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TMI Blog2024 (9) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... making various additions / disallowances. 4. Ground No. 1 of the assessee reads as under:- GROUND OF APPEAL NO. 1 with respect to claim of deduction u/s 80IB of the Income Tax Act in respect of Unit at Belur, West Bengal 1. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in allowing deduction under section 80IB of the Income Tax Act, 1961 ("the Act") to the extent of Rs 2,01,22,104, only as against deduction of Rs 3,87,41,881, claimed by the appellant in respect of the SMS 4- Ili Cold Rolling Mill at Belur, West Bengal. 1.1. That the Commissioner of Income Tax (Appeals) erred on facts and in alleging that the appellant has not controverted the finding of the assessing officer that the profits derived by the appellant from the aforesaid units have not been worked out on a reasonable basis. 1.2. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in computing the profit of the aforesaid units eligible for deduction under section 80-IB of the Act by applying the net profit ratio of the appellant as a whole on the turnover of the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profitability statement of the Belur unit, was filed before AO (which has also been filed at page 19 of paper book), is nothing but a profit and loss account only. Thereafter, ld. Counsel also pointed out that ITAT Mumbai for the A.Y.2001-02 on exactly same issue after considering the decision of the Tribunal for A.Y.2002-03 had referred the matter back to the file of the ld. AO to examine the claim u/s.80IB afresh in line with the profitability statement filed for the unit. He pointed out that in the set aside proceedings, ld. AO had allowed the claim in full after verification of the profitability statement for A.Y.2001-02 while allowing full deduction u/s.80IB for the Belur unit and agreed that unit has reported net profit rate @16.29% of the turnover as compared to the normal net profit of 10.23% of the turnover. The ld. AO gave the finding that the net profit ratio of 16.29% of turnover is reasonable keeping in view the global net profit ratio of 10.23% of turnover. Before us, the assessee's contention is that in the present case also the net profit reported by the undertaking in the profitability statement is 11.66% of turnover as compared to the global net profit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial to indicate that the amount charged by Unit No.4 from Unit No.1 was not at comparable market rates, it would not be open for the revenue to disregard the profits of Unit No.4 as disclosed by the assessee only on the basis that the profits were significantly higher than profits earned by the assessee from other undertakings. 27. Given the fact that Unit No.4 carries on job work of printing only, the expenses attributable to Unit No.1 which relate to the publishing business cannot be allocated to Unit No.4. Only those expenses which relate to the printing work carried on by the assessee in Unit No.4 are liable to be deducted from the job charges to arrive at the profits eligible for deduction under Section 80-IA of the Act or 80-IB of the Act as the case may be. 10. Thus, this issue stands covered by the decision of the aforesaid judgment of Hon'ble Delhi High Court. It has been informed that the decision of the Tribunal for A.Y.2002-03 partially disallowing assessee's claim u/s.80IB which has been relied upon by the ld. CIT(A) has been subsequently set aside by the Hon'ble Calcutta High Court and therefore, the stand taken by the ld. CIT(A) now gets vitiated. Accordingly, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this type of substantive amendment, retrospective operation can be given only if it is for the benefit of the assessee but not in a case where it affects even a fewer section of the assessees. 27. We, accordingly, quash the impugned amendment only to this extent that the operation of the said section could be given effect from the date of amendment and not in respect of earlier assessment years of the assessees whose export turnover is above Rs.10 crore. In other words, the retrospective amendment should not be detrimental to any of the assessees. 15. This judgment of the Hon'ble Gujarat High Court has been affirmed by the Hon'ble Supreme Court in the case of Commissioner of Income Tax v. Avani Exports (2015) 277 CTR 460 with the following Observation: 4. Against the High Court judgment these SLPs are filed by the Union of India. Mr Mukul Rohatgi, learned Attorney General for India submits that once the prayer made was to sever the aforesaid two conditions as onerous and ultra vires, the High Court should have couched the reliefs in terms of that prayer only, instead of stating that the operation of the section would be given effect to prospectively only and these condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate proceedings, the details of entire commission payment was furnished to the ld. CIT(A) by way of Additional evidence. Remand Report for additional evidence was also sought from AO. Entire commission payment details amounting to Rs. 10,48,67,000/- was explained to the satisfaction of ld. CIT(A). The ld CIT(A) substantially deleted the addition made by ld. AO, however, confirmed the addition on account of commission payment amounting to Rs. 28,49,419/. This disallowance of commission payment was with respect to the three commission parties to whom notice u/s 133(6) could not be served. 