9911796707
TMI Blog2022 (2) TMI 1220X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in the preceding year i.e assessment year 2004-05 [ 2010 (9) TMI 1150 - ITAT AHMEDABAD] the issue raised in the present ground stands squarely covered by the same following which we confirm the order of the Ld. CIT(A) upholding the disallowance of depreciation. Disallowance as per Rule 8D r.w.s. 14A(2) - Sufficiency of own funds - HELD THAT:- We are aware of the proposition of law settled by the Hon ble Apex Court in the case of CIT (large tax buyer unit) vs. Reliance Industries Ltd. [ 2019 (1) TMI 757 - SUPREME COURT] which was followed in another recent decision of the Hon ble Apex Court in the case of South Indian Bank Ltd [ 2021 (9) TMI 566 - SUPREME COURT] to the effect that where there is a finding of fact that interest free funds available to the assessee was sufficient to meet its investment it will be presumed that the investments were made from such interest free funds. Therefore it is settled law that where sufficient own funds are available and the investments have been made out of mixed funds, no disallowance u/s. 14A is called for. In the facts of the present case, the assessee had canvassed the facts before the Ld. CIT(A) that it had own funds of 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. The same can be determined from the technical collaboration agreement. In the absence of the same, the claim of either of the parties merits no consideration and it is not possible to adjudicate on the issue. We, therefore, considerate it fit to restore this matter to the Assessing Officer to determine the nature of the amount written off by the assessee from the contents of the technical collaboration agreement and any other document which he considers necessary. The A.O. is directed thereafter to adjudicate this issue in accordance with law. Needless to add, the assessee be granted due opportunity of hearing. Disallowance of deduction claimed for new power plant made by AO denying the benefit u/s 80IA - HELD THAT:- We see no reason to interfere in the order of the Ld. CIT(A) who has followed the order of the ITAT in assessment year 2001-02 [ 2016 (9) TMI 1625 - ITAT AHMEDABAD] while denying the claim of deduction u/s. 80IA of the Act on new power plant. Disallowance of captive power plant denying the benefit u/s 80IA - whether for the purpose of computing profits earned by captive power plant for the purposes of claiming deduction u/s.80IA(4) of the Act, the cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmission. Similar issue came up in earlier years also and my learned predecessors decided the same against the appellant. In appeal order for AY 2004-05 dated 23-03- 2007, the decision is as under- The appellant has raised many technical issues challenging the action of assessing officer in making the adjustments of transfer pricing. However I find that all the issues were raised in assessment year 2003-04 and decided negative i.e. against the appellant by my own order. Following my own order for assessment year 2003-04 in appeal order dated 21-11-2006, all these grounds of appeal are dismissed. Admittedly the issue is identical and therefore it is covered against the appellant. Respectfully following the orders of my learned predecessors, this ground is dismissed. 4. Ld. Counsel for the assessee thereafter stated that the appeal of the assessee for assessment year 2004-05 stood adjudicated by the ITAT in ITA No. 1547/Ahd/2007 vide order dated 24.09.2010 wherein this issue was set aside to the A.O. Ld. Counsel for the assessee drew our attention to Para 18 to 21 of the said order of the ITAT ,placed before us at paper book page no. 144 to 155, as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irstly because the appellant was not heard before any such approval and secondly because the same has been granted mechanically, without any application of mind and without due diligence. 8. The learned CIT(A) has erred in law and on facts in confirming the action of AO in referring the case of the appellant to the transfer pricing officer. Under the facts and circumstances of the case, there was no reasons to interfere with the pricing as well as method thereof adopted by the appellant as the same is falling within the parameters of transfer pricing laid down under the scheme of the Act. 9. Alternatively and without prejudice, the learned CIT(A) has erred in law and on facts in confirming the order of the Additional Commissioner of Income Tax acting as Transfer Pricing Officer which is without jurisdiction and against the express provisions of law inasmuch as Additional Commissioner of Income Tax could not have acted as transfer pricing officer. .................................................................................................. 