2019 (1) TMI 269 - AT - Income Tax

Deduction u/s 80IA - relief on account of transfer of power price for the purpose of deduction u/s 80IA - not allowing the benefit of downward adjustment as provided in the proviso of Section 92C - Held that - The Revenue authorities reduced the selling price of power even as well as increased the expenses towards the claim of deduction u/s 80IA(8) instead of reducing the claim u/s 80IA(8) of the Act. To arrive at this conclusion, none of the authorities have given any plausible explanation in the orders. The Assessing Officer/TPO while not allowing the benefit of downward adjustment as provided in the proviso of Section 92C of the Act from the Arm s length price, has not given any reason while making this addition. This addition is based on presumption and assumption which is not permissible under the Income Tax Act, 1961. Addition on account of managerial remuneration - Held that - The comparison done by the Assessing Officer between the remuneration paid by the assessee company to Ms. Shallu Jindal with the remuneration paid by Essar Steel Ltd to Sh. Ashutosh Agarwala is not proper as well considering the facts that the assessee company is a profit making venture whereas Essar Steel Ltd. is incurring losses. It should also be noted that the assessee company has also complied with all the provisions of the Companies Act, 1956, relating to the payment of managerial remuneration to its managerial personnel appointed and the said payment of managerial remuneration has also been approved by the Board of Directors. The reference made to Circular No. 6P dated 08.07.1968 issued by the CBDT is apt in the present case. Thus, the Assessing Officer was not correct in making addition on account of managerial remuneration. Allocation of common expenses u/s 80IA - Held that - From perusal of the Assessment Order/Order of the TPO/Directions of the DRP, in the present case none of the authorities have doubted that there was no expenses. In facts, the Assessing Officer/TPO/DRP re-allocated the expenditure in the ratio of turnover between eligible and non-eligible units without bringing into the light the flaw or inaccuracy or any suitable explanation involved in relation to the method of allocation adopted by the assessee company Bank Guarantee commission addition - Held that - DRP has directed to delete the bank guarantee commission and without appreciating the same, the Assessing Officer made an addition which is unsustainable. Therefore, we direct the Assessing Officer to comply with the directions of the DRP and grant the relief to the Assessee. Depreciation charged by the assessee in respect of electrical installation - Held that - This issue is covered in assessee s own case and the DRP also directed to delete said addition. Without appreciating the same, the Assessing Officer made an addition which is unsustainable. Therefore, we direct the Assessing Officer to comply with the directions of the DRP and grant the relief to the Assessee Allowability of CSR expenses - non business expenses - Held that - Insertion of Explanation 2 to section 37(1) is applicable w.e.f. 1.4.2015 and thus, the said provision will not be applicable in the present case. There is no dispute that the expenses in question are not incurred under the statutory obligation. The Assessing Officer disallowed the claim of CSR expenses without disputing the factual matrix or bringing on record any adverse material which can be seen from the Assessment Order. Thus, this disallowance does not survive. Difference on account of 26AS - Held that - AR pointed out that the difference on account of 26AS the assessee has already made the submission after reconciliation which has not been appreciated. There is no proper finding to that effect in the Assessment Order, therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer for proper adjudication - Appeal of the assessee is partly allowed for statistical purpose.

Issues Involved:
1. Violation of natural justice and arbitrary assessment.
2. Errors in applying turnover filters for rejecting independent companies.
3. Rejection of internal CUP method and transfer pricing adjustments.
4. Disallowance of expenses and adjustments under Section 80IA(8).
5. Disallowance of bank guarantee commission.
6. Disallowance of depreciation on electrical installations.
7. Disallowance of CSR expenditure.
8. Addition on account of differences in income as per books and Form 26AS.
9. Allegation of furnishing inaccurate particulars of income.
10. Levy of consequential interest under various sections.

Detailed Analysis:

1. Violation of Natural Justice and Arbitrary Assessment:
The appellant argued that the assessment order was vitiated due to the violation of natural justice and was arbitrary. The Tribunal dismissed these grounds as general in nature.

2. Errors in Applying Turnover Filters:
The appellant contended that the TPO erred by applying a lower turnover filter of INR 1 crore without applying an upper turnover filter. The Tribunal did not specifically address this issue in the judgment, implying it was not a primary focus.

3. Rejection of Internal CUP Method and Transfer Pricing Adjustments:
The appellant challenged the TPO's rejection of the internal CUP method for transfer pricing adjustments related to the transfer of power and managerial remuneration. The Tribunal found that the TPO and DRP did not properly consider the appellant's submissions and relevant case laws, leading to erroneous adjustments. The Tribunal allowed the appellant's grounds, emphasizing the need for consistency with previous years' accepted methods and market rates.

4. Disallowance of Expenses and Adjustments under Section 80IA(8):
The Tribunal noted that the Revenue authorities reduced the selling price of power and increased expenses towards the claim of deduction under Section 80IA(8) without proper evidence or explanation. The Tribunal allowed the appellant's grounds, stating that such adjustments were based on assumptions and not permissible under the Income Tax Act.

5. Disallowance of Bank Guarantee Commission:
The DRP directed the deletion of the bank guarantee commission disallowance, but the Assessing Officer made the addition. The Tribunal directed the Assessing Officer to comply with the DRP's directions and grant relief to the appellant.

6. Disallowance of Depreciation on Electrical Installations:
The Tribunal found that the issue was covered in the appellant's favor in previous years and directed the Assessing Officer to comply with the DRP's directions to delete the disallowance.

7. Disallowance of CSR Expenditure:
The Tribunal referred to the decision in ACIT vs. Jindal Power Ltd., which allowed CSR expenses as deductible. The Tribunal held that the disallowance of CSR expenses was not sustainable, as the expenses were incurred voluntarily and wholly for business purposes. The Tribunal allowed the appellant's grounds, noting that the amendment to Section 37(1) was not applicable retrospectively.

8. Addition on Account of Differences in Income as per Books and Form 26AS:
The Tribunal noted that the appellant had submitted reconciliations for the differences, which were not properly considered by the Assessing Officer. The Tribunal remanded the issue back to the Assessing Officer for proper adjudication, ensuring the appellant is given an opportunity of hearing.

9. Allegation of Furnishing Inaccurate Particulars of Income:
The Tribunal did not specifically adjudicate this ground, as it was consequential to the main grounds.

10. Levy of Consequential Interest:
The Tribunal did not specifically adjudicate this ground, as it was consequential to the main grounds.

Conclusion:
The Tribunal allowed the appellant's grounds related to transfer pricing adjustments, disallowance of expenses, and CSR expenditure, while remanding the issue of income differences for proper adjudication. The appeal was partly allowed for statistical purposes.

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