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TMI Blog2022 (5) TMI 1406X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturing units - As gone through the orders of the Co-ordinate bench [ 2019 (3) TMI 687 - ITAT KOLKATA ] in the case of assessee itself which squarely covers the issues involved in the present two appeals before us. Nothing is brought on record to controvert to discussions made and findings given by the Co-ordinate Bench in the case of assessee itself [ 2017 (2) TMI 685 - ITAT KOLKATA ] and that there being no change in the fact pattern and the applicable law, we adopt the judicial consistency from the decisions cited supra, qua the instant issues in the present appeals to uphold the findings given by Ld. CIT(A). Accordingly, we dismiss both the appeals of the revenue. - ITA Nos.2303 & 2304/Kol/2019 And C.O. Nos. 24 & 25/Kol/2020 IN ITA Nos.2303 & 2304/Kol/2019 - - - Dated:- 17-5-2022 - Shri Rajpal Yadav, Vice-President And Shri Girish Agrawal, Accountant Member For the Department : Shri Deba Kumar Sonowal Shri Tushar Dhawal Singh, CIT For the Assessee : Shri S. K. Tulsiyan, Advocate Ms. Puja Somani, CA ORDER PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: Both these appeals by the revenue and the Cross Objection by the assessee are directed agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 28.02.2019 4.1 For each of the grounds and the issues raised by the revenue, Ld. Counsel for the assessee submitted a synopsis in a concise tabulated form and reconciled each of the issue, in these two appeals, with the relevant facts and findings in the decisions of the coordinate bench of ITAT, Kolkata (supra) by placing their respective orders on record. On this submission, the Ld. CIT, DR placed reliance on the order of the AO and could not submit anything contrary to the facts and law, differentiating and distinguishing the decisions relied upon by the Ld. Counsel for the assessee in the case of the assessee itself. The ground wise concise tabulation done by the Ld. Counsel for the assessee is reproduced hereunder for ease of reference. 5. For each of the issues, relevant extracts from the two decisions referred above are reproduced hereunder for ease of reference. 6. In respect of ground no. 1 of appeal by the revenue, the Coordinate bench of the ITAT, Kolkata vide its order dated 25.11.2016 (supra) in para 66 to 68, has observed and held as under: 66. As far as Gr. No. 5 raised by the revenue is concerned, we are of the view that the action of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(1) read with Explanation 10 of the Act. 68. The Hon'ble Supreme Court in case of CIT v . P. J. Chemicals Ltd. [210 ITR 830] has held that the expression actual cost needs to be interpreted liberally. The subsidy of the nature we ate concerned with, does not partake of the incidents which attract the conditions for their deductibility from actual cost . The Government subsidy, it is not unreasonable to say, is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as or geared to a percentage of such cost. If that be so, it does not partake of the character of a payment intended either directly or indirectly to meet the actual cost . In the instant case too, the Scheme applicable to the assessee's case nowhere specifies that the subsidy was to be utilized for acquisition of fixed assets. The Scheme was brought about to encourage and induce the entrepreneurs to move to backward areas and establish industries there so that the region may develop in promoting the welfare of the people living in that region. Thus, in the absence of any specification (in the Scheme) as to the utilization of the subsidy for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) 'actual cost' means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority : Explanation 11.-Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee; Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. 67. From a plain reading of the above it is clear that a subsidy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets under section 43(1) read with Explanation 10. Following the aforesaid decision of the Supreme Court in the case of CIT v. P. J.Chemicals Ltd., the Income-Tax Appellate Tribunal (Kolkata) in case of Birla Corporation Ltd. v. Deputy CIT [2015] 69 SOT 217 (Kolkata) held : According to us, the assessee has rightly not reduced the amount of subsidy received from the actual cost/written down value of the fixed assets while claiming, depreciation. It is also a fact that Revenue during scrutiny assessments of the assessee for the assessment years 2002-03 to 2006-07 added the subsidy amount as revenue receipt but Tribunal has considered the receipt as 'capital', accepting the contention of the assessee. Even the Hon'ble Supreme Court in the case of CIT v. P. I Chemicals Ltd. [1994] 210 ITR 830 (SC) has considered this issue and held that where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uls.l4A of the Act read with Rule 8D2(ii) (iii) of the Rules, the AO while adopting the Average value of investments has to consider only those investments which yielded dividend income during the previous year. Similarly, in computing the disallowance uls.l4A of the Act read with' Rule 8D2(ii) (iii) of the Rules, the AO while adopting the Average value of investments has to exclude the investments which are strategic investments. 