TMI Blog2019 (1) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... proper as well considering the facts that the assessee company is a profit making venture whereas Essar Steel Ltd. is incurring losses. It should also be noted that the assessee company has also complied with all the provisions of the Companies Act, 1956, relating to the payment of managerial remuneration to its managerial personnel appointed and the said payment of managerial remuneration has also been approved by the Board of Directors. The reference made to Circular No. 6P dated 08.07.1968 issued by the CBDT is apt in the present case. Thus, the Assessing Officer was not correct in making addition on account of managerial remuneration. Allocation of common expenses u/s 80IA - Held that:- From perusal of the Assessment Order/Order of the TPO/Directions of the DRP, in the present case none of the authorities have doubted that there was no expenses. In facts, the Assessing Officer/TPO/DRP re-allocated the expenditure in the ratio of turnover between eligible and non-eligible units without bringing into the light the flaw or inaccuracy or any suitable explanation involved in relation to the method of allocation adopted by the assessee company Bank Guarantee commission additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. A.O.) pursuant to the direction of the Hon'ble Dispute Resolution Panel-I (hereinafter referred as 'the Hon'ble DRP') under section 144C(5) of the Act, is a vitiated order having been passed in violation of principle of natural justice and is otherwise arbitrary and thus bad in law and void ab-initio. 2. That the Hon'ble DRP-2 direction are bad in law to the extent the same are prejudicial to the appellant because: - (a) That the Ld. TPO erred, on facts and in law, in applying lower turnover filter of INR 1 crore for rejecting the independent companies. Without prejudice, the Ld. TPO erred, on facts and in law, in not applying an upper turnover filter to reject companies having significantly higher turnover vis-a-vis the appellant. (b) That the Ld. TPO/Hon'ble DRP have erred, on facts and in law, in rejecting Comprehensive objection filed towards the issue related to the SDT. 3. That the Hon'ble DRP-2 and the Ld. A.O./TPO has erred on facts and law by rejecting the internal CUP method adopted by the appellant towards the internal transfer of power, disallowances of expenses making the entire transfer pricing adjustment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted, particularly when there is no finding that the salary expense was bogus or not genuine but on the following reasons:- ( i) by selecting other director salary as comparable without appreciating that these director are engaged in other services while the former for the specific services which directly contribute towards company polices merchant banking devices, security and stock broking series, loan syndication/ debt syndication and project consultancy services, investment banking services, institutional equities, insurance brokerage, asset management and wealth management, merger and acquisitions advisory, ESOP advisory, equity/debt placement and restructuring, syndication of finance, portfolio management and mutual fund distribution and do not satisfy the functional, asset and risks ( FAR ) analysis test visa- vis the appellant in relation to the specified Domestics I transaction pertaining to provision of advisory services. ( C).That the Hon'ble DRP and Ld. TPO/A.O. failed to apply his mind on the nature of expense amounting to ₹ 47,78,634/- for generation of power out of which some portion used in captive power unit and the remaining transmitted in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for its initiation. That the appellant craves leaves to amend, alter or to raise any other ground at the time of hearing. 3. The assessee company is engaged in the manufacturing and selling of Sponge Iron, Billets, Wire Rod, Oxygen Gas and generation of power. The assessee company electronically filed its original return of income on 29.11.2013 for the A.Y.2013-14 declaring total income at ₹ 85,22,71,300/-. Subsequently, the case was selected under CASS for Complete Scrutiny. Notice u/s 143(2) of the I.T. Act, 1961 was issued on 04.09.2014 and duly served upon the assessee company. Thereafter, notice u/s 142(1) of the I.T. Act, 1961 along with questionnaire was issued on 27.08.2015 and duly served upon the assessee company, wherein certain details were called for. In response to these notices, C.A AR on behalf of the assessee company, attended hearings from time to time and filed the requisite details/information which has been placed on record. Necessary details with regard to CASS reasons were obtained during the course of assessment proceedings and was examined and duly placed on record by the Assessing Officer. As one of the reasons of CASS was Large valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessed at ₹ 116,68,68,380/- by the Assessing Officer. 5. Being aggrieved by the Assessment Order, the present appeal is filed by the assessee. 