TMI Blog2023 (10) TMI 1313X X X X Extracts X X X X X X X X Extracts X X X X ..... of principle of natural justice. Unless the prescribed authority furnishes the reason for not certifying the reasons, it will not be possible for us to adjudicate this issue. Accordingly, we restore this issue to the file of the AO to take appropriate action to ascertain the reasons for non-certification. Depreciation made in respect of capital asset purchased from certain entities - HELD THAT:- The facts are that the assessee had capitalized steel purchased by it from P K Agarwal in the year relevant to AY 2003-04. The AO had held that those purchases are not genuine in nature and accordingly disallowed the depreciation claimed thereon. Consequent thereto, the AO has been disallowing the proportionate amount of depreciation relatable to the above said purchases in all the subsequent years. We notice that the said disallowance has since been confirmed by the co-ordinate benches of Tribunal in the earlier years. Accordingly, we do not find any infirmity in the decision of Ld CIT(A) in confirming the proportionate amount of depreciation relatable to the steel purchases claimed by the assessee in both the years under consideration - Decided against assessee. Disallowance u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee u/s 115JB - HELD THAT:- We notice that this issue has been decided in favour of the assessee by the Co-ordinate bench in AY 2016-17,..[ 2022 (10) TMI 827 - ITAT MUMBAI] as held once assessee s accounts have been maintained in accordance with Companies Act and the same have also been scrutinised and audited by the statutory auditor, in absence of any material to negate these facts, the AO has limited power under section 115 JB of the Act to make adjustment to book profit only in respect of the items provided in Explanation 1 to section 115 JB (1) of the Act. As there is no dispute on the fact that assessee has offered interest on income tax refund to tax while filing its return of income and same has also been assessed under the normal provisions of the Act. Accordingly, we find no merits in addition of interest on income tax refund for computing the book profit under section 115 JB of the Act and the AO is directed to delete the same - Decided in favour of assessee. LTCG arising on compulsory acquisition of land - new claim made - Land acquired as per section 96 of the Right to Fair compensation and Transparency in land Acquisition, Rehabilitation and Resettlement A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ITAT in those years - we uphold the order of learned CIT(A) passed on this issue. Deduction claimed u/s 10AA by computing profits and gains of Refinery SEZ unit and PP SEZ unit as per Chapter VI-D, instead of adopting gross profit of the said units - assessee had claimed deduction u/s 10AA of the Act on the gross profit reasoning that the Profits and Gains of undertaking for the purpose of sec. 10AA of the Act should be taken as the gross profits as commercially understood and hence the AO should not resort to the provisions of Chapter IV of the Act for computing profits of undertaking - HELD THAT:- Deduction to be allowed u/s 10AA of the Act shall be allowed from the total income and further the said deduction shall not exceed such total income. Hence there is merit in the contentions of the assessee that the above said Explanation specifies the stage at which the deduction u/s 10AA of the Act should be allowed (i.e. from the total income) and also states that quantum of deduction should be restricted to the amount of Total income - we agree with the contentions of the assessee that sec.80AB and Explanation inserted in sec. 10AA operate in different fields. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e view that the Ld CIT(A) was justified in directing the AO to allow entire expenses claimed in KGD-6 block. TP Adjustment - addition by imputing Interest on delayed receipts - assessee had benchmarked interest income on delayed receipts of sale proceeds at LIBOR plus 200 basis points - TPO, however, adopted weighted average borrowing cost of the assessee (including long term and short term domestic and foreign borrowings) plus mark up based on Bloomberg date - HELD THAT:- We notice that the ALP adopted by the assessee at LIBOR plus 200 basis points has been accepted by the Tribunal in the earlier years. No distinguishing feature was pointed out by the revenue in these two years, which may compel us to take a different view. Accordingly, we uphold the view taken by Ld CIT(A) on this issue in both the years. Disallowance of long term and short term capital loss on sale of Non-cumulative compulsorily convertible preference shares (NCCPS) - AO noticed that the TPO had characterized the above said investment as loan in the earlier years and hence held that the loss is not allowable as deduction - HELD THAT:- Since an identical issue has been decided in favour of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany. Inmacs Management Services P Ltd - We notice that the TPO has considered the description of services provided by this company, but ignored the fact of development of specialized software. No segmental result is given. Further, the turnover of this company is Rs.1.34 crores only, where as the assessee s turnover is Rs.13.99 crores. Hence, it fails in turnover filter of 10% also. Accordingly, we are of the view that the Ld CIT(A) was justified in excluding this company. Spectrum Business Solutions Ltd - As description of nature of services provided by this company would show that it is functionally comparable. Further, the turnover of this company is Rs.5.53 crores, while the transaction value of the assessee company is 13.99 crores. Hence it would not fail in turnover filter of (+)/(-) 10%. Accordingly, we are of the view that the Ld CIT(A) was justified in directing the AO/TPO to include this company. Allsec Technologies Ltd - As this company has been accepted as comparable in the years relevant to AY 2012-13 to 2015-16 by the Tribunal. In AY 2016-17, the TPO has accepted this company as good comparable. It was submitted that there is no change in facts in this yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) was not justified in directing for inclusion of this company. Accordingly, we set aside the order passed by the learned CIT(A) and direct for inclusion of this company. Arms Length price adjustment made in respect of money realized on transfer of electricity generated by one undertaking to other undertakings - assessee is running a captive power plant which