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ASST. COMMISSIONER OF INCOME TAX-3(4), MUMBAI-400005 vs M/S. ACC LIMITED, MUMBAI-400020 | BharatTax

ASST. COMMISSIONER OF INCOME TAX-3(4), MUMBAI-400005 vs. M/S. ACC LIMITED, MUMBAI-400020

ITA 1171/MUM/2022Status: DisposedITAT Mumbai30 June 2023AY 2013-14170 pages

AI SummaryPartly Allowed

Facts

The assessee, M/s. ACC Limited, filed cross appeals against the CIT(A)'s order for A.Y. 2013-14. The key issues involved the disallowance under Section 14A for expenses related to exempt dividend income and the treatment of sales tax incentives as capital or revenue receipts.

Held

The tribunal, following its Coordinate Bench's decisions in the assessee's own case for previous assessment years, directed the Assessing Officer to recompute the Section 14A disallowance under Rule 8D(2)(iii) only on investments that yielded exempt income. Regarding sales tax incentives, it upheld the treatment of these incentives as partly capital and partly revenue receipts, based on the purpose of the respective state schemes.

Key Issues

Whether disallowance under Section 14A read with Rule 8D(2)(iii) should be restricted to investments yielding exempt income, and whether sales tax incentives received under various state schemes constitute capital or revenue receipts.

Sections Cited

Section 14A, Rule 8D, Section 41(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “K”, MUMBAI

Before: SHRI S. RIFAUR RAHMAN, HONBLE & MS KAVITHA RAJAGOPAL, HONBLE

For Appellant: Shri Yogesh Thar, Shri Chaitanya D. Joshi &, Ms. Sukanya Jayaram

For Respondent: Shri Jasdeep Singh

Pronounced: 30.06.2023

ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited O R D E R PER S. RIFAUR RAHMAN (AM)

1. These appeals are cross appeals filed by the assessee and revenue against the order of the Ld. Commissioner of income Tax (Appeals) – 55, Mumbai [hereinafter referred to as Ld.CIT(A)] dated 28th February, 2022 pertaining to Assessment Year 2013-14.

2. At the time of hearing, both the counsels fairly agreed that the issues raised in both these appeals are covered and adjudicated by the Coordinate Bench of the Tribunal in assessee’s own case for the previous assessment years. Copies of the orders are placed on record.

ITA.NO. 800/MUM/2022 (A.Y. 2013-14) - (ASSESSEE APPEAL)

3. First we take up, Assessee Appeal in and we proceed to adjudicate the issues ground wise.

4. In Ground No.1, assessee has raised the following grievance:

“Ground No. 1: Disallowance u/s 14A of the Income-tax Act, 1961 ('the Act') attributed for earning dividend income (Rs. 96,00,000/-) a) On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax(Appeals)-55 [hereinafter referred to as Ld. CIT (A)] was not justified and grossly erred in confirming the action of the Assistant Commissioner of Income-tax (Large tax payer Unit), Mumbai [hereinafter referred to as 'AO'] in adding back Rs. 96,00,000/- as notional expenses incurred towards earning exempt dividend income u/s 14A of the Act r.w.r 8D(2)(iii) of the Income- tax Rules, 1962 ('the Rules'). b) The Appellant prays that the disallowance u/s. 14A rwr 8D be deleted.”

14. The above referred decision has been followed by co-ordinate Bench in the case of DCIT v. Shree Global Tradef in Ltd. in dated 22nd December, 2022 has held as under: “11. Having heard the rival submissions and perused the materials available on record. It is observed that the assessee has made a suo moto disallowance of Rs.1,263/- for which the assessee contends that the A.O. ought not to have applied Rule 8D on the ground that suo moto disallowance has been made by the assessee. The assessee further contends that without prejudice, the disallowance should be restricted only to the investments which have yielded an exempt income for the assessee during the impugned year. It is also pertinent to point out that since the assessee had not borrowed funds during the relevant year, no disallowance as per Rule 8D(2)(i) of the Income Tax Rules was warranted. It is also observed that the A.O. has recorded his satisfaction that the correctness of the assessee's claim of expenses of disallowance was not to the satisfaction of the A.O., thereby entitling the A.O. to invoke the provisions of Rule 8D and the decision of the Hon'ble Apex Court in the case of Maxopp Investment Ltd. (supra) holds good in the present case. We are also of the considered opinion that the ld. CIT(A) has rightly held that the assessee has not made bifurcation of the expenses claimed under 'other expenses' and in case of which the A.O. had to invoke Rule 8D of the Income Tax Rules. The suo moto disallowance of the assessee does not disentitle the A.O. from invoking the said provision. In this Page No. | 3 ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited regard, we find justification in the order of the ld. CIT(A) in upholding the A.O.'s action in invoking the provision of Rule 8D(2)(ii) by rejecting the assessee's contention that suo moto disallowance by the assessee warrants no further disallowances. The assessee's alternate claim is that the disallowance u/s. 14A read with Rule 8D(2)(iii) should be restricted only to those investments on which exempt income was earned by the assessee during the impugned year, by placing reliance on the decision of Vireet Investments Pvt. Ltd. (supra). We also find justification in the order of the ld. CIT(A) in holding that the disallowance u/s. 14A read with Rule 8D(2)(iii) of the Act should be invoked for calculation of disallowance pertaining to only investment from which exempt income is earned by the assessee by placing reliance on the decision of the Special Bench of the Tribunal in the case of Vireet Investments Pvt. Ltd. (supra). We find no infirmity in the order of the ld. CIT(A).

ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited 12. Similar issue was considered by us in Department Appeal for AY 2005-06 in Ground no 5 and held as under: “32.Considered the rival submissions and material placed on record. On this issue, coordinate bench in the case of Ambuja Cement Limited in ITA No 5883/Mum/2012 & 5927/Mum/2012 (A.Y.2005-06) dated 31/10/2022 has held as under: “….. The relevant material facts, so far as necessary for adjudication of these grievances, are as follows. The assessee before us is a company engaged in the business of manufacturing of cement and generation of electricity. The assessee has set up its plants in different parts of the country, and as the location of some of these plants was in backward areas, the assessee had received certain sales tax concessions from the respective State Governments. These concessions were in the nature of exemptions and remissions etc, and were granted under specific schemes announced, under the industrial policies, from time to time. During the relevant previous year, the assessee received amounts aggregating to Rs 169,93,34,752, but all these receipts were treated as tax exempt on account of being in the nature of capital receipts. When income tax return filed by the assessee was subjected to the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee had a lodged a claim for exclusion of Rs 169.93 crores, being sales tax exemption/incentives received by it, as capital receipt, and hence not liable to tax. The Assessing Officer declined this claim, primarily on the basis of certain observations in the judgments in the cases of Tamilnadu Sugar Corporation Ltd Vs CIT [(2001) 251 ITR 843 (Mad)], CIT Vs Rajaram Maize Products [(2001) 251 ITR 427 (SC)], CIT Vs S Kumars Tyre Manufacturing Co [(2004) 266 ITR 325 (MP)], and CIT Vs Abhishek Industries Ltd [(2006) 286 ITR 1 (P&H)]. The entire amount of Rs 1169.93 crores was added to income of the assessee. Aggrieved, assessee carried the matter in appeal before the CIT(A). Learned CIT(A) took note of the fact that these amounts pertained to five different units under four schemes- namely Maharshtra’s Dispersal of Industries Package Scheme of Incentives 1993 (Maratha Unit), Punjab’s Industrial Incentives Code under the Industrial Policy, 1996 (Ropar and Bhatinda Units), Rajasthan’s Sales Tax New Incentives Scheme for Industries, 1989 (Rabriyawas Unit), and Exemptions/ Concessions to Industries Excise & Taxation Department Notification No EXN C(9)2/9- dated 31-1-2-1994 (Himachal Unit). He discussed these schemes in quite a bit of detail-to the extent wordings of the preamble of the schemes are concerned, and concluded that while the amounts aggregating to Rs 130,57,12,796, in respect of Punjab and Maharashtra Schemes, are indeed capital receipts in nature, and exempt from tax as such, the amounts aggregating to Rs 39,36,21,956 are revenue in nature, and to that extent the Assessing Officer was justified in including the same in taxable income. None of the parties is satisfied. While the assessee is aggrieved of the amount of Rs 39,36,21,956 being included in his taxable income, the Assessing Officer is aggrieved of the learned CIT(A)’s granting

7. We find that the learned CIT(A) has, in his elaborate analysis, primarily followed the Special Bench decision in the case of DCIT Vs Reliance Industries Ltd [(2004) 88 ITD SB 273 (Mum)]. Upon analysis of this decision, he has noted that ‘for deciding the nature of subsidy, whether capital or revenue, what should be seen and examined is the purpose for which the subsidy has been given, and not the timing of the subsidy or the manner in which it has been given to the industry’, as is also held by Hon’ble Supreme Court in the case of CIT Vs Ponni Sugar and Chemicals Ltd [(2008) 306 ITR 392 (SC)]. A large number of judicial precedents have been cited in this context. Learned CIT(A) has then held that so far as the object and purpose for which the subsidy is given, only the subsidy schemes of the Maharashtra and Punjab State specifically state that the subsidies in question are for achieving dispersal of industries outside Mumbai, to attract them to the underdeveloped and developing areas of the State, and to promote the growth of the industry in the State, in the preamble to the scheme. It is on this basis that he has held that so far as the subsidies given by the Maharashtra and Punjab States are concerned, these are required to be treated as capital in nature, whereas, the subsidies received from the State Governments of Himachal Pradesh and Rajasthan, in the absence of specific mention to the effect in the preambles of the subsidy schemes that these subsidies are required to be held to be revenue in nature. However, in our considered view, the approach of discerning the purpose of the subsidy, solely from the specific words used in the preamble of the scheme and without examining the overall scheme of the Act- which is admittedly to promote the growth of industry, is incorrect and superficial. The subsidies so received can be said to be revenue in nature unless these subsidies are for augmenting the profits of the assessee, and that is not even the case of the revenue. The CIT(A) is simply swayed by the wording of the preamble of the scheme- something clearly impermissible. These subsidy schemes are materially similar in nature, and there are, by now, a number of decisions of the coordinate benches, as also Hon’ble Courts above, dealing with these schemes. It is also important to bear in mind the fact that the subsidies received by the assessee are in the nature of sales tax subsidies, and dealing with sales tax subsidies, Hon’ble Gujarat High Court, in the case of CIT Vs Nirma Ltd [(2017) 397 ITR 49 (Guj)], has observed as follows: 7. So far as second issued as to Whether the Appellate Tribunal was right in law and on facts in upholding the decision of the CIT (A) and in directing the Assessing Officer to consider the Sales-tax exemption benefit of Rs. 5,45,81,171/- as capital

Page No. | 11 ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited of Hon’ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., reported in 306 ITR 392, wherein the incentive conferred under that scheme were two fold. First, in the nature of higher free sale sugar quota and second, in allowing the manufacturer to collect Excise duty on sale price on the free sale sugar in excess of the normal quota, but to pay to the Government only the Excise duty payable on the price of levy sugar. The Hon’ble Supreme Court in para 14 of its decision had held that “character of receipt of subsidy has to be determined with respect to the purpose for which the subsidy is given. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial.” In fact, the Hon’ble Supreme Court while rendering this decision had duly considered its earlier decision in the case of Sahney Steel and Press Works Ltd., reported in 228 ITR 253 and had absolutely no quarrel with that judgement. Rather, it concurred with the decision rendered in Sahney Steel and Press Works Ltd., case. In this regard, it would be relevant to reproduce the operative portion of the decision of Hon’ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., as under:- 14. The second case is Lincolnshire Sugar Co. Ltd. v. Smart 20 TC 643. In that case it was found that Lincolnshire Sugar Co. Ltd carried on the business of manufacturing sugar from home grown beet. The company was paid various sums under British Sugar Industry (Assistance) Act, 1931, out of monies provided by the Parliament. The question was whether these monies were to be taken into account as trade receipts or not. The object of the grant was that in the year 1981, in view of heavy fall in prices of sugar, sugar industries were in difficulty. The Government decided to give financial assistance to certain industries in respect of sugar manufactured by them from home-grown beet during the relevant period. Lord Macmillan held that- "What to my mind is decisive is that these payments were made to the company in order that the money might be used in their business." He further observed that: "I think that they were supplementary trade receipts bestowed upon the company by the Government and proper to be taken into computation in arriving at the balance of the company's profits and gains for the year in which they were received."

17. This precisely is the question raised in this case. By no stretch of imagination can the subsidies whether by way of refund of sales tax or relief of electricity charges or water charges can be treated as an aid to setting up of the industry of the assessee. As we have seen earlier, the payments were to be made only if and when the assessee commenced its production. The said payments were trade for a period of five years calculated from the date of commencement of production in the assessee's factory. The subsidies are operational subsidies and not capital subsidies. 5.3.6. Yet another decision was rendered by Hon’ble Supreme Court in the case of CIT vs. Chapalkar Brothers reported in 400 ITR 279 which held that where the object of respective subsidy schemes of State Government was to encourage development of multiple theatre complexes, incentives would be held to be capital in nature and not revenue receipts. The relevant operative portion of the judgment is reproduced hereunder:- 18. After discussing the judgment in Sahney Steel & Press Works Ltd.'s case (supra) this Court then held: "The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to the applied in judging the character of a subsidy. The test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the Scheme with which we are concerned in this case is that the incentive must be utilised for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the Subsidy Scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the Subsidy Scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt

14. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel and Press Works Ltd. (supra). In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10% of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for Page No. | 16 ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant.”

ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited implemented by SICOM. The following question was referred by the Hon’ble President, Tribunal to the Special Bench: “Whether, on the facts and in the circumstances of the case and in law the assessee company is justified in its claim that the sales-tax incentive allowed to it during the previous year in terms of the relevant Government order constitutes capital receipt and is not to be taken into account in the computation of total income?” The Hon’ble Tribunal for Asst Years 1984-85 and 1985-86 had held the sales tax exemption to be capital in nature as the same was given for industrial development of the backward districts as well as generation of employment. However, the matter was referred to the Special Bench as it was alleged that the decision for AY 1985-86 was virtually overruled by subsequent decision of the Mumbai Tribunal in the case of Bajaj Auto Ltd (ITA No. 49 and 1101 of 1991). The Special Bench held that the decision of Bajaj Auto has not overruled the decision of Hon’ble Mumbai Tribunal for AY 1985-86 on the following basis: i) There cannot be any question of overruling the decision of one Bench by another bench of equal strength as it would be contrary to the established norms of judicial system in the country. ii) Even on merits it cannot be said that the Tribunal has laid out more stress on the form of the scheme and not their substance as held in Bajaj Auto as the Tribunal in the order for AY 1985-86 has explained the difference between exemption schemes of Maharashtra and Andhra Pradesh in detail. iii) Reliance placed by Tribunal in Asst Year 1985-86 on the decision of Hon’ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT (228 ITR 253) cannot be said to be erroneous. The Tribunal did recognise that the object with which subsidy is given is decisive as laid down by Hon’ble Supreme Court. If the scheme is for setting up or expansion of industry in a backward area, it will be capital, irrespective of the modality or source of fund. If the scheme is for assisting of carrying out of business operations, it is revenue. Hon’ble Supreme Court demonstrated the principle that the object of the subsidy must be given primary importance over the source of fund. 5.4.1. Ultimately the Special Bench after placing reliance on the decision of Hon’ble Supreme Court in Sahney Steel and Hon’ble Madras High Court in the case of CIT v. Ponni Sugars & Chemicals Ltd. Reported in 260 ITR 605 held that the decision of the Tribunal in Asst Year 1985-86 is correct and observed the following:

38. In this view of the matter, we answer the question referred to us in the affirmative. 5.4.2. The ld. AR vehemently submitted that the department did not challenge the decision of the Special Bench before the Hon’ble Bombay High Court. However, he fairly stated that there was a subsequent decision of the Division Bench of this Tribunal which followed the Special Bench and that Division Bench order was challenged by the Revenue before the Hon’ble Bombay High Court. The Hon’ble Bombay High Court while disposing of the said appeal did not reverse the decision of the Special Bench and accepted the same. When that appeal was further challenged by the Revenue before the Hon’ble Supreme Court, the Hon’ble Supreme Court remitted the matter back to the Hon’ble Bombay High Court. Accordingly, he argued that the decision of Special Bench was never reversed by the Hon’ble Supreme Court as stated by the ld. Special Counsel for the Revenue and accordingly still is a good law and therefore a binding precedent on this Division Bench. In fact, in assessee’s own case for A.Y.2001-02 in ITA No.778 of 2015 dated 18/12/2018 before the Hon’ble Jurisdictional High Court, wherein the question Nos. c & d was exactly on this point. For the sake of convenience, the question Nos. c & d raised by the Revenue before the Hon’ble Jurisdictional High Court is reproduced hereunder:- “(c) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in restoring the issue of taxability of the sale tax exemption benefit of Rs.58 crores availed by the assessee to the file of the Assessing Officer for deciding afresh after considering the decision of the Special Bench of the ITAT in the case of DCIT V. Reliance Industries Ltd., 88 ITD 273, which has not been accepted by the Revenue? (d) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in entertaining the additional ground without appreciating that the assessee had treated the amount of sales tax exemption benefit of Rs.58 crores as revenue receipt and had included this amount in the returned income and it had been taxed accordingly and the assessee did not raise this issue before the CIT(A) and the issue had attained finality?” 5.4.3. While disposing of the questions Nos. c & d, the Hon’ble Jurisdictional High Court categorically held that the decision of the Special Bench of Tribunal had not been reversed or stayed by any higher judicial forum and it holds good as on date. The relevant operative portion of the judgement of Hon’ble Jurisdictional High Court in this regard is reproduced as under:-

ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited contend before the Assessing Officer by pointing out the relevant clauses of the subsidy that in law the subsidy cannot be treated to be towards revenue account. It would be equally open for the Revenue to oppose such a contention if so advised. The Assessing Officer and the Revenue authorities would have to take a decision in accordance with law. These questions, therefore, are not considered.” (emphasis applied by us while placing reliance on the decision of Hon’ble Jurisdictional High Court) 5.4.4. Against this judgement on other issues, the Revenue preferred an SLP before the Hon’ble Supreme Court and the same was dismissed vide order dated 23/08/2019 in SLP (Civil) Diary No.22929/2019. In other words, the Revenue while preferring SLP before the Hon’ble Supreme Court did not even challenge this ground of subsidy and the decision of Special Bench of Tribunal in the case of Reliance Industries Ltd., Hence, the order of the Hon’ble Jurisdictional High Court in assessee’s own case for A.Y.2001-02 had become final on the very same issue. Though the said decision has been rendered for subsequent assessment year as compared to the years under consideration before us, in view of identical facts and the same legal issue, and more especially, in order to address the fact of binding precedent of Special Bench decision in the case of Reliance Industries Ltd., this Bench deems it fit to place reliance on the said decision also of the Hon’ble Jurisdictional High Court. Accordingly, we categorically hold that the decision of the Special Bench still holds the field and is a good law. The entire contentions raised by the ld. Special Counsel for the Revenue in this regard are hereby dismissed. 5.4.5. Further, we find that the Co-ordinate Bench of Ahmedabad Tribunal in the case of ACIT vs. Genus Electrotech Ltd., reported in 72 taxmann.com 101 had an occasion to consider the fact of Special Bench decision in a more elaborate manner. The relevant operative portion is reproduced hereunder:- “11. We find that so far as the Special Bench decision of this Tribunal in the case of Reliance Industries Ltd. (supra) is concerned, it still holds the field. All that has happened, as a result of Hon'ble Supreme Court's decision dated 9th September 2011, is that Hon'ble Bombay High Court has now admitted the question "whether, on the facts and circumstances of the case, the Hon'ble Tribunal was right in holding that sales tax exemption was a capital receipt" and will, in due course though, adjudicate on this legal issue. To that extent, Hon'ble Bombay High Court's order dated 15th April 2009, to the extent of declining to admit this question, stands reversed. However, the decision of the Special Bench still holds good as the same has not, and at least not yet, even been examined by Hon'ble Bombay High Court. Mere admission of appeal against a decision, as is elementary, does not affect the biding nature of a judicial precedent. The Special Bench decision, in the case of Reliance Industries Ltd. (supra), was not reversed by Hon'ble Supreme Court, but was directed to be examined, on merits, by Hon'ble Bombay High Court. That is quite different from disapproving the special bench decision, but it appears that the coordinate bench was Page No. | 22

ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited led to believe, and there could not have been any other reason for ignoring the special bench decision, that this Special Bench decision is reversed. That is patently incorrect, and when we pointed it out to the learned Commissioner (DR), he did not have much to say except to rely upon the coordinate bench decision which seems to have followed that approach. The coordinate bench, in the case of Jindal Steel & Power Ltd. (supra), did indeed travel much beyond its limited mandate in ignoring a binding judicial precedent simply because appeal against that special bench decision is now pending before Hon'ble Bombay High Court. When posed with a special bench decision and a division bench directly on the issue, though touching different chords, we have no difficulty in recognizing our limitations. The wisdom of a division bench, even if superior- as strenuously argued by the learned Commissioner, has to make way for the higher wisdom of a larger bench. It is this faith of judicial hierarchical system that is the strength of our functioning, and we must follow the same. We, therefore, regret our inability to follow the division bench in the case of Jindal Power, no matter how deeply we respect and admire the work of all our colleagues, and we would rather be guided by the special bench decision - which is exactly what another division bench, on the same set of facts as before us, did in the case of Ajanta Manufacturing Ltd. (supra). As for learned Commissioner (DR)'s suggestion that we should follow the jurisdictional High Court decision in the case off Colourman Dyechem Ltd. (supra), we find that Their Lordships, in this case, were dealing with an entirely different type of subsidy which was clearly dealing with an expansion situation. However, we would rather refrain from making any further detailed observations on this issue, as we are alive to the fact that Hon'ble jurisdictional High Court, in Tax Appeal No 358 of 2012, has admitted appeal against the decision of this Tribunal in Ajanta's Manufacturing Ltd. case (supra) and all these issues will now come up for consideration of Their Lordships. The fact that appeal is admitted does not, as we have stated earlier as well, does not affect the binding nature of the judicial precedents. There is no dispute before us that the scheme under which the sales tax and excise duty subsidy are given to this assessee are the same as in the case of Ajanta Manufacturing Ltd. (supra). All the material facts being the same, there is no reason to take any other view of the matter than the view so taken by the coordinate bench. We must, therefore, uphold the conclusions arrived at by the Commissioner (Appeals), which are in consonance with the Special Bench decision in the case of Reliance Industries Ltd. (supra) and coordinate bench decision in the case of Ajanta Manufacturing Ltd. (supra), and decline to interfere in the matter.” (emphasis supplied by us) 5.4.6. In view of the above, no fault could be attributed on the ld. CIT(A) placing reliance on the decision of the Special Bench of the Tribunal and granting relief to the assessee in the instant case.

Page No. | 28 ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited 5. The relevant material facts, so far as necessary for adjudication of these grievances, are as follows. The assessee before us is a company engaged in the business of manufacturing of cement and generation of electricity. The assessee has set up its plants in different parts of the country, and as the location of some of these plants was in backward areas, the assessee had received certain sales tax concessions from the respective State Governments. These concessions were in the nature of exemptions and remissions etc, and were granted under specific schemes announced, under the industrial policies, from time to time. During the relevant previous year, the assessee received amounts aggregating to Rs 169,93,34,752, but all these receipts were treated as tax exempt on account of being in the nature of capital receipts. When income tax return filed by the assessee was subjected to the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee had a lodged a claim for exclusion of Rs 169.93 crores, being sales tax exemption/incentives received by it, as capital receipt, and hence not liable to tax. The Assessing Officer declined this claim, primarily on the basis of certain observations in the judgments in the cases of Tamilnadu Sugar Corporation Ltd Vs CIT [(2001) 251 ITR 843 (Mad)], CIT Vs Rajaram Maize Products [(2001) 251 ITR 427 (SC)], CIT Vs S Kumars Tyre Manufacturing Co [(2004) 266 ITR 325 (MP)], and CIT Vs Abhishek Industries Ltd [(2006) 286 ITR 1 (P&H)]. The entire amount of Rs 1169.93 crores was added to income of the assessee. Aggrieved, assssee carried the matter in appeal before the CIT(A). Learned CIT(A) took note of the fact that these amounts pertained to five different units under four schemes- namely Maharshtra's Dispersal of Industries Package Scheme of Incentives 1993 (Maratha Unit), Punjab's Industrial Incentives Code under the Industrial Policy, 1996 (Ropar and Bhatinda Units), Rajasthan's Sales Tax New Incentives Scheme for Industries, 1989 (Rabriyawas Unit), and Exemptions/ Concessions to Industries Excise & Taxation Department Notification No EXN C(9)2/9- dated 31-1-2-1994 (Himachal Unit). He discussed these schemes in quite a bit of detail- to the extent wordings of the preamble of the schemes are concerned, and concluded that while the amounts aggregating to Rs 130,57,12,796, in respect of Punjab and Maharashtra Schemes, are indeed capital receipts in nature, and exempt from tax as such, the amounts aggregating to Rs 39,36,21,956 are revenue in nature, and to that extent the Assessing Officer was justified in including the same in taxable income. None of the parties is satisfied. While the assessee is aggrieved of the amount of Rs 39,36,21,956 being included in his taxable income, the Assessing Officer is aggrieved of the learned CIT(A)'s granting relief of Rs 130,57,12,796. Both parties are in appeal before us.

Page No. | 29 ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited have been cited in this context. Learned CIT(A) has then held that so far as the object and purpose for which the subsidy is given, only the subsidy schemes of the Maharashtra and Punjab State specifically state that the subsidies in question are for achieving dispersal of industries outside Mumbai, to attract them to the underdeveloped and developing areas of the State, and to promote the growth of the industry in the State, in the preamble to the scheme. It is on this basis that he has held that so far as the subsidies given by the Maharashtra and Punjab States are concerned, these are required to be treated as capital in nature, whereas, the subsidies received from the State Governments of Himachal Pradesh and Rajasthan, in the absence of specific mention to the effect in the preambles of the subsidy schemes that these subsidies are required to be held to be revenue in nature. However, in our considered view, the approach of discerning the purpose of the subsidy, solely from the specific words used in the preamble of the scheme and without examining the overall scheme of the Act- which is admittedly to promote the growth of industry, is incorrect and superficial. The subsidies so received can be said to be revenue in nature unless these subsidies are for augmenting the profits of the assessee, and that is not even the case of the revenue. The CIT(A) is simply swayed by the wording of the preamble of the scheme- something clearly impermissible. These subsidy schemes are materially similar in nature, and there are, by now, a number of decisions of the coordinate benches, as also Hon'ble Courts above, dealing with these schemes. It is also important to bear in mind the fact that the subsidies received by the assessee are in the nature of sales tax subsidies, and dealing with sales tax subsidies, Hon'ble Gujarat High Court, in the case of CIT Vs Nirma Ltd [(2017) 397 ITR 49 (Guj)], has observed as follows: 7. So far as second issued as to Whether the Appellate Tribunal was right in law and on facts in upholding the decision of the CIT (A) and in directing the Assessing Officer to consider the Sales-tax exemption benefit of Rs. 5,45,81,171/- as capital receipts is concerned, Mr.Mehta contended that in view of the decision of the Calcutta and Punjab High Court, the Tribunal has committed an error in reversing the view taken by CIT (Appeals) so far as Tax Appeal No.226 of 2010 is concerned, wherein the CIT (A), after discussing the evidence has held in favour of the department. In this regard, he has relied upon the decision of High Court of Bombay in the case of CIT v. Reliance Industries Ltd. [2010] 8 taxmann.com 218/[2011] 339 ITR 632, wherein it is held that object of subsidy being to set up new units in backward area is a capital receipt and another decision of High Court of Calcutta in the case of CIT v. Chhindwara Fuels [2001] 114 Taxman 707/[2000] 245 ITR 9, wherein it is held that subsidy in the form of refund of sales- tax received after commencement of production cannot be treated as capital receipt.

13.

In a recent decision dated 28th January 2013 in Tax Appeal No. 450 of 2012 and connected appeals, we had an Page No. | 31 ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited occasion to examine the nature of incentives received by the assessee from the State Government in the form of entertaining tax waiver for setting up multiplexes. In such context, we had in wake of the revenues contention that the receipt was revenue in nature, held and observed as under : "From the provisions of the said scheme, it clearly emerges that the subsidy though computed in terms of sales tax deferment or waiver, in essence it was meant for ITA Nos. 5883 and 5927/Mum/2012 Assessment year: 2005-06 capital outlay expended by the assessee for set up of the unit in case of a new industrial unit and for expansion and diversification of an existing unit. As noted, such subsidy was available only to a new industrial unit or a unit undertaking expansion or diversification. Fixed capital investment has been defined as to include various investments in land under use, new construction, plant and machinery etc. The entitlement was related to percentage of fixed capital investment. It is undoubtedly true that such subsidy was computed in terms of sales tax deferment and necessarily therefore, would accrue to an industry only once the commercial production commences. However, this by itself would not be either a sole or concluding factor. In case of Sahney Steel and Press Works Ltd. and others v. Commissioner of Income-tax reported in 228 ITR 253, the Apex Court held and observed that the character of the subsidy in the hands of the recipient whether revenue or capital will have to be determined, having regard to the purpose for which the subsidy is given. The source of fund is quite immaterial. If the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But, if monies are given to the assessee for assisting him in carrying out the business operations and given after the satisfaction of the conditions of commencement of production, such subsidy must be treated as assistance for the purpose of the trade."

8. In the case of JCIT Vs Grasim Industries Limited ( ITA Nos 2155/Mum/2016 and Ors; order date 29th April 2022), a coordinate bench has dealt with these legal issues in considerable detail and observed as follows: 5.3.5. ............. the dominant purpose for which the incentive scheme per se introduced by the respective State Governments was only for the purpose of setting up of industries in the respective areas for industrial development in State and also to accelerate development and absolutely not for augmenting the profits of the assessee. Effectively, the schemes of various State Governments envisaged the rapid industrialisation, growth and new employment generation in the respective areas which would in turn promote the growth of the State. Hence, it could be safely concluded that subsidy / incentive granted is only for setting up of the units based on the fixed percentage of the capital cost and not for running the business of the assessee. Moreover, even this subsidy which is determined based on sales tax assessment orders for 9 years, 6 years etc., are subject to maximum outer limit already fixed under the respective schemes. Though the quantification of the subsidy has been made post commencement of business, the measurement of subsidy is immaterial. In our considered opinion, none of the schemes contemplated to finance the assessee in the form of subsidy / incentive for meeting the working capital requirements of the assessee company post commencement of business. Hence, by applying the purpose test, apparently, the subsidy Page No. | 33 ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited / incentive received in the instant case would only have to be construed as capital receipts not chargeable to income tax. In this regard, we find that ld. AR placed reliance on the decision of Hon'ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., reported in 306 ITR 392, wherein the incentive conferred under that scheme were two fold. First, in the nature of higher free sale sugar quota and second, in allowing the manufacturer to collect Excise duty on sale price on the free sale sugar in excess of the normal quota, but to pay to the Government only the Excise duty payable on the price of levy sugar. The Hon'ble Supreme Court in para 14 of its decision had held that "character of receipt of subsidy has to be determined with respect to the purpose for which the subsidy is given. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial." In fact, the Hon'ble Supreme Court while rendering this decision had duly considered its earlier decision in the case of Sahney Steel and Press Works Ltd., reported in 228 ITR 253 and had absolutely no quarrel with that judgement. Rather, it concurred with the decision rendered in Sahney Steel and Press Works Ltd., case. In this regard, it would be relevant to reproduce the operative portion of the decision of Hon'ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., as under:- 14. The second case is Lincolnshire Sugar Co. Ltd. v. Smart 20 TC 643. In that case it was found that Lincolnshire Sugar Co. Ltd carried on the business of manufacturing sugar from home grown beet. The company was paid various sums under British Sugar Industry (Assistance) Act, 1931, out of monies provided by the Parliament. The question was whether these monies were to be taken into account as trade receipts or not. The object of the grant was that in the year 1981, in view of heavy fall in prices of sugar, sugar industries were in difficulty. The Government decided to give financial assistance to certain industries in respect of sugar manufactured by them from home-grown beet during the relevant period. Lord Macmillan held that-- "What to my mind is decisive is that these payments were made to the company in order that the money might be used in their business." He further observed that: "I think that they were supplementary trade receipts bestowed upon the company by the Government and proper to be taken into computation in arriving at the balance of the company's profits and gains for the year in which they were received."

17.

This precisely is the question raised in this case. By no stretch of imagination can the subsidies whether by way of refund of sales tax or relief of electricity charges or water charges can be treated as an aid to setting up of the industry of the assessee. As we have seen earlier, the payments were to be made only if and when the assessee commenced its production. The said payments were trade for a period of five years calculated from the date of commencement of production in the assessee's factory. The subsidies are operational subsidies and not capital subsidies. 5.3.6. Yet another decision was rendered by Hon'ble Supreme Court in the case of CIT vs. Chapalkar Brothers reported in 400 ITR 279 which held that where the object of respective subsidy schemes of State Government was to encourage development of multiple theatre complexes, incentives would be held to be capital in nature and not revenue receipts. The relevant operative portion of the judgment is reproduced hereunder:- 18. After discussing the judgment in Sahney Steel & Press Works Ltd.'s case (supra) this Court then held: "The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to the applied in judging the character of a subsidy. The test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the Scheme with which we are concerned in this case is that the incentive must be utilised for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of ITA Nos. 5883 and 5927/Mum/2012 Assessment year: 2005-06 the Subsidy Scheme was to enable the assessee to run the business more profitably then the receipt is on Page No. | 35 ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited revenue account. On the other hand, if the object of the assistance under the Subsidy Scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant."

ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistancein carry ing on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant."

Page No. | 39 ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited 10. In a recent judgement dated 8.1.2013 in case of DCIT- Circle1(2)-Baroda v. Inox Leisure Ltd.,we had an occasion to consider somewhat similar question in the backdrop of entertainment tax waiver scheme of State of Gujarat as well as State of Maharashtra. Even in such a case, the entertainment tax waiver which was granted in terms of sale of tickets was treated as capital in nature when it was found that same was relatable to the capital investment made by the assessee. It was held as under : "10. From the above noted provisions of thescheme it can be clearly seen that the entire purpose of granting tax exemption was for giving the boost to the terrorism sector. This was to be achieved by attracting higher investment in areas with tourism potential. In order to achieve such purpose, exemption from various taxes as may be applicable was granted. It is true that the exemption was to be computed in terms of tax otherwise payable by the industry. However, the purpose of such exemption was to meet with the capital outlay already undertaken by the assessee. This clearly comes out from various provisions of the scheme. For example, the scheme was applicable only to the new project or to a existing project provided investment in fixed capital or capacity was increased atleast by 50%.Thus, the very eligibility for seeking exemption was linked with new investment being made in fixed capital. Further though the scheme envisaged a certain period spanning for 5 to 10 years during which such exemption could be availed depending on the category of the unit, such exemption would cease the moment the total incentives touched 100% of the eligible capital investments. In other words, the upper limit of total incentive which the unit could receive from the State Government in the form of tax waiver would not exist 100% of the eligible capital investment regardless of the residue of the period of its exemption eligibility as per the scheme. From the combined reading of salient features of the scheme, we have no doubt in our mind that the incentive was being offered for recouping or covering a capital investment or outlay already made by the assessee."

ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited above. Hence, the decisions relied upon by the ld. Special Counsel for the Revenue would not advance the case of the Revenue. 5.3.9. It is pertinent to note that in each of the aforesaid decisions of Hon'ble Supreme Court, the Courts have been mindful of the fact that the subsidy has to be received after commencement of business and to be availed within 9,10 & 12 years, as the case may be, and yet by applying purpose test, it was held that subsidy was on capital account. 5.4. Applicability of Special Bench decision of Mumbai Tribunal in the case of Reliance Industries reported in 88 ITD 273. The ld. Special Counsel for the Revenue vehemently submitted that the decision of the Hon'ble Special Bench has been reversed by the Hon'ble Supreme Court by remitting the matter back to the Hon'ble Bombay High Court. First of all, it would be relevant to bring on record the crux of the decision of the Special Bench in the case of Reliance Industries Ltd. In case of Special Bench decision of Reliance Industries Ltd, the scheme dealt with sales tax exemption under the scheme of Government of Maharashtra, 1979. Further the said scheme was implemented by SICOM. The following question was referred by the Hon'ble President, Tribunal to the Special Bench: "Whether, on the facts and in the circumstances of the case and in law the assessee company is justified in its claim that the sales-tax incentive allowed to it during the previous year in terms of the relevant Government order constitutes capital receipt and is not to be taken into account in the computation of total income?" The Hon'ble Tribunal for Asst Years 1984-85 and 1985-86 had held the sales tax exemption to be capital in nature as the same was given for industrial development of the backward districts as well as generation of employment. However, the matter was referred to the Special Bench as it was alleged that the decision for AY 1985-86 was virtually overruled by subsequent decision of the Mumbai Tribunal in the case of Bajaj Auto Ltd (ITA No. 49 and 1101 of 1991). The Special Bench held that the decision of Bajaj Auto has not overruled the decision of Hon'ble Mumbai Tribunal for AY 1985-86 on the following basis: i) There cannot be any question of overruling the decision of one Bench by another bench of equal strength as it would be contrary to the established norms of judicial system in the country. ii) Even on merits it cannot be said that the Tribunal has laid out more stress on the form of the scheme and not their substance as held in Bajaj Auto as the Tribunal in the order for AY 1985-86 has explained the difference between exemption schemes of Maharashtra and Andhra Pradesh in detail. iii) Reliance placed by Tribunal in Asst Year 1985-86 on the decision of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT (228 ITR 253) cannot be said to be erroneous. The Tribunal did recognise that the object with which subsidy is given is decisive as laid down by Hon'ble Supreme Court. If the scheme is for setting up

Page No. | 42 ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited (d) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in entertaining the additional ground without appreciating that the assessee had treated the amount of sales tax exemption benefit of Rs.58 crores as revenue receipt and had included this amount in the returned income and it had been taxed accordingly and the assessee did not raise this issue before the CIT(A) and the issue had attained finality?" 5.4.3. While disposing of the questions Nos. c & d, the Hon'ble Jurisdictional High Court categorically held that the decision of the Special Bench of Tribunal had not been reversed or stayed by any higher judicial forum and it holds good as on date. The relevant operative portion of the judgement of Hon'ble Jurisdictional High Court in this regard is reproduced as under:- "3. We will first address the questions no. (c) and (d), which are different elements of the same issue. The respondent assessee had received a subsidy. It is undisputed that up to the level of Income Tax Appellate Tribunal, the assessee did not raise a contention that such subsidy was towards capital account and, therefore, not taxable. However, before the Tribunal such a contention was raised. The Tribunal by the impugned judgment relied upon its earlier judgment for the Assessment Year 1999-2000 in case of this very assessee and restored the issue back to the Assessing Officer. In the earlier order, the Tribunal had remanded the issue to the file of the Assessing Officer "to decide the issue afresh after considering the decision of Special Bench of the Tribunal in the case of Reliance Industries Ltd. (supra)". Thus, the Tribunal remanded the issue back to the Assessing Officer to be decided in the light of the Special Bench judgment in the case of Reliance Industries Ltd. The Revenue's grievance in this respect is two fold. It was contended that the issue was raised for the first time before the Tribunal and the same should not have been permitted. Secondly, the view of the Tribunal in case of Reliance Industries Ltd. was challenged before the High Court. The High Court in a judgment dated 15.04.2009 in Income Tax Appeal No. 1299 of 2008 had held that no question of law in this respect arises and thereby confirmed the judgment of the Tribunal. It was pointed out that against this judgment of the High Court, the Department had approached the Supreme Court and the Supreme Court had held that a question of law did arise. The Supreme Court framed a question and placed the matter back before the High Court. We are informed that this appeal is still pending.

