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Income Tax Appellate Tribunal, DELHI BENCH: ‘I-1’ NEW DELHI
Before: SHRI B. R. R. KUMAR
1 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: ‘I-1’ NEW DELHI
BEFORE SHRI B. R. R. KUMAR, ACCOUNTANT MEMBER
AND
SH. YOGESH KUMAR U.S., JUDICIAL MEMBER (THROUGH VIDEO CONFERENCING)
I.T.A. No. 2371/DEL/2018 (A.Y 2011-12)
ACIT Vs Fresenius Kabi Oncology Ltd. Circle-9(2), Room No. 403, C. R. B-310, Som Datt Chambers- Building, I. P. Estate, New Delhi 1, Bhikaji Cama Place, (APPELLANT) New Delhi-110066 PAN: AABCD7720L (RESPONDENT)
C.O. No. 17/DEL/2021 (Arising out of ITA No. 2371/Del/2018)
Fresenius Kabi Oncology Ltd. Vs ACIT B-310, Som Datt Chambers-1, Circle-9(2), Room No. 403, C. Bhikaji Cama Place, R. Building, I. P. Estate, New New Delhi-110066 Delhi PAN: AABCD7720L (CROSS OBJECTOR) (RESPONDENT)
Appellant by Sh. Neeraj Jain Adv & Mr. Arpit Goyal, CA Respondent by Sh. Mrinal Kumar Das, Sr. DR
Date of Hearing 17.02.2022 Date of Pronouncement 11.04.2022
2 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
ORDER PER YOGESH KUMAR U.S., JM
The present Appeal filed by the Revenue and the Cross Objection filed by the assessee for the Assessment Year 2011-12 against the order dated 20/03/2015 u/s 143(3) r/w Section 144C of Income tax Act, 1961, passed by ACIT, New Delhi.
The Revenue’s grounds of appeal are as under:-
“1. Ld.CIT(A) erred in law and on the facts of the case in deleting the addition of Rs. 1,42,73,565/- made by the A.O on account of adjustment in Arms’ Length Price.
Ld.CIT(A) erred in law and on the facts of the case in deleting the addition of Rs. 11,22,964/- made by the A.O on account of treatment of subsidy received.
The appellant craves leave for reserving the right to amend, modify and add or forego any ground(s) of appeal at any time before or during the hearing of appeal.
The assessee’s grounds of Cross Objection are as under:-
That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) [‘CIT(A)’] erred in denying deduction of Rs.30,80,13,866 claimed by the assessee under section 80-IC of the Income-tax Act, 1961 (‘the Act’).
1.1 That on the facts and circumstances of the case and in law, the CIT(A) erred in denying the deduction under section 80-IC of the Act at the threshold, without going into the merits of the claim,
3 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
on the ground that additional claim made otherwise than by filing revised return of income cannot be entertained by the CIT(A).
That on the facts and circumstances of the case and in law, the CIT(A) erred in not fully allowing set-off of brought forward business losses and unabsorbed depreciation against the income of the captioned assessment year under appeal.”
I.T.A. No. 2371/DEL/2018 (A.Y 2011-12)
Brief facts of the case that, the assessee is a Company engaged in business of manufacturing trading and sale of pharmaceutical products. The assessee company filed its return of income on 25.11.2011 declaring total income of Rs. 1,55,20,236/- and current year loss of Rs. 1,39,95,550/- under the head of long term capital gain. The assessee has also shown book profit of Rs.69,24,10,863/-. The case was selected for scrutiny and notice u/s 143(2) of the Act dated 03.08.2012 was issued and duly served upon the assessee company. The return was revised on 14/03/2013 declaring total income of Rs. 1,65,65,240/- and book profit u/s 115JB of the Act at Rs. 61,94,88,824/-. The amount of current year loss remained unchanged. Fresh notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee company due to change of jurisdiction. The assessee company attended the assessment proceedings from time to time and furnished the details called for.
