TMI Blog2019 (12) TMI 1562X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Co-ordinate Bench of this Tribunal in the assessee s own case and had directed the Assessing Officer to determine and restrict the disallowance u/s.14A to 0.5% on the average investment as provided under Clause-(iii) of Rule 8D(2) - HELD THAT:- As decided in own case [ 2016 (1) TMI 1028 - ITAT CHENNAI] a part of the expenditure incurred in the manpower and infrastructure facilities diverted for earning exempted income has to be disallowed. As rightly submitted by the learned DR, the Assessing Officer has computed 0.5% of the average investment as expenditure by applying third limb of Rule 8D. Rule 8D(2)(iii) provides for disallowance of an amount equal to 0.5% of the average value of investment, income from which does not form part of the total income, shall be disallowed. Accordingly, the orders of the lower authorities are modified and the Assessing Officer is directed to disallow 0.5% of the average value of investment, the income from which does not form part of the total income - Decided against revenue. Depreciation of Franchise rights - claim disallowed by AO on the ground that, in the case of the assessee, the franchise has been suspended and the assessee had n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.03.2011. It is after recognizing this that the learned CIT(A) has granted the assessee the benefit of treating the said subsidy as a capital receipt. Foreign currency monetary item transaction - HELD THAT:- The amortization has been done by applying the notification issued by the MCA Circular dated 29.11.2011 but in the Memorandum of total income the amortized sum was added back and the entire expenses claimed. Thus, it is not the issue as to the assessee having amortized the deferred revenue expenditure but this is in fact a forex loss incurred by the assessee on account of a loan taken for the general purpose. This is admittedly to be allowed on the revenue filed in line to the decision in the case of Commissioner of Income Tax vs. Woodward Governor India (P) Limited [ 2009 (4) TMI 4 - SUPREME COURT] . It must also be mentioned here that the Assessing Officer in the assessment order has not disturbed the claim of the assessee on the ground that the loss was capital. The Assessing Officer is disallowing the claim only on the ground that the MCA Circular are not binding on the department. As no error in the accounts of the assessee nor has any facts has been brought out to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance u/s.37 as business expenditure for the payment made to National Council for Cement Building Materials - As submitted assessee had to contribute to the National Council for Cement and Building Materials [NCCBM] which was a Government of India organization - HELD THAT:- As it is noticed the payments have been made by the assessee to NCCBM which is an Apex body functioning under the Government of India and doing significant study and research in cement related field, obviously, the results from the said study would be in the interest of the assessee s business. This being so, in view of the decision of the Hon ble Supreme Court in the case of Venkata Satyanarayana Rice Mill Contractors [ 1996 (10) TMI 2 - SUPREME COURT] as also complying the principles laid down in the case of Chemicals and Plastics India Limited [ 2007 (2) TMI 194 - MADRAS HIGH COURT] we are of the view that the expenditure is a business expenditure and allowable u/s.37 of the Income Tax Act, 1961. This being so and also on account of the fact that the Revenue has not been able to dislodge the findings as arrived by the learned CIT(A) on this issue, we find no reason to interfere in the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was submitted that the advances had been made on commercial expediency and taking into consideration the underlying commercial consideration, the assessee had claimed that the said advance was given to the companies in various business activities such as sugar, power generation, packing and finances, etc. The assessee has also placed reliance on the decision of the Hon ble Supreme Court in the case of S.A. Builders Limited reported in 288 ITR 1 (SC). The claim of the assessee has not been accepted by the Assessing Officer and the Assessing Officer on the ground that the decision of the Hon ble Supreme Court in the case of S.A. Builders Limited was on review by the Hon ble Supreme Court, made an addition representing the notional interest at the rate of 8% on the said loans granted to the subsidiary companies. It was a submission that the issue was squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case in I.T.A. Nos.778 779/Mds/2008 for the Assessment Year 2003-04 2004-05 dated 15.07.2009, as also the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case in I.T.A. No.1343/Chny/2010 dated 01.01.2016 wherei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentative that in the course of the assessment, the Assessing Officer had made the disallowance u/s.14A r.w.Rule 8D, as the assessee has also shown to have received dividend which was claimed as exempt. The Assessing Officer had made the disallowance u/s.14A r.w.Rule 8D. On appeal, the learned CIT(A) had followed the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case and had directed the Assessing Officer to determine and restrict the disallowance u/s.14A to 0.5% on the average