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TMI Blog2024 (12) TMI 1053X X X X Extracts X X X X X X X X Extracts X X X X ..... IA certified in Form 10B in respect of rail system developed, operated and maintained by the assessee - The undisputed fact is that, if the assessee had not transported its goods through Railways then, it had to transport the same by road thereby incurring higher cost. The cost of road freight shown at Rs. 48 Crores is based on the actual expenditure incurred in earlier year when the goods were transported by road. It is also an admitted fact that in order to curtail transport and logistics cost incurred for transportation of raw materials as well as furnished goods being cement, the assessee has developed an integrated rail system for Unit-I at Satna, M.P. The deduction u/s 80IA of the Act has been computed by following the savings approach wherein the revenue of the Rail System was computed by taking excess of the road freight handling charges payable for transportation of goods by road to the nearest rail head, over the tariff payable for transportation of goods from the railway siding to the rail head, determined as per the tariff notified by the Indian Railways, proportionate to the actual distance upto the nearest rail head. A perusal of the chart exhibited elsewhere shows th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of services for computation of 80-IA deduction without appreciating that the assessee has calculated its revenue from the rail system as the difference between the cost of transporting the same goods by road and by the India Railways, however, the assessee has actually not transported goods by road and this is an estimation basis. Ground V) The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal, if need be. 3. In the first round of litigation, the additional ground relating to sales tax subsidy, income from receipt of sale of carbon credit, were admitted and since the authorities below have not gone into the details and verification of the documents, this additional ground was set aside to the file of the AO for adjudication in terms of law. 4. Pursuant to the directions of the Tribunal, the AO examined the claim of sales tax subsidy of Rs. 15.02 Crores, availed during the year under consideration and treated as a capital receipt. The assessee claimed the said subsidy as capital receipt applying the purpose test laid down in Commissioner of Income-tax, Madras v. Ponni Sugars Chemicals Ltd. [2008] 306 ITR 392 (SC) and Sahney Steel and Press Wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a duly notified backward area in the District of Thane, which has been categorized as D+ locality i.e., remote backward area for the purpose of new Package Scheme of Incentive, 1993. The preamble of the said scheme, reads as under:- In order to achieve dispersal of industries outside the Bombay- Thane Pune belt and to attract them to, the underdeveloped and developing areas of the State, Government has been giving a Package of Incentives to New/Expansion Units set up in the developing region of the State since 1964 under a Scheme popularly known as the Package Scheme of Incentives. The Package Scheme of Incentives, introduced in 1964, was amended from time to time. The last amended Scheme, commonly known as the 1988 Scheme was operative from 1st October 1988 to 30th September, 1993. The question of revising the 1988 Scheme to rationalise the scope of incentives, various scales and mode of release of incentives to intensify and accelerate the process of dispersal of industries from the developed areas and for development of the under- developed regions of the State, particularly those farther away from the Bombay- Thane Pune belt, had been under consideration of the Government. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment in Sahani Steels and Press Works Ltd. (supra), held that character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which subsidy is given. The Propose Test has to be applied while determining whether the subsidiary is in account of revenue account or capital subsidy. The relevant observation given in Ponni Sugars and Chemicals Ltd., by Their Lordships are reproduced herein below:- 14. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel Press Works Ltd. (supra). In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10 per cent of the. capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of. refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant. 17. Applying the above ratio and the test laid down by the Hon'ble Supreme Court, we find that the subsidy received by the assessee under the new package scheme incentive of 1993, was solely for the purpose of setting up of SSI unit in the backward area for which it has received special capital incentive computed on the basis of fixed capital investment actually made by the assessee and, therefore, the same is capital in nature and hence, not taxable. Thus, the finding and conclusion given by the Commissioner (Appeals) is upheld and, accordingly, ground no.1, raised by the Revenue is dismissed. 51. Further we notice that Ld. DR submitted that this issue may be remitted back to the AO for factual verification and documents and AO may be given opportunity to verify the claim of the assessee. We notice that this issue was analyzed and adjudicated by Ld. CIT(A) after verifying the relevant documents submitted by the assessee before him and moreover, the proceedings before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oped, operated and maintained by the assessee. 11. The assessee explained that the said rail system has been set up between its cement manufacturing plant and the nearest railway system of the Indian Railways for inward and outward movement of goods for efficient and cost-effective transportation to/from various destinations. It was claimed that the said infrastructure facility is eligible for deduction in terms of explanation to Section 80IA(4)(i) of the Act. In support, copy of the audit report in Form 10CCB and audited accounts of the rail system were submitted. 