TMI Blog2019 (11) TMI 1046X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 80-IA - captive power plant - scope of the word derived from - reason/justification of valuation of power produced on the basis of JSEB rate - Held that:- even at the time of framing of assessment order and making addition, the AO was not sure about the cost of production of power and he assumed the same at ₹ 2.5 per unit with a rider that same may be revised later if the assessee furnishes details of cost of production of power alongwith necessary evidence. - the CIT(A) was right in granting part relief to the assessee but was not correct in confirming part addition considering the factum of 2 paise per unit for working out eligible profits u/s. 80IA of the Act. - Claim of the assessee allowed. Disallowance of expenses related to exempted unit - AO has apportioned 45.68% of the claim of the assessee pertaining to Director sitting fees and business head office expenses pertaining to exempt unit - Held that:- the Directors sitting fees of ₹ 1,60,000/- and head office expenses of ₹ 72,00,000/- need to be apportioned on the basis of turnover of the assessee and the authorities below has done on the same line. Regarding sales promotion expenses, no alloc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... community welfare expenses, etc of ₹ 24,35,192/ 3. Deletion of addition on account of excess sale of power plant. 4. Deletion of addition on account of allocation of expenses between power plant unit and caustic plant. 4. The assessee has raised the following grounds: 1. On the facts and circumstances of the case, the Id. CIT (A) had grossly erred in dismissing the ground of appeal that the Id. AO was not justified in travelling beyond the show cause notice issued u/s 263 by saying that this ground is general in nature and does not require any specific comment. 2. On the facts' and circumstances of the case, the Id. CIT (A) had grossly erred in confirming the disallowance of ₹ 15,000/- on ad hoc basis i.e.10% of 1,50,000/- claimed by your appellant on account of club expenditure. 3. On the facts and circumstances of the case, the Id. CIT (A) had grossly erred in confirming the disallowance of ₹ 2,02,082/- on ad hoc basis i.e. 10% of 20,20,825/- claimed by your appellant on account of other staff welfare expenses. 4. On the facts and circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of rival parties and perused the materials placed on the record of the Tribunal, as well as the decisions of the Tribunal on the issue in the case of the assessee. 8. Ld A.R. of the assessee submitted that the Assessing Officer had disallowed these expenses on the ground that same were not incurred in connection with the business of the assessee company. However, ld CIT(A) restricted the disallowance to 10% of the total expenses on adhoc basis without giving any valid reason. Ld A.R. also relied on the decision of this Bench of the Tribunal in assessee s own case for the assessment years 2003-04 and 2004-05 in ITA Nos. 192 194/Ran/2008, wherein, on similar facts and circumstances of the case, the Tribunal following the decision of Patna Bench of the Tribunal in assessee s own case in ITA No.441/2005 for the assessment year 2000-2001 has deleted the disallowances made by the lower authorities. Hence, it was his submission that the disallowances restricted by the CIT(A) under the different heads deserve to be deleted. 9. Replying to above, ld CIT DR supported the order of the CIT(A). He further submitted that even though the findings of the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowances made by the lower authorities. Accordingly, the disallowance confirmed by the Ld. CIT(A) is directed to be deleted on the above head of expenses. Hence, Ground Nos.2 to 7 of appeal are allowed. 11. Apropos Ground No.8 of appeal of the assessee, briefly stated the relevant facts of the case are like this. During the assessment proceedings, the Assessing Officer noticed that the assessee claimed deduction u/s. 80- IA for its unit of a captive power plant amounting to ₹ 16,58,48,283/- (restricted to ₹ 13,47,08,499/-) for assessment year 2006-07. The AO also observed that the assessee for its power plant had taken sale value amounting to ₹ 61,39,17,000/-, which had been arrived at by taking the tariff rate of JSWEB @ ₹ 3.6158/ unit. Therefore, the Assessing Officer required the assessee to give reason/justification of valuation of power produced on the basis of JSEB rate. After considering the submission of the assessee, the AO relying on sub-section(5) of Section 80IA, observed that the word derived from cannot have a wide import and derivation of income must be directly connected with the business in the sense that the income is g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n making the addition by observing that the cost of production of power has to be assumed at ₹ 2.5 per unit and the same may be revised