NALWA STEEL POWER LIMITED, NEW DELHI V. ACIT, CIRCLE- 17(2), NEW DELHI

ITA 7176/DEL/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 7942 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2013-2014
• Appeal Filed On: 30-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Assessee Lawyers: V K TULSIAN
• Keywords: Business income; Depreciation; Transfer pricing; Business expenditure; Principle of natural justice; Maximum Marginal Rate; Rule of consistency; Additional depreciation; Retrospective amendment; Commercial expediency
• Section: 92C; 143(3); 92D; 244A; 133(6); 37(1); 80G; 37; 92

Judgement Text

1 ITA NO. 7176/DEL/2017 IN THE INCOME TAX APPELLA TE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 7176/DEL/2 017 (A.Y 2013-14) NALWA STEEL POWER LTD. 28, NAJAFGARH ROAD, WEST PUNJABI BAGH, NEW DELHI AABCN3209L (APPELLANT) VS ACIT CIRCLE-17(2) NEW DELHI (RESPONDENT) APPELLANT BY SH. V. K. TULSIAN, ADV RESPONDENT BY SH. SANJAY I BARA, CIT DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED AGAINST THE ORDER DATED 18/10/ 2017 PASSED BY ACIT, CIRCLE 17(2), NEW DELHI U/S 144C (13) READ WITH SEC TION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- CONCISE/ REVISED GROUNDS OF APPEAL 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE ORDER OF ASSESSMENT FRAMED BY THE LD. ACIT, CIRCLE 17(2), NE W DELHI (HEREINAFTER REFERRED AS 'THE LD. A.O.) PURSUANT TO THE DIRECTIO N OF THE HON'BLE DISPUTE RESOLUTION PANEL-I (HEREINAFTER REFERRED AS 'THE HO N'BLE DRP') UNDER SECTION 144C(5) OF THE ACT, IS A VITIATED ORDER HAVING BEEN PASSED IN VIOLATION OF PRINCIPLE OF NATURAL JUSTICE AND IS OTHERWISE ARBIT RARY AND THUS BAD IN LAW AND DATE OF HEARING 18.10.2018 DATE OF PRONOUNCEMENT 31.12.2018 2 ITA NO. 7176/DEL/2017 VOID AB-INITIO. 2. THAT THE HON'BLE DRP-2 DIRECTION ARE BAD IN LAW TO THE EXTENT THE SAME ARE PREJUDICIAL TO THE APPELLANT BECAUSE: - (A) THAT THE LD. TPO ERRED, ON FACTS AND IN LAW, IN APP LYING LOWER TURNOVER FILTER OF INR 1 CRORE FOR REJECTING THE IN DEPENDENT COMPANIES. WITHOUT PREJUDICE, THE LD. TPO ERRED, ON FACTS AND IN LAW, IN NOT APPLYING AN UPPER TURNOVER FILTER TO REJECT COMPANIES HAVING SIGNIFICANTLY HIGHER TURNOVER VIS-A-VIS THE APPELLANT. (B) THAT THE LD. TPO/HON'BLE DRP HAVE ERRED, ON FACTS A ND IN LAW, IN REJECTING COMPREHENSIVE OBJECTION FILED TOWARDS THE ISSUE RELATED TO THE SDT. 3. THAT THE HON'BLE DRP-2 AND THE LD. A.O./TPO HAS ERR ED ON FACTS AND LAW BY REJECTING THE INTERNAL CUP METHOD ADOPTED BY THE APPELLANT TOWARDS THE INTERNAL TRANSFER OF POWER, DISALLOWANCES OF EXPENS ES MAKING THE ENTIRE TRANSFER PRICING ADJUSTMENT OF INR 30,91,35,204/- I N RESPECT OF FOLLOWING SPECIFIED DOMESTIC TRANSACTIONS: (A) THE LD. TPO AND LD. A.O. HAVE ERRED, IN LAW AND FACTS AND MAKING THE SDTR ADJUSTMENT OF INR 29,61,28,642/- BY ERRONE OUSLY RECALCULATING AND RE-COMPUTING THE TRANSFER OF POWER AT THE RATE ON NOTIONAL BASIS, WHICH IS CONTRARY TO PROVISION OF SECTION 80IA(8) OF I.T. ACT REGARDING THE MARKET RATE OF DISTRIBUTION OF POWER BECAUSE:- (I) BY NOT ADHERING THE MANDATE OF SECTION 80IA(8) TOW ARDS 'MARKET RATE' WHICH HAVE BEEN SETTLED DOWN BY THE VARIOUS C OURTS AND TRIBUNAL., (II) BY SUO-MOTTO REJECTING THE COMPETITIVE ANALYSIS IN THE DOCUMENTATION FILED BY THE APPELLANT IN TERMS OF SE CTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME TAX RULES, 1962 (' THE RULES') AND PROCEEDED TO MAKE THE TRANSFER PRICING ADDITION BAS ED ON REDETERMINATION OF THE ARM'S LENGTH PRICE OF THE DOMESTIC TRANSACTI ON TOWARDS TRANSFER OF 3 ITA NO. 7176/DEL/2017 