is eligible unit for deduction u/s 80IA - CIT(A) noticed that the Tribunal has accepted the internal CUP in A.Y. 2013-14 to 2015-16. Accordingly, he reversed the order of AO and deleted the addition - HELD THAT:- Since the Tribunal is consistently upholding the practice of adopting internal CUP in respect of transaction of sale of power to non-eligible undertaking and since the learned CIT(A) has followed the order so passed by the ITAT in earlier years, which has been upheld by Hon ble Bombay High Court in one of the years, we uphold the order passed by the learned CIT(A) on this issue. TP adjustment in respect of Management Consultancy Services (MCS), technical services and Business support services (BSS) rendered to AE - Comparable selection - HELD THAT:- Spectrum Business Solutions Ltd -description of nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determination of Arms length Price of the international transactions to the Transfer Pricing Officer (TPO) in both the years under consideration. After the receipt of order of TPO, the AO passed draft assessment order and the assessee chose not to file its objection to the Dispute Resolution Panel. Hence the AO passed the final assessment order making various additions to the returned income in both the years. The assessee filed appeals before Ld CIT(A) and they were allowed in part by Ld CIT(A) in both the years. Hence both the parties have filed appeals before the Tribunal. APPEALS OF THE ASSESSEE:- 3. We shall now take up the appeals filed by the assessee for AY 2017-18 and 2018-19. The grounds of appeal urged by the assessee in both the years read as under:- (i) ITA No. 2318/Mum/2022 2017-18 : Assessee s appeal :- On being aggrieved by the order dated 25 July, 2022 (received on 01 August, 20 passed by the learned Commissioner of Income-tax (Appeals)-57, Mumbai (herein a referred to as the learned CIT(A)] under section 250(6) of the Income-tax Act, 1961 Act), the present appeal is being preferred on the following grounds which, it is prayed, may be considered with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by EY validates the fact that the suo-moto disallowance made by the appellant is just and proper a further disallowance is warranted. 7. Erred in directing the AO to compute the disallowance under clause (f) of Exp 1 to section 115JB(2) i.e. expenditure relating to exempt income, when no disallowance ought to have been made while computing book profit u/s 115JB the Act, relying on Tribunal decision in appellant's own case for AY 2009-10 vide corrigendum order dated 02.04.2008 Addition of interest on Income Tax Refund while computing Book Profits u/s 115JB 8. Erred in confirming the action of the learned AO of adding interest on income tax refund of Rs 181,17,790/- to the book profit of the appellant u/s 115JB of the Act. The appellant submits that since the interest on income tax refund was not credited to profit and loss account as per the accounting policy consistently followed by the appellant, the learned CIT(A) erred in confirming the action of the learned AO in making adjustment to the book profit, which is not enumerated in clause (a) to (k) of Explanation 1 to section 115JB of the Act. Long term capital gain on Sale/Compulsory acquisition of land 9. E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mined by the TPO by adopting Libor based spreads, and then in applying the float to fixed swap. 19. Erred in not directing to benchmark the interest basis the comparable furnished by the Appellant for benchmarking interest on loan if share application money is recharacterized into loan. Each of the above Grounds of Appeal are without prejudice to each other. The Appellant craves leave to add, amend, delete, rectify, substitute, modify otherwise, all or any of the aforesaid grounds or add a new ground(s) at any time be or during the hearing of the above appeal. (ii) ITA No. 2317/Mum/2022 - AY 2018-19 - Assessee s appeal :- On being aggrieved by the order dated 25 July, 2022 (received on 01 August, 20 passed by the learned Commissioner of Income-tax (Appeals)-57, Mumbai [herein a referred to as the learned CIT(A)] under section 250(6) of the Income-tax Act, 1961 Act), the present appeal is being preferred on the following grounds which, it is prayed, may be considered without prejudice to one another. On the facts and in the circumstances of the case and in law, the learned CIT(A) : Disallowance of weighted deduction u/s 35(2AB) on the basis of Form 3CL 1. E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er clause (f) of Exp 1 to section 115JB(2) i.e. expenditure relating to exempt income, when no disallowance ought to have been made while computing book profit u/s 11 the Act, relying on Tribunal decision in appellant's own case for AY 2009-1-10 vide corrigendum order dated 02.04.2008 Addition of interest on Income Tax Refund while computing Book Profits u/s 115JB 8. Erred in confirming the action of the learned AO of adding interest on income tax refund of Rs 246 16,62,026/- to the book profit of the appellant u/s. 115JB of the Act. The appellant submits that since the interest on income tax refund was not credited to profit and loss account as per the accounting policy consistently followed by the appellant, the learned CIT(A) erred in confirming the action of the learned AO in making adjustment to the book profit, which is not enumerated in clause (a) to (k) of Explanation 1 to section 115JB of the Act. Long term capital gain on Sale/Compulsory acquisition of land 9. Erred in not considering the net long term capital gains on sale/compulsory acquisition of land amounting to Rs 23,97,71,157/- as exempt from tax as p Section 96 of The Right to Fair Compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal against the unilateral decision taken by DSIR. Accordingly, it was contended that there is violation of principles of natural justice and on this count also, the report of DSIR on scientific research expenses should be ignored. The assessee further submitted that the report in Form 3CL is required to be furnished by DSIR directly to PCIT or CCIT. Accordingly, it was contended that the non-approval of the scientific research expenses is not relevant for disallowing deduction u/s 35(2AB) of the Act claimed by the assessee. Accordingly it was contended that the claim of the assessee made u/s 35(2AB) of the Act should be allowed. 