141. The learned counsel for the Assessee filed before us a Chart wherein he has given the figures with regard to submissions in paragraph 138 139 above, viz., Investments of the Assessee (Rs.15,894.02 lakhs), Strategic investments (Rs.5990.06 Lakhs), investments which yielded dividend income during the previous year including Strategic investments (Rs.13,650.89 Lakhs) and investments in dividend yielding shares (excluding Strategic investments) (Rs.7,660.83 Lakhs). 142. Without prejudice to the above submissions, it was also submitted on behalf of the Assessee that the assessee had sufficient own funds if the overall funds position is taken. In this regard it was submitted by the learned counsel for the Assessee that where own funds a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st expenses disallowance does not apply in the case of non-interest bearing funds turning out to be more than exempt investments. We decline Revenue's instant second argument as well. 7.The Revenue's third argument qua the instant issue is that the CIT(A) erred in law and on facts in holding that only exempt income yielding investments have to be taken into consideration whilst computing administrative expenses disallowance u/s 14A r.w.r. 8D(2)(iii). Suffice to say, hon'ble jurisdictional high court's decision in REI Agro Ltd. case (supra) has already decided the very substantial question of law in assessee's favour. We therefore reject the Revenue's instant third argument as well. 8. Ground nos. 4 to 7 of the appeals of the revenue are relating to issue of ALP determination for fee for corporate guarantee. It is submitted that this issue is also squarely covered in favour of the assessee by the decision of the Coordinate Bench of ITAT, Kolkata in assessee s own case (supra) wherein the Tribunal vide para 84B, 84C and 84D of the order dated 25.11.2016 has held as under: 84(B). Having considered the rival submissions as well as relevant materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tee commission to ICICI Bank India for its credit arrangement. This could be a very good parameter and a comparable for taking it as internal GUP and comparing the same with the transaction with the AE. The charging of 0.5% guarantee commission from the AE is quite near to 0.6%, where the assessee has paid independently to the ICICI Bank and charging of guarantee commission at the rate of 0.5% from its AE can be said to be at arms length. The difference of 0.1 % can be ignored as the rate of interest on which ICICI Bank, Bahrain Branch has given Joan to AE (i.e. subsidiary company) is at 5.5%, whereas the assessee is paying interest rate of more than 10% on its loan taken With ICICI Bank in India. Thus, such a minor difference can be on account of differential rate of interest. Thus, on these facts, we do not find any reason to uphold-any kind of upward adjustment in ALP in relation to charging of guarantee commission. As the facts and circumstances of the case during the year under consideration are pari materia, respectfully following the decision of the Tribunal in assessee's own case, we direct the AO to compute arm's length price of transaction as per the directi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel for the assessee was that the transaction of giving guarantee on a loan availed of by the associated enterprise cannot be regarded as an international transaction at all, At the time of hearing, the Bench expressed the view that this issue is no longer res integra and has been concluded by a decision of the Special Bench in the case of Instrumentarium Corporation Ltd., Finland v. Asst, DIT, International Taxation [2016] 49 ITR (Trib) 589 (Kolkata) [SB] ; [2016] 160 ITD 1 (SB) (Kol). Following the principle laid down in the aforesaid decision, we are of the view that the plea of the assessee in this regard cannot be sustained. The cases cited in support of his contention also do not require any consideration as the decision of the Special Bench was rendered much after those decisions. 84. As far as the rate of 2 per cent. of the loan for which the assessee stood as guarantor being added to the total income as adjustment to the arm's length price of the international transaction of furnishing guarantee is concerned, the learned authorized representative has submitted that the arm's length guarantee charges may be taken at 0.40 per cent which was the perce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 0.5 per cent., where the assessee has paid independently to the ICICI bank and charging of guarantee commission at 0.5 per cent. from its associated enterprise was held to be at arm's length. The precise observations of the Bench for the assessment year 2007-08 are as under: 'The universal application of rate of 3 per cent for guarantee commission cannot be upheld in every case as it is largely dependent upon the terms and conditions, on which loan has been given, risk undertaken, relationship between the bank and the client, economic and business interest are some of the major factors which has to be taken into consideration.... in this case, the assessee has itself charged 0.5 per cent guarantee commission from its associated enterprise, Therefore, it is, not a case of not charging of any kind of commission from its associated enterprise. The only point which has to be seen in this case is whether the same is at arm's length price or not. We have already come to a conclusion in the foregoing paras that the rate of 3 per cent by taking external comparable by the Transfer Pricing Officer, cannot be sustained in facts of the present case. We also find that in an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee rate in the facts circumstances of the appellant's case is 0.5%. The Ld. AO/TPO is thus directed to compute the ALP of corporate g;-'tees at 0.5%. These grounds are therefore partly allowed. 