POWER. (III) BY USING SINGLE YEAR OF FINANCIAL DATA (I.E. DATA FOR FY 2012-13 ONLY) AS AGAINST MULTIPLE YEAR FINANCIAL DATA USED BY THE APPELLANT FOR DETERMINATION OF ARM'S LENGTH PRICE FOR THE PROCURE MENT OF POWER. (IV) BY REJECTING THE COMPARABLE MARKET RATE FOR PROCURE MENT OF POWER EVEN FROM THE SAME CSEB TO AE WITHOUT APPRECIATING THE FACT THAT THE PURCHASE OF POWER PROVIDED BY THESE COMPANIES ARE S IMILAR TO THE FUNCTIONAL PROFILE OF THE APPELLANT. (V) BY SELECTING CERTAIN COMPANIES TOWARDS SALE OF POW ER THROUGH EXCHANGE AS COMPARABLE WITHOUT APPRECIATING THAT TH E AVERAGE OF POWER SALE PRICE HAS NOTHING TO DO WITH THE PRESENT FACTS AND CIRCUMSTANCES BECAUSE THOSE COMPANIES HAVE THEIR OWN WAY OF CARRY ING THE BUSINESS ACTIVITIES. (VI) BY NOT APPRECIATING THAT A MACHINERY PROVISION WHI CH ENABLES THE ASSESSEE TO AVAIL OF A DEDUCTION U/S 80IA , CONFERR ED BY SUBSTANTIVE PROVISION IN THE INCOME TAX ACT IS REQUIRED TO BE C ONSTRUED LIBERALLY. (VII) BY NOT AFFORDING AN OPPORTUNITY FOR PURPORTING THE RATES TO BE ADOPTED. (B)THE HON'BLE DRP AND LD. TPO/ A.O. HAVE ERRED IN LAW AND FACTS BY ERRONEOUSLY QUESTIONED THE BUSINESS PRUDENCE MAKING PARTIAL ADDITION ON ACCOUNT OF MANAGERIAL REMUNERATION 82,27,928/- PAID TO SMT. SHALLU JINDAL, DIRECTOR OF THE APPELLANT COMPANY IN TERM OF HER CO NTRACTUAL ADVISORY SERVICES TO AE WITHOUT APPRECIATING THE FACT THAT THE SERVIC ES PROVIDED BY HER TO THE COMPANY HAVE NOWHERE DISPUTED, PARTICULARLY WHEN TH ERE IS NO FINDING THAT THE SALARY EXPENSE WAS BOGUS OR NOT GENUINE BUT ON THE FOLLOWING REASONS:- (I) BY SELECTING OTHER DIRECTOR SALARY AS COMPARABL E WITHOUT APPRECIATING THAT THESE DIRECTOR ARE ENGAGED IN OTHER SERVICES W HILE THE FORMER FOR THE SPECIFIC SERVICES WHICH DIRECTLY CONTRIBUTE TOWARDS COMPANY POLICES 4 ITA NO. 7176/DEL/2017 MERCHANT BANKING DEVICES, SECURITY AND STOCK BROKIN G SERIES, LOAN SYNDICATION/ DEBT SYNDICATION AND PROJECT CONSULTAN CY SERVICES, INVESTMENT BANKING SERVICES, INSTITUTIONAL EQUITIES , INSURANCE BROKERAGE, ASSET MANAGEMENT AND WEALTH MANAGEMENT, MERGER AND ACQUISITIONS ADVISORY, ESOP ADVISORY, EQUITY/DEBT PLACEMENT AND RESTRUCTURING, SYNDICATION OF FINANCE, PORTFOLIO MANAGEMENT AND MU TUAL FUND DISTRIBUTION AND DO NOT SATISFY THE FUNCTIONAL, ASSET AND RISKS ('FAR') ANALYSIS TEST VIS- A-VIS THE APPELLANT IN RELATION TO THE SPECIFIED DO MESTICS I TRANSACTION PERTAINING TO PROVISION OF ADVISORY SERVICES. (C).THAT THE HON'BLE DRP AND LD. TPO/A.O. FAILED TO APPLY HIS MIND ON THE NATURE OF EXPENSE AMOUNTING TO RS. 47,78,634/- FOR GENERATION OF POWER OUT OF WHICH SOME PORTION USED IN CAPTIVE POWER UNIT AND T HE REMAINING TRANSMITTED IN THE MANUFACTURING OF SPONGE IRON ETC. I.E. MAIN BUSINESS OF THE APPELLANT WHICH REQUIRES A LOT OF EXPENSES RESULTING IN ALLOC ATION OF EXPENSES ON PROPORTIONATE BASIS. 4. THE LD. TPO/HON'BLE DRP HAVE ERRED ON THE FACTS AND IN LAW, BY MAKING THE ADDITIONS IN THE NATURE OF BY REDUCING THE TRAN SFER PRICE OF POWER AS WELL AS INCREASE THE EXPENSES TOWARDS THE CLAIM/DEDUCTIO N U/S 80-IA(8) INSTEAD OF REDUCING THE CLAIM U/S 80-IA(8). THE LD. A.O. HA S ERRED ON FACTS AND IN LAW INSTEAD OF COMPUTING DEDUCTION U/S 80IA(8) AFRESH H AS MADE THE ADDITIONS W.R.T REDUCTION IN TRANSFER PRICE OF POWER, DISALLO WANCES OF EXPENSES. 5. THAT THE LD. A.O. HAS ERRED IN FACTS AND IN LAW BY DISALLOWING THE BANK GUARANTEE COMMISSION U/S 40A(IA) AMOUNTING TO RS. 1 ,14,085/- DESPITE OF THE DIRECTION GIVEN BY THE HON'BLE DRP TOWARDS DELETION OF SUCH ADDITION MADE U/S 40A(IA) OF I.T. ACT. HENCE THE ADDITION MADE DE SERVES TO BE DELETED. 