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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI ARUN KHODPIA
आदेश / ORDER PER RAVISH SOOD, JM: The present appeal filed by the department is directed against the order passed by the CIT(Appeals)-1, Raipur, dated 17.03.2017, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 26.01.2016 for assessment year 2013-14. Before us the department has assailed the impugned order on the following grounds of appeal: “a.Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance out of the claim of assessee for deduction u/s 80IA(8) of the I.T.Act, 1961 to the tune of Rs.4,38,73,880/- made on account of power supplied to the steel division?" b. "Whether on points of law and on facts & circumstances of the case, in context of computation of deduction u/s.80IA(8) of the I.T.Act,1961, the Ld. CIT(A) was justified in holding that the market value of the power is the rate of power available in the open market namely the price charged by the Electricity Board?" c. Whether on points of law and on facts & circumstances of the case, in context of computation of deduction u/s.80IA(8) of the I.T.Act, 1961, the Ld. CIT(A) was justified in holding that the goods of one unit of a company can be transferred to another unit at a notional figure of what it might cost if purchased from outside rather than at cost of production?" d. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of Rs.5,73,515/- made u/s 14A of the Income Tax Act r.w.r 8D of the ITRules made by the AO?" e. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified is not considering the extent provisions of section 14A(3) of the IT Act while deleting the addition of Rs.5,73,515/- made by the AO?"
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f. "Whether on points of laws and on facts & circumstances of the case, the Ld. CIT(A) has erred in deleting the addition u/s 14A, when clause(3) of the section 14A of the Act clearly prescribes that provision of section 14A(2) apply in relation to case where any assessee claims that no expenditure has been incurred by him in relation to the income which does not form part of the total income under this Act, as held in the case of Cheminvest Ltd. Vs. ITO (ITAT, SB-Del) 121 ITD 318 and Pradeep Kar Vs. ACIT(Kar) 319 ITR 416?" g. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in placing reliance on the ration of the decision in the case of Maxopp Investment Ltd. 347 ITR 272 ( Delhi) which is distinguishable on facts and circumstances of the instant case”. h. “Whether on points of law and on facts and circumstances of the case, the Ld. CIT(A) was justified in not taking in consideration the ratio of the decision of the Calcutta High Court in the case of Dhanuka& Sons Vs. CIT ( Central-1) (2011), 201 Taxmann ( Calcutta) ( MAG) which is squarely applicable to the facts and circumstances of the instant case?” i. The order of the Ld. CIT(A) is erroneous both in law and on facts. k. Any other ground that may be adduced at the time of hearing.”
Succinctly stated, the assessee company which is engaged in the business of manufacturing and trading of sponge iron, steel ingots and generation of power had e-filed its return of income for the assessment year 2013-14 on 25.09.2013, declaring an income of Rs.2,15,87,150/-. Subsequently, the case of the assessee company was selected for scrutiny assessment u/s.143(2) of the Act.
Assessment was, thereafter, framed by the A.O u/s.143(3) of the Act dated 29.01.2016 determining the income of the assessee company at Rs.
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6,60,34,545/- i.e. after, inter alia, making the following additions /disallowances:
Sr. Particulars Amount No. 1. Disallowance out of assessee’s claim for Rs.4,38,73,880/- deduction u/s.80IA of the Act 2. Disallowance u/s.14A r.w.r. 8D Rs.5,73,515/-
Aggrieved, the assessee company carried the matter in appeal before the CIT(Appeals). After exhaustive deliberations the CIT(Appeals) vacated the aforesaid addition/disallowance made by the A.O, viz. (i) disallowance of the assessee’s claim for deduction u/s.80IA of the Act :Rs.4,38,73,880/- ; and (ii) disallowance u/s.14A : Rs.5,73,515/-.
The department being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
We shall first deal with the grievance of the department that the CIT(Appeals) had gravely erred in law and facts of the case in vacating the disallowance of the assessee’s claim for deduction u/s.80IA(4)(iv)(a) of the Act amounting to Rs.4,38,73,880/-. Controversy involved qua the present issue lies in a narrow compass, i.e., triggering of Section 80IA(8) of the Act by the A.O for declining the assessee’s claim for deduction u/s. 80IA(4)(iv)(a) of Rs.4,38,73,880/-. Shorn of unnecessary details, the
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assessee company which is engaged in the business of manufacturing and trading of sponge iron, steel ingots and generation of power has two divisions, viz. (i) steel division; and (ii) power division. The profit of the power division is eligible for deduction u/s.80IA(4)(iv)(a) of the Act. This is the sixth year of claim of deduction by the assessee u/s.80IA(4)(iv)(a) of the Act.
