Income Tax Appellate Tribunal - Mumbai
The West Coast Paper Mills Ltd, Mumbai vs Addl Cit 1(3), Mumbai on 6 January, 2017
आयकर अपीलीय अिधकरण, अिधकरण मुंबई "जी खंडपीठ Income-tax Appellate Tribunal -"G"Bench Mumbai सव ी राजे ,लेखा सद य एवं अमरजीत सह, याियक सद य Before S/Sh.Rajendra,Accountant Member and Amarjit Singh,Judicial Member िनधा रण वष /Assessment Year: 2010-11 आयकर अपील सं./I.T.A./1965/Mum/2015,िनधा िनधा रण वष /Assessment Year: 2011-12 आयकर अपील सं./I.T.A./1966/Mum/2015,िनधा The West Coast Paper Mills Ltd. ACIT-1(3) Shreeniwas House Aayakar Bhavan HazarimalSomani Marg, Fort, Vs. Mumbai.
Mumbai-400 001.
PAN:AAACT 4179 N
(अपीलाथ /Appellant) ( यथ / Respondent)
िनधा रण वष /Assessment Year: 2010-11
आयकर अपील सं./I.T.A./2060/Mum/2015,िनधा
िनधा रण वष /Assessment Year: 2011-12
आयकर अपील सं./I.T.A./2061/Mum/2015,िनधा
ACIT-1(3) The West Coast Paper Mills Ltd.
Vs.
Aayakar Bhavan,Mumbai. Shreeniwas House,Mumbai.
(अपीलाथ /Appellant) ( यथ / Respondent)
राज
व क ओर से / Revenue by: Ms. Sunita Billa-DR
अपीलाथ क ओर से /Assessee by:Shri Vijay Mehta -AR
सुनवाई क तारीख / Date of Hearing: 05.12.2016
घोषणा क तारीख / Date of Pronouncement: 06/01/2017
आयकर अिधिनयम,1961
अिधिनयम क धारा 254(1)के
के अ
तग त आदे श
Order u/s.254(1)of the Income-tax Act,1961(Act)
लेखा सद य,
सद य राजे
के अनुसार
ार/ PER Rajendra A.M.-
Challenging the orders,dated 29.01.2015,of the CIT (A)-3,Mumbai the Assessing Officer (AO) and the assessee have filed cross appeals for the above-mentioned two assessment years (AY.s).Assessee-company is engaged in the business of manufacturing of paper, paperboard, jelly-filled cables and generation of power.Details of filing of returns, returned incomes, assessed incomes etc.can be summarised as under:
A.Y. ROI filed on Returned Income(Rs.) Assessment dt. Assessed Income(Rs.) 2010-11 11.10.2010 Nil 22.02.2013 Nil 2011-12 30.09.2011 Nil 26.02.2014 Nil ITA/1965/Mum/2015,A.Y.2010-11:
2.First ground of appeal,raised by the assessee,is about claim of deduction u/s.80 IA of the Act.During the course of hearing before us, the Authorised Representative(AR) stated that the ground has been held as infructuous by the Tribunal while deciding the appeal filed by it for the AY.2009-10(ITA/3788/Mum/2013 and ITA/3565/Mum/2013,dated 14/09/2016).We find that in its above order, the Tribunal has held as under:
1965+3westcoast "5.Next ground is alternative claim for deduction u/s.80IA in respect to Integrated Power No.6. We find that the Tribunal, in its order for assessment year 2007-08 has held that the Ground raised by the assessee was infructuous.
"11.In ground no. 3, the assessee has challenged the alternative claim of deduction u/s 80IA in respect of integrated power unit in case the claim for deduction for power unit No. 6A & 6B are not allowed.
12.This issue has been treated as infructuous by the Tribunal in the earlier years on the ground that it is purely an alternative claim as the claim for deduction u/s 80IA with regard to unit no. 6 has been allowed, therefore, no separate adjudication is required as admitted by the assessee. Accordingly, in this year also this alternative claim of the assessee is treated as dismissed, being infructuous."
Respectfully following the same Ground No.3 is treated infructuous." Respectfully following the above, first ground is treated as infructuous.
3.Second ground is about disallowance of prorate indirect expenses under rule 8D (2) (iii) of the Income Tax Rules, 1962(Rules).During the assessment proceedings,the AO found that the assessee had earned tax-free income of Rs.4.38 lakhs, that it did not make any disallowance u/s.14A of the Act.After considering reply of the assessee in that regard,he held that invest - ment decisions required input of man-hours and funds,that the assessee had failed to establish that borrowed funds had not been used to make the said investments. Accordingly he made a disallowance of Rs.21.48 lakhs under clause(ii) and of Rs. 23.18 lakhs under clause(iii) of the Rule 8D of the Rules.
