DCIT, CC -1(4), MUMBAI vs. M/S. HINDALCO INDUSTRIES LTD., MUMBAI

The brief facts are that assessee company owns an industrial unit in Belur, West Bengal, the profit of which is eligible for deduction under Section 80(IB) of the Act. The assessee company claimed a deduction of Rs. 3,87,41,881 under Section 80(IB) for the industrial unit at Belur, West Bengal.

We have heard both the parties at length and also perused the relevant finding given in the impugned order as well as material placed on record. The main contention of the ld. Counsel for the assessee was that the Ld. AO as well as Ld. CIT(A) have grossly erred in completely ignoring the fact that an audit certificate in Form 10CCB for the undertaking has been filed for the current AY 2003-04. This was done because of an amendment brought in Finance Act 2002 requiring furnishing of 10CCB as an audit certificate for the eligible business. The said Form 10CCB was enclosed with the return of income and has been placed at page number 26 of the paper book 1. The assessee contended that at page 18 of CIT(A) order, it has been mentioned that the auditor has duly verified the deduction u/s 80IB and certificate to this effect been issued to the assessee. It was also the contention of assessee that the profitability statement of the Belur unit, was filed before AO (which has also been filed at page 19 of paper book), is nothing but a profit and loss account only. Thereafter, ld. Counsel also pointed out that ITAT Mumbai for the A.Y.2001-02 on exactly same issue after considering the decision of the Tribunal for A.Y.2002-03 had referred the matter back to the file of the ld. AO to examine the claim u/s.80IB afresh in line with the profitability statement filed for 5 & 619/Mum/2007 M/s. Hindalco Industries Ltd the unit. He pointed out that in the set aside proceedings, ld. AO had allowed the claim in full after verification of the profitability statement for A.Y.2001-02 while allowing full deduction u/s.80IB for the Belur unit and agreed that unit has reported net profit rate @16.29% of the turnover as compared to the normal net profit of 10.23% of the turnover. The ld. AO gave the finding that the net profit ratio of 16.29% of turnover is reasonable keeping in view the global net profit ratio of 10.23% of turnover. Before us, the assessee's contention is that in the present case also the net profit reported by the undertaking in the profitability statement is 11.66% of turnover as compared to the global net profit of 6.06% of the global turnover. Therefore, by applying the same yardstick as applied by AO in AY 2001- 02, the net profit of 11.66% of turnover of the Belur unit should be taken as reasonable.

On the other hand, ld. DR strongly relied upon the order of the ld. AO and ld. CIT(A) without prejudice submitted that matter should be restored back to the file of the ld. AO in line with the direction given by the Tribunal for A.Y.2001-02.

From the perusal of the impugned orders, it is seen that, the case of the ld. AO is, firstly, assessee had not maintained separate profit and loss account for the Belur unit; and secondly, following the earlier year, he has held that global profit of the entire company should be applied on the profit of the Belur unit. From the records it is seen that assessee had filed audit report in Form 10CCB which was part of the return of income. The 6 & 619/Mum/2007 M/s. Hindalco Industries Ltd Auditor has duly verified the deduction u/s.80IB and profitability statement of the Belur unit was also filed before the ld. AO. Thus, in this year unlike in A.Y.2002-03, assessee did filed separate profit and loss account for the Belur unit duly certified by the Auditor in Form 10CCB. In A.Y 2001-02, this matter was remanded back to the ld. AO and as stated by the ld. Counsel, the ld. AO has accepted the profitability as shown by the assessee. Thus, the net profit of 11.66% of the turnover of the Belur unit is to be accepted and global profit cannot be applied. This principle has been upheld by the Hon‟ble Delhi High Court in the case of Commissioner of Income Tax v. Delhi Press Patra Prakashan (2013) 355 ITR 1 (Delhi), wherein under similar facts, the AO had sought to impose the overall margin of the assessee‟s units (9.92% in that case) against the profit rate of 62.31% of the concerned unit declared by the assessee therein. The Hon‟ble High Court held that the assessee was entitled to a deduction under Section 80IA and 80IB of the Act on the profits of the concerned unit. The relevant observations of the Court are reproduced herein: 26. In the present case, there is no material to support the view that the job work charges charged by Unit No.4 from Unit No.1 were not at market rates. We are agreement with the view taken by the Tribunal that in the absence of any defect or manipulation found by the Assessing Officer in the books maintained for Unit No.4 and in the absence of any material to indicate that the amount charged by Unit No.4 from Unit No.1 was not at comparable market rates, it would not be open for the revenue to disregard the profits of Unit No.4 as disclosed by the assessee only on the basis that the profits were significantly higher than profits earned by the assessee from other undertakings.

Thus, this issue stands covered by the decision of the aforesaid judgment of Hon‟ble Delhi High Court. It has been informed that the decision of the Tribunal for A.Y.2002-03 partially disallowing assessee‟s claim u/s.80IB which has been relied upon by the ld. CIT(A) has been subsequently set aside by the Hon‟ble Calcutta High Court and therefore, the stand taken by the ld. CIT(A) now gets vitiated. Accordingly, the claim made by the assessee in the return of income to the tune of Rs.3.87 Crores which is as per the certificate in Form 10CCB is allowed in full.