5. As long as the material exists on record, a contention raised by the assessee for the first time before the Tribunal, cannot be barred. So much is clear from series of judgments of various Courts including of this Court in case of CIT Vs. Pruthvi Brokers and Shareholders P. Ltd. (2012) 349 ITR 336. It is not the case of the Revenue that the assessee in the context of its contention on the nature of the subsidy, desired to produce additional evidence. It is true that the judgment of this Court confirming the order of the Tribunal in case of Reliance Industries Ltd. has been partially reversed by the Supreme Court. A question of law has been framed and placed for consideration of the 4 of High Court. However, this does not mean that the judgment of the Tribunal as on today stands reversed or stayed. In any case, quite apart from the judgment in the case of Reliance Industries Ltd. of the Special Bench of the Tribunal, it is always been for the assessee to contend before the Assessing Officer by pointing out the relevant clauses of the subsidy that in law the subsidy cannot be treated to be towards revenue account. It would be equally open for the Revenue to oppose such a contention if so advised. The Assessing Officer and the Revenue authorities would have to take a decision in accordance with law. These questions, therefore, are not considered." (emphasis applied by us while placing reliance on the decision of Hon'ble Jurisdictional High Court) 5.4.4. Against this judgement on other issues, the Revenue preferred an SLP before the Hon'ble Supreme Court and the same was dismissed vide order dated 23/08/2019 in SLP (Civil) Diary No.22929/2019. In other words, the Revenue while preferring SLP before the Hon'ble Supreme Court did not even challenge this ground of subsidy and the decision of Special Bench of Tribunal in the case of Reliance Industries Ltd., Hence, the order of the Hon'ble Jurisdictional High Court in assessee's own case for A.Y.2001-02 had become final on the very same issue. Though the said decision has been rendered for subsequent assessment year as compared to the years under consideration before us, in view of identical facts and the same legal issue, and more especially, in order to address the fact of binding precedent of Special Bench decision in the case of Reliance Industries Ltd., this Bench deems it fit to place reliance on the said decision also of the Hon'ble Jurisdictional High Court. Accordingly, we categorically hold that the decision of the Special Bench still holds the field and is a good law. The entire contentions raised by the ld. Special Counsel for the Revenue in this regard are hereby dismissed. 5.4.5. Further, we find that the Co-ordinate Bench of Ahmedabad Tribunal in the case of ACIT vs. Genus Electrotech Ltd., reported in 72 taxmann.com 101 had an occasion to consider the fact of Special Bench decision in a more elaborate manner. The relevant operative portion is reproduced hereunder:-

ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited "11. We find that so far as the Special Bench decision of this Tribunal in the case of Reliance Industries Ltd. (supra) is concerned, it still holds the field. All that has happened, as a result of Hon'ble Supreme Court's decision dated 9th September 2011, is that Hon'ble Bombay High Court has now admitted the question "whether, on the facts and circumstances of the case, the Hon'ble Tribunal was right in holding that sales tax exemption was a capital receipt" and will, in due course though, adjudicate on this legal issue. To that extent, Hon'ble Bombay High Court's order dated 15th April 2009, to the extent of declining to admit this question, stands reversed. However, the decision of the Special Bench still holds good as the same has not, and ITA Nos. 5883 and 5927/Mum/2012 Assessment year: 2005-06 at least not yet, even been examined by Hon'ble Bombay High Court. Mere admission of appeal against a decision, as is elementary, does not affect the biding nature of a judicial precedent. The Special Bench decision, in the case of Reliance Industries Ltd. (supra), was not reversed by Hon'ble Supreme Court, but was directed to be examined, on merits, by Hon'ble Bombay High Court. That is quite different from disapproving the special bench decision, but it appears that the coordinate bench was led to believe, and there could not have been any other reason for ignoring the special bench decision, that this Special Bench decision is reversed. That is patently incorrect, and when we pointed it out to the learned Commissioner (DR), he did not have much to say except to rely upon the coordinate bench decision which seems to have followed that approach. The coordinate bench, in the case of Jindal Steel & Power Ltd. (supra), did indeed travel much beyond its limited mandate in ignoring a binding judicial precedent simply because appeal against that special bench decision is now pending before Hon'ble Bombay High Court. When posed with a special bench decision and a division bench directly on the issue, though touching different chords, we have no difficulty in recognizing our limitations. The wisdom of a division bench, even if superior- as strenuously argued by the learned Commissioner, has to make way for the higher wisdom of a larger bench. It is this faith of judicial hierarchical system that is the strength of our functioning, and we must follow the same. We, therefore, regret our inability to follow the division bench in the case of Jindal Power, no matter how deeply we respect and admire the work of all our colleagues, and we would rather be guided by the special bench decision - which is exactly what another division bench, on the same set of facts as before us, did in the case of Ajanta Manufacturing Ltd. (supra). As for learned Commissioner (DR)'s suggestion that we should follow the jurisdictional High Court decision in the case off Colourman Dyechem Ltd. (supra), we find that Their Lordships, in this case, were dealing with an entirely different type of subsidy which was clearly dealing with an expansion situation. However, we would rather refrain from making any further detailed observations on this issue, as we are alive to the fact that Hon'ble jurisdictional High Court, in Tax Appeal No 358 of 2012, has admitted appeal against the decision of this Tribunal in Ajanta's Manufacturing Ltd. case

45. The AO has dealt with the issue at para 10 to 10.5 of the Assessment Order. The AO observed that assessee has claimed additional depreciation u/s 32(iia) of the Act on all the eligible assets acquired after 31st March 2005. The contention as raised by assessee before AO was reproduced at para 10.3 of assessment order. However, this contention of assessee was not accepted by AO on the ground that assessee is entitled to additional depreciation on assets acquired during the year only and balance claim made by assessee was rejected. 46 In appeal CIT (A) has discussed the above issue at para 9.3.1 & 9.3.2 of his order and held as under: “9.3.1 From the above, it is clear that the additional depreciation is to be allowed on the actual cost of the eligible machinery or plant. There cannot be any doubt that there is a difference between the actual cost of an asset and the WDV of an asset. The assessee has already claimed additional depreciation or has been allowed additional depreciation in respect of the actual cost of the eligible asset which was purchased in the F.Y. 2005-06 in the A.Y. 2006-07 itself. Hence, no additional depreciation can be allowed in the A.Y. 2007-08 on the said assets since in the A.Y. 2007-08, the value of-the assets are(sic) the WDV and not the actual cost of the assets which were eligible assets in the F.Y. 2005-06 relevant to the A.Y. 2006-07. It is, therefore, clear that additional depreciation can be allowed only on the assets which have been acquired and installed during the period 01/04/2006 to 31/03/2007. The additional depreciation is to be allowed to the assessee only once in the year in which the asset has been acquired and installed. 9.3.2 Section 32(1)(iia) provides for depreciation allowance in a particular assessment year in the case of any block of assets to be worked out as a percentage on the written down value thereof. This would be the depreciation allowance available to the assessee in a particular assessment year. Apart from the above, an additional depreciation has been provided in respect of any new machinery and plant which has been acquired and installed after 31.03.2005 which is available to the assessee @20% of the actual cost of machinery or plant in the year in which the said machinery or plant has been acquired or installed. If the arguments of the assessee were to be Page No. | 48

1. The undersigned would also like to rely upon the decisions of the Chennai ITAT in the case of CRI Pumps(P) Ltd. Vs ACIT (2013) 34 taxmann.com 123 (Chennai Tribunal), wherein in para 9 & 10 of its order, the Hon'ble Bench held as under "9. First requirement for being eligible for the claim of additional depreciation is that is should be on a new machinery or plant. A machinery is new only when it is first put to use. Once it is used, it is no longer a new machinery. Admittedly, the machinery, on which additional depreciation has been claimed, was already used in various preceding previous years. Therefore, for the impugned assessment year, it is no more a new machinery or plant. Once it is not a new machinery or plant, allowance u/ s. 32(1)(iia) cannot be allowed. Additional depreciation itself is only for a new machinery or plant. A claim of additional depreciation as made by the assessee, if allowed, will not be an allowance for a new machinery or plant. Intention of the Legislature was to give such additional depreciation in the year in which assets were put to use and not for any succeeding year. There is nothing in the statue which allows such claim of additional depreciation every year on machinery acquired in earlier year. There cannot be any presumption that unless a claim is specifically denied, it has to be allowed...’ "10. When an allowance which is ordinarily not available under normal commercial principles of accounting, is made specifically allowable, accordingly, it was held that the assessee is entitled to claim balance amount of additional depreciation in the succeeding year. (Para 26) d. The amendment brought into section 32 by the Finance Act 2015 by inserting third proviso with effect from 01.04.2016 also supports above view (Para 27) e. By insertion of the above said proviso in section 32 though Finance Act 2015 with effect from 01.04.2016, the parliament has approved the view taken by the Tribunal/ Courts in respect of additional depreciation allowable under section 32(1)(iia). This provisions also makes it very clear that the additional depreciation allowed only once. (Para 28) It is observed that the assessee has placed reliance on the recent decision of the Mumbai ITAT in the case of its holding company, Ambuja Cements Ltd. ( A.Y.2007-08 in ITANo. 6375 and 6405 of 2013}. The same is perused and it is observed that the Hon'ble Bench while deciding the issue in favour of the Ambuja Cements Ltd. did not consider the decision of the coordinate Bench in the case of Everest Industries Ltd. rendered in favour of the Revenue. In view of the above and in view of the analysis of the legislative intent and various amendments brought in effect by the various

Page No. | 50 ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited Finance Act, in the context of section 32(1)(iia) carried out by the Hon'ble Chennai ITAT & the Mumbai ITAT in the decisions relied upon by the undersigned, decision of the CIT(A) rejecting the assessee's claim of additional depreciation on assets acquired in the F.Y. 2005-06 needs to be upheld.” 49.Considered the rival submissions and material placed on record. The brief facts of the case are that the assessee has claimed the additional depreciation on all the eligible assets acquired on or after 01-04-2005. However in the assessment order the Ld. AO has disallowed such additional depreciation on the assets acquired on or after 01-04-2005 but before 31-03-2006 for the reason that additional depreciation for the assessment year under consideration is allowable only on eligible assets acquired on or after 01-04-2006 meaning thereby the additional depreciation is allowed only for the assets acquired during the year under consideration and not on the assets acquired before the commencement of the year. The assessee has filed an appeal before CIT(A) against such assessment order. Subsequent to which the CIT(A) has decided the issue against the assessee. It is observed that identical issue was decided by coordinate bench of Mumbai in the case of holding company of the assessee being Ambuja Cement Limited vide order dated 07.11.2022 in the ITA No. 6375 and 6405/Mum/2013 for A.Y. 2007- 08 wherein it was held as under: “25. So far as this grievance is concerned, the proposition canvassed before is that “looking to the intent of the Act, the machinery acquired after 1-4-2005 but installed in the previous relevant to the assessment year to the assessment year 2007-08 should qualify for claim of depreciation”. This aspect of the matter is no longer res integra. This issue is squarely covered by the judgment of the Hon’ble Gujarat High Court, in the case of PCIT Vs IDMS Ltd [(2017) 393 ITR 441 (Guj)]. The other aspect of the matter, and that is more relevant in the present context, is whether the additional depreciation is also to be granted in respect of the subsequent year. That aspect of the matter is covered by a coordinate bench decision in the case of DCIT Vs Gloster Jute Mills Limited [(2017) 88 taxmann.com 738 (Kol)], which has been subsequently followed by other benches- including Mumbai benches. The coordinate bench has inter alia observed as follows: “24. Ground No. 3 raised by the revenue reads as follows :- 3. That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in law by allowing assessee's claim of additional depreciation of plant and machinery on original cost in the year subsequent to the year of acquisition and installation and thereby has erred in deleting the addition of Rs.54,21,617/- without appreciating the fact that such additional depreciation is allowable on plant and machinery only in the year of acquisition and installation."

ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited Section 32(1)(iia) of the Act was originally introduced by the finance (no.2) Act, 1980 w.e.f. 1-4-1981 reads thus (the sub-section existed upto 31-3- 1988 and was deleted thereafter): "(iia) in the case of any new machinery or plant (other than ships and aircraft) which has been installed after the 31st day of March, 1980 but before the 1st day of April, 1985, a further sum equal to one-half of the amount admissible under clause (ii) (exclusive of extra allowance for double or multiple shift working of the machinery or plant and the extra allowance in respect of machinery or plant installed in any premises used as a hotel) in respect of the previous year in which such machinery or plant is installed or, if the machinery or plant is first put to use in the immediately succeeding previous year, then in respect of that previous year :" Sec.32(1)(iia) of the Act as reinserted by finance (No.2) Act, 2002 w.e.f. 1-4-2003, reads thus: '(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2002, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to fifteen per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii): Provided that such further deduction of fifteen per cent shall be allowed to— a new industrial undertaking during any previous year in which such (A) undertaking begins to manufacture or produce any article or thing on or after the 1st day of April, 2002; or any industrial undertaking existing before the 1st day of April, 2002, during (B) any previous year in which it achieves the substantial expansion by way of increase in installed capacity by not less than *[ten per cent ]: "Subs. for "twenty-five per cent" by Finance (No. 2) Act, 2004, (w.e.f. 1- 4-2005)." Sec.32(1)(iia) as substituted by Finance Act, 2005, (w.e.f. 1-4- 2006) reads as follows: "(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii):"' 29. It can be seen from the provisions of Sec.32(1)(iia) as it existed from 1-4-1981 to 31-3-1988 and reinserted subsequently from 1-4-2003 that the benefit for claiming additional depreciation was restricted only to the initial assessment year. However the provisions of Sec.32(1)(iia) as substituted by the finance Act, 2005 w.e.f. 1-4- 2006, the benefit for claiming additional depreciation was not so restricted to only to the intital assessment year. From AY 1981-82 to 87-88, the claim for additional depreciation was restricted to previous year in which such machinery or plant is installed or, if the machinery or plant is first put to use in the immediately succeeding previous year. From AY 2003-04 till 2005-06, the claim for additional depreciation was restricted to previous year in which such undertaking begins to manufacture or produce any article or thing on or after the 1st day of April, 2002; or if any industrial undertaking existed before the 1st day of April, 2002, during any previous year in which it achieves the substantial expansion by way of increase in installed capacity by not less than ten per cent. From AY 2006-07, there is no restriction with regard to the year in which such additional depreciation should be allowed and also there is no restriction with regard to the additional depreciation being allowed only on the written down value and therefore the additional depreciation even in the second and subsequent Page No. | 53 ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited years have to be allowed on the original cost of the Asset. These are evident from a plain reading and literal construction of the relevant statutory provisions.

30.

The CIT(A) after considering the aforesaid scheme and history of the provisions of Sec.32(1)(iia) of the Act, deleted the addition made by AO observing as follows :— "I have considered the submissions of the Ld. A/R and find substance in the contention of the Appellant. On a conjoint reading of the provisions of section 32(1)(iia) inserted by Finance (No. 2) Act, 1980 and reinserted by Finance Act, 2002 it is evident that the said sections specifically restricted the allowability of additional depreciation in the year of installation of P&M. However, in the section 32(1)(iia) amended vide Finance Act, 2005 Legislature had omitted the proviso wherein it was provided that such depreciation could be claimed only in the initial assessment year. This being a specific omission it could be construed that the intent of the Legislature was not to restrict the allowance of additional depreciation to the year in which the assets are installed but also in the second and subsequent years provided that the aggregate depreciation does not exceed the cost of the asset. It is settled law that a fiscal statute has to be interpreted the basis of the language used therein and not interpreted out of context the same as held by Apex Court in the case of Orissa State Warehousing Corporation, Mohammad Ali Khan and Madurai Mills Co. Ltd. (Referred to by the Appellant.) Further, it is also imperative to state that Section 32(1)(iia) is a beneficial provision enacted with the view to provide benefit to the assessee. The same is also evident from the Explanatory Notes to the Finance Act, 2005 wherein it has been clarified that in order to encourage investment the provisions of sec. 32(1)(iia) have been amended. In so far as the language used in the provision in concerned one has to construe the language beneficially and in favour of the assessee as held by the Jurisdictional High Court in the case of Indian Jute There is little merit in the contention of the AO that the asset is not new in the second year. In my view for claiming additional depreciation the assessee has to acquire and install the plant & machinery after 31-03-2005 and the same should be new in the year of installation. There is no requirement that the assets should be new in the year of claim of additional depreciation. For the reasons aforesaid I am of the view that in terms of provisions of Section 32(1)(iia), additional depreciation is available in AY 2006-07 and subsequent years in respect of all new plant & machinery acquired and installed after 31-03-2005 subject to overall criteria that total depreciation does not exceed the actual cost. Hence Ground No. 4 is decided in favour of the Appellant."

31. Aggrieved by the order of CIT(A) the revenue has raised ground no.3 before the Tribunal. The ld. DR placed reliance on the order of the AO. The ld. Counsel for the assessee submitted that fiscal statute shall be interpreted on the basis of the language used therein and not de hors the same. It was argued that Clause (iia) to Sec. 32(1) was first introduced vide Finance (No. 2) Act, 1980 w.e.f. 01-04-81 and was applicable till AY Page No. | 54 ITA NO.6082/MUM/2014 (A.Y: 2007-08) 4556/MUM/2012 (A.Y: 2007-08) M/s. ACC Limited 1987-88. The clause was subsequently re-introduced vide Finance Act, 2002 w.e.f. 01-04-03. On perusal of clause (iia) to Sec. 32(1) as existed during the aforesaid period, it could be seen that the legislature conferred the benefit of additional depreciation only in the first AY when the asset was installed and first put to use. However vide Finance Act, 2005, clause (iia) to Sec. 32(1) was amended w.e.f. 01-04-06 wherein the condition of claiming additional depreciation only in the initial AY was deleted. It was submitted that since the specific condition for claim of additional depreciation in one year has been done away with, it should be construed as the intention of the legislature to allow additional depreciation in subsequent years as well. Reliance was placed on the following decisions wherein it has been held that a fiscal statute shall have to be interpreted on the basis of the language used therein and not de hors the same. Even if there is a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation :— - Orissa State Warehousing Corpn. v. CIT [1999] 103 Taxman 623/237 ITR 589 (SC) - Prakash Nath Khanna v. CIT [2004] 135 Taxman 327/266 ITR 1 (SC) - Smt. TarulataShyam v. CIT [1977] 108 ITR 345 (SC) - Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147 (SC) Apart from the above, it was also pointed out that DTC Bill 2013 has proposed expressly that additional depreciation would be allowed in the FY in which the P&M is used for the first time and those provisions are not made with retrospective effect. It was argued that the legislature has consciously not restricted the allowance of additional depreciation on the original cost for AY 2006-07 till AY 2013-14 to one year only and therefore the additional depreciation should be allowed on the original cost of the asset for the second and subsequent years as well. It was submitted that the condition imposed by the relevant provisions was that Plant and Machinery must be new at the time of installation to be eligible for additional depreciation u/ s 32(1)(iia) and not new in subsequent years.

