TMI Blog2017 (2) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... As for claim of the assessee in the assessment under section 153A of the Act for the aforesaid assessment years that sales Tax remission subsidy which was originally offered to Tax and brought to Tax in the original assessment under section 143(3) of the Act, is not Taxable, we are of the view that even these claims could not be made by the assessee. These claims were independent claims and had no nexus or interconnection with the determination of total income under section 153A of the Act based on incriminating material found in the course of search. Therefore, these claims could not have been and ought not to have been the subject- matter of determination of total income under section 153A of the Act for the aforesaid assessment years. In view of the above conclusion, the other grounds of appeal raised by the assessee in its appeal and the grounds raised by the Revenue in its appeal for these assessment years do not require any consideration. Claim of deduction of 80-IA - Held that:- there are exceptional difficulties in computing the profits and gains of the eligible business by applying the main provisions of section 80-IA(8) of the Act and Therefore, the proviso to sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer is bound by the directions of the Dispute Resolution Panel and the action of the Assessing Officer in reducing the value of sales Tax remission from the block of fixed assets was in violation of the mandate laid down in section 144C(10) of the Act. In fact ground No. 5 raised by the Revenue is itself an admission by the Assessing Officer that there was no direction by the Dispute Resolution Panel to reduce the value of sales Tax remission from the block of fixed assets and allow lesser depreciation to the extent of sales Tax remission held to be capital receipt not chargeable to Tax. Thus ground No. 4 raised by the assessee is allowed. Addition on excess depreciation claim - Held that:- The scheme applicable to the assessee's case nowhere specifies that the subsidy was to be utilised 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 utilisation of the subsidy for the purpose of acquiring depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt not chargeable to Tax or revenue receipt chargeable to Tax - Held that:- Receipts from sale of carbon credits constitute capital receipts which are not chargeable to Tax at all. Computation of disallowance under section 14A - Held that:- 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 CIT v. Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT ]. If the overall funds position i.e., if own funds are sufficient to cover the investments which are subject to consideration under section 14A of the Act, then 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 under section 14A of the Act to the Assessing Officer for a fresh consideration Amount receivable on the completion of a contract including any money retained or undisbursed - whether had accrued to the assessee and was thus its income for the year - Held that:- As on the date wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment : G. Mallikarjuna, Departmental Representative ORDER 1. All these cross appeals by the assessee and the Revenue arising out of separate orders of the Deputy Commissioner of Income-Tax, Central Circle XXI, Kolkata, hereinafter referred to as Assessing Officer ( AO ) passed under section 153A read with section 143(3) and section 144C of the Income-Tax Act, 1961 (Act) pertaining to the assessment years 2003-04 to 2011-12 were heard together as they involve several common issues. We deem it convenient to pass a consolidated order. 2. The assessee is engaged in the business of manufacturing Ductile-Iron ( DI ) spun pipes. In addition, the assessee also has manufacturing facilities for Cast Iron Spun pipes. The assessee has a large customer base in India and abroad. The assessee is the flagship concern of the Group. The assessee has its registered office at Rathod Colony, Rajganpur, District Sundergarh, Rajganpur, Orissa-770 017, Administrative Office at No. 40, Stephen House, BBD Bag (East), Kolkata, West Bengal-700 001 and corporate office at G. K. Tower, 19, Camac Street, Kolkata, West Bengal-700 017. 3. The assessee manufactures DI spun pipes, DI fittings, etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 2005-06 has already been complete under section 143(3) by orders dated March 31, 2006, December 15, 2006 and December 19, 2007 respectively prior to the date of search and seizure operation under section 132 of the Act. (iii) The search and seizure operation under section 132 of the Act was carried out on March 19, 2009 after the completion of assessments under section 143(3) of the Act for the assessment years 2003- 04 to 2005-06. 6. In course of assessment under section 153A of the Act pursuant to the search and seizure operation under section 132 of the Act, the assessee made a revised claim that sale Tax remission of ₹ 92,13,585, ₹ 1,08,07,994 and ₹ 20,87,26,730 respectively received by the assessee which was offered to Tax as income in the return of income originally filed. The assessee claimed that the said sales Tax remission was in the nature of capital receipt and cannot to be regarded as income and ought not to have been brought to Tax. It was the plea of the assessee that sales Tax formed a part of the turnover of the assessee and waiver of the same under the West Bengal Sales Tax Act, 1994 ( WBST Act ), West Bengal Value Added Tax, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Dispute Resolution Panel by its directions dated November 22, 2013 in the assessment years 2003-04, 2004-05 and 2005-06 respectively, directed the Assessing Officer to allow the revised claim made on account of sales Tax remission by holding that the same was not Taxable and also deleted the addition made by the Assessing Officer reducing the assessee's claim for deduction under section 80-IA of the Act in the order passed under section 153A of the Act. However, with regard to the transfer pricing adjustment, it directed the Assessing Officer to consider an arm's length interest rate of 11 per cent. as opposed to 15 per cent. proposed by the Assessing Officer. 10. Pursuant to the directions of the Dispute Resolution Panel the Assessing Officer in his fair assessment orders all dated January 30, 2014 for the assessment years 2003-04, 2004-05 and 2005-06 allowed the revised claim on account of sales Tax incentive. However, in doing so, he reduced the said amount from the block of fixed assets and accordingly, the depreciation claim was reduced by an amount of ₹ 36,85,434, ₹ 40,84,036 and ₹ 1,13,93,716 for the assessment years 2003-04, 2004-05 and 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nction has been made between a pending assessment and a completed assessment. Thus it was submitted that a completed assessment becomes final unless some incriminating material is found in the course of search. It was argued that section 153A of the Act does not authorise the making of a de novo assessment. An assessment under section 153A of the Act is not meant to unsettle the income shown in the regular return in respect of which the assessment is complete. Section 153A of the Act does not lead to a whole exercise, of assessment to be made afresh, in respect of completed assessments. Therefore, vide assessment under section 153A of the Act, no new disallowance, can be made by the Assessing Officer where admittedly the regular assessments are shown as completed assessments on the date of initiation of action under section 132. Further and very importantly, in relation to the years whose assessment is completed, it has been laid down in several judicial pronouncements that in such situation of completed assessments, assessment under section 153A of the Act however shall be to the extent of income escaping assessment which comes to the knowledge of the Assessing Officer during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of the view that the objection raised by the learned counsel for the assessee being one raised with regard to the scope of proceedings under section 153A of the Act vis-a-vis unabated assessment under section 143(3) of the Act and that being a legal issue can be raised at any stage of the proceedings and this objection of the Departmental representative is Therefore, held to be not sustainable. 15. The learned Departmental representative submitted that the Hon ble Delhi High Court in the case of CIT v. Anil Kumar Bhatia [2013] 352 ITR 493 (Delhi) after examining the scheme of section 153A of the Act has held that under the provisions of section 153A of the Act, the Assessing Officer is bound to issue notice to the assessee to furnish returns for each assessment year falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which the search or requisition was made. He is also empowered to assess or reassess the total income of the aforesaid years. Under section 153A, however, the Assessing Officer has been given the power to assess or reassess the total income of the six assessment years in question in separate asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come, if any, unearthed during the search. He has been entrusted with the duty of bringing to Tax the total income of an assessee whose case is covered by section 153A, by even making reassessments without any fetters. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to Tax. When once the proceedings are initiated under section 153A of the Act, the legal effect is even in case where the assessment order is passed it stands reopened. In the eye of law there is no order of assessment. Re- opened means to deal with or begin with again. It means the Assessing Officer shall assess or reassess the total income of six assessment years. Once the assessment is reopened, the assessing authority can take note of the income disclosed in the earlier return, any undisclosed income found during search or and also any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the 'total income' of each year and then pass the assessment order. (emphasis supplied) 16. Therefore, according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139 ; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years : Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years, referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. (2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results : (a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment under section 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer, (b) In respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment 'can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this section only on the basis of seized material'. (v) In the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in section 153A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to the completed assessment proceedings. (vi) In so far as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer. (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of some incriminating material unearthed during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presentative is supported by the decision of the Hon ble Karnataka High Court in the case of Canara Housing Development Company v. Deputy CIT [2014] 114 DTR 162 (Karn) in which the ruling of the Special Bench in the case of All Cargo Global Logistics Ltd. v. Deputy CIT [2012] 18 ITR (Trib) 106 (Mum) [SB] ; [2012] 137 ITD 287 (SB) (Mum) has not been accepted. The Hon ble Bombay High Court in the case of CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 374 ITR 645 (Bom) ITA No. 523/2013 judgment dated April 21, 2015 after referring to the decision of the Hon ble Delhi High Court in the case of CIT v. Anil Kumar Bhatia [2013] 352 ITR 493 (Delhi) and of the Hon ble Karnataka High Court in the case of Canara Housing Development Company (supra) has taken the view that the decision rendered by the Special Bench is to be followed. In the subsequent decision rendered by the Hon ble Delhi High Court in the case of CIT v. Kabul Chawla [2016] 380 ITR 573 (Delhi), the view expressed by the Special Bench of the Income-Tax Appellate Tribunal in the case of All Cargo Global Logistics Ltd. v. Deputy CIT (supra) has been accepted. There is no decision of the Hon ble Calcutta High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee for the assessment year 2003- 04, 2004-05 and 2005-06 i.e., IT(SS) No. 47 to 49/Kol/2014 are allowed to the extent indicated above and the appeals by the Revenue IT(SS) No. 54 to 56/Kol/2014 are dismissed. 