ASST CIT (LTU) 2, MUMBAI V. RELIANCE INDUSTRIES LTD, MUMBAI

ITA 1547/MUM/2016

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4189 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 18-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAYANT KUMAR
• Assessee Lawyers: ARVIND V SONDE
• Keywords: Capital asset; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Earning of tax free income; Question of law; Capital receipt
• Section: 43B; 14A; 115JB; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE S/ SHRI B.R.BASKARAN (AM) & AMARJIT SINGH (JM) I.T. (TP) A. NO. 1547 /MUM /20 1 6 (ASSESSMENT YEAR 20 1 0 - 11 ) I.T.(TP)A. NO. 2733/MUM/2017 (ASSESSMENT YEAR 2011 - 12) I.T.(TP)A. NO. 5842/MUM/2017 (AS SESSMENT YEAR 2012 - 13) ACIT(LARGE TAXPAYER UNIT) - 2 WORLD TRADE CENTRE 1 29 TH FLOOR, CUFFE PARADE MUMBAI - 400 005. VS. M/S. RELIANCE INDUSTRIES LIMITED MAKER CHAMBERS IV 3 RD FLOOR, 222 NARIMAN POINT MUMBAI - 400 021. ( APPELLANT ) ( RESPONDENT ) I.T.(TP)A . NO. 1280/MUM/2016 (ASSESSMENT YEAR 2010 - 11) I.T.(TP)A. NO. 2414/MUM/2017 (ASSESSMENT YEAR 2011 - 12) I.T.(TP)A. NO. 5556/MUM/2017 (ASSESSMENT YEAR 2012 - 13) M/S. RELIANCE INDUSTRIES LIMITED MAKER CHAMBERS IV 3 RD FLOOR, 222 NARIMAN POINT MUMBAI - 400 021. VS . ACIT(LARGE TAXPAYER UNIT) - 2 WORLD TRADE CENTRE 1 29 TH FLOOR, CUFFE PARADE MUMBAI - 400 005. ( APPELLANT ) ( RESPONDENT ) PAN : AAACR5055K ASSESSEE BY SHRI ARVIND V. SONDE DEPARTMENT BY SHRI JAYANT KUMAR DATE OF HEARING 30 . 7 . 201 8 DATE OF PRON OUNCEMENT 28 . 9 . 201 8 O R D E R PER B.R. BASKARAN (A M) : - THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A) - 57, MUMBAI AND THEY RELATE TO THE ASSESSMENT YEARS 2010 - 11 TO 2012 - 13. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPE ALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. M/S. RELIANCE INDUSTRIES LIMITED 2 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF OIL & GAS EXPLORATION, REFINING OF CRUDE OIL, MANUFACTURE AND SALE OF PETROCHEMICALS, POLY ESTER FIBRE, TEXTILES ETC. IT IS ALSO ENGAGED IN THE BUSINESS OF GENERATION AND DISTRIBUTION OF POWER, OPERATION OF JETTIES AND RELATED INFRASTRUCTURE, R ETAIL MARKETING OF PETROLEUM PRODUCTS. IT IS ALSO ENGAGED IN INVESTMENT ACTIVITIES. 3. WE SHALL F IRST TAKE UP THE APPEALS RELATING TO ASSESSMENT YEAR 2010 - 11. THE FIRST ISSUE URGED BY THE REVENUE AND THE FIRST ISSUE URGED BY THE REVENUE RELATES TO THE SALES TAX EXEMPTION OF RS.776.76 CRORES. THE ASSESSEE ESTABLISHED PLA N TS AT H AZIRA, JAMNAGAR, GANDH AR, ALLAHABAD AND BARABANKI , WHICH ARE LOCATED IN THE STATES OF GUJARAT AND UTTAR PRADESH. BOTH THE GOVERNMENTS PROVIDED INCENTIVES IN TH E FORM OF SALES TAX EXEMPTION. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE APPROPRIATED SALES TAX AMOUNT EMBEDDED IN THE SALES, WHICH ARE ELIGIBLE FOR SALES TAX EXEMPTION . THE AMOUNT OF SALES TAX SO APPROPRIATED WAS RS.776.76 CRORES AND CLAIMED THE SAME AS CAPITAL RECEIPT S AND ACCORDINGLY DID NOT OFFER THE SAME FOR TAXATION. THE AO TOOK THE VIEW THAT THE ASSESSEE H AS APPROPRIATED SALES TAX ON NOTIONAL BASIS. FURTHER, T HE AO NOTICED THAT IN THE PRECEDING YEARS VIZ., AY 2007 - 08 TO 2009 - 10, THE ASSESSING OFFICER HAD TREATED THE SALES TAX INCENTIVE AS REVENUE RECEIPT S . FOLLOWING THE SAME, THE AO REJECTED THE CLAIM OF THE ASSESSEE AND ASSESSED THE SALES TAX INCENTIVE OF RS.776.76 CRORES AS INCOME OF THE ASSESSEE. 