26. We have heard the rival contentions and gone through the facts and circumstances of the case. The fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has charged rates, which are higher than those charged to Non-AE's there is a possibility that the AE's will not be able to sale anything. According to assessee, the CUP method is used, as in the said method, controlled transactions are being compared with uncontrolled transactions wherein the degree of comparability with uncontrolled transactions is very high. According to assessee, in any case, it is not necessary to give all the reasons or grounds for justification of a particular method in the audit report itself. If it is stated that a particular method is followed because in majority of the cases prices are comparable between AE and non-AEs, as per the assessee, it has every right to adopt the CUP method. The assessee also admits that in few instances, when prices of other comparable cases are not available, in the assessee's case, the prices charged by it to AE in such cases can be adopted as an ALP. As per the TPO the wholesale margins and volume discounts as well as political risks have not been substantiated by the assessee. Now as per the assessee, both these margins i.e. wholesale discounts and political risks vary from party to party and country t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation may be obtainable from commodity markets or may be deduced from dealer prices. If this difference does have a material effect on price, some adjustments would be appropriate. If a reasonably accurate adjustment cannot be made, here liability of the CUP Method would be reduced, and it might be necessary to combine the CUP method with other less direct methods, or to use such methods instead. 2.12 One illustrative case where adjustments may be required is whether the circumstances surrounding controlled and uncontrolled sales are identical, except for the fact that the controlled sales price is a delivered price and the uncontrolled sales are made f.o.b. factory. The differences in terms of transportation and insurance generally have a definite and reasonably ascertainable effect on price. Therefore, to determine the uncontrolled sales price, adjustment should be made to the price for the difference in delivery terms. 2.13 As another example, assume a taxpayer sells 1000 tons of a product for $9=80 per ton to an associated enterprise in its MNE group, and at the same time sells 500 tons of the same product for $100 per ton to an independent enterprise. This c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The very nature of this job of collection of data is such that the assessee is in the best position to gather the requisite information. 129. The taxpayer, on the other hand, as a party to the transaction has full knowledge of the transaction carried and profit earned by him. As a person associated with that particular line of business activity, the assessee is reasonably expected to be not only aware about nuances of that business, but also about economic conditions and peculiar circumstances, if any, of that business. He is likely to know even about comparable uncontrolled transactions. Otherwise too as per the settled law every attempt to collect best evidence has to be made. Evidence of situation has to be called from a person possessing special means to know that situation. Therefore, it is reasonable to call upon the taxpayer to furnish evidence of controlled/uncontrolled transactions which are within taxpayers ' special knowledge. However, tax authorities cannot insist upon the taxpayer to furnish information he does not possess or is not required to maintain under rules. Guidelines given in circulars of CBDT are to be followed. We, therefore, hold that burden of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y The general principle is that the burden of proof lies with the tax authorities. Where the tax authorities issue an assessment to additional tax, however, the taxpayer must prove there is no liability for the additional tax. There are other circumstances in which the burden of proof lies with the taxpayer. The most important of these are the following : If an enterprise that is tax resident in Italy wants to claim a deduction for the costs of transactions with parties that are resident in certain tax havens, then the Italian taxpayer must provide evidence that the foreign party is a genuine commercial undertaking or that the transactions were effected in connection with a real economic interest; and An Italian taxpayer would also have to be able to prove that the relevant transaction actually took place. Malaysia In the self-assessment system, the burden of proof lies with the taxpayer to clear any tax avoidance allegation and/or alleged transfer pricing abuse. The intention of the Malaysian Transfer Pricing Guidelines is to assist the taxpayer in their efforts to determine arm ' s length transfer prices and at the same time comply with the local tax laws and the administrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provide guidance on what is considered to be non-cooperation : Where the taxpayer does not provide the requested relevant information to the Commissioner : or If a taxpayer does not prepare adequate documentation, and