3.1.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA). Before him, it made elaborate submissions. He considered available material and directed the AO to verify the facts with regard to investments made out of the committed funds and to decide the issue of disallowance. With regard to the disallowance made under clause (iii), he referred to the order of his predecessor for the AY.2009-10and held that AO were justified in making the disallowance of Rs.23.18 lakhs. 3.2.During the course of hearing before us, the AR argued that no interest disallowance could be made u/s.14A of the Act since own funds were sufficient to cover the value of invest - tments,that majority investment was in subsidiary/group companies, that no disallowance should have been made u/s.14 A as the purpose of investment was to gain controlling stake, that for computing the disallowance only those investments had to be considered from which exempt income was received during the year under consideration, that the disallowance could not exceed the exempt income received by the assessee. He relied upon the cases of Reliance Utilities (313 ITR 340),JM Financials Ltd. (ITA/4521/NUM/2012), ACB India Ltd. (374 ITR
108)and Joint Investments Private Ltd. (Income Tax Appeal Number 117of 2015). He further stated that disallowance of Rs. 65,000/- made by the assessee towards admissible expenses for the year under consideration was in line with the methodology accepted by the Tribunal in assessee's own case for the AY.2009-10.The DR stated that matter could be decided on 2 1965+3westcoast merits.We find that while adjudicating the similar issue for the earlier year, the Tribunal had held as under :
"6.Ground No. 5 pertains to disallowance of prorated indirect expenditure under Rule 8D (2) (iii) r.w.s. 14A of the Act. During the assessment proceedings,the AO found that the assessee had received dividend income of Rs.3.06 lakhs, that it had made no disallowance on its own. The AO was not satisfied about the correctness of the calculation made by the assessee. Therefore, he called for an explanation.The assessee vide its letters,dt.8.12.11 and 15.12.11 stated that assessee had sufficient interest free funds,that the loans taken from time to time were for specific purposes and was used for those purposes only. It relied upon the case of Hero Cycles Ltd. and further argued that all investments were made in Associate and Group companies, that the investments were strategic investment, that no disallowance u/s. 14A was called for.After considering the submission of the assessee, the AO computed the disallowance u/s.14A r.w. Rule 8D at Rs.46.23 lakhs (interest expenditure Rs.20.96 lakhs + average value of investment-0.5% of average value-Rs.25.27 lakhs). He also added that same would be added in computation of book profit u/s. 115JB.
6.1.Aggrieved by the order of the AO the assessee preferred an appeal before the First Appellate Authority (FAA).After considering the submissions of the assessee and assessment order he deleted the interest expenditure of Rs.20.96 lakhs, however,he upheld the addition of Rs.25.27 lakhs.He held that administrative expenses @0.5% were required to be made as per sub clause of (iii) to the Rule 8D(2) of the Rules,that the disallowance was to be made irrespective of the fact that the investments made were strategic or not.
6.2.Before us,the AR stated that majority investments were in subsidiary/group companies investment in Rama Newsprint and Paper Ltd. was upto Rs.45.41 crores, that it was having 36% holding in Rama Newsprint and Paper Ltd., that the investment made in the group company comprised approximately 99% of total investment made by the assessee, that the resultant disallowance would be Rs.31,570/-, that disallowance of Rs.50,000/-could be made that would be consistent with the disallowance made by Tribunal by its own case for AY 2007-08 and AY 2004-05.He referred to the case of Garware Wallropoes Ltd. (ITA/ 5408/ Mum/2012 ) and JM Financial Ltd.(ITA/ 4521/Mum/2012). The DR supported the order of the FAA.
6.3.We have heard the rival submissions and perused the material before us.We find that the assessee had made strategic investment in associated and group companies,that other investments were not very large.Therefore,we are of the opinion that disallowance should be restricted to Rs.50,000/-,as proposed by the assessee.Ground no.5 is partly allowed."
Respectfully,following the above we hold that disallowance should be restricted to Rs. 65,000/-.Second ground is decided in favour of the assessee,in part.
4.Third ground is about addition of excise duty to closing stock of raw material. Before us, the AR stated that it was an alternative claim for increasing the opening stock of the succeeding assessment year, if in future an addition was made in respect of excise duty preferable to the losing stock of raw material. In our opinion, the issue raised by the assessee is by way of precaution.The value of closing/opening stock of raw material is to be taken as per the law and if there is increase or decrease in such value same has to be considered as per law.Ground number three is allowed for statistical purposes.
5.Next ground is about disallowance of deduction of leave encashment claimed on provision - al basis,amounting Rs.15.41 lakhs. It was brought to our notice that the identical issue was set aside by the Tribunal while deciding the appeal for the immediately preceding year at para 3 1965+3westcoast number seven of the page number six to eight of the order. We would like to reproduce the relevant portion of the said order and same reads as under:
"7.Disallowance of leave encashment is the subject matter of Ground No.6. During the assessment proceedings the AO found that the P&L Account of the assessee showed a debit of Rs.22.68 lakhs towards provision for leave encashment. He directed the assessee to file explanation in this regard. Vide its letter dt.8.12.11 the assessee submitted that the aforesaid claim had been made in view of the decision of Exide Industries Ltd. (292ITR470), wherein it was held that insertion of clauses in section 43B and restricting the deduction in leave encashment, which was otherwise a trading liability was arbitrary and de hors. Hon'ble Supreme Court judgment in the case Bharat Earth Movers (245 ITR 428 ) 7.1 After considering the submission of the assessee the AO held that the expenditure was in the nature of provisions, that the same could not be allowed, that his predecessors had taken identical view in earlier years.Finally, he disallowed an amount of Rs.22,68,117/-, invoking the provisions of section 43B of the Act.
7.2During the appellate proceedings before the FAA the assessee made elaborate submission and held that the provisions for leave encahment was specifically covered by clause (f) of section 43B, that the deduction for same could be allowed on payment basis , that the Hon'ble Apex Court Court had allowed the operation of section.43B(f) to continue until further order in the case of Exide Industries Ltd. (supra).He dismissed the Ground raised by the assessee . 7.3Before us,the AR stated that the issue may be decided in light of the order of the Tribunal pronounced in the case of Birla Sun Life Asset Management Company Limited (ITA/ 5457/M/2013,AY.2010-11, dtd.30.06.2015).The DR left the issue to the discretion of the Bench.We have heard the rival submissions and perused the material before us.We would like to refer to the relevant portion of the order of the Birla Sun Life Asset Management Company Limited(supra)and it reads as under:
"6. We have considered the rival submissions. It is correct that the decision of the Hon'ble Kolkata High Court in the case of "Exide Industries Ltd." (supra) has been stayed by the Hon'ble Supreme Court vide order dated 08.09.08 passed in SLP to Appeal (Civil) ...CC 12060/2008 wherein the Hon'ble Supreme Court has made the following observations:
"UPON hearing counsel the Court made the following ORDER Issue notice. In the meantime, there shall be stay of the impugned judgment, until further order."
