TMI Blog2023 (11) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... en market rate to be considered in the market where electricity sold to the consumers. Here the assessee has paid the purchase power to DISCOMs at the same rate which it has paid to its captive power plants. Thus, this contention raised by the Revenue is dismissed. Application of safe harbour rules - As held that there is no application of safe harbor rules to Clause (i) of the Explanation to Section 80IA and accordingly, the decision of the Hon ble Jurisdictional High Court in the case of Reliance Industries Ltd. [ 2019 (2) TMI 178 - BOMBAY HIGH COURT ] would clearly apply. Can rate of supply of power by the DISCOMS can be held to comparable with the captive power plants unit of the assessee? - As average market value in Indian Energy Exchange platform is less than Rs. 7.64 and Rs. 8.46 adopted by the assessee and therefore, the rate of purchase of power by DISCOMs is more than fair, however, there is no such data which has been provided to us and apart from that, the rates on which power is available through Indian Energy Exchange cannot be applied, because these are not the rates to the consumers but rates to the DSICOMs. Thus, our same reasoning given in the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount which has been paid during the year and the same has to be allowed. Disallowance u/s 14A r.w.r 8D - computation and allocation of particulars of expenses - assessee has given the entire basis of computation of disallowance which was based on allocation of administrative and management expenses which included employee cost, rent expenses, electricity charges, maintenance expenses and other office overheads and other allocable expenses - HELD THAT:- From the perusal of the allocation of expenses, it is seen that assessee has classified cadre of employees involved in investments functions, their roles and responsibilities, their functions, designations, salary and time allocated to investment activity. Apart from that, assessee has also taken proportionate disallowance of rent, electricity, maintenance expenses and other office overheads. On such details and analysis of expenditure and allocation, nowhere ld. AO has rebutted or recorded his satisfaction as to what was the defect in any such allocation having regard to the accounts maintained by the assessee and has given his general remark, like investments cannot be managed without monitoring and research, etc. and has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 99,61,45,650/- with respect to transaction of sale of power from eligible unit (eligible for deduction u/s. 80IA to non-eligible unit of the assessee.). (ii) (Ground No.3-3.11) Disallowance of interest paid on perpetual non-convertible debentures of Rs. 266,12,54,846/-. (iii) (Ground No.4-4.4)- Disallowance of expenditure incurred on compensatory afforestation of Rs. 126,19,08,529/-. (iv) (Ground No.5-5.4)- Disallowance of provision for leave encashment of Rs. 151,18,79,819/- (v) (Ground No.6-6.3)- Disallowance u/s. 14A of the Act r.w.r.8D of Rs. 7,09,74,178/- (vi) (Ground No.7-7.2)- Addition of disallowance u/s. 14A of the Act to book profits u/s. 115JB of the Act of Rs. 7,09,74,178/- (vii) (Ground No.8-8.3)- Claim of deduction of interest on PNCD amounting to Rs. 266,12,54,846/- in computing book profit u/s. 115JB of the Act not granted. (viii) (Ground No.9-9.2)- Disallowance of interest on PNCD amounting to Rs. 266,12,54,846/- in computing book profit u/s. 115JB of the Act. (ix) (Ground No.10-10.1)- AO has not correctly computed book profit u/s. 115JB (x) (Ground No.11-11.1)- AO has not given grant of available MAT credit (xi) (Ground No.12-12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee considered the price at which the CPPs sold power to the non-eligible unit as under:- Undertaking Electricity units generated sold to non-eligible unit manufacturing unit (KWH) Rate at which power sold to non-eligible unit Kalinga Nagar Power Undertaking-I 9,12,73,329 7.64 Jamshedpur Power Undertaking H 10,44,54,865 8.46 Jamshedpur Power Undertaking I 8,89,89,942 8.46 7. The ld. TPO to whom the matter was referred to determine the price of sale of power to eligible unit non-eligible unit, held that the Distribution Companies, (DISCOMs), viz. NESCO and JBVNL in the present case, cannot be regarded as functionally comparable to the Captive Power Plants and therefore, the price at which the State Electricity Distribution Companies sold power cannot be taken as comparable. The TPO however, proceeded to hold that the price at which DISCOMs, viz. NESCO and JBVNL, purchased power at the price determined by the relevant state's electricity regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of determination of power rates for supply of electricity would be as per the tariff decided by appropriate commission in accordance with the provisions of Electricity Act, 2003. He also proceeded to do his benchmarking after rejecting the analysis done by the assessee and held that the best alternative would be the price of the power charged by the power generating undertaking as they are functionally similar to captive unit of the assessee which is manufacturing power i.e. the rate at which power generating undertaking companies sell to the grid as an applicable CUP tariff rate for recommendation of revenue of eligible units of M/s. Tata Steel Ltd. 9. TPO further observed that considering the facts and circumstances, the difference between the captive power plants and DISCOMs and the consequent effect on the pricing of the power, the composite nature of the power unit as described by the assessee catering to specific need can be kept to certain extent but with suitable modifications. Thereafter, he has incorporated the power of cost as submitted by the assessee for various units as discussed by him in detail in the impugned order and made determined ALP per unit at Rs. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is not able to establish the price available in the open market, then the price of goods and services has to be established through arm's length principle. Secondly, if the price of the transfer of goods and services is in consonance with the price available in the open market then the profits of the eligible business shown as per this price is eligible for deduction and in that case the second option may not be necessary. Apart from that, ld. Counsel has drew our attention to the similarity of facts between the case of M/s. Tata Chemicals Ltd (supra) and that of the assessee and submitted that exactly similar facts are permeating in the case of the assessee. The TP adjustment made by the ld. AO is to be deleted. 12. On the other hand, ld. DR had given his counter submissions / arguments and also with respect to our various queries raised by the Tribunal which for the sake of ready reference is reproduced hereunder:- 2. It is humbly submitted that the crux of the issue in the instant appeal is with respect to the MAM applied to arrive at ALP of power supplied by eligible unit to non-eligible unit. During the hearing on 19.10 2023 before the Hon'ble Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst leg of the explanation is ought to be considered in the instant case. This contention of the appellant assessee is not acceptable. The second leg to the explanation was added by the Finance Act, 2012 w.e.f. 01.04.2013. It was done to give effect to Specified Domestic Transaction (SDT) provisions in Section 92CA, 92BA etc which were inserted by the Finance Act, 2012 w.e.f. 01.04.2013. Thus, second leg of explanation automatically and logically becomes applicable once the reference is made by AO to TPO u/s 92CA for determining ALP of a given Specified Domestic Transaction. Therefore, action of TPO of applying relevant provisions and Rules for determining ALP cannot be faulted with. Further, without prejudice to whatever stated in paras herein above, even if it is assumed that first leg of explanation applies in the instant case, the meaning of first leg, as drawn by assessee is that, the price that such goods or services would ordinarily fetch in open market' means the price at which the non-eligible unit is buying its power from open market. In this regard it is stated that this self serving meaning drawn by appellant assessee is total improper and out of place. The price th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo parts based on the capacity charge, escalation factor etc. based on which levelized tariff is discovered. Thus, tariff as determined by Commission is based on fair, transparent and scientific method which takes into account all the prevalent factor. Therefore, the tariff as determined by Odisha Electricity Regulatory Commission (OERC) and Jharkhand State Electricity Regulatory Commission (JSERC) essentially reflects the fair market value of power/electricity. And the TPO has rightly proposed to apply the same in its show cause. Without prejudice to whatever stated herein above, even if it is assumed that the tariffs determined by respective Commissions are tainted, then the price charged by distribution companies in open market are based on these tainted tariffs only. Typically, distribution companies add their costs and margin on the purchase cost of power (Tariff as determined by respective Commissions) and resultantly the said tariffs are further increased. Therefore, the resultant price i.e. price charged by distribution companies in open market is further inflated which cannot be taken as benchmark for ALP determination of eligible power producing units. 