2023 (11) TMI 534 - AT - Income Tax

Disallowance u/s. 14A r.w.r. 8D(2) - HELD THAT - While deciding the issue, the Coordinate Bench of the Tribunal in 2023 (11) TMI 322 - ITAT MUMBAI directed to Re-work disallowance u/s.14A under rule 8D(2)(iii) on investment which has yielded exempt income. Subsidy received by the Appellant from various States to be held as capital receipt, not chargeable to tax Sales tax incentives received by assessee are rightly considered as Capital Receipts by CIT(A) both for the purposes of normal tax as well for the purposes of computation u/s.115JB of the Act and be excluded while computing taxable income. Refund of royalty needs to be considered as Capital Receipts both for the purposes of normal tax as well for the purposes of computation u/s.115JB and be excluded while computing taxable income. Hence considering the above, the addition made by Assessing Officer is deleted. Additional depreciation u/s 32(1)(iia) - Whether additional depreciation is allowable only on new machinery i.e. the first year in which it is put to use? - HELD THAT - It is observed that coordinate bench in its later decision in the case of Ambuja Cement Limited 2022 (11) TMI 1419 - ITAT MUMBAI holding company of assessee has allowed similar claim of depreciation. When coordinate bench of ITAT in its latest decision has decided issue in favour of assessee by holding that assessee is entitled for additional depreciation u/s 32(1)(iia), such later decision would prevail over the decision of Everst Industries Limited 2018 (4) TMI 426 - ITAT MUMBAI relied upon by Ld DR. As a result, since this aspect of the matter is no longer res integra, we see no reasons to take any other view of the matter than the view so taken by the coordinate bench in the group concern s case of the assessee. We uphold the plea of the assessee and direct the Assessing Officer to allow depreciation u/s.32(1)(iia) of the Act. Disallowance of proportionate Head Office expenditure and Research Development expenditure while computing deduction u/s 80IA/80IB/80IC - AO is directed to allocate Head office expenses (other than auditor fees and CMA expenses) on the basis of expenditure incurred by the units vis- -vis overall expenditure. Thus, ground of appeal in assessee s appeal is partly allowed. Disallowance of proportionate CENVAT credit availed for units eligible for deduction u/s 80IA - As relying on assessee own case 2023 (11) TMI 428 - ITAT MUMBAI Assessing Officer to delete the impugned adjustment on account of CENVAT in the profits of the eligible units. Deduction u/s.80IA on Rail Infrastructure to be allowed. Disallowing claim of leave encashment - HELD THAT - Hon'ble supreme court in the case of UOI v. Exide Industries Ltd. 2020 (4) TMI 792 - SUPREME COURT has upheld constitutional validity of provision of section 43B(f) for provision for leave encashment liability and considering binding decision of Hon'ble Supreme Court claim cannot be allowed. However, if payment of such provision towards leave encashment is made in subsequent year, deduction may be allowed to assessee in such years if not allowed till date. Therefore, Assessing Officer is directed to verify and the same and allow the same as per our above directions. Addition of provision for Interest on Income tax while computing book profits u/s.115JB - HELD THAT - As in assessee s case 2023 (2) TMI 1211 - ITAT MUMBAI interest u/s.244A charged to Profit Loss account is not recovered by Assessing Officer by passing any order but same is provided based upon past experience based upon assessment orders / appellate orders in case of assessee hence such interest provided in the books of account in actual sense partakes the character of interest as provided in explanation 2 to section 115JB of the act. If assessee would have actually paid amount received u/s.244A to Assessing Officer on account of additions made in assessment order and such interest if would have been debited to P L account, such interest would have been disallowed while computing Book Profit hence on this analogy also provision of interest deserves to be added back while computing Book Profit u/s.115JB - as observed that if in later years such amount is actually required to be paid to Assessing Officer, assessee would adjust such interest payable directly to provision of interest appearing in balance sheet and in that scenario also such interest u/s.244A would not have been subject to Book Profit u/s.115JB of the Act which is contrary to the provision of the Act. On this ground also the claim of assessee fails and adjustment made by AO is also upheld. Addition in respect of tax on non-monetary perquisites while computing book profits u/s. 115JB - HELD THAT - As in Rashtriya Chemicals Fertilizers Ltd 2018 (3) TMI 1564 - ITAT MUMBAI , IDBI Bank v. DCIT 2021 (2) TMI 608 - ITAT MUMBAI and M/s NHPC Ltd 2020 (3) TMI 1308 - ITAT DELHI has deleted the adjustment made on account of tax paid on non-monetary perquisites provided to the employees to book profit u/s 115JB of the Act. Respectfully following the decisions as discussed herein above, this ground raised by assessee is allowed. Addition of unutilized CENVAT Credit - HELD THAT - Irrespective of the method of accounting followed by the assessee, i.e. 