7. We further find that the Hon'ble Supreme Court vide order dated 08.05.2009, passed in SLP (Civil No.22889/2008) while granting the leave to file appeal, has made the following observations: "ORDER Delay condoned. Leave granted. Pending hearing and final disposal of the Civil Appeal, Department is restrained from recovering penalty and interest which has accrued till date. It is made clear ITA No.5457/M/2013 M/s. Birla Sun Life Asset Management Company Limited 5 that as far as the outstanding interest demand as of date is concerned, it would be open to the Department to recover that amount in case Civil Appeal of the Department is allowed. We further make it clear that the assessee would, during the pendency of this Civil Appeal, pay tax as if Section 43B(f) is on the Statute Book but at the same time it would be entitled to make a claim in its returns."
8. A perusal of the above observations reveals that while accepting the petition for leave to file the appeal vide order dated 08.05.2009, the Hon'ble Supreme Court has directed that pending the hearing and disposal of the Civil Appeal, the Department is restrained from recovering penalty and interest which has accrued till date. It has also been made clear that it would be open to Department to recover the amount of outstanding interest demand in case the appeal of the Department is allowed. It has also been directed that during the pendency of the Civil Appeal, the assessee will pay tax as if section 43B(f) is on statute book but at the same time the assessee would be entitled to make a claim in this respect in its returns.
9. In view of the observations of the Hon'ble Supreme Court, in our view, it will be proper to dispose of this appeal in the light of the order of the Hon'ble Supreme Court dated 08.05.2009 passed in the case of "CIT vs. Exide Industries Ltd." (supra). We therefore dispose of the present appeal with a direction that the assessee will pay the tax as if section 4 1965+3westcoast 43B(f) is on the statute book, however, till the decision of the Hon'ble Supreme Court in the case of "CIT vs. Exide Industries Ltd." (supra), the Revenue will not recover the penalty and interest which may accrue till the decision of the appeal by the Hon'ble Supreme Court in the case of "Exide Industries Ltd." It would be open to the Department to recover the outstanding interest demand in case the Civil Appeal of the Department in the case of "Exide Industries Ltd." (supra) is allowed by the Hon'ble Supreme Court. Subject to our above observations, the matter is restored to the file of the AO to be adjudicated afresh as per the decision of the Hon'ble Supreme Court in the case of "Exide Industries Ltd." (supra).
10. In the result, the appeal of the assessee is therefore partly allowed for statistical purposes.
Respectfully,following the above order of the Tribunal,we partly allow the ground raised by the assessee holding that the assessee will pay the tax as if section 43B(f) is on the statute book, however, till the decision of the Hon'ble Supreme Court in the case of "CIT vs. Exide Industries Ltd." (supra), the Revenue will not recover the penalty and interest which may accrue till the decision of the appeal by the Hon'ble Supreme Court in the case of "Exide Industries Ltd." We further hold that it would be open to the Department to recover the outstanding interest demand in case the Civil Appeal of the Department in the case of "Exide Industries Ltd." (supra) is allowed by the Hon'ble Supreme Court."
Following the above,we set aside the issue to the file of the AO for reconsideration in light of the directions given in the earlier year.Fourth ground is decided in favour of the assessee, in part.
6.Fifth ground is about addition on profit of sale of investment in computing book profit u/s.115 JB of the Act. Representatives of both the sides stated that the Tribunal had decided the issue against the assessee while adjudicating the appeal for the AY.2009-10.We are reproducing paragraph 8.5 of the said order and it reads as under:
"8.5.Last ground of appeal deals with profit on sale of investment and fixed assets in computing book profit u/s.115JB of the Act.During the course of hearing before us,the AR fairly conceded that the issue stands decided against the assessee by the order of the Tribunal of the AY.2007 -08.Following the same,ground no.9 is dismissed."
Respectfully following the above ground no.5 is decided against the AO.
7.Ground No.6 deals with upholding the disallowance u/s.14A r.w.r. 8D of the Rules for computing the book profit u/s.115JB of the Act.The DR and the AR agreed that the issue stands covered against the assessee by the order of the Tribunal for the earlier year. We find that at para no.14 of page 21 of the order of the Tribunal the issue has been dealt as under :-
"14.Last Ground pertains to deleting disallowance u/s. 14A of the Act in computing book profit u/s. 116JB.
14.1.The AR and DR stated that the Tribunal had decided the issue against the assessee, while deciding the appeal for AY 2007-08(supra),as follow:
"25. Ground no. 8 is with regards to disallowance of expenses incurred for earning of exempt dividend income i.e. disallowance u/s 14A whether to be included while computing the book profit.
26. This issue would be decided against the assessee in view of the decision of Hon'ble Delhi High Court in the case of Goetze India Ltd. in ITA No. 1179 of 2010, wherein Hon'ble 5 1965+3westcoast High Court has held that disallowance made u/s 14A would be included while computing the book profit. Since we have already confirmed the disallowance of Rs. 50,000/-, therefore, the same shall also be included in the book profit. Accordingly, ground no. 8 as raised by the assessee is dismissed."
Respectfully following the above order, last Ground is decided in favour of the AO." Following the above, we decide Ground No.6 against the assessee.
8.Ground no. 7 pertains to ad hoc disallowance of notional expenses at 20.5% of agricultural income claimed exempt u/s. 10(1) of the Act.We find that the Tribunal vide its order,for the AY.2009-10,has decided the issue against the assessee as under:-
"8.1.During the assessment proceedings the AO found that the assessee had shown agricultural income of Rs.1.69 crores. It was contended before him that agricultural income arose of trees grown in lease land taken by it, that agricultural produce from trees was used as raw material for manufacturing paper, that it had taken average value of purchase price of same products which it got from third parties as market value of agricultural produce as per Rule 7 of Income tax Rules 1962 (Rules). The assessee also produced evidence of receipt and expenses of agricultural activities.The AO observed that against the total market value of agricultural produce of Rs.2.01 crores the assessee had shown expenditure of Rs.32.16 lakhs only (16%), that expenses were not verifiable, that the quantity of produce extracted from field could not be independently verified, he reworked agricultural income and made addition of Rs.25 lakhs to the incomee of the assessee.