Accordingly, ground No.1 raised by the assessee is allowed.

BRIEF facts are that the assessee made a claim of deduction u/s 80HHC of Income Tax Act of Rs. 6,04,02,369 in its return of income. The ld. AO has disallowed the claim of assessee u/s 80HHC as the assessee has received money from the sale of DEPB license. For this purpose, AO has relied on the retrospective amendment made in section 80HHC which denied deduction u/s 80HHC to company having export turnover in excess of Rs. 10 crores on account of sale of DEPB license. Ld. CIT (A) confirmed finding of the ld.AO and gave finding based on second proviso to section 80HHC(3) inserted by taxation laws (Amendment) Act, 2005 with effect from 01/04/1998.

We find that reliance placed by the ld. AO and ld. CIT(A) on the retrospective amendment has now been struck down by Hon‟ble Gujarat High Court in the case of Avani Exports v. Commissioner of Income Tax 348 ITR 391 wherein the Hon‟ble High Court observed and held as under:- ―26. On consideration of the entire materials on record, we, therefore, find substance in the contention of the learned counsel for the petitioners that the impugned amendment is violative for its retrospective operation in order to overcome the decision of the Tribunal, and at the same time, for depriving the benefit earlier granted to a class of the assessees whose assessments were still pending although such benefit will be available to the assessees whose assessments have already been concluded. In other words, in this type of substantive amendment, retrospective operation can be given only if it is for the benefit of 9 & 619/Mum/2007 M/s. Hindalco Industries Ltd the assessee but not in a case where it affects even a fewer section of the assessees.

This judgment of the Hon‟ble Gujarat High Court has been affirmed by the Hon’ble Supreme Court in the case of Commissioner of Income Tax v. Avani Exports (2015) 277 CTR 460 with the following Observation: 4. Against the High Court judgment these SLPs are filed by the Union of India. Mr Mukul Rohatgi, learned Attorney General for India submits that once the prayer made was to sever the aforesaid two conditions as onerous and ultra vires, the High Court should have couched the reliefs in terms of that prayer only, instead of stating that the operation of the section would be given effect to prospectively only and these conditions would not operate retrospectively. At the same time, he accepts that the legal position would be that those exporters with turnover of rupees less than Rs 10 crores and other like the respondents with turnover of more than Rs 10 crores would be on a par and both would be entitled to the benefits.

In view of the above, Ground No.2 raised by the assessee is allowed.

GROUND OF APPEAL

In the result, ground No.3 raised by the assessee is allowed.

Before us ld. Counsel submitted that the decision of the ITAT Kolkata Bench in A.Y.2002-03 in ITA No. 1221/Kol/2006 and ITA No. 1045/Kol/2006 disallowing the assessee‟s claim for deduction for the expenditure incurred on repairs and replacement of plants and machinery, which was relied upon by the learned CIT(A), has been subsequently set aside by the Hon‟ble Calcutta High Court. Thus, he submitted that the ld. AO and ld. CIT(A) arrived at the wrong finding and were not justified in disallowing the claim of deduction.

Hon’ble Supreme Court in the case of Commissioner of Income Tax vs. Saravana Spinning Mills (P) Ltd. (2007) 293 ITR 201 (SC) held that under Section 31(i) of the Act, needs to be seen whether the expenditure incurred by the assessee is for “current repairs”. It is irrelevant to consider whether the expenditure is revenue or capital in nature. The relevant extract of the judgement is reproduced hereinbelow:

The Legislature intended to stress that under Section 31(i) the permissible deduction admissible is only for current repairs, therefore, the question as to whether the expenditure incurred by the assessee conceptually is revenue or capital in nature is not relevant for deciding the question as to whether such an expenditure comes within the etymological meaning of the expression "current repairs". In other words, even if the expenditure is revenue, it may not fall in the connotation of "current repairs" in Section 31(i). The test formulated above applies to cases where the assessee claims allowance under Section 31(i). In the present case, the High Court has lost sight of the test to be applied for an expenditure to fall under Section 31(i) as "current repairs". It has embarked on the test which was not applicable, viz, whether the expenditure is revenue or capital in nature... 28. If this principle is to be followed, then, what is required to be seen what is the nature of repair and maintenance which neither the ld. AO nor ld. CIT(A) have analysed. Further, it has been pointed out that in assessee‟s own case 15 & 619/Mum/2007 M/s. Hindalco Industries Ltd for A.Y. 2001-02 ITAT Mumbai Bench in ITA No.1373/K/2009 and ITA No.4930/Mum/2009 remanded the matter of the claim of deduction expenditure incurred of repairs and maintenance of plants and machinery back to the ld. AO for verification. However, from the perusal of the details as in the paper book, it is seen that these are small repairs and replacement of part of plant and machinery which is to be allowed u/s. 31 of the Act irrespective whether it is a capital or Revenue in nature. Thus, ld. AO is directed to examine the details in line with the decision of the Hon‟ble Supreme Court in the case of IT vs. Sarvana Spinning Mills (supra). Accordingly, this ground is allowed subject to verification by the ld. AO. 29. In the result, ground No.4 raised by the assessee is allowed.