'Inclusive method', wherein the taxes are included in the opening stock, purchases, etc. or the 'Exclusive method', the MODVAT credit does not have any impact on the profit of the assessee. Thus, following the ratio laid down by the Hon'ble Supreme Court in the case of Indo Nippon Chemicals Co. Ltd. 2003 (1) TMI 8 - SUPREME COURT and followed by the Hon'ble Bombay High Court in the case of Diamond Dye Chem Ltd. 2017 (7) TMI 616 - BOMBAY HIGH COURT we set-aside the order of the CIT (A) and direct the Assessing Officer to delete the addition made. Allowability of pre-operative expenses as revenue expenses when in its books of accounts the assessee itself had claimed the expenses as capital expenses and added them to its capital work in progress /fixed assets - HELD THAT - As decided in own case 2023 (2) TMI 1212 - ITAT MUMBAI AY 2009-10 the short grievance raised before us by the Assessing Officer is whether, even when the expenditure is shown in the books of accounts, it can be treated as revenue in nature in our considered view, stands concluded in favour of the assessee. The fact that in the books of account the assessee had capitalised the expenses does not prevent the assessee from claiming them as revenue expenses since the question of allowance of expenses has to be considered in the light of the legal position and the accounting treatment cannot be conclusive. Deduction u/s 80IA on profit derived from power-generating unit-TG3 located at Wadi allowed - As deduction was granted for an initial assessment year, same could not be rejected for subsequent assessment years unless relief for initial year was withdrawn. TP Adjustment - MAM for benchmarking transaction of sale of electricity - CIT(A) allowing the internal CUP adopted by the assessee for benchmarking of Specified Domestic Transactions of Inter-unit transfer of power and rejecting external CUP adopted by TPO - HELD THAT - As identical issue is decided in favour of the assessee in the A.Y.2011-12 2023 (11) TMI 428 - ITAT MUMBAI held where consideration paid for purchase of electricity from State Power Corporation represents the market rate on which any industry undertaking or consumer would be getting electricity, then such market rate should be applied as CUP for benchmarking transaction of sale of electricity. TP adjustment for Technical services availed from Holcim Group Support Ltd - HELD THAT - It is an undisputed fact that assessee has availed identical services from its AE in earlier assessment years. During the course of hearing, Ld AR has drawn attention to the fact that there has been no adjustment for the previous AYs 2007-08 to AY 2012-13 while passing the assessment order and this fact is not rebutted by Ld.DR during the course of hearing. The assessee has been consistently following TNMM method for determining the ALP of this transaction and same has not been disputed by TPO in earlier years. On perusal of TP order, it is observed that TPO did not apply any method or did not present any comparable agreements based on which man hours or costs was estimated. The TPO proceeded to arbitrarily decide, without any explanation or details whatsoever, and without reference to the actual transaction or services rendered, that 8,000 man hours would be considered reasonable for providing these services referred in the invoices furnished, and a cost of ₹.10,000/- per man hour was determined at arm s length man hour cost. The TPO has in fact not disputed that services were rendered by AEs. Thus as relying on CLSA India Private Limited 2019 (1) TMI 1351 - ITAT MUMBAI we hold that since the TPO has not made the transfer pricing adjustment by following the mandatory provisions of the law and determined the same on estimation basis, action of the Ld. DRP in upholding the TP adjustment so made by the Ld. TPO is bad in law. TP adjustment being services availed from various AEs - TPO considered that ALP of above transactions as NIL on the ground that the assessee has merely described various services and that by itself does not justify the price charged and that the Assessee has not proved whether the services have actually been rendered and if it is based on the arm s length principle - HELD THAT - During the course of hearing, AR has stated that invoices and documents furnished before TPO clearly demonstrate that these services were rendered / received and that there was no finding that no services were actually received nor there is any finding that such expenditure is not for the purpose of business. This fact is not contravened by DR during the course of hearing. The finding given by Ld CIT(A) clearly supports the argument of Assessee. Assessee has already submitted sufficient evidences to prove that actual services of AEs were taken by Assessee which mainly includes reimbursement of participation costs and license fees and actual support in a key business area (RMX or Concrete) of the Assessee and same is supported by terms of an agreement signed between the parties. This facts are not disputed by Ld DR. Once it is proved that Assessee has actually taken services of AE and no profit involvement is there, it is held that Ld CIT(A) has correctly deleted TP adjustment -Thus, this part of ground of appeal of the revenue is dismissed. TP adjustment for ITes and Technical services availed from HSSA - Assessee has adopted TNMM whereas TPO has adopted adhoc method for arriving value of services provided by AEs which is incorrect. In the case of Avery Dennison (India) P Ltd 2016 (1) TMI 933 - ITAT DELHI held that TPO's conclusion that services had not resulted in any benefit and that no independent entity would have made such payment, as being in the realm of surmises conjectures, and not backed by any material. It is observed that TPO has estimated Man Hours as well as Man hour cost per hour which is not the proper method to determine value of services rendered by AEs. The identical issue is discussed herein above while adjudicating TPO adjustment for Technical Services availed from HGRS. Thus it is held that Ld CIT(A) has correctly deleted TP adjustment and this part of ground of appeal of the revenue is dismissed. Addition of provision for gratuity made while computing book profit u/s 115JB is deleted. Wealth tax provision is not required to be added back while computing Book Profits under Section 115JB. Addition of provision for leave encashment made while computing book profit u/s 115JB is deleted. Excise duty exemption received by assessee are capital receipts both for the purpose of computing income as per normal provision of the Act as well as book profit u/s 115JB of the Act and the addition made by Assessing Officer is deleted. Disallowance u/s 14A cannot be made while computing book profit u/s.115JB