provide it to the inland Revenue if requested. United Kingdom The position after the 1999 rules is that the burden for proving that transfer prices are at arm ' s length falls squarely on the taxpayer ' s shoulders. The act of submitting the return under self- assessment implicitly assumes that the taxpayer has made all necessary adjustments to taxable profits to take account of non-arm's length pricing. Switzerland The burden of proof within Switzerland lies with : The taxpayer regarding the justification of tax deductible expenses; and The tax authorities regarding adjustments, which increase taxable income. This effectively means that a taxpayer has to prove to the Swiss tax authorities that the price it has paid for its tangibles, intangibles and any service it has received from a related party satisfies the arm ' s length principle (i.e., justifies their tax deductibility). On the other side, the Swiss tax authorities ' respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions, particularly the mandate of ss. 92(1) and 92D read with relevant rules, we hold that it is obligatory on the part of the taxpayer to furnish information relating to controlled international transactions, select a suitable method for determination and furnish ALP of such international transactions carried by it and give basis and supporting authentic evidence of ALP and adjustments made. The taxpayer has further to co-operate in the determination of the ALP by the tax authorities by furnishing all relevant information. The tax authorities in cases where they are of the opinion that ALP has not been correctly determined by the taxpayer, can substitute their own ALP on the basis of material or information furnished by the assessee or collected by them. However, such ALP has to be determined having in mind provisions of ss. 92 and 92C and other rules and regulations. While determining ALP, tax authorities are bound to follow principles of natural justice and be fair and reasonable to the taxpayer. Any material collected to be used against the taxpayer is to be put to taxpayer to explain. Having regard to the purpose of the legislation and application of similar enactment world ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to be considered is amount of assets employed, risk involved, both in controlled and uncontrolled transactions. If there are such differences between transactions taken for comparison, which are likely to affect the price or cost charge etc. in the open market then reasonable and accurate evaluation is to be done and adjustment made. Reliability of uncontrolled transaction would depend upon the degree of comparability. The uncontrolled transaction may not be taken as comparable if there are such material differences as cannot be adjusted. If data found satisfies above requirements then further proceedings to find the most appropriate method, best suited to the facts and circumstances of a particular international transaction is to be selected. In other words, most appropriate method would be the method which provides most reasonable results having regard to the data available for determining arm ' s length price. If there are more than one ALPs determined on the application of most appropriate method then arithmetical mean of such prices or price at option of the assessee within 5 per cent variation is to be adopted [Proviso to s. 92C(2)]. 136. In the light of abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Bench in the case of Aztec Software Technology Services Ltd. (supra) has placed burden of the taxpayer to justify the transactions carried at ALP by maintaining the documents and other details. The Hon'ble Bangalore Special Bench has also held that taxpayer as a party to the transaction has full knowledge of transaction carried out and as a personal associate with that particular line of business, the assessee reasonably accepted to be not only aware about nuisance of that business and but also economic conditions and peculiar situation of that business. The Bench further held that the assessee knew even about the comparable uncontrolled transaction, and therefore it is reasonable to call upon the taxpayer to furnish controlled / un-controlled transactions which are within taxpayer's special knowledge. Accordingly, the burden placed on the assessee is not discharged in the present case before us as the assessee has not filed the details before TPO or the Assessing officer. The relevant details, i.e. the transaction carried out of comparable controlled and uncontrolled transactions. In view of these facts, and in the absence of material, we have no alternative but to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order and page 4 to 5 and Para 3 of the Ld. CIT(A) s order, Ld. Counsel for the assessee pointed out that the issue involved related to disallowance of depreciation of ₹ 2,66,83,892/- which was disallowed for the reason that while the assessee had not claimed depreciation for Assessment Year 2001-02, the A.O. had allowed the same for the said year and in subsequent