It has been further contended that the BMCL is only recovering the cost of services and it does not charge any mark-up which is evident from the Profit & Loss account of BMCL. The assessee had also filed detailed written submission in this regard before us.

First of all it is not in dispute that BMCL is only recovering the cost of services and it does not charge any mark-up for providing net management and administrative 18 & 619/Mum/2007 M/s. Hindalco Industries Ltd services to the member companies. The assessee had submitted all the evidences that expenses have been incurred for availing and sharing common facilities and the sources afforded by BMCL. Before us additional evidence paper book in form of evidence of services which has been furnished at pages number 49 to 63. In subsequent assessment year i.e., AY 2004-05 on the basis of similar evidence of services CIT (A) has granted relief on this ground after considering ITAT order for AY 2002-03 in assessee‟s own case. Though in 2002-03, this Tribunal had dismissed claim for allowance of BMCL expense for lack of proof of services, but that finding too has been set aside by Hon‟ble High Court. If the services have been rendered and proof of services have been given, we do not find any reason as to why disallowance should be made in the corporate world that for the common services and common maintenance and entity for the same group provides centralized services and here in this case, BMCL has not even charged mark-up and BMCL is assessed at Nil on the principle of mutuality. 37. We find that Hon‟ble Bombay High Court in the case of PCIT v. M/s Merck Ltd. (Income Tax Appeal No. 726 of 2017) had an occasion to deal with similar issue. Relevant paragraph of the judgment is reproduced herein below: ―4. Regarding question (b): (a) The respondent had made a payment of Rs. 3 crores to its one AE viz. M/s. Merck KGaA in terms of consultancy agreement between the above AE and itself. The agreement provided that the AE will give technical consultancy in various areas to the 19 & 619/Mum/2007 M/s. Hindalco Industries Ltd respondents for the above consideration. The TPO on facts found that the respondent did not avail of any services under the above agreement and thus determined the ALP at Nil. (b) The impugned order of the Tribunal holds that under the consultancy agreement, the respondent was entitled to receive a package of services on as and when required basis. Thus, even if the assessee may not have received all the services, yet the respondent has a right to receive these services. Thus, relying upon a decision of its co-ordinate bench in AWB India Ltd. Vs. DCI (2015) 152 ITD 570 it held that if a package of services is made available on requirement basis, the value of services cannot be taken as Nil, so long as the agreement is not a sham. (c) It is an agreed position between the parties that in the respondent’s own case for Assessment Year 2003-04, a similar issue had arisen viz. package of services being available under the agreement on as and when required basis. This Court by an order dated 2nd August, 2016 (CIT Vs. Merck Ltd. Writ Petition No.272 of 2014) held the fees paid for on bouquet of services as and when required, would be similar to retainer agreement. It is agreed by the Revenue that the above order dated 8th August, 2016 of this Court in the respondent’s own case will equally apply to the present facts. (d) In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained.‖ The assessee further contends that in present case also there is right to receive services from BMCL. Without prejudice to the stand that services has been availed from BMCL, even if no services has been taken in previous year relevant to assessment year, the charges paid to BMCL on this account is deductible as per judgment of Bombay High Court in the case of Merck India Ltd. The assessee further Contend that in present case, the assessee not only had right to receive various managerial services from BMCL but also have availed the services for which sample evidence is furnished by way of additional evidence as stated above. The assessee further relies upon following various judgement in support of his contention: CIT Vs Spencers & Co Ltd 49 taxmann.com 318 i.

Accordingly, the ground No.5 raised by the assessee is allowed. 40. GROUND OF APPEAL

Similarly, the Hon’ble Bombay High Court in the case of Commissioner of Income Tax v. M/s Nicholas Piramal (India)

The Tribunal while following the decision of the Madras High Court in Commissioner of Income Tax v/s. Madras Refineries Ltd., 266 ITR 170 held that the concept of business is not static and over a period of time, it would include within its fold the care and concern for the society at large which would result in a goodwill being created in its favour leading to better business. The Madras High Court in Madras Refineries (supra) had allowed expenditure incurred on drinking water facilities and aid to the school. Therefore, in the present case also, expenditure incurred for community is for the purpose of business. This is in effect, a finding of fact and the Revenue is unable to show, it is perverse. Thus, no fault can be found with the order of the Tribunal.

Thus, we hold that expenses incurred of sundry development are treated as expenditure incurred wholly and exclusively for the purpose of business. Accordingly, ground No.6 is allowed.

