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Hindalco Industries Ltd. Versus The Addl. Commissioner of Income Tax, Circle 6 (3) , Mumbai and Vica-Versa

2015 (10) TMI 2053 - ITAT MUMBAI

Disallowance made u/s 14A - Held that:- The decision rendered by Hon‟ble Bombay High Court in the case of HDFC Bank (2014 (8) TMI 119 - BOMBAY HIGH COURT) shall apply to the facts of the instant case. Accordingly, consistent with the view taken by the co-ordinate bench in the assessee‟s own case in the earlier years, we hold that the interest disallowance made by the tax authorities is not called for. Accordingly, we set aside the order of ld.CIT(A) in respect of interest disallowanc .....

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ce the disallowance of administrative expenses is to be worked out on a reasonable basis as per the decision of Godrej & Boyce Mfg. Co. Ltd (2010 (8) TMI 77 - BOMBAY HIGH COURT) and since major part of investments has been brought forward from the earlier years, in our view, the disallowance made by AO does not call for interference. Accordingly, we set aside the order of Ld CIT(A) on this issue and sustain the disallowance of ₹ 10.00 lakhs made by the AO. - Decided against assessee.
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s as income from other sources. The CIT(A) accordingly, directed the AO to allow the deduction of the expenses incurred for earning the income from service charges as directed earlier by the Tribunal in the assessment year 1990-91. So following the same, the CIT(A) has sustained the assessment of rental income as income from property and the income from service charges under the head income from other sources” and directed the AO to grant deduction of expenses incurred for earning from service c .....

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gh Court. However, the Hon‟ble Gujarat High Court has held in Navijan Roller Flour and Pulse Mills Ltd Vs. Dy. CIT [2009 (3) TMI 132 - GUJARAT HIGH COURT] that the liability accrues at the earliest point of time and the fact that the award was challenged in appeal cannot be a ground for holding that the liability had not been incurred. Accordingly by following the Hon‟ble Gujarat High Court (referred supra), we direct the AO to allow deduction of the arbitration award. The assessee h .....

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erprises - Held that:- There is no difference in the methodology adopted by AE and non-AE for determining the price. The difference has occurred due to following „financial year basis‟ for AE, where as the non-AEs have followed calendar year basis. Since the assessee is following a particular pattern for its AEs year after year, we find merits in the contentions of the Ld A.R that the temporary price difference occurring due to fluctuations in TC/RC charges should be ignored. These submiss .....

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iew that the assessee should be considered as having paid the purchase price to its AE at ALP only and hence there is no necessity to make adjustments. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the addition. - Decided in favour of assessee.

Addition u/s 92CA in respect of Corporate Guarantee fee - Held that:- Rate of 0.50% is consistently followed in many of the cases by the Tribunal. In fact, in the case of Everest Kanto Cylinder Ltd, .....

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at the assessee could exercise option u/s 80IA(2) of the Act.

State electricity board rates has to be taken as market value for computing deduction u/s 80IA of the Act. Hence, we do not find any infirmity in the decision of Ld CIT(A) on this issue to compute deduction u/s 80IA by applying supplier/UPSEB market rate. - I.T.A. No.4857/Mum/2012, I.T.A. No.4918/Mum/2012 - Dated:- 16-9-2015 - SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM) For The Assessee : Shri S E Dastur and S M Bandi For .....

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ssee has been allowed depreciation on this amount. The assessee did not press Ground number V relating to disallowance made u/s 43B of the Act also, since the amount so disallowed has been allowed on actual basis. The assessee also did not press ground number VI relating to disallowance of interest paid on late payment of TDS amount, in view of smallness of the amount. The assessee did not press additional ground Number 1 also. Therefore all the grounds cited above are dismissed as not pressed. .....