20. Before us it has been submitted that this issue stands covered by the decision of the Hon'ble Culcutta High Court in the case of Mather & Platt (India) Ltd. v. Commissioner of Income Tax (1987) 168 ITR 493 (CAL), the Hon'ble High Court of Calcutta held that deduction claimed for amount paid as commission cannot be disallowed merely on the ground that the summons served on the parties came back unserved. The relevant extract from the judgement is reproduced here in below: 19. The only fact on which the Tribunal has proceeded is that four years after the transactions, summonses served on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure to be a capital expenditure in its books of accounts. 25. The ld. CIT (A) upheld the action of ld. AO in treating the said expenditure as capital in nature for the reason that the assessee had capitalized the same in its books of accounts. He held that the assessee could not discharge the onus of treating the said expenditure as revenue expenditure. The ld. CIT(A) also relied on the assessee's own case for the assessment year 2002-03 wherein the Hon'ble Kolkata Bench upheld the action of the AO and the decision of the first appellate authority. 26. Before us ld. Counsel submitted that the decision of the ITAT Kolkata Bench in A.Y.2002-03 in ITA No. 1221/Kol/2006 and ITA No. 1045/Kol/2006 disallowing the assessee's claim for deduction for the expenditure incurred on repairs and replacement of plants and machinery, which was relied upon by the learned CIT(A), has been subsequently set aside by the Hon'ble Calcutta High Court. Thus, he submitted that the ld. AO and ld. CIT(A) arrived at the wrong finding and were not justified in disallowing the claim of deduction. 27. After considering the relevant finding given in the impugned order and after hearing both the parties, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant and machinery which is to be allowed u/s. 31 of the Act irrespective whether it is a capital or Revenue in nature. Thus, ld. AO is directed to examine the details in line with the decision of the Hon'ble Supreme Court in the case of IT vs. Sarvana Spinning Mills (supra). Accordingly, this ground is allowed subject to verification by the ld. AO. 29. In the result, ground No.4 raised by the assessee is allowed. 30. Ground of Appeal No.5 with respect to the claim of deduction of amount paid as service charges to BMCL 5. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in disallowing the sum of Rs.5,63,69,000 paid by the appellant to Birla Management Corporation Limited (BMCL) as service charges, alleging that the appellant has failed to furnish evidence of the services rendered by BMCL to substantiate that the said expenditure was incurred for the purpose of the business of the appellant. 31. The company has contributed a sum of Rs. 5,63,69,000/- as cost contribution for various services rendered by BMCL for Financial Year 20 02-03. BMCL is a Company limited by guarantee, incorporated for providing co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten submission in this regard before us. 36. First of all it is not in dispute that BMCL is only recovering the cost of services and it does not charge any mark-up for providing net management and administrative services to the member companies. The assessee had submitted all the evidences that expenses have been incurred for availing and sharing common facilities and the sources afforded by BMCL. Before us additional evidence paper book in form of evidence of services which has been furnished at pages number 49 to 63. In subsequent assessment year i.e., AY 2004-05 on the basis of similar evidence of services CIT (A) has granted relief on this ground after considering ITAT order for AY 2002-03 in assessee's own case. Though in 2002-03, this Tribunal had dismissed claim for allowance of BMCL expense for lack of proof of services, but that finding too has been set aside by Hon'ble High Court. If the services have been rendered and proof of services have been given, we do not find any reason as to why disallowance should be made in the corporate world that for the common services and common maintenance and entity for the same group provides centralized services and here in this cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay High Court in the case of Merck India Ltd. The assessee further Contend that in present case, the assessee not only had right to receive various managerial services from BMCL but also have availed the services for which sample evidence is furnished by way of additional evidence as stated above. The assessee further relies upon following various judgement in support of his contention: i. CIT Vs Spencers & Co Ltd 49 taxmann.com 318 ii. Phillips Carbon Black Ltd. [2011] 133ITD 189/16 taxmann.com 64 iii. CIT vs. Oriental Carpet Manufactures (India) P. Ltd. [86 ITR 543(P & H)] iv. Dresser Rend India (P) Ltd vs. ACIT [61 DTR 265 Mumbai] v. Duncan Industries Ltd. vs. ACIT - (ITA No. 905 of 2003) vi. DCIT vs. M/s Eveready Industries (India) Ltd. (ITA No. 455/kol/2003) The assessee had submitted a detailed legal note for the consideration of Hon'ble Bench. The assessee would like to bring to the notice that in subsequent assessment year i.e AY 2004-05, CIT(A) on submission of sample evidence of services has allowed the deduction on account of BMCL charges. The relevant operative part on which assessee relies is reproduced herein below: I find force in the argument of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax (Appeals) erred on facts and in law in disallowing an expenditure of Rs 27,88,975/- incurred by the assessee on account of community development expenses holding the same to be charitable expenditure not incurred for the purposes of the appellant's business. 