8.2.Aggrieved by the order of the AO the assessee preferred an appeal before the FAA. Before him,it was argued that the assessee had incurred expenses in form of extraction charges and transport charges of raw material from the respective plantations to the factory yard.The assessee submitted a comparative chart of agricultural income vis a-vis agricultural expenses. The assessee referred to the case of Vinaykumar Modi (272ITR91) and Madura Knitting Co. (30 ITR 764) . After considering the assessment order and the submissions of the assessee, the FAA held that the assessee had shown expenditure of Rs.32,16,326/- for earning net agricultural income of Rs.1.96 crores. He referred to order of AY 2008-09 and held that the expenses claimed in that year were almost in the same ratio of AY 2007-08, that he had allowed the appeal for that year, that during the year under appeal the assessee had shown expenses @15.95% only, that the expenditure shown by it was quite low, that assessee was not maintaining separate books for agricultural income/expenses,that it was not possible to find correct amount of expenses.Finally, he held that agricultural expenses should be taken @20.5% of the agricultural income and upheld the addition of Rs.9.18 lakhs. 8.3.Before us,the AR submitted that assessee had submitted all the details called for by AO with regard to agricultural income and expenditure, that every year was a different year , that in earlier years the expenditure was on higher side, that same could not be the base for making addition. The DR supported the order of the FAA.
8.4.We have heard the rival submissions. We find that the assessee had not maintained any separate books for agricultural expenditure, that it had not explained the reason which caused the lesser expenditure for the year under consideration as against 20.9% to 15.95%. Until and unless specific reasons for a particular year are given by AO/assessee the stand taken in the previous years has to be endorsed. Following the Rule of consistency, as the expenditure shown by the assessee was on lower side and no specific reason was given for decline in the expenditure, so, we are of the opinion that the order of the FAA does not suffer from any legal infirmity. Upholding his order,we decide Ground.No.7 against the assessee."
Respectfully following the above Ground No.7 is decided against the assessee.
9.In the Grounds No.8,9 and 10,the assessee had requested to direct the AO to quantify carry
-forward of losses,to recompute the interest u/s. 234B, 234C and 234D of Act and to quantify 6 1965+3westcoast the MAT credit to be carried forward.The AR stated that the FAA had not passed the necessary direction to the AO while deciding the appeal filed by the assessee before him. Accordingly,we direct the AO to quantify carryforward of losses and MAT credit as well as re-compute the interest u/s. 234 of the Act.Grounds No. 8-10 are allowed in favour of the assessee,in part.
ITA/2060/Mum/15.AY 10-11:
10.First Ground of appeal,raised by the AO,is about provision of section 80IA(3) (ii) in respect of power unit No.6A and 6B.It was brought to our notice that the said Ground is covered against the AO,by the Tribunal order for AY.2009-10.We are reproduceing para 9 of page No.9-13 of the said order and it reads as under :-
"9.It was brought to our notice that Grounds no.1-4 have been adjudicated in favour of the assessee and against the AO by the order of the Tribunal for the AY/2007-08(supra).
"
32. Similarly, the issue raised in ground no. 1.2, whether the conditions of provision of section 80IA(3)
(ii) are satisfied in respect of DG sets or not.
33. This issue too has been decided in favour of the assessee right from assessment year 1997-98 onward up till 2005-06. Thus, consistent with the view taken in the earlier years, this issue too is decided in favour of the assessee and against the revenue."
"4. Brief facts, qua the issue involved are that, the assessee is a public limited company engaged in the business of manufacturing of paper and paper boards, optic fiber cables, jelly filled cables, from its units situated at Dandeli, Uttara Kannada, Mysore, Karnataka. It is also engaged in operation of wind mill at Tamil Nadu. The assessee has also set-up various units of power generation viz. 4 D.G. sets of power in unit no.1 in the assessment year 1996-97; 4 D.G. sets of power in unit no.2 in assessment year 1997-98; 2 multi-fuel power based plant of 3.8 MW and 4 MW capacity in power unit no.3 and 4 respectively which started in assessment year 1999-2000. One more multifuel based power plant of 4.04 MW capacity in power unit no.5 during the assessment year 2000-01. All these units were installed at Dandeli in the State of Karnataka. Besides this, in the assessment year under consideration i.e., assessment year 2002-03, the assessee has installed chemical recovery boiler which was power unit no.6. The said unit was engaged in the generation of power in the form of steam and electricity. The power generation from all the six units was transferred and consumed mostly by the paper division of the assessee. The assessee has claimed deduction u/s.80IA in respect of power unit no.3 at Rs.4,69,97,342; power unit no.4 at Rs. 7,51,92,287; power unit no.5 at Rs. 6,51,73,746; power unit no.6 at Rs.17,60,91,098. Thus, the entire claim u/s.80IA aggregated toRs. 36,34,54,473. In respect of power generated in unit no.1 and unit no.2, no deduction u/s.80IA was claimed since there was a loss. As regards the claim of deduction u/s.80IA, in respect to unit no.1 to 4, the Assessing Officer followed earlier year's assessment order for denying the claim. The sum and substance of the conclusion drawn by the Assessing Officer based on the earlier assessments was that; (i) these are captive power consumption units, hence, not entitled for deduction u/s.80IA; (ii) in units no.2, 3 and 4, the assets were taken on lease from IFCI, therefore, it is not the owner of the asset and, consequently, no claim of deduction u/s.80IA can be allowed; (iii) regarding power units no.3, 4 and 5, the assessee cannot claim deduction u/s.80IA since the contract for the operation and maintenance services were given to Powerica and Wartsila; and it was not run by the assessee; and (iv) the assessee has not maintained separate books of account for individual units.
