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Income Tax Appellate Tribunal, DELHI BENCH: ‘I-2’, NEW DELHI
Before: SHRI N.K. BILLAIYA & SHRI SUCHITRA KAMBLE
This appeal is filed by the assessee against the order dated 24.11.2018 passed by DCIT, Circle 17(2), New Delhi u/s 144C r.w.s. 143(3) of the Income Tax Act, 1961 for A.Y. 2014-15.
2. The grounds of appeal
are as under:
1. That the draft order passed by the Assessing Officer (“AO”) u/s 144C r.w.s 143(3) of Income Tax Act. 1961 ('the Act’) dated 29.12.2017, order passed by the Transfer Pricing Officer (“TPO”) u/s 92CA(3) dated 04.10.2017, directions issued by the Dispute Resolution Panel ("DRP”) dated 13.09.2018 and the final assessment order dated 24.11.2018 and also the additions proposed therein are illegal, bad in law, without jurisdiction and void ab initio.
2. The AO/TPO/DRP have erred, in law and in view of the facts and circumstances of the case, in assessing the income of the assessee at Rs. 49,03,25,520/- instead of the returned income of Rs. 20,64,13.580/-.
The reference made by the AO to the TPO suffers from jurisdictional error as the AO has not recorded any reasons in the draft assessment order/ assessment order based on which he reached the conclusion that it was ‘necessary or expedient’ to refer the matter to the TPO for computation of the arm’s length price (‘ALP’), as is required under section 92CA(1) of the Act.
4. The AO/TPO/DRP erred in not following the detailed procedure as laid down in Chapter X of the Act read with the Rules, for determining the mechanism for computing the arm’s length price, and has not allowed the Assessee the benefit of various provisions as stated in the Act and the Rules.
5. That the AO/ TPO/DRP has erred on facts and in law in disallowing remuneration of Rs.78.24.682/- paid to Ms. Shallu Jindal, Whole Time Director of the assessee. The said addition is illegal and bad in law.
1. The DRP/TPO/AO have erred in law and facts by erroneously questioning the business prudence thereby making addition on account of managerial remuneration paid to Smt. Shallu Jindal without appreciating the fact the remuneration paid was allowable and no part of the same was excessive or unreasonable. The said remuneration had been allowed in earlier years and in any case, the same had already been taxed in the hands of Smt. Shallu Jindal.
That on the facts and circumstances of the case, the AO/TPO/DRP have failed to appreciate that the salary paid to Ms. Shallu Jindal was incurred wholly and exclusively for the purposes of business. The same was also paid in accordance with the limits prescribed under the Companies Act, 2013.
3. That, in view of the facts and circumstances of the case and in law, the AO/TPO erred in not following the binding directions of the DRP and not granting the relief as allowed by the DRP.
4. That without prejudice, the adjustment made by the AO/TPO/DRP is also highly excessive and has been wrongly worked out.
5. That the TPO/ AO/DRP have erred, in law and on facts and circumstances of the case, by not appreciating that amendment to Section 92BA is retrospective in nature.
6. That the TPO/AO/DRP has erred on facts and in law in making addition of Rs.3,31,20.337/- on account of allocation of expenses. The said addition is illegal and bad in law.
That, the AO/TPO/DRP has erred on facts and in law in not appreciating the analysis/benchmarking undertaken by the Assessee in the TP Study and that the allocation has been done on a scientific and prudent basis. It is on the basis of generally accepted accountancy principles and there are identified cost drivers. The TPO/AO/DRP cannot reject the same without stating any flaw/ inaccuracy or deficiency in the method adopted by the Assessee.
2. That the AO/ TPO/DRP have erred on facts and in law in reducing an amount of Rs.3,31,20,337/- to deduction claimed under exempt unit alleging that common expenses (Director remuneration, employee salary, repairs to building and internal audit fee) were inextricably linked to the eligible unit and was therefore, to be allocated amongst the units of the Assessee on the basis of turnover.
3. That, without prejudice, the addition made by the TPO is excessive, illegal and has been wrongly worked out
7. That the TPO/AO/DRP have erred on facts and in law in making addition of Rs.23,53,79,753/- on account of purchase of power. The said addition is illegal, bad in law and without jurisdiction.
1. That, in view of the facts and circumstances of the case and in law, the AO/DRP/TPO erred in rejecting the comparable analysis/ benchmarking analysis undertaken by the Assessee for purchase of power without appreciating that the same meets the requirement of FAR analysis as per Rule 10B of the Income Tax Rules. 1962.
2. That in view of the facts and circumstances of the case and in law, the TPO/AO/DRP have erred in applying the IEX rate. The said rate is not applicable on the facts of the present case.
3. That, without prejudice, no show cause notice has been issued by the TPO as regards application of IEX. Show cause notice is a mandatory requirement and non-issuance of a notice is an illegality.