27. IT(SS) No. 50/Kol/2014 (assessee's appeal) IT(SS) No. 57/Kol/2014 (Revenue's appeal for the assessment year 2006-07) 28. As far as assessment year 2006-07 is concerned, the assessee had filed return of income under section 139(1) of the Act on November 30, 2006 declaring total income of ₹ 71,16,48,811. There was no assessment of total income by the Assessing Officer pursuant to the return filed by the assessee. Search and seizure operation under section 132 of the Act was conducted in the business premises of the assessee on March 19, 2009. Since there was no earlier assessment in pursuance of the return of income filed by the assessee on November 30, 2006, the scope of proceedings under section 153A of the Act would be to assess the total income of the assessee for the relevant assessment year. The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, it directed the Assessing Officer to consider an arm's length interest rate of 11 per cent. as opposed to 15 per cent. proposed by the Assessing Officer. 33. Pursuant to the directions of the Dispute Resolution Panel, the Assessing Officer by his fair order of assessment dated January 30, 2014 allowed the revised claim on account of sales Tax incentive. However, in doing so, he reduced the said amount from the block of fixed assets and accordingly, the depreciation claim was reduced by an amount of ₹ 55,79,540. Further, he added a sum of ₹ 1,18,23,413 on account of transfer pricing adjustment. 34. Aggrieved by the aforesaid, both the assessee and Department are in appeal before the Tribunal. IT(SS) No. 57/Kol/2014 : (Revenue's appeal for the assessment year 2006-07) 35. Ground Nos. 1 and 2 raised by the Revenue in its appeal reads thus : 1. That on the facts and circumstances of the case and in law learned members of the Dispute Resolution Panel, Kolkata Bench, erred in deleting the addition of ₹ 5,32,91,803 made on account of disallowance under section 80-IA for the assessment year 2006-07 applying the ratio of the decision of the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.-For the purposes of this sub-section, 'market value', in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market. 37. The assessee computed such profits by adopting the rate charged by WBSEB from its consumers which was a sum of ₹ 4.36 Ps. per unit. According to the assessee the term market value would mean the price any goods or services would ordinarily fetch in the open market. According to the assessee Therefore, if the assessee is allowed to sell its power in the open market than the buyer who is buying from the assessee would buy the same at a rate at which he is buying from any other source say WBSEB. Therefore, the rate at which WBSEB sells powers to its consumers should be adopted as market value and accordingly profits of the eligible undertaking should be computed. 38. While ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resulted in disallowance of claim for deduction under section 80-IA of the Act to the extent of ₹ 5,32,91,803. 41. Being aggrieved, the assessee filed an application to Dispute Resolution Panel (DRP) on March 21, 2013. The learned members of the Dispute Resolution Panel, Kolkata Bench vide Dispute Resolution Panel order dated November 22, 2013, accepted the claim of the assessee-company by observing as follows : . . . we have considered the rival submission. In this context, our attention has been drawn to the decision of the jurisdictional High Court in the case of CIT v. Kanoria Chemicals and Industries Ltd. reported in [2013] 35 Taxmann.com 566 (Calcutta). In this case, the Hon ble High Court dealt with similar set of facts and decided the issue in favour of the Taxpayer. The assessee contended that the ratio of the decision in the above cited case is squarely applicable to this case. Therefore, this Panel upholds the objection raised by the asses see. Accordingly, this ground is allowed. 42. Aggrieved by the directions of the Dispute Resolution Panel, the Revenue has raised ground Nos. 1 and 2 before the Tribunal contending that the Dispute Resolution Panel h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en market-Market in which goods are available to be bought and sold by anyone who cares to. Prices on an open market are determined by the laws of supply and demand (Investment ; International Accounting ; Banking). According to him Therefore, the definition of the term open market presupposes freedom of trade and competitive market conditions where the prices of any product are determined on the basis of demand and supply for such product. According to him contracted price between the assessee and WBSEB which is based upon negotiation, cannot be said as the open market price as this price is not available to all but only for the parties to contract. This is not the price at which electricity can be bought and sold by anyone. Thus this price cannot be considered as the open market price. It was reiterated that the case of the assessee is squarely covered in favour of the assessee by the judgment of the Calcutta High Court in case of Kanoria Chemicals and Industries Limited [2013] 35 Taxmann.com 566 (Calcutta) (I. T. A. T. No. 58 of 2013). The Hon ble High Court in the given case upheld the following view of the Tribunal : Since the assessee is an industrial consumer als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y restrictions, if any ; (ii) in relation to any goods or services acquired, means the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the open market, subject to statutory or regulatory restrictions, if any. It was firstly submitted that the definition of market value under section 80-IA(8) is different from the definition for the purpose of section 80A(6) of the Act. It was further submitted that specific provisions of section 80-IA of the Act would prevail and the definition of the same is not required to be imported from section 80A(6) of the Act. Without prejudice to the above, it was submitted that, sub section (6) of the section 80A was inserted by the Finance (No. 2) Act, 2009, with effect from April 1, 2009 and would not be applicable for the assessment year 2006-07. Secondly it was argued that the facts in the case of Transmission Corp. of AP Ltd. v. Sai R.P. Pvt Ltd. [2010] INSC 498 (dated 8th July, 2010) and the case of the assessee are not similar viz. : (a) The decision does not at all deal with the concept of market value as explained in the Explanation to sub-sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 use and not sold to a third party, section 80-IA(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 the Explanation to section 80-IA(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 gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted power was situate 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 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 or 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 ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The discretion given to the Assessing Officer under the proviso to section 80-IA(8) is not a subjective satisfaction but an objective one and Therefore, the reasonableness of the action of the Assessing Officer should be justifiable. With these observations, we allow the relevant ground of appeal of the Revenue for statistical purpose. 50. Ground Nos. 3 to 5 raised by the Revenue in its grounds of appeal reads as follows : 3. The learned members Dispute Resolution Panel, Kolkata Bench in law and in the facts and circumstances of the case erred in accepting assessee's claim made through revised computation other than by filing revised return that subsidies received on account of sales Tax remission/deferral and industrial promotion assistance are capital subsidy and ignoring the apex court's decision in the case of Goetze (India) Ltd. v. CIT in [2006] 284 ITR 323 (SC) ; [2006] 157 Taxman 1 (SC). 4. The learned members Dispute Resolution Panel, Kolkata Bench in law and in the facts and circumstances of the case also erred in holding that subsidy received of ₹ 66,47,906 on account of sales Tax remission/deferral and industrial promotion assistance for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten down value of the block of assets. 52. We have already seen that the assessee has been enjoying the sales Tax deferment/remission on DI Pipe under section 41 of the WBST Act, under section 116(1)(c) of the WBVAT Act and under section 8(5) of the CST Act. The deferment of sales Tax got converted into remission vide letter No. 331/JS (DC) dated January 31, 2002 issued by Commerce and Industries Department, Government of West Bengal. The amount collected from the customers under the various schemes was treated as revenue/income by way of crediting to sales account in the profit and loss account and the said amount was offered to Tax by the assessee. According to the assessee, sales Tax collected from the customers not payable to the Government (sales Tax remission) constituted a capital receipt not assessable to Tax. Accordingly, the income for the assessment year 2003-04 was reduced by the amount of ₹ 66,47,906 being the amount of sales Tax remission included in the profit and loss and offered to Tax by the assessee. Such a claim was made by the assessee in the course of assessment proceedings under section 153A of the Act in the form of filing of a revised computa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-Tax Act, 1961 . This has been interpreted in several judicial pronouncements as applicable even to the first appellate authorities. The Hon ble Delhi High Court in the case of CIT v. Jai Parabolic Springs Ltd. [2008] 306 ITR 42 (Delhi) has held that the appellate authorities under the Act, were free to consider a claim made by an assessee even in the absence of a revised return of income and that the requirement for filing a revised return of income as laid down by the Hon ble Supreme Court in the case of Goetze (India) Ltd. [2006] 284 ITR 323 (SC) is applicable only when a claim is made contrary to the return of income before the Assessing Officer. The Hon ble Delhi High Court in the case of CIT v. Bharat Aluminium Co. Ltd. [2008] 303 ITR 256 (Delhi) ; [2008] 163 Taxman 430, has inter alia ruled that the assessee can file revised computation in the course of ongoing assessment proceedings under the Act, without making recourse to revised return, despite the fact that time limit for revising return under section 139(5) had expired. In the light of the aforesaid decisions, we are of the view that the Dispute Resolution Panel was right in accepting the revised claim that sales Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der a scheme has to be determined with respect to the purpose for which the subsidy is granted. In other words, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. If the object of the subsidy is to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme is to enable the assessee to set up a new unit or to expand an existing unit then the receipt of the subsidy would be on capital account . 