14. It is sufficiently clear by now that the assessee s very arguments have been partly accepted through for benchmarking corporate guarantee transaction is issued @ 0.5% commission. We therefore adopt judicial consistency qua the instant issue as well to decline to Revenue s corresponding substantive ground in both of its appeals. Its former appeal ITA No.191/Kol/2018 fails accordingly. 9. Ground nos. 8 to 11 of the revenue s appeal are in respect of adjustment made by TPO for SDTs in respect of transfer of power from eligible unit to other manufacturing units. Ld. Counsel reiterated that this issue is also squarely covered in favour of the assessee by the decision of the Coordinate Bench of ITAT, Kolkata in assessee s own case (supra) wherein the Tribunal vide para 46 to 49 of the order dated 25.11.2016 has held as under: 46. We have given a very careful consideration to the rival submissions. We have already seen that the Assessee manufactures Dr spun pipes, DI fitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... censee and the rate at which the generating companies can sell electricity to the distribution licensee are governed respectively by Sections 61 and 62 of the Electricity Act 2003. There is tariff regulatory commission which fixes both the rates for sale and purchase of electricity by the distribution licensee. There is thus an in-built mechanism to ensure permissible profit both to the generating companies and the distribution licensees. 47. The Hon'ble Calcutta High Court in the case ITC Ltd. (supra) had to deal with similar issue of own consumption of power generated by an Assessee engaged in the business of paper manufacture. The question that was examined by the Hon'ble Court was as to what would be market value for the purpose of computation of deduction u/s.80IA of the Act in the context of Sec.80IA(8) of the Act. The Hon'bIe Calcutta High court held deduction u/s. 80IA had to be computed in such circumstances not on the basis of rates chargeable by distribution licensee from consumer and that the same can be Claimed only on the basis of rates fixed by tariff regulation commission for sale of electricity by generating companies to distribution licensees. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor did it dea1 with applicability of the proviso to Sec.80IA(8) of the Act. Sec.80IA(8) lays down that when article or thing manufactured is used by the Assessee himself for own consumption the profit of the undertaking manufacturing such article or thing has to be based on the market value in preference to the price as recorded by the Assessee in his books. Market value for the said purpose has been defined to mean the price that such goods or services would ordinarily fetch in the open market when price of power is subject to statutory controls one cannot ascertain the price such goods or services would ordinary fetch in the open market because in such circumstances it cannot be said that there is open market for the goods or services. We are of the view in the given circumstances, there are exceptional difficulties in computing the profits and gains of the eligible business by applying the main provisions of Sec. 80IA(8) of the Act and therefore the proviso to Sec. 80IA(8) of the Act would apply and the AO may compute such profits and gains on such reasonable basis as he may deem fit. In our view, interest of justice would be met by setting aside the order of the AO on this iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice from the Board was held to be the Arm's Length Price. The said transaction of sale of power was referred to the TPO for computation of the Arm's Length Price. 5.3 While arriving at the ALP, the TPO relied upon the judgment of the Calcutta High Court in case of ITC Ltd. wherein sale price of power made to distribution licensees was considered as the market value as opposed to price charged by the Board from the consumers (i.e. rate adopted by the assessee). 