TMI Blog2021 (4) TMI 449X X X X Extracts X X X X X X X X Extracts X X X X ..... s but out of assessee s own funds. Thus, the contentions of CIT(A) that assessee has failed to establish the acquisition of shares and sources thereof by producing books of accounts and other documentary evidence by relying on the judgment of Calcutta High Court in case of Dhanuka Sons[ 2011 (4) TMI 861 - CALCUTTA HIGH COURT] is erroneous. It is apparent from the facts submitted by the assessee before assessing officer as well as before CIT (A) from which one may reasonably infer that investments are not out of borrowings but from the assessee s own surplus funds. - we direct the AO to delete the disallowance made u/s 14A - Decided in favour of assessee. Adjustment on account of transfer pricing international transaction under dispute is the Export of Nylon Tyre Yarn' and Export of Chafer' by the assessee to its associated enterprise namely SRF Overseas Ltd, Dubai - assessee benchmarked the aforesaid international transaction by applying CUP as most appropriate method (MAM) to determine ALP - HELD THAT:- As carefully examined the working given by the assessee in Annexure-I of the synopsis, according to which the net effect under aggregate approach which we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional grounds. Interest Subsidy under Technological upgradation fund (TUF) - It is a settled position that purpose of subsidy or incentive and not the nomenclature of such incentive have to be seen for the purpose of deciding its nature as capital or revenue. Following the order of coordinate bench in assessee s own case for AY 2012-13, we remit the issue to the file of assessing officer to verify the claim of the assessee and allow the relief if the same is in the nature of interest subsidy under TUF scheme after granting a reasonable opportunity of being heard to the assessee. Deduction of education cess u/s 37/40(a)(ii) - HELD THAT:- As decided in M/S. SICPA INDIA PRIVATE LTD [ 2020 (4) TMI 425 - ITAT DELHI] education cess is not a disallowable expenditure u/s 40(a)(ii) of the Act having been expressly excluded from section 40(a)(ii) of the Act. Moreover, cess is not in the nature of tax as has been held by Hon ble Supreme Court in case of Smith Kline Amp; French (India) Ltd. and Ors.[ 1996 (4) TMI 2 - SUPREME COURT] - So, we are of the considered view that AO/CIT(A) have erred in disallowing the deduction for education cess on income-tax, dividend distribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i was at arm s length as per Chapter X of the Income Tax Act. The learned TPO and CIT (Appeals) have failed to appreciate that as per provisions of Chapter X no addition was called for on the transactions between the appellant and its AE SRFO Dubai. (c) That on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in upholding the action of the Assessing Officer and not considering the debit notes for ₹ 36.95 lakhs raised by the appellant in addition to the invoices raised for supplies. (d) That the addition of ₹ 44,77,914/- is bad in law and is prayed to be deleted. 3 (a) That the learned CIT (Appeals) has erred in law, on facts and in the circumstances of the case is not admitting additional grounds raised before him on account of ₹ 491.53 crores being capital receipt and exempt from tax representing sale proceeds from transfer of Carbon Credit (CER / Carbon Emission Reduction) on wholly erroneous and untenable grounds. (b) That the hon ble Tribunal be pleased to admit the grounds: (i) That on the facts and circumstances of the case and in law, the amount received onaccount of CERs transferred was a capital recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008 dated 24th March, 2008 are procedural and clarificatory in nature and thus has retrospective operation including the relevant year under consideration i.e. AY 2007-08. The AO proposed the disallowance u/s 14A read with Rule 8D of ₹ 45,69,828/-. 6. Before the Assessing Officer, the assessee contended that Hon ble Bombay High Court in case of Godrej and Boyce Manufacturing Co. Ltd. v. DCIT [2010] 328 ITR 81 (Bombay) while reversing aforesaid judgment of ITAT Mumbai (Special Bench) in case of ITO v. Daga Capital [117 ITD 169] held that provisions of Rule 8D is prospective and thus applicable from A.Y. 2008-09. Thus, rule 8D will not be applicable fir A.Y. 2007- 08. The assessee further contended that major investments are in foreign subsidiaries and thus the dividend income from which when received is taxable under the Act. Further, out of remaining investments, only ₹ 399.17 Lakhs has been made during the current year and over and above there is a repayment of loans to the tune of ₹ 11905.39 Lakhs during the year. Further, ld. Counsel for the assessee pointed out that the charges in the nature of bank charges, bill discounting charges, LC charges etc. whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase / (Decrease) in investment from which income exempt 2003-04 (3,002) 0 2004-05 18,903 (500) 2005-06 17,707 (243) 2006-07 (12,020) 299 He pointed out that during the said period of four years, the assessee had borrowed approx. ₹ 36,608 lakhs for various reasons which included expansion of its business, replacement of assets, establishment of new factories and other business needs and there was no addition in investment made by the company during such three previous years prior to the relevant year. Further, during the relevant year under considerationthe assessee repaid borrowings of ₹ 12,020 Lakhs, while net investment made is only ₹ 299 Lakhs. 