5.2 We heard Ld D.R on this issue and perused the record. We notice that the provisions of Rule 6(7A) have been amended w.e.f. 1.7.2016 to enable DSIR to certify Scientific Research Expenses. It is the contention of the assessee that the provisions of sec.35(2AB) of the Act empowers DSIR to approve the Scientific Research facility only and it does not empower certification of scientific research expenditure. Accordingly it was contended that the amendment made in the Income tax Rules without making enabling provision in the provisions of sec. 35(2AB) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above said provisions of sec.35(3) provides for making a representation to the prescribed authority. In the instant case, the question is about quantifying the expenditure, i.e., whether the expenses incurred in the in-house scientific research facility is would fall under the category of scientific research expenses or not as specified in sec.35(2AB) of the Act. Since the DSIR has not certified part of the expenses incurred by the assessee and since it did not furnish any reason for doing so, we are of the view that there is violation of principle of natural justice. Unless the prescribed authority furnishes the reason for not certifying the reasons, it will not be possible for us to adjudicate this issue. Accordingly, we restore this issue to the file of the AO in both the years with the direction to both the assessee as well as the AO to take appropriate action to ascertain the reasons for non-certification. After ascertaining the same, the AO may examine this issue afresh and take appropriate decision in accordance with law, after affording adequate opportunity of being heard to the assessee. 6. Ground No. 3 raised by the assessee in both the years relates to disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income and (ii) an amount equal to one per cent of the annual average of the monthly average of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income. Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee. Accordingly, the AO computed the disallowance as per Rule 8D(2)(ii) @ 1% of annual average of monthly average of opening and closing balances of the value of investment, income from which does not or shall not form part of total income. The amount so computed has exceeded the exempt income in both the years and hence the AO has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Even though the above said decision has been rendered by Hon ble Bombay High Court in the context of earlier provisions of Rule 8D, in our view, the above said decision would apply to the amended provisions of sec. 14A also. 7.6 It is the submission of the assessee that it has identified the expenditure relatable to exempt income by allocating salary and administrative cost of employees working treasury department and disallowed the same u/s 14A of the Act. However, the AO rejected the same by making following observations:- It is pertinent to mention that every activity of the assessee company has some cost and expenditure involved in it. Whether it is meeting of Board of Directors to decide investment modalities or the staff s involvement and use of logistics to implement the decisions or accounting of such investments or payments etc carried out in relation to such investments and interest etc. Cost and expenditure are attributable to every activity in relation to these investments. It is also understood that in carrying on any activity of investment calls a lot of due diligence in selection of the fund/security and a constant monitoring to decide whether to continue su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O without examining the workings furnished by the assessee, we are of the view that the AO has not arrived at the objective satisfaction as contemplated in sec. 14A of the Act. 7.8 In the case of DCIT vs. Nestle India Ltd (supra), the Delhi bench of ITAT has deleted the disallowance made by the AO u/s 14A of the Act on noticing that the AO did not record his dissatisfaction over the workings furnished by the assessee. The relevant observations made by the Delhi bench of ITAT are given below:- 7.1.1 However, it has further been brought to our notice that in the alternate, the assessee had submitted a computation before the Assessing Officer wherein it was submitted that the disallowance, if any, could not exceed Rs.8,34,934/- being the costs of treasury operations. However, it is seen that neither the Assessing Officer nor the Ld. CIT (A) has commented on this computation of the assessee. Thus, apparently, the satisfaction, as contemplated and laid down by the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. (supra) to be recorded by the Assessing Officer is completely absent and, therefore, in absence of the required satisfaction, such disallowance could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A of the Act, since the disallowance made by the assessee also u/s 14A could not have been imported in sec.115JB of the Act. Accordingly, following the decision rendered by the Special bench in the case of Vireet Investments P Ltd (supra), we set aside the above said directions given by Ld CIT(A) in both the years. We notice that the assessee itself has made addition under clause (f) of Explanation 1 to sec.115JB of the Act for the purpose of computing book profit and the same has not been examined by the AO. Accordingly, we restore this issue in both the years to the file of AO to examine the addition made by the assessee on the basis of expenses claimed in the Profit and Loss account of the assessee. 9. Ground No. 8 raised by the assessee in both the years relate to the addition of interest on income tax refund to the Net Profit while computing book profit of the assessee under section 115JB of the Act. 9.1 The AO noticed that the assessee has offered interest on income tax refund of Rs.1.81 crores and Rs.246.16 crores respectively in AY 2017-18 and 2018-19 while computing total income under normal provisions of the Act. The AO further noticed that the assessee did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vances . While filing the return of income, the said interest has been offered to tax under the normal provisions of the Act. Interest on income tax refund was revised to Rs. 265,38,24,122 due to orders passed subsequently and same was assessed to tax under the normal provisions of the Act. However, since the said interest was not routed through the profit and loss account, the same was not offered to tax under section 115 JB of the Act. As per the assessee since corresponding appeals, relating to the income tax refunds on which interest has been received, are pending at different forums, therefore, there is no finality as to the assessed income of the