Income Tax Appellate Tribunal - Delhi
Srf Ltd., New Delhi vs Dcit (Ltu), New Delhi on 24 February, 2020
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "I-2" NEW DELHI
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER
AND
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
I.T.A. No.5784/DEL/2016
Assessment Year: 2012-13
SRF Limited, vs. Dy. CIT, Circle-1, LTU,
C-8, Commercial Complex New Delhi.
Safdarganj Development
Area,
New Delhi.
TAN/PAN: AABTA6009L
(Appellant) (Respondent)
Appellant by: Shri Pradeep Dinodia, Adv.
Respondent by: Shri H.K. Chaudhary, CIT-D.R.
Date of hearing: 02 12 2019
Date of pronouncement: 24 02 2020
ORDER
PER AMIT SHUKLA, JM
The aforesaid appeal has been preferred by the assessee for the assessment year 2012-13, wherein the assessee has challenged the final assessment order passed in pursuance of directions of the Disputes Resolution Panel-II, New Delhi, (DRP), as contained in its order dated 23rd September 2016.
2. Following grounds have been raised in the assessee's appeal in ITA no. 5784/Del/16, for the assessment year 2012-13:
1. The Ld DRP/AO have erred in law and on facts, I.T.A. No.5784/DEL/2016 2 and in the circumstances of the appellant's case in making an addition/adjustment of Rs. 34,67,318/- on account of the order of the Transfer Pricing Officer (TPO) u/s 92CA(3) and making an addition of Rs.
10,21,16,412 /- on account various non-transfer pricing addition/disallowances.
2. The Ld DRP/AO have grossly erred in not granting an additional claim/allowances, amounting to Rs.4,57,59,45,187/- made by the assessee during the course of assessment proceedings, on account of transfer of CERs, excise duty component on sale effected by the eligible unit, short claim of deduction u/s 10A(1A), interest subsidy under TUF scheme, additional depreciation and depreciation on goodwill.
3. The Ld DRP/AO has grossly erred in law in not excluding/including the capital receipts/ items total (net) amounting to Rs.4,60,91,78,552 /- in the nature of CER receipts, interest subsidy under TUF scheme, excise duty component on sale effected by the eligible unit, provisions for doubtful debts/ advances/ investment written back etc from the book profits u/s 115JB of the Act.
GROUNDS OF OBJECTIONS IN RESPECT OF
TRANSFER PRICING ADJUSTMENTS
Corporate Guarantee
4. The Ld. DRP/TPO and consequently the Ld. AO have grossly erred in holding that extending of corporate guarantee by the assessee to the lending institution of the AEs constitutes an international transaction u/s 92B of the Act.
5. The Ld. DRP/TPO and consequently the Ld. AO have grossly erred in law and on facts and in the circumstances of the appellant's case in making an upward adjustment of ` 34,67,318/- by imputing the arm's length corporate guarantee fee rate @ 0.5% instead of 0.25% actually charged by assessee from its AEs.
I.T.A. No.5784/DEL/2016 36. The Ld DRP/TPO and consequently the Ld. AO have grossly on facts in not considering that the AE has furnished counter guarantees of equal amount on back to back terms to the assessee, therefore assessee is completely indemnified against any risk of default on the part of the AE.
7. The Hon'ble ITAT may be pleased to hold:-
7.1 That the act of giving corporate guarantee by the appellant on behalf of the AEs is not an international transaction and, therefore, not amenable to any adjustment under Chapter X of the Income Tax Act.
7.2 That without prejudice, the explanation to the Sec 92B inserted vide Finance Act, 2012 can only have prospective effect from 1st April, 2012 (i.e. AY 2013-14) at least to the extent dealing with issuance of Corporate guarantee as upheld by Hon'ble Delhi High Court in New Skies Satellite BV1 and further reiterated by Hon'ble Mumbai ITAT in Siro Clinpharm Ltd 2 and hence no adjustment on account of corporate guarantee is warranted in the relevant year. .
7.3 In the alternative and without prejudice to the above, the Hon'ble ITAT may be pleased to hold that no adjustment is required as 0.25% charged by the appellant as corporate guarantee fee from its wholly owned subsidiary/AEs is at arm's length and thus upward adjustment of Rs. 34,67,318/- be directed to be deleted.
7.4 That the corporate guarantee fee benchmarked under CUP based on specific quote from ICICI Bank be held at ALP.
GROUNDS OF OBJECTIONS IN RESPECT OF
CORPORATE TAX ISSUES
1
(TS-64-DEL-2016)
2
(TS-14-ITAT-2016-TP)
I.T.A. No.5784/DEL/2016 4
Disallowance u/s 14A
8. The Ld. DRP/AO have erred in law and in facts and in the circumstances of the assessee by enhancing the disallowance u/s 14A of the Act, to the tune of Rs.
1,54,16,743/- which is wholly untenable in law and based on conjectures and surmises.
