2020 (9) TMI 1010 - AT - Income Tax

Validity of the assessment order itself - Order barred by limitation and liable to be quashed - HELD THAT - We find that an identical challenge was dismissed by the co-ordinate bench in the case of Religare Capital Markets Ltd 2019 (10) TMI 992 - ITAT DELHI wherein it has been held that final assessment order passed u/s 143(3) r.w.s. 144C(13) of the Act would not be covered under the provisions of section 153 of the Act. Respectfully following the findings of the coordinate bench, this ground is dismissed. TP Adjustments - international transactions relating to receipt of Management and consultancy services received towards Recovery of costs for SAP maintenance - HELD THAT - Revenue authorities cannot judge the rendition of services by applying benefit test as laid down in the case of EKL Appliances 2012 (4) TMI 346 - DELHI HIGH COURT . In our considered opinion, the only consideration in such transaction is rendition of services. All that the revenue authorities have to see is as to whether there is rendition of services by the AE to the assessee. This definitely puts the burden on the assessee to demonstrate that there was rendition of services by the AE to the assessee. Assessee cannot furnish evidences for day to day rendition of services, but definitely can demonstrate rendition at crucial points. Merely filing sample emails would not suffice. The assessee has to come with more strong evidences which may be in any form, including electronic forms to demonstrate that the AE has actually rendered services which are mentioned in the agreement. In the interest of justice and fair play, we restore this issue to the file of the Assessing Officer/TPO. The assessee is directed to come with strong evidences to demonstrate that the services were actually rendered by the AE. The Assessing Officer/TPO is directed to examine the issue afresh in the light of evidences that would be furnished by the assessee. This ground is, accordingly, treated as allowed for statistical purposes. Reimbursement of SAP and other expenses - assessee had incurred certain expenses in the nature of SAP maintenance charges, vehicle, telephone and food expenses, etc. on behalf of its AEs, on a cost-to-cost basis, without charging any mark-up - HELD THAT - , no mark up is warranted on pass through costs as these are reimbursement of primary third party expenses initially incurred by the assessee for which no value addition is done by the assessee and are subsequently reimbursed by the AEs on cost to cost basis. Moreover, in our considered view, such transactions are undertaken for commercial expediency and are not intended to be undertaken with expectation of return. Considering the nature of expenses in totality, in light of OECD guidelines, we do not find any merit in this adjustment made by the TPO. The same is directed to be deleted. Disallowance u/s 14A r.w.r. 8D - appellant received dividend which were claimed as exempt u/s 10(34) - Assessee made suo moto disallowance - HELD THAT - Assessee has made investments out of his own funds. Even assuming that the investments have come out of pool of funds, that is own funds and borrowed funds, then, the ratio laid down by Reliance Utilities and Power Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT squarely apply on the facts of the case, as in that case, the Hon'ble Bombay High Court has held that if the investments are made from pool of funds, then presumption would be that investments have come out of own funds if own funds are in excess of investment. Tribunal in assessee s own case in earlier assessment years have deleted the disallowance and this fact has also been accepted by the DRP. Merely because the Revenue has preferred an appeal before the higher forum would not justify any upholding of the disallowance. Disallowance u/s 14A on dividend income - HELD THAT - Respectively following the decision of the jurisdictional High Court in the case of Godrej Boyce Mfg. co. Ltd. Vs. DCIT another 2010 (8) TMI 77 - BOMBAY HIGH COURT we delete the disallowance made u/s 14A r.w. Rule 8D and accordingly, the ground taken by the assessee in this regard is allowed. Claim of additional depreciation - after the implementation of Scheme of amalgamation and arrangements passed by the Hon'ble High Court of Bombay at Goa and Hon'ble Madras High Court, the copper division, power division and aluminium division merged with the appellant - AO was of the opinion that the assessee is not entitled for additional depreciation as the word manufacture as defined in section 2(29BA) of the Act with effect from 1.4.1999 do not take in its purview the claim of the assessee - HELD THAT - The term production has been interpreted to be one having much wider connotation in as much as every manufacture can be characterised as production while every production might not amount to manufacture as held by the Hon'ble Apex court in the case of NC Budharaja Co. 1993 (9) TMI 6 - SUPREME COURT . Hon'ble Supreme Court in the case of Sesa Goa Ltd . 2004 (11) TMI 14 - SUPREME COURT earlier name of the assessee has held that extraction and processing of iron ore amounts to production. Thus we direct the Assessing Officer to allow claim of additional depreciation. Claim of balance 50% additional depreciation disallowed - assessee had acquired and installed some of the new plant and machinery eligible for additional depreciation under section 32(1)(iia) of the Act and was put to use for a period less than 180 days during FY 2012-13 - Scope of amendment - HELD THAT - Amendment takes effect from 1.4.2016. As this amendment is effective from 01.04.2016, therefore, it is clearly not applicable to the year under consideration. As far as the applicability of this amendment having retrospective effect, we are of the view that the Tribunal being last fact finding authority, should refrain from adjudication of retrospective or otherwise of the applicability in the amendment. In our considered view, this should be in the domain of superior courts. Therefore, considering the plain language of the section, we do not find the amendment applicable to the year under consideration. We are of the considered view that the assessee is not entitled for claim of 50% of the depreciation brought forward from earlier assessment years. Deduction u/s 32AC disallowance - claim