4. That, without prejudice, TPO erred in exercising power u/s 133(6) of the Act. Information obtained u/s 133(6) could not have been used. That, in any case, the TPO has used the information obtained u/s 133(6) without confronting the assessee with the same, which is not permitted in law.
5. That, without prejudice, the said addition is highly excessive and has been wrongly worked out.
8. That the AO/DRP has erred on facts and in law in making disallowance of expenditure on Corporate Social Responsibility amounting to Rs.69,46,170/-.
1. That, in view of the facts and circumstances of the case and in law, the AO/DRP erred in not appreciating that the said expenses are allowable u/s 37 of the Act.
2. That, in view of the facts and circumstances of the case and in law, the AO/DRP erred in not appreciating that the said expenses are necessary mandated and are for the purpose of business.
3. Without prejudice that the quantum of disallowance made by the AO/DRP is in any case, is highly excessive and unreasonable.
9. That the AO/DRP has erred on facts and in law in making an addition of Rs.6,40,988/- on account of alleged difference in the income as declared by the assessee and receipts appearing in Form 26AS.
1. That the AO/DRP has erred on facts and in law in making an addition of Rs.6,40,988/- on account of alleged difference in the income as declared by the assessee and receipts appearing in Form 26AS.
2. That the AO/DRP has erred on facts and in law in alleging that the assessee has not disclosed its income on account of interest received from SBI properly.
3. That the AO/DRP has erred on facts and in law in alleging that the assessee did not furnish any explanation regarding the difference appearing in interest received from SBI and interest offered in P&L account.
4. That the AO/DRP erred on facts and in law by not considering and properly appreciating the explanation and material placed on record.
10. That the additions / disallowances made are unjust, unlawful, without jurisdiction and are also highly excessive and based on surmises and conjectures.
11. That the explanation given, evidence produced and material placed and made available on record have not been properly considered and judicially interpreted and the same do not justify the additions made.
12. That the AO has erred, in law and on facts and circumstances of the case, in initiating penalty under section 271(1 )(c) of the Act.
13. The assessee craves leave to add, amend, alter and/or delete any of the above grounds of appeal at or before the time of hearing.
3. The assessee company is engaged in the manufacturing and selling of sponge iron billets, wire rod, oxygen gas and generation of power. The assessee company electronically filed its original return of income on 28.11.2014 for A.Y. 2014-15 declaring total income at Rs. 20,64,13,580/-. Subsequently, the case was selected under CASS for Complete Scrutiny. Notice u/s 143 (2) of the Act was issued on 31.08.2015 and duly served upon the assessee company. Thereafter, notice u/s 142(1) of the Act along with questionnaire was issued on 28.07.2016 and duly served upon the assessee company, wherein certain details were called for. In the meanwhile, a reference u/s 92CA was made by the ACIT, Circle – 17(2), New Delhi to determine the Arm’s Length Price in respect of specified domestic transactions undertaken by the assessee during the F.Y. 2013-14. Total adjustment made by the TPO vide order dated 04.10.2017 are as follows: On account of managerial remuneration Rs. 78,24,682/- Purchase of power Rs. 26,85,00,090/- Adjustment on account of allocation of expenses Rs. 3,31,20,337/- Total Rs. 30,94,45,109/- The assessee filed objections before the DRP and the DRP vide directions dated 13.09.2018 directed the Assessing Officer to incorporate the findings in respect of various objections in final order. The Assessing Officer vide final Assessment Order wrongly mentioned as draft assessment order dated 24.11.2018 made various additions and assessed the total income at Rs. 49,03,25,520/-.
Being aggrieved by the Assessment Order, the present appeal is filed by the assessee.
The Ld. AR submitted that Ground Nos. 1 to 4 are general in nature. Therefore, we are dismissing Ground Nos. 1 to 4.
As regards to Ground No. 5 relating to disallowance of salary paid to whole time Director, Ms. Shallu Jindal of Rs. 78,24,682/-, the Ld. AR submitted that this issue is covered in favour of the assessee by the decision in assessee’s own case for A.Y. 2013-14 being order dated 31.12.2018.
The Ld. DR submitted that in the decision of the Tribunal for A.Y. 2013-14, there is no discussion as to the nature of services provided by the whole time Director. Therefore, the same needs to be verified in the present Assessment Years context.
