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2021 (11) TMI 260

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....ons / disallowances. 1.2 That the final assessment order u/s 143(3) r.w.s. 144C of the Act dated 31 October 2018 is bad in law. 1.3 That the additions/disallowances made by Ld. AO are wholly illegal, untenable and on erroneous grounds. GROUNDS OF APPEALS IN RESPECT OF TRANSFER PRICING ADJUSTMENTS Transfer of power-Rs. 26,52,98,490/- 2. That the Ld. DRP/TPO/AO have erred in law and facts and in circumstances of the case in making an adjustment of Rs. 26,52,98,590/- to the arm's length price of transfer of power from eligible unit to non-eligible unit on wholly illegal and erroneous grounds. 2.1 That Ld. DRP and consequently Ld. AO have grossly erred in law and on facts and in circumstances of the appellant's case in erroneously interpreting the transaction of purchase of power by appellant from State Electricity Board (SEB) at Kota, Rajasthan as an external CUP data and thus proposing a different treatment by averaging the same with IEX rates, while determining the Arm's length price. 2.2 The Ld DRP has erred in not appreciating that purchase of power from SEB at Kota is an internal CUP data similar to the sale of power by appellant's power plants in Uttar Pradesh, which....

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....LP of transfer of steam at NIL, without providing any reasoning or passing a speaking order on the issue. 3.2 The Ld. TPO/AO have grossly erred in law by proposing transfer pricing adjustment in respect of transaction of transfer of steam without giving any opportunity/issuing a proper show cause notice u/s 92CA(2), thus not following the principle of natural justice. The adjustment made therefore, is prayed to be quashed. 3.3 The Ld. DRP/TPO and consequently Ld. AO have failed to appreciate that a commercially valuable product should only be transferred at an arm's length price to a related party. The Ld. DRP/TPO have failed to appreciate that the product, in the instant case 'steam', whether bye-product or joint product or whether it has cost or 'Nil' cost is irrelevant for purpose of determining the ALP for the purpose of transfer thereof to a related party in a transfer pricing analysis. 3.4 The Ld. TPO has erred in proposing and Ld. DRP in upholding the adjustment on account of transfer of steam: 3.4.1 by determining the arm's length price for transfer of steam at NIL and, in effect, disregarding the entire transaction- on the following grounds by incorrectly holdi....

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.... 4.4 It is prayed before Hon'ble ITAT that disallowance u/s 14A r.w.r. 8D(2)(ii) made by the Ld. AO may kindly be deleted. Addition u/s 50C of the Act - Rs. 2,57,31,000/- 5. That the Ld. DRP/AO have erred in law and facts and in circumstances of the appellant's case by making an addition of ?2,57,31,000/- u/s 50C of the Act which is against the mandate of law and thus bad in law. 5.1 The Ld. DRP and consequently Ld. AO have erred in law and in facts and in the circumstances of the appellant's case by making an addition of ?2,57,31,000/- u/s 50C of the Act, by substituting the sales consideration of lands (at 4 locations) with their stamp valuation. 5.2 The Ld. DRP/AO have grossly erred in disregarding the fair market valuation of such lands carried out by the independent valuers. The Ld DRP/AO have thus erred in law in not entertaining the claim of the assessee that stamp valuation exceeds the fair market value of such lands arrived on the basis of said independent valuation and hence no addition should be made u/s 50C of the Act. 5.3 The Id AO has erred in law in making and Ld. DRP in upholding the aforesaid addition without referring the valuation to valuation officer in ....

