2022 (1) TMI 1367 - AT - Income Tax

TP Adjustment - specific domestic transaction as the case is covered u/s 92 BA - HELD THAT - The undisputed fact is that as per sub-clause (r) of section 92 BA the assessee has undertaken the transaction which has exceeded the prescribed limit. It is also not in dispute that vide Finance Act,2017 w.e.f. 01.04.2017 the said sub-clause (r) of section 92BA has been omitted. We find that an identical issue came up for adjudication before the coordinate bench, Bangalore i n 2017 (12) TMI 1719 - ITAT BANGALORE held court is to look to the provisions in the rule which has been introduced after omission of the previous rule to determine whether a pending proceeding will continue or lapse. If there is a provision therein that pending proceedings shall continue and be disposed of under the old rule as if the rule has not been deleted or omitted then such proceeding will continue. We, therefore, set aside this issue to the file of the Assessing Officer. The Assessing Officer is required to adjudicate the issue in accordance with law, after affording sufficient opportunity of being heard to the assessee. Disallowance of deduction u/s 80IA - rate for eligibility of deduction - AR stated that the rate applied by the assessee is not correct and it is the say of the counsel that the rate charged by the electricity board to its consumers should be taken as rate for eligibility of deduction under section 80IA of the Act - HELD THAT - We are of the considered view that this contention of the ld. counsel for the assessee is correct. The counsel has applied the rate which it has charged to the electricity board whereas the rate should have been the rate charged by the electricity board to its consumers. We, therefore, set aside this issue to the file of the Assessing Officer. The assessee is directed to furnish the rates charged by the electricity board to its consumers and the Assessing Officer is directed to verify the same and decide the issue afresh. Ground No. 4 is allowed for statistical purposes. Claim of education cess as deductible u/s 37 - HELD THAT - This issue has been extensively considered by the Hon ble High Court of Bombay in the case of Sesa Goa 2020 (3) TMI 347 - BOMBAY HIGH COURT We find that the co-ordinate bench has followed the decision of the Hon ble Supreme Court in the case of K Srinivasan 1971 (11) TMI 2 - SUPREME COURT However, the issue before the Hon ble Supreme Court was whether the surcharge is part of tax or not. Whereas the issue before the Hon ble Bombay High Court in the case of Sesa Goa 2020 (3) TMI 347 - BOMBAY HIGH COURT was whether education cess is allowable as expenditure or not. Therefore, the decision of the Hon ble Bombay High Court is directly on the claim of the assessee and respectfully following the same, we direct the Assessing Officer to allow the claim of deduction in respect of education cess paid by the assessee. Ground number 5 and additional ground is allowed.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer to refer to the Transfer Pricing Officer for determination of transfer pricing adjustment.
2. Transfer pricing adjustment related to purchases from associated enterprises.
3. Disallowance of managerial remuneration including super productivity incentive.
4. Disallowance of deduction under section 80IA of the Act.
5. Deductibility of education cess as an expense under section 37 of the Act.
6. Liability to pay interest under sections 234A, 234B, and 234D of the Act.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer to refer to the Transfer Pricing Officer:
The assessee challenged the jurisdiction of the AO to refer the case to the TPO for transfer pricing adjustments after the omission of clause (i) of section 92BA by the Finance Act, 2017. The assessee argued that the omission implies that the clause was never on the statute, relying on the Supreme Court's decisions in Kolhapur Cane Sugar Works and General Finance Company. The Tribunal, following the Karnataka High Court's affirmation in Texport Overseas Pvt Ltd and other cases, held that the reference to the TPO and the consequent orders are bad in law. Therefore, the matter was set aside to the AO for fresh adjudication.

2. Transfer Pricing Adjustment Related to Purchases from Associated Enterprises:
Given the resolution of the jurisdiction issue, the Tribunal did not delve into the merits of the transfer pricing adjustment related to purchases from associated enterprises, rendering this ground otiose.

3. Disallowance of Managerial Remuneration Including Super Productivity Incentive:
Similarly, due to the resolution of the jurisdictional issue, the Tribunal did not address the disallowance of managerial remuneration and super productivity incentive, making this ground otiose.

4. Disallowance of Deduction Under Section 80IA of the Act:
The assessee claimed a deduction under section 80IA for steam generated units, converting steam into electrical units based on a chartered engineer’s certificate. The TPO rejected the claim, but the DRP accepted the eligibility. However, the DRP directed the TPO to recompute the deduction using comparable rates from other companies. The Tribunal agreed with the assessee that the rate charged by the electricity board to its consumers should be used. The issue was set aside to the AO to verify and decide afresh based on the rate charged by the electricity board to its consumers.

5. Deductibility of Education Cess as an Expense Under Section 37 of the Act:
The Tribunal admitted this ground based on the Supreme Court's ruling in NTPC. The Bombay High Court in Sesa Goa Ltd. held that education cess is deductible, as it is not included in "any rate or tax levied on profits" under Section 40(a)(ii). The Tribunal, following this precedent, directed the AO to allow the deduction of education cess paid by the assessee.

6. Liability to Pay Interest Under Sections 234A, 234B, and 234D of the Act:
The Tribunal did not specifically address this issue in the judgment, as the primary grounds were resolved by setting aside the jurisdictional issue to the AO.

Conclusion:
The appeal was allowed in part for statistical purposes, with the primary issue of jurisdiction set aside to the AO for fresh consideration. The Tribunal directed the AO to allow the deduction of education cess and to reassess the deduction under section 80IA based on the rate charged by the electricity board to its consumers. The other grounds were rendered otiose due to the resolution of the jurisdictional issue.