We have heard both the parties and perused all the relevant material available on record. The Tribunal in A.Y. 2013-14 held as under: “15. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the partial additions on account of managerial remuneration amounting to Rs. 8,22,798 which was paid to Ms. Shallu Jindal’s contractual advisory service to AE and other services provided by her were not disputed by the Revenue at any point of time. The same is already taxed in the hands of Ms. Shallu Jindal. The Ld. AR pointed out through the documents that she is the director of the company and is a key personnel in respect of various policy decisions which was reflected in minutes of all board meetings. The submission of the Ld. AR was that the basis for disallowance is not sustainable because the competitive figures have no bearing on the present assessee. From the records it can be seen that the remuneration paid to director has not been disallowed in past years and therefore the submission of the Ld. AR that the rule of consistency has to be followed in the present assessment year as well. The case laws relied upon by Ld. AR of the Hon’ble Delhi High Court is relevant to that extent and support the case of the assessee. The comparison done by the Assessing Officer between the remuneration paid by the assessee company to Ms. Shallu Jindal with the remuneration paid by Essar Steel Ltd to Sh. Ashutosh Agarwala is not proper as well considering the facts that the assessee company is a profit making venture whereas Essar Steel Ltd. is incurring losses. It should also be noted that the assessee company has also complied with all the provisions of the Companies Act, 1956, relating to the payment of managerial remuneration to its managerial personnel appointed and the said payment of managerial remuneration has also been approved by the Board of Directors. The reference made to Circular No. 6P dated 08.07.1968 issued by the CBDT is apt in the present case. Thus, the Assessing Officer was not correct in making addition on account of managerial remuneration. Ground No. 3 (b) is allowed.”
As regards to contention of the revenue that in earlier Assessment Year, the services provided by the whole Time director was not discussed is not correct as the Tribunal has discussed the same in the findings. Besides the factual aspect in the present year has not changed which is established by assessee from the records. In fact, para 6.1 of the TPO’s order the role and responsibilities of the Director was submitted by the assessee. The minutes of meetings were also submitted by the assessee. Therefore, the assessee demonstrated the services provided by the Whole Time Director. Thus, issue is identical in the present year as well. Hence, Ground No. 5 is allowed.
9. As regards to Ground No. 6 relating to disallowance on account of allocation of expenses between exempt and non-exempt units of Rs. 3,31,20,337/-, the Ld. AR submitted that this issue is also covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for A.Y. 2013-14 being order dated 31.12.2018.
The Ld. DR relied upon the order of the TPO and the Assessment Order.
We have heard both the parties and perused all the relevant material available on record. The Tribunal in A.Y. 2013-14 held as under: “18. We have heard both the parties and perused all the relevant material available on record. From the records it can be seen that these expenditures were already allocated to eligible and non-eligible unit on the basis of generally accepted accountancy principles, on the basis of identified cost drivers and in a prudent manner by the assessee company. The Assessing Officer/TPO/DRP re-allocated the expenditure in the ratio of turnover between eligible and non-eligible units without any investigation and without collecting any material. The Assessing Officer/TPO/DRP has not brought on record any discrepancy on part of the assessee company in relation to the method of allocation adopted by the assessee company. The Tribunal (Third Member decision) in case of DCIT vs. Delhi Press Samachar Patra (P) Ltd. held as under: “39. It is clear from the assessment orders that income shown and expenses claimed by the assessee have been duly allowed in the assessment order. None of the expenditure has been treated as ingenuine or not connected or related to the business carried out by the assessee. In the above background and without any material, and without any justification on the part of the AO, some of the expenses claimed by the assessee were held to be inflated in Unit No. I and were deflated in Unit Nos. II and III. Entire case of AO in both the assessment years is based on surmises and conjectures. The learned CIT(A) had passed a fair, rationale and just order. There was no scope to interfere with the impugned orders as rightly held by the learned AM in his proposed order. On similar facts claim in earlier years was allowed to the assessee. ……… 43. I see some parallel between the facts of the abovecited case and case in hand, because profit was disclosed in Unit Nos. II and III on which deduction under s. 80-I was claimed and no profit was disclosed in Unit No. I on which no such deduction was permissible and expenses in aforesaid Unit No. I were much higher than in the other two units. It was probable that more expenses were claimed in Unit No. I and some of the expenses of Unit Nos. II and III were diverted and claimed in Unit No. I. But no presumption under the law could be raised that expenses were so diverted. The assessee has produced accounts and details and, therefore, correct position “could have been ascertained from the material statement of relevant persons including management and staff of the assessee could have been examined.” But without any investigation and without collecting any material an arbitrary assessment by holding that expenses in Unit No. I should be proportionate to those in Unit Nos. II and III was made. Assessment based on such inference has to be held as arbitrary. ……… 46. It is evident from above that even when the material produced by the assessee is rejected, the authorities cannot proceed to levy whatever tax they may levy. The assessment must be based on some material. If it is not based on any material then it has to be held to be capricious and arbitrary. The question which is raised in most of the cases before the Tribunal is whether the assessment by the AO have been made in accordance with law. The aforesaid question has be determined objectively and not by raising merely doubts and certainly not by entertaining suspicion against the assessee, or against people connected with the assessment or disposal of appeals. If the Tribunal does not discharge its duties with responsibility as enjoined under the law, the confidence that is placed by the public on the Tribunal would stand eroded. With the aforesaid observations, I agree with the order proposed by learned AM, confirming the impugned orders of CIT()A. Let the matter be now placed before the regular Bench for disposal in accordance with law in both the assessment years.” Thus, from perusal of the Assessment Order/Order of the TPO/Directions of the DRP, in the present case none of the authorities have doubted that there was no expenses. In facts, the Assessing Officer/TPO/DRP re- allocated the expenditure in the ratio of turnover between eligible and non- eligible units without bringing into the light the flaw or inaccuracy or any suitable explanation involved in relation to the method of allocation adopted by the assessee company. Hence, Ground No. 3(c) is allowed.”