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....erefore, learned AO referred to the Additional Commissioner of Income Tax, Transfer Pricing Officer 1 (2), New Delhi, [learned Transfer Pricing Officer/TPO] to determine the arm's-length price of the international transactions entered into by the assessee as per the provisions of Section 92CA of the act. 06. As stated, that assessee mostly had Specified Domestic Transactions [SDT]. Assessee has shown transfer of power and steam from eligible unit to non-eligible unit during the year. 07. Assessee has shown the transfer of the power as per its transfer pricing study report from eligible unit to non-eligible unit as Under :- Transferor unit Transferee unit Quantity [ KWH] Rate Amount in Rupees UP Region         TG - 1 Loni Sugar plant 1,86,41,986 4.29 7,99,74,118 TG-II Loni Sugar plant 9,23,797 4.20 38,79,947 TG -1 Hariawan Sugar unit 1,93,06,294 4.29 8,28,24,001 TG-II Hariawan Sugar unit 8,51,577 4.29 36,53,265 TG-II Ajbapur Sugar unit 34,83,722 4.24 1,47,70,983 TG-III Ajbapur Sugar unit 1,02,52,023 4.24 4,34,68,579 Rajasthan Region         Kota power plant Fertilize....

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....n submitted that there is no sufficient level of comparability between IEX and eligible units of the assessee and CUP method cannot be applied in a manner by adopting those rates. Assessee also relied upon several judicial precedents. Assessee further submitted that in respect of the transfer of the power since assessment year 1997 - 1998, the internal CUP has been used at the state Electricity Board rates, which have been accepted by the revenue, and therefore the rule of consistency should be followed and there is no reason to deviate from the same. 11. The learned transfer-pricing officer considered the explanation of the assessee and referred to the change in the legislature with respect to the transfer pricing provisions of the specific domestic transaction and therefore these transactions are required to be benchmarked according to the new provisions. The AO held that though assessee has applied internal CUP method for benchmarking the transaction but whether the correct CUP Rates is applied or not is a matter required to be examined. He held that for determining arm's-length price [ALP] of the sale of electricity by the eligible unit, there would be a need for making multip....

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....siness. For benchmarking of these transactions, assessee adopted the 'other method' as the most appropriate method. The other method adopted by the assessee is "At cost". Thus, the assessee transferred steam from eligible unit to non-eligible units at the cost i.e. Without charging any markup. The learned assessing officer issued a show cause notice on 26/10/2017 directing assessee to furnish costing of steam produced. The assessee submitted such details in accordance with the cost accounting standard - 4 issued by the Institute of cost and works accountants of India. The learned transfer-pricing officer initially stated that assessee should have applied cost plus method as the most appropriate method. Assessee also submitted that the cost plus method, if applied, it will lead to the margin over the cost and will automatically increase the deduction u/s 80IA of the act. The learned assessing officer was also supplied with the cost certificates issued by the cost accountant as well as from the chartered accountant and chartered engineers. The learned assessing officer examined the same. He held that steam production is not the objective of the assessee and entire steam was utilized ....

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.... was further stated that no interest expenditure could be disallowed u/s 14A as the amount of investment made by the assessee is less than the amount of interest free funds in the form of share capital and free reserves available to the assessee. It was further stated that for the administrative expenditure the only the disallowance could be made with respect to the average investment taking only those investments where from the exempt income is received during the year. The learned assessing officer rejected the contention of the assessee and applied the provisions of rule 8D (2) of the Income Tax Rules and worked out disallowance of Rs. 1.55 crores of indirect interest expenditure and Rs. 64 lakhs on account of administrative expenditure and worked out the total disallowance of Rs. 29,048,009/-. He reduced the above adjustment by the disallowance already offered by the assessee and made the net disallowance of Rs. 1, 55,48,790. 14. The another issue that was noted in during the course of assessment proceedings was the assessee has sold the land at 13 different locations and calculated capital gain in respect thereof vide return of income filed by it. The assessee was required to....

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....fallacious and incorrect method, since while the former are internal CUP , the latter could only be an external CUP . With respect to the rates taken for benchmarking, the learned DRP directed the assessing officer/TPO to adopt internal CUP for benchmarking the transfer/sale of power by the three units in Uttar Pradesh and recompute the adjustment. With respect to the Rajasthan unit, it was noted that assessee has not applied correct internal CUP as the assessee has applied the rates at which it is purchasing power from power Distribution Company and therefore it is an external CUP. The learned DRP noted that since the assessee has not sold power to any third party, the comparable sale rate for internal CUP is not available. Therefore, ld TPO has applied the average price of power traded by IEX and Discom rates applicable for Kota Rajasthan and the prices at which the assessee has purchased power from Jaipur vidhyut vitran Ltd is proper. Accordingly, the adjustment proposed by the learned transfer-pricing officer in respect of power transferred/sold from its power unit at Kota Rajasthan was upheld. ii. With respect to the determination of arm's-length price of the transfer of ste....

