SRF Ltd., New Delhi V. DCIT (LTU), New Delhi

ITA 5784/DEL/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3015 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 10-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H K CHAUDHARY
• Keywords: Business income; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Additional depreciation; Earning of tax free income; Proportionate interest; Fair market value; Bad and doubtful debts; Valuation report; Capital receipt; Rule 8D; Set aside; Liquidation
• Section: 92B; 14A; 115JB; 32(1)(iia); 133(6); 64; 13; 22; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2 NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO.5784/DEL/2016 ASSESSMENT YEAR: 2012-13 SRF LIMITED, C-8, COMMERCIAL COMPLEX SAFDARGANJ DEVELOPMENT AREA, NEW DELHI. VS. DY. CIT, CIRCLE-1, LTU, NEW DELHI. TAN/PAN: AABTA6009L (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PRADEEP DINODIA, ADV. RESPONDENT BY: SHRI H.K. CHAUDHARY, CIT-D.R. DATE OF HEARING: 02 12 2019 DATE OF PRONOUNCEMENT: 24 02 2020 O R D E R PER AMIT SHUKLA, JM THE AFORESAID APPEAL HAS BEEN PREFERRED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2012-13, WHEREIN THE ASSESSEE HAS CHALLENGED THE FINAL ASSESSMENT ORDER PASSED IN PURSUANCE OF DIRECTIONS OF THE DISPUTES RESOLUTION PANEL-II, NEW DELHI, (DRP), AS CONTAINED IN ITS ORDER DATED 23 RD SEPTEMBER 2016. 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THE ASSESSEE'S APPEAL IN ITA NO. 5784/DEL/16, FOR THE ASSESSMENT YEAR 2012-13: 1. THE LD DRP/AO HAVE ERRED IN LAW AND ON FACTS, I.T.A. NO.5784/DEL/2016 2 AND IN THE CIRCUMSTANCES OF THE APPELLANTS CASE IN MAKING AN ADDITION/ADJUSTMENT OF RS. 34,67,318/- ON ACCOUNT OF THE ORDER OF THE TRANSFER PRICING OFFICE R (TPO) U/S 92CA(3) AND MAKING AN ADDITION OF RS. 10,21,16,412 /- ON ACCOUNT VARIOUS NON-TRANSFER PRICING ADDITION/DISALLOWANCES. 2. THE LD DRP/AO HAVE GROSSLY ERRED IN NOT GRANTING AN ADDITIONAL CLAIM/ALLOWANCES, AMOUNTING TO RS. 4,57,59,45,187/- MADE BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON ACCOUNT OF TRA NSFER OF CERS, EXCISE DUTY COMPONENT ON SALE EFFECTED BY THE ELIGIBLE UNIT, SHORT CLAIM OF DEDUCTION U/S 10A(1A) , INTEREST SUBSIDY UNDER TUF SCHEME, ADDITIONAL DEPRECIATION AND DEPRECIATION ON GOODWILL. 3. THE LD DRP/AO HAS GROSSLY ERRED IN LAW IN NOT EXCLUDING/INCLUDING THE CAPITAL RECEIPTS/ ITEMS TOT AL (NET) AMOUNTING TO RS. 4,60,91,78,552 /- IN THE NATURE OF CER RECEIPTS, INTEREST SUBSIDY UNDER TUF SCHEME, EXCISE DUTY COMPONENT ON SALE EFFECTED BY THE ELIGIBLE UNIT, PR OVISIONS FOR DOUBTFUL DEBTS/ ADVANCES/ INVESTMENT WRITTEN BA CK ETC FROM THE BOOK PROFITS U/S 115JB OF THE ACT. GROUNDS OF OBJECTIONS IN RESPECT OF TRANSFER PRICING ADJUSTMENTS CORPORATE GUARANTEE 4. THE LD. DRP/TPO AND CONSEQUENTLY THE LD. AO HAVE GROSSLY ERRED IN HOLDING THAT EXTENDING OF COR PORATE GUARANTEE BY THE ASSESSEE TO THE LENDING INSTITUTIO N OF THE AES CONSTITUTES AN INTERNATIONAL TRANSACTION U/ S 92B OF THE ACT. 5. THE LD. DRP/TPO AND CONSEQUENTLY THE LD. AO HAVE GROSSLY ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANTS CASE IN MAKING AN UPWARD ADJUSTMENT OF ` 34,67,318/- BY IMPUTING THE ARMS LENGTH CORPORATE GUARANTEE FEE RATE @ 0.5% IN STEAD OF 0.25% ACTUALLY CHARGED BY ASSESSEE FROM ITS AES. I.T.A. NO.5784/DEL/2016 3 6. THE LD DRP/TPO AND CONSEQUENTLY THE LD. AO HAVE GROSSLY ON FACTS IN NOT CONSIDERING THAT THE A E HAS FURNISHED COUNTER GUARANTEES OF EQUAL AMOUNT ON BAC K TO BACK TERMS TO THE ASSESSEE, THEREFORE ASSESSEE IS COMPLETELY INDEMNIFIED AGAINST ANY RISK OF DEFAULT ON THE PART OF THE AE. 7. THE HONBLE ITAT MAY BE PLEASED TO HOLD:- 7.1 THAT THE ACT OF GIVING CORPORATE GUARANTEE BY THE APPELLANT ON BEHALF OF THE AES IS NOT AN INTERN ATIONAL TRANSACTION AND, THEREFORE, NOT AMENABLE TO ANY ADJUSTMENT UNDER CHAPTER X OF THE INCOME TAX ACT. 7.2 THAT WITHOUT PREJUDICE, THE EXPLANATION TO THE SEC 92B INSERTED VIDE FINANCE ACT, 2012 CAN ONLY HA VE PROSPECTIVE EFFECT FROM 1 ST APRIL, 2012 (I.E. AY 2013-14) AT LEAST TO THE EXTENT DEALING WITH ISSUANCE OF CORPOR ATE GUARANTEE AS UPHELD BY HONBLE DELHI HIGH COURT IN NEW SKIES SATELLITE BV 1 AND FURTHER REITERATED BY HONBLE MUMBAI ITAT IN SIRO CLINPHARM LTD 2 AND HENCE NO ADJUSTMENT ON ACCOUNT OF CORPORATE GUARANT EE IS WARRANTED IN THE RELEVANT YEAR. . 7.3 IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABOVE, THE HONBLE ITAT MAY BE PLEASED TO HOLD THAT NO ADJUSTMENT IS REQUIRED AS 0.25% CHARGED BY THE APPELLANT AS CORPORATE GUARANTEE FEE FROM ITS WHOLL Y OWNED SUBSIDIARY/AES IS AT ARMS LENGTH AND THUS UPWARD ADJUSTMENT OF RS. 34,67,318/- BE DIRECTED TO BE DELETED. 7.4 THAT THE CORPORATE GUARANTEE FEE BENCHMARKED UNDER CUP BASED ON SPECIFIC QUOTE FROM ICICI BANK B E HELD AT ALP. GROUNDS OF OBJECTIONS IN RESPECT OF CORPORATE TAX ISSUES 1 (TS-64-DEL-2016) 2 (TS-14-ITAT-2016-TP) I.T.A. NO.5784/DEL/2016 4 DISALLOWANCE U/S 14A 8. THE LD. DRP/AO HAVE ERRED IN LAW AND IN FACTS AND IN THE CIRCUMSTANCES OF THE ASSESSEE BY ENHANCI NG THE DISALLOWANCE U/S 14A OF THE ACT, TO THE TUNE OF RS. 1,54,16,743/- WHICH IS WHOLLY UNTENABLE IN LAW AND BASED ON CONJECTURES AND SURMISES. 