2024 (2) TMI 1541 - AT - Income Tax

Reduction in claim u/s 80-IA on power undertakings - rejection of allowability of Reliability charge of Rs. 1.50 per unit in computing Transfer Price of Power for the purpose of deduction u/s 80-IA - HELD THAT - We note that the issue has already been decided on principles in favour of the appellant in earlier year (i.e. in AY 201415) wherein it has been held that the reliability charge shall form part of the transfer price of power. We further from the facts of the assessee s case as stated above where there is both exclusivity (resulting in huge capex for single user) advantage and uninterrupted power supply we on facts agree with the assessee s claim that Rs. 1.50/unit is the minimum reliability surcharge at arm s length principles. As regards the contention of the CIT (A) that the said rate of reliability charge does not pertain to Rajasthan and hence not applicable in this regard the co-ordinate bench in AY 2014-15 in assessee s own case has held held both the orders of commission does not pertain to the state of Rajasthan being state in which power undertakings of the assessee is situated however we do not think that the aforesaid fact is of much relevance here as what is to be considered is whether the concept of collection of reliability charge is justifiable and being practiced in the industry or not. We note that such concepts are not unfamiliar and have become common industry practice in some states - Decided in favour of assessee. Disallowance on account of claim of Education Cess - On this issue we found force in the arguments of the ld. DR that in view of the amendment made in the law with retrospective effect of 01.04.2005 by inserting explanation 3 to section 40(a)(ii). Therefore we see no merits in the ground No. 3 raised by assessee and therefore the same is dismissed. Deduction u/s 80IA in computing Book Profit u/s 115JB - HELD THAT - When two views are possible in a statutory tax provision the one in favour of the assessee be adopted. This ensures that if there is ambiguity or multiple interpretations the interpretation that benefits the taxpayer should be preferred. Accordingly in the background of the afore said discussion and binding precedents cited we are of the considered opinion that the order of the ld. CIT (A) is not sustainable. DR could not show us any decision of equal binding strength contrary to the above high court decisions. The question that raises as there are conflicting decisions before us why the issue not referred to special bench as it is judicial principle that when two conflicting decisions of same strength of co-ordinate benches matter should be referred to special bench for resolution of the conflicting view. This principle does not apply where there are decisions of higher forum i.e. Hon ble High Court then in that case it should not be referred to a special bench but a view provided by Hon ble High Court should be followed. It may also happen that such view may be provided by Hon ble High Court that too being the solitary High of court. In the absence of any conflicting decision of equal strength the view provided by the high court binds us. We reverse the decision of Ld. CIT (A) and in terms of the finding recorded here in above the ground no. 4 of the appeal of assessee is allowed. Depreciation on expenditure incurred in respect to acquisition of leasehold rights on land u/s 32(1)(ii) being business or commercial right of similar nature - appellant has submitted that such rights have been acquired for carrying on the business and hence is in the nature of business or commercial right eligible for deprecation @ 25% u/s 32(1)(ii) of the Act - HELD THAT - On being consistent to the findings so recorded by the coordinate bench on the issue in the year under consideration we note that such intangible assets being business or commercial right is entitled to depreciation u/s 32(1)(ii) of the Act. Hence AO is directed to grant depreciation @25% on such leasehold rights in accordance with the provision of section 32(1)(ii) of the Act. Ergo we decide accordingly and the additional ground no. 1 raised by the assessee is allowed. Allowability of interest paid on late deposit of TDS as business expenditure u/s 37(1) - We find merit in the contention of the ld. AR of the assessee that the issue in question is squarely covered in favour of the assessee for AY 2014-15 AO is directed to reduce interest on TDS while computing Total Income. Disallowance on account of deduction u/s 80IA on account of Solid Waste Management System - quantum determination - HELD THAT - The appellant is eligible for tax holiday u/s 80IA in respect of its Solid Waste Management Systems. Since solid waste management unit is responsible for doorstep delivery of clinker to the Cement unit therefore entire savings on account of clinker including freight and handling expenses of such clinker at cement unit should be considered as transfer price of solid waste. Freight should therefore form part of benchmarking mode. Allowance of tax holiday u/s 80IA in respect of its Water Treatment System - Benchmarking based on quotation is a recognised method under Rule 10AB of Income Tax Rules for determining transfer pricing. Bonafide quotations are duly covered under the expression price which has been charged or paid or would have been charged or paid used in Rule 10AB of the Rules as held in CIT vs Toll Global Forwarding 2015 (12) TMI 1513 - DELHI HIGH COURT . Profit margin earned by the appellant is not relevant when the transaction is at arm s length as held by Hon ble Pune Tribunal in MSS India 2009 (5) TMI 600 - ITAT PUNE-A In the present facts of the case CPM method cannot be applied since determination of gross profit margin is a difficult and subjective exercise in absence of proper data. Decided against revenue. Allowance on account of Incentives in the form of Sales Tax Subsidy Electricity Duty Exemption and Excise duty Exemption received by assessee in nature of capital receipt and hence not taxable as income - HELD THAT - As both the difference between reward and assistance is summarized as to the fact that rewards acknowledge accomplishments while assistance focuses on aiding and supporting others. Thus looking to these differences we are of the considering view that the assessee has not received the rewards but has received the assistance and after the amendment made in the section 2(24)(xviii) such assistance is considered as income of by the Finance Act 2015 and therefore all the arguments made by the ld. AR of the assessee has no leg to stands. Thus on the ground raised by the assessee after going through the records and arguments of both the parties noted as under a) Under section 2(24) of the Act a capital receipt cannot be charged to income tax unless it is specifically included as income therein. b) The Finance Act 2015 introduced section 2(24)(xviii) wherein any form of subsidy was brought into definition of income. Such subsidy maybe in case or in kind. It also includes grant cash incentive duty drawback waiver construction or reimbursement of all kind. c) The exceptions are provided under clause (a) the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43; or (b) the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government as the case may be; d) Therefore with effect from 1.4.2016 all such receipts are income. e) All prior decision of all courts holding it to be capital receipt are now no more good laws. f) Intention of this amendment is to be support the law with ICDS VII relating to the government grants. g) Distinction is lift only with (1) grants pertaining to depreciable assets and (2) grants pertaining to non depreciable asset (3) grants received as compensation waiver reimbursement and (iv) other grants and (v) non monetary grants. h) There is press release dated 05.05.2015 that it does not apply to individuals and having business income to save government relief measures. i) When subsidy is included in the definition of income provision of section 14 shall apply to determine under which head said income falls. So section 14 will classify the income under the respective heads. j) There is no amendment under section 28 or section 56 to include specifically subsidy taxable under those respective heads for the reason that such classification will depend upon the nature purpose of such subsidy. k) Amendment is constitutionally valid as held by Bombay High Court in case of Serum Institute of India Private Limited 157 taxmann.com 107 . l) Provision of section 145B(3) has also dealt with the year of taxability of the susidy. m) In paragraph 12(g) of the Serum Institute decision (supra) the argument of absence of head of income was raised stating that in the absence align amendment in the Section 28 subsidy still remain outside the taxation. Court answered it by relying upon decision of apex court in the case Poona Electric Supply Co Ltd. 1965 (4) TMI 20 - SUPREME COURT negated these arguments. So now this argument is decided by the Bombay High Court against the assessee. Thus no merits in the grounds so raised by the assessee. Deduction u/s 80IA in respect of captive power plant - As assessee has adopted Transfer Price for the purpose of power transferred by the Power Generating Units ( PGUs ) to the Cement Manufacturing Unit ( CMU ) based on annual average rate of power sold by the State Electricity Board ( Grid/SEB ) during the year to the nearby manufacturing units of independent assessees in the State of Rajasthan by applying Comparable Uncontrolled Price ( CUP ) Method. These grounds have been extensively dealt with in while dealing with Departmental Appeal for AY 2015-16 and in the light of our findings recorded therein we find no infirmity in the order of the ld. CIT (A). Deduction u/s 80IA on eligible Solid Waste Management System as per Form 10CCB filed along with return of income - HELD THAT - Restricting the said claim merely because the claim in the computation part of return is lower is not justified as it is the duty of the appellate authorities to determine correct tax liability of the assessee as laid down in NTPC vs CIT 1996 (12) TMI 7 - SUPREME COURT We further find that the full claim was quantified and reflected in the audited accounts of SWMS as well as in Form 10CCB both of which were duly filed along with the return of income. This fact makes the prayer of the appellant all the more stronger. When the claim is allowed on merit by CIT (A) and is in terms of audited accounts and form 10CCB uploaded with return of income and also in terms of amount reflected in the return read with notes forming part of the return there is no reason to restrict the claim to the amount reflected in the computation part of the return. AO is therefore directed to allow deduction u/s 80IA on account of solid waste management system. Addition on account of payment made to transporter - Whether addition can be made on the third party evidence without being shared to the assessee and without affording any cross examination to the assessee for countering those relied upon third party evidence? - HELD THAT - As the assessee has filed copies of all invoices bank statement as well as confirmation from the said party that submitting the evidence in support of the claim that the transactions are genuine. Hence the onus now shifts to department to counter them and provide evidence that the transaction is not genuine. We find that the AO in the present case has not discharged its onus despite repeated requests from the assessee to provide documents to justify the addition. In view of the above facts we find that Ld. CIT (A) was not justified in confirming the addition made by AO in summary without dealing with the contentions and his finding on the contention so raised by the assessee. This ground is therefore decided in favour of the assessee addition made of Rs 1 Crore on the basis of mere assumption and presumption is deleted. Ground No. 5 is therefore allowed. MAT computation - compute Book Profit u/s 115JB of the Act after allowing deduction under Chapter VI-A Part C particularly u/s 80IA u/s 80IC. Exclusion of notional income while computing Book Profit u/s 115JB - HELD THAT - We hold that notional income on account of bonds and debentures and on account of shares and mutual fund represents notional income and hence needs to be excluded while computing Book Profit u/s 115JB of the Act. Based on this observation the ground no 8 of the assessee is therefore partly allowed. Excess levy of interest u/s 234C - HELD THAT - Amendment to Section 115JB have been brought vide Finance Act 2017 bringing retrospective amendment to Sec 115JB w.e.f. 1-42016. Due to such retrospective effect notional income accounted for the first time on adoption of Ind-AS became taxable u/s 115JB of the Act. It is a settled principle that law does not compel the assessee to perform what is impossible to perform in advance. Here the assessee cannot be expected to estimate its total income considering retrospective amendment when at the time of payment of advance tax no amendment was proposed by the legislature. Performance of this impossible duty must be excused in accordance with the maxim lex non cogitate ad impossible as held in Cochin State Power and light vs State of Kerela 1965 (2) TMI 100 - SUPREME COURT Based on the above finding of the apex court read with the facts of the case the ld. AO is directed to delete interest levied u/s 234C. Depreciation @25% on such leasehold rights acquired in accordance with section 32(1)(ii) Unexplained investments u/s 69B as purchases not fully disclosed in the books of account of the assessee - Addition merely on the premises that the same is not reconciling with the details available in the insight portal - HELD THAT - As it is held by the various courts that the ld. Assessing officer holding co judicial power. His role is multifaceted and is not the only adjudicator but he serves as investigator when the assessee has furnished all the details he is duty bound to asked the assessee the specific defaults and the information in his possession read with the records provided by the assessee. The bench noted that how the assessing officer has proposed the addition and how ultimately he made the addition is without appreciating the information placed on record by the assessee. We see that there is no finding about details as available in the Insight Portal and only after being satisfied on the basis of corroborative evidence such disallowance can be made. Since the ld. A.O. failed to point out any defect in the details supplied by the assessee the disallowance made by the AO merely on surmises and suspicion is not sustainable and thus directed to be deleted. Hence the ground raised by the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered several issues across multiple assessment years (2015-16 to 2018-19) involving the appellant's claims and the revenue's objections. The core issues revolved around the validity of assessment orders, the allowability of deductions under Section 80-IA for various undertakings, the claim of education cess, the treatment of incentives as capital receipts, and the computation of book profits under Section 115JB. Specific issues included:

• Validity of assessment orders under Sections 143(3) and 144C.
• Allowability of reliability charges in computing transfer price for power under Section 80-IA.
• Disallowance of education cess as a deductible expense.
• Computation of book profits under Section 115JB, particularly regarding deductions under Chapter VI-A and the inclusion of notional income.
• Classification of incentives as capital receipts not liable to tax.
• Disallowance of certain deductions and adjustments proposed by the Transfer Pricing Officer (TPO).
• Alleged unexplained investments and purchases.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of Assessment Orders:

The appellant challenged the validity of assessment orders, arguing they were not passed in accordance with the provisions of Section 144B(1)(xvi)(b). However, these grounds were not pressed by the appellant in the interest of substantive justice and were dismissed.

Reliability Charges for Power Supply:

The appellant claimed an additional reliability charge of Rs. 1.50 per unit for uninterrupted power supply under Section 80-IA. The Tribunal allowed this claim, referencing previous decisions where reliability charges were recognized as part of the transfer price for power undertakings. The Tribunal emphasized the importance of uninterrupted supply and significant capital expenditure incurred by the appellant.

Disallowance of Education Cess:

The appellant's claim for education cess as a deductible expense was disallowed based on the amendment to Section 40(a)(ii), which explicitly includes education cess as a non-deductible expense. The Tribunal upheld this disallowance, citing the retrospective effect of the amendment.

Computation of Book Profits under Section 115JB:

The appellant argued for the exclusion of deductions under Section 80-IA and 80-IC in computing book profits. The Tribunal, relying on judicial precedents, allowed these deductions, emphasizing the applicability of other provisions of the Act to the computation of book profits unless specifically barred.

Incentives as Capital Receipts:

The appellant claimed various incentives as capital receipts, arguing they were not taxable. However, the Tribunal, referencing the amendment to Section 2(24)(xviii), which includes such incentives as income, rejected this argument. The Tribunal noted that previous decisions treating incentives as capital receipts were no longer applicable post-amendment.

Transfer Pricing Adjustments:

The TPO had proposed adjustments to the appellant's claims under Section 80-IA for various undertakings (e.g., power, solid waste management, water treatment). The Tribunal, after detailed analysis, upheld the appellant's methodology for computing these claims, citing consistency with previous years and judicial precedents.

Unexplained Investments and Purchases:

The AO made additions based on alleged unexplained investments and purchases. The Tribunal found these additions unsustainable, emphasizing the lack of corroborative evidence and the need for the AO to provide documents relied upon for such additions.

3. SIGNIFICANT HOLDINGS

The Tribunal's significant holdings included:

• The reliability charge of Rs. 1.50 per unit for power supply was allowed as part of the transfer price under Section 80-IA.
• Education cess was confirmed as a non-deductible expense under Section 40(a)(ii) due to legislative amendments.
• Deductions under Section 80-IA and 80-IC were allowed in computing book profits under Section 115JB, aligning with judicial precedents that permit the application of other provisions unless specifically barred.
• Incentives received by the appellant were taxable as income due to the amendment in Section 2(24)(xviii), overriding previous judicial interpretations treating them as capital receipts.
• The Tribunal emphasized the importance of consistency in applying transfer pricing methodologies, especially when such methods had been accepted in previous years.
• Additions based on third-party evidence without providing the appellant an opportunity for cross-examination or access to the evidence were deemed unsustainable.

The Tribunal's decisions were guided by a combination of legislative amendments, judicial precedents, and principles of natural justice, ensuring that the appellant's claims were adjudicated fairly and consistently with the law.