ACIT, Ranchi V. M/s Aditya Birla Chemicals India Ltd., Palamau

ITA 121/RAN/2015

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3200 (ITAT-RANCHI)
• Duration Of Justice: 4 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 05-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: INDERJEET SINGH
• Keywords: Gift; Revision of order; Depreciation; Transfer pricing; Business expenditure; Rule of consistency; Difference of opinion; Revenue expenditure; TDS; Set aside
• Section: 40(a)(ia); 37(1); 194C; 80IA; 201; 80HH; 192; 263

Judgement Text

P A G E 1 | 39 IN THE INCOME TAX APPELLATE TRIBUNAL, RANCHI BENCH, RANCHI BEFORE S/ SHRI CHANDRA MOHAN GARG , JUDICIAL MEMBER AND LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA NO. 116 & 117 / RAN /201 5 ASSESSMENT YEA R S : 2006 - 07 & 2007 - 08 C.O.NOS.16 & 17/RAN/2017 (IN ITA NOS.121 & 122/RAN/2015) M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), REHLA, PALAMAU - 822124 VS. ACIT, CIRCLE - 1, RANCHI PAN/GIR NO. AAACB 7747 A (APPELLANT ) .. ( RESPONDENT ) ITA NOS.121 & 122/RAN/2015 ASSESSMENT YEARS: 2006 - 07 & 2007 - 08 ACIT, CIRCLE - 1, RANCHI VS. M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), REHLA, PALAMAU - 822124 PAN/GIR NO.AAACB 7747 A (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI DEVESH PODDAR, ADV REVENUE BY : SHRI INDERJEET SINGH . CIT( DR ) DATE OF HEARING : 2 9 / 08/ 201 9 DATE OF PRONOUNCEMENT : 18 / 1 1 / 201 9 O R D E R PER BENCH THESE APPEALS BY THE DEPARTMENT AND THE APPEALS & CROSS OBJECTIONS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS OF THE LD. CIT(A), RANCHI M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 2 | 39 DATED 21.5.2015 AND 18.5.2015 FOR THE ASSESSMENT YEARS 2006 - 07 AND 2007 - 08, RESPECTIVELY. 2. THE ISSUES INVOLVED IN THESE APPEALS AND THE CROSS OBJECTIONS ARE SIMILAR, THEREFORE, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDE R FOR THE SAKE OF CONVENIENCE AND BREVITY. FIRST, WE TAKE UP THE CROSS APPEALS FOR THE ASSESSMENT YEAR 2006 - 07. 3. THE REVENUE IN ITS APPEAL HAS RAISED THE FOLLOWING GROUNDS: 1. DELETION OF ADDITION UNDER REBATE & CLAIM OF RS.94,90,362/ - 2. DELETION OF ADDITION ON ACCOUNT OF CSR EXPENSES, COMMUNITY WELFARE EXPENSES, ETC OF RS.24,35,192/ 3. DELETION OF ADDITION ON ACCOUNT OF EXCESS SALE OF POWER PLANT. 4. DELETION OF ADDITION ON ACCOUNT OF ALLOCATION OF EXPENSES BETWEEN POWER PLANT UNIT AND CA USTIC PLANT. 4. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID. CIT (A) HAD GROSSLY ERRED IN DISMISSING THE GROUND OF APPEAL THAT THE ID. AO WAS NOT JUSTIFIED IN TRAVELLING BEYOND THE SHOW CAUSE NOTICE ISSUED U/S 263 BY SAYING THAT THIS GROUND IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC COMMENT . 2. ON THE FACTS' AND CIRCUMSTANCES OF THE CASE, THE ID. CIT (A) HAD GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 15,000/ - ON AD HOC BASIS I.E.10% OF 1,50,000/ - CLAIMED BY YOUR APPELLANT ON ACCOUNT OF CLUB EXPENDITURE . 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID. CIT (A) HAD GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 2,02,082/ - ON AD M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 3 | 39 HOC BASIS I.E. 10% OF 20,20,825/ - CLAIMED BY YOUR APPELLANT ON ACCOUNT OF OTHER STAFF WELFARE EXPENSES. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAD GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 11,791/ - ON AD HOC BASIS I.E. 10% OF RS. 1,17,915/ - CLAIMED BY YOUR APPELLANT ON ACCOUNT OF OTHER WORKERS WELFARE EXPENSES. 5. ON T HE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID. CIT (A) HAD GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 9,144/ - ON AD HOC BASIS I.E. 10% OF RS. 91,444/ - CLAIMED BY YOUR APPELLANT ON ACCOUNT OF COMMUNITY DEVELOPMENT EXPENSES. 6. ON THE FACTS AND CI RCUMSTANCES OF THE CASE, THE ID. CIT (A) HAD GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 15,342/ - ON AD HOC BASIS I.E. 10% OF RS. 1,53,423/ - CLAIMED BY YOUR APPELLANT ON ACCOUNT OF HRD TRAINING EXPENSES. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE ID. CIT (A) HAD GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 23,931/ - ON AD HOC BASIS I.E. 10% OF RS. 2,39,310/ - CLAIMED BY YOUR APPELLANT ON ACCOUNT OF SUBSCRIPTION TO MAGAZINES AND JOURNALS. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAD GROSSLY ERRED IN DISALLOWING THE CLAIM OF DEDUCTION U/S. 80IA TO THE EXTENT OF RS.33,95,748/ - ON ACCOUNT OF ADJUSTMENT TO THE MARKET PRICE BY REDUCING THE ELECTRICITY DUTY WITHOUT APPRECIATING THE FACT THAT ELECTRICITY DUTY IS A PART OF THE MARKET PRICE IF THE SAME IS PURCHASED FROM OUTSIDE. 9. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, ID. CIT (A) HAD GROSSLY ERRED IN RE ALLOCATING THE EXPENSES ON ACCOUNT OF DIRECTOR SITTING FEES TO THE EXTENT OF RS. 73,088/ - AND THEREBY REDUCING E CLAIM OF DEDUCTION U/ S 801A BY THE SAME AMOUNT. 10. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, ID. CIT (A) HAD GROSSLY ERRED IN RE ALLOCATING THE EXPENSES ON ACCOUNT OF BUSINESS HEAD OFFICE EXPENSES TO THE EXTENT OF RS.32,88,960/ - AND THEREBY THERE BY REDUCING THE CLAIM OF DEDUCTION U/ S 801A BY TH E SAME AMOUNT WITHOUT APPRECIATING THE FACT THAT THE BUSINESS HEAD OFFICE EXPENSES ARE DIRECTLY RELATED TO THE OTHER BUSINESS OF THE COMPANY . M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 4 | 39 5 . FIRST, WE TAKE UP THE APPEAL OF THE ASSESSEE. 6. AT THE TIME OF HEARING, LD A.R. OF THE ASSESSEE DID NOT PRESS GROUND NO.1 OF APPEAL OF THE ASSESSEE , HENCE, SAME IS DISMISSED AS NOT PRESSED. 7. APROPOS GROUND NOS.2 TO 7 OF THE ASSESSEE , W E HAVE HEARD THE SUBMISSIONS OF RIVAL PARTIES AND PERUSED THE MATERIALS PLACED ON THE RECORD OF THE TRIBUNAL, AS WELL AS THE DECISIONS OF THE TRIBUNAL ON THE ISSUE IN THE CASE OF THE ASSESSEE. 8 . LD A.R. OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAD DISALLOWED THESE EXPENSES ON THE GROUND THAT SAME WERE NOT INCURRED IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE COMPANY. HOWEVER, LD CIT(A) RESTRICTED THE DISALLOWANCE TO 10% OF THE TOTAL EXPENSES ON ADHOC BASIS WITHOUT GIVING ANY VALID REASON. LD A.R. ALSO RELIED ON THE DECISION OF THIS BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 IN ITA NOS. 192 & 194/RAN/2008, WHEREIN, ON SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNAL FOLLOWING THE DECISION OF PATNA BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.441/2005 FOR THE ASSESSMENT YEAR 2000 - 2001 HAS DELETED THE DISALLOWANCES MADE BY THE LOWER AUTHORITIES. HENCE, IT WAS HIS SUBMISSION THAT THE DISALLOWANCE S RESTRICTED BY THE CIT(A) UNDER THE DIFFERENT HEADS DESERVE TO BE DELETED. M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 5 | 39 9 . REPLYING TO ABOVE, LD CIT DR SUPPORTED THE ORDER OF THE CIT(A). HE FURTHER SUBMITTED THAT EVEN THOUGH THE FINDINGS OF THE AO THAT THESE EXPENSES HAD NO CONNECTION WITH THE BUSINESS OF THE ASSESSEE COMPANY, BUT THE CIT(A) HAS TAKEN A LIBERAL VIEW TO RESTRICT THE DI SALLOWANCE TO 10% CONSIDERING THE LOCALITY OF THE ASSESSEE COMPANY BEING NAXAL AFFECTED AREA AND ALSO OTHER BUSINESS EXPEDIENCY POINT OF VIEW. HE ALSO SUBMITTED THAT THE CIT(A) HAS GIVEN MAXIMUM RELIEF TO THE ASSESSEE. 1 0 . ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIONS, WE FIND THAT THE ASSESSING OFFICER HAS DISALLOWED THESE EXPENSES ON THE GROUND THAT THEY DO NOT HAVE ANY BUSINESS CONNECTION WITH THE ASSESSEE. WE ALSO FIND THAT WHILE RESTRICTING THE DISALLOWANCE, THE CIT(A), INTER ALIA, OBSERVED THAT SUCH EXPENDITURES WERE INCURRED BY THE ASSESSEE IN ORDER TO MAINTAIN CORDIAL AND HARMONIOUS INDUSTRIAL RELATIONS AMONGST THE WORKS FOR BETTER AND SMOOTH RUNNING OF BUSINESS WITHOUT DIRECT BENEFIT TO ANY INDIVIDUAL EMPLOYEE OR ANY SPECI FIC GROUP OF EMPLOYEES, THE ASSESSEE COMPANY BEING LOCATED IN REMOTE AREA & NAXAL AFFECTED AREA WHERE ARE NO RECREATIONAL FACILITIES IN & AROUND THE NEARBY LOCALITY; PROVIDING THE OFFICER AND STAFF OF THE COMPANY IN THE FORM OF TEA, SNACS, STITCHING OF OF FICIAL UNIFORM, SUBSIDY GIVEN TO CANTEEN , PUJA EXPENSES, ETC. HENCE, FROM THE ABOVE FINDINGS OF THE CIT(A), WE ARE OF THE VIEW THAT THE CIT(A) HAS NOT DISPUTED THE NATURE OF EXPENSES INCURRED BY THE ASSESSEE. HENCE, WE ARE OF THE CONSIDERED VIEW THAT M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 6 | 39 WITHOUT POINTING OUT ANY DEFECT OR WITHOUT IDENTIFYING ANY EXPENSE FOR NON - BUSINESS PURPOSE, AO HAS SIMPLY MADE DISALLOWANCE STATING THAT THESE ARE NOT INCURRED FOR BUSINESS PURPOSES OF THE ASSESSEE. ONCE ASSESSEE HAS GIVEN ENTIRE DETAILS, THEN IN SO FAR A S EXPENSES LIKE STAFF WELFARE, CLUB EXPENSES, COMMUNITY DEVELOPMENT , HRD TRAINING AND MAGAZINE EXPENSES PURELY PERTAINING TO THE CORPORATE OFFICE OF THE ASSESSEE , WHICH CANNOT BE HELD TO BE FOR ANY PERSONAL USE OF OFFICERS AND STAFF, ESPECIALLY IN THE C ASE OF THE PRIVATE LIMITED COMPANY. HERE NO SUCH THING HAS BEEN POINTED OUT BY EITHER OF THE AUTHORITIES AND THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT SUSTAINABLE. WE ALSO FIND THAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 200 3 - 04 AND 2004 - 05 ON SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNAL FOLLOWING THE DECISION OF PATNA BENCH OF THE TRIBUNAL IN ITA NO.441/2005 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2000 - 2001 HAS DELETED THE DISALLOWANCES MADE BY THE LOWER AUTHORITIES. ACCORDINGLY, THE DISALLOWANCE CONFIRMED BY THE LD. CIT(A) IS DIRECTED TO BE DELETED ON THE ABOVE HEAD OF EXPENSES. HENCE, GROUND NOS.2 TO 7 OF APPEAL ARE ALLOWED. 