2.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... astly, can the rate of supply of power by the DISCOMS can be held to comparable with the captive power plants unit of the assessee. The rate of electricity transferred by the three captive units to the assessee and the rate which ld. TPO has applied and corresponding adjustment are as under:- Undertaking Electricity unit transferred Assessee s Rate per unit AO/ TPO's Rate per unit Adjustment Kalinga Nagar Power undertaking - 1 9,12,73,329 7.64 4.25 30,94,16,585 Jamshedpur Power Undertaking - H 10,44,54,865 8.46 4.91 37,08,14,771 Jamshedpur Power Undertaking - I 8,89,89,942 8.46 4.91 37,08,14,771 Total adjustments 99,61,45,650 14. It is matter of record that non-eligible manufacturing units have not only purchased electricity from the aforesaid three c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the state electricity regulatory commission viz. NESCO and JBVNL (DISCOMS) purchase purchases power power, increased by certain costs incurred by the DISCOMS. 5 Controversy before the Hon'ble Tribunal Whether the Assessee was right in taking the price at which the non-eligible unit purchased electricity from the distribution company the DISCOM - viz. Gujarat Electricity Board? Whether the Assessee is right in taking the price at which the non-eligible unit purchased electricity from the DISCOMS (NESCO and JUSCO)? 6 Conclusion of the Hon'ble Tribunal Explanation to section 801A(8) specifically provides for two options to arrive at the market value - (i) the price at which such goods would ordinarily fetch in the open market and (ii) ALP as determined under the Chapter X of the Act. Since the price at which the non-eligible The Revenue's argument that in case of SDT only the ALP under S. 92F [i.e. option (ii)] alone can be regarded as the market value is myopic and cannot be accepted . (Para 14, Page 16) The case of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectricity from the eligible unit at Rs. 6.90 per unit which is the price from which it has procured electricity from GEB and therefore, the price charged by GEB is the market value of the transaction of sale of electricity. Section 80 IA provides that gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4), then while computing the total income of the assessee, a deduction of an amount equal to 100% of the profits and gains derived from such business for ten consecutive assessment years. However, sub-section (8) provides that where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, the consideration, if any, for such transfer of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction, the profits and gains of such eligible business shall be computed as if the transfer had been made at the market value of such goods or services. The relevant specimen reads as under:- 8) Where any goods for serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the specified domestic transaction. 92F sub-clause (ii) defines the arm s length price, which means the price which is applied or proposed to be applied in a transaction between the persons other than associated enterprises in uncontrolled conditions. Thus, the second option for determining the market value is the mechanism of transfer pricing provision for determining the arm s length price. 14. The entire case of the department is that, since it is SDT in term of Section 80I (8), therefore, the market value has to be in accordance with the determination of arm s length price u/s. 92C r.w.r. 10BA. In other words, once any transaction is hit by 80IA (8), then compulsorily, the market value has to be determined in accordance with the arm s length principle and not otherwise. If the TPO‟s contention and the opinion is accepted, then under all the transactions which are covered u/s. 80IA(8) would compulsorily be determined as per transfer pricing provision as all the transactions falling u/s. 80IA(8) will be specified domestic transactions only. If that is the only opinion which is to be upheld, then, ostensibly the entire exercise of ld. TPO is justified, that is, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer of the goods and services falling u/s. 80IA(8) has to be compulsorily be determined under arm s length principle. Had it been so, then post introduction of SDT in Section 92BA w.e.f. 01/04/2013, then statute would have provided that for the purpose of Sub-section (8) to Section 80IA, market value in relation to goods or services means the arm s length price as defined in clause (ii) of Section 92F. If both the clauses exist then one has to see if the market value is discernable from the price for such goods would ordinarily fetch in the open market unless such price is not available, then there is an option for determining the market value as per the arm s length price. 