M/s Vardhman Textiles Limited, Ludhiana V. DCIT, C-1, Ludhiana

ITA 187/CHANDI/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8671 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 20-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Earning of tax free income; Capital receipt; Revised return; Revenue expenditure; Capital expenditure; Rule 8D
• Section: 143(3); 92; 14A; 115JB; 80IB; 133(6); 80G; 80IA; 80IC; 192; 64; 80IC; 13

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ, च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, “B”, CHANDIGARH BEFORE SHRI N.K. SAINI, VICE PRESIDENT & SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER आयकर अपील सं./ ITA No. 187/CHD/2019 नधा रण वष / Assessment Year : 2014-15 Vardhman Textiles Limited, Vardhman Premises, Chandigarh Road, Ludhiana बनाम The DCIT, Circle-1, Ludhiana थायी लेखा सं./PAN NO: AABCM4692E अपीलाथ /Appellant यथ /Respondent आयकर अपील सं./ ITA No. 260/CHD/2019 नधा रण वष / Assessment Year : 2014-15 The DCIT, Circle-1, Ludhiana बनाम Vardhman Textiles Limited, Vardhman Premises, Chandigarh Road, Ludhiana थायी लेखा सं./PAN NO: AABCM4692E अपीलाथ /Appellant यथ /Respondent Hearing though video Conferencing नधा रती क ओर से/Assessee by : Sh. Subhash Aggarwal, Advocate and Sh. Pankaj Gupta, Advocate राज व क ओर से/ Revenue by : Sh. Sarabjeet Singh, CIT DR स ु नवाई क तार#ख/Date of Hearing : 23.05.2022 उदघोषणा क तार#ख/Date of Pronouncement : 10.08.2022 आदेश/Order Per Bench: The above captioned cross appeals pertain to Assessment Year (AY) 2014-15 and have been preferred by the respective ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 2 parties against order dated 17.12.2018 passed by the Ld. Commissioner of Income Tax-1, Ludhiana [in short ‘(CIT(A)’ ]. 2. The brief facts of the case are that the assessee is engaged in the business of manufacturing of yarns, fabrics etc. in its various units located at various places. The assessee company also runs and operates Captive Power Plants (CPP) at Budhni and Satlapur in the state of Madhya Pradesh. For the year under consideration, the return of income was filed declaring income of Rs. 5,39,70,59,480/- after claiming deductions u/s 80IA, 80IC and 80G of the Income Tax Act, 1961 (herein after called ‘the Act’). The assessee’s case was selected for scrutiny under CASS guidelines pursuant to which the taxable income was assessed at Rs. 6,60,70,38,000/- under the normal provisions of the Act and at Rs. 8,74,38,68,993/- u/s 115JB of the Act. In the assessment order, the Assessing Officer (AO), inter alia, made the following disallowances / additions. :- 1. Disallowance under section 14A of the Act - Rs. 17,24,69,387/- 2. Disallowance under section 36(1)(iii) of the Act – Rs. 36,98,38,105/- 3. Addition on account Line / Bay Charges- - Rs. 35,03,752/- 4. Adjustment on account of Transfer Pricing - Rs. 55,88,76,154/- 5. Income not considered eligible for deduction u/s 80IC –Rs. 7,34,95,756/- ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 3 2.1 Aggrieved, the assessee preferred an appeal before the Ld. First Appellate Authority who partly allowed the appeal of the assessee. 2.2 Now, both the assessee as well as the Department has approached the ITAT challenging the order of the Ld. CIT(A) by raising the following grounds of appeal:- ITA No. 187/Chd/2022 (Assessee’s appeal): 1. That the Order passed by the Ld. CIT(A) is contrary to law and facts of the case. 2. That the Ld. CIT(A) erred in law and on facts in upholding the applicability of section 14A of the Income Tax Act, 1961 read with Rule 8D and making disallowance thereunder ignoring the contentions / submissions of the assessee. 3. That the Ld. CIT(A) erred in law and on facts in applying amended provisions of Rule 8D which were effective from 02.06.2016. 4. That the Ld. CIT(A) has erred in law and on facts in upholding the action of AO for treating interest received amounting to Rs.14,37,27,879/- as 'Income from Other Sources' instead of 'Income from Business and Profession'. 5. That the Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in reducing Rental Receipts of Rs. 1,86,87,189/- ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 4 from the profits of the units eligible for deduction u/s 80IC of the Income Tax Act, 1961. 6. That the Ld. CIT(A) has erred in law and on facts in upholding the action of AO for treating line/bay charges amounting to Rs. 3,53,03,752/- as capital expenditure instead of revenue expenditure. 7. That the Ld. CIT(A) erred in law and on facts in upholding the action of TPO/AO in rejecting the Arm’s Length Price (ALP) determined by the assessee in relation to transfer of electricity by two Captive Power Plants (CPP) of assessee company. 8. That the Ld. CIT(A) erred in law and on facts in holding that CPP should transfer electricity at rate equivalent to the rate charged by other power generators in the State of Madhya Pradesh. 9. That the Ld. CIT(A) erred in law and on facts in upholding the action of TPO/AO in rejecting ALP determined by the assessee in relation to transfer of steam by Vardhman Fabrics CPP and holding that steam produced had NIL cost. 10. That the authorities below here erred in treating interest reimbursement of Rs.29,06,41,258/- related to TUFS under Madhya Pradesh Scheme - 2012 as revenue receipt instead of capital receipt. 11. That the authorities below here erred in treating sales tax subsidy of Rs. 1,46,48,000/- ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 5 under Madhya Pradesh Industrial Promotion Assistance Scheme - 2004 as revenue receipt instead of capital receipt. 12. That the appellant craves leave to add/alter/amend any ground of appeal on or before the due date of hearing of appeal. ITA No. 260/Chd/2019 (Revenue’s appeal) 1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing interest from customers suppliers amounting to Rs.7,18,91,518/- and interest earned from employees against housing loan granted to them to be treated as business income as against A.O. treating the same as income from other sources?” 2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing deduction u/s 80IA and 80IC on interest from customers & employee, Brokerage from ocean freights, insurance claim & Forex gains.?” 3. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in giving directions for re-computation of the addition made on account of disallowance u/s 14A of Act by applying amended provisions of Rule 8D which was effective w.e.f 02.06.2016, hence, applicable from A.Y. 2017-18?” 4. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in treating the reimbursement of interest under TUF scheme of the Ministry of Textiles, Government of India, as capital receipt instead ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 6 of revenue receipt without giving an opportunity to assessing officer to examine the claim of assessee?" 5. That the order of the Ld. CIT (A) be set aside and that of the Assessing Officer be restored. 6. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off. 3.0 The Ld. AR submitted that ground No.1 in assessee’s appeal was general in nature requiring no separate adjudication. 3.1 With respect to ground No.2, in assessee’s appeal, it was submitted that the same challenges the action of the Ld. CIT(A) in upholding the applicability of Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 and thereby making the impugned disallowance. The Ld. AR submitted that the ground No.3 is also related to Ground No.2. The Ld. AR further submitted that during the year under consideration the assessee had earned exempt income of Rs. 21,37,35,270/- and the assessee had made a suo motu disallowance of Rs. 2,36,679/- in terms of provisions of section 14A but the AO had computed the disallowance at Rs. 17,27,06,066/- by computing the disallowance under Rule 8D (2) (ii) at Rs. 14,07,14,926/- and ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 7 disallowance under Rule 8D(2)(iii) at Rs. 3,17,91,146/-. It was further submitted that after giving the benefit of suo motu disallowance against the disallowance as computed by the AO at Rs. 17,27,06,066/-, the net disallowance made by the AO came to Rs. 17,24,69,387/-. The Ld. AR submitted that the Ld. CIT(A), in the impugned order, directed the AO to apply the amended Rule 8D by considering only those investments which had yielded exempt income during the year and, accordingly, the disallowance was computed at Rs. 2,99,24,492/- against which the assessee was now in appeal. 3.2 It was submitted by the Ld. AR that the amended Rule 8D was not applicable as the same was prospective in nature and not retrospective. The Ld. AR submitted that in this regard reliance was being placed on the order of the ITAT Chandigarh Bench in the case of a sister concern of the assessee company i.e. M/s Vardhman Acrylics Limited Vs ACIT for AY 2013-14 vide order dated 03.07.2019 and bearing ITA No. 88/Chd/2018. 3.3 It was further submitted that Rule 8D(2)(ii) was not applicable as the assessee had availability of its own funds for making the investments which stood at Rs. 5376.02 crores on 31.03.2014 and at Rs. 4499.29 crores on 31.03.2013. It was ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 8 submitted that out of the interest expenses of Rs. 26,19,876/- the assessee had allocated Rs. 36,673/- proportionately and had also further disallowed Rs. 2,00,000/- under Rule 8D(2)(iii) as being related to exempt income and, therefore, no further disallowance was called for in assessee’s case. The Ld. AR also submitted that the AO had not recorded any satisfaction while rejecting the assessee’s suo motu disallowance and that it was settled law that the AO cannot resort to the provisions of Rule 8D without specifically rejecting the computation of the assessee. 3.4 He also submitted that even otherwise the disallowance was not justified if one was to consider the past history of disallowance under section 14A as upheld by the Tribunal which was as under:- AY Exempt income Disallowance 2011-12 Rs. 12.59 crore Rs. 5,00,000/- 2012-13 Rs. 14.87 crore Rs. 6,00,000/- 2014-14 Rs. 13.15 crore Rs. 5,50,000/- 3.5 In respect of assessee’s ground No.4, the Ld. AR submitted that this ground challenges the action of the Ld. CIT(A) in upholding the action of the AO in treating the amount of interest ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 9 received amounting to Rs. 1,43,72,779/- as ‘income from other sources instead of income from ‘business and profession’. The Ld. AR submitted that this ground was common with Ground No.1 of the Department’s Appeal. The Ld. AR submitted that the AO had treated the entire interest of Rs.21,56,19,397/- as ‘income from other sources’ whereas, the assessee had treated it as ‘income from business and profession’. It was submitted that the Ld. CIT(A) had held that the interest income of Rs. 14,37,27,879/- received from Banks was ‘income from other sources’ instead of income from business which was incorrect in view of the order of the ITAT in assessee’s own case for AYs 2006-07 and 2007-08 in ITA Nos. 1429/Chd/2010 and 270/Chd/2011 vide common order dated 18.12.2018. The Ld. AR submitted that the Chandigarh Bench of the ITAT in these two years had held that the interest income is to be netted with interest expenditure. It was also brought to the notice of the Bench that in AY 2013-14 also, a similar view has been taken in ITA No. 486/Chd/2019. It was further submitted that it is also to be noted that the assessee had not earned any surplus interest income during the year and interest paid was more than the interest received in as much as the total interest expenditure for the year under consideration ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 10 stood at Rs. 14.187 crores whereas, the interest income earned during the year was only Rs. 2.156 crores. While referring to the said orders of the Tribunal, the Ld. AR submitted that the ITAT Chandigarh Bench had held that the interest received from customers or suppliers was to be treated as ‘business income’. Further reference was made to a judgment of the Hon’ble Punjab & Haryana High Court in the case of Phatela Cotgin Industries Pvt. Ltd Vs CIT reported in (2007) 303 ITR 411 (P&H) wherein it was held by the Hon’ble Punjab & Haryana High Court that interest received on delayed payment on account of sales to customers was to be treated as income derived from an Industrial Undertaking. 