9. The Ld. DRP/AO has while enhancing disallowance u/s 14A of the Act, grossly erred in holding that the entire amount of interest expense of Rs. 66,10,88,728/- is indirectly attributable for earning a dividend income of Rs.13,47,69,585/-.
10. That the Ld. DRP/ AO has grossly erred in law and on the facts & circumstances of the assessee in attributing interest u/r 8D(2)(ii) although all loans were explained to be for specific business purpose.
11. That the Ld. AO be directed to delete the enhancement of disallowance of Rs. 1,54,16,743/- made u/s 14A of the IT Act.
Claims of deduction u/s 10A(1A) (A) Scrap sale of Rs. 49,32,423/-
12. The Ld. DRP/AO has erred in law and in facts and in circumstances of the case by reducing the claim of deduction u/s 10A(1A) by an amount of Rs.49,32,423/- being the scrap sale made by the eligible unit by holding that scrap sale is in the nature of domestic sales and hence not eligible for deduction u/s 10A(1A).
13. (a) The Ld. DRP/AO has erred in law in not following the legally binding precedent of Hon'ble Karnataka High Court in case of GE BE (P) Ltd Vs ACIT-11(2), wherein in the similar facts as that of appellant, it was held that scrap generated during I.T.A. No.5784/DEL/2016 5 manufacturing or production activities of the unit is eligible for profit based deduction.
(b) The Ld. DRP/AO has grossly erred in law in disregarding the legally binding precedent of Hon'ble Delhi High Court in case of CIT v Sadhu Forgings Ltd 3 and further misinterpreting the said case does not deal with issue of domestic sale or export sale.
14. The Ld. DRP has grossly erred in law by not following its own directions in assessee's case for AY 11- 12 wherein the Ld. DRP had directed to delete the identical disallowance of claim.
(B) Inter-unit sale of ` 7,52,64,246/-
15. The Ld. DRP/AO has grossly erred in law and in facts and in the circumstances of the case by reducing the claim of deduction u/s 10A(1A) by an amount of ` 7,52,64,246/- being inter-unit transfer of semi-finished goods from SEZ unit to another unit of the assessee at market prices.
16. The Ld. DRP/AO has grossly erred in reducing the amount of deduction u/s 10A(1A) by the amount of inter-unit transfer and not considering that such transfers have been made at the market price/ fair market value in accordance with Section 10A(7) r.w. Section 80-IA(8) such that no disallowance is warranted.
17. The Ld. DRP/AO has erred in not considering the fact that the Ld. DRP in the assessee's own case for AY 2011-12 adjudicated similar issue i.e. claim u/s 10A(1A) in respect of intra-unit transfer & directed Ld. AO to allow the claim after verification.
18. Without prejudice the Ld. DRP/AO failed to appreciate that it is only the deduction claimed on the profit element in the inter unit transfer which could at ] I.T.A. No.5784/DEL/2016 6 best be disallowed and not whole of the amount of inter unit transfer.
Claims made during the assessment proceedings
19. The Ld. DRP/AO have erred in law and on the facts of the assessee's case in not admitting and allowing the following additional allowances/claims made by the assessee, during the course of assessment proceedings and subsequently before Ld. DRP.
a) exclusion of Rs.4,39,72,72,157/- received by the assessee on account of transfer of Carbon emission reductions (CERs) from the taxable income of the assessee since this was a capital receipt not liable to tax under the Act.
b) exclusion of Rs. 3,08,96,338/- received by the assessee on account of interest subsidy under Technology Up gradation Fund (TUF) scheme since this was a capital receipt not liable to tax.
c) allowance of remaining additional depreciation @ 10% u/s 32(1)(iia) amounting to Rs.2,50,78,490 /-
d) allowance of depreciation of Rs. 45,39,692/-
on goodwill which was inadvertently left to be claimed while filing the tax return.
e) exclusion of Rs. 11,81,58,510/- being the excise duty component on sale effected by the eligible unit (u/s 80-IC at Kashipur) worked out on reverse calculation mechanism, from the taxable income of the assessee, since this was a capital receipt not liable to tax.
20. That the Ld. DRP/ AO failed to appreciate that the taxes are leviable & recoverable in accordance with law and legal claims are required to be entertained at any stage of the proceedings.
I.T.A. No.5784/DEL/2016 7Computation of book profits under MAT
21. Without prejudice to the grounds 18, 19 & 20 that the ITAT may be is pleased to admit the following additional grounds as a decision on these issues is in the interest of justice and all facts for their adjudication are on record of the AO and raise legal issues only as per the judgment of Hon'ble SC in the case of NTPC Vs. CIT 229 ITR 383(SC)
(a) That Rs.4,39,72,72,157/-, received by the assessee on account of transfer of Carbon emission reductions (CERs) to be excluded from the taxable income, since the same was a capital receipt, not liable to tax.
(b) That Rs. 11,81,58,510/- being the excise duty component on sale effected by the eligible unit (u/s 80-IC at Kashipur) worked out on reverse calculation mechanism, be excluded from the taxable income of the assessee since the same was a capital receipt not liable to tax.