6. THE LD. A.O. HAS ERRED IN DISALLOWING THE DEPREC IATION CHARGED BY THE ASSESSEE IN RESPECT OF ELECTRICAL INSTALLATION WITH OUT APPRECIATING THE FACT THAT THESE ELECTRICAL INSTALLATION CONTRIBUTES TO ESSENT IAL PART OF PLANT AND 5 ITA NO. 7176/DEL/2017 MACHINERY, DESPITE OF THE DIRECTION OF HON'BLE DRP TOWARDS THE DELETION OF THE ISSUE OF DEPRECIATION. 7. THE LD. A.O. HAS ERRED ON FACTS AND IN LAW BY DI SALLOWING THE CSR EXPENDITURE MADE BY THE APPELLANT AMOUNTING TO RS. 45,04,273/- BY HOLDING THAT IT IS NOT EXCLUSIVELY FOR THE BUSINESS PURPOSE WITHOUT APPRECIATING THE SUBMISSION MADE BY THE APPELLANT THAT THESE EXPENSE S INCURRED FOR ENVIRONMENTAL HAZARD AS PER THE MANDATE OF CHHATTIS GARH ENVIRONMENTAL BOARD (CEB) AS WELL AS MINISTRY OF ENVIRONMENT AND FOREST. 8. THE HON'BLE DRP AND LD. A.O HAS ERRED ON FACTS A ND LAW BY MAKING THE ADDITION ON ACCOUNT OF DIFFERENCE BETWEEN INCOME AS PER BOOKS OF ACCOUNT AND INCOME REFLECTING IN FORM 26AS, EVEN WITHOUT APPREC IATING THE SUBMISSION MADE. 9. THAT THE LD. A.O HAS ERRED , ON THE FACTS AND IN LAW, ON THE CIRCUMSTANCES OF THE CASE AND IN LAW BY ALLEGING THAT THE APPELLA NT HAS FURNISHED INACCURATE PARTICULARS OF INCOME, THEREBY POSING TO INITIATE P ENALTY PROCEEDINGS UNDER SECTION 271(L)(C) OF THE ACT. 10. THAT THE LD. A.O HAS ERRED ON FACTS AND LAW, B Y PROPOSING TO LEVY CONSEQUENTIAL INTEREST U/S 234A, B, C, D AND 244A ( 3) OF THE ACT MECHANICALLY AND WITHOUT RECORDING ANY SATISFACTION FOR ITS INIT IATION. THAT THE APPELLANT CRAVES LEAVES TO AMEND, ALTER O R TO RAISE ANY OTHER GROUND AT THE TIME OF HEARING. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTU RING AND SELLING OF SPONGE IRON, BILLETS, WIRE ROD, OXYGEN GAS AND GENERATION OF POWER. THE ASSESSEE COMPANY ELECTRONICALLY FILED ITS ORIGINAL RETURN OF INCOME ON 29.11.2013 FOR THE A.Y.2013-14 DECLARING TOTAL INCO ME AT RS. 85,22,71,300/-. SUBSEQUENTLY, THE CASE WAS SELECTED UNDER CASS FOR COMPLETE SCRUTINY. NOTICE 6 ITA NO. 7176/DEL/2017 U/S 143(2) OF THE I.T. ACT, 1961 WAS ISSUED ON 04.0 9.2014 AND DULY SERVED UPON THE ASSESSEE COMPANY. THEREAFTER, NOTICE U/S 1 42(1) OF THE I.T. ACT, 1961 ALONG WITH QUESTIONNAIRE WAS ISSUED ON 27.08.2015 A ND DULY SERVED UPON THE ASSESSEE COMPANY, WHEREIN CERTAIN DETAILS WERE CALL ED FOR. IN RESPONSE TO THESE NOTICES, C.A & AR ON BEHALF OF THE ASSESSEE COMPANY , ATTENDED HEARINGS FROM TIME TO TIME AND FILED THE REQUISITE DETAILS/INFORM ATION WHICH HAS BEEN PLACED ON RECORD. NECESSARY DETAILS WITH REGARD TO CASS RE ASONS WERE OBTAINED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND WAS EXAMIN ED AND DULY PLACED ON RECORD BY THE ASSESSING OFFICER. AS ONE OF THE REAS ONS OF CASS WAS LARGE VALUE DOMESTIC TRANSACTION WITH ASSOCIATED ENTERPRISES (F ORM 3CEB). AS PER THE INSTRUCTION NO. 15 OF 2015, THE CASE WAS THEREFORE REFERRED TO THE ASSISTANT COMMISSIONER OF INCOME TAX (TRANSFER PRICING)-2(3)( 1), NEW DELHI AFTER OBTAINING APPROVAL FROM PR. CIT -06, NEW DELHI FOR THE REFERENCE. THE TPO VIDE ORDER U/S 92CA(3) DATED 28-10-2016 SUGGESTED THE AS SESSING OFFICER TO ENHANCE THE INCOME OF THE ASSESSEE BY RS. 45,68,87, 779/- ON ACCOUNT OF DIFFERENCE IN ARMS LENGTH PRICE. DURING THE YEAR U NDER CONSIDERATION THE ASSESSEE COMPANY HAS MADE THE DOMESTIC TRANSACTION WITH THE ASSOCIATED ENTERPRISES AND A REFERENCE IN THIS REGARD WAS MADE TO TRANSFER PRICING OFFICER, NEW DELHI U/S. 92CA OF THE I.T. ACT., IN RESPECT OF INTERNATIONAL SPECIFIED DOMESTIC TRANSACTION ENTERED INTO BY THE ASSESSEE D URING F.Y. 