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TMI Blog2021 (11) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... d. There is no scope for intendment while interpreting a deeming provision of a taxing provision, particularly when the words employed are of precise meaning. The proviso to Section 92C(2), as it stood during the relevant year, clearly states that where more than one price is determined by the most appropriate method, the arm s length price shall be taken to be the arithmetical mean of such prices. Hence, when the computation of arithmetical mean has been expressly set out in the said provision, this Tribunal is not permitted to ignore or overlook the said expression and read weighted average mean in its place. No force in the Ld. CIT, DR s contention for use of weighted average mean as against arithmetical mean computed by the assessee. Revenue s contention that when the assessee has accepted the draft assessment order, pursuant to the TPO s order making the T. P. adjustment, by not filing objections before the DRP, resulted in automatic acceptance of the T.P. adjustment - As in the statute that if the assessee is not agreeable to the T.P. Adjustment which has been incorporated in the draft assessment order pursuant to the TP order, then the assessee has two alternative appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 1. That, on the facts and in the circumstances of the case and In law, the Ld CIT(A) has erred in deciding that the TPO has adopted a wrong method for valuation and added adjustment of ₹ 2,65,75,525/- when the adjustment was made on factual figures as elaborately In the order of the TPO. 2. That, on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the adjustment made by TPO when on service of the draft assessment order with TP modification, the assessee accepted it and didn't raise any objection before the appropriate authority which is the DRP. 3. That, on the facts and in the circumstances of the case and in law, the Ld CIT(A)has erred in deleting the additions made by the AO on receipt of incentives by the assessee from the Govt when such incentives are not subsidy and not paid for setup the business or complete any project and as such violating the decision of the Hon'ble Apex Court in the case of M/S Sahney Steel & Press Works Ltd Vs CIT. 228ITR 253(SC), 4. That, on the facts and in the circumstances of the case and in law, the Ld CIT(A)has erred in deleting the additions made by the AO on receipt of incentives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41,100 Pellets 11,670 8,811 Ferro Silicon 36,800 53,348 Calcium Silicide 1,32,500 1,06,771 Coal 6,150 6,300 C.I. Scrap 20,872 NA 7. Having regard to the above table, the TPO observed that the assessee had purchased the aforesaid products from its related parties at a price higher than the prices at which the same product was sold by them to the unrelated parties, and such difference was outside +/-3% range as per the proviso to Section 92C(2) of the Act. The TPO therefore made downward adjustment to the value of raw materials purchased from the related parties to the extent of ₹ 2,65,66,525/-. Pursuant to the order of the TPO, the AO passed the assessment order dated 13.01.2017 u/s 143(3) r.w.s 144C of the Income Tax Act, 1961 (hereinafter referred to as the Act) which inter alia included disallowance of ₹ 2,65,75,525/- on account of downward adjustment made to the value of raw materials purchased from related parties u/s 92CA of the Act. Being aggrieved by the assessment order passed by the AO, the assessee had filed an appeal before the Ld. CIT(A). The Ld. CIT(A) allowed the appeal of the assessee and deleted the downward transfer pricing adjustment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 6,40,67,790 Arithmetic Mean 15,309 10. As per the above table, the minimum price charged from unrelated party was ₹ 13,500/- and the maximum price charged was ₹ 16,275/-. Hence, the price ranged between ₹ 13,500/- to ₹ 16,275/-. The arithmetic mean for the same comes to ₹ 15,309/- and the price at which AMPL has purchased it from related parties is within the range and also below the arithmetic mean. The TPO however ignored all other comparable prices charged from other non related parties but took only the minimum price i.e. ₹ 13,500/- to benchmark the assessee's transaction. He pointed out that the TPO had followed the same basis for all other products such as Ferro Chrome HC, Scrap, MS Round, TMT bars wherein he had similarly ignored all other comparable rates and took the lowest price as the comparable rate for benchmarking purposes. The Ld. AR submitted that the TPO's basis of benchmarking was with a preconceived objective of somehow making an adjustment in any arbitrary manner without support of law and therefore clearly perverse. He thus contended that the Ld. CIT(A)'s order deleting the transfer pricing adjustment did not call for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at an arm's length price. The proviso to section 92C(2) is explicit that where more than one price is determined by most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices. To this extent the appeal is allowed. " (Emphasis given by us) 13. Therefore, according to Ld. AR, by applying the proviso to Section 92C(2) and the decision of the Hon'ble High Court (supra), it is clear that where there are more than one comparable price available for determination of Arm's Length Price, the arithmetic mean of such comparable prices shall be the arm's length price. However, the TPO had ignored the proviso to Section 92C(2) of the Act and had taken the lowest price from amongst the price of various comparables available as arm's length price which is contrary to the explicit law. According to the Ld. AR, the TPO had neither provided any reason for considering such lowest rate nor stated any reason for ignoring the other comparables provided by the assessee. Further, according to the Ld. AR, the second proviso to Section 92C(2) set out the tolerance band of +/-3% between the actual price taken by the assessee and the arithmetic mean of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was rightly deleted by the Ld. CIT(A). In the light of the aforesaid submissions, the Ld. AR does not want us to interfere with the order of the Ld. CIT(A). 