3.6 With respect to ground No.5 of the assessee’s appeal, the Ld. AR submitted that this ground challenges the action of the Ld. CIT(A) in confirming the action of the AO in reducing the rental receipts of Rs. 1,86,87,189/- from the profits of the units eligible for deduction u/s 80IC of the Act. Referring to the order of the AO, it was submitted that the AO had disallowed claim of deduction u/s 80IC on rental receipts on the ground that the same was not received or derived from Industrial Undertaking and the Ld. CIT(A) had upheld the same. It was submitted that ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 11 this issue had earlier come up before the ITAT in assessee’s appeal for AYs 2008-09, 2009-10 and 2013-14 and the Chandigarh Bench of the ITAT, vide order dated 28.05.2020 in ITA Nos. 484/Chd/2019 to 486/Chd/2019, had held that the expenditure incurred towards maintaining the accommodation for the employees should be reduced from the rental income and only the balance should be disallowed. It was prayed that the order of the Tribunal in earlier assessment years as aforesaid should be followed. 3.7 With respect to ground No.6 of the assessee’s appeal, it was submitted that this ground challenges the act of the Ld. CIT(A) in upholding the act of the AO of treating the line / bay charges to the tune of Rs. 3,53,03,752/- as capital expenditure instead of Revenue expenditure. It was submitted by the Ld. AR that the AO had treated the entire expenditure as capital expenditure although the assessee had claimed it as Revenue expenditure and the Ld. CIT(A) while upholding the same had allowed the benefit of depreciation on the expenditure so treated as capital expenditure. The Ld. AR submitted that this issue is covered by the order of the Chandigarh Bench of the ITAT in assessee’s own case for AYs 2011-12 and 2012-13 in ITA Nos. 787/Chd/2015 ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 12 and 483/Chd/2016 respectively vide common order dated 11.11.2019 and it was submitted that the same should be followed in this year also. 3.8 With respect to the ground Nos.7 and 8, the Ld. AR submitted that ground Nos. 7 and 8 are interlinked. It was submitted that ground No. 7 challenges the action of the Ld. CIT(A) in upholding the action of the AO / Transfer Pricing Officer (TPO) in rejecting the Arm’s Length Price (ALP) determined by the assessee in relation to the transfer of electricity by two Captive Power Plants and ground No.8 challenges the action of the Ld. CIT(A) in holding that the Captive Power Plants should transfer electricity at the rate equivalent to the rate charged by other power generators in the state of Madhya Pradesh. It was submitted that the TPO had disagreed with the ALP as provided by the assessee and had reduced the transfer value of electricity thereby resulting in disallowance of claim u/s 80IA of the Act in both the Captive Power Plants by holding that rate to be applied for the sale of electricity should be the rate at which electricity was sold by the Indian Energy Exchange (IEX). The Ld. AR further submitted that, on appeal, the Ld. CIT(A) while following the judgement of the Hon'ble Calcutta High Court in the case of ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 13 CIT vs ITC Ltd. (2015) 64 taxmann.com 214 directed the AO to apply the rates at which electricity is sold by the generators of electricity to the distributors. Giving the background of the issue, the Ld. AR submitted that the assessee company has 15 units in all out of which Vardhman Fabrics is a Captive Power Plant engaged in the production of electricity and steam and another unit Vardhman Yarns is engaged in the production of electricity. It was further submitted that these two Captive Pwer Plants had transferred / sold power to its other manufacturing units i.e. Vardhman Yarns and Vardhman Fabrics (both located in Madhya Pradesh). It was further submitted that another unit of the company, Anant Spinning Mills, also located in Madhya Pradesh, had been a consumer of Grid and had been purchasing power from the Grid during the period under consideration and keeping this in mind the assessee company proceeded to apply internal CUP available to it and calculated the Transfer Price of power in accordance with the methodology / rates determined by the Grid as per the Tariff Order. He drew our attention to a chart showing the average price of electricity purchased by the unit Anant Spinning Mills from the State Electricity Board to demonstrate how the internal CUP was arrived at for the purpose ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 14 of ALP. The Ld. AR also referred to the Explanation to section 80IA(8) of the Act and submitted that this Explanation now gave an option for the determination of the market value as ALP under the Transfer Pricing provisions or as the price of such goods and services as it would fetch in the open market. It was submitted that by virtue of this Explanation also the assessee was justified in adopting the Grid rate as market value. 3.9 The Ld. AR placed reliance on numerous judicial precedents in support of his contention that for the purpose of determination of the ALP, the assessee is permitted to supply electricity to another unit at the rate at which the electricity distribution companies supply electricity to its consumers. It was submitted that in view of the various judicial precedents, as cited by the Ld. AR and copies of which had been incorporated in the paper book, view favoring the assessee should be taken. 3.10 With respect to ground No.9, the Ld. AR submitted that this ground challenges the action of the Ld. CIT(A) in upholding the action of the TPO/AO in rejecting the ALP determined by the assessee in relation to transfer of the steam by the Captive Power Plant of Vardhman Fabrics and holding that the steam produced had NIL cost. The Ld. AR submitted that ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 15 the TPO / AO had held that steam was a by-product having NIL cost and, therefore, the entire transfer value of steam at Rs. 24.95 crores was held to be not eligible for claim of deduction u/s 80IA of the Act. Giving a brief outline of the facts of the issue involved, it was submitted that the Captive Power Plant at Vardhman Fabrics is a thermal energy based co-generation plant i.e. it produces two forms of energy being electricity and steam. It was further submitted that this Captive Power Plant had transferred steam to Vardhman Fabrics to the tune of 25,88,992/- MT. It was further submitted that this transaction was benchmarked by applying Cost Plus Method (CPM) for the purpose of transfer pricing. It was further submitted that in order to determine the transfer value of steam, the assessee company had determined its cost of generation from high pressure boiler during the year and further the cost of generation of steam from low pressure boiler was also determined and the cost of generation through the low pressure boiler came to Rs. 964 per MT as compared to the cost of generation at Rs. 853 per MT from the high pressure boiler and, accordingly, the mark up charged was the differential cost of steam generated though the low pressure boiler and the cost of steam generated ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 16 by the Captive Power Plant. It was the contention of the Ld. AR that both the lower authorities had erred in holding that the steam was a by- product because steam has also its own cost of generation. It was further argued that the price charged for steam by the Captive Power Plant was equivalent to the cost of generation had the purchaser sourced it from another supplier. The Ld. AR vehemently argued that the price charged was ALP. 3.11 It was further submitted that during the course of proceedings before the TPO, the TPO had asked the assessee to submit statement of cost of production of steam in accordance with the Cost Accounting Standarard-4 (CAS4) issued by the counsel of Institute of Cost and Work Accountants of India which was duly submitted and the same remains uncontroverted till date. It was submitted that unless such certificate was rejected, no adjustment could legally be made. Our attention was also drawn to copy of the certificate as issued by M/s J.J. & Company, Cost Accountants, New Delhi giving cost of production of steam both by High Pressure boiler as well as Low Pressure boiler. 3.12 The AR also placed reliance on certain judicial precedents of the ITAT in support of the contention that steam was also a ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 17 form of power and was eligible for deduction and further the basis of deduction could be the engineer’s certificate. 3.13 The Ld. AR submitted that ground No. 10 was an additional ground being raised by the assessee and it challenges the action of the lower authorities in treating the interest reimbursement of Rs. 29,06,41,258/- relating to TUFS under the Madhya Pradesh Scheme, 2012 as Revenue receipt instead of Capital receipt. The Ld. AR submitted that the additional ground ought to be admitted on the basis of the order of the Tribunal (Chandigarh Bench) for AYs 2006-07 and 2007-08 where the Tribunal was pleased to admit the additional ground. 3.14 It was further submitted that on merits, this issue was covered by the order of the ITAT Chandigarh Bench vide order dated 29.05.2019 for AYs 2002-03 to 2005-06. It was prayed that in view of the binding precedent, the additional ground raised by the assessee should be allowed. 3.15 The Ld. AR submitted that the ground No.11 of the assessee’s appeal was also an additional ground challenging the action of the authorities below in treating the Sales Tax subsidy of Rs.1,46,48,000/- received under Madhya Pradesh Industrial ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 18 Investment Promotion Assistance Scheme, 2004 as Revenue receipt instead of Capital receipt. The Ld. AR further submitted that in AYs 2006-07 and 2007-08 also, the assessee had raised this issue as an additional ground before the Tribunal and the Tribunal had admitted this additional ground. It was further submitted that on merits, this issue is covered in favour of the assessee by the order of the ITAT Chandigarh Bench in assessee’s own case for AYs 2011-12 and 2013-14 and, therefore, the same should be decided in favour of the assessee this year also 4.0 In response to the arguments of the Ld. AR, the Ld. CIT DR submitted that as far as the issue of disallowance u/s 14A of the Act read of Rule 8D of the Income Tax Rules was concerned, the assessee had earned an exempt income of Rs. 21,37,35,270/- whereas the suo motu disallowance made by the assessee was a meagre Rs. 2,36,679/- which by no stretch of imagination could be considered as reasonable. It was submitted that the sufficiency of suo motu disallowance by the assessee is not established. It was submitted that if one looks at the Balance Sheet of the assessee, the Share Capital stood at 63.65 crores and the Reserves and Surplus stood at Rs. 2784.67 crores totaling to Rs. 2848.32 crores whereas the Fixed Assets stood at ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 19 Rs. 2859.25 crores. It was further pointed out that the investments of the assessee increased in the case of non-current investments from 293.9 crores to 493.18 crores and if it was to be assumed that the assessee had employed its own funds for the purpose of creation of assets, no free reserves were left for investments. It was further submitted that in such a situation the AO had rightly invoked the provisions of Rule 8D and computed the disallowance. It was further submitted that in fact ground No.3 of the Department’s appeal challenges the action of the Ld. CIT(A) in giving direction to the AO to recompute the disallowance u/s 14A by applying the amended provisions of Rule 8D, whereas, the said amendment was effective only with effect from 02.06.2016. 