2021 (11) TMI 1 - AT - Income Tax

Deduction u/s 80IA - benchmarking analysis was performed by the assessee to determine the ALP of power transferred by the CPP to the manufacturing unit - DRP held transfer pricing adjustment made by the TPO is distinct from claim of deduction u/s 80-IA and any transfer pricing adjustment would result in enhancement of business income of the assessee and not reduction in the claim made u/s 80-IA - HELD THAT - For the AY 2016-17 the assessee had disclosed Gross Total Income before setting-off of brought forward business losses. After setting off the losses brought forward from the earlier years the Gross Total Income in terms of Section 80A of the Act was NIL. Accordingly the assessee could not have claimed any deduction under Part-C of Chapter VI-A of the Act because as per the provisions of Section 80A(2) the deduction permissible under Chapter VI-A cannot exceed the gross total income which in the present case was NIL. Hence when no deduction has been claimed u/s 80-IA(4)(ii) of the Act then even if any transfer pricing adjustment is made to the transactions of the eligible unit referred to u/s 80-IA(8)/(10) the same will not have any bearing on the computation of total income as the revised claim u/s 80-IA of the Act even after the transfer pricing adjustment would continue to remain NIL. The manner of computation of income had the downward adjustment made u/s 80-IA(8)/(10) of the Act been upheld as explained by the assessee in the above illustration is thus held to be justified and in accordance with law. We agree with assessee that the ALP determined u/s 92BA is in the context of Section 80-IA(8) of the Act and thus the consequent transfer pricing adjustment if any has to be made to the quantum of the eligible deduction u/s 80-IA of the Act and not to the Business Income as held by the Ld. DRP. In the garb of making downward adjustment to the quantum of profits of the CPP eligible for deduction the AO cannot artificially enhance the returned income by making adjustment which is in excess of the deduction claimed under Chapter VI-A i.e. Section 80-IA of the Act. Such action is held to be unwarranted. Disallowance of club expenses - As per AO such expenses incurred by the company were personal in nature and he therefore disallowed it u/s 37(1) - HELD THAT - For subscription fees paid to different trade associations such as Indian Paper Mfg Association Indian Chamber of Commerce Tappi Journal etc. which are ex28 facie for business purposes. We do not find any infirmity in the deduction claimed for the aforesaid expenses and accordingly allow the same. For expenses comprise of annual membership fees of clubs paid for the Directors of the company. It is noted that the Hon ble Supreme Court in the case of CIT Vs United Glass Mfg. Co. Ltd. 2012 (9) TMI 914 - SUPREME COURT has held that the club membership fees for employees incurred by the assessee is business expense u/s 37. Assessee has also demonstrated that these club expenses were considered as non-monetary perquisite in the hands of the Directors and it formed part of their respective taxable salaries. The copies of the relevant Forms 16 of the Directors are available at Pages 129 to 136 of the paper book. Hence the club expenses borne by the assessee was in sum and substance in the nature of employees compensation cost which was rightly claimed as deduction u/s 37 of the Act. - Decided in favour of assessee. Additional claim for deduction of entry tax paid under protest during the relevant year u/s 43B of the Act which had not been claimed in the return of income - HELD THAT - AR pointed out that although the AO had categorically observed that the amount of Rs. 62, 90, 188/- was allowable u/s 43B of the Act but while computing the taxable income separate deduction in relation thereto had not been granted by him. The limited prayed of the Ld. AR of the assessee is to direct the AO to follow his own observations and allow deduction for the entry tax paid in the computation of total income. DR appearing on behalf of the Revenue fairly stated that this appears to be an apparent mistake committed by the AO in the computation of assessable income. Having regard to the foregoing we accordingly direct the AO to allow deduction for entry tax aid by the assessee during the year while assessing the total income for the relevant year. This ground therefore stands allowed. Disallowance of mandi fees u/s 43B - HELD THAT - Hon ble Apex Court in the case of NTPC Vs CIT 1996 (12) TMI 7 - SUPREME COURT and Goetze (India) Ltd. 2006 (3) TMI 75 - SUPREME COURT has held that that if a claim which is available in law is not raised either inadvertently or an account of erroneous plea of complex legal position in the return of income such a relief cannot be shut up for all the times to come merely because it is raised for the first time in appellate proceedings in absence of a revised return filed before the Assessing Officer. For the aforementioned reasons we therefore admit this ground raised by the assessee. In the facts of the present case the assessment year in question is AY 2016-17. Having regard to the provisions of Section 43B(1)(a) of the Act as applicable to this AY we hold that fees is indeed included within the fold of Section 43B of the Act and is therefore allowable only on actual payment basis. For the reasons as aforesaid this ground of appeal therefore stands dismissed. Direction to AO for re-computation of the set off and carry forward of unabsorbed business loss and depreciation brought forward from the earlier years - HELD THAT - In terms of the above findings we direct the AO to re-compute the set off and carry forward of unabsorbed business loss and depreciation brought forward from the earlier years while giving effect to this appeal. Accordingly this ground stands allowed for statistical purposes.