Ground No. 7 with respect to the claim of deduction in respect of advertisement expenses incurred by the assessee and ground no. 10 and 11 are also not pressed in view of the smallness of amount. Accordingly, ground No.7,10 and 11 are treated as dismissed.In the result, ground No.7,10 & 11 are dismissed. 48. Ground No. 12 with respect to claim of deduction of the entrance fees paid to clubs. 12. That the Commissioner of Income Tax (Appeals) erred on facts 25 & 619/Mum/2007 M/s. Hindalco Industries Ltd and in law in confirming the action of the assessing officer in disallowing contribution made by the appellant to Bengal Club, Kolkata amounting to Rs 14,38,666 holding that the aforesaid expenditure was not incurred for the purpose of the business of the appellant. 49. The assessee‟s claim of deduction on account of Rs 14,38,666/- paid for membership of Bengal Club, Kolkata was disallowed by the learned ld.AO on the basis that such expenses were personal in nature and on behalf of the employees, thus disqualifying them from being treated as business expenditure. This was upheld by the ld. CIT(A). As per the ld. CIT(A), the expense cannot fall in the category of an expenditure incurred wholly, necessarily and exclusively for the purpose of business. 50. Now this issue stands covered by the decision of the Hon’ble Bombay High Court in the case of OTIS Elevators Company India limited vs comm. of Income tax IT ref. no. 497 of 1977, Sayaji Iron & Engg. Co. vs. Commissioner of Income Tax, (2002) 253 ITR 749 (Guj). Further, full Bench decision of the Punjab & Haryana High Court in the case of Commissioner of Income Tax v. Groz Beckert Asia Limited (2013) 351 ITR 196 (P&H) (FB) before the Hon‟ble High Court of Punjab and Haryana, a similar claim of membership fees of a club paid by the assessee-company was declined by the AO on the ground that they were personal expenses of the MD and other employees. The Hon‟ble High Court however held that such expenses were for running the 26 & 619/Mum/2007 M/s. Hindalco Industries Ltd business with a view to produce benefits to the assessee- company. The relevant extract is reproduced hereinbelow: 16. In the present case, the corporate membership of Rs.6 lacs was for a limited period of 5 years. The corporate membership was obtained for running the business with a view to produce profit. Such membership does not bring into existence an asset or an advantage for the enduring benefit of the business. It is an expenditure incurred for the period of membership and is not long lasting. By subscribing to the membership of a club, no capital asset is created or comes into existence. By such membership, a privilege to use facilities of a club alone, are conferred on the assessee and that too for a limited period. Such expenses are for running the business with a view to produce the benefits to the assessee. Consequently, it cannot be treated as capital asset. Therefore, the reasoning given by Delhi, Bombay and Gujarat High Courts in respect of members of Clubs is based upon correct enunciations of the principles of law as delineated above in the judgments of the Supreme Court.

Therefore, it cannot be said that the assessee‟s expenditure on subscription to the club for its employees is for the personal use. Instead, the welfare of the employees gained out of the said expense goes towards running the business of the assessee and producing business benefits. Thus, ground No.12 is allowed.

GROUND OF APPEAL NO. 13 .That the Commissioner of Income Tax (Appeals) erred on facts and in law in not holding that on the facts of the appellant’s case, the action of the assessing officer in not allowing set off of short term capital loss on sale of investments against profit on sale of investments was erroneous; instead in holding that the aforesaid loss on sale of investments was not allowable in view of the provisions of section 94(7) of the Act. 13.1.That the Commissioner of Income Tax (Appeals) erred on facts 27 & 619/Mum/2007 M/s. Hindalco Industries Ltd and in law in not appreciating that provision of Section 94(7) of the Act had no application on the facts of the appellant’s case.‖ 53. The assessee company has reported profit on sale of investment to the tune of Rs. 34,93,14,559/- in its profit and loss account. However, in computation of income, only Rs. 2,00,45,757/- was shown after deducting short term capital loss of Rs. 33,09,97,762/- and was offered to tax. Assessing officer did not accept loss claimed in computation of income and assessed short term capital gain at 34,93,14,550/- without considering loss claimed in computation. Before the CIT (A), vide letter dated 21.02.2006, an explanation was submitted for profit on sale of investment to be taken at Rs. 2,00,45,757/-. The assessee before CIT(A) explained the loss arising out of bonus plan and dividend plan was explained.

Before us, assessee filed detailed written submissions wherein it has been submitted that with respect to K Bond 99 dividend plan, an accounting profit of Rs 2,23,12,232/- was shown whereas loss of Rs. 7,96,30,763/- was claimed under computation. It has been submitted that these units were purchased for Rs. 44,33,00,000/- on 13.03.2002. Subsequently a dividend of Rs. 9,60,21,660/- was received on 13.03.2002. Post receipt of dividend, NAV of the units came down 28 & 619/Mum/2007 M/s. Hindalco Industries Ltd substantially. Therefore, in accounts write down of investment was made for Rs.10,19,42,996/- on this account. Because of such write down of investment, the original cost of the unit was brought down from Rs. 44,33,00,000/- to Rs. 34,13,57,004/-. The Assessee further clarified that the said write down of investment amounting to Rs. 10,19,42,996/- was offered to tax in the return of income of AY 2002-03 because write down of investment is not a permissible deduction.

