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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 ..... 2. Shri Deba Kumar Sonowal and Tushar Dhawal Singh, CIT appeared for the revenue and Sri S. K. Tulsiyan, Advocate & Ms. Puja Somani, CA appeared for the assessee. 3. Revenue has taken as many as eleven grounds in both the appeals which are identical in nature except for variance in their amounts. From the perusal of grounds, we note that the broad issues involved in these two appeals relate to subsidy received by the assessee which has not been deducted from the written down value (WDV) of block of assets vide ground no.1. Issue relating to disallowance made u/s. 14A read with Rule 8D (2)(ii) & (iii) of the Income-tax Rules, 1962 (hereinafter referred to as the "Rules") vide ground nos. 2 and 3. Issue of Arms' Length Price (ALP) of fee for corporate guarantee vide ground nos. 4 to 7 and adjustment made by Transfer Pricing Officer (TPO) for Specified Domestic Transactions (SDTs) in respect of transfer of power from eligible unit to other manufacturing units vide ground nos. 8 to 11. In the Cross Objections filed by the assessee against the two appeals, grounds relating to claim of Education Cess on Income-tax and Surcharge thereof u/s. 37(1) of the Act as a deduction have been ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment 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 received from the Government may be reduced from the actual cost only if the subsidy is given to directly or indirectly meet the cost of the asset. However, in the instant case, the scheme nowhere specifies that the subsidy is to be used for the purpose of acquisition of affixed assets. The Subsidy is provided to extend financial assistance to entrepreneurs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fact that revenue during scrutiny assessments of the assessee for A Y s 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 Hon'ble Supreme Court in the case of P.J Chemicals Ltd. (supra) 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, directly or indirectly, to meet any portion of the actual cost. Therefore, the said amount of subsidy cannot be deducted from the actual cost under sec. 43(1) for the purpose allowing depreciation." In light of the above decisions, we hold that tile amount of Rs.55,79,540/- disallowed on ground of excess depreciation claim, should be allowed, Thus Gr.No.5 raised by the Revenue is dismissed." 6.1 Subsequently, the Co-ordinate bench of ITAT, Kolkata vide its order dated 28.02.2019 (supra) in assessee's own case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed assets only. The assessee is at a liberty to utilise the funds in any manner it likes. Merely because the amount of subsidy is subject to a maximum of a specified percentage of gross value of fixed assets as on the first date of commercial production/gross value of the additional fixed assets as on the first date of commercial production does not mean that the subsidy was given to finance the acquisition of fixed assets only. Under the given circumstances, the amount of subsidy, is not deductible from the actual of the cost under section 43(1)read with Explanation 10 of the Act. 68. The Hon'ble Supreme Court in the case of CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830 (SC) has held that the expression "actual cost" needs to be interpreted liberally. The subsidy of the nature we are 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 payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant-company received subsidy by way of sales tax remission from the State Government. It is noted that both the parties agree that the subsidy of Rs.14,78,39,227/- received by way of sales tax remission is in the nature of a capital receipt. According to the ld. AO therefore such capital subsidy was required to be reduced from the actual cost of capital asset in terms of Explanation 10 to Section 43(1) of the Act. The ld. AO accordingly re-computed the WDV of the block of plant & machinery& depreciation thereon, after reducing the capital subsidy, and therefore disallowed the claim of excess depreciation claimed to the extent of Rs.3,16,92,148/-. In the oral & written submissions, the ld. ARs vehemently argued against such action of the ld. AO. 2. Respectfully following the decision of the Hon'ble ITAT, Kolkata in appellant's own case, the Ld. AO's action of adjusting the capital subsidy of Rs.14,78,39,227/- from the "actual cost" of assets under Explanation 10 to Section 43(1) is held to be unjustified in law. Accordingly the disallowance of excess claim of depreciation to the extent of Rs.3,16,92,148/- is directed to be deleted. Ground Nos.6 to 10 are therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessee was accepted. 