5. The learned Commissioner (Appeals), following the earlier year order of the learned Commissioner (Appeals) for the assessment year 2001-02, decided the issue of claim of deduction u/s.80IA, wherein only relief for claim of deduction u/s.80IA was given with respect to unit no.1, only and for other units, it was denied.
6. Before us, the learned counsel, Mr. Vijay Mehta, on behalf of the assessee, submitted that right from the assessment year 1997-98 to 2001-02, the Tribunal, in assessee's own case, have decided this issue in favour 7 1965+3westcoast of the assessee wherein the claim for deduction u/s.80IA, in respect of the power units no.1 to 5, have been respectively allowed. The compilation of the Tribunal decisions has been placed in the paper book from Page-567 to 607. He pointed out that in the Tribunal order dated 31st January 2007, for the assessment year 2001-02 in ITA no.8275/Mum./2005, this claim for deduction nu/s 80IA, has been considered in respect of all the units including unit no.5, which was installed in the assessment year 2001-02.
7. The learned Departmental Representative, on the other hand, admitted that insofar as the claim for deduction u/s.80IA for unit no.1 to 5 is concerned, the same are covered by the decision of the earlier year's of the Tribunal, however, he reiterated the finding and the conclusion drawn by the Assessing Officer in the assessment The West Coast Paper Mills Ltd. 8 order i.e., these assets were taken on lease and were out sourced to different agency and no separate books of account were maintained in respect of these units. Therefore, the claim has rightly been denied by the Assessing Officer as well as learned Commissioner (Appeals).
8. We have considered the rival contentions, perused the relevant findings of the authorities below and the Tribunal decisions of earlier years. As regards the claim of deduction for units no.2, 3, 4 and 5 are concerned, we find that the same is squarely covered by the decision of the Tribunal rendered in assessee's own case right from the assessment year 1997-98 to 2001-02 respectively. In this year, the claim for deduction is mainly with regard to unit no.3, 4 and 5 which has already been considered by the Tribunal on similar set of facts and similar reasons given by the Assessing Officer and the learned Commissioner (Appeals) in the earlier years. For the sake of ready reference, the relevant findings of the Tribunal, which in turn is based on the earlier order of the Tribunal, is reproduced herein below:-
"3. We have considered the rival contentions and find that the issue has been elaborately discussed in para-6 of the Tribunal order for the assessment year 1999-2000, which for the sake of completeness is reproduced below:-
6. We have carefully considered the rival submission and have gone through records including the voluminous paper book filed by the assessee. The assessee although engaged in the manufacture and sale of paper and paperboards, multi layer boards, etc., was also into the business of power generation right from the assessment year 1996-97. The findings in the impugned order are clearly unassailable. The assessee has from time to time right from the assessment year 1996-97 set up four such units to facilitate its power requirement in the paper plant at Dandeli in Karnataka State. The assessee, as the records show, made substantial capital outlays for this p0urpose. This only confirms that assessee was in the business of generation of power. HNow the question is whether the assessee's claim for deduction u/s.80IA of the Act could be denied merely o nthe ground that these D.G. units were catering to the captive power requirement. As the Assessing Officer put it if the assessee has not realized any revenue by selling the power to outsiders, can the assessee be held to be entitled for deduction u/s.80IA of the Act? the Assessing Officer was of the view that it is only an inter-division transfer and there was no revenue realized by it and consequently there was no derivation of profit or income in the business of industrial undertaking. The questions raised by the Assessing Officer have all been answered by the Supreme Court in the case of Orient Paper Mills Ltd., 176 ITR 110. This decision of the Supreme Court does not bring out the facts. It has only affirmed the decision of the Calcutta High Court in CIT v/s Orient Paper Mills Ltd., 94 ITR 73. The facts could only be found in the judgment of the Calcutta High Court. The assessee in that case owned a paper mill. It set up a plat for the manufacture of caustic soda, an essential chemical for use in the process of manufacture of paper. The assessee obtained a separate license for the manufacture of caustic soda and the plant was housed in a separate building. The Income Tax Officers in that case held that the caustic soda plant was anciliary to the main manufacturing unit and no part of caustic sold was sold to any outsider and, therefore, no relief could be claimed by the assessee u/s.15C of the 1922 Act. The material produced in the plant was used for captive consumption. Before the Tribunal, it was contended by the revenue that the language used in section 15C was "profit and gain" derived from an industrial undertaking. Unless the profits arose by the sale of the product of the new plant, no profit could be said to have been derived. The argument was that profit should be directly derived and not indirectly or deemed to be derived. The Tribunal did not accept these submissions of the revenue and proceeded to grant the relief. The Hon'ble Calcutta High Court confirmed the order of the Tribunal and the apex court has dismissed the appeal of the revenue by taking support from its own decision in Textile Machinery Corporation Ltd. v/s CIT, 107 ITR 195 and CIT v/s Indian Aluminium Company Ltd. v/s CIT, 107 ITR 195 AND CIT v/s Indian Aluminium Company Ltd., 108 ITR 367. Therefore, the stand of the Assessing Officer cannot be accepted. Again the Calcutta High Court was faced with the same set of facts in the case of CIT v/s Hindustan Motors Ltd., 127 ITR 210. The assessee in that case was engaged int eh manufacturing of motor cars. It established certain ancillary units. The Assessing Officer repeated his findings on the same line as he did in the case of Orient Paper Mills Ltd. (supra) and denied the relief u/s.80E of the 1961 Act. The Calcutta High Court held that assessee is entitled to such relief irrespective of whether 8 1965+3westcoast the ancillaries manufactured were sold by the assessee to outsiders or were used by its for its own manufacturer of cars. Similarly, the Bombay High Court in CIT v/s Sahney Steel and Press Works Ltd., 117 ITR 354, the Assessing Officer denied similar claim u/s.80J of the Act on the ground that the new unit was manufacturing articles to be used as raw material for the existing business of the assessee. The Bombay High Court held that the new unit manufactured articles used in the existing business of the assessee was not relevant and the assessee was held to be entitled for relied u/s.80J of the Act. In the light of these decisions, we are of the opinion that the claim of the assessee cannot be denied only on the ground that the DG set manufactured the power only for the captive consumption of the assessee. It may be stated that the Tribunal in the assessment year 1997-98 and 1998-99 has already granted relief in respect of unit no.I and II which were established for the purpose captive consumption. Moreover, the provision of section 80IA(8) itself says that where any goods or services of the eligible business are transferred to any other business carried on by the assessee and the consideration, if any, for such transfer is recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the profit and gain for such transferred business shall be computed as if the transfer has been made at market value as on that date. In other words, the provisions of section 80IA themselves provide an answer and give a solution where there is a captive consumption fo the finished goods of the eligible units. In the light of these discussion, the order of the learned CIT(A) granting 80IA relief in respect of DG Units I, II, III and IV cannot be found fault with. The other consideration that the assessee has not operated these units by itself but got them operated through outsiders and, therefore, the assessee is not entitled for 80IA relief in our view, is not a right approach. Such consideration in our opinion, is not a relevant consideration. Keeping in view the purpose and intent of relief u/s.80IA, such consideration in our opinion is not germane from the provision of section 80IA of the Act.