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...."1. The income tax appeal in the case of M/s. DCM Shriram Limited (ITA NO. 7362/DEL/2018) for the A.Y. 2014-15 has been scheduled for hearing before the I-i Bench of the Hon'ble ITAT on 02.09.2021. 2. That the appellant had inadvertently omitted to raise a ground of appeal on education cess due to oversight. 3. That the appellant wishes to raise additional ground of appeal on education cess which may be treated as Ground No. 10 as under:- "26. The Hon'ble ITAT may be pleased to grant the claim of 'Education Cess' (@ 3%) amounting to Rs. 1.33.41.210/- u/s 37 of the Act paid / payable by the assessee under normal provisions of the Act." 1. That an amount of Rs. 1,33,41,210/- may be pleased to allow u/s 37 of the Act as paid / payable on the basis of the judgments of the Hon'ble Rajasthan High Court (Jaipur Bench) in the case of Chambal Fertilisers & Chemicals Ltd. vs. CIT being Appeal No. 52/2018 decided on 31st July, 2018 and the Hon'ble Bombay High Court (Goa Bench) in the case of Sesa Goa Limited vs. JCIT in Tax Appeal No. 17/2013 vide its judgment dated 28th February, 2020. Further reliance may be placed on the Hon'ble ITAT judgment in case of Philips India Limited [TS-32....

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....etely rejected the transfer pricing officer's action on taking average of assessee's internal cup as the rate at which power was purchased from JVVNL and rates obtained from IEX by invoking the provisions of Section 133 (6) of the act. He referred to the order of the learned CIT - A listed page number 335 of the case law compiler and submitted. He further submitted that the power purchased by the assessee from JVVNL is an internal cup and as per OECD guidelines internal, comparable means a comparable transaction between one party to the controlled transaction and an independent party. However, the learned dispute resolution panel has considered the internal cup as external cup. At the same time, the learned dispute resolution panel has accepted the internal cup in case of power sold by the assessee in Uttar Pradesh. He submitted that the approach of learned dispute resolution panel of affording treatment to assessee's internal cup is erroneous. He further referred once again to the order of the learned and CIT - A NASA's own case for assessment year 2015 - 16. ii. He further submitted that the learned transfer-pricing officer has averaged out the actual internal cup and IEX rates....

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....of Income-tax, Kolkata-IV, Kolkata v. Kanoria Chemicals & Industries Ltd. [2013] 35 taxmann.com 566 (Calcutta) viii. Graphite India Ltd [ITA Nos.304-305/Kol/2008 ix. Gujarat Fluor chemicals Ltd. [[2018] 97 taxmann.com 10 (Ahmadabad - Trib.)] x. Hero MotoCorp Limited [TS-844-ITAT-2012(Mum)] xi. Saf Yeast Company Pvt. Ltd. [TS-614-ITAT-2017(Mum)] vi. He further submitted that the rule 10 THC provides that the use of tariff notified by the electricity commission should be considered as an arm's-length price of the transfer of power. He referred to the OECD guidelines in para number 3.27 and stated that the application of internal cup over external cup should be preferred. He referred to the decision of the honourable Supreme Court in case of Engineering Analysis Centre Of Excellence Private Limited (2021) 125 taxmann.com 42 (SC) Stating that the OECD commentary continues to have persuasive value for determining the arm's-length price for transfer pricing regulation. vii. He further submitted that in assessee's own case for assessment year 1997 - 98 the assessee has been using the methodology of benchmarking the transaction of transfer of power by using the internal cup met....