years had accordingly worked out the claim of depreciation on the reduced WDV ,while the assessee had claimed higher depreciation. On account of this difference, A.O. had found the assessee s claim of depreciation to be in excess to the extent of ₹ 2,66,83,892/- which accordingly was denied to the assessee. The ld. CIT(A) noted that the A.O s Act of allowing depreciation in Assessment Year 2001-02 had been confirmed by the ITAT. Noting the same he therefore, upheld the order of the A.O. in allowing depreciation to the assessee on the reduced value of WDV worked out accordingly after taking into consideration the depreciation claimed for Assessment Year 2001-02. Our attention was drawn to the relevant findings of the Ld. CIT(A) at para 3.3 of the order as under: 3.3 I have considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear under consideration. However, the AO did not accept the contentions of the assessee. While referring to the amendment in the provisions of section 32 of the Act and the principles laid down by the Hon'ble Jurisdictional High Court in the case of CIT vs. Gujarat Warehousing Corporation,104 ITR 1 and the decision of Hon'ble Supreme Court in the case of CIT vs. Mother India Refrigeration Industries Pvt. Ltd.,155 ITR 711 as also the decision of the ITAT Ahmedabad Bench in the case of United Phosphours Ltd. vs. JCIT (2001) 73 TTJ 404 (Ahd), the AO reduced the claim for depreciation on the basis of his own findings in the AY 2001-02. 3. On appeal, the learned CIT(A) upheld the disallowance, following his own decision for the AY 2003-04. 4. The assessee is now in appeal before us against the aforesaid findings of the learned CIT(A). Both the parties agreed that the issue is squarely covered against the assessee by the decision dated 24- 07-2009 of the ITAT Ahmedabad Bench-D in the assessee's own case for the AY 2003-04 in ITA No.157/Ahd/2007, following the decision of the Special Bench of ITAT in the case of Vahid Paper Converters vs. ITO (2006) 98 ITD 165 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income, it cannot be said that both the views are equally possible or reasonable views. The view, which is supported by the decisions of the Supreme Court, jurisdictional High Court and other High Courts, has to be preferred than the view taken by the Tribunal. Therefore, the depreciation, which is though allowable but not claimed in the return for normal computation of income, has to be allowed while computing the deductions under Chapter VI-A viz., sections 80HH, 80IA, 80IB, etc., of an industrial undertaking. Respectfully following the aforesaid decisions, we do not find any illegality or infirmity in the order of the CIT(A). We accordingly confirm the order of the CIT(A) on this issue. Thus, this ground stands dismissed. 4. Now before us both the Ld. Counsel for the assessee and the learned DR agreed that the issue is covered against the assessee and in favour of the Revenue. We find from the Tribunal's order for assessment year 2001-02, which has confirmed the orders of the lower authorities allowing the depreciation. Accordingly, in these two assessment years, the CIT(A) as well as the Assessing officer has allowed depreciation on correct amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and the expenditure calculated as per the said rules amounting to ₹ 14,00,410/- was accordingly disallowed by the A.O. 16. Before the Ld. CIT(A), the assessee challenged the disallowance stating that it had sufficient own funds for making the investments and therefore no disallowance was called for u/s. 14A of the Act. It was also contended that the investments were old and no disallowance had been made in the past. The Assessee also contended that Rule 8D was not applicable for the impugned year. The Ld. CIT(A) however upheld the order of the A.O. holding at para 4.3 of his order as under: 4.3 I have considered the facts of the case, assessment order and appellant's submission. It is not in dispute that appellant earned exempt income in the form of dividend on investment of more than RS 6902 Lakhs. It is also not in dispute that appellant borrowed substantial funds on which interest to the extent of RS 2178 lakhs were paid. Apart from this substantial administrative expenses were incurred, part of which may relate to investment resulting in exempt income. Considering these facts it is clear that there are expenses in the form of interest and other admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) agreeing with it and the Hon ble Supreme Court having settled this issue in the case of Commissioner of Income Tax Vs Essar Teleholdings Ltd. (2018) 401 ITR 445(SC). But we find that the Ld. CIT(A) has still gone on to uphold the disallowance of expenses computed as per Rule 8D. We are not in agreement with the same since though the inapplicability of Rule 8D does not rule out any disallowance to be made ,at the same time the quantum of disallowance has to be worked out as per the most appropriate method considering the facts and circumstances of the case. In the