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TMI Blog2021 (4) TMI 449X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Act as mandated by Section 14A(1) of the Act. (c) That the learned CIT (Appeals) has erred in law and in the circumstances of case in not taking into account the various submissions made by the appellant during the course of hearing before him and erroneously upheld an addition amounting to Rs. 39,55,351/-. (d) That the addition of Rs. 39,55,351/- upheld u/s 14A read with rule 8D is bad in law and is prayed to be deleted as rule 8D is not applicable in the current year. 2 (a) That the learned CIT (Appeals) has erred in law, on facts and in the circumstances of the case in upholding an addition of Rs. 44,77,914/- on account of transfer pricing u/s 9C of the Income Tax act based on the order of the TPO dated 15.10.2010 on wholly illegal, erroneous and untenable grounds. (b) That the learned CIT (Appeals) has failed to appreciate that the transaction of the appellant with its AE SRFO Dubai was at arm's length as per Chapter X of the Income Tax Act. The learned TPO and CIT (Appeals) have failed to appreciate that as per provisions of Chapter X no addition was called for on the transactions between the appellant and its AE SRFO Dubai. (c) That on the facts and circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgest manufacturer of belting fabrics in the world. 4. The assessee has raised both transfer pricing issue (in ground no.2) and non-transfer pricing issues before us. We proceed to deal with each ground in seriatim. Ground no.1 [(a)-(d)]-Disallowance u/s 14A read with Rule 8D-Rs. 39,55,351/- 5. Regarding disallowance u/s 14A r.w.r. 8D, the facts in brief are that, assessing officer took note of the fact that assessee has received dividend income to the tune of Rs. 1,49,06,665/- which has been claimed as exempt by the assessee and no disallowance has been made by the assessee u/s 14A in respect of such dividend income received. The assessing officer relying upon the judgment of ITAT Mumbai (Special Bench) in case of ITO v. Daga Capital [117 ITD 169] held that Rule 8D notified vide notification no.45/2008 dated 24th March, 2008 are procedural and clarificatory in nature and thus has retrospective operation including the relevant year under consideration i.e. AY 2007-08. The AO proposed the disallowance u/s 14A read with Rule 8D of Rs. 45,69,828/-. 6. Before the Assessing Officer, the assessee contended that Hon'ble Bombay High Court in case of Godrej and Boyce Manufacturing Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. On merits of case, the assessee reiterated that out of total of investments of Rs. 10410.22 lakhs, amount pertaining to investment made in foreign subsidiaries dividend from whom is taxable is Rs. 8756.86 lakhs. Of the remaining investments of Rs. 1653.36 Lakhs, Rs. 1254.19 Lakhs pertained to investment made in earlier years and thus, only Rs. 399.17 Lakhs pertains to the investment made in the financial year under consideration. As regards the loans, the assessee has given a comparative chart of loans taken/repaid during the previous four years including current year, which is reproduced hereunder:- Rs. In Lakhs Financial Year Increase /(Decrease) in Borrowing Increase / (Decrease) in investment from which income exempt 2003-04 (3,002) 0 2004-05 18,903 (500) 2005-06 17,707 (243) 2006-07 (12,020) 299 He pointed out that during the said period of four years, the assessee had borrowed approx. Rs. 36,608 lakhs for various reasons which included expansion of its business, replacement of assets, establishment of new factories and other business needs and there was no addition in investment made by the company during such three previous years prior to the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, perused the relevant findings and as well as material referred to before us at the time of hearing. It is worthwhile to note that this Tribunal in assessee's own case for past and future years has dealt with the identical issue covering several aspects. The findings of this tribunal for AY 2006-07 are reproduced hereunder:- ITA No. 2181/Del/2009 A.Y. 2006-07 Para 9- "We have carefully considered the rival contentions and fully agree that for the impugned assessment year, the provisions of Rule 8D of Income Tax Rules, 1962 which has been made applicable with effect from assessment year 2008-90 only and does not apply to the impugned assessment year under appeal before us. Therefore, no disallowances under section 14A of the Income Tax Act, 1961 can be made in hands of the assessee for this assessment year based on computation formula of Rule 8D."- "The second contention of the assessee is that the Ld. AO has not recorded any satisfaction where the assessee has contended that the assessee has not incurred any expenditure for earning exempt income. The detailed exploration of the assessee is available at Para No. 7.2 of assessment order where assessee has submitted that out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l has given a clear finding that provisions of Rule 8D cannot be invoked for any assessment year prior to assessment year 2008-09, then in A.Y.2007-08 also same cannot be held to be applicable. Nevertheless, the issue is settled in view of judgment of Apex Court in case of Essar Teleholdings Ltd. (TS-35-SC-2018) that Rule 8D cannot be enforced prior to AY 2008-09 for making disallowance u/s 14A of the Act. Further, in A.Y. 2011-12 (ITA no.356/Del/2015) and AY 2012-13 (ITA no.5784/Del/2016), this Tribunal has upheld deletion of disallowance u/s 14A r.w.r. 8D in view of sufficiency of assessee's own surplus funds in form of reserves and surplus over the value of investments. 