2020 (12) TMI 165 - AT - Income Tax

Addition of sales tax incentive/subsidy holding it as capital in nature - HELD THAT - This issue is covered in favour of the assessee by a catena of decisions of ITAT in assessee s own case as well as several other decisions. He further referred that ITAT Special Bench in assessee s own case. 2003 (10) TMI 255 - ITAT BOMBAY-J decided the issue in favour of assessee. DR could not dispute the above said proposition. The ITAT in assessee s own case in a number of orders for preceding years has decided the issue in favour of the assessee and the same order has not been reversed by Hon'ble Jurisdictional High Court. Accordingly, we follow the doctrine of stare-decisis and uphold the order of learned CIT(A). Hence, Revenue s appeal on this issue stands dismissed. Allowance of depreciation as claimed by the assessee by holding that the claim of depreciation for the year was optional in nature - Assessee had not claimed depreciation in earlier years on the aforesaid plant/units on the ground that the claim for depreciation was optional - HELD THAT - CIT(A) has granted relief following earlier orders of ITAT. He had noted that it was held that the claim for depreciation cannot be thrust upon the assessee. AOhas consistently rejected the claim of the assessee based on the stand taken at assessment stage in earlier year. CIT(A) noted that current year issue is consequential. Accordingly, following earlier orders of ITAT in assessee s own case, he decided the issue in favour of the assessee. It is not the case that earlier years decision of ITAT has been reversed by Hon'ble High Court. DR also did not dispute that this issue is covered in favour of the assessee. Hence, we uphold the order of learned CIT(A). The Revenue s ground is dismissed. Disallowance u/s. 14A of the I.T. Act read with Rule 8D(2)(iii) - CIT-A restricting addition to 5% by taking average value of investment which have yielded dividend during the year under consideration and also under the provisions of Sec. 115JB - HELD THAT - We find that the direction of learned CIT(A) is in consonance with earlier year ITAT order as regards disallowance u/s 14A is concerned. Hence, in this regard, we uphold the order of CIT(A). As regards importing disallowance u/s 14A to Section 115JB of the Act is concerned, we are dealing with the same in assessee s appeal. Deduction u/s.80IB(9) - Disallowance on aborted blocks - assessee was engaged in the business of exploration and production of mineral oil - AO reduced the amount being the abortive cost of wells incurred in contract areas other than KGD while computing deduction u/s.80IB(9) of the Act in respect of KGD undertaking - HELD THAT - In assessee s own case 2003 (10) TMI 255 - ITAT BOMBAY-J deduction u/s 80IB(9) of the Act has to be computed in terms of sec. 80IB of the Act. Sec. 80IB(13) of the Act provides that the provisions of sec. 80IA(5) shall apply and under the provisions of sec. 80IA(5) of the Act, the profits and gains of eligible business, for the purposes of sec. 80IB, shall be computed as if such eligible business were the only source of income of the assessee. In view of these provisions, the deduction u/s 80IB(9) has to be computed after ascertaining profits and gains of eligible business in terms of sec. 80IA(5) of the Act. Hence there is no scope to adjust expenses relating to other undertaking while computing deduction u/s 80IB(9) of the Act. Hence, we are of the view that the decision rendered by Ld CIT(A) does not call for any interference and accordingly we uphold the same. Allowance of deduction u/s. 80IB(9)(ii) - CIT(A) decided the issue by holding that similar issue has been allowed to the assessee in the immediately preceding year i.e. A.Y. 2012-13 and held that mineral oil for the purpose of claiming deduction u/s. 80IB(9) of the Act include natural gas condensate - HELD THAT - Since facts are identical, following the precedent, we uphold the order of learned CIT(A). TP Adjustment on provision of support services to Associated Enterprise-REPDMCC - CIT(A) deleted the addition - HELD THAT - In assessee s own case 2003 (10) TMI 255 - ITAT BOMBAY-J We notice that the assessee has collected for the supply of materials and equipments and also for providing services in accordance with the PSC entered with foreign governments. Said decision of assessee is supported by the provisions of Rule 10B(2)(d) of the I.T. Rules. We further noticed that the TPO did not bring any other comparable to prove that the amount charged by the assessee is not at arm s length. Instead, he had simply marked up the transactions by 12.50%. Following the same, we uphold the order passed by learned CIT(A) on this issue. Transfer pricing adjustment in respect of debts receivable from AE - HELD THAT - CIT(A) has decided the issue by referring to earlier years order in assessee s own case correctly wherein the arm s length rate of interest in respect of delayed realization of receivable was determined at Libor plus 1.05%. CIT(A) deleted the adjustment done by TPO, by holding that benchmarking done by assessee is accepted. - Since the ITAT has already accepted the interest charged at the rate Libor plus 125 bps for delayed payment in earlier years, we do not find any reason to interfere with the delayed realization of receivable