57. Applying the aforesaid principles to the facts of the case, we need to ascertain the purpose of the scheme under which the subsidy in the form of sales Tax remission was received by the assessee. Attention in this regard is invited to the resolution approving the scheme passed by the Government of West Bengal, opening paragraph of which is reproduced below : Having regard to the continuing need for providing incentives for the establishment of new units and expansion of existing units in the medium and large scale sectors in the State and having reviewed the impact of the earlier schemes in this re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. He found that the sales Tax remission given under West Bengal Incentive Scheme, 1993 and 1999 was not for assisting the assessee in carrying out its business operation but incurred the promotion of industries in the State of West Bengal and consequently, following the decision of the Hon ble Supreme Court in the case of Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253 (SC) holding the sales Tax remission as capital receipt. The learned counsel also drew our attention to the fact that the sales Tax remission under West Bengal Incentive Scheme, 1993/1999 was revenue or capital has already been examined and decided by the Income-Tax Appellate Tribunal, Kolkata Bench in the following appeals : '1. In the case of ITO v. Duro Plast India Pvt. Ltd. in ITA Nos. 1983, 1984, 1985/Kol/2008, dated January 16, 2009 for the assessment years 1999-2000 to 2001-02. 2. In the case of Deputy CIT v. Teesta Agro Industries Ltd. in ITA No. 1237/Kol/2010 and ITA No. 1053/Kol/2010 and ITA No. 1753/Kol/2010, dated January 7, 2011 for the assessment years 2003-04, 2006- 07 and 2007-08 respectively.' We find that the West Bengal Incentive Scheme 1993 and 1999 catego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Panel on this issue. Ground No. 4 raised by the Revenue is accordingly dismissed. 62. As far as ground No. 5 raised by the Revenue in its appeal and ground No. 4 raised by the assessee in its appeal, are concerned, they relate to the issue whether while giving effect to the order of the Dispute Resolution Panel holding that sales Tax subsidy is capital receipt not chargeable to Tax, the Assessing Officer in the final assessment order dated January 30, 2014 could have reduced the depreciation by reducing incentive received on account of sales Tax remission from the value of the written down value of assets on which depreciation was claimed by the assessee. 63. We have heard the rival submissions of the parties in this regard. The learned Departmental representative relied on the final order of the Assessing Officer dated January 30, 2014 while the learned counsel for the assessee relied on the directions of the Dispute Resolution Panel in its directions/order dated November 22, 2013. 64. We have seen the order of the Dispute Resolution Panel on this issue and find that the Dispute Resolution Panel in its directions/order had directed the Assessing Officer to allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not 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 fixed assets. The subsidy is provided to extend financial assistance to entrepreneurs in setting up new units/expanding existing units in the backward areas. There appears no restriction imposed on the assessee to utilise the subsidy for acquisition of 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 produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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 section 43(1) for the purpose allowing depreciation. In light of the above decisions, we hold that the amount of ₹ 55,79,540 disallowed on ground of excess depreciation claim, should be allowed. Thus ground No. 5 raised by the Revenue is dismissed. 69. Ground Nos. 6 to 9 raised by the Revenue in its appeal reads as follows : 6. Whether on the basis of facts and in law, the learned Dispute Resolution Panel, Kolkata have erred in holding that the credit spread part of the arm's length price of loan provided by the assessee to its associated enterprises should be 3 per cent. per annum instead of 7 per cent. and 7.5 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat such transaction is not required to be benchmarked considering the facts of the appellant's case. 2c. Without prejudice to the above, the impugned order erred in confirming the comparable uncontrolled price ( CUP ) method applied by the learned Transfer Pricing Officer for determining the arm's length price (ALP), i.e., interest to be charged for the loan transaction of the appellant with its associated enterprises. 2d. Without prejudice to the above, the impugned order erred in considering the interest rate on rupee funds for benchmarking the foreign currency loans provided by the appellant to its associated enterprises. 2e. Without prejudice to the above, the impugned order erred in not considering the judicial pronouncement of the higher authorities wherein lower rate of interest has been considered for loan provided to associated enterprises. 2f. Without prejudice to the above, in the facts and in the circumstances of the case, the learned Transfer Pricing Officer and consequently the impugned order erred in making an adjustment of ₹ 66,58,292 in relation to the international transactions of interest- free loan provided to its associated en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e plea of the assessee that such high rate of interest is unwarranted considering that the associated enterprise is located in a jurisdiction wherein the prevailing bank interest rates are low. It was also the plea of the assessee that credit rating of the associated enterprise as adopted by the Transfer Pricing Officer was irrelevant. Based on the arm's length price so computed, the Transfer Pricing Officer computed arm's length interest rate by following CUP method as 8 per cent. (cost of funds in hands of assessee) plus 7 per cent. (credit spread) based on creditworthiness of the associated enterprise. In doing so, he assigned a credit rating of CC+ or C to the associated enterprise. The Dispute Resolution Panel directed the Transfer Pricing Officer to compute the upward adjustment by applying an arm's length interest rate of 11 per cent., i.e. 8 per cent. plus 3 per cent. (credit spread). Aggrieved by the said direction of the Dispute Resolution Panel, the assessee is in appeal before the Tribunal raising ground No. 4 and the Revenue is in appeal before the Tribunal raising ground Nos. 6 to 9. 73. The first and foremost submission of the learned counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, it was pointed out that the loan was made in Euros i.e., foreign currency and hence domestic lending rates cannot be used as a base for calculating arm's length price (as done by the Transfer Pricing Officer). According to the learned counsel for the assessee, the said view finds strength from the following judgments wherein it has been held that if the loan is made in foreign currency then LIBOR (not domestic lending rates) should be used as a benchmark. 74. (i) The Chennai Bench of the Tribunal in the case of Siva Industries and Holdings Ltd. v. Asst. CIT [2012] 145 TTJ (Chennai) 497 held as follows : Once the transaction between the assessee and the associated enterprise is in foreign currency and the transaction is an international transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, we are of the view that it is the LIBOR rate which has to be considered while determining the arm's length interest rate in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vanced to associated enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. Mr. Suresh Kumar the learned counsel for the Revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in VVF Ltd. v. Deputy CIT (I. T. A. No. 673/Mum/06, January 8, 2010) and Deputy CIT v. Tech Mahindra Ltd. [2011] 46 SOT 141 (Mumbai) (URO) on the above issue. No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. v. Deputy CIT (supra) and Deputy CIT v. Tech Mahindra Ltd. (supra). The Revenue not having filed any appeal, has in fact accepted the decision of the Tribunal in VVF Ltd. v. Deputy CIT (supra) and Deputy CIT v. Tech Mahindra Ltd. (supra). In view of the above we see no reason to entertain the present appeal. 76. In view of the aforesaid decisions, we are of the view that instead of the base rate of 8 per cent. (based on lending rates of banks in India, for commercial borrowing), it would be appropriate to apply LIBOR rate (and not domestic lending rate). We direct accordingly. 77. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have no issue of the Transfer Pricing Officer applying the CUP method. But the problem arises when in the name of applying CUP method a wholly inapplicable comparable model applied which leads to distorted results. In our considered view, a significant sector of multi-national corporate set up involves creation of subsidiaries and associate enterprises for advancement of their overseas business. They help them in terms of finance by offering soft loans and subsidiary loans ; they are primary focused to spread the business of the principal unit. It would have been very reasonable, judicious and appropriate on the part of the Transfer Pricing Officer to have looked into such type of transactions and applying it as uncontrolled trans actions. In our view, re-coursing straightaway to CRISIL, which deals in hardcore institutional finance transactions that too with clear commercial object of earning out of loans bereft on other considerations, is wholly inapplicable. There is no dispute on the issue that the real income theory has no application to a fictional working as provided by section 92 but this being part of the Income-Tax Act, the valid consideration for properly assessing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of international transaction under section 92B of the Act since it does not have any bearing on the appellant's profits, income, losses or assets. 3c. The impugned order erred in holding that the provision of corporate guarantees by the appellant without charging any interest has to be benchmarked without appreciating that such transaction is not required to be benchmarked considering the facts of the appellant's case. 3d. The impugned order is erroneous to the extent it does not consider the fact that the appellant has not borne any cost relating to corporate guarantee and neither its funds have been used by the associated enterprise. 3e. Without prejudice to the above, the impugned order also erred in not considering the appellant's transaction with a third party where the bank guarantee was provided for a charge of 0.35 per cent. 3f. Without prejudice to the above, the impugned order erred in applying the CUP method, relying on Safe Harbour Rules as a basis, for determining the arm's length price, i.e, commission to be charged by the appellant for providing guarantees for loans availed of by its associated enterprises from banks. 3g. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B) (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 authorised representative has submitted that the arm's length guarantee charges may be taken at 0.40 per cent. which was the percentage of commission charged by the bank from the assessee for furnishing identical guarantee as was furnished by the assessee for a loan transaction by banks to its associated enterprise. In this regard our attention was drawn to the fact that IDBI Bank has charged a commission of 0.40 per cent. per annum as guarantee commission for similar facility extended to the assessee and that should be taken as a comparable case. Our attention was drawn to page 120 of the paper book II filed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elationship 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 independent transaction, the assessee has paid 0.6 per cent. guarantee commission to ICICI Bank India for its credit arrangement. This could be a very good parameter and a comparable for taking it as internal CUP and comparing the same with the trans action with the associated enterprise. The charging of 0.5 per cent. guarantee commission from the associated enterprise is quite near to 0.6 per cent., where the assessee has paid independently to the ICICI Bank and charging of guarantee commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case, the learned Assessing Officer failed to allow the TDS credit where the TDS certificates were submitted with him. 5d. That on the facts and circumstances of the case, the learned Assessing Officer failed to consider that the rule 37BA which refers to the availability of credit on the basis of information furnished by the deductor was introduced with effect from April 1, 2009 and hence is not applicable for the assessment year 2006-07. 86. As far as the aforesaid grounds of appeal are concerned, the ends of justice would be met, if the Assessing Officer is directed to give effect to the Dispute Resolution Panel's direction by making verification of TDS certificate that may be filed in physical form as well as from details from 26AS, and give credit for Taxes deducted at source. Ground No. 5 is treated as allowed for statistical purpose. 87. Ground No. 6 regarding initiation of penalty proceedings under section271(1)(c) of the Act is not appealable and hence, dismissed. Ground No. 7 regarding charging of interest under section 244A is purely consequential and the Assessing Officer is directed to give consequential effect. 88. In the result, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposed to make the following additions to the total income of the assessee for the relevant assessment year in his draft assessment order dated February 22, 2013 : (i) Denial of claim under section 80-IA ₹ 6,33,79,716 (ii) Transfer pricing adjustment (loan and guarantee) ₹ 1,93,35,881 92. Aggrieved by the above, the assessee filed an application in Form 35A with the Dispute Resolution Panel (DRP) along with the objections to the draft assessment order issued by the Assessing Officer. 93. The Dispute Resolution Panel by its directions dated November 22, 2013 directed the Assessing Officer to allow the revised claim made on account of sales Tax remission and also the assessee's claim under section 80-IA. However, with regard to the transfer pricing adjustment, it directed the Assessing Officer to consider an arm's length interest rate of 11 per cent. as opposed to 15 per cent. proposed by the Assessing Officer. 94. Pursuant to the directions of the Dispute Resolution Panel the Assessing Officer by his fair order of assessment dated January 30, 2014, allowed the revis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g manufacturing such article or thing has to be based on the marker 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 that in the given circumstances, there are exceptional difficulties in computing the profits and gains of the eligible business by applying the main provisions of section 80- IA(8) of the Act and Therefore, the proviso to section 80-IA(8) of the Act would apply and the Assessing Officer 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 Assessing Officer on this issue and directing the Assessing Officer to determine the profits and gains of the undertaking generating power on a reasonable basis after affording the assessee opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive received on account of sales Tax deferral/remission from block of assets and hence disallowing depreciation on that block of asset. 4b. The impugned order is invalid as it is contrary to directions of Dispute Resolution Panel. 4c. Pursuant to disallowance of depreciation on original cost of asset, the learned Assessing Officer has erred in further disallowing the depreciation on that block of asset including cascading effect on the depreciation disallowed by the Assessing Officer for the previous assessment years (assessment year 2003-04 to assessment year 2006- 07) which resulted in a total disallowance of ₹ 74,03,138. 4d. Without prejudice to the above, that on the facts and circumstances of the case, the impugned order erred in not considering the fact that the incentive was not granted for acquisition of fixed assets but for promoting industries in the State of West Bengal and hence could not be reduced from the written down value of assets. 4e. Without prejudice to the above, the impugned order erred in adjusting the incentive received from the written down value of the block of assets thereby contradicting sub-section (6) of section 43 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n relation to the international transactions of corporate guarantee provided by the appellant for loans availed of by its associated enterprises. 3b. The impugned order erred in considering that the provisioning of corporate guarantees by the appellant to its associated enterprises is an international transaction as per section 92B of the Act. The impugned order further erred by not considering the fact that the abovementioned transaction falls outside the ambit of international transaction under section 92B(1) of the Act since it does not have any bearing on the appellant's profits, income, losses or assets. 3c. The impugned order erred in holding that the provision of corporate guarantees by the appellant without charging any interest has to be benchmarked without appreciating that such transaction is not required to be benchmarked considering the facts of the appellant's case. 3d. The impugned order is erroneous to the extent it does not consider the fact that the appellant has not borne any cost relating to corporate guarantee and neither its funds have been used by the associated enterprise. 3e. Without prejudice to the above, the impugned order als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the credit spread part of the arm's length price of loan provided by the assessee to its associated enterprise should be 3 per cent. per annum in line with the Safe Harbour Rules issued by the Government, when these rules can only be applied in case of eligible assessees who opt for it and in case of other assessees, the normal rules for determining the arm's length price still apply. 4. Without prejudice to the above grounds, whether on the basis of facts and in law, the learned Dispute Resolution Panel, Kolkata have erred in not holding that SBI BPLR should be taken as the base rate for determining the arm's length price of loan provided by the assessee to its associated enterprise, when they applied the Safe Harbour Rules to the credit spread part of the price of the loan. 5. That the Department craves leave to add, modify or alter any of the grounds of appeal and/or adduce additional evidence at the time of hearing of the case. 105. The aforesaid grounds of appeal can be conveniently decided together with ground No. 2 raised by the assessee in its appeal, which reads as follows : 2. Adjustment in relation to the international transaction for int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the same are admitted for adjudication. These grounds of appeal are identical to ground Nos. 6 to 9 raised by the Revenue in its appeal IT(SS) No. 57/Kol/14 for the assessment year 2006-07 and ground No. 2 raised by the assessee in its appeal IT(SS) No. 50/Kol/2014 for the assessment year 2006-07 and arise under identical facts and circumstances. For the reasons given while deciding identical grounds in the assessment year 2006-07, we dismiss additional grounds of appeal of the Revenue, and dismiss ground No. 2(b) and (c) and (g) raised by the assessee and partly allow ground No. 2(a), (d), (e) and (f) raised by the assessee. 106. IT(SS.) No. 51/Kol/2014 (assessee's appeal for assessment year 2007-08) 107. Many of the grounds raised by the assessee in its appeal have already been decided while deciding the appeal of the connected grounds of appeal of the Revenue. The remaining grounds of appeal in the assessee's appeal will be dealt with now. Ground No. 1 raised by the assessee is general in nature and calls for no specific adjudication. Ground Nos. 5 and 6 raised by the assessee in its appeal reads as follows : 5. Short credit for Tax deducted at sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008-09 is concerned, the assessee had filed return of income under section 139(1) of the Act declaring total income of ₹ 47,74,58,531. There was no assessment of total income by the Assessing Officer pursuant to the return filed by the assessee. Search and seizure operation under section 132 of the Act was conducted in the business premises of the assessee on March 19, 2009. Since there was no earlier assessment in pursuance of the return of income filed by the assessee, the scope of proceedings under section 153A of the Act would be to assess the total income of the assessee for the relevant assessment year. The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the total income of the relevant assessment year in separate assessment order. In other words there will be only one assessment order in respect of each of this assessment year in which both the disclosed and the undisclosed income would be brought to Tax . 112. With this background, we shall now proceed to discuss the various issues that arise f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance under section 14A. 116. Pursuant to the directions of the Dispute Resolution Panel the Assessing Officer by his fair order of assessment dated January 30, 2014, allowed the revised claim on account of sales Tax incentive. However, in doing so, he reduced the said amount from the block of fixed assets and accordingly, the depreciation claim was reduced by an amount of ₹ 1,05,33,845. Further, he added a sum of ₹ 1,48,25,289 on account of transfer pricing adjustment. 117. Aggrieved by the aforesaid, both the assessee and the Department are in appeal before the Tribunal. IT(SS.) No. 59/Kol/2014 (Revenue's appeal for assessment year 2008-09) 118. Ground Nos. 1 and 2 raised by the Revenue reads as follows : 1. That on the facts and circumstances of the case and in law learned members of the Dispute Resolution Panel, Kolkata Bench, erred, in deleting the addition of ₹ 1,28,71,576 made on account of disallowance under section 80-IA for the assessment year 2008-09 applying the ratio of the decision of the jurisdictional High Court in the cases of CIT v. Kanoria Chemicals and Industries Ltd. ignoring that there was a decision of apex c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the Assessing Officer on this issue and directing the Assessing Officer to determine the profits and gains of the undertaking generating power on a reasonable basis after affording the assessee opportunity of being heard. The discretion given to the Assessing Officer under the proviso to section 80-IA(8) is not a subjective satisfaction but an objective one and Therefore, the reasonableness of the action of the Assessing Officer should be justifiable. With these observations, we allow the relevant ground of appeal of the Revenue for statistical purpose. With similar observations and directions, we allow the relevant ground of appeal of the Revenue for statistical purpose. 