4. THE LD CIT(A) NOTICED THAT T HE SPECIAL BENCH OF TRIBUNAL HAD CONSIDERED AN IDENTICAL ISSUE IN THE ASSESSEES OWN CASE REPORTED IN 88 ITD 273 , WHEREIN I T WAS HELD THAT THE SALES TAX INCENTIVE WAS CAPITAL IN NATURE. THE LD CIT(A) NOTICED THAT HIS PREDECESSOR HAS FOLLOWED THE ABOVE SAID DECISION OF SPECIAL BENCH AND HELD THAT THE SALES TAX INCENTIVE IS CAPITAL RECEIPT. SINCE THE FACTS ARE IDENTICAL IN NAT URE, THE LD CIT(A) HELD THAT THE SALES TAX INCENTIVE IS CAPITAL IN NATURE AND ACCORDINGLY REVERSED THE DECISION OF THE AO. 5. BEFORE LD CIT(A), THE ASSESSEE HAD RAISED AN ALTERNATIVE CONTENTION ON THIS ISSUE. THE ASSESSEES PLEA WAS THAT, IF THE SALES TAX INCENTIVE IS CONSIDERED AS M/S. RELIANCE INDUSTRIES LIMITED 3 REVENUE RECEIPT, THEN THE SAME SHOULD BE ALLOWED AS DEDUCTION U/S 43B OF THE ACT, AS THE SALES TAX AMOUNT IS DEEMED TO HAVE BEEN PAID AS PER THE SALES TAX INCENTIVE SCHEME. THE LD CIT(A) NOTICED THAT THE ASSESSEE HAD RAISED IDENTICAL ALTERNATIVE CLAIM IN THE EARLIER YEARS AND THE SAME WAS REJECTED BY LD CIT(A) ON THE FOLLOWING REASONS: - (A) SINCE THE MAIN CONTENTION OF THE ASSESSEE THAT THE SALES TAX INCENTIVE IS CAPITAL RECEIPT WAS ACCEPTED, THERE IS NO NECESSITY TO GO INTO THE ALTERNATIVE PLEA. (B) THE ISSUE OF NOTIONAL PAYMENT SHALL APPLY ONLY TO SALES TAX DEFERRAL SCHEME AND NOT TO SALES TAX EXEMPTION SCHEME AS PER CBDT CIRCULAR NO.496 DATED 25.9.1987. 6. AGGRIEVED BY THE DECISION RENDERED BY LD CIT(A) IN HOLDING T HAT THE SALES TAX EXEMPTION AMOUNT IS CAPITAL RECEIPT S , THE REVENUE HAS FILED APPEAL. THE ASSESSEE IS AGGRIEVED IN REJECTING THE ALTERNATIVE CLAIM OF THE ASSESSEE. 7. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. THE ASSESSEE HAS BEEN GI VEN SALES TAX EXEMPTION BY GOVERNMENT OF GUJARAT AND UTTAR PRADESH AND THE SPECIAL BENCH OF TRIBUNAL IN THE ASSEESSEES OWN CASE (REFERRED SUPRA) HAS HELD THE NOTIONAL SALES TAX RECEIPT I S CAPITAL IN NATURE. WE NOTICE THAT THE CO - ORDINATE BENCHES OF TRIBU NAL HAS FOLLOWED THE DECISION RENDERED BY THE SPECIAL BENCH IN AY 2003 - 04 TO 2009 - 10 AND UPHELD THE DECISION RENDERED BY LD CIT(A) IN HOLDING THAT THE SALES TAX INCENTIVE IS CAPITAL IN NATURE. BEFORE US, THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING CASE LAWS ALSO TO SUPPORT THE DECISION RENDERED BY THE CO - ORDINATE BENCH IN THE EARLIER YEARS ON THIS ISSUE: - (A) SHREE BALAJI ALLOYS LTD VS. CIT (138 DTR 36)(SC) (B) CIT VS. RASOI LTD (335 ITR 438)(CAL) (C) CIT VS. BOUGAINVILLEA MULTIPLED ENTERTAINME NT CENTRE P LTD (373 ITR 014)(DELHI) (D) CIT VS. KIRLOSKAR OIL ENGINES LTD (364 ITR 88)(MUM) (E) ASSOCIATED CEMENT COS. LTD VS. CIT (ITA NO.7594 & 7644/M/04) M/S. RELIANCE INDUSTRIES LIMITED 4 8. WE NOTICE THAT THE LD CIT(A) HAS FOLLOWED BY THE DECISION RENDERED BY SPECIAL BE NCH IN HOLDING THAT THE SALES TAX INCENTIVE IS CAPITAL IN NATURE. WE ALSO NOTICE THAT THE CO - ORDIN ATE BENCHES OF THE TRIBUNAL HAVE, IN THE EARLIER YEARS, UPHELD THE VIEW TAKEN BY THE LD CIT(A) IN AY 2006 - 07 TO 2009 - 10. THE ASSESSEE HAS ALSO TAKEN SUPPORT OF DECISIONS CITED ABOVE IN THIS REGARD . HENCE, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN HOLDING THAT THE SALES TAX INCENTIVE IS IN THE NATURE OF CAPITAL RECEIPT AND HENCE NOT LIABLE TO TAX. 9. THE ALTERNATIVE GROUND URGED BY THE ASS ESSEE IS TO ALLOW THE DEDUCTION U/S 43B OF THE ACT, IF THE SALES TAX INCENTIVE IS TREATED AS REVENUE RECEIPT. WE NOTICE D THAT THE CO - ORDINATE BENCH IN THE ASSESSEES OWN CASE RELATING TO AY 2003 - 04 TO 2006 - 07 (ITA NOS.4475/MUM/2007 AND OTHERS DATED 13 - 09 - 2 013) HAS HELD, IN PARAGRAPH 60.3 OF ITS ORDER, THAT THE LD CIT(A) WAS JUSTIFIED IN DECLINING TO ADJUDICATE THE ALTERNATIVE PLEA OF THE ASSESSEE CLAIMING NOTIONAL SALES TAX (SALES TAX INCENTIVE) IS ALLOWABLE AS DEDUCTION U/S 43B OF THE ACT. SINCE THE SALES TAX INCENTIVE IS HELD TO BE CAPITAL RECEIPT, THERE IS NO NECESSITY TO ADJUDICATE THE ALTERNATIVE GROUND OF THE ASSESSEE AND ACCORDINGLY WE ALSO REJECT THE SAME . 