An assessment order has been passed on 20/03/2015 u/s 143(3) read with Section 144C of the Income Tax Act, wherein the income of the assessee has been computed hereunder:-
4 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
Taxable Business Income as 17,62,89,072 per revised return Add: Additions as discussed above On account of TPO 1,42,73,565 adjustments On account of disallowance of 36,209 ESI contribution for late deposit On account of treatment of 11,22,964 subsidy received On account of interest on 4,02,960 income tax refund On account of interest on 15,50,888 income tax refund On account of credits appearing in 26AS but not offered for taxation TOTAL 1,73,86,586 ADDITIONS Income from other sources 1,68,95,235 offered in revised ITR Total assessed income 21,05,70,893 Rounded off to 21,05,70,890 Book profit u/s 115JB of the 61,94,88,824 Act,
Aggrieved by the same, the assessee has filed appeal before the CIT(A)-44, New Delhi. The Ld. CIT(A) has partly allowed the appeal of the assessee on 26/12/2017 by deleting the addition of Rs. 1,42,73,565/- which was made by the AO on account of adjustment in Arm’s Length Price and also deleted the addition of Rs. 11,22,964/- which was made by the A.O on account of treatment on subsidy receipt, further the Ld. CIT(A) has disallowed the deduction of Rs. 30,80,13,866/- claimed u/s 80IC of the Act.
5 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
Aggrieved by the order of the CIT(A) dated 26/12/2017 as against the deletion on account of adjustment of Arm’s Length Price and on account of treatment of subsidy receipt, the Revenue has preferred the present ITA No. 2371/Del/2018. Further, as against disallowance of the deduction claimed u/s 80IC of the Act, the assessee has preferred C. O No. 17/Del/2021.
The first ground of appeal of the Revenue is with regarding to the deleting the addition of Rs. 1,42,73,565/-made by the AO on account of Transfer Pricing. We have heard the rival submissions on the issue under consideration and have gone through the entire material available on record and gave our thoughtful consideration.
8.1. This issue has been already dealt by the Coordinate Bench of the Tribunal in assessee’s own cases for AY 2007-08 to 2010-11. In ITA No. 3495/Del/2014 for A.Y 2007-08 (DCIT, Circle-11(1) New Delhi Vs. Fresenius Oncology Ltd.) vide order dated 03/10/2018 the Tribunal held as follows:-
“ 10.0 Coming to the department’s appeal for assessment year 2007-08, it is seen that the transfer pricing adjustment comprise of two limbs viz. corporate guarantee fee and interest on loan. As far as the issue of corporate bank guarantee is concerned, the issue arose because the assessee had failed to ITA No.575/Del/2014 ITA No.3495/Del/2014 charge service fee for the corporate guarantee given to its UK subsidiary and the TPO, after obtaining information u/s 133(6) of the Act from State Bank of India regarding rate of bank guarantee, proposed the ALP adjustment at 4.75% as against nil being claimed by the assessee. It is well settled that providing bank guarantee is an international transaction and the same needs to be benchmarked as per provisions of Section 92(1) of the Act. The Ld. Commissioner of Income Tax (A) has also held so and thereafter
6 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
he proceeded to compute the corporate guarantee fee @ 0.5%. While doing so, the Ld. Commissioner of Income Tax (A) observed that the assessee had given corporate guarantee to a foreign bank for providing loan to its foreign AE in foreign currency whereas the TPO had considered the quote for giving guarantee in India. The Ld. Commissioner of Income Tax (A) also took into account the fact that the assessee’s bank was ABN AMRO whereas the TPO had used the quote from the SBI. The Ld. Commissioner of Income Tax (A) thereafter placed reliance on the quote from Royal Bank of Scotland (RBS) (formerly ABN AMRO Bank) and held that there was a saving of 1% in this regard, the benefit of which was attributable both to the assessee ITA No.575/Del/2014 ITA No.3495/Del/2014 as well as the foreign AE. Thereafter by splitting the benefit between the two, the Ld.CIT (A) arrived at corporate bank fee of 0.5%. We agree with the observation of the Ld. Commissioner of Income Tax (A) that this letter from RBS Bank has more evidentiary value as it is from the very same bank which gave loan to Dabur UK. The Ld. Commissioner of Income Tax (A) has also recorded a finding that he has also examined the terms and conditions of the loan agreement dated 17.3.2006 between ABN AMRO Bank, Dabur UK and that Dabur UK has provided adequate security collaterals to the satisfaction of the Bank. The Ld. Commissioner of Income Tax (A) has also mentioned that the bank had the first charge on the assets of the borrower as security for the loan. The Department was not able to point out any factual infirmity in this categorical observation of the Ld. Commissioner of Income Tax (A). However, we do not fully agree with the findings of the Ld. Commissioner of Income Tax (A) in this regard that the benefit of interest saving of 1% should be shared between the AE and the assessee equally as no cogent reasoning has been given for the same and, accordingly, we deem
7 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
it fit to modify the order of the Ld. Commissioner of Income Tax ITA No.575/Del/2014 ITA No.3495/Del/2014 (A) in this regard to the extent that corporate guarantee fee @1% should be applied in the case of the assessee in place of 0.5% as has been applied by the Ld. Commissioner of Income Tax (A). We accordingly direct the Assessing Officer to re-compute the ALP for corporate guarantee fee @1%. Thus, this ground stands partly allowed.