During the course of the assessment proceedings, it was observed by the A.O that the assessee company had transferred electricity produced in the power plant to its steel division and associate concerns, while for the remaining electricity was sold to the State electricity board, viz. Chattisgarh State Electricity Board (For short “CSEB”). It was observed by the A.O that the assesee company had transferred/sold electricity generated by its power plant as under:
S. Particulars No. of Units Rate/unit No. 1. Electricity Board 5770400 3.00 2. Electricity Board 5891300 3.05 3. Steel Division 26951029 4.30 4. Animesh Ispat (P) Ltd. 12639428 4.30
It was observed by the AO that though the assessee company had sold power to CSEB at the rate of Rs. 3.05 per unit, but had sold/transferred
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the same to its steel division and associate concerns at a higher value, i.e, at the rate of Rs. 4.30 per unit. Observing, that the assesee by selling the power to its steel division and associate concerns at a higher value had inflated the profits of its power division which was eligible for deduction u/s. 80IA of the Act and at the same time reduced the profits of its ferro (steel) division which was liable for tax under the Act, the AO called upon the assessee to put forth an explanation as regards the same. In reply, it was claimed by the assessee that as the tariff for sale of electricity by a power generating company, i.e., a private player to the State Electricity Board was strictly regulated by parameters laid down in Section 43A of the Electricity (Supply) Act, 1948, therefore, no feasible comparison could be drawn between the rate at which the electricity generated by its power division was transferred to its steel plant and associate concerns on the one hand as against the rate at which the same was transferred to CSEB on the other hand.
On the basis of its aforesaid explanation the assessee tried to impress upon the A.O that as the rate at which electricity units were transferred to CSEB would not fall within the meaning of “market value” as contemplated in the “Explanation” to Section 80IA(8) of the Act, therefore, no adverse inferences on the said count were liable to be drawn in its hands. Apart from that, it was submitted by the assessee that the average
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price at which electricity was transferred/sold by CSEB which in itself was based on the power tariff scheduled for H.T consumers, i.e., at the rate of Rs. 4.96 per unit could safely be adopted/taken as the “market value” within the meaning of Section 80IA(8) of the Act. It was, thus, the claim of the assessee that as it had transferred/sold electricity units produced by its power division to its steel plant and associate concerns at a rate lower than that at which same was being sold by CSEB to similarly placed units, therefore, no adverse inferences qua the alleged transfer/sale of the power units generated by the assessee company to its steel division and associate concerns were liable to be drawn. However, the A.O was not persuaded to subscribe to the aforesaid explanation of the assessee. Observing that the assessee was never under any obligation to sell electricity to CSEB, the A.O held a conviction that the assessee company had artificially inflated the rates at which it had sold the power units to its steel division and thus, by so doing reduced its overall tax liabilities. In order to support his aforesaid conviction the A.O had observed that a consortium of companies led by M/s. Sunflag Iron & Steel Company limited and India Bulls Power Generation Limited had offered to supply electricity to CSEB at the rate of Rs. 0.81 per unit. Also, it was observed by him that some other suppliers had supplied electricity to CSEB at the rate Rs. 2.25 per unit, Rs.2.32 per unit for different periods which being liable for correction as per load factor reduced the effective rate by further 10%. On the basis of his aforesaid
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observations the A.O was of the view that the effective rate paid by CSEB to the private players for purchasing the electricity was Rs.2/- per unit. On the basis of his aforesaid deliberations the A.O triggered the provisions of Section 80IA(8) of the Act and disallowed the assessee’s claim for deduction u/s.80IA(4)(iv)(a) of Rs.4,38,73,880/-, as under:
Details Units Total power sold to steel division 26951029 Total power sold to Associate concern 12639428 Total units 39590457
Difference in power rate (4.30-3.05) 1.25 Difference on a/c of inflated power 49488071 sales 43873880 Exemption claimed u/s.80-IA Amount to be reduced from income 43873880 of power division i.e. disallowance out of the claim u/s.80IA (restricted to amount claimed u/s.80- IA)
As regards the claim of the assessee that the Tribunal in its own case for A.Y.2008-09 in ITA No.159/BLPR/2011 had held that the domestic purchase price of electricity is a more appropriate rate which corresponds to the market rate than the price at which it is sold to the State electricity board, the A.O refused accept the same for the reason that the said order of the Tribunal had not accepted by the department and had
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been challenged before the Hon’ble High Court. Also, the reliance placed by the assessee on the judgment of the Hon’ble Jurisdictional High Court in the case of CIT Vs. Godawari Power & Ispat Ltd., Tax Case No. 31, 32, 34 of 2012 was also not accepted by the A.O on the ground that SLP filed against the said order was pending before the Hon’ble Apex Court.