5.4 Relying on the sale data of power by independent Captive Power Plants to the distribution licensees the TPO arrived at an average rate of Rs. 3.23/unit. In doing so, he considered the rate of Rs. 2.53/unit i.e. the rate at which the power was sold to the Board. However, the given rate was again added to the rate of Rs. 3.23/unit to arrive at an even lower rate of 2.88/unit. Such an action of the TPO reflects his prejudiced mind which is clearly bad in law. 6.1 W.r.t the above, it is pertinent to note here that judgment of Calcutta High Court has been rendered on distinguishable facts. In the case before the High Court the eligible unit was situated in the State of Andhra Pradesh. The State had impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved that in the case before it electricity generated by the assessee could not be sold to anyone other than a distribution company or a company which is engaged both in generation and distribution. No arguments were advanced before the Hon'ble High Court nor did it deal with applicability of the proviso to Section 80-IA(8) of the Act. Section 80- IA(8) lays down that when article or thing manufactured is used by the assessee himself for own consumption the profit of the undertaking manufacturing such article or thing has to be based on the market value in preference to the price as recorded by the Assessee in his books. Market Value for the said purpose has been defined to mean the price that such goods or services would ordinarily fetch in the open market. When price of power is subject to statutory controls one cannot ascertain the price such goods or services would ordinarily fetch in the open market because in such circumstances it cannot be said that there is an open market for the goods or services. There are exceptional difficulties in computing the profits and gains of the eligible business by applying the main provisions of section 80-IA(8) and therefore the proviso to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... controlled Price Method. It was submitted that the price/rate at which the appellant-company purchased the electricity was the most appropriate comparable rate to benchmark the rate at which the CPP had transferred power to the appellant-company. The Ld. TPO/AO were however not agreeable with the explanation details put forth by the appellant. According to Ld. TPO/AO the internal CUP adopted by the appellant-company was not the most appropriate method. Instead the Ld. TPO/AO was of the view that the price at which Electricity Board sold power to distribution licensees was a better parameter to benchmark the specified domestic transaction; i.e. transfer of power by CPP Unit to other non-eligible units of the appellant-company. This manner methodology adopted by the Ld. TPO/AO was following the principles laid down in judgment of the Hon'ble Calcutta High Court in the case of ITC Ltd (supra). The Ld. TPO/AO therefore computed ALP at Rs.2.88/unit. 2. In the appellate proceedings, the Ld. ARs of the appellant reiterated the submissions made before the Ld. TPO/AO. The ld. ARs pointed out the infirmities and deficiencies in the manner and methodology adopted by the ld. TPO/A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods or services would ordinarily fetch in the open market . In India the business of generation of electricity and its distribution is governed by the Indian Electricity Act, 2003. The electrical power system mainly consists of generation, transmission and distribution. For generation of electrical power there are many public sector undertakings and private owned generating stations (GS). The Electrical transmission system is mainly carried out by Central Government body PGCIL (Power Grid Corporation of India Limited). To facilitate this process, India is divided into 5 regions : Northern, Southern, Eastern, Western and North Eastern region. Further within every State we have a SLDC (State load dispatch centre). The distribution system is carried out by many distribution companies (DISCOMS) and SEBs (State Electricity Board). There are two tariff systems, one for the consumer which they pay to the DISCOMS and the other one is for the DISCOMS which they pay to the generating stations. The rate at which electricity can be supplied to a consumer by the distribution licensee and the rate at which the generating companies can sell electricity to the distribution licensee are governed re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2003) shall be eligible for open access to the intra-state transmission lines or associated facilities of the STU or any transmission licensee on payment of charges, as may be specified by the commission, for using the transmission system of the transmission licensee. It was submitted that power generators in West Bengal are free to trade in power on exchange or sell excess power to third parties. Therefore, the judgment of the Hon'ble Calcutta High Court in the case of ITC Ltd. (supra) will not apply to the case of the assessee. [Unquote] 4. In view of the above and the judgment of the Hon'ble ITAT, Kolkata in appellant's own case, I therefore hold that the ALP determined by the Ld. TPO in his order u/s 92CA(3) in terms of the principles laid down by the Hon'ble Calcutta High Court in the case of ITC Ltd. (supra) was unjustified. Following the judgment of the Supreme Court in the case of ThiruArooran Sugars Ltd. Vs. CIT (supra); I am of the considered view that the tariff rates at which the non-eligible units procured power from Electricity Board was the most appropriate and internal comparable rate to benchmark the transfer of power by appellant's ..... X X X X Extracts X X X X X X X X Extracts X X X X
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