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....hat exchange with respect to these region is as Under:- Serial number region average sale price for kilowatt 1 U p 2.55 2 Rajasthan 2.55 3 Gujarat 2.52 26. Based on the above information, the learned TPO held that external cup should be applied in this case and the sale rate of power should be taken at the average price of Indian energy exchange and price at which power was purchased/sold by the assessee from the various agencies instead of rate shown by the assessee. The learned TPO computed the ALP of the power supplied by the eligible unit to non eligible unit as Under:- Transferor unit quantity of power supplied rate at which power is supplied by the assessee total power transaction rate at which power was purchased/sold by various Discoms to the assessee in respective region Average Indian energy exchange rates Average of rates of Indian energy exchange as well as the rates at which the power is sold and purchased by the assessee from this comes The difference in rates Amount of adjustment U P Region Tg 1 Loni 1,86,41,986 4.29 7,99,74,118 4.39 2.55 3.47 0.82 1,52,80,429   TG II Loni 9,23,797 4.20 38,79,947 4.....

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....ince while the former are internal cup, the latter could only be an external cup. 2.2.7 the assessee has submitted copies of agreement with SEBs in respect of the three power units in UP for sale of surplus power to them. The assessee has entered into separate agreements with Madhaynchal Vidhyut Vitran Nigam Limited in respect of three units at hariwan [ wef 1/3/2006 ] ] Loni [ with effect from 6/12/22006] and Ajbapur from [with effect from 26/12/2006]. The assessee has also submitted the invoices of power bills duly verified by the executive engineer and not all officers of the respective SEB according to which the rate of sale of power by the assessee two SEB at Hariawan is Rs. 4.39 per kilowatt (March 2014), Rs. 4.39 per kilowatt at Loni (March 2014) and Rs. 4.24 per kilowatt at Ajbapur. In view of the fact that internal cup is available for these three units, the AO/TPO is directed to apply internal cup for benchmarking the transfer/sale of power (electricity) by these three units and recompute the adjustment in respect of these three units. 2.2.8 As discussed earlier hereinabove, in respect of the total unit (no adjustment was made in respect of Baruch unit) the assessee h....

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....nchmarking of power transferred from eligible unit to non eligible unit assessee can only claim internal cup when it also sales power to SEB. Here it purchases power from SEB therefore it cannot be used as an internal cup but is rightly held by the learned dispute resolution panel to be an external cup. 29. Now the issue arises is that whether the learned that TPO has correctly adopted IEX rates for the purpose of benchmarking the transaction of sale of power by Kota eligible unit to non eligible unit. We look at the provisions of Section 92C (2) of the act which provides as per the first proviso to that Section 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. The claim of the revenue is that according to the cup method, two external comparable is our available (1) rates at which the assessee purchases power at Rajasthan and (2) IEX rates applicable to Rajasthan. Therefore both of them can be averaged to determine the arm's-length price. As we have already held that the rates at which the assessee purchases power at Rajasthan is a proper external cup upheld by the learned ....

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....e where the power is traded. As per the Indian power market journey so far and way forward June 2014 report published by Indian energy exchange which is available in public domain has categorically stated that the size of power exchange-based market has grown to 3% approximately of the total electricity generated. Therefore the argument of the learned transfer pricing officer that Indian energy exchange is the main exchange where nearly 95 - 96% of power is traded is a negative by the report of Indian energy exchange itself. Therefore it is apparent that it is the very minuscule part of the total power traded. Further the Indian energy exchange is a spot exchange and cannot be compared with the continuous power supplied by SEBs to the assessee. Of course, in Indian energy exchange there would always be a doubt about the availability of continuous power. This shows that there are material differences existing between the transaction entered into by the assessee for transfer of power and the rates stated by Indian energy exchange. Undoubtedly the rates quoted at Indian energy exchange are based on the bid price rather than the actual quantity consumed by the assessee. Even otherwise ....