41. The assessee has debited 27,88,975/- under the head 'community development'. Before the assessing officer, assessee has explained that the expenses were incurred for assistance with respect to drinking water supply, educational support etc. in the neighbouring areas of mine. The ld.AO disallowed the expenses treating it as donation in nature being not connected with business of the assessee. The ld. CIT(A) confirmed the finding of ld.AO at page 81. CIT (A) also relied on assessee's own case for AY 2002-03 where Tribunal has confirmed the said addition. 42. It has been contended that decision of the Tribunal for A.Y.2002-03 has been set aside by the Hon'ble Calcutta High Court. Further, assessee is in the business of manufacturing of aluminium which causes pollution in the nearby surrounding areas. These expenses were incurred for assistance for drinking water supply, women and child welfare, medical services, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax v. M/s Nicholas Piramal (India) Ltd. in ITA No. 1586 of 2013 has also placed reliance on Madras Refineries Ltd. (supra). The relevant extract is reproduced here in below: 6. The Tribunal while following the decision of the Madras High Court in Commissioner of Income Tax v/s. Madras Refineries Ltd., 266 ITR 170 held that the concept of business is not static and over a period of time, it would include within its fold the care and concern for the society at large which would result in a goodwill being created in its favour leading to better business. The Madras High Court in Madras Refineries (supra) had allowed expenditure incurred on drinking water facilities and aid to the school. Therefore, in the present case also, expenditure incurred for community is for the purpose of business. This is in effect, a finding of fact and the Revenue is unable to show, it is perverse. Thus, no fault can be found with the order of the Tribunal. 46. Thus, we hold that expenses incurred of sundry development are treated as expenditure incurred wholly and exclusively for the purpose of business. Accordingly, ground No.6 is allowed. 47. Ground No. 7 with respect to the claim of deduction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long lasting. By subscribing to the membership of a club, no capital asset is created or comes into existence. By such membership, a privilege to use facilities of a club alone, are conferred on the assessee and that too for a limited period. Such expenses are for running the business with a view to produce the benefits to the assessee. Consequently, it cannot be treated as capital asset. Therefore, the reasoning given by Delhi, Bombay and Gujarat High Courts in respect of members of Clubs is based upon correct enunciations of the principles of law as delineated above in the judgments of the Supreme Court. 51. Therefore, it cannot be said that the assessee's expenditure on subscription to the club for its employees is for the personal use. Instead, the welfare of the employees gained out of the said expense goes towards running the business of the assessee and producing business benefits. Thus, ground No.12 is allowed. 52. GROUND OF APPEAL NO. 13. That the Commissioner of Income Tax (Appeals) erred on facts and in law in not holding that on the facts of the appellant's case, the action of the assessing officer in not allowing set off of short term capital loss on sale of investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich resulted into profit in the accounts to the tune of Rs. 2,32,12,230/-, as cost of the units as per books were brought down to Rs. 34,13,57,004/- because of provision of write down. However, as per income tax calculation, the original cost was taken as actual historical cost i.e., Rs. 44,33,00,000/- giving loss of Rs. 7,96,30,763/-. The assessee further contended that mischief of 94(7) is not applicable in this case as holding period of these units were for a period were long enough to come out of mischief of 94(7). Thus lower authorities have completely disregarded these facts. 57. Further, assessee submitted that a loss on account of K bond wholesale plan bonus option should have been allowed. On 07.01.2003, 4,31,55,208 units were purchased for Rs. 68,19,77,442/-. Subsequently, on 10.01.2003, bonus in the ratio of 2:1 was given. In the books of account, the cost for original units was averaged between bonus and original units. Thereafter original units (4,31,55,208 units) were sold for Rs. 45,92,29,226/- incurring loss of Rs. 17,28,952/- in the accounts. Whereas, as per income tax law, short term capital loss was reported to the tune of Rs. 22,90,54,766/-. This loss was as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect to the expenditure incurred on maintenance and depreciation of aircraft "14. That the Commissioner of Income Tax (Appeals) erred on facts and in law in sustaining the disallowance of Rs 36,00,000 and Rs 1,05,39,094 relating to expenditure on maintenance and depreciation respectively of the aircraft jointly owned by the appellant, holding that the same was not used for the purpose of the business of the appellant." 