10.1 Coming to the second limb of the transfer pricing adjustment which pertains to interest on loan, it is seen that the assessee had given loan to two foreign subsidiaries in UK and Thailand and had charged interest rate of LIBOR plus 1.1% and 7% respectively whereas the TPO had applied the interest rate at 14%. The reason for the TPO in applying interest rate of 14% was that since the assessee has chosen itself as the tested party, the rate to be applied was to be seen from the perspective of the tested party in the Indian bank and further for the reason that the loan advance of Dabur Thailand was from borrowed capital. While allowing relief to the assessee, the Ld. Commissioner of Income Tax (A) took into consideration the submission of the assessee that the loan advanced to the UK subsidiary was at ITA No.575/Del/2014 ITA No.3495/Del/2014 LIBOR plus 1.1% and the loan taken by the UK subsidiary from ABM AMRO Bank was at LIBOR +1.5% with the corporate guarantee of the assessee and further the corporate guarantee loan was available to the UK subsidiary at LIBOR plus 1.5%. With respect to the loan to Dabur Thailand @7%, the Ld. Commissioner of Income Tax (A) was of the view that LIBOR plus 1.5% could be used as the basis for arriving at the ALP for the loan transaction. Accordingly, the Ld. Commissioner of Income Tax (A) held that interest of both the loans was to be charged at LIBOR
8 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
plus1.5%. We also note that the Ld. DRP for immediately preceding assessment year 2006-07 has held that the foreign loan given to UK subsidiary was to be benchmarked at LIBOR plus 100 bps plus certain risk adjustment and accordingly, rate of LIBOR plus 300 bps was proposed by the Ld. DRP. Although the Ld. Commissioner of Income Tax (A) has duly made a mention of this direction of the Ld. DRP for assessment year 2006-07, it is apparent that he has not considered the directions of the Ld. DRP while deciding this issue. We also note that the assessee has not filed any appeal against this direction of the Ld. DRP for assessment year 2006-07. Accordingly, in view of the factual ITA No.575/Del/2014 ITA No.3495/Del/2014 matrix, this issue needs to be restored to the file of the Ld. Commissioner of Income Tax (A) to be decided afresh after considering the directions of the Ld. DRP in this regard in assessment year 2006-07 and after giving the assessee a proper opportunity present its case. Accordingly, this ground stands allowed for statistical purposes.”
8.2. Further, in ITA No. 3013/Del/2015 for A.Y 2008-09 and ITA No. 6264/Del/2015 for A.Y 2009-10 (Asst. Commissioner of Income Tax Vs. Fresenius Oncology Ltd.) the Coordinate Bench of the Tribunal vide order dated 31/12/2018, wherein held as follows:-
“7. As regards to the issue relating to interest on the loan given to the associated enterprise, the ld. CIT(A) directed that the rate of interest charged for international transaction by the assessee at 7% was higher than the LIBOR PLUS 1.5% prevalent during the financial year 2007-08. He, therefore, directed the AO/TPO to delete the addition made in this regard. The relevant
9 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
findings are given in para 6.6 of the impugned order which read as under:
Name of the AE to whom Currency Rate of Amount in Benchmarking in TP loan is given of Loan Interest INR Crores Study Dabur Oncology Plc, UK GBP 7% PA 143.35 Internal CUP @ (in short 'Dabur UK') 6.5%. Loan from Dabur Pharma (Thailand) THAI 7% PA 13.54 HSBC and ABN Amro Company Ltd., Thailand BHAT (PCFC) (in short 'Dabur Thailand') 156.89 The interest earned on the above loans is Rs 8,99,76,604/- The appellant has stated that the foreign loan given by the appellant was justified to be arm's length on the basis of internal CUP (availing loan from HSBC @6.50%PA) and complete details were provided to the TPO in the course of the assessment. However, the Fresenius Kabi Oncology Ltd.
TPO disagreed with the approach of the appellant on the ground that while benchmarking the interest the appellant has not only taken the interest it is paying in India. The TPO has observed that in a situation when the Indian company has been chosen as the tested party, the comparables rates for benchmarking the interest have to be selected from the Indian domain and the rates charged by a third party to Dabur Oncology cannot be treated as CUP. The appellant has relied on different case laws and submitted that if internal CUP @ 6.5% based on loan from HSBC and ABN AMRO is not accepted, LIBOR Rates should be applied as a basis to benchmark the international transaction of loan in its case.