Controversy involved qua the issue in hand lies in a narrow compass, i.e., as to whether or not the A.O had rightly triggered the provisions of Section 80IA(8) of the Act by adopting the domestic purchase price of electricity by CSEB as the “market rate” and justifiably scaled down the assessee’s claim for deduction u/s.80IA(4)(iv)(a) by an amount of Rs.4,38,75,880/-?. In our considered view, as claimed by the Ld. AR, and rightly so, the aforesaid issue as on date is squarely covered by the order of the Tribunal in the assessee’s own case for the assessment year 2008-09, i.e. ACIT-1(2) Vs. Mahindra Sponge and Power Limited in ITA No.159/BLPR/2011, dated 19.06.2015. In its aforesaid order the Tribunal had after drawing support from the judgment of the Hon’ble High Court of Chhattisgarh in the case of CIT Vs. Godawari Power & Ispat Ltd. (supra), found favor with the claim of the assessee and observed, that the “market value” of the power supplied by the assessee to its steel division was rightly computed by considering the rate at which power was available in the open market, namely, the price that was charged by the electricity board. For
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the sake of clarity the relevant observations of the Tribunal in the assessee’s own case for A.Y. 2008-09 are culled out as under: “6. At the outset, it is informed that the issue is squarely covered by the decision of Bilaspur Bench of the Tribunal in the case of ACIT V/s Godavari Power &Ispat Ltd. [2011] 133 ITD 502 (Bilaspur). In the compilation of the assessee at page 12, the respondent-assessee has also placed reliance on the order of Hon’ble High Court of Chhattisgarh at Bilaspur in the Tax case No.31, 34,32 of 2012 dated 2nd August, 2013 pronounced in the case of CIT V/s Godavari Power &Ispat Ltd., wherein on this very fact that the said assessee was a manufacturer of Iron steel and captive power plant has supplied electricity to its manufacturer unit which was at higher rate than the power supplied to Chhattisgarh State Electricity Board; the Hon’ble High Court has held as under : “28. The Chhattisgarh-Company is a company which is generating power. It is neither consumer of the electricity, nor it is supplying power to a consumer. It also cannot sell power to any consumer directly: it has to compulsorily sell it to the Board. 29. The power sold by the Chhattisgarh-Company to the Board is a sale to a company which itself supplies power to the consumers. It is not sale of power to the consumer. 30. The Steel-Division of the Assessee is a consumer. The CPP of the Assessee supplies electricity to the Steel-Division. Had the Steel-Division not taken power from the CPP then it had to purchase power from the Board. The CPP has charged the same rate from the Steel-Division that the Steel-Division had to pay to the Board if the power was purchased from the Board. 31. The market value of the power supplied to the Steel-Division should be computed considering the rate of power to a consumer in the open market and it should not be compared with the rate of power when it is sold to a supplier as this is not the rate for which a consumer or the Steel- Division could have purchased power in the open market. The rate of power to a supplier is not the market rate to a consumer in the open market. 32. In our opinion, the AO committed an illegality in computing the market value by taking into account the rate charged to a supplier: it should have been compared with the market value of power supplied to a consumer.
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It is admitted by the Department that in Chhattisgarh the power was supplied to the industrial consumers at the rate of Rs. 3.20/- per unit for the AY 2004-05 and Rs. 3.75/- per unit for the AYs 2005-06 and 2006-07. It was this rate that was to be considered while computing the market value of the power. 34. The CIT-A and the Tribunal had rightly computed the market value of the power after considering it with the rate of power available in the open market namely the price charged by the Board. There is no illegality in their orders. 35. In view of above, the question is decided against the Department and in favour of the Assessee. The tax appeals have no merit. They are dismissed 7. Since, this issue has already been decided by Hon’ble Jurisdictional High Court as discussed hereinabove, therefore, we find no force in this ground of Revenue. Before we conclude this judgment it is also worth to mentioned that the ld. CIT(A) has taken into consideration “market price” and thereafter granted part relief by sustaining the disallowance of Rs.11,76,763/-. The relevant paragraph of ld.CIT(A) has already been reproduced above. The ld. AR has stated at BAR that the assessee has not challenged the said partial relief and no appeal was preferred. Thus, under the totality of the facts an circumstance of the case, as also law pronounced by the Hon’ble Jurisdictional High Court, we hereby reject this ground of revenue.” 11. As the facts and issue involved in the present appeal of the assessee remains the same as were there before the Tribunal in its own case for AY 2008-09, therefore, we are unable to comprehend as to on what basis the A.O had declined to follow the same. At this stage, we may herein observe that it is neither a fact nor the case of the department that the aforesaid order of the Tribunal had either been set-aside or stayed by the Hon’ble High Court which would have otherwise justified the declining on its part to follow the same. Apart from that, we find absolutely no justification on the part of the A.O in not following the binding judgment of the Hon’ble High Court in the case of CIT Vs. Godawari Power & Ispat Ltd. (supra)
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which seizes the issue under consideration. Admittedly, the Department had assailed the aforesaid judgment of the Hon’ble High Court by filing a SLP before the Hon’ble Apex Court but again, as long as the said judicial pronouncement is not set-aside or stayed by the Hon’ble Apex Court the same holds the ground and have to be ritually followed by the lower authorities. We, thus, in terms of our aforesaid observations finding no merit in the declining of the assessee’s claim for deduction u/s. 80IA(4)(iv)(a) of Rs.4,38,73,880/- by the A.O which had rightly been vacated by the CIT(Appeals), uphold the latters order. Thus, the Grounds of appeal Nos. (a) to (c) raised by the Revenue are dismissed in terms of our aforesaid observations.