present case the Ld. Counsel for the assessee has demonstrated availability of sufficient own funds for the purposes of making the impugned investments calling for no disallowance of interest u/s 14A.Our attention was drawn to the submissions made before the Ld. CIT(A) reproduced at para 4.2 of his order as under: The investment in the shares have been made out of owned funds which was very much available at the disposal during the course of year under consideration. As at 01/04/2004, the Appellant Company was having sufficient owned funds of ₹ 28,524.85 lacs (Pl. refer page no. 20 of Annual R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: 2. The question of law to be answered in the present batch of appeals is on interpretation of Section 14A of the Income Tax Act (for short the Act ) and the same reads as follows: Whether proportionate disallowance of interest paid by the banks is called for under Section 14A of Income Tax Act for investments made in tax free bonds/ securities which yield tax free dividend and interest to assessee Banks when assessee had sufficient interest free own funds which were more than the investments made 3. While common arguments have been advanced by the learned counsel for the parties, to place the legal issues in the appropriate perspective, the relevant facts are adverted from the Civil Appeal No. 9606 of 2011 (South Indian Bank Ltd. Vs. CIT, Trichur), for the purpose of this judgment. 4. The assessees are scheduled banks and in course of their banking business, they also engage in the business of investments in bonds, securities and shares which earn the assessees, interests from such securities and bonds as also dividend income on investments in shares of companies and from units of UTI etc. which are tax free. 5. Chapter IV of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be limited to the actual expenditure incurred by the assessee. In other words, the expenditure incurred towards interest paid on funds borrowed such as deposits utilized for investments in securities, bonds and shares which yielded the tax-free income, cannot conveniently be related to a separate account, maintained for the purpose. The situation is same so far as overheads and other administrative expenditure of the assessee. 8. In absence of separate accounts for investment which earned tax free income, the Assessing Officer made proportionate disallowance of interest attributable to the funds invested to earn tax free income. The assessees in these appeals had earned substantial tax-free income by way of interest from tax free bonds and dividend income which also is tax free. It is manifest that substantial expenditure is incurred for earning tax free income. Since actual expenditure figures are not available for making disallowance under Section 14A, the Assessing Officer worked out proportionate disallowance by referring to the average cost of deposit for the relevant year. The CIT (A) had concurred with the view taken by the Assessing Officer. 9. The IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. 12. The sub-Section (2) and (3) were introduced to the main section by the Finance Act, 2006 with effect from 01.04.2007. 13. The question therefore to be answered is whether Section 14A, enables the Department to make disallowance on expenditure incurred for earning tax free income in cases where assessees like the present appellant, do not maintain separate accounts for the investments and other expenditures incurred for earning the tax-free income. 14. We have heard Mr. S. Ganesh, Mr. S.K. Bagaria, Mr. Jehangir Mistri and Mr. Joseph Markose, learned Senior Counsel appearing for the appellants. Also heard Mr. Vikramjit Banerjee, learned Additional Solicitor General and Mr. Arijit Prasad, learned Senior Counsel on behalf of the respondent/Revenue. 15. The appellants argue that the investments made in bonds and shares should be considered to have been made out of interest free funds which were substantially more than the investment made and therefore the interest paid by the assessee on its de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Unit) Vs. Reliance Industries Ltd3 where a Division Bench of this Court expressly held that where there is finding of fact that interest free funds available to assessee were sufficient to meet its investment it will be presumed that investments were made from such interest free funds. 