investment as provided under Clause-(iii) of Rule 8D(2). It was a submission of the learned Authorized Representative that the issue was squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case in I.T.A. No.1343/Mds/2010 dated 01.01.2016 wherein in para-56 it has been held as follows: 56. We have considered the rival submissions on either side and also perused the material available on record. As rightly submitted by the learned DR, the assessee earned exempted income of ₹ 2,11,76,000- in assessment year 2010-11 and ₹ 1,65,32,000/- in assessment year 2011-12. Even though the assessee claims that own funds were available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was a submission that the issue was now squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case in I.T.A. No.1343/Mds/2010 dated 01.01.2016, wherein in para-25 26 it has been held as follows: 25. We have considered the rival submission on either side and also perused the material available on record. Admittedly, the assessee is a successful bidder for franchise rights of Chennai Superking. The cost of the franchise rights if ₹ 364 crores which has to be paid in 10 years @ 36.4 crores per annum. The assessee is entitled for depreciation on the franchise right being an intangible asset under Explanation (3) to Sec.32(1) of the Act. This is not in dispute. The only dispute is whether the assessee is entitled for depreciation on the cost of the franchise rights or on the amount paid during the year under consideration. We have through the provisions of Sec.32 of the Act. Sec.32(1) clearly says that in case of an asset used for generation or generation and distribution of power, depreciation has to be allowed on the actual cost of the asset at the rate prescribed. In case of block of assets, depreciation has to be allowed on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have considered the rival submission and perused the materials available on record. 14. A perusal of the order of the Co-ordinate Bench of this Tribunal referred to supra in para-25 26 clearly shows that the Tribunal considered these issues and has held the issue in favour of the assessee. Further, for the earlier years, the depreciation having already been allowed, now it would not be open to disallow such depreciation as the same would affect the W.D.V also. Further, the perusal of the assessment order for the assessment year 2014-15, in para-8.1 to 8.6 shows that the assessee has claimed only 18.89 crores as depreciation and the Assessing Officer has given an enhanced depreciation of an additional amount of ₹ 12.92 lakhs resulting a depreciation of ₹ 31.81 crores. Similarly, for the assessment year 2015-16, the assessee had claimed 14.17 lakhs, whereas the Assessing Officer has granted ₹ 32.05 crores. Thus, the Assessing Officer has in fact granted the assessee higher depreciation than what has been claimed by the assessee. A perusal of the order of the learned CIT(A) shows that the learned CIT(A) has followed judicial discipline in following the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entries, which the assessee might choose to make in his account, but had to be decided in accordance with the provisions of law. What would determine taxability is not whether the assessee has shown a particular item as a profit or loss in the accounting year, but whether the said item could be regarded either as a profit or loss under the provision of the Act. The Supreme Court has also taken a similar view in the case of CIT v. Shoorji Vallabhdas Co. (46 ITR 144), wherein it was held as under : Income-tax is a levy on income. Though the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt, yet the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income , which does not materialize. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not have resulted at all, there is obviously neither accrual nor re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital account. The assessee is also not allowed to use the import entitlement in any manner other than for import of capital goods. We agree with the argument of the ld. AR that there is no benefit or perquisite that accrued to the assessee on account of this transaction and it does not have any component of revenue nature and hence, the provisions of sec.28(iv) of the Act does not apply. For invoking sec.28(iv) of the Act, the pre-requisite conditions are that the benefit / pre-requisite must arise from the business of an assessee and that there must be a nexus or connection between the business of an assessee and the benefit / perquisite sought to be taxed. In this case, both the conditions are absent. Therefore, we find that the CIT(Appeals) is justified in giving direction the AO to delete the disallowance made. Further, in our opinion, it is a notional entry in its books of account and not effecting the real profit and loss account of the assessee and the provisions of sec.28(iv) have no application. This ground is dismissed. 16. In reply, the learned Departmental Representative vehemently supported the order of the learned Assessing Officer. 