We shall now advert to the grievance of the Revenue that the CIT(Appeals) had erred in vacating the disallowance of the assessee’s claim u/s.14A r.w. Rule 8D(2)(ii) & (iii) of Rs.5,73,515/-.
As is discernible from the records, the assessee company during the year under consideration had made an investment of Rs.1,88,90,661/- in the exempt dividend income yielding equity shares of three companies, viz. (i) CG Sponge Manufacturers Consortium Coalfield Pvt. Ltd.; (ii) Raipur Handling and infrastructure Pvt. Ltd.; and (iii) Chhattisgarh Ispat Bhumi Limited. As the assessee had in its return of income not offered any disallowance u/s.14A of the Act, therefore, the A.O called upon it to
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explain as to why the same may not be determined as per mechanism contemplated U/rule 8D of the Income Tax Rules, 1962. As the submissions of the assessee did not found favor with the A.O, therefore, he computed the disallowance u/s.14A r.w Rule 8D at Rs.5,73,515/-, viz. (i) disallowance of interest expenditure U/rule. 8D(2)(ii): Rs.5,12,346/-; and (ii) disallowance of administrate expenses U/rule 8D(2)(iii) : Rs.61,169/-.
On appeal, the CIT(Appeals) observed that the A.O had failed to co- relate the interest paid by the assesee company on borrowed funds with the investments made in the exempt income yielding shares. On the contrary, it was noticed by the CIT(Appeals) that the various interest- bearing loans were raised by the assessee company to meet out its working capital requirements and maintaining its current assets level for running the business smoothly. It was also observed by the CIT(Appeals) that the AO while dislodging the assessee’s claim that no expenditure was incurred for earning of exempt income had failed to comply with the mandate of law as per which he was obligated to record his dissatisfaction before triggering the mechanism contemplated u/r.8D. It was further observed by the CIT(Appeals) that the assessee had not earned any exempt income from the investments during the year under consideration. On the basis of his aforesaid observations the CIT(Appeals) vacated the disallowance of Rs.5,73,515/- made by the A.O u/s.14A r.w Rule 8D.
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We have given a thoughtful consideration to the aforesaid issue in hand, i.e., sustainability of the disallowance made by the A.O u/s.14A r.w Rule 8D(2)(ii) & (iii) of Rs.5,73,515/-. In our considered view, as the assessee company during the year under consideration had not earned any exempt income, therefore, on the said count itself no disallowance of any part of the expenditure could have been made u/s.14A of the Act. Our aforesaid view is fortified by the following judicial precedents:
(i) Redington India Limited Vs. Additional Commissioner of Income Tax, (2016) 97 CCH 0219 (Chen HC) (ii) Commissioner of Income Tax Vs. Cortech Energy P. Ltd. (2015) 372 ITR 97 (Guj. HC) (iii) Commissioner of Income Tax-IV Vs. Holcim India (P) Ltd. (2014) 90 CCH 081 (Del. HC) (iv) CIT Vs. Delite Enterprises, ITA No.110/2009 (Bom.)(HC)
We, thus, in terms of our aforesaid observations finding no infirmity in the deletion of the disallowance under Sec. 14A by the CIT(Appeals), uphold his order. Thus, the Grounds of appeal Nos.(d) to (i) raised by the Revenue are dismissed in terms of our aforesaid observations.
Grounds of appeal Nos. (j) & (k) being general in nature are 16. dismissed as not pressed.
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In the result, appeal of the Revenue is dismissed in terms of our aforesaid observations. Order pronounced in open court on 29th day of July, 2022.
Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 29th July, 2022 **SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G) 4. The Pr. CIT-1, Raipur (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,रायपुरब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.
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Date 1 Draft dictated on 25.07.2022 Sr.PS/PS 2 Draft placed before author 26.07.2022 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order