120. Ground Nos. 3 to 5 raised by the Revenue reads as follows : 3. The learned members Dispute Resolution Panel, Kolkata Bench in law and in the facts and circumstances of the case erred, in accepting the assessee's claim made through revised computation other than by filing revised return that subsidies received on account of sales Tax remission/deferral and industrial promotion assistance are capital subsidy and ignoring the apex court's decision in the case of Goetze (India) Ltd. v. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce could not be reduced from the written down value of assets. 5e. Without prejudice to the above, the impugned order erred in adjusting the incentive received from the written down value of the block of assets thereby contradicting sub-section (6) of section 43 of the Act, which lays down the specific adjustments that can be made to the written down value of the block of assets. 122. The facts and circumstances under which the aforesaid grounds arise for consideration are identical to ground Nos. 3 to 5 raised by the Revenue in IT(SS) No. 57/Kol/2014 for the assessment year 2006-07 and ground No. 4 raised by the assessee in IT(SS) No. 50/Kol/2014 for the assessment year 2006-07. For the reasons given while deciding the relevant grounds of appeal in the assessment year 2006-07, we dismiss grounds 3 to 5 raised by the Revenue and allow ground No. 5 raised by the assessee. 123. Ground Nos. 6 and 7 raised by the Revenue in its appeal reads as follows : 6. The learned members Dispute Resolution Panel, Kolkata Bench in law and in the facts and circumstances of the case erred in accepting the assessee's claim made through revised computation other than by filing rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Under the Kyoto Protocol, the caps or quotas for Greenhouse gases for the developed countries are known as assigned amounts and are listed in Annexure B. The quantity of the initial assigned amount is denominated in individual units, called assigned amount units (AAUs), each of which represents an allowance to emit one metric tonne of carbon-di-oxide equivalent, and these are entered into the country's national registry. In turn, these countries set quotas on the emissions, of installations run by local business and other organisations, generically termed 'operators'. Countries manage this through their national registries, which are required to be validated and monitored for compliance by the UNFCCC. Each operator has an allowance of credits, where each unit gives the owner the right to emit one metric tonne of carbon-di-oxide or other equivalent greenhouse gas. Operators that have not used up their quotas can sell their unused allowances as carbon credits, while businesses that are about to exceed their quotas can buy the extra allowances as credits, privately or on the open market. As demand for energy grows over time, the total emissions must still stay within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to improve world atmosphere and environment reducing carbon, heat and gas emissions. The entitlement earned for carbon credits is a capital receipt and cannot be Taxed as a revenue receipt. It is not generated or created due to carrying on business but it is accrued due to world concern . It has been made available assuming character of transferable right or entitlement only due to world concern. The source of carbon credit is world concern and environment. Due to that the assessee gets a privilege in the nature of transfer of carbon credits. Thus, the amount received for carbon credits has no element of profit or gain and it cannot be subjected to Tax in any manner under any head of income'. 128. The Assessing Officer rejected the claim of the assessee for the reason that the claim was made without filing a valid revised return of income and Therefore, cannot be entertained. The Dispute Resolution Panel however held that a claim could be made by the assessee without filing a valid return of income. The Dispute Resolution Panel further held that the sum in question cannot be brought to Tax and that the same was capital receipt not chargeable to Tax. Aggrieved by the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal, which reads as follows : 2. Adjustment in relation to the international transaction for interest-free loan provided to its associated enterprises. 2a. In the facts and in the circumstances of the case, the impugned order erroneously rejected the transfer pricing documentation maintained by the appellant in accordance with the provisions of the Act read with the Income-Tax Rules, 1962 ('Rules') and makes, an adjustment, on the basis of Cost of Funds + Credit Spread (3 per cent.) in relation to the international transactions of interest-free loan provided to its associated enterprise ('AE'). 2b. The impugned order erred in holding that the loans advanced by the appellant to its associated enterprise without any interest have to be benchmarked without appreciating that such transaction is not required to be benchmarked considering the facts of the appellant's case. 2c. Without prejudice to the above, the impugned order, erred in confirming the comparable uncontrolled price ('CUP') method applied by the learned Transfer Pricing Officer for determining the arm's length price (ALP), i.e., interest to be charged for the loan tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady been decided while deciding the appeal of the connected grounds of appeal of the Revenue. The remaining grounds of appeal in the assessee's appeal will be dealt with now. Ground No. 1 raised by the assessee is general ground calling for no specific adjudication. Ground No. 3 raised by the assessee reads as follows : 3. Adjustment in relation to international transaction of corporate guarantee provided by the appellant to its associated enterprise 3a. The impugned order is contrary to law, facts and circumstances of the case in so far as it makes an adjustment of ₹ 1,43,73,568 in relation to the international transactions of corporate guarantee provided by the appellant for loans availed of by its associated enterprises. 3b. The impugned order erred in considering that the provisioning of corporate guarantees by the appellant to its associated enterprises is an international transaction as per section 92B of the Act. The impugned order further erred by not considering the fact that the abovementioned transaction falls outside the ambit of international transaction under section 92B(1) of the Act since it does not have any bearing on the appellant's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nouncements of higher authorities where it is held that rule 8D of the Income-Tax Rules will not be triggered automatically without stating valid reasons for rejecting the disallowance, as made by the appellant under section 14A of the Act. 4c. Without prejudice to the above, the impugned order erred in not accepting the appellant's claim that an amount of ₹ 57,57,210 only has been incurred towards earning the exempt income for the assessment year 2008-09 even though the same had suo motu been disallowed by the appellant in the return of income filed for the assessment year 2008-09. 4d. On the facts and in the circumstances of the case, impugned order was not justified in not appreciating the fact that the disallowance under section 14A of the Act of ₹ 57,57,210 considered by the appellant in its return of income is based on a reasonable basis and has been worked out on a rational manner and specific details of such expenses had been filed by the appellant during the course of the assessment proceedings. 4e. In the facts and in the circumstances of the case and in law, the impugned order erred in denying the appellant's contention that for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accounting charges 1,02,000 6 Other overheads 12,00,000 Total 57,57,210 The assessee further claimed that the expenses amounting to ₹ 26,20,51,801 debited in the profit and loss account as interest expenses was towards the following loans which were borrowed for specific purpose of business and Therefore, was not and could not be used for the purpose of making investments which yielded the Tax-free income : Sl. No. Particulars Amount 1. On debentures 10,07,41,390 2. On term loan 13,66,19,458 3. On others - 3A Overdraft interest 44,20,638 3B Bill discounting 1,28,96,328 3C Packing credit 4,87,68,950 3D Short-term loans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance under rule 8D(2)(iii) of the Rules : 0.5per cent. of average investments = 136,53,38,500 x 0.50 per cent. = ₹ 68,26,629 (B) (A) + (B) above = ₹ 28,40,449 + ₹ 68,26,629 = ₹ 96,67,141. 139. The Dispute Resolution Panel confirmed the disallowance made by the Assessing Officer. Aggrieved by the aforesaid directions of the Dispute Resolution Panel which was incorporated by the Assessing Officer in the fair order of assessment, the assessee has raised ground No. 4 before the Tribunal. 140. Though elaborate submissions were made by the learned counsel for the assessee on the aforesaid addition, we deem it sufficient to deal with the major issues raised by the assessee on the disallowance under section 14A of the Act. The first issue that requires consideration is as to whether in computing the disallowance under section 14A of the Act read with rule 8D2(ii) and (iii) of the Rules, the Assessing Officer while adopting the average value of investments has to consider only those investments which yielded dividend income during the previous year. On the above issue the Hon ble Income-Tax Appellate Tribunal, Kolkata in the case of REI Agro Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of arriving at disallowance under rule 8D(2)(iii). Based on the aforesaid decisions it was submitted that no disallowance under section 14A can be made on investments made for strategic business purposes. It was submitted that investment by the assessee in Lanco Industries was engaged in the same line of business as that of the assessee and the given investments were made to financially assist the company in strengthening its business, investment in Lanco Industries was strategic business purposes and not for the purposes of earning dividend income or capital gains. It was also submitted that investments made by the assessee in Electrosteel (formerly Electrosteel Integrated) was also a strategic purpose and was considered as not includible for arriving at the average value of investments by the Assessing Officer himself in the assessment for the assessment years 2008-09 to 2010-11 but was considered for disallowance in the assessment year 2011-12, showing conflicting stand taken by the Assessing Officer. 142. We have considered the aforesaid submissions of the learned counsel for the assessee and are of the view that in the light of the decisions referred to abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 under section 14A of the Act to the Assessing Officer for a fresh consideration in the light of the directions given in paragraphs 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 ground No. 4 is treated as allowed for statistical purpose. 146. Ground Nos. 6 and 7 raised by the assessee in its appeal reads as follows: 6. Short credit for Tax deducted at source 6a. That on the facts and circumstances of the case, the learned Assessing Officer has erred in not abiding by the directions of the Dispute Resolution Panel by not verifying and hence not allowing the credit for Tax deducted at source (TDS) of ₹ 1,09,27,982 for the subject assessment year. 6b. In view of the above, the impugned order has erred in by mentioning that the Instruction No. 5 of 2013 [F. No. 275/03/2013- IT(B)], dated July 8, 2013 of the Central Board of Direct Taxes has been co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn filed by the assessee. Search and seizure operation under section 132 of the Act was conducted in the business premises of the assessee on March 19, 2009. Since there was no earlier assessment in pursuance of the return of income filed by the assessee, the scope of proceedings under section 153A of the Act would be to assess the total income of the assessee for the relevant assessment year. The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the total income of the relevant assessment year in separate assessment order. In other words there will be only one assessment order in respect of each of this assessment year in which both the disclosed and the undisclosed income would be brought to Tax . 