2012-13. DRAFT ORDER U/S 144C(1) OF THE INCOME TAX ACT, 1961 WAS P ASSED ON 30.12.2016 WHEREIN ADDITION OF RS. 45,68,87,779/- WAS PROPOSED ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. THE ASSESSEE COMPANY FILED ITS OBJECTIONS TO THE PROPOSED TRANSFER PRICING ADJUSTMENT BEFORE THE DISPUTE RESO LUTION PANEL-2, NEW DELHI (DRP) WHICH ISSUED DIRECTIONS U/S 144C(5) OF THE IN COME TAX ACT, 1961 VIDE ORDER DATED 11.09.2017. ORDER GIVING EFFECT TO DIRE CTION OF DRP-2, NEW DELHI WAS PASSED BY THE ACIT, TRANSFER PRICING OFFICER-2( 3)(L), NEW DELHI ON 11.10.2017 WHEREIN THE REVISED TRANSFER PRICING ADJ USTMENTS WAS MADE AS UNDER :- SEGMENTS ADJUSTMENT (RS.) 7 ITA NO. 7176/DEL/2017 ON ACCOUNT OF MANAGERIAL REMUNERATION 82,27,928/ - PURCHASE OF POWER 29,61,28,642/ - ADJUSTMENT ON ACCOUNT OF ALLOCATION OF EXPENSES 47,78,634/ - TOTAL 30,91,35,204/ - IN VIEW OF ABOVE FACTS, ADDITION OF RS. 30,91,35,20 4/- WAS MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENTS AS DIRECTED BY THE DRP -2, NEW DELHI IN ITS ORDER DATED 11.09.2017. THE ASSESSING OFFICER ALSO MADE DISALLOWANCE OF BANK GUARANTEE COMMISSION U/S 40(A) (IA) OF THE ACT, ADD ITION IN RESPECT OF ADDITIONAL DEPRECIATION AS WELL AS EXCESS DEPRECIATION ON ELEC TRICAL INSTALLATIONS, ADDITION OF DISALLOWANCE ON ACCOUNT OF CORPORATE SOCIAL RESP ONSIBILITY EXPENSES AND ADDITION IN RESPECT OF DISALLOWANCE ON ACCOUNT OF T DS. THUS, THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED AT RS.116,68,68,380/- BY THE ASSESSING OFFICER. 5. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE PRE SENT APPEAL IS FILED BY THE ASSESSEE. 6. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS TAKEN DETAILED /COMPREHENSIVE GROUNDS OF APPEAL BUT FOR THE SAKE O F ARGUMENTS THE LD. AR IS FOCUSING ON THE DISPUTED ISSUE AS PER GROUNDS NO. 3 (A, B, C), 4.7, 4.9, 5, 6, 7, 8 AND THE OTHER REMAINING GROUNDS ARE IN THE NATURE O F SUPPORTING OF MAIN GROUNDS THEREFORE THE LD. AR FOCUSED HIS ARGUMENT D IRECTLY ON THE ISSUE INVOLVED. 7. AS REGARDS GROUND NOS. 1 AND 2 ARE GENERAL IN NA TURE, HENCE SAME ARE DISMISSED. 8. THE LD. AR SUBMITTED THAT AS REGARDS TO GROUND N O. 3 (A), THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING & SELLING OF SPONGE IRON BULLETS, WIRES, OXYGEN GAS & GENERATION OF POWER. I T HAS SET UP POWER PLANTS 8 ITA NO. 7176/DEL/2017 PRIMARILY FOR THE PURPOSE OF GENERATION OF ELECTRIC ITY FOR CAPTIVE CONSUMPTION INTER ALIA, MANUFACTURING OF VARIOUS IRON & STEEL P RODUCTS. THE ASSESSEE IS REGULARLY CLAIMING DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF PROFITS DERIVED FROM THE CAPTIVE POWER PLANT/ UNDERTAKING. THE ASSE SSEE TRANSFERS THE POWER FOR CAPTIVE USE AS PER THE MARKET RATE/BELOW ON WHI CH CSEB SELLING THE POWER WHICH IS @ 4.64 P.U. (PER UNIT). IN THE PREVIOUS SO MANY YEARS THE DEPARTMENT HAS ONLY ONE GRIEVANCES THAT CSEB RATES CONSISTS @ RS.0.38 P.U. ON ACCOUNT OF ELECTRICITY TAX, CESS AND FOR WHICH THE TRANSFER PR ICE OR POWER PRICE HAVE TO BE ADJUSTED TO THAT EXTENT BY DISALLOWING TO THAT EXTE NT AND FOR THE REMAINING THE ASSESSEE IS ENTITLED FOR TRANSFER PRICE BY TREATING SALE PRICE OF POWER TRANSFERRED FOR CAPTIVE USE. THE MATTER TRAVELLED TO THE CIT (A ) WHEREAS THE CIT (A) WAS NOT IN AGREEMENT WITH THE FINDING OF ASSESSING OFFICER AND FINALLY HOLDING THAT AS PER SECTION 80IA(8) CLEARLY SHOWS THAT THE MARKET R ATE OF THE TRANSFER OF POWER P.U. WHICH RATE IT WOULD HAVE BEEN PURCHASED OR SOL D IN OPEN MARKET & RESULT THE ASSESSEE HAVE BEEN GIVEN THE ENTIRE RELIEF ON A CCOUNT OF TRANSFER OF POWER