2021 (2) TMI 1163 - AAR - Income Tax

Advance ruling application u/s 245N - eligibility of deduction under section 80IA - no notice under section 143(2) for the A. Y. 2019-20 issued - Revenue has submitted that the application may not be admitted for the reason that the issue raised in the application was already pending before the Income-tax Authority - HELD THAT - In the present case, the notice under section 143(2) for AY 2018-19 was issued prior to the filing of the present application which had raised the very specific question of Deduction Claimed for Industrial Undertaking u/s 80IA which was subject matter of the present application. As regards objection of the Applicant that no specific issue of pendency was raised in the report of the PCIT, the matter of pendency of the issue before any Income-tax Authority is required to be decided by the Authority while adjudicating the issue of admission of the application. Therefore, the issue of pendency can be brought to our notice even in the course of hearing and which has been done by Ld. DR in this case. Rather the conduct of the Applicant is not found transparent in this case as the fact regarding prior issue of notice under section 143(2) for A.Y. 2018-19 was not mentioned in the application filed before the Authority. As the said notice was received prior to filing of the application the Applicant should have disclosed this fact in the application and the left the issue of 'pendency' for our adjudication. No notice under section 143(2) for the A. Y. 2019-20 - It is found that in the questions raised before us no assessment year is mentioned. Further, the eligibility of deduction under section 80IA has to be decided in the first year of claim. Once the claim is found eligible in the first year of claim the taxpayer is entitled for deduction in all the subsequent years and vice versa. Further, as per the provisions of the Act, it is not necessary that the issues raised in the application should be pending in all the years involved. Even if the issue is pending in a single year, it makes the application ineligible for admission under clause (i) of proviso to section 245R(2) of the Act. Issue involved in the questions raised in the present application filed before us was already pending before the Income-Tax Authority and the bar in terms of clause (i) of Proviso to Section 245R (2) is found attracted in this case. Therefore, the application is not admitted and consequently rejected.

Summary

Issues Involved:
1. Whether the generation of heat by the Applicant in its furnace undertakings amounts to the generation of power within the meaning of Sec. 80IA(4)(iv)(a) of the Act.
2. Whether the Applicant is eligible for deduction under section 80IA in respect of its furnace undertaking on the profits and gains derived from the generation of power.
3. Whether the Applicant has rightly applied the Profit Split Method as the Most Appropriate Method for computing Arm's Length Price under section 80IA(8) read with Sections 92F(ii), 92BA, and 92C of the Act to determine the eligible deduction.

Detailed Analysis:

Issue 1: Generation of Heat as Generation of Power
The Applicant, Graphite India Limited, engaged in the manufacturing of various graphite products and power generation, contended that the generation of heat in its furnace undertakings should be considered as the generation of power under Sec. 80IA(4)(iv)(a) of the Act. The Authority for Advance Rulings (AAR) did not specifically address the technical interpretation of this issue due to the procedural bar under section 245R(2) of the Act.

Issue 2: Eligibility for Deduction under Section 80IA
The Applicant claimed a deduction under section 80IA for the profits derived from the generation of power from its furnace undertakings. The Revenue objected, arguing that the issue was already pending before the Income-tax Authority due to a prior notice under section 143(2) for the assessment year (A.Y.) 2018-19. The AAR found that the notice under section 143(2) dated 22.09.2019 included the specific issue of "Deduction Claimed for Industrial Undertaking u/s 80IA," indicating that the matter was already under scrutiny. Consequently, the application was barred from admission under clause (i) of the proviso to section 245R(2).

Issue 3: Application of Profit Split Method
The Applicant sought to determine the Arm's Length Price using the Profit Split Method as the Most Appropriate Method under section 80IA(8) read with Sections 92F(ii), 92BA, and 92C. However, the AAR did not delve into the merits of this issue due to the procedural bar mentioned above.

Additional Observations:
- The Principal Commissioner of Income Tax (PCIT) did not initially raise the issue of pendency in their report dated 31.12.2020. However, the Department later clarified that the scrutiny for A.Y. 2018-19 included the specific issue of the deduction under section 80IA.
- The Applicant argued that the notice under section 143(2) was general and did not specifically address the eligibility of the deduction under section 80IA. The AAR, however, found that the notice explicitly included the issue of the deduction, thus constituting a pending matter.
- The AAR referenced several case laws, including CIT-I (IT) Vs. Authority for Advance Ruling, Hyosung Corporation vs. AAR, and Sage Publications Ltd, UK vs. DCIT, International Taxation, to distinguish the present case. The AAR concluded that the facts of the present case were distinct, as the notice under section 143(2) specifically mentioned the issue of the deduction under section 80IA.

Conclusion:
The application was not admitted due to the procedural bar under clause (i) of the proviso to section 245R(2), as the issue of the deduction under section 80IA was already pending before the Income-tax Authority. Consequently, the application was rejected.