In the light of the above, disallowing the assessee's claim for deduction u/s.80IA on the ground made out by the Revenue cannot stand. The Assessing Officer is directed accordingly.
9. Thus, there being no deviation of facts and material on record we, therefore, respectfully following the earlier year's precedence, hold that the claim for deduction u/s.80IA with respect to power units no.2, 3, 4 and 5 will continue to be allowable as deduction. Thus, ground no.1 raised by the assessee is allowed."
Considering the above,we decide first four grounds against the AO." Respectfully following the above, Ground No.1 is decided against the AO.
11.Next Ground is about captive power consumption and its eligibility for deduction u/s. 80IA of the Act.
The AR and DR agreed that the Tribunal had decided the issue in favour of the assessee, while adjudicating the appeal for the earlier AY. Para No.9 of the order of Tribunal.We have referred to the said paragraph in the earlier part of the order.Respectfully following the above Ground No.2 is decided against the AO.
12.Next Ground is about allowing deduction u/s. 80IA in respect of power unit 6 and 6A in which assets had been taken on lease and contract had been given to outside parties for maintenance and operation of power units. Representatives of both the sides agreed that issue stands decided in favour of the assessee and against the AO by the order of the Tribunal for the immediate preceding year.Para No.9 at page 9-13 of the said order has already been reproduced by us,while deciding Ground No.2.Respectfully following the order for earlier year ,we dismiss Ground No.3.
13.Next Ground deals with deduction claimed u/s. 80IA in respect of assessee's power unit 9 1965+3westcoast 6A and 6B and generation of steam.We find that the Tribunal had considered the issue while deciding the appeal for AY.2009-10.We have already reproduced para-9 of the order of the Tribunal of the said year,while adjudicating earlier grounds. Respectfully following the order for AY.2009-10,we decide Ground No.4 against the AO.
14.Next Ground (Ground No.5) is about the rate adopted by the assessee.It was agreed by representatives of both the sides that the issue stands decided in favour of the assessee by the order of the Tribunal for the earlier year. We would like to reproduce para No.10 of page No.13-15 of the order of the Tribunal for AY.2009-10 and it reads as under:
"10.Ground No.5 deals with the adoption of rate of Rs.3.50 per Unit to be Transfer Price for computing deduction u/s.80IA. Representatives of both the sides agreed that the Tribunal in its order for 2007-08 (supra) had decided the issue in favour of the assessee (para 5-7, pg-4-6 PB142-145).
"5.So far as the issue raised vide ground no.1, whether electricity duty should be excluded while calculating the transfer price of electricity duty for computing the deduction u/s 80IA.