10. THE SECOND ISSUE URGED BY THE ASSESSEE RELATES TO THE DISALLOWANCE OF DEPRECIATION OF RS.8,71,508/ - ON THE CAPITALISED VALUE OF GOODS PURCHASED FROM DURGA IRON & STEEL LTD AND SURJBAHAN RAJKUMAR P LTD IN AY 2003 - 04. THE ASSESSEE HAD PURCHASED CERTAIN MATERIALS FROM THE ABOVE SAID PARTIES IN THE YEAR RELEVANT TO AY 2003 - 04 AND HAD CAPITALI SED IT. THE ASSESSEE CLAIMED DEPRECIATION ON THE AMOUNT SO CAPITALISED. LATER IT WAS NOTICED THAT THE PURCHASES MADE FROM THE ABOVE SAID PARTIES WERE ALLEGED TO BE BOGUS IN NATURE. HENCE THE AO DISALLOWED THE DEPRECIATION CLAIMED ON THE VALUE OF PURCHAS ES MADE FROM THE ABOVE SAID PA RTIES IN AY 2003 - 04 AND THE SAME KIND OF DISALLOWANCE WAS CONTINUED IN THE SUBSEQUENT YEARS ALSO. THE LD CIT(A) CONFIRMED THE DISALLOWANCE OF DEPRECIATION SO MADE IN ALL THE YEARS. HENCE, IN M/S. RELIANCE INDUSTRIES LIMITED 5 THIS YEAR ALSO, THE AO DISALLOWED DEPRECIATION RELATABLE TO THE PURCHASES MADE FROM THE ABOVE SAID CONCERNS. THE LD CIT(A) ALSO CONFIRMED THE SAME. 11. AT THE TIME OF HEARING, THE LD A.R FAIRLY CONCEDED THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE CO - ORDINATE BENCHES OF THE TRIBUNAL IN THE EARLIER YEARS, MEANING THEREBY, THE DISALLOWANCE MADE BY THE AO HAS BEEN CONFIRMED BY THE TRIBUNAL IN THE EARLIER YEARS. WE NOTICE THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL HAS DECIDED THIS ISSUE IN AY 2007 - 08 TO 2009 - 10 IN PARAGRA PH 67 OF ITS ORDER AND CONFIRMED THE DECISION RENDERED BY LD CIT(A) ON AN IDENTICAL ISSUE. CONSISTENT WITH THE VIEW TAKEN BY THE CO - ORDINATE BENCHES, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE, I.E., WE CONFIRM THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. 12. THE NEXT ISSUE CONTESTED BY THE ASSESSEE REL A TES TO THE TRANSFER PRICING ADJUSTMENT ON THE INTEREST FREE ADVANCES PAID BY THE ASSESSEE TO ITS FOREIGN ASSOCIATED ENTERPRISES (AE). THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES TO TWO OF ITS SUBSID IARY COMPANIES, NAMED RNBV, RELIANCE INDIA MIDDLE EAST DMCC (RIME) IN THE EARLIER YEARS AND THE SAME W ERE OUTSTANDING AS ON 1.4.2009. THE ASSESSEE REPAID THE SAME ON 23.10.2009. THE TPO COMPUTED INTEREST ON THIS ADVANCE BY ADOPTING INTEREST RATE OF 6.94% FOR THE OUTSTANDING PERIOD OF THE LOAN AND MADE TP ADJUSTMENT OF RS.320.82 LAKHS. THE LD CIT(A), FOLLOWING HIS EARLIER ORDER, DIRECTED THE AO/TPO TO COMPUTE INTEREST BY ADOPTING LIBOR RATE PLUS 3.25% FOR THE OUTSTANDING PERIOD. 13. THE LD A.R SUBMITT ED THAT THE PURPOSE OF THE INVESTMENT WAS TO FUND RIME TO ACQUIRE MAJORITY STAKE IN GAPO GROUP WHICH IS ENGAGED IN MARKETING OF PETROLEUM PRODUCTS IN AFRICAN COUNTRIES. ACCORDINGLY HE SUBMITTED THAT THE ASSESSEE HAD INDIRECTLY USED THE ADVANCE FOR FULFILL ING ITS OWN OBJECTIVE OF GAINING MAJORITY CONTROL IN OVERSEAS ACQUISITIONS. HE SUBMITTED THAT THE INTENTION WAS NOT TO PROVIDE LOAN TO EARN INTEREST. HE SUBMITTED THAT THE ADVANCE PROVIDED IS IN THE NATURE OF SHAREHOLDER ACTIVITIES, WHICH DO NOT REQUIRE ANY COMPENSATION AS IT WILL INDIRECTLY BENEFIT THE SHAREHOLDERS. M/S. RELIANCE INDUSTRIES LIMITED 6 FU RTHER THE LOAN HAS BEEN ADVANCED OUT OF BUSINESS EXPEDIENCY AND OUT OF SHAREHOLDER FUNDS AND HENCE THE TAX AUTHORITIES ARE NOT JUSTIFIED IN COMPUTING T.P ADJUSTMENT IN THE NATURE OF INTERE ST. THE LD A.R RELIED UPON THE DECISION RENDERED BY THE DELHI BENCH OF TRIBUNAL IN THE CASE OF DLF HOTEL HOLDINGS LTD VS. DCIT (ITA NO.6336/DEL/2012 DATED 30 - 06 - 2016). 14. THE LD A.R FURTHER SUBMITTED THAT THE CAPITAL FINANCING HAS BEEN INCLUDED I N THE DEFINITION OF INTERNATIONAL TRANSACTIONS W.E.F. FROM 1.4.2012 AND HENCE THE SAME SHALL APPLY FROM THE ASSESSMENT YEAR 2013 - 14 ONLY . IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION RENDERED BY MUMBAI BENCH OF ITAT IN THE CASE OF SIRO CLINPHARM P LTD VS. DCIT (ITA NO.2618/MUM/2014 DATED 31.03.2016). ACCORDINGLY HE SUBMITTED THAT THE TAX AUTHORITIES ARE NOT JUSTIFIED IN MAKING T.P ADJUSTMENT IN RESPECT OF CAPITAL FINANCING TRANSACTIONS. 15. THE LD A.R, IN THE ALTERNATIVE, SUBMITTED THAT THE CO - ORDINATE BENCH OF TRIBUNAL HAS SUSTAINED THE ADDITION TO THE EXTENT OF LIBOR RATE PLUS 150 BP S ON AN IDENTICAL ISSUE IN THE EARLIER YEARS . 