TMI Blog2022 (1) TMI 1367X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee. Disallowance of deduction u/s 80IA - rate for eligibility of deduction - AR stated that the rate applied by the assessee is not correct and it is the say of the counsel that the rate charged by the electricity board to its consumers should be taken as rate for eligibility of deduction under section 80IA of the Act - HELD THAT:- We are of the considered view that this contention of the ld. counsel for the assessee is correct. The counsel has applied the rate which it has charged to the electricity board whereas the rate should have been the rate charged by the electricity board to its consumers. We, therefore, set aside this issue to the file of the Assessing Officer. The assessee is directed to furnish the rates charged by the electricity board to its consumers and the Assessing Officer is directed to verify the same and decide the issue afresh. Ground No. 4 is allowed for statistical purposes. Claim of education cess as deductible u/s 37 - HELD THAT:- This issue has been extensively considered by the Hon ble High Court of Bombay in the case of Sesa Goa [ 2020 (3) TMI 347 - BOMBAY HIGH COURT] We find that the co-ordinate bench has followed the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntive is arbitrary, unjust, not based on comparable and bad in law. 4. That the disallowance of deduction u/s 80IA of the Act amounting to Rs 26,20,451/-, as sustained by DRP/ AO out of total deduction claimed by the Assessee of Rs 38,15,24,886/- in respect of steam generating units based on the rates prescribed by the various State Electricity Regulations Authority for purchase of electricity from electricity generating units is arbitrary, unjust and against the provision of section 80IA(8) of the Act and ought to have allowed at the rates on which the State Electricity companies supplied to the consumers. 5. That the education cess, as paid the assessee during the year under consideration amounting to Rs. 4,10,96,638/- ought to have been allowed as expense u/s 37 of the Act by the lower Authorities as per Law. 6. That the assessee denies its liability to pay interest charged under section 234A, 234B and 234D of the Act. 3. Vide Ground No. 1, the assessee has challenged the jurisdiction of the Assessing Officer to refer to the Transfer Pricing Officer [TPO] for determination of transfer pricing adjustment. 4. Briefly stated, the facts of the case are tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgement of the Hon ble Karnataka High Court in the case of SMR Automotive Systems India Ltd in ITA 6614/Del/2017 and Yorkn and Tech Pvt. Ltd 635/Delhi/2021. 9. Per contra, the ld. DR vehemently stated that in the decisions of the Hon ble Karnataka High Court and various decisions of the coordinate bench of the Tribunal, one most important and relevant fact has not been brought before the court, which is that a saving clause was there in section 40A of the Act and, therefore, decisions relied upon by the ld. counsel for the assessee should not be considered. 10. It is the say of the ld. DR that even otherwise, the Memorandum explaining the provisions in Finance Bill, 2017 has specifically mentioned that these amendments will take effect from 01.04.2017 and will apply accordingly, in relation to A.Y 2017 18 and subsequent years. 11. We have given careful consideration to the rival submissions. It is true that provisions of section 92BA of the Act was brought to the statute book by Finance Act, 2012 and the same was introduced on the advice and observations of the Hon ble Supreme Court in the case of Glaxco Smithline Asia Pvt. Ltd 195 taxmann.com 35, which is also clear from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same parent company. It is, therefore, proposed to amend the Act to provide applicability of similar pricing regulations (including procedural and penalty provisions) to transactions between related resident parties for the purposes of computation of income, disallowance of expenses, etc., as required under the provisions of sections 40A, 80-IA, 10AA, 80A, where reference is made to section 80-IA, or to transactions as may be prescribed by the Board, if aggregate amount of all such domestic transactions exceeds Rs.5 crore in a year. It is further proposed to amend the meaning of related persons as provided in section 40A to include companies having the same holding company. This amendment will take effect from 1st April 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years. 12. The Hon'ble Supreme Court in the said judgement has observed as under: 2. .. However, we may clarify that proceedings are pending even today at various stages for different assessment years before the Authorities under the Income-tax Act. We express no opinion with regard to those proceedings. 