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TMI Blog2021 (11) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee accepted it and didn't raise any objection before the appropriate authority which is the DRP. 3. That, on the facts and in the circumstances of the case and in law, the Ld CIT(A)has erred in deleting the additions made by the AO on receipt of incentives by the assessee from the Govt when such incentives are not subsidy and not paid for setup the business or complete any project and as such violating the decision of the Hon'ble Apex Court in the case of M/S Sahney Steel & Press Works Ltd Vs CIT. 228ITR 253(SC), 4. That, on the facts and in the circumstances of the case and in law, the Ld CIT(A)has erred in deleting the additions made by the AO on receipt of incentives by the assessee from the Govt when such incentives are fixed percentages of the expenditures incurred by the assessee and take deductions as Revenue Expenditure in the accounts. 5. The revenue reserves its rights to substantiate, modify, delete, supplement and /or alter the grounds at any time of the appeal proceeding. 3. Ground no. 5 is general in nature so it is dismissed. 4. Ground Nos. 1 and 2 raised by the revenue are against the action of Ld. CIT(A) deleting the adjustment of Rs. 2,65,75, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to the value of raw materials purchased from the related parties to the extent of Rs. 2,65,66,525/-. Pursuant to the order of the TPO, the AO passed the assessment order dated 13.01.2017 u/s 143(3) r.w.s 144C of the Income Tax Act, 1961 (hereinafter referred to as the Act) which inter alia included disallowance of Rs. 2,65,75,525/- on account of downward adjustment made to the value of raw materials purchased from related parties u/s 92CA of the Act. Being aggrieved by the assessment order passed by the AO, the assessee had filed an appeal before the Ld. CIT(A). The Ld. CIT(A) allowed the appeal of the assessee and deleted the downward transfer pricing adjustment. Aggrieved by this action of Ld. CIT(A), the Revenue is now in appeal before us. 8. Assailing the action of the Ld. CIT(A), the Ld. CIT,DR (TP) Shri Gaurav Kanojia submitted that the Ld. CIT(A) erroneously accepted the assessee's plea that the transaction with related parties were at ALP by accepting the simple arithmetic mean of the comparable rates of sales made to unrelated parties. According to him, in such cases weighted average mean has to be taken to correctly determine the Arm's Length Price (ALP). He contende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the minimum price i.e. Rs. 13,500/- to benchmark the assessee's transaction. He pointed out that the TPO had followed the same basis for all other products such as Ferro Chrome HC, Scrap, MS Round, TMT bars wherein he had similarly ignored all other comparable rates and took the lowest price as the comparable rate for benchmarking purposes. The Ld. AR submitted that the TPO's basis of benchmarking was with a preconceived objective of somehow making an adjustment in any arbitrary manner without support of law and therefore clearly perverse. He thus contended that the Ld. CIT(A)'s order deleting the transfer pricing adjustment did not call for any interference. 11. Thereafter the Ld. A.R. drew our attention to Section 92C of the Act, regarding computation of arm's length price, which is reproduced as under: "Section 92C computation of arm's length price 1. The arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tic mean of such comparable prices shall be the arm's length price. However, the TPO had ignored the proviso to Section 92C(2) of the Act and had taken the lowest price from amongst the price of various comparables available as arm's length price which is contrary to the explicit law. According to the Ld. AR, the TPO had neither provided any reason for considering such lowest rate nor stated any reason for ignoring the other comparables provided by the assessee. Further, according to the Ld. AR, the second proviso to Section 92C(2) set out the tolerance band of +/-3% between the actual price taken by the assessee and the arithmetic mean of the comparables. He submitted that the rates at which the assessee transacted with the related parties was well within the tolerance limit contained in the proviso of Section 92C of the Act, for which he drew our attention to the price comparison of actual price and arithmetic mean from TPSR, which is as under: Product Purchase price from Related parties Arithmetic mean of Purchase price from third party/sale price by the RP to the third party. Anthracite Coal 15,115 15,309 Ferro Chrome HC 64,000 65,859 Scrap 28,508 28,101 MS Round ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as the Most Appropriate Method ('MAM') by the assessee has not been disputed by the AO/TPO. The only question before us, is the manner of application of CUP Method. The assessee has benchmarked the SDT with the 'arithmetical mean rate' at which the related parties sold the same product to independent buyers. On the other hand, the TPO has benchmarked it by taking the 'lowest/minimum rate' at which the related parties sold the same product to independent buyers, ignoring all other comparable uncontrolled transactions. We find that the bench marking methodology followed by the TPO