143. We are of the view the submission made with regard to availability of own funds in the light of overall funds position without insisting on direct nexus between investments and own funds would be the right approach as held by the Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (supra). If the overall funds position i.e., if own funds are sufficient to cover the investments which are subject to consideration under Sec.14A of the Act, than a presumption has to be drawn that the own funds were used for making investments. We are of the view that it would be just and proper to restore the disallowance u/s.14A of the Act to the AO (for a fresh consideration in the light of the directions given in paragraph 140, 141 and 143 of this order and in the light of the figures given by the Assessee before the Tribunal. All other submissions do not require any elaboration and will stand addressed in the decisions given above. Thus Gr.No.4 is treated as allowed for statistical purpose." 7.1 Subsequently, the coordinate bench of ITAT, Kolkata vide its order dated 28.02.2019 vide para 6 & 7 of the order in assessee's own case has obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbai Tribunal). (4) M/s Godrej Household Products Ltd (ITA No. 7369/M/2010) (Mumbai Tribunal) (5) Nimbus Communication Ltd (ITA No. 3664/M/2010) (Mumbai Tribunal) (dated 12 June 2013) (6) Prolific Corporation Limited (ITA No. 237/Hyd/2014 dated 31 December 2014 (Mumbai Tribunal). 84( C). In the case of Everest Kanto Cylinder Ltd (supra), the Tribunal while considering an identical issue has held in para 9 as under.- "9. Now, coming to the merit of the addition so made, we found that the issue has already been decided by the Tribunal in immediately preceding year in assessee's own case, wherein charging of 0.5% guarantee commission from AE was held to be quite near to 0.6%, where assessee has paid independently to the ICICI bank and charging of guarantee commission @ 0.5% from its AE was held to be at arm's length. The precise observation of the bench for the assessment year 2007-08 are as under: "The universal application of rate of 3 percent 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 bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is accordingly partly allowed." 8.1 Subsequently, the coordinate bench of ITAT, Kolkata vide its order dated 28.02.2019 at page 22 of the order in assessee's own case has observed as under: "16. DECISION: I have carefully considered the submissions of the appellant-company in the light of the adjustments made by the Ld, TPO/AO Before the ld. TPO, the appellant contended that the issuance of corporate guarantee was not an 'international transaction' and therefore no benchmarking exercise was required to be carried out by it in this regard. On examination of the transfer pricing order, it is noted that the Ld. TPO was not in agreement with the contention put forth' by the appellant. The Ld. TPO computed the ALP CG fee rate at 3% in respect of the corporate guarantees issued by the appellant. The Ld. TPO therefore proposed upward adjustment of Rs.5,32,43,578/-. In the appellate proceedings, the Ld. ARs of the appellant reiterated the submissions which were made before the ld. TPO and contended that the corporate guarantee was not the nature of "international transaction" and therefore provisions of Chapter X were not applicable in this regard. Alternatively the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon the orders of the authorities below and submitted that the assessee has undertaken the risk by providing the guarantee for the loan obtained by the associated enterprise from the bank. Therefore, the differential rate adopted by the Transfer Pricing Officer is justified, 84(B). Having considered the rival submissions as well as relevant material on record, we agree with the plea of the learned authorised representative that the arm's length guarantee commission adopted at 2 per cent by the Dispute Resolution Panel cannot be sustained. Various Benches of the Tribunal in the following decisions have considered 0.5 per cent as appropriate adjustment in facts identical to the case of the assessee: (1) Everest Kanto Cylinder Ltd. v. Asst. CIT (LTU) (ITA No.7073/Mum/2012), dated September 25, 2014 ; (2) Everest Kanto Cylinder Ltd. v. Deputy CIT (LTU) (ITA. No. 542/Mum/2012 dated November 23, 2012) (Mumbai-Tribunal) ; (3) Glenmark Pharmaceuticals Ltd. v. Addl. CIT (ITA No, 5031/M/2012) dated November 13, 2013) (Mumbai-Tribunal) ; (4) Godrej Household Products Ltd. v. Addl. CIT (ITA No. 7369/M/2010) (Mumbai- Tribunal), dated November 22, 2013); and (5) Asst. CIT