of the assessee was denied by AO solely on the ground that exploration of mines and generation of power were not manufacturing activities as envisaged u/s 32AC - HELD THAT - In light of the decision in the case of Sesa Goa. 2004 (11) TMI 14 - SUPREME COURT and NTPC Sail Power Co. Pvt Ltd 2019 (3) TMI 207 - DELHI HIGH COURT we direct the Assessing Officer to allow the claim of deduction u/s 32AC of the Act. Addition on account of out of books receivables - as during the course of survey conducted u/s 133A at the business premises of the appellant, certain documents were impounded, which contained email exchanges made by the senior executives of the appellant company where from formed a belief that receivables of ₹ 1095.93 crores have not been disclosed by the assessee in its books of account - HELD THAT - Neither the Assessing Officer has done any verification nor the assessee has brought any evidence on record. Entire addition has been made only on the basis of emails without proper verification. On such half-baked facts, it is not possible for us to decide the quarrel. Therefore, we deem it fit to restore the entire quarrel to the file of the Assessing Officer. The Assessing Officer s directed to make verification of the claim from the respective bodies as mentioned here in above, and the assessee is directed to furnish necessary evidences in respect of such claims. Claim of the assessee that certain amounts pertained to other group entities, which are distinct entities, cannot be brushed aside lightly - HELD THAT - We direct the AO to consider only those receivables which pertain to the appellant company. With these directions, this ground is treated as allowed for statistical purposes. Disallowance of Corporate Social Responsibility expenditure - HELD THAT - These expenses are either in the nature of charity or donation. In our considered view, these expenses are not in the nature of CSR. Payments made to church, police station, summits, schools, etc cannot be considered to have been spent on CSR. Though the amendment to Section 37 of the act may be prospective, but at the same time, assessee had to justify the claim of expenditure being spent on CSR. Details mentioned hereinabove do not justify the claim of expenditure on account of commercial expediency. Considering the claim from all possible angles, we do not find any merit in such claim of expenditure - Decided against assessee. Addition of liquidated damages - HELD THAT - When the entire basis of making a decision is that agreements were not for supply of any machinery, but of design, transfer of technology knowhow, patent etc, which are in the nature of intangible assets, but the lower authorities have completely ignored the fact that even intangible assets are capital goods and a specific rate of depreciation is provided in the Income Tax Act. In our considered opinion, and as admitted by the revenue authorities, damages were for intangible assets and intangible assets are also capital goods. Therefore, any liquidated damages received are capital receipts. We, accordingly, direct the Assessing Officer to delete the addition. Denial of brought forward losses and unabsorbed depreciation - claim was denied by AO on the ground that in earlier assessment years, additions/disallowances have been made which have been confirmed by the DRP - DRP confirmed the findings of the Assessing Officer holding that the claim could only be admissible once assessment of earlier A.Y is finalised - HELD THAT - Even if the earlier assessment orders are in appeal, the assessee is still entitled for claim of set off as per assessed figures of previous A.Ys. We, accordingly, direct the Assessing Officer to allow set off as per assessed figures of the previous A.Ys. This ground is allowed for statistical purposes. Applicability of provisions of Minimum Alternate Tax MAT - HELD THAT - Disallowance made as per provisions of I.T. Act, would not justify in exporting the disallowance for the computation of book profit u/s 115JB of the Act Debit under the head Provision for Doubtful Trade Receivables/Advances and had also added back the same in the computation of total income under the normal provisions of the Act - HELD THAT - We are of the opinion that no adjustment need to be made on this count and the Assessing Officer is directed to delete the same. Reduction claim of provision for taxes - HELD THAT - Figure of ₹ 1782.09 crores pertain to reversal of unutilised provision for taxes in the current year. In our considered view, these factual figures need verification. We, therefore, deem it fit to restore this issue to the file of the Assessing Officer. The Assessing Officer is directed to verify the correctness of figures mentioned in charts hereinabove and decide the issue afresh. Reduction claim on account of Debentures Redemption reserve and surplus - Transfer to Reserve and Surplus Account - HELD THAT - Once reserve is created, it reduces divisible profit. This is the amount of profit which is retained for use in business when difficulty arises. Reserves can be invested. The said investments can be even outside the business and in such cases the reserve is called the reserve fund. Reserves are shown on the liability side of the balance sheet and are generally treated as belonging to the proprietor just as capital. It is a sum owned by the business to the proprietor. Reserves themselves are not assets but represent a portion of the assets which the proprietor is free to utilize for business as one likes, i.e. the assets equalling the reserves that are not required to pay liabilities. Generally reserves are created at the discretion of the management as a matter of prudence, but in certain cases a statute can direct creation of special reserves. For the purpose of Section 115JB of the Act, statutory reserves are treated alike and in a similar manner as other reserves. See SREI INFRASTRUCTURE FINANCE LTD VERSUS ADDITIONAL COMMISSIONER OF INCOME TAX 2015 (2) TMI 545 - DELHI HIGH COURT . Claim u/s 80 GGB denied - HELD THAT - Claim was made before the Assessing Officer but was denied. In our considered opinion, if the assessee is eligible for claim of deduction u/s 80 GGB of the Act the same deserves to be allowed. We direct the Assessing Officer to allow the same as per provisions of the law after making necessary verification.