15. We have heard both the parties and perused the material available on record. Having regard to the facts set out above, it is noted that the dispute before us pertains to the determination of arm's length price of specified domestic transaction ('SDT')involving purchase of raw materials by the assessee from its sister concern/AE aggregating to ₹ 58,90,85,891/-. The CUP Method taken as the Most Appropriate Method ('MAM') by the assessee has not been disputed by the AO/TPO. The only question before us, is the manner of application of CUP Method. The assessee has benchmarked the SDT with the 'arithmetical mean rate' at which the related parties sold the same product to independent buyers. On the other hand, the TPO has benchmarked it by taking the 'lowest/minimum rate' at which the related parties sold the same product to independent buyers, ignoring all other comparable uncontrolled transactions. We find that the bench marking methodology followed by the TPO is prima facie perverse and against the extant provisions co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans "the case omitted". Casus Omissus can in no case be applied by a Court of Law, for that it would amount to making of the law by Court, as held by the Hon'ble Supreme Court in MoulabiHussain Haj Vs. State of Gujarat (2004) 6 SCC 672. The Hon'ble Supreme Court in D.R. Venkatchalam v Dy. Transport Commissioner (1977 (2) SCC 273) observed that courts must avoid the danger of a priori determination of the meaning of a provision based on their own preconceived notions of ideological structure or scheme into which the provision to be interpreted is somewhat fitted. The Hon'ble Apex Court has held that the Courts are not entitled to usurp legislative duty. The Hon'ble Supreme Court has held while interpreting a provision that, the court only interprets law and cannot legislate. If the provision of law is misused and subjected to the abuse of process of law, it is for the legislature to amend, modify or repel it, if deemed necessary. In Popular Trading Co. (2000) 5SCC 515 it was held that legislative 'Casus Omissus' cannot be applied by judicial interpretation. The rule is that, the particular case, thus left un-provided for must be disposed of accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision. Casus Omissus is not permitted. At the same time, it has to be kept in mind that the judicial/quasi judicial authorities are also not permitted to ignore or overlook the expression or words expressly used. There is no scope for intendment while interpreting a deeming provision of a taxing provision, particularly when the words employed are of precise meaning. 19. The proviso to Section 92C(2), as it stood during the relevant year, clearly states that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices. Hence, when the computation of arithmetical mean has been expressly set out in the said provision, this Tribunal is not permitted to ignore or overlook the said expression and read weighted average mean in its place. In this regard, we may gainfully refer to the following findings of the Mumbai Bench of this Tribunal in the case of RBS Equities (India) Ltd Vs Addl. CIT (28 taxmann.com 158), upholding the Revenue's plea for use of arithmetical mean instead of weighted average mean. "As regards the claim of the assessee for adopting weighted average arithmetic mean of brokerag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by the assessee under the State Industrial Policy by way of revenue receipt. 24. During the relevant assessment year, the assessee has claimed following subsidies as capital receipt and had accordingly excluded them from the computation of income: i. Capital receipt of power subsidy : ₹ 73,81,832/- ii. Capital receipt of VAT subsidy under VAT Incentive : ₹ 44,79,82,00/- Total : ₹ 45,53,63,832 25. The AO assessed the above subsidies received from the State Government on the premise that the subsidies were not utilized for the purchase of new plant & machineries & expansion of factory. On appeal, the Ld. CIT(A), after examining the purpose and intent behind the grant of subsidy upheld the assessee's claim that it was in the nature of capital receipt. Aggrieved by the action of the Ld. CIT(A) the Revenue is before us. 26. Assailing the action of the Ld. CIT(A), the Ld. CIT, DR contended that the Ld. CIT(A) erred in holding that the subsidies, which the assessee received from the State Government, were capital in nature. In support of his contention, he relied on the decisions of the Hon'ble Supreme Court in the case of Commissioner Of Income-T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed from page 143 to 171 of PB and from a perusal of the same it is noted that the intent and object behind the industrial promotion assistance [herein after referred to as IPA] extended by the State under their Industrial Policy Scheme was to encourage the assessee to set up a new unit or expand the existing unit for overall economic development of the State and not to enable the assessee to run the business more profitably. In this case the assessee had invested in Sponge Iron Plant and Mega Project (Induction manufacturing units Sponge Iron, Power, Billet) as per the Scheme, which made the assessee eligible for subsidy [ sanction under the scheme given by West Bengal Industrial Development Corporation dated 5 january 2010 found placed at page 172 PB and Registration and Eligibilty Certificate as per the Scheme is found placed at pages 173 to 183 PB] under the Scheme taken out by the Government of West Bengal for making 'capital investment' in the State. We find that the intent and purpose of the Industrial Policy of State of West Bengal, 2004 was for establishing/substantial expansion of manufacturing units located in backward areas of State of West Bengal and generate employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uot;. It was specifically held that the point of time at which the subsidy is paid is not relevant; the source of the subsidy is immaterial; the form of subsidy is equally immaterial. 22. Applying the aforesaid test contained in both Sahney Steel as well as Ponni Sugar, we are of the view that the object, as stated in the statement of objects and reasons, of the amendment ordinance was that since the average occupancy in cinema theatres has fallen considerably and hardly any new theatres have been started in the recent past, the concept of a Complete Family Entertainment Centre, more popularly known as Multiplex Theatre Complex, has emerged. These complexes offer various entertainment facilities for the entire family as a whole. It was noticed that these complexes are highly capital intensive and their gestation period is quite long and therefore, they need Government support in the form of incentives qua entertainment duty. It was also added that government with a view to commemorate the birth centenary of late Shri V. Shantaram decided to grant concession in entertainment duty to Multiplex Theatre Complexes to promote construction of new cinema houses in the State. The aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the subsidy was to industrialize the State and to generate employment in the State, the fact that the subsidy took a particular form and the fact that it was granted only after commencement of production would make no difference." (emphasis supplied) 34. It is further noted that this exact same issue regarding taxability of subsidy received under the West Bengal State Industrial Scheme has been adjudicated in assessee's own case for the earlier A.Y. 2010-11. In the instant case, the Hon'ble jurisdictional Calcutta High Court (supra) upheld the order of this Tribunal holding the subsidies to be capital in nature and therefore not exigible to incometax. The relevant extracts of the judgment are as follows:- "..We have heard both sides at length on the issues involved in the instant appeal, considered their submission and perused the relevant record. The first issue which requires adjudication is whether incentives 'Interest subsidy' and 'Power subsidy' received by the assessee under the schemes in question are capital receipt not liable to the taxed or 'Revenue receipt' and is liable to be taxed and the key question which arises for determination of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the mechanism through which the subsidy is given are irrelevant." 21. A perusal of the judgments in Sahney Steel & Press Works Ltd. (supra) and Ponni Sugars & Chemicals Ltd. (supra) therefore, reveals that the apex court had applied the above quoted dictum to determine the purpose, which the two schemes had intended to achieve by the incentive subsidies, permissible under the schemes in question in those cases. 22. It was, therefore, in the context of respective subsidy incentive schemes in the two cases, that the subsidy in Sahney Steel & Press Works Ltd. (supra) was held to be revenue receipt whereas the subsidy in Ponni Sugars & Chemicals Ltd. (supra) was held as capital receipt." 23. On a careful look into these decisions it appears that the law is settled that the nature of incentives/subsidies granted by the Government under any Scheme to any enterprise would totally depend upon the salient features of the said Scheme. The purpose for which the incentive/subsidy is given under the Scheme is the determining factor to lay down the nature of the incentive/subsidy. If an incentive/subsidy is given as a general assistance to the assessee to carry on his busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidy is setting up of plant in the backward region of West Bengal, namely, Bankura. 25. Accordingly we hold the aforesaid incentive subsidies are 'capital receipts' and is not an 'income' liable to be taxed in relevant assessment year 2010-11 on the basis of discussion made above and further taking into consideration the definition of Income under Section 2(24) of the Income Tax Act, 1961, where sub-clause (xviii) has been inserted including 'subsidy' for the first time by Finance Act, 2015 w.e.f. April, 2016 i.e assessment year 2016-17. The amendment has prospective effect and had no effect on the law on the subject discussed above applicable to the subject assessment years. 26. Now the second issue which requires adjudication is as to whether the aforesaid incentive subsidies received by the assessee from the Government of West Bengal under the schemes in question are to be included for the purpose of computation of book profit under Section 115 JB of the Income Tax Act, 1961 as contended by the revenue by relying on the decision in the case of Appollo Tyres Ltd. (supra). 27. In this case since we have already held that in relevant assessment year 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Court in Sahney Steel and Press Works Ltd. In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10 per cent of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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