4.1 With respect to the assessee’s ground No.4, it was submitted that this ground was related to ground No.1 of the appeal of the Department and the Department was objecting the action of the Ld. CIT(A) in allowing interest received from customers and suppliers amounting to Rs. 7,18,91,518/- to be treated as business income whereas the AO had treated the entire interest income of Rs. 21.56 crores as ‘income from other sources’. However, in all fairness, the Ld. CIT DR accepted that ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 20 the issue stood covered in favour of the assessee by the order of the Tribunal in assessee’s own case for AYs 2006-07, 2007-08 and 2013-14, wherein, the ITAT Chandigarh Bench has allowed netting of interest. 4.2 With respect to ground No. 5 of the assessee’s appeal challenging the action of the Ld. CIT(A) in reducing the rental receipts of Rs. 1,86,87,189/- from the profits of the units eligible for deduction u/s 80IC of the Act, the Ld. CIT DR fairly accepted that this issue was also covered in favour of the assessee by the order of the Tribunal in assessee’s own case for AYs 2008-09 , 2009-10 and 2013-14 wherein it has been held that the expenses incurred for maintaining the accommodation of the employees should be reduced from the rental income and only the balance should be disallowed. The Ld. CIT DR submitted that in identical adjudication may be made on the issue. 4.3 With respect to the ground No. 6 of the assessee’s appeal regarding the action of the Ld. CIT (A) in upholding the action of the AO in treating the line / bay charges amounting to Rs. 3,53,03,752/- as capital expenditure instead of Revenue expenditure the Ld. CIT DR again fairly accepted that the issue ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 21 was covered in favour of the assessee by the order of the Tribunal in assessee’s own case for AY 2010-12 and 2012-13. 4.4 In respect of the assessee’s grounds of appeal Nos. 7, 8 and 9, the Ld. CIT DR placed extensive reliance on the observations and findings of the Ld. CIT(A) and submitted that the assessee company had adopted the price charged by a power distribution company to an end customer in the state of Madhya Pradesh as the internal CUP but the functions performed, assets employed and risks assumed (FAR) were different in the case of Captive Power Plants and an electricity distribution company and therefore, taking the price charged by the distributors as CUP would be incorrect. It was submitted that the power distribution units / State Electricity Boards are performing capital incentive functions but in Captive Power units, it is the infrastructure and capital of the parent company which only comes to be utilized. It was further submitted that the Captive Power Plant units do not assume any risks whereas the State Electricity Distribution units have to face risk of pilferage as well as power loss while transmitting power. Therefore, it was submitted that the CUP employed by the assessee had rightly been rejected by the TPO ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 22 and further such rejection was rightly upheld by the Ld. CIT(A) and the grounds raised by the assessee deserve to be dismissed. 4.5 Similarly, with respect to the action of the Ld. CIT(A) in rejecting the ALP vis-à-vis the steam generated and holding that the cost of steam had to be taken at NIL, the Ld. CIT DR submitted that Power Plants are not installed for the production of steam but for the generation of electricity and the un-utilized part of the steam is used for other purposes depending upon the business and functions of the assessee and as such steam was nothing but a by-product having no cost factor and, therefore, the Cost Plus Method applied by the assessee company was rightly rejected. It was reiterated that in effect the steam produced was only waste heat having NIL cost. 4.6 With respect to assessee’s additional grounds of appeal Nos. 10 & 12, on the issue of interest reimbursement relating to TUFS having been treated as Revenue receipt instead of capital receipt and treating Sales Tax Subsidy receipt as Revenue receipt instead of capital receipt respectively the Ld. CIT DR supported the orders of the authorities below but fairly accepted that the ITAT Chandigarh Bench had decided the issue in favour of the assessee in assessment years 2002-03, 2003-04, 2004-05, 2005- ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 23 06 2011-12 and 2013-14. It was further submitted that however, since the ground relating to TUFS has been taken as ground No.4 in Department’s appeal also, the issue would need re- consideration by the AO. 5.0 Arguing for the appeal filed by the Department, it was submitted that the Department appeal’s ground No.1 was identical to ground No.4 of the assessee’s appeal which has already been argued while replying to the arguments of the Ld. AR. 5.1 With respect to ground No.2 of the Departments appeal, the Ld. CIT DR submitted that this ground challenges the action of the Ld. CIT(A) in allowing benefit of deduction u/s 80IC and 80IA of the Act on interest received from customers and suppliers, brokerage from ocean freight, insurance claim and foreign exchange gains. It was submitted that the AO had rightly disallowed the assessee’s claim but the Ld. CIT(A) had erred in deleting the said disallowances. It was submitted that these receipts were not part of receipts of an industrial undertaking but were rather receipts from other sources and were, therefore, rightly held by the AO to be not eligible for claim of deduction u/s ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 24 80IC or 80IA. The Ld. CIT DR prayed that the disallowance made by the AO should be restored. 5.2 With respect to ground No. 3 of the Departments appeal, it was submitted by the Ld. CIT DR that this ground also was related to the assessee’s ground No.2 of the assessee’s appeal and it challenges the action of the Ld. CIT(A) in reducing the disallowance made u/s 14A of the Act from Rs. 17,24,69,387/- to Rs. 2,99,24,492/-. It was submitted that this scaling down of disallowance by the Ld. CIT(A) was incorrect in as much as the Ld. CIT(A) had ignored the observations of the AO while making the disallowance and that further the direction to apply the amended provisions to Rule 8D, which had effectively come into force on 2 nd June 2016, in assessment order for AY 2014-15 i.e. retrospectively was bad in law. 5.2 With respect to ground No.4 of the Department’ss appeal, it was submitted by the Ld. CIT DR that this ground was also related to the ground No.10 of the assessee’s appeal and it challenges the action of the Ld. CIT(A) in treating interest reimbursement under TUFS scheme as capital receipt instead of Revenue receipt without giving adequate opportunity to the AO to examine the claim of the assessee. It was submitted that this ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 25 issue had been raised for the first time only before the Ld. CIT(A) and the AO did not have any opportunity to examine the claim of the assessee but the Ld. CIT(A) chose to decide the issue in favour of the assessee without asking for any comments from the AO. It was prayed that the issue should be restored to the AO for the purpose of examining the claim of the assessee. 6.0 We have heard the rival submissions and have perused the material on record. We have also gone through the paper books filed by the assessee and have also given a thoughtful consideration to the various judicial precedents which have been relied upon by both the parties. We now proceed to adjudicate the issues before us one by one. 6.1 We first take up the appeal filed by the assessee bearing ITA No. 187/Chd/2019. 6.2 Ground No.1 is general in nature and requires no separate adjudication. 6.3.0 Ground Nos.2 and 3 relate to the disallowance made by the AO in terms of section 14A read with Rule 8D of the Income Tax Rules. This ground is also related to the ground No.3 of the Department’s appeal. It is seen that the assessee had earned an ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 26 exempt income of Rs. 21,37,35,270/- during the year under consideration and he had proceeded to make a suo motu disallowance of Rs. 2,36,679/-. However, the AO computed the disallowance at Rs. 17,27,06,066/- and after giving the benefit of suo motu disallowance made a final disallowance of Rs. 17,24,69,387/-. On appeal, the Ld. CIT(A) directed the AO that the amended Rule 8D should be applied by the AO as a consequence of which the disallowance remaining after the application of amended Rule 8D i.e. after taking into account only those investments which had yielded exempt income during the year, the disallowance was scaled down to Rs. 2,99,24,492/-. The submission of the assessee before us has been that the amended Rule 8D was not applicable as the same was prospective and not retrospective and was to be effective from 02.06.2016, whereas, the assessment year under consideration was assessment year 2014-15. The Department, in its cross appeal has also raised identical ground that the Ld. CIT(A) could not have given the direction to apply the provisions of amended Rule 8D. Apart from that, the Department has argued that no relief was allowable in respect of the disallowance made by the AO in as much as the disallowance had been calculated after during considering the ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 27 provisions of Rule 8D(2)(ii) and 8D(2)(iii). On the other hand, the contention of the assessee has been that no further disallowance was necessary in view of the disallowance made suo motu by the assessee and also in view of the past trend which has been accepted and upheld by the ITAT in the assessee’s own case vis- a-vis a suo motu disallowance. The Ld. AR has cited that in AY 2011-12, the exempt income was Rs. 12.59 crores and the disallowance was to the tune of Rs. 5,00,000/-. Similarly, in AY 2012-13, the exempt income was Rs.14.87 crores and the disallowance was to the tune of Rs. 6,00,000/-. In AY 2012-13, the exempt income was 13.15 cores and the disallowance was Rs. 5.50 lacs. The Ld. AR has also filed copies of the order of the Tribunal in assessee’s own case in support of the same. 6.3.1 Having given a thoughtful consideration to the rival contentions, it is seen that as far as the question of amendment to Rule 8D being prospective and not retrospective in nature is concerned, the Chandigarh Bench of the ITAT in the case of sister concern of the assessee i.e. Vardhman Acrylics Ltd vs ACIT, in ITA No. 88/Chd/2018 vide order dated 03.07.2019, has held that as far as the application of the substituted provisions of Rule 8D w.e.f. 02.06.2016 was concerned, the issue is settled by the ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 28 judgment of the Hon'ble Apex Court in the case of CIT vs Essar Teleholding Ltd. reported in (2018) 90 Taxman.com 2 (SC) wherein it was held by the Hon'ble Apex Court that the amended Rule 8D of the Income Tax Rules was applicable prospectively. Therefore, in view of the judgment of the Hon'ble Apex Court in the case of CIT Vs Essar Teleholding Ltd (supra) we hold that the Ld. CIT(A) was not justified in directing the AO to apply the provisions of amended Rule 8D. Therefore, ground No. 3 of the assessee’s appeal as well as ground No.3 of the Departments appeal stand allowed. 