6. The Ld. AR submitted that the assessee has taken detailed /comprehensive grounds of appeal but for the sake of arguments the Ld. AR is focusing on the disputed issue as per grounds no. 3 (a, b, c), 4.7, 4.9, 5, 6, 7, 8 and the other remaining grounds are in the nature of supporting of main grounds therefore the Ld. AR focused his argument directly on the issue involved. 7. As regards Ground Nos. 1 and 2 are general in nature, hence same are dismissed. 8. The Ld. AR submitted that as regards to Ground No. 3 (a), the assessee company is engaged in the business of manufacturing selling of sponge iron bullets, wires, oxygen gas generation of power. It has set up power plants primarily for the purpose of generation of electricity for captive consumption inter alia, manufacturing of various iron steel products. The assessee is regularly claiming deduction u/s 80IA of the Act in respect of profits derived from the captive power plant/ undertaking. The assessee transfers the power for captive use as per the market rate/bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s system or method of accounting as appeared from audited books of account. The Ld. AR submitted that once it is established on the record that the assessee is following the same system of accounts and method therefore there is no occasion to disturb it and in support of this, the Ld. AR relied upon the judgment of Hon ble Supreme Court in case of Radhasoami Satsang vs. CIT 193 ITR 321 and CIT vs. Excel Industries Ltd. 358 ITR 295 based on rule of consistency. 10. The Ld. AR further submitted that during the proceeding pending before TPO/DRP a comprehensive submissions on the issue involved was filed but the same was not considered in right prospective and even the tariff was not considered as provided by the CSRC that neither there are any occasion to distribute the books of account maintained by the assesse nor any adverse view on the submission and evidence place on record. The Ld. AR relied upon various case laws like Godawari Power, Kanoria Chemicals, Jindal Steels, Deepak Fertilizers, Mumbai bench of West Cost papers and crux of all the citation are that on Section 80IA (8) with respect to market rate. The Ld. AR submitted that the IEX rate was even not properly considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... X rate but, the DRP has not given any reason for adopting the said rate. The Tribunal in assessee s own case held as under in A.Y. 2009-10: 59. We have considered the rival arguments made by both the sides and perused the material available on record. We have also considered the various decisions cited before us. The only issue to be decided in the impugned ground is regarding the action of the Assessing Officer in excluding ₹ 0.2932/- per unit while computing the market price of power for the purposes of computing deduction admissible to power units u/s 80-1A of the I.T. Act. We find the assessee in the instant case has sold the electricity to its captive plant at the rate of ₹ 3.92 per unit i.e. rate at which CSEB was selling to industrial consumers as on 01.04.2008. The above rate of ₹ 3.92 included electricity duty at the rate of 8% of energy charges and cess of ₹ 0.05 paise per unit. Since according to the Assessing Officer, the assessee has not been making actual sales to its other units because the power generated is consumed captively by other units. According to him, since the assessee is only generating power but it does not have the licence to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unted for separately as liabilities. In the present case, the assessee is only generating power but since it does not have the licence to distribute it, cannot also charge the electricity duty @8% and cess @ 0.05% on the transfer of power. If the duties and cess are excluded from the sale price of ₹ 3.92 per unit, the effective sale price would be ₹ 3.63 per unit. Therefore, the sales of the power plant has been inflated by a sum of ₹ 0.2932 per unit. Applying the above ratio, AO held that assessee has inflated the deduction u/s 80IA by a sum of ₹ 3,86,93,638/- which is accordingly added back to the total income of the assessee as excess deduction u/s 80IA(8) claimed in its power plant. 3.6.2 Therefore, the issue is whether the AO is justifiable in excluding ₹ 0.2932 per unit while computing market price of power for the purpose of computing deduction admissible to power units under section 80IA of the Act. In this regard sub-section (8) of section 80-1 A of the Act which provides for determination of profits derived from an industrial undertaking where goods from one eligible business are transferred to another business carried on by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase price, i.e. the price at which power is available in the open market. The composition of such market price, is not relevant for the purchaser of the power Insofar as the purchaser is concerned, what is only relevant is the purchase price, i.e. ₹ 3.92 per unit, and not its composition. Therefore, whether ₹ 3.92 per unit includes any government levies or not is totally irrelevant insofar as the purchaser is concerned. 