is prima facie perverse and against the extant provisions contained in proviso to Section 92C(2) of the Act, which clearly states that where more than one comparable prices are available, then the arithmetical mean shall be taken as the arm's length price. The Ld. CIT(A) had therefore rightly deleted the impugned transfer pricing adjustment by holding as follows: "The appellant had furnished comparative statements which showed that the weighted average price at which AE sold raw materials to unrelated parties was comparable with the price at which the raw material was sold to the appellant. The Ld. TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... somewhat fitted. The Hon'ble Apex Court has held that the Courts are not entitled to usurp legislative duty. The Hon'ble Supreme Court has held while interpreting a provision that, the court only interprets law and cannot legislate. If the provision of law is misused and subjected to the abuse of process of law, it is for the legislature to amend, modify or repel it, if deemed necessary. In Popular Trading Co. (2000) 5SCC 515 it was held that legislative 'Casus Omissus' cannot be applied by judicial interpretation. The rule is that, the particular case, thus left un-provided for must be disposed of according to law as it existed in the statute. Useful reference may also be made to the decision of this Tribunal in the case of Coal India Ltd VsJt.CIT (88 ITD 514) where this Tribunal following the principles of 'casus omissus' as set out in the foregoing, held as follows: "10. We may mention that it is not for this Tribunal to supply the casus omissus, even if any, in the statute. A casus omissus, which broadly refers to a matter which has not been provided in the statute but should have been there to make the statute workable, cannot be supplied by us, as, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithmetical mean of such prices. Hence, when the computation of arithmetical mean has been expressly set out in the said provision, this Tribunal is not permitted to ignore or overlook the said expression and read weighted average mean in its place. In this regard, we may gainfully refer to the following findings of the Mumbai Bench of this Tribunal in the case of RBS Equities (India) Ltd Vs Addl. CIT (28 taxmann.com 158), upholding the Revenue's plea for use of arithmetical mean instead of weighted average mean. "As regards the claim of the assessee for adopting weighted average arithmetic mean of brokerage rate of 10 FIIs as against simple average arithmetic mean of such rates taken by the TPO, the first proviso to section 92C speaks about taking arithmetic mean of more than one ALPs determined by the most appropriate method. There is, however, nothing to suggest that volume of the relevant transactions also has to be taken into consideration for the purpose of computing such arithmetic mean. Therefore, the stand of the assessee that weighted average arithmetic mean should be taken and not the simple average arithmetic mean cannot be accepted. The Commissioner (Appeals), therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant & machineries & expansion of factory. On appeal, the Ld. CIT(A), after examining the purpose and intent behind the grant of subsidy upheld the assessee's claim that it was in the nature of capital receipt. Aggrieved by the action of the Ld. CIT(A) the Revenue is before us. 26. Assailing the action of the Ld. CIT(A), the Ld. CIT, DR contended that the Ld. CIT(A) erred in holding that the subsidies, which the assessee received from the State Government, were capital in nature. In support of his contention, he relied on the decisions of the Hon'ble Supreme Court in the case of Commissioner Of Income-Tax vs Rajaram Maize Products reported in 251 ITR 427 (SC) and in the case of M/s Sahney Steel & Press Works Ltd. vs. CIT reported in 228 ITR 253 (SC). According to him, particularly in relation to power subsidy, the Hon'ble Supreme Court had held it to be revenue in nature and therefore taxable. So, he pleaded that the order of Ld. CIT(A) on this issue may be reversed and AO's view to be upheld. 27. Per contra, the Ld. A.R submitted that the issue of taxability of subsidy being treated as a capital receipt is squarely covered in their favour by the decision rendered by the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich made the assessee eligible for subsidy [ sanction under the scheme given by West Bengal Industrial Development Corporation dated 5 january 2010 found placed at page 172 PB and Registration and Eligibilty Certificate as per the Scheme is found placed at pages 173 to 183 PB] under the Scheme taken out by the Government of West Bengal for making 'capital investment' in the State. We find that the intent and purpose of the Industrial Policy of State of West Bengal, 2004 was for establishing/substantial expansion of manufacturing units located in backward areas of State of West Bengal and generate employment for the local people, and therefore the nature of subsidy received under the State Industrial Scheme was in the capital field not exigible to tax. This subsidy was remitted through two modes viz., power subsidy and sales tax/VAT subsidy. Hence, applying the purpose test, both these subsidies received by the assessee was for undertaking industrialization in