at Libor plus 1.50%. Accordingly, we uphold the order of learned CIT(A) deleting the addition. TP Adjustment on interest on investment in preference stock of associated enterprises - HELD THAT - We note that as submitted no fresh investment is made during the year. That the shares were allotted in earlier years. The new issue raised by Revenue on the theory of preponderance are not sustainable as nothing has been cogently brought on record. As pointed out by the learned Counsel of the assessee the examples mentioned in the grounds above do not relate to current year and it is trite that every year is different for transfer pricing purpose. Subsequent year instances cannot give a carte blanche to the Assessing Officer to make adjustment and render the Tribunal decision ceasing to be a precedent. Accordingly in the background of the aforesaid decision and precedent we uphold the order of learned CIT(A) deleted the addition. Addition at 1.5% charged by the TPO in arriving at corporate guarantee fees - HELD THAT - CIT(A) noted the submissions that the issue was covered in favour of the assessee by the ITAT order in assessee s own case for earlier year. Learned CIT(A) held that the yield spread approach has to be accepted. He further held that the ITAT in assessee s own case for A.Y. 2005-06 to A.Y. 2009-10 the ITAT has restricted the arm s length price at the rate of commission or guarantee to 0.38%. Considering these facts learned CIT(A) held that the arm s length price or rate of commission determined at 0.38% for share term guarantees long term guarantee learned CIT(A) upheld the yield spread approach based upon the ITAT order in A.Y. 2011-12 2012-13. Long term guarantee - HELD THAT - As the assessee yield base approach has been upheld by the ITAT. Further the yield based approach is adopted considering the letter of bank issued for year 2012-13. Hence, the objections of the Revenue are not sustainable. Accordingly, we uphold the order of learned CIT(A). Deemed payment of sales tax disallowance u/s 43B - HELD THAT - Assessee fairly accepted that this issue is covered against the assessee. Disallowance of depreciation on the capitalized value of goods purchased from Durga Iron Steel Ltd. and Surajbhan Rajkumar Pvt. Ltd. - HELD THAT - Assessee fairly accepted that this issue is covered against the assessee. Assessee shall be eligible to claim deduction u/s. 80IB(9) of the Act in respect of profits not allowed as deduction u/s. 10AA. Expenditure towards CSR expenditure - AO has disallowed this claim under section 37(1)1 of the IT act but allowed the same under section 80G (50%) - HELD THAT - Assessee has incurred expenditure on the activities relating to corporate social responsibility. The act specifically debars such expenditure from under section 37(1) with effect from 1/04/2015. The ITAT in Jindal Power 2016 (7) TMI 203 - ITAT RAIPUR has taken exactly this view. On the facts and circumstances of the case it cannot be said that the expenditure incurred by the assessee is not relating to corporate social responsibility. Another reason for adverse inference by the authorities below for disallowance under section 37(1) is that assessee has incurred these expenditures through trusts. We find that there is no bar in the act in this regard. No cogent case has been made out that these expenditures are not covered under the statutory obligation under section 135 of the companies Act. It is also not the case that relevant authorities in this regard have rejected them as not meeting the statutory obligation u/s. 135 of the Companies Act. Moreover, AO has himself noted that he has verified the respective document and found them to be correct in connection with allowance under section 80G of the Act. Hence, the veracity is not in doubt. Accordingly we set aside the orders of authorities below and allow the ground raised by the assessee. Exempt u/s.10(15)(iv)(h) - under normal provisions of the Act as well as for the purposes of sec. 115JB - HELD THAT - The claim of the assessee is that the above said interest income of ₹ 21.79 crores was earned on tax free bonds and the same is exempt u/s.10(15)(iv)(h) of the Act . In any case, an item of income, which is exempt under the Act cannot be brought to tax by the A.O. Since the claim of the assessee requires verification, we restore this issue to the file of the A.O. for examining the same both for the purpose of computing total income under normal provisions of the Act as well as under sec. 115JB. Disallowance under section 14A cannot be added under section 115JB . See M/S. BENGAL FINANCE INVESTMENTS PVT. LTD. 2015 (2) TMI 1263 - BOMBAY HIGH COURT Grant the deduction under section 10 AA with reference to the profit and gains as determined by the honourable Supreme Court in the case of Vijay Industries 2019 (3) TMI 171 - SUPREME COURT Comparable selection - Companies functionally dissimilar with that of assessee need to be deselected. Rate duly approved under 80 IA(8) to be changed for Transfer Pricing purposes - HELD THAT - Definition of the market value shall change for the purpose of domestic transfer pricing regimen is not at all sustainable. Accordingly, in the background of the aforesaid discussion and precedent, we set aside the orders of the authorities below and decide issue in favour of the assessee.