(c) That Rs. 3,08,96,338/- received by the assessee on account of interest subsidy under technology Up-gradation Fund (TUF) scheme, since this was a capital receipt, to be excluded from the taxable income of the assessee.
(d) That the allowance of remaining additional depreciation @ 10 % u/s 32(1)(iia) amounted to ` 2,50,78,490/- be allowed.
(e) That the allowance of depreciation of ` 45,39,692/- on goodwill which was inadvertently left to be claimed while filing the tax return be allowed.
(f) That the following receipts may please be excluded while computing profits u/s 115JB of the Act :-
i) Rs.4,39,72,72,157/- received by the assessee on account of transfer of Carbon emission reductions I.T.A. No.5784/DEL/2016 8 (CERs) from the book profit of the assessee, being tax free capital receipt.
ii) Exclusion of Rs.35,02,570/- on account of provisions for doubtful debts written back.
iii) Rs.4,00,00,000/-/- on account of provisions for doubtful advance written back
iv) Rs. 1,54,10,239/- on account of provisions for investments written back.
v) Rs.3,08,96,338/- received by the assessee on account of interest subsidy under TUF scheme, being capital receipt in nature.
vi) Excise duty component amounting to Rs.
11,81,58,510/- on sale affected by eligible unit u/s 80 IC (Kashipur unit) of worked out on reverse calculation mechanisms being capital receipt in nature
vii) That the following amounts/receipts should have been included, while computing book profit u/s 115JB of the Act but appellant failed to include the same:-
a) Inclusion of Rs. 22,66,432/-, on account of provision for doubtful debt created.
b) Inclusion of Rs. 7,64,706/-, on account of provision for doubtful advances created.
c) Inclusion of Rs.9,07,600/-, on account of provision for doubtful advances created.
22. The Ld. DRP/AO has grossly erred in not excluding/ including the following receipts/ items while computing the book profits u/s 115JB of the Act.
a) exclusion of Rs. 4,39,72,72,157/- received by the assessee on account of transfer of Carbon emission reductions (CERs) from the book profit of the assessee.
b) exclusion of Rs. 35,02,570/- on account of provisions for doubtful debts written back.
c) exclusion of Rs.4,00,00,000/- on account of provisions for doubtful advances written back.
I.T.A. No.5784/DEL/2016 9d) exclusion of Rs.1,54,10,239/- on account of provisions for investments written back.
e) inclusion of Rs. 22,66,432/- on account of provision for doubtful debt created
f) inclusion of Rs. 7,64,706/- on account of provision for doubtful advances created
g) inclusion of Rs. 9,07,600/- on account of provision for doubtful advances created
h) exclusion of Rs.3,08,96,338/- received by the assessee on account of interest subsidy under TUF scheme, being capital receipt in nature.
i) exclusion of excise duty component amounting to ` 11,81,58,510/- on sale affected by eligible unit u/s 80-IC (Kashipur unit) of worked out on reverse calculation mechanism being capital receipt in nature.
23. The Ld. DRP/AO has erred in law & circumstances of the case by initiating penalty proceedings u/s 271(1)(c ) of the Act.
24. That the order of the Ld. Assessing Officer dated 23rd September 2016 is bad in law.
2. During the year under consideration, certain transfer pricing adjustments and other corporate tax additions/disallowances were made by the TPO and AO. The assessee raised its objections against said transfer adjustments and addition/disallowances before DRP. The DRP has upheld the transfer pricing adjustments and other additions and disallowances. The assessee has thereafter filed appeal before us.
3. We hereunder undertake transfer pricing issues first and thereafter corporate tax issues are dealt in I.T.A. No.5784/DEL/2016 10 separately. Ground no. 1 t0 3 are general in nature and therefore are not adjudicated upon. We proceed to deal with specific grounds.
Corporate Guarantee (Ground no.4-7):
4. The assessee has charged corporate guarantee fee of Rs. 36,98,107/- at the rate of 0.25% in respect of corporate guarantee extended on behalf of its overseas AE which is wholly owned overseas subsidiary of the company. The assessee charged said rate based on the quotation obtained by it from ICICI bank which was specific to the case of the assessee and AE. The TPO rejected the assessee's benchmarking and imputed the corporate guarantee rate at 1.15% based on the bank guarantee rate obtained u/s 133(6) of the Act from State Bank of India and made upward adjustment to the tune of Rs.1,27,82,374/- being the differential on the account of assessee's corporate guarantee rate @ 0.25% and the bank guarantee rate obtained from the SBI @ 1.15%. DRP has granted the partial relief by reducing the arm's length corporate guarantee fee rate from 1.15% to 0.50%.
5. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. We have examined identical issue in detail in the assessee's own case for I.T.A. No.5784/DEL/2016 11 AY 2010-11 (ITA no. 356/Del/15) upholding the corporate guarantee fee at 0.25% as arm's length rate of such transaction. Since facts, legal position and other factors are same for this year, we uphold the transaction of corporate guarantee fee at 0.25% charged by the assessee from its AE at arm's length and thus addition of Rs.1,27,82,374/- made by TPO on this account is deleted.
