2016 (8) TMI 1353 - AT - Income Tax

Computation of deduction u/s 80IA in respect of power generating unit - tax or levy is not be included in the computation of Transfer Price of power - Held that - As decided in assessee s own case as per provisions of Sec. 80IA (8), market price cannot be arrived by reducing the price by any other factors like taxes, duties etc., as the same are embedded in the price. Case of West Coast Paper Mills Ltd. Vs ACIT followed 2006 (4) TMI 184 - ITAT BOMBAY-I The issue is now covered in favour of the assessee by the decision of Hon ble Gujarat High Court in CIT vs. Shah Alloys Ltd. (2011 (11) TMI 762 - GUJARAT HIGH COURT) wherein it has been held that electricity duty shall form part of the market value at which electricity is transferred by CPP unit while computing deduction u/s. 80IA. Allocating common expenditure to the power generating units - AO allocated the cost to the power divisions on finding the cost of production of other power generating units on higher side than the production cost of the assessee - Held that - The borrowed fund was directly used by the assessee for its power divisions. There was no ambiguity with regard to the interest expenses claimed by the assessee in their divisions. The AO has allocated the cost his premise and conjuncture. Case of case of Liberty India vs. CIT (2009 (8) TMI 63 - SUPREME COURT) followed. Deduction u/s 80HHC shall be worked out after adjusting the profit eligible amount of deduction under section 80 IA - Held that - We find that issue is covered in favour of Revenue and against the assessee in its own case wherein as considered in the light of the provisions of section 80IA(9) of the Act which provides that where any amount of profits or gains of an undertaking or of an enterprise in the case of an assessee is claimed and allowed under the said section for any assessment year, the deduction to the extent of such profits or gains shall not be allowed under any other provision of Chapter VIA. The deduction for the profits under section 80IA has been allowed in respect of the power undertakings. Most of the energy generated therein has been captively used for manufacture of goods profits whereof are part of profits of business. - Decided against assessee 90% of interest received to be reduced from the profit to work out the eligible deduction under section 80 HHC of the Act - Held that - This co-ordinate Bench in assessee s own case (supra) has decided the issue remitted back to the file of AO To examine the nexus between the rent and interest receipts and payments and in case there was such a nexus then only 90% of the net amount was to be exclude from the business profits. Nature of receipt - sales tax incentive received under the west Bengal Incentive Scheme 1993 - revenue or capital - Held that - Coordinate Bench has decided this issue against the assessee in assessee s own case he Calcutta High Court in the case of CIT vs. Chhindwara Fuels reported in (2000 (4) TMI 17 - CALCUTTA High Court) held that sales tax subsidy received from the Government was after commencement of production and was not a capital receipt. The assessee s contention that the subsidy involved in the said case was not under the 1993 Scheme and was different cannot be accepted in view of the decision of the High Court specifically laying down that subsidy on account of sales tax is not a capital receipt. Accordingly the said amount is assessable under the normal provisions of the Act as a revenue receipt. DEPB sale for working out the profit of the business u/s 80HHC - Held that - Section 28(iiid) of the Act talks about the profit derived on the transfer of DEPB and the face value accrued to the assessee for the DEPB is covered by the provisions of section 28(iiib) of the Act. Hence we conclude that the face value of the DEPB is covered under the provisions of section 28(iiib) of the Act. Judgment of Topman Exports Vs. CIT (2012 (2) TMI 100 - SUPREME COURT OF INDIA) followed. - Decided in favour of assessee.

Issues Involved:
1. Inclusion of tax or levy in the computation of "Transfer Price" for deduction under section 80-IA.
2. Allocation of common expenditure to the power undertaking.
3. Computation of eligible profits for section 80HHC after adjusting profit from power generation eligible for section 80IA.
4. Reduction of 90% of interest received from 'Profits and Gains of Business and Profession' for section 80HHC.
5. Nature of sales tax incentive received under the West Bengal Incentive Scheme, 1993.
6. Issuance of enhancement notice on account of disallowance of EPB credit in computing deduction under section 80HHC.
7. Treatment of DEPB receipt under section 28(iv) and section 28(iiid) for section 80HHC.
8. Deletion of interest levied under section 234D.

Analysis of Judgment:

Issue 1: Inclusion of Tax or Levy in Transfer Price for Section 80-IA Deduction
The assessee argued that tax or levy should be included in the computation of the "Transfer Price" for claiming deduction under section 80-IA. The AO determined the value of power units generated by the assessee's power plants for captive consumption at a price at which the assessee sells power to the Karnataka Electricity Board (KEB). The CIT(A) partially agreed, directing the transfer price to be the price charged by the Electricity Board less the tax component. The Tribunal upheld the CIT(A)'s decision, following precedents and the Hon'ble Gujarat High Court's decision in CIT vs. Shah Alloys Ltd., which included electricity duty in the market value.

Issue 2: Allocation of Common Expenditure to Power Undertaking
The AO allocated common expenditures to the power units based on the investment ratio, which was disputed by the assessee. The CIT(A) deleted the interest expenses allocated but upheld part of the other indirect expenses. The Tribunal found that the AO's allocation was based on conjecture and not on any defect in the books of accounts. The Tribunal allowed the assessee's appeal, following the Supreme Court's judgment in Liberty India vs. CIT, which emphasized that only direct and immediate expenses should be considered for computing profits of the eligible unit.

Issue 3: Computation of Eligible Profits for Section 80HHC
The Tribunal upheld the CIT(A)'s decision that eligible profits for section 80HHC must be computed after adjusting the profit from power generation eligible for section 80IA, following the Special Bench decision in Assistant Commissioner of Income Tax vs. Rogini Garments.

Issue 4: Reduction of 90% of Interest Received for Section 80HHC
The Tribunal remitted the issue back to the AO to examine the nexus between interest receipts and payments, directing that only 90% of the net amount should be excluded from business profits if such a nexus is established.

Issue 5: Nature of Sales Tax Incentive
The Tribunal followed the Calcutta High Court's decision in CIT vs. Chhindwara Fuels, holding that sales tax subsidy received after the commencement of production is a revenue receipt and not a capital receipt, dismissing the assessee's ground.

Issue 6: Enhancement Notice for Disallowance of EPB Credit
The Tribunal did not specifically address this issue in the summarized judgment provided, indicating it may not have been a focal point of the appeal.

Issue 7: Treatment of DEPB Receipt
The Tribunal followed the Supreme Court's judgment in Topman Exports vs. CIT, concluding that the face value of DEPB is covered under section 28(iiib) and not section 28(iiid). Thus, only the profit on transfer of DEPB should be reduced by 90% for computing 'profits of the business' under section 80HHC.

Issue 8: Deletion of Interest Levied under Section 234D
The Tribunal did not specifically address this issue in the summarized judgment provided, indicating it may have been resolved in line with the other issues or deemed not significant.

Conclusion:
The Tribunal's comprehensive analysis and adherence to precedents and higher court rulings resulted in a balanced judgment, partly allowing the assessee's appeals and dismissing the Revenue's appeal. The Tribunal's decisions were grounded in established legal principles, ensuring a fair resolution of the disputes.

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