later, if the assessee furnishes details of tis cost of production of power alongwith necessary evidence. Ld CIT DR submitted that the AO was right in making the addition of the amount of difference between the sale consideration which reduces the profit claimed u/s. 80IA of the Act by the same amount. Ld CIT DR also submitted that Ground No.3 of appeal of the revenue for assessment year 2006-07 has to be taken into consideration while deciding Ground No.8 of appeal of the assessee. Ld CIT DR pressing said Ground No.3 of revenue submitted that the assessee has calculated the sales of its steam boiler unit at production cost + 20% mark up but in the case of its power plant instead of taking the same logic, the assessee has taken sale value of Jharkhand State Electricity Board (JSEB) as its sale rate which is not correct. Ld CIT DR submitted that the CIT(A) was not right in deleting the said addition on the ground that the value should be taken at market value of goods as per State Electricity Board. Ld CIT DR submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he market value of electricity which comprises of a component of electricity duty has to be taken into consideration for determining the market value for a consumer and out of electricity charges calculated by State Electricity Board, the duty is passed to the Government and this would make no difference. Therefore, not only the relief granted by the CIT(A) should be upheld but part addition confirmed by the CIT(A) pertaining to the electricity duty should also be allowed to the assessee. 16. On careful consideration of the rival submissions, first of all, we find it appropriate and necessary to reproduce the relevant operative para 9.4 of the CIT(A) s order, wherein, he has allowed part relief to the assessee and partly confirmed the difference of ₹ 33,95,748/- between the sale price as per books and as per working noted in the CIT (A) s order to calculate the profit earned by 80IA eligible unit as under: 9.4. I have considered the submission of the appellant and perused the assessment order as well as remand report of the Ld. A.O. It is noted that the company has claimed deduction u/s 80-IA for its unit of a captive power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, it is clear that in case of transfer of goods and services between eligible unit and other businesses of the assessee, the transfer pricing of goods and services for computing deduction under section 80-IA of eligible business should be market value of goods and services at which the goods or services can ordinarily be sold in the open market. It is noted that Jharkhand State Electricity Board in the State of Jharkhand authorized by the State Government to supply power to various consumers in the state and appellant company is too as industrial consumer is buying power from JSEB at a rate of 3.61 per unit. It is also noted that the appellant has argued that had it not been generating power from its captive power plant for its own consumptions, the same power would have been purchased from JSEB at a rate of 3.61 per unit. Further, it is also noted that for adaptation of cost plus mark up as transfer pricing for power, the A.O. has relied on the decision of Bombay High Court in the case of Atul Durga House Ltd. 211 ITR 604, it is important to mention here that the decision was given in the context of claim u/s 80J of the Income Tax Act I961 as applicable prior to 1.4.1976 and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to a supplier as this is not the rate for which a consumer the Steel Division could have purchased power in the open market. In our opinion, the A.O. committed an illegality in computing the market value by taking into account the rate charged to a supplier: it should have been compared with the market value of power supplied to a consumer. It is also noted that in the case of CIT Vs. Kanoria Chemicals Industries Ltd the Hon'ble Kolkata High Court in ITA No.58 of 2013 has held we find 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 has been adopted by the assessee for the electricity generated by the eligible business transferred to its other business for the purpose of computation of profits and gains of the eligible business in terms of Section 80-IA(8) of the Act. In this regard it is noted that the Hon'ble Mumbai Tribunal in the case of the West Coast Paper Mills Ltd. Vs. Asstt. Commissioner of Income Tax [2006] 103 ITD 19 MUM [2006] 286 ITR 252 MUM has noted that the rate to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence, the cost of production of power is assumed at ₹ 2.5 per unit and the same may be revised later if the assessee furnishes details of its cost of production of power alongwith necessary evidence. The sale consideration of power is therefore shown as below: Sale value of power as per P L a/c of Captive Power Plant: ₹ 61,39,17,000/- Tariff rate of JSEB:-361.58 paise/unit(net energy rate applicable to assessee company) Therefore total unit produced : - ₹ 16,97,87,322/- Therefore correct sale consideration of power :-16,97,87,m322 x(2.5+20%) = ₹ 50,93,61,966/- The difference of ₹ 10,45,55,034/- (₹ 61,39,17,000 ₹ 50,93,61,966) between the sale consideration reduces the profit claimed u/s.80IA by the same amount and hence the same is added back to the total income of the assessee company. 