1 1 . APROPOS GROUND NO.8 OF APPEAL OF THE ASSESSEE , B RIEFLY STATED THE RELEVANT FACTS OF THE CASE ARE LIKE THIS. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE CLAIMED DEDUCTION U/S. 80 - IA FOR ITS UNIT OF A CAPTIVE POWER PLANT AMOUNTING TO RS.16,58,48,283/ - M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 7 | 39 (RESTRICTED T O RS.13,47,08,499/ - ) FOR ASSESSMENT YEAR 2006 - 07. THE AO ALSO OBSERVED THAT THE ASSESSEE FOR ITS POWER PLANT HAD TAKEN SALE VALUE AMOUNTING TO RS.61,39,17,000/ - , WHICH HAD BEEN ARRIVED AT BY TAKING THE TARIFF RATE OF JSWEB @ RS.3 . 6158 / UNIT. THEREFORE, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO GIVE REASON/JUSTIFICATION OF VALUATION OF POWER PRODUCED ON THE BASIS OF JSEB RATE. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE AO RELYING ON SUB - SECTION(5) OF SECTION 80IA, OBSERVED THAT THE WORD D ERIVED FROM CANNOT HAVE A WIDE IMPORT AND DERIVATION OF INCOME MUST BE DIRECTLY CONNECTED WITH THE BUSINESS IN THE SENSE THAT THE INCOME IS GENERATED BY THE BUSINESS. THEREAFTER THE ASSESSING OFFICER REFERRED TO SUB - SECTION (8) OF SECTION 80IA, OBSERVED T HAT IT WAS CLEAR THAT ONE HAD TO TAKE THE CONSIDERATION AT THE MARKET VALUE WHICH IN RELATION TO ANY GOODS OR SERVICES, MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET. THE AO OBSERVED THAT THE ENERGY RATE OF JSEB INH ERENTLY NOT ONLY TAKES INTO ACCOUNT ITS COST OF PRODUCTION BUT ALSO ITS LEVEL OF EFFICIENCY OR INEFFICIENCY AND THERE IS ALSO TRANSMISSION AND DISTRIBUTION LOSSES EMBEDDED IN ITS TARIFF RATE. THE ASSESSING OFFICER OBSERVED THAT THE COST OF PRODUCTION OF POWER HAS TO BE ASSUMED AT RS.2.5 PER UNIT AND THE SAME MAY BE REVISED LATER, IF THE ASSESSEE FURNISHES DETAILS OF TIS COST OF PRODUCTION OF POWER ALONGWITH NECESSARY EVIDENCE. ACCORDINGLY, HE DISALLOWED THE DIFFERENCE BETWEEN THE SALE CONSIDERATION WHIC H REDUCES THE PROFIT CLAIMED U/S.80IAS OF THE ACT BY THE SAME AMOUNT I.E. M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 8 | 39 RS.61,39,17,000/ - (SALE VALUE OF CAPTIVE POWER PLANT RS./50,93,61,969/ - (CORRECT SALE CONSIDERATION OF POWER) = RS.10,45,55,034/ - TO THE TOTAL INCOME OF THE ASSESSEE. 1 2 . ON APPEAL , THE CIT(A) HAS GIVEN PART RELIEF TO THE ASSESSEE. HENCE, BOTH THE SIDES ARE IN APPEAL BEFORE US. 1 3 . LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE PARTLY BY CALCULATING THE MARKET PRICE OF ELECTRICITY AFTER REDUCING THE DUTY PAID THEREIN. LD COUNSEL SUBMITTED THAT AS PER THE DECISION OF ITAT KOLKATA C BENCH DATED 24.8.2016 IN THE CASE OF GRAPHITE INDIA LTD VS ACIT, IN ITA NOS.304 - 305/KOL/2008 FOR A.Y. 2003 - 04, NO SUCH DISALLOWANCE REGARDING DUTIES CAN BE M ADE. LD COUNSEL VEHEMENTLY POINTED OUT THAT IT IS A SETTLED POSITION OF LAW THAT THE RATE OF ELECTRICITY IS TO BE CALCULATED AT THE RATE OF STATE ELECTRICITY BOARD AND DESPITE THAT THE CIT(A) HAS ACCEPTED ALL THE CONTENTIONS OF THE ASSESSEE IN THIS REGARD AND PARTLY CONFIRMED THE ADDITION, PARTICULARLY THE AMOUNT OF DIFFERENCE AND TAX THEREON WHICH IS NOT SUSTAINABLE IN VIEW OF THE DECISION OF HONBLE CHHATISGARH HIGH COURT IN THE CASE OF CIT VS. GODA W ARI POWER & ISPAT LTD, ORDER DATED 2.8.2013 (2014) 42 TAXMANN.COM 551 (CHHATISHGARH). 1 4 . REPLYING TO ABOVE, LD CIT DR CONTENDED THAT THE CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE WITHOUT ANY BASIS AND THE ASSESSING OFFICER WAS RIGHT IN MAKING THE ADDITION BY OBSERVING THAT THE COST OF PRODUCTI ON OF POWER HAS TO BE ASSUMED AT RS.2.5 PER UNIT AND THE SAME MAY BE REVISED LATER, IF M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 9 | 39 THE ASSESSEE FURNISHES DETAILS OF TIS COST OF PRODUCTION OF POWER ALONGWITH NECESSARY EVIDENCE. LD CIT DR SUBMITTED THAT THE AO WAS RIGHT IN MAKING THE ADDITION OF THE AMOUNT OF DIFFERENCE BETWEEN THE SALE CONSIDERATION WHICH REDUCES THE PROFIT CLAIMED U/S. 80IA OF THE ACT BY THE SAME AMOUNT. LD CIT DR ALSO SUBMITTED THAT GROUND NO.3 OF APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2006 - 07 HAS TO BE TAKEN INTO CONSIDERATIO N WHILE DECIDING GROUND NO.8 OF APPEAL OF THE ASSESSEE. LD CIT DR PRESSING SAID GROUND NO.3 OF REVENUE SUBMITTED THAT THE ASSESSEE HAS CALCULATED THE SALES OF ITS STEAM BOILER UNIT AT PRODUCTION COST + 20% MARK UP BUT IN THE CASE OF ITS POWER PLANT INSTEAD OF TAKING THE SAME LOGIC, THE ASSESSEE HAS TAKEN SALE VALUE OF JHARKHAND STATE ELECTRICITY BOARD (JSEB) AS ITS SALE RATE WHICH IS NOT CORRECT. LD CIT DR SUBMITTED THAT THE CIT(A) WAS NOT RIGHT IN DELETING THE SAID ADDITION ON THE GROUND THAT THE VALUE SH OULD BE TAKEN AT MARKET VALUE OF GOODS AS PER STATE ELECTRICITY BOARD . LD CIT DR SUBMITTED THAT THERE IS NO JUSTIFIED REASON OR BASIS IN THE CIT(A)S ORDER AS TO WHY SALE VALUE COULD NOT HAVE BEEN TAKEN AS COST OF PRODUCTION + 20% MARK UP IN STEAD OF TAK ING JSEB VALUE WHICH INCLUDES TRANSMISSION COST, OPERATIONAL COST/INSUFFICIENCY OF JESB WHICH HAS NO BEARING TO THE EXEMPT PLANT OF THE ASSESSEE. LD CIT DR ALSO SUBMITTED THAT THE CIT(A) ON ONE HAND WHILE DECIDING THE ISSUE OF EXPENSES ALLOWABLE OF THE PO WER PLANT UNIT HAS HELD THAT NO EXPENSES WHICH ARE REMOTELY OR DIRECTLY RELATED TO POWER PLANT UNIT LIKE CORPORATE OFFICE EXPENSES, COMMON HEAD OFFICE EXPENSES ETC CAN BE M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 10 | 39 TAKEN INTO CONSIDERATION AND ON THE OTHER HAND HAS ALLOWED EXPENSES IN THE SALE VALUE OF POWER PLANT WHICH ARE NOT AT ALL RELATED TO THE UNIT. LD CIT DR SUBMITTED THAT THE PART ADDITION CONFIRMED BY THE CIT(A) SHOULD BE UPHELD AND ORDER OF THE CIT(A) DELETING THE PART ADDITION MAY KINDLY BE SET ASIDE BY RESTORING THAT OF THE ORDER OF THE ASSESSING OFFICER. 1 5 . PLACING REJOINDER TO ABOVE, LD COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO PARAGRAPH NO.9.4 OF THE CIT(A)S ORDER AND SUBMITTED THAT THE CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE AFTER CONSIDERING THE ENTIRE FACTS AND CIRCUMS TANCES OF THE CASE BY RELYING ON THE DECISION OF MUMBAI BENCHES OF THE TRIBUNAL IN THE CASE OF WEST COAST PAPER MILLS LTD., 286 ITR 252 (MUM), WHEREIN, THE ISSUE HAS BEEN ADJUDICATED ELABORATELY AND AFTER CONSIDERING ALL SURROUNDING FACTS AND CIRCUMSTANCES OF THE CASE PART RELIEF HAS BEEN GRANTED TO THE ASSESSEE. LD COUNSEL REITERATING ITS EARLIER SUBMISSIONS, SUBMITTED THAT THE HONBLE CHHATISHGARH HIGH COURT IN THE CASE OF GODAWARI POWER & ISPAT LTD (SUPRA) HAS CATEGORICALLY HELD THAT WHERE THE ASSESSEE HAD ESTABLISHED CAPTIVE POWER PLANT TO SUPPLY ELECTRICITY TO ITS MANUFACTURING UNIT FOR THE PURPOSE OF SECTION 80IA OF THE ACT, DEDUCTION MARKET VALUE OF POWER SUPPLIED BY ASSESSEE TO STEEL DIVISION SHOULD BE COMPUTED CONSIDERING RATE OF POWER CHARGED BY STATE ELECTRICITY BOARD FOR SUPPLY OF ELECTRICITY TO OTHER INDUSTRIAL CONSUMERS. LD COUNSEL ALSO DREW OUR ATTENTION TO PARA 10 OF THE ORDER OF ITAT KOLKATA BENCH IN THE CASE OF GRAPHITE INDIA LTD (SUPRA) AND SUBMITTED THAT AFTER CONSIDERING ALL M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 11 | 39 RELEVANT DECISIONS OF HONBLE HIGH COURT INCLUDING THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SHAH ALLOYS LTD IN TAX APPEAL NO.2092 OF 2010 DATED 22.11.2011, IT WAS HELD THAT THE MARKET VALUE OF ELECTRICITY WHICH COMPRISES OF A COMPONENT OF ELECTRICITY DUTY HAS TO BE TAKEN INTO CONSIDERATION FOR DETERMINING THE MARKET VALUE FOR A CONSUMER AND OUT OF ELECTRICITY CHARGES CALCULATED BY STATE ELECTRICITY BOARD, THE DUTY IS PASSED TO THE GOVERNMENT AND THIS WOULD MAKE NO DIFFERENCE. THEREFORE, NO T ONLY THE RELIEF GRANTED BY THE CIT(A) SHOULD BE UPHELD BUT PART ADDITION CONFIRMED BY THE CIT(A) PERTAINING TO THE ELECTRICITY DUTY SHOULD ALSO BE ALLOWED TO THE ASSESSEE. 1 6 . ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIONS, FIRST OF ALL, WE FIND IT APPROPRIATE AND NECESSARY TO REPRODUCE THE RELEVANT OPERATIVE PARA 9.4 OF THE CIT(A)S ORDER, WHEREIN, HE HAS ALLOWED PART RELIEF TO THE ASSESSEE AND PARTLY CONFIRMED THE DIFFERENCE OF RS.33,95,748/ - BETWEEN THE SALE PRICE AS PER BOOKS AND AS PER WORKIN G NOTED IN THE CIT (A)S ORDER TO CALCULATE THE PROFIT EARNED BY 80IA ELIGIBLE UNIT AS UNDER: 9.4. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND PERUSED THE ASSESSMENT ORDER AS WELL AS REMAND REPORT OF THE LD. A.O. IT IS NOTED THAT THE COMPANY HAS CLAIMED DEDUCTION U/S 80 - IA FOR ITS UNIT OF A CAPTIVE POWER PLANT AMOUNTING TO RS. 16,58,48,2 83/ - FOR A.Y.2006 - 07 AND FOR ITS POWER PLANT IT HAS TAKEN SALE VALUE AMOUNTING TO RS.61,39,17,000/ - WHICH HAS BEEN ARRIVED BY TAKING THE TARIFF RATE OF JSEB @RS.3.6158 PER UNIT. IT IS NOTED THAT THE APPELLANT HAS COMPUTED DEDUCTION TO THE TUNE OF RS. 16,57 ,98,146/ - AS PROFIT GENERATED FROM THE CAPTIVE POWER PLANT AND THE COMPUTATION IS DONE BY ADOPTING THE TRANSFER PRICE OF POWER CAPTIVELY CONSUMED AT RS.3.61 PER UNIT WHICH IS THE RATE AT WHICH POWER IS SUPPLIED BY JHARKHAND STATE ELECTRICITY BOARD TO INDUS TRIAL CONSUMERS IN THE STATE OF JHARKHAND AND THE APPELLANT SINCE IMPORTING POWER FROM JHARKHAND STATE GRID ONLY HAS THEREFORE, ADOPTED THE SAME AS TRANSFER PRICE FOR CAPTIVE M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 12 | 39 SUPPLY OF POWER TO ITS CHEMICAL DIVISION AS PER THE PROVISIONS CONTAINED IN SECTI ON 80 - IA(8) OF THE I. T. ACT, 1961. IT IS NOTED THAT THE LD. A.O. HAD INSTEAD OF ACCEPTING THAT PRICE HAD ADOPTED AN ADHOC RATE OF 2.5 PER UNIT AS COST OF PRODUCTION OF POWER PLUS 20% MARK UP PROFIT. IT IS NOTED THAT PROVISIONS OF SECTION 80 - IA(8) OF THE I . T. ACT, 1961 HAS STATES 'WHERE ANY (GOODS OR SERVICES) HELD FOR THE PURPOSES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE, OR WHERE ANY (GOODS OR SERVICES) HELD OR THE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO THE ELIGIBLE BUSINESS AND, IN EITHER CASE, THE CONSIDERATION, IF ANY, FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH (GOODS AND SERVICES) AS ON THE DATE OF TRANSFER THEN FOR THE PURPOSE OF THE DEDUCTION UNDER THIS SECTION, THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF THE TRANSFER, IN EITHER CASE, HAD BEEN MADE AT THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THAT DATE. PROVIDED THAT WHERE, IN THE OPINION OF THE A.O. THE COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS IN THE MANNER HEREINBEFORE SPECIFIED PRESENTS EXCEPTIONAL DIFFICULTIES, THE A.O. MAY COMPUTE SUCH PROFITS AND GAINS ON SUCH REASONABLE BASIS A S HE MAY DEEM FIT. EXPLANATION - FOR THE PURPOSE OF THIS SUB - SECTION, 'MARKET VALUE', IN RELATION TO ANY GOODS OR SERVICES MEANS THE PRICE OF THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET.' AS PER THE ABOVE SUB - SECTION, IT IS CLEA R THAT IN CASE OF TRANSFER OF GOODS AND SERVICES BETWEEN ELIGIBLE UNIT AND OTHER BUSINESSES OF THE ASSESSEE, THE TRANSFER PRICING OF GOODS AND SERVICES FOR COMPUTING DEDUCTION UNDER SECTION 80 - IA OF ELIGIBLE BUSINESS SHOULD BE MARKET VALUE OF GOODS AND SE RVICES AT WHICH THE GOODS OR SERVICES CAN ORDINARILY BE SOLD IN THE OPEN MARKET. IT IS NOTED THAT JHARKHAND STATE ELECTRICITY BOARD IN THE STATE OF JHARKHAND AUTHORIZED BY THE STATE GOVERNMENT TO SUPPLY POWER TO VARIOUS CONSUMERS IN THE STATE AND APPELLANT COMPANY IS TOO AS INDUSTRIAL CONSUMER IS BUYING POWER FROM JSEB AT A RATE OF 3.61 PER UNIT. IT IS ALSO NOTED THAT THE APPELLANT HAS ARGUED THAT HAD IT NOT BEEN GENERATING POWER FROM ITS CAPTIVE POWER PLANT FOR ITS OWN CONSUMPTIONS, THE SAME POWER WOULD HA VE BEEN PURCHASED FROM JSEB AT A RATE OF 3.61 PER UNIT. FURTHER, IT IS ALSO NOTED THAT FOR ADAPTATION OF COST PLUS MARK UP AS TRANSFER PRICING FOR POWER, THE A.O. HAS RELIED ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF ATUL DURGA HOUSE LTD. 211 ITR 604, IT IS IMPORTANT TO MENTION HERE THAT THE DECISION WAS GIVEN IN THE CONTEXT OF CLAIM U/S 80J OF THE INCOME TAX ACT I961 AS APPLICABLE PRIOR TO 1.4.1976 AND THE SAID SECTION WAS NOT CONTAINING ANY PROVISION SIMILAR TO SUB - SECTION 8 OF SECTION 80 - IA WHI CH REQUIRES COMPUTATION OF PROFITS BY TAKING MARKET VALUE OF GOODS TRANSFERRED FROM ELIGIBLE UNIT TO ANOTHER UNIT. THE PRESENT CASE IS CLEARLY DISTINGUISHABLE AS THE SUB SECTION 8 OF SECTION 80 - IA CLEARLY MANDATES THE ADOPTION OF MARKET PRICE FOR INTER UNI T TRANSFERS. THUS ADOPTION OF COST PLUS MARK UP IS CLEARLY IN CONTRADICTION OF SUB SECTION 8 OF SECTION 80 - IA. IT IS ALSO NOTED M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 13 | 39 THAT THE LD. A.O. HAS ALSO MENTIONED M/S. DAMODAR VALLEY CORPORATION AS POWER SUPPLYING COMPANY IN THE STATE. IF M/S. DAMODAR VA LLEY CORPORATION IS SUPPLYING POWER TO INDUSTRIAL CONSUMERS, A.O. DID NOT SAY AT WHAT PRICE DVC IS SUPPLYING POWERS TO INDUSTRIAL CONSUMERS. FURTHER, IT MORE THAN ONE MARKET PRICE IS AVAILABLE, THE MARKET PRICE CHOSEN BY THE ASSESSEE SHOULD BE ACCEPTED AS TRANSFER PRICE FOR THE PURPOSE OF COMPUTING CLAIM U/S 80 - IA. FOR GENERATION AND CAPTIVE CONSUMPTION OF STEAM, A.O. HAS ADOPTED COST PLUS METHOD FOR DETERMINING THE TRANSFER PRICE OF STEAM CAPTIVELY CONSUMED AND THAT IS JUSTIFIABLE AS NO MARKET PRICE OF STE AM WAS AVAILABLE WITH APPELLANT AS WELL AS A.O. THUS, A.O. HAS APPLIED COST PLUS MARK UP METHOD TO COMPUTE PROFIT ON CAPTIVE CONSUMPTION OF STEAM. HOWEVER, ADOPTING THE SAME METHOD IN CASE OF CAPTIVE CONSUMPTION OF POWER IS NOT AT ALL JUSTIFIED KEEPING IN VIEW MARKET PRICE OF POWER IS READILY AVAILABLE IN MARKET. IT IS ALSO NOTED THAT IN THE CASE OF CIT VS GODAVARI POWER & ISPAT LTD (42 TAXMAN.COM 551) THE CHATTISGARH HIGH COURT IN THE SIMILAR CASE HAS HELD 'ASSESSEE IS MAN UFACTURER OF IRON AND STEEL, HAD ESTABLISHED A CAPTIVE POWER PLANT IN STATE OF CHHATTISGARH TO SUPPLY ELECTRICITY TO ITS STEEL DIVISION. IT HAD SOLD POWER TO STEEL DIVISION AT SAME RATE, WHICH WAS CHARGED BY CHHATTISGARH STATE ELECTRICITY BOARD FOR SUPPLY OF ELECTRICITY TO INDUSTRIAL CONSUMERS. ASSESSEE CLAIMED DEDUCTION U/S 80 - IA. THE A.O. HAS COMPUTED MARKET VALUE OF POWER SUPPLIED BY ASSESSEE TO STEEL DIVISION BY TAKING INTO ACCOUNT RATE CHARGED BY CHHATTISGARH ELECTRICITY COMPANY LIMITED, RAIPUR FOR SUP PLY OF ELECTRICITY TO BOARD. THE COURT HELD THAT THE MARKET VALUE OF THE POWER SUPPLIED TO THE STEEL DIVISION SHOULD BE COMPUTED CONSIDERING THE RATE OF POWER TO A CONSUMER IN THE OPEN MARKET AND IT SHOULD NOT BE COMPARED WITH THE RATE OF POWER WHEN IT IS SOLD TO A SUPPLIER AS THIS IS NOT THE RATE FOR WHICH A CONSUMER THE STEEL DIVISION COULD HAVE PURCHASED POWER IN THE OPEN MARKET. IN OUR OPINION, THE A.O. COMMITTED AN ILLEGALITY IN COMPUTING THE MARKET VALUE BY TAKING INTO ACCOUNT THE RATE CHARGED TO A SUPPLIER: IT SHOULD HAVE BEEN COMPARED WITH THE MARKET VALUE OF POWER SUPPLIED TO A CONSUMER. IT IS ALSO NOTED THAT IN THE CASE OF CIT VS. KANORIA CHEMICALS & INDUSTRIES LTD THE HON'BLE KOLKATA HIGH COURT IN ITA NO.58 OF 2013 HAS HELD 'WE FIND THAT THE P RICE AT WHICH STATE ELECTRICITY BOARD SELLS ELECTRICITY TO INDUSTRIAL CONSUMERS IS REPRESENTATIVE OF THE PRICE THAT ELECTRICITY WOULD ORDINARILY FETCH IN THE OPEN MARKET AND I.E. THE PRICE HAS BEEN ADOPTED BY THE ASSESSEE FOR THE ELECTRICITY GENERATED BY T HE ELIGIBLE BUSINESS TRANSFERRED TO ITS OTHER BUSINESS FOR THE PURPOSE OF COMPUTATION OF PROFITS AND GAINS OF THE ELIGIBLE BUSINESS IN TERMS OF SECTION 80 - IA(8) OF THE ACT.' IN THIS REGARD IT IS NOTED THAT THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF THE WEST COAST PAPER MILLS LTD. VS. ASSTT. COMMISSIONER OF INCOME TAX [2006] 103 ITD 19 MUM [2006] 286 ITR 252 MUM HAS NOTED THAT THE RATE TO BE ADOPTED FOR THE POWER GENERATED AND SUPPLIED TO ASSESSEE'S PAPER DIVISIO N FOR THE PURPOSE OF WORKING OF THE PR OFIT FOR THE PURPOSE OF 80IA OF THE INCOME TAX ACT WOULD BE LINKED TO THE PURCHASE M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 14 | 39 PRICE OF POWER PAID BY THE ASSESSEE T O KSEB. THE HON'BLE TRIBUNAL CONCLUDED THAT THE PRICE SHOULD BE WORKED OUT ON THE BASIS OF AVERAGE UNIT PRICE OF POWER PURCHASED BY ASSE SSEE FROM KSE B DURING THE WHOLE YEAR MINUS CERTAIN EXTRANEOUS CHARGES SUCH AS ELECTRICIT Y DUTY ETC. WHICH IS NOT CONNECTED TO THE BUSINESS OF THE ASSESSEE. APPLYING THES E GUIDELINES OF HON'BLE MUMBAI TRIBUNAL TO THE PRESENT CASE IT IS SEEN TH AT ASSESSEE HA S PURCHASED POWER FROM JSEB AT THE AVERAGE RATE OF RS.3.615 8 UNIT. THIS PRICE PAID INCLUDED THE ELECTRICITY DUTY OF 2 PAISE PER UNIT. THIS DU TY IS NOWHERE CONNECTED WITH BUSINESS OF ASSESSEE AND THUS CANNOT BE MADE P ART OF WORKING OF UNIT PRICE FOR THE PUR POSE OF 80 - IA OF ELECTRICITY. IN VIEW OF THIS T HIS THE CORRECT TARIFF OF RS.3.5958/ UNIT (RS.3.6158 - RS.0.02/UNIT) IS REQUIRED TO ADOPTED AS PRICE OF POWER FOR THE WORKING OF ELIGIBLE PROFITS OF 80IA UNIT. THE ASSESSEE HAS SHOWN SALE OF POWER AS PER PROF IT AND LOSS ACCOUNT OF CAPT IVE POWER PLANT AT RS. 61.39.17,000/ - AND THE TOTAL UNITS PRODUCED W ERE RS.16,97,87,322/ - UNITS VALUE OF JSEB RATE OF RS.3.6158 /UNIT. ON THESE UNITS ELECTRICITY PRODUCED THE CORRECT SALE CONSIDERATION FOR 80 - IA PURPOSE WOULD BE 16,97,87,322 UNITS X RS.3.5958/UNIT = RS.61,05,21,252/ - . THE ASSESSEE HAS TAKEN THIS AMOUNT TO BE RS.61,39,17,000/ - IN THE BOOKS OF ACCOUNTS. THE DIFFERENCE OF RS.33,95,748/ - (RS.61,39,17,000/ - - RS.61,05,21,252/ - ) BETWEEN THE SALE PRICE AS PER BOOKS AND AS PER ABOVE WORKING REDUCES THE PROFIT EARNED BY THE 80IA ELIGIBLE UNIT TO THAT MUCH LEVEL AND TO THAT EXTENT ADDITION MADE BY THE LD. A.O. IS UPHELD. ACCORDINGLY, THE ADDITION MADE BY THE A.O. IS DIRECTED TO BE RESTRICTED TO RS.33,95,748/ - AS PER THE ABOVE WORKING. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 1 7 . FROM THE RELEVANT PART OF THE ASSESSMENT ORDER AT PAGE 8, WE FURTHER OBSERVE THAT THE ASSESSING OFFICER IN THE TOP PARA, OBSERVED AS UNDER: THE ASSESSEE WAS REQUESTED TO FURNISH ITS COST OF PRODUCTION OF POWER BUT NO DETAILS HAVE BEEN FURNISHED BY THE ASSESSEE COM PANY. HENCE, THE COST OF PRODUCTION OF POWER IS ASSUMED AT RS.2.5 PER UNIT AND THE SAME MAY BE REVISED LATER IF THE ASSESSEE FURNISHES DETAILS OF ITS COST OF PRODUCTION OF POWER ALONGWITH NECESSARY EVIDENCE. THE SALE CONSIDERATION OF POWER IS THEREFORE S HOWN AS BELOW: SALE VALUE OF POWER AS PER P&L A/C OF CAPTIVE POWER PLANT: RS.61,39,17,000 / - TARIFF RATE OF JSEB: - 361.58 PAISE/UNIT(NET ENERGY RATE APPLICABLE TO ASSESSEE COMPANY) THEREFORE TOTAL UNIT PRODUCED : - RS.16,97,87,322/ - THEREFORE CORRECT SALE CONSIDERATION OF POWER : - 16,97,87,M322 X(2.5+20%) = RS.50,93 ,61,966/ - THE DIFFERENCE OF RS.10,45,55,034/ - (RS.61,39,17,000 RS.50,93,61,966 ) BETWEEN THE SALE CONSIDERATION REDUCES THE PROFIT CLAIMED U/S.80IA M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 15 | 39 BY THE SAME AMOUNT AND HENCE THE SAME IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. 18 . IN VIEW OF ABOVE OBSERVATION OF THE AO, IT IS CLEAR THAT EVEN AT THE TIME OF FRAMING OF ASSESSMENT ORDER AND MAKING ADDITION, THE AO WAS NOT SURE ABOUT THE COST OF PRODUCTION OF POWER AND HE ASSUMED THE SAME AT RS.2.5 PER UNIT WITH A RIDER THAT SAM E MAY BE REVISED LATER IF THE ASSESSEE FURNISHES DETAILS OF COST OF PRODUCTION OF POWER ALONGWITH NECESSARY EVIDENCE. BE THAT AS IT MAY, FROM THE ORDER OF THE HONBLE CHHATTISGARH HIGH COURT IN THE CASE OF GODAWARI POWER & ISPAT LTD., (SUPRA), WE OBSERVE THAT THEIR LORDSHIPS SPEAKING FOR THE HONBLE HIGH COURT EXPLICITLY HELD THAT WHERE THE ASSESSEE HAD ESTABLISHED A CAPTIVE POWER PLANT TO SUPPLY ELECTRICITY TO ITS STEEL DIVISION, THEN FOR THE PURPOSE OF SECTION 80IA OF THE ACT, DEDUCTION OF MARKET VALUE O F POWER SUPPLIED BY ASSESSEE TO STEEL DIVISION SHOULD BE COMPUTED CONSIDERING RATE OF POWER CHARGED BY CHHATTISGARH STATE ELECTRICITY BOARD FOR SUPPLY OF ELECTRICITY TO INDUSTRIAL CONSUMERS. FURTHER, ITAT KOLKATA IN ITS ORDER IN THE CASE OF GRAPHITE INDIA LTD (SUPRA) REFERRING TO THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SHAH ALLOYS LTD (SUPRA) HELD THAT THE MARKET VALUE OF ELECTRICITY SUPPLIED BY THE STATE ELECTRICITY BOARD TO OTHER CONSUMERS HAS TO BE TAKEN AS BENCHMARK FOR COMPUTATION OF DEDUCTION U/S. 80IA FOR AN ASSESSEE. 19 . IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS ESTABLISHED A CAPTIVE POWER PLANT TO SUPPLY POWER TO ITS UNITS ELIGIBLE FOR M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 16 | 39 DEDUCTION U/S. 80IA OF THE ACT. IT IS ALSO NOT IN DISPUTE THAT AT TH AT POINT OF TIME, JSEB WAS CHARGING AVERAGE RATE OF 3.6158 PER UNIT FROM OTHER INDUSTRIAL CONSUMERS. IN VIEW OF ABOVE, WE HAVE NO HESITATION TO HOLD THAT THE ASSESSING OFFICER PICKED THE RATE OF 2.5 PER UNIT WITHOUT ANY BASIS WITH A RIDER THAT SAME MAY BE REVISED ON FURNISHING OF EVIDENCE BY THE ASSESSEE AND DURING THE FIRST APPELLATE PROCEEDINGS, THE CIT(A) CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE AND SOME OTHER GLARING FACTS INCLUDING THAT OF JSEB IS CHARGING AVERAGE RATE OF 3.6158 PER UNIT FROM OTHER SIMILAR CONSUMERS , TOOK THE SAME FOR THE PURPOSE OF GRANTING RELIEF TO THE ASSESSEE. HOWEVER, THE CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE BUT DID NOT ALLOW ENTIRE RELIEF TO THE ASSESSEE AND PARTLY CONFIRMED THE ADDITION TO THE TUNE OF RS.33,95,748/ - BY TAKING INTO CONSIDERATION THAT THE PRICE CHARGED BY THE STATE ELECTRICITY BOARD IS INCLUSIVE OF ELECTRICITY DUTY OF 2 PAISE PER UNIT. 2 0 . AS WE HAVE NOTED ABOVE THAT HONBLE HIGH COURT OF CHHATTISGARH IN THE CASE OF GODAWARI POWER & ISPAT LTD (SUPRA), ITAT KOLAKATA IN THE CASE OF GRAPHITE INDIA LTD (SUPRA) HAS HELD THAT THE RATE CHARGED BY STATE ELECTRICITY BOARD HAS TO BE TAKEN INTO CONSIDERATION WHILE CALCULATING DEDUCTION FOR 80IA ELIGIBLE UNIT AND ELECTRICITY DUTY HAS NO RELEVAN CE FOR CALCULATING THE SAME. ON THE BASIS OF FOREGOING DISCUSSION, WE REACHED TO A LOGICAL CONCLUSION THAT THE CIT(A) WAS RIGHT IN GRANTING PART RELIEF TO THE ASSESSEE BUT WAS NOT CORRECT IN CONFIRMING PART ADDITION CONSIDERING THE M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 17 | 39 FACTUM OF 2 PAISE PER U NIT FOR WORKING OUT ELIGIBLE PROFITS U/S. 80IA OF THE ACT. CONSEQUENTLY, THE FINDINGS OF THE CIT(A) GRANTING RELIEF TO THE ASSESSEE ARE CONFIRMED AND THE ADDITION PARTLY CONFIRMED PERTAINING TO THE ELECTRICITY DUTY BEING DEVOID OF MERITS IS DIRECTED TO BE DELETED. HENCE, GROUND NO .8 OF THE ASSESSEE IS ALLOWED AND GROUND NO.3 OF REVENUE IS DISMISSED. 2 1 . APROPOS GROUND NOS.9 & 10 OF APPEAL OF THE ASSESSEE AND GROUND NO.(IV) OF THE REVENUE, W E HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS PLACED ON THE RECORD OF THE TRIBUNAL. 2 2 . LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS APPORTIONED 45.68% OF THE CLAIM OF THE ASSESSEE PERTAINING TO DIRECTOR SITTING FEES AND BUSINESS HEAD OFFICE EXPENSES PERTAINING TO EXEMPT UNIT, WH ICH WAS WRONGLY CONFIRMED BY THE CIT(A). LD COUNSEL VEHEMENTLY POINTED OUT THAT NO BASIS HAS BEEN GIVEN BY THE ASSESSING OFFICER OR CIT(A) FOR MAKING THE ESTIMATED APPORTIONMENT AND NO SUCH DISALLOWANCE HAS BEEN MADE IN OTHER ASSESSMENT YEARS. LD COUNSEL PLACING RELIANCE ON THE DECISION OF ITAT RANCHI CIRCUIT BENCH IN THE CASE OF THE ASSESSEE DATED 2.12.2010 FOR ASSESSMENT YEAR 2005 - 06 IN ITA NO.236/RAN/2009 PARA 9 OF THE ORDER SUBMITTED THAT THE ASSESSEE MAINTAINS SEPARATE BOOKS OF ACCOUNT FOR ITS 80IA E LIGIBLE UNITS AND POWER GENERATION UNIT AND BOTH THE SETS OF ACCOUNTS WERE ALSO DULY AUDITED. LD COUNSEL CONTENDED THAT BOTH THE SETS OF BOOKS OF ACCOUNT OF THE ASSESSEE WERE SUBMITTED BEFORE THE AUTHORITIES M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 18 | 39 BELOW AND AFTER EXAMINATION OF SUCH BOOKS OF AC COUNT, THEY COULD NOT BRING ON RECORD ANY SPECIFIC EXPENSES WHICH WERE RELATING TO POWER GENERATION UNIT BUT WERE DEBITED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT OF EXEMPT UNIT AND IN ABSENCE OF ANY SUCH MATERIAL BROUGHT ON RECORD, THE DISALLOWANCE/ADDITIO N MADE BY THE AO AND CONFIRMED BY THE CIT(A) ON THE BASIS OF APPORTIONMENT OF EXPENSES PERTAINING TO DIRECTORS SITTING FEES AND BUSINESS HEAD OFFICE EXPENSES CANNOT BE DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 2 3 . ON THE OTHER HAND, LD CIT DR SUPPORTED THE ASSESSMENT AS WELL AS CIT(A)S ORDER AND SUBMITTED THAT THE ASSESSEE HAS NOT GIVEN ANY VALID REASON FOR NOT TAKING INTO ACCOUNT COMMON EXPENSES/OVERHEADS ATTRIBUTABLE TO THIS UNIT. LD CIT DR SUBMITTED THAT THE DIRECTORS SITTING FEES AND DIR ECTORS REMUNERATION DEBITED TO PROFIT AND LOSS ACCOUNT OF THE COMPANY WHICH CAN BE ATTRIBUTED TO ALL UNITS INCLUDING EXEMPT UNIT AS THEY TAKE MANAGEMENT DECISION ON BEHALF OF THE ENTIRE COMPANY AND THEIR ADMINISTRATIVE AND MANAGERIAL CONTROLS EXTENDS TO AL L THEIR UNITS INCLUDING UNITS ON WHICH DEDUCTION U/S.80IA HAVE BEEN CLAIMED. LD CIT DR SUPPORTED THE ORDER OF THE CIT(A) AND SUBMITTED THAT AS PER DETAILS AVAILABLE ON RECORD OF THE AUTHORITIES BELOW IT CAN BE CLEARLY GATHERED THAT THERE WAS NO BASIS FO R INCLUSION OF SALES PROMOTION EXPENSES, BUSINESS PROMOTION EXPENSES IN THE EXPENSES OF CAPTIVE POWER PLANT AS IT IS SEEN THAT THE POWER GENERATED WAS FOR USE BY THE ASSESSEE AND HAS NOT BEEN M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 19 | 39 MARKETED OR SOLD TO THIRD PARTY. AS REGARDS OTHER TWO HEAD OF E XPENSES VIZ; DIRECTORS SITTING FEES AND BUSINESS HEAD OFFICE EXPENSES, LD CIT DR SUBMITTED THAT THESE EXPENSES NEED TO BE APPORTIONED ON THE BASIS OF THE TURNOVER OF THE ASSESSEE WHICH THE AO HAS DONE. LD CIT DR PLACED RELIANCE ON THE DECISION OF ITAT DEL HI BENCH IN THE CASE OF NIITGIS LTD VS DIT, IN ITA NO.3077/D/2012 ORDER DATED 24.2.2015 AND SUBMITTED THAT THE ORDERS OF AUTHORITIES BELOW BE UPHELD. 2 4 . ON CAREFUL CONSIDERATION OF RIVAL SUBMISSIONS, WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) HAS UPHELD THE ADDITION ON BOTH COUNTS WITH THE FOLLOWING OBSERVATIONS AND FINDINGS: 11.2. THE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDINGS HAS ARGUED THAT THE COMPANY MAINTAINS SEPARATE BOOKS OF ACCOUNTS FOR 80 - IA PLANT AND OTHER PLANTS AND ALL THE EXPENSES RELATED TO CONCERNED PLANT ARE BOOKED APPROPRIATELY IN THE BOOKS OF THE SA ME PLANT AND THESE BOOKS OF ACCOUNTS ARE AUDITED BY THE STATUTORY AUDITORS AND CERTIFIED BY THE MANAGEMENT OF COMPANY. IT HAS ALSO BEEN ARGUED THAT THE APPORTIONMENTS OF CERTAIN EXPENSES MADE BY THE LEARNED A.O. BETWEEN 80 - IA AND OTHER PLANTS IS TOTALLY BA SELESS, ASSUMPTIVE AND HAVE NO REASONING AT ALL. THE HEAD WISE DETAILS AND EXPLANATION OF EXPENSES RELOCATED BY THE LD. A.O. IS GIVEN HEREUNDER: - EXPENSES HEAD AMOUNT REALLOCATED AMOUNT OF 80IA PLANT CLARIFICATION DIRECTOR SITTING FEE RS. 1,60,000/ - 73,088/ - THE BOARD OF DIRECTORS REVIEWS THE PERFORMANCE OF THE COMPANY AND GOVERNANCE PRACTICES AT THE COMPANY AND THIS WAS BEING DONE EVEN BEFORE COMMISSIONING OF 80 - IA M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 20 | 39 PLANT WORKING SINCE IT'S A CAPTIVE PLANT. THE MAINLINE OF BUSINESS OF THE COMPANY IS TO MANUFAC TURE & SALE CHEMICALS AND THEREFORE, REVIEW IN BOARD MEETINGS ARE DONE FOR CHEMICAL PLANTS. SALES PROMOTION RS. 1,55,000 70,804/ - SALES PROMOTION EXPENSES ARE INCURRED FOR PROMOTING THE SALE OF VARIOUS CHEMICALS MANUFACTURED BY THE COMPANY. IT DOES NOT AT ALL HAVE ANY RELEVANCE TO CAPTIVE POWER PLANT WHICH IS A 80 - IA PLANT. HENCE, ALLOCATION OF SALES PROMOTION EXPENSES TO 80 - IA PLANT IS NOT WARRANTED. BUSINESS HEAD OFFICE EXPENSES RS.72,00,000/ - 32,88,960 BUSINESS HEAD OFFICE EXPENSES ARE SHARING OF EXPENSES OF CORPORATE OFFICE WHICH FUNCTIONING FOR AND REVIEWING THE CHLORALKALI BUSINESS OF THE COMPANY. THE CORPORATE OFFICE IS CONSTITUTED TO BASICALLY LOOK INTO, ORGANIZE AND TAKE DECISIONS FOR DEVELOPING CU STOMER BASE FOR CHEMICALS, EXPANSION OF CHEMICAL AND ALLIED PRODUCTS. 80 - IA PLANT BEING A CAPTIVE PLANT REQUIRES NO SERVICES FROM CORPORATE OFFICE HENCE, ALLOCATION T 80 - IA PLANT IS NOT REQUIRED BUSINESS PROMOTIO N /DEVELOP MENT EXPENSES RS.13,08,358/ - 5,97,658/ - THE COMPANY DOES BUSINESS DEVELOPMENT AND PROMOTION OF ITS CHEMICAL PRODUCT 80 - IA PLANT BEING A CAPTIVE THERMAL POWER PLANT, HENCE THESE ACTIVITIES ARE N REQUIRED FOR 80IA PLANT, HE NCE, ALLOCATION IS WARRANTED THE APPELLANT SUBMITTED THAT IN VIEW OF THESE DISCUSSIONS, THE RELOCATION ABOVE EXPENSES AS MADE BY THE A.O. IS INCORRECT AND UNJUSTIFIED. 11.3. IN THIS CASE THE REMAND REPORT WAS CALLED FOR FROM THE LD. A.O. VI THIS OFFICE LETTER F.NO.CIT(A)/ RAN/ REMAND REPORT/ 2014 - 15/ 1196, DA1 02.09.2014. THE LD. A.O. VIDE F.NO.ACIT/ CIR - 3/ RNC/ M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 21 | 39 APPEAL/ 2013 - 1 1967, DATED 04.08.2014 HAS SENT THE REMAND REPORT WHICH WAS RECEIVED IN T OFFICE ON 20.12.2014. 11.4. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND PERUSED THE ASSESSMENT ORDER AS WELL AS REMAND REPORT OF THE LD. A.O. IT IS NOTED THAT THE A.O. APPORTIONED THE EXPENSES ON PRINCIPAL UNIT AND CAPTIVE POWER PLANT UNIT ON THE GROUND THAT THE ASSESSEE WAS CLAIMING DEDUCTION U/S.80 - IA IN RESPEC T OF CAPTIVE POWER PLANT BUT THERE WERE CERTAIN SERVICES AND AMENITIES WHICH WERE USED BY SECTION 80 - IA UNIT IN ORDER TO ENABLE TO CARRY OUT DAY TO DAY FUNCTIONING AND THE FINANCIAL MANAGEMENT OR RELATED ACTIVITIES AND T HESE SERVICES WERE BEING PROVIDED BY THE HEA D OFFICE OF THE ASSESSEE. THE APPEL LANT HAD PREPARED SEPARATE PROFIT AND LOSS ACCOUNT FOR ITS CAPTIVE POWER UNIT AND STEAM GENERATION HYDROGEN BOILER UNIT. IT IS ALSO NOTED THAT EXPENSES SU CH AS SALES PROMOTION, SALES OVERHEAD EXPENSES, BUSINESS PROMOTIO N /DEVELOP MENT EXPENSES ARE ATTRIBUTABLE TO THOSE BUSINESSES WHOSE PRODUCTS ARE SOL D IN MARKET, THUS FOR THE POWER AND STEAM UNITS WHOSE PRODUCTIONS ARE CAP TIVELY CONSUMED, NO ALLOCATION OF MARKETING EXPENSE IS REQUIRED TO BE MADE AS NO MARKETING EFFORTS A RE REQUIRED FOR SALE OF PRODUCTS OF SUCH CAPTIVE UNITS . IT IS ALSO NOTED THAT THE ASSESSEE AT THE TIME ASSESSMENT PROCEEDINGS HAS SUBMITTED BEFORE THE AO THAT THE MANAGING DIRECTORS REMUNERATION HAS BEEN PROPORTIONATELY IN THE PROFIT AND LOSS ACCOUNT OF CAPTIVE POWER PLANT WHILE CLAIMING DEDUCTION U/S 80 - IA AND IN SCHEDULE '14 OF THE PROFIT AND LOSS ACCOUNT OF CAPTIVE POWER PLANT I T IS MENTIONED AS DIRECTORS' REMUNERATION. IT IS ALSO NOTED THAT SIMILARLY, CSR EXPENSES, EMPLOYEE'S WELFARE EXPENSES AND OTHER OVERHEAD AND MISCELLANEOUS EXPENSES DIRECTLY RELATED TO POWER PLANT OR HAVING RELEVANCE TO POWER PLANT ARE DEBITED IN POWER PLAN T DIVISION AND THE SAME CAN BE VERIFIED FROM PROFIT AND LOSS ACCOUNT OF CAPTIVE POWER PLANT. THEREFORE, IT IS CLAIMED THAT AS PER THE ARRANGEMENT, THE EXPENSES ARE INCURRED SPECIFICALLY FOR CHEMICAL BUSINESS, THESE EXPENSES HAVE NO NEXUS WITH THE POWER AND STEAM UNITS, THEREFORE, NO PORTION OF THIS EXPENDITURE IS ALLOCATED TO POWER GENERATING UNIT AND THESE EXPENSES ARE NOT IN THE NATURE OF COMMON CORPORATE EXPENDITURE INCURRED FOR THE BENEFIT OF ALL THE UNITS. HENCE, REALLOCATION DONE BY A.O. ON THIS ACCOU NT IS ERRONEOUS AND NOT JUSTIFIED. M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 22 | 39 THE STAND OF APPELLANT IS ALSO SUPPORTED BY THE JUDGMENT OF HON'BLE C ALCUTTA HIGH COURT IN THE CASE OF TIDE WATER OIL CO (INDIA) LTD VS CIT, 353 ITR 300 IN WHICH IT WAS HELD THAT WHILE DIRECTING THAT EXPENSES INCURRED AT CORPORATE OFFICE ESSENTIALLY FOR THE ELIGIBLE UNIT SHOULD BE DEDUCTED, SPECIFICALLY OBSERVED THAT NO OTHER EXPENDITURE AT THE CORPORATE LEVEL WHICH IS REMOTELY OR INDIRECTLY RELATED SHOULD BE TAKEN INTO CONSIDERATION AND CIT VS HINDUSTAN LEVER LTD MADRAS HIGH COURT ITA NO 219 OF 2006 WHERE THE MADRAS HIGH COURT HELD THAT COMMON HEAD OFFICE ADMINISTRATIVE EXPENDITURE NECESSARY FOR RUNNING OF THE BUSINESS AND THEREFORE, CANNOT BE APPORTIONED TO THE INDIVIDUAL UNITS BEFORE COMPUTING THE DEDUCTIONS U/S 10B, 80HH AND 801 OF INCOME TAX ACT ,1961 IN THIS REGARD IT IS NOTED THAT ASSESSEE IS RUNNING CAPTIVE POWER PLANT AND GENERATING ELECTRICITY FOR CONSUMPTION BY THE ASSESSEE'S OWN CHEMICAL DIVISION. THERE IS NO THIRD PARTY SALE TO ANY OTHER ENTITY. DUE TO THESE PECULIAR FACTS OF THE CASE IT IS SEEN THAT EXPENDITURE WHICH CAN BE ALLOCATED TO CAPTIVE POWER PLANT SHOULD RELATE ONLY TO GENERATION OF ELECTRICITY AND MANAGEMENT OF POWER PLANT. IN THIS REGARD IT IS NOTED THAT THE LD. A.O. HAS CONSIDERED ALLOCATION OF SALES PROMOTION EXPENSES OF RS. 1,55,000/AND BUSINESS PROMOTION EXPENSE RS. 13,08,358/ - TO THE CAPTIVE POWER PLANT. HOWEVER, AS PER THE DETAILS AVAILABLE IT IS SEEN THERE IS NOT MUCH BASIS FOR INCLUSION OF THESE EXPENSES IN THE EXPENDITURE OF CAPTIVE POWER PLANT AS IT IS SEEN THAT THE POWER GENERATED IS FOR IN HOUSE USE BY THE ASSESSEE AND HAS NOT BE MARKETED OR SOLD TO THIRD PARTY. IN VIEW OF THIS ADDITION MADE BY THE LD. A.O. ON THESE TWO EXPENSE HEADS IS DIFFICULT TO SUSTAIN IN APPEAL AND IS DIRECTE D TO BE DELETED. AS REGARDS THE OTHER TWO HEADS OF EXPENSES IS CONCERNED I.E. DIRECTOR'S SITTING FEES OF RS. 1,60,000/ - AND BUSINESS HEAD OFFICE EXPENSES OF RS.72,00,000/ - THESE EXPENSES NEED TO BE APPORTIONED ON THE BASIS OF THE TURNOVER OF THE ASSESSEE WH ICH THE LD. A.O. HAS DONE. ACCORDINGLY, THE RELOCATION AND ADDITION ON ACCOUNT OF EXPENSES OF RS.73,088/ - AND RS.32,88,960/ - ON ACCOUNT OF DIRECTORS SITTING FEES AND BUSINESS HEAD OFFICE EXPENSES DONE BY THE LD. A.O. IS UPHELD. RELIANCE IN THIS REGARD IS P LACED ON THE ORDER OF HON'BLE ITAT DELHI BENCH IN THE CASE OF NIITGIS LTD. VS. DEPARTMENT OF INCOME TAX AS DELIVERED ON 24 TH FEB., 2015 IN ITA M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 23 | 39 NO.3077/D/2012. ACCORDINGLY, THIS GROUND OF APPEAL OF THE APPELLANT IS PARTLY ALLOWED. 2 5 . FROM THE RELEVANT PART OF THE ASSESSMENT ORDER AND OBSERVATION AND CONCLUSIONS ARRIVED AT BY THE CIT(A), WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER HAS APPORTIONED THE EXPENSES OF PRINCIPAL UNIT AND CAPTIVE POWER PLANT ON THE GROUND THAT THE ASSESSEE WAS CLAIMING DEDUCTION U/S. 80IA OF THE ACT IN RESPECT OF CAPTIVE POWER PLANT BUT THERE WERE CERTAIN SERVICES AND AMENITIES WHICH WERE USED BY SECTION 80IA UNIT IN ORDER TO CARRY OUT DAY TO DAY FUNCTIONING AND THE FINANCIAL MANAGEMENT OR RELATED ACTIVITIES AND SERVICES BEING PROVIDED BY THE HEAD OFFICE OF THE ASSESSEE. UNDISPUTEDLY, THE ASSESSEE HAD PREPARED SEPARATE PROFIT AND LOSS ACCOUNT FOR ITS CAPTIVE POWER UNIT AND STEAM GENERATION HYDROGEN BOILER UNIT . THE AUTHORITIES BELOW THAT EXPENSES SUCH AS S ALES PROMOTION, SALES OVERHEAD EXPENSES, BUSINESS PROMOTION /DEVELOPMENT EXPENSES ARE ATTRIBUTABLE TO THOSE BUSINESSES WHOSE PRODUCTS ARE SOLD IN MARKET, THUS FOR THE POWER AND STEAM UNITS WHOSE PRODUCTIONS ARE CAPTIVELY CONSUMED, NO ALLOCATION OF MARKETI NG EXPENSE IS REQUIRED TO BE MADE AS NO MARKETING EFFORTS ARE REQUIRED FOR SALE OF PRODUCTS OF SUCH CAPTIVE UNITS. DURING ASSESSMENT PROCEEDINGS, THE ASSESSEE EXPLAINED TO THE AO THAT THE MANAGING DIRECTORS REMUNERATION HAS BEEN PROPORTIONATELY DEBITED IN THE PROFIT AND LOSS ACCOUNT OF CAPTIVE POWER PLANT WHILE CLAIMING DEDUCTION U/S 80 - IA AND IN SCHEDULE 14 OF THE PROFIT AND LOSS ACCOUNT OF CAPTIVE POWER PLANT M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 24 | 39 AND THE SAME HAS BEEN STATED AS DIRECTORS REMUNERATION. IT IS ALSO NOT IN DISPUTE THAT CSR EXPENSES, EMPLOYEE'S WELFARE EXPENSES AND OTHER OVERHEAD AND MISCELLANEOUS EXPENSES DIRECTLY RELATED TO POWER PLANT OR HAVING RELEVANCE TO POWER PLANT WERE ALSO DEBITED TO THE PROFIT AND LOSS ACCOUNT IN POWER PLANT DIVISION , WHICH IS ALSO AMPLE CLEAR FROM THE BOOKS OF ACCOUNT AND FINANCIAL STATEMENT OF CAPTIVE POWER PLANT OF THE ASSESSEE. 2 6 . THE ASSESSEE IS RUNNING CAPTIVE POWER PLANT AND GENERATING ELECTRICITY BY THE ASSESSEES OWN CHEMICAL DIVISION AND THERE IS NO THIRD - PARTY SALE TO ANY OTHER ENTIT Y. IN THESE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, IT WAS CONCLUDED THAT THE EXPENSES WHICH COULD BE ALLOCATED TO CAPTIVE POWER PLANT SHOULD RELATE ONLY TO GENERATION OF ELECTRICITY AND MANAGEMENT OF POWER PLANT. THE ASSESSING OFFICER RIGHTLY OBSE RVED THAT THERE WAS NO BASIS FOR SUCH ALLEGATION FOR INCLUSION OF THESE EXPENSES IN THE EXPENDITURE OF CAPTIVE POWER PLANT. THE ASSESSING OFFICER ALSO RIGHTLY OBSERVED THAT THE ALLOCATION OF SALES PROMOTION OF RS.1,55,000/ - AND BUSINESS HEAD OFFICE EXPENS ES OF RS.13,08,358/ - TO THE CAPTIVE POWER PLANT AND THERE WAS NO BASIS FOR SUCH ALLEGATION FOR INCLUSION OF THESE EXPENSES IN THE EXPENDITURE OF CAPTIVE POWER PLANT AS THE POWER GENERATED WAS FOR IN HOUSE USE BY THE ASSESSEE ITSELF AND HAVING MARKETED AND SOLD M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 25 | 39 TO THIRD PARTY. KEEPING IN VIEW THESE FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) WAS RIGHT IN DIRECTING THE AO TO DELETE THE ADDITION. 27 . WE ARE IN AGREEMENT WITH THE CONTENTION OF THE LD A.R. OF THE ASSESSEE THAT IT IS WELL PRINCIPLES OF TAX JURISPRUDENCE THAT RULE OF CONSISTENCY HAS TO BE RESPECTED AND ADDITION SHOULD BE DISMISSED AS THERE WAS NO SUCH KIND OF DISALLOWANCE IN OTHER ASSESSMENT YEARS. PER CONTRA, IT IS ALSO SETTLED POSITION OF LAW THAT RES - JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS AND RULE OF CONSISTENCY HAS TO BE APPLIED BUT FROM THE ORDER OF THE ITAT, RANCHI IN ASSESSES OWN CASE FOR THE ASSESSMENT YEAR 2005 - 06, PARA 9 AS VEHEMENTLY RELIED UPON BY LD COUNSEL FOR THE ASSESSEE, WE SIMPLY OBSERVE THAT THE ASSESSEE IS MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR ITS CHEMICAL DIVISION AND CAPTIVE POWER PLANT, WHICH WAS DULY AUDITED AND SUBMITTED BEFORE THE AUTHORITIES BELOW. KEEPING IN VIEW THESE FACTS, THE CIT(A) HAS ALLOWED PART RELIEF TO THE ASSESSEE PERTAINING TO THE ADDITION MADE BY THE AO ON ACCOUNT OF SALES PROMOTION EXPENSES, BUSINESS PROMOTION AND DEVELOPMENT EXPENSES. FURTHER, THE CIT(A) HAS CONFIRMED THE ADDITION MADE BY THE AO ON APPORTIONED AMOUNT PERTAINING TO EXEMPT UNIT AT 45.68% IN REGARD TO DIRECTORS SIT TING EXPENSES AND BUSINESS HEAD OFFICE EXPENSES. IN THE ORDER FOR ASSESSMENT YEAR 2005 - 06, WE M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 26 | 39 ARE UNABLE TO SEE ANY FINDINGS OF THE TRIBUNAL THAT APPORTIONMENT OF DIRECTORS SITTING FEES AND HEAD OFFICE BUSINESS EXPENSES HAS BEEN DISMISSED BY THE TRIBUNAL. THEREFORE, WE DECLINE TO ACCEPT THE CONTENTION THAT THERE IS FINDING IN FAVOUR OF THE ASSESSEE IN THE APPEAL FOR ASSESSMENT YEAR 2005 - 06 ON THIS ISSUE. 28 . FROM A VIGILANT AND CAREFUL PERUSAL OF ASSESSMENT ORDER AND FIRST APPELLATE ORDER, WE ARE INCLINE D TO HOLD THAT THE DIRECTORS SITTING FEES OF RS.1,60,000/ - AND HEAD OFFICE EXPENSES OF RS.72,00,000/ - NEED TO BE APPORTIONED ON THE BASIS OF TURNOVER OF THE ASSESSEE AND THE AUTHORITIES BELOW HAS DONE ON THE SAME LINE. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE CIT(A) WAS RIGHT IN CONFIRMING THE REALLOCATION OF ADDITION ON ACCOUNT OF EXPENSES OF RS.73,088/ - AND RS.32,88,960/ - ON ACCOUNT OF DIRECTORS SITTING FEES AND BUSINESS HEAD OFFICE EXPENSES DONE BY THE AO. OUR CONCLUSION FURTHER GETS STRONG SUPPORT FROM THE ORDER OF THE DELHI BENCH IN THE CASE OF NIITGIS LTD (SUPRA). ACCORDINGLY, GROUND NOS.9 & 10 OF THE ASSESSEE BEING DEVOID OF MERITS, ARE DISMISSED. IN VIEW OUR DECISION ABOVE, GROUND NO.(IV) OF THE REVENUE HAS BECOME INFRUCTUOUS AND HENCE DISMISSED. 29. GROUND NO.1 OF APPEAL OF THE REVENUE RELATES TO DELETION OF ADDITION OF RS.94,90,362/ - ON ACCOUNT OF PAYMENTS MADE AS REBATE AND CLAIMED THE SAME AS UNASCERTAINED LIABILITY AND A PROVISION. M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 27 | 39 30. THE RELEVANT FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED RS.94,90,362/ - IN THE PROFITS AND LOSS ACCOUNT UNDER THE HEAD REBATES AND CLAIMS. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURNISH THE D ETAILS OF REBATES AND CLAIM, PARTY - WISE DETAILS AND REASONS ALONGWITH THE COPY OF LEDGERS. THE ASSESSEE SUBMITTED THAT THE LIABILITIES HAVE BEEN PROVIDED FOR VARIOUS REASONS RELATED TO SALES OF PRODUCTS AND IN SUPPORT OF THIS, VOUCHERS OF RS.94,90,362/ - W AS FURNISHED. ON PERUSAL OF THE SAME, THE ASSESSING OFFICER NOTED THAT THE JOURNAL ENTRY HAS BEEN PASSED FOR THE AMOUNT OF RS.94,90,362/ - DEBITING AS REBATES AND CLAIMS AND HAS BEEN WRITTEN AS PROVISION FOR CLAIM OF CUSTOMER (MARKETING LIABILITY 2005 - 06) . THE ASSESSING OFFICER OPINED THAT AS THE NATURE OF AMOUNT SUGGEST THAT THE AMOUNT WAS PROVISION IN NATURE, THEREFORE, SAME HAD NOT BEEN FINALISED DURING THE YEAR UNDER CONSIDERATION AND STILL REMAINS AN UNASCERTAINED LIABILITY. HE, ACCORDINGLY, DISALLO WED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 31. ON APPEAL, THE ASSESSEE CLAIMED THAT THE CLAIM IS NOT A PROVISION BUT CRYSTALLISED LIABILITY. IT WAS ALSO SUBMITTED THAT THE REBATE AND CLAIM ACCOUNT HAS BEEN DEBITED FOR RATE DIFFERENCES, SHORTAGE OF MATERIAL AT CUSTOMER END, LOSS TO CUSTOMER DUE TO DELAY IN SUPPLY OF CAUSTIC , POOR QUALITY OF THE PRODUCT FOR WHICH DEDUCTIONS HAVE BEEN MADE BY THE CUSTOMERS. SINCE THE CUSTOMERS HAVE DEDUCTED THE AMOUNT WHILE RELEASING M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 28 | 39 THE PAYMENT, HENCE, ALL SUCH DEDUCTIONS HAVE BEEN PROVIDED IN THE BOOKS OF ACCOUNT OF THE COMPANY AS EXPENSES UNDER THE HEAD REBATE AND CLAIM AND ALL SUCH DEDUCTIONS PE RTAIN TO CURRENT YEAR. ON CONSIDERATION OF THE SUBMISSIONS OF THE ASSESSEE, THE LD CIT(A) CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER. THE ASSESSING OFFICER SENT HIS REPORT ON 4.8.2014. THE CIT(A) AFTER CONSIDERING THE REMAND REPORT AS WELL AS THE SUBMISSION OF THE ASSESSEE, DELETED THE ADDITION OF RS.94,90,362/ - , BY OBSERVING AS UNDER: I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND PERUSED THE ASSESSMENT ORDER PASSED BY THE LD. A.O. AND REMAND REPORT OF THE LD. A.O. IT IS NOTED THAT HINDALCO INDUSTRIES LTD. (HIL) IS ONE OF THE MAJOR CUSTOMERS OF CAUSTIC SODA LYE. IT IS ALSO NOTED THAT THE ASSESSEE COMPANY FOLLOWING VOLUMETRIC METHOD TO WEIGH CAUSTIC SODA LYE WHICH IS APPROPRIATE METHOD TO WEIGH THIS TYPE OF PRODUCT AS PER ITS TECHNIC AL TEAM BUT HINDALCO INDUSTRIES LTD FOLLOWS SIMPLE WEIGHT BRIDGE METHOD TO WEIGH CAUSTIC SODA LYE HENCE, DIFFERENCES ARISE IN WEIGHTS AT BOTH ENDS. HINDALCO INDUSTRIES LTD. ACCEPTS ONLY THAT QUANTITY WHICH IT RECEIVES AT THEIR END AS PER ITS WEIGHMENT PRAC TICE AND PAYMENT RELEASES ONLY FOR QUANTITY WHICH IT SHOWN TO RECEIVE. IT IS NOTED THAT THE ASSESSEE HAS CALCULATED THE TOTAL SHORT QUANTITY (NET) RECEIVED AT THEIR END DURING F.Y.2005 - 06 ACCUMULATED 458.452 MT WHICH WORKS OUT OF TOTAL VALUE OF RS.91.39 LA KHS WHICH IS ALSO EVIDENT FROM THE LEDGER DETAILS OF THE HINDALCO INDUSTRIES LTD. IT IS ALSO NOTED THAT ON PERUSAL OF THE LEDGER DETAILS OF HINDALCO INDUSTRIES LTD FOR F.Y.2005 - 06 AND 2006 - 07, IT IS EVIDENT THAT CREDIT NOTE OF RS.91,39,371.74 WAS FINALLY I SSUED TO M/S HINDALCO ON 01.07.2006 FOR WHICH LIABILITY WAS PROVIDED IN F.Y.2005 - 06 (A.Y.2006 - 07). IT IS NOTED THAT LIABILITY TAKEN IN F.Y.2005 - 06 (A.Y.2006 - 07) WAS AN ASCERTAINED LIABILITY. IN VIEW OF THESE DISCUSSION, AND ON PERUSAL OF PROPER VOUCHERS AN D DETAILS OF SUCH LIABILITY IT IS NOTED THAT THE LD. A.O. HAS FAILED TO APPRECIATE THESE DETAILS AND INCORRECTLY DISALLOWED THE ASCERTAINED LIABILITY OF RS.94,90,362/ - ON ACCOUNT OF REBATE AND CLAIMS. ON THE BASIS OF THIS DISCUSSION THE ADDITION MADE BY TH E LD. A.O. CANNOT BE SUSTAINED IN APPEAL AND IS DIRECTED TO BE DELETED. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 29 | 39 32. LD CIT DR SUBMITTED THAT THE CLAIM OF THE ASSESSEE IS ONLY A JOURNAL ENTRY AND DEMAND WAS NOT ASCERTAINED. THEREFORE, THE CIT(A) IS NOT JUSTIFIED IN DELETING THE SAME. 33. REPLYING TO ABOVE, LD A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE CIT(A) AFTER CONSIDERING THE REMAND REPORT AND THE CREDIT NOTE ISSUED BY HINDALCO ON 1.7.2006, PROVING THAT THE LIABILITY WAS ASCERTAINED IN FINANCIAL YEAR 2005 - 06, DELETED THE ADDITION. 34. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIALS AVAI LABLE ON THE RECORD OF THE TRIBUNAL AS WELL AS THE ORDERS OF LOWER AUTHORITIES. IT IS NOT IN DISPUTE THAT HINDALCO INDUSTRIES LTD., IS A MAJOR CUSTOMER OF THE ASSESSEE. THE FINDINGS OF THE CIT(A) THAT DURING THE FINANCIAL YEAR 2005 - 06, THE ASSESSEE HAS C ALCULATED THE TOTAL SHORT QUANTITY OF CAUSTIC SODA LYE OF 458.452 MT WHICH WORKS OUT TO RS.91.39 LAKHS AS REFLECTED IN THE LEDGER OF HINDALCO INDUSTRIES LTD., FOR THE FINANCIAL YEAR 2005 - 06 AND CREDIT NOTE OF RS.91,39,371.74 WAS FINALLY ISSUED TO HINDALCO IND. LTD., IS NOT DISPUTED BY THE REVENUE. HENCE, WE DO NOT FIND ANY INFIRMITY WITH THE ORDER OF THE CIT(A) TO INTERFERE AND SAME IS UPHELD. GROUND NO.1 OF REVENUE IS DISMISSED. 35. IN GROUND NO.2 OF APPEAL, THE GRIEVANCE OF THE REVENUE IS THAT THE CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.24,35,192/ - ON ACCOUNT OF CSR EXPENSES AND COMMUNITY WELFARE EXPENSES . M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 30 | 39 36. THE FACTS IN BRIEF ARE THAT THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED EXPENSES OF RS.24,35,192/ - UNDER THE HEAD GARDENING/HORTICULTURE EXPENSES, CSR EXPENSES AND COMMUNITY WELFARE EXPENSES. THE ASSESSING OFFICER REQUIRED THE ASSESSEE T O SUBSTANTIATE ITS CLAIM WITH DOCUMENTARY EVIDENCES, TO WHICH, THE ASSESSEE FURNISHED DETAILS IN THE FORM OF LEDGER ACCOUNTS. THE ASSESSING OFFICER OBSERVED THAT SPECIFIC DETAILS HAS NOT BEEN FURNISHED IN RESPECT OF THE EXPENDITURES EXCEPT MENTIONING THAT EXPENDITURE HAS BEEN INCURRED FOR SOCIAL REFORMS, INFRASTRUCTURAL DEVELOPMENT, WATERSHED DEVELOPMENT, PROGRAMME COORDINATION, ETC . FROM THE ABOVE, THE AO OPINED THAT IT IS NOT CLEAR FROM THE ABOVE NARRATION AS TO WHETHER THE EXPENDITURE HAS ACTUALLY BEE N INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS INCURRED EXPENDITURE THROUGH THE TRUST NAMED JAN SEVA TRUST, WHICH IS A SEPARATE ENTITY HAVING REGISTRATION U/S.12A OF THE ACT, THEN THE AMOUNT SH OULD BE TREATED AS DONATION AND NOT BUSINESS EXPENDITURE. CONSIDERING THE ABOVE, THE ASSESSING OFFICER DISALLOWED RS.5,04,255/ - AS GARDENING/HORTICULTURE EXPENSES, RS.18,39,493/ - AS CSR EXPENSES, RS.91,444/ - AS COMMUNITY WELFARE EXPENSES TOTALING TO RS.24 ,35,192/ - AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 37. ON APPEAL, THE ASSESSEE HAS SUBMITTED THE SUBMISSIONS IN RESPECT OF EACH EXPENSES. LD CIT(A) CALLED FOR A REMAND REPORT FROM THE ASSESSING M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 31 | 39 OFFICER AND AFTER CONSIDERING THE SAME, HAS PA RTLY ALLOWED THE GROUND BY RESTRICTING THE DISALLOWANCES AS UNDER: 7.4. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND PERUSED THE ASSESSMENT ORDER AS WELL AS REMAND REPORT OF THE LD. A.O. THE LD. A.O. HAS MADE THE ADDITIONS UNDER THE HEAD HORTIC ULTURE EXPENSES AMOUNTING TO RS. RS.5,04,255/ - , CSR EXPENSES - RS. 18,39,493/ - , COMMUNITY WELFARE EXPENSES - RS.91,444/ - TOTALING TO RS.24,35,192/ - ON THE BASIS THAT THESE EXPENDITURES ARE PURELY ALTRUISTIC AND PHILANTHROPIC IN NATURE AND THESE EXPENSES WER E NOT WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES BUT HAD TO BE TREATED AS APPLICATION OF INCOME. ALL THESE ADDITIONS ARE DEALT WITH SEPARATELY AS UNDER: - I. HORTICULTURE EXPENSES - RS.5,04,255 / - IT IS NOTED THAT THE EXPENDITURE INCURRED ON HORTICULTURE EXPENSES OBSERVING THAT THE EXPENDITURE INCURRED ON MAINTENANCE OF GREENERY AT PLANT AND RESIDENTIAL PREMISES OF THE EMPLOYEES CANNOT BE SAID TO HAVE BEEN INCURRED FOR OTHER THAN BUSINESS PURPOSES. IT IS SEEN THAT TOWARDS HORTICULTURE EXPENSES THE APPELLANT CLAIMED RS.5,04,255/ - . IT IS TRUE THAT FOR KEEPING THE ENVIRONMENT POLLUTION FREE GREENERY ENVIRONMENT, PLANTATION OF TREES, PLANTS AND THEIR BEAUTIFICATION IS NECESSARY AND IT IS OBLIGATORY TO SU CH COMPANY WHO IS RUNNING A CHEMICAL PLANT. IT IS NOTED THAT THIS EXPENDITURE IS WERE INCURRED BY THE ASSESSEE IN ORDER TO MAINTAIN GREEN & POLLUTION FREE ENVIRONMENT AT & AROUND THE PLANT PREMISES. IN THE ASSESSEE'S CASE HON'BLE IT AT, CIRCUIT BENCH, RANC HI ITA NO.192/RAN/2008 AND ITA NO. 194/RAN/2008 FOR A.YRS.2003 - 04 AND 2004 - 05 HAS ALLOWED THE APPEAL OF THE ASSESSEE. IN VIEW OF THIS, THE DISALLOWANCE MADE BY THE LD. A.O. CANNOT BE SUSTAINED IN APPEAL AND DIRECTED TO BE DELETED. II. CSR AND COMMUNITY DEV ELOPMENT EXPENSES - RS. 18.39.493/ - & RS.91.444/ - IT IS NOTED THAT THE EXPENDITURE INCURRED ON CSR EXPENSES OBSERVING THAT THE EXPENDITURE INCURRED IN NATURE AS WITHOUT THESE EXPENDITURE BUSINESS CANNOT BE RUN IN A REMOTE AND NAXAL AFFECTED REGION. IT IS SEEN THAT TOWARDS CSR EXPENSES THE APPELLANT CLAIME D RS. 18,39,493/ - . IT IS TRUE THAT PEOPLE OF THE NAXAL AFFECTED AREA DISTURB EMPLOYEES OF THE COMPANY, TRANSPORTATION OF INCOMING AND OUTGOING MATERIALS, PERSON COMING FROM OUTSIDE TO DEAL WITH COMPANY TO PURCHASE OR SALE GOODS ETC. IT IS ALSO NOTED THAT T HE CSR ACTIVITIES M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 32 | 39 CHANGE THE MIND SET OF NAXAL PEOPLE TOWARDS COMPANY AND FEEL THAT COMPANY IS TAKING CARE OF THEIR DEVELOPMENT AND IF THEY WOULD DISTURB THE WORKING OF THE COMPANY THEY WOULD LOOSE THESE HELPS AND SO THEY COME FORWARD HELP THE COMPANY. IN THESE DAYS CORPORATE ARE UNDER COMPULSION UNDER THE LAW TO SPENT A PERCENTAGE OF THEIR ANNUAL PROFIT IN CSR ACTIVITIES. IN VIEW OF THESE FACTS IT CANNOT BE SAID TO HAVE BEEN INCURRED FOR OTHER THAN BUSINESS PURPOSES. IT IS ALSO NOTED THAT THE EXPENSES CLAI MED BY THE APPELLANT UNDER THIS HEAD ARE ON HIGHER SIDE. THE LD. A.O. HAD DISALLOWED ENTIRE AMOUNT BEING RS. 18,39,493/ - WHICH IS 100% OF THE CLAIM OF ASSESSEE UNDER THIS HEAD. IN VIEW OF THIS, IT WOULD BE REASONABLE TO DISALLOW 5% OF THE CSR EXPENSES AMO UNTING TO RS.91,975/ - AS AGAINST DISALLOWANCE OF RS. 18,39,493/ - AND 10% OF COMMUNITY DEVELOPMENT EXPENSES AMOUNTING TO RS.9,144/ - AS AGAINST DISALLOWANCE OF RS.91,444/ - MADE BY THE LD. A.O. ACCORDINGLY, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 38. LD CIT DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER 39. ON THE OTHER HAND, LD A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). HE ALSO REFERRED TO THE DECISION OF CO - ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2012 - 13 IN ITA NO.295/RAN/16 ORDER DATED 27.2.2018, WHEREIN, THE ADDITION RELATING TO CSR EXPENSES AND COMMUNITY WELFARE EXPENSES AND HORTICULTURE EXPENSES HAS BEEN DELETED. WHILE DOING SO, THE TRIBUNAL HAS ALSO REFERRED TO THE DECISION OF ITAT PATNA IN ASSESS EES OWN CASE IN ITA NO.441/PAT/2005 FOR THE ASSESSMENT YEAR 2003 - 04 IN REVENUE APPEAL. HENCE, IT WAS HIS PRAYER THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. 40. ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIONS, WE PERUSED THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2012 - 13 (SUPRA), WHEREIN, ON IDENTICAL ISSUE, THE ADDITION HAS BEEN DELETED. M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 33 | 39 FOLLOWING THE PRECEDENT, WE UPHOLD THE FIN DINGS OF THE CIT(A) AND DISMISS THE GROUND OF APPEAL NO.2 OF THE REVENUE. 41. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND APPEAL OF THE REVENUE IS DISMISSED. NOW, WE TAKE UP THE CROSS APPEALS FOR THE ASSESSMENT YEAR 2007 - 08. 42. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1 . ON THE FACTS' AND CIRCUMSTANCES OF THE CASE, THE ID. CIT (A) HAD GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 2 5,000/ - ON AD HOC BASIS I.E.10% OF 2 ,50,000/ - CLAIMED BY YOUR APPELLANT ON ACCOUNT OF CLUB EXPENDITURE . 2 . ON THE FACTS AND CIRCUMST ANCES OF THE CASE, THE ID. CIT (A) HAD GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1.15.495 / - ON AD HOC BASIS I.E. 10% OF 11,54,935 / - CLAIMED BY YOUR APPELLANT ON ACCOUNT OF OTHER STAFF WELFARE EXPENSES. 3 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAD GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 33,695 / - ON AD HOC BASIS I.E. 10% OF RS. 3,36,946 / - CLAIMED BY YOUR APPELLANT ON ACCOUNT OF GIFT TO OTHERS. 4 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID. CIT (A) HAD GR OSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 12,856 / - ON AD HOC BASIS I.E. 10% OF RS. 1,28,564 / - CLAIMED BY YOUR APPELLANT ON ACCOUNT OF COMMUNITY DEVELOPMENT EXPENSES. 5 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID. CIT (A) HAD GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1,51,080 / - ON AD HOC BASIS I.E. 10% OF RS. 1 5,10,800 / - CLAIMED BY YOUR APPELLANT ON ACCOUNT OF EDUCATION AND HEALTH CARE EXPENSES. 6 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID. CIT (A) HAD GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1,02,093 / - ON AD HOC BASIS I.E. 10% OF RS. 10,20,926 / - CLAIMED BY YOUR APPELLANT ON ACCOUNT OF ENTERTAINMENT EXPENSES (OTHERS) M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 34 | 39 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID. CIT (A) HAD GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 40,158 / - ON AD HOC BASIS I.E. 10% OF RS. 4,01,579 / - CLAIMED BY YOUR APPELLANT ON ACCOUNT OF SUBSCRIPTION. 43. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS PLACED ON THE RECORD OF THE TRIBUNAL. SIMILAR ISSUES HAVE BEEN CONSIDERED BY US WHILE DECIDING GROUND NOS.2 TO 7 OF ASSESSEES APPEAL FOR ASSESSMENT YEAR 2006 - 07 (SUPRA) . IN LINE WITH OUR DETAILED DISCUSSION THEREIN, THESE GROUNDS OF APPEALS OF THE ASSESSEE A RE ALLOWED. 44. THE REVENUE IN ITS APPEAL HAS RAISED THE FOLLOWING GROUNDS: 1. DELETION OF ADDITION OF RS.55,95,993/ - MADE U/S.40(A)(IA) OF THE ACT. 2. DELETION OF ADDITION OF DEPRECIATION CLAIMED ON POWER PLANT OF RS.10,36,05,732/ - . 45. APROPOS GRO UND NO.1 OF APPEAL OF THE REVENUE, LD CIT DR SUBMITTED THAT THE ASSESSING OFFICER HAD MADE ADDITION OF RS.55,95,993/ - ON ACCOUNT OF PAYMENT MADE AS CONSULTANCY CHARGES TO M/S. UDHE AND THE CIT(A) GAVE A RELIEF TO THE ASSESSEE ON THE GROUND THAT TAX HAS BE EN DEDUCTED U/S.194C OF THE ACT HENCE, PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT ATTRACTED. LD CIT DR SUBMITTED THAT SINCE FROM THE RELEVANT DOCUMENTARY EVIDENCE, IT WAS CLEAR THAT PAYMENT WAS MADE IN THE FORM OF CONSULTANCY AND HENCE, TDS SHOUL D HAVE BEEN DEDUCTED U/S.194J OF THE ACT AND FAILURE TO DO SO ATTRACTS THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THEREFORE, THE ORDER OF THE CIT(A) ON THIS ISSUE MAY KINDLY BE SET ASIDE AND THAT OF THE AO BE RESTORED. M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 35 | 39 46. REPLYING TO ABOVE, LD COUNS EL FOR THE ASSESSEE DREW OUR ATTENTION TO PARA 3.3. OF THE FIRST APPELLATE ORDER AND SUBMITTED THAT IF THERE IS ANY SHORTFALL DUE TO ANY DIFFERENCE OF OPINION AS TO THE TAXABILITY OF ANY ITEM OR THE NATURE OF PAYMENTS FALLING UNDER VARIOUS TDS PROVISIONS, THE ASSESSEE CAN BE DECLARED TO BE AN ASSESSEE IN DEFAULT U/S.201 OF THE ACT AND NO DISALLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 47. ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIONS, WE ARE OF THE OPINION THAT THE CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE WITH THE FOLLOWING 3.3. I HAVE CONSIDERED THE SUBMISSION OF THE COUNSEL OF THE APPELLANT AND PERUSED THE ASSESSMENT ORDER PASSED BY THE LD. A.O. IT IS NOTED THAT THE LD. A.O. HAD OBSERVED THAT THE ASSESSEE HAS P AID RS.55,95,993/ - ON ACCOUNT OF CONSULTANCY FEE TO M/S. UHDE INDIA LTD. AND HAS ALSO OBSERVED THAT THE ASSESSEE HAS NOT DEDUCTED TDS FULLY ON THESE PAYMENTS THEREFORE, DISALLOWED AMOUNT OF RS.55,95,993/ - IN VIEW OF THE PROVISIONS OF SECTION 40(A)(IA) OF T HE I. T. ACT, 1961. ON PERUSAL OF THE CONSULTANCY BILLS OF M/S. UHDE INDIA SUBMITTED BEFORE ME IT IS EVIDENT THAT ALL THE BILLS HAVE BEEN CAPITALIZED AS PROJECT COST OF 225 TPD MEMBRANE PROJECT AND THE SAID BILLS OF ABOVE CONCERNED HAVE BEEN CAPITALIZED AS ASSETS. IT IS NOTED THAT SINCE THE ASSESSEE COMPANY HAS CAPITALIZED THE CONSULTANCY BILLS AND THOSE BILLS HAVE NOT BEEN CHARGED AS AN EXPENSES TO PROFIT AND LOSS ACCOUNT DURING THE F.Y.2006 - 07 RELEVANT TO A.Y.2007 - 08 THERE IS NO QUESTION OF DISALLOWANCE U /S 40(A)(IA) OF THE I. T. ACT, 1961. IT IS ALSO NOTED THAT THE LD. A.O. HAS OBSERVED THAT THE TAX SHOULD HAVE BEEN DEDUCTED U/S 194 J INSTEAD OF U/S 194C AND THEREFORE, EXPENDITURE OF RS.55,95,993/ - SHOULD BE DISALLOWED U/S 40(A)(IA) IS IMMATERIAL IN THE V IEW OF THE FACT THAT THE SAID EXPENDITURE WAS INCURRED FOR CONSTRUCTION OF AN ASSETS DURING THE YEAR UNDER CONSIDERATION I.E. F.Y. 2006 - 07 RELEVANT TO A.Y. 2007 - 08 AND, THEREFORE, EVEN NO DEPRECIATION WAS CLAIMED ON SUCH ASSETS. IT IS ALSO NOTED THAT THE ASSESSEE COMPANY HAS NEITHER BOOKED THIS AMOUNT AS REVENUE EXPENDITURE U/S 37(1) NOR THERE IS QUESTION OF DISALLOWANCE OF RS.55,95,993/ - ARISES U/S 40(A)(IA). IT IS ALSO NOTED THAT PROVISIONS OF SECTION 40(A)(IA) DOES NOT APPLY TO CASES WHERE EXPENDITUR E HAS NOT BEEN CLAIMED U/S 37(1) OF THE I. T. ACT, 1961. IT IS NOTED THAT HONBLE ITAT KOLKATA BENCH T3' IN [2011J 15 TAXMANN.COM 289 (KOL.) IN THE CASE OF DCIT, CIRCLE - 33, KOLKATA VS. S.K. TEKRIWAL HAS HELD ........ .. THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT HAS TWO LIMBS, ONE IS WHERE, INTER ALIA, M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 36 | 39 ASSESSEE HAS TO DEDUCT TAX AND THE SECOND WHERE AFTER DEDUCTING TAX, INTER ALIA, THE ASSESSEE HAS TO PAY INTO GOVERNMENT ACCOUNT. THERE IS NOTHING IN THE SAID SECTION TO TREAT, INTER ALIA, THE ASSESSEE AS DEFAULTER WHERE THERE IS A SHORTFALL IN DEDUCTION. WITH REGARD TO THE SHORTFALL, IT CANNOT BE ASSUMED THAT THERE IS A DEFAULT AS THE DEDUCTION IS NOT AS REQUIRED BY OR UNDER THE ACT, BUT THE FACTS IS THAT THIS EXPRESS ION, 'ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVU - B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB - SECTION (1) OF SECTION 139. THIS SECTION 40(A)(IA) OF THE ACT REFERS ONLY TO DUTY TO DEDUCT TAX AND PAY TO GOVERNMENT ACCOUNT. IF THERE IS ANY SHORTFALL DUE TO ANY DIFFERENCE OF OPINION AS TO THE TAXABILITY OF ANY ITEM OR THE NATURE OF PAYMENTS FALLING UNDER VARIOUS TDS PROVISIONS THE ASSESSEE CAN BE DECLARED TO BE AN ASSESSEE IN D EFAULT U/S 201 OF THE ACT AND NO DISALLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT.' IN VIEW OF THESE DISCUSSIONS, THE DISALLOWANCE MADE BY THE LD. A.O. CANNOT BE SUSTAINED IN APPEAL AND DIRECTED TO BE DELETED. ACCORDINGLY , THIS GROUND OF APPEAL OF THE APPELLANT IS ALLOWED. 48. IN VIEW OF ABOVE, ADMITTEDLY, THE ASSESSEE HAS DEDUCTED TDS U/S.194C OF THE ACT ON THE IMPUGNED PAYMENT AND THE ASSESSING OFFICER MADE DISALLOWANCE U/S.40(A)(IA) OF THE ACT BY OBSERVING THAT TDS SHOULD HAVE BEEN DEDUCTED U/S.194J OF THE ACT AS IT WAS A CON SULTANCY FEES. 49. ON CAREFUL CONSIDERATION OF THE BASIS TAKEN BY THE AO FOR MAKING DISALLOWANCE U/S.40(A)(IA) OF THE ACT AND THE CONCLUSION RECORDED BY THE CIT(A) IN PARA 3.3. OF THE ORDER, WE ARE OF THE CONSIDERED OPINION THAT PROVISIONS OF SECTION 40(A)(IA) OF THE ACT DOES NOT APPLY TO THE CASE WHERE EXPENDITURE HAS NOT BEEN CLAIMED U/S.37(1) OF THE ACT. THE CIT(A) HAS RELIED ON THE ORDER OF THE KOLKATA ITAT BENCH B IN THE CASE OF DCIT VS S.K.TEKRIWAL, 15 TAXMANN.COM 289(KOL), WHEREIN, IT WAS HELD THAT IF THERE IS ANY SHORTFALL DUE TO ANY DIFFERENCE OF OPINION AS TO THE TAXABILITY OF ANY ITEM OR THE NATURE OF PAYMENTS FALLING UNDER VARIOUS TDS PROVISIONS, THE ASSESSEE CAN BE DECLARED TO BE AN ASSESSEE IN DEFAULT U/S.201 OF THE ACT M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 37 | 39 AND NO D ISALLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. WE CLEARLY OBSERVE THAT THE ASSESSEE HAS DEDUCTED TDS ON THE IMPUGNED PAYMENT U/S.194C OF THE ACT. HOWEVER, IF THERE WAS ANY DIFFERENCE OF OPINION BETWEEN THE ASSESSEE AN D THE AO REGARDING RELEVANT PROVISIONS OF TDS, THEN ALSO IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT COM PLIED WITH THE PROVISIONS OF TDS. KEEPING IN VIEW THE PROPOSITION RENDERED BY THE ITAT KOLKATA IN THE CASE OF S.K.TEKRIWAL (SUPRA), WE ARE UNABLE TO SE E ANY VALID REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). ACCORDINGLY, WE UPHOLD THE SAME. GROUND NO.1 OF REVENUE IS DISMISSED. 50. APROPOS GROUND NO.2 OF APPEAL OF REVENUE, LD CIT DR SUBMITTED THAT THE ASSESSING OFFICER HAS MADE ADDITION U/S 32 OF THE ACT ON THE BASIS OF RATE OF DEPRECIATION AND FACTS AND CIRCUMSTANCES OF THE CASE. LD CIT DR FURTHER EXPLAINED THAT THE ASSESSEE HAD TWO DIVISIONS VIZ; CAUSTIC DIVISION AND (II) POWER PLANT DIVISION (ELIGIBLE FOR EXEMPTION U/S.80IA) OF THE ACT. LD CIT DR SUBMITTED THAT THE ASSESSING OFFICER RIGHTLY DISALLOWED THE DEPRECIATION ON ACCOUNT OF POWER PLANT ON THE GROUND THAT SAID UNIT WAS EXEMPT BUT THE CIT (A) GRANTED RELIEF TO THE ASSESSEE BY HOLDING THAT DEPRECIATION WAS FIRST ALLOWED ON THE BASIS OF COM PANY ACT WHICH THE ASSESSEE AHS ADDED BACK AND GIVEN RELIEF ON THE BASIS OF I.T.ACT. LD CIT DR STRENUOUSLY CONTENDED THAT THE ASSESSEE HAS BEEN ABLE TO CLAIM DEPRECIATION ON ACCOUNT OF POWER PLANT UNIT WHICH IS ALREADY EXEMPT M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 38 | 39 U/S.80IA OF THE ACT AND FULL RELIEF OF PROFIT OF THE PLANT HAS ALREADY BEEN ALLOWED TO THE ASSESSEE. THEREFORE, THE ASSESSEE SHOULD HAVE BEEN REMOVED THE DEPRECIATION COMPONENT OF POWER PLANT DIVISION BOTH ON ACCOUNT OF COMPANY ACT AND I.T.ACT . 51. REPLYING TO ABOVE, LD COUNSEL FOR THE ASSESSEE STRONGLY SUPPORTED THE ORDER OF THE CIT(A) AND FURTHER SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION ON POWER PLANT WHICH WAS ELIGIBLE FOR EXEMPTION U/S. 80IA OF THE ACT BY OBSERVING THAT THE SAID EXPENDITURE WAS BELONGING TO AN EXEMPT UNDERTAKING. 52. AFTER HEARING BOTH THE SIDES, WE ARE OF THE VIEW THAT LD CIT(A) RIGHTLY OBSERVED THAT IF THE DEPRECIABLE IS ALLOWABLE UNDER THE INCOME TAX ACT, 1961, SAME SHOULD NOT BE DISALLOWED WHEN THE DEPRECIATION UNDER THE COMPANIES ACT IS ADDED IN THE COMPUTATION OF TOTAL INCOME. THE TAX AUTHORITIES SHOULD RESPECT THE RULE OF CONSISTENCY AND IN THE PRESENT CASE, THE DEPRECIATION ON CAUSTIC PLANT AND POWER PLANT HAVE BEEN CONSISTENTLY ALLOWED DURING THE IMMEDIATELY PREVIOUS YEAR WHILE CO MPUTING THE INCOME OF THE ASSESSEE. THEREFORE, THE CIT(A) WAS RIGHT IN DISMISSING THE CONTENTION OF THE AO AND DELETING THE ADDITION. WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), WHICH IS HEREBY CONFIRMED. GROUND NO.2 OF APPEAL OF THE REV ENUE IS DISMISSED. CROSS OBJECTIONS OF THE ASSESSEE M/S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), P A G E 39 | 39 53 THE CROSS OBJECTIONS HAVE BEEN FILED BY THE ASSESSEE IN SUPPORT OF THE ORDER OF THE CIT(A). IN VIEW OF OUR DECISION IN REVENUES APPEAL, THE CROSS OBJECTIONS HAVE BECOME INFRUCTUOUS AND SAME ARE DISMISSED. 54. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE IS DISMISSED. THE CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT UNDER RULE 34(4) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 196 3 ON 18 / 1 1 /2019 S D/ - SD/ - (LAXMI PRASAD SAHU) ( CHANDRA MOHAN GARG ) ACCOUNTANT MEMBER JUDICIALMEMBER RANCHI ; DATED 18 / 1 1 /20 1 9 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER SR. PVT. SECRETARY, ITAT, CUTTACK 1. THE APPELLANT /ASSESSEE : /S. GRASIM INDUSTRIES LIMITED (SUCCESSOR TO THE BUSINESS OF ADITYA BIRLA CHEMICALS INDIA LTD.), REHLA, PALAMAU - 822124 2. THE RESPONDENT. : ACIT, CIRCLE - 1, RANCHI 3. THE CIT(A) - RANCHI 4. PR.CIT - RANCHI 5. DR, ITAT, RANCHI 6. GUARD FILE. //TRUE COPY//