Summary

Issues Involved:
1. Validity of the assessment order due to limitation.
2. Transfer pricing adjustments for management and consultancy services and SAP maintenance costs.
3. Disallowance under Section 14A of the Income Tax Act.
4. Claim of additional depreciation under Section 32(1)(iia) of the Income Tax Act.
5. Claim of balance 50% additional depreciation.
6. Deduction under Section 32AC of the Income Tax Act.
7. Addition on account of out-of-books receivables.
8. Disallowance of Corporate Social Responsibility (CSR) expenditure.
9. Addition on account of liquidated damages.
10. Denial of brought forward losses.
11. Applicability of Minimum Alternate Tax (MAT) provisions.
12. Claim under Section 80GGB of the Income Tax Act.

Detailed Analysis:

1. Validity of the Assessment Order Due to Limitation:
The assessee challenged the validity of the assessment order on the grounds of being barred by limitation. The Tribunal dismissed this ground, following a precedent set in the case of Religare Capital Markets Ltd, where it was held that a final assessment order under Section 143(3) read with Section 144C(13) is not covered by Section 153 of the Act.

2. Transfer Pricing Adjustments:
The assessee received strategic planning and consultancy services under a Management Consultancy Agreement. The Transfer Pricing Officer (TPO) denied the benchmarking done by the assessee, citing failure to substantiate actual rendition of services, prove benefits derived, and provide the basis for the allocation key. The TPO allowed 20% of the total sum paid, attributing it to strategic advice. The Dispute Resolution Panel (DRP) upheld this action. The Tribunal restored the issue to the Assessing Officer/TPO for fresh examination with strong evidence from the assessee.

3. Disallowance Under Section 14A:
The assessee received significant dividend income and disallowed a portion of the expenditure incurred in relation to earning exempt income. The Assessing Officer computed a higher disallowance under Rule 8D. The Tribunal, following its earlier decisions, directed the Assessing Officer to delete the disallowance, noting that investments were made from own funds and no new investments were made during the year.

4. Claim of Additional Depreciation Under Section 32(1)(iia):
The assessee claimed additional depreciation for new plant and machinery. The Assessing Officer disallowed the claim, stating that the assessee was not engaged in manufacturing or production. The Tribunal, referencing the Supreme Court's decision in Sesa Goa Ltd, held that extraction and processing of iron ore amounts to production and directed the Assessing Officer to allow the claim.

5. Claim of Balance 50% Additional Depreciation:
The assessee claimed the balance 50% of additional depreciation for assets used for less than 180 days in the previous year. The Assessing Officer disallowed the claim, stating that the provision for carry-over was applicable prospectively from AY 2016-17. The Tribunal upheld this view, denying the claim for the year under consideration.

6. Deduction Under Section 32AC:
The assessee claimed deduction under Section 32AC for new assets acquired and installed. The Assessing Officer denied the claim, stating that mining and power generation were not manufacturing activities. The Tribunal, referencing the Supreme Court and Delhi High Court decisions, directed the Assessing Officer to allow the claim.

7. Addition on Account of Out-of-Books Receivables:
The Assessing Officer added receivables not disclosed in the books, based on email evidence. The Tribunal found that neither the Assessing Officer nor the assessee provided sufficient verification and restored the issue for fresh examination, directing verification of claims from respective bodies and considering only those receivables pertaining to the appellant company.

8. Disallowance of CSR Expenditure:
The Assessing Officer disallowed CSR expenditure, stating it was not for business purposes. The Tribunal upheld the disallowance, noting that the expenses were in the nature of charity or donation and not justified as CSR.

9. Addition on Account of Liquidated Damages:
The assessee received liquidated damages for delayed supply of capital goods and treated it as capital receipt. The Assessing Officer treated it as revenue receipt. The Tribunal directed the Assessing Officer to delete the addition, stating that damages for intangible assets are also capital receipts.

10. Denial of Brought Forward Losses:
The Assessing Officer denied the set-off of brought forward losses due to pending appeals for earlier years. The Tribunal directed the Assessing Officer to allow the set-off as per assessed figures of previous years.

11. Applicability of MAT Provisions:
The Assessing Officer made several adjustments to the book profit computation under Section 115JB. The Tribunal, referencing the Supreme Court's decision in Apollo Tyres, held that the disallowances made under the Income Tax Act should not be exported to the computation of book profit under MAT and directed the deletion of such adjustments.

12. Claim Under Section 80GGB:
The assessee made a contribution to a political party and claimed deduction under Section 80GGB. The Tribunal directed the Assessing Officer to allow the claim after necessary verification.

Conclusion:
The Tribunal provided a detailed analysis and directions on each issue, ensuring adherence to legal precedents and proper verification of claims. The appeal was allowed in part for statistical purposes.