Disallowance u/s 14A (Ground no.8 to 11):
6. The assessee company has earned dividend income of Rs.13.47 Crores from its investment in mutual funds which is claimed exempted from tax under section 10(34) of the Act. The assessee itself made suo-moto disallowance of Rs. 53,51,280/- u/s 14A of the Act r.w.r 8D(2)(iii) being 0.50% of average value of investment income from which is exempt from tax. The AO being dissatisfied with the suo-motu disallowance made by the assessee made further disallowance of Rs. 1,54,16,743/- in respect of proportionate interest paid by the assessee to various banks invoking the provisions of Rule 8D(2)(ii). The DRP upheld the assessment order.
7. The ld. counsel for assessee argued that no disallowance in respect of Rule 8D(2)(ii) can be made in respect of interest expenses as interest was paid for loan taken for specific business purposes. Chart depicting actual utilization and purpose of loans for which I.T.A. No.5784/DEL/2016 12 interest was paid as given to AO and DRP is as under:
Utilisation/ Interest on AY 2012-
Justification by
Loan/ Purpose 13
assessee
Loan under TUF Fixed Assets under TUF
scheme of Govt. 377.66 scheme administered by
of India Government
Fixed Assets : specific
Rupee term loan
3439.36 loans for purchase of
other than TUF
fixed assets
Foreign
Currency Loan 684.63
Fixed Assets : specific
(Term Loan)
loans for purchase of
Buyer's Credit
fixed assets
for Capital 95.35
Goods
Interest on Cash Day to day operations by
43.74
Credit manufacturing units.
For exports - granted
under Govt. policy for
Exports Packing
159.64 the sole purpose of
Credit
financing export of goods
or services.
Bill Discounting For exports - for early
8.05
charges cash requirement.
Procurement of imported
Buyer's Credit Raw material - such loan
for Purchase of - does not even come in
Raw Material the bank accounts of the
assessee.
WC For working capital
149.94
Requirement requirement
For delay in payments to
Paid to supplier. Purely
suppliers for business purpose.
1,652.52
delay in Hercules Hoists
payments Limited v ACIT [TS-58-
ITAT-2013(Mum)]
Total 6,610.89
I.T.A. No.5784/DEL/2016 13
Investments made out of surplus funds.
8. The ld. counsel further argued that no further disallowance u/s 14A was warranted in the assessee's case as assessee's own funds are much higher than the investments made by it from which the exempt income could arise. The ld AR pointed out that amount of investments in respect of which tax free income could have been received is Rs.107.02 Crores (Page no. 10 of AO's order), while on the other hand the total amount of reserve and surplus of the assessee as on 31st March, 2010 as per the audited balance sheet was Rs.1788.26 Crores (Page no.1 of Paper Book). He highlighted that assessee's reserve and surplus was around 16.70 times of aforesaid investments. Further, the assessee has cash profits of Rs.831.64 Crores for the year under consideration. The whole purpose of above submission of AR was to demonstrate that assessee had adequate surplus funds in fact much higher than the investments.
9. The ld. AR has submitted that DRP in assessee's own case for AY 2014-15 deleted the identical enhanced disallowance u/s 14A rwr 8D(2)(ii) after examining the facts in details. The AR submitted that there is no change in facts for the year under consideration as well.
I.T.A. No.5784/DEL/2016 1410. The assessee further relied upon various judgments of Hon'ble courts to support its contentions for deletion of disallowance u/s 14A. The ld. CIT-DR relied upon the order of AO.
11. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. The interest paid by the assessee is in respect of loans taken for specific business purposes and thus to earn non-exempt business income. The DRP has given its finding in assessee's own case for AY 2014-15 that loans were taken for specific business purposes. Moreover, the assessee's own funds in form reserves and surplus profits of Rs.1788.26 Crores are much higher than the investments of Rs.107.26 Crores. Moreover, we have already examined this issue in this assessee's own case for AY 2010-11 (ITA no. 356/Del/15) and on identical facts we held that disallowance u/s 14A read with rule 8D(2)(ii) is not sustainable. In view of above, the disallowance of Rs.1,54,16,743/- u/s 14A made by the assessing officer is therefore deleted.
Disallowance of deduction u/s 10(1A) in respect of Scrap Sale (Ground no.12-14):
12. During the year, the SEZ Indore unit of the assessee received proceeds from scrap sales amounting I.T.A. No.5784/DEL/2016 15 to Rs. 49,32,423/-. The same was shown as Other Income in P&L of the SEZ Unit- Indore and has been considered for purpose of calculation of eligible deduction u/s 10A(1A). The AO claimed that scrap sale made was in nature of domestic sales and hence not eligible for deduction u/s 10A(1A). The AO held that scrap sale is not a business activity and therefore ineligible for profit base deduction u/s 10A. The DRP also upheld the order of the AO, aggrieved from which the assessee is before us in appeal.