In subsequent year (the current assessment year), the said investments were sold for Rs. 36,36,69,236/- which resulted into profit in the accounts to the tune of Rs. 2,32,12,230/-, as cost of the units as per books were brought down to Rs. 34,13,57,004/- because of provision of write down. However, as per income tax calculation, the original cost was taken as actual historical cost i.e., Rs. 44,33,00,000/- giving loss of Rs. 7,96,30,763/-. The assessee further contended that mischief of 94(7) is not applicable in this case as holding period of these units were for a period were long enough to come out of mischief of 94(7). Thus lower authorities have completely disregarded these facts.

Further, assessee submitted that a loss on account of K bond wholesale plan bonus option should have been allowed. On 07.01.2003, 4,31,55,208 units were purchased for Rs. 68,19,77,442/-. Subsequently, on 10.01.2003, bonus in the ratio of 2:1 was given. In the books of account, the cost for original units was averaged between bonus and original units. Thereafter original units (4,31,55,208 units) were sold for Rs.

The assessee‟s contention before us is that a sum of Rs. 22,90,54,766/- was incurred as loss as per section 55 of Income Tax Act on sale of original units of K Bond Wholesale plan bonus option. This loss has not arisen in books of account as the cost incurred for acquisition of original unit of k-bond wholesale plan was apportioned also to units received as bonus. Therefore, when original unit of K bond was sold, as per section 55(2)(aa), the cost of original unit remains the 30 & 619/Mum/2007 M/s. Hindalco Industries Ltd same at which the original units were acquired and sale of original units resulted in Loss of Rs. 22,90,54,766/- 59. Thus, Ld CIT (A) has wrongly applied provision of dividend stripping contained in 94(7) on transaction in the nature of bonus stripping covered by section 94(8) which were not in existence in previous year 2002-03.

After considering the aforesaid submissions we feel that this matter should be restored back to the ld. AO to examine whether the losses of bonus stripping should be allowed as there is no application of section 94(8) in year under appeal. So far as loss on account of dividend striping is concerned, the ld. AO will examine the holding period of units and decide the issue to examine the issue of losses because Section 94(7) is not attracted due to adequate holding period. Accordingly, this ground is partly allowed for statistical purposes.

In the result, ground No.13 is partly allowed for statistical purposes.

GROUND OF APPEAL

The ld. CIT (A) confirmed the action of the ld.AO and held that the ld. AO‟s finding that the airplane was not brought into the business use of the assessee in the previous year had not been rebutted by the assessee.

We have heard both the parties and perused the finding given by the authorities below. Initially ld. AO disallowed the claim of depreciation on aircraft and expenditure incurred on maintenance of aircraft on account of absence of any proof of its acquisition and failure to furnish any evidence with respect to commissioning of aircraft. Upon furnishing of additional evidences by the assessee, ld. AO has given his remand report and his main contention is that the airplane was put to use in the business of the assessee only in the subsequent year. The flights in the concerned year were all categorized as trainee flights and on this ground disallowance has been made. It has 32 & 619/Mum/2007 M/s. Hindalco Industries Ltd been contended that even it is a trial run of machinery, still it makes it eligible for claim of depreciation u/s 32 of Act. In support of this, the decision of Hon’ble Gujarat High Court has been relied upon in the case of Assistant Commissioner of Income Tax v. Ashima Syntex Ltd. (2001) 251 ITR 133 (Guj), wherein trial run of machines was held to be “being used for the purpose of business” as specified under Section 32 of the Act. The relevant extract of the judgment is reproduced herein below: ―37. Thus, it is clear that the settled position in law is that it is not necessary that the machinery must be used for a particular number of days so as to entitle it to depreciation, but it requires that it should be used for the purpose of business or profession or vocation. The trial run of the machinery is obviously for the purpose of business and not for any other purposes. What is required to be seen that the machinery must be "used" for the purpose of the business and keeping in mind the wider meaning ascribed by various decisions of various courts to the term "use", even trial production of a machinery would fall within the ambit of "used for the purpose of business". Further, as the statute does not prescribe a minimum time limit for "use" of the machinery, the assessee cannot be denied the benefit of depreciation on the ground that the machinery was used for a very short duration for trial run.”

Thus, the trial run is held as use for the purpose of business, then the maintenance expenses should also be allowed as deductible. The assessee had also furnished flight details for the year under consideration which has been enclosed at pages 50 to 53 of paper book which clearly shows that it was a trial run and for training of the flights. Thus, depreciation and 33 & 619/Mum/2007 M/s. Hindalco Industries Ltd maintenance at the aircraft is held to be allowed. In the result, ground No.14 is allowed.

Ground No.15 relating to disallowance on adhoc basis of Rs.10,00,000/- u/s.40A(2)(b) in respect of amount paid and reimbursed by the assessee to M/s. Hindalco Industries Ltd. has not been pressed due to smallness of amount. Accordingly, same is dismissed as not pressed. In the result, ground No.15 is dismissed. 68. Assessee has also raised various additional grounds which we will deal hereinafter.