The appellant has relied on the Hon"ble Delhi ITAT in the case of Cotton Naturals (I) Pvt. Ltd. (supra) and argued that the rate charged for the international transaction of loan is 7% for the FY
10 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
2007-08 (AY 2008-09) which is higher than the external LIBOR Rates prevalent during the FY 2007-08 as per table below:
1-Month 3-Month 6-Month 12-Month LIBOR RATES-March 2008 2.8066% 2.7825% 2.6798% 2.5133% For AY 2007-08, the Ld CIT(A) XXIX has held as under:
".........I have also gone through various case laws relied upon by the appellant. It is noted that Hon'ble ITAT has laid down a principle that in case of foreign currency loan to a foreign subsidiary, domestic prime lending rate has no application and LIBOR comes into play.
10.5 Thus, I hold that, interest rate of 14% charged by the Ld. TPO is in contravention of the Rule 10(B)(2) and that interest for Dabur UK and Dabur Thailand shall be charged at LIBOR PLUS 1.5%. Accordingly, this ground is partly allowed in favour of the Appellant."
The appellant has relied on the decision of the Hon'ble Delhi ITAT in the case Cotton Naturals (supra) and other case laws wherein it has been held that LIBOR is the best measure for benchmarking loan to AE in respect of international transaction For AY 2007 08, the Ld CIT(A) XXIX has held that the interest Fresenius Kabi Oncology Ltd. rate of 14% charged by the TPO is in contravention of the Rule 10(B)(2) and that interest for Dabur UK and Dabur Thailand should be charged at LIBOR PLUS 1.5%. The facts of the present case are exactly similar to the facts as in AY 2007-08 The LIBOR RATE for F.Y 2007-08 was 2.5133%. In the instant case, the rate charged for the international transaction of loan is 7% for the FY 2007-08 (AY 2008-09) which is higher than LIBOR PLUS 1.5%
11 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
prevalent during FY 2007-08 Respectfully following the decision of the Hon'ble Delhi ITAT in the case of Cotton Naturals (supra) and also the decision of the Ld CIT(A) XXIX for AY 2007-08, I hold that the interest charged by the appellant at 7% from its AEs, viz., (i) Dabur Oncology Pic, UK (in short 'Dabur UK") (ii) Dabur Pharma (Thailand) Company Ltd, Thailand (in short 'Dabur Thailand j satisfies the arm length principles. Accordingly, the AO/TPO is directed to delete the addition made in this regard. These grounds of appeal are allowed."
Now the department is in appeal. The ld. Counsel for the assessee at the very outset stated that this issue is covered by the earlier common order dated 03.10.2018 of this Bench of the ITAT in assessee's own case in ITA Nos. 575 & 3495/Del/2014 for the assessment years 2005-06 and 2007-08 respectively.”
8.3. Further, in ITA No. 1906/Del/2016 for A.Y 2010-11 (ACIT, Circle -9 (2) Vs. Fresenius Oncology Ltd.) the Coordinate Bench of the Tribunal vide order dated 28/05/2019, wherein held as follows:-
“6. The Ld. AR submitted that Ground No. 1 is covered in favour of the assessee by Tribunal's order in Assessment Year 2008-09, 2009-10 being ITA No. 3013 & 6264/Del/2015 order dated 31/12/2018. As regards Ground No. 2, the Ld. AR submitted that the investment in domestic bank was only 2.5 lakhs and total availability of assessee's own fund was approximately Rs. 2 crores. Thus, the CIT(A) has rightly directed the Assessing Officer to restrict the disallowance u/s 14A read with Rule 8D (3) being administrative cost. As regards Ground No.3, the Ld. AR submitted that the assessee has paid the ESI Contribution before the due date. Therefore, the CIT(A) has rightly deleted this addition.
12 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
We have heard both the parties and perused the material available on record. As regards Ground No. 1, the issue is squarely covered in assessee's favour by the decision of the Tribunal for Assessment Year 2008-09 & 2009-
"10. After considering the submissions of both the parties and the material available on the record, it is noticed that an identical issue having similar facts has already been adjudicated by this bench of the Tribunal in ITA Nos. 575 & 3495/Del/2014 for the assessment years 2005-06 and 2007-08 respectively. The Fresenius Kabi Oncology Ltd.relevant findings have been given in paras 10 & 10.1 of the said order which read as under:
"10.0 Coming to the department's appeal for assessment year 2007- 08, it is seen that the transfer pricing adjustment comprise of two limbs viz. corporate guarantee fee and interest on loan. As far as the issue of corporate bank guarantee is concerned, the issue arose because the assessee had failed to 32 charge service fee for the corporate guarantee given to its UK subsidiary and the TPO, after obtaining information u/s 133(6) of the Act from State Bank of India regarding rate of bank guarantee, proposed the ALP adjustment at 4.75% as against nil being claimed by the assessee. It is well settled that providing bank guarantee is an international transaction and the same needs to be benchmarked as per provisions of Section 92(1) of the Act. The Ld. Commissioner of Income Tax (A) has also held so and thereafter he proceeded to compute the corporate guarantee fee @ 0.5%. While doing so, the Ld. Commissioner of Income Tax (A) observed that the assessee had given corporate guarantee to a foreign bank for providing loan to its foreign AE in foreign currency whereas the TPO had considered the quote for giving guarantee in India. The Ld.
13 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
Commissioner of Income Tax (A) also took into account the fact that the assessee's bank was ABN AMRO whereas the TPO had used the quote from the SBI. The Ld. Commissioner of Income Tax (A) thereafter placed reliance on the quote from Royal Bank of Scotland (RBS) (formerly ABN AMRO Bank) and held that there was a saving of 1% in this regard, the benefit of which was attributable both to the assessee as well as the foreign AE. Thereafter by splitting the benefit between the two, the Ld.CIT (A) arrived at corporate bank fee of 0.5%. We agree with the observation of the Ld. Commissioner of Income Tax (A) that this letter from RBS Bank has more evidentiary value as it is from the very same bank which gave loan to Dabur UK. The Ld. Commissioner of Income Tax (A) has also recorded a finding that he has also examined the terms and conditions of the loan agreement dated 17.3.2006 between ABN AMRO Bank, Dabur UK and that Dabur UK has provided adequate security collaterals to the satisfaction of the Bank. The Ld. Commissioner of Income Tax (A) has also mentioned that the bank had the first charge on the assets of the borrower as security for the loan. The Department was not able to point out any factual infirmity in this categorical observation of the Ld. Commissioner of Income Tax (A). However, we do not fully agree with the findings of the Ld. Commissioner of Income Tax (A) in this regard that the benefit of interest saving of 1% should be shared Fresenius Kabi Oncology Ltd. between the AE and the assessee equally as no cogent reasoning has been given for the same and, accordingly, we deem it fit to modify the order of the Ld. Commissioner of Income Tax (A) in this regard to the extent that corporate guarantee fee @1% should be applied in the case of the assessee in place of 0.5% as has been applied by the Ld. Commissioner of Income Tax (A). We accordingly direct the Assessing Officer to re-compute the ALP for
14 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
corporate guarantee fee @1%. Thus, this ground stands partly allowed.
10.1 Coming to the second limb of the transfer pricing adjustment which pertains to interest on loan, it is seen that the assessee had given loan to two foreign subsidiaries in UK and Thailand and had charged interest rate of LIBOR plus 1.1% and 7% respectively whereas the TPO had applied the interest rate at 14%. The reason for the TPO in applying interest rate of 14% was that since the assessee has chosen itself as the tested party, the rate to be applied was to be seen from the perspective of the tested party in the Indian bank and further for the reason that the loan advance of Dabur Thailand was from borrowed capital. While allowing relief to the assessee, the Ld. Commissioner of Income Tax (A) took into consideration the submission of the assessee that the loan advanced to the UK subsidiary was at LIBOR plus 1.1% and the loan taken by the UK subsidiary from ABM AMRO Bank was at LIBOR +1.5% with the corporate guarantee of the assessee and further the corporate guarantee loan was available to the UK subsidiary at LIBOR plus 1.5%. With respect to the loan to Dabur Thailand @7%, the Ld. Commissioner of Income Tax (A) was of the view that LIBOR plus 1.5% could be used as the basis for arriving at the ALP for the loan transaction. Accordingly, the Ld. Commissioner of Income Tax (A) held that interest of both the loans was to be charged at LIBOR plus1.5%. We also note that the Ld. DRP for immediately preceding assessment year 2006-07 has held that the foreign loan given to UK subsidiary was to be benchmarked at LIBOR plus 100 bps plus certain risk adjustment and accordingly, rate of LIBOR plus 300 bps was proposed by the Ld. DRP. Although the Ld. Commissioner of Income Tax (A) has duly made a mention of this direction of the Ld. DRP for assessment
15 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
year 2006-07, it is apparent that he has not considered the directions of the Ld. DRP while deciding this issue. We also note that the assessee has not filed any appeal against this direction of the Ld. DRP for assessment year 2006-07. Accordingly, in view of the factual matrix, this issue needs to be restored to the file of the Ld. Commissioner of Income Tax (A) to be decided afresh after Fresenius Kabi Oncology Ltd. considering the directions of the Ld. DRP in this regard in assessment year 2006-07 and after giving the assessee a proper opportunity present its case. Accordingly, this ground stands allowed for statistical purposes."
8.4. In view of the above orders of the Tribunal, we inclined to restore the issue to the file of Ld. CIT(A) to decide afresh after considering the directions of Ld. DRP in this regard after giving assessee a proper opportunity of being heard. Accordingly the Ground No. 1 is allowed for statistical purpose.
The Issue No. 2 is with regard to deleting the addition of Rs.11,22,964/- made by the AO on account of Treatment of Subsidy received, which has been already dealt by the Coordinate Bench of the Tribunal in assessee’s own cases for AY 2007-08 to 2009-10.
9.1. After hearing both the parties, we are of the opinion that this issue was dealt by the Tribunal in assessee’s own case for AY 2007-08 in ITA No. 3495/Del/2014 (DCIT, Circle-11 (1), New Delhi Vs. Fresenius Kabi Oncology Ltd.) vide order dated 03/10/2018 wherein held as follows:-
“10.2 Coming to the remaining issue which is the deletion of
disallowance of Rs 20,92,221/- pertaining to capital subsidy, it is
at the assessee had, in terms of West Bengal Incentive Scheme
16 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
2000, expanded its existing industrial unit at Kalyani, West Bengal
and was accordingly eligible for a state investment subsidy of Rs.
1.50 crore in terms of the West Bengal industrial policy. This
payment was received on 23.09.2006 and the assessee credited
the same to its capital reserve account treating the same as capital
receipt. However, the Assessing Officer treated the same as
revenue receipt and reduced the same from the fixed cost of assets
and, thereafter allowed depreciation post the offset of subsidy. The
Ld. Commissioner of Income Tax (A) /has noted that he has
examined the documents relating to West Bengal Incentive Scheme,
2000 and that further this subsidy is a one-time receipt. It has also
been mentioned that nowhere on the perusal of the documents it
was found that the subsidy was to be related to the reduction of
the cost of fixed assets and, further the recipient of the subsidy
was free to use the subsidy in any manner. We find that an
identical issue had arisen before the Kolkata Bench of the ITAT in
Bhagwati Sponge (P) Ltd. vs. DCIT reported in (2016) 72
taxmann.com 40 (Kolkata -Trib.) and the co-ordinate Bench held
that the capital investment subsidy received from state government
could not be reduced from the cost of capital asset for allowing
17 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
depreciation. Accordingly, respectfully following the order of the co-
ordinate Bench as aforesaid, we find no reason to interfere with the
findings of the Ld. Commissioner of Income Tax (A) on this issue
and we dismiss the grounds raised by the department in this
regard.
9.2. Further in ITA No. 3013/Del/2015 for A.Y 2008-09 and ITA No. 6264/Del/2015 A.Y 2009-10 (Asstt. Commissioner of Income Tax, Circle -9 (2), New Delhi Vs. Fresenius Kabi Oncology Ltd.) the Coordinate Bench of the Tribunal, vide order dated 31/12/2018 wherein held as follows:-
“13. The fact related to this issue in brief are that the assessee received a capital subsidy of Rs.1.50 crore under West Bengal Incentive Scheme, 2000 as part of interest fixed asset. The AO reduced the cost of the fixed assets by the capital subsidy and consequently reduced depreciation by Rs.17,94,174/-.
Being aggrieved the assessee carried the matter to the ld. CIT(A) who deleted the addition by following the order of his predecessor for the assessment year 2007-08 and the relevant findings have been given in para 8.4 of the impugned order which read as under:
"8.4 I have carefully considered the facts of the case. The issue whether subsidy of Rs.1.50 crores received by the appellant in FY 2006-07 is revenue or capital has already been decided by the Ld. CIT(A)-XXIX in AY 2007-08 in favour of the appellant. In AY 2007- 08 the Ld. CIT(A) has held that subsidy received by the appellant is in nature of capital receipt and it would not go to reduce cost of
18 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
acquisition of fixed assets. In view of it, the AO is directed to delete the disallowance of depreciation of Rs.17,94,174/- in this regard. These grounds of appeal are allowed."
Now the department is in appeal. The ld. Counsel for the assessee at the very outset sated that this issue is squarely covered by the earlier order dated 03.10.2018 in ITA No. 575 & 3495/Del/2014 (supra).
In his rival submissions, the ld. CIT DR supported the order of the AO.
After considering the submissions of both the parties and the material available on the record, it is noticed that a similar issue had already been adjudicated by this bench of the Tribunal in assessee's own case wherein the relevant findings have been given in para 10.2 of the aforesaid referred to order dated 03.10.2018 which read as under:
"10.2 Coming to the remaining issue which is the deletion of disallowance of Rs 20,92,221/- pertaining to capital subsidy, it is seen that the assessee had, in terms of West Bengal Incentive Scheme 2000, expanded its existing industrial unit at Kalyani, West Bengal and was accordingly eligible for a state investment subsidy of Rs. 1.50 crore in terms of the West Bengal industrial policy. This payment was received on 23.09.2006 and the assessee credited the same to its capital reserve account treating the same as capital receipt. However, the Assessing Officer treated the same as revenue receipt and reduced the same from the fixed cost of assets and, thereafter allowed depreciation post the offset of subsidy. The Ld. Commissioner of Income Tax (A) has noted that he has examined the documents relating to West Bengal Incentive
19 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
Scheme, 2000 and that further this subsidy is a one-time receipt. It has also been mentioned that nowhere on the perusal of the documents it was found that the subsidy was to be related to the reduction of the cost of fixed assets and, further the recipient of the subsidy was free to use the subsidy in any manner. We find that an identical issue had arisen before the Kolkata Bench of the ITAT in Bhagwati Sponge (P) Ltd. vs. DCIT reported in (2016) 72 taxmann.com 40 (Kolkata - Trib.) and the co-ordinate Bench held that the capital investment subsidy received from state government could not be reduced from the cost of capital asset for allowing depreciation. Accordingly, respectfully following the order of the Fresenius Kabi Oncology Ltd. co-ordinate Bench as afore said, we find no reason to interfere with the findings of the Ld. Commissioner of Income Tax (A) on this issue and we dismiss the grounds raised by the department in this regard."
So, respectfully following the aforesaid referred to order dated 03.10.2018 in ITA Nos. 575 & 3495/Del/2014 for the assessment years 2005- 06 and 2007-08 respectively, we do not see any valid ground to interfere with the findings given by the ld. CIT(A).”
9.3. Therefore, respectfully following the above orders of the Coordinate Bench of this Tribunal, we dismissed the Ground No. 2 raised by the Department in this appeal.
The Ground No. 3 is general in nature, which requires no adjudication.
In the result, appeal filed by the Revenue is partly allowed for statistical purpose.
20 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
C.O. No. 17/DEL/2021
The Ground No. 1 in the C.O is in respect of denying deduction of Rs.30,80,13,866/- claimed by the assessee u/s 80IC of the Act. The assessee claimed deduction u/s 80IC of the Act of Rs. ‘NIL’ as post set off of business losses and unabsorbed depreciation, which can be corroborated from Schedule BFLA at Page No. 23 of the paper book Volume III. Further, as per the tax audit report of the assessee during the year under consideration, the assessee has duly reported the eligible deduction u/s 80IC of the Act amounting to Rs. 30,80,13,866/-, which can be corroborated with Page No. 52 of Paper Book Volume III. During the course of assessment proceeding, the assessee submitted that, in case assessing officer were to disallow the set off of brought forward losses and unabsorbed depreciation, since assessee is eligible for deduction u/s 80IC of the Act the benefit of the deduction shall be given. The assessment order has been passed by the AO on 20/03/2015 wherein the claim of the assessee u/s 80IC of the Act has been rejected on the ground that, the said claim is an additional claim. The said order of the AO rejecting the claim u/s 80IC of the Act has been affirmed by the CIT(A) by following the decision of the Supreme Court in the case of Goetz India (284 ITR 323).
The Ld. Counsel for the assessee contended that the assessee is eligible for deduction u/s 80IC of the Act and the deduction ought to have been made u/s 80IC of the Act, both the AO and the CIT(A) have not appreciated the fact that the claim made by the assessee is not an additional claim and the assessee has duly reported the amount of deduction u/s 80IC of the Act in the income tax return and tax audit report.
Per contra, the Ld. DR submitted that, the claim of the assessee is contrary to Section 80AB & Section 80AC of the Act, the Ld. AR by relying on the findings and the conclusions of the AO and CIT(A), submitted that, this Tribunal need not interfere with the findings of the AO and CIT(A) in respect of denying the deduction claimed by the assessee u/s 80IC of the Act.
21 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
We have heard the rival submissions of Ld. AR and also the Ld. DR on the issue under consideration, have gone through the entire material available on record and gave our thoughtful consideration. The claim of the assessee is that, the assessee is entitled for deduction u/s 80IC at Rs. 30,80,13,866/-, which was not claimed in return of income since there was amount available to set off brought forward losses and an unabsorbed depreciation in the assessment year under consideration. Before the AO, assessee contended that, in case AO disallowed the set off brought forward losses and unabsorbed depreciations, the claim of deduction u/s 80IC of the Act to be allowed. However, this claim was not considered by the AO observing that, the same is a new claim of the assessee. In our opinion, as held by the Supreme Court in the case of Goetz India cited (supra), AO cannot consider the said claim without valued revised return of income. However, such claim of assessee could be entertained by the appellate authority and there is no restriction on the power of the appellate authorities as held by Supreme Court in the case of Goetz India Ltd. cited (supra). In view of the same, we are inclined to remit the issue in dispute to the file of AO for consideration of deduction u/s 80IC of the Act in accordance with law. The Ld. AO shall consider the claim of the assessee u/s 80IC of the Act after going through the records and also giving opportunity of being heard to the assessee. Accordingly, the C.O Ground No. 1 is allowed for statistical purpose.
The Ground No. 2 is in respect of not fully disallowing the set of brought forward business losses and unabsorbed depreciation against the income of assessment year 2011-12.
During the year under consideration, the assessee brought forward business losses and unabsorbed depreciation amounting to Rs. 20,74,74,599/- and adjusted the same with a taxable income of the current assessment year in following manners:
22 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
Particular Business Income Other Sources Amount of taxable income Rs. 17,62,89,072/- Rs. 4,80,80,763/- Less: Set-off of brought forward (Rs. 17,62,89,072/- (Rs. 3,11,85,527/- losses and unabsorbed depreciation Net income Rs. NIL Rs. 1,68,95,236/-
The Assessing Officer has disallowed the aforesaid set off brought forward losses and unabsorbed depreciation, on the ground that the additions made in the A.Y 2009-10 amounting to Rs. 18,88,18,052/- and in the assessment order for A.Y 2010-11 amounting to Rs. 5,77,27,695/- , need to be set off with brought forward business losses and unabsorbed depreciation. Accordingly, the Assessing Officer did not allowed set off brought forward business losses and unabsorbed depreciation as claimed by the assessee. The Ld. Counsel for the assessee contended that, the additions made in the Assessment Year 2009-10 and 2010- 11 have already been deleted by CIT(A), which has been confirmed by the Tribunal in ITA No. 6264/Del/2015 (A.Y 2009-10) dated 31/12/2018 and ITA No. 1906/Del/2016 (A.Y 2010-11) dated 28/05/2019, therefore, the amount of brought forward business losses and unabsorbed depreciation as claimed by the appellant in the return of income shall be upheld.
The Ld. DR submitted that, the order of the AO and the CIT(A) are very well reasoned and requires no interference by the Tribunal and relied on the findings and conclusions of the AO and the CIT(A).
We have heard the rival submissions of Ld. AR and also the Ld. DR on the issue under consideration, have gone through the entire material available on record and gave our thoughtful consideration. After hearing both the parties on the issue, we find that the additions made in the assessment year 2009-10 and 2010-11 have already been deleted by the CIT(A) and the same has been confirmed by the Tribunal vide orders mentioned (supra), therefore, in our
23 ITA No. 2371/Del/2018 & C.O No. 17/Del/2021
opinion, quantification of set off of brought forward business loss and unabsorbed depreciation to be recomputed by the end of the AO after verifying the records. Accordingly, the issue is remitted to be file of the AO for limited purpose of quantification of said losses. Accordingly, C.O grounds of appeal No. 2 is allowed for statistical purpose.
In the result, C.O is allowed for statistical purpose.
Order pronounced in the Open Court on this 11th Day of April , 2022
Sd/- Sd/- (B. R. R. KUMAR) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 11/04/2022 R. Naheed *