TMI Blog2021 (11) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... employed are of precise meaning. The proviso to Section 92C(2), as it stood during the relevant year, clearly states that where more than one price is determined by the most appropriate method, the arm s length price shall be taken to be the arithmetical 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. No force in the Ld. CIT, DR s contention for use of weighted average mean as against arithmetical mean computed by the assessee. Revenue s contention that when the assessee has accepted the draft assessment order, pursuant to the TPO s order making the T. P. adjustment, by not filing objections before the DRP, resulted in automatic acceptance of the T.P. adjustment - As in the statute that if the assessee is not agreeable to the T.P. Adjustment which has been incorporated in the draft assessment order pursuant to the TP order, then the assessee has two alternative appellate routes viz., (a) to object to the draft order inter alia including the T P Adjustment before the DRP or (b) post pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: 1. That, on the facts and in the circumstances of the case and In law, the Ld CIT(A) has erred in deciding that the TPO has adopted a wrong method for valuation and added adjustment of ₹ 2,65,75,525/- when the adjustment was made on factual figures as elaborately In the order of the TPO. 2. That, on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the adjustment made by TPO when on service of the draft assessment order with TP modification, the 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13,500 Ferro Chrome HC 64,000 59,789 Scrap 28,508 23,000 MS Round 48,500 37,500 TMT Bars 45,000 41,100 Pellets 11,670 8,811 Ferro Silicon 36,800 53,348 Calcium Silicide 1,32,500 1,06,771 Coal 6,150 6,300 C.I. Scrap 20,872 NA 7. Having regard to the above table, the TPO observed that the assessee had purchased the aforesaid products from its related parties at a price higher than the prices at which the same product was sold by them to the unrelated parties, and such difference was outside +/-3% range as per the proviso to Section 92C(2) of the Act. The TPO therefore made downward adjustment to the value of raw materials purchased from the related parties to the extent of ₹ 2,65, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Product Name: Anthrasite Coal (SMS) Party Name Qty. Value Range Avg. Price Sale to AMPL Min. Max. BHUTAN CARBIDE CHEMICALS LTD 1,101 1,79,18,470 16000 16520 16,275 15,115 BHUTAN CONCAST PVT LTD 648 1,00,76,450 15000 15800 15,550 ELECTRO INTERNATIONAL COMPANY 128 20,72,000 16000 16500 16,188 MAHABIR TRADING COMPANY 79 10,86,500 13500 15000 13,753 SHRIRAM VINYL CHEMICAL INDUSRIES 2,201 2,97,08,370 13500 13500 13500 VEDIKA METALS PVT. LTD. 100 16,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to in sub-section (1) shall be applied, for determination of arm s length price, in the manner as may be prescribed: Provided that where more than one price is determined by the most appropriate method, the arm s length price shall be taken to be the arithmetical mean of such prices. Provided further that if the variation between the arm s length price so determined and price at which the international transaction has actually been undertaken does not exceed five per cent of the latter, the price at which the international transaction has actually been undertaken shall be deemed to be the arm s length price. (Emphasis given by us) 12. According to him, it is clear from the above section that where more than one price is determined or more than one comparable is available, then the arm s length price shall be the arithmetic mean of all the prices or comparables available. Further, where the actual price did not exceed +/- 3% of the arm s length price so determined or the arithmetic mean , then the actual price taken shall be the arm s length price. For the aforesaid proposition the Ld. AR relied on the Judgment of Hon ble Delhi High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TMT Bars 45,000 45,081 Pellets 11,670 9,026 Ferro Silicon 36,800 59,589 Silicon Manganese 44,861 51,441 Calcium Silicide 1,32,500 1,33,514 Coal 6,150 6300 C. I. Scrap 20,872 NA 14. According to Ld. AR, from perusal of the above table, it is clear that the price charged to the assessee by the related parties is lower than the arithmetic mean determined for all the product, except Scrap, MS Round and Pellets. With regard to MS Round and Scrap, the Ld. AR pointed out that, the actual price paid by the assessee to the related parties did not exceed the tolerance limit of 3% set out in the proviso to Section 92C(2) of the Act and hence, no adjustment was warranted in relation thereto. In case of Pellets, it was explained that the rate at which pellets were purchased by the assessee was inclusive of freight and excise dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. TPO did not dispute the application of internal CUP in the given facts of the case but cherry picked the lowest price at which the AE sold the same item to various unrelated parties instead of weighted average price at which AE sold the item to all unrelated parties and compared it with the average purchase price of the appellant. AE had sold 4358 Kgs of anthracite coal to seven parties at an average price of ₹ 15,309/-. Correspondingly, the AE had sold the same anthracite coal to the appellant at an average price of ₹ 15,115/-. Prima facie it is evident that the transaction with AE was at arm s length and therefore no adjustment is called for. The Ld.TPO however picked one party, M/s Shriram Vinyl Chemical Industries out of seven(7) parties to whom the said item was sold at 135,500/- and took the same to be the comparable ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, to do so will be clearly beyond the call and scope of our duty which is only to interpret the law as it exists. Hon'ble Supreme Court, in the case of Smt. TarulataShyam v. CIT [1977] 108 ITR 345 at page 356 has observed : We have given anxious thought to the persuasive