6.3.2 Ground No.2 of the assessee’s appeal challenge the action of the lower authorities in computing the disallowance in terms of Rule 8D in spite of the fact that the assessee had made a suo motu disallowance. The Ld. AR has vehemently argued that keeping in view the past trend, the suo motu disallowance by the assessee was sufficient. It is also the argument of the assessee that the assessee had availability of its own funds for the purpose of making investments and, therefore, interest bearing funds cannot be said to have been utilised for the purpose of making investments. As per the balance sheet of the assessee, the assessee had own funds of Rs. 5376.02 crores as on 31.03.2014 ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 29 and this included share capital of Rs. 63.65 crores as well as reserves of Rs. 2784.66 crores. On the other hand, the total investment as on 31.03.2014 stood at Rs. 712.34 crores as against Rs. 559.30 cores on 31.03.2013. In view of these figures, it has been submitted that no disallowance on account of interest was to be made in terms of Rule 14A. The Ld. AR has also drawn our attention to the order of the Tribunal in assessee’s own case for AY 2011-12 and 2012-13 in ITA Nos. 787, 894/Chd/2015 and 483, 518/Chd/2016 respectively wherein vide common order dated 14.03.2019, the issue of disallowance u/s 14A was discussed at length. For a ready reference, we are reproducing the same as under:- “8. We have considered the rival submissions. The issue relating to the presumption theory in the light of the decision of the Hon'ble Supreme Court in ‘Maxopp Investment Ltd Vs. CIT.’, 402 ITR 640 (SC) (supra) has been discussed by the Tribunal in the latest decision of the Tribunal in the case of ‘ACIT Vs. Janak Global Resources Pvt Ltd’ (supra), wherein, the Tribunal after considering the ratio laid down by the Hon'ble Supreme Court in the case of ‘Hero Cycles Pvt. Ltd. Vs. CIT’, 379 ITR 347(SC), and other decisions as well as in the case of ‘Avon Cycles Ltd. Vs. CIT’ of the Hon'ble High Court (supra) has decided the issue in favour of the assessee. At this stage, Ld. Counsel for the assessee has ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 30 submitted that now the issue is squarely covered by the latest decision of the Hon'ble Supreme Court in the case of in the case of ‘CIT (LTU) Vs. Reliance Industries Ltd.’ [2010] 410 ITR 466 (SC), wherein, the Hon'ble Supreme Court has reiterated the proposition that if there are interest funds available with the assessee, which are sufficient to meet the investment, it can be presumed that the investments are made from the interest free funds available with the assessee. In view of this, this question is now settled by the decision of the Hon'ble Supreme Court and the issue accordingly is decided in favour of the assessee so far as the issue of disallowance of interest expenditure is concerned.” 6.3.3 In this year also the assessee has demonstrated with evidence that there was sufficiency of funds and no interest bearing funds could be said to have been utilized for the purpose of making investments. Therefore, in view of the various judicial precedents as reproduced above in paragraph 8 of the order of the Coordinate bench in assessee’s own case for assessment years 2011-12 and 2012-13, we decide the issue in favour of the assessee and hold that no disallowance on account of interest expenditure is called for in the facts and circumstances of the case and we order deletion of the same. ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 31 6.3.4 However, as far as the question of disallowance of administrative expenditure is concerned, it is seen that the assessee has made a suo motu disallowance of Rs. 2 lacs in terms of Rule 8D(2)(iii). It is further seen that in the appeal for assessment year 2006-07, the assessee had earned dividend income of Rs. 1.59 crores and the Tribunal had restricted this disallowance of administrative expenditure to Rs. 2,00,000/- and further in assessment year 2007-08, the assessee had earned dividend income of Rs. 4.6 crores from investments in other companies and the Tribunal had directed that a disallowance of Rs. 5,00,000/- would be justified on account of administrative expenses. This issue was also discussed by the Chandigarh Bench of the ITAT in assessee’s own case in assessment years 2011-12 and 2012-13 (supra) and the relevant observation of the Tribunal are contained in paragraph 9 & 10, which are being reproduced herein under:- “9. However, so far as the issue of disallowance of administrative expenditure is concerned, the Ld. Counsel for the assessee has invited our attention to the earlier order of the Tribunal to state that in the appeal for the assessment year 2006-07, the assessee has earned dividend income of Rs. 1.59 crores and the Tribunal restricted the disallowance of ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 32 administrative expenditure to Rs. 2 lacs and further in the assessment year 2007-08, the assessee had earned dividend income of Rs. 219 crores and the Tribunal restricted the disallowance to Rs. 2.5 lacs. In the year under consideration, the Ld. Counsel for the assessee has submitted that out of the total divided of Rs. 12.59 crores, the assessee has earned a divided of Rs. 7.91 cores from its subsidiaries. He, in this respect has submitted that for making investments in own subsidiaries, not much of administrative resources are used, hence, the disallowance on administrative expenditure cannot be disallowed solely in the ratio of the quantum of the investments shown. He, however, has fairly admitted that the assessee has also received dividend of Rs. 4.6 cores from the investment in other companies. The Ld. counsel has further submitted that the assessee has suo motto disallowed a sum of Rs. 2 lacs for the year under consideration on account of administrative expenses u/s 14A of the I.T. Act. 10. Considering the overall facts and circumstances of the case and submissions of both the parties and also considering the quantum of investment made, the amount of divided earned by the assessee from its own subsidiary as well from outside / other companies, in our view, a total disallowance of Rs. 5 lacs will be justified in this case on account of administrative expenses. However, since the assessee itself has suo motu made disallowance of Rs. 2 lacs, the assessee will be given the benefit of the same.” ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 33 6.3.5 Similarly, in Assessment Year 2013-14, vide order dated 28.05.2020 in ITA No. 486/Chd/2019, the Tribunal directed that the disallowance of administrative expenses be restricted to 5.50 lacs in all wherein, the assessee had earned the exempt income to the tune of Rs. 13.15 crores. 6.3.6 In the year under consideration, it is seen that the assessee has earned exempt income of Rs. 21,37,35,270/- i.e. Rs. 21.37 crores and keeping in mind the past trends, as well as, the disallowances as have been adjudicated by the ITAT on account of administrative expenses in the various assessment years as mentioned in the preceding paragraphs, we are of the considered view that the disallowance in respect of administrative expenses should be restricted to Rs. 8,00,000/-. It is so ordered accordingly. The assessee, of course, will get the benefit suo motu disallowance of Rs. 2,00,000/- already made on this account. Thus, in effect, ground No.2 of the assessee’s appeal stands partly allowed. 6.4.0 Coming to ground No. 4 of the assessee’s appeal, it is seen that the ground pertains to challenge to the order of the Ld. CIT(A) in upholding the action of the AO in treating the intrest income received amounting to Rs. 14,37,27,879/- as ‘income ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 34 from other sources’. It is seen that the assessee had received a total amount of interest income at Rs. 21,56,19,397/- and the AO proceeded to hold that such entire interest income was to be treated as ‘income from other sources’ and not as ‘income from business and profession’. This interest income has been earned from customers / suppliers, employees, bank etc. The Ld. CIT(A), on appeal, held that the interest from customers and suppliers amounting to Rs. 7,18,91,518/- was to be taxed as income from business. Similarly, the interest received from employees was also to be taxed as income from business but as far as interest from bank in corporate deposits and interest on security deposits was concerned, since the said interest had arisen out of the assessee’s surplus funds, such interest income was taxable as ‘income from other sources’. Thus, in effect, the Ld. CIT(A) confirmed the amount of Rs. 14,37,27,879/- to be taxed as ‘income from other sources’. Before us, it has been contended by the Ld. AR that in this year there is no surplus interest income as the interest paid was to the tune of Rs. 14,187 lacs whereas the total interest income earned was Rs. 2,156 lacs. It has also been submitted by the Ld. AR that the ITAT, in assessee’s own appeals for assessment years 2006-07, 2007-08 and 2013-14 has held ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 35 that the assessee has to be allowed the benefit of netting of interest. 6.4.1 We also note that this ground is related to ground No.1 of the Departments appeal wherein the department has challenged the part relief granted to the assessee in this regard. 6.4.2 We have gone through the order of the Tribunal in assessee’s case for assessment year 2013-14 in ITA No.486/Chd/2019 wherein vide order dated 20.05.2020 an identical issue has been discussed by the Tribunal. The relevant paragraphs are 78 and 79 and the same are being reproduced hereunder for a ready reverence. 78. Ground No. 3 raised by the assessee in ITA No.486/2019 reads as under:- “3. That the Ld. CIT(A) has erred in law and on facts in upholding the action of AO for treating interest received amounting to Rs. 19,40,80,702/-as 'Income from Other Sources' instead of 'Income from Business and Profession'.” 79. It was common issue between the parties that the above ground is identical to ground No.3 raised by the assessee in its appeal for A.Y 2008-09 in ITA No.484/Chd/2019, dealt with by us above. Our decision rendered therein at para 16 of our order above will apply ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 36 mutatis mutandis to this ground No.3 raised by the assessee. Accordingly the plea of the assessee of treating the impugned interest income as assessable under the head Business Income is rejected but at the same time its plea of netting the said income is accepted and the AO is directed to allow netting subject to there being direct nexus between the interest income and expenditure incurred .Ground of appeal No.3 raised by the assessee is allowed in the above terms.” 6.4.3 Similarly, the ITAT in assessee’s own case for assessment year 2006-07 in ITA No. 1429/Chd/2010 vide order dated 18.12.2018, discussed the issue as under:- “4. Ground No.1: Vide ground No.1, the assessee has agitated the action of the CIT(A) in treating the interest income amounting to Rs. 1,65,17,422/- as ‘income from other sources’ instead of ‘income from business or profession’ as was claimed by the assessee. 