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2016 (7) TMI 1582 - AT - Income TaxAddition of difference of profit between the value of bagasse transferred to and power transferred from subsidiary company - bagasse, a by-product arising in the manufacture of sugar, supplied by the assessee to its subsidiary company TEL in exchange for the power and steam received by the assessee from the subsidiary company - AO considered the market value of the bagassee supplied by the assessee to its subsidiary company and against the said value of bagassee, considered the value of power received by the assessee from the subsidiary company and arrived at the difference - HELD THAT - As decided in assessee's own case 2013 (1) TMI 1007 - ITAT CHENNAI we are inclined to decide the issue in favour of the assessee. This ground raised by the Revenue is dismissed. Addition of sale of Molasses - Addition in respect of the sale of molasses by the assessee by comparing the price at which another company, Trichy Distilleries and Chemicals Limited has purchased the molasses - CIT(A) deleted the addition on the reason that the price depends upon quality or grade as well as on the demand and supply position. The AO has taken average rate of ₹ 1,680/- per MT, in respect of one customer - HELD THAT - addition made by the AO cannot be sustained and we find no reason to interfere with the order of Ld.CIT(A). The price of the molasses is depending on the quality of the same. The prices are to be compared with same quality of molasses.The AO s comparison of price is not proper. The Ld.CIT(A) considered the quality of molasses and various components included in it to arrive at a proper comparison. The Departmental Representative was not able to controvert the findings of CIT(A). Hence, the same is confirmed and this ground of Revenue is rejected. Deemed dividend u/s.2(22)(e) - HELD THAT - When there is a running account between the parties on account of business transactions and there is no obligation of repayment by the parties, which is in nature of trade advance, to give effect to commercial transaction does fall within the meaning of sec.2(22)(e) of the Act. Hence, in our opinion deletion of addition by the CIT(A) is justified and the order of Ld.CIT(A) is confirmed on this issue. This ground is rejected. Addition made on account of export sales to Agrocorp - CIT-A deleted the addition - HELD THAT - The details of document produced by the assessee before the authorities show that the assessee has properly accounted the export sales at ₹ 40.94 crores, which was duly reflected in the sales reported in the P L A/c for the year ended on 31.03.2009. Further, the assessee has produced before the Ld.CIT(A), the party-wise and group-wise export of sale of Sugar to M/s.Agrocorp, which is at ₹ 40.94 crores. Ld.D.R is not able to controvert the findings of the Ld.CIT(A) s recording in para 11.3 of CIT(A) s order. Hence, when the books of accounts are duly audited and there is no adverse findings regarding the recording of the export sales and documents relating to the export show the same export figure, there is no question of doubting the same. Hence, we do not find any infirmity in the order of Ld.CIT(A) and the same is confirmed. Addition u/s.14A r.w.Rules 8D - main plea of the ld.A.R is that investment is a sister concern and associated companies and interest pertained to borrowings used for earning exempt income from the investments to be considered - HELD THAT - Interest on borrowing which are made for specific purpose of business cannot be considered for the purpose of Rule 8D of the Income Tax Rules. Further, investments in sister concerns or subsidiaries with which the assessee is having business transactions, that investments cannot be considered for the purpose of applicability of Rule-8D. See Sun TV Networks 2016 (2) TMI 928 - ITAT CHENNAI AO has to consider the assessee s own fund i.e. capital and reserves as available for investment which yields exempted income and thereafter he shall apply the Formula in Rule 8D and also exclude investments in subsidiaries as held by the above order of Co-ordinate Bench. With this observation, we remit the issue to the file of AO for fresh consideration. Hence, this ground is allowed for statistical purposes.
Issues Involved:
1. Deletion of addition towards the difference in profit from the value of bagasse and power transferred. 2. Deletion of addition in respect of the sale of molasses. 3. Deletion of addition made as deemed dividend under section 2(22)(e) of the Income Tax Act. 4. Deletion of addition on account of export sales to Agrocorp. 5. Sustaining the addition under section 14A read with Rule 8D of the Income Tax Act. Detailed Analysis: 1. Deletion of Addition Towards Difference in Profit from the Value of Bagasse and Power Transferred: The Revenue's appeal contested the deletion of an addition of ?11,03,84,378/- made by the AO towards the difference in profit from the value of bagasse transferred to and power received from M/s. Terra Energy Ltd. The assessee, engaged in sugar manufacturing, had a barter agreement with its subsidiary, Terra Energy Ltd. (TEL), for the supply of bagasse in exchange for steam and electricity. The AO added the difference in market value of bagasse and power received to the income of the assessee. The CIT(A) confirmed this addition. However, the Tribunal referenced its earlier decision in the assessee's case, where it was held that the cost of steam received should be considered, and since the Revenue could not rebut the findings of the CIT(A) on the valuation of steam, the Tribunal decided in favor of the assessee, dismissing the Revenue's ground. 2. Deletion of Addition in Respect of Sale of Molasses: The AO added ?30,09,770/- to the assessee's income, comparing the sale price of molasses to that of another company, Trichy Distilleries and Chemicals Ltd. The CIT(A) deleted this addition, noting that the price of molasses depends on its quality and demand-supply dynamics, and the AO had not established that the assessee sold molasses below the market price. The Tribunal upheld the CIT(A)'s decision, noting that the Departmental Representative could not controvert the CIT(A)'s findings, and confirmed the deletion of the addition. 3. Deletion of Addition Made as Deemed Dividend Under Section 2(22)(e) of the Income Tax Act: The AO treated ?28,60,00,000/- received from Shree Ambika Sugars Ltd. (SASL) as deemed dividend under section 2(22)(e) of the Act. Upon rectification, ?20 crores were excluded, leaving ?8.6 crores as deemed dividend. The CIT(A) deleted the addition, observing that the transactions represented a trading relationship and were in the ordinary course of business. The Tribunal upheld the CIT(A)'s decision, citing the Jurisdictional High Court's ruling that trade advances in the nature of money transacted for commercial transactions do not fall within the ambit of section 2(22)(e). 4. Deletion of Addition on Account of Export Sales to Agrocorp: The AO added ?7,59,38,975/- to the assessee's income, citing discrepancies in export sales to M/s. Agrocorp. The CIT(A) deleted the addition, noting that the export turnover was properly accounted for and reflected in the sales reported in the P&L account. The Tribunal confirmed the CIT(A)'s decision, as the Departmental Representative could not controvert the findings, and there were no adverse findings regarding the recording of export sales. 5. Sustaining the Addition Under Section 14A Read with Rule 8D of the Income Tax Act: The AO disallowed ?5,48,15,816/- under section 14A read with Rule 8D, related to the assessee's investment portfolio. The CIT(A) reduced the disallowance to ?4,39,92,362/-, considering interest on Inter-Corporate Deposits and other factors. The Tribunal, referencing various judgments, held that interest on borrowings for specific business purposes and investments in sister concerns should not be considered for disallowance under Rule 8D. The Tribunal remitted the issue to the AO for fresh consideration, instructing the AO to consider the assessee's own funds and exclude investments in subsidiaries. Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes, providing detailed reasoning for each issue and ensuring that the legal principles and facts were thoroughly considered.
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