63. The ld. AO had disallowed the assessee's claim of depreciation on aircraft and expenditure incurred on maintenance of aircraft on account of absence of any proof of its acquisition and failure to furnish any evidence with respect to commissioning of aircraft. Before the ld. CIT (A) the use of aircraft as trainee flight were furnished as additional evidence. Upon furnishing of additional evidence by the assessee during appellate proceedings, matter was sent back to AO for remand report. The ld. AO in his remand report took a stand that the airplane was put to use in the business of the assessee only in the subsequent year. The flights in the concerned year were all categorized as trainee flights, and accordingly the ld.AO suggested disallowing the claim on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, the trial run is held as use for the purpose of business, then the maintenance expenses should also be allowed as deductible. The assessee had also furnished flight details for the year under consideration which has been enclosed at pages 50 to 53 of paper book which clearly shows that it was a trial run and for training of the flights. Thus, depreciation and maintenance at the aircraft is held to be allowed. In the result, ground No.14 is allowed. 67. Ground No.15 relating to disallowance on adhoc basis of Rs.10,00,000/- u/s.40A(2)(b) in respect of amount paid and reimbursed by the assessee to M/s. Hindalco Industries Ltd. has not been pressed due to smallness of amount. Accordingly, same is dismissed as not pressed. In the result, ground No.15 is dismissed. 68. Assessee has also raised various additional grounds which we will deal here in after. 69. Additional grounds 1: Deduction u/s 80HHC has to be computed on the basis of adjusted book profit under section 115JB and not on the basis of the profits computed under regular provisions of law applicable to computation of profits and gains of business. The brief facts are that The company had claimed a deduction of Rs. 6,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No.2 raised by the assessee is as under:- "That for calculating book profit u/s 115JB, 100% of the eligible profit is to be deductible u/s 80HHC." 73. The assessee company while calculating deduction u/s 80HHC, from book profit under MAT, only 50% of eligible profit was claimed. The assessee relied upon the judgement of Hon‟ble Supreme Court in the case of Ajanta Pharma Ltd. vs. Commissioner of Income Tax wherein the Hon‟ble Court held that deduction on account of 80HHC for the purpose of computing book profit under MAT shall be 100% of the profit eligible for deduction u/s 80HHC and not to be computed as per phased out percentage as prescribed in sub section (3) of Section 80HHC. 74. Now in light of the judgement of Hon'ble Supreme Court, assessee was asked to submit a revised work of 80HHC deductible from the book profit for computation of tax under MAT, which was given in the following manner:- COMPUTATION OF PROFITS OF THE BUSINESS IN TERMS OF EXPLANATION (baa) TO SECTION 80HHC OF THE INCOME-TAX ACT,1961 FOR THE ASSESSMENT YEAR 2003- 2004 BOOK PROFIT ITEMS 1,31,31,06,388.00 LESS: ADJUSTABLE SALE OF IMPORT LICENSE 25,55,86,368.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of power to Grid Corporation of Orissa Ltd @ Rs. 0.77 per unit 1(c) That on the fact and in the circumstance of the case Ld. C.LT. (A) has erred in accepting assessee's determination of power price @ Rs. 2.63. per unit in the case consumption of power by it's own unit as against selling price of power to Grid Corporation of Orissa Ltd. 79. The assessee company has made a claim of deduction u/s 80IA in respect of its power plant at Hirakud, Orissa amounting to Rs. 17,86,56,581. This is a matter of fact that power generated by power plant is substantially consumed by the aluminum unit of the assessee and small part of power generated was sold to Grid Corporation of Orissa Ltd. 80. Assessee company has adopted rates charged by Orissa State electricity board to its industrial consumer which was taken at Rs. 2.63 per unit as Transfer price to Aluminium unit for computing deduction u/s 80(IA). Assessing officer denied the entire claim of deduction u/s 80IA by adopting the Transfer price at which small part of power generated was sold to Grid Corporation of Orissa Ltd. which was at 77 paisa per unit. 81. Ld CIT(A) observed that price charged from Grid Corporation of India wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer had been made at the market value of such goods as on that date. The proviso says that if the assessing officer finds exceptional difficulties in computing the profits and gains of the eligible business in the manner specified in sub- section (8), then in such a case, the assessing officer may compute such profits and gains on such reasonable basis as he may deem fit. The explanation below the proviso defines "market value" for the purpose of sub-section (8) It says that market value in relation to any goods means the price that such goods would ordinarily fetch on sale in the open market. 