5. The facts relating to the above issue are that the Assessing officer had treated interest from customers and suppliers amounting to Rs. 355.28 lacs and further interest from bank & others amounting to Rs. 165.17 lacs as ‘income from other sources’ as against the claim of the business income. The Ld. CIT(A) held that since income on the delayed payment from ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 37 customers and suppliers was intrinsically linked with the business activity of the assessee, hence, the same was to be treated as business income of the assessee, whereas, the interest received from bank & others was directed to be treated as ‘income from other sources’. 6. We have heard the rival submissions on this issue. We do not find any infirmity in the order of the CIT(A) so far as the treatment of the interest from customers and suppliers as ‘business income’ and interest from bank and other sources as ‘income from other sources’ is concerned. However, a contention has been raised by the Ld. Counsel for the assessee that where there is a direct nexus between the interest income earned and the interest expenditure incurred in this respect, the assessee should be allowed netting of the same before computing the same under the head ‘income from other sources’. We find merit in the above contention of the assessee and we order accordingly.” 6.4.4 Thus, from the reading of two orders of the Tribunal in assessee’s own case as reproduced above, it is apparent that the Tribunal has allowed the assessee the benefit of netting of interest. On identical facts, we reject the plea of the assessee in treating the impugned interest income as assessable under the head business income but at the same time accept the plea of ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 38 netting of he said interest income and direct the AO to allow the netting subject to there being a direct nexus between the interest income and the expenditure incurred. For this purpose, ground No.4 is restored to the file of the AO for carrying out the necessary verification for the purpose of the netting of interest in view of the observations of this Bench. 6.4.5 In the result, ground No.4 of the assessee’s appeal stands allowed for statistical purposes whereas ground No.1 of the Department’s appeal also being connected with ground No.4 of the assessee’s appeal stands restored to the file of the AO only for the limited purpose of examining the extent of allowing the benefit of netting of interest. 6.5.0 Coming to ground No.5, it is seen that this ground challenges the action of the Ld. CIT(A) in confirming the action of the AO in reducing the rental receipts of Rs. 1,86,87,189/- from the profits of the units eligible for deduction u/s 80IC. It is the submission of the Ld. AR that this issue is covered in favour of the assessee by the order of the Tribunal in assessee’s appeals for assessment years 2008-09, 2009-10 and 2013-14 vide common order dated 20.05.2020 in ITA Nos. 484/Chd/2019 to 486/Chd/2019. It is seen that the assessee had let out premises ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 39 to its employees and had recovered rent from them and had claimed the same as eligible for deduction u/s 80IC of the Act as being income derived from its business operations. The assessee has also spent amount towards the maintenance of such premises. We have gone through the findings of the Tribunal, and we find that the Tribunal, on identical facts, in fact, had not accepted the assessee’s contention that such rental receipts were part of the business income of the assessee and were eligible for deduction u/s 80IC. The Tribunal had only allowed partial relief in this regard to the assessee by directing the AO to only hold that portion of rental income as being ineligible as would be arrived at after reducing such amounts as had been spent by the assessee on the maintenance and upkeep of the premises so let out to the employees. The relevant observations of the Tribunal are contained in paragraph 23 of the common order dated 28.05.2020, and the same is being reproduced herein under for ready reference:- “23. We have heard the content ions of both the parties. It is settled law that the deduction u/s 80IB/80IC of the Act is eligible on the incomes which have first degree nexus with the industrial undertakings of the assessee. There is no dispute about this proposition at all. In this ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 40 backdrop, considering that the rental income had been received by the assessee from letting out accommodation to its employees, there is clearly no nexus of the said income with the industrial undertaking of the assessee and the claim of deduct ion u/s 80IB/80IC of the Act, therefore, we hold has been rightly disallowed by the Ld. CIT(A) . But at the same time, we are in agreement with the content ion of the Ld. Counsel for the assessee that it is not the entire gross rental receipts which are to be disallowed out of the total profits claimed by the assessee as deductable u/s 80IB/80IC of the Act , but on the prof it element in the said income which is embedded in the prof its earned by the assessee meaning thereby that the expenses, if any, incurred by the assessee for earning the rental income ought to be reduced from the rental income and it is only the balance which should be denied deduction u/s 80IB/80IC of the Act.” 6.5.1 Therefore, respectfully following the order of the coordinate Bench in assessee’s own case for assessment years 2008-0, 2009-10 and 2013-14, we direct the AO to reduce expenses, if any, incurred by the assessee for the purpose of earning rental income and disallow only the balance rental income as being ineligible for deduction u/s 80IC of the Act. Thus, this ground stands partly allowed for statistical purposes. ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 41 6.6.0 Ground No.6 of the assessee’s appeal challenge the action of the Ld. CIT(A) in upholding the action of the AO in treating the line / bay charges amounting to Rs. 3,53,03,752/- as Capital expenditure. It is seen that this amount had been claimed by the assessee as Revenue expenditure but the AO proceeded to treat the same as Capital expenditure and on appeal, the Ld. CIT(A), while upholding the view of the AO, directed that the benefit of depreciation be allowed to the assessee. Before us, the Ld. AR has filed copy of the order of the Tribunal in assessee’s own case for assessment years 2011-12 and 2013-14 in ITA No. 787/Chd/2015 and 483/Chd/2016 wherein, vide common order dated 14.03.2019, the Tribunal had held in favour of the assessee. We have gone through the order of the Tribunal in assessee’s own case as cited (supra) and we find that the relevant observations are contained in paragraph 33 and 34 of the said order, the same are being reproduced herein under for ready reference “33. Ground No. 14 : Vide ground No.14, the assessee has agitated the action the CIT(A) in treating the line/bay charges as capital receipt instead of Revenue receipt. 34. The Ld. Counsel for the assessee has invited our attention to the decision of the ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 42 Tribunal in the own case of the assessee for assessment year 2007-08 in ITA No. 1430/Chd/2010 order dated 31.3.2010, wherein, the Tribunal after discussing the details upheld the order of the CIT(A) in that year treating the aforesaid expenditure as Revenue expenditure. No contrary decision has been cited before us. In view of this, the issue is accordingly decided in favour of the assessee and the Assessing officer is direct to treat the aforesaid expenditure as Revenue expenditure.” 6.6.2 We note that the above finding of the Tribunal has attained finality in as much as the same has been accepted by the Department and no further appeal has been filed before the Hon'ble High Court. We also note that no decision or binding judicial precedent contrary to the view taken by the Tribunal as aforesaid has been brought to our notice. In such circumstances, we respectfully follow the order of the Tribunal in assessee’s own case for assessment years 2011-12 and 2012-13 (supra) and direct the AO to treat the aforesaid expenditure on line and bay charges as Revenue expenditure. Thus, ground No.6 of the assessee’s appeal also stands allowed. 6.7.0 Ground Nos. 7 and 8 of the assessee’s appeal are interconnected and essentially raise the question as to what should be transfer pricing for the units of electricity generated ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 43 and transferred by the Captive Power Plant units of the assessee company. It is seen that the assessee company had claimed deduction of Rs. 55,68,76,154/- under section 80IA of the Act in respect of its two Captive Power Plants i) Vardhman Yarn Captive Power Plant at Satlapur at Madhya Pradesh and; ii) Vardhman Fabric Captive Power Plant at Budhni, Madhya Pradesh. As per the Transfer Pricing Report, the assessee company had selected Comparable Uncontrolled Price (CUP) as the Most Appropriate Method for benchmarking of inter unit transfer of power using the power consuming unit as the tested party. A reference in terms of section 92 CA (1) of the Act was made by the AO to the TPO for determining the ALP in respect of this transfer of power to the Associated Enterprises and before the TPO, the assessee justified the pricing of transfer of power at the rates at which the M.P. State Electricity Board supplied electricity to it and also to others. The TPO, however, was not convinced with the benchmarking undertaken by the assessee and he proceeded to apply the ALP at average monthly rates prescribed by the Indian Energy Exchange for the State of Madhya Pradesh. The TPO, accordingly, proceeded to propose an adjustment of Rs. 1,06,97,20,354/- on this account resulting in ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 44 the disallowance of claim of deduction u/s 80IA to the tune of Rs. 55,68,76,154/- and, consequently, this amount was also added to the returned income. Before the Ld. CIT(A), the assessee further submitted that another unit of the assessee company i.e. Anant Spinning Mills, also located in the State of Madhya Pradesh, had been a consumer of the Grid and the assessee company has applied and adopted the internal CUP method for calculating the transfer price of power in accordance with the methodology and rates determined by the Grid. Before the Ld. CIT(A), it was also emphasized by the assessee that even the OECD Transfer Pricing guidelines recommended the internal comparable data for the benchmarking analysis. However, the submissions of the assessee did not find favour with the Ld. CIT(A) and he took a view that the comparable rate would be the rate at which the power generating entity of the State of Madhya Pradesh transferred power to the power distributing entities of the State of Madhya Pradesh. The Ld. CIT(A), placing reliance on judgment of the Hon'ble Calcutta High Court in the case of CIT Vs ITC Ltd reported in (2015) 64 taxman.com 214, held that the market rate at which electricity could have been sold to the distribution licensee by the generating company should be the ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 45 ALP. The Ld. CIT(A) directed the AO to give an opportunity to the assessee company to adduce evidence as regards the market rates at which electricity could have been sold to the distribution licensee by the generating company and, thereafter, based on such evidence make adjustments in respect of the transaction of inter unit transfer of power in determining the ALP and further to compute the quantum of benefit available to the two Captive Power Plants under the provisions of the 80IA of the Act. 6.7.1 Before us, the Ld. AR has objected vehemently to such direction by the Ld. CIT(A) and has broadly submitted that in terms of Explanation to section 80IA(8) of the Act, an option was given to the assessee to determine the market value as the ALP or such price as it would fetch in the open market as the ALP. Thus, the market value should be the rate at which the electricity is supplied by the Electricity Board to its industrial customers and not the price at which the state generating unit supplies power to its distributors. The Ld. AR has also cited numerous judgments of the various Hon'ble High Courts and has also submitted that the judgment of the Hon'ble Calcutta High Court in the case of CIT Vs ITC (supra) has been distinguished in a number of cases. ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 46 6.7.2 We have given a thoughtful consideration to the rival contentions and have also gone through the various case laws cited by the Ld. AR. It is seen that the Hon'ble Bombay High Court in the case of CIT vs Reliance Industries Ltd reported in (2019) 102 Taxman.com 372 (Bom) had allowed the assessee’s claim in respect of the ALP to supply electricity to another unit at the rate at which the electricity distribution companies supplied electricity to its consumers. In this judgment of the Hon'ble Bombay High Court, their Lordships have referred to ajudgement of Hon'ble Gujarat High Court in the case of Principal CIT vs Gujrat Alkalies and Chemicals Ltd reported in (2017) 395 ITR 247 and also to another judgement of the Hon'ble Gujarat High Court in the case of Asstt. CIT v Pragati Glass Works Pvt. Ltd (Tax Appeal No. 1646 of 2010) dated 30.01.2012 wherein the Hon'ble Gujarat High Court has observed that in section 80IA (8) of the Act, what is required to be ascertained is the market value of the goods transferred by the eligible business, when such transfer is by eligible business to another non-eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not correspond to market value of such goods. The Hon'ble High Court further observed ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 47 that the term ‘market value’ is further explained in Explanation to the said sub-section to mean in relation to any goods or services, price that such goods or services will ordinarily fetch in the open market. It is also seen that in this judgement of the Hon'ble Bombay High Court in the case of CIT vs Reliance Industries Ltd.(supra), the Hon'ble High Court took note of the judgment of the Hon'ble Calcutta High Court in the case of CIT vs ITC Ltd. (supra), on which the Ld. CIT(A) has placed reliance, and has noted that this issue had already been examined earlier and that further in view of the decisions of the Hon'ble Chhattisgarh and Hon'ble Gujarat High Courts, there was no reason to again go into that discussion. 6.7.3 The Hon'ble High Court of Rajasthan (Bench at Jaipur) also had an occasion to examine an exactly identical issue in the case of CIT, Ajmer Vs M/s Shree Cement Limited in Income Tax Appeal No. 85/2014 and vide judgement dated 22.08.2017, the Hon'ble High Court held as under:- “24. The issue No.2 is with regard to the claim of the assessee for the value of the goods or services for the purpose of Section 80IA(8). 25. In view of the submissions made by Mr. S. Ganesh, price which has been given to the sister concern is to be determined on the basis of principle ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 48 laid down by the Supreme Court in case all the four conditions are fulfilled as stated in his submissions and more so the Tribunal has given the finding which reads as under:- “10. We have heard the rival submissions and perused the evidence on record. We have also gone through the facts of the case, assessment order, order of CIT(Appeals), the principles and the judicial decisions relied upon and documents produced by both the parties. At the outset, we find that the revised return filed by the Assessee has been accepted by the AO 12 by clear finding in the Assessment Order. Once revised return is validly filed & accepted, the original return is non-est, as it is completely substituted by the revised return. Now let us deal with ‘Market Value’. On perusal of the assessment order & all other records, we find that facts with regard to adaptation of ‘market value’ are clear. The assessee has adopted a ‘value’ which is market value and the department has substituted the same by another value. The department is contending that the ‘market value’ as adopted by AO is the most appropriate since it represents price charged by the State Grid to various customers including the assessee. Hence, the same should be considered. The AR of the assessee submits that the value adopted by assessee represents ‘market value’ since it is based on real transactions between unrelated parties and the details for the same are available in public domain. The issue before us is whether in such situations where there are two or more market values available and if the Assessee has adopted a ‘value’ which is ‘market value’, whether it is permissible for the Revenue to still replace the same by another ‘market value’. ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 49 11. At this stage, it is necessary to refer to the relevant provisions of the Act i.e. Sec 80IA(8), which states that - “Where any goods or services held for the purposes of the eligible business are transferred to any other business carried 13 on by the assessee, or where any goods or services held for 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 or services as on the date of transfer, then for the purposes 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” Explanation – For the purposes of this sub-section, “market value”, in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market.” 12. On perusal of the above, it could be clearly seen that the Statute provides that the assessee must adopt ‘Market Value’ as the transfer price. In the open market, where a basket of ‘Market Values ’[say like, independent third party transactions, Grid price (average annual landed cost at which Grid has sold power to the assessee), Power Exchange Price for the relevant period etc.] are available, the law does not put any restriction on the assessee as to which ‘Market Value’ it has to adopt, it is purely assessee’s discretion. So long as the assessee has adopted a ‘Market Value’ as the transfer price, that is sufficient `. AO can adopt a different value only where the value adopted by assessee does not correspond to the ‘market value’. Even if assessee’s Cement Unit ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 50 has purchased power, also from the Grid or that assessee’s Power Unit has also partly sold its power to Grid or third parties that by itself, does not 14 compel the assessee or permit the Revenue, to adopt ONLY the ‘Grid price’ or the price at which the Eligible Unit has partly sold its power to Grid or third parties, as the ‘market value’ for Captive consumption of power to compute the profits of the eligible unit. Any such attempt is clearly beyond the explicit provisions of Section 80IA(8) of the Act. Underlying principles forming the basis of our findings given here in before in this order are also supported by the decision of Special Bench of Hon’ble Bangalore Tribunal in Aztec Software & Technology Services Ltd. Vs. ACIT [2007] 107 ITD 141 [Bang][SB] as well as Mumbai Tribunal decision in the case of ACIT Vs. Maersk Global Service Centre (I) Pvt. Ltd [2011] 133 ITD 543 [Mum] wherein while interpreting the Transfer Pricing provisions, the courts have held that it is the assessee who is the best judge to know the transactions undertaken & thus finding out the comparable cases from the vast database available in the public domain. Once the assessee has adopted the same, the AO has to examine whether the same is market price or not. AO has the power to adopt the market price only when the price adopted by the assessee does not correspond to market value. In the present case, we find that the assessee has adopted a rate at which actual transactions have been undertaken by unrelated entities. The volumes of transaction as relied upon are also substantial and hence it cannot be said that the assessee has hand picked 15 some transactions, which are beneficial to it. The DR submitted that since the assessee has itself drawn power from the Grid, the Grid rate represents the ‘best market value’ & hence the same should only be adopted. We are not agreeable to the above contention of the department. No doubt the Grid rate is market value but there is no concept of ‘best’ market value in law. If by using the said ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 51 adjective, Revenue seeks to infer that Grid rate is the only market value in the present context, such inference is also clearly not tenable. Further, in case there are options, the option favorable to the Assessee is to be adopted. This is a well settled principle of law laid down by courts time and again including Supreme Court in the case of CIT Vs. Vegetable Products Ltd. [1973] 88 ITR 192 [SC] and other High Courts as pointed out by the AR. 13. In the light of the aforesaid, we hold that – (a) the value adopted by the Assesse be it value as per independent third party trading transactions or as per Power Exchange (IEX etc.) or any other independent transaction (for the relevant period and which has taken place in the relevant area where the eligible unit is located) constitute ‘market value’ in terms of explanation to Section 80IA(8); (b) the value at which State Grid has sold power to the Cement Unit of the Assessee (average annual landed cost) also constitute ‘market value’ in terms of explanation to Section 80IA(8) but the value at which State Grid or third party has purchased power from the Power Unit of the Assessee, which represents its power which is sold when not required by the Cement Unit, does not constitute ‘market value’ in terms of 16 explanation to Section 80IA(8). It is the ‘principle’ and not the ‘quantum’ which is deciding factor; (c) where a basket of ‘market values’ are available for the relevant period and relevant geographical area where the eligible unit is situated, the assessee has ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 52 discretion to adopt any one of them as market value; and (d) If the value adopted by the assessee is ‘market value’ as explained above, it is not permissible for Revenue to recompute the profits & gains of the eligible unit by substituting the said value (as adopted by the Assesse) by any other ‘market value’. 14. Accordingly, we delete the disallowance as made by the AO in order u/s 143(3) on account of deduction u/s 80IA of the Act and hence the grounds 1 & 2 are accordingly decided in favor of the assessee.” 27. The said issue is also answered in favour of the assessee.” 6.7.4 Thus, as per the above cited judgement of the Hon'ble Rajasthan High Court, section 80IA(8) of the Act provides that the transfer price for the purpose of computing the profits of the eligible undertaking should be taken at the market value, which has been prescribed as the price which such goods would normally fetch in the open market as on the date of transfer. The market value is, therefore, nothing but an open market price at that relevant point of time. A natural corollary to this is that if the assessee has quoted a market price which is free and uncontrolled price and is between independent and non – related parties and the said price is not influenced by any other considerations, then section 80IA(8) of the Act does not confer ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 53 any power on the AO to reject the market price as adopted by the assessee and substitute some other market price in its place on the ground that the other market price is more appropriate. Thus, when an assessee relies on a particular market price, the same can be rejected only on the ground that it was not a free or uncontrolled price or it was not between independent and non- related parties or it has been influenced by some other considerations. If the AO is not in a position to show that the market price adopted by the assessee does not qualify to be considered as the market value, then he has no power to reject the market price or to substitute some other market price. 