PRICE FOR THE PURPOSE OF DEDUCTION U/S 80IA. AGAINS T THE ORDER THE MATTER HAS TRAVELLED ON THE INSTANCE OF DEPARTMENT BEFORE THE TRIBUNAL WHEREIN THE TRIBUNAL PASSED AN ORDER IN ITA NO.736/D/ 2014 RELE VANT FOR A.Y. 2009-10 DATED 24.04.2018 BY UPHOLDING THE FINDING OF CIT (A ). THE LD. AR FURTHER SUBMITTED THAT AS PER THE NEW FINANCE ACT, 2013 FRO M A.Y. 2013-14, THE DOMESTIC TRANSACTION HAS BEEN TAKEN U/S 92C WHEREAS THE ASSESSING OFFICER ADOPTED A FIGURE THAT CSEB PURCHASING POWER @ 1.89 P.U. ON THE BASIS OF THE INFORMATION GATHERED FROM THE CSEB U/S 133(6) EVEN THOUGH THE CIRCULAR HAS NOT BEEN PROPERLY APPRECIATED & MADE THE BASIS OF T HIS CIRCULAR FOR ADDITION. IN THIS CONNECTION, THE TPO HAS NOT APPLIED HIS MIND T HAT THERE ARE CRITERIA FOR PURCHASE FROM STATE GENERATING STATION IS THAT IF E XCESS PRODUCTION ARE THERE THEN THE GENERATING STATION ARE UNDER OBLIGATION TO SALE THE EXTRA POWER AT THE LOWEST PRICE & THIS LOWEST PRICE CANNOT BE CONSIDER ED AS EQUIVALENT TO THE MARKET RATE AS DEFINED U/S 80IA(8) OF THE INCOME TA X ACT, 1961. THE MATTER FURTHER REFERRED TO THE DRP WHERE THE DRP FIRST OF ALL OUT RIGHT THE BASIS FOR RATE ADOPTED BY TPO. THEREAFTER THE DRP ADOPTED ANOTHER APPROACH I.E. THE 9 ITA NO. 7176/DEL/2017 AVERAGING OF IEX RATE JUST AN ASSUMPTION & PRESUMPT ION. 9. THE LD. AR FURTHER SUBMITTED THAT DESPITE THE FA CT THAT IN PREVIOUS YEARS CIT(A) ADMITTED THE ASSESSEES APPEAL BUT THE SAME WAS NOT APPRECIATED. NOW THE APPEAL OF A.Y. 2009-10 ON SAME ISSUE DECIDED BY COORDINATE BENCH RELEVANT FOR A.Y. 2009-10 AND THERE ARE NO CHANGES IN ASSESS EE COMPANYS SYSTEM OR METHOD OF ACCOUNTING AS APPEARED FROM AUDITED BOOKS OF ACCOUNT. THE LD. AR SUBMITTED THAT ONCE IT IS ESTABLISHED ON THE RECORD THAT THE ASSESSEE IS FOLLOWING THE SAME SYSTEM OF ACCOUNTS AND METHOD TH EREFORE THERE IS NO OCCASION TO DISTURB IT AND IN SUPPORT OF THIS, THE LD. AR RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF RADHAS OAMI SATSANG VS. CIT 193 ITR 321 AND CIT VS. EXCEL INDUSTRIES LTD. 358 I TR 295 BASED ON RULE OF CONSISTENCY. 10. THE LD. AR FURTHER SUBMITTED THAT DURING THE PR OCEEDING PENDING BEFORE TPO/DRP A COMPREHENSIVE SUBMISSIONS ON THE ISSUE IN VOLVED WAS FILED BUT THE SAME WAS NOT CONSIDERED IN RIGHT PROSPECTIVE AND EV EN THE TARIFF WAS NOT CONSIDERED AS PROVIDED BY THE CSRC THAT NEITHER THE RE ARE ANY OCCASION TO DISTRIBUTE THE BOOKS OF ACCOUNT MAINTAINED BY THE A SSESSE NOR ANY ADVERSE VIEW ON THE SUBMISSION AND EVIDENCE PLACE ON RECORD . THE LD. AR RELIED UPON VARIOUS CASE LAWS LIKE GODAWARI POWER, KANORIA CHEM ICALS, JINDAL STEELS, DEEPAK FERTILIZERS, MUMBAI BENCH OF WEST COST PAPER S AND CRUX OF ALL THE CITATION ARE THAT ON SECTION 80IA (8) WITH RESPECT TO MARKET RATE. THE LD. AR SUBMITTED THAT THE IEX RATE WAS EVEN NOT PROPERLY C ONSIDERED. IN SUPPORT THEREOF, THE LD. AR PLACED ON RECORD OF IEX RATE FO R MAY 2018 AS APPEARED IN THE NEWSPAPER OF BUSINESS STANDARD DATED 08.06.2018 WHEREIN IT CATEGORICALLY APPEARED THAT THERE ARE 3 TYPES OF RATES NAMELY AVE RAGE, MINIMUM, MAXIMUM. THEREFORE SDTR ADJUSTMENT OF INR 29,61,28,642 WHICH IS ERRONEOUSLY RECALCULATING AND RE-COMPUTING THE PRICE OF PURCHAS E ON NOTIONAL BASIS ARE LIABLE TO BE DELETED. 11. THE LD. DR SUBMITTED THAT THE ASSESSEE DO NOT H AVE LICENSE TO SALE POWER 10 ITA NO. 7176/DEL/2017 IN THE MARKET. THE LD. DR FURTHER SUBMITTED THAT TH E ORDER OF THE TRIBUNAL IS ON DIFFERENT FOOTING. THE LD. DR RELIED UPON THE OR DER OF THE TPO, DIRECTIONS OF THE DRP AND ASSESSMENT ORDER. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT T HE ASSESSEE IS REGULARLY CLAIMING DEDUCTION U/S 80IA OF THE ACT IN RESPECT O F PROFITS DERIVED FROM THE CAPTIVE POWER PLANT/ UNDERTAKING. THE ASSESSEE TRAN SFERS THE POWER FOR CAPTIVE USE AS PER THE MARKET RATE/BELOW ON WHICH CSEB SELL ING THE POWER WHICH IS @ 4.64 P.U. IN THE PREVIOUS YEARS THE REVENUE DISPUTE D CSEB RATES CONSISTS @ RS.0.38 P.U. ON ACCOUNT OF ELECTRICITY TAX, CESS AN D FOR WHICH THE TRANSFER PRICE OR POWER PRICE WAS ADJUSTED TO THAT EXTENT BY DISAL LOWING TO THAT EXTENT AND FOR THE REMAINING THE ASSESSEE IS ENTITLED FOR TRANSFER PRICE BY TREATING SALE PRICE OF POWER TRANSFERRED FOR CAPTIVE USE. THE ASSESSEE FIL ED APPEAL BEFORE THE CIT (A) WHEREIN THE CIT (A) ALLOWED THE APPEAL OF THE ASSES SEE. AGAINST THE SAID ORDER THE REVENUE FILED APPEAL BEFORE THE TRIBUNAL WHEREI N THE TRIBUNAL UPHELD THE FINDING OF CIT (A). THE LD. AR POINTED OUT THAT AS PER THE NEW FINANCE ACT, 2013 FROM A.Y. 2013-14, THE DOMESTIC TRANSACTION TO OK PLACE U/S 92C WHEREAS THE ASSESSING OFFICER ADOPTED A FIGURE THAT CSEB PU RCHASING POWER @ 1.89 P.U. ON THE BASIS OF THE INFORMATION GATHERED FROM THE C SEB U/S 133(6). THE TPO HAS NOT TAKEN INTO CONSIDERATION THAT THERE ARE CRI TERIA FOR PURCHASE FROM STATE GENERATING STATION WHEN EXCESS PRODUCTION ARE THERE . IN SUCH SITUATION, THE GENERATING STATION ARE UNDER OBLIGATION TO SALE THE EXTRA POWER AT THE LOWEST PRICE & THIS LOWEST PRICE CANNOT BE CONSIDERED AS E QUIVALENT TO THE MARKET RATE AS DEFINED U/S 80IA(8) OF THE INCOME TAX ACT, 1961. THE MATTER FURTHER REFERRED TO THE DRP WHERE THE DRP ADOPTED DIFFERENT APPROACH I.E. THE AVERAGING OF IEX RATE BUT, THE DRP HAS NOT GIVEN ANY REASON FOR ADOP TING THE SAID RATE. THE TRIBUNAL IN ASSESSEES OWN CASE HELD AS UNDER IN A. Y. 2009-10: 59. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO CONSIDERED THE 11 ITA NO. 7176/DEL/2017 VARIOUS DECISIONS CITED BEFORE US. THE ONLY ISSUE T O BE DECIDED IN THE IMPUGNED GROUND IS REGARDING THE ACTION OF THE ASSE SSING OFFICER IN EXCLUDING RS.0.2932/- PER UNIT WHILE COMPUTING THE MARKET PRI CE OF POWER FOR THE PURPOSES OF COMPUTING DEDUCTION ADMISSIBLE TO POWER UNITS U/S 80-1A OF THE I.T. ACT. WE FIND THE ASSESSEE IN THE INSTANT CASE HAS SOLD THE ELECTRICITY TO ITS CAPTIVE PLANT AT THE RATE OF RS.3.92 PER UNIT I.E. RATE AT WHICH CSEB WAS SELLING TO INDUSTRIAL CONSUMERS AS ON 01.04.2008. T HE ABOVE RATE OF RS.3.92 INCLUDED ELECTRICITY DUTY AT THE RATE OF 8% OF ENER GY CHARGES AND CESS OF RS.0.05 PAISE PER UNIT. SINCE ACCORDING TO THE ASSE SSING OFFICER, THE ASSESSEE HAS NOT BEEN MAKING ACTUAL SALES TO ITS OTHER UNITS BECAUSE THE POWER GENERATED IS CONSUMED CAPTIVELY BY OTHER UNITS. ACC ORDING TO HIM, SINCE THE ASSESSEE IS ONLY GENERATING POWER BUT IT DOES NOT H AVE THE LICENCE TO DISTRIBUTE IT, IT CANNOT CHARGE THE ELECTRICITY DUT Y AT THE RATE OF 8% AND CESS 0.05% ON THE TRANSFER OF POWER. THUS, ACCORDING TO HIM, THE ASSESSEE HAS INFLATED THE SALE OF POWER BY RS.0.293 PER UNIT AND HAS ACCORDINGLY INFLATED THE DEDUCTION U/S 80IA BY A SUM OF RS.3.63 PER UNIT . WE FIND THE ID. CIT(A) FOLLOWING VARIOUS DECISIONS INCLUDING THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF JINDAL STEEL & POWER LIMITE D REPORTED IN (2007) 16 SOT 509 DECISIONS OF THE MUMBAI BENCH OF THE TRIBUN AL IN THE CASE OF D.C.W LTD. VS. ADDL. CIT(A) VIDE ITA NOS. 5560 & 5569/MUM /2008 DELETED THE ADDITION MADE BY THE ASSESSING OFFICER . WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) ON THIS ISSUE. 