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TMI Blog2019 (12) TMI 1562X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and involve common issues, consequently all these appeals are being disposed off by this common order. In the disposal of these appeals, it is proposed to decide the issues specifically and then refer to the ground in each of the appeal against each of the issues. 3. Mr. M. Srinivasa Rao, CIT-DR represented on behalf of the Revenue and Shri Mr. Saroj Kumar, Advocate represented on behalf of the Assessee. 4. Issue-1: Notional interest on Annuity advance to subsidiary: It was submitted by the learned Authorized Representative that the assessee had debited the interest and other borrowing costs to the profit and loss account. It was a submission that the Assessing Officer found that the assessee had charged interest at the rate of 8% on the advance given to one of its subsidiaries M/s. Trinetra Cement Limited (formerly Indo-Zinc Limited). However, the assessee had not charged interest on the advance given to four other subsidiaries namely ICL Financial Services Limited, ICL Securities Limited, ICL International Limited and Industrial Chemicals and Monomers Limited. 4.1 When questioned, the assessee claimed that the advance had been made to the four companies for protecting an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative vehemently supported the order of the Assessing Officer. It was a submission that the assessee is maintaining two standards, one charging interest on the sum of the loans to its subsidiaries and in respect of the other, no interest is being charged. It was a submission that consistency is to be maintained and the notional interest in respect of the non-interest bearing advance as given is liable to be levied. 6. As it is noticed that the issue of the notional interest on the annuity advance to subsidiaries is now squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee's own case for various Assessment Years and as it is noticed that the learned CIT(A) has followed judicial discipline in following the decision of the Co-ordinate Bench of this Tribunal in the assessee's own case for the earlier Assessment Years referred to supra, as also on the ground that the Revenue has not been able to dislodge the findings on the learned CIT(A), we find no reason to interfere in the order of the learned CIT(A) on this issue. Consequently, this issue is held in favour of the assessee and against the Revenue. 7. Issue-2: Disallowance u/s.14A r.w. Rule 8D(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion and perused the materials available on record. 10. In the circumstances, as it is noticed that the issue is squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee's own case referred to supra, and the Revenue has not been able to dislodge the findings of the learned CIT(A), we find no reason to interfere in the order of the learned CIT(A) on this issue. Consequently, this issue is held in favour of the assessee and against the Revenue. 11. Issue-3: Depreciation of Franchise rights: It was submitted by the learned Authorized Representative that the assessee company was the owner of the Chennai Franchise of BCCI IPL by name of 'IPL-Chennai Super Kings'. It was a submission that the assessee had been awarded the franchise rights of Chennai Super Kings for a period of ten years for an amount of Rs. 364.00 Crores. In the second half of the Assessment Year 2008-09, the assessee had to pay an amount of Rs. 36.4 Crores per annum. The assessee was claiming depreciation on the said amount. The same was disallowed by the Assessing Officer on the ground that, in the case of the assessee, the franchise has been suspended and the assessee had not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k of assets increased. Therefore, the Assessing Officer is not justified in restricting the depreciation at Rs. 36.4 crores which was said to be paid during the year under consideration. This Tribunal is of the considered opinion that the entire cost of the franchise rights has to be taken into consideration for computation of depreciation. The assessee also filed appeal against the order of the CIT(A), restricting the depreciation on the amount actually paid by the assessee during the year under consideration. While adjudicating the assessee's appeal at para-34 hereinunder this Tribunal found that the assessee is entitled for depreciation on the cost of Rs. 364 crores. Accordingly, the order of the CIT(A) is modified and the Assessing Officer is directed to allow depreciation on the entire cost of Rs. 364 crores. 26 In the result, the appeal of the Revenue in I.T.A.604/Mds/2012 is dismissed." 12. In reply, the learned Departmental Representative submitted that the Chennai SuperKings was suspended and consequently for the relevant year's the depreciation was not allowable. It was also a submission that the depreciation has been wrongly allowed. 13. We have considered the rival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's own case in I.T.A. Nos.1339, 1340, 1341 & 1342/Mds/2010 dated 12.05.2017, wherein in para-7 & 7.1 under similar circumstances, the subsidy received by the assessee is from the Japanese Government which was used by the assessee for importing waste heat recovery plant has been held in favour of the assessee which is extracted as under: "7. We have heard both the parties and perused the material on record. In the first instance, it is seen that the assessee had passed a notional entry debiting its fixed assets and crediting reserves under the head 'deferred income'. The ld. AR agued that no depreciation has been claimed on the increased cost of fixed assets. On fulfillment of the export obligation, the assessee had reversed the reserve and credited its income which was claimed as deduction in the computation of income. The notional entries passed by the assessee cannot result in any income or expenditure. In this regard, we refer the decision of the Bombay High Court in the case of CIT v. Mogul Lines Ltd. (46 ITR 590)(Bom), wherein it was observed that the matter of taxability could not be decided on the basis of the entries, which the assessee might choose to make in hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it may have to pay the entire customs duty. The benefit connected with the acquisition of a capital asset cannot be brought to tax u/s.28(iv) of the Act. It is to be noted that the Supreme Court in the case of CIT v. Ponni Sugars and Chemicals Ltd. (306 ITR 392) has held that the character of receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is granted. In other words, one has to apply the purpose test. The point of time at which subsidy is paid is not relevant. The source is immaterial. If the object of the subsidy is to enable the assessee to run the business more profitably then the receipt is on the revenue account. On the other hand, if the object of the assistance under the subsidy scheme is to enable the assessee to set up new unit or to expand an existing unit then the receipt of subsidy would be on capital account. Applying the above principle laid down by the Apex Court, it may be concluded that since the concession was linked to the import of capital goods, though conditional on fulfilling export obligation, it was a concession on the capital account. The assessee is also not allowed to use the import entitlement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industries, Government of Maharashtra and consequently the assessee has made a fixed capital investment of nearly 152 crores as on 31.03.2011. It is after recognizing this that the learned CIT(A) has granted the assessee the benefit of treating the said subsidy as a capital receipt by following the principles laid down by the Hon'ble Supreme Court in the case of Commissioner of Income-Tax vs. Ponni Sugars and Chemicals Limited, referred to supra. This being so and also considering the fact that the Revenue has not been able to dislodge the findings of the fact as arrived by the learned CIT(A) on this issue, we find no reason to interfere in the order of the learned CIT(A) on this issue. Consequently, the issue is held in favour of the assessee and against the Revenue. 19. Issue-5: Foreign currency monetary item transaction: It was submitted by the learned Authorized Representative that in the course of assessment, the Assessing Officer noticed that the assessee had added back an amount under the head "Amortization to defer revenue expenditure - forex loss" and an amount under the head "Additions to Foreign Currency- Monetary Item Transaction" difference account had been reduced. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is entitled to. It is to this net loss that the assessee has applied the MCA Circular dated 29.12.2011 and the same was accumulated in the foreign currency monetary item transaction difference account and amortized over the balance period of loss. The amortization has been done by applying the notification issued by the MCA Circular dated 29.11.2011 but in the Memorandum of total income the amortized sum was added back and the entire expenses claimed. Thus, it is not the issue as to the assessee having amortized the deferred revenue expenditure but this is in fact a forex loss incurred by the assessee on account of a loan taken for the general purpose. This is admittedly to be allowed on the revenue filed in line to the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax vs. Woodward Governor India (P) Limited referred to supra. It must also be mentioned here that the Assessing Officer in the assessment order has not disturbed the claim of the assessee on the ground that the loss was capital. The Assessing Officer is disallowing the claim only on the ground that the MCA Circular are not binding on the department. As no error in the accounts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). Consequently, the issue is held in favour of the assessee and against the Revenue. 29. Issue-7: Deduction u/s.80IA: In respect of the adjustment of the rate in respect of the electricity consumed under the captive consumption. It was submitted by the learned Authorized Representative that in the course of assessment, the Assessing Officer had reworked the deduction u/s.80IA. It was a submission that the assessee owned a wind mill at Kayathar and Waste Heat Recovery Plant at Vishnupuram. When computing the eligible deduction u/s.80IA, the assessee had adopted the free market rate per unit of electricity for arriving at the profits of the undertakings. It was a submission that the Assessing Officer had adopted the rates prescribed by the TNERC and APERC respectively in respect of the prices at which they purchased power and consequently reduced the allowable deduction u/s.80IA of the Act. It was a submission that on appeal the learned CIT(A) had followed the decision of the Co-ordinate Bench of this Tribunal in the case of Sri Velayudhaswamy Spinning Mills Vs Deputy Commissioner of Income Tax reported in [2012] 19 Taxman.com 28 (Chen) as also the decision of Eveready Spinning Mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. It was further a submission that when the assessee does captive consumption of the power generated by its own wind mill and Waste Heat Treatment Plant, the assessee has already made savings in so far as the claim of deduction u/s.80IA is made. It was a submission that the order of the learned Assessing Officer was liable to be restored. 31. We have considered the rival submission and perused the materials available on record. 32. A perusal of the facts in the present case clearly shows that the assessee has been captively consuming the electricity generated from its wind mill as also the Heat Waste Recovery Treatment Plant. Admittedly, the assessee is entitled to the deduction u/s.80IA of the Act in respect of the electricity generated and consumed. This is not in dispute. The dispute has risen for computing the deduction u/s.80IA of the Act. The issue admittedly is covered by the decision of the Co-ordinate Bench of this Tribunal in the case of Sri Velayudhaswamy Spinning Mills Vs Deputy Commissioner of Income Tax referred to supra and as also the decision in the case of Eveready Spinning Mills vs. Assistant Commissioner of Income Tax referred to supra. A similar view has als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Vs. Vireet Investment Private Limited reported in 58 ITR (TRIB), Delhi Special Bench (SB) 313 (Delhi), the computation under Clause (f) of the Explanation-1 to Section 115JB (2) is to be made without reducing the computation as contemplated u/s.14A r.w.rule.8D of the Income Tax Act, 1962. It was also a submission that the Co-ordinate Bench of this Tribunal has in the assessee's own case in I.T.A. No.1343/Mds/2010 referred to supra in para-70 & 71 is as follows: "70. The next issue for consideration is with regard to addition of expenditure attributable to earning exempt income while computing the book profit u/s.115JB of the Act. 71. Since the disallowance under rule 8D was confirmed at 0.5% of the average value of investment, income from which does not form part of total income, both for regular computation as well as computation u/s.115JB of the Act, the Assessing Officer has rightly made the addition. However, the orders of the lower authorities are modified and the Assessing Officer is directed to disallow 0.5% of the average value of investment, income from which does not form part of the total income." The Co-ordinate Bench of this Tribunal has restricted the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quently, the learned CIT(A) directed that the expenditure was allowable u/s.37 of the Income Tax Act, 1961. The learned CIT(A) had followed the decision of the Hon'ble Supreme Court in the case of Venkata Satyanarayana Rice Mill Contractors vs. Commissioner of Income Tax [1997] reported in 89 Taxman.com 92 (SC) as also the principles laid down in the decision by the Hon'ble Jurisdictional High Court in the case of Commissioner of Income Tax vs. Chemicals and Plastics India Limited [2007] reported in 165 ITR 158 (Mad.), wherein it was held that, where the contribution was made by the assessee to the Chamber of Commerce whose activities are closely linked with the welfare of the corporate entities who are members therein and whose interests are taken care off by that Chamber, irrespective of whether the expenses incurred are compulsorily or otherwise, it could be said that the payment made by the assessee was for the purpose of business and satisfied the commercial expediency test. It was a submission that the payment have been made for the purpose of business of the assessee and the same was allowable. 38. In reply, the learned Departmental Representative vehemently supported the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Governmental organizations. This is in respect of the business expenditure claimed by the assessee in respect of the payments made to the National Council for Cement and Building Materials. The issue has been adjudicated in paragraphs 37 to 41 in favour of the assessee and against the Revenue. Consequently, Ground Nos.2.1 and 2.2 in the Revenue's appeal stands dismissed. 43.2 In respect of the Ground Nos.3.1 and 3.2, the Revenue has challenged the action of the learned CIT(A) in deleting the disallowance of the sales tax subsidy by treating the same as capital receipts. The issue has been adjudicated in paragraphs 15 to 18 above in favour of the assessee and against the Revenue. Consequently, Ground Nos.3.1 and 3.2 of the Revenue's appeal stands dismissed. In the result, the appeal of the Revenue is dismissed. 44. In I.T.A. No.2414/Chny/2019, in the Revenue's appeal in Ground Nos.1.1 to 1.3, the Revenue has challenged the action of the learned CIT(A) in deleting the addition made on recognizing notional interest on the annuity advances to the subsidiary companies. This issue has been adjudiciated by us in paragraphs 4 to 6 above in favour of the assessee and against the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issed. 44.7 In Ground No.8.1, the Revenue has challenged the action of the learned CIT(A) in directing the Assessing Officer to apply only clause (iii) of Rule 8D while computing the disallowance u/s.14A for normal computation of total income and for the purpose of computation of book profits u/s.115JB. The issue has been adjudicated in paragraphs 7 to 10 and 33 to 36 above in favour of the assessee and against the Revenue. Consequently, Ground No.8.1 of the Revenue's appeal stands dismissed. 44.8 In the result, the appeal of the Revenue in I.T.A.No.2414/Chny/2019 is dismissed. 45. In I.T.A. No.2415/Mds/2019, in the Revenue's appeal in Ground Nos.1.1 to 1.3, the Revenue has challenged the action of the learned CIT(A) in deleting the addition made on recognizing notional interest on the annuity advances to the subsidiary companies. This issue has been adjudicated by us in paragraphs 4 to 6 above in favour of the assessee and against the Revenue. Consequently, Ground Nos.1.1 to 1.3 of the Revenue's appeal stands dismissed. 45.1 In Ground Nos.2.1 to 2.4, the Revenue has challenged the action of the learned CIT(A) in directing the Assessing Officer to restrict the disallowance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/2019, in the Revenue's appeal in Ground Nos.1.1 to 1.3, the Revenue has challenged the action of the learned CIT(A) in deleting the addition made on recognizing notional interest on the annuity advances to the subsidiary companies. This issue has been adjudicated by us in paragraphs 4 to 6 above in favour of the assessee and against the Revenue. Consequently, Ground Nos.1.1 to 1.3 of the Revenue's appeal stands dismissed. 46.1 In Ground Nos.2.1 to 2.4, the Revenue has challenged the action of the learned CIT(A) in directing the Assessing Officer to restrict the disallowance of the expenses u/s.14A to 0.5% to the average value of the investment. The said issue has been adjudicated in paragraphs 7 to 10 above in favour of the assessee and against the Revenue. Consequently, Ground Nos.2.1 to 2.4 of the Revenue's appeal stands dismissed. 46.2 In Ground Nos. 3.1 and 3.2, the Revenue has challenged the action of the learned CIT(A) in deleting the disallowance of sales tax subsidy by treating the same as capital receipt. The issue has been adjudicated in paragraphs 15 to 18 above in favour of the assessee and against the Revenue. Consequently, Ground Nos.3.1 and 3.2 of the Revenue's a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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