15.7 Thus, section 801A (8) provides that where goods or services held for the purposes of eligible business are transferred to any other business carried on by the assessee, the price charged for such transfer should correspond to the market value of such goods or services as on the date of transfer if the price of goods or services transferred is overstated in comparison to the market value, the assessing officer has the competence to recompute the profit by substituting the market value of such goods. The explanation below sub-section (8) defines the expression "market value" to mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in the open market ie, where the transaction takes place in the normal course of trading. Such pricing is unfettered by any control or regulation: rather, it is determined by the economics of demand and supply 26. Under the electricity regime in force, an industrial consumer could purchase electricity from the State Electricity Board or avail electricity produced by its own captive power generating unit. No other entity could supply electricity to any consumer. A private person could set up a power generating unit having restrictions on the use of power generated and at the same time the tariff at which the said power plant could supply surplus power to the State Electricity Board was also liable to be determined in accordance with the statutory requirements. In the present case, as the electricity from the State Electricity Board was inadequate to meet power requirements of the industrial units of the assessee, it set up captive power plants to supply electricity to its industrial units. However, the captive power plants of the assessee could sell or supply the surplus electricity (after supplying electricity to its industrial units) to the State Electricity Board only and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a consumer in the open market. On the contrary, the rate at which the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under section 80-IA of the Act. 29. Section 43A of the 1948 Act lays down the terms and conditions for determining the tariff for supply of electricity. The said provision makes it clear that tariff is determined on the basis of various parameters. That apart, it is only upon granting of specific consent that a private entity could set up a power generating unit. However, such a unit would have restrictions not only on the use of the power generated but also regarding determination of tariff at which the power generating unit could supply surplus power to the concerned State Electricity Board. Thus, determination of tariff of the surplus electricity between a power generating company and the State Electricity Board cannot be said to be an exercise between a buyer and a seller under a competitive environment or a transaction carried out in the ordinary course of trade and commerce. It is determined in an environment where one of the players has the compulsive legislative mandate not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the fact and in the circumstance of the case Ld. C.I.T.(A) has erred in deciding appeal in favour of assessee for statistical purposes by directing the AO to allow deduction after allowing opportunity to the assessee to prove the factum of payment to the Dy. Conservator of Forest amounting to Rs.11,47,000/- when the A/R of the assessee has expressed his inability to produce any evidence of such payment before the AO. 3(b) That on the fact and in the circumstance of the case Ld. C.I.T.(A) has erred in allowing the appeal in assessee's favour for statistical purposes on the above issue in accepting the assessee's contention placed before him through copies of covering letters claiming to enclose the demand draft sent to the Forest Authority for issue of passes towards dispatch of Aluminium Laterite/Bauxite. In giving appeal effect the AO has disallowed the same, assessee did not object to it, hence, this ground has become infructuous." 88. Ld. AO has already disallowed the same hence, the ground No.3 becomes infructuous. 89. Ground No. 4 in Revenue's appeal reads as under:- 4(a) That on the fact and in the circumstance of the case Ld. C.I.T.(A) has erred in deletin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round that write back of an amount does not amount to payment of statutory liability. Therefore, as per the assessing officer, the same is not allowable deduction. Before the CIT(A), the assessee contended that Rs. 4,26,31,807/- had been offered for taxation in AY 1995-96 to AY 2002-03 on account of sales tax, octroi, bonus for excise duty been provided in account but not paid. CIT(A) directed AO to verify whether amount aggregating to Rs. 4,26,31,807 were offered to tax in earlier assessment year and, if yes, to allow the deduction in current year. The AO after due verification has allowed the same the appeal effect of which is contained at Page 605 of paper book 2. The assessee contended that the ground has become infructuous as AO himself after verifying the sum has already offered to tax in earlier years u/s 43B, hence allowed deduction of write back from taxable income while giving appeal effect. Thus, provision which were already offered to tax in earlier years and they are written back in subsequent years, the same cannot be taxed in subsequent years. 94. Since, ld. AO himself has verified and same has been offered to tax in earlier years u/s.43B, he has accepted deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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