ITA NO.800/MUM/2022 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited section warrants such an interpretation. We therefore uphold the order of CIT(A) and dismiss ground No.3 raised by the revenue. “ 50. We observe that in decision of ITAT Kolkata in the case of DCIT vs. Gloster Jute mills ltd. in dated 01.03.2017 has held that additional depreciation would be allowed in subsequent assessment years by observing that the condition imposed by the relevant provisions is that Plant and Machinery must be new at the time of installation to be eligible for additional depreciation u/ s 32(1)(iia) and not new in subsequent years. The expression “new machinery” is therefore to be construed as referring to the condition that at the time of acquisition or installation the machinery or plant should be new. Going by the legislative history of the relevant provision, ITAT held that the condition for allowing additional depreciation only in the initial assessment year ceased to exist as and from 01.04.2006. However, subsequently in the Decision of ITAT Mumbai in the case of Everest Industries Ltd. vs. JCIT [2018] 90 taxmann.com 330. Such decision was also referred by Ld DR in her written submission. In this decision, the decision of ITAT Kolkata in the case of DCIT vs. Gloster Jute Mills Ltd. (supra) was distinguished and the case has been decided against the assessee on the ground that the Kolkatta bench of Tribunal has taken the view in favour of the assessee, on plain reading of the provisions of sec. 32(1)(iia) vis-àvis old provisions, by holding that the additional depreciation prescribed u/s 32(1)(iia) of the Act is allowable every year and further held that the Kolkata bench of Tribunal did not consider the third proviso inserted by Finance Act, 2015. Since the legislative intent in inserting sec.32(1)(iia) has been made clear by the third proviso inserted in sec. 32(1) by Finance Act 2015, hence ITAT Mumbai did not follow the view expressed by the Kolkatta bench of Tribunal in the case of Gloster Jute Mills (supra). It is pertinent to refer to the Decision of Hon’ble ITAT Kolkata in the case of DCIT vs Graphite India Ltd. in ITA No. 472/Kol/2018 dated 22.11.2019 wherein both of the above decisions of ITAT Kolkata as well as ITAT Mumbai has been duly considered and has decided in the favour of the assessee. In this decision, decision of ITAT Mumbai in the case of Everest Industries Limited (supra), was referred in finding of CIT(A). The ITAT has followed Gloster Jute Mills Ltd. (supra) and has decided the issue in assessee’s favour. It is observed that coordinate bench in its later decision in the case of Ambuja Cement Limited(supra), holding company of assessee has allowed similar claim of depreciation. When coordinate bench of ITAT in its latest decision has decided issue in favour of assessee by holding that assessee is entitled for additional depreciation u/s 32(1)(iia), such later decision would prevail over the decision of Everst Industries Limited relied upon by Ld DR. As a result, since this aspect of the matter is no longer res integra, we see no reasons to take any other view of the matter than the view so taken by the coordinate bench in the group concern’s case of the assessee. Respectfully following the same, we uphold the plea of the assessee and direct the Assessing Officer to allow depreciation u/s.32(1)(iia) of the Act. The assessee gets the relief accordingly. This ground of appeal is allowed.”

36. On identical issue in Assessee’s appeal, in the Ground Nos.7 to 10 following issue is raised: Ground No. 7: Denial of claim of deduction u/s. 80IA in respect of Power Plant (TG2) at Wadi: On the facts and circumstances of the case and in law, the Ld. CIT (A) was not justified and grossly erred in confirming the denial of claim of deduction u/s 80IA in respect of Power Plant namely TG2 at Wadi in the state of Karnataka. Ground No. 8: Apportionment of indirect Head Office Expenses while computing deduction u/s. 80IA for TG2 unit: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in apportioning a part of the indirect Head Office expenses aggregating to Rs. 8,56,53,109/- and adjusting such allocated amount of Rs 60,72,265/- in computing Tax Holiday u/s 80IA for eligible Captive Power Plants, without establishing any nexus between the nature of expenses and such eligible units of the appellant. Ground No. 9: Apportionment of indirect Head Office Expenses (including R&D expenses) while computing deduction u/s. 80IB and 80IC units: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in confirming the action of AO in apportioning a part of the indirect Head Office expenses aggregating to Rs.10,90,85,705/-(including Rs. 2,34,32,596/- being R&D Expenses) and adjusting such allocated amount of Rs. 95,00,748 in computing Tax Holiday u/s 80IB for eligible Tikaria 2 unit and Rs. 1,03,70,526/- in computing Tax Holiday u/s 80IC for eligible Gagal 1 Cement Manufacturing Unit, without establishing any nexus between the nature of expenses and such eligible units of the appellant. Ground No. 10: Apportionment of indirect Head Office Expenses (including R&D expenses) while computing deduction u/s. 80IB and 80IC units: On the facts and in the circumstances of the case and in law, tire Ld. CIT(A) was not justified rather grossly erred in confirming the action Page No.58 ITA NO.800/MUM/2022 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited of AO in apportioning Research & Development expenses incurred at Thane Technical Service Centre amounting to Rs. 2,34,32,596/- in computing Tax Holiday u/s 80IB and 80IC.

37. Similar issue was considered by us in the Department appeal in Ground No 10 in AY 2005-06 and held as under: “75.Considered the rival submissions and material placed on record. We observe that the Assessing Officer has identified indirect expenditure incurred at Head Office i.e Statutory Audit fees, Audit for taxation matter, Director Fees, Cost Auditor expenses, Subscription to CME etc and observed that such expenditure are not allocated to eligible businesses and to that extent deduction u/s 80IA is claimed excess. Before Ld.CIT(A), assessee has claimed that cost audit fees and subscription to CMA are in respect of cement manufacturing unit hence no allocation of such expenditure is required to be made. To that extent, Ld.CIT(A) has accepted the plea of assessee and such fact is not controverted by Ld. DR hence finding given by Ld.CIT(A) to that extent is upheld. Further, on this issue, coordinate bench in the case of Ambuja Cement Limited, holding company of assessee in and 1241/Mum/2018, 2384, 2958, 3475 and 3843/Mum/2019(for A.Y. 2010-11 to 2012-13) vide order dated 07/11/2022 has held as under: “108. We are unable to see any merits in the stand of the assessee that the head office expenses cannot be allocated to all the units, as deductions and allowance of eligible units are required to be taken into account while treating such units as profit centres, and computing the profits accordingly. The fiction of the eligible units being treated on a standalone basis does not require that the profits of the units are to be computed as if they are independent of each other, and once that fiction sets in, the expenses incurred by someone other than eligible unit, in the interest of the eligible unit, are to be taken into account while computing the profits of the eligible unit. Accordingly, the allocation of expenses, as the learned Assessing Officer rightly contends, must be done. The assessee has further contended that HO expenses are not „derived from‟ or „derived by‟ the eligible undertakings, and, for this reasons, these expenses cannot be allocated to the eligible undertaking. We see no reasons to decline allocation of head office expenses to ensure that the profits of the eligible units are correctly worked out, on the basis of hypothetical independence embedded in the eligible units beingtreated on a standalone basis. To this extent, we reject the plea of the assessee. However, the basis of allocation as turnover is not really correct and reasonable, nor the relationship between the turnover and expenses always linear; the allocation would be more appropriate based on expenditure incurred by the units vis-à-vis overall expenditure. To this extent, we uphold the plea of the assessee.

69. Similar issue was considered by us in the assessee Appeal in Ground No 3 in AY 2009-10 and held as under: “30. Considered the rival submissions and material placed on record. It is observed that entire controversy of allowability of deduction u/s 80IA(4) on Rail Infrastructure facility was raised based upon CIT(A)’s order in the case of Ultratech Cement Limited as referred in assessment order. This fact is also mentioned by Ld DR in its written submission. The Ld. DR has also stated that on perusal of facts as emanating from the CIT(A)’s order and the ITAT’s order in the case of Ultratech Cement Limited, it can be safely assumed that the agreement between Ultratech Cement Limited and the Railway Authorities and that between assessee and the Rail Authorities are similarly worded. It is relevant to refer to decision of co-ordinate Bench in the case of Ambuja Cement Ltd. in and 1241/Mum/2018, 2384, 2958, 3475 and 3843/Mum/2019 vide its order dated 07.11.2022 has decided issue in favour of assessee after considering coordinate bench in the case of Ultratech Limited which in turn has reversed the finding of CIT(A) in its case which is relied upon by AO of assessee in assessment order: “87. So far as this grievance of the assessee is concerned, only a few material facts need to be taken note of. During the course of assessment proceedings, the Assessing Officer took note of the fact that the assessee has claimed deduction under section 80IA on rail system comprising of railway sidings, railway tracks, loading and unloading systems, at Ropar, Maratha, Sankrail, Farraka and Bhatapara units. He also the assessee’s contention that these rail systems alongside the cement plants are to enable the transportation of raw material (i.e. coal etc) and finished goods (i.e. cement) to and from the cement plants of the Page No.63 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited assessee. The assessee’s claim that the rail system meets all the requirements of Section 80IA(4) was also noted. The method adopted for computing the income was being excess of road freight and handling charges payable for transportation of goods by road to the nearest railhead, over the tariff payable for transportation of goods from railway siding to the rail head as per tariff notified by the Indian Railways. This claim, however, did not find favour with the assessee this time, even though the same stand of the assessee was accepted for three consecutive preceding assessment years. After elaborately discussing the things in detail, and extensively referring to investigations carried out in the case of Ultratech Cements Limited, the Assessing Officer concluded that (a) the so called rail system of the assessee company is simply a private rail siding, and is not any infrastructure of public utility; (b) the agreements entered into between the assessee company and the Indian Railways consisting of terms and conditions for private sidings, and could not be viewed as an agreement for building, operating and maintenance of a rail system; (c) the conditions stipulated under section 80IA have not been satisfied; (d) the actual operation of the rail system (i.e. running of the goods train) was being done by the Indian Railways and not the assessee company; (e) all the four cement plant sites were notified as independent booking stations and the freight was charged for the entire distance- including the distance from these private sidings to the railheads; (f) the notional profit computation is incorrect; and (g) the decisions of the Tribunal were not applicable as these critical facts were not placed before the Tribunal. The claim for deduction under section 80IA in respect of the rail system was rejected. Aggrieved, assessee carried the matter in appeal but without success. Learned CIT(A) reiterated the same arguments and upheld the stand of the Assessing Officer. The assessee is not satisfied and is in further appeal before us.

10. However, the AO noted that those agreements were for laying out private sidings and not for any rail system [as referred to in Explanation (a) to the clause (t) of sub-section (4) section 80IA in reference to the infrastructure facility] as claimed by the assessee that railway had laid down those [sidings] partly on the land belonging to the railways and partly belonging to the assessee company so as to facilitate the transportation of raw materials/cement bags through railway wagons [from / to their plant sites]. The AO also noted that the assessee [rather L&T Ltd.] had primarily requested the' railway department to extend the sidings [railway tracks] to the site of cement plants of the company so as to enable it to transport its goods [raw material & cement] from/to their plant sites itself [so that it could avoid transportation through the roads till the nearest railway station and loading and unloading etc]; that on such request the railway authorities conducted survey and laid down sidings and charged the assessee for laying out the railway track and other related infrastructure. The AO also noted that the wagons were actually run on those sidings by the railway authority and not by the assessee company. The AO also took note that railway authorities had posted its staff for weighing raw material/ cement bags loaded/unloaded by the assessee; and that all activities were directly or indirectly being carried out by the railway authorities and the assessee only reimbursed the expenses or charges levied by the railways in r/o siding maintenance etc. as per the agreement. The AO inferred that the so called "rail system" [of the assessee company] is not a self reliant, independent unit; and that it is providing services to the cement plants of the assessee company only. The AO also stated that railway department do not allow operation of the railways by any private enterprise and for that reason it [railway department] had formulated a Build-own-lease- transfer (BOLT) scheme whereby the private enterprises could set-up the necessary and crucial components of a railway system and provide that on lease to Indian Railways for maintenance and operation; and in the context referred to the CBDT circular No. 733, dated 03.01.1996 whereby the benefit of Sec. 80IA was also extended to such rail system constructed / developed by the private enterprises as per the said BOLT scheme. By that circular, the Board had also clarified that such concession would be available only to an infrastructure facility meant for development of rail systems and not to any other infrastructural facility including rolling stocks. The AO also observed that the assessee, had not given the said railway system or the crucial component thereof on lease to the railway department [had it been so, the profit by way of lease rent from such rail. system would have qualified for deduction u/s 80lA as per the concession given by the aforesaid circular]. Finally, the AO held that assessee was not eligible to claim the deduction u/s 80lA in r/o such rail systems and disallowed the claim accordingly.

Page No.66 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited includes income from rail system and that certificate of M/s Sharp &Tannan, CA in Form No. 10CCB certifying the correctness of the aforesaid claim was duly submitted to the AO. 13.1. It was further submitted that the rail system is a profit centre. The rail system is engaged in business of providing transportation facility to the cement plant, profit of which is embedded in the profit of the assessee company as a whole. It was submitted that by developing this infrastructure facility, there has been saving in transportation cost and overall profits of the company have increased due to such savings. It was such that the mere fact that it does not raise an invoice from its railway unit to its cement unit cannot govern the tax implication of the profits delivered by the rail system. In support of its contention that treatment of a transaction in books of accounts cannot govern the tax statement reliance was placed on the decision of the Supreme Court in the case of Kadernath Jute Manufacturing Company Ltd. 82 ITR 362; in the case of TutcorinAlali Chemicals Ltd. in 227 ITR 172; in the case of Godhra Electricity Company in 91 Taxman 91; in the case of Bokaro Steel Ltd in 263 ITR 315 and in the case of Sutlet Cotton Mills Ltd. in 116 ITR 1 and submitted that it would be totally incorrect to say that an assessee who raises internal invoices would be entitled to benefit of Sec 80IA and an assessee who does not raise internal invoices would not be entitled to such benefit. 13.2. The assessee further submitted that Sec. 80IA(8) itself contemplates a situation where goods or services are transferred by an eligible undertaking to non-eligible undertaking and vice versa. In such cases, deduction is to be allowed based on the market value of such goods or services. It was further submitted that the section itself envisages situation of captive consumption. Reliance was placed on the decision reported in 59 ITR 514 (Guj.) and 254 ITR 17 (Bom). 13.3. Further reliance was also placed on the decision of the Supreme Court in the case of Tata Iron & Steel Company Ltd. in 48 ITR 123 and stated that in that case, the assessee was engaged in the business of extraction of iron ore and manufacturing of iron and steel therefrom. The final product sold by the company was the finished iron and steel. Under some statute, a cess was leviable on the annual net profits derived from the mines. It was contended that since no iron ore extracted is sold to an outsider, no profits could be said to have been derived from the extracting activities. This argument was advanced based on the principle that a person cannot make profits out of himself, The Supreme Court negative this argument and held that despite captive consumption of iron ore certain profits can be regarded as having derived from the extraction activities. The Supreme Court ruled in favour of bifurcating the total profits into two activities viz. the extraction activity and the manufacturing activity. It was therefore submitted that in view of the above, it is not correct to say that the assessee does not earn any Page No.67 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited profits from its rail system merely because the rail system is used for the captive purposes of the cement plant. 13.4. It was further submitted that the Board Circular No. 733 dated 03.01.1996 states that deduction u/s 80lA is applicable to an infrastructure facility meant for development of rail system. It was contended that the AO has categorically stated in para 5.2.3 of his order that rail system was developed by L&T and was inherited by the assessee out of demerger. It was further submitted that in a demerger all the property of the undertaking is necessarily transferred by the demerged company to the resulting company, therefore it is immaterial whether the rail system was developed by L&T Ltd. or by the resulting company i.e. the assessee. Further it was submitted that the facility of rail system consists of all that is required to carry on the railway activity in an organized and systematic manner. The activity of rail system is real and substantial and it is carried on with said purpose viz transportation of goods from one place to another and thereby augmenting profits of the company as a whole by saving transportation cost which it would have otherwise incurred. It was further submitted that the profits derived from the rail systems are clearly arising out of the business of developing operating and maintaining the rail system. 13.5. It was further submitted that substantial investment has been made in developing the railway system. There is an agreement with the railways for operating and maintaining the rail system. It employs required personnel directly or through the railway authorities and it bearing the salary cost relating thereto. It was submitted that the rail system is developed on the basis of entirely different technology and employs different equipment and machinery from those applied by the cement unit for cement production. It is was further submitted that the rail system is not formed by splitting up or reconstruction of a business already in existence or by the transfer to a new business of machinery previously used for any purpose. It was therefore argued that the rail system is not a part of the cement unit but is an, independent unit. It was further submitted' that the conditions specified in Sec. 8OIA(4)(i) in r/o an infrastructure facility are fully satisfied in the present case. The rail system is owned by the assessee company which is a company registered in India. The assessee has entered into an agreement with the Railways for operating and maintaining the new infrastructure facility. It has started operating and maintenance the infrastructure facility after 01.04.1995.

16. We have heard the rival submission and considered them carefully: We have also perused the various material placed on record on which our attention was drawn. After taking into consideration we find that the CIT(A) has dealt with the aspect in detail. Contention raised before the ClT(A) on behalf of the assessee were not found incorrect or false. Conditions of Sec. 80IA have been fulfilled by the assessee. Thereafter, the CIT(A) came to the conclusion that the assessee is eligible for deduction u/s 80IA. The findings of the Id. CIT(A) are given in para 3.10 are as under :- 3.10 After perusal of the facts of the case, findings given by the AO and submissions made by the appellant, I find that the only issues in this case is whether the appellant is eligible for deduction u/s. 80IA in r/o profits derived from the rail system. There is no dispute that the appellant (i) is a company (if) has developed the rail system and (iii) it" has entered into an agreement for operation and maintenance of the rail system with the railways i.e the Government. Thus all the 3 conditions required to be fulfilled as per Sec. 80IA(4)(i) have been satisfied by the appellant. Moreover rail system is defined in explanation to sec. 80IA(4)(i) as an infrastructure facility. Further separate books of account are being maintained by the appellant. The mere fact that internal invoices are not raised does not mean that the rail system is not a profit centre. It is also found that all the doubts raised by the AO in the assessment order have been fully explained by the appellant the AO has himself stated in the assessment order that the rail system was developed by L&T Ltd which has been inherited by the appellant as a result of the demerger and Circular No. 733 dated 03.01.1996categorically stated that benefit of sec. 80IA is applicable to development of rail system and there is no gain saying that fact that the appellant has developed the rail system and is operating and maintaining the same. After perusal of the facts as well as the judicial pronouncements quoted above it is therefore held that the appellant is eligible for deduction u/s 80IA in r/o profits from rail system. In view of the same, the AO is directed to allow deduction u/s 80IA of Rs. 15,64,33,576/-17. As stated above neither the findings of the Id CIT(A) could 'be controverted by the Id DR nor any other material was brought on record to establish otherwise. Therefore in view of the uncontroverted reasoning given by the Id. CIT(A) we confirm his order on this issue also."