assessee. Thus, interest on income tax refund is not crystallised and accordingly the same was not credited to the profit and loss account as per the policy consistently followed by the assessee. Further, the said financial statement has been prepared as required under Companies Act. The assessee further submitted that the financial statement of the assessee has been duly scrutinised and audited by the statutory auditors and have also been approved in the annual general meeting. The said financial statement has also been filed with R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok profit only in respect of the items provided in Explanation 1 to section 115 JB (1) of the Act. As regards the submission of learned DR that the information regarding interest on income tax refund being not included in the profit and loss account has not been disclosed by the assessee in its annual accounts and thus could not be said to be approved in the AGM or filed with the ROC and other statutory authorities, we find that no evidence has brought on record to the effect that because of such non-disclosure the accounts of the assessee were not maintained as per the provisions of Companies Act and other relevant rules and regulations. Further, no such objection by the statutory auditor or ROC or other statutory authority has been brought to our notice. In the present case, there is no dispute on the fact that assessee has offered interest on income tax refund to tax while filing its return of income and same has also been assessed under the normal provisions of the Act. Accordingly, we find no merits in addition of interest on income tax refund for computing the book profit under section 115 JB of the Act and the AO is directed to delete the same. As a result, ground No. 5 rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory acquisition of immovable property are not liable to tax both under normal provisions of the Act and u/s 115JB of the Act for the reason that sec.96 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 overrides the provisions of Income tax Act. The Ld A.R placed his reliance on the decision rendered by Hon ble Bombay High Court in the case of Seema Jagdish Patil vs. National High Speed Rail Corporation Ltd (2022)(288 Taxman 26) in support of his contention that the capital gains is not liable to tax under normal provisions of the Act. With regard to the claim that it is not liable to be included in book profits computed u/s 115JB of the Act, the Ld A.R contended that an item, which is not liable to tax under normal provisions of the Act, cannot be subjected to tax u/s 115JB also. In support of this contention, the Ld A.R placed his reliance on the following decisions:- (a) PCIT vs. Ankit Metal and Power Ltd (2019)(416 ITR 591)(Cal) (b) CIT vs. Metal Chromium Plater (P) Ltd (2019)(415 ITR 123)(Mad). The Ld A.R further submitted that the co-ordinate bench of the Tribunal has held in the assessee s own case for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Karnataka High Court in the case of Wipro Ltd (supra) is applicable to the facts of the present case. Accordingly, we set aside the order passed by Ld CIT(A) on the main claim of the assessee and restore the same to the file of AO for examining the above said main claim of the assessee afresh in accordance with the decision rendered by Hon ble Karnataka High Court in the case of Wipro Ltd (surpa). 12. With the adjudication of above grounds, the appeal of the assessee filed for AY 2018-19 stands disposed of. However, in AY 2017-18, the assessee has raised certain more grounds. We shall deal with the same now. 13. Ground No. 11 to 13 raised by the assessee in A.Y. 2017-18 relates to validity of reference made to Transfer Pricing Officer. At the time of hearing, the Learned AR did not press these grounds. Accordingly these grounds are dismissed as not pressed. 14. Ground No. 14 to 19 raised by the assessee in A.Y. 2017-18 relates to ALP adjustment on share application money returned back, by re-charcterising the same as loan. The assessee had made investment in preference shares issued by its subsidiary company located in Middle East named M/s Reliance Industries Midd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 1504.93 363 4.84 72,43,96,957 Amount invested in FY 2015-16 (balance 390,097 shares) 106,004,620 712.20 365 4.84 34,47,05,796 Amount invested in FY 2016-17 (Share Application money refunded on 30 June 2016) 6,793,000 45.00 91 4.40 49,37,209 Amount invested in FY 2016-17 (2,21,929 shares) 60,307,000 399.56 365 4.40 17,58,08,173 Total T P Adjustment 130,60,26,158 14.3 The Ld CIT(A), following the decision rendered by the Tribunal in the earlier years, deleted the Transfer Pricing adjustment made on Share Application money against which Preference Shares had been allotted. He noticed that the assessee has got back part of share application money to the tune of Rs.45.00 crores on 1st July, 2016. The Ld CIT(A) furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest. Since, the assessee has remitted the share application money to AE in UAE, reliance has been placed upon Master Direction No. 15/2015 16 dated 01/01/2016, issued by Reserve Bank of India on Direct Investment by Residents in Joint Venture/Wholly-Owned Subsidiary abroad . From the perusal of aforesaid Master Direction issued by RBI, it is evident that direct investments by residents in joint venture and wholly-owned subsidiary abroad are being allowed in terms of section 6(3)(a) of Foreign Exchange Management Act, 1999 read with Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004. As per the aforesaid Master Direction, share certificate or any other document as an evidence of investment in foreign entity is to be received by the Indian party within 6 months from the date of effective remittance. 30. In the present case, in respect of last remittance on 21/03/2016, for the year under consideration, shares were allotted on 19/09/2016 and excess share application money amounting to Rs. 45,76,26,069 was refunded to the assessee. It is not the case of the Revenue that even after issuance of shares on 19/09/2016 excess share application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hane Sohagpur (CBM). f) Disallowance of foreign tax credit u/s 90(1)(a)(ii) relating to income eligible for deduction u/s 10AA of the Act. g) Transfer pricing adjustment by imputing Interest on delayed receipts. h) Transfer pricing adjustment by recharacterising the preference shares as loan. 16. The First common issue urged by the revenue in both the years relates to the disallowance of part of depreciation claim, on account of reduction of WDV by thrusting depreciation upon the assessee in the earlier years, when the claim of depreciation in those years was optional in nature. 