) - Disallowance of deduction as assessee shall be eligible to claim deduction u/s. 80IB(9) of the Act in respect of profits “not allowed as deduction u/s. 10 AA - HELD THAT:- Issue decided in favour of the assessee, by a decision of the coordinate bench in the assessee’s own cases for the assessment years 2011-12 and 2013-14 [2020 (12) TMI 165 - ITAT MUMBAI] as held that the assessee shall be eligible to claim deduction u/s. 80IB(9) of the Act in respect of profits “ not allowed as deduction u/s. 10AA”. Accordingly, we set aside the vide taken by CIT(A) and A.O. on this issue. Decided in favour of the assessee.

Addition of aborted blocks of other contract areas underproduction Sharing contracts other than KGD - HELD THAT:- As decided in assessee own case for the assessment year 2013-14 [2020 (12) TMI 165 - ITAT MUMBAI] the deduction u/s 80IB(9) has to be computed after ascertaining profits and gains of eligible business in terms of sec. 80IA(5). Hence there is no scope to adjust expenses relating to other “undertaking” while computing deduction u/s 80IB(9) - Hence, we are of the view that the decision rendered by CIT(A) does not call for any interference and accordingly we uphold the same.

Deduction u/s 80IB(9)(ii) - whether natural gas is mineral oil and is eligible for deduction u/s. 801B(9)? - HELD THAT:- As the term 'mineral oil', for the purpose of claiming deduction u/s 80-IB(9) of the Act includes natural gas and condensate and therefore the assessee claim for deduction us 80IB(9) in respect of both natural gas and condensate is accordingly allowed. Accordingly, this ground of appeal is accordingly allowed.

Exclusion of amount of notional sales tax incentive while computing Book Profit u/s. 115JB - HELD THAT:- As where a receipt is not in the nature of income at all it cannot be included in book profit for the purpose of computation under Section 115JB of the Income Tax Act, 1961. For the aforesaid reason, we hold that the interest and power subsidy under the schemes in question would have to be excluded while computing book profit under Section 115 JB of the Income Tax Act, 1961.

Weighted deduction at 200% in respect of R&D expenditure u/s. 35(2AB) as claimed by the assessee - HELD THAT:- We see no reasons to interfere in the findings of the CIT(A)- particularly as there are now a number of decisions of the coordinate benches holding that so far as assessment years prior to 2016-17 are concerned, the DSIR’s limitingthe quantification of expenditure incurred on research and development expenses on a DSIR approved facility would not come in the way of weighted deduction under section 35AB. We are of the considered view that as long as the expenditure is actually incurred in the DSIR approved facility, which is not even in dispute in the present case, the entire expenses will have to be allowed as a deduction.

TP adjustment in respect of interest on delayed realization of receivables - whether the assessee’s benchmarking of the interest on the delayed realization of debts at 200 bps above the LIBOR is correct or not? - HELD THAT:- We find that in the immediately preceding assessment years, consistently this approach of the assessee, at the even lower spread of 150 bps, has been all along accepted by the coordinate benches. In any case, no case has been made out that the spread of 200 bps is lower than the arm’s length price. As regards the cost-plus method on the cost of funds, we find it is fundamentally flawed inasmuch as it treats all the types of borrowing at par and proceeds on the erroneous assumption that the arm’s length price of the debt has, at its basis, cost of funds available to the tested party- particularly when these funds are of significantly different tenures and different currencies. In view of these discussions, as also bearing in mind the entirety of the case, we approve the conclusions arrived at by the learned CIT(A)- which is, in any event, in harmony with the decisions of the coordinate benches in assessee’s own, and decline to interfere in the matter.

Transfer pricing adjustment on Provision of support services for drilling operations to AE - HELD THAT:- One of the critical factors in determining the ALP, as recognized by rule 10B(2)(d), is conditions prevailing in the market in which AEs operate, and once it’s a legal condition precedent in entering the transaction in the respective PSC market is that the AE’s affiliates are not allowed to have any mark up on a supply of services to the AE, the determination of ALP is required to be having regard to this condition. Viewed thus, the cost to cost rendition of services can be indeed be viewed as an arm’s length transaction. In view of these discussions, and being consistent with the co-ordinate bench decisions, we uphold the action of the CIT(A) and decline to interfere in the matter.

TP adjustment of corporate guarantee fee which is split into 50:50 as against the split of 60:40 charged by the TPO - HELD THAT:- We find that this is a purely factual matter, which permeates from year to year, and once the coordinate benches have consistently held, right from 2011-12 onwards, that 50:50 allocation is reasonable, and there is no change in the material facts, we see no reasons to take any other view of the matter than the view so taken by the coordinate benches in assessee’s own cases for the preceding assessment years. We, therefore, approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.

Nature of expenses - expenses incurred on corporate social responsibility (CSR) - HELD THAT:- As in assessee’s own case for the immediately preceding assessment year, deleted the similar disallowance. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches, and, in any case, no specific reasons for doing so have been pointed out to us. We have also noted that there is not even doubt on the bonafides and reasonableness of the expenses, and that the dispute before us, as elaborated earlier, is confined to the nature of the amendment being clarificatory. That issue, for the detailed reasons set out above- with which we are in considered agreement, must be held to only prospective in effect. In this view of the matter, and respectfully following the esteemed views of the coordinate benches, we delete the impugned disallowance.

Disallowance of investment allowance under section 32AC deleted.

Deduction in respect of export profits of SEZ unit u/s 10AA with reference to the income computed under the head 'profits and gains of business or profession' of the SEZ unit instead of 'gross profits and gains' of SEZ unit, as interpreted by Supreme Court in the recent judgement in the case of Vijay Industries [2019 (3) TMI 171 - SUPREME COURT] - Thus we direct the assessing officer to grant the deduction under section 10 AA with reference to the profit and gains as determined by the honourable Supreme Court in the case of Vijay Industries (supra).

Reference to the Transfer Pricing Officer ('TPO') under section 92CA - CIT(A) erred in confirming the action of the learned AO in not demonstrating that the course of business between the Appellant and the closely connected person was so arranged that it produces to the Appellant more than ordinary profits which might be expected to arise in its eligible business.

Inter-unit transfer of Power - As 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.