arguments.... (which) if accepted, will certainly soften the rigour of this extremely drastic provision and bring it more in conformity with logic and equity. But the language of sections....is clear and unambiguous. There is no scope for importing into the statute the words which are not there. Such interpretation would be, not to construe, but to amend the statute. Even if there be a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation....To us, there appears no justification to depart from normal rule of constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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), therefore, has rightly rejected the stand of the assessee on this issue holding that there is no provision in the statute which allows taking weighted average arithmetic mean for determination of arm's length price. (Emphasis given by us) 20. Hence, in view of the above, we do not find any force in the Ld. CIT, DR s contention for use of weighted average mean as against arithmetical mean computed by the assessee. 21. We also do not find any merit in the Revenue s contention that, when the assessee has accepted the draft assessment order, pursuant to the TPO s order making the T. P. adjustment, by not filing objections before the DRP, resulted in automatic acceptance of the T.P. adjustment. It is well laid out in the statute that if the assessee is not agreeable to the T.P. Adjustment which has been incorporated in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-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 Calcutta High Court in their own case for AY 2010-11 which is reported in 416 ITR 591(Cal). He also relied on the another decision of the Hon ble Calcutta High Court in the case of CIT Vs Rasoi Ltd reported in 335 ITR 438. He thus urged that the order of the Ld. CIT(A) be upheld. 28. We have heard both the parties. It is noted that the State of West Bengal had formulated an Industrial Policy Scheme expressly for the purpose of attracting private investment in the State of West Bengal in the specified areas. To promote industrialization and generation of employment in the State, the Government off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate 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 from pages 29 to 31 of his impugned order, has been taken in to account for our decision, which is not repeated for the sake of brevity. 31. Thus we find that the object of the West Bengal Incentive Scheme, 2004 was envisaged for encouraging the setting up of new industrial units and expansion of existing industrial units pursuant to which IPA in form of VAT subsidy and power subsidy was granted to the assessee. 32. In view of the above facts, we find that the incentive in the form of sales tax/VAT subsidy and power subsidy , have been granted for setting up new units in the States of Wes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 construction, that is when cinema tickets are actually sold. We hasten to add that the object of the scheme is only one -there is no larger or immediate object. That the object is carried out in a particular manner is irrelevant, as has been held in both Ponni Sugar and Sahney Steel. 23. Mr. Ganesh, learned Senior Counsel, also sought to rely upon a judgment of the Jammu and Kashmir High Court in Shree Balaji Alloys v. CIT [2011] 9 taxmann.com 255/198 Taxman 122/ 333 ITR 335. While considering the scheme of refund of excise duty and interest subsidy in that case, it was held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termination 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 decision on this proposition of law is Ponni Sugars and Chemicals Ltd. (supra). Law laid down in these two decisions have been uniformly followed in series of decisions of the Hon'ble Supreme Court, our High Court and other High Courts which assessee has relied as referred above on this issue. The following paragraph of the judgment delivered by the Hon'ble Supreme Court in Ponni Sugars Chemicals Ltd. (supra) case reads thus (page 400): The importance of the judgment of this court in Sahney Steel case lies in the fact that it has discussed and analysed the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 incentives/subsidies which are given to the assessee to set up a new unit or to expand its existing unit. 24. On perusal of the contents of the relevant portion under the incentive subsidy schemes in question we found that in the case of the assessee, the State Government under the West Bengal Incentive Scheme, 2000, and 'West Bengal Incentive to Power Intensive Industries Scheme, 2005', had actually granted the subsidy with the sole intention of setting up new industry and attracting private investment in the state of West Bengal in the specified areas in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 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 profit for the purpose of computation under Section 115JB of the Income Tax Act, 1961. For the aforesaid reason, we hold that the interest and power subsidy under the schemes in question would have to be excluded while computing book profit under Section 115 JB of the Income Tax Act, 1961. 35. Gainful reference may also be made to the following observations made by the Hon ble jurisdictional Calcutta High Court in the case of CIT Vs. Rasoi Ltd. (supra) holding that the subsidy in the form of VAT remission received under the West Bengal Industrial Scheme was capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. [Emphasis supplied] In the aforesaid case, it was held that if the object of the Subsidy Scheme was to enable the assessee to run the business more profitably the receipt is on revenue account. On the other hand, if the object of the assistance under the Subsidy Scheme was to enable the assessee to set up a new unit or to expand the existing unit the receipt of the subsidy was on capital account. Therefore, the Court proceeded, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mecha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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