151. With this background, we shall now proceed to discuss the various issues that arise for consideration in the appeals by the Revenue and the assessee. As far as the assessment year 2009-10 is concerned a notice under section 153A was issued by the Assessing Officer. In response to the same the assessee filed a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l confirmed the disallowance under section 14A. 155. Pursuant to the directions of the Dispute Resolution Panel the Assessing Officer by his fair order of assessment dated January 30, 2014, allowed the revised claim on account of sales Tax incentive. However, in doing so, he reduced the said amount from the block of fixed assets and accordingly, the depreciation claim was reduced by an amount of ₹ 2,05,05,142. Further, he added a sum of ₹ 2,92,99,575 on account of transfer pricing adjustment. 156. Aggrieved by the aforesaid, both the assessee and the Department are in appeal before the Tribunal. IT(SS) No. 60/Kol/2014 (Revenue's appeal for the assessment year 2009- 10) 157. Ground Nos. 1 and 2 raised by the Revenue reads as follows : 1. That on the facts and circumstances of the case and in law learned members of the Dispute Resolution Panel, Kolkata Bench erred in deleting the addition of ₹ 1,28,50,152 made on account of disallowance under section 80-IA for the assessment year 2009-10 applying the ratio of the decision of the jurisdictional High Court in the cases of CIT v. Kanoria Chemicals and Industries Ltd. ignoring, that there was a deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the order of the Assessing Officer on this issue and directing the Assessing Officer to determine the profits and gains of the undertaking generating power on a reasonable basis after affording the assessee opportunity of being heard. The discretion given to the Assessing Officer under the proviso to section 80-IA(8) is not a subjective satisfaction but an objective one and Therefore, the reasonableness of the action of the Assessing Officer should be justifiable. With these observations, we allow the relevant ground of appeal of the Revenue for statistical purpose. With similar observations and directions, we allow the relevant ground of appeal of the Revenue for statistical purpose. 159. Ground Nos. 3 to 5 raised by the Revenue reads as follows : 3. The learned members Dispute Resolution Panel, Kolkata Bench in law and in the facts and circumstances of the case erred in accepting the assessee's claim made through revised computation other than by filing revised return that subsidies received on account of sales Tax remission/deferral and industrial promotion assistance are capital subsidy and ignoring the apex court's decision in the case of Goetze (India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cascading depreciation in the assessment year 2007-08, consequential errors have also been made for subsequent assessment years (assessment year 2008-09 and assessment year 2009-10). 5e. Without prejudice to the above, that on the facts and circumstances of the case, the impugned order erred in not considering the fact that the incentive was not granted for acquisition of fixed assets but for promoting industries in the State of West Bengal and hence could not be reduced from the written down value of assets. 5f. Without prejudice to the above, the impugned order erred in adjusting the incentive received from the written down value of the block of assets thereby contradicting sub-section (6) of section 43 of the Act, which lays down the specific adjustments that can be made to the written down value of the block of assets. 161. The facts and circumstances under which the aforesaid grounds arise for consideration are identical to ground Nos. 3 to 5 raised by the Revenue in IT(SS) No. 57/Kol/2014 for the assessment year 2006-07 and ground No. 4 raised by the assessee in IT(SS) No. 50/Kol/2014 for the assessment year 2006-07. For the reasons given while deciding the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour of its associated enterprise should be 2 per cent. per annum in line with the Safe Harbour Rules issued by the Government, when these rules are effective from the assessment year 2013-14 only. 10. Whether on the basis of facts and in law, the learned Dispute Resolution Panel, Kolkata have erred in holding that the arm's length price of fee for corporate guarantees stood by the assessee in favour of its associated enterprise should be 2 per cent. per annum in line with the Safe Harbour Rules issued by the Government, when these Rules can only be applied in case of eligible assessees who opt for it and in case of other assessees, the normal rules for determining the arm's length price still apply. 166. The above grounds of appeal can be conveniently decided together with ground No. 3 raised by the assessee in its appeal, which reads as follows : 3. Adjustment in relation to international transaction of corporate guarantee provided by the appellant to its associated enterprise 3a. The impugned order is contrary to law, facts and circumstances of the case in so far as it makes an adjustment of ₹ 1,23,41,739 in relation to the international transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by the assessee by directing the Assessing Officer/Transfer Pricing Officer to adopt 0.5 per cent. as guarantee commission charges in respect of the guarantee provided by the assessee for obtaining the loan by the associated enterprise. 168. The Revenue has raised the following additional grounds of appeal in its appeal. 1. Whether on the basis of facts and in law, the learned Dispute Resolution Panel, Kolkata have erred in holding that the credit spread part of the arm's length price of loan provided by the assessee to its associated enterprise should be 3 per cent. per annum instead of 4 per cent. per annum as determined by the Transfer Pricing Officer. 2. Whether on the basis of facts and in law, the learned Dispute Resolution Panel, Kolkata have erred in holding that the credit spread part of the arm's length price of loan provided by the assessee to its associated enterprise, should be 3 per cent. per annum in line with the Safe Harbour Rules issued by the Government, when these rules are effective from the assessment year 2013-14 only. 3. Whether on the basis of facts and in law, the learned Dispute Resolution Panel, Kolkata have erred in holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed order erred in considering the interest rate on rupee funds for benchmarking the foreign currency loans provided by the appellant to its associated enterprises. 2e. Without prejudice to the above, the impugned order erred in not considering the judicial pronouncement of the higher authorities wherein lower rate of interest has been considered for loan provided to associated enterprises. 2f. Without prejudice to the above, in the facts and in the circumstances of the case, the learned Transfer Pricing Officer and consequently the impugned order erred in misinterpreting the directions of the Dispute Resolution Panel and making an adjustment of ₹ 1,69,57,837 in relation to the international transactions of interest- free loan provided to its associated enterprise ('AE'). The learned Transfer Pricing Officer has erred in interpreting the directions of the Dispute Resolution Panel in respect of cost of funds and has considered the cost of funds at 8 per cent. instead of 7 per cent. 2g. Without prejudice to the above, as per the facts and in the circumstances of the case and in law, the learned Transfer Pricing Officer has erred in computation of total dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-Tax Rules will not be triggered automatically without stating valid reasons for rejecting the disallowance as made by the appellant under section 14A of the Act. 4c. Without prejudice to the above, the impugned order erred in not accepting the appellant's claim that an amount of ₹ 2,700,000 only has been incurred towards earning the exempt income for the assessment year 2009-10 even though the same had suo motu been disallowed by the appellant in the return of income filed for the assessment year 2009-10. 4d. On the facts and in the circumstances of the case, impugned order was not justified in not appreciating the fact that the disallowance under section 14A of the Act of ₹ 2,700,000 considered by the appellant in its return of income is based on a reasonable basis and has been worked out on a rational manner and specific details of such expenses had been filed by the appellant during the course of the assessment proceedings. 4e. In the facts and in the circumstances of the case and in law, the impugned order erred in denying the appellant's contention that for the assessment year 2009-10, certain expenses have been incurred for earning exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3- IT(B)], dated July 8, 2013 of the Central Board of Direct Taxes has been considered while giving credit of prepaid Taxes. 8c. That on the facts and circumstances of the case, the learned Assessing Officer failed to allow the TDS credit where the TDS certificates were submitted with him. 8d. That on the facts and circumstances of the case, the learned Assessing Officer failed to consider that rule 37BA which refers to the availability of credit on the basis of information furnished by the deductor was introduced with effect from April 1, 2009 and hence is not applicable for the assessment year 2008-09. 175. As far as the aforesaid ground of appeal are concerned, the ends of justice would be met, if the Assessing Officer is directed to give effect to the Dispute Resolution Panel's direction by making verification of TDS certificate that may be filed in physical form as well as from details from 26AS, and give credit for Taxes deducted at source. Ground No. 8 is treated as allowed for statistical purpose. 176. Ground No. 6 regarding charging of interest under sections 234B and 234C is purely consequential and the Assessing Officer directed to give consequentia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the Assessing Officer to recompute the excess depreciation. Pursuant to the directions of the Dispute Resolution Panel the Assessing Officer allowed the claim on account of share forfeiture of warrant and retention money. Further, he added a sum of ₹ 3,57,76,551 on account of transfer pricing adjustment and ₹ 1,37,14,761 as excess depreciation. Aggrieved by the aforesaid, both the assessee and the Department is in appeal before the Tribunal. ITA No. 313/Kol/2015 (Revenue's appeal for the assessment year 2010- 11) 181. Ground No. 1 raised by the Revenue reads as follows : 1. That on the facts and circumstances of the case and in law learned members of the Dispute Resolution Panel, Kolkata Bench erred in examining whether the whole amount receivable on the completion of a contract, including any money retained or undisbursed, had accrued to the assessee and was thus its income for the year. 182. In course of assessment, it was explained that in execution of contracts on a turnkey basis, a certain percentage of the total contract amount is retained by the customers as retention money while making payments to the assessee which is payable after a ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue reads as follows : 2. The learned Dispute Resolution Panel erred in law and facts in holding that the price of power as offered by the assessee represented the true market price of power in terms of the particular provisions of section 80-IA(8) or the general provision under section 80A(6). 