17. We have considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions to Foreign Currency- Monetary Item Transaction difference account had been reduced. On being questioned, the assessee has stated that the loan was obtained for the general purpose and that the differential reduced was the forex transaction loss incurred during the year. It was submitted that as per the notification to MCA dated 29.12.2011, forex loss relating to loans taken for the purpose of acquiring fixed assets were admittedly to be added to the cost of fixed asset and depreciated, whereas the forex loss on account of loan taken for general purpose was to be accumulated in the foreign currency monetary item transaction difference account and amortization over the balance period of the loan. It was submitted that the assessee was eligible to claim the entire loss incurred towards the forex fluctuations as the loss had been taken for the general purpose but had instead to a conservative measure claimed the forex loss as amortized. It was a submission that the learned Assessing Officer in the course of assessment held that the capital MCA circulars are not binding on the revenue and consequently the Assessing Officer treated the amortized amount as capital expenditure. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ground that the MCA Circular are not binding on the department. As no error in the accounts of the assessee nor has any facts has been brought out to show that the forex loan taken by the assessee was for the capital asset. 24. This being so, as also on the fact that the revenue has not been able to dislodge the findings of the facts as arrived by the learned CIT(A) in his order, we find no reason to interfere in the order of the learned CIT(A) and the same stands upheld. In the result, the issue is held in favour of the assessee and against the Revenue. 25. Issue-6: Depreciation of UPS restricted to 60% : It was submitted by the learned Authorized Representative that in the course of assessment, the assessee had claimed depreciation on UPS at 60% and the Assessing Officer had treated the same as Plant Machinery and consequently had granted the assessee depreciation at lower rates. It was a submission on appeal that the learned CIT(A) had followed the decision of the Co-ordinate Bench of this Tribunal in the case of Indian Overseas Bank vs. Additional Commissioner of Income Tax reported in I.T.A. No.99/Mds/2010 dated 19.03.2013, wherein following the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs Deputy Commissioner of Income Tax reported in [2012] 19 Taxman.com 28 (Chen) as also the decision of Eveready Spinning Mills vs. Assistant Commissioner of Income Tax reported in 17 Taxman.com 254 (Chen.) and had held that the market value of the power captive consumption should be computed considering the rate of power in the open market and it should not be compared with the rate of power at which power could have been sold to SEBs, as this is not the rate for which the consumer could have purchased power in the open market. It was a submission that similar view has being taken by the Co-ordinate Bench of this Tribunal in the case of M/s. Saranya Textiles vs. The Assistant Commissioner of Income Tax in I.T.A. No.1294/Chny/2019 dated 27.11.2019 wherein it has been held as follows: 6. By investing in the wind mill, the assessee has saved itself from the cost of purchasing power from the Tamil Nadu Electricity Board. Obviously, it is what the assessee saves that is to be considered and not the price at which the Tamil Nadu Electricity Board would have purchase power from the assessee s wind mill. The Tamil Nadu Electricity Board could purchase power at ₹ 2.90 paise per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra and as also the decision in the case of Eveready Spinning Mills vs. Assistant Commissioner of Income Tax referred to supra. A similar view has also been taken in the case of M/s. Saranya Textiles vs. The Assistant Commissioner of Income Tax, wherein one of us is a party. This view of ours is also supported by the decision of the Hon ble Gujarat High Court in the case of Commissioner of Income Tax vs. Gujarat Alkalies Chemicals Limited reported in 395 ITR 247(Guj.), wherein it has been held that the deduction u/s.80IA was allowable to the for generation of power for captive consumption and that the rate of power generation at which the electricity board supplied power to its consumers rather than the rate at which the power generating companies supply its power to the electricity board was to be taken as the price. Further, this view has been supported by the decision of the Hon ble Bombay High Court in the case of Commissioner of Income Tax vs. Reliance Industries Limited in I.T.A. No.1056/Chny/2016 dated 0.01.2019 and as also the decision of the Hon ble Chhattisgarh High Court in the case of Godavari power and Ispat Limited reported in [2014] 42 Taxman.com 551 (Chhattisgarh) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow 0.5% of the average value of investment, income from which does not form part of the total income. The Co-ordinate Bench of this Tribunal has restricted the disallowance to 0.5% of the average value of the investment. 34. In reply, the learned Departmental Representative vehemently supported the order of the learned Assessing Officer. 35. We have considered the rival submission and perused the materials available on record. 