1 6 . WE HEARD LD D.R ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE CO - ORDINATE BENCH IN THE EARLI ER YEARS HAVE TAKEN A CONSISTENT VIEW AND SUSTAINED ADDITION TO THE EXTENT OF LIBOR RATE PLUS 150 BPS. HENCE WE MODIFY THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO/TPO TO COMPUTE INTEREST BY APPLYING RATE OF LIBOR RATE PLUS 150 BPS FOR TH E OUTSTANDING PERIOD OF LOAN. 17. THE ASSESSEE HAS ALSO RAISED FOLLOWING LEGAL GROUNDS BY WAY OF ADDITIONAL GROUNDS OF APPEAL IN RESPECT OF T.P ADJUSTMENTS: - A. THE ORDER OF THE LEARNED TPO IS INVALID, ILLEGAL, BAD IN LAW, IN EXCESS OF AND/OR IN WA NT OF JURISDICTION. B. THE LEARNED AO ERRED IN MAKING REFERENCE OF THE APPELLANTS CASE TO THE LEARNED TPO, WITHOUT APPLYING HIS MIND AND WITHOUT RECORDING SATISFACTION AND WITHOUT GIVING OPPORTUNITY OF BEING HEARD TO THE APPELLANT. M/S. RELIANCE INDUSTRIES LIMITED 7 C. THE LEARNE D CIT (A) - 57, MUMBAI HAS ERRED IN APPLYING PROVISIONS OF CHAPTER X OF THE INCOME TAX ACT, 1961 TO THE TRANSACTION OF INTEREST FREE LOAN GIVEN TO ASSOCIATED ENTERPRISE WITHOUT APPRECIATING THAT THERE IS NO INCOME ARISING FROM SUCH TRANSACTIONS. THE ASSESS EE , IN ITS WRITTEN SUBMISSIONS, DID NOT PRESS ABOVE SAID ADDITIONAL GROUNDS. ACCORDINGLY, THESE GROUNDS ARE DISMISSED AS NOT PRESSED. 1 8. THE NEXT ISSUE CONTESTED BY THE ASSESSEE IN THE ADDITIONAL GROUND RELATES TO THE ADDITION MADE TO THE BOOK PRO FIT U/S 115JB OF THE ACT IN RESPECT OF EXPENSES RELATED TO EXEMPT INCOME. THE AO HAD COMPUTED THE DISALLOWANCE U/S 14A R.W. RULE 8D OF THE I.T RULES FOR COMPUTING TOTAL INCOME UNDER NORMAL PROVISIONS OF THE ACT. THE AO ADOPTED THE SAME FIGURE FOR MAKING ADDITION TO THE NET PROFIT FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. T HE DISALLOWANCE COMPUTED BY AO AS PER RULE 8D CONSIST ED OF INTEREST DISALLOWANCE U/R 8D(2)(II) AND ADMINISTRATIVE EXPENSES U/R 8D(2)(III) OF THE I.T RULES. THE LD CIT(A) DELETED THE DISALLOWANCE OF INTEREST EXPENDITURE MADE U/S 8D(2)(II) OF THE I T RULES, SINCE THE OWN FUNDS AVAILABLE WITH THE ASSESSEE WAS MORE THAN THE VALUE OF INVESTMENTS. IN THIS REGARD, THE LD CIT(A) FOLLOWED THE DECISION RENDERED BY HONBLE BO MBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD (313 ITR 340). HOWEVER THE LD CIT(A) CONFIRMED THE DISALLOWANCE MADE OUT OF ADMINISTRATIVE EXPENSES AS PER RULE 8D(2)(III) COMPUTED @ 0.5% OF THE VALUE OF AVERAGE INVESTMENTS. THE LD CIT(A) DIRECTED THE AO TO ADOPT THE SAME FOR THE PURPOSES OF SEC. 115JB OF THE ACT ALSO FOR COMPUTING BOOK PROFIT. THE ASSESSEE IS AGGRIEVED BY THE DIRECTION SO GIVEN LD CIT(A) FOR THE PURPOSES OF SEC.115JB OF THE ACT. 19. THE LD A.R SUBMITTED THAT THE SPECIAL BENCH OF TRIBUNAL HAS HELD IN THE CASE OF ACIT VS. VIREET INVESTMENT P LTD (165 ITD 27) THAT THE PROVISIONS OF SEC. 14A R.W.R 8D IS NOT APPLICABLE WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. HE SUBMITTED THAT THE CO - ORDINATE BENCH HAS AL SO TAKEN IDENTICAL VIEW IN THE ASSESSEES OWN CASE IN AY 2009 - 10 (VIDE CORRIGENDUM ORDER DATED 02 - 04 - 2018) AND IN AY 2007 - 08 ALSO. M/S. RELIANCE INDUSTRIES LIMITED 8 20. WE HEARD LD D.R ON THIS ISSUE. IN VIEW OF THE DECISION RENDERED BY THE SPECIAL BENCH IN THE CASE OF VIREET INVESTME NTS P LTD (SUPRA), THE TAX AUTHORITIES ARE NOT CORRECT IN LAW IN APPLYING THE PROVISIONS OF SEC.14A R.W.R 8D FOR COMPUTING DISALLOWANCE FOR MEETING THE REQUIREMENT OF CLAUSE (F) OF EXPLANATION 1 TO SEC.115JB(2). THE SPECIAL BENCH HAS HELD THAT THE ADDITIO N , FOR THE PURPOSE OF CLAUSE (F) OF SEC.115JB(2), SHOULD BE COMPUTED WITHOUT HAVING RESORT TO SEC.14A R.W.R. 8D OF THE I.T RULES. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) WITH REGARD TO THE ADDITION MADE FOR THE PURPOSE OF SEC. 115JB OF THE ACT AND DIRECT THE AO TO COMPUTE THE DISALLOWANCE FOR THE PURPOSE OF CLAUSE (F) OF EXPLANATION 1 TO SEC. 115JB(2) WITHOUT HAVING RESORT TO SEC.14A R.W.R 8D OF THE I T RULES. 21. THE NEXT ADDITIONAL GROUND URGED BY THE ASSESSEE RELAT ES CLAIM FOR EXCLUSI ON OF NOTIONAL SALES TAX INCENTIVE OF R.776.76 LAKHS FOR THE PURPOSES OF COMPUTING BOOK PROFIT . THE RELEVANT ADDITIONAL GROUNDS READ AS UNDER: - (A) THE LEARNED CIT(A) - 57, MUMBAI ERRED IN NOT EXCLUDING NOTIONAL SALES TAX INCENTIVE OF RS.776.76 LAKHS HELD AS CAPITAL RECEIPT NOT LIABLE TO TAX (WHILE COMPUTING INCOME UNDER THE NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961 FROM THE BOOK PROFIT COMPUTED U/S 115JB OF THE ACT. (B) THE APPELLANT SUBMITS THAT NOTIONAL SALES TAX INCENTIVE IS NOT AN INCOME LIABLE TO TAX UNDER THE ACT, AND HENCE THE SAME SHALL BE DIRECTED TO BE EXCLUDED WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. 22. THE CLAIM OF THE ASSESSEE IS THAT THE SALES TAX INCENTIVE HAS BEEN HELD TO BE CAPITAL RECEIPT FOR THE PURPOSE OF COMP UTING TOTAL INCOME UNDER NORMAL PROVISIONS OF THE ACT. SINCE THE CAPITAL RECEIPTS ARE NOT LIABLE FOR TAX UNDER NORMAL PROVISIONS OF THE ACT , IT IS CONTENDED THAT THE SAME SHOULD ALSO BE EXCLUDED FROM NET PROFIT FOR THE PURPOSES OF COMPUTING BOOK PROFIT U/ S 115JB OF THE ACT. 23. WE HEARD THE PARTIES ON THIS ISSUE. THE LD A.R PLACED HIS RELIANCE ON VARIOUS CASE LAWS AND SUBMITTED THAT TRIBUNAL/HIGH COURT HAS HELD THAT THE CAPITAL RECEIPTS, WHICH ARE NOT LIABLE FOR TAXATION UNDER THE INCOME TAX, ARE TO M/S. RELIANCE INDUSTRIES LIMITED 9 BE EXCLUDED FROM NET PROFIT FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. THE LD A.R SUBMITTED THAT THE SALES TAX INCENTIVE IS EMBEDDED IN THE SALES REVENUE AND THE SAME HAS BEEN HELD TO BE CAPITAL RECEIPT UNDER NORMAL PROVISIONS OF THE A CT. ACCORDINGLY HE SUBMITTED THAT THE SAME IS REQUIRED TO BE REDUCED FROM NET PROFIT FOR THE PURPOSES OF SEC.115JB OF THE ACT. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE PROVISIONS OF SEC.115JB DO NOT CONTAIN ANY PROVISION FOR EXCLUSION CAPITAL RECEI PTS. HE SUBMITTED THAT THE AO HAS ONLY POWER TO EXAMINE WHETHER BOOKS OF ACCOUNTS ARE CERTIFIED BY AUTHORITIES UNDER COMPANIES ACT, 1956 AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH COMPANIES ACT AND THEREAFTER THE AO HAS LIMITED POWER TO INCREAS E AND REDUCE ITEMS AS PROVIDED IN EXPLANATION TO SEC. 115JB OF THE ACT. IN SUPPORT OF THIS PROPOSITION, THE LD D.R PLACED HIS RELIANCE ON THE DECISION RENDERED BY THE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF RAIN COMMODITIES LTD (2010)(40 SOT 265). WE NO TICE THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE CO - ORDINATE BENCH IN THE CASE OF M/S ALOK INDUSTRIES LTD (ITA NO.1017/MUM/2017 DATED 21 - 05 - 2018) AND HAS BEEN HELD THAT THE CAPITAL RECEIPTS CANNOT BE INCLUDED IN THE BOOK PROFIT U/S 115JB OF THE ACT. WE NOTICE THAT AN IDENTICAL VIEW HAS BEEN EXPRESSED IN SEVERAL OTHER CASES ALSO BY THE CO - ORDINATE BENCHES. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY THE CO - ORDINATE BENCH IN THE CASE OF ALOK INDUSTRIES LTD (SUPRA): - 25. CONTENTION OF LEARNED AR WAS AS UNDER: - I. SECTION 115JB SHOULD BE CONSIDERED SUBJECT TO CHARGING PROVISION UNDER SECTION 4 READ WITH DEFINITION OF AN INCOME: UNDER SECTION 2(24). II. THE DEFINITION OF INCOME UNDER SECTION 2(24) HAS BEEN AMENDED B Y THE FINANCE ACT 2015 TO INCLUDE SUBSIDY WITHIN ITS SCOPE, BUT ONLY WITH PROSPECTIVE EFFECT FROM A.Y. 2016 - 17. III. THEREFORE, SUCH SUBSIDY WHICH IS CAPITAL IN NATURE CANNOT BE BROUGHT WITHIN THE PURVIEW OF SECTION 115JB AS THE CHARGING PROVISION FAILS. M/S. RELIANCE INDUSTRIES LIMITED 10 IV. ALSO, THE INTENTION OF THE LEGISLATURE IN BRINGING SECTION 115JB ON STATUTE SHOULD ALSO BE CONSIDERED [REFER MEMORANDUM EXPLAINING FINANCE BILL 1987 165 ITR (ST) 152 AT 167. IT IS ONLY WHEN THE COMPANY IS CLAIMING DEDUCTIONS UNDER THE PROFITS AND GA INS FROM BUSINESS OR PROFESSION AND/ OR DEDUCTIONS UNDER CHAPTER VIA, THE ALTERNATIVE SCHEME OF TAXATION ATTEMPTS TO BRING THE BOOK PROFIT TO TAX. THE IMPUGNED TRANSACTION DOES NOT RESULT INTO ANY SUCH DEDUCTIONS BUT RESULTS INTO A RECEIPT NOT HAVING CHARA CTER OF - INCOME. V. THIRDLY, CLAUSE II TO EXPLANATION 1 TO SECTION 115JB WHICH EXCLUDES EXEMPT INCOME REFERRED TO IN SECTION 10 SHOULD ALSO BE LOGICALLY EXTENDED TO EXCLUDE THE RECEIPT WHICH DOES NOT HAVE THE CHARACTER OF INCOME AT ALL. 26. FURTHER, FR OM THE JUDGMENTS AS DISCUSSED ABOVE, IT BECOMES CRYSTAL CLEAR THAT THE SUBSIDY RECEIVED BY THE COMPANY UNDER THE TUF SCHEME OF THE MINISTRY OF TEXTILE, GOVERNMENT OF INDIA IS FOR HELPING THE GROWTH OF TEXTILE INDUSTRIES AND THEREFORE CAPITAL IN NATURE AND OUTSIDE THE AMBIT OF SECTION 4 OF INCOME TAX ACT. ACCORDINGLY, THE SAID RECEIPT CANNOT BE TAXED AS INCOME OF THE COMPANY. ARTICLE 265 OF THE CONSTITUTION OF INDIA LAYS DOWN THAT NO TAXES SHALL BE LEVIED OR COLLECTED EXCEPT WITH THE AUTHORITY OF LAW. FURTHE R, ENTRY 82 OF THE SEVENTH SCHEDULE TO THE CONSTITUTION OF INDIA LAYS DOWN THAT THE CENTRAL GOVERNMENT HAS THE RIGHT TO LEVY TAX ON INCOME. FURTHER, SECTION 4 OF THE INCOME TAX ACT 1961 WHICH PROVIDES FOR THE CHARGE, SPECIFIES THAT EVERY ASSESSEE SHALL BE CHARGED FOR ANY ASSESSMENT YEAR INCOME TAX IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR. 27. THE MAIN CHARGING SECTION PROVIDES FOR LEVY OF INCOME TAX ONLY IN RESPECT OF INCOME OF THE ASSESSEE. ONCE AN ITEM IS NOT CONSIDERED AS INCOME OF THE PERSON AS THE SAME CONSTITUTES CAPITAL RECEIPT, IT SHALL NOT BE SUBJECTED TO TAX UNDER THIS ACT, THEREFORE, ONCE THE SUBSIDY RECEIVED UNDER THE TUF SCHEME IS HELD TO BE CAPITAL IN NATURE, IT COMES OUTSIDE THE MEANING OF THE TERM 'INCOME' AND THEREFORE OUTSIDE TH E AMBIT OF SECTION 4 I.E . , THE CHARGING SECTION. UNLESS, SPECIFICALLY MADE TAXABLE SUCH SUBSIDY CANNOT BE TAXED AS INCOME. ONCE THE SUBSIDY RECEIVED CANNOT BE TAXED UNDER SECTION 4, THERE CANNOT ARISE ANY TAXABILITY UNDER SECTION 115JB OF THE ACT, WHICH ME RELY PROVIDES FOR AN ALTERNATE MECHANISM FOR COMPUTATION OF INCOME AND TAX THEREON. THUS, AN ITEM WHICH IS NOT OTHERWISE TAXABLE CANNOT BE SUBJECTED TO TAX UNDER THE MAT PROVISION WITHOUT ANY EXPRESS AUTHORITY IN THIS BEHALF. ALSO, IF WE LOOK AT EXPLANATIO N 1 TO SECTION 115JB(2), WE FIND THAT THE LEGISLATURE HAS DEFINED BOOK PROFIT. FOR CALCULATION OF SUCH BOOK PROFIT, ONE HAS TO REDUCE CERTAIN ITEMS, WHICH INTER ALIA INCLUDE, ITEM II WHICH STATES THAT 'THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISION S OF SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF) OR SECTION 11 OR SECTION 12 M/S. RELIANCE INDUSTRIES LIMITED 11 APPLY, IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT'. THUS, WHAT CAN BE DISCERNED FROM ABOVE ITEM IS THAT, FOR CALCULATION OF BOOK PRO FIT ONE HAS TO REDUCE THOSE ITEMS OF INCOME WHICH DO NOT FROM PART OF TOTAL INCOME UNDER NORMAL PROVISIONS. IF THAT BE THE CASE, THEN IT LOGICALLY FOLLOWS THAT THOSE ITEMS WHICH DO NOT CONSTITUTE INCOME AT ALL CANNOT FORM PART OF BOOK PROFIT AND NO MAT CAN BE LEVIED THEREON AT ALL. EVEN SUB - SECTION (5) OF SECTION 115JB STATES THAT 'SAVE AS OTHERWISE PROVIDED IN THIS SECTION, ALL PROVISIONS OF THIS ACT SHALL APPLY TO EVERY ASSESSEE, BEING A COMPANY, MENTIONED IN THIS SECTION. THUS, PROVISIONS OF SECTION 4 AN D SECTION 2(24) SHALL NECESSARILY APPLY FOR COMPUTATION OF BOOK PROFIT AND MAT U/S 115JB AND AS SUCH PROVISIONS OF SECTION 115JB CANNOT OVERRIDE THE PROVISION OF SECTION 4, WHICH IS THE BASIC CHARGING SECTION. ACCORDINGLY, LOOKED AT FROM WHICHEVER ANGLE, T HE SUBSIDY HAS TO BE REDUCED FROM THE BOOK PROFIT FOR COMPUTATION OF MAT UNDER SECTION 115JB. 28. WE FOUND THAT ISSUE IS COVERED BY THE FOLLOWING DECISION OF THE TRIBUNAL/HIGH COURT, WHEREIN IT WAS HELD THAT UNDER THE MAT PROVISIONS U/S.115JB IS NOT APPL ICABLE TO CAPITAL RECEIPTS/EXEMPT INCOME. SR.N O DECISION ITAT/HIGH COURT CITATION/ITA NO. NATURE OF INCOME HELD TO BE NOT INCLUDIBLE IN BOOK PROFIT RELEVANT PARA OF THE DECISION 1 KRISHI RASAYAN EXPORTS PVT. LTD. KOLKATA ITAT ITANO.883/KOL/ 2014 INTEREST SUBSIDY BEING A CAPITAL RECEIPT 19 TO 21 2 SHREE CEMENT LTD. JAIPUR ITAT 614,615 & 635/JP/2010 SALES TAX SUBSIDY FOR SUBSTANTIAL EXPANSION 13.1, 13.4 & 13.8 3 SHREE CEMENT LTD. JAIPUR ITAT 152 ITD 561 SALES TAX SUBSIDY AND RECEIPT FROM CARBON CREDIT 4 SICPA INDIA(P) LTD. KOLKATA ITAT 80 TAXMANN.COM 87 EXCISE DUTY SUBSIDY (EXEMPTION) 24 TO 26 5 JSW STEEL LTD. MUMBAI ITAT 923/BANG/2009 WAIVER OF LOAN TAKEN FROM ACQUISITION OF A CAPITAL ASSET 21, 23 6 L.H. SUGAR FACTORY LUCKNOW ITAT 46 CCH 354 SALES OF CARBON CREDIT BEING A CAPITAL RECEIPT 50 7 BINANI INDUSTRIES LTD. KOLKATA ITAT 178 TTJ 658 FORFEITURE OF SHARE WARRANTS 4.3.1, .3.2, 4.4, 4.5 & 4.6 8 NILGIRI TEA ESTATE LTD. COCHIN ITAT 65 SOT 14 PROFIT ON SALE OF AGRICULTURAL LAND WHICH IS NOT A CA PITAL ASSET 7&8 9 SHIVALIK VENTURE PVT. LTD. MUMBAI ITAT 173 TTJ 238 PROFIT ARISING ON TRANSFER OF DEVELOPMENT RIGHTS 26 TO 28 10 METAL & CHROMIUM PLATER (P) LTD. MADRAS ITAT 76 TAXMANN.COM 229 LONG - TERM CAPITAL GAIN EXEMPT U/S. 54EC 6 & 7 11 SUTLEJ CO TTON MILLS LTD. KOLKATA SPECIAL BENCH 45 ITD 22 CAPITAL GAIN RESULTING FROM SALE OF CAPITAL ASSET WHICH WAS EXEMPT 19.2 19.5 12 FRIGSALES (INDIA) LTD. MUMBAI ITAT 4 SOT 276 PROFIT ON SALE OF 3.2 M/S. RELIANCE INDUSTRIES LIMITED 12 DEPRECIABLE ASSET WHICH WAS NOT TAXABLE DUE TO PURCHASE OF ANOT HER DEPRECIABLE ASSET AS PROVIDED IN SECTION 50 13 MCNALLY BHARAT ENGINEERING CO. LTD. KOLKATA ITAT 100/KOL/2011 RETENTION MONEY 41 TO 43 14 DELHI GYMKHANA CLUB LTD. DELHI ITAT 3585/DEL/2006 INCOME EXEMPT AS PER DOCTRINE OF MUTUALITY 13 15 GOLDGERG FINANCE PVT. LTD. MUMBAI ITAT 7496/MUM/2013 SHARE FROM AOP WHICH WAS NOT TAXABLE UNDER NORMAL PROVISIONS AS PER SECTION 86 11 29. MORE IMPORTANTLY, THE DECISION OF THE JAIPUR TRIBUNAL IN THE CASE OF SHREE LEMENT LTD. (ITA NO. 614/JP/2010) HAS EXHAUSTIV ELY DISCUSSED THE ISSUE UNDER CONSIDERATION AND ALSO REFERRED TO THE ORDER OF RAJASTHAN HIGH COURT WHEREIN THE GROUND TAKEN UP BY THE REVENUE ON THIS ISSUE WAS NOT ADMITTED AS NOT HAVING A SUBSTANTIAL QUESTION OF LAW. THUS, IT CAN BE CONCLUDED THAT THIS IS SUE IS NOW BEING SETTLED BY A JUDGMENT OF THE RAJASTHAN HIGH COURT. IT ALSO DISTINGUISHED THE DECISION OF AP OLLO TYRES LTD. VS. CIT 255 AND RAIN COMMODITIES LTD. VS. DCIT 41 DTR 449. ALSO VERY RECENTLY, MADRAS HC IN THE CASE OF METAL & CHROMIUM PLATER (P) LTD. (TCA NO. 359 OF 2008) HAS ALSO DECIDED THE SAID ISSUE IN THE FAVOUR OF THE ASSESSEE. THE CASE OF KRISHI RASAYAN EXPORTS PVT. LTD. VS. ACIT (ITA NO. 883/KOL/2014 IS ON THE SIMILAR INTEREST SUBSIDY WHICH WAS REQUIRED TO BE EXCLUDED FROM BOOK PROFIT. WE ACCORDINGLY DIRECT AO TO EXCLUDE THE TUF SUBSIDY WHILE COMPUTING BOOK PROFIT U/S.115JB. 24. CONSISTENT WITH THE VIEW TAKEN BY THE CO - ORDINATE BENCHES ON AN IDENTICAL ISSUE, WE DIRECT THE AO TO EXCLUDE THE AMOUNT OF SALES TAX INCENTIVE FROM THE NET PROF IT FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB OF THE ACT, AS THE SAME IS CAPITAL IN NATURE. 25. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE FOR AY 2010 - 11. THE FIRST GROUND RELATES TO THE TAXABILITY OF SALES TAX INCENTIVE. WE HAVE DEAL T WITH THIS ISSUE IN THE EARLIER PARAGRAPHS WHILE DEALING WITH THE ALTERNATIVE GROUNDS OF THE ASSESSEE. WE HAVE UPHELD THE VIEW TAKEN BY LD CIT(A) THAT THE SALES TAX INCENTIVE CONSTITUTES CAPITAL RECEIPT NOT LIABLE TO TAX, AS THE LD CIT(A) HAS FOLLOWED TH E DECISION RENDERED BY SPECIAL BENCH IN THE ASSESSEES OWN CASE. HENCE THIS GROUND OF THE REVENUE IS DISMISSED. M/S. RELIANCE INDUSTRIES LIMITED 13 26. THE NEXT ISSUE CONTESTED BY THE REVENUE IN GROUND NO.2 RELATES TO THE RELIEF GRANTED BY LD CIT(A) IN RESPECT OF DEPRECIATION DISALLOWED BY THE AO. THE FACTS RELATING TO THIS ISSUE ARE THAT THE ASSESSEE, IN THE EARLIER YEARS PRIOR TO AY 2002 - 03, DID NOT CLAIM DEPRECIATION ON CERTAIN ASSETS ON THE PLEA THAT THE DEPRECIATION CLAIM IS OPTIONAL IN NATURE. IN THIS REGARD, THE ASSESSEE TOOK SU PPORT OF THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF MAHINDRA MILLS LTD (243 ITR 56) , WHEREIN IT WAS HELD THAT THE CLAIM OF DEPRECIATION IS