19. In HDFC Bank Ltd. Vs. Deputy Commissioner of Income Tax4, the assessee was a Scheduled Bank and the issue therein also pertained to disallowance under Section 14A. In this case, the Bombay High Court even while remanding the case back to Tribunal for adjudicating afresh observed (relying on its own previous judgment in same assessee s case for a different Assessment Year) that, if assessee possesses sufficient interest free funds as against investment in tax free securities then, there is a presumption that investment which has been made in tax free securities, has come out of interest free funds available with assessee. In such situation Section 14A of the Act would not be applicable. Similar views have been expressed by other High Courts in CIT Vs. Suzlon Energy Ltd.5, CIT Vs. Microlabs Ltd.6 and CIT Vs. Max India Ltd.7 Mr. S Ganesh the learned Senior Counsel while citing these cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as can be seen, mainly dealt with re-opening of assessment in view of escapement of income. The contention of department for re-opening was that the assessee had earned tax-free dividend and had claimed various administrative expenses for earning such dividend income and those (though not allowable) was allowed as expenditure and therefore the income had escaped assessment. On this, suffice would be to observe that the action in Honda Siel (supra) related to re-opening of assessment where full disclosure was not made. An assessee definitely has the obligation to provide full material disclosures at the time of filing of Income Tax Return but there is no corresponding legal obligation upon the assessee to maintain separate accounts for different types of funds held by it. In absence of any statutory provision which compels the assessee to maintain separate accounts for different types of funds, the judgment cited by the learned ASG will have no application to support the Revenue s contention against the assessee. 23. It would now be appropriate to advert in some detail to Maxopp Investment Ltd. v. CIT10. This case interestingly is relied by both sides counsel. Writing for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituation here is, therefore, different from the case like Maxopp Investment Ltd. [Maxopp Investment Ltd. v. CIT, 2011 SCC OnLine Del 4855 : (2012) 347 ITR 272] where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stockin-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits . The learned Judge then considered the implication of Rule 8D of the Rules in the context of Section 14-A(2) of the Act and clarified that before applying the theory of apportionment, the Assessing Officer must record satisfaction on Suo Moto disallowance only in those cases where, the apportionment was done by the assessee. The following is relevant for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d securities must be considered to be business income. That is why Section 14A would not be attracted to such income. 26. Reverting back to the situation here, the Revenue does not contend that the Assessee Banks had held the securities for maintaining the Statutory Liquidity Ratio (SLR), as mentioned in the circular. In view of this position, when there is no finding that the investments of the Assessee are of the related category, tax implication would not arise against the appellants, from the said circular. 27. The aforesaid discussion and the cited judgments advise this Court to conclude that the proportionate disallowance of interest is not warranted, under Section 14A of Income Tax Act for investments made in tax free bonds/ securities which yield tax free dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments. With this conclusion, we unhesitatingly agree with the view taken by the learned ITAT favouring the assessees. 28. The above conclusion is reached because nexus has not been established between expenditure disallowed and earning of exempt income. The res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stments have been made out of mixed funds, we have no hesitation in holding that no disallowance of interest u/s. 14A was warranted in the impugned case. 21.1 As for disallowance of administrative expenses the assessee has contended that other than depositing cheques of dividend earned no other expense was incurred by the assessee. The counter of the Revenue to the same we find does not address this contention of the assessee and is purely presumptive, that considering the huge amount of administrative expenditure incurred some amount must relate to the earning of exempt income. But at the same time considering the quantum of investment made, some amount of expenses must have been incurred in relation to maintaining the same and earning income therefrom. Considering the entire facts and circumstances therefore the disallowance of expenses with respect to administrative expenses is restricted to ₹ 1,00,000/-The balance disallowance of Rs,.13,00,410/- is directed to be deleted. 22. Ground of Appeal no.3 is partly allowed. 23. Ground no. 4 raised by the assessee reads as under: 4. Ld. CIT (A) has erred in law and on facts in confirming disallowance of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustified in disallowing the claim. The disallowance made is therefore confirmed. 