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....s final. This shows that in the subsequent year the learned transfer pricing officer/assessing officer has accepted the methodology of benchmarking the transaction of transfer of power in Rajasthan from eligible unit to non eligible unit at the purchase price of power from SEB. 34. In view of the above facts we do not find any infirmity in the benchmarking analysis of the assessee wherein the assessee has considered rate of Rs. 6.30 per kilowatt against the rate of power purchase paid by the assessee to Jaipur Vidyiut Vitran Nigam Limited at the rate of Rs. 8.35 per kilowatt, using the external cup for comparability. Accordingly, the ground number 2 of the appeal of the assessee is allowed and the transfer pricing adjustment of Rs. 265,298,490/- is deleted. 35. With respect to ground number 3, the learned authorised representative submitted that:- i. this issue is a fully covered by the order of the learned CIT - A in assessee's own case for assessment year 2015 - 16 wherein the learned CIT - A has rejected the learned transfer pricing officer's action of determining the arm's-length price of steam at rupees nil and upheld the assessee's approach of benchmarking steam. He furth....

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....ith requisite characteristics used by sugar units for crystallization process. He further submitted that assessee uses both high pressure and low pressure steam for its processes and nothing is left unutilized viii. it was further stated that on careful analysis of the accounts he referred to page number 94 of the submission that the power sale for instance in case of Hariawan TPG is only around 22% of the total cost incurred by the power units. Therefore, the production of steam is not an unintentional but an essential ingredient for both production of power and sugar. ix. He submitted that assessee has adopted " other method" as the most appropriate method however the learned transfer pricing officer has contended that no cup details has been provided by the assessee. x. The learned authorised representative also placed heavy reliance on the direction of the learned dispute resolution panel in case of a sister concern SRF Ltd which is also placed in the paper book stating that in the identical facts and circumstances of the case the learned dispute resolution panel has held that steam has a cost and therefore arm's-length price of steam cannot be determined at rupees nil. I....

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....of steam transferred certified by the cost accountant. However letter on the learned transfer pricing officer on examining the process of power generation stated that the power plants are not installed for steam production but for power generation and as steam being byproduct do not have any cost. Therefore he rejected the most appropriate method applied by the assessee he further held that activity regarding production of steam shows that steam is produced as a result of burning of fuel in boiler. This steam is used for generation of electricity. Thus the entire cost of electricity absorbs entire cost of production of steam. Thus the resultant cost of excess team is nil. Therefore he made an adjustment of Rs. 1,035,745,275 on this account. The learned dispute resolution panel also agreed with the view of the learned transfer pricing officer. 38. We are not in agreement with the findings of the lower authorities for the simple reason that the Institute of cost and works accountants and issued a guidance note "Guidance Note on Cost Accounting Standard on Cost of Utilities (CAS-8))" which provides guidance as to how the cost of utilities such as production of steam can be determined....

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....and used for production of steam, due credit should be given to the Power plant and corresponding charge to SGP(Steam Generation Plant). Charging of power to the consuming cost object is generally done at the weighted average of the cost of power purchased , generated and distribution cost at the consuming point. Steam: A separate statement of cost of steam is prepared indicating the quantity of steam generated, cost of fuel, soft water, power, employee cost for operating staff, sundry supplies, chemical additives, deprecation and other works overhead. Unit cost of steam is arrived at on the basis of units consumed in different departments after adjusting distribution loss. Steam may be of high pressure, low pressure and medium pressure with multiple paths by which the steam pressure is reduced according to the purpose of use. Steam costs are highly dependent on the path that steam follows in the generation and distribution system. Raw water: Raw water is either purchased or obtained from ground wells/canal. The cost of water mainly consists of share of cost of power allocated through inter-utility transfer. The total cost of water should include employee cost, fuel, power, repair ....

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....will be in addition to the above cost as illustrated below 1 Steam generation cost as 5.3.1 above Rs. 471.09 Per MT 2 Distribution cost : Operation &Maintenance cost of distribution line Depreciation Other Total Distribution cost Per MT Rs. 1.00 Rs. 0.75 Rs. 0.75 Rs. 2.50 3. Inter Unit transfer cost Rs. 473.59 Cost of a utility determined as per para 5.3.2 plus share of administrative overhead to be charged." 40. Therefore, from the above analysis it is apparent that the learned revenue authorities have incorrectly held that there is no cost of production of steam. 41. Even otherwise steam is a commercially viable product and it is a form of power and therefore it cannot be said to be produced at nil cost. The assessee has submitted a detailed cost sheet duly certified by the cost accountant following the standards issued by the Institute of cost and works accountant for determining the exact cost of steam, it has also been certified by the chartered accountant and further a chartered engineer certificates is also provided. All these cost statement duly certified by the professionals were rejected by the learned revenue authorities without any basis. 42. Further in the case of t....