18. In view of above observation of the AO, it is clear that even at the time of framing of assessment order and making addition, the AO was not sure about the cost of production of power and he assumed the same at ₹ 2.5 per unit with a rider that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (supra) has held that the rate charged by State Electricity Board has to be taken into consideration while calculating deduction for 80IA eligible unit and electricity duty has no relevance for calculating the same. On the basis of foregoing discussion, we reached to a logical conclusion that the CIT(A) was right in granting part relief to the assessee but was not correct in confirming part addition considering the factum of 2 paise per unit for working out eligible profits u/s. 80IA of the Act. Consequently, the findings of the CIT(A) granting relief to the assessee are confirmed and the addition partly confirmed pertaining to the electricity duty being devoid of merits is directed to be deleted. Hence, Ground No.8 of the assessee is allowed and Ground No.3 of revenue is dismissed. 21. Apropos Ground Nos.9 10 of appeal of the assessee and Ground No.(iv) of the revenue, we have heard the rival submissions and perused the relevant materials placed on the record of the Tribunal. 22. Ld counsel for the assessee submitted that the Assessing Officer has apportioned 45.68% of the claim of the assessee pertaining to Director sitting fees and business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness head office expenses, ld CIT DR submitted that these expenses need to be apportioned on the basis of the turnover of the assessee which the AO has done. Ld CIT DR placed reliance on the decision of ITAT Delhi Bench in the case of NIITGIS Ltd vs DIT, in ITA No.3077/D/2012 order dated 24.2.2015 and submitted that the orders of authorities below be upheld. 24. On careful consideration of rival submissions, we are of the considered view that the CIT(A) has upheld the addition on both counts with the following observations and findings: 11.2. The appellant during the course of appellate proceedings has argued that the company maintains separate books of accounts for 80-IA plant and other plants and all the expenses related to concerned plant are booked appropriately in the books of the same plant and these books of accounts are audited by the Statutory Auditors and certified by the management of company. It has also been argued that the apportionments of certain expenses made by the learned A.O. between 80-IA and other plants is totally baseless, assumptive and have no reasoning at all. The head wise details and explanation of expenses reloca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and unjustified. 11.3. In this case the remand report was called for from the Ld. A.O. vi this office letter F.No.CIT(A)/ Ran/ Remand Report/ 2014- 15/ 1196, da1 02.09.2014. The Ld. A.O. vide F.No.ACIT/ Cir-3/ RNC/ appeal/ 2013-1 1967, dated 04.08.2014 has sent the remand report which was received in t office on 20.12.2014. 11.4. I have considered the submission of the appellant and perused the assessment order as well as remand report of the Ld. A.O. It is noted that the A.O. apportioned the expenses on principal unit and captive power plant unit on the ground that the assessee was claiming deduction u/s.80-IA in respect of captive power plant but there were certain services and amenities which were used by section 80-IA unit in order to enable to carry out day to day functioning and the financial management or related activities and these services were being provided by the head office of the assessee. The appellant had prepared separate profit and loss account for its captive power unit and steam generation Hydrogen boiler unit. It is also noted that expenses such as sales promotion, sales overhead expenses, business promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own chemical division. There is no third party sale to any other entity. Due to these peculiar facts of the case it is seen that expenditure which can be allocated to captive power plant should relate only to generation of electricity and management of power plant. In this regard it is noted that the Ld. A.O. has considered allocation of sales promotion expenses of ₹ 1,55,000/^and business promotion expense ₹ 13,08,358/- to the captive power plant. However, as per the details available it is seen there is not much basis for inclusion of these expenses in the expenditure of captive power plant as it is seen that the power