9. THE LD. DRP/AO HAS WHILE ENHANCING DISALLOWANCE U/S 14A OF THE ACT, GROSSLY ERRED IN H OLDING THAT THE ENTIRE AMOUNT OF INTEREST EXPENSE OF RS. 66,10,88,728/- IS INDIRECTLY ATTRIBUTABLE FOR EARNING A DIVIDEND INCOME OF RS. 13,47,69,585/- . 10. THAT THE LD. DRP/ AO HAS GROSSLY ERRED IN LAW AND ON THE FACTS & CIRCUMSTANCES OF THE ASSESSEE IN ATTRIBUTING INTEREST U/R 8D(2)(II) ALTHOUGH ALL LOA NS WERE EXPLAINED TO BE FOR SPECIFIC BUSINESS PURPOSE. 11. THAT THE LD. AO BE DIRECTED TO DELETE THE ENHANCEMENT OF DISALLOWANCE OF RS. 1,54,16,743/- MADE U/S 14A OF THE IT ACT. CLAIMS OF DEDUCTION U/S 10A(1A) (A) SCRAP SALE OF RS. 49,32,423/- 12. THE LD. DRP/AO HAS ERRED IN LAW AND IN FACTS AND IN CIRCUMSTANCES OF THE CASE BY REDUCING THE C LAIM OF DEDUCTION U/S 10A(1A) BY AN AMOUNT OF RS. 49,32,423/- BEING THE SCRAP SALE MADE BY THE ELIGIBLE UNIT BY HOLDING THAT SCRAP SALE IS IN THE NATURE OF DOMESTIC SALES AND HENCE NOT ELIGIBLE FOR DEDUCTION U/S 10A(1A). 13. (A) THE LD. DRP/AO HAS ERRED IN LAW IN NOT FOLLOWING THE LEGALLY BINDING PRECEDENT OF HONBLE KARNATAKA HIGH COURT IN CASE OF GE BE (P) LTD VS ACIT-11(2) , WHEREIN IN THE SIMILAR FACTS AS THAT OF APPELLANT, IT WAS HELD THAT SCRAP GENERATED DURING I.T.A. NO.5784/DEL/2016 5 MANUFACTURING OR PRODUCTION ACTIVITIES OF THE UNIT IS ELIGIBLE FOR PROFIT BASED DEDUCTION. (B) THE LD. DRP/AO HAS GROSSLY ERRED IN LAW IN DISREGARDING THE LEGALLY BINDING PRECEDENT OF HONBLE DELHI HIGH COURT IN CASE OF CIT V SADHU FORGINGS LTD 3 AND FURTHER MISINTERPRETING THE SAID CASE DOES NOT DEAL WITH ISSUE OF DOMESTIC SALE OR EXPORT SALE. 14. THE LD. DRP HAS GROSSLY ERRED IN LAW BY NOT FOLLOWING ITS OWN DIRECTIONS IN ASSESSEES CASE FOR AY 11- 12 WHEREIN THE LD. DRP HAD DIRECTED TO DELETE THE IDENTICAL DISALLOWANCE OF CLAIM. (B) INTER-UNIT SALE OF ` 7,52,64,246/- 15. THE LD. DRP/AO HAS GROSSLY ERRED IN LAW AND IN FACTS AND IN THE CIRCUMSTANCES OF THE CASE BY RE DUCING THE CLAIM OF DEDUCTION U/S 10A(1A) BY AN AMOUNT OF ` 7,52,64,246/- BEING INTER-UNIT TRANSFER OF SEMI-FIN ISHED GOODS FROM SEZ UNIT TO ANOTHER UNIT OF THE ASSESSEE AT MARKET PRICES. 16. THE LD. DRP/AO HAS GROSSLY ERRED IN REDUCING THE AMOUNT OF DEDUCTION U/S 10A(1A) BY THE AMOUNT O F INTER-UNIT TRANSFER AND NOT CONSIDERING THAT SUCH TRANSFERS HAVE BEEN MADE AT THE MARKET PRICE/ FAIR MARKET VALUE IN ACCORDANCE WITH SECTION 10A(7) R.W. SECTION 80-IA(8) SUCH THAT NO DISALLOWANCE IS WARRA NTED. 17. THE LD. DRP/AO HAS ERRED IN NOT CONSIDERING THE FACT THAT THE LD. DRP IN THE ASSESSEES OWN CAS E FOR AY 2011-12 ADJUDICATED SIMILAR ISSUE I.E. CLAIM U/S 10A(1A) IN RESPECT OF INTRA-UNIT TRANSFER & DIRECTE D LD. AO TO ALLOW THE CLAIM AFTER VERIFICATION. 18. WITHOUT PREJUDICE THE LD. DRP/AO FAILED TO APPRECIATE THAT IT IS ONLY THE DEDUCTION CLAIMED ON THE PROFIT ELEMENT IN THE INTER UNIT TRANSFER WHICH COU LD AT ] I.T.A. NO.5784/DEL/2016 6 BEST BE DISALLOWED AND NOT WHOLE OF THE AMOUNT OF I NTER UNIT TRANSFER. CLAIMS MADE DURING THE ASSESSMENT PROCEEDINGS 19. THE LD. DRP/AO HAVE ERRED IN LAW AND ON THE FACTS OF THE ASSESSEE'S CASE IN NOT ADMITTING AND ALLOWING THE FOLLOWING ADDITIONAL ALLOWANCES/CLAIMS MADE BY THE ASSESSEE, DURING THE COURSE OF ASSESSME NT PROCEEDINGS AND SUBSEQUENTLY BEFORE LD. DRP. A) EXCLUSION OF RS. 4,39,72,72,157/- RECEIVED BY THE ASSESSEE ON ACCOUNT OF TRANSFER OF CARBON EMISS ION REDUCTIONS (CERS) FROM THE TAXABLE INCOME OF THE ASSESSEE SINCE THIS WAS A CAPITAL RECEIPT NOT LIABL E TO TAX UNDER THE ACT. B) EXCLUSION OF RS. 3,08,96,338/- RECEIVED BY THE ASSESSEE ON ACCOUNT OF INTEREST SUBSIDY UNDER TECHNOLOGY UP GRADATION FUND (TUF) SCHEME SINCE THI S WAS A CAPITAL RECEIPT NOT LIABLE TO TAX. C) ALLOWANCE OF REMAINING ADDITIONAL DEPRECIATION @ 10% U/S 32(1)(IIA) AMOUNTING TO RS. 2,50,78,490 /- D) ALLOWANCE OF DEPRECIATION OF RS. 45,39,692/- ON GOODWILL WHICH WAS INADVERTENTLY LEFT TO BE CLAIMED WHILE FILING THE TAX RETURN. E) EXCLUSION OF RS. 11,81,58,510/- BEING THE EXCISE DUTY COMPONENT ON SALE EFFECTED BY THE ELIGI BLE UNIT (U/S 80-IC AT KASHIPUR) WORKED OUT ON REVERSE CALCULATION MECHANISM, FROM THE TAXABLE INCOME OF T HE ASSESSEE, SINCE THIS WAS A CAPITAL RECEIPT NOT LIAB LE TO TAX. 20. THAT THE LD. DRP/ AO FAILED TO APPRECIATE THAT THE TAXES ARE LEVIABLE & RECOVERABLE IN ACCORDANCE WITH LAW AND LEGAL CLAIMS ARE REQUIRED TO BE ENTERTAINED AT ANY STAGE OF THE PROCEEDINGS. I.T.A. NO.5784/DEL/2016 7 COMPUTATION OF BOOK PROFITS UNDER MAT 21. WITHOUT PREJUDICE TO THE GROUNDS 18, 19 & 20 THAT THE ITAT MAY BE IS PLEASED TO ADMIT THE FOLLOW ING ADDITIONAL GROUNDS AS A DECISION ON THESE ISSUES IS IN THE INTEREST OF JUSTICE AND ALL FACTS FOR THEIR ADJUDIC ATION ARE ON RECORD OF THE AO AND RAISE LEGAL ISSUES ONLY AS PER THE JUDGMENT OF HONBLE SC IN THE CASE OF NTPC VS. CIT 229 ITR 383(SC) (A) THAT RS.4,39,72,72,157/-, RECEIVED BY THE ASSESSEE ON ACCOUNT OF TRANSFER OF CARBON EMISSION REDUCTIONS (CERS) TO BE EXCLUDED FROM THE TAXABLE INCOME, SINCE THE SAME WAS A CAPITAL RECEIPT, NOT LIABLE TO TAX. (B) THAT RS. 11,81,58,510/- BEING THE EXCISE DUTY COMPONENT ON SALE EFFECTED BY THE ELIGIBLE UNIT (U/ S 80-IC AT KASHIPUR) WORKED OUT ON REVERSE CALCULATION MECHANISM, BE EXCLUDED FROM THE TAXABLE INCOME OF T HE ASSESSEE SINCE THE SAME WAS A CAPITAL RECEIPT NOT LIABLE TO TAX. (C) THAT RS. 3,08,96,338/- RECEIVED BY THE ASSESSEE ON ACCOUNT OF INTEREST SUBSIDY UNDER TECHN OLOGY UP-GRADATION