6.7.5 In the present case, the assessee had adopted as market price the rate at which the another unit of the company M/s Anant Spinning Mills had been purchasing power from the Grid (State Electricity Board). Thus, the assessee had adopted the market value as the rate at which the electricity was being supplied by the State Electricity Board to its industrial customers but the lower authorities were of the view that the rates at which the electricity was sold by the Indian Energy Exchange should have been adopted by the assessee. However, no reason was assigned for rejecting the market price adopted by the assessee. ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 54 The lower authorities have not demonstrated as to how the market rate, as taken by the assessee, was incorrect in as much as it is not the Department’s case that the market value adopted by the assessee was neither free nor uncontrolled. Further, it is not the case of the Department that M/s Anant Spinning Mills and the State Electricity Board were not independent or unrelated parties. The Department had also not been able to demonstrate with evidence if the market value adopted by the assessee was influenced by any other considerations. In such a situation, we are not inclined to agree with the action of the Ld. CIT(A) in discarding the market value adopted by the assessee and in its place directing the AO to issue summons u/s 133(6) of the Act to call for such information as would be required to ascertain the market rate at which electricity could have been sold to the distribution licensees by a generating company. 6.7.6 As far as the Department’s reliance on the judgement of the Hon'ble Calcutta High Court in the case of CIT Vs. ITC Ltd (supra) is concerned, we note that the Kolkata Bench of the Tribunal has considered the impact of this judgment at length in the case of DCIT Vs. Birla Corporation Ltd. in ITA No. 971/Kol/2012 for AY 2008-09 vide order dated 25.08.2017. The ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 55 observations and findings of the Kolkata Bench in the case of DCIT Vs. Birla Corporation Ltd (supra) are being reproduced herein under for a ready reference;- “5.6. We have heard the rival submissions and perused the materials available on record including the paper book and the relevant provisions of the Electricity Act, 2003 as detailed supra. We find that the main thrust of order of ld CITA was by placing reliance on the decision of this tribunal in the case of ITC Ltd, which was modified by the Honble Jurisdictional High Court. The ld AR fairly brought to our attention the decision of Honble Jurisdictional High Court in the case of ITC Ltd before us and had duly distinguished the same as not applicable to the facts of the instant case, as admittedly, the Asst Year before Honble Calcutta High Court in ITC Ltd was Asst Year 2002-03. The said decision in ITC Ltd for Asst Year 2002- 03 was rendered by taking into account the relevant provisions of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948. These Acts were repealed and a new Electricity Act 2003 was introduced with effect from 10.6.2003. Hence for the Asst Years 2008-09 and 2009-10 (i.e the years under appeal before us) , the assessee would be governed by the provisions of Electricity Act, 2003. 5.6.1. We have already seen that the ITCs case in Honble Calcutta High Court, proceeded on the basis that the open market for the Captive Power Plant was only a distribution company or a company engaged both in generation and ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 56 distribution and that the rate at which electricity could be sold by the Captive Power Plant was the one fixed by the tariff regulatory commission. However, such position has undergone sea change inasmuch as during the relevant previous years it was open to the assessee to sell even to a consumer and the price for sale to a distribution company or to a consumer that could be mutually agreed upon notwithstanding the tariff fixed by the State Regulatory Commission. We find that during the previous year relevant to the Asst Year 2009-10, the assessee infact sold electricity at rates higher than that charged from it by the State Electricity Board. The assessee nevertheless made the computation for the purpose of section 80IA of the Act with reference to the price charged from it by the State Electricity Board. In such circumstances, we hold that, when it was permissible for the assessee to sell electricity to consumers and distribution licensees at rates higher than that paid by it to the State Electricity Board, the price charged by the State Electricity Board would be a very good indication of the market value of electricity and the assessee did not commit any error in adopting such price for working out the amount eligible for deduction u/s 80IA of the Act. 5.6.2. We find that the reliance placed by the ld AR on the decision of the Honble Supreme Court in the case of Thiru Arooran Sugars Ltd. v CIT, (1997) 227 ITR 432 (SC), wherein at page 441, it was held as under:- In view of the aforesaid, it is very difficult to uphold the contention of Mr. Nariman that in order to find out the market price, there has to be an ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 57 actual market where there will be a concourse of buyers and sellers. This argument was specifically rejected by Lord Pearson L. J., in the case of Building and Civil Engineering Holidays Scheme Management Ltd. v. Post Office [1966] 1 QB 247 (CA), in the following words (page 268): “What is meant by market value?.... It is not reasonable to suppose that for the purposes of this proviso there is no market value unless there is a concourse of buyers and sellers. There is no need to infer that there must be an open market, or that there must be a price fluctuating according to the pressures of supply and demand.” In that case Lord Denning also explained the concept of market value in the following words (page 264): “What is the market value of these stamps ? . . . It does not connote a market where buyers and sellers congregate. The market value here means the price at which the goods could be expected to be bought and sold as between willing seller and willing buyer, even though there may be only one seller or one buyer, and even though one or both may be hypothetical rather than real.” These are the principles universally applied to find out the price at which the goods are ordinarily sold in the open market. For determination of market value, there is no pre- requisite that an open market where buyers and sellers congregate to buy and sell goods must exist. In the instant case, the assessee-company actually bought sugarcane from a large number of growers year after year in the ordinary course of business. The price at which it buys sugarcane must be taken to be the market price. If the price is controlled by the Sugarcane Control Order, the controlled price will be taken as the market price, ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 58 because it is at this price that a willing buyer and a willing seller are expected to transact business. As Lord Denning pointed out, it does not make any difference to this position that the assessee was the only buyer in the region where its factory was located.” 5.6.3 The ld AR submitted that as held in the aforesaid judgement of the Honble Supreme Court, the price paid by an assessee for purchase of raw material represents the market price of such raw material produced by the assessee. The said judgment was held not to apply in ITCs case because the Honble Court was of the view that electricity could not be sold to the consumer because of specific prohibition in the erstwhile Electricity Act and as such the price to the consumer could not be taken into account. We find that that is not the position in the instant case. Hence we are in agreement with the arguments of the ld AR. 5.6.4. We find that the method adopted by the assessee viz. to take the average rate charged by the State Electricity Board for the previous month is quite appropriate and reasonable for determining the market value for the month of supply. The annual weighted average adopted by the ld CITA would result in variations occurring during the year at different times being made applicable uniformly for the whole year. In our considered opinion, the assessees method is more appropriate as it factors in variations as and when they take place.” ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 59 6.7.7 Therefore, for reasons mentioned in the preceding paragraphs, we are unable to concur with the view taken by the Ld. CIT(A) in directing the AO to take steps to ascertain the market value of electricity being sold and we agree with the contentions of the Ld. AR that the market value as adopted by the assessee was at Arm’s Length Price. Accordingly, we allow ground Nos. 7 and 8 of the appeal of the assessee and direct the deletion of Transfer Pricing adjustment. Resultantly, the assessee would also be getting the benefit of deduction us 80IA. 6.8.0 Ground No. 9 of the assessee appeal is in respect of the assessee’s challenge to the action of the Ld. CIT(A) in upholding the action of the TPO / AO in rejecting the ALP determined by the assessee in relation of transfer of steam by Vardhman Fabrics and in holding that the steam produced had NIL cost. It is seen that as per records the Vardhman Fabrics Captive Power Plant is a thermal energy based co-generation plant i.e. it produces electricity as well as steam and the said Captive Power Plant transferred 2,58,892 MT of steam to Vardhman Fabrics. The assessee applied Cost Plus Method (CPM) for benchmarking the said transaction. As per records the assessee, in order to determine the transfer value scheme, ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 60 determined its cost of generation from high pressure cogeneration plant during the year and further the cost of generation of steam from low pressure boiler was also determined. As per records, the cost of generation through the low pressure boiler was 964 rupees per MT whereas the cost of generation from high pressure boiler was Rs. 853 per MT. The mark-up charged wase the differential cost of steam generated through the low pressure boiler by Vardhman Fabrics and the cost of steam generated by the Captive Power Plant. However, the lower authorities were of the view that the cost of generation of steam is NIL as steam is a by-product. On the other hand, the assessee, on being required by the TPO to submit statement of cost of production of steam in accordance with the Cost Accounting Standard-4, submitted the same but the same was not considered by either of the lower authorities, but all the same, the cost of production of steam was taken at NIL by the lower authorities. 