generated is for in house use by the assessee and has not be marketed or sold to third party. In view of this addition made by the Ld. A.O. on these two expense heads is difficult to sustain in appeal and is directed to be deleted. As regards the other two heads of expenses is concerned i.e. Director's sitting fees of ₹ 1,60,000/-and Business Head Office Expenses of ₹ 72,00,000/- these expenses need to be apportioned on the basis of the turnover of the assessee which the Ld. A.O. has done. Accordingly, the relocation and addition on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... running captive power plant and generating electricity by the assessee s own chemical division and there is no third-party sale to any other entity. In these peculiar facts and circumstances of the case, it was concluded that the expenses which could be allocated to captive power plant should relate only to generation of electricity and management of power plant. The Assessing Officer rightly observed that there was no basis for such allegation for inclusion of these expenses in the expenditure of captive power plant. The Assessing Officer also rightly observed that the allocation of sales promotion of ₹ 1,55,000/- and business head office expenses of ₹ 13,08,358/- to the captive power plant and there was no basis for such allegation for inclusion of these expenses in the expenditure of captive power plant as the power generated was for in house use by the assessee itself and having marketed and sold to third party. Keeping in view these facts, we are of the considered view that the CIT(A) was right in directing the AO to delete the addition. 27. We are in agreement with the contention of the ld A.R. of the assessee that it is well principles of tax ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue relates to deletion of addition of ₹ 94,90,362/- on account of payments made as rebate and claimed the same as unascertained liability and a provision. 30. The relevant facts of the case are that during the course of assessment proceedings, the Assessing Officer noticed that the assessee has debited ₹ 94,90,362/- in the profits and loss account under the head rebates and claims . The Assessing Officer required the assessee to furnish the details of rebates and claim, party-wise details and reasons alongwith the copy of ledgers. The assessee submitted that the liabilities have been provided for various reasons related to sales of products and in support of this, vouchers of ₹ 94,90,362/- was furnished. On perusal of the same, the Assessing Officer noted that the journal entry has been passed for the amount of ₹ 94,90,362/- debiting as rebates and claims and has been written as provision for claim of customer (marketing liability 2005-06). The Assessing Officer opined that as the nature of amount suggest that the amount was provision in nature, therefore, same had not been finalised during the year under consideration and still re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006- 07). It is noted that liability taken in F.Y.2005-06 (A.Y.2006-07) was an ascertained liability. In view of these discussion, and on perusal of proper vouchers and details of such liability it is noted that the Ld. A.O. has failed to appreciate these details and incorrectly disallowed the ascertained liability of ₹ 94,90,362/- on account of rebate and claims. On the basis of this discussion the addition made by the Ld. A.O. cannot be sustained in appeal and is directed to be deleted. Accordingly, this ground of appeal of the assessee is allowed. 32. Ld CIT DR submitted that the claim of the assessee is only a journal entry and demand was not ascertained. Therefore, the CIT(A) is not justified in deleting the same. 33. Replying to above, ld A.R. of the assessee supported the order of the CIT(A). He submitted that the CIT(A) after considering the remand report and the credit note issued by Hindalco on 1.7.2006, proving that the liability was ascertained in financial year 2005-06, deleted the addition. 34. We have heard the rival submissions, perused the materials available on the record of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a remand report from the Assessing officer and after considering the same, has partly allowed the ground by restricting the disallowances as under: 7.4. I have considered the submission of the appellant and perused the assessment order as well as remand report of the Ld. A.O. The Ld. A.O. has made the additions under the head horticulture expenses amounting to Rs. ₹ 5,04,255/-, CSR expenses - ₹ 18,39,493/-, community welfare expenses -₹ 91,444/- totaling to ₹ 24,35,192/- on the basis that these expenditures are purely altruistic and philanthropic in nature and these expenses were not wholly and exclusively for business purposes but had to be treated as application of income. All these additions are dealt with separately as under:- i. Horticulture Expenses - ₹ 5,04,255 /- It is