60. WE FIND THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF JINDAL STEEL & POWER LIMITED (SUPRA) WHILE DECIDING AN IDENTICAL ISSUE H AS OBSERVED AS UNDER '3.6.1 GROUND NO. 6 OF APPEAL IS DIRECTED AGAINST R EJECTIONS OF THE PREVAILING PURCHASE PRICE AND ADJUSTMENTS MADE TO T HE MARKET PRICE FOR THE ELECTRICITY THEREBY ADDING BACK THE SUM OF RS. 3,86,93,638/- AS EXCESS DEDUCTION U/S 80-IA(8) CLAIMED IN ITS POWER PLANT. THE ASSESSEE IS ENGAGED IN GENERATION OF POWER AND THE POWER SO GEN ERATED IS TRANSFERRED TO OTHER UNITS OF THE ASSESSEE CAPTIVELY AT THE RAT E AT WHICH IT IS OBLIGED TO 12 ITA NO. 7176/DEL/2017 PURCHASE FROM THE STATE ELECTRICITY OF BOARD. THE A SSESSEE HAS MADE SALES OF RS. 51,73,22,855/- FROM THE POWER PLANT AND THE PROFIT HAS BEEN ARRIVED AT RS. 18,51,63,515/- AGAINST WHICH DEDUCTION U/S 8 0IA HAS BEEN CLAIMED @100%. THE SALES OF POWER TO OTHER UNITS HAVE BEEN CONSIDERED AT THE RATE OF RS. 3.92, THE RATE OF WHICH CSEB WAS SELLING TO INDUSTRIAL CONSUMERS AS ON 01.04.2008. AO OBSERVED THAT THE RATE OF RS. 3.9 2 INCLUDED ELECTRICITY DUTY @8% OF ENERGY CHARGES AND CESS @ 0.05% PER UNI T. AO ALSO OBSERVED THAT THE ASSESSEE HAS NOT BEEN MAKING 'ACTUAL SALES ' TO ITS OTHER UNITS BECAUSE THE POWER GENERATED IS CONSUMED CAPTIVELY B Y OTHER UNITS. AS SUCH, THE SALE TO OTHER UNITS OF THE ASSESSEE CAN A T BEST BE CALLED NOTIONAL SALES. WHEN ACTUAL SALES ARE MADE, DUTY @8% AND CES S @0.05% COLLECTED FROM, CONSUMERS IS PAID TO GOVERNMENT LEVIES WHICH HAVE ACTUALLY BEEN NOT COLLECTED AND PAID TO THE GOVERNMENT CANNOT BE PART OF THE PROFITS OF THE ASSESSEE. EVEN WHEN THE LEVIES ARE ACTUALLY COLLECT ED IT DOES NOT FORM PART OF THE REVENUE AND IS ACCOUNTED FOR SEPARATELY AS L IABILITIES. IN THE PRESENT CASE, THE ASSESSEE IS ONLY GENERATING POWER BUT SIN CE IT DOES NOT HAVE THE LICENCE TO DISTRIBUTE IT, CANNOT ALSO CHARGE THE EL ECTRICITY DUTY @8% AND CESS @ 0.05% ON THE TRANSFER OF POWER. IF THE DUTIE S AND CESS ARE EXCLUDED FROM THE SALE PRICE OF RS. 3.92 PER UNIT, THE EFFEC TIVE SALE PRICE WOULD BE RS. 3.63 PER UNIT. THEREFORE, THE SALES OF THE POWE R PLANT HAS BEEN INFLATED BY A SUM OF RS. 0.2932 PER UNIT. APPLYING THE ABOVE RATIO, AO HELD THAT ASSESSEE HAS INFLATED THE DEDUCTION U/S 80IA BY A S UM OF RS. 3,86,93,638/- WHICH IS ACCORDINGLY ADDED BACK TO TH E TOTAL INCOME OF THE ASSESSEE AS EXCESS DEDUCTION U/S 80IA(8) CLAIMED IN ITS POWER PLANT. 3.6.2 THEREFORE, THE ISSUE IS WHETHER THE AO IS JUSTIFIAB LE IN EXCLUDING RS.0.2932 PER UNIT WHILE COMPUTING 'MARKET PRICE' O F POWER FOR THE PURPOSE OF COMPUTING DEDUCTION ADMISSIBLE TO POWER UNITS UNDER SECTION 80IA OF THE ACT. IN THIS REGARD SUB-SECTION (8) OF SECTION 80-1 A OF THE ACT WHICH PROVIDES FOR DETERMINATION OF PROFITS DERIVED FROM AN INDUSTRIAL UNDERTAKING WHERE GOODS FROM ONE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANOTHER BUSINESS CARRIED ON BY THE ASSESSEE READS A S UNDER: '(8) WHERE ANY GOODS OR SERVICES HELD FOR THE PURPO SES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARR IED. OFF BY THE ASSESSEE, OR WHERE ANY GOODS OR SERVICES HELD FOR T HE PURPOSES OF/ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE AR E TRANSFERRED TO THE ELIGIBLE BUSINESS AND, IN EITHER CASE, THE CONS IDERATION, IF ANY, FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF TH E ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOO DS OR SERVICES AS 13 ITA NO. 7176/DEL/2017 ON THE DATE OF THE TRANSFER THEN FOR THE PURPOSES O F THE DEDUCTION UNDER THIS SECTION, THE PROFITS AND GAINS OF SUCH E LIGIBLE 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 PATE: PROVIDED THAT WHERE, IN THE OPINION OF THE ASSESSIN G OFFICER, THE COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBL E BUSINESS IN THE MANNER HEREINBEFORE SPECIFIED PRESENTS EXCEPTIONAL DIFFICULTIES, THE ASSESSING OFFICER MAY COMPUTE SUCH PROFITS AND GAIN S ON SUCH REASONABLE BASIS AS HE MAY DEEM FIT. EXPLANATION.