16.1 The facts relating to this issue are that the assessee had not claimed depreciation on certain assets till AY 2001-02; on the plea that claim of depreciation was optional in those years. The AO did not accept the above said contentions of the assessee in those years and accordingly, in the preceding years, he reduced the value of WDV of assets by the amount of depreciation that should have been allowed in those years. Since the assessee had claimed depreciation on the WDV computed by it, the AO re-computed the WDV of those assets as per the workings made by him in the earlier years. Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very same issue in both the years and we have restored this issue to the file of AO for examining this issue afresh, while dealing with the appeal of the assessee. Consequent thereto, this issue urged by the revenue in both the years is restored to the file of the AO for examining it afresh in the light of discussions made supra, while dealing with the appeal of the assessee on this issue. 19. The next common issue urged by the Revenue in both the years relate to the deduction claimed under section 10AA by computing profits and gains of Refinery SEZ unit and PP SEZ unit as per Chapter VI-D, instead of adopting gross profit of the said units. 19.1 The assessee had claimed deduction u/s 10AA of the Act on the gross profit reasoning that the Profits and Gains of undertaking for the purpose of sec. 10AA of the Act should be taken as the gross profits as commercially understood and hence the AO should not resort to the provisions of Chapter IV of the Act for computing profits of undertaking . In support of this proposition, the assessee relied upon the decision rendered by Hon ble Supreme Court in the case of Vijay Industries vs. CIT (2019)(412 ITR 1)(SC), wherein it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s appeal are dismissed. Since the Ld CIT(A) has followed the co-ordinate bench s decision in the assessee s own case, we do not find any reason to interfere with his decision. 19.5 The Ld A.R brought to our notice certain observations made by the coordinate bench in the order dated 10-11-2020 passed in the assessee s own case in ITA No.7299/Mum2017 with regard to the Explanation inserted in Sec. 10AA of the Act w.e.f. 1.4.2018. The said Explanation reads as under:- For the removal of doubts, it is hereby declared that the amount of deduction under this section shall be allowed from the total income of the assessee computed in accordance with the provisions of this Act, before giving effect to the provisions of this section and the deduction under this section shall not exceed such total income of the assessee. In AY 2013-14, the ld D.R had contended before the Tribunal that the decision in the case of Vijay Industries was rendered in the context of sec. 80HH r.w.s. 80AB of the Act. He further contended that the above said Explanation (supra) inserted in sec. 10AA is pari materia with sec. 80AB of the Act. Accordingly, it was contended that the above said explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that it states that the amount of income computed in accordance with the provisions of the Act and included in the Gross Total income is eligible for deduction. Hence, there is merit in the contentions of the assessee that sec. 80AB is concerned with the quantum of income that is eligible for deduction under heading C Deduction in respect of certain income in Chapter VIA. The Explanation inserted in sec.10AA of the Act reads as under:- For the removal of doubts, it is hereby declared that the amount of deduction under this section shall be allowed from the total income of the assessee computed in accordance with the provisions of this Act, before giving effect to the provisions of this section and the deduction under this section shall not exceed such total income of the assessee. A careful perusal of the above said Explanation would show that the deduction to be allowed u/s 10AA of the Act shall be allowed from the total income and further the said deduction shall not exceed such total income. Hence there is merit in the contentions of the assessee that the above said Explanation specifies the stage at which the deduction u/s 10AA of the Act should be all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion we observed that the Coordinate Bench of ITAT Bangalore Bench decided the issue of deduction u/s. 80G relating to donations which is part of Corporate Social Responsibility in the case of M/s. FNF India Pvt. Ltd., v. ACIT ( ITA.No. 1565/Bang/2019 dated 05.01.2021). The relevant findings of the Bangalore Bench are reproduced below: - 9. After hearing both the parties, we find that similar issue came up for consideration before this Tribunal in ITA No.1693/Bang/2019 in the case of Allegis Services (India) Pvt. Ltd. v. ACIT. The Tribunal by its order dated 29.4.2020 held as under:- 10. Section 135 of Companies Act, 2013 requires companies with CSR obligations, with effect from 01/04/2014. Finance (No.2) Act, 2014 inserted new Explanation 2 to sub- section (1) of section 37, so as to clarify that for purposes of sub-section (1) of section 37, any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. 11. This amendment will take effect from 1/04/2015 and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ants deduction on expenditure for scientific research and knowledge extension in natural and applied sciences under agriculture, animal husbandry and fisheries. Payment to approved universities/research institutions or company also qualifies for deduction. In-house R D is eligible for deduction, under this section. Section 35CCD provides deduction for skill development projects, which constitute the flagship mission of the present Government. Section 36 provides deduction regarding insurance premium on stock, health of employees, loans or commission for employees, interest on borrowed capital, employer contribution to provident fund, gratuity and payment of security transaction tax. Income Tax Act, under section 80G, forming part of Chapter VIA, provides for deductions for computing taxable income as under: Section 80G(2) provides for sums expended by an assessee as donations against which deduction is available. a) Certain donations, give 100% deduction, without any qualifying limit like Prime Minister's National Relief Fund, National Defence Fund, National Illness Assistance Fund etc., specified under section 80G(1)(i) b) Donations with 50% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because such payment forms part of CSR, would lead to double disallowance, which is not the intention of Legislature. 