185. Ground No. 2 is identical to ground No. 1 raised by the Revenue for the assessment year 2006-07. While deciding an identical ground of appeal for the assessment year 2006-07, we have already remitted the issue to the Assessing Officer for fresh consideration. For the reasons stated therein this ground of appeal of the Revenue is treated as allowed for statistical purpose. 186. Ground No. 3 raised by the Revenue reads as follows : 3. That the learned Dispute Resolution Panel failed to appreciate that in the matter of forfeiture of share warrants monies there was arrangement between the assessee and its promoter group companies by which the former gained windfalls under the garb of capital receipts whereas the latter could book capital losses, thus benefiting both sides. 187. The facts with regard to the aforesaid ground of appeal are that the assessee-company had i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are all from the promoter group except those mentioned at Sl. Nos. 6 and 7 of the table mentioned at point No. 1 of the findings. The entities mentioned at 6 and 7 are non-resident entities and have also acted as accommodators for providing such funds to the assessee. 188. Being aggrieved, the assessee filed an application to the Dispute Resolution Panel (DRP) on March 21, 2014. The directions of the Dispute Resolution Panel regarding the same were given vide its order dated November 28, 2014 and read as under : . . . Considering the pronouncement by various judicial authorities including jurisdictional Bench of the Hon ble Tribunal, any receipt on account of a genuine transaction of forfeiture of share warrant cannot be treated as being of revenue nature. However, from perusal of the draft assessment order, it appears that the Assessing Officer has doubts regarding the genuineness of the entire transaction. If transaction was considered by him to be non-genuine, addition would have to be made in the year in which the amount was originally received. In any case, there is no justification for making addition in the year under consideration. The Assessing Officer is accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 67 68.00 5,91,60,000 7. Dtemcor Metals Limited 1,21, 37,146 1 80 81.00 9,83,10,883 4,08,37,146 30,94,70,883 As stated earlier, the assessee considered the aforesaid amount of ₹ 30,94,70,883 received on forfeiture of share warrants as a capital receipt for the assessment year 2010-11 and hence the same was not offered to Tax. The amount received on issue of share warrants do not qualify as business income under the head profits and gains from business or profession since the same has not been received in the ordinary course of carrying on of the business of the company and accordingly, the same cannot be Taxed under the provisions of section 28 of the Act. The main business of the assessee-company comprises of manufacturing of Ductile-Iron ( DI ) spun pipes and cast iron spun pipes. The share warrants are primarily issued for the purposes of raising capital for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umbai Bench of the Income-Tax Appellate Tribunal in Prism Cement Ltd. v. Joint CIT [2006] 285 ITR (AT) 43 (Mumbai) ; [2006] 103 TTJ 63 (Mumbai) held that the amount received by the assessee in lieu of issuance of debentures which were forfeited later on account of non- payment of call money, would assume the character of a capital receipt. Section 41(1) is not attracted and same cannot be treated as deemed business income. It concluded as follows (page 54 of 285 ITR (AT)) : Thus, the earnest money or an advance amount received on account of issuance of NCDs, if forfeited on account of non-payment of call money, the loan liability would only convert into a capital receipt. It would not assume a character of revenue receipt or business receipt because NCDs were not issued in the course of regular business of the assessee as evident from the facts of the case. The assessee's main business is of cement and it was in the process of set up of cement manufacturing plant at Satna during the impugned assessment year. In Asiatic Oxygen Ltd. v. Deputy CIT [1994] 49 ITD 355 (Cal), the Hon ble Kolkata Tribunal held that the amount forfeited from shareholders on default of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to change of circumstances. We may also add that the Assessing Officer has alleged that the assessee was indulging in Tax evasion but has not brought any material on record to substantiate his allegation. We are of the view that the Assessing Officer has to substantiate that there has been Tax avoidance or Tax evasion in terms of who has avoided the Tax and in what manner before laying the allegation. There has to be some evidence to prove that the assessee has resorted to some kind of Tax avoidance to make a clandestine gain. On the other hand, the assessee has clearly justified the non-conversion of warrants by showing that the shares were trading at a lower price and accordingly no prudent investor would opt for the conversion. The issue of share warrants is as per the defined guidelines and the assessee does not have any control over the same. Its pricing is also certified by a chartered accountant. Accordingly, the specific promoter companies (i.e., the 5 companies mentioned earlier) and non-promoters (i.e, PGS Invest Limited and Stemcor Metals Limited) were issued share warrants at ₹ 76, ₹ 68 and ₹ 81 per share warrant respectively (Re. 1 being face value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its associated enterprise ('AE'). 2b. The impugned order erred in holding that the loans advanced by the appellant to its associated enterprise without any interest have to be benchmarked without appreciating that such transaction is not required to be benchmarked considering the facts of the appellant's case. 2c. Without prejudice to the above, the impugned order erred in confirming the comparable uncontrolled price ('CUP') method applied by the learned Transfer Pricing Officer for determining the arm's length price (ALP), i.e., interest to be charged for the loan transaction of the appellant with its associated enterprises. 2d. Without prejudice to the above, the impugned order erred in considering the interest rate on rupee funds for benchmarking the foreign currency loans provided by the appellant to its associated enterprises. 2e. Without prejudice to the above, the impugned order erred in not considering the judicial pronouncement of the higher authorities wherein lower rate of interest has been considered for loan provided to associated enterprises. 2f. Without prejudice to the above, in the facts and in the circumstances o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of corporate guarantee provided by the appellant for loans availed of by its associated enterprises. 3b. The impugned order erred in considering that the provisioning of corporate guarantees by the appellant to its associated enterprises is an international transaction as per section 92B of the Act. The impugned order further erred by not considering the fact that the abovementioned transaction falls outside the ambit of international transaction under section 92B(1) of the Act since it does not have any bearing on the appellant's profits, income, losses or assets. 3c. The impugned order erred in holding that the provision of corporate guarantees by the appellant without charging any interest has to be benchmarked without appreciating that such transaction is not required to be benchmarked considering the facts of the appellant's case. 3d. The impugned order is erroneous to the extent it does not consider the fact that the appellant has not borne any cost relating to corporate guarantee and neither its funds have been used by the associated enterprise. 3e. Without prejudice to the above, the impugned order also erred in not considering the appellant&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the impugned order erred in not accepting the appellant's claim that an amount of ₹ 44,12,426 only has been incurred towards earning the exempt income for the assessment year 2010-11 even though the same had suo motu been disallowed by the appellant in the return of income filed for the assessment year 2010-11. 5d. On the facts and in the circumstances of the case, impugned order was not justified in not appreciating the fact that the disallowance under section 14A of the Act of ₹ 44,12,426 considered by the appellant in its return of income is based on a reasonable basis and has been worked out on a rational manner and specific details of such expenses had been filed by the appellant during the course of the assessment proceedings. 5e. In the facts and in the circumstances of the case and in law, the impugned order erred in denying the appellant's contention that for the assessment year 2010-11, certain expenses have been incurred for earning exempt income as envisaged by rule 8D of the Rules which has also been suo motu disallowed by the appellant. The learned Assessing Officer has erred in wrongly applying rule 8D since no speaking order was issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In view of the above, the impugned order has erred in by mentioning that the Instruction No. 5 of 2013 [F. No. 275/03/2013- IT(B)], dated July 8, 2013 of the Central Board of Direct Taxes has been considered while giving credit of prepaid Taxes. 8c. That on the facts and circumstances of the case, the learned Assessing Officer failed to allow the TDS credit where the TDS certificates were submitted with him. 202. As far as the aforesaid grounds of appeal are concerned, the ends of justice would be met, if the Assessing Officer is directed to give effect to the Dispute Resolution Panel's direction by making verification of TDS certificate that may be filed in physical form as well as from details from 26AS, and give credit for Taxes deducted at source. Ground No. 8 is treated as allowed for statistical purpose. 203. Ground No. 6 regarding charging of interest under sections 234B and 234C is purely consequential and the Assessing Officer is directed to give consequential effect. Ground No. 7 regarding initiating of penalty proceedings under section 271(1)(c) of the Act cannot be subject-matter of this appeal and hence dismissed. 