16. As has been brought to our attention that in the year under consideration, the reserve and surplus are much higher than the investments and further, investment made during the year is only Rs. 399.17 Lakhs (net Rs. 299.00 Lakhs), while there is actual repayment of borrowings during the year to the extent of Rs. 12,020 lakhs. Therefore, assessee's own funds are much more than investment and on the facts of the case it can be reasonably inferred that amount of investment made cannot be said to be made from bor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is less than the price charged from the third party is more, he has made the adjustments. However, he has ignored the other days when price charged from AE is more than the third party. The Comparable price has been reproduced in his order at pages 14 to 20. 20. On appeal, the Ld. CIT (A) rejected the benefit of +5% and upheld the adjustment made by the TPO. 21. During the course of hearing, the ld. Counsel's main objection against the above adjustment was that, while computing the arm's length price of above international transactions, the TPO cannot pick and choose the transactions with the same AE with an objective of making an adjustment. He took us through the chart of transactions reproduced in the TPO's order at page no. 14 to page no.20 to bring out the fact that there are number of transactions in the nature of export of goods with its AE on different dates spread across the entire year. Going through the chart given by the TPO himself in the order, he pointed out that there are certain transactions the price of which are more than the comparable price and hence no adjustment has been proposed by the TPO. While there are other transactions, where the prices are lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -TP] * MTU Industries Ltd [TS-132-ITAT-Pune]; Heavy reliance was also placed on Mumbai ITAT ruling in the case of Rohm and Haas India Pvt. Ltd. [TS-926-ITAT- 2019(Mum)-TP ] wherein it was held that : Je us. 25. The ld. AR also drew our attention to the fact, that during the year the assessee has raised a debit note amounting to Rs. 36,95,456/- which has not been considered by the TPO and CIT(A). This would go to further reduce adjustment if any. 26. Lastly, on use of Technon Orbichem Price Monitor as comparable, the ld. AR submitted that though the TPO has refused to consider it as comparable data under CUP, he himself has used such data while computing the arm's length price as evident from the chart given in its TPO's order. The ld. AR also submitted that adjustment proposed is only 1% of the total value of the transaction which is meager and is within the threshold of +/-5%. 20. The ld. DR relied on the order passed by the adjudicating authorities and further submitted that transaction has to be seen in segregation and if price charged from AE is lower than the comparable price on any transaction, then adjustment has to be made. 21. We have heard the rival contentions, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready been dealt by the Mumbai Tribunal in the case of Boskalis International Dredging C.V vs. DDIT reported in 67 SOT 118, which decision has been subsequently approved by the Hon'ble Bombay High Court reported in TS-1310- HC-2018. 23. We reiterate that the transactions under consideration are in the nature of export of nylon yarn and chafer by the assessee to its AE and the nature of transaction is same and homogeneous and is with the same AE. These transactions are continuous transactions and are closely linked transactions. Though each international transaction is required to be benchmarked separately, however, the word "transaction" as defined under Rule 10A (d) of Income-tax Rules, 1962, includes within its ambit a number of closely linked transactions. If transactions with the AE are continuous and there number of closely linked transactions, like here in this case, then there cannot be separate benchmarking of closely linked transaction. The rules mandates that closely linked transactions can be treated as a class of transaction and benchmarked together. The price of the goods which are the subject matter of export transaction are negotiated based on international pricing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Nylon Yarn and Chafer are held at arm's length. Thus, transfer pricing adjustment made by the TPO/AO and upheld by CIT (A) amounting to Rs. 44,77,914 is hereby deleted. Ground no.3-Receipt on account of transfer of Carbon emission reduction (CER) certificates: 26. The assessee has received carbon emission reduction ('CER' or 'carbon credits') certificates on account of its efforts to reduce the emission of greenhouse gases in terms of Kyoto Protocol. During the relevant year the assessee transferred 45,49,000 of such certificates for a consideration of Rs. 4,91,53,00,344/-. 