26. Before us, Ld. Counsel for the assessee reiterated the contentions made before the lower authorities. He drew our attention to the letter addressed to the Assessing Officer dated 28th November, 2008 explaining the nature of the irrevocable balances written off placed at paper book page no. 31 is as under: 4. Further to details of irrecoverable balances written off given in Annexure -5 of our letter dt. 19-11-2008, You have asked us to explain the amount written of M/s Consultore Makaya Aso. Ltd. (Makaya) In this regards please note that the Assessee Company entered into an agreement with Makaya for collaboration for technology. The amount was paid as first installment. But ultimately the technology did not work well and the contract was closed down. Now the amount paid was written off. We enclose copy of approval for payment from the Govt Department of Industrial Policy Promotion as Annexure - 3. We produce ledger accounts of creditors for your verification. 27. He also drew our attention to the copy of approval for payment from the Government Department of Industrial Polic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised by the Assessee reads as under: 5 Ld. CIT (A) erred in law and on facts in confirming disallowance of deduction claimed of ₹ 4,90,84,017/- for new power plant made by AO denying the benefit u/s 80IA of the Act. Ld. CIT (A) also rejected the claim without independently examining the issue by merely holding that the same was to be denied since it was not allowed in the earlier years. 33. Drawing our attention to the facts of the issue, Ld. Counsel for the assessee pointed out from page 12 to 18 para 7 of the CIT(A) s order that the assessee had been denied deduction u/s. 80IA of the Act on new power plant claimed at ₹ 4,90,84,017/-,since the assessee s claim for the same since assessment year 2001-02 had been consistently denied by the department which had been upheld by the ITAT. The Ld. CIT(A) upheld the order of the A.O. for the same reason at para 7.3 of his order as under: 7.3 I have considered the facts of the case, assessment order and appellant's submission. This ground has two limbs- rejection of claim of deduction under section 80 IA in respect of new power plant RS 4,90,84,017 and reduction in claim of deduction in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment relying upon the subsequent decision of the Jurisdictional High Court in the Case of Gujarat Alkalies and Chemicals Ltd. vs. CIT reported in [2013] 350 ITR 94 (Guj) on the ground that there was error apparent on record. The question of law framed by the Hon ble High Court is reproduced hereunder: For the purpose of this Tax Appeal, we frame following substantial question of law. Whether the Income Tax Appellate Tribunal was justified in recalling its judgment relying on the subsequent decision of this Court in case of Gujarat Alkalies and Chemicals Ltd. v. Commissioner of Income-tax, reported in [2013 350 ITR 94 (Guj) on the ground that there was an error apparent on the face of the record committed by the Tribunal. 37. The Hon ble High Court went on to hold against the assessee,holding that while the case of Gujarat Alkalies and Chemicals Ltd. (supra) laid down certain broad propositions for ascertaining whether a new industrial undertaking was established, it did not lay down a ratio which could be straightway applied to the facts of the present case before the Tribunal. The Hon ble High Court therefore held that the order on the issue could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and no party appearing before the Tribunal should suffered on account of the mistake committed by the Tribunal and that power of rectification of the Tribunal is granted to see that no prejudice is caused to either of the parties by the decision of the Tribunal based on the mistake apparent from the record. Section 254 (2) itself refers to a mistake apparent on record/ which can be rectified. The concept of mistake apparent on record was not diluted by the Supreme Court in case of Honda SIEL Power Products Ltd. (supra) also. 13. In case of Saurashtra Kutch Stock Exchange Ltd. (supra) also, the Supreme Court observed that a patent manifest and self evident error which does not require elaborate discussion of evidence or arguments to establish it can be said to be an error apparent on the face of the record. In the said judgment, the II Supreme Court approved the decision of Gujarat High Court in case of Saurashtra Kutch Stock Exchange Ltd. (supra). 14. In view of such settled legal position, we may examine the facts on hand. As noted, the assessee had installed a turbine for power generation, which relied on the excess steam production capacity of the plant. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll depends on the nature of technicality and the mechanism of production. In the later portion of the judgment, the Court observed that The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is a new identifiable endeavor where substantial investment of fresh capital is made to enable earning of profit attributable to that new capital. 