25. It was vehemently argued by learned AR that Revenue authorities have not considered the eligibility requirement u/s.80IA as brought by the Finance Act 2001 wherein Finance Act, 2001 has deleted the requirement of the assessee to transfer the infrastructure facility to the concern Government authorities within prescribed time. He contended that CIT(A) has wrongly applied the provisions of law as applicable prior to 01/04/2002 while considering the assessee's claim for deduction for the Ays.2009-10 and 2010-11 under consideration. Learned A.R threadbare taken us to the objections raised by the CIT(A) and the reply filed by the assessee controverting each and every objection of the CIT(A). Our attention was invited to the amended provisions of Section 80IA(4) which does not require infrastructure facility to be a public facility for allowing deduction u/s. 80IA. Our attention was also invited to the terms and conditions of the agreement entered between the assessee company and the railway department which contained conditions for construction of railway sidings, development of sidings, laying of tracks, signaling system and all the essential components of rail system. The terms of the agreement also provided for its operation and maintenance. He vehemently argued that the rail systems were developed in accordance with the agreements entered with the Indian Railways, wherein assessee was allowed to operate and maintain these sidings under supervision and as per the guidelines of Indian Railway. Our attention was invited to the various clauses particularly Class 2, 6, 7(a), 17 and 8(b) which stipulate for construction of railway sidings at the cost of the assessee. Construction work was awarded either to railway or third party contractors based on their expertise and the work was undertaken under the supervision of the Railways. Clause 6 is specifically provided for payment in advance to the railway administration, the total estimated cost of the work done by the party and thus by the railway administration. Clause 7(a) stipulate that assessee will provide and deliver at site the permanent way and other materials in accordance with the railway administration standard and specifications. Clause 17 stipulate that assessee shall provide labour for and bear the cost of all Operations on the siding. Clause 9(b) provides for maintenance and other charges for the operation of the sidings at assessee's cost and expense to the satisfaction of railway administration.' 26. Learned AR also argued that all the conditions of Section 80IA(4) was complied with for claiming deductions. Learned AR also invited our attention to the observation of CIT(A) with respect to the freight rate

Page No.73 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited 35. M/s. L&T had entered into agreements with the Railway authorities to develop, operate and Maintain the Rail systems which infact the company has done from initial day. This agreement with the Railway Authorities was not under the BOLT Scheme but infact the assessee was permitted to setup and even operate and maintain the rail system so developed in accordance with terms and conditions of the agreements under the supervision and as per guidelines of Indian Railways. Prior to putting up the rail systems, the assessee used to transfer the material from its plant to the nearest Indian Railways station and vice versa through Road and used to incur road freight and loading & unloading charges at multiple stages. To save these costs and other incidental costs, the assessee decided to develop the rail infrastructure from its manufacturing setup till the nearest Indian Railway station. It is Indian Railways who either have the power to develop any railways in India or it can enter into any arrangement with any person for developing and for operating rail systems subject to prior approvals and conditions. Therefore, the assessee accordingly entered into agreement with the Rail authorities to develop, operate and maintain its rail systems. The agreement lays down various conditions to be complied with, before and during the development, maintaining and operating the rail systems. Such rail system can also be made available to any third party with the permission of the Indian Railway. For this purpose, the assessee approached to the Indian Railways for development of Rail systems which Indian railways has agreed to provide permission for laying down the railway sidings (including the rail line upto the nearest rail head) and accordingly the assessee had awarded the contract to the private parties for construction and to the Indian Railway approved agency for supervision and consultancy of the Rail system and had borne the entire cost of development including for incidental expenses paid to all the agencies. The clause in the agreement saying that railway administration is willing to lay the said sidings / construct the siding is meant for Railway administration's permission for allowing the assessee for developing the Rail system as per the norms and supervision of Indian Railways. The revenue authorities alleged that the Railway system have been developed to facilitate the transportation of goods for the assessee from and upto the factory premises, and therefore the Agreements entered into by the assessee with the Indian Railways cannot be regarded as required agreements between the Govt. and the assessee. In this respect the assessee submitted as under before the lower authorities. as per section 80- IA(4)(i)(b) the agreement has to be entered with the Central Govt or (a) a State Govt or a Local Authority or any other statutory body for (i) developing or (ii) Operating and Maintaining or (iii) Developing, Operating and Maintaining the infrastructure facility. Indian Railways is the statutory body under the Indian Railways Act. The provision of Sec.80-IA (8) contemplates a situation where goods or services are (b) transferred by an eligible undertaking and vice versa. Undoubtedly therefore, the section itself envisages situations of captive consumption.

38. The rail systems were developed by assessee under the agreements entered into with Indian Railways and assessee operates and maintains the same in accordance with terms and conditions of the Agreements, under the supervision and as per guidelines of Indian Railways. Relevant clauses of the agreements substantiating the same are asunder:- (a) ClauseNo.2, Agreement to Construct Siding – Wherein it is mentioned that "the Railway administration will at the cost and the expenses of the applicant, in all respect, construct the railwaysidings" Further kindlybe informed that, for construction ofthe siding under thesupervision ofthe Railways, the contract for construction and supervision has been awarded by the applicant andtheentire cost hasbeen borne by theapplicant. (b) Clause No. 6 - Payment by Applicant against the total estimated cost - wherein it is mentioned that, "The applicant will pay in advance to the railway administration the total estimated cost of the work consisting of the estimated costs of work done by the party and those by the railway administration" (c) Clause No. 7(a) - Permanent way materials - "The applicant will provide and deliver at site thepermanent way and other materials (which includes Girders, Rails, Sleepers, fastenings, points,crossings, fencings, signals and overhead structures and any other things connected therewith forelectric tractions and other machinery and equipments necessary for working of the sidings) inaccordance with the Railway administration's standards and specifications. All charges incurred inlaying and fitting the permanent way materials and all other equipments which may be providedshallentirelybe borne by the applicant." (d) Clause No. 17 - Working of the Siding - wherein it is mentioned that " ... the applicant shall providelabour for and bear the cost of all Operations on the siding. The applicant shall be responsible forthe strict compliance by himself and his employees and agents of all rules, regulations and standing orders made by the railway administration from time to time for the working of sidings and for all accidents, loss or damage that may be ensured or be caused by reasons of negligence or non- observance of such rules, regulations and orders (e) Clause No. 8(b) - Wherein it is mentioned that, \\ Maintenance and other Charges for the portion of the sidings - The applicant will at their own cost and expenses in all things and to the satisfaction of the railway administration and if required by the railway administration under its supervision maintains in good order and repair the said portion of the siding. Such Page No.75 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited charges as may be fixed by the railway for the supervision rendered shall be paid by the applicant.

49.

From the record we found that the rail systems were developed under the agreements entered into with Indian Railways and assessee operates and maintains the same in accordance with terms and conditions of the Page No.77 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited Agreements, under the supervision and as per guidelines of Indian Railways. We have carefully gone through the relevant clauses of the agreements substantiating the same which reads as under: (a) ClauseNo.2,AgreementtoConstructSiding-Wherein it is mentioned that "the Railway administration will at the cost and the expenses of the applicant, in all respect, construct the railway sidings" Further kindly be informed that, for construction of the siding under the supervision of the Railways, the contract for construction and supervision has been awarded by the applicant and the entire cost has been borne by the applicant. (b) Clause No. 6 - Payment by Applicant against the total estimated cost -wherein it is mentioned that, "The applicant will pay in advance to the railway administration the total estimated cost of the work consisting of the estimated costs of work done by the party and those by the railway administration" (c) Clause No. 7(a) - Permanent way materials - "The applicant will provide and deliver at site the permanent way and other materials (which includes Girders, Rails, Sleepers, fastenings, points, crossings, fencings, signals and overhead structures and any other things connected therewith for electric tractions and other machinery and equipments necessary for working of the sidings) in accordance with the Railway administration's standards and specifications. All charges incurred in laying and fitting the permanent way materials and all other equipments which may be provided shall entirely be borne by the applicant." (d) Clause No. 17 - Working of the Siding - wherein it is mentioned that " ... the applicant shall provide labour for and bear the cost of all Operations on the siding. The applicant shall be responsible for the strict compliance by himself and his employees and agents of all rules, regulations and standing orders made by the railway administration from time to time for the working of sidings and for all accidents, loss or damage that may be ensured or be caused by reasons of negligence or non- observance of such rules, regulations and orders .... " Further, the appellant carries out all the operations for smooth movement of its goods, viz. Shunting of the Wagons, placing of the wagons at appropriate locations, Loading / Unloading of Wagons within the stipulated time and stipulated methods of Indian Railways through Wagon Loading Machines and Wagon Tipplers, Weighing of Wagons on Motion Weigh Bridges, Maintaining signa ling systems, Wagons, Couplings, Rake formation for dispatch, hauling of Wagons through its own locomotives, etc. Further, in Clause No. 14 - Traffic on Siding - it is mentioned that applicant undertakes to shunt the wagons from such point to his premises and back with his own labour and the railway administration would not be responsible for any delay, loss and damages caused in consequence of the failure of the applicant to arrange for such shunting. " Thus, the rail system is being operated by the appellant and the cost of above operations is borne by appellant. (e) Clause No. 8(b) - Wherein it is mentioned that, Maintenance and other Charges for the portion of the sidings - The applicant will at their own cost and expenses in all things and to the satisfaction of the railway administration and if required by the railway administration under its supervision maintains in good order and repair the said portion of the siding. Such charges as may be fixed by the railway for the supervision rendered shall be paid by the applicant. There are other various clauses wherein it is evident that the Development, Operation and Maintenance is done by the appellant and the entire cost for the same is borne by the appellant.

55. We also found that the loading and unloading of goods is being done by the integrated Rail system set up by the assessee and expenses which were incurred earlier for loading and unloading of materials at the plant as well as the nearest Indian Railway station have been avoided and saved and are considered as income of the rail system arising due to setting up of such integrated rail system. The assessee has already submitted for all the Rail Systems form 10CCB duly certified and audited by M/s. GP Kapadia & Co. Chartered Accountants, alongwith Balance Sheet, P&L Account, Schedules forming part of Balance sheet and P&L Account. We have also checked the amount eligible for deduction as furnished in form 10 CCB and found the same as correct. 56. With regard to CIT(A)'s observation in the A.Y.2010-11 at page 42 to the effect that the so called 'Rail System' of the assessee company are simply a private siding and not any infrastructure facility of Public Utility therefore the infrastructure of such private sidings should be treated as "Private Facility", we observe that Section 80IA(4) of the Income-tax Act, 1961 does not require the infrastructure facility to be a public facility for allowing deduction under section 80IA. The explanation to section 80IA(4) defines the term 'infrastructure facility' to mean a road including toll road, a bridge or a rail system without anything further. We observe that the CIT(A) has been referring to the pre-amended definition of the term 'infrastructure facility' which was applicable till AY. 2001-02. The assessee company began its claim of deduction from AY 2004-05 when the definition was simplified with no indication about 'public facility'. Thus CIT(A) was not correct while declining claim of deduction u/s.80IA(4) on this reasoning. 57. As per our considered view, even assuming that the requirement of public facility is to be fulfilled, it is worth noting that a section of public is also considered to be public. This principle has been laid down by the Hon'ble Supreme Court in the context of a Chamber of Commerce CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 wherein it was ruled that even though the Andhra Chamber of Commerce was established only to serve the traders and businessmen in the State of Andhra Pradesh, such traders and businessmen constituted a section of public and therefore the Chamber existed for a public charitable purpose. In the ultimate analysis Page No.80 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited of the facts in the case of assessee Company, the benefits of such siding does ensure to the public in general - to the consumers of cement. Any benefit to the business even though it is first enjoyed by the particular trade or establishment eventually is for the general public good. It has to be noted that several industries may come up on both the sides of sidings from the interchange point till factory gate, if anyone of them wants to make use of railway sidings, it is permissible for the Railway Administration to entertain such request and by making use of the exiting siding, can extend or branch off and lay railway tracks to the industry which makes the request and lay siding accordingly. Thus, the railway siding from the point of interchange till factory gate of the assessee has immense potential, with enabling powers to the Railway Administration (which itself is a public department), to be developed into a facility that will ensure to the public at large. The railway sidings are always constructed for captive consumption. Thus, the provisions of section 80IA(4) cannot be read in the manner to make it redundant, when the legislature in all its wisdom intended to give benefit of tax holiday for construction of infrastructure facility in the form of railway which is meant for captive consumption.

68. With regard to CIT(A)'s observation that the actual operation of Rail System [i.e. running of goods train] onto the private sidings between the serving railway station and plant premises [upto interchange point! exchange yard], was being done by the Indian Railways and not by the assessee Company. 69. We found that the CIT(A) has equated "running of goods train" with the "operation of Rail System". This is the sole basis on which he has arrived at his conclusion that since the assessee is not running the goods train it is not operation of Rail System and hence not eligible for claiming deduction under section 80IA(4). 70. As per our considered view, the operation of Rail System is not simply running of goods train. Operation of Railway Systems comprises of various activities viz. shunting of the wagons, placing of the wagons at appropriate locations, loading/unloading of wagons within the stipulated time and stipulated methods of Indian Railways through Wagon Loading Machines and Wagon Tipplers, weighing of wagons on Motion Weigh Bridges, wagon couplings and de-couplings, rake formation for dispatch, hauling of wagons through its own locomotives within the factory premises, etc. Thus, the rail system is being operated by the assessee and the cost of above operations is borne by assessee. 71. With regard to allegation of the CIT(A) that the assessee has never claimed that it is hauling the wagons on the entire siding, we found that hauling of wagons is only one of the activity in the entire operation of the rail system. Under the Railways Act, 1989 nobody other than railway administration is allowed to haul wagons of the railway tracks. As per materials placed on record, all the activities relating to the operation of rail system except hauling of wagons till the interchange point, is done by the assessee and the entire cost for the same is borne by it. 72. From the record we also found that even the maintenance of the Rail system such as alignment of track & gauge maintenance, patching of ballast, maintenance of railway track sleepers, signalling points and railway gate crossing from private siding to connecting point of nearest railway station is done by the assessee. 73. Thus the operation of rail is not merely hauling of wagons but comprises of various activities all of which is carried on by the assessee Company.

89.

In view of the above, we can safely conclude that even if an assessee does not fulfil all the requisite conditions for availing the tax holiday benefit in the year in which the new infrastructure facility is set up or has commenced operation, but in a subsequent year, all the requisite conditions for availing such benefit are fulfilled, the assessee would be entitled to avail the tax holiday benefit in respect of such subsequent assessment year(s). For this purpose reliance is placed on the decision of the Hon'ble ITAT of Jaipur in the case of Asstt. CIT v. Shiv Agrevo Ltd. [2009] 34 SOT 1 (URO). In this case, the assessee-company, whose main object was extraction of seeds for obtaining edible oils and refining thereof, set up a new industrial undertaking for the extraction and refining of edible oil. It claimed to have temporarily commenced the activity on and from 1-1-1997 on a trial run; however, the systematic activity of refining commenced only in the previous year relating to the assessment year 1998-99. After the final completion of the project, the assessee-company applied directly for a permanent registration certificate of its status as a small scale industry (SSI) under section 11-B of the Industrial Development Regulation Act, 1951 (IRDA) to the prescribed authority, who granted the certificate dated 30-3-1998, which was a conclusive and final proof of such a status under the provisions of IRDA. The return of income filed earlier by the assessee for the assessment year 1999-2000 as subsequently revised, wherein a claim of deduction under section 80-IA was made. The Assessing Officer disallowed the claim of the assessee, on the ground that the assessee started production from the assessment year 1997-98 itself, the year in which the assessee was not a small scale industry, and, therefore, the assessee did not fulfil the condition of section 80-IA in the initial year. On appeal, the Commissioner (Appeals), allowed the assessee's claim under section 80-1A. On Revenues appeal, the ITAT held that for claiming deduction under section 80-IA, it has to be determined at end of relevant previous year that as to whether assessee is registered as SSI and there is no condition in Act that an industrial undertaking should fulfil all conditions as laid down under section 80-IA in very initial year itself and not thereafter.

15. The Assessing Officer has dealt with the issue at Para No. 5 to 5.3 of Assessment Order. The Assessing Officer has observed that Assessee has following exclusive method of accounting and unutilised CENVAT credit on closing stock of raw material and stores is ₹.16,93,37,435/- which is required to be added back to total income of assessee considering provisions of Section 145A of the Act. 16. In appeal Ld.CIT(A) has discussed the above issue at Para No. 6.4 and 6.5. of his order and held as under: “6.4 I have carefully considered the submissions of the Ld. AR and gone through the relevant judicial decisions cited by the Ld. AR. Under Section-145A of the Act, the element of any tax, duty, cess or fee is to be adjusted against purchase, sale, inventory etc. The Assessee is following exclusive method which means the purchase is not debited along with the excise duty paid on the same. If the credit for such unutilized modvat is added to the inventory of the closing stock, it will be necessary to make additions of the excise duty to its purchases also. Ld. AR has pointed out that in the Tax Audit Report vide Annexure-B(ii), the auditors have duly certified that the net effect of deviation from the value prescribed u/s. 145A and the claims/disallowances connected thereto, is Nil. In such a case, there is no necessity for making addition to the value of the closing stock. The decision of the Hon'ble Supreme Court in the case of Indo Nippon Chemicals, 261 ITR 275 supports this position. Further, the decision of the ITAT, Mumbai in the case of Hawkins Cooker Ltd. in No.98 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited 505/Mum/04 dated 08.08.2008 where the decision of Supreme Court has been considered has decided this matter in support of the Assessee. This issue has also been decided in favour of the Assessee by my Ld. Predecessors in earlier assessment years. Taking into account, the facts and circumstances, there is no justification of the Assessing Officer to make an addition to the closing stock which is deleted.”

69.

This issue is dealt by Ld.CIT(A) at Para No 16.3 of his order as under: “I have considered the contentions of the AO and the appellant. The reliance of the AO on the ratio of the decision in the case of Trade Wings Ltd vs CIT (Bom) 185 ITR 267 is misplaced as in that case, unlike in the appellant's case, the expenditure was incurred in respect of altogether new line of business. In that case, the assessee was engaged in business of travel agency. In the relevant assessment year, it claimed deduction in respect of expenditure incurred on feasibility of a hotel project. The Tribunal held that the expenditure incurred in connection with the feasibility of a new business was not an admissible deduction. In reference, the following question was raised before the Hon’ble Court: "Whether, on the facts and in the circumstances of the case, the assessee- company was not entitled to deduction for 1971-72 assessment year in respect of Page No.101 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited Rs. 15,200 being the expenditure incurred on the feasibility of a hotel project in Goa?" In its order, the Hon'ble Bombay Court held: "having regard to the statement of the case, to expenditure incurred on exploring the feasibility of a new line of business. The assessee's existing business is of a travel agency. The expenditure was incurred in exploring the feasibility of setting up a hotel in Goa. The Tribunal held that the expenditure incurred in connection with the feasibility of a new business venture was not an admissible deduction. Upon the facts that are before us, we are in agreement that a travel agency business does not include hoteliering. We answer the second question in the affirmative and in favour of the Revenue." On the contrary, the decision of the ITAT, Mumbai in the case of Graviss Foods P. Ltd, Mumbai vs Department of Income Tax (supra) is squarely applicable to the facts of this case. In that case, the Hon’ble ITAT held: "7. We have heard both the parties and perused the orders of the Revenue Authorities as well as the precedents cited by the Ld Representatives of both the parties. After hearing both the parties and perusal of the orders of the Revenue Authorities as well as the relevant material placed before us, our adjudication is given in the following paras.

56. This issue is dealt by Ld.CIT(A) at Para No. 15.9 to 15.12 of his order as under: 15.9 I have carefully considered the submissions of the Ld.AR, gone through the relevant provisions of the Income-tax Act and various decisions cited. I have also gone through the assessment order particularly the AO's decision at page 25 para 16.4. 15.10 The deduction u/s. 80IA has been claimed in respect of two units ie. TG-2 and TG-3. So far as TG-2 is concerned, it was commissioned by the Assessee in the FY: 1995-96. From 1996-97 to 1998-99 the Assessee has not claimed any deduction u/s. 80IA as there was no profit from this unit. In AY:1999-2000 this plant made profit and the Assessee claimed deduction u/s. 80IA. However this deduction was not necessary as the total income became a loss. But the claim of deduction was made. Then in Jan,1999, it was sold to Tata Power. M/s. Tata Power has not availed deduction u/s. 80IA. The AO has mentioned that Tata Power was not eligible for deduction. The Assessee says that they have not claimed it. In September, 2004 the unit was re-purchased by the Assessee who has claimed deduction u/s. 80IA for AY:2005-06 which is presently under consideration. 15.11 Before going through the interpretation of the provisions it will be pertinent to examine the provisions of sec. 80IA. As per sec. 80IA(2) the deduction can be claimed by an assessee for any ten consecutive assessment years out of 15 years beginning from the year in which the undertaking or the enterprise commences its activities which is eligible for deduction. In this case, the Assessee has done Page No.106 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited power generation which is one of the eligible activities under this section. So the Assessee had the option of claiming the deduction u/s. 80IA for any ten consecutive assessment years within 15 years from AY: 1995-96. The Assessee claimed deduction in the year 1999-2000, so the claim should have continued for the next nine years in order to maintain the eligibility for such deduction. However in the Assessee's case deduction has not been claimed after 1999-2000 and is claimed again this year ie. 2005-06. As mentioned earlier, the Ld.AR of the Assessee has argued before me that the deduction u/s. 80IA is not given to the assessee but to a specific unit. He has cited the Board's Circular no. 13.12.1963 in this regard. Once this proposition is accepted that the deduction is allowed on income from a specific unit, whether such unit was in the possession of the original founder or with somebody else, will not be material. But it is imperative that deduction u/s. 80IA must be claimed in respect of the income from this unit consecutively for a period of 10 yrs from any point out of the span of 15 yrs from commencement of the business. It is admitted that when the unit was sold to M/s. Tata power and during the period when it was under their possession, no deduction u/s. 80IA has been claimed or allowed on the profits of this unit. The Assessee admits that such a claim was not made during the period after having claimed deduction u/s. 80IA in 1999-2000 such claim has been made again in AY: 2005-06, which to my mind, will not qualify as '10 consecutive assessment years' as mentioned u/s. 80IA(2). Under the circumstances, the claim of deduction u/s. 80IA does not appear to be allowable in respect of TG-2. 15.12 So far as TG-3 is concerned, the facts are different. In fact in his order the AO has not given any specific reason for disallowing the deduction against the unit TG-3. It appears that he has considered it to be an undertaking formed by previously used plant and machinery which is not eligible for deduction u/s. 80IA. However, the Assessee has not purchased or installed old machinery. It has purchased an entire unit as a going concern. This unit was constructed by M/s. Tata Power and sold to the Assessee during this year. As per Board's Circular dtd. 13.12.68 which has been referred to by the Assessee, the benefit of sec. 84 attaches to the undertaking and not the owner thereof. The successor will be entitled to the benefit of the unexpired period provided that the undertaking is taken over as a running concern. Admittedly this circular was issued on sec.84 which was replaced by sec. 80J later. The Calcutta High Court in the case of P.K. Engg and Forging Pvt Ltd (supra) have held that both these sections are similar and sec. 84 was since omitted and replaced by 80J. Since the fields covered by both the sections are the same, the circular was applicable to sec. 80J also. The provisions of sec. 80IA is also applicable to profits and gains derived by an undertaking or an enterprise. So the spirit of the Board's circular will also be applicable to this section. If an undertaking is transferred as a going concern, the new owner can claim the deduction u/s. 80IA, if the claim otherwise comes under the provision of this section. Further, in the light of the judicial pronouncements cited earlier, the Assessee's case is not a case of splitting of an industrial undertaking. The generation unit as a whole has been sold to the Assessee. Since the deduction u/s. 80IA is allowable on the profits of this unit, the Assessee who has purchased the unit can claim such deduction, as the other conditions prescribed u/s. 80IA are fulfilled. In view of this, the AO is directed to allow deduction u/s.80IA in respect of TG-3. As has already been held

61. It is relevant to refer to Oxford dictionary, the term “split up” means to separate of end relationship. It is undisputed fact in present case that assessee has acquired both the units as a whole. It is not the case that assessee has set up two different power plant by purchasing only partial assets which were used by another assessee but entire undertaking itself is purchased as it is in year under consideration which clearly prove that assessee has not split any of its existing business for forming both the units. Hon’ble Bombay High court in CIT v. Gaekwar Foam & Rubber Co. Ltd. [1959] 35 ITR 662 explains that the concept of a reconstruction of a business implies that the original business is not to cease functioning and its identity is not lost. Reconstruction is of a business already in existence implies that there must be a continuation of the activities of business of the same industrial undertaking where the ownership of a business or undertaking changes hands that would not be regarded as reconstruction. This judgment has specifically been approved by the Supreme Court in Textile Machinery Corpn. Ltd. v. CIT [1997] 107 ITR 195. As regards the splitting up of a business, the relevant test is whether an undertaking is formed by splitting up of a business already in existence. Unless the formation of the undertaking takes place by the splitting up of a business already in existence, the negative prohibition would not be attracted. In the present case, the entire business of TG-2 and TG-3 power plant was transferred to the assessee. The undertaking of the assessee was not formed by the splitting up of the business. On this issue, Hon’ble Bombay High court in the case of CIT v. Sonata Software Ltd[2012] 21 taxmann.com 23 has held as under:- “Section 10A of the Income-tax Act, 1961 - Free trade zone - IOCL set up a software division in 1980s - IOCL made an application for setting up an undertaking in a Software Technology Park (STP) for which an approval was obtained on 30-9-1993 - Plant and machinery for said undertaking was imported in July, 1994 and first export was effected in October, 1994 - Thus, manufacturing activities, commenced in STP undertaking after stipulated date of 1-4-1994 as provided in section 10A - Subsequently, in October 1994 itself, IOCL transferred entire software division as a going concern on slump sale basis to assessee - It was apparent from records that ownership of business or undertaking changed Page No.109 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited hands and, thus, it could not be regarded as a case of reconstruction - It was also undisputed that entire business of software was transferred to assessee, and, thus, assessee- undertaking could not be said to be one formed by splitting up of business - Whether on facts, assessee had fulfilled conditions mentioned in section 10A(2) and, thus, its claim for exemption under section 10A was to be allowed - Held, yes [In favour of assessee] 62. Further, in CIT v. Silical Metallurgic Ltd (324 ITR 29), the facts before Hon’ble Madras High Court were as follows: there were three units at different places being new industrial undertakings eligible for deduction under the applicable provisions. They belonged to different companies assessed separately. The companies were amalgamated into one and the amalgamated company continued to carry on the business of the undertakings. It claimed the deduction of tax holiday for all the eligible undertakings. The Assessing Officer disallowed the deduction on the ground that it did not set up the aforesaid units and there was no provision in the Act for granting the benefit of deduction to the amalgamated company. The Ld.CIT(A) and the Tribunal upheld the claim of the taxpayer. The Hon’ble Madras High Court confirmed the decision of the Tribunal and observed as follows: “A reading of the provision of sections 80HH and 80-I of the Act, it is clear that the same has been incorporated to encourage the new industrial undertaking on fulfilment of certain conditions mentioned therein. If the conditions mentioned in the sections are complied with by the assessee, the benefit extended by the provisions has to be granted to the assessee. The amalgamation of one company with the other company cannot be regarded as a splitting up or reconstruction or by a transfer of a new business of the plant and machinery of the old business. With reference to the Companies Act, the amalgamation was also for the benefit of the two companies, i.e., amalgamating and amalgamated company and in the public interest and also in the interest of the shareholders. Viewed from any angle amalgamation cannot be regarded as a splitting up of the company for the purpose of negativing the claim under the Income-tax Act, which has been statutorily conferred on the company, if such companies fulfil the conditions stipulated therein. Hence, we are of the view that the order of the Tribunal granting the benefit of sections 80HH and 80-I to the assessee-company cannot be stated to be illegal or against the statutory provisions. A similar view has been taken by the Bombay High Court in the case of CIT v. Dandeli Ferro Alloys P. Ltd. [1995] ITR 1, in which the Bombay High Court held that the facts on record clearly established that the amalgamated company was already incorporated and formed and had come into existence on March, 1973 and had become an industrial undertaking carrying on industrial and commercial activities on and from June 20, 1973, i.e., prior to the amalgamation of the amalgamating company with the Page No.110 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited amalgamated company, which had become effective from October 31, 1973. The amalgamated company was not formed by the splitting up, or the reconstruction, of a business already in existence. Therefore, the Tribunal was right in holding that the assessee company was entitled to relief under sections 80J and 80HH of the Act”.

67. It is emanating from assessment order and order of Ld.CIT(A) that TG-2 started commercial production from 1st April 1995 and no deduction was claimed till A.Y. 1998-99 as such unit was incurring losses. The assessee was eligible for deduction u/s 80IA for such unit in A.Y. 1999-2000 but no deduction was claimed as there was no positive Gross Total Income of assessee but it is fact that assessee was eligible for deduction was mentioned in notes forming part of return of income. It is undisputed fact that Assessing Officer has not disputed such claim in assessment proceedings. Subsequently, such unit was transferred to Tata Power Company and was again re-purchased by assessee in current year and assessee has claimed deduction u/s 80IA. So far as observation of Ld.CIT(A) that assessee is not entitled for such deduction as 80IA was not claimed by undertaking during the period A.Y.2000-2001 to AY 2004-05, it is observed that Ld.CIT(A) himself has accepted that assessee can claim deduction u/s 80IA for consecutive 10 years out of block of 15 years from commencement of business which does not mean that if in block of 10 years, deduction u/s 80IA was not claimed for one or more reasons, such claim is lapsed for subsequent years. Further it is also a settled position that the deduction u/s 80IA is qua undertaking and not qua entity. Every undertaking will be entitled to avail deduction u/s 80IA for a period of 10 consecutive years from 15 years from the commencement of business. There is substance in the argument of Ld. AR of the assessee that Tata Power Company Limited might not have claimed for deduction u/s 80IA for various reasons and there is nothing on record to prove that said company was not entitled for deduction in respect of 80IA on such power plant. On the other hand, claim of deduction u/s 80IA made by assessee is emanating from notes forming part of return of income for A.Y. 1999-2000 and not disputed by Assessing Officer in assessment proceedings hence there is no reason for not allowing deduction u/s 80IA for TG-2 Wadi. The Hon’ble Bombay High court in the case of Simple Food Products (P.) Ltd. [2017] 84 taxmann.com 239 has held that if deduction u/s. 80-IB was granted for an initial assessment year, same could not be rejected for subsequent assessment years unless relief for initial year was withdrawn.

Page No.114 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited “80A(6) Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading “C—Deductions in respect of certain incomes”, where any goods or services held for the purposes of the undertaking or unit or enterprise or eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the undertaking or unit or enterprise or eligible business and, the consideration, if any, for such transfer as recorded in the accounts of the undertaking or unit or enterprise or 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 any deduction under this Chapter, the profits and gains of such undertaking or unit or enterprise or eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date. Explanation.—For the purposes of this sub-section, the expression “market value”, — in relation to any goods or services sold or supplied, means the price that such goods or services would fetch if these were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any; in relation to any goods or services acquired, means the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the open market, subject to statutory or regulatory restrictions, if any. The dispute is whether the market value means the market value at which the power grid purchases power or the market value at which a consumer purchases power. The answer to this question is provided by explanation to section 80A(6). Where the goods or services are sold by the eligible unit, the market price would mean the value at which such goods or services can be sold in the open market. Normally, cost of electricity consumed by the end user has three components they are generation costs, transmission costs and distribution costs. The rate (R1) at which the electricity is sold by the power Plant (generator of power) to the transmission company is lower than the rate(R2) at which the transmission company sells the power to the distribution company. Again, R2 is lower than the rate (R3) at which the distribution company sells the power to the consumer. Therefore, there are three market rates, viz, R1, R2&R3 where R1 is lowest and R3 is highest. The question arises is which of the three rates is to be adopted in this case. One possible view is that since the seller (CPU) is a generator power, the market value is to be taken as R1. In case the seller is a transmission company, the market rate for power sold would be R2. For a distribution company, the market rate for power sold would be R3. Therefore, for determining the profit from the CPU, which generates power, the market value of power would be R1, i.e., the rate at which power plant filled power to the transmission companies.

59. Ld.DR with regard to Reduction in deduction u/s 80-IA on power generating undertakings due to modification in "Market Value" of electricity generated, submitted as under: - The issue is discussed in para 10.23 to para 10.34 of the assessment order and para 15 (Page 42 to 47) of the CIT(A)'s order. The same may kindly be referred to. It is pertinent to mention that the facts of the case and the reasoning given by the AO as well as the CIT(A) for Page No.116 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited making / upholding the disallowance was discussed in quite length by the undersigned during the course of hearing on 09.01.2023. Briefly stated, the point of dispute between the assessee and the department is regarding the market value to be adopted for quantifying the turnover of the assessee's captive power plants (henceforth referred to as CPPs) spread across India for computing the eligible deduction u/ s 80IA of the Act. The assessee after placing reliance on various decisions including that of the Hon'ble Bombay High Court in the case of CIT vs Reliance Industries Ltd.[2020] 421 ITR 686 (Bombay) contended that the issue regarding which rate is to be adopted as the market value — i.e. whether the rate at which the CPPs sell the power generated by them to the SEBs / Power Trading Corporations (PTCs) or the rate which the assessee's Cement Manufacturing Units( henceforth referred to as CMUs) would have paid to purchase the power from the SEBs, is no more res judicata and that the latter rate is to be taken as the market value for the purpose of quantifying the turnover of the assessee's CPPs. Furthermore, the assessee also filed before the Bench a revised working of the turnover of the eligible CPPs units by adopting the latter rate as against the original working adopted by the assessee wherein it has adopted the rate at which power was sold by one of its CPPs to the SEBs/ PICS. However, it is to be noted that no underlying details are filed by the assessee as to how the rate at which SEB sells the electricity to its CMUs is arrived at by the assessee. The copy of the alternative working for market values of electricity generated filed by the Ld.DR on 9.01.2023 is also enclosed herewith for ready reference as Enclosure-I Perusal of the assessment order shows that for computing the turnover of the CPPs, the AO adopted the rate at which the CPP sold the power generated by them to the SEBs/ PTCs. The same was considered to be the market value in view of the explanation to subsection 6 of section 80A of the Income Tax Act, 1961. The sub section (6) of 80A was brought on statute by the Finance Act of 2009 'With retrospective effect from 01.04.2009 and hence is applicable to the AN. under consideration. It is pertinent to mention that section 80A(6) is a non-obstante clause. For the sake of ready reference, sub section 6 of section 80A along with its explanation is reproduced hereunder: (6) Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading "C. —Deductions in respect of certain incomes", where any goods or services held for the purposes of the undertaking or unit or enterprise or eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the undertaking or unit or enterprise or eligible business and, the consideration, if any, for such transfer as recorded in the accounts of the undertaking or unit or enterprise or 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

Page No.117 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited of any deduction under this Chapter, the profits and gains of such undertaking or unit or enterprise or eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date. Explanation. —For the purposes of this sub-section, the expression "market value", (i). in relation to any goods or services sold or supplied, means the price that such goods or services wouldfetch if these were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any; (ii). in relation to any goods or services acquired, means the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the open market, subject to statutory or regulatory restrictions, if any;] (iii). in relation to any goods or services sold, supplied or acquired means the arm's length price as defined in clause (ii) of section 92F of such goods or services, if it is a specified domestic transaction referred to in section 92BA. As can be seen, the Act provides for three meaning of the expression “market value". The first meaning of market value is in relation to goods or services sold or supplied. The second meaning of the expression market value is in relation to any goods or services acquired. The third meaning was inserted by the Finance Act, 2012 w.e.f.01.04.2013 and hence does not merit any discussion for the year under consideration. Since the CPPs of the assessee have supplied power to the assessee's CMUs. the market value to be adopted for quantifying the turnover of the CPPs should be. as per clause (i) of the -Explanation. Interestingly, the Assessee itself has adopted the first meaning for computing its turnover i.e. the rate of Rs 6.30 per unit at which the units generated by it were sold to Tata Power Trading Company Limited. The AO had however, after giving his reasons in detail as to why the rate adopted by the Assessee cannot be applied for the entire output of the CPPs, which are spread across various states and further after considering the small sample size of the sales made by the assessee to Tata Power Trading Company Limited. by one of its units at Kymore in Madhya Pradesh, that too only over a short period of three months, worked out the turnover of the CPPs after adopting the average rate at which the power was purchased by the two players in the power sector, the Tata Power Trading Company Limited and the Tata Power Trading Corporation Limited, the working is available on page 40 the assessment order. while computing the net output of the CPPs, the AO has excluded the transmission loss which was considered by the assessee. It is pertinent to mention that during the course of hearing before the Bench, the Ld. AR of the assessee

Page No.118 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited conceded the ground on the exclusion of the units lost in transmission for the purpose of computing the turnover of the CPPS. However, to support its revised working, filed for the first time only during the course of hearing on 09.01 2023, the AR relied on various case laws, mentioned in the summary chart mentioned by him. During the course of hearing, reliance was predominantly placed on the Bombay High Court's decision in the case of CIT vs Reliance Industries Ltd. [2020] 421 ITR 686 (Bombay) The list of the cases relied upon by the AR is as under: Reference to the Index of the Legal Paper book filed by Citation CIT(DR’s) Remarks CIT(DR) on 09.01.2023 a) CIT vsReliance Industries The A.Y. is not Serial No. 1 and 2 of the Paper Ltd. 120201 ITR 686 ascertainable form the Book. (Bombay) High Court’s order. However, the decision places reliance on the decision at Sr.No. (b) and (c). Moreover, SLP filed against the High Court order by the Revenue is granted by the Supreme Court of India CIT vs Godawari Power b) Pertains to A.Y. 2004-05 to Serial No. 3 of the Paper Book. &Ispat Ltd. 2006-07 [(2014) 223 Taxmann 234 (Chattisgarh HC) c) PCITvs Gujarat Alkalies & A.Y. is not ascertainable. Serial No. 4 of the Paper Book. Chemicals Ltd. (2017) 395 However, it is observed ITR 247 (Gujarat HIC) that there is no discussion regarding sub section (6) of section 80A of the I.T.Act. d) West Coast Paper Mills Ltd. Pertains to Asst.Year Sr.No. 5 of the Paper book v JCIT (2006) 1999-2000 100 TTJ 833 (Mumbai Trib. Eveready Spinning Mills (P) e) Pertains to AN. 2007-08 Sr.No.7 of the Paper book Ltd. v. ACIT (50 SOT8 Chennai URO f) BalrarnpurChini Mills Ltd. Pertains to A.Y. 2016-17 (ITA.No. 1672/KOL/2019) and deals with the (Kolkata ITAT) amendment brought to section 80IA (8) w.e.f. 1.04.2013, hence not applicable to AY 2011-12. g) Ambuja Cements Ltd. [ITA.No. The issue is discussed in The Relevant pages of the order No. 3475/Mum/:2019 and ors.] Para 80-85, internal page are enclosed herewith for ready (A.Y. 2011-12) 47-50. Perusal of the order reference.(Enclosure) shows that the issue is decided in favour of the assessee by placing reliance on Bombay High Court's decisions mentioned at Sr.No. a . Page No.119 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited All the case laws are perused and it is observed that all the cases relied upon by the AR are pertaining to A.Ys prior to A.Y. 2009-10, ie. when the provisions of sub-section 6 of section 80 A was not on statute. Even in cases, wherein the AY involved happens to be post 2009-10,for example Mumbai ITAT's decision dated 29/11/2022 passed in the case of ACIT v. Century Textiles and Industries Ltd. [ITA No. 1886/Mum/2022 for AY 2010-11 (copy of the decision was filed by the Ld. AR on 09.01.2023during the course of hearing), the issue is decided in favour of the assessee by placing reliance on such decisions, wherein the Court had no opportunity to consider the provisions of section 80A(6) of the Act and its explanation. Reference is also made to para 6 of the ITAT's order passed in the case of ACIT Century Textiles and Industries Ltd, which is reproduced hereunder for ready reference, which mentions that the Ld.DR could not point out any change in facts or law is a sis that of the earlier years “6. We note that on this issue the LCIT(A) has decided in favour of the assesses by following the decision of the Tribunal in A.Y 2006-0) by order dt.14.06.2017and deleted Rs 292,15,38/- which was disallowed by AO. We note that the Tribunal in A.Y. 2007-08 to AY. 2009-10 (supra) has allowed assessee appeal regarding this issue. Since the Ld.DR could not point out any change in facts or law vis a vis that of the earlier years as decided by the Tribunal in assessee’s case as noted (supra), we are inclined to uphold the impugned action of the LA CIT(A)" (emphasis supplied) Unfortunately, the Ld.AR in the said case, also failed in his duty to bring to the notion of the Hon'ble Bench the change in law. For identical reasons, the reliance placed by the Ld. AR on the ITAT's decision in the case of its holding company, Ambuja Cements is also not applicable to the facts of the case and is not a good reliance. Hence, the case laws do not act as precedent for deciding the issue for the year under consideration. It is therefore, requested that the issue may be decided by the Hon'ble Bench after taking into consideration the amendment brought into the Act w.e.f. 01.04.2009 as considered by the Assessing Officer as well as the CITIA) for computing the turnover of the CPPs, by adopting the rate as worked out by the AO in the Assessment order.”

