2024 (3) TMI 1195 - AT - Income Tax

TP adjustment - price of the power transferred by the section 80IA eligible captive power plant of the assessee to the non-eligible manufacturing units of the assessee and thereby, reducing the claim of deduction claimed by the assessee u/s 80IA - HELD THAT - As decided in assessee own case 2023 (2) TMI 341 - ITAT KOLKATA transfer pricing adjustment made for deduction u/s 80IA of the Act raised by the Revenue are dismissed. Claim of balance additional depreciation - assessee purchased and installed new plant and machinery in the preceding year but put to use the same for a period less than 180 days in that year - HELD THAT - As decided in assessee own case 2023 (2) TMI 341 - ITAT KOLKATA we are of the view that the law laid down by the Hon'ble High Court of Karnataka in the case of CIT and another vs. Rittal India Private Lid 2016 (1) TMI 81 - KARNATAKA HIGH COURT is applicable to the present case, thus we hold that the assessee is entitled to claim remaining 50% depreciation of such 20% which is equal to the actual cost of new plant and machinery, accordingly ground no-I raised by the assessee is allowed. Nature of expenses - Deduction on proportionate basis of the compensation paid in connection with the mining activity for obtaining limestone, used as raw material for manufacturing of cement - AO disallowed the claim of the said expenditure by observing that the same was capital expenditure in nature - HELD THAT - As decided in assessee own case 2023 (2) TMI 341 - ITAT KOLKATA held that payment of compensation to persons whose rights are infringed by the mining activity is revenue in nature. Nature of receipt - amount received by the assessee as industrial promotion assistance from the State Govt. - revenue v/s capital receipt - HELD THAT - As decided in Tribunal 2023 (2) TMI 341 - ITAT KOLKATA to hold that the interest subsidy is to be treated only as a capital receipt and accordingly the grounds raised by the assessee in this regard are allowed. Disallowance u/s 14A r.w.r.8D - HELD THAT - The impugned order of the CIT(A) is modified and it is directed that the Assessing Officer would recompute the disallowance u/s 14A r.w.r 8D(2)(iii) by considering all investments including investments in subsidiary companies which yielded dividend income. This Ground of the revenue s appeal is partly allowed. MAT Computation - exclude the subsidy from the books profits assessable u/s 115JB - HELD THAT - As decided in own case of assessee 2023 (2) TMI 341 - ITAT KOLKATA no infirmity in the finding of ld. CIT(A) holding that the subsidy/incentive received by the assessee which have been held to be capital receipts are to be excluded from the book profit u/s 115JB. Upward adjustment made to book profit on account of disallowance of expenditure computed u/s 14A of the Act r.w.r. 8D - HELD THAT - It is to be pointed out that as per Explanation 1(f), the book profit means the profit shown in the statement of profit and loss account as increased by the amount of expenditure relatable to the exempt income. The said amount of expenditure has already been ordered to be determined as per our observations made above while adjudicating the issue relating to the disallowance u/s 14A vide Ground No.10 of the revenue s appeal. It has to be further noted that section 115JB in itself does not prescribe any procedure to calculate the expenditure relatable to exempt income earned by the assessee. The said provision has been separately and specifically placed in the Act u/s 14A of the Act. Therefore, the book profits of the assessee are liable to be increased by the expenditure as calculated u/s 14A of the Act as provided under Explanation 1 to Clause (f) of section 115JB of the Act. In view of this, it is directed that the book profits will be increased u/s 115JB of the Act by the disallowance calculated as per our directions given while adjudicating Ground No.10 of the revenue s appeal. This ground of the revenue s appeal is hereby allowed. Deduction of leave encashment actually paid - HELD THAT - Claim of leave encashment actually paid by the assessee during the previous year relevant to A.Y 2015-16 allowed.

Summary

Issues Involved:

1. Transfer Pricing Adjustment for Captive Power Plant.
2. Claim of Balance Additional Depreciation.
3. Deduction of Compensation Paid for Obtaining Raw Materials.
4. Nature of Industrial Promotion Assistance.
5. Nature of Interest Subsidy.
6. Disallowance under Section 14A.
7. Exclusion of Subsidy from Book Profits under Section 115JB.
8. Upward Adjustment to Book Profit for Disallowance Computed under Section 14A.

Summary:

1. Transfer Pricing Adjustment for Captive Power Plant:
The revenue's appeal against the CIT(A)'s deletion of the Rs. 124,76,75,528/- adjustment made by the AO/TPO for the transfer of power/electricity was dismissed. The Tribunal noted that the issue was consistently decided in favor of the assessee in previous years, including the Tribunal's order dated 07.02.2023 for AYs 2013-14 & 2014-15, which relied on earlier decisions.

2. Claim of Balance Additional Depreciation:
The revenue's challenge to the CIT(A)'s allowance of Rs. 12,19,30,258/- as balance additional depreciation was dismissed. The Tribunal followed its previous decisions in the assessee's favor, including the order dated 07.02.2023 for AYs 2013-14 & 2014-15, which upheld the claim based on earlier rulings.

3. Deduction of Compensation Paid for Obtaining Raw Materials:
The CIT(A)'s decision to treat Rs. 69,61,595/- compensation paid for obtaining raw materials as revenue expenditure was upheld. The Tribunal noted that this issue had been consistently decided in favor of the assessee in earlier years, including the order dated 07.02.2023 for AYs 2013-14 & 2014-15.

4. Nature of Industrial Promotion Assistance:
The CIT(A)'s decision to treat Rs. 31,86,63,403/- received as industrial promotion assistance from the State Government as capital in nature was upheld. The Tribunal relied on its previous decisions, including the order dated 07.02.2023 for AYs 2013-14 & 2014-15, and the Hon'ble Calcutta High Court's ruling in PCIT vs. Budge Budge Refineries Limited.

5. Nature of Interest Subsidy:
The CIT(A)'s decision to treat Rs. 12,83,76,610/- received as interest subsidy from the State Government as capital in nature was upheld. The Tribunal followed its previous decisions, including the order dated 07.02.2023 for AYs 2013-14 & 2014-15, and the Hon'ble Supreme Court's ruling in CIT v. Shree Balaji Alloys.

6. Disallowance under Section 14A:
The CIT(A)'s direction to exclude investments in subsidiary companies for computing disallowance under Section 14A read with Rule 8D was modified. The Tribunal directed the AO to recompute the disallowance by considering all investments, including those in subsidiary companies, which yielded dividend income, as per the Hon'ble Supreme Court's decision in Maxopp Investment Ltd. vs. CIT.

7. Exclusion of Subsidy from Book Profits under Section 115JB:
The CIT(A)'s decision to exclude subsidy from book profits assessable under Section 115JB was upheld. The Tribunal relied on the Hon'ble Calcutta High Court's ruling in PCIT vs. Ankit Metal & Power Ltd., which held that capital receipts could not be included in book profits.

8. Upward Adjustment to Book Profit for Disallowance Computed under Section 14A:
The Tribunal directed that the book profits should be increased by the disallowance calculated under Section 14A, as per Explanation 1 Clause (f) to Section 115JB. This ground of the revenue's appeal was allowed, modifying the CIT(A)'s order.

Cross-Objections:
The assessee's cross-objections related to the disallowance under Section 14A were dismissed, and the issue of leave encashment was restored to the AO with directions to allow the claim of leave encashment actually paid during the relevant assessment year.

Conclusion:
The revenue's appeal and the assessee's cross-objections were partly allowed.