Additional grounds 1: Deduction u/s 80HHC has to be computed on the basis of adjusted book profit under section 115JB and not on the basis of the profits computed under regular provisions of law applicable to computation of profits and gains of business. The brief facts are that The company had claimed a deduction of Rs. 6,04,02,369/-, u/s 80HHC while calculating book profit u/s 115JB. The said claim was made as per Form 10CCAC. The quantum of the claim was determined on the basis of business profit computed as per as per normal computation of income and not as per adjusted Book Profit u/s 115JB. The assessee contended that the issue is squarely covered by Bhari Information Technology (245 CTR 1) (SC) wherein, it was held that deduction u/s 80HHE from Book Profit for the purpose of MAT should be computed based on Book Profits as per profit and loss account and not based on 34 & 619/Mum/2007 M/s. Hindalco Industries Ltd business income computed as per section 28 to 44D. Therefore, same ratio shall equally apply for the deduction u/s 80HHC. For sake of convenience, the head note of the decision is reproduced herein below: ―Company—Book profit under s. 115JA—Deduction under s. 80HHE—Deduction claimed by the assessee under s. 80HHE has to be worked out on the basis of adjusted book profit under s. 115JA and not on the basis of the profits computed under regular provisions of law applicable to computation of profits and gains of business.”

The assessee further contended that case is also covered by Madras High Court decision in case of CPS textiles (P.) Ltd. (20 taxmann.com 372).

After considering the aforesaid facts and contentions of ld. Counsel it is seen that company had claimed deduction of Rs.6,04,02,369/-u/s.80HHC by calculating book profit u/s.115JB which was made as per Form 10CCAC. The quantum of the claim has been determined on the basis of business profit computed as per normal computation of income and not as per adjusted book profit. Now, this issue as noted above stands covered by the decision of the Hon‟ble Supreme Court which was rendered in the context of deduction u/s.80HHC wherein the Court held that deduction from book profit for the purpose of MAT should be computed based on book profit as per profit and loss account and not based on business income as per Section 28(D) to 44D. Since assessee has not given any working and neither such claim 35 & 619/Mum/2007 M/s. Hindalco Industries Ltd was made before the ld. AO because assessee had computed the book profit under MAT and not under normal provision of computation of income, therefore, this issue is remanded back to the ld. AO to be decided in accordance with law in line with the decision of the Hon‟ble Supreme Court in the case of Bhari Information Technology (supra).

Additional Ground No.2 raised by the assessee is as under:-

Now in light of the judgement of Hon‟ble Supreme Court, assessee was asked to submit a revised work of 80HHC deductible from the book profit for computation of tax under MAT, which was given in the following manner:-

Accordigly, this issue is remanded back to the ld. AO to examine the computation of the revised working of 80HHC which is deductible from the book profit which is in light of the decision of the Hon‟ble Supreme Court in the case of Ajanta Pharma Ltd. vs CIT (supra). Accordingly, additional Ground No.2 is allowed.

Additional Ground Nos.3 & 4 reads as under:-

The assessee company has made a claim of deduction u/s 80IA in respect of its power plant at Hirakud, Orissa amounting to Rs. 17,86,56,581. This is a matter of fact that power generated by power plant is substantially consumed by the aluminum unit of the assessee and small part of power generated was sold to Grid Corporation of Orissa Ltd.

Assessee company has adopted rates charged by Orissa State electricity board to its industrial consumer which was taken at Rs. 2.63 per unit as Transfer price to Aluminium unit for computing deduction u/s 80(IA). Assessing officer denied the entire claim of deduction u/s 80IA by adopting the Transfer price at which small part of power generated was sold 39 & 619/Mum/2007 M/s. Hindalco Industries Ltd to Grid Corporation of Orissa Ltd. which was at 77 paisa per unit. 81. Ld CIT(A) observed that price charged from Grid Corporation of India was dictated and not free price as the price has inbuilt compensation therein for the assessee because without agreeing to such pricing conditions, the permission for setting up of power unit would not have been granted. Ld. CIT(A) directed l d . AO to adopt price charged by Orissa Electricity board to industrial consumer which is taken at 2.63 per unit. Ld. CIT(A) also directed the ld.AO to look into expenses relating to these particular unit. 82. At the outset, assessee contended that this issue is squarely covered by assessee‟s own case in AY 2001-02 by ITAT order contained at page 701 of evidence paper book 2. However, assessee also clarifies that the tribunal order for AY 01-02 based its finding also on ITAT order for AY 02-03 on assessee‟s own case. It is also brought to the notice that the entire ITAT order for AY 2002-03 has been set aside by Hon‟ble High court of Calcutta.

Hon‟ble Supreme Court after analyzing the provision of Section 80IA(8) held the concept of „open market‟ as used in explanation that “market value” in relation to any goods, means the price that such goods would ordinarily fetch on sale in the open market observed and held as under:-

This brings to the fore as to what do we mean by the expression "open market" which is not a defined expression 24. Black's Law Dictionary, 10th Edition, defines the expression "open market" to mean a market In which any buyer or seller may trade and in which prices and product availability are determined by free competition. P Ramanatha Alyer's Advanced Law Lexicon has also defined the expression "open marker" to mean a market in 42 & 619/Mum/2007 M/s. Hindalco Industries Ltd which goods are available to be bought and sold by anyone who cares to. Prices in an open market are determined by the laws of supply and demand.

Therefore, the expression "market value" in relation to any goods as defined by the explanation below the proviso to sub- section (8) of Section 80-1A would mean the price of such goods determined in an environment of free trade or competition. "Market value" is an expression which denotes the price of a good arrived at between a buyer and a seller in the open market ie, where the transaction takes place in the normal course of trading. Such pricing is unfettered by any control or regulation: rather, it is determined by the economics of demand and supply 26. Under the electricity regime in force, an industrial consumer could purchase electricity from the State Electricity Board or avail electricity produced by its own captive power generating unit. No other entity could supply electricity to any consumer. A private person could set up a power generating unit having restrictions on the use of power generated and at the same time the tariff at which the said power plant could supply surplus power to the State Electricity Board was also liable to be determined in accordance with the statutory requirements. In the present case, as the electricity from the State Electricity Board was inadequate to meet power requirements of the industrial units of the assessee, it set up captive power plants to supply electricity to its industrial units. However, the captive power plants of the assessee could sell or supply the surplus electricity (after supplying electricity to its industrial units) to the State Electricity Board only and not to any other authority or person. Therefore, the surplus electricity had to be compulsorily supplied by the assessee to the State Electricity Board and in terms of Sections 43 and 43A of the 1948 Act, a contract was entered into between the assessee and the State Electricity Board for supply of the surplus electricity by the former to the latter. The price for supply of such electricity by the assessee to the State Electricity Board was fixed at Rs. 2.32 per unit as per the contract. This price is, therefore, a contracted price. Further, there was no room or any elbow space for negotiation on the part of the assessee. Under the statutory regime in place, the assessee had no other alternative but to sell or supply the surplus electricity to the State Electricity Board. Being in a dominant position, the 43 & 619/Mum/2007 M/s. Hindalco Industries Ltd State Electricity Board could fix the price to which the assessee really had little or no scope to either oppose or negotiate. Therefore, it is evident that determination of tariff between the assessee and the State Electricity Board cannot be said to be an exercise between a buyer and a seller in a competitive environment or in the ordinary course of trade and business Le, in the open market. Such a price cannot be said to be the price which is determined in the normal course of trade and competition.

Another way of looking at the issue is, if the industrial units of the assessee did not have the option of obtaining power from the captive power plants of the assessee, then in that case it would have had to purchase electricity from the State Electricity Board. In such a scenario, the industrial units of the assessee would have had to purchase power from the State Electricity Board at the same rate at which the State Electricity Board supplied to the industrial consumers i.e.. Rs. 3.72 per unit.

Thus, market value of the power supplied by the assessee to its industrial units should be computed by considering the rate at which the State Electricity Board supplied power to the consumers in the open market and not comparing it with the rate of power when sold to a supplier le, sold by the assessee to the State Electricity Board as this was not the rate at which an industrial consumer could have purchased power in the open market. It is clear that the rate at which power was supplied to a supplier could not be the market rate of electricity purchased by a consumer in the open market. On the contrary, the rate at which the State Electricity Board supplied power to the industrial consumers has to be taken as the market value for computing deduction under section 80-IA of the Act.

Section 43A of the 1948 Act lays down the terms and conditions for determining the tariff for supply of electricity. The said provision makes it clear that tariff is determined on the basis of various parameters. That apart, it is only upon granting of specific consent that a private entity could set up a power generating unit. However, such a unit would have restrictions not only on the use of the power generated but also regarding determination of tariff at which the power generating unit could supply surplus power to the concerned State Electricity Board.

Thus on a careful consideration, we are of the view that the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity. It should not be compared with the rate of power sold to or supplied to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market. The State Electricity Board's rate when it supplies power to the consumers have to be taken as the market value for computing the deduction under section 80-1A of the Act.

Thus, following the ration and the principle laid down by the Hon‟ble Supreme Court we hold that rates charged by Orissa State electricity board to its industrial consumer which was taken at Rs. 2.63 per unit as Transfer price to Aluminum 45 & 619/Mum/2007 M/s. Hindalco Industries Ltd unit is accepted to be at Market rate. Accordingly, ground No.1 raised by the Revenue is dismissed.