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purchase of ₹ 6,03,07,020/- from its Associated Enterprises; f) Addition u/s 92CA of the Act made in respect of Corporate Guarantee fee of ₹ 9,70,40,250/- The additional ground No. 2 is related to IFFCO arbitration claim listed as (d) above. The additional ground no.3 is related to addition made in respect of Corporate Guarantee fee listed as (f) above. 4. Facts of the case are stated in brief. The assessee is engaged in the business of manufacture and sale of aluminium metal, coppe .....

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assessee has also borrowed funds for the purpose of business and paid interest thereon. Hence, the AO took the view that the assessee has used the interest bearing borrowed funds for making the above investments. Accordingly he worked out the interest attributable to said investments at ₹ 27.93 crores and added the same to the total income of the assessee. In the appellate proceedings, the ld. CIT(A) enhanced the interest disallowance by 0.22 crores and accordingly held that the interest .....

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urt in the case of Godrej & Boyce Mfg. Co. Ltd (328 ITR 81), yet he computed the disallowance as per Rule 8D only with the reasoning that he has adopted Rule 8D as the basis for computing the disallowance. 6. Before us, the ld. AR submitted that the assessee has invested its own funds only for making these investments. The ld.AR submitted that an identical issue has come up before the Tribunal in the appeal filed by the Department in the assessee‟s own case for the assessment year 1993 .....

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.R also invited our attention to page 18 of the paper book and submitted that the cash flow statement prepared by the assessee would show that the investments made during the year under consideration is far excess of own funds generated during the instant year. He further placed reliance on the decision rendered by the jurisdictional Bombay High Court in the case of HDFC Bank Ltd (366 ITR 505) to contend that no disallowance of interest is required when sufficient own funds are available. He fur .....

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mitted that the disallowance of administrative expenses is tune with magnitude of investments made and dividend received by the assessee. 8. We heard the parties on this issue and perused the record. We find that the similar issue had come up before the Tribunal in the assessee‟s own case and the Tribunal has taken the view that the assessee has not used borrowed funds for the purpose of making investments. The assessee has furnished a copy of its Annual report before us. A perusal of the .....

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n the earlier years, we hold that the interest disallowance made by the tax authorities is not called for. Accordingly, we set aside the order of ld.CIT(A) in respect of interest disallowance and direct the AO to delete the same. 9. In respect of disallowance of administrative expenses relating to exempted income, we notice that the Ld CIT(A) has worked out the same as per Rule 8D(iii) of IT Rules, even though he accepted the fact that Rule 8D shall not apply to the year under consideration. How .....

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rence. Accordingly, we set aside the order of Ld CIT(A) on this issue and sustain the disallowance of ₹ 10.00 lakhs made by the AO. 10. The next issue relates to the disallowance of foreign travelling expenses of ₹ 2,12,010/- on the ground that the assessee incurred these expenses for the wife of Chairman, whole time Director and Executives on foreign tours. In the appellate proceedings, the ld.CIT(A) confirmed the disallowance by following his decision rendered for assessment years .....

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ges income under the head Income from other sources, as against the claim of the assessee that both the receipts should be assessed as business income of the assessee. The assessee owns a property as co-owner in Calcutta and it has given the said premises on rent. It also received service charges from the said premises. The assessee declared both the receipts as business income. The AO assessed the rental receipts as Income from house property and the service charges as income under the head inc .....

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ction of the expenses incurred for earning the income from service charges as directed earlier by the Tribunal in the assessment year 1990-91. So following the same, the CIT(A) has sustained the assessment of rental income as income from property and the income from service charges under the head income from other sources and directed the AO to grant deduction of expenses incurred for earning from service charges. This view is consistent to the view taken by the Tribunal for the earlier years. T .....

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see w.e.f.1.4.2002. The ICGL had entered into a MOU with the Indian Farmers Fertilizer Co-operative (IFFCO) in the previous year 1998-99, whereby IGCL agreed to supply certain chemicals to IFFCO. In the subsequent years, dispute arose between the ICGL and IFFCO about lifting and supply of chemicals, i.e., IFFCO made certain claims against IGCL for non-supply of chemicals and simultaneously IGCL also made counter claims against IFFCO. The disputes were referred to an Arbitrator. Pending receipt o .....