v. Nim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest on which ICICI Bank, Bahrain Branch has given loan to associated enterprise (i.e. subsidiary company) is at 5.5 per cent, whereas the assessee is paying interest rate of more than 10 per cent on its loan taken with ICICI bank of 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 arm's length price in relation to charging of guarantee commission.' As the facts and circumstances of the case during the year under consideration are parimateria, respectfully following the decision of the Tribunal in the assessee's own case we direct the Assessing Officer to compute arm's length price of transaction as per the direction given by the Tribunal in the above order for the assessment year 2007- 08." 84(D). Even the assessee has paid 0,40 per cent. as guarantee commission to a bank for similar services. The Safe Harbour Rules prescribing 2 per cent. as the guarantee commission is not relevant as those rules are relevant only to an eligible assessee who opts to be governed by those rules. Accordingly, following the decisions of the Tribunal refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute that the Assessee is entitled to claim deduction u/s.80IA of the Act on the profits derive by the Assessee from generation of power. Since the power generated is consumed by the Assessee for own use and not sold to a third party,. Sec.80IA(8) of the Act prescribes a method of determination of profits derived by the undertaking generating power. In such cases, the profits and gains of such eligible business has to be computed as if the transfer had been made at the market value of such goods or services as on the relevant date. "Market Value" has been defined in Explanation to Sec.80IA(8) of the Act as the "the price that such goods 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d it lays down in para-25 of its order that third party sales of power generated by non-conventional means cannot be made. In para-28 power generated by such generators have to be sold in public interest only to APTRANSCO at rates specified in the said paragraph. Our attention was drawn to Paragraph 4 of the West Bengal electricity Regulatory Commission (Open Access) Regulations, 2007, which lays down that a licensee or a generating company Of' a captive generating plant or a consumer or any person engaged in the business of supplying electricity to the public under the Act (Electricity Act, 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 case of ITC Ltd., (supra) will not apply to the case of the Assessee. 49. It is clear from the rival contentions that determinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s latter appeal ITA No.192/Kol/2018 for Assessment Year 2013-14. Its last substantive ground seeks to revive transfer adjustment of Rs.1,92,23,674/- relating to specified domestic transactions with respect to transfer of power from eligible units to manufacturing units. We notice herein as well that the very issue had arisen in preceding assessment years 2003-04 to 2011-12. Learned coordinate bench(supra) decided that same in assessee's favour. The CIT(A) has taken note thereof in his detailed discussions as follows: "14. Ground numbering 12, 17, 18, 19, & 20 relate to the action of the Ld.AO / TPO in making adjustments on account of Specified Domestic Transactions by an amount of Rs.1,92,23t674/-. The impugned matter has been dealt with by the Ld.AO in the TP order placed supra. 15. In respect of this ground, during the course of the appeal, the appellant-company /Ld. A.Rs for the appellant-company have made the following submissions: Ground Nos. 12, 17, 18, 19, 20: Specified Domestic Transaction: Rs. 1,92,23,674/- 5.1 The assessee-company has a power unit the output of which is captively consumed by its manufacturing units. During the year, the manufacturing units ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. shall not apply to the case of the assessee. 6.3 While analyzing the judgment of the Apex Court in case of Thiru Arooran Sugars Ltd. Vs CIT the High Court observed that "the sugarcane grown at home would be deemed to have been sold to the sugar mill at the same rate at which the sugarcane was purchased by the sugar mill. That obviously is correct because if the sugarcane grown at home had not been sold to the sugar mill of the assessee itself, the sugarcane would have been sold in the open market. The rate of sale in the open market would be the same at which sugarcane was purchased by the sugar mill of the assessee." Applying the above, it may be said that the rate at which the assessee (a consumer of power) purchases power from WBSEB may be taken to be the market value for determining the sale price for the power generated by the unit. Thus, the computation of eligible profits should be done with reference to the rate at which power was purchased by the assessee from the State Electricity Board. 