Ground No.2 relating to restricting the disallowance to Rs.28,49,914/- against Rs. 3,98,32,604/- made by A.O on account of commission paid to different parties. This issue has already been decided in assessee‟s appeal and also in the remand report, ld. AO himself has accepted the payments under the head „commission‟ which has been accepted by the ld. CIT(A), accordingly ground No.2 raised by the Revenue is dismissed. 87. Ground 3 raised by the Revenue reads as under:- ―3(a) That on the fact and in the circumstance of the case Ld. C.I.T.(A) has erred in deciding appeal in favour of assessee for statistical purposes by directing the AO to allow deduction after allowing opportunity to the assessee to prove the factum of payment to the Dy. Conservator of Forest amounting to Rs.11,47,000/- when the A/R of the assessee has expressed his inability to produce any evidence of such payment before the AO. 3(b) That on the fact and in the circumstance of the case Ld. C.I.T. (A) has erred in allowing the appeal in assessee's favour for statistical purposes on the above issue in accepting the assessee's contention placed before him through copies of covering letters claiming to enclose the demand draft sent to the Forest Authority for issue of passes towards dispatch of Aluminium Laterite/Bauxite. In giving appeal effect the AO has disallowed the same, assessee did not object to it, hence, this ground has become infructuous.‖ 88. Ld. AO has already disallowed the same hence, the ground No.3 becomes infructuous. 89. Ground No. 4 in Revenue‟s appeal reads as under:-

The assessee company has debited Rs. 49,87,18,000/- as repairs and maintenance expenses in profit and loss account. Ld AO disallowed 5% of expenses because at the time of scrutiny proceeding only unit wise details has been submitted. During the course of hearing before commissioner appeal, bills of Plant & Machinery to the tune of Rs. 39.89 crores fully given to the satisfaction of Ld. A.O.

Considering the remand report and the evidence, ld. CIT (A) held that expenses on account of building and others was substantiated and accordingly, ld. CIT(A) has deleted the estimated disallowance of 5%. In any case, the entire repair expenses have been charged to profit and loss account and there is no allegation that they are capital in nature. Assessee had filed voluminous bills and invoices on account of repairs of plant and machinery before the authorities below and accordingly, no disallowance is called for on estimated basis.

The ground No.5 raised by the Revenue reads as under:- ―That on the fact and in the circumstance of the case Ld. C.I.T.(A) has erred in allowing the appeal in favour of assessee by directing the AO to verify the contention of the assessee that the assessee has already offered for taxation Rs.4,26,31,807/- u/s.43B of the IT Act in assessment years 1995-96 to 2002-03 on account of Sales Tax, Octroi, Bonus & provison for Excise Duty without any supporting evidence.‖

The assessee company has claimed a sum of Rs. 5,19,77,835/- as amount written back in profit and loss account for statutory and other dues covered by section 43B and were not allowed in earlier years. AO made an addition of Rs. 4,26,31,807/- as amount written back on the ground that write back of an amount does not amount to payment of statutory liability. Therefore, as per the assessing officer, the same is not allowable deduction. Before the CIT(A), the assessee contended that Rs. 4,26,31,807/- had been offered for taxation in AY 1995-96 to AY 2002-03 on account of sales tax, octroi, bonus for excise duty been provided in account but not paid. CIT(A) directed AO to verify whether amount aggregating to Rs. 4,26,31,807 were offered to tax in earlier assessment year and, if yes, to allow the deduction in current year. The AO after due verification has allowed the same the appeal effect of which is contained at Page 605 of paper book 2. The assessee contended that the ground has become infructuous as AO himself after verifying the sum has already 48 & 619/Mum/2007 M/s. Hindalco Industries Ltd offered to tax in earlier years u/s 43B, hence allowed deduction of write back from taxable income while giving appeal effect. Thus, provision which were already offered to tax in earlier years and they are written back in subsequent years, the same cannot be taxed in subsequent years.

Since, ld. AO himself has verified and same has been offered to tax in earlier years u/s.43B, he has accepted deduction from write back from taxable income while giving appeal effect and the provision which was already offered to tax in the earlier years, they have been returned back in the subsequent years, therefore, the same cannot be taxed in subsequent years, accordingly, there is no substance raised by the department and the same is dismissed. 95. Accordingly, the ground No.5 is dismissed. 96. In ground No.6, the Revenue has raised following ground:- ―That on the fact and in the circumstance of the case Ld. CIT(A) has erred in allowing the appeal in favour of assessee by directing the AO to verify the contention of the assessee that the assessee has already added back the amount of Rs. 12,61,00,000/-in its return of income as the assessee failed to prove so during the assessment proceedings as well as during the appellate proceedings for the year. AO disallowed Rs. 12,61,00,000/- on account of employee management pension fund being not paid by assessee company. During the course of hearing before CIT(A), assessee had pleaded that it has already added back the sum of Rs. 12,61,00,000/-in the Income Tax Return, So, there is double addition of same amount.‖ 49 & 619/Mum/2007 M/s. Hindalco Industries Ltd 97. In ground No.6, ld. CIT (A) directed the ld. AO to verify the deduction of the assessee and take necessary action. The ld. AO while giving effect has upheld the addition and accordingly, assessee‟s contention while giving effect to the ld. CIT(A) has been given, then this ground raised