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....es not fall within the meaning of "power". In this reference she has made reliance on the judgment of honourable ITAT Ahmadabad in the case of N R Agrawal Industries Ltd v. DCIT dated 26/07/2013. The appellant on the other hand has submitted that the value of steam should be considered for arriving the profit as the scheme is being gererated for generation of electricity and after utilising the same for electricity generation the balance steam is used for the chemical process. Therefore, it is a byproduct and therefore, the deduction was admissible. On a careful consideration of the facts related to the issue, it is noted that that appellant is generating steam at high-pressure and temperature and the steam is being fed into turbine and the steam which is coming out from turbine is utilised for the chemical process. The details on record to show that the turbine utilised by the appellant for generation of the power is a back pressure turbine. In back pressure turbine the intake is of high-pressure steam which is used for generation of power and the exhaust steam is also at certain pressure so that it can utilised for some other purpose. The design of the turbine is done in such a....

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....same in proportion to the heat value (Enthalpy) of the inlet steam and the outlet steam of the turbine. As per the details available on record the heat value of the inlet steam at 65.5 KG/cm2 is 793 kcal per KG whereas the heat value of the output steam at 3.5 KG/cm2 is 653.7 kcal per KG. The quantity of input and output steam remains the same and only the calorific value of the heat value goes down as part of the energy is utilised for generation of power. Accordingly, the expenses can be apportioned in the ratio of enthalpy of the inlet and output steam. The same is worked out as under:- Total enthalpy of the steam coming out of the boiler 793 kcal per KG   The enthalpy of the steam coming out of the turbine 653 kcal per KG   The enthalpy utilised by the turbine for generation of electricity 139 kcal per KG   Percentage of energy utilised in the generation of electricity 17.66%   Total expenses for Boiler 1800000 Generation of steam to be allocated on a percentage basis expenses     Boiler maint 1728903   Coal expenses 38733894   Depreciation otherthan turbine 10522945   Total expenses 52785832 ....

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....t would be a new industrial undertaking capable of generating electricity. The case of the assessee was that in the existing power plant the assessee had excess steam production capacity which was to be utilised by the turbine installed in the new plant. The Assessing Officer ultimately rejected the case of the assessee on the ground that the turbine should be treated as an independent power generating unit and thereby disallowed the claim of deduction under section 80IA of the Act. 17. The assessee carried the matter in appeal. The CIT (A) held that no industrial undertaking would come into existence within the meaning of the provisions contained in section 80IA of the Act by transferring the boiler or by installing new machinery for the purpose of generation of the power. The appeal came to be dismissed and the assessee carried the matter before the Tribunal. The Tribunal dismissed the appeal. 18. It appears that the assessee preferred an application for rectification before the Tribunal contending that after the judgment was delivered by the Tribunal, the High Court, in the case of Gujarat Alkalines and Chemicals Ltd. v. CIT [2013] 350 ITR 94/[2012] 208 Taxman 31/20 taxmann.....

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.... Engineers. vi. It cannot have Nil cost 47. In view of above facts, we are of the view that ld Revenue authorities erred in holding that the steam does not have any cost and therefore steam transferred by assessee's eligible units to non eligible units at cost, which is determined by Cost accountants and Other professional, has the Arms length price of Rs Nil instead of cost of Rs. 103745275/- . Therefore we allow ground number 3 of the appeal and direct the learned transfer-pricing officer to delete the addition of Rs. 1,035,745,275 which was made determining the arm's-length price of transfer of steam from eligible unit to non-eligible unit by considering the cost of production of the steam at Rs. Nil. 48. The ground number 4 is with respect to the disallowance u/s 14 A of the act. The learned authorised representative submitted that this issue is covered in favour of the assessee by the decision of the honourable Delhi High Court as well as the coordinate bench in assessee's own case for earlier years. He submitted that for assessment year 2008 - 09 the honourable Delhi High Court as well as for assessment year 2010 - 11 the coordinate bench has decided this issue in favour ....