3.6.5 In the case of Jindal Steel Power Limited: (2007) 16 SOT 509, wherein, too, th. assessee had adopted the price at which power is sold by the SEB as the transfer/ market price power. Hon'ble 1TATDelhi, while approving the profits so computed by the assessee, observe as under: 15. Therefore, from the aforesaid, it can be deduced that market value is an expression which denoted a price arrived at between the buyer and the seller in the open market wherein the transactions take place in the normal course of trading and competition in contrast to a situation where the price is fixed between a buyer and seller can b understood as denoting 'market price' since the elements of trading and competition exist. Whereas in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We find the Hon ble Calcutta High Court in the case of CIT vs. Kanoria Chemicals Industries Ltd. reported in 35 taxmann.com 566 has confirmed the decision of the Tribunal holding that the price at which State Electricity Board sells electricity to industrial consumers is representative of the price that electricity would ordinarily fetch in the open market and i.e. the price which has been, adopted by the eligible business transferred to its other business for the for the purpose of computation of profits and gains of the eligible business in terms of section 80-1 A(8) of the I.T. Act. 63. We find the Mumbai Bench of the Tribunal in the case of Deepak Fertilizers in ITA No.2116/2013 order dated 30.01.2015 for the assessment year 2010-11 while deciding an identical issue has also taken similar view. The Chennai Bench of the Tribunal in the case of Sri Matha Spinning Mills (P.) Ltd. vs. DCIT reported in (2013) 141 ITD 238 has also taken identical view in favour of the assessee. Under these circumstances, we do not find any infirmity in the order of the Id. CIT(A) in deleting the disallowance made by the Assessing Officer u/s 80-IA(8) of the I.T. Act. We, therefore, dismiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. As she represented the company at various high level forums around the world which opened the doors of immense business opportunity for the company to expand its business around the world, thus the presence of Ms. Shallu Jindal in the board of Directors of the company is highly beneficial and helped in generating a brand image of the company and as a result the performance of the company which may be appreciated from the comparison with other companies, and which alone shows that the profit of the company has got many folds when compared to other companies. The Ld. AR also pointed out that Ms. Shallu Jindal is professionally qualified as she possess a Diploma in Business Management and also has Entrepreneurship skills and therefore it should be learnt from her primary responsibilities that her role is to promote and develop strategies leading to efficient and smooth running of business activities of the company at present as well as in coming years. The Ld. AR further pointed out that the comparison done by the Assessing Officer between the remuneration paid by the assessee company to Ms. Shallu Jindal with the remuneration paid by Essar Steel Ltd to Sh. Ashutosh Agarwala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shallu Jindal with the remuneration paid by Essar Steel Ltd to Sh. Ashutosh Agarwala is not proper as well considering the facts that the assessee company is a profit making venture whereas Essar Steel Ltd. is incurring losses. It should also be noted that the assessee company has also complied with all the provisions of the Companies Act, 1956, relating to the payment of managerial remuneration to its managerial personnel appointed and the said payment of managerial remuneration has also been approved by the Board of Directors. The reference made to Circular No. 6P dated 08.07.1968 issued by the CBDT is apt in the present case. Thus, the Assessing Officer was not correct in making addition on account of managerial remuneration. Ground No. 3 (b) is allowed. 16. As regards to Ground No. 3(c) relating to addition on account of allocation of common expenses u/s 80IA, the TPO reduced amount of ₹ 44,76,197 and DRP directed to enhance the said amount to ₹ 47,78,634. The Ld. AR submitted that all the additions are baseless as the submissions made on these issues have not been properly considered and appreciated. In relation to the allocation of expenses the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... char Patra (P) Ltd. held as under: 39. It is clear from the assessment orders that income shown and expenses claimed by the assessee have been duly allowed in the assessment order. None of the expenditure has been treated as ingenuine or not connected or related to the business carried out by the assessee. In the above background and without any material, and without any justification on the part of the AO, some of the expenses claimed by the assessee were held to be inflated in Unit No. I and were deflated in Unit Nos. II and III. Entire case of AO in both the assessment years is based on surmises and conjectures. The learned CIT(A) had passed a fair, rationale and just order. There was no scope to interfere with the impugned orders as rightly held by the learned AM in his proposed order. On similar facts claim in earlier years was allowed to the assessee. 43. I see some parallel between the facts of the abovecited case and case in hand, because profit was disclosed in Unit Nos. II and III on which deduction under s. 80-I was claimed and no profit was disclosed in Unit No. I on which no such deduction was permissible and expenses in aforesaid Unit No. I were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 4, the Ld. AR submitted that the Revenue authorities as well as DRP have wrongly reduced the selling price of power even without bringing on the record any admissible evidence to support the observation as well as increased the expenses towards the claim of deduction u/s 80IA(8) instead of reducing the claim u/s 80IA(8) of the Act. The Ld. AR submitted that the AO/TPO/DRP has erred in not allowing the benefit of downward adjustment as provided in the proviso of Section 92C of the Act from the Arm's length price and therefore, resulted the entire addition made just on presumption and assumption. Therefore, the Ld. AR submitted that the finding of Assessing Officer is liable to be deleted. 20. The Ld. DR relied upon the order of the TPO, directions of the DRP and Assessment Order. 21. We have heard both the parties and perused all the relevant material available on record. The Revenue authorities reduced the selling price of power even as well as increased the expenses towards the claim of deduction u/s 80IA(8) instead of reducing the claim u/s 80IA(8) of the Act. To arrive at this conclusion, none of the authorities have given any plausible explanation in the orders. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther submitted that the Assessing Officer noticed that the assessee claimed a deduction of ₹ 45,04,273/- on account of expenses incurred by way of different nature of revenue expenses and details thereof, on discharging corporate social responsibility. In response to the questions of the Assessing Officers/TPO/DRP, it was explained by the assessee that these expenditure mainly relate to the expenses incurred on post excavation work, talab repair/beautification, Plantation work, Occasion Celebration Expenses, Other expenses, Distribution Expenses, Vehicle Hiring, construction of school building, devasthan /temple, drainage, barbed wire fencing, educational schemes and distributions of clothes etc voluntarily. In this background, and without much of a discussion on the factual aspects, the Assessing Officer disallowed the claim of CSR expenses even without disputing the factual matrix or bringing on record any adverse material. 30. The Ld. AR submitted that the AO/TPO as well as the DRP has erred on facts and law by not properly appreciating that Corporate social responsibility, also called corporate conscience, corporate citizenship, social performance, or sustainable res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause some of these expenses are incurred voluntarily, i.e. without there being any legal or contractual obligation to incur the same, those necessary that every expense that could be allowed as a deduction should be such as a hardnosed and perhaps devoid of senses of compassion, businessman alone would incur in furtherance of his business pursuits. In support of the assessee s claim towards CSR expenses a guidance from passage from the judgment of House of Lords in the case of Atherton vs. British Insulated Helsbey Cables Ltd. (1925) 10 Tax Cases 155 (HL) was referred by the Ld. AR which was taken into consideration by the Hon'ble Supreme Court in the case of CIT vs Chandulal keshavlal co. (1960) 38 ITR 601 (SC). 32. The Ld. AR further submitted that in view of insertion of explanation 2 to section 37(1), with effect from 1st April 2015, the expenses incurred in discharging corporate social responsibility are not deductible in computation of business income. The Ld. AR further submitted that the amendment should not be treated as clarificatory in nature. The amendment in law, which was accompanied by the statutory requirement with regard to discharging the corporate soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her words, it is not necessary that every expense that could be allowed as a deduction should be such as a hardnosed, and perhaps devoid of senses of compassion, businessman alone would incur in furtherance of his business pursuits. We find guidance from a passage from the judgment of House of Lords in the case of Atherton vs. British Insulated Helsbey Cables Ltd. (1925) 10 Tax Cases 155 (HL), referred to with approval by the Hon ble Supreme Court in the case of CIT vs. Chandulal Keshavlal Co. (1960) 38 ITR 601 (SC), which reads as follows: It was