3. However, we direct t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, it would be deemed that clause (i) was never been on the statute. While omitting the clause (i) of section 928A, nothing was specified whether the proceeding initiated or action taken on this continue. Therefore, the proceeding initiated or action taken under that clause would not survive at all. In this legal position, the cognizance taken by the AO under section 92B(i) and reference made to TPO under section 92CA is invalid and bad in law. Therefore, the consequential order passed by the TPO and DRP is also not sustainable in the eyes of law. 14. This Judgment of the co-ordinate bench has been affirmed by the Hon ble Karnataka High Court in ITA No. 392/2018, which was followed by this Tribunal in the case of SMR Automotive Systems Private Limited in ITA No. 6614/DEL/2017. The relevant findings of this Tribunal read as under: 13. Before us referring to the additional ground raised the Counsel for the assessee vehemently stated that sub-section (r) of Section 92BA has been omitted from the statute and by virtue of the amendment this particular sub-clause shall be deemed not to be on the statute since the beginning and, therefore, the assessment order deserves to be qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction taken under clause (i) becomes redundant or otiose. In this regard, our attention was invited to judgment of the Apex Court in the case of Kolhapur Cane sugar Works Ltd., (supra) in which the impact of omission of old rule ro and r OA was examined. Having carefully examined the issue in the light of provisions of section 6 of the General Clauses Act, their Lordship has observed that in such a case, the court is to look to the provisions in the rule which has been introduced after omission of the previous rule to determine whether a pending proceeding will continue or lapse. If there is a provision therein that pending proceedings shall continue and be disposed of under the old rule as if the rule has not been deleted or omitted then such a proceeding will continue. If the case is covered by Section 6 of the General Clauses Act or there is a pari-materia provision in the statute under which the rule has been framed in that case also the pending proceeding will not be affected by omission of the rule. In the absence of any such provisions in the statute or in the rule, the pending proceeding will lapse under rule under which the notice was issued or proceeding being omitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere worked out. Quantum of steam generation and its conversion based on chartered engineer s formula, is as under: Unit Steam generated (KG) m Coverei on as per Charter Eng. Formula (2) Electricity units (1)* 2M3) Rate of electridty charged for Captive Consumption Total Sales of Electriaty Units (Turnover) as per Audited Finandal (3)*(4W5) Expenses induding Fuel cost, Water Cost etc.(6) Net Profit (5H6H7) Depredation as per Company Act (8) Depredation as per Income tax (9) Net Profit for deduction u/s 80IA as per Certificate (7+8*9H10) FI 12,178,06 0.628 7,647,824 4.85 37,091,944 17,771,76 19320,181 548384 451,701 19,416,76 1 5,096,800 0.628 3,200,790 4.85 15323333 6397398 9,126,435 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 57,880,060 4.85 280,718,289 124,062,9 156,655,36 25,798,6 20,247,13 162306371 total 189,667,8 119,111395 | 577,690,267 251365366 326324,70 31,17731 357302311 33335233. 22. Under TP study, for the purpose of claiming deduction under section 80IA of the Act, the assessee had applied rate of Rs.4.85 per unit being rate on which assessee s wind mill units supplied electricity to Maharashtra State Electricity Board. 23. The TPO did not accept the claim of the assessee under section 80IA of the Act but the DRP accepted the eligibility of claim of the assessee under section 80IA of the Act. The DRP further observed as under: The assessee has adopted the rate of electricity @ 4.85/- per unit. However, the TPO is directed to recomputed the deduction claimed u/s 80IA of the Act on account of production of steam, in the relevant Assessment Year by taking the same 5 compara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession , - in the case of any assessee - any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains. Explanation 1.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the lndian income-tax payable under section 91.1 Explanation 2.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under section 90A;l (a) (a (ib) (rc) (,,) 2.LL 17. Therefore, the question which arises for determination is whether the expression any rate or tax levied' as it appears in Section 40(a)(ii) of the IT Act includes cess . The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our of the assessee and it should be so construed as to effectuate the object of the legislature and not to defeat it. Further, the interpretation cannot go to the extent of reading something that is not stated in the provision [See IGS Tiber v. CIT [998] 233 ITR 207 [1997] 92 Taxman 268 (Mad.) 22. Applying the aforesaid principles, we find that the legislature, in Section 40(a)(ii) has provided that any rate or tax levied' on profits and gains of business or profession shall not be deducted in computing the income chargeable under the head profits and gains of business or profession . There is no reference to any 'cess. Obviously therefore, there is no scope to accept Ms. Linhares's contention that 'cess being in the nature of a Tax is equally not deductable in computing the income chargeable under the head profits and gains of business or profession . Acceptance of such a contention will amount to reading something in the text of the provision which is not to be found in the text of the provision in Section 40(a)(ii) of the IT Act. 23.If the legislature intended to prohibit the deduction of amounts paid by a Assessee towards say, education ces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the matter came up before the Select Committee, it was decided to omit the word 'cess' from the clause. The effect of the omission of the word 'cess' is that only taxes paid are to be disallowed in the assessments for the years 1962-63 and onwards. 3. The Board desire that the changed position may please be brought to the notice of all the Income-tax Officers so that further litigation on this account may be avoided. Board's F. No. 9l I 58166-IT( I 9), dated I 8-5-1967.I 27. The CBDT Circular, is binding upon the authorities under the IT Act like Assessing Officer and the Appellate Authority. The CBDT Circular is quite consistent with the principles of interpretation of taxing statute. This, according to us, is an additional reason as to why the expression cess ought not to be read or included in the expression any rate or tax levied' as appearing in Section 40(a)(ii) of the IT Act. 28. In the Income Tax Act, 1922, Section 10(4) had banned allowance of any sum paid on account of 'any cess, rate or tax levied on the profits or gains of any business or profession'. In the corresponding Section 40(a)(ii) of the IT Act, 1961 the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. Vs. CIT Range-2, Kota), by reference to the aforesaid CBDT Circular dated 18th May, 1967 has held that the ITAT erred in holding that the education cess is a disallowable expenditure under Section 40(a)(ii) of the IT Act. Ms. Linhares was unable to state whether the Revenue has appealed this decision. Mr. Ramani, learned Senior Advocate submitted that his research did not suggest that any appeal was instituted by the Revenue against this decision, which is directly on the point and favours the Assessee. 31. Mr. Ramani, in fact pointed out three decisions of ITAT, in which, the decision of the Rajasthan High Court in Chambal Fertilisers and Chemicals Ltd. (supra) was followed and it was held that the amounts paid by the Assessee towards the 'education cess' were liable for deduction in computing the income chargeable under the head of profits and gains of business or profession . They are as follows:- (i) DCIT Vs. Peerless General Finance and Investment and Co. Ltd. (ITA No. 1469 and 1470/Kol/2019 decided on 5th December, 2019 by the ITAT, Calcutta; (ii) DCIT Vs. Graphite India Ltd. (ITA No. 472 and 474 Co. No. 64 and 66/Kol/2018 decided on 22nd Novem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court refused to regard the levy of education cess, higher education cess and NCCD as duty of excise when it came to construing exemption Notification. Based upon this, Mr. Ramani contends that similarly amounts paid by the Appellant-Assessee towards the cess can never be regarded as the amounts paid towards the tax so as to attract provisions of Section 40(a)(ii) of the IT Act. All that we may observe is that the issue involved in Unicorn Industries (supra) was not at all the issue involved in the present matters and therefore, the decision in Unicorn Industries (supra) can be of no assistance to the Respondent-Revenue in the present matters. 37. Ms. Linhares, learned Standing Counsel for the Revenue however submitted that the Appellant-Assessee, in its original return, had never claimed deduction towards the amounts paid by it as cess . She submits that neither was any such claim made by filing any revised return before the Assessing Officer. She therefore relied upon the decision of the Supreme Court in Goetze (India) Ltd. Vs. Commissioner of Income Tax (2006) 284 ITR 323 (SC)1157 taxman I (SC) to submit that the Assessing Officer, was not only quite right in den ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not impinge on the powers of the ITAT under section 254 of the said Act. This means that in Goetze (supra), the Hon'ble Apex Court was not dealing with the extent of the powers of the appellate authorities but the observations were in relation to the powers of the assessing authority. This is the distinction drawn by the division Bench in Pruthvi Brokers (supra) as well and this is the distinction which the ITAT failed to note in the impugned order. 41. Besides, we note that in the present case, though the claim for deduction was not raised in the original return or by filing revised return, the Appellant-Assessee had indeed addressed a letter claiming such deduction before the assessment could be completed. However, even if we proceed on the basis that there was no obligation on the Assessing Officer to consider the claim for deduction in such letter, the Commissioner (Appeals) or the ITAT, before whom such deduction was specifically claimed was duty bound to consider such claim. Accordingly, we are unable to agree with Ms. Linhare's contention based upon the decision in Goetze (supra). 42. For all the aforesaid reasons, we hold that the substantial questio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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