204. In the result, the appeal by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of arm's length price of interest-free loan to be made at ₹ 3,11,07,323 and further directed addition of a sum of ₹ 2,06,71,597 on account of arm's length price of corporate guarantee by considering adjustment of 3 per cent. made by the Transfer Pricing Officer to be on a higher side and reducing the same to 2 per cent. Further, the Dispute Resolution Panel confirmed the disallowance of ₹ 3,58,26,657 over and above disallowance made by the assessee under section 14A of the Income-Tax Act, 1961 made by the Assessing Officer. With respect to subsidy received by the assessee in the form of sales Tax remission and IPA (industrial promotion assistance) of ₹ 7,53,90,858, the Dispute Resolution Panel held the same to be revenue in nature. Hence the disallowance of depreciation on account of sales Tax subsidy was reduced from ₹ 2,24,68,490 to ₹ 1,07,97,185 and with regard to the assessee's claim of additional depreciation in the revised return of income, the Dispute Resolution Panel confirmed the Assessing Officer's decision in disallowing additional depreciation of ₹ 50,50,598. Pursuant to the directions of the Dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... associated enterprises 2a. In the facts and in the circumstances of the case, the impugned order erroneously rejected the transfer pricing documentation maintained by the appellant in accordance with the provisions of the Act read with the Income-Tax Rules, 1962 ('Rules') and makes an adjustment of ₹ 3,11,07,323 on the basis of cost of funds + credit spread (3 per cent.) in relation to the international transactions of interest-free loan provided to its associated enterprise ('AE') : 2b. The impugned order erred in holding that the loans advanced by the appellant to its associated enterprise without any interest have to be benchmarked without appreciating that such transaction is not required to be benchmarked, considering the facts of the appellant's case. 2c. Without prejudice to the above, the impugned order erred in confirming the comparable uncontrolled price ('CUP') method applied by the learned Transfer Pricing Officer for determining the arm's length price (ALP), i.e., interest to be charged for the loan transaction of the appellant with its associated enterprises. 2d. Without prejudice to the above, the impugned or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi have erred in holding that the arm's length price of fee for corporate guarantees stood by the assessee in favour of its associated enterprises should be 2 per cent. per annum in line with the Safe Harbour Rules issued by the Government, when these rules are effective from assessment year 2013-14 only. 7. Whether on the basis of facts and in law, the learned Dispute Resolution Panel, New Delhi have erred in holding that the arm's length price of fee for corporate guarantees stood by the assessee in favour of its associated enterprises should be 2 per cent. per annum in line with the Safe Harbour Rules issued by the Government, when these rules can only be applied in case of eligible assessees who opt for it and in case of other assessees, the normal rules for determining the arm's length price still apply. 212. The aforesaid ground of appeal can be conveniently decided together with ground No. 3 raised by the assessee in its appeal, which reads thus : 3. Adjustment in relation to international transaction of corporate guarantee provided by the appellant to its associated enterprise 3a. The impugned order is contrary to law, facts and circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while deciding identical issue in assessment year 2006-07, we dismiss ground Nos. 5 to 7 raised by the Revenue and partly allow ground No. 3 raised by the assessee by directing the Assessing Officer/Transfer Pricing Officer to adopt 0.5 per cent. as guarantee commission charges in respect of the guarantee provided by the assessee for obtaining the loan by the associated enterprise. ITA No. 66/Kol/2016 (assessee's appeal for the assessment year 2011-12) 214. Many of the grounds raised by the assessee have already been decided while deciding the connected ground of appeal of the Revenue. The remaining grounds are to be decided now. Ground No. 1 is general in nature and calls for no specific adjudication. Ground Nos. 4 and 5 raised by the assessee reads as follows : 4. Disallowance made on account of incentive received, in the form of sales Tax remission and industrial promotion assistance ('IPA'), considering the same as revenue receipt 4a. On the facts and circumstances of the case, the learned Dispute Resolution Panel has erred in not appreciating the merits in the appellant's contention that subsidy received on account of sales Tax remission and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer in reducing the depreciation claim of the assessee by reducing the written down value on which depreciation was to be allowed by the amount of subsidy in question, was not proper. For the reasons stated therein, we allow ground Nos. 4 and 5 raised by the assessee. 216. Ground No. 6 raised by the assessee reads as follows : 6. Disallowance on account of additional depreciation under section 32(1)(ii) of the Act 6a. That on the facts and circumstances of the case, the learned Assessing Officer erred in not allowing the claim of the appellant that the balance additional depreciation amounting to ₹ 50,50,598 on the assets which were put to use for less than 180 days in the immediately preceding assessment year (i.e., assessment year 2010-11) can be claimed in the subject assessment year. 6b. The impugned order erred in disregarding the fact that carry forward of unclaimed additional depreciation of immediately preceding assessment year (i.e. assessment year 2010-11) is not restricted under the provisions of the Act. 6c. The impugned order erred in holding that additional depreciation being claimed by the appellant is specific to the period concerned and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mediately preceding assessment year i.e. 2010-11 is restricted under the provisions of the Income-Tax Act, 1961 and that such carry forward of the balance additional depreciation, not claimed in the year of acquisition and installation of the plant or machinery for not being put to use for 180 days or more can be carried forward to the next year only with effect from the assessment year 2016-17 in view of the amendment to the Income-Tax Act, 1961 brought about by the Finance Bill, 2015 thereby applying prospectively and not retrospectively. Aggrieved by the order of the Dispute Resolution Panel the assessee has raised ground No. 6 before the Tribunal. 218. We have heard the rival submissions. The relevant provisions of section 32 of the Act reads as follows : 32. Depreciation.-(1) In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets ; (ii) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrialisation, by either setting up a new industrial unit or by expanding the existing unit by purchase of new plant and machinery, and putting it to use for the purpose of business. The proviso to clause (ii) of the said section makes it clear that only 50 per cent. of the 20 per cent. would be allowable, if the new plant and machinery so acquired is put to use for less than 180 days in a financial year. However, it nowhere restricts that the balance 10 per cent. would not be allowed to be claimed by the assessee in the next assessment year. The language used in clause (iia) of the said section clearly provides that a further sum equal to 20 per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) . The word shall used in the said clause is very significant. The benefit which is to be granted is 20 per cent. additional depreciation. By virtue of the proviso referred to above, only 10 per cent. can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10 per cent. additional deduction can be availed of in the subsequent as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der clause (ii) of section 32(1). This additional allowance under section 32(1)(iia) is made available as certain percentage of actual cost of new machinery and plant acquired and installed. This provision has been directed towards encouraging industrialisation by allowing additional benefit to the setting up of new industrial undertaking making or for expansion of the industrial undertaking by way of making more investment in capital goods. Thus, these are incentives aimed to boost new investments in setting up and expanding the units. The proviso to section 32(1)(iia) restricts the benefit in respect of following : 'Provided that no deduction shall be allowed in respect of- (A) Any machinery or plant which, before its installation by the assessee was used either within or outside India by any other person; or (B) Any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house ; or (C) Any office appliances or road transport vehicle ; or (D) Any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant and machinery in the year of acquisition. In section 32(1)(iia) the expression used is shall be allowed . Thus the assessee had earned the benefit as soon as he had purchased the new plant and machinery in full but it is restricted to 50 per cent. in that particular year on account of period of usages. Such restrictions cannot divest the statutory right. Law does not prohibit that balance 50 per cent. will not be allowed in succeeding year. The extra depreciation allowable under section 32(1)(iia) is an extra incentive which has been earned and calculated in the year of acquisition but restricted for that year to 50 per cent. on account of usage. The so earned incentive must be made available in the subsequent year. The overall deduction of depreciation under section 32 shall definitely not exceed the total cost of plant machinery. In view of this matter, we set aside the orders of the authorities below and direct to extend the benefit. (ii) ITAT, Ahmedabad in the case of ITO v. Aswini Industries, ITA No. 140/Ahd/2013. (iii) ITAT, Kolkata in the case of Deputy CIT v. Century Enka Ltd., (ITA No. 665/Kol/2012, dated May 18, 2016) and Century Enka Ltd. v. Deputy CIT (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tu been disallowed by the appellant in the return of income filed for assessment year 2011-12. 7d. On the facts and in the circumstances of the case, impugned order was not justified in not appreciating the fact that the disallowance under section 14A of the Act of ₹ 19,09,495 considered by the appellant in its return of income is based on a reasonable basis and has been worked out on a rational manner and specific details of such expenses had been filed by the appellant during the course of the assessment, proceedings. 7e. In the facts and in the circumstances of the case and in law, the impugned order erred in denying the appellant's contention that for the assessment year 2011-12, certain expenses have been incurred for earning exempt income as envisaged by rule 8D of the Rules which has also been suo motu disallowed by the appellant. The learned Assessing Officer has erred in wrongly applying rule 8D since no speaking order was issued to the appellant stating why the learned Assessing Officer is dissatisfied with the disallowance made by the appellant. In doing so, the learned Assessing Officer has not appreciated that the provisions of section 14A mandate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Ground No. 9 regarding initiating of penalty proceedings under section 271(1)(c) of the Act cannot be subject-matter of this appeal and hence dismissed. 226. In the result, the appeal by the Revenue in ITA No. 124/Kol/2016 is dismissed and that by the assessee in ITA No. 66/Kol/2016 is partly allowed. 227. In the result, all the appeals are decided as follows : (i) In the result, the appeals of the assessee for assessment year 2003-04, 2004-05 and 2005-06 i.e., IT(SS) Nos. 47 to 49/Kol/2014 are allowed to the extent indicated above and the appeals by the Revenue IT(SS) Nos. 54 to 56/Kol/2014 are dismissed. (ii) Assessment year 2006-07 : In the result, the appeal by the Revenue IT(SS) No. 57/Kol/2014 is partly allowed for statistical purpose and that by the assessee IT(SS) No. 50/Kol/2014 is partly allowed. (iii) Assessment year 2007-08 : In the result, the appeal by the Revenue IT(SS) No. 58/Kol/2014 is partly allowed for statistical purpose and that by the assessee IT(SS.) No. 51/Kol/2014 is partly allowed. (iv) Assessment year 2008-09 : In the result, the appeal by the Revenue IT(SS) No. 59/Kol/2014 is partly allowed for statistical purpose and that b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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