-F OR THE PURPOSES OF THIS SUB-SECLION, 'MARKET VALUE', IN RELATION TO AN Y GOODS OR SERVICES, MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD O RDINARILY FETCH IN THE OPEN MARKET.' FROM THE ABOVE PROVISION IT IS CLEAR THAT THE PRICE AT WHICH GOODS ARE TO BE TRANSFERRED FROM ONE BUSINESS OF THE ASSESSEE TO ANOTHER BUSINESS SHOULD CORRESPOND TO THE MARKET VALUE OF SUCH GOODS FOR COMPUTING THE PROFITS OF THE ELIGIBLE BUSINESS. THE EXPRESSION 'M ARKET VALUE' HAS BEEN DEFINED IN EXPLANATION TO SUB-SECTION (8) TO SECTIO N 80-IA OF THE ACT, AS THE PRICE WHICH SUCH GOODS WOULD ORDINARILY FETCH W HEN SOLD IN THE OPEN MARKET. 3.6.3 IN THE PRESENT CASE, THE POWER GENERATED BY THE CA PTIVE PLANTS WAS CONSUMED BY THE MANUFACTURING UNITS OF THE APPELLAN T AT RAIGARH. THE APPELLANT ACCOUNTED FOR THE REVENUE/PROFIT ON TRANS FER OF SUCH POWER TO ITS CAPTIVE UNITS AT THE RATE OF RS. 3.92 PER UNIT, WHI CH IS THE PRICE CHARGED BY CSEB FOR SUPPLYING POWER TO INDUSTRIAL CONSUMERS. T HIS RATE OF RS.3.92 CHARGED B: THE CSEB REPRESENTS THE MARKET PRICE. 3.6.4 IT IS ALSO NOTEWORTHY THAT HAD THE MANUFACTURING U NITS OF THE APPELLANT PURCHASED POWER FROM CSEB, THEN, THE UNIT S WOULD HAVE PAID RS.3.92 PER UNIT. THEREFORE, FOR THE MANUFACTURING UNITS, RS.3.92 PER UNITS IS THE..PURCHASE PRICE, I.E. THE PRICE AT WHICH POW ER IS AVAILABLE IN THE OPEN MARKET. THE COMPOSITION OF SUCH MARKET PRICE, IS NO T RELEVANT FOR THE PURCHASER OF THE POWER INSOFAR AS THE PURCHASER IS CONCERNED, WHAT IS ONLY RELEVANT IS THE PURCHASE PRICE, I.E. RS.3.92 PER UN IT, AND NOT ITS COMPOSITION. THEREFORE, WHETHER RS.3.92 PER UNIT IN CLUDES ANY GOVERNMENT LEVIES OR NOT IS TOTALLY IRRELEVANT INSOFAR AS THE PURCHASER IS CONCERNED. 3.6.5 IN THE CASE OF JINDAL STEEL & POWER LIMITED: (2007 ) 16 SOT 509, 14 ITA NO. 7176/DEL/2017 WHEREIN, TOO, TH. ASSESSEE HAD ADOPTED THE PRICE AT WHICH POWER IS SOLD BY THE SEB AS THE TRANSFER/ MARKET PRICE POWER. HON'BL E 1TATDELHI, WHILE APPROVING THE PROFITS SO COMPUTED BY THE ASSESSEE, OBSERVE AS UNDER: '15. THEREFORE, FROM THE AFORESAID, IT CAN BE DEDUC ED THAT MARKET VALUE IS AN EXPRESSION WHICH DENOTED A PRICE ARRIVE D AT BETWEEN THE BUYER AND THE SELLER IN THE OPEN MARKET WHEREIN THE TRANSACTIONS TAKE PLACE IN THE NORMAL COURSE OF TRADING AND COMP ETITION IN CONTRAST TO A SITUATION WHERE THE PRICE IS FIXED BE TWEEN A BUYER AND SELLER CAN B UNDERSTOOD AS DENOTING 'MARKET PRICE' SINCE THE ELEMENTS OF TRADING AND COMPETITION EXIST. WHEREAS IN THE CA SE OF THE LATTER SITUATION, THE PRICE FIXED BETWEEN THE BUYER AND SE LLER CANNOT BE UNDERSTOOD AS DENOTING THE MARKET PRICE SINCE THE E LEMENTS OF TRADE AND COMPETITION ARE CONSPICUOUS BY THEIR ABSENCE. .. 18. HAVING HELD SO, THE NATURAL COROLLARY IS TO ASC ERTAIN WHETHER THE PRICE RECORDED BY THE ASSESSEE AT RS. 3.72 PER UNIT CAN BE CONSIDERED TO BE THE MARKET VALUE FOR THE PURPOSES 0 SECTION 80- IA(8) OF THE ACT. THE ANSWER, TO OUR MIND IS IN THE AFFIRMATIVE. THIS IS FOR THE REASON THAT THE ASSESSEE AS AN INDUSTRIAL C ONSUMER IS ALSO BUYING POWER FROM THE BOAR, AND THE BOARD SUPPLIES SUCH POWER AT THE RATE OF RS. 3.72 PER UNIT TO ITS CONSUMERS. THI S IS THE PRICE AT WHICH THE CONSUMERS ARE ABLE TO PROCURE THE POWER. WE