the State and is thus found to be in capital field and the details of the Scheme which has been reproduced by the Ld CIT(A) in respect of power subsidy from pages 24 to 29 of his impugned order and in respect of VAT subsidy f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly known as Multiplex Theatre Complex, has emerged. These complexes offer various entertainment facilities for the entire family as a whole. It was noticed that these complexes are highly capital intensive and their gestation period is quite long and therefore, they need Government support in the form of incentives qua entertainment duty. It was also added that government with a view to commemorate the birth centenary of late Shri V. Shantaram decided to grant concession in entertainment duty to Multiplex Theatre Complexes to promote construction of new cinema houses in the State. The aforesaid object is clear and unequivocal. The object of the grant of the subsidy was in order that persons come forward to construct Multiplex Theatre Complexes, the idea being that exemption from entertainment duty for a period of three years and partial remission for a period of two years should go towards helping the industry to set up such highly capital intensive entertainment centers. This being the case, it is difficult to accept Mr. Narasimha's argument that it is only the immediate object and not the larger object which must be kept in mind in that the subsidy scheme kicks in only post ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be capital in nature and therefore not exigible to incometax. The relevant extracts of the judgment are as follows:- "..We have heard both sides at length on the issues involved in the instant appeal, considered their submission and perused the relevant record. The first issue which requires adjudication is whether incentives 'Interest subsidy' and 'Power subsidy' received by the assessee under the schemes in question are capital receipt not liable to the taxed or 'Revenue receipt' and is liable to be taxed and the key question which arises for determination of this issue is what is the character of the incentive subsidies under the said schemes in question and in judging the character of incentives, the "purpose test" is a great factor. 20. On this issue decision in the case of Sahney Steel and Press Works Ltd. (supra) relied upon by the revenue is a leading decision on the test or determining the nature and character of a subsidy under any scheme as to when it is to be treated as 'capital receipt' or 'revenue receipt' in the hands of the assessee and considering this decision of Sahney Steel & Press Works Ltd. (supra) another leading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas the subsidy in Ponni Sugars & Chemicals Ltd. (supra) was held as capital receipt." 23. On a careful look into these decisions it appears that the law is settled that the nature of incentives/subsidies granted by the Government under any Scheme to any enterprise would totally depend upon the salient features of the said Scheme. The purpose for which the incentive/subsidy is given under the Scheme is the determining factor to lay down the nature of the incentive/subsidy. If an incentive/subsidy is given as a general assistance to the assessee to carry on his business or trade, it would be an operational incentive and thus a trading receipt in the hands of the assessee. However if the object of the subsidy, irrespective of its source, is to enable the assessee to acquire new plant and machinery or for further expansion of its manufacturing capacity or for setting up a new unit, the entire subsidy must be held to be a capital receipt. The incentives/subsidies, depending upon the purpose for which they are granted, fall under two categories namely : (i) Operational incentives/subsidies which are given to the assessee to carry on his business or trade and; (ii) Fixed capital in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the law on the subject discussed above applicable to the subject assessment years. 26. Now the second issue which requires adjudication is as to whether the aforesaid incentive subsidies received by the assessee from the Government of West Bengal under the schemes in question are to be included for the purpose of computation of book profit under Section 115 JB of the Income Tax Act, 1961 as contended by the revenue by relying on the decision in the case of Appollo Tyres Ltd. (supra). 27. In this case since we have already held that in relevant assessment year 2010-11 the incentives 'Interest subsidy' and 'Power subsidy' is a 'capital receipt' and does not fall within the definition of 'Income' under Section 2(24) of Income Tax Act, 1961 and when a receipt is not on in the character of income it cannot form part of the book profit under Section 115JB of the Act, 1961. In the case of Appollo Tyres Ltd. (supra) the income in question was taxable but was exempt under a specific provision of the Act as such it was to be included as a part of the book profit. But where a receipt is not in the nature of income at all it cannot be included in book p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly, the matter was decided against the assessee." [Em ..... X X X X Extracts X X X X X X X X Extracts X X X X
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