Summary

Issues Involved:
1. Validity of the assessment order under Section 143(3) read with Section 144C of the Income Tax Act, 1961.
2. Claim of deduction under Section 80IA of the Income Tax Act, 1961.
3. Disallowance of club expenses under Section 37(1) of the Income Tax Act, 1961.
4. Deduction of entry tax under Section 43B of the Income Tax Act, 1961.
5. Deduction of mandi fees under Section 43B of the Income Tax Act, 1961.
6. Re-computation of set-off and carry forward of unabsorbed business loss and depreciation.

Detailed Analysis:

1. Validity of the Assessment Order:
The appellant contested that the final assessment order was void ab initio due to non-compliance with the mandatory procedure prescribed in Section 144C of the Income Tax Act, 1961, and being barred by limitation. However, these grounds were not pressed during the hearing and were dismissed.

2. Claim of Deduction under Section 80IA:
The appellant's captive power plant (CPP) generated power consumed by its paper manufacturing unit. The Transfer Pricing Officer (TPO) adjusted the transfer price of power from Rs. 8.41 per unit to Rs. 3.73 per unit, resulting in a downward adjustment of Rs. 13,71,40,567. The Tribunal concluded that the internal Comparable Uncontrolled Price (CUP) method used by the appellant, which benchmarked the transfer price against the rate at which the non-eligible unit procured power from the State Electricity Board (SEB), was appropriate. The Tribunal held that the SEB rate represented the market rate, and the TPO's comparison with the rate at which power generating stations sold electricity to distribution companies was not applicable. The Tribunal directed the deletion of the transfer pricing adjustment.

3. Disallowance of Club Expenses:
The AO disallowed club expenses of Rs. 8,65,913, considering them personal in nature. The Tribunal allowed Rs. 3,61,164 spent on trade associations as business expenses and Rs. 5,04,479 spent on club memberships for directors, citing that these were business expenses under Section 37 of the Act. The Tribunal noted that the club expenses were considered non-monetary perquisites in the directors' taxable salaries, thus allowable as business expenditure.

4. Deduction of Entry Tax:
The appellant claimed a deduction for entry tax of Rs. 62,90,188 paid under protest during the relevant year under Section 43B. The AO, following the DRP's direction, allowed the deduction but failed to reflect it in the final computation. The Tribunal directed the AO to allow the deduction in the computation of total income, acknowledging this as an apparent mistake.

5. Deduction of Mandi Fees:
The appellant claimed that mandi fees of Rs. 33,80,641 were not in the nature of tax, duty, or cess under Section 43B and should be allowed on a mercantile basis. The Tribunal rejected this claim, noting that post-amendment by the Finance Act, 1988, mandi fees fall within Section 43B and are allowable only on actual payment basis. The Tribunal dismissed this ground.

6. Re-computation of Set-off and Carry Forward of Unabsorbed Business Loss and Depreciation:
The Tribunal directed the AO to re-compute the set-off and carry forward of unabsorbed business loss and depreciation brought forward from earlier years while giving effect to the appeal, allowing this ground for statistical purposes.

Conclusion:
The appeal was partly allowed, with specific directions to delete the transfer pricing adjustment, allow club expenses and entry tax deductions, and re-compute set-off and carry forward of losses and depreciation. The disallowance of mandi fees was upheld.