FUND (TUF) SCHEME, SINCE THIS WAS A CAPITAL RECEIPT, TO BE EXCLUDED FROM THE TAXABLE IN COME OF THE ASSESSEE. (D) THAT THE ALLOWANCE OF REMAINING ADDITIONAL DEPRECIATION @ 10 % U/S 32(1)(IIA) AMOUNTED TO ` 2,50,78,490/- BE ALLOWED. (E) THAT THE ALLOWANCE OF DEPRECIATION OF ` 45,39,692/- ON GOODWILL WHICH WAS INADVERTENTLY LEF T TO BE CLAIMED WHILE FILING THE TAX RETURN BE ALLOWED. (F) THAT THE FOLLOWING RECEIPTS MAY PLEASE BE EXCLUDED WHILE COMPUTING PROFITS U/S 115JB OF THE A CT :- I) RS.4,39,72,72,157/- RECEIVED BY THE ASSESSEE ON ACCOUNT OF TRANSFER OF CARBON EMISSION REDUCTION S I.T.A. NO.5784/DEL/2016 8 (CERS) FROM THE BOOK PROFIT OF THE ASSESSEE, BEING TAX FREE CAPITAL RECEIPT. II) EXCLUSION OF RS.35,02,570/- ON ACCOUNT OF PROVISIONS FOR DOUBTFUL DEBTS WRITTEN BACK. III) RS.4,00,00,000/-/- ON ACCOUNT OF PROVISIONS FOR DOUBTFUL ADVANCE WRITTEN BACK IV) RS. 1,54,10,239/- ON ACCOUNT OF PROVISIONS FOR INVESTMENTS WRITTEN BACK. V) RS.3,08,96,338/- RECEIVED BY THE ASSESSEE ON ACCOUNT OF INTEREST SUBSIDY UNDER TUF SCHEME, BEING CAPITAL RECEIPT IN NATURE. VI) EXCISE DUTY COMPONENT AMOUNTING TO RS. 11,81,58,510/- ON SALE AFFECTED BY ELIGIBLE UNIT U/ S 80 IC (KASHIPUR UNIT) OF WORKED OUT ON REVERSE CALCULA TION MECHANISMS BEING CAPITAL RECEIPT IN NATURE VII) THAT THE FOLLOWING AMOUNTS/RECEIPTS SHOULD HAVE BEEN INCLUDED, WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT BUT APPELLANT FAILED TO INCLUDE TH E SAME:- A) INCLUSION OF RS. 22,66,432/-, ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBT CREATED. B) INCLUSION OF RS. 7,64,706/-, ON ACCOUNT OF PROVISION FOR DOUBTFUL ADVANCES CREATED. C) INCLUSION OF RS.9,07,600/-, ON ACCOUNT OF PROVISION FOR DOUBTFUL ADVANCES CREATED. 22. THE LD. DRP/AO HAS GROSSLY ERRED IN NOT EXCLUDING/ INCLUDING THE FOLLOWING RECEIPTS/ ITEMS WHILE COMPUTING THE BOOK PROFITS U/S 115JB OF THE ACT. A) EXCLUSION OF RS. 4,39,72,72,157/- RECEIVED BY THE ASSESSEE ON ACCOUNT OF TRANSFER OF CARBON EMISS ION REDUCTIONS (CERS) FROM THE BOOK PROFIT OF THE ASSES SEE. B) EXCLUSION OF RS. 35,02,570/- ON ACCOUNT OF PROVISIONS FOR DOUBTFUL DEBTS WRITTEN BACK. C) EXCLUSION OF RS.4,00,00,000/- ON ACCOUNT OF PROVISIONS FOR DOUBTFUL ADVANCES WRITTEN BACK. I.T.A. NO.5784/DEL/2016 9 D) EXCLUSION OF RS.1,54,10,239/- ON ACCOUNT OF PROVISIONS FOR INVESTMENTS WRITTEN BACK. E) INCLUSION OF RS. 22,66,432/- ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBT CREATED F) INCLUSION OF RS. 7,64,706/- ON ACCOUNT OF PROVISION FOR DOUBTFUL ADVANCES CREATED G) INCLUSION OF RS. 9,07,600/- ON ACCOUNT OF PROVISION FOR DOUBTFUL ADVANCES CREATED H) EXCLUSION OF RS.3,08,96,338/- RECEIVED BY THE ASSESSEE ON ACCOUNT OF INTEREST SUBSIDY UNDER TUF SCHEME, BEING CAPITAL RECEIPT IN NATURE. I) EXCLUSION OF EXCISE DUTY COMPONENT AMOUNTING TO ` 11,81,58,510/- ON SALE AFFECTED BY ELIGIBLE UN IT U/S 80-IC (KASHIPUR UNIT) OF WORKED OUT ON REVERSE CALCULATION MECHANISM BEING CAPITAL RECEIPT IN NATU RE. 23. THE LD. DRP/AO HAS ERRED IN LAW & CIRCUMSTANCES OF THE CASE BY INITIATING PENALTY PROCEEDINGS U/S 271(1)(C ) OF THE ACT. 24. THAT THE ORDER OF THE LD. ASSESSING OFFICER DATED 23 RD SEPTEMBER 2016 IS BAD IN LAW. 2. DURING THE YEAR UNDER CONSIDERATION, CERTAIN TRANSFER PRICING ADJUSTMENTS AND OTHER CORPORATE TA X ADDITIONS/DISALLOWANCES WERE MADE BY THE TPO AND AO . THE ASSESSEE RAISED ITS OBJECTIONS AGAINST SAID TRA NSFER ADJUSTMENTS AND ADDITION/DISALLOWANCES BEFORE DRP. THE DRP HAS UPHELD THE TRANSFER PRICING ADJUSTMENTS AND OTHER ADDITIONS AND DISALLOWANCES. THE ASSESSEE HAS THEREAFTER FILED APPEAL BEFORE US. 3. WE HEREUNDER UNDERTAKE TRANSFER PRICING ISSUES FIRST AND THEREAFTER CORPORATE TAX ISSUES ARE DEALT IN I.T.A. NO.5784/DEL/2016 10 SEPARATELY. GROUND NO. 1 T0 3 ARE GENERAL IN NATURE AND THEREFORE ARE NOT ADJUDICATED UPON. WE PROCEED TO D EAL WITH SPECIFIC GROUNDS. CORPORATE GUARANTEE (GROUND NO.4-7): 4. THE ASSESSEE HAS CHARGED CORPORATE GUARANTEE FEE OF RS. 36,98,107/- A T THE RATE OF 0.25% IN RESPECT OF CORPORATE GUARANTEE EXTENDED ON BEHALF OF ITS OVERSEAS AE WHICH IS WHOLLY OWNED OVERS EAS SUBSIDIARY OF THE COMPANY. THE ASSESSEE CHARGED SAI D RATE BASED ON THE QUOTATION OBTAINED BY IT FROM ICI CI BANK WHICH WAS SPECIFIC TO THE CASE OF THE ASSESSEE AND AE. THE TPO REJECTED THE ASSESSEES BENCHMARKING AN D IMPUTED THE CORPORATE GUARANTEE RATE AT 1.15% BASED ON THE BANK GUARANTEE RATE OBTAINED U/S 133(6) OF THE ACT FROM STATE BANK OF INDIA AND MADE UPWARD ADJUSTMENT TO THE TUNE OF RS.1,27,82,374/- BEING THE DIFFERENT IAL ON THE ACCOUNT OF ASSESSEES CORPORATE GUARANTEE RATE @ 0.25% AND THE BANK GUARANTEE RATE OBTAINED FROM THE SBI @ 1.15%. DRP HAS GRANTED THE PARTIAL RELIEF BY REDUCING THE ARMS LENGTH CORPORATE GUARANTEE FEE R ATE FROM 1.15% TO 0.50%. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS AND AS WELL AS MATERIAL REFER RED TO BEFORE US AT THE TIME OF HEARING. WE HAVE EXAMINED IDENTICAL ISSUE IN DETAIL IN THE ASSESSEES OWN CAS E FOR I.T.A. NO.5784/DEL/2016 11 AY 2010-11 ( ITA NO. 356/DEL/15) UPHOLDING THE CORPORATE GUARANTEE FEE AT 0.25% AS ARMS LENGTH RA TE OF SUCH TRANSACTION. SINCE FACTS, LEGAL POSITION AN D OTHER FACTORS ARE SAME FOR THIS YEAR, WE UPHOLD THE TRANSACTION OF CORPORATE GUARANTEE FEE AT 0.25% CHARGED BY THE ASSESSEE FROM ITS AE AT ARMS LENGTH AND THUS ADDITION OF RS.1,27,82,374/- MADE BY TPO ON THIS ACCOUNT IS DELETED . DISALLOWANCE U/S 14A (GROUND NO.8 TO 11): 6. THE ASSESSEE COMPANY HAS EARNED DIVIDEND INCOME OF RS.13.47 CRORES FROM ITS INVESTMENT IN MUTUAL FUNDS WHICH IS CLAIMED EXEMPTED FROM TAX UNDER SECTION 10(34) OF THE ACT. THE ASSESSEE ITSEL F MADE SUO-MOTO DISALLOWANCE OF RS. 53,51,280/- U/S 14A OF THE ACT R.W.R 8D(2)(III) BEING 0.50% OF AVERAGE VALU E OF INVESTMENT INCOME FROM WHICH IS EXEMPT FROM TAX. TH E AO BEING DISSATISFIED WITH THE SUO-MOTU DISALLOWANC E MADE BY THE ASSESSEE MADE FURTHER DISALLOWANCE OF R S. 1,54,16,743/- IN RESPECT OF PROPORTIONATE INTEREST PAID BY THE ASSESSEE TO VARIOUS BANKS INVOKING THE PROVI SIONS OF RULE 8D(2)(II). THE DRP UPHELD THE ASSESSMENT ORD ER. 7. THE LD. COUNSEL FOR ASSESSEE ARGUED THAT NO DISALLOWANCE IN RESPECT OF RULE 8D(2)(II) CAN BE MA DE IN RESPECT OF INTEREST EXPENSES AS INTEREST WAS PAID F OR LOAN TAKEN FOR SPECIFIC BUSINESS PURPOSES. CHART DEPICTI NG ACTUAL UTILIZATION AND PURPOSE OF LOANS FOR WHICH I.T.A. NO.5784/DEL/2016 12 INTEREST WAS PAID AS GIVEN TO AO AND DRP IS AS UNDER : INTEREST ON LOAN/ PURPOSE AY 2012- 13 UTILISATION/ JUSTIFICATION BY ASSESSEE LOAN UNDER TUF SCHEME OF GOVT. OF INDIA 377.66 FIXED ASSETS UNDER TUF SCHEME ADMINISTERED BY GOVERNMENT RUPEE TERM LOAN OTHER THAN TUF 3439.36 FIXED ASSETS : SPECIFIC LOANS FOR PURCHASE OF FIXED ASSETS FOREIGN CURRENCY LOAN (TERM LOAN) 684.63 FIXED ASSETS : SPECIFIC LOANS FOR PURCHASE OF FIXED ASSETS BUYERS CREDIT FOR CAPITAL GOODS 95.35 INTEREST ON CASH CREDIT 43.74 DAY TO DAY OPERATIONS BY MANUFACTURING UNITS. EXPORTS PACKING CREDIT 159.64 FOR EXPORTS - GRANTED UNDER GOVT. POLICY FOR THE SOLE PURPOSE OF FINANCING EXPORT OF GOODS OR SERVICES. BILL DISCOUNTING CHARGES 8.05 FOR EXPORTS - FOR EARLY CASH REQUIREMENT. BUYER'S CREDIT FOR PURCHASE OF RAW MATERIAL - PROCUREMENT O F IMPORTED RAW MATERIAL - SUCH LOAN DOES NOT EVEN COME IN THE BANK ACCOUNTS OF THE ASSESSEE. WC REQUIREMENT 149.94 FOR WORKING CAPITAL REQUIREMENT PAID TO SUPPLIERS FOR DELAY IN PAYMENTS 1,652.52 FOR DELAY IN PAYMENTS TO SUPPLIER. PURELY BUSINESS PURPOSE. HERCULES HOISTS LIMITED V ACIT [TS-58- ITAT-2013(MUM)] TOTAL 6,610.89 I.T.A. NO.5784/DEL/2016 13 INVESTMENTS MADE OUT OF SURPLUS FUNDS. 8. THE LD. COUNSEL FURTHER ARGUED THAT NO FURTHER DISALLOWANCE U/S 14A WAS WARRANTED IN THE ASSESSEE S CASE AS ASSESSEES OWN FUNDS ARE MUCH HIGHER THAN T HE INVESTMENTS MADE BY IT FROM WHICH THE EXEMPT INCOME COULD ARISE. THE LD AR POINTED OUT THAT AMOUNT OF INVESTMENTS IN RESPECT OF WHICH TAX FREE INCOME COU LD HAVE BEEN RECEIVED IS RS.107.02 CRORES (PAGE NO. 10 OF AOS ORDER), WHILE ON THE OTHER HAND THE TOTAL AMOU NT OF RESERVE AND SURPLUS OF THE ASSESSEE AS ON 31 ST MARCH, 2010 AS PER THE AUDITED BALANCE SHEET WAS RS.1788.2 6 CRORES (PAGE NO.1 OF PAPER BOOK). HE HIGHLIGHTED TH AT ASSESSEES RESERVE AND SURPLUS WAS AROUND 16.70 TIM ES OF AFORESAID INVESTMENTS. FURTHER, THE ASSESSEE HAS CASH PROFITS OF RS.831.64 CRORES FOR THE YEAR UNDER CONSIDERATION. THE WHOLE PURPOSE OF ABOVE SUBMISSIO N OF AR WAS TO DEMONSTRATE THAT ASSESSEE HAD ADEQUATE SURPLUS FUNDS IN FACT MUCH HIGHER THAN THE INVESTMENTS. 9. THE LD. AR HAS SUBMITTED THAT DRP IN ASSESSEES OWN CASE FOR AY 2014-15 DELETED THE IDEN TICAL ENHANCED DISALLOWANCE U/S 14A RWR 8D(2)(II) AFTER EXAMINING THE FACTS IN DETAILS. THE AR SUBMITTED TH AT THERE IS NO CHANGE IN FACTS FOR THE YEAR UNDER CONSIDERATION AS WELL. I.T.A. NO.5784/DEL/2016 14 10. THE ASSESSEE FURTHER RELIED UPON VARIOUS JUDGMENTS OF HONBLE COURTS TO SUPPORT ITS CONTENTI ONS FOR DELETION OF DISALLOWANCE U/S 14A. THE LD. CIT-D R RELIED UPON THE ORDER OF AO. 11. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS AND AS WELL AS MATERIAL REFER RED TO BEFORE US AT THE TIME OF HEARING. THE INTEREST PAID BY THE ASSESSEE IS IN RESPECT OF LOANS TAKEN FOR SPECIFIC BUSINESS PURPOSES AND THUS TO EARN NON-EXEMPT BUSINESS INCOME. THE DRP HAS GIVEN ITS FINDING IN ASSESSEES OWN CASE FOR AY 2014-15 THAT LOANS WERE TAKEN FOR SPECIFIC BUSINESS PURPOSES. MOREOVER, THE ASSESSEES OWN FUNDS IN FORM RESERVES AND SURPLUS PROFITS OF RS.1788.26 CRORES ARE MUCH HIGHER THAN T HE INVESTMENTS OF RS.107.26 CRORES. MOREOVER, WE HAVE ALREADY EXAMINED THIS ISSUE IN THIS ASSESSEES OWN CASE FOR AY 2010-11 ( ITA NO. 356/DEL/15) AND ON IDENTICAL FACTS WE HELD THAT DISALLOWANCE U/S 14A READ WITH RULE 8D(2)(II) IS NOT SUSTAINABLE. I N VIEW OF ABOVE, THE DISALLOWANCE OF RS.1,54,16,743/- U/S 14A MADE BY TH E ASSESSING OFFICER IS THEREFORE DELETED. DISALLOWANCE OF DEDUCTION U/S 10(1A) IN RESPECT OF SCRAP SALE (GROUND NO.12-14): 12. DURING THE YEAR, THE SEZ INDORE UNIT OF THE ASSESSEE RECEIVED PROCEEDS FROM SCRAP SALES AMOUNTI NG I.T.A. NO.5784/DEL/2016 15 TO RS. 49,32,423/-. THE SAME WAS SHOWN AS OTHER INCOME IN P&L OF THE SEZ UNIT- INDORE AND HAS BEEN CONSIDERED FOR PURPOSE OF CALCULATION OF ELIGIBLE DEDUCTION U/S 10A(1A). THE AO CLAIMED THAT SCRAP SA LE MADE WAS IN NATURE OF DOMESTIC SALES AND HENCE NOT ELIGIBLE FOR DEDUCTION U/S 10A(1A). THE AO HELD THA T SCRAP SALE IS NOT A BUSINESS ACTIVITY AND THEREFORE INELIGIBLE FOR PROFIT BASE DEDUCTION U/S 10A. THE D RP ALSO UPHELD THE ORDER OF THE AO, AGGRIEVED FROM WHI CH THE ASSESSEE IS BEFORE US IN APPEAL. 