11. In addition to above, the ld Counsel also highlighted the fact that assessee has reserves surplus as on 01.04.2006 of ₹ 53,121.45 Lakhs and as on 31.03.2007 of ₹ 80,488.05 Lakhs, average being ₹ 66,804.73 Lakhs which is almost 40 times of the other investment (Othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l contentions and fully agree that for the impugned assessment year, the provisions of Rule 8D of Income Tax Rules, 1962 which has been made applicable with effect from assessment year 2008-90 only and does not apply to the impugned assessment year under appeal before us. Therefore, no disallowances under section 14A of the Income Tax Act, 1961 can be made in hands of the assessee for this assessment year based on computation formula of Rule 8D. The second contention of the assessee is that the Ld. AO has not recorded any satisfaction where the assessee has contended that the assessee has not incurred any expenditure for earning exempt income. The detailed exploration of the assessee is available at Para No. 7.2 of assessment order where assessee has submitted that out of total investment, ₹ 8756.86 Lacs are invested in foreign subsidiary company where dividend earned by the company is taxable and not exempt. Furthermore, it was also contented that investment made during the year is out of operating cash flow of the current year and the remaining investment of ₹ 1096.7 Lacs had been made earlier in different financial year, to substantiate assessee also submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 14A of the Act. Further, in A.Y. 2011-12 (ITA no.356/Del/2015) and AY 2012-13 (ITA no.5784/Del/2016), this Tribunal has upheld deletion of disallowance u/s 14A r.w.r. 8D in view of sufficiency of assessee s own surplus funds in form of reserves and surplus over the value of investments. 16. As has been brought to our attention that in the year under consideration, the reserve and surplus are much higher than the investments and further, investment made during the year is only ₹ 399.17 Lakhs (net ₹ 299.00 Lakhs), while there is actual repayment of borrowings during the year to the extent of ₹ 12,020 lakhs. Therefore, assessee s own funds are much more than investment and on the facts of the case it can be reasonably inferred that amount of investment made cannot be said to be made from borrowings but out of assessee s own funds. Thus, the contentions of CIT(A) that assessee has failed to establish the acquisition of shares and sources thereof by producing books of accounts and other documentary evidence by relying on the judgment of Calcutta High Court in case of Dhanuka Sons v. CIT [2011] 339 ITR 319 (Cal) is erroneous. It is apparent from the facts submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the TPO. 21. During the course of hearing, the ld. Counsel s main objection against the above adjustment was that, while computing the arm s length price of above international transactions, the TPO cannot pick and choose the transactions with the same AE with an objective of making an adjustment. He took us through the chart of transactions reproduced in the TPO s order at page no. 14 to page no.20 to bring out the fact that there are number of transactions in the nature of export of goods with its AE on different dates spread across the entire year. Going through the chart given by the TPO himself in the order, he pointed out that there are certain transactions the price of which are more than the comparable price and hence no adjustment has been proposed by the TPO. While there are other transactions, where the prices are lower than the comparable prices and in respect of such transactions only, the adjustment has been made by the TPO. The difference even in such transactions, fall within the range of +5. For instance from page no.14 of the TPO order from where the table starts, he pointed the first four transactions having serial no.1 to 4, the assessee s transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting to ₹ 36,95,456/- which has not been considered by the TPO and CIT(A). This would go to further reduce adjustment if any. 26. Lastly, on use of Technon Orbichem Price Monitor as comparable, the ld. AR submitted that though the TPO has refused to consider it as comparable data under CUP, he himself has used such data while computing the arm s length price as evident from the chart given in its TPO s order. The ld. AR also submitted that adjustment proposed is only 1% of the total value of the transaction which is meager and is within the threshold of +/-5%. 20. The ld. DR relied on the order passed by the adjudicating authorities and further submitted that transaction has to be seen in segregation and if price charged from AE is lower than the comparable price on any transaction, then adjustment has to be made. 21. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. The TPO and CIT (A) have rejected the relief of +5% as the basis of making and upholding the adjustment proposed. However, the main ground raised before us is, whether aggregation of closely linked transactions can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of export of nylon yarn and chafer by the assessee to its AE and the nature of transaction is same and homogeneous and is with the same AE. These transactions are continuous transactions and are closely linked transactions. Though each international transaction is required to be benchmarked separately, however, the word transaction as defined under Rule 10A (d) of Income-tax Rules, 1962, includes within its ambit a number of closely linked transactions. If transactions with the AE are continuous and there number of closely linked transactions, like here in this case, then there cannot be separate benchmarking of closely linked transaction. The rules mandates that closely linked transactions can be treated as a class of transaction and benchmarked together. The price of the goods which are the subject matter of export transaction are negotiated based on international pricing quote for each day which are given Technon Orbichem Price Monitor . It depends upon when the order is booked and exported. If one carefully peruses the transactions as incorporated in the Table given by the TPO, it is seen that on most of the times the price charged with AE is higher than the compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26. The assessee has received carbon emission reduction ( CER or carbon credits ) certificates on account of its efforts to reduce the emission of greenhouse gases in terms of Kyoto Protocol. During the relevant year the assessee transferred 45,49,000 of such certificates for a consideration of ₹ 4,91,53,00,344/-. 