16. Here in this case what is required to be seen is, whether the market value in the price charged by the eligible unit for the sale of electricity to another unit can be benchmarked with the price on which GEB is supplying to the customers. From the records, it is seen that the manufacturing unit of the assessee also buys electricity from GEB at the same price of Rs. 6.90/- per unit and the same price is being paid to the eligible unit also. The case of the department is that since assessee is generat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings and the ratio of the aforesaid decision clearly applies on the fact of the present case also. 18. Ld. DR had stated that the captive power plants cannot be compared to DISCOMs and therefore, the price at which DISCOM sales power cannot be considered at the market value for the purpose of Section 80IA because herein, the tested party should be the non-eligible unit and their FAR is different from DISCOMs. This issue too has been dealt in detail by the Tribunal in the case of M/s. Tata Chemicals Ltd in detailed which has been finally concluded in para 16 above, wherein the Tribunal has clearly held that for the purpose of 80IA(8), clause (i) of Explanation would apply with reference to price at such goods or services would ordinarily fetch in the open market and since power purchaser of power in the facts of the present case is the consumer of the power and not a distributor of the power, the open market rate to be considered in the market where electricity sold to the consumers. Here the assessee has paid the purchase power to DISCOMs at the same rate which it has paid to its captive power plants. Thus, this contention raised by the Revenue is dismissed. 19. Secondly, com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich means it is an application of profit or income. Thus, he held that there is no doubt from the accounting treatment given to this transaction which is given the colour of equity in disguise and assessee itself has treated the payment in the books as not allowable as business expenditure and it has not been charged to the profit and loss account under the head financial expenditure which is also evident from the auditor s report. He further held that in A.Y. 2016-17, ld. DRP has upheld the disallowance on the same issue and the issue has not reached finality and accordingly, the same was disallowed by the ld. AO. The ld. DRP has also confirmed the said disallowance on the ground that same has been confirmed in the earlier years. 23. Before us, ld. Counsel for the assessee submitted that this issue now stands covered by the decision of the Tribunal in assessee s own case for the A.Y. 2011-12 and 2012-13 in ITA No.1315/Mum/2022 and 1316/Mum/2022 and for the A.Y. 2016-17 and 2017-18 in ITA No.1340/Mum/2021 and 2374/Mum/2022. 24. Both the parties have admitted that this issue is covered by the decision of the Tribunal in earlier years. The relevant observation of the Tribunal r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground that this issue has been decided by the ld. DTP in A.Y. 2016-17 and department has preferred the appeal before the Hon ble Bombay High court against the Tribunal order. 28. We find that this issue has been decided in A.Y. 2016-17 and 2017-18. The relevant portion of the Tribunal order is reproduced as under:- 6.4. In ground no. 4 of appeal, the assessee has assailed disallowance of interest paid on Perpetual Non-Convertible Debentures (PNCD). The assessee has claimed interest paid amounting to Rs. 266,17,02,198/- u/s 36(1)(iii) of the Act. The AO rejected the assessee s claim on the ground that the said expenditure claimed is not in the nature of interest. The assessee is not under obligation to repay Perpetual Debentures and hence, returns of such debentures cannot be classified as interest per se under the definition of interest under the provisions of the Act. We find that in AY 2011-12 and 2012-13, the PCIT had invoked revisional jurisdiction on the same issue. The matter travelled to the Tribunal. The Tribunal vide order dated 23/12/2022 (supra) held as under: 4.7. We find that the assessee during the course of assessment proceedings itself had submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same issue in assessee s own case in preceding assessment year, we hold that the interest expenditure in respect of Perpetual Non-Convertible Debentures is an allowable expenditure u/s 36(1)(iii) of the Act. Thus, ground no. 4 of the appeal is allowed. 29. Accordingly, this issue is decided in favour of the assessee. 30. Next issue raised is disallowance of provision for leave encashment. 31. The brief facts are that during the year under consideration the assessee in its books of accounts made a provision of Rs. 292,12,33,381/- on account of leave encashment. However, in view of the decision of the Hon'ble Supreme Court in the case of Union of India vs. Exide Industries Ltd., reported in [2020] 116 taxmann.com 378 (SC), the assessee its return of income withdrew its claim on the basis of the provision accounted for in the books and made a claim on cash basis alone. The claim for deduction of Rs. 324,27,46,507/- on payment basis made by the assessee was as under: a) Amount discharged of prior period liability after the date of furnishing Return of income for FY 18 till 31/03/2019 Rs. 123,99,28,630/- (b) Amount paid subsequent to 31/03/2019 but before the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k) 324,27,46,507 Net disallowance under section 43(b) after taking into consideration claim for leave encashment on payment basis, as appearing in the computation of return of income (Page 1 of the paperbook Item 14) 816,68,51,587 34. That the amount of Rs. 324,27,46,507/- has been certified by the auditor as comprising of amounts paid during the year and before the filing of the return for AY 19-20 as under (Page 13 of the paper book - Note 2 to the Appendix VI to the Tax Audit Report): Without prejudice to the above and in the alternative the assesses makes a claim on cash basis for a total income of Rs. 324,27,46,507/-, comprising of the amounts paid in FY'19 and till the date of checking. The details are as follows: a) Amount paid subsequent to 31/03/19 but before the date of furnishing return under section 139(1): Rs. 200,28,17,876/- b) Amount discharged of prior period liability after the date of furnishing Return of Income for FY'18 till 31/03/19: Rs. 123,99,28,630/-. Thus, it was submitted that the claim of Rs. 324,27,46,507/- towards leave encashment, it has made a claim on payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t paid subsequent to 31/03/2017-Rs.1,58,71,13,387/-. In the facts of the case and the decision of Co-ordinate Bench in assessee s own case, we hold that the amounts actually paid towards leave encashment is allowable as deduction. The assessee has placed on record Tax Audit Report for AY 2017-18. The same was available before the AO, as is evident from Assessment Order para 10.1. The AO has erred in holding that the assessee has claimed entire provision i.e. in excess of amount actually paid. After examining the Audit Report, we find that the following sums are allowable:- Paid during 01/12/2016 to 31/03/2017 Rs. 115,02,92,029/- Paid during 01/04/2017 to 30/11/2017 Rs. 158,71,13,387/- The aforesaid sums were paid before the due date of filing return of income u/s 139(1) of the Act. Hence, ground no. 4 is allowed pro-tanto. 36. Thus, this issue is allowed in the aforesaid manner. 37. Next issue relates to disallowance u/s. 14A r.w.r. 8D. During the year under consideration, assessee has returned dividend income which was claimed as exempt in the return of income. Assessee has made suomoto disallowance of Rs. 4,72,25,937/- u/s. 14A on the basis of disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the defect in any such allocation having regard to the accounts maintained by the assessee and has given his general remark, like investments cannot be managed without monitoring and research, etc. and has given various observations of the kind of cost which are involved without any further analysis, whether these cost can be allocable for the earning of exempt income when most of the investments have been made in group companies. Such an approach of the ld. AO completely overlooking the detailed analysis and allocation given by the assessee for offering suo moto disallowance and without even examining them having regard to the nature of expenses and accounts maintained by the assessee, cannot be upheld. It is imperative that AO has to record his satisfaction on the claim made by the assessee having regard to the accounts. This view is squarely covered by the decision of the Hon ble Delhi High Court in the case of H.T. Media vs. PCIT reported in (2023) 291 Taxman 423 and Hon ble Bombay High Court in the case of CIT vs. Sociedade De Fomento Industrial (P) Ltd., wherein the Courts have held that satisfaction of the ld. AO is paramount to reject the claim of the assessee. Apart from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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