13. IN THIS REGARD THE LD. COUNSEL SUBMITTED THAT SCRAP HAS BEEN GENERATED OUT OF MANUFACTURING ACTIVITIES CARRIED ON BY THE SEZ UNIT. THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF KARNATAKA HC IN GE BE (P) LTD VS ACIT [2014] 49 TAXMANN.COM 348 (KARNATAKA) WHEREIN IT WAS HELD THAT SCRAP GENERATE D DURING MANUFACTURING OR PRODUCTION ACTIVITIES OF UN IT IS ELIGIBLE FOR PROFIT BASED DEDUCTION. THE ASSESSEE F URTHER PLACED RELIANCE ON THE FOLLOWING JUDGMENTS: CIT VS SADHU FORGING LTD [2011] 336 ITR 444 (DELHI-HC) - SCRAP SALE RECEIPTS ENTITLED FOR EXEMPTION U/S 80-IB WIPRO LTD [(2006) 5 SOT 805 (BANG)] - SCRAP SALE INCOME IS ELIGIBLE FOR DEDUCTION U/S 10A. 14. THE LD. COUNSEL OF ASSESSEE SUBMITTED THAT THE DRP RELYING ON THE HONBLE DELHI HIGH COURT IN CASE OF I.T.A. NO.5784/DEL/2016 16 CIT VS SADHU FORGING LTD [2011] 336 ITR 444 (DELHI- HC) HAS GIVEN FINDING IN ASSESSEES OWN CASE FOR AY 2011-12 THAT SCRAP IS BY-PRODUCT OF ITS ELIGIBLE AC TIVITY AND THEREFORE ELIGIBLE FOR DEDUCTION. 15. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS AND AS WELL AS MATERIAL REFER RED TO BEFORE US AT THE TIME OF HEARING. THERE IS NO DISPU TE THAT SCARP HAS BEEN GENERATED OUT BY THE NORMAL PRODUCTI ON ACTIVITIES OF THE ELIGIBLE UNIT. THE AMOUNT REALIZE D FROM SALE OF SCARP HAS BEEN SHOWN AS OTHER INCOME IN PRO FIT & LOSS ACCOUNT OF SUCH UNIT. ALTERNATIVELY, THE SAM E COULD HAVE BEEN REDUCED FROM THE COST OF PRODUCTION AND IN THAT CASE PROFITS OF ELIGIBLE WOULD REMAIN UNAFFECTED FOR THE PURPOSE OF DEDUCTION U/S 10(1A). THUS, RESPECTFULLY FOLLOWING THE HONBLE JURISDICTI ONAL HIGH COURT IN CASE OF SADHU FORDING LTD. ( SUPRA ) THE DISALLOWANCE OF DEDUCTION U/S 10(1A) OF RS. 49,32,4 23/- MADE BY THE AO IS HEREBY DELETED. INTER-UNIT TRANSFER OF GOODS OF RS. 7,52,64,246/- ELIGIBLE DEDUCTION U/S 10A(1A) (GROUND NO.15-18) 16. THE ASSESSEE HAS TWO SEPARATE MANUFACTURING UNITS, ONE IN KASHIPUR AND THE OTHER IN INDORE (SEZ UNIT ELIGIBLE UNIT U/S 10AA). DURING THE YEAR, BASED ON THE REQUIREMENT OF KASHIPUR UNIT OF THE ASSESSEE, THE S EZ UNIT IN INDORE HAS TRANSFERRED CERTAIN SEMI-FINISHE D I.T.A. NO.5784/DEL/2016 17 GOODS (POLYESTER CHIPS) TO KASHIPUR UNIT OF THE ASS ESSEE AMOUNTING TO RS. 7,52,64,246/-. THE ASSESSEE HAD CLAIMED THE DEDUCTION AFTER TAKING INTO ACCOUNT SUC H INTER UNIT TRANSFER. THE AO PROCEEDED TO REDUCE THE AMOUNT OF DEDUCTION CLAIM U/S 10A(1A) BY THE AMOUNT OF SUCH INTER-UNIT SALES, WHICH WAS FURTHER UPHELD BY THE DRP. AGGRIEVED THE ASSESSEE IS BEFORE US IN THE APPEAL ON AFORESAID GROUNDS. 17. IN THIS RESPECT THE LD. COUNSEL SUBMITTED THAT INDORE SEZ UNIT BASED ON THE REQUIREMENT OF KASHIPU R UNIT TRANSFERRED SEMI-FINISHED GOODS AT ITS MARKET VALUE. THE MARKET VALUE HAS BEEN DETERMINED WITH REFERENCE TO THE RATES AT WHICH SIMILAR GOODS ARE PURCHASED BY T HE KASHIPUR UNIT FROM UNRELATED PARTIES. THE AR HAS SUBMITTED THAT AVERAGE RATE OF INTER-UNIT TRANSFER OF GOODS IS RS.85.22 PER UNIT WHILE THE THIRD PARTY RA TE OF SAME GOODS WAS RS. 85.5 AND 86.5 PER UNIT. THE COPI ES OF INVOICE OF THIRD PARTIES JBF INDUSTRIES WERE SUBMITTED (PAGE NO. 404-405 OF PAPER BOOK). IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS FULFILLED T HE CONDITIONS OF SECTION 10A(7) READ WITH SECTION 80-I A OF THE ACT- TRANSFER OF GOODS BETWEEN ELIGIBLE BUSINES S AND ANY OTHER BUSINESS OF ASSESSEE HAVE BEEN UNDERTAKEN AT MARKET VALUE. THE ASSESSEE VIDE ITS GROUND NO.18 ALSO SUBMITTED WITHOUT PREJUDICE TO OTHER GROUNDS THAT O NLY THE DEDUCTION CLAIMED ON THE PROFITS ELEMENT I.T.A. NO.5784/DEL/2016 18 ATTRIBUTABLE TO AFORESAID INTER-UNIT TRANSFER COULD HAVE BEEN DISALLOWED AT BEST AND NOT WHOLE THE AMOUNT OF INTER-UNIT TRANSFER. 18. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS AND AS WELL AS MATERIAL REFER RED TO BEFORE US AT THE TIME OF HEARING. THE PROVISIONS OF SECTION 10A(7) READ WITH SECTION 80-IA(8) OF THE AC T ARE THERE TO ENSURE THAT PROFITS OF ELIGIBLE UNIT ARE N OT OVERSTATED. THESE PROVISIONS SPECIFICALLY PROVIDES FOR THE PURPOSE OF DEDUCTION UNDER AFORESAID SECTION THAT TRANSACTIONS IN THE NATURE OF TRANSFER OF GOODS AND SERVICES BETWEEN ELIGIBLE UNIT AND OTHER NON-ELIGIB LE UNIT SHOULD BE ENTERED INTO AT MARKET VALUE OR ARMS LEN GTH PRICE. IN THE CASE ON HAND, THE ASSESSEE HAS ENTERE D INTO TRANSACTIONS AT THE MARKET PRICE AND THEREFORE PROFITS OF INDORE SEZ UNITS ARE NOT OVERSTATED. THE REFORE, THE DISALLOWANCE MADE BY AO OF RS.7,52,64,246/- U/S 10(1A) IN RESPECT OF INTER-UNIT TRANSFERS IS HEREBY DELETED. IN VIEW OF ABOVE, THE GROUND NO.18 RAISED BY ASSESSEE BECOMES ACADEMIC AND IS THEREFORE DISMISSE D. ADDITIONAL CLAIMS (GROUND NO.19-20): 19. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE PREFERRED CERTAIN ADDITIONAL CLAIMS BEFORE THE AO. THE AO HOWEVER DID NOT EVEN DISCUSS SUCH CLAIMS OF THE ASSESSEE IN HIS ORDER. THE ASSESSEE THEREAFTER RAISED I.T.A. NO.5784/DEL/2016 19 SAID CLAIMS BEFORE DRP. THE ASSESSEE RELIED UPON ON THE JUDGMENT OF CIT V SAM GLOBAL SECURITIES LTD [2014- 360-ITR-682 (DEL)] AND MIT MOHAN SINGH V DCIT [2013-155-TTJ-1-CHD] PRAYED THAT A LEGAL CLAIM CAN BE MADE AT THE TIME OF DURING ASSESSMENT PROCEEDINGS. THE DRP ALSO DID NOT ENTERTAIN THE CLAIM RELYING ON THE GOETZE (INDIA) LIMITED VS CIT 284 ITR 323. 