18. By the impugned Order CIT(A) allowed assessee's claim of deduction u/s.80IA after having its observation at pages 6.3 of its appellate order. Precise observation is as under:- "6.3 I have considered the facts of the case and submissions of the appellant as against the observation / findings of the AO in his order. The contentions raised by the appellant in respect of the ground of appeal are being discussed and decided as under:- i. This issue also appeared in the assessee's reopened assessment for the A.Y.2006-07. On the identical set of facts, the Ld. CIT(A) in the office while deciding the appellant's case for A.Y.2006-07 has reached the decision as under: "I have considered the facts of the case, the reasons given by the Assessing 'Officer for restricting 'the deduction claimed by the assessee u/s 80IA in respect of its power generating undertakings and the' submissions of the assessee, in my opinion the question which is required, to be answered in respect of the ground of appeal taken by the assessee is whether the action of the AO of restricting the deduction is correct in the present facts and circumstances of the case. To answer the question, it would be pertinent to refer to Sec. 80IA(8) of the Act since the said section is relevant in the present case Sec. 80IA(8)reads as follows: "Where any goods (or services) held for the 'purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods (or services) held for the purpose of any other business carried on by the assessee or where any goods (or services) held for the purpose of any other business carried on by the assessee are transferred to the eligible business and, in either case the consideration, if any, for such transfer as recorded in the accounts 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 under this' section, the Page No.121 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited profits and gains of such eligible business shall be computed as if the transfer, in either case had been made at the market value of such goods (or services) as on that date. Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents. exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. (Explanation - For the purposes of this sub-section; "market value ", in relation: to any goods 'or services, 'means the price that such goods or services would ordinarily fetch in the open market.) A perusal of the said section reveals that where transfer of any goods or services by the eligible business to any other business carried on by the assessee is not recorded in the books of accounts of the eligible business at the market value of such goods or services as on date of the transfer, then for "the purposes of the deduction, the profits and gains of such business is required to be computed as if the transfer has been made at the market value of such goods or services as on that date. As per the Explanation,' 'market value' in relation to the goods would mean the price that such-goods would ordinarily fetch in the open market. The proviso to sub- section(8) of section 80IA would come into operation only' when in the opinion of the Assessing Officer; the computation of profits and gains of the eligible business in the manner provided in the main· sub-section presents exceptional difficulty. It is, therefore, clear that the Assessing Officer, in order to invoke the proviso, must form an opinion based on the material on record that the computation in the manner provided presented exceptional difficulties. If he does not form an opinion, he cannot invoke the proviso to determine the profits & gains of the eligible business. It would, therefore, berequired to be seen whether the AO has found based on any material on record, and has brought any evidence or material on record, that the transfer of the goods by the eligible business, i.e. the power generating units, has not been recorded at the market value of such goods. It will also be required to be seen whether the AO has formed any opinion which would justify the invoking of the proviso to Sec, 80lA(B), because it is the proviso that the AO has invoked to work out the deduction available to the assessee u/s. 80lA. Perusal of the facts on record show that the assessee had disclosed that it has sold/transferred electricity to related concerns and, that the said transfer had been done at the fair market value of the goods. In the earlier 'assessment years in the regular assessments, the basis of taking the market value of the goods had been accepted by the Assessing Officer. I find that the Assessing Officer has assumed the power u/s. 80IA(B) without bringing any material on record to show that the price recorded in the books by the eligible business did not correspond to the market value of the goods as on the Page No.122 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited date of the transfer. It is important to note that for giving a finding that a particular value did not correspond to the market value, the market value has to be found out. Hence, the section pre-supposes that there is another value attached to the said goods which would represent the market value of the goods. I find that there is nothing brought on record to show as to how the price recorded in the Books does not correspond to the market value of goods, when sold in the open market, especially in the light of the reasons given by the 'assessee that such price corresponded to the market value of the goods. I find that the Assessing Officer has rejected the value recorded by the eligible business by merely holding that the market value cannot be the purchase value of electricity but the price of the electricity which the assessee can fetch in the open market. There being no open market for electricity during the period under review, the regulatory bodies fixed the price of electricity. He has further held that the tariff fixed for sale by the State. Power Distribution Agency for industrial consumers could not be called as market price as the regulatory fixes the tariff considering the wheeling charges, transmission loss due to leakage, past losses of the distribution agency, etc. In my opinion, the findings of the AO cannot be taken to be correct. Even though there may be 110 open market for the goods, an open market has to be presumed in respect of the goods in question in view of the categorical condition laid down in the provisions itself and the law laid down in this regard by the different Hon'ble Courts of the land and which have/been relied" upon by the assessee in its submissions. The Assessing Officer has not brought any material to show that the price charged was not in consonance with the market value. The AO has also not suggested, leave alone computed as to what the market value of the goods should be. While the assessee has given detailed reasons as to why the price of the goods recorded by it corresponds to till! market value, the Assessing Officer has not given any specific findings to hold as to why such price does not correspond to the market value of the goods and as to what was the market value of such goods. The assessee has contended that the 'rate 'charged to the end user by the State Electricity Board would provide the 'most appropriate basis to arrive at the market value. Since, the eligible unit is, in effect, transferring the goods to another business which is the end consumer, the cost to the end consumer, is required to be considered and not the tariff at which the 'Independent Power Producers' sell to the: 'State Distribution Agency', which in turn sells to the State Electricity Board for further sale to the end users i.e. consumers, at a rate higher than the rate at which the 'State Distribution Agency had procured the electricity, at. 'Another important aspect which is required to be considered is' that the: rate at which the 'Independent Power Producers' sell to the; State -Distribution Agency' under the Electricity Act, 1948 is a regulated rate which is determined, on the basis' of the normative parameters 'determined by the Government of India under its Notification No, 251 (E) 'dated 30.03.1992. The normative parameters

Page No.123 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited have been fixed by the Government, which is required to be followed by all, and no deviation in fixing the tariff is allowed Hence, even here, the rate cannot be taken to be the "price that such goods would ordinarily fetch in the open 'market" as this is the regulated rate fixed by the Government. It is also seen that the Assessing Officer has taken 16% return on capital base to work out the profits of the eligible business of the. assessee eligible for deduction u/s, 80IA of the IT. Act, 1961. 16% return on capital base in Notification No. 251(E) dt .. 30/3/1992 is only an exercise for fixation, of tariff. It is 'one 'of the parameters 'out of many which is required to be taken into consideration for fixing the tariff in relation' to the' rate at which the Independent Power 'Producers sell their power to the - State Distribution Agency. Hence, 16% return on capital base 'alone' would not be relevant while computing the profits of the eligible business under the Act. To sum up under Sec. 80IA(8), the following conditions are required to be satisfied:- a) Any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee. b) The' consideration if any for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the. date of transfer, c) It is only when condition (b).is satisfied then the Revenue gets a right to determine profits and gains of such eligible business at the market value of such-goods or services. as on the date of its transfer. The Assessing Officer had considered the rate' charged by the State Distribution Agency as the market value of the goods 'transferred by the eligible business in the original assessment of the assessee, There is nothing on record to show as to how the value of the goods adopted/taken by the assessee do not correspond to the market value of such goods especially in light of the reasons given by the assessee. The Assessing Officer has also not expressed any opinion as to how the computation of profits and gains of the business tn. The manner provided in the main sub-section' presented exceptional difficulties. Hence, proviso to Sec. 80lA could not have been invoked by him. It is also clear that the parameter 'relating to 16% of capital base is only an exercise for fixation of tariff and is only one of the many parameters taken into consideration for fixing the tariff under' the Old Electricity Act of 1948, This parameter is for working 'out the' tariff for sale to Distribution agencies and not for sale to the end' consumers and not for computing the profits and gains of the eligible business. In' view of the aforesaid reasons, the order of the AO of working out the profits eligible for deduction on the basis of 16% return on 'capital base cannot be upheld.

Page No.124 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited As regards the submission relating to Sec, 80A(6), I find that same submissions were made by the assessee before the Assessing Officer during the course of the re-assessment proceedings. I find that the AO has not controverted the submissions of the assessee. I am also of the opinion that since the said Sec, 80(6) has been specifically made retrospective from a specific date i.e. w.e.f.01.04.2009, the same would apply only with respect to the A.Y. 2009-10 onwards and would not apply to the A.Y. 2006-07 in question. This is also clear from the fact that the Explanation 10 Sec. 80IB(10) was inserted by the Finance (No.2) ct, 2009 and was made operational w.r.e.f 01/04/2001 while sec. 80A(6) was also inserted by the Finance (No.2) Act, 2009 and was made operational w.r.e.f 01/04/2009. Further, as per the explanation to Sec. 80IA(6), the market value means the price that such goods or services would fetch if these were sold by the undertaking or unit or 'enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any. In the present case, the AO has not brought any material on record to show that the goods supplied by the undertaking were at a price higher than what it was required to supply as a result of any statutory or regulatory restrictions or as to what should have been the rate at which it was required to supply the goods as a result of any statutory or regulatory restrictions. In the case of Reliance Infrastructure Ltd (Supra) Hon'ble jurisdictional Mumbai, Tribunal has held that the price that the unit paid to TPC for purchase of power would be the best basis for working out the profits of the business of generation of power even after the order MERC. In this case, the assessee, other than using power generated from its own captive generating units, was also purchasing power from TPC. In the case of Jindal Steel & Power Ltd. reported in 16 SOT 509 (Del), Hon 'ble Tribunal has held as follows "Sec: 43A of the Electricity (Supply)Act,1948, lays down rules and conditions for determining the tariff for sale of electricity by a generating company to the State Electricity Boards. A perusal of the same reveals that the tariff is determined on the basis of various parameters contained therein: From the aforesaid, it is evident that on one hand it is only upon granting of specific' consent that a private person call set up a power generating unit having 'restrictions on the use of power generated and at the same time the tariff at which a power generating unit can supply power to the Electricity Board is also liable to 'be determined in accordance with the statutory requirements. In this context it can be safely deduced that determination of tariff between the assessee and the Board can be said to be an exercise between a buyer and seller neither in a competitive environment and nor in the ordinary course of trade and business. It is an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the' buying tariff in terms of scenario cannot be, equated with a situation where the price is determined in the normal

Page No.125 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited course of trade and competition. Therefore, the price determined as per the Power Purchase Agreement cannot be equated with market value as understood in common parlance. There is no reason for not holding so for the purposes of. Section 80IA-(8) also, The price at which the power is supplied by the assessee to the Board is determined entirely by the Board in terms of the statutory regulations. Such a price cannot be equated with the market value as understood for the purposes of s.80-IA(8) The price recorded by the assessee Rs. 3.72 per unit can be considered to be the market value-for the purposes of s. 80- IA(8). This is for the reason that the assessee as an industrial consumer is also buying power from the Board and the Board supplies such power at the rate of Rs.3.72 per unit to its- consumers. This is the price at which the consumers are able to procure the power. Thus, under the given circumstances, it would be in the fitness of things to hold that the consideration recorded by the assessee's undertaking generating electric power for transfer power for captive "consumption at' the rate of Rs. 3.72 per unit corresponds to the market value of power. The AO is directed to allow relief to the assessee under s.'80IA as claimed:" It is pertinent to note that the assessee is not supplying electricity to the State Electricity Board or to any other power distribution agency. In the case of West Coast Paper Mills Ltd. reported in 1000 TTJ 833 (Mum), the Hon'ble Tribunal has held as follows: "Having held that the assessee is entitled for the deduction available under s. 80-IA,· the next question is what should be the price attributable to the power generated and consumed by the assesses, The answer to the question is readily available in sub.s(8) of s.80-IA, which reads as below: 80-IA(8) Where any goods held for the purpose of eligible profits are' transferred to any other business carried on by the assessee, or where any goods held for the purposes of any 'other business'. carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods as on the date of transfer, then for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer in either case, had been made at the market value of such goods as'on that date". The above concept of transfer pricing is also apparent in r. 7 of I T Rules, 1962 provided for determining the income from agricultural produces consumed by the agriculturist-assessee in his business as raw material. The rule provides that in the case' of income which is partially agricultural income and partially income chargeable as business income in determining that part which is chargeable to income-tax, the market value of any agricultural produce which has been raised by the assessee and utilized as a raw material in such business hall be deducted at the prevalent market value. This principle Page No.126 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited has been considered and upheld by the Supreme Court in the case of ThiruArooran Sugars Ltd. Vs. ClT (1997) -142 CTR (SC) 9; (1997) 227 ITR 432 (SC). Therefore, we direct the assessing authority to work out the profits on the basis of the price of the power generated' by the assessee' at the average of the annual landed cost of electricity 'purchased by the assessee from Karnataka State Electricity Board during the impugned previous year. It may be determined on the basis of 'payment details available from the bills issued by the Karnataka state Electriciiy Board, during the year under consideration.” During the course of the appellate proceedings, the assessee has submitted that the sale price of electricity by the captive generating units varies from Rs. 4.55 per KWH to,Rs. 4.52 per KWH and for the sake of uniformity, the same had been taken at the average rate of Rs. 4.54 per KWH for computing the claim u/s. 80IA for the power generating units. The working had been done based on the price of electricity charges by Dakshin 'Gujarat .Vij company, a state owned company which was the only supplier of electricity other than the captive power plants. In views of the decisions of Hon'ble Tribunals as. discussed above, the Assessing. Officer will examine whether the submission of the assessee with respect to the rate taken is correct. If it is found that the rate charged by the suppliers is lower than the role adopted for sale by the captive power generating units of the assessee, such rate would be taken by the Assessing Officer for computing the profits of 'the' eligible-business, eligible for deduction u/s. 80IA. However, if the' rate charged. by the suppliers is the same as the rate adopted for sale' by the 'captive power generating units of the assessee, such rate' adopted should be accepted for' the purpose of working out the deduction u/s. 80IA. Subject to the above, this ground of appeal filed by the assessee is allowed. The facts of the case are similar and issue involved is identical. Accordingly, in view of the facts of the case and keeping in view the principles of judicial consistency, it - Is directed that. the Assessing Officer will examine correctness of the-rate taken (Rs. 4.799 per unit) and if it is found that the rate charged by the suppliers is lower than the rate adopted for sale by the captive power generating units of the assessee, such rate would be taken by the Assessing Officer for computing the profits of the eligible business, eligible for deduction u/s. 80IA. However, if the rate charged by the suppliers is the same as the rate adopted for sale by the captive power generating units of the assessee, such rate adopted should be accepted for the purpose of working out the deduction u/s.80-lA.Subject to the above, this ground or-appeal filed by the assessee is allowed.

Page No.130 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited 35. The Calcutta High Court in page 11 has held "the rate at which electricity was purchased from Andhra State Electricity Board by the paper unit of the assessee can by no means be the market rate at which the power plant of the assessee could have sold its production in the open market. In the open market the buyer would obviously be a distribution company or a company engaged in generation and distribution. Therefore, the rate which is sold to any such company can only be the market rate contemplated by the section". In other words, according to the Calcutta High Court, the regulated selling price by a third party to the assessee annot form the selling price by a Captive Generation plant. Whilst this is the absolutely correct and true, it is wholly irrelevant in context of Electricity Act, 2003. In a much as under the Electricity Act 2003, when the Captive Generation plant notionally sells electricity to itself, there is no regulation in respect of market price. In this connection, the decision of Supreme Court in the case of Thiru Arooran Sugars Ltd. v. CIT (1997) 227 ITR 432 is material. In that case, the assessee company was a manufacturer of sugar which purchased sugarcane from the market for crushing. It also had its own cane fields where it cultivated sugarcane, which was entirely consumed by its factory. Since the profit made by the assessee from the sale of sugar arose out of agricultural activities as well as manufacturing activities, the income earned by the assessee was required to be divided into two parts. No tax was leviable on agricultural income, but the profit generated from non-agricultural activities was leviable to be taxed under the Act. Therefore the agricultural income had to be determined and for that market value of the sugarcane consumed in its factory had to be determined. The relevant rule 7 of the Income- tax Rules, 1962 read as follows: "Income which is partially agricultural and partially from business - (1) In the case of income which is partially agricultural income as defined in section 2 and partially income chargeable to income-tax under the head 'profits and gains of business', in determining that part which is chargeable to income-tax the market value of any agricultural produce which has been raised by the assessee or received by him as rent-in-kind and which has been utilised as a raw material in such business or the sale receipts of which are included in the accounts of the business shall be deducted, and no further deduction shall be made in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent- in-kind. "(2) For the purpose of sub-rule (1) 'market value' shall be deemed to be (a) where agricultural produce is ordinarily sold in the market in its raw state, or after application to it of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render it fit to be taken to market, the value calculated according to the average price at which it has been so sold during the relevant previous year; (b) where agricultural produce is not ordinarily sold in the market in its raw state or after application to it of any process aforesaid, the aggregate of- (i) the expenses of cultivation; (ii) the land revenue or rent paid for the area in which it was grown; and Page No.131 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited (iii) such amount as the Assessing Officer finds, having regard to all the circumstances in each case, to represent a reasonable profit. "

65.

