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2024 (11) TMI 818 - AT - Income TaxComputation of deduction u/s 80IB/80IC and 10B - AO took the view that the assessee has increased the profits of eligible units by not allocating common expenses. Accordingly, he allocated Head office expenses to various units eligible for deduction and resultantly, the deduction u/s 80IB/80IC and 10B of the Act came to be allowed at a lower figure - HELD THAT - We notice that the Tribunal is consistently restoring this issue to the file of the AO with certain directions. A.R invited our attention to the order passed in assessee s own case for AY 1993-94. In this order, the Co-ordinate Bench has followed the order passed for AY 2006-07 2012 (12) TMI 458 - ITAT MUMBAI in respect of deductions claimed u/s 80HH and 80I of the Act and restored the issue to the file of AO with the instruction to follow the directions given in AY 2006-07 with regard to allocation of common expenses incurred at the Head Office. It is also pertinent to note that the Co-ordinate Bench has also accepted the plea of the assessee that certain common income should also be allocated to the eligible units. We notice that the CIT(A) has restored this issue to the file of the AO with the direction to follow the ITAT's order. Accordingly, we also direct the AO to allocate both common expenses and common income to the eligible units while computing deduction u/s 80IB/80IC and 10B of the Act as per the direction issued by the ITAT in the earlier years. Miscellaneous income earned on sale of scraps and by products in eligible units are eligible for deduction u/s 80IB/80IC - We notice that the AO did not allow deduction in respect of these kinds of receipts, without making any specific discussion. CIT(A) also did not adjudicate this issue specifically. As brought to our notice that the Mumbai Bench of Tribunal has examined an identical issue in the context of deduction u/s 80IC of the Act in the case of Addl.CIT vs. Sterlite Technologies Ltd. 2017 (1) TMI 1249 - ITAT MUMBAI wherein it was held that the income arising on sale of scraps is held to be eligible for deduction u/s 80IB/80IC. In the instant case, the amount received by the assessee is on account of sale of scraps and by products and they are generated out of manufacturing process. Hence, the scrap by-products are inextricably connected with the manufacturing activities carried on by the eligible units. Accordingly, we are of the view that there is merit in the submission of the assessee that the sale value of scraps/by-products, in fact, will go to reduce the cost of materials used in manufacturing and hence it should be considered as profits and gains derived from industrial undertaking. The decision rendered by the Co-ordinate Bench in the case of Sterlite Technologies Ltd 2017 (1) TMI 1249 - ITAT MUMBAI support the case of the assessee. We direct the AO to allow deduction u/s 80IB/80IC of the Act in respect of sales value of scraps/by-products generated in the eligible units. Adjustment on account of CENVAT credit - AO, following sec.145A of the Act, assessed the unutilized CENVAT amount as income of the assessee - HELD THAT - Since, it is a case of method of accounting and since it is stated that there will be no impact on the profit under both Exclusive method and Inclusive method of accounting, following the decision rendered by the Co-ordinate Bench in AY 2006-07, we restore this issue to the file of the AO for examining the claim of the assessee. Deduction of cost of Relief materials given to Tsunami victims - allowable business expenditure u/s 37(1) or not? - HELD THAT - When the dominant objective is philanthropic in nature, the same cannot be considered as an expenditure laid out or incurred wholly and exclusively for the purposes of business. It is pertinent to note that the assessee has not shown that there existed any business connection in incurring this expenditure. Assessee has also taken a plea that this expenditure should be considered as Sales promotion expenses. We are unable to accept the same. It is inconceivable that a business man would promote its products amongst the badly affected Tsunami victims, who have been rendered penny less. Hence, this plea of the assessee deserves rejection. Assessee has also taken a plea that this expenditure should be considered as CSR expenditure. It was not shown that this expenditure has been incurred as per the requirement of Companies Act as CSR expenditure. It may be akin to CSR expenses, but it would not qualify as CSR expenses. Hence, we are of the view that the assessee cannot take support of the decisions rendered in respect of CSR expenses. We are of the view that the Ld. CIT(A) was justified in confirming the disallowance of sum incurred on the relief materials given to the victims of Tsunami. Claim of enhancement of Written Down Value (WDV) of assets by the amount of Insurance claim not received - HELD THAT - We do not find any merit in the contentions of the assessee that the insurance claim amount of Rs. 8.00 crores refunded to the assessee should be considered as refund of part of purchase consideration, since the insurance claim of Rs. 8.00 crores was received by the then parent company in connection with destruction of Salt Pans and the said amount only was refunded to the assessee. Hence, in our view, it would fall within the meaning of moneys payable . In this connection, we are of the view that the mode or manner of paying the insurance compensation by M/s Conopco Inc to the assessee is irrelevant. In Ground