27. The assessee initially included the above CER receipts in its total income while filing the return of income. Subsequently before the CIT (A), the assessee raised this issue for the first time by way of additional ground for exclusion of CER receipts from the total income based on the decision reported in My Home Power Ltd. vs. DCIT [2012] 27 taxmann.com 27 151 TTJ 616. Before CIT (A), the assessee explained the issue in detail vide its submissions dated 25.11.2013. Further, complete details of CER receipts were also submitted to the assessing officer while justifying the increase in legal and profe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the DRP for the first time, which refused to entertain the claim of the assessee primarily relying on the judgment of Hon'ble Supreme court in Goetze (India) Limited vs CIT 284 ITR 323. The tribunal taking note of the facts and judgments on the issue allowed the appeal of the assessee with following findings:- "41. Thus, taking into consideration resolution of litigation on this issue by the Legislature itself, which had made provision for taxation of such receipts at the rate of 10% from the assessment year 2018-19 as well as authoritative pronouncements of Hon'ble jurisdictional High Court, we are of the view that receipts received by the assessee on sale of carbon credit are to be treated as capital receipts and not liable to tax. The ld.DRP has assigned one more reasons for not entertaining claim of the assessee particularly in the assessment year 2012-13 is that such claim was not in the return of income, rather it was made during the course of assessment proceedings. On the strength of Hon'ble Supreme Court judgment in the case of Goetez India Ltd.(supra), we are of the view that the AO cannot entertain any claim for allowing deduction resulting in a reduction of to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee's own case for AY 2010-11 (ITA no.356/Del/2015) is reproduced herein below for reference: "60. On the aspect of claim of the assessee that receipt of CER is capital nature, we find force in the argument of the Ld. AR that cause of action had arisen in the case by virtue of the decision in My Home Power Ltd. (supra). The claim of assessee is bonafide and has been raised before AO as well as DRP. The assessee is not in the business of trading in CERs but in business of technical textile, chemicals, refrigerant gaseous etc. The assessee has been granted CERs on account of its efforts for reduction in harmful greenhouse gases in terms of Kyoto Protocol. Thus it cannot be said that CERs are benefits arising from the business of the assessee. Various Hon'ble High Court including My Home Power Ltd. (supra) have held that carbon credits are not offshoot of business but offshoot of environmental concerns and hence not taxable. .... Further coordinate bench in assessee's own case for AY 2006-07 and AY 2008-09 has allowed to raise this claim of the assessee and remitted the issue back to AO to decide the issue in accordance with law. "61. We therefore, allow the assessee's pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l decision given while the appeal is pending before the Tribunal, it is found that a nontaxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier." The Hon'ble Jurisdictional High Court in case of Jai Parabolic Springs Ltd. [2008] 172 taxmann 258 (Delhi) has also categorically held that there is no fetters on the powers of the tribunal to entertain an additional ground. Hon'ble Court has described that power of tribunal in dealing with appeals have been expressed in widest possible term. 35. We, therefore allow the application of the assessee for admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Scheme as capital receipt. Since the issue under hand is related to additional claim which was not entertained by the lower authorities, we therefore allow the assessee's ground for entertainment of above additional claim and remit the issue back to the file of AO to decide the same in accordance with law after granting a reasonable opportunity of being heard to the assessee. The assessee shall be free to file such documents, explanations, submissions as it deems fit in respect of this claim." 38. We have heard the rival contentions, perused the relevant findings. It is a settled position that purpose of subsidy or incentive and not the nomenclature of such incentive have to be seen for the purpose of deciding its nature as capital or revenue. Following the order of coordinate bench in assessee's own case for AY 2012-13, we remit the issue to the file of assessing officer to verify the claim of the assessee and allow the relief if the same is in the nature of interest subsidy under TUF scheme after granting a reasonable opportunity of being heard to the assessee. Deduction of education cess u/s 37 of the Act 39. Under this additional ground the assessee has raised the issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on issue no.3 is required to be reversed and the said issue is answered in favour of the assessee. 34. So, in these circumstances, education cess is not a disallowable expenditure u/s 40(a)(ii) of the Act having been expressly excluded from section 40(a)(ii) of the Act. Moreover, cess is not in the nature of tax as has been held by Hon'ble Supreme Court in case of Smith Kline Amp; French (India) Ltd. and Ors. vs. CIT (1996) 219 ITR 581 (SC). So, we are of the considered view that AO/CIT(A) have erred in disallowing the deduction for education cess on income-tax, dividend distribution tax and fringe benefit tax for AYs 2009-10, 2010-11 & 2011-12 in computing the total income under normal provisions of the Act, consequently ordered to be deleted. Hence, Ground No.4 of AY 2009-10, Ground No.3 of AY 2010-11 & Ground No.4 of AY 2010-11 in assessee's appeals are allowed." 42. Accordingly, we remit the issue back to the file of the AO to verify the claim of the assessee and allow the same in accordance with the law after granting a sufficient opportunity to the assesse. 43. Other grounds are either consequential or have become academic, hence same are treated as infructuous. 44. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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