It is relevant to refer to recent decision of Calcutta ITAT in the case of DCIT v. Dhunseri Ventures Ltd [2022] 144 taxmann.com 110 wherein it is held as under: “II. Section 92C, read with section 92BA, of the Income-tax Act, 1961, read with rule 10B of the Income-tax Rules, 1962 - Transfer pricing - Computation of arm's length price (Method for determination of - CUP method) - Assessment year 2015-16 - Assessee had two Captive Power Plants (CPPs) or eligible units generating electricity which were consumed captively by other non-eligible units for carrying out manufacturing - Non-eligible units had also consumed power by purchasing same from State Electricity Board (SEB) - Assessee had determined ALP of said specified domestic transactions at rate ranging from Rs. 7.66 per unit to Rs. 7.87 per unit which was Average Annual Landed Cost (AALC) at which non-eligible unit procured power from SEB - Thus, assessee followed internal CUP for benchmarking specified domestic transactions of transfer of power from SEB by taking non-eligible units as tested party in TP Study Report and, accordingly, ALP of power captively consumed had been benchmarked at ALC of power purchased by tested party from SEB - Assessee had also duly reported these transactions in audited report in Form 3CEB - However, TPO opined that average rate of Rs. 3.47 per unit calculated on basis of sale data of power by independent CPPs/IPPs as determined by various tariff orders would be ALP of domestic specified transactions and, accordingly, made an upward adjustment - It was noted that CPPs benchmarked transactions with non-eligible units at a rate at which power was supplied by SEB to non-eligible units and, therefore, was prevailing rate at which power had been supplied by SEB to other parties/factories located in same geographical areas/location - Further, both CPPs as well as SEB supplied/sold power during year and, thus, there was no timing difference as well, therefore, transactions of purchase of power by non-eligible units from SEB fulfil internal CUP parameters vis product comparability and similar market conditions and, thus, ALC paid by non-eligible units to SEB was held to represent internal comparable ALP - Whether, on facts, Commissioner (Appeals) had rightly held that ALC at which power was procured by non-eligible units from SEB was most appropriate ALP to benchmark said specified domestic transactions - Held, yes [Paras 9.5 and 9.6] [In favour of assessee] “ 66. Though above decisions deal with benchmarking of domestic transfer price case, ratio would be directly applicable on present case. It is observed that Delhi ITAT in the case of Nectar Life science limited 138 taxmann.com 557 has held that where consideration paid for purchase of electricity from State Power Corporation represents the market rate on which any industry undertaking or consumer would be getting electricity, then such market rate should be applied as CUP for benchmarking transaction of sale of electricity.

“20.4 Decision: I find from the order that the TPO has examined every evidence furnished by the appellant and has concluded on the adequacy or otherwise of such evidence in a detailed manner. The role of the TPO is to examine the documents submitted from the point of view of transfer pricing provisions and applicable rules and not merely to accept the evidences and not decide on the same. In my view, the Ld TPO has a duty to examine the documents and test it with the method applied by the appellant. However, what is important in examining the evidence is whether the TPO is exercising his power within the framework of transfer pricing law and rules and based on established judicial precedents. 20.4.1 Based on the Judicial precedents relied upon by the apellant and relating it to the facts of the appellant’s ground, it clear that the TPO has gone into the qualitative aspects of the benefits received by the appellant from the services rendered by the AE. I find merit in the appellant’s submission that the tax authorities cannot step into the shoes of the business man and decide whether an expenditure results in benefit to the appellant – what is required to be examined is whether the expenditure is at arm’s length. I also find that the decision of the Hon’ble Bombay High Court relied upon the appellant [Pr CIT (4) Pune Vs Vishay Components India Pvt ltd] is clearly applicable to the appellant’s case. Further, even if the TPO comes to the conclusion that based on established transfer pricing provisions, the expenditure incurred by the appellant requires adjustment, the correct process to follow is to provide alternative benchmarking and provide an opportunity to the appellant to challenge the same through a show-cause notice. As stated by the appellant, the TPO did not offer any alternative benchmarking but proceeded to determine the estimated man-hours and the estimated man-hour rate per hour to determine, what in the TPO’s view should be the arm’s length price. This method is clearly without any basis and definitely notacceptable as per the provisions of law. 20.4.2 The appellant has relied on the decision of the Hon’ble ITAT in Firemenich Aromatics India P Ltd - TS-758-ITAT-2018(Mum)-TP] on the benefit quantification aspect which is today well recognized in transfer pricing jurisprudence.

“8. We have considered rival submissions. We note that the Revenue has been accepting the TNM method as most proper method for benchmarking the aggregated international transactions with AE's over the period of time. The same has been accepted by the Revenue on examination of the issue. It is found that the TPO had for the other years on same facts has accepted the fact that there was no difference in two segments involved for transfer pricing. Thus, consistently accepting the TNM method as the most appropriate method to determine the ALP of the respondent's aggregated International Transaction till Assessment Year 2015-16. The Revenue has not been able to show any material difference in the subject assessment year which would justify a change in the most appropriate method (TNM method) adopted while benchmarking the international transactions. So far as the order dated 1 st August, 2018 of this Court in case of John Deere India (P) Ltd. (supra) admitting the appeal of the Revenue is correct, we find that it has not been admitted on the question which arises in the present petition, i.e. the effect of the Revenue consistently accepting TNM Method as the most appropriate method for benchmarking international transactions with AE's in the absence of any material change of the facts or law. This is not the issue on which the appeal of the revenue Page No.144 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited has been admitted by the Court in the case of John Deere India (P) Ltd. (supra). Therefore, it will have no application to the present facts. The objection to rejection of comparables taken by the Revenue before us, does not address the issue of the most appropriate method for benchmarking its international transaction. We are also unable to understand the contention on behalf of the Revenue that it is for the respondent to prove that there is no change/ difference in facts in the subject Assessment Year from the subsequent Assessment Years. Where TNM method is accepted to determine the ALP of international transaction. Infact, no change in facts has been asserted by the respondent. Therefore, it would be for the Revenue to show the difference in facts warranting a different view in this Assessment Year to that taken in the subsequent Assessment Years. We have herein above extracted paragraph 18 of the impugned order of the Tribunal and on its reading we are of the view that the same is a finding of fact based on appreciation of evidence. Thus, no interference is warranted.”

“5. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. In the instant case, the assessee has consistently been benchmarking all of its transactions with the AE under TNMM from the beginning, for now over seven years. In all three previous assessment years i.e. from AY 2009-10 to 2011-12, wherein its international transactions with AEs were in the scrutiny, the assessments have been completed by accepting the transactions with AE being at arm‟s length holding TNMM as the most appropriate method. The assessee had submitted before the TPO that its operating revenue is Rs.168.88 crores and the operating profit is Rs.21.78 crores; the profit level indicator i.e. OP/OR works out to 12.90% for the year under consideration. The assessee submitted working of it before the TPO. Also it submitted the arithmetic mean of the profit level indicator of the comparables Page No.145 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited which worked out to 4.86% for the year under consideration. We find that in respect of management fees paid/payable during the year under consideration, the assessee had submitted before the TPO its working, calculation, allocation, method, rational and business expediency. In such a situation, the TPO should not have summarily rejected the TNMM in respect of management fees paid/payable by the assessee to its AE and proposed an adjustment of Rs.3,83,75,622/- under the CUP method, without benchmarking with comparable on a separate basis. It is further stated that the assessee has failed to show that specific and distinct services were rendered by uncontrolled transactions. In the instant case, the TPO has resorted to an ad-hoc unilateral pricing of management fees, disregarding the facts and circumstances of the case. In the case of Kellogg India Pvt. Ltd. (supra), the Tribunal has rightly held that: “Even assuming that the benchmarking done by the assessee was not correct, the Transfer Pricing Officer should have benchmarked the royalty payment by applying any of the prescribed methods. However, without applying any prescribed method he has simply determined the arm‟slength price of royalty payment at Nil. The aforesaid approach of the Transfer Pricing Officer is not in accordance with statutory provisions, hence, unsustainable.” Similar view has been taken by the Tribunal in M/s CLSA India Pvt. Ltd. (supra) and Firmenich Aromatics India P. Ltd. (supra). 5.1 To sum up, in the instant case, the TPO has summarily rejected the TNMM followed by the assessee in respect of management fees paid/payable by it to its AE and proposing an adjustment under CUP without benchmarking with comparable uncontrolled transactions. Also the TPO has resorted to an ad-hoc unilateral pricing of management fees, disregarding the facts of the case. In view of the above factual scenario and position of law, we delete the addition of Rs.3,83,75,622/- made by the AO as adjustment on account of transfer pricing.

21.

Hence, from the plain reading of the relevant provisions and the ratio laid down by the Hon’ble jurisdictional High Court, it can be concluded that the law does not Page No.148 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited permit the TPO to determine the arm’s length price on estimation basis. We are therefore, of the considered view that the arms length determined by the Ld. TPO is not in accordance with the provisions of the Act and the ratio of law laid down by the Hon’ble jurisdictional High Court. On the other hand the intra group services are closely linked to the business of the assessee and the assessee’s benchmarking approach is based on TNMM. Further as pointed out by the Ld. counsel, the Delhi Bench of the Tribunal in the case of Knorr Bremse India P. Ltd. vs. AICT 77 taxmann.com 101 (Delhi Tri), has held that payment of intra group services may be benchmarked using TNMM. The observations of the Tribunal are as under:- “18. As regards to the application of method for determining the Arm’s Length Price, we are of the view that the method to be used to determine arm’s length price for intra-group services should be in accordance with the guidelines in Chapter- I, II & III ÖECD Transfer Pricing Guidelines” which provides the various methods to be applied and the CUP method is likely to be a most appropriate method where there is a comparable service provided between independent enterprises in the recipient’s market or by the AEs providing the services to an independent enterprise in comparable circumstances. In the present case, the TPO although applied the CUP method but nothing was brought on record to substantiate that the AE provided the similar services to an independent enterprise in comparable circumstances. He also did not bring on record any instance where comparable services were provided to an independent enterprise in the recipient market. Therefore, in our opinion, in the assessee’s case the CUP method was not the most appropriate method. On the contrary, the assessee rightly applied the TNMM method as most appropriate method because it was difficult to apply the CUP method or the cost plus method. Therefore, the TNMM was the most appropriate method in the absence of a CUP which is applicable where the nature of the activities involved, assets used, and risk assumed is comparable to those undertaken by an independent enterprise.”

83. The Assessing Office has dealt with this issue at Para No. 23 of his order and observed that as assessee has not established that Gratuity provisions are made towards ascertained liabilities, same are added back while computing total income. This issue is dealt by Ld.CIT(A) at Para No. 22.6 of his order as under: “22.6 As the Ld.AR has brought to my notice that this issue has been decided by the ITAT, Mumbai in the case of the Assessee in AY: 1990-91 following the decision of the Bombay High Court in the case of Echjay Forgings P Ltd (surpa). Further my predecessors have decided the issue in favour of the Assessee in AYs: 1998-99, 2003-04 and 2004-05. Since the issue is the same, I follow these decisions and allow the appeal.” 84. Against the observation of Ld.CIT(A), department has filed this ground in this appeal. Before us, Ld. AR has relied upon appellate order passed in its own case for A.Y. 2002-03 to 2004-05 and contended that no such adjustment is required to be made. On the other hand, Ld. DR has relied upon finding given by Assessing Officer and argued that order of Assessing Officer may be restored. 85. Considered the rival submissions and material placed on record. On this issue, coordinate bench in assessee’s own case for A.Y. 2004-05 in dated 27/05/2022 has decided this issue in its favour. The relevant finding is reproduced herein below: “14.3.3. Revenue is in appeal, challenging the decision of CIT(A) of deletion of INR 5,86,82,751/-. We have heard the rival contentions and perused the record. While the Departmental Representative relied upon the assessment order, the Authorised Representative of the Assessee reiterated the submissions made before the lower authorities and relied upon the decision of the Tribunal in Assessee’s own case for the Assessment Year 1990-91, 2002-03 and 2003-04 wherein the tribunal had granted relief to the Assessee. 14.3.4. We note that in the immediately preceding assessment year (AY 2003-04), identical issue has been decided in favour of the Assessee. The relevant extract of the common order, dated 13.03.2019, passed by the Tribunal in 4242&4988/MUM/2007 for the Assessment Year 2003-04 reads as under: "46. Under this issue the revenue has challenged the allowance of claim of provision for additional gratuity in computing book profit u/s Page No.156 ITA NO.800/MUM/2022 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited 115JB of the Act amounting to ₹.1,21,90,817/-. The proposition is the same which has been discussed above while deciding the issue no.

88. The Assessing Officer has dealt with this issue at Para No. 24 of his order and observed that provision for leave encashment made by assessee while computing book profit u/s 115JB was not allowed in assessment order of A.Y. 2004-05 hence such amount is added back while computing total income. This issue is dealt by Ld.CIT(A) at Para No. 23.6 of his order as under: “23.6 I have carefully considered the submissions. The provision for leave encashment on the basis of actual valuation report cannot be treated as unascertained liability in view of the decision of the Supreme Court in the case of Bharat Earth Movers reported at 244 ITR 428. Further the Ld.AR has brought to my notice that the addition of provision for additional gratuity in computing book profit has been deleted by the IT AT, in the Assessee’s own case for 1990-91, relying on the decision of the Bombay High Court in the case of Echjay Forgings Pvt Ltd, (supra). Further this issue has been decided by my predecessor in AYs:2003-04 and 2004-05 in favour of the Assessee. Following these decision the appeal is allowed. “ 89. Considered the rival submissions and material placed on record. On this issue, coordinate bench in assessee’s own case for A.Y. 2004-05 in dated 27/05/2022 has decided this issue in its favour. The relevant finding is reproduced herein below: “14.4.4. We have considered the rival contentions and perused the material on record. We note that the CIT(A) has granted relief to the Assessee by following the judgment of the Hon’ble Supreme Court in the case of Bharat Earth Movers (245 ITR 528), and the Hon’ble Bombay High Court in the case of CIT v. EchjayForgins (P) Ltd. (2001) 251 ITR 15. We do not find any infirmity in the order passed by the CIT(A) to the extent it holds that provision for Leave Encashment of INR 3,26,00,238/- is in the nature of provision for ascertained liability created on the basis of actuarial valuation and is, therefore, not required to be added back while computing Book Profits in terms of Clause (c) of Explanation 1 to Section 115JB(2) of the Act. Accordingly, order of CIT(A) on this issue is confirmed and Ground No. 10 raised by the Revenue is dismissed.” 90. Respectfully following decision of coordinate bench referred supra, addition of provision for leave encashment made while computing book profit u/s Page No.161 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited 115JB is deleted. Accordingly, this ground of appeal in Departmental Appeal is dismissed.”

“97. Considered the rival submissions and material placed on record. On this issue, coordinate bench in the case of Ambuja Cement Limited in & 2366/Mum/2013(A.Y.2006-07) dated 31/10/2022 has held as under: “17.So far as this grievance of the assessee is concerned, the relevant material facts are like this. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has Page No.162 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited availed excise duty exemption, amounting to Rs 46,83,11,376, in respect of their Darlaghat Unit, HP, and it was claimed as a capital receipt in nature. It was also noted that in terms of general Exemption No, 51 (Notification No. 50/2003 dated 10th June 2003) the assessee is entitled to 100% excise duty exemption for a period of ten years in respect of its cement manufacturing plant at Darlaaghat. The assessee’s submission was that this exemption was in response to the announcement made by the Hon’ble Prime Minister to the effect that tax and central excise concession are made to attract investments in the industrial sector for special category states, including Uttarakhand. The Assessing Officer noted that “though it is apparent from the excise notification that exemption is granted for only those units which are located in the backward areas and which have undertaken substantial expansion, however incentives are available only post production” and therefore he “finds no difference in sales tax and excise exemption claimed”. Following the stand taken for sales tax exemption etc, he held that the excise exemption receipts are also revenue in nature. Aggrieved, assessee carried the matter in appeal before the CIT(A). Learned CIT(A) also confirmed the stand of the Assessing Officer on the short ground that the exemption notification does not specifically state the object and purpose of the concession to be promotion of industry in the specified areas etc. The assessee is aggrieved, and is in appeal before us.

Page No.163 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited Incentive Scheme was envisaged to promote large scale investments in the Kutch District since on account of devastating earth-quake, development of the district had suffered. The Scheme envisaged that, the same was confined only with the Kutch District. Similar, being the purpose and philosophy of the Government of India, while granting excise duty exemption, we may not separately take note of the back- ground thereof. In view of these facts, the question arises is - whether the Tribunal was justified in holding that Sales Tax and Excise duty exemption enjoyed by the assessee under the said subsidy scheme, was not taxable as revenue receipt. Such and similar issue has came up before different High Courts and Supreme Court on the numerous occasions. Reference to all those judgments would be un-necessary. However, the principle that has evolved is that, not the nomenclature of the subsidy or the fact that, the computation of the subsidy benefit is in terms of tax payable, would not be conclusive. What is to be examined in each case is the purpose for granting such subsidy. We may refer to the decision of the Supreme Court in case of CIT v. Chaphalkar Bro. [2017] 88 taxmann.com 178/[2018] 252 Taxman 360/400 ITR 279. It was a case arising out of judgment of this Court in which, the dispute between assessee and the Revenue was with respect to subsidy granted to the multiplex cinema operators in the form of entertainment tax waiver. The subsidy was granted in view of the fact that, industry was highly capital intensive. The Revenue argued that, the subsidy was revenue in nature. This Court after referring to several decisions of the Supreme Court including the case of CIT v. Ponni Sugars and Chemicals Ltd. [2008] 306 ITR 392/174 Taxman 87 and Sahney Steel and Press Works Ltd. v. CIT [1997] 94 Taxman 368/228 ITR 253 (SC) held that, subsidy had not been granted for construction but only after setting up of a new industry which was in the nature of assistance given for the purpose of carrying on business.

Page No.165 (A.Y: 2013-14) (A.Y: 2013-14) M/s. ACC Limited "We have carefully considered the provisions relating to the grant of cash subsidy under the schemes framed by the Central Government and the State Government. The Central Government as well as the State Government noticed that areas specified as backward areas and tribal areas were undeveloped or under-developed. Entrepreneurs were not willing to set up industries in such undeveloped or under- developed areas. The industries were concentrating only in urban areas. In other words, rapid urbanization was taking place. So far as the State of Gujarat is concerned, there was rapid industrial growth in cities like Baroda, Ahmedabad and Surat resulting in strain on municipal services. Urbanization created several problems such as pollution, growth of slums etc. It was also necessary to have balanced growth of industry in different regions. However, as pointed out above, entrepreneurs were reluctant to set up industries in backward areas. These areas were identified as backward because there was un-development or underdevelopment of industries in these areas. It was, therefore, that the Government decided to give financial incentives to encourage and induce entrepreneurs to move to backward areas and establish industries there so that the region may develop and promote the welfare of the people living in that region. One of the incentives which the Government decided to grant was cash subsidy so that entrepreneurs could utilize such cash subsidy for any purpose connected with the establishment of industries in the backward areas. Once the decision to give cash subsidy was taken, the Government had to work out some method to determine the quantum of such subsidy. In other words, the question as to how the amount of cash subsidy should be determined had to be considered by the Government. The Government, in order to determine the amount of cash subsidy, decided to follow one of the recognized methods of working it out on the basis of the amount invested by an entrepreneurs in acquiring capital assets as cash subsidy. The scheme does not say as to in what manner the subsidy was granted is to be utilized. In other words, the entrepreneur to whom the subsidy was granted was free to utilize it in any manner he liked. It would, therefore, appear that quantification of subsidy on the basis of investment was a measure adopted by the Government for convenience to work out the subsidy. If subsidy could be utilized by the entrepreneur in any manner he liked, could it be said that it was granted for meeting the cost of the capital assets? In our opinion, taking an overall view of the various provisions of the scheme, it is difficult to hold that cash subsidy was granted to entrepreneur to meet the cost of the fixed assets or part thereof The cost of the fixed assets was merely adopted as a measure for working out subsidy. In fact, a careful examination of the scheme reveals that it is the value of the fixed assets and not its cost which is adopted as the basis for computing the amount of the subsidy. Emphasis on value and not the cost is evident from the fact that land and building already owned by an industrial unit, cost of tools, jigs, dies and moulds, transport charges, insurance premium, erection cost, value of second-hand machinery purchased by an industrial unit etc. were to be taken into account while