6.8.1 The Ld. AR has vehemently argued that steam is a form of power and is eligible for deduction u/s 80IA and the basis for such deduction would be the Cost Accountant’s certificate. We have gone through the copies of the said certificates which have ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 61 been placed in the paper book and the same are being reproduced herein under for a ready reference also:- ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 62 6.8.2 In these above two certificates it has been certified by the Cost Accountants M/s J.J. & Company, that the cost of production of steam in high pressure boiler was Rs. 852.88 per MT whereas the cost of production of steam in low pressure boiler was Rs. 963.82 per MT. These two certificates were filed ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 63 before the lower authorities but the same have not been considered at all by them without assigning any cogent reason. We note that an identical issue had arisen before the Delhi Bench of the ITAT in the case of Nectar Life Science Ltd. in ITA No. 567/Del/2019 for assessment year 2013-14. The ITAT, Delhi Bench, in its order, accepted the contention of the assessee by holding that steam is form of power eligible for deduction u/s 80IA of the Act and the same cannot be denied by taking cost of steam at NIL. It was further held by the Delhi Bench that the lower authorities had grossly erred in ignoring the certificate issued by a Senior Chartered Engineer and the Cost Accountant without any contrary expert report. The ITAT Delhi Bench proceeded to allow the appeal of the assessee on the issue. This order was followed by the ITAT Chandigarh Bench also in another case of Nectar Life Sciences Ltd. vide order dated 17.02.2022 in ITA No. 1497/Chd/2019. 6.8.3 Therefore, on the overall facts and circumstances of the case, we find no cogent reason behind the action of the lower authorities in determining the cost of production of steam at NIL. We also find that there is no cogent reason provided by the lower authorities in not considering the certificates of the Cost ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 64 Accountant regarding the cost of production of steam. Therefore, in absence of any evidence to the contrary regarding the cost of production of steam, we accept the cost of production and the Transfer Pricing methodology adopted by the assessee vis-a-vis the cost of production of steam and we allow ground No. 9 of the assessee’s appeal and direct the AO to allow the consequential benefit of deduction u/s 80IA of the Act. 6.9.0 Ground No. 10 has been raised as an additional ground by the assessee and it challenges the action of the lower authorities in treating the reimbursement of Rs. 29,06,41,258/- relating to TUFS under the Madhya Pradesh Scheme, 2012 as a Revenue receipt while the assessee’s claim was that the same was capital receipt. We further note that this ground is also related ground No. 4 of the Department’s appeal wherein the Department has challenged the action of the Ld. CIT(A) in treating the reimbursement of interest under the TUFS of the Ministry of Textiles, Government of India as capital receipt instead of Revenue receipt without giving an opportunity to the AO to examine the claim of the assessee. Thus, there is an apparent contradcition between the grounds raised by the two parties. A perusal of the impugned order would show that the Ld. CIT(A) ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 65 has discussed the issue at length in paragraphs 26 to 33 of his order and the Ld. CIT(A) has referred to the objectives of the TUFS as emanating from the Resolution of the Ministry of Textiles bearing No. 28/1/99-CTI dated 31.03.1999 and the Ld. CIT(A) has opined that there cannot be any manner of doubt about the purpose of the subsidy being up gradation of the plant and machinery and, thereby, the capital apparatus of the company. The Ld. CIT(A) has also placed reliance on the judgement of the Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Sham Lal Bansal in ITA No. 472 of 2010, wherein vide judgement dated 17.01.2011, the Hon'ble Punjab & Haryana High Court High Court had relied on two judgements of the Hon'ble Apex Court on the issue of taxability of subsidies viz. Shaney Steels and Press Works Ltd Vs. CIT reported in (1997 )94 taxman 368 and CIT Vs. Ponni Sugars and Chemicals Ltd. reported in (2008) 174 taxman 87. The Hon'ble Punjab & Haryana High Court High Court reached a conclusion that even the subsidy received for repayment of loan taken for building, plant and machinery under the Credit Link Capital Subsidy Scheme under TUFS of Ministry of Textiles was a capital receipt. Thus, in effect, the Ld. CIT(A) has accepted the assessee’s claim ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 66 before it and there is no cause of grievance for the assessee in this regard and, accordingly, ground No.10 of the assessee’s appeal is infructuous and the same is dismissed as such. 6.9.1 As far as the connected ground of appeal i.e. ground No.4 of the Department’s appeal is concerned, the Ld. CIT(A) has adjudicated the issue by referring to the judgments of both the Hon'ble Punjab & Haryana High Court (which is the jurisdictional High Court for the assessee) as well as two judgements of the Hon'ble Apex Court and during the course of hearing before us the Department could not bring any judgments contrary to the judgments relied upon by the Ld. CIT(A) and therefore, respectfully following the judgments as aforesaid, we uphold the action of the Ld. CIT(A) and dismiss ground No.4 of the Department’s appeal. 6.10.0 Ground No.11 has also been raised as an additional ground by the assessee and it challenges the action of the lower authorities in treating the Sales Tax subsidy of Rs. 1,46,48,000/- received under the Madhya Pradesh Industrial Investment Promotion Assistance Scheme, 2004 as Revenue receipt instead of Capital receipt. It has been brought to our notice that this issue was also raised as an additional ground before the Tribunal ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 67 in assessee’s appeals for assessment years 2006-07 and 2007-08 wherein the same had been admitted. We have also gone through the order of the Tribunal in ITA No. 486/Chd/2019 for assessment year 2013-14 wherein, vide order dated 20.05.2020, the Tribunal has held that the Sale Tax Subsidy received under the Madhya Pradesh Industrial Promotion Assistance Scheme, 2004 was a capital receipt. While arriving at this conclusion, the ITAT had followed its order in Department’s appeal bearing ITA No.611/Chd/2019 for assessment year 2008-09 wherein vide order dated 28.05.2020 in paragraph 49 of the order, the Tribunal held as under:- “49. We have heard the contentions of both the parties. We have also gone through the orders of the ITAT in the case of the assessee in assessment years 2011-12 and 2012-13 to which our attention was drawn and we have noted that the ITAT in the said years has treated sales tax subsidy to be capital in nature taking note of the ratio laid down by the Hon'ble Apex Court in the case of in the case of M/s Chaphalker Brothers Pune & Others (supra) wherein any subsidy received as an incentive for setting up an industrial unit was treated to be a capital receipt . The ITAT held that the sales tax subsidy was also an identical incentive for setting up industrial units and, therefore, was capital in nature. Since this issue has already been adjudicated as above and in the case of the assessee itself in the succeeding assessment years and Ld. DR has not brought to our notice any distinguishing facts, the issue stands covered by the decision of the ITAT as above in favour of the assessee. Ground of appeal No.4 raised by the Revenue is also dismissed.” ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 68 6.10.1 Thus, it is seen that on this issue, the Tribunal has already ruled in favour of the assessee in assessment years 2008- 09 2011-12, 2012-13 and 2013-14 and respectfully following the same, we also hold that the Sales Tax Subsidy is to be treated as capital receipt. Accordingly, ground No. 11 stands allowed. 7.0 In the result, the appeal of the assessee bearing ITA No. 187/Chd/2019 stands partly allowed. 8.0 The only issue now remaining for our adjudication is ground No. 2 of the Department’s appeal wherein the Department has challenged the action of the Ld. CIT(A) in allowing benefit of deduction u/s 80IA and 80IC of the Act on interest from customers and suppliers, brokerage from ocean freight, insurance claim and Forex gains. It is seen that the issue of interest from customers and suppliers has already been decided in favour of the assessee while dealing with ground No.1 of the assessee’s appeal and ground No.4 of the Department’s appeal. The only issue remaining, thus, is brokerage from ocean freight, insurance claim and Forex gains. In this regard, our attention has been drawn to the order of the Tribunal in assessee’s own case for assessment years 2011-12 and 2012-13 in ITA Nos. 787/Chd/2015, 894/Chd/2015, 483/Chd/2016 and ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 69 518/Chd/2016. We further note that in the assessee’s appeals for 2006-07 and 2007-08 in ITA Nos. 429/Chd/2010 and 35/Chd/2011 and ITA Nos. 270/Chd/2011 and 286/Chd/2011, vide common order dated 18.12.2018, the issue of insurance claim receipts after exclusion of losses for the purpose of claim of deduction u/s 80IB and 80IC of the Act was restored to the file of the AO with a direction that the AO should examine the claim of the assessee after duly bifurcating the items which constituted capital assets and which items constituted the trading items and, thereafter, allow the claim in respect of the insurance claim received on trading assets only. Respectfully following the same, we order likewise. Thus, this issue of insurance claim stands partly allowed. 8.1 As far as the commission or brokerage from ocean freight is concerned, we note that this issue has been discussed in the aforementioned order of the Tribunal in para 8 and it was held that since brokerage of ocean freight is nothing but refund or rebate out of the freight expenditure incurred by the assessee, the same has resulted in the income of the assessee and therefore, the rebate on ocean freight was directed to be considered as income of the undertaking of the assessee. The ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 70 same to applies commission received from shipping companies. Therefore, respectfully following the same, we also direct accordingly. 8.2 As far as the issue of foreign exchange gain is concerned, it is seen that in para 29 of the same aforesaid order, the Tribunal has held that the foreign exchange fluctuation gain in respect of export receipts or receivables contributed to be profits of the assessee and, therefore, the same was also to be included for the purpose of claim of deduction u/s 80 IB and 80IC of the Act as being income of the undertaking. On identical reasoning and respectfully following the same, we also uphold the order of the Ld. CIT(A) on the issue. 8.3 Thus, ground No. 2 of the Department’s appeal stands partly allowed for statistical purposes. 9.0 In the result, the appeal of the Department bearing ITA No. 260/Chd/2019 stands partly allowed for statistical purposes. 10.0 In the final result, the appeal of the assessee stands partly allowed whereas the appeal of the Department stands partly allowed for statistical purposes. ITA No. 187 & 260-Chd-2029 (A.Y.2014-15) - Vardhman Textiles Ltd., Ludhiana 71 Order pronounced on 10.08.2022 Sd/- Sd/- (N. K. SAINI) (SUDHANSHU SRIVASTAVA) Vice President Judicial Member Dated : 10.08.2022 “आर.के .” आदेशक त*ल+पअ,े+षत/ Copy of the order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent 3. आयकरआय ु -त/ CIT 4. आयकरआय ु -त (अपील)/ The CIT(A) 5. +वभागीय त न0ध, आयकरअपील#यआ0धकरण, च2डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड फाईल/ Guard File आदेशान ु सार/ By order, सहायकपंजीकार/ Assistant Registrar