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....93 taxmann.com 24/255 Taxman 171 (SC)]. Further for working out the portion of administrative expenditure, assessee has applied the factor of 0.5 % on the amount f investments which has yielded tax-free income during the year. We find that this stand of assessee is also in consonance with the decision of Honourable Delhi High court in ACB India limited V Act 314 ITR 108 [Del]. In view of this we direct the ld AO to retain the disallowance offered by assessee as disallowance u/s 14 A of the Act only to the extent of Rs. Rs. 6,399,219/- which is offered by the assessee itself and delete the balance. Accordingly Ground no 4 of the appeal is allowed. 51. Ground number 5 is with respect to the addition made to the income of the assessee Under the head capital gains by invoking the provisions of Section 50 C of the income tax act of Rs. 2 57,31,000/-. The learned authorised representative submitted that that the assessee has sold four plots of land at the market price according to the market condition and the valuation as per stem pollution authority is not the correct valuation. He further submitted that the stem pollution authorities have made the valuation as per the rates applicable....

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.... We have also considered the various judicial precedents cited before us. We find that assessee has objected before the LD AO against adoption of fair market value as deemed sales consideration of the agricultural land as per provision of section 50 C of the act. However despite this the LD AO did not refer the matter to the DVO to determine the fair market value of such properties. The provision of section 50C (2) provides that where the assessee claims before the ld AO that stamp duty value exceeds the fair market value, then the Ld AO is duty bound to refer the matter to the DVO for determining fair market value of that property. This fact is also noted by the ld DRP but upheld the action of the ld AO for the reason that assessee objected to adoption of stamp duty value as deemed consideration at a very late stage , so ld AO did not have enough time to refer the matter to DVO. Assessee also disputed that the stamp duty valuation is of the commercial properties where as the assessee has purchased agricultural land only. Therefore even otherwise the stamp duty rates of the property should be determined on the basis of it being agricultural land. Assessee in terms of provision of s....

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.... of explanation [1] to section 115 JB is not proper. Even otherwise the assessee has already made adjustment as the above clause of explanation [1] of section 115 JB of the act of Rs. 66.92 lakhs. Thus it is directed to be deleted. Thus Ground no 6 of the appeal is allowed. 57. At the time of the hearing of the above appeal the assessee raised an additional ground of appeal on the allowability of education cess is deductible expenditure u/s 37 (1) of the act. The additional ground raised is as Under The Hon'ble ITAT may be pleased to grant the claim of 'Education Cess' (@3%) amounting toRs. 1,33,41,210/- u/s 37 of the Act paid/payable by the assessee under normal provisions of the Act." 58. It is submitted that the above additional ground is legal ground, all the facts are available on record, no further facts are required to be investigated, this can be raised at any time during the course of the appellate proceedings, therefore same is be admitted. The learned authorised representative relied upon the several judicial precedents on this issue. 59. The learned departmental representative vehemently objected to the same stating that no such ground was taken before the lower au....

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....harge form part of the income-tax and super tax and are not separate taxes by themselves. v. there was never a controversy that cess is not surcharge or part of tax vi. Whether cess is an allowable expenditure or not in light of this CBDT Circular had never come up for interpretation, because prior to year 2004 there was no cess levied as additional surcharge or surcharge under the Income Tax Act, but there were many other kinds of cess levied under other taxing statutes and direct taxes vii. if cess is considered as part of surcharge, i.e., the additional surcharge on tax, then if income tax payable under the Act is not reckoned as allowable expenditure u/s.37. viii. A circular whihch ha been issued in different context , need not be considered at all in the case of cess on Income Tax, its non withdrwal does not go against revenue. ix. Both the highcourts have relied on this circular without considering the wther the cess is on Indirect tax or direct tax in that circular. x. The courts have not at all considered how the expenditure on cess becomes an item of expenditure wholly and exclusively incurred for the purposes of business. xi. High court decision not conisdre....