In the present assessment year as well the Assessing Officer/TPO/DRP could not bring any material on record or not pointed out any inaccuracy as to the method of allocation adopted by the assessee company. Thus, the issue is identical in the present year as well. Ground No. 6 is allowed.
As regards to Ground No. 7 relating to disallowance of rate of purchase of power of Rs. 23,53,79,753/-, the Ld. AR submitted that this issue is also covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for A.Y. 2013-14 being order dated 31.12.2018.
The Ld. DR relied upon the order of the TPO and the Assessment Order.
We have heard both the parties and perused all the relevant material available on record. The Tribunal in A.Y. 2013-14 held as under: “12. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee is regularly claiming deduction u/s 80IA of the Act in respect of profits derived from the captive power plant/ undertaking. The assessee transfers the power for captive use as per the market rate/below on which CSEB selling the power which is @ 4.64 p.u. In the previous years the Revenue disputed CSEB rates consists @ Rs.0.38 p.u. on account of electricity tax, cess and for which the transfer price or power price was adjusted to that extent by disallowing to that extent and for the remaining the assessee is entitled for transfer price by treating sale price of power transferred for captive use. The assessee filed appeal before the CIT (A) wherein the CIT (A) allowed the appeal of the assessee. Against the said order the Revenue filed appeal before the Tribunal wherein the Tribunal upheld the finding of CIT (A). The Ld. AR pointed out that as per the new Finance Act, 2013 from A.Y. 2013-14, the domestic transaction took place u/s 92C whereas the Assessing Officer adopted a figure that CSEB purchasing power @ 1.89 p.u. on the basis of the information gathered from the CSEB U/s 133(6). The TPO has not taken into consideration that there are criteria for purchase from State generating station when excess production are there. In such situation, the generating station are under obligation to sale the extra power at the lowest price & this lowest price cannot be considered as equivalent to the market rate as defined u/s 80IA(8) of the Income Tax Act, 1961. The matter further referred to the DRP where the DRP adopted different approach i.e. the averaging of IEX rate but, the DRP has not given any reason for adopting the said rate. The Tribunal in assessee’s own case held as under in A.Y. 2009-10:
We have considered the rival arguments made by both the sides and perused the material available on record. We have also considered the various decisions cited before us. The only issue to be decided in the impugned ground is regarding the action of the Assessing Officer in excluding Rs.0.2932/- per unit while computing the market price of power for the purposes of computing deduction admissible to power units u/s 80-1A of the I.T. Act. We find the assessee in the instant case has sold the electricity to its captive plant at the rate of Rs.3.92 per unit i.e. rate at which CSEB was selling to industrial consumers as on 01.04.2008. The above rate of Rs.3.92 included electricity duty at the rate of 8% of energy charges and cess of Rs.0.05 paise per unit. Since according to the Assessing Officer, the assessee has not been making actual sales to its other units because the power generated is consumed captively by other units. According to him, since the assessee is only generating power but it does not have the licence to distribute it, it cannot charge the electricity duty at the rate of 8% and cess 0.05% on the transfer of power. Thus, according to him, the assessee has inflated the sale of power by Rs.0.293 per unit and has accordingly inflated the deduction u/s 80IA by a sum of Rs.3.63 per unit. We find the Id. CIT(A) following various decisions including the decision of the Delhi Bench of the Tribunal in the case of Jindal Steel & Power Limited reported in (2007) 16 SOT 509 decisions of the Mumbai Bench of the Tribunal in the case of D.C.W Ltd. Vs. Addl. CIT(A) vide & 5569/Mum/2008 deleted the addition made by the Assessing Officer . We do not find any infirmity in the order of the Ld.CIT(A) on this issue.
We find the Delhi Bench of the Tribunal in the case of Jindal Steel & Power Limited (supra) while deciding an identical issue has observed as under "3.6.1 Ground no. 6 of appeal is directed against rejections of the prevailing purchase price and adjustments made to the market price for the electricity thereby adding back the sum of Rs. 3,86,93,638/- as excess deduction u/s 80-IA(8) claimed in its power plant. The assessee is engaged in generation of power and the power so generated is transferred to other units of the assessee captively at the rate at which it is obliged to purchase from the State Electricity of Board. The assessee has made sales of Rs. 51,73,22,855/- from the power plant and the profit has been arrived at Rs. 18,51,63,515/- against which deduction u/s 80IA has been claimed @100%. The sales of power to other units have been considered at the rate of Rs. 3.92, the rate of which CSEB was selling to industrial consumers as on 01.04.2008. AO observed that the rate of Rs. 3.92 included electricity duty @8% of energy charges and cess @ 0.05% per unit. AO also observed that the assessee has not been making "actual sales" to its other units because the power generated is consumed captively by other units. As such, the sale to other units of the assessee can at best be called notional sales. When actual sales are made, duty @8% and cess @0.05% collected from, consumers is paid to government levies which have actually been not collected and paid to the government cannot be part of the profits of the assessee. Even when the levies are actually collected it does not form part of the revenue and is accounted for separately as liabilities. In the present case, the assessee is only generating power but since it does not have the licence to distribute it, cannot also charge the electricity duty @8% and cess @ 0.05% on the transfer of power. If the duties and cess are excluded from the sale price of Rs. 3.92 per unit, the effective sale price would be Rs. 3.63 per unit. Therefore, the sales of the power plant has been inflated by a sum of Rs. 0.2932 per unit. Applying the above ratio, AO held that assessee has inflated the deduction u/s 80IA by a sum of Rs. 3,86,93,638/- which is accordingly added back to the total income of the assessee as excess deduction u/s 80IA(8) claimed in its power plant. 3.6.2 Therefore, the issue is whether the AO is justifiable in excluding Rs.0.2932 per unit while computing "market price" of power for the purpose of computing deduction admissible to power units under section 80IA of the Act. In this regard sub-section (8) of section 80-1 A of the Act which provides for determination of profits derived from an industrial undertaking where goods from one eligible business are transferred to another business carried on by the assessee reads as under:
"(8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried. Off 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 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 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 pate:
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-seclion, "market value", in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market."
From the above provision it is clear that the price at which goods are to be transferred from one business of the assessee to another business should correspond to the market value of such goods for computing the profits of the eligible business. The expression 'market value' has been defined in Explanation to sub-section (8) to section 80-IA of the Act, as the price which such goods would ordinarily fetch when sold in the open market. 3.6.3 In the present case, the power generated by the captive plants was consumed by the manufacturing units of the appellant at Raigarh. The appellant accounted for the revenue/profit on transfer of such power to its captive units at the rate of Rs. 3.92 per unit, which is the price charged by CSEB for supplying power to industrial consumers. This rate of Rs.3.92 charged b: the CSEB represents the market price.
3.6.4 It is also noteworthy that had the manufacturing units of the appellant purchased power from CSEB, then, the units would have paid Rs.3.92 per unit. Therefore, for the manufacturing units, Rs.3.92 per units is the..purchase price, i.e. the price at which power is available in the open market. The composition of such market price, is not relevant for the purchaser of the power Insofar as the purchaser is concerned, what is only relevant is the purchase price, i.e. Rs.3.92 per unit, and not its composition. Therefore, whether Rs.3.92 per unit includes any government levies or not is totally irrelevant insofar as the purchaser is concerned. 3.6.5 In the case of Jindal Steel & Power Limited: (2007) 16 SOT 509, wherein, too, th. assessee had adopted the price at which power is sold by the SEB as the transfer/ market price power. Hon'ble 1TATDelhi, while approving the profits so computed by the assessee, observe as under:
"15. Therefore, from the aforesaid, it can be deduced that market value is an expression which denoted a price arrived at between the buyer and the seller in the open market wherein the transactions take place in the normal course of trading and competition in contrast to a situation where the price is fixed between a buyer and seller can b understood as denoting 'market price' since the elements of trading and competition exist. Whereas in the case of the latter situation, the price fixed between the buyer and seller cannot be understood as denoting the market price since the elements of trade and competition are conspicuous by their absence.”
……..
18. Having held so, the natural corollary is to ascertain whether the price recorded by the assessee at Rs. 3.72 per unit can be considered to be the market value for the purposes 0 Section 80- IA(8) of the Act. The answer, to our mind is in the affirmative. This is for the reason that the assessee as an industrial consumer is also buying power from the Boar, 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. We may consider hypothetical situation as well. Had the assessee not been saddled with restrictions of supplying surplus power to the State Electricity Board, it would have supplied power t the ultimate consumers at rates similar to those of the Board or such other competitive rates, meaning thereby that price received by the assessee would be in the vicinity of Rs.3.72 per unit i.e. charged by the Board from its industrial consumers/users. 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 of power for captive consumption at the rate of Rs.3.72 per unit corresponds to the market value of power. Therefore, on this aspect, we uphold the stand of the assessee and set aside order of the Commissioner (Appeals) and direct the assessing officer to allow relief to the assessee under Section 80-IA as claimed. Assessee succeeds on this ground. ”
We find the decision of the Delhi Bench of the Tribunal has been upheld by the Hon’ble Punjab & Haryana High Court in ITA No.53/2008. Similarly, the Hon’ble Chattisgarh High Court in the case of CIT vs. Godawari Power & Ispat Ltd. reported in 42 taxmann.com 551 has held that where assessee had established a captive Power Plant in State of Chhattisgarh to supply electricity to its steel division, for purpose of section 80-IA deduction market value of power supplied by assessee to steel division should be computed considering rate of power charged by Chhattisgarh State Electricity Board for supply of electricity to industrial consumers.
We find the Hon’ble Calcutta High Court in the case of CIT vs. Kanoria Chemicals & Industries Ltd. reported in 35 taxmann.com 566 has confirmed the decision of the Tribunal 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 and i.e. the price which has been, adopted by the eligible business transferred to its other business for the for the purpose of computation of profits and gains of the eligible business in terms of section 80-1 A(8) of the I.T. Act.
We find the Mumbai Bench of the Tribunal in the case of Deepak Fertilizers in order dated 30.01.2015 for the assessment year 2010-11 while deciding an identical issue has also taken similar view. The Chennai Bench of the Tribunal in the case of Sri Matha Spinning Mills (P.) Ltd. vs. DCIT reported in (2013) 141 ITD 238 has also taken identical view in favour of the assessee. Under these circumstances, we do not find any infirmity in the order of the Id. CIT(A) in deleting the disallowance made by the Assessing Officer u/s 80-IA(8) of the I.T. Act. We, therefore, dismiss the grounds raised by the Revenue on this issue.
Since the identical issue was decided in favour of the assessee for A.Y. 2009-10 wherein similar facts are involved, there is no need to adopt a different approach as the Ld. DR could not point out the different factual matrix in the present Assessment Year. Therefore, Ground No. 3(a) is allowed.”
The Ld. DR could not controvert the factual aspect of the present Assessment Year as well as the earlier assessment year that of 2013-14. Besides the facts are identical and there is no discrepancy made out by the revenue during the assessment proceedings. Therefore, the issue is covered in favour of the assessee. Ground No. 7 is allowed.
As regards to Ground No. 8 relating to addition on account of CSR, the Ld. AR submitted that this issue is also covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for A.Y. 2013-14 being order dated 31.12.2018.
The Ld. DR relied upon the order of the TPO and the Assessment Order.
We have heard both the parties and perused all the relevant material available on record. The Tribunal in A.Y. 2013-14 held as under: “34. We have heard both the parties and perused all the relevant material available on record. The Ld. AR relied upon the decision of the Tribunal in case of Jindal Power Ltd. (supra). The Tribunal held as under: “16. We have noted that fundamental objection of the Assessing Officer is that the expenses is voluntary, not mandatory and not for business purposes. As for the contention that the expenses being in the nature of voluntary expenses, which are not mandatory, and which the assessee was not statutorily required to incur, are not admissible deduction in computation of business income, we are of the considered view that as long as expenses are incurred wholly and exclusively for the purposes of earning the income from business or profession, merely because some of these expenses are incurred voluntarily, i.e. without there being any legal or contractual obligation to incur the same, those expenses do not cease to be deductible in nature. In other words, it is not necessary that every expense that could be allowed as a deduction should be such as a hardnosed, and perhaps devoid of senses of compassion, businessman alone would incur in furtherance of his business pursuits. We find guidance from a passage from the judgment of House of Lords in the case of Atherton vs. British Insulated & Helsbey Cables Ltd. (1925) 10 Tax Cases 155 (HL), referred to with approval by the Hon’ble Supreme Court in the case of CIT vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC), which reads as follows: "It was made clear in the above cited cases of Usher’s Wilshire Brewery vs. Bruce (supra) and Smith vs. Incorporated Council of Law Reporting (1914) 5 Tax Cases 477 that a sum of money expended not with a necessity and with a view to direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order to indirectly facilitate, carrying on of business may yet be expended wholly and exclusively for the purpose of the trade; and it appears to me that the findings of the CIT in the present case, bring the payment in question within that description. They found (in words which I have already quoted) that payment was made for the sound commercial purpose of enabling the company to retain the existing and future members of staff and for increasing the efficiency of the staff; and after referring to the contention of the Crown that the sum of Sterling Pound 31,784 was not money wholly and exclusively laid out for the purpose of the trade under the rule above referred to, they found deduction was admissible-thus in effect, though not in terms, negativing the Crowns contentions. I think that there was ample material to support the findings of the CIT, and accordingly hold that this prohibition does not apply." It will, therefore, be clear that even if an expense is incurred voluntarily, it may still be construed as 'wholly and exclusively’. Explaining this principle, Hon’ble Supreme Court has, in the case of Sassoon J David & Co. (P) Ltd. vs. CIT [(1979) 118 ITR 261 (SC)] inter aha observed that :"It has to be observed here that the expression "wholly and exclusively" used in s. 10(2)(xv) of the Act does not mean "necessarily". Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under s. 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the legislative history of s. 37 of the IT Act, 1961, which corresponds to s. 10(2)(xv) of the Act. An attempt was made n the IT Bill of 1961 to lay down the "necessity" of the expenditure as a condition for claiming deduction under s.
Sec. 37(1) in the Bill read "any expenditure, laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed." The introduction of the word "necessarily" in the above section resulted in public protest. Consequently, when s. 37 was finally enacted into law, the word "necessarily" came to be dropped. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under s. 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law."
17. The next issue is whether it is for the purposes of business or not. We may, in this regard, usefully refer to the observations of a coordinate bench of this Tribunal, speaking through one of us (i.e. the Accountant Member) and in the case of Hindustan Petroleum Corporation Ltd Vs DCIT [(2005) 96 ITD 186 (Bom)], as follows:
7. We find that as held by Hon’ble Karnataka High Court in the case of Mysore Kirloskar Ltd. v. CIT [1987] 166 ITR 836 1, while the basic requirements for invoking sections 37(1) and 80G are quite different’, 'but nonetheless the two sections are not mutually exclusive’ Thus, there are overlapping areas between the donations given by the assessee and the business expenditure incurred by the assessee. In other words, there can be certain amounts, though in the nature of donations, and nonetheless, these amounts may be deductible under section 37(1) as well. Therefore, merely because an expenditure is in the nature of donation, or, to use the words of the CIT(A), ‘promoted by altruistic motives’, it does not cease to be an expenditure deductible under section 37(1). In Mysore Kirloskar Ltd.’s case (supra), Their Lordships have observed that even if the contributions by the assessee is in the forms of donations, but if it could be termer) as expenditure of the category falling in section 37(1), then the right of the assessee to claim the whole of It as a deduction under section 37(1) cannot he declined. What is material in this context is whether or not the expenditure in question was necessitated by business considerations or not. Once it is found that the expenditure was dictated by commercial expediencies, the deduction under section 37(1) cannot be declined As to what should be relevant for examining this aspect of the matter, we may only refer to the observations of Hon’ble Supreme Court in the case of Sri Venkata Satyanarayna Rice Mill Contractors Co. v. CIT [1997] 223 ITR 101 2:
* . . any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on of the assessee's business or which results in the benefit to the assessee’s business has to be regarded as an allowable deduction under section 37(1) of the Act. Such a donation, whether voluntary or at the instance of the authorities concerned, when made to a Chief Minister's Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assessee's business, cannot be regarded as payment opposed to public policy It is not as if Tie payment in the present case had been made as an illegal gratification. There is no law which prohibits the making of such a donation. The mere fact that making of a donation for charitable or public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under section 37(1) of the Act when such payment had been made for the purpose of assessee's business.
8. In the case of CIT v. Madras Refineries Ltd. [2004] 266 ITR 170 1, Hon'ble Madras High Court has upheld deductibility of the amount spent by the assessee even on bringing drinking water to locality and in aiding local school. While doing so, Their Lordships observed as follows:
The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and the locality in which business is located in particular. Being a good corporate citizen brings goodwill of the local community as also with the regulatory agencies and soc.ety at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill....
Let us now take a look at the undisputed facts of this case. The assessee is a company owned by the Government of India and working under the control and directions of the Government of India. As the statement of facts clearly sets out, the expenditure on 20-Point Programmes was incurred in view of specific directions of the Government of India. This factual aspect is no. even disputed or challenged by the Revenue at any stage, it cannot but be in the business interest of the assessee-company to abide by the directions of the Government of India which also owns the assessee-company. In any event, as observed by the Hon'ble Madras High Court in Madras Refineries Ltd.'s case (supra), monies spent by the assessee as a good corporate citizen and to earn the goodwill of the society help creating an atmosphere in which the business can succeed in a greater measure with the help of such goodwill. The monies so spent therefore are required to be treated as business expenditure eligible for deduction under section 37(1) of the Act. What is the expenditure for the implementation of 20-point plant after all? It is solely for the welfare of the oppressed classes of society, for which even the Constitution of India sanctions positive discrimination, and for contribution to all around development of villages, which has always been the central theme of Government's development initiatives. An expenditure of such a nature cannot but be, to use the words employed by the Hon’ble Madras High Court in Madras Refineries Ltd.’s case (supra), 'a concrete expression of care and concern for the society at large' and an expenditure to discharge the responsibilities of a 'good corporate citizen which brings goodwill of with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill’.
18. We have also take note of the fact that in view of insertion of Explanation 2 to Section 37(1), with effect from 1st April 2015. which provides that “for the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 20 3 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession”, the expenses incurred in discharging corporate social responsibility are not deductible in computation of business income. Learned Departmental Representative submits that this amendment should be treated as clarificatory in nature, as it is stated to be in so many words, and we should, therefore, hold that the expenses in discharging corporate social responsibility were outside the ambit of expenses deductible under section 37(1).
19. We are unable to see legally sustainable merits in this plea either the amendment in the scheme of Section 37(1), which has been introduced with effect from 1st April 2015, cannot be construed as to disadvantage to the assessee in the period prior to this amendment. This disabling provision, as set out in Explanation 2 to Section 37(1), refers only to such corporate social responsibility expenses as under Section 135 of the Companies Act, 2013, and, as such, it cannot have any application for the period not covered by this statutory provision which itself came into existence in'2013. Explanation 2 to Section 37(1) is therefore, inherently incapable of retrospective application any further. In any event, as held by Hon’ble Supreme Court’s five judge constitutional bench’s landmark judgment, in the case of CIT Vs Vatika Townships Pvt. Ltd. [(2014) 367 ITR 466 (SC)] the legal position in this regard has been very succinctly summed up by observing that Of the various rules guiding how legislation has to be interpreted, one established rule is that unless a contrary intention appears, legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow’s backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit: law looks forward not backward. As was observed in Phillips vs. Eyre [, a retrospective legislation is contrary to the g rural principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.” It may appear to be some kind of a dichotomy in the tax legislation but the well settled legal position is that when a legislation confers a benefit on the taxpayer by relaxing the rigour of pre-amendment law, and when such a benefit appears to have been the objective pursued by the legislature, it would a purposive interpretation giving it a retrospective effect but when a tax legislation imposes a liability or a burden, the effect of such a legislative provision can only be prospective. We have also noted that the amendment in the scheme of Section 37(1) is not specifically stated to be retrospective and the said Explanation is inserted only with effect from 1st April 2015. In this view of the matter also, there is no reason to hold this provision to be retrospective in application. As a matter of fact, the amendment in law, which was accompanied by the statutory requirement with regard to discharging the corporate social responsibility, is a disabling provision which puts an additional tax burden on the assessee in the sense that the expenses that the assessee is required to incur, under a statutory obligation, in the course of his business are not allowed deduction in the computation of income. This disallowance is restricted to the expenses incurred by the assessee under a statutory obligation under section 135 of Companies Act 2013, and there is thus now a line of demarcation between the expenses incurred by the assessee on discharging corporate social responsibility under such a statutory obligation and under a voluntary assumption of responsibility. As for the former, the disallowance under Explanation 2 to Section 37(1) comes into play, but, as for latter, there is no such disabling provision as long as the expenses, even discharge of corporate social responsibility on voluntary basis, can be said to be “wholly and exclusively for the purposes of business’’. There is no dispute that he expenses in question are not incurred under the aforesaid statutory obligation. For this reason also, as also for the basic reason that the Explanation 2 to Section 37(1) comes into play with effect from 1st April 2015, we hold that the disabling provision of Explanation 2 to Section 37(1) does not apply on the facts of this case.
20. Ground No. 3 is also thus dismissed.” The factual matrix are identical in the present case. Besides this, insertion of Explanation 2 to section 37(1) is applicable w.e.f. 1.4.2015 and thus, the said provision will not be applicable in the present case. There is no dispute that the expenses in question are not incurred under the statutory obligation. The Assessing Officer disallowed the claim of CSR expenses without disputing the factual matrix or bringing on record any adverse material which can be seen from the Assessment Order. Thus, this disallowance does not survive. Hence Ground No. 7 is allowed.”
The facts are identical to the facts of A.Y. 2013-14 and there is no discrepancy made out by the revenue during the assessment proceedings. Therefore, the issue is covered in favour of the assessee. Ground No. 8 is allowed.
As regards to Ground No. 9 relating to addition on account of difference in total receipts and Form 26AS of Rs. 6,49,988/-, the Ld. AR submitted that this issue is remanded back by the Tribunal in A.Y. 2013-14 to the file of the Assessing Officer and thus, similar directions may be issued in the present year as well.
The Ld. DR did not object to the same.
We have heard both the parties and perused all the relevant material available on record. The Tribunal in A.Y. 2013-14 held as under: 37. We have heard both the parties and perused all the relevant material available on record. The Ld. AR pointed out that the difference on account of 26AS the assessee has already made the submission after reconciliation which has not been appreciated. There is no proper finding to that effect in the Assessment Order, therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer for proper adjudication. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 8 is partly allowed for statistical purpose.”
From the perusal of the records it is appropriate in the present Assessment Year as well to remand back this issue to the file of the Assessing Officer for proper adjudication. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 9 is partly allowed for statistical purpose.
As regards to Ground Nos. 10 and 11, the same are general in nature, hence Ground Nos. 10 and 11 are dismissed. As regards to Ground No. 12 is concerned the same is consequential, hence the same is not adjudicated at this juncture.