6.This issue has been decided in favour of the assessee by the Tribunal vide order dated 30.05.2014 in assessee's own case for AYs 2002-03 to 2005-06. The relevant conclusion and finding of the Tribunal as given in para 32 and 33 reads as under:-
"32. We have heard the rival submissions and also perused the relevant findings of the authorities below and the material available on record. The assessee has worked out the notional sale of power supplied by its power unit to its paper division @ Rs. 5.80 per unit. This was on the basis of average actual grid charges charged by Karnataka Electricity Board for supplying the electricity to the assessee. This was shown from the amount of the bill and the total number of units consumed. From the said bills, the Assessing Officer noted that the assessee is paying fuel excavation charges, taxes, etc., which should be reduced for working out the average price per unit for working out the sale price of the electricity supplied by its power unit to the paper division. Besides this, he has also apportioned indirect expenses on the basis of the total turnover for quantifying the deduction u/s.80IA claimed by the assessee in respect of power units no.3, 4 and 5. This apportionment of indirect expenses is a separate ground which is ground no.9 and the same shall be discussed subsequently. The basic issue in ground no.8 is what should be the transfer price for the purpose of computing the deduction u/s.80IA within the ambit and parameter of sub-section (8) of section 80IA. Section 80IA(8), provides that, where any goods or services held for the purposes of eligible business are transferred to any other business carried on by the assessee, the consideration if any, for transfer, does not correspond to the market value of such goods or services as on the date of transfer, then the Assessing Officer can make adjustments in the profits after determining the market value of such transfer. The said section in other words, empowers the Assessing Officer where the transfer of goods and services as recorded in the accounts of the eligible business does not correspond to the market value, then the profits declared for the eligible business can be adjusted by the Assessing Officer on such basis so as to ensure that the goods and services are transferred to its own unit at the market value of such goods and services. In the Explanation to section 80IA(8), the "market value" has been defined as a price that such goods or services would ordinarily fetch in the open market. Fetching of the price in the open market has to be seen from the factors which are determined through negotiation between the parties and mutual agreement as arrived at a price which is acceptable between the buyer and the seller in the open market conditions i.e., in an unrelated and uncontrolled transactions. Open market conditions refer to the conditions and price available for the public at large. In the present case, the market value of supply of electricity by power unit of the assessee to the paper division of the assessee has to be seen from the angle, if the paper unit has to purchase the electricity directly from the Karnataka Electricity Board (as both the power units as well as the paper units are situated in Karnataka), then what is the price which would be paid by the paper unit to the Karnataka Electricity Board. The transfer of the price as contemplated in section 80IA(8) has to be seen having regard to the arm's length condition i.e., what would be the price under uncontrolled transactions in the open market. If the paper division has been purchasing the electricity from the Karnataka Electricity Board at an average cost of Rs.5.80, which fact is not in dispute, then the same price should be considered as market value for bench marking the price at which power units are supplying the electricity to the paper division. If the 10 1965+3westcoast taxes and duties are part of the price at which the power / electricity is supplied by the Karnataka Electricity Board to the paper division, then the same price is the indicator of the market value which is fetchable in the open market. We do not find any reason for excluding the element of tax and duty while determining the "market value" of the electricity price per unit supplied by the power unit to the assessee as contemplated in sub-section (8) of section 80IA. 33. Coming to the arguments of the learned Departmental Representative, which is mostly based on the findings of the Assessing Officer in the assessment order for the assessment year 2005-06, the same cannot be accepted for the reason that firstly, the price of electricity per unit supplied by the Tamil Nadu and private parties to the Maharashtra Government, cannot be held to be applicable in Karnataka and, secondly, the rate at which private parties are selling the power to Karnataka Electricity Board cannot be the bench mark for determining the market price because the terms and conditions in which the Karnataka Electricity Board is procuring the electricity from such parties is not known. Further the market price has to be seen as a price at which the customers are getting the electricity in the open market. That should be the criteria for bench marking the "market price" u/s.80IA(8). As pointed out by the learned counsel that in the earlier years, there are two different opinions and conclusions drawn by the Tribunal. First, in the assessment year 1997- 98 and 1998-99 which are in favour of the assessee and has attained finality as no further appeal has been filed by the Department and other in the assessment year 1999-2000 and 2000-01. In the subsequent orders, the Tribunal has not taken note of the decision of the earlier orders. Further, the provisions of section 80IA(8) has also not been considered for arriving at a different conclusion. Under these facts and circumstances, we are rendering our decision purely on the basis of our interpretation of statutory provisions, sans going by any earlier year precedence. Thus, in our opinion, we have to follow the provisions as contained in section 80IA(8) for determining the market price, which cannot be arrived by reducing the price by any other factors like taxes, duties, etc., as the same are embedded in the price. Thus, we set aside the impugned order passed by the learned Commissioner (Appeals) on this issue and allow the ground no.8, is treated as allowed".
7.Thus, respectfully following the precedence of earlier years, we decide this issue in favour of the assessee."
Following the above,we decide ground no.5 against the AO."
Respectfully following the above,we decide Ground No.5,against the AO.
15.Ground No.6 is also about deduction u/s.80IA in respect of revenue from transfer of steam by the assessee's power Unit No.6B.We find that issue stands covered in favour of the assessee vide order of the ITAT in assessee's own case for earlier AY.Para-11 pg-15-19 of the said order deals with it and we have reproduced the same while deciding the ground no.5. Respectfully following the same Ground No.6 is dismissed.
16.Ground No.7 deals with deleting the disallowance u/r. 8D (2)(ii) of the Rules. It was brought to our notice that issue stands covered against the AO as per the order of the Tribunal for the earlier year. We are re-producing para 12 at page 19-20 of the Tribunal order that reads as under :-
"12.Next Ground is about deleting the disallowance u/s.8D(2)(ii) of the Rules r.w.s. 14A of the Act. It was stated by the AR that assessee had sufficient own funds, that the Tribunal, while deciding the appeal for AYs 2002-03 to 2005-06 had decided the issue against the issue against AO,as follow:
"218. Ground no.4, 4.1 and 4.2, read as under:-
"4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance of expenditure made u/s 14A.
4.1 On the facts and in the circumstances of the case and in law, the findings of the CIT(A) that the assessee had sufficient fund available as interest free from sales tax deferral loan to meet the investment in securities is erroneous and without any material on record.11
1965+3westcoast 4.2 On the facts and in the circumstances of the case and in law, the findings of the CIT(A) is contrary to the established law inasmuch as the assessee failed to establish the nexus between availability of interest free funds for investments in the securities from which the dividend was earned."
219.Before us, the learned counsel submitted that in this year, the Assessing Officer has only disallowed interest and no administrative expenses has been disallowed unlike the appeal for the assessment year 2004-05 in ITA no.5708/ Mum./2008. He submitted that like in the earlier years also, the assessee had huge surplus funds in the form of share capital, reserve surplus aggregating to Rs. 164,66,62,800, as on 31st March 2005, whereas investment stood at Rs. 44,74,99,000. Thus, the decision of the Hon'ble Jurisdictional High Court in Reliance Utilities and Power Pvt. Ltd. (supra) will apply to the facts of the present case.