11.1. The assessee was asked to furnish details regarding how income derived from rail system was arrived at. The assessee furnished a chart showing how the income from services from its rail system was arrived at. After perusing the same the AO found that the assessee has calculated its profit as the difference between the cost of transporting material by road and by rail. It was explained by the assessee that it is computing income of the rail system by following the savings approach wherein, the revenue is computed as savings made on the basis of the freight and other costs that would have been payable if the rail sys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular at Rs 6,11,22,022/- to which a markup of expenditure directly attributable to the loading and unloading expenses which are not to be incurred for the railway system at 5% and the total revenue to be charged for loading and unloading was taken at Rs. 4,68,50,208/-. Adding same to the total revenue to be charged for railway freight Rs. 6,11,22,022/-. The AO computed the total revenue at Rs. 10,79,72,230/- and the deduction u/s 80IA of the Act was computed thereof. 12. The assessee strongly contested this before the ld. CIT(A) and reiterated its claim of deduction on cost savings approach placing reliance on several judicial decisions. After considering the facts and the submissions, the ld. CIT(A) was convinced that the Explanation to Section 80IA of the Act and Section 80A(6) of the Act is clear that open market has to be presumed in existence for the purpose of computing a deduction u/s 80IA and market value has to be taken as if such open market exists. The ld. CIT(A) was also convinced with the savings approach drawing support from various judicial decisions, namely, CIT -vs.- Thiagarajar Mills Ltd (Tax Case(Appeal) Nos.68 to 70 of 2010 dated 7-6- 2010), Assam Carbon Product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the railway siding to the rail head, determined as per the tariff notified by the Indian Railways, proportionate to the actual distance upto the nearest rail head. A perusal of the chart exhibited elsewhere shows that the assessee has computed the revenue calculating the difference between the cost of transporting the goods by road and by India Railways. 16. We find that the Co-ordinate bench in ITA No. 11/Gau/2004 in the case of Assam Carbon Products vs. ACIT (2006) 100 TTJ (Kol) 224, had occasion to consider a similar situation and held as under:- 7.7 The export of impugned goods viz., NH coke at a price of Rs. 137.45 per kg. to MCCP, UK, took place in the aforesaid backdrop. The said price was not determined by the law of demand and supply but was imposed and dictated by MCCP. As stated above, for the purpose of computing the deduction allowable under section 80-IB in case of captive consumption of goods, section 80-IA(8) provides that the market value of such goods as on the date of transfer has to be determined. The Explanation appended to section 80-IA(8) defines market value as under : market value , in relation to any goods, means the price that such goods would ordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of NH coke. The said price was undisputedly much lower than the prevailing market value. Nevertheless, since the said substantial part of the fixed cost, the assessee-company agreed to export NH coke to MCCP below the prevailing market prices. However, it should be kept in mind that the assessee-company would never sell Morgan grade NH coke outside the group to any other concern at the said price. 7.11 As such taking into consideration the totality of the facts and circumstances of the assessee s case, the price at which it actually exported goods to MCCP could in no way be termed as indicative market value in terms of the Explanation to section 80-IA(8). The price at which the goods were actually exported to MCCP was dictated/imposed by the latter it is not the price which the impugned product would ordinarily fetch on sale in the open market between a willing buyer and a willing seller. The impugned export transactions were not effected under conditions enabling every person desirous of purchasing the goods to place orders with the manufacturing unit and obtain supplies. As such, the impugned export did not constitute open market transaction. If the said price is taken to be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he foreign supplier in the form of a proforma and calculated the landed cost therefrom. It was submitted before the learned CIT(A) that no commercial establishment would import an item only for the sake of ascertaining the landed cost. Further, as regards the objection of the Assessing Officer that the invoice was not signed, it was submitted that computerized quotations and enquiries are generally not signed. The appellant, however, produced before the learned CIT(A) an authenticated copy of the preforms invoice in original. The learned CIT(A) refused to take the same into consideration on the pretext that the said document was not produced before the Assessing Officer. In this regard, it is submitted that the Assessing Officer never required the assessee to produce authenticated and signed copy of preforms invoice at the time of assessment proceedings. As such, the assessment order was passed without allowing sufficient opportunity to the assessee to adduce the impugned evidence. Thus, the learned CIT(A) should have admitted the additional evidence under rule 46A(1)(d). Copy of the authenticated and signed copy of proforma invoice date 17th Jan., 2000 is enclosed at p. 140 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 not to any other authority or person. Therefore, the surplus electricity had to be compulsorily supplied by the assessee to the State Electricity Board and in terms of Sections 43 and 43A of the 1948 Act, a contract was entered into between the assessee and the State Electricity Board for supply of the surplus electricity by the former to the latter. The price for supply of such electricity by the assessee to the State Electricity Board was fixed at Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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