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d one arbitrator decided the same in favour of the assessee. It is pertinent to note that the assessee did not accept the award and hence filed appeal before Hon‟ble Delhi High Court. However, since the arbitration award has gone against the assessee by majority view of the arbitrators, the assessee claimed before the AO that the provision of ₹ 7.19 crores has to be allowed as deduction in AY 2005-06. The AO rejected the said claim by holding that the dispute is not finally settled. .....

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that the liability to pay the award cannot become contingent liability, even if the assessee has challenged the arbitration award in the High Court. In this regard, the Ld A.R placed reliance on the decision rendered by the Hon‟ble Gujarat High Court in the case of Navijan Roller Flour and Pulse Mills Ltd Vs. Dy. CIT reported in 315 ITR 190. He also referred to the commentary given by Kanga & Palkhiwala in page 943 of its latest edition. On the contrary, the Ld D.R submitted that the .....

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record. The Hon‟ble Gujarat High Court had an occasion to consider an identical issue in the case of Navijan Roller Flour and Pulse Mills Ltd Vs. Dy. CIT (supra). The assessee therein placed an order with an Australian Company for import of yellow gram and it was required to open irrevocable letter of credit. However, the assessee did not open the letter of credit within the extended period also and in fact, repudiated the contract through a letter. Arbitration proceedings were initiated .....

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ew that the award is deductible in AY 1989-90. While resolving this dispute, the Hon‟ble Gujarat High Court has discussed about the proposition in this manner:- In mercantile system of accounting it is well settled that both receipt and liability accrue at the earliest point of time and are not postponed merely on the basis of an entry made or absence of an entry. Admittedly, the assessee is following the mercantile system of accounting. On May 28, 1987, when the Trade Association made an .....

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arbitration award by filing appeal before the Hon‟ble High Court. However, the Hon‟ble Gujarat High Court has held in the above cited case that the liability accrues at the earliest point of time and the fact that the award was challenged in appeal cannot be a ground for holding that the liability had not been incurred. Accordingly by following the Hon‟ble Gujarat High Court (referred supra), we direct the AO to allow deduction of the arbitration award. The assessee has also r .....

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prises (AE) of the assessee. The facts relating to the issue are that the assessee‟s subsidiary company named M/s Birla Mt. Gordon Pty Ltd, Australia owned a mine in Australia. The assessee purchased copper concentrates from this subsidiary company. The assessee had purchased copper concentrates from unrelated parties also. The prices of copper concentrates are determined on the basis of prices of Copper quoted in London Metal Exchange (LME) less the processing charges towards smelting, re .....

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ed from its AE with TC/RC charges of the goods purchased from a non-AE company named M/s PT Freeport for the calendar year 2004. There was no difference between the two. The AO referred the matter to the TPO. The AO has discussed the addition proposed by the TPO in the assessment order. The AO has stated that the TC/RC charges have been deducted in respect of purchases made from non-AEs @ US $ 95 per MT and US $ 85.5 MT for the month of February, 2005 and March, 2005 respectively. However, in re .....

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arges. The AO worked out the differential price for the purchases effected in the months of February, 2005 and March, 2005 at ₹ 6.03 crores and added the same to the total income of the assessee. The Ld CIT(A) also confirmed the same. 20. The Ld A.R submitted that the assessee has entered into contract for purchase of concentrates with its AE on a long term basis for the entire life of the Mines and hence such the prices fixed on long term contracts cannot be compared with the purchases ma .....

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ffect on calendar year basis for Non-AEs and the same is given effect on financial year basis for AE, there bound to be some difference in the prices on account of TC/RC charges in the months of January to March every year. He further submitted that it so happened that the TC/RC charges deductible from prices paid to non-AEs was higher during the year under consideration resulting in payment of higher prices to the AE. He submitted that the assessee has paid lower prices to its AE in the subsequ .....

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ar basis by observing that the same may be alright for administrative convenience. 21. The Ld A.R further submitted that the tax authorities have to compare the long term contracts entered with AEs with similar kind of long term contracts entered with non-AEs. He submitted that the assessee has pointed out this principle at page 12 of its TP study (page 172 of paper book). The parties also enter into No holiday contract with the mine owners and the no holiday contract is also a type of long term .....

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e bonafides of the long term contract entered between the assessee and its AE. If they are satisfied with the bonafides of the long term contract, the price fluctuation happening in the market should not be considered. 23. Accordingly, the Ld A.R submitted that the price paid to the AE should be considered at Arms length only by considering the peculiar facts prevailing in the instant case. 24. On the contrary, the Ld D.R submitted that the tax authorities are required to determine the Arms leng .....

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entered into no-holiday contract with M/s PT Freeport. The AO has also compared the prices paid to M/s Minera Escondida, another party with whom the assessee had entered into long term contract only. Accordingly he submitted that the AO/TPO has compared the price paid to the AE with internal comparables having similar features. Accordingly he submitted that the tax authorities are justified in making this addition. 25. We have heard rival contentions on this issue and perused the record. It is a .....

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z., (a) ascertain the price quoted for copper metal in LME. (b) ascertain the TC/RC charges fixed by Japanese smelters annually on calendar year basis. (c) reduce the TC/RC charges from the price of copper and (d) adjust the price so arrived at for freight differentials. The difference in prices has occurred only due to the fact that the non-AEs have synchronized the reduction of TC/RC charges with the Japanese rates, i.e., they have changed the TC/RC charges on calendar year basis. However, the .....

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n the AE and non-AEs in these three months, mainly on account of TC/RC charges. 26. As submitted by Ld A.R that it so happened that the assessee had to pay higher purchase price during the year under consideration for the purchases effected in the months of February and March, due to adoption of lower TC/RC charges applicable to immediately preceding calendar year. However, as can be seen from the details given in page 221 of the paper book, the difference in the rates of TC/RC charges adopted b .....

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07 as per the practice followed by it. In the subsequent years also, the TC/RC charges has fallen down, but the AE was deducting TC/RC charges at higher rate resulting in payment of lower purchase price to AE. Thus, the pattern followed by the assessee and its AE shows that the same has been consistently followed and the difference in purchase prices was mainly on account of following a particular pattern. The same would show the bonafides of the assessee and also the AE. Hence, we find merit in .....

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be compared with other cases having only annual contracts. We have noticed earlier that the No holiday contract is a variant of long term contract. The assessee has entered no holiday contract with two parties, but they were for lifting fixed quantity of materials, i.e., they were not life time contracts. Hence, they cannot also be compared. 27. Even otherwise, there is no difference in the methodology adopted by AE and non-AE for determining the price. The difference has occurred due to follow .....

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be permitted, in which case it would result that the payments made to AE was at ALP. Further, it is not the case that the assessee was paying higher purchase price to its AE year after year in the months of Jan to March. In subsequent years, the assessee has gained by paying lower purchase prices. In view of the foregoing, we are of the view that the assessee should be considered as having paid the purchase price to its AE at ALP only and hence there is no necessity to make adjustments. Accordi .....

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With regard to the legal issue urged through Additional Ground, we are of the view that there is no merit in the contentions of the assessee. The Explanation to sec. 92B of the Act was inserted by Finance Act, 2012 w.r.e from 1.4.2002 only to clarify the expression International transaction used in sec. 92B of the Act. It is not a case that the expression International transaction is inserted for the first time with retrospective effect. Even prior to the insertion of the Explanation, referred .....

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merits and then made a passing reference with regard to the applicability of the Explanation. In our view, the said observations are obiter dicta only. The decision rendered by the Hyderabad bench of Tribunal in the case of Four soft Ltd (2011)(142 TTJ (Hyd) 358), on which also the assessee placed reliance, has been rendered prior to the insertion of Explanation by Finance Act, 2012. Accordingly, we reject the additional ground urged by the assessee. 30. The facts relating to guarantee fee recei .....