Summary

Issues Involved:
1. Deemed payment of sales tax under Section 43B.
2. Depreciation on capitalized value of goods.
3. Depreciation on office equipment.
4. Deduction under Section 80IB(9) for SEZ Undertaking.
5. Depreciation on intangible assets.
6. Deduction of corporate social responsibility (CSR) expenses under Section 37(1).
7. Reference to Transfer Pricing Officer (TPO).
8. Guarantee commission for corporate guarantees.
9. Arm's length mark-up on Business Support Services (BSS).
10. Transfer pricing adjustment for inter-unit transfer of power.
11. Additional grounds regarding interest on tax-free bonds, notional sales tax incentive, Section 14A disallowance, weighted deduction under Section 35(1)(ii), and deduction under Section 10AA.

Detailed Analysis:

1. Deemed Payment of Sales Tax under Section 43B:
The assessee's claim for a deemed payment of sales tax under Section 43B was rejected by the CIT(A). The Tribunal upheld this rejection, noting that the issue is covered against the assessee by earlier ITAT orders in the assessee's own case.

2. Depreciation on Capitalized Value of Goods:
The CIT(A) confirmed the disallowance of depreciation on the capitalized value of goods purchased from Durga Iron & Steel Ltd. and Surajbhan Rajkumar Pvt. Ltd. in A.Y. 2003-2004. The Tribunal upheld the CIT(A)'s decision, agreeing that the issue is covered against the assessee.

3. Depreciation on Office Equipment:
The CIT(A) remanded the appellant's claim of depreciation on office equipment at 15% to the file of the Assessing Officer for verification. The Tribunal noted that the assessee did not press this ground, and thus, it was dismissed as not pressed.

4. Deduction under Section 80IB(9) for SEZ Undertaking:
The CIT(A) disallowed the deduction under Section 80IB(9) for the SEZ Undertaking, holding that once a claim under Section 10AA has been made, no deduction under Section 80IB(9) is allowed. The Tribunal reversed this decision, citing its own earlier orders and the principle of consistency, allowing the deduction under Section 80IB(9) for the SEZ Undertaking.

5. Depreciation on Intangible Assets:
The CIT(A) confirmed the disallowance of depreciation on intangible assets related to KG-DWN-98/3 (KGD) assets. The Tribunal noted that the assessee did not press this ground, and thus, it was dismissed as not pressed.

6. Deduction of CSR Expenses under Section 37(1):
The CIT(A) disallowed the deduction of CSR expenses under Section 37(1), stating that it does not fall under business expenditure. The Tribunal reversed this decision, noting that the amendment to Section 37(1) disallowing CSR expenses is effective from April 1, 2015, and cannot be applied retrospectively. Therefore, CSR expenses incurred before this date are allowable under Section 37(1).

7. Reference to TPO:
The Tribunal noted that the grounds related to the reference to the TPO were general and linked to other transfer pricing adjustments. Specific issues related to the TPO's actions were addressed in subsequent grounds.

8. Guarantee Commission for Corporate Guarantees:
The CIT(A) upheld the TPO's determination of the arm's length price (ALP) of the guarantee commission at 0.38% for short-term guarantees. The Tribunal upheld this decision, noting that the yield spread approach adopted by the assessee was accepted in earlier years.

9. Arm's Length Mark-up on BSS:
The CIT(A) determined the arm's length mark-up on BSS at 8.20%, rejecting some of the assessee's comparables and accepting others. The Tribunal remanded the issue to the TPO for fresh consideration, noting that the comparables selected by the assessee need to be reconsidered.

10. Transfer Pricing Adjustment for Inter-unit Transfer of Power:
The CIT(A) upheld the TPO's adjustment for the inter-unit transfer of power, determining the ALP at INR 6.155 per KWH. The Tribunal reversed this decision, citing its own earlier orders and the principle of consistency, and directed that the rate charged by DGVCL should be accepted.

11. Additional Grounds:

Interest on Tax-Free Bonds:
The Tribunal remanded the issue to the Assessing Officer for verification, noting that interest on tax-free bonds is exempt under Section 10(15)(iv)(h) and should be excluded from both normal provisions and book profit under Section 115JB.

Notional Sales Tax Incentive:
The Tribunal remanded the issue to the Assessing Officer, directing that the notional sales tax incentive, being a capital receipt, should be excluded from book profit under Section 115JB.

Section 14A Disallowance:
The Tribunal noted that disallowance under Section 14A cannot be added under Section 115JB, following the decision of the Hon'ble Bombay High Court.

Weighted Deduction under Section 35(1)(ii):
The Tribunal admitted the additional ground and evidence for weighted deduction under Section 35(1)(ii) and remanded the issue to the Assessing Officer for verification.

Deduction under Section 10AA:
The Tribunal directed the Assessing Officer to grant the deduction under Section 10AA with reference to the "profits and gains" as determined by the Hon'ble Supreme Court in the case of Vijay Industries, which means gross profits before computing income as specified in Sections 30 to 43D.

In conclusion, the Tribunal provided a comprehensive analysis of each issue, upholding some decisions of the lower authorities while reversing others based on legal precedents and the principle of consistency.