19. On the basis of above discussion, in our view, authorities below have erred in denying claim of assessee under section 80G of the Act. We also note that authorities below have not verified nature of payments qualifying exemption under section 80G of the Act and quantum of eligibility as per section 80G(1) of the Act. 20. Under such circumstances, we are remitting the issue back to Ld.AO for verifying conditions necessary to claim deduction under section 80G of the Act. Assessee is directed to file all requisite details in order to substantiate its claim before Ld.AO. Ld.AO is then directed to grant deduction to the extent of eligibility. Accordingly grounds raised by assessee stands allowed for statistical purposes. We notice that the decision rendered by Ld CIT(A) on this issue is consistent with the view taken by various benches of Tribunal. Accordingly, we uphold the same. 21. The next common issue relates urged by the revenue in both the years relates to disallowance made under section 42(1)(b) in respect of KG-DWN- 98/3 (KGD6 bloc) and Coa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, Compani(es) shall have option to amortize such expenditures over a period of ten (10) years from the date of first Commercial Production. (ii) CBM BLOCK:- 15.4.2 All allowable expenditure incurred prior to the Year in which Commercial Production commences shall be aggregated and the assessed loss for that Year as well as the assessed loss, if any, incurred in the assessment Year relevant to the Year in which Commercial Production commences, or in any subsequent assessment year, shall be carried forward to succeeding assessment Years and set off as provided in the Income tax Act, 1961. Placing reliance on clause 17.2.4 of PSC of KGD-6 Block, the AO allowed 10% of expenses claimed by the assessee and accordingly disallowed 90% of expenses in both the blocks cited above. 21.4 We notice that the option to claim expenses incurred prior to the date of commercial production in ten instalments is available only in KGD-6 Block, vide clause 17.2.4 and not in CBM Block, i.e., as per PSC in CBM block, expenditure incurred prior to the commercial production shall be aggregated and the loss so assessed as well as loss, if any, incurred in the assessment year relevant to the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or USA, 4.36% for Singapore and 8.09% for Kenya. Accordingly, he made transfer pricing adjustment of Rs.12.97 crores. 23.1 The Ld CIT(A) noticed that the ITAT, in AY 2016-17, has upheld the ALP working of assessee adopting interest rate at LIBOR plus 200 basis points. Accordingly, he deleted the transfer pricing adjustment made by the TPO. 23.2 We heard the parties on this issue and perused the record. It was submitted by Ld A.R that the rate of interest chargeable by the assessee from its AE would depend upon the credit rating of the AE. Hence the assessee has taken AEs as tested parties and has done benchmarking on the basis of agreements entered between AEs and third parties. Accordingly, the interest charged has been benchmarked with the interest payable by the AE to the third parties in comparable circumstances adopting internal CUP. 23.3 We notice that the ALP adopted by the assessee at LIBOR plus 200 basis points has been accepted by the Tribunal in the earlier years. No distinguishing feature was pointed out by the revenue in these two years, which may compel us to take a different view. Accordingly, we uphold the view taken by Ld CIT(A) on this issue in both the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transfer Pricing adjustment for Inter-unit of transfer of power (Excess income shown by the eligible units). 26. The first individual issue urged by the revenue in AY 2017-18 relates to the disallowance of long term and short term capital loss on sale of Noncumulative compulsorily convertible preference shares (NCCPS) of M/s. RGBV by re-characterising the same as loan. During the year under consideration, 8,24,303 non-cumulative compulsory convertible preference shares (NCCCPS) held by the assessee were cancelled and accordingly, the assessee declared short term capital loss of Rs.51,21,51,467/-. The AO noticed that the TPO had characterized the above said investment as loan in the earlier years and hence held that the loss is not allowable as deduction. The AO further noticed that a similar claim made in AY 2016-17 was disallowed. Accordingly, the AO disallowed the claim of Short term capital loss. 26.1 The Ld CIT(A) noticed that his predecessor and the ITAT had held in AY 2010-11 that the re-characterisation of investment into loan is not permissible and accordingly deleted the transfer pricing adjustment made by the TPO. 26.2 We heard the parties on this issue. The Ld A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port services (BSS) rendered to AEs. 28.1 The assessee has provided MCS, Technical Services and BSS to its AE and charged them at cost plus 10%. For this segment, the assessee selected itself as Tested party and adopted TNM method as most appropriate method. It selected 7 set of comparable companies. However, the TPO rejected 6 companies and accepted 1 company only. The TPO introduced 9 comparable companies and accordingly finalized following set of 10 comparable companies:- (1) JPS Associates P Ltd (2) ANJ Power Technologies P Ltd (3) 1 to 1 Help.Net P Ltd (4) Inmacs Management Services P Ltd (5) Retail Scan Management Services P Ltd (6) Turner Townsend P Ltd (7) Laurent and benon Management Consultants Ltd (8) Right Management India P Ltd (9) Fleet Management Services Ltd (10) HDFC Capital Advisors Ltd. The median margin of above set of comparables was 22.55%. Accordingly, the TPO proposed transfer pricing adjustment of Rs.1,64,46,083/-. 