27. The assessee initially included the above CER receipts in its total income while filing the return of income. Subsequently before the CIT (A), the assessee raised this issue for the first time by way of additional ground for exclusion of CER receipts from the total income based on the decision reported in My Home Power Ltd. vs. DCIT [2012] 27 taxmann.com 27 151 TTJ 616. Before CIT (A), the assessee explained the issue in detail vide its submissions dated 25.11.2013. Further, complete details of CER receipts were also submitted to the assessing officer while justifying the increase in legal and professional expenses (Page no.144 of Paper Book). The CIT (A) refused to consider the additional claim on CER on the ground that assessee has not made such claim before the assessing officer by filing a revised return. The CIT(A)relied on the Hon ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed the appeal of the assessee with following findings:- 41. Thus, taking into consideration resolution of litigation on this issue by the Legislature itself, which had made provision for taxation of such receipts at the rate of 10% from the assessment year 2018-19 as well as authoritative pronouncements of Hon'ble jurisdictional High Court, we are of the view that receipts received by the assessee on sale of carbon credit are to be treated as capital receipts and not liable to tax. The ld.DRP has assigned one more reasons for not entertaining claim of the assessee particularly in the assessment year 2012-13 is that such claim was not in the return of income, rather it was made during the course of assessment proceedings. On the strength of Hon'ble Supreme Court judgment in the case of Goetez India Ltd.(supra), we are of the view that the AO cannot entertain any claim for allowing deduction resulting in a reduction of total income returned, which is not claimed in the original return or a revised return. To this reasoning of the DRP, we are of the view that we have considered this aspect while dealing with the issue regarded enhancement claim made under section 80IA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR that cause of action had arisen in the case by virtue of the decision in My Home Power Ltd. (supra). The claim of assessee is bonafide and has been raised before AO as well as DRP. The assessee is not in the business of trading in CERs but in business of technical textile, chemicals, refrigerant gaseous etc. The assessee has been granted CERs on account of its efforts for reduction in harmful greenhouse gases in terms of Kyoto Protocol. Thus it cannot be said that CERs are benefits arising from the business of the assessee. Various Hon ble High Court including My Home Power Ltd. (supra) have held that carbon credits are not offshoot of business but offshoot of environmental concerns and hence not taxable. . Further coordinate bench in assessee s own case for AY 2006-07 and AY 2008-09 has allowed to raise this claim of the assessee and remitted the issue back to AO to decide the issue in accordance with law. 61. We therefore, allow the assessee s plea for entertainment of above additional claim and this issue is remitted back to the file of AO to decide it in accordance with law, after granting reasonable opportunity of heard to the assessee. The assessee sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. The Hon ble Jurisdictional High Court in case of Jai Parabolic Springs Ltd. [2008] 172 taxmann 258 (Delhi) has also categorically held that there is no fetters on the powers of the tribunal to entertain an additional ground. Hon ble Court has described that power of tribunal in dealing with appeals have been expressed in widest possible term. 35. We, therefore allow the application of the assessee for admission of additional grounds, which are dealt with hereunder: Interest Subsidy under Technological upgradation fund (TUF). 36. The brief facts are that during the year, assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allow the assessee s ground for entertainment of above additional claim and remit the issue back to the file of AO to decide the same in accordance with law after granting a reasonable opportunity of being heard to the assessee. The assessee shall be free to file such documents, explanations, submissions as it deems fit in respect of this claim. 38. We have heard the rival contentions, perused the relevant findings. It is a settled position that purpose of subsidy or incentive and not the nomenclature of such incentive have to be seen for the purpose of deciding its nature as capital or revenue. Following the order of coordinate bench in assessee s own case for AY 2012-13, we remit the issue to the file of assessing officer to verify the claim of the assessee and allow the relief if the same is in the nature of interest subsidy under TUF scheme after granting a reasonable opportunity of being heard to the assessee. Deduction of education cess u/s 37 of the Act 39. Under this additional ground the assessee has raised the issue of allowability of deduction of education cess amounting to ₹ 2,54,68,332/- u/s 37 of the Act on relying the various judgments viz. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances, education cess is not a disallowable expenditure u/s 40(a)(ii) of the Act having been expressly excluded from section 40(a)(ii) of the Act. Moreover, cess is not in the nature of tax as has been held by Hon ble Supreme Court in case of Smith Kline Amp; French (India) Ltd. and Ors. vs. CIT (1996) 219 ITR 581 (SC). So, we are of the considered view that AO/CIT(A) have erred in disallowing the deduction for education cess on income-tax, dividend distribution tax and fringe benefit tax for AYs 2009-10, 2010-11 2011-12 in computing the total income under normal provisions of the Act, consequently ordered to be deleted. Hence, Ground No.4 of AY 2009-10, Ground No.3 of AY 2010-11 Ground No.4 of AY 2010-11 in assessee s appeals are allowed. 42. Accordingly, we remit the issue back to the file of the AO to verify the claim of the assessee and allow the same in accordance with the law after granting a sufficient opportunity to the assesse. 43. Other grounds are either consequential or have become academic, hence same are treated as infructuous. 44. In the result appeal of the appellant assessee is partly allowed for statistical purposes. Order pronounced in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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