13. In this regard the Ld. Counsel submitted that scrap has been generated out of manufacturing activities carried on by the SEZ Unit. The assessee placed reliance on the judgment of Karnataka HC in GE BE (P) Ltd vs ACIT [2014] 49 taxmann.com 348 (Karnataka) wherein it was held that scrap generated during manufacturing or production activities of unit is eligible for profit based deduction. The assessee further placed reliance on the following judgments:
• CIT vs Sadhu Forging Ltd [2011] 336 ITR 444 (Delhi-HC) - scrap sale receipts entitled for exemption u/s 80-IB • WIPRO Ltd [(2006) 5 SOT 805 (Bang)] - scrap sale income is eligible for deduction u/s 10A.
14. The ld. counsel of assessee submitted that the DRP relying on the Hon'ble Delhi High Court in case of I.T.A. No.5784/DEL/2016 16 CIT vs Sadhu Forging Ltd [2011] 336 ITR 444 (Delhi- HC) has given finding in assessee's own case for AY 2011-12 that scrap is by-product of its eligible activity and therefore eligible for deduction.
15. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. There is no dispute that scarp has been generated out by the normal production activities of the eligible unit. The amount realized from sale of scarp has been shown as other income in profit & loss account of such unit. Alternatively, the same could have been reduced from the cost of production and in that case profits of eligible would remain unaffected for the purpose of deduction u/s 10(1A). Thus, respectfully following the Hon'ble Jurisdictional High Court in case of Sadhu Fording Ltd. (Supra) the disallowance of deduction u/s 10(1A) of Rs. 49,32,423/- made by the AO is hereby deleted.
Inter-unit transfer of goods of Rs. 7,52,64,246/- eligible deduction u/s 10A(1A) (Ground no.15-18)
16. The assessee has two separate manufacturing units, one in Kashipur and the other in Indore (SEZ unit eligible unit u/s 10AA). During the year, based on the requirement of Kashipur unit of the assessee, the SEZ unit in Indore has transferred certain semi-finished I.T.A. No.5784/DEL/2016 17 goods (polyester Chips) to Kashipur unit of the assessee amounting to Rs. 7,52,64,246/-. The assessee had claimed the deduction after taking into account such inter unit transfer. The AO proceeded to reduce the amount of deduction claim u/s 10A(1A) by the amount of such inter-unit sales, which was further upheld by the DRP. Aggrieved the assessee is before us in the appeal on aforesaid grounds.
17. In this respect the Ld. Counsel submitted that Indore SEZ unit based on the requirement of Kashipur unit transferred semi-finished goods at its market value. The market value has been determined with reference to the rates at which similar goods are purchased by the Kashipur unit from unrelated parties. The AR has submitted that average rate of inter-unit transfer of goods is Rs.85.22 per unit while the third party rate of same goods was Rs. 85.5 and 86.5 per unit. The copies of invoice of third parties -JBF Industries were submitted (Page no. 404-405 of Paper Book). It was further submitted that the assessee has fulfilled the conditions of section 10A(7) read with section 80-IA of the Act- transfer of goods between eligible business and any other business of assessee have been undertaken at market value. The assessee vide its ground no.18 also submitted without prejudice to other grounds that only the deduction claimed on the profits element I.T.A. No.5784/DEL/2016 18 attributable to aforesaid inter-unit transfer could have been disallowed at best and not whole the amount of inter-unit transfer.
18. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. The provisions of section 10A(7) read with section 80-IA(8) of the Act are there to ensure that profits of eligible unit are not overstated. These provisions specifically provides for the purpose of deduction under aforesaid section that transactions in the nature of transfer of goods and services between eligible unit and other non-eligible unit should be entered into at market value or arm's length price. In the case on hand, the assessee has entered into transactions at the market price and therefore profits of Indore SEZ units are not overstated. Therefore, the disallowance made by AO of Rs.7,52,64,246/- u/s 10(1A) in respect of inter-unit transfers is hereby deleted. In view of above, the ground no.18 raised by assessee becomes academic and is therefore dismissed.
Additional Claims (Ground no.19-20):
19. During the course of assessment proceedings, the assessee preferred certain additional claims before the AO. The AO however did not even discuss such claims of the assessee in his order. The assessee thereafter raised I.T.A. No.5784/DEL/2016 19 said claims before DRP. The assessee relied upon on the judgment of CIT v SAM Global Securities Ltd [2014- 360-ITR-682 (Del)] and MIT Mohan Singh v DCIT [2013-155-TTJ-1-Chd] prayed that a legal claim can be made at the time of during assessment proceedings. The DRP also did not entertain the claim relying on the Goetze (India) Limited vs CIT 284 ITR 323.
20. In assessee's appeal for AY 2010-11 (ITA no. 356/Del/15) we have dealt this issue of admission of additional claims. In the said case for AY 2010-11, we had relied on the judgment of Hon'ble Supreme Court in case of NTPC Ltd [229 ITR 383 (1998)] and other judgments holding that tribunal's power are wide enough to admit any additional claim/ ground. The additional claims of the assessee are thereby dealt as under:
Claim 1. Receipt from transfer of Carbon emission reduction (CER) certificates:
21. The facts as submitted are that assessee has received carbon emission reduction ('CER' or 'carbon credits') certificates on account of its efforts to reduce the emission of greenhouse gases in terms of Kyoto Protocol. During the relevant year the assessee transferred such certificates for a consideration. For the relevant assessment year 2012-13 the assessee received an amount of Rs. 439.73 crores in respect of sale of I.T.A. No.5784/DEL/2016 20 such CERs. The income from CERs has been disclosed in profits & loss accounts and various notes and annexure of annual report of the assessee. The assessee originally included the above receipts in its total income while filing the return of income. Subsequently the decision reported in My Home Power Ltd. vs DCIT [2012] 27 taxmann.com 27 151 TTJ 616 subsequently confirmed by the Hon'ble Andhra Pradesh High Court in CIT vs My Home Power Ltd. [2014] 365 ITR 82, described carbon credits as an offshoot of environmental concerns and not offshoot of business and hence held as capital receipt in nature. In light of above judgment the assessee claimed before AO that such receipts from sale of CER certificates are not chargeable to tax being such receipts capital in nature and hence should be excluded from the total income of assessee.
22. The AO however did not entertain the additional claim of the assessee. The DRP did not adjudicate the additional claim of the assessee relying on the judgment in Goetze (India) Limited vs CIT 284 ITR 323.
23. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. The facts and issue involved are identical the assessee's own case for AY I.T.A. No.5784/DEL/2016 21 2010-11, which we have dealt in ITA no. 356/Del/15. In the said case we allowed the assessee's plea for admission of admission claim in respect of CERs and remitted back the issue to the file of AO. Similarly in this year, we allow the assessee's ground for entertainment of above additional claim and remit the issue back to the file of AO to decide the same in accordance with law after granting a reasonable opportunity of being heard to the assessee. The assessee shall be free to file such documents, explanations, submissions as it deems fit in respect of this claim.
Claim 2. Interest subsidy under Technology Upgradation Fund (TUF) Scheme:
23. During the year, Assessee had obtained loan of Rs. 6,250 Lacs from SBI and Rs. 3,500 Lacs from State Bank of Mysore under TUF Scheme issued by the ministry of textile, Government of India. Whether the Loan was utilized as per the scheme is not under question. Under the TUF scheme, the assessee was eligible for 5% Interest subsidy calculated on the loan outstanding which amounted to Rs. 3,08,96,338/-. The assessee made such additional claim vide letter dated 16.02.2016 before the AO. The AO did not entertain the additional claim of the assessee. The DRP did not admit the additional claim of the assessee relying on the I.T.A. No.5784/DEL/2016 22 judgment in Goetze (India) Limited vs CIT 284 ITR
323.
24. Going into the details, the Ld. Counsel argued that the Objective of the subsidy/incentive under TUF scheme was expansion of capacities, modernisation and up-gradation of facilities and hence nature of subsidy was capital in nature not revenue in nature. The assessee also placed reliance upon the following judgments wherein such subsidy was held to be as a capital receipt:
• CIT -vs.- Sh. Sham Lal Bansal (Hon'ble Punjab & Haryana High Court, ITA No. 472 of 2010) • PCIT v. Ankit Metal & Power Ltd. [416 ITR 591 2019] Cal High Court • CIT vs.- Ponni Sugars & Chemicals Ltd.
reported in (2008) 306 ITR 392 (SC) • CIT vs.- Rasoi Ltd. [(2011) 335 ITR 438 (Cal.)] • CIT v. Chaphalkar Brothers [2017] 88 taxmann.com 178 (SC)/ (2018) 400 ITR 279 (SC) • DCIT vs.- Reliance Industries (2004) 88 ITD 273 (Mum.)(SB);
• CIT vs. Birla VXL Lt d. (2013) 90 DTR 376 (Guj.)(HC);
• Hydro Carbons & Chemicals vs.- ACIT (ITA No. 1982-86/Kol/09);
I.T.A. No.5784/DEL/2016 23• Indo Rama Synthetics (I) Ltd. vs. ACIT (2012) 33 CCH 526 (Del.)(ITAT).
• CIT v Gloster Jute mills Ltd ITA no.
766/Kol/2010
• Shree Balaji Alloys v. CIT [2011] 333 ITR
335/198 Taxman 122/9 taxmann.com 255 (J&K)
25. The ld. AR has further submitted the department has in subsequent years accepted the assessee's claim of interest subsidy on TUF scheme as capital in nature as no addition has been made in subsequent years.