made clear in the above cited cases of Usher s Wilshire Brewery vs. Bruce (supra) and Smith vs. Incorporated Council of Law Reporting (1914) 5 Tax Cases 477 that a sum of money expended not with a necessity and with a view to direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order to indirectly facilitate, carrying on of business may yet be expended wholly and exclusively for the purpose of the trade; and it appears to me that the findings of the CIT in the present case, bring the payment in question within that description. They found (in words which I have already quoted) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business or not. We may, in this regard, usefully refer to the observations of a coordinate bench of this Tribunal, speaking through one of us (i.e. the Accountant Member) and in the case of Hindustan Petroleum Corporation Ltd Vs DCIT [(2005) 96 ITD 186 (Bom)], as follows: 7. We find that as held by Hon ble Karnataka High Court in the case of Mysore Kirloskar Ltd. v. CIT [1987] 166 ITR 836 1, while the basic requirements for invoking sections 37(1) and 80G are quite different , 'but nonetheless the two sections are not mutually exclusive Thus, there are overlapping areas between the donations given by the assessee and the business expenditure incurred by the assessee. In other words, there can be certain amounts, though in the nature of donations, and nonetheless, these amounts may be deductible under section 37(1) as well. Therefore, merely because an expenditure is in the nature of donation, or, to use the words of the CIT(A), promoted by altruistic motives , it does not cease to be an expenditure deductible under section 37(1). In Mysore Kirloskar Ltd. s case (supra), Their Lordships have observed that even if the contributions by the assessee is in the forms of don ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itizen brings goodwill of the local community as also with the regulatory agencies and soc.ety at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill.... 9. Let us now take a look at the undisputed facts of this case. The assessee is a company owned by the Government of India and working under the control and directions of the Government of India. As the statement of facts clearly sets out, the expenditure on 20-Point Programmes was incurred in view of specific directions of the Government of India. This factual aspect is no. even disputed or challenged by the Revenue at any stage, it cannot but be in the business interest of the assessee-company to abide by the directions of the Government of India which also owns the assessee-company. In any event, as observed by the Hon'ble Madras High Court in Madras Refineries Ltd.'s case (supra), monies spent by the assessee as a good corporate citizen and to earn the goodwill of the society help creating an atmosphere in which the business can succeed in a greater measure with the help of such goodwill. The monies so spent therefore are required to be treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot have any application for the period not covered by this statutory provision which itself came into existence in'2013. Explanation 2 to Section 37(1) is therefore, inherently incapable of retrospective application any further. In any event, as held by Hon ble Supreme Court s five judge constitutional bench s landmark judgment, in the case of CIT Vs Vatika Townships Pvt. Ltd. [(2014) 367 ITR 466 (SC)] the legal position in this regard has been very succinctly summed up by observing that Of the various rules guiding how legislation has to be interpreted, one established rule is that unless a contrary intention appears, legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow s backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid statutory obligation. For this reason also, as also for the basic reason that the Explanation 2 to Section 37(1) comes into play with effect from 1st April 2015, we hold that the disabling provision of Explanation 2 to Section 37(1) does not apply on the facts of this case. 20. Ground No. 3 is also thus dismissed. The factual matrix are identical in the present case. Besides this, insertion of Explanation 2 to section 37(1) is applicable w.e.f. 1.4.2015 and thus, the said provision will not be applicable in the present case. There is no dispute that the expenses in question are not incurred under the statutory obligation. The Assessing Officer disallowed the claim of CSR expenses without disputing the factual matrix or bringing on record any adverse material which can be seen from the Assessment Order. Thus, this disallowance does not survive. Hence Ground No. 7 is allowed. 35. As regards to Ground No. 8, the Ld. AR submitted that the difference on account of 26AS the assessee has already made the submission after reconciliation which has not been appreciated and therefore liable to be deleted. 36. The Ld. DR relied upon the order of the TPO, directi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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