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2021 (4) TMI 680 - AT - Income TaxTP Adjustment - Arm s Length Price (ALP) adjustment towards interest on receivables qua its international transactions with overseas Associated Enterprise(s) (AEs) - HELD THAT - This tribunal s co-ordinate bench s decision involving AY.2013-14 2017 (12) TMI 862 - ITAT HYDERABAD holds that since no interest was charged in AEs and non-AEs, the impugned interest on receivables leading to ALP adjusted under Chapter-X of the Act is not sustainable. Coupled with this, learned CIT-DR fails to dispute that the authorities herein have adopted SBI s short term deposit rates for computing the impugned adjustment which are not based on any comparable in the very segment. We thus find no reason to sustain the impugned adjustment both on principles of judicial consistency as well as on merits. The same is directed to be deleted. The assessee succeeds in the first and foremost substantive ground. Disallowance of Depreciation of Plant and Machinery of Solar Power Plant at Chilveru Unit - date from which asset put to use - HELD THAT - The assessee s stand all along has claimed to have commenced its solar power plant on test check production well before the last day of the relevant accounting period i.e., 31-03-2014 and therefore entitled for the impugned depreciation. It has further stated that the energisations of the circuit was a condition precedent which never took place after 31st of March, 2014. Doubts on assessee s trial production claim - M/s.Schneider Electric India Private Limited had merely clarified the letter number as 1350 which was ultimately issued on 11-04-2014. It therefore appears an instance wherein the said number was allotted to the latter followed by Schneider s Certificate and the ultimate sanction coming on 11-04-2015. We make it clear that the Revenue s stand otherwise also would not result in any deviation of facts as to when the assessee had installed the power plant and commenced its trial production. We notice the same in light of the Regulation 43(3) of the Central Electricity Authority (measures relating to safety and electrical supply) Regulations, 2010 makes it mandatory that the owner of any power installation shall itself test check every circuit of voltage followed by recording of the corresponding results to be forwarded to the inspecting authority. It is this regulation s prior test results condition that the assessee had ensured compliance in March, 2014 itself which ultimately culminated in its approval. We thus quote the case law discussed at assessee s behest before the DRP (supra) and accept the assessee s depreciation claim on the ground that it had very well installed and put to use the solar plant in issue which further underwent all the mandatory inspections in the month of March, 2014 only. The impugned depreciation disallowance is deleted. Forward contracts loss disallowance - HELD THAT - Continuing with the assessee s regular system of accounting, its corresponding figures of the amount is reversed and offered to income or adjusted against forward contract loss as it has done in AY.2013-14. Case file suggests that the impugned loss of ₹ 27,70,201/- pertains to four vouchers for the years 2012-13 and 2013-14 which had been duly accepted by the Assessing Officer in revenue. Coming to gain on such forwards contracts; if any, the learned lower authorities have failed to indicate any deficiency on assessee s part in recognising the same. So far as its stand is that these transactions relating to capital account, the assessee s treatment of these forward contracts in revenue account in the said earlier assessment years has admittedly gone un-rebutted. The fact also remains that the assessee s treatment given to these forward contracts in earlier and latter assessment years have been duly accepted by the Assessing Officer which has also not been rebutted in the lower proceedings. We therefore allow the assessee s claim in principle and leave it open for the Assessing Officer to finalize factual verification as per law. The third substantive grievance is taken as allowed for statistical purposes. Disallowing cultivation, lease and depreciation towards biomass plant - HELD THAT - As overwhelming evidence duly proves the assessee s case that it had very much established its biomass plant by investing its capital. All these approvals and permissions also prove the stand adopted through out in support of the impugned expenses. Case law SPR Publications Pvt. Ltd. 2015 (7) TMI 117 - ITAT HYDERABAD holds that such a plant and machinery which is ready to use is very much entitled for depreciation. We thus allow assessee s depreciation claim on plant and machinery of ₹ 1,08,49,065/- and ₹ 6,28,182/- on vehicles; respectively totalling to ₹ 1,14,77,247/- in issue. Remaining twin components of lease amount and cultivation charges and the reasoning that no income had been generated from all this activity thereby raising serious doubts on assessee s claim, we are unable to lose sight of the fact that learned lower authorities even took pains to summon the revenue records of the concerned estate to ascertain the actual fact it is very much evident not only from the list of payees but also forming part of the entire project details. Coupled with this, we find that assessee s travelling/conveyance, repairs/maintenance claims qua the same stand accepted by the Assessing Officer himself.
Issues Involved:
1. Arm's Length Price (ALP) adjustment towards interest on receivables. 2. Depreciation disallowance for the Chilveru Solar Plant. 3. Forward contracts loss disallowance. 4. Disallowance of cultivation, lease, and depreciation expenses for the biomass plant. 5. 10% estimated disallowance of miscellaneous expenses. Issue-wise Detailed Analysis: 1. Arm's Length Price (ALP) Adjustment Towards Interest on Receivables: The assessee challenged the ALP adjustment of ?42,30,911 towards interest on receivables from international transactions with Associated Enterprises (AEs). The tribunal referenced a prior decision for AY 2013-14, which held that interest on receivables leading to ALP adjustment is unsustainable if no interest is charged between AEs and non-AEs. Additionally, the authorities used SBI's short-term deposit rates, which were not comparable. The tribunal found no reason to sustain the adjustment and directed its deletion, allowing the assessee's appeal on this ground. 2. Depreciation Disallowance for the Chilveru Solar Plant: The assessee contested the disallowance of ?18,63,27,778 in depreciation for the Chilveru Solar Plant. The DRP noted several objections, including the plant's readiness and use dates, the generation of electricity, and compliance with statutory regulations. The AO inferred that the plant was not put to use during FY 2013-14 based on discrepancies in approval dates and the lack of evidence for electricity generation. The tribunal, however, found that the plant was inspected and energized on a temporary basis before the end of the accounting period. It concluded that the plant was installed and put to use in March 2014, allowing the depreciation claim and deleting the disallowance. 3. Forward Contracts Loss Disallowance: The assessee disputed the disallowance of ?27,70,201 for forward contracts loss. The DRP noted that the assessee did not offer gains on Marked to Market (MTM) exposure to tax while claiming deductions for notional losses. The tribunal observed that the assessee consistently accounted for forward contracts in revenue and had recognized gains and losses in earlier and subsequent years. It allowed the claim in principle, directing the AO to finalize factual verification as per law. 4. Disallowance of Cultivation, Lease, and Depreciation Expenses for the Biomass Plant: The assessee challenged the disallowance of ?3,58,99,242, comprising cultivation expenses, lease expenses, and depreciation for the biomass plant. The DRP found that the plant was not set up and ready to use as of 31.03.2014, based on regulatory approvals obtained only after May 2014. The tribunal reviewed extensive documentation and found that the biomass plant was indeed set up and operational by the relevant date. It allowed the depreciation claim and reversed the disallowances for lease and cultivation expenses, concluding that the expenses were incurred for business purposes. 5. 10% Estimated Disallowance of Miscellaneous Expenses: The assessee did not press the issue of a 10% estimated disallowance of ?6,61,380 due to its smallness. The tribunal accordingly ordered the disallowance. Conclusion: The tribunal allowed the appeal in part, deleting the ALP adjustment, allowing depreciation for the solar and biomass plants, permitting the forward contracts loss claim subject to verification, and reversing the disallowances for biomass plant expenses. The 10% estimated disallowance was upheld as it was not contested.
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