noted that the expenditure incurred on horticulture expenses observing that the expenditure incurred on maintenance of greenery at plant and residential premises of the employees cannot be said to have been incurred for other than business purposes. It is seen that towards horticulture expenses the appellant claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the order of the Assessing Officer 39. On the other hand, ld A.R. of the assessee supported the order of the CIT(A). He also referred to the decision of Co-ordinate Bench of this Tribunal in assessee s own case for the assessment year 2012-13 in ITA No.295/Ran/16 order dated 27.2.2018, wherein, the addition relating to CSR expenses and community welfare expenses and horticulture expenses has been deleted. While doing so, the Tribunal has also referred to the decision of ITAT Patna in assessee s own case in ITA No.441/Pat/2005 for the assessment year 2003-04 in revenue appeal. Hence, it was his prayer that the issue is covered in favour of the assessee. 40. On careful consideration of the rival submissions, we perused the orders of the Tribunal in assessee s own case for the assessment year 2012- 13 (supra), wherein, on identical issue, the addition has been deleted. Following the precedent, we uphold the findings of the CIT(A) and dismiss the ground of appeal No.2 of the revenue. 41. In the result, appeal of the assessee is partly allowed and appeal of the revenue is dismissed. Now, we take up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Deletion of addition of ₹ 55,95,993/- made u/s.40(a)(ia) of the Act. 2. Deletion of addition of depreciation claimed on power plant of ₹ 10,36,05,732/-. 45. Apropos Ground No.1 of appeal of the revenue, ld CIT DR submitted that the Assessing Officer had made addition of ₹ 55,95,993/- on account of payment made as consultancy charges to M/s. UDHE and the CIT(A) gave a relief to the assessee on the ground that tax has been deducted u/s.194C of the Act hence, provisions of section 40(a)(ia) of the Act are not attracted. Ld CIT DR submitted that since from the relevant documentary evidence, it was clear that payment was made in the form of consultancy and hence, TDS should have been deducted u/s.194J of the Act and failure to do so attracts the provisions of section 40(a)(ia) of the Act. Therefore, the order of the CIT(A) on this issue may kindly be set aside and that of the AO be restored. 46. Replying to above, ld counsel for the assessee drew our attention to para 3.3. of the first appellate order and submitted that if there is any shortfall due to any difference of opinion as to the taxability of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Section 40(a)(ia) of the Act has two limbs, one is where, inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Government Account. There is nothing in the said section to treat, inter alia, the assessee as defaulter where there is a shortfall in deduction. With regard to the shortfall, it cannot be assumed that there is a default as the deduction is not as required by or under the Act, but the facts is that this expression, 'on which tax is deductible at source under Chapter XVU-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in subsection (1) of Section 139. This section 40(a)(ia) of the Act refers only to duty to deduct tax and pay to government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions the assessee can be declared to be an assessee in default u/s 201 of the Act and no disallowance can be made by invoking the provisions of Section 40(a)(ia) of the Act. In view of these discussions, the disallowance made by the Ld. A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that depreciation was first allowed on the basis of Company Act which the assessee ahs added back and given relief on the basis of I.T.Act. Ld CIT DR strenuously contended that the assessee has been able to claim depreciation on account of power plant unit which is already exempt u/s.80IA of the Act and full relief of profit of the plant has already been allowed to the assessee. Therefore, the assessee should have been removed the depreciation component of power plant division both on account of Company Act and I.T.Act. 51. Replying to above, ld counsel for the assessee strongly supported the order of the CIT(A) and further submitted that the Assessing Officer disallowed the depreciation on power plant which was eligible for exemption u/s. 80IA of the Act by observing that the said expenditure was belonging to an exempt undertaking. 52. After hearing both the sides, we are of the view that ld CIT(A) rightly observed that if the depreciable is allowable under the income tax Act, 1961, same should not be disallowed when the depreciation under the Companies Act is added in the computation of total income. The tax authorities should respect the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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