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the same. 31. Before us, the Ld A.R placed reliance on the decision dated 08-05-2015 rendered by Hon‟ble jurisdictional Bombay High Court in the case of CIT Vs. M/s Everest Kento Cylinders Ltd (ITA No.1165 of 2013), wherein the High Court has held that the consideration which applied for issuance of Corporate guarantee are distinct and separate from that of bank guarantee. Accordingly he contended that the tax authorities are not justified in adopting the rate quoted by a bank for giving .....

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case of Manugraph India Ltd (ITA No.4761/Mum/2013), wherein the co-ordinate bench has determined a rate of 0.50% for guarantee given. We further notice that the rate of 0.50% is consistently followed in many of the cases by the Tribunal. In fact, in the case of Everest Kanto Cylinder Ltd, which was considered by the Hon‟ble Bombay High Court, the Tribunal has determined the rate at 0.50% and the same has not been disturbed by the Hon‟ble Bombay High Court. Accordingly, we modify the .....

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) u/s 80-IA applying supplier/UPSEB market rate; e) Deduction allowed by the ld. CIT(A) to Birla Copper Power Plant Unit-I and II u/s 80IA of the Act; f) Exemption u/s 10(23G) allowed by the ld.CIT(A) of gross interest received from DHIL; 35. The first issue relates to the eligibility of the assessee to claim deduction u/s 80IA of the Act in respect of Renu power unit No.6, 7, 8, 9 and 10. The AO rejected the claim, but the Ld CIT(A) allowed the claim. The ld. AR submitted that the issue urged i .....

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ions are available in para 82 of the order; C) Deduction for Unit no.8 has been confirmed by the Tribunal in ITA No.4775/Mum/2003 relating to AY-1999-00, vide its Order dated 6.7.2007. The relevant discussions are available in para 86 of the order; D) Deduction for Unit no.9 has been confirmed by the Tribunal in ITA No.4336/Mum/2005 relating to AY-2003-04, vide its Order dated 28.11.2008. The relevant discussions are available in para 7 and 7.1 of the order; E) Deduction for Unit no.10 has been .....

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on this issue. 36. The next issue relates to eligibility of the assessee to claim deduction u/s 80IA of the Act in respect of Co-Generation Plant-1. Both the parties agreed that this issue is covered in favour of the assessee by the order of Tribunal rendered for AY 1999-2000 in the assessee‟s own case in ITA No.4775/Mum/2003 (referred supra). It was further submitted that the order passed for AY 1999-2000 was followed by the Tribunal in AY 2004-05 also. Since the decision rendered by Ld .....

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nce the provisions of sub-sec. (2) give an option to the assessee to claim deduction for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking generates power. Hence the assessee chose to claim deduction in the subsequent years. The AO, however, took the view that the question of exercising option would arise only if the assessee is eligible to claim deduction u/s 80IA of the Act in respect of Co-generation plat no.2. In the appellate proceedi .....

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unit no.6 to 10 and Co-generation Plant I (supra) in the preceding paragraphs. We notice that the Ld CIT(A) has followed the decision rendered in respect of the above said units for deciding this issue also. Hence, we do not find any infirmity in his order on this issue. Since he has held that the assessee is eligible to claim deduction u/s 80IA of the Act in respect of Co-generation Plat 2, he was justified in holding that the assessee could exercise option u/s 80IA(2) of the Act. 39. The next .....

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duction u/s 80IA of the Act in respect of Birla Copper Power Plat Unit I & II. This issue was considered by the Tribunal in AY 2003-04 in ITA No.4336/Mum/05 in its order dated 28-11-2008 and it was decided in favour of the assessee. It was submitted that the order of AY 2003-04 was followed in AY 2004-05. Accordingly, we are of the view that the Ld CIT(A) was justified in allowing deduction u/s 80IA of the Act in respect of Birla copper power plant Unit I & II. 41. The last issue relates .....

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