28.2 The Ld CIT(A) finalized 9 set of comparables, which consisted of 6 comparables selected by the assessee and 3 comparable companies selected by the TPO. The details of those companies are listed below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us to contradict above said finding of Ld CIT(A). Accordingly, we are of the view that the Ld CIT(A) was justified in rejecting this company. (b) 1 to 1 Help P Ltd:- The contention of the assessee is that this company is engaged in the business of providing psychological assistance and counseling to the employees in the areas of prevention sexual harassment, lifestyle management for shift employees, healthy maternity program etc, i.e., the services are in the nature of helping employees to maintain emotional well being and good mental health. The business of the assessee, however, is in the nature of providing services to carrying on business of AEs. We notice that the TPO has simply mentioned that the business of this company is comparable with that of assessee. On the contrary, the ld CIT(A) has noticed that the functions of this company is not comparable at all with the assessee. No material was placed before us to contradict the findings given by Ld CIT(A). In view of the above said discussions, we are of the view that this company s functions are not comparable with that of the assessee. Accordingly, we are of the view that the Ld CIT(A) was justified in excludin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 2016-17, the TPO has accepted this company as good comparable. It was submitted that there is no change in facts in this year also. In view of the foregoing discussions, we are of the view that the Ld CIT(A) was justified in directing the AO/TPO to include this company. 28.6 Since we have rejected the claim of the revenue in respect of above said five companies, the assessee does not have objection in inclusion/exclusion of remaining three companies, i.e., the assessee does not object to the exclusion of two other companies (MCI Management India P Ltd and ICRA Management Consulting Services Ltd) and inclusion of M/s JPS Associates P Ltd. 28.7 Accordingly, we restore this issue to the file of AO/TPO for redetermining the ALP of this international transaction in the light of discussions made supra. 29. The next individual issue contested by the revenue in AY 2017-18 relates to the transfer pricing adjustment in respect of Guarantee commission given to the Associated Enterprise (AE). 29.1 The assessee had given Corporate guarantee to its AEs for availing loans from financial institutions. The assessee followed Yield spread approach method for calculating the Guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, we do not find any reason to interfere with the decision rendered by the learned CIT(A) on this issue. 30 The next individual issue urged by the Revenue in A.Y. 2017-18 relates to the transfer pricing adjustment in respect of the business support services availed from its AE. This adjustment relates to Specified domestic transactions (SDT). The assessee has availed business support services from M/s. Reliance Corporate IT Park Ltd. (RCITPL) for its undertaking, which is eligible for deduction under section 80IB of the Act. Broad scope of services rendered consisted of - back office support for transaction processing and analysis, - maintenance of accounting in ERP system, - support of functional and technical aspects, - support by way of evaluation and recommendation of procurement contracts, - support in the matters relating to accounting, taxation, insurance and HR, administration, - system network management services, - telecommunication system operation and maintenance, - infrastructural support services, - operational or administration assistance, - maintenance of computer hardware intra net facility etc. The AE raised bill upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graph, it can be noticed that they are in the nature of core business support services provided by the AE, i.e., many works related to day to day carrying on of the business of the assessee have been outsourced to its AE. On the contrary, the functions provided by this comparable company are in the nature of low end support services, basically maintenance of infrastructure and related services. Further, this company also provides beautification services like garden development, land scaping. It also implements engineering projects like rural electrification. Accordingly, we are of the view that functions of this company cannot be compared with the functions carried on by the AE. We also noticed that this company has been excluded by the ITAT in A.Y. 2013-14 to 2016-17. Accordingly, we hold that this company functionally not comparable with the AE. Accordingly, we are of the view that the learned CIT(A) was justified in excluding this company. b) ANJ Powers Technology Pvt. Ltd. :- (Excluded by CIT(A)) The contention of the assessee is that this company is engaged in providing management consultancy services which involved high skills and fall under the category of high end bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. It was also submitted that this company has been accepted as comparable by the learned CIT(A) in A.Y. 2014-15 to 2016-17. No contrary decision was shown to us by the revenue. In view of the above, we are of the view that the Ld CIT(A) was justified in including this company as comparable one. e) Spectrum Business Solutions Ltd :- The TPO has rejected this company as it failed turnover filter. Since we have applied turnover filter in respect of other comparable companies, we are of the view that the learned CIT(A) was not justified in directing for inclusion of this company. Accordingly, we set aside the order passed by the learned CIT(A) and direct for inclusion of this company. 30.4 Accordingly, this issue is restored to the file of the TPO/Assessing Officer for determining the ALP of the transaction in the light of the discussion made supra. 31 The last individual issue agitated by the revenue in AY 2017-18 relates to the Arms Length price adjustment made in respect of money realized on transfer of electricity generated by one undertaking to other undertakings. The assessee is running a captive power plant which is eligible unit for deduction under section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port services availed from AE - RCITPL (Specified Domestic Transaction). 33 The first individual issue urged by the revenue in AY 2018-19 relates to Transfer pricing adjustment in respect of Management Consultancy Services (MCS), technical services and Business support services (BSS) rendered to AE. 33.1 The assessee has provided MCS, Technical Services and BSS to its AE and charged them at cost plus 10%. For this segment, the assessee selected itself as Tested party and adopted TNM method as most appropriate method. It selected 8 comparable companies. However, the TPO rejected all of them and brought in 9 comparable companies. Accordingly, the TPO made transfer pricing adjustment of Rs.65,89,399/-. 33.2 The Ld CIT(A) finalized 10 comparable companies, which consisted of 7 companies selected by the assessee and 3 companies selected by the TPO. Since the transaction was at arms length, the Ld CIT(A) deleted the addition. The revenue is aggrieved in respect of nine comparable companies, i.e., 5 companies selected by the assessee and four companies rejected by Ld CIT(A). The details of these nine companies are given below:- (A) Revenue seeks exclusion of following companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices provided by this company is akin to the services provided by it. Accordingly, it was contended that the TPO was not justified in rejecting the company holding that it is a BPO company providing ITes services. It was further submitted that this company has been accepted as comparable in the years relevant to AY 2012-13 to 2015-16 by the Tribunal. In AY 2016-17, the TPO has accepted this company. It was submitted that there is no change in facts in this year also. In view of the foregoing discussions, we are of the view that the Ld CIT(A) was justified in directing the AO/TPO to include this company. (iii) ANJ Power Technologies P Ltd (Excluded by CIT(A)) The contention of the assessee is that as per website of the above said company, it is engaged in the business of manufacture of electrical equipments. Hence it is submitted that it is functionally different. It was further submitted that this company has discontinued its main business. It was submitted that the TPO has taken the view that it s functionally comparable with the assessee company, but the fact shows otherwise. We notice that the ld CIT(A) has given categorical finding that it is not functionally comparable a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sociated Enterprise (AE). 34.1 Identical issue has been examined by the assessee in the appeal of revenue relating to AY 2017-18 in the preceding paragraphs, wherein we have upheld the order passed by Ld CIT(A) on this issue. Since the facts relating to this issue are identical in this year also, following our decision rendered in AY 2017-18, we uphold the order passed by Ld CIT(A) on this issue. 35. The next individual issue urged by the revenue in AY 2018-19 relates to transfer pricing adjustment in respect of Business support services availed from its domestic AE - RCITPL (Specified Domestic Transaction). The services so availed consisted of two types, viz., (a) IT Support Services and (b) Business support services. 35.1 We shall first deal with IT support services. The assessee has availed IT support services from one of its AE named Reliance Corporate IT Park Ltd. (RCIPL) and paid a sum of Rs. 290.48 crores during the year under consideration. Since the assessee has claimed deduction under section 10AA of the Act in respect of its refinery SEZ, the above said payment fall under the category of specified domestic transaction requiring determination of arms length pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the functions of the assessee company. Accordingly, we are of the view that the learned CIT(A) was justified in including this company. b) CMS Computers Ltd. The TPO has excluded this comparable holding that it is functionally not comparable. However, it was pointed out to the learned CIT(A) that this company is engaged in the business of providing low end IT enabled services. Accordingly the learned CIT(A) has held that this company should not be excluded. We noticed that the TPO has not given any reason for holding that this company is not functionally comparable. On the contrary, the learned CIT(A) has noticed that this company is providing low end IT enabled services and hence it is comparable with the assessee company. Accordingly, we are of the view that the learned CIT(A) was justified in including this company. Accordingly the final the set of comparable companies for IT support services will be : a) Altruist Customer management India Pvt. Ltd. b) CMS Computers Ltd. c) DCM Ltd. (Segmental) Accordingly, we direct the Assessing Officer/TPO to recompute the arms length price of the transactions by considering the above said three companies. 36 With re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that this company has been held to be not comparable functionally by the ITAT in A.Y. 2013-14 to 2016-17. He also submitted that the learned CIT(A) has rejected this company by following the decision rendered in A.Y. 2013-14 to 2016-17. On perusal of the functions performed by the AE to the assessee, which is narrated in an earlier paragraph, it can be noticed that they are in the nature of core business support services provided by the AE, i.e., many works related to day to day carrying on of the business of the assessee have been outsourced to its AE. On the contrary, the functions provided by this comparable company are in the nature of low end support services, basically maintenance of infrastructure and related services. Further, this company also provides beautification services like garden development, land scaping. It also implements engineering projects like rural electrification. There is sale of goods during this year. Accordingly, we are of the view that functions of this company cannot be compared with the functions carried on by the AE. We also noticed that this company has been excluded by the ITAT in A.Y. 2013-14 to 2016-17. Accordingly, we hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed by Ld CIT(A) in respect of above said three companies, there is no necessity to adjudicate the remaining 7 companies, as the Ld A.R submitted that they can be decided in favour of the revenue. Accordingly, this issue is restored to the file of the TPO/Assessing Officer for determining the ALP of the transaction in the light of the discussion made supra. 37. The assessee has filed Cross objections ( C.O. No. 137/Mum/2022 ) in AY 2018-19 on the following issues:- a) Disallowance of depreciation by thrusting depreciation of earlier assessment year. b) Disallowance under section 14A r.w. Rule 8D. c) Disallowance of deduction under section 10AA in respect of Refinery SEZ. d) Disallowance of deduction under section 10AA in respect of PP SEZ. e) Disallowance of deduction of Rs. 291,80,00,000/- under section 80G of the Act in respect of CSR Donations. f) Disallowance under section 42(1)(b) in respect of KG-DWN-98/3 (KGD6 block) and Coal Bed Methane Sohagpur (CBM). g) Short grant of foreign tax credit. h) Interest on delayed receipts. i) Interest chargeable on preference shares recharterised as loan. j) Business support services (BSS) and techni ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