220. The learned Departmental Representative, on the other hand, relied upon the order of the Assessing Officer.
221.After considering the rival submissions, we find that this issue has already been adjudicated by us in the appeal for the assessment year 2002-03 and 2004-05. It is undisputed fact that the assessee has huge interest free and surplus funds in this year also as compared to the investment which stood as on 31st March 2005. In such a situation, there cannot be a notional disallowance of interest u/s.14A. The principle laid down by the Jurisdictional High Court in Reliance Utilities and Power Pvt. Ltd. (supra) will be squarely applicable. Thus, the ground no.4, 4.1 and 4.2 are treated as allowed." Respectfully following the above order seventh ground is decided against the AO. Following the above,Ground No.7 is decided against the AO.
17.Ground No.8 is about deleting the addition of unutilised modvat credit from closing stock of raw material u/s.145A of the Act.It is found that identical issue was decided in favour of the assessee by the Tribunal while deciding the appeal for AY 2009-10. Para-No.13 at page 20-21 of the said order deals as under :-
"13.Ground No.8 deals with deleting the addition of unutilised modvat credit from closing stock of raw material u/s. 145A of the Act. We find the identical issue is decided by the Tribunal against the AO in the appeal for the AY.2007-08(supra)as under:
"43. In ground no. 3, the revenue has challenged the deletion of addition on account of unutilized Modvat credit to the value of closing stock of raw material in view of provisions of section 145A.
44. This issue is again has been decided in favour of the assessee in the following manner :-
230. Before us, the learned counsel submitted that the Assessing Officer has held that the unutilised MODVAT credit has to be added in the closing stock in view of the provisions of section 145A. the Assessing Officer has increased the value of closing stock, however, he did not make any corresponding adjustment in the opening stock. Before the learned Commissioner (Appeals), it was submitted that in the computation, the assessee has dully made the adjustment in the opening and closing stock and also the other adjustment in purchases and sale. Based on this factum, the learned Commissioner (Appeals) deleted the said addition as the net effect was "nil". He also submitted a copy of the Tribunal order in MIRC Ltd., in ITA no.849/Mum./2010, order dated 13th March 2013, in support of his contention. 231. The learned Departmental Representative relied upon the order of the Assessing Officer.
232. We have heard the rival contentions and perused the relevant findings of the authorities below. We agree in principle that corresponding adjustment has to be made in the opening stock as held by the Jurisdictional High Court in CIT v/s Mahalaxmi Glass Works Pvt. Ltd., [2009] 318 ITR 116 (Bom.). The finding of fact as recorded by the learned Commissioner (Appeals) that after making the adjustments made by the assessee in the opening stock and purchase and sale, the net effect is nil appears to be based on fact. Thus, we do not find any reason to deviate from such findings of fact which has not been rebutted and, hence, the ground no.6(i) and 6(ii) raised by the Revenue stand dismissed".
45.Thus, on similar lines, we uphold the order of the CIT(A) and dismiss the ground raised by the revenue."
Following the above,we decide the Ground No.13 against the AO." Respectfully following the above, Ground No.8 is decided against the AO.
121965+3westcoast
18.Last Ground (Ground of appeal No.9) is about deleting the disallowance u/s. 14A in computing the book profit u/s. 115JB. It appears that AO had erroneously taken up the issue as CIT(A)had decided the issue against the assessee. While deciding the appeal filed by the assessee,we have dealt with the issue. Ground No.9 is dismissed.
ITA/2061/Mum/2015-AY.2010-11:
19.Ground No.1 to 6 raised by the AO are similar to the Grounds of appeal No.1-6 for the earlier year. Following our order for the AY 2010-11 we dismiss all the six grounds. Ground No.7 is about disallowance made u/r.8D(2)(ii) of the Rules and Ground No.8 is about unutilised modvat credit for raw material.
We have dismissed both the grounds while deciding the appeal for earlier year, filed by the AO.Following the same, both the grounds stand dismissed.
ITA 1966/M/2015-AY 2011-12:
20.Ground No.1 filed by the assessee is held to be infructuous in the light of our discussion of our order for the earlier year.
21.Ground No.2 is about disallowance of pro-rata indirect expenses u/r 8D(2)(ii) of the Rules.Similar issue was decided by us while adjudicating the appeal for earlier year.The AO is directed to follow the direction given for that year.
22.Ground No.3 is alternative claim for increasing the opening stock of succeeding AY. We had allowed the Ground for statistical purposes while deciding the appeal for the earlier year. Following the same,third Ground of appeal stands allowed for Statistical Purposes.
23.Ground No.4(disallowance u/s.14A in computing book profit u/s.114JB) is decided against the assessee. Following our order for the earlier year we direct the AO to quantify the MAT credit to be carried forward and losses to be carried forward as well as to recompute the interest u/s. 234B, 234C and 234D of the Act.Ground of appeal No.5-7 are decided in favour of the assessee,in part.
131965+3westcoast As a result appeals filed by the assessee are partly allowed and appeals of the Assessing Officer stand dismissed.
फलतःिनधा
रती ारा दािखल क गई अपील अंशतः मंजूर क जाती ह और िनधा
रती अिधकारी ारा दािखल क गई अपील
क
नामंजूर .
जाती है
Order pronounced in the open court on 06th January, 2017.
आदेश क घोषणा खुले
यायालय म दनांक 6 जनवरी, 2017 को क गई ।
(अमरजीत सह / Amarjit Singh ) (राजे
/ Rajendra)
Sd/- Sd/-
याियक सद
य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मुंबईMumbai; दनांकDated : 06.01.2017.
Jv.Sr.PS.
आदेश क ितिलिप अ ेिषत/Copy of the Order forwarded to :
1.Appellant /अपीलाथ 2. Respondent /!"यथ
3.The concerned CIT(A)/संब& अपीलीय आयकर आयु), 4.The concerned CIT /संब& आयकर आयु)
5.DR "B " Bench, ITAT, Mumbai /िवभागीय !ितिनिध, खंडपीठ,आ.अ.*याया.मुंबई
6.Guard File/गाड फाईल स"यािपत !ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण , मुंबई /ITAT, Mumbai.
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