THE PR COMMISSIONER OF INCOME TAX-6 vs. NALWA STEEL AND POWER LIMITED

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ITA/288/2022HC DelhiDLHC01003573202006 March 2024Bench: HON'BLE MR. JUSTICE YASHWANT VARMA,HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that most of the issues raised in the appeal were governed by its judgment in ITA 725 of 2019. Regarding the additional issue concerning the deletion of INR 69,46,170/- on account of CSR expenditure, the Court noted that the ITAT had followed its order for AY 2013-14. However, the Court observed that this specific CSR issue was not raised or addressed in the appeal for AY 2013-14. Consequently, the Court found no justification to entertain the appeal on this question and dismissed it. The reasoning for the other issues, which were presumably decided in ITA 725 of 2019, was not elaborated in this judgment. The operative direction was to dismiss the appeal on the CSR issue.

What were the facts?

The Principal Commissioner of Income Tax (PCIT) appealed the Income Tax Appellate Tribunal's (ITAT) order dated October 10, 2019, concerning Nalwa Steel and Power Limited for assessment years not specified. The appeal challenged several ITAT decisions, including the deletion of adjustments on managerial remuneration, the ITAT's findings on Ms. Shallu Jindal's role, the valuation of electricity prices for Section 80-IA purposes, the allocation of common expenses, and the deletion of an addition for Corporate Social Responsibility (CSR) expenditure. The High Court noted that most issues were governed by a separate judgment in ITA 725 of 2019. The specific additional issue for this appeal was the deletion of INR 69,46,170/- on account of CSR expenditure, for which the ITAT had followed its order for AY 2013-14. However, the Court observed that this specific CSR issue was not raised or addressed in the appeal for AY 2013-14.

What were the issues?

The High Court was asked to decide the following questions of law: 1. Whether the ITAT was justified in deleting the adjustment made on account of managerial remuneration, despite the Transfer Pricing Officer (TPO) establishing excessive payment to Ms. Shallu Jindal? 2. Whether the ITAT was justified in holding Ms. Shallu Jindal as key personnel, given that records indicated she did not attend board meetings and was active in social commitments, and whether this constitutes perversity of facts, which is a question of law? 3. Whether the ITAT's order was perverse in not holding that the price at which the State Electricity Board sells electricity to industrial consumers is representative of the open market price under Section 80-IA(8)? 4. Whether the ITAT's order was perverse in allowing relief based on its AY 2013-14 order, when the AO's current year's electricity rate was based on the Chhattisgarh region average from India Energy Exchange, unlike the AY 2013-14 rate which was based on power purchase by Chhattisgarh State Power Distribution Company Ltd.? 5. Whether the ITAT was justified in not allowing the allocation of common expenses under Section 80-IA based on the ratio between eligible and non-eligible units? 6. Whether the ITAT erred in deleting the addition of Rs. 69,46,170/- made by the AO on account of CSR expenditure? Assessee's contentions were not explicitly detailed for all issues, but the ITAT's decisions suggest the assessee argued for the deletion of adjustments and relief based on previous orders and specific interpretations of provisions. The Revenue contended that the ITAT's findings were unjustified and perverse, particularly regarding managerial remuneration, Ms. Jindal's role, electricity pricing, expense allocation, and CSR expenditure. The Revenue relied on the TPO's findings and the AO's assessment.

Which sections of the Income-tax Act were involved?

Section 80-IA

AI-generated summary — verify with the full judgment below

$~23 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 288/2022

THE PR COMMISSIONER OF INCOME TAX-6 ..... Appellant

Through: Mr. Ruchir Bhatia, Sr.SC with

Ms. Deeksha Gupta, Adv.

versus

NALWA STEEL AND POWER LIMITED ..... Respondent

Through: Ms. Ananya Kapoor, Mr.

Shivam Yadav, Mr. Tarun

Chanana and Mr. Sumit

Lalchandani, Advs.

CORAM:

HON'BLE MR. JUSTICE YASHWANT VARMA HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV

O R D E R %

06.03.2024

1.

The Principal Commissioner challenges the order dated 10 October 2019 passed by the Income Tax Appellate Tribunal [“ITAT”] and has proposed the following questions for our consideration: 2.1 Whether on the facts and circumstances of the case, the ITAT was justified in deleting the adjustment made on account of managerial remuneration while the TPO has established that excessive payment was made to Ms. Shallu Jindal? 2.2 Whether on the facts and circumstances of the case, the ITAT justified in holding that Ms. Shallu Jindal, who happens to be close relative to promoters Shri O.P. Jindal "was key personnel in respect of various policy decision which was reflected in minutes of various board This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 12/03/2024 at 11:20:12

meetings" whereas per record available with Transfer Pricing Officer [“TPO”], it was noticed that Shallu Jindal did not attend even a single Board Meeting and details furnished by the Assessee during TPO proceedings revealed that Ms. Shallu Jindal was active in social commitments only. The ITAT failed to appreciate that the assessee did not submit details with respect to Ms. Shallu Jindal called by TPO during TP proceedings. Perversity of facts has been held to be question of law"? 2.3 Whether on the facts and circumstances of the case, the order of the ITAT is perverse in not holding that the price at which State Electricity Board sells electricity to industrial consumers is representative of the price that electricity would ordinarily fetch in the open market in terms of section 80-IA (8) of the Income Tax Act, 1961 [“Act”]? 2.4 Whether on the facts and circumstances of the case, the order of the ITAT is perverse in allowing relief to the assessee based on its order for Assessing Year [“AY”] 2013-14, when the rate of electricity adopted by Assessing Officer [“AO”], in the present year, is the average rate for Chhattisgarh region, as received from India Energy Exchange, whereas the rate of electricity adopted by AO in AY 2013-14 was that which was paid by Chhattisgarh State Power Distribution Company Ltd. for purchasing power? 2.5 Whether on the facts and circumstances of the case, the ITAT was justified in not allowing the This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 12/03/2024 at 11:20:12

allocation of common expenses under Section 80-IA of the Act to eligible and non-eligible unit on the basis of ratio between eligible and non-eligible units? 2.6. Whether on the facts and circumstances of the case, ITAT erred in deleting the addition of Rs.69,46,170/- made by the AO on account of expenditure on Corporate Social Responsibility? 2. As would be evident from a perusal of the questions which are proposed, most of the issues which are sought to be canvassed would be governed by the judgment rendered today in ITA 725 of 2019. 3. The only additional issue which remains is with respect to the validity of the deletion of an addition of INR 69,46,170/- on account of expenditure under the head of “Corporate Social Responsibility”. While dealing with this question, the ITAT has essentially followed the judgment rendered for AY 2013-14 which formed subject matter of consideration in ITA 725 of 2019. We, however, note that in the appeal for that year, no challenge on this score was either raised or addressed. 4. In view of the aforesaid, we find no justification to entertain the instant appeal on this question which consequently, shall stand dismissed.

YASHWANT VARMA, J.

PURUSHAINDRA KUMAR KAURAV, J. MARCH 06, 2024/p This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 12/03/2024 at 11:20:12

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