Summary

Issues Involved:
1. Taxability of Sales Tax Exemption Benefit.
2. Treatment of Additional Ground Raised by Assessee.
3. Applicability of Special Bench Decision in Reliance Industries Ltd. Case.
4. Binding Nature of Special Bench Decision.
5. Treatment of Sales Tax Incentives as Capital Receipts.
6. Exclusion of Sales Tax Incentive in Book Profit Computation.
7. Refund of Royalty as Capital Receipt.
8. Claim of Additional Depreciation.
9. Apportionment of Indirect Head Office Expenses.
10. Exclusion of CENVAT Credit for Units Eligible for Deduction.
11. Deduction u/s 80-IA on Rail System.
12. Deduction of Leave Encashment on Provision Basis.
13. Addition of Provision for Interest on Income Tax in Book Profits.
14. Addition of Tax on Non-Monetary Perquisites in Book Profits.
15. Deletion of Pre-Operative Expenses.
16. Interest Expenses to Earn Dividend Income in Book Profits.

Summary:

1. Taxability of Sales Tax Exemption Benefit:
The Tribunal upheld the decision that the sales tax exemption benefit availed by the assessee is a capital receipt and not taxable. This was based on the Special Bench decision in Reliance Industries Ltd. and subsequent judicial precedents.

2. Treatment of Additional Ground Raised by Assessee:
The Tribunal allowed the assessee to raise additional grounds regarding the sales tax exemption benefit, finding that such issues can be raised at any stage if the material exists on record.

3. Applicability of Special Bench Decision in Reliance Industries Ltd. Case:
The Tribunal confirmed that the Special Bench decision in Reliance Industries Ltd. still holds the field and is a good law, as it has not been reversed or stayed by any higher judicial forum.

4. Binding Nature of Special Bench Decision:
The Tribunal emphasized that the decision of the Special Bench in Reliance Industries Ltd. is binding and should be followed in the absence of any contrary higher judicial precedent.

5. Treatment of Sales Tax Incentives as Capital Receipts:
The Tribunal reiterated that sales tax incentives received by the assessee are capital receipts and should be excluded from taxable income under normal provisions as well as for the purposes of computation u/s 115JB of the Act.

6. Exclusion of Sales Tax Incentive in Book Profit Computation:
The Tribunal directed the exclusion of sales tax incentive from the book profits computed u/s 115JB, following consistent judicial precedents.

7. Refund of Royalty as Capital Receipt:
The Tribunal held that the refund of royalty received by the assessee is a capital receipt and should be excluded from taxable income, both under normal provisions and for computation u/s 115JB.

8. Claim of Additional Depreciation:
The Tribunal allowed the assessee's claim for additional depreciation u/s 32(1)(iia) on assets acquired in earlier years, following consistent judicial precedents and the principle of consistency.

9. Apportionment of Indirect Head Office Expenses:
The Tribunal upheld the allocation of indirect head office expenses to eligible units for computing deductions u/s 80IA, directing that such allocation should be done based on expenditure incurred by the units vis-à-vis overall expenditure.

10. Exclusion of CENVAT Credit for Units Eligible for Deduction:
The Tribunal held that CENVAT credit availed by the assessee should not be considered for the purpose of computing book profits u/s 115JB, following consistent judicial precedents.

11. Deduction u/s 80-IA on Rail System:
The Tribunal allowed the deduction u/s 80-IA for the assessee's rail system, confirming that the rail system qualifies as an infrastructure facility eligible for the deduction.

12. Deduction of Leave Encashment on Provision Basis:
The Tribunal dismissed the assessee's claim for deduction of leave encashment on a provision basis, following the Supreme Court decision in UOI v. Exide Industries Limited.

13. Addition of Provision for Interest on Income Tax in Book Profits:
The Tribunal upheld the addition of provision for interest on income tax in computing book profits u/s 115JB, finding that such provision partakes the character of interest as provided in explanation 2 to section 115JB.

14. Addition of Tax on Non-Monetary Perquisites in Book Profits:
The Tribunal deleted the addition of tax on non-monetary perquisites while computing book profits u/s 115JB, following consistent judicial precedents.

15. Deletion of Pre-Operative Expenses:
The Tribunal upheld the deletion of disallowance of pre-operative expenses, finding that such expenses are revenue in nature and allowable.

16. Interest Expenses to Earn Dividend Income in Book Profits:
The Tribunal held that disallowance u/s 14A cannot be made while computing book profits u/s 115JB, following consistent judicial precedents.