OPTIONAL IN NATURE . THE DEPRECIATION CLAIM WAS MADE MANDATORY W.E.F. 1.4.2002 AS PER EXPLANATION 5 INSERTED IN SEC. 32(1) OF THE ACT. HENCE T HE ASSESSEE STARTED CLAIMING DEPRECIATION ON THE ORIGINAL COST OF ASSETS W.E.F. AY 2002 - 03. HOWEVER, THE AO TOOK THE VIEW THAT THE DEPRECIATION IS ALLOWABLE ONLY ON THE WRITTEN DOWN VALUE (WDV) AS ON 1.4.2002. ACCORDINGLY HE COMPUTED WDV OF THE ASSET AS ON 1.4.2002 BY REDUCING THE NOTIONAL AMOUNT OF DEPRECIATION RELATING TO EARLIER YEARS . ACCORDINGLY HE ALLOWED THE DIFFERENCE AMOUNT OF DEPRECIATION , I.E., DIFFERENCE BETWEEN THE DEPRECIATION COMPUTED ON COST OF ASSETS AND THE DEPRECIATION COMPUTED ON THE WDV OF ASSET S. THIS HAS RESULTED IN REDUCTION OF DEPRECIATION BY AN AMOUNT OF RS.125.83 LAKHS IN THE YEAR UNDER CONSIDERATION . THE LD CIT(A) DELETED THE DISALLOWANCE BY FOLLOWING THE DECISION RENDERED BY THE TRI BUNAL IN THE ASSESSEES OWN CASE, WHEREIN IT WAS HELD THAT THE AO WAS NOT ENTITLED TO THRUST UPON DEPRECIATI ON ON THE ASSESSEE. 27. WE HEARD THE PARTIES ON THIS ISSUE. WE NOTICE THAT THE CO - ORDINATE BENCHES HAVE UPHELD IDENTICAL VIEW TAKEN BY THE LD CIT(A) IN THE EARLIER YEARS. WE NOTICE THAT THE CO - ORDINATE BENCH HAS CONSIDERED AN IDENTICAL ISSUE IN AY 2007 - 08 TO 2009 - 10, WHEREIN IT HAS FOLLOWED THE DECISION RENDERED BY ANO THE R CO - ORDINATE BENCH IN THE ASSESSEES OWN CASE ON AY 2003 - 04 TO 2006 - 07 (I TA NO.4475/MUM/2007 & OTHERS DATED 13 - 09 - 2013) AND UPHELD THE VIEW TAKEN BY THE LD CIT(A) ON THIS ISSUE. 28. SINCE THE FACTS RELATING TO THIS ISSUE ARE IDENTICAL WITH THE FACTS OF EARLIER YEARS AND SINCE LD CIT(A) HAS FO LLOWED THE DECISION RENDERED BY T RIBUNAL IN M/S. RELIANCE INDUSTRIES LIMITED 14 THE ASSESSEES OWN CASE IN THE EARLIER YEARS, WE UPHOLD THE VIEW TAKEN BY LD CIT(A) ON THIS ISSUE. 29. THE NEXT ISSUE CONTESTED BY THE REVENUE IN GROUND NO.3 RELATES TO THE COMPUTATION OF PROFIT FROM POWER PLANTS FOR THE PURPOSE OF ALLOW ING DEDUCTION U/S 80IA OF THE ACT. THE ASSESSEE COMPUTED THE SALES PRICE OF POWER GENERATED FROM CAPTIVE POWER PLANTS BY ADOPTING THE PRICE CHARGED BY THE STATE POWER DISTRIBUTION AGENCY FOR SUPPLY OF ELECTRICITY TO THE INDUSTRIAL CONSUMERS. ACCORDINGLY I T COMPUTED THE PROFIT FROM CAPTIVE POWER PLANTS AND CLAIMED THE SAME AS DEDUCTION U/S 80IA OF THE ACT. THE AO, HOWEVER, COMPUTED THE PROFIT BY ADOPTING RATE OF RETURN OF 16% ON THE CAPITAL BASE , AS PER THE PARAMETERS PRESCRIBED BY THE REGULATORY AUTHORITIE S. THE LD CIT(A) NOTICED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY HIM IN AY 2006 - 07 (REOPENED ASSESSMENT) AND THE ADDITION MADE BY THE AO WAS DELETED BY HIM BY FOLLOWING THE DECISION RENDERED BY ITAT AND ALSO THE DECISION RENDERED BY HIM IN OTHER YEARS. ACCORDINGLY HE HELD THAT THE COMPUTATION OF PROFIT BY ADOPTING RATE OF RETURN OF 16% OF CAPITAL INVESTMENT MADE IN POWER PLANTS IN TERMS OF MERC ORDER IS NOT CORRECT AND ACCORDINGLY DIRECTED THE AO TO ALLOW DEDUCTION U/S 80IA AS CLAIMED BY THE ASSESSEE. 3 0. WE NOTICE THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE CO - ORDINATE BENCH IN THE ASSESSEES OWN CASE IN AY 2007 - 08 TO 2009 - 10 (REFERRED SUPRA). THE CO - ORDINATE BENCH HAS NOTED THAT AN IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN AY 2006 - 07 BY ANO THE R CO - ORDINATE BENCH. HOWEVER IN AY 2007 - 08 TO 2009 - 10, THE REVENUE HAD PLACED RELIANCE ON THE DECISION RENDERED BY THE CALCUTTA HIGH COURT IN THE CASE OF ITC LTD (2015)(64 TAXMAN.COM 214) AND SUBMITTED THAT THE STATE DISTRIBUTION AGENCIE S WOULD INCUR EXPENSES ON DISTRIBUTION OF ELECTRICITY, WHERE AS THERE IS NO DISTRIBUTION EXPENSES FOR THE ASSESSEE. ACCORDINGLY IT WAS CONTENDED THAT TO THE EXTENT OF DISTRIBUTION EXPENSES , WHICH HAS NOT BEEN ACTUALLY INCURRED BY THE ASSESSEE , PROFIT WOU LD INCREASE . ACCORDINGLY IT W AS CONTENDED THAT PORTION OF PROFIT CANNOT BE SAID TO BE DERIVED FROM INDUSTRIAL UNDERTAKING AND THEREFORE, TO THAT