16. It can thus, be seen that the High Court in case of Gujarat Alkalies and Chemicals Ltd. (supra) while laying down certain broad propositions for ascertaining whether a new industrial undertaking in the given set of facts was established, did not lay down ratio which can be straightway applied to the facts of the present case. In the present case, the view adopted by the Revenue authorities which was upheld by the Tribunal was that by mere installation of turbines, the assessee did not install a new industry, since turbines themselves would not be sufficient for power generation, without generation of steam. When the High Court in case of Gujarat Alkalies and Chemicals Ltd. (supra) referred to the issue depending on the nature of technology and mechanism of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the profits was the selling price of electricity of Gujarat Electricity Board at ₹ 5.766 per unit. The A.O. noted that as per this rate, the assessee had earned profits @ 37.75% of the entire credit for internal consumption which according to him was too high, therefore he reduced the rate of credit for electricity to 4.266 and accordingly reduced the profits earned on captive power plant to ₹ 6,26,51,076/- as against 9,62,10,765/- claimed by the assessee. Thus reducing the claim of deduction on captive power plant by ₹ 3,35,59,689/-. 43. The matter was carried in appeal before the Ld. CIT(A) who upheld the order of the A.O. holding at para 7.3 as under: As regards reduction of claim in respect of captive power plant, assessing officer reduced the deduction under section 80 IA (8) on the ground that appellant considered transfer of electricity generated by captive plant to other business of the appellant is at the rate on which GEB sold electricity to the appellant. However it is not in dispute that appellant cannot sale electricity at this rate in the open market. The market rate is defined in explanation below sub section 8 to section 80 IA and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessing officer. In the final result, appeal is partly allowed. 44. Before us, Ld. Counsel for the assessee contended that this issue was squarely covered by the decision of the Jurisdictional High Court in the Case of Gujarat Alkalies Chemicals Ltd. 395 ITR 247, Alembic Ltd. in ITA No. 553 554 of 2017 and by the decision of the ITAT Ahmedabad Bench in the case of Gujarat Fluorochemicals Ltd. in ITA No. 805 2744/Ahd/2017. Copies of all the above orders was placed before us in compilation of orders at paper book page no. 10 to 27. 45. Ld. D.R. on the other hand supported the order of the revenue authorities. 46. We have heard the contentions of both the parties. The solitary issue to be considered and adjudicated is whether for the purpose of computing profits earned by captive power plant for the purposes of claiming deduction u/s.80IA(4) of the Act, the credit for captive consumption of electricity is to be the selling price adopted by the State Electricity Board i.e. (GEB) or the purchase price of GEB. This identical issue, it has been pointed out to us by the Ld. Counsel for the assessee, has already been dealt with by the Jurisdictional High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment. In essence, GEB was only collecting 8 paise per unit as electricity duty for and on behalf of the Government. He submitted that the market value of the electricity should be reckoned on ₹ 5.32 ps. per unit as was done by the Revenue authority. 6. Under sub-Section(8) of Section 80IA of the Act, if it is found that where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and in either case the consideration for such transfer does not correspond to the market value of such goods as on the date of the transfer, then for the purposes of deduction under Section 80IA in case of the eligible business as if the transfer had been made at the market value of such goods or services. It is in this context that the question of substituting the actual consideration by the market value comes into picture. 7. We may notice that the Tribunal did not accept the contention of the assessee that the electricity is neither goods nor services and that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further explained in explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. To our mind sum of ₹ 4.51 per unit of electricity only represented cost of electricity generation to the assessee and not the market value thereof. It is not in dispute that the GEB charged ₹ 5 per unit for supplying electricity to other industries including non eligible unit of the assessee itself. Tribunal therefore, while adopting the said base figure and excluding excise duty therefrom to work out ₹ 4.90 as the market value of the electricity generated by the assessee, to our mind, committed no error. It can be easily seen that if the assessee were to supply such electricity or was allowed to do so in the open market, surely it would not fetch ₹ 4.51 per unit but ₹ 5 per unit as was being charged by GEB. Since the excise duty component thereof would not be retained by the assessee, Tribunal reduced the said figure by the nature of excise duty and came to the figure of ₹ 4.90 to ascertain the market value of electricity generated by the eligible unit and supplied to non ..... X X X X Extracts X X X X X X X X Extracts X X X X
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