26. Ld DR relied upon the orders of authorities below.
27. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. It is a settled position that purpose of subsidy or incentive and not the nomenclature of such incentive have to be seen for the purpose of deciding its nature as capital or revenue. In the judgment of Ponni Sugars & Chemicals Ltd. (Supra), the Hon'ble Apex Court have held that character of the receipt of a subsidy in the hands of recipient assessee has to be decided with respect to the purpose for which subsidy is granted. If the subsidy is received to enable the assessee to run its business more profitably then such subsidy is revenue in nature. While, if the subsidy has been received by the assessee I.T.A. No.5784/DEL/2016 24 to set up a new unit or for expansion of existing unit then such subsidy would be capital in nature. We find form the objective of TUF scheme that interest subsidy under such scheme was granted for expansion of capacities, modernisation and up gradation of facilities. In case of CIT v. Sham Lal Bansal (Supra), the Hon'ble Punjab & Haryana High Court on similar facts held subsidy received under TUF Scheme as capital receipt. Since the issue under hand is related to additional claim which was not entertained by the lower authorities, we therefore allow the assessee's ground for entertainment of above additional claim and remit the issue back to the file of AO to decide the same in accordance with law after granting a reasonable opportunity of being heard to the assessee. The assessee shall be free to file such documents, explanations, submissions as it deems fit in respect of this claim.
Claim 3. Additional Depreciation:
28. The facts as submitted are that during the preceding financial year 2010-11 (relevant to AY 2011-
12), the assessee claimed additional depreciation @10% (half of 20%) amounting to Rs. 2,50,78,490/- on assets being the plant and machinery put to use for less than 180 days. In view of assessee, it is eligible to claim the balance amount of depreciation i.e. Rs.2,50,78,490/- in I.T.A. No.5784/DEL/2016 25 the subsequent year viz. AY 2012-13 under consideration.
29. The Ld. Counsel has placed reliance on following judicial pronouncements:
• Apollo Tyres ltd vs ACIT (2014) 64 SOT 203 • CIT vs Cosmo Films Ltd(2012) (ITA 1404/2008) • CIT Vs SIL Investment Limited(2012) (ITA No. 24319 (Del) 2010) • M/s TCPL PACKAGING LTD vs Deputy Commissioner Of Income Tax [2019-TIOL-907- ITAT-MUM] • The Commissioner Of Income Tax Vs Kalpataru Power Transmission Ltd [2019-TIOL-1424-ITAT- AHM]
30. The AR further pointed out that the Finance Act, 2015, has amended the law by inserting third Proviso to section 32(1)(iia) - applicable w.e.f. 1st April 2016 to allow the claim of additional depreciation for assets put to use for less than 180 days in subsequent Assessment Year.
31. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. We have dealt the identical issue in the assessee's own case for AY 2010- 11 (ITA no. 356/Del/15) and set aside the issue to the I.T.A. No.5784/DEL/2016 26 file of AO to consider the claim of the assessee. Following the same, we hereby direct the AO to consider the claim of the assessee and give his findings thereon. For this purpose this issue is set aside to the file of AO. The AO shall be free to call for such information and explanation as he deems fit in order to adjudicate this claim of the assessee after granting reasonable opportunity to the assessee of being heard. The assessee is also free to file such documents, explanations, submissions as it deems fit in respect of this claim.
Claim 4. Depreciation on Goodwill:
32. The assessee had purchased a running business in the financial year 2008-09 and paid sale consideration in excess of value of net assets acquired.
The excess payment was recognized as goodwill in books of account. During the year, relevant to assessment year 2012-13, the Assessee Company has claimed depreciation on Goodwill of Rs.45,39,692/-.
33. It was submitted that amount of goodwill represents the excess of consideration paid for purchase of such businesses over the value of assets acquired. Valuation reports for various assets acquired were placed on record by the assessee during the proceedings. The assessee made such additional Claim I.T.A. No.5784/DEL/2016 27 made vide letter dated 09.02.2016 before the AO stating that excess amount paid for purchase of business of Rs. 3,68,94,006/- be treated as goodwill and depreciation be allowed thereon. The AO did not entertain the additional claim of the assessee. The DRP did not admit the additional claim of the assessee relying on the judgment in Goetze (India) Limited vs CIT 284 ITR
323.
34. In this respect the assessee placed reliance on the following judicial precedents for such claim:
• Alapati Venkataramiah V/s. CIT (57 ITR 185) • Evans Fraser and Co. Ltd. (in liquidation) V/s.
CIT (137 ITR 493) • Smifs securities [TS-639-SC-2012] • Birla Global Asset Finance Co. Ltd [TS-791-HC-
2012 (BOM)] • Worldwide Media Pvt Ltd [TS-56-ITAT-2014 (Mum)] • DCIT v. Intertek India Pvt. Ltd. [2014-TIOL-442-
ITAT-DEL] confirmed by Hon'ble Delhi High Court. • Dy. CIT v. Zydus Wellness Ltd. [2017] 162 ITD 604 (Ahmedabad - Trib.) • CIT v. B.C. Srinivasa Setty [1981] 128-ITR-294 • Toyo Engineering India Ltd. [TS-655-ITAT-
2014(Mum)] • Hindustan Coca Cola Beverages Pvt. Ltd. [TS-7- I.T.A. No.5784/DEL/2016 28 HC-2011(DEL)] • Skyline Caterers (P.) Ltd [TS-59-ITAT-2007(Mum)] • Johnson Matthey Chemicals India Pvt Ltd [TS-
604-ITAT-2017(PUN)]
35. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. In case of Smifs securities (supra), the Hon'ble apex court has held that goodwill amounts to intangible assets which are eligible for depreciation. The issue is however an additional claim and require examination by AO, we therefore set aside this issue back to the file of AO to decide the same in accordance with law after granting a reasonable opportunity of being heard to the assessee. The assessee shall be free to file such documents, explanations, submissions as it deems fit in respect of this claim.
Claim 5. Claim of Excise Duty Component Included In Sales:
36. Facts as submitted to us are that during the financial year, one of the unit at Technical textiles business at Kashipur has made sale amounting to Rs.1,26,53,28,518/- inclusive of excise duty. Excise duty component on such sales come to Rs. 11,81,58,510/- by reverse working mechanism. Such I.T.A. No.5784/DEL/2016 29 excise duty component, as claimed by the assessee being in the nature of capital receipt, be excluded from the taxable income of the assessee. The AO did not entertain the additional claim of the assessee. The DRP did not admit the additional claim of the assessee relying on the judgment in Goetze (India) Limited vs CIT (supra).
37. Having heard the assessee, we hereby remand back the issue to the file of the AO for fresh adjudication. The assessee shall be free to file such documents, explanations, submissions as it deems fit in respect of this claim.
Exclusion/inclusion of capital receipts/items in the book profit u/s 115JB (Ground no.21 and 22):
38. In grounds no. 21 and 22 the assessee has pleaded to exclude certain receipts viz., CER receipts, subsidy under TUF, from the computation of book profits u/s 115JB. Further assessee has sought to exclude/include certain provisions written back /created from the computation of book profits u/s 115JB of the Act. The claim for exclusion/inclusion of such items in computation of book profits was made by the assessee before lower authorities. However the lower authorities did not entertain the additional claim of the assessee. The items sought to be excluded / included I.T.A. No.5784/DEL/2016 30 through above grounds are as under:
Capital receipts
a) Exclusion of Rs. 4,39,72,72,157/- received by the assessee on account of transfer of Carbon emission reductions (CERs) from the book profit of the assessee.
b) Exclusion of Rs. 3,08,96,338/- on account of interest subsidy received under the TUF Scheme.
c) Exclusion of excise duty component amounting to Rs.11,81,58,510/- on sale affected by eligible unit u/s 80-IC (Kashipur unit) of worked out on reverse calculation mechanism being capital receipt in nature.
Other exclusions/inclusions
d) Exclusion of Rs. 35,02,570/- on account of provisions for doubtful debts written back.
e) Exclusion of Rs. 4,00,00,000/- on account of provisions for doubtful advances written back.
f) Exclusion of Rs. 1,54,10,239/- on account of provisions for investments written back.
g) Inclusion of Rs. 22,66,432/- on account of provision for doubtful debt created
h) Inclusion of Rs. 7,64,706/- on account of provision for doubtful advances created
i) Inclusion of Rs. 9,07,600/- on account of provision for doubtful advances created I.T.A. No.5784/DEL/2016 31
39. The assessee placed reliance upon the following judgments to exclude capital receipts from book profits u/s 115JB.
• Binani Industries Ltd. [TS-111-ITAT-2016(Kol) • L.H. Sugar Factory Ltd. (ITA Nos 417, 418 & 339/LKW/2013) also approved by Hon'ble Allahabad High Court [2016-TIOL-1942-HC-ALL High Court-IT]. • PCIT v. Ankit Metal & Power Ltd. [416 ITR 591 2019] Cal High Court • Alok Industries Ltd. [TS-313-ITAT-2018]
40. In respect of exclusion of other items from book profits the assessee has submitted that as per Explanation 1 to section 115JB of The Income Tax Act, 1961, the amount withdrawn from any reserves should be reduced from the net profit to determine book profits. It was argued that when such provision was originally made, the same was added to the book profits u/s 115JB and thus it is logical to reduce the amount of provisions written back from such book profits.
41. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. The issue involves additional claim which were not adjudicated by the lower authorities. We therefore set aside the issues relating to computation of books profits back to the file of AO to decide the same in accordance with law I.T.A. No.5784/DEL/2016 32 after granting a reasonable opportunity of being heard to the assessee. The assessee shall be free to file such documents, explanations, submissions as it deems fit in respect of this claim.
42. Other grounds are either consequential or have become academic, hence same are treated as infructuous.
43. In the result, the appeal of the appellant- assessee is partly allowed.
Order pronounced in the open Court on 24th February, 2020.
Sd/- Sd/- [PRASHANT MAHARISHI] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24.2.2020 PKK: