2016 (1) TMI 118 - AT - Income Tax

Electricity duty exclusion while calculating the transfer price of electricity duty for computing the deduction u/s 80IA - Held that - This issue has been decided in favour of the assessee by the Tribunal rder in assessee s own case for AYs 2002-03 to 2005-06 2014 (7) TMI 554 - ITAT MUMBAI wherein held as we do not find any reason for excluding the element of tax and duty while determining the market value of the electricity price per unit supplied by the power unit to the assessee as contemplated in sub section (8) of section 80IA as we have to follow the provisions as contained in section 80IA(8) for determining the market price, which cannot be arrived by reducing the price by any other factors like taxes, duties, etc., as the same are embedded in the price. - Decided in favour of assessee Calculation of deduction u/s 80IA for reducing the pro-rated indirect expenses of the company from the profit of the power units - Held that - This issue has been decided against the assessee by the Tribunal in assessee s own case for the earlier years wherein held that the present issue has been decided by the Tribunal against the assessee right from the assessment year 1999 2000 to 2001 02. The Assessing Officer has apportioned indirect expenses which are to be reduced from the profits of the power unit as worked out in detail at Page 20 of the assessment order. This allocation of indirect expenses to arrive at the profit of power unit has been decided by the Tribunal in the earlier years and, therefore, consistent with the view taken therein, we find no reason to disturb the order passed by the learned Commissioner (Appeals) and, accordingly, the same is affirmed on this issue - Decided against assessee Alternative claim of deduction u/s 80IA in respect of integrated power unit in case the claim for deduction for power unit No. 6A & 6B are not allowed - Held that - This issue has been treated as infructuous by the Tribunal in the earlier years on the ground that it is purely an alternative claim as the claim for deduction u/s 80IA with regard to unit no. 6 has been allowed, therefore, no separate adjudication is required as admitted by the assessee. Accordingly, in this year also this alternative claim of the assessee is treated as dismissed, being infructuous. - Decided against assessee Disallowance of employees contribution to ESI and Provident fund made after due date - Held that - out of total payment of ₹ 43,23,169/-, sums aggregating to ₹ 42,61,565/-was paid within the grace period, as prescribed in the relevant statute, therefore, there is no question of disallowance of such an amount. Further, these payments have been made/paid much before the due date of furnishing of return of income as per section 139(1), therefore we hold that all the impugned payment is to be allowed as the same is covered by the amendment to section 43B.- Decided in favour of assessee Disallowance u/s 14A on account pro-rated indirect expenses - Held that - The assessee has earned dividend income of ₹ 48,74,295/-(treated as exempt) as compared to AY 2004-05 which has been dealt by the Tribunal wherein the assessee has earned dividend income of ₹ 7.87 lakhs. The Tribunal has worked out the disallowance on account of administrative expenses after considering the director s fee and auditor s remuneration vis-a-vis the earning of dividend income. If we analyze the figures of 2004-05 and the finding of the Tribunal, then disallowance if at all is required to be made in this year looking to the nature of expenses then on reasonable basis it may not be more than 20,000/-. The assessee itself has offered ₹ 8,187/- for disallowance before the AO. Thus, looking into the facts and circumstances, we propose to disallow ₹ 50,000/- for this year also, which will include the disallowance already offered by the assessee at ₹ 8,187/-. - Decided partly in favour of assessee Addition of profit on sale of investment and reduction of loss on fixed assets in computing the book profit u/s 115JB - Held that - this issue stands covered against the assessee by the Special Bench decision of the Tribunal in Rain Commodities Ltd. v/s DCIT, 2010 (7) TMI 794 - ITAT HYDERABAD . Thus, respectfully following the decision of the Special Bench of the Tribunal, we confirm the addition on account of profit on sale of investment in fixed assets while computing the book profit under section 115JB.- Decided against assessee Disallowance of expenses incurred for earning of exempt dividend income - disallowance u/s 14A whether to be included while computing the book profit - Held that - This issue would be decided against the assessee in view of the decision of Hon ble Delhi High Court in the case of Goetze India Ltd. 2013 (12) TMI 607 - DELHI HIGH COURT wherein Hon ble High Court has held that disallowance made u/s 14A would be included while computing the book profit. Since we have already confirmed the disallowance of ₹ 50,000/-, therefore, the same shall also be included in the book profit.- Decided against assessee Generation of steam amounts to formation of power or not so as to be eligible for claim of deduction u/s 80IA for Unit No. 6A and 6B - Held that - The section provides that the assessee must begin to generate power during the period defined under the statue and the impugned assessment year definitely falls within that period. Lastly, insofar as the observation and the conclusion of the Assessing Officer, which are based on similar reasons as given for Unit 1 to 5, the same is also not sustainable as the Tribunal has already decided the issue on these reasoning in favour of the assessee. Thus, we set aside the impugned order passed by the learned Commissioner (Appeals) on this score and hold that the assessee is eligible to claim deduction under section 80IA with regard to Unit 6 also as a stand alone power generating undertaking. - Decided in favour of assessee Allowability of expenses incurred on repair and maintenance of the building - Held that - The assessee had taken office on lease and to make it fit for use the aforesaid expenses were incurred on plastering, polishing, false ceiling, electrical fittings, fresh carpets etc. These expenses were incurred on the assets not owned by the assessee. The expenditure in question is to give a better look to the office premises and does not result in acquisition of any asset of enduring nature. Hence, the expenditure so incurred is directed to be allowed as revenue expenditure. We may also mention that depreciation, if any, granted by the department considering the said expenditure as capital expenditure be withdrawn.- Decided in favour of assessee Addition on unutilized Modvat credit to the value of closing stock of raw material in view of provisions of section 145A - CIT(A) deleted the addition - Held that - The finding of fact as recorded by the learned Commissioner (Appeals) that after making the adjustments made by the assessee in the opening stock and purchase and sale, the net effect is nil appears to be based on fact. Thus, we do not find any reason to deviate from such findings of fact which has not been rebutted - Decided in favour of assessee Allowability of deduction u/s 80HHC while computing the book profit u/s 115JB - Held that - This ground now stands covered against the assessee in view of the retrospective amendment brought in statute in section 115JB by the Finance Act, 2011 w.e.f. 1 st April 2005. Since this amendment is applicable from the assessment year 2005 06 only, hence, this issue will also go against the assessee

Summary

Issues Involved:
1. Calculation of "Transfer Price of electricity" for deduction under section 80-IA.
2. Computation of deduction under section 80-IA by reducing prorated indirect expenses.
3. Alternative claim of deduction under section 80-IA for integrated Power Unit No. 6.
4. Disallowance of Employee's Contribution to Provident Fund & ESI Fund.
5. Allocation of notional expenses to income exempt under sections 10(34) & 10(35) and disallowance under section 14A.
6. Disallowance of leave encashment claimed on provision basis.
7. Disallowance of profit/loss on sale of fixed assets and investment in computing Book Profit under section 115JB.
8. Disallowance of expenses incurred for earning exempt dividend income in computing Book Profit under section 115JB.
9. Short Credit of TDS.
10. Eligibility for deduction under section 80-IA for captive power consumption.
11. Eligibility for deduction under section 80-IA for DG sets.
12. Eligibility for deduction under section 80-IA for generation of steam.
13. Adoption of higher transfer pricing rate for claiming deduction under section 80-IA.
14. Allowability of expenses incurred on repairs and maintenance of building.
15. Addition of unutilized Modvat credit to the value of closing stock under section 145A.
16. Deduction under section 80HHC in computing book profit under section 115JB.

Detailed Analysis:

1. Calculation of "Transfer Price of electricity" for deduction under section 80-IA:
The Tribunal decided in favor of the assessee, stating that the market value of electricity should include taxes and duties. The price paid by the paper unit to the Karnataka Electricity Board, including all taxes and duties, should be considered as the market value for computing the transfer price.

2. Computation of deduction under section 80-IA by reducing prorated indirect expenses:
This issue was decided against the assessee. The Tribunal upheld the CIT(A)'s decision that prorated indirect expenses should be reduced from the profit of the Power Units for computing deduction under section 80-IA.

3. Alternative claim of deduction under section 80-IA for integrated Power Unit No. 6:
The Tribunal treated this issue as infructuous because the claim for deduction under section 80-IA for Power Unit No. 6A & 6B was allowed, making the alternative claim unnecessary.

4. Disallowance of Employee's Contribution to Provident Fund & ESI Fund:
The Tribunal allowed the assessee's claim, stating that payments made within the grace period should not be disallowed. Additionally, payments made before the due date of filing the return of income should be allowed under section 43B, following the Bombay High Court's decision in CIT vs. Ghatge Patil Transports Ltd.

5. Allocation of notional expenses to income exempt under sections 10(34) & 10(35) and disallowance under section 14A:
The Tribunal partially allowed the assessee's claim, restricting the disallowance to Rs. 50,000, considering the nature of expenses and previous Tribunal decisions.

6. Disallowance of leave encashment claimed on provision basis:
This ground was not pressed by the assessee and was treated as dismissed.

7. Disallowance of profit/loss on sale of fixed assets and investment in computing Book Profit under section 115JB:
The Tribunal decided against the assessee, following the Special Bench decision in Rain Commodities Ltd. v/s DCIT, confirming the addition of profit on sale of investment in fixed assets while computing the book profit under section 115JB.

8. Disallowance of expenses incurred for earning exempt dividend income in computing Book Profit under section 115JB:
The Tribunal decided against the assessee, following the Delhi High Court's decision in Goetze India Ltd., holding that disallowance under section 14A should be included while computing the book profit.

9. Short Credit of TDS:
The Tribunal directed the AO to grant the credit after verification, treating the ground as partly allowed.

10. Eligibility for deduction under section 80-IA for captive power consumption:
The Tribunal decided in favor of the assessee, consistent with earlier years' decisions, allowing the deduction under section 80-IA for captive power consumption.

11. Eligibility for deduction under section 80-IA for DG sets:
The Tribunal decided in favor of the assessee, consistent with earlier years' decisions, holding that the conditions of section 80IA(3)(ii) are satisfied for DG sets.

12. Eligibility for deduction under section 80-IA for generation of steam:
The Tribunal decided in favor of the assessee, stating that generation of steam qualifies as generation of power under section 80-IA, following previous Tribunal decisions.

13. Adoption of higher transfer pricing rate for claiming deduction under section 80-IA:
The Tribunal decided in favor of the assessee, consistent with earlier years' decisions, allowing the higher transfer pricing rate as per the cost audit report.

14. Allowability of expenses incurred on repairs and maintenance of building:
The Tribunal decided in favor of the assessee, following earlier years' decisions, treating the expenses as revenue expenditure.

15. Addition of unutilized Modvat credit to the value of closing stock under section 145A:
The Tribunal upheld the CIT(A)'s decision, stating that the net effect of adjustments made by the assessee in opening and closing stock was nil, thus dismissing the revenue's ground.

16. Deduction under section 80HHC in computing book profit under section 115JB:
The Tribunal decided against the assessee, following the retrospective amendment to section 115JB by the Finance Act, 2011, which applies from the assessment year 2005-06.

Conclusion:
The appeal of the assessee was partly allowed, and the appeal of the revenue was also partly allowed, with various issues being decided based on precedents and legal interpretations.