6.4.1 Attention of your Goodself is also invited to the decision of ITAT(Kolkata) in its own case for AY 2006-07 to 2011-12 wherein the Bench dismissed the plea of Department to ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our Goodself is invited to the Tariff orders issued by West Bengal Electricity Commission for FY 2012-13. A perusal of the same together with the bills issued by the State Electricity Board on the assessee shows that charges recovered from the assessee are at par/lower than rates prescribed in the Tariff order. Further certain fixed charges like Contract Demand charges, Electricity duty etc. were recovered from the assessee by the Board which have been added to the energy charges per unit to arrive at the Arm's length price/effective rate per unit which in turn has been used to compute deduction u/s 80-IA. 6.4.4 Now since the aforesaid purchase transaction with the Board constitutes a comparable transaction wherein the energy rate per unit is at par/lower than rates notified in Tariff order, there appears no reason to disturb the quantum deduction claimed by the assessee. Thus it is prayed that the addition made by the AO be deleted. 16. DECISION: 1. I have carefully considered the submissions of the appellant-company in the light of the adjustments made by the Ld. TPO/ AO. The appellant-company operates a captive power plant ('CPP') and the power generated therei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant's own case in I.T. (SS) No.47 to 60/Kol/2014, 313 and 256/Kol/2015, 66 and 124/Kol/2016 25.11.2015 for AY 2003-04 to 2011-12 has held as follows: 46. We have given a very careful consideration to the rival submissions. We have already seen that the assessee manufactures DI spun pipes, D) fittings, etc., at its factory at Khardah (West Bengal) CI spun pipes at its factory- at Elavur (Tamil Nadu) and low ash metallurgical coke at its factory at Haldia (West Bengal). At Khardah and Haldia factory the assessee also has its own power plant generating electricity from heat emitted .from blast furnaces in the process of manufacturing of DI Pipes at Khardah, where power generated is entirely consumed for own use (i.e., captive consumption), and sponge iron plant and coke oven plant at Haldia where the power generated is consumed for own use (captive consumption and surplus power generated is sold to the West Bengal State Electricity Board (WBSEB), It is not in dispute that the assessee is entitled to claim deduction under section 80-IA of the Act on the profits derived by the assessee from generation of power, Since the power generated is consumed by the assessee for own u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Calcutta High Court held deduction under section 80-IA 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. 48. The submission of the learned counsel for the assessee was that the decision of the Hon'ble Calcutta High Court is not applicable to the case of the assessee as in the case before the Hon'ble Calcutta High Court, the undertaking that generated power was situated in the State of Andhra Pradesh where electricity generated could not be sold to anyone other than a distribution company or a company which is engaged both in generation and distribution. In this regard an order of the Andhra Pradesh Electricity Regulatory Commission, Hyderabad in O. P, No, 1075/2000, dated June 20,2001 was filed before us, The said order deals with generation of non-conventional energy and it lays down in paragraph 25 of its order that third party sales of power generated by non-conventional means cannot be made. In paragraph 28 power gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Kol/2018." 10. We have perused the material placed on record and have gone through the orders of the Co-ordinate bench (supra) 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 (supra) 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. 11. Coming to assessee's Cross Objections against the two appeals (supra) of the Revenue, the grounds in Cross Objections relate to claim of deduction of education cess u/s 37(1) of the Act, on the income-tax and surcharge, paid by the assessee. 11.1 In the course of hearing, Ld. Counsel for the assessee has not pressed the grounds in the said cross objections in the light of recent amendment brought on the statute by the Finance Act, 2022 and the decision of the Co-ordiante Bench of ITAT Kolkata which is against the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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