36. A perusal of the order of the learned CIT(A) shows that he has followed the principles laid down by the Co-ordinate Bench of this Tribunal in the assessee s own case and restricted the disallowance to 0.5% of the average investment to be considered for disallowance under both the regular provisions and also in computing the book profits u/s.115JB of the Income Tax Act, 1961. As it is noticed that the learned CIT(A) has followed the principles laid down by the Co-ordinate Bench of this Tribunal as also the principles enunciated by the Special Bench of this Tribunal in the case of Assistant Commissioner of Income Tax Vs. Vireet Investment Private Limited referred to supra, we find no error in the order of the learned CIT(A) which calls for any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the payment have been made for the purpose of business of the assessee and the same was allowable. 38. In reply, the learned Departmental Representative vehemently supported the order of the learned Assessing Officer. 39. We have considered the rival submission and perused the materials available on record. 40. As it is noticed the payments have been made by the assessee to NCCBM which is an Apex body functioning under the Government of India and doing significant study and research in cement related field, obviously, the results from the said study would be in the interest of the assessee s business. This being so, in view of the decision of the Hon ble Supreme Court in the case of Venkata Satyanarayana Rice Mill Contractors vs. Commissioner of Income Tax [1997] referred to supra as also complying the principles laid down by the Hon ble Jurisdictional High Court in the case of Commissioner of Income Tax vs. Chemicals and Plastics India Limited referred to supra, we are of the view that the expenditure is a business expenditure and allowable u/s.37 of the Income Tax Act, 1961. 41. This being so and also on account of the fact that the Revenue has not been able to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on recognizing notional interest on the annuity advances to the subsidiary companies. This issue has been adjudiciated by us in paragraphs 4 to 6 above in favour of the assessee and against the Revenue. Consequently, Ground Nos.1.1 to 1.3 of the Revenue s appeal stands dismissed. 44.1 In Ground Nos.2.1 to 2.4, the Revenue has challenged the action of the learned CIT(A) in directing the Assessing Officer to restrict the disallowance of the expenses u/s.14A to 0.5% to the average value of the investment. The said issue has been adjudicated in paragraphs 7 to 10 above in favour of the assessee and against the Revenue. Consequently, Ground Nos.2.1 to 2.4 of the Revenue s appeal stands dismissed. 44.2 In Ground Nos.3.1 and 3.2, the Revenue has challenged the action of the learned CIT(A) in allowing the depreciation on the entire franchise cost of ₹ 364 crores. The said issue has been adjudicated in paragraphs 11 to 14 above in favour of the assessee and against the Revenue. Consequently, Ground Nos.3.1 and 3.2 of the Revenue s appeal stands dismissed. 44.3 In Ground Nos. 4.1 and 4.2, the Revenue has challenged the action of the learned CIT(A) in deleting the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground Nos.1.1 to 1.3 of the Revenue s appeal stands dismissed. 45.1 In Ground Nos.2.1 to 2.4, the Revenue has challenged the action of the learned CIT(A) in directing the Assessing Officer to restrict the disallowance of the expenses u/s.14A to 0.5% to the average value of the investment. The said issue has been adjudicated in paragraphs 7 to 10 above in favour of the assessee and against the Revenue. Consequently, Ground Nos.2.1 to 2.4 of the Revenue s appeal stands dismissed. 45.2 In Ground Nos.3.1 and 3.2, the Revenue has challenged the action of the learned CIT(A) in allowing the depreciation on the entire franchise cost of ₹ 364 crores. The said issue has been adjudicated in paragraphs 11 to 14 above in favour of the assessee and against the Revenue. Consequently, Ground Nos.3.1 and 3.2 of the Revenue s appeal stands dismissed. 45.3 In Ground Nos. 4.1 and 4.2, the Revenue has challenged the action of the learned CIT(A) in deleting the disallowance of sales tax subsidy by treating the same as capital receipt. The issue has been adjudicated in paragraphs 15 to 18 above in favour of the assessee and against the Revenue. Consequently, Ground Nos.4.1 and 4.2 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the disallowance of sales tax subsidy by treating the same as capital receipt. The issue has been adjudicated in paragraphs 15 to 18 above in favour of the assessee and against the Revenue. Consequently, Ground Nos.3.1 and 3.2 of the Revenue s appeal stands dismissed. 46.3 In Ground Nos.4.1 and 4.2, the Revenue has challenged the action of the learned CIT(A) in deleting the disallowance of the foreign currency monetary item transaction. The issue has been adjudicated in paragraphs 19 to 24 above in favour of the assessee and against the Revenue. Consequently, Ground Nos.4.1 and 4.2 of the Revenue s appeal stands dismissed. 46.4 In Ground Nos.5.1 and 5.2, the Revenue has challenged the action of the learned CIT(A) in deleting the adjustments made regarding the deduction u/s.80IA of the Act in respect of the rate electricity consumed under captive consumption. The issue has been adjudicated in paragraphs 29 to 32 above in favour of the assessee and against the Revenue. Consequently, Ground Nos.51. and 5.2 of the Revenue s appeal stands dismissed. 46.5 In Ground No.6.1, the Revenue has challenged the action of the learned CIT(A) in directing the Assessing Officer to apply ..... X X X X Extracts X X X X X X X X Extracts X X X X
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