No.12, the assessee is contending that the above said amount should be treated as capital receipt, which is liable to be rejected for the reasons discussed above. We modify the order passed by Ld.CIT(A) on this issue and direct the AO to increase the WDV of AY 2005-06 in the following manner - (a) Increase the WDV of AY 2001-02 of the relevant block by Rs. 14.44 crores. (b) Re-compute the WDV of AY 2005-06 of that block by reducing the depreciation amount of AY 2001-02 to 2004-05. (c) Allow depreciation in AY 2005-06 on the WDV so computed. We order accordingly. Reduction of Capital subsidy amount from the WDV of assets - HELD THAT -Following the decision rendered by the co-ordinate bench of Kolkata in the case of Gloster Ltd. 2016 (2) TMI 700 - ITAT KOLKATA we hold that the amount of subsidy referred above is not required to be deducted from the WDV for the purpose of computing depreciation, since the objective of subsidy scheme is to promote industrialization of backward areas and not to fund part of cost of assets. We also notice that identical view has been expressed in the case of Harinagar Sugar Mills 2017 (1) TMI 853 - BOMBAY HIGH COURT Accordingly, we set aside the order passed by CIT(A) on this issue and direct the AO not to reduce the amount of subsidy from WDV while computing depreciation. Dispute of rate of tax applicable to the dividend distributed to Non-resident shareholders - HELD THAT - We notice that this issue has been decided against the assessee by the Special Bench of ITAT in the case of Total Oil India P Ltd. 2023 (4) TMI 988 - ITAT MUMBAI (SB) TP adjustment made by TPO/AO on various items of international transactions - assessee had selected TNM Method as most appropriate method and bench marked the international transactions at entity level - HELD THAT - Since the Ld.CIT(A) has followed the decision rendered by the Co-ordinate Bench in the assessee s own case in AY.2006-07 2012 (12) TMI 458 - ITAT MUMBAI wherein entity level bench marking under TNM Method has been accepted by the Tribunal, we do not find any reason to interfere with the order passed by the Ld.CIT(A) on Transfer Pricing issues urged before us.
Issues Involved:
1. Computation of deduction under sections 80IB/80IC and 10B. 2. Eligibility of miscellaneous income from sale of scraps and by-products for deduction under sections 80IB/80IC. 3. Adjustment of CENVAT credit. 4. Disallowance under section 14A. 5. Deduction of costs for relief materials given to Tsunami victims. 6. Enhancement of Written Down Value (WDV) of assets due to insurance claim not received. 7. Reduction of capital subsidy from WDV of assets. 8. Rate of tax applicable to dividend distributed to non-resident shareholders. 9. Transfer Pricing adjustments on various international transactions. Issue-wise Detailed Analysis: 1. Computation of Deduction under Sections 80IB/80IC and 10B: - The assessee did not allocate common expenses incurred at the Head Office to eligible units while computing deductions. The AO allocated these expenses, reducing the deduction amount. The ITAT directed the AO to allocate both common expenses and income to eligible units, following earlier ITAT directions. 2. Eligibility of Miscellaneous Income for Deduction: - The AO denied deductions for income from the sale of scraps and by-products without specific discussion. ITAT directed the AO to allow deductions, referencing cases where such income was deemed eligible for deduction under sections 80IB/80IC, as it is connected to manufacturing activities. 3. Adjustment of CENVAT Credit: - The AO assessed unutilized CENVAT credit as income, which the Ld.CIT(A) confirmed. The ITAT restored the issue to the AO for fresh examination, noting that the net profit remains unaffected under both Exclusive and Inclusive accounting methods. 4. Disallowance under Section 14A: - The assessee did not press this ground, leading to its dismissal as not pressed. 5. Deduction of Costs for Relief Materials: - The AO disallowed the claim for Rs. 5.00 crores spent on Tsunami relief, viewing it as not wholly and exclusively for business purposes. The ITAT upheld the disallowance, determining the expenditure as philanthropic and not connected to business promotion or CSR under the Companies Act. 6. Enhancement of WDV of Assets: - The ITAT held that WDV could not be increased by the insurance claim amount not received, as it does not constitute the acquisition of a new asset. The WDV should be adjusted based on the actual insurance claim received, which was Rs. 8.00 crores, not the initially claimed Rs. 22.44 crores. 7. Reduction of Capital Subsidy from WDV: - The ITAT ruled that the state capital investment subsidy should not be deducted from WDV, as its purpose was to promote industrialization in backward areas, not to fund asset costs, aligning with previous tribunal decisions. 8. Rate of Tax on Dividend to Non-residents: - The ITAT rejected the assessee's claim that DDT should be charged at treaty rates for non-resident shareholders, following a Special Bench decision against the assessee. 9. Transfer Pricing Adjustments: - The ITAT upheld the Ld.CIT(A)'s decision, which followed the tribunal's earlier ruling in the assessee's case for AY 2006-07, accepting entity-level benchmarking under TNMM and subsuming other adjustments. The decision has attained finality as it was not challenged by the Revenue in higher courts. The appeals by the assessee and Revenue were partly allowed, and the Cross Objection filed by the assessee was dismissed.
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