20. IN ASSESSEES APPEAL FOR AY 2010-11 ( ITA NO. 356/DEL/15) WE HAVE DEALT THIS ISSUE OF ADMISSION OF ADDITIONAL CLAIMS. IN THE SAID CASE FOR AY 2010-11, WE HAD RELIED ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF NTPC LTD [229 ITR 383 (1998)] AND OTHER JUDGMENTS HOLDING THAT TRIBUNALS POWER ARE WIDE ENOUGH TO ADMIT ANY ADDITIONAL CLAIM/ GROUND. THE ADDITIONAL CLAIMS OF THE ASSESSEE ARE THEREBY DEALT AS UNDER: CLAIM 1. RECEIPT FROM TRANSFER OF CARBON EMISSION REDUCTION (CER) CERTIFICATES: 21. THE FACTS AS SUBMITTED ARE THAT ASSESSEE HAS RECEIVED CARBON EMISSION REDUCTION (CER OR CARBO N CREDITS) CERTIFICATES ON ACCOUNT OF ITS EFFORTS TO REDUCE THE EMISSION OF GREENHOUSE GASES IN TERMS OF KYOTO PROTOCOL. DURING THE RELEVANT YEAR THE ASSESSEE TRANSFERRED SUCH CERTIFICATES FOR A CONSIDERATION. FOR THE RELEVANT ASSESSMENT YEAR 2012-13 THE ASSESSEE RECEI VED AN AMOUNT OF RS. 439.73 CRORES IN RESPECT OF SALE O F I.T.A. NO.5784/DEL/2016 20 SUCH CERS. THE INCOME FROM CERS HAS BEEN DISCLOSED IN PROFITS & LOSS ACCOUNTS AND VARIOUS NOTES AND ANNEXURE OF ANNUAL REPORT OF THE ASSESSEE. THE ASSE SSEE ORIGINALLY INCLUDED THE ABOVE RECEIPTS IN ITS TOTAL INCOME WHILE FILING THE RETURN OF INCOME. SUBSEQUENTLY THE DECISION REPORTED IN MY HOME POWER LTD. VS DCIT [20 12] 27 TAXMANN.COM 27 151 TTJ 616 SUBSEQUENTLY CONFIRMED BY THE HONBLE ANDHRA PRADESH HIGH COURT IN CIT VS MY HOME POWER LTD. [2014] 365 ITR 82, DESCRIBED CARBON CREDITS AS AN OFFSHOOT OF ENVIRONM ENTAL CONCERNS AND NOT OFFSHOOT OF BUSINESS AND HENCE HEL D AS CAPITAL RECEIPT IN NATURE. IN LIGHT OF ABOVE JUD GMENT THE ASSESSEE CLAIMED BEFORE AO THAT SUCH RECEIPTS F ROM SALE OF CER CERTIFICATES ARE NOT CHARGEABLE TO TAX BEING SUCH RECEIPTS CAPITAL IN NATURE AND HENCE SHOULD BE EXCLUDED FROM THE TOTAL INCOME OF ASSESSEE. 22. THE AO HOWEVER DID NOT ENTERTAIN THE ADDITIONAL CLAIM OF THE ASSESSEE. THE DRP DID NOT ADJUDICATE THE ADDITIONAL CLAIM OF THE ASSESSEE REL YING ON THE JUDGMENT IN GOETZE (INDIA) LIMITED VS CIT 284 ITR 323. 23. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS AND AS WELL AS MATERIAL REFERRED TO BEFORE US AT THE TIME OF HEARING. THE FACTS AND ISS UE INVOLVED ARE IDENTICAL THE ASSESSEES OWN CASE FOR AY I.T.A. NO.5784/DEL/2016 21 2010-11, WHICH WE HAVE DEALT IN ITA NO. 356/DEL/15. IN THE SAID CASE WE ALLOWED THE ASSESSEES PLEA FOR ADMISSION OF ADMISSION CLAIM IN RESPECT OF CERS AND REMITTED BACK THE ISSUE TO THE FILE OF AO. SIMILARL Y IN THIS YEAR, WE ALLOW THE ASSESSEES GROUND FOR ENTERTAINMENT OF ABOVE ADDITIONAL CLAIM AND REMIT T HE ISSUE BACK TO THE FILE OF AO TO DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE SHALL BE FREE TO FILE SUCH DOCUMENTS, EXPLANATIONS, SUBMISSIONS AS IT DEEMS FIT IN RESPEC T OF THIS CLAIM. CLAIM 2. INTEREST SUBSIDY UNDER TECHNOLOGY UPGRADATION FUND (TUF) SCHEME: 23. DURING THE YEAR, ASSESSEE HAD OBTAINED LOAN OF RS. 6,250 LACS FROM SBI AND RS. 3,500 LACS FROM STA TE BANK OF MYSORE UNDER TUF SCHEME ISSUED BY THE MINISTRY OF TEXTILE, GOVERNMENT OF INDIA. WHETHER T HE LOAN WAS UTILIZED AS PER THE SCHEME IS NOT UNDER QUESTION. UNDER THE TUF SCHEME, THE ASSESSEE WAS ELIGIBLE FOR 5% INTEREST SUBSIDY CALCULATED ON THE LOAN OUTSTANDING WHICH AMOUNTED TO RS. 3,08,96,338/-. TH E ASSESSEE MADE SUCH ADDITIONAL CLAIM VIDE LETTER DAT ED 16.02.2016 BEFORE THE AO. THE AO DID NOT ENTERTAIN THE ADDITIONAL CLAIM OF THE ASSESSEE. THE DRP DID NOT A DMIT THE ADDITIONAL CLAIM OF THE ASSESSEE RELYING ON THE I.T.A. NO.5784/DEL/2016 22 JUDGMENT IN GOETZE (INDIA) LIMITED VS CIT 284 ITR 323. 24. GOING INTO THE DETAILS, THE LD. COUNSEL ARGUED THAT THE OBJECTIVE OF THE SUBSIDY/INCENTIVE UNDER T UF SCHEME WAS EXPANSION OF CAPACITIES, MODERNISATION A ND UP-GRADATION OF FACILITIES AND HENCE NATURE OF SUBS IDY WAS CAPITAL IN NATURE NOT REVENUE IN NATURE. THE ASSESSEE ALSO PLACED RELIANCE UPON THE FOLLOWING JUDGMENTS WHEREIN SUCH SUBSIDY WAS HELD TO BE AS A CAPITAL RECEIPT: CIT VS.- SH. SHAM LAL BANSAL (HONBLE PUNJAB & HARYANA HIGH COURT, ITA NO. 472 OF 2010) PCIT V. ANKIT METAL & POWER LTD. [416 ITR 591 2019] CAL HIGH COURT CIT VS.- PONNI SUGARS & CHEMICALS LTD. REPORTED IN (2008) 306 ITR 392 (SC) CIT VS.- RASOI LTD. [(2011) 335 ITR 438 (CAL.)] CIT V. CHAPHALKAR BROTHERS [2017] 88 TAXMANN.COM 178 (SC)/ (2018) 400 ITR 279 (SC) DCIT VS.- RELIANCE INDUSTRIES (2004) 88 ITD 273 (MUM.)(SB); CIT VS. BIRLA VXL LT D. (2013) 90 DTR 376 (GUJ.)(HC); HYDRO CARBONS & CHEMICALS VS.- ACIT (ITA NO. 1982-86/KOL/09); I.T.A. NO.5784/DEL/2016 23 INDO RAMA SYNTHETICS (I) LTD. VS. ACIT (2012) 33 CCH 526 (DEL.)(ITAT). CIT V GLOSTER JUTE MILLS LTD ITA NO. 766/KOL/2010 SHREE BALAJI ALLOYS V. CIT [2011] 333 ITR 335/198 TAXMAN 122/9 TAXMANN.COM 255 (J&K) 25. THE LD. AR HAS FURTHER SUBMITTED THE DEPARTME NT HAS IN SUBSEQUENT YEARS ACCEPTED THE ASSESSEES CLA IM OF INTEREST SUBSIDY ON TUF SCHEME AS CAPITAL IN NAT URE AS NO ADDITION HAS BEEN MADE IN SUBSEQUENT YEARS. 26. LD DR RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 27. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED T HE RELEVANT FINDINGS AND AS WELL AS MATERIAL REFERRED TO BEFORE US AT THE TIME OF HEARING. IT IS A SETTLED P OSITION THAT PURPOSE OF SUBSIDY OR INCENTIVE AND NOT THE NOMENCLATURE OF SUCH INCENTIVE HAVE TO BE SEEN FOR THE PURPOSE OF DECIDING ITS NATURE AS CAPITAL OR REVENU E. IN THE JUDGMENT OF PONNI SUGARS & CHEMICALS LTD. (SUPRA), THE HONBLE APEX COURT HAVE HELD THAT CHARACTER OF THE RECEIPT OF A SUBSIDY IN THE HANDS OF RECIPIENT ASSESSEE HAS TO BE DECIDED WITH RESPECT T O THE PURPOSE FOR WHICH SUBSIDY IS GRANTED. IF THE SUBSID Y IS RECEIVED TO ENABLE THE ASSESSEE TO RUN ITS BUSINESS MORE PROFITABLY THEN SUCH SUBSIDY IS REVENUE IN NATURE. WHILE, IF THE SUBSIDY HAS BEEN RECEIVED BY THE ASSE SSEE I.T.A. NO.5784/DEL/2016 24 TO SET UP A NEW UNIT OR FOR EXPANSION OF EXISTING U NIT THEN SUCH SUBSIDY WOULD BE CAPITAL IN NATURE. WE FI ND FORM THE OBJECTIVE OF TUF SCHEME THAT INTEREST SUBS IDY UNDER SUCH SCHEME WAS GRANTED FOR EXPANSION OF CAPACITIES, MODERNISATION AND UP GRADATION OF FACIL ITIES. IN CASE OF CIT V. SHAM LAL BANSAL (SUPRA), THE HON BLE PUNJAB & HARYANA HIGH COURT ON SIMILAR FACTS HELD SUBSIDY RECEIVED UNDER TUF SCHEME AS CAPITAL RECEIP T. SINCE THE ISSUE UNDER HAND IS RELATED TO ADDITIONAL CLAIM WHICH WAS NOT ENTERTAINED BY THE LOWER AUTHORITIES, W E THEREFORE ALLOW THE ASSESSEES GROUND FOR ENTERTAINMENT OF ABOVE ADDITIONAL CLAIM AND REMIT T HE ISSUE BACK TO THE FILE OF AO TO DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE SHALL BE FREE TO FILE SUCH DOCUMENTS, EXPLANATIONS, SUBMISSIONS AS IT DEEMS FIT IN RESPEC T OF THIS CLAIM. CLAIM 3. ADDITIONAL DEPRECIATION: 28. THE FACTS AS SUBMITTED ARE THAT DURING THE PRECEDING FINANCIAL YEAR 2010-11 (RELEVANT TO AY 20 11- 12), THE ASSESSEE CLAIMED ADDITIONAL DEPRECIATION @ 10% (HALF OF 20%) AMOUNTING TO RS. 2,50,78,490/- ON ASS ETS BEING THE PLANT AND MACHINERY PUT TO USE FOR LESS T HAN 180 DAYS. IN VIEW OF ASSESSEE, IT IS ELIGIBLE TO CL AIM THE BALANCE AMOUNT OF DEPRECIATION I.E. RS.2,50,78,490/ - IN I.T.A. NO.5784/DEL/2016 25 THE SUBSEQUENT YEAR VIZ. AY 2012-13 UNDER CONSIDERATION. 29. THE LD. COUNSEL HAS PLACED RELIANCE ON FOLLOWI NG JUDICIAL PRONOUNCEMENTS: APOLLO TYRES LTD VS ACIT (2014) 64 SOT 203 CIT VS COSMO FILMS LTD(2012) (ITA 1404/2008) CIT VS SIL INVESTMENT LIMITED(2012) (ITA NO. 24319 (DEL) 2010) M/S TCPL PACKAGING LTD VS DEPUTY COMMISSIONER OF INCOME TAX [2019-TIOL-907- ITAT-MUM] THE COMMISSIONER OF INCOME TAX VS KALPATARU POWER TRANSMISSION LTD [2019-TIOL-1424-ITAT- AHM] 30. THE AR FURTHER POINTED OUT THAT THE FINANCE ACT, 2015, HAS AMENDED THE LAW BY INSERTING THIRD PROVISO TO SECTION 32(1)(IIA) - APPLICABLE W.E.F. 1 ST APRIL 2016 TO ALLOW THE CLAIM OF ADDITIONAL DEPRECIATION FOR ASSETS PUT TO USE FOR LESS THAN 180 DAYS IN SUBSEQU ENT ASSESSMENT YEAR. 31. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS AND AS WELL AS MATERIAL REFER RED TO BEFORE US AT THE TIME OF HEARING. WE HAVE DEALT THE IDENTICAL ISSUE IN THE ASSESSEES OWN CASE FOR AY 2 010- 11 ( ITA NO. 356/DEL/15) AND SET ASIDE THE ISSUE TO THE I.T.A. NO.5784/DEL/2016 26 FILE OF AO TO CONSIDER THE CLAIM OF THE ASSESSEE. FOLLOWING THE SAME, WE HEREBY DIRECT THE AO TO CONSIDER THE CLAIM OF THE ASSESSEE AND GIVE HIS FIN DINGS THEREON. FOR THIS PURPOSE THIS ISSUE IS SET ASIDE T O THE FILE OF AO. THE AO SHALL BE FREE TO CALL FOR SUCH INFORMATION AND EXPLANATION AS HE DEEMS FIT IN ORDE R TO ADJUDICATE THIS CLAIM OF THE ASSESSEE AFTER GRANTIN G REASONABLE OPPORTUNITY TO THE ASSESSEE OF BEING HEA RD. THE ASSESSEE IS ALSO FREE TO FILE SUCH DOCUMENTS, EXPLANATIONS, SUBMISSIONS AS IT DEEMS FIT IN RESPEC T OF THIS CLAIM. CLAIM 4. DEPRECIATION ON GOODWILL: 32. THE ASSESSEE HAD PURCHASED A RUNNING BUSINESS IN THE FINANCIAL YEAR 2008-09 AND PAID SAL E CONSIDERATION IN EXCESS OF VALUE OF NET ASSETS ACQU IRED. THE EXCESS PAYMENT WAS RECOGNIZED AS GOODWILL IN BO OKS OF ACCOUNT. DURING THE YEAR, RELEVANT TO ASSESSMEN T YEAR 2012-13, THE ASSESSEE COMPANY HAS CLAIMED DEPRECIATION ON GOODWILL OF RS.45,39,692/-. 33. IT WAS SUBMITTED THAT AMOUNT OF GOODWILL REPRESENTS THE EXCESS OF CONSIDERATION PAID FOR PUR CHASE OF SUCH BUSINESSES OVER THE VALUE OF ASSETS ACQUIRE D. VALUATION REPORTS FOR VARIOUS ASSETS ACQUIRED WERE PLACED ON RECORD BY THE ASSESSEE DURING THE PROCEEDINGS. THE ASSESSEE MADE SUCH ADDITIONAL CLAI M I.T.A. NO.5784/DEL/2016 27 MADE VIDE LETTER DATED 09.02.2016 BEFORE THE AO STA TING THAT EXCESS AMOUNT PAID FOR PURCHASE OF BUSINESS OF RS. 3,68,94,006/- BE TREATED AS GOODWILL AND DEPRECIATI ON BE ALLOWED THEREON. THE AO DID NOT ENTERTAIN THE ADDITIONAL CLAIM OF THE ASSESSEE. THE DRP DID NOT A DMIT THE ADDITIONAL CLAIM OF THE ASSESSEE RELYING ON THE JUDGMENT IN GOETZE (INDIA) LIMITED VS CIT 284 ITR 323. 34. IN THIS RESPECT THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRECEDENTS FOR SUCH CLAIM: ALAPATI VENKATARAMIAH V/S. CIT (57 ITR 185) EVANS FRASER AND CO. LTD. (IN LIQUIDATION) V/S. CIT (137 ITR 493) SMIFS SECURITIES [TS-639-SC-2012] BIRLA GLOBAL ASSET FINANCE CO. LTD [TS-791-HC- 2012 (BOM)] WORLDWIDE MEDIA PVT LTD [TS-56-ITAT-2014 (MUM)] DCIT V. INTERTEK INDIA PVT. LTD. [2014-TIOL-442- ITAT-DEL] CONFIRMED BY HON'BLE DELHI HIGH COURT. DY. CIT V. ZYDUS WELLNESS LTD. [2017] 162 ITD 604 (AHMEDABAD - TRIB.) CIT V. B.C. SRINIVASA SETTY [1981] 128-ITR-294 TOYO ENGINEERING INDIA LTD. [TS-655-ITAT- 2014(MUM)] HINDUSTAN COCA COLA BEVERAGES PVT. LTD. [TS-7- I.T.A. NO.5784/DEL/2016 28 HC-2011(DEL)] SKYLINE CATERERS (P.) LTD [TS-59-ITAT-2007(MUM)] JOHNSON MATTHEY CHEMICALS INDIA PVT LTD [TS- 604-ITAT-2017(PUN)] 35. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS AND AS WELL AS MATERI AL REFERRED TO BEFORE US AT THE TIME OF HEARING. IN CA SE OF SMIFS SECURITIES (SUPRA) , THE HONBLE APEX COURT HAS HELD THAT GOODWILL AMOUNTS TO INTANGIBLE ASSETS WHI CH ARE ELIGIBLE FOR DEPRECIATION. THE ISSUE IS HOWEVER AN ADDITIONAL CLAIM AND REQUIRE EXAMINATION BY AO, WE THEREFORE SET ASIDE THIS ISSUE BACK TO THE FILE OF AO TO DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GRANTI NG A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE SHALL BE FREE TO FILE SUCH DOCUMENTS, EXPLANATIONS, SUBMISSIONS AS IT DEEMS FI T IN RESPECT OF THIS CLAIM. CLAIM 5. CLAIM OF EXCISE DUTY COMPONENT INCLUDED IN SALES: 36. FACTS AS SUBMITTED TO US ARE THAT DURING THE FINANCIAL YEAR, ONE OF THE UNIT AT TECHNICAL TEXTIL ES BUSINESS AT KASHIPUR HAS MADE SALE AMOUNTING TO RS.1,26,53,28,518/- INCLUSIVE OF EXCISE DUTY. EXCIS E DUTY COMPONENT ON SUCH SALES COME TO RS. 11,81,58,510/- BY REVERSE WORKING MECHANISM. SUCH I.T.A. NO.5784/DEL/2016 29 EXCISE DUTY COMPONENT, AS CLAIMED BY THE ASSESSEE BEING IN THE NATURE OF CAPITAL RECEIPT, BE EXCLUDED FROM THE TAXABLE INCOME OF THE ASSESSEE. THE AO DID NOT ENTERTAIN THE ADDITIONAL CLAIM OF THE ASSESSEE. THE DRP DID NOT ADMIT THE ADDITIONAL CLAIM OF THE ASSESSEE RELYING ON THE JUDGMENT IN GOETZE (INDIA) LIMITED VS CIT (SUPRA). 37. HAVING HEARD THE ASSESSEE, WE HEREBY REMAND BACK THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION. THE ASSESSEE SHALL BE FREE TO FILE SU CH DOCUMENTS, EXPLANATIONS, SUBMISSIONS AS IT DEEMS FI T IN RESPECT OF THIS CLAIM. EXCLUSION/INCLUSION OF CAPITAL RECEIPTS/ITEMS IN TH E BOOK PROFIT U/S 115JB (GROUND NO.21 AND 22): 38. IN GROUNDS NO. 21 AND 22 THE ASSESSEE HAS PLEADED TO EXCLUDE CERTAIN RECEIPTS VIZ., CER RECEI PTS, SUBSIDY UNDER TUF, FROM THE COMPUTATION OF BOOK PROFITS U/S 115JB. FURTHER ASSESSEE HAS SOUGHT TO EXCLUDE/INCLUDE CERTAIN PROVISIONS WRITTEN BACK /CREATED FROM THE COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT. THE CLAIM FOR EXCLUSION/INCLUSION OF SUCH ITEMS IN COMPUTATION OF BOOK PROFITS WAS MADE BY THE ASSESSEE BEFORE LOWER AUTHORITIES. HOWEVER THE LOWER AUTHORITIES DID NOT ENTERTAIN THE ADDITIONAL CLAIM OF THE ASSESSEE. THE ITEMS SOUGHT TO BE EXCLUDED / INCLUDE D I.T.A. NO.5784/DEL/2016 30 THROUGH ABOVE GROUNDS ARE AS UNDER: CAPITAL RECEIPTS A) EXCLUSION OF RS. 4,39,72,72,157/- RECEIVED BY THE ASSESSEE ON ACCOUNT OF TRANSFER OF CARBON EMISSION REDUCTIONS (CERS) FROM THE BOOK PROFIT OF THE ASSESSEE. B) EXCLUSION OF RS. 3,08,96,338/- ON ACCOUNT OF INTEREST SUBSIDY RECEIVED UNDER THE TUF SCHEME. C) EXCLUSION OF EXCISE DUTY COMPONENT AMOUNTING TO RS.11,81,58,510/- ON SALE AFFECTED BY ELIGIBLE UNIT U/S 80-IC (KASHIPUR UNIT) OF WORKED O UT ON REVERSE CALCULATION MECHANISM BEING CAPITAL RECEIPT IN NATURE. OTHER EXCLUSIONS/INCLUSIONS D) EXCLUSION OF RS. 35,02,570/- ON ACCOUNT OF PROVISIONS FOR DOUBTFUL DEBTS WRITTEN BACK. E) EXCLUSION OF RS. 4,00,00,000/- ON ACCOUNT OF PROVISIONS FOR DOUBTFUL ADVANCES WRITTEN BACK. F) EXCLUSION OF RS. 1,54,10,239/- ON ACCOUNT OF PROVISIONS FOR INVESTMENTS WRITTEN BACK. G) INCLUSION OF RS. 22,66,432/- ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBT CREATED H) INCLUSION OF RS. 7,64,706/- ON ACCOUNT OF PROVISION FOR DOUBTFUL ADVANCES CREATED I) INCLUSION OF RS. 9,07,600/- ON ACCOUNT OF PROVISION FOR DOUBTFUL ADVANCES CREATED I.T.A. NO.5784/DEL/2016 31 39. THE ASSESSEE PLACED RELIANCE UPON THE FOLLOWING JUDGMENTS TO EXCLUDE CAPITAL RECEIPTS FROM BOOK PRO FITS U/S 115JB. BINANI INDUSTRIES LTD. [TS-111-ITAT-2016(KOL) L.H. SUGAR FACTORY LTD. (ITA NOS 417, 418 & 339/LKW/2013) ALSO APPROVED BY HON'BLE ALLAHABAD HIGH COURT [2016-TIOL-1942-HC-ALL HIGH COURT-IT]. PCIT V. ANKIT METAL & POWER LTD. [416 ITR 591 2019] CAL HIGH COURT ALOK INDUSTRIES LTD. [TS-313-ITAT-2018] 40. IN RESPECT OF EXCLUSION OF OTHER ITEMS FROM BOO K PROFITS THE ASSESSEE HAS SUBMITTED THAT AS PER EXPLANATION 1 TO SECTION 115JB OF THE INCOME TAX ACT, 1961, THE AMOUNT WITHDRAWN FROM ANY RESERVES SHOULD BE REDUCED FROM THE NET PROFIT TO DETERMINE BOOK PR OFITS. IT WAS ARGUED THAT WHEN SUCH PROVISION WAS ORIGINAL LY MADE, THE SAME WAS ADDED TO THE BOOK PROFITS U/S 115JB AND THUS IT IS LOGICAL TO REDUCE THE AMOUNT O F PROVISIONS WRITTEN BACK FROM SUCH BOOK PROFITS. 41. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS AND AS WELL AS MATERI AL REFERRED TO BEFORE US AT THE TIME OF HEARING. THE I SSUE INVOLVES ADDITIONAL CLAIM WHICH WERE NOT ADJUDICATE D BY THE LOWER AUTHORITIES. WE THEREFORE SET ASIDE THE ISSUES RELATING TO COMPUTATION OF BOOKS PROFITS BACK TO TH E FILE OF AO TO DECIDE THE SAME IN ACCORDANCE WITH LA W I.T.A. NO.5784/DEL/2016 32 AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE SHALL BE FREE TO FILE SUCH DOCUMENTS, EXPLANATIONS, SUBMISSIONS AS IT DEE MS FIT IN RESPECT OF THIS CLAIM. 42. OTHER GROUNDS ARE EITHER CONSEQUENTIAL OR HAVE BECOME ACADEMIC, HENCE SAME ARE TREATED AS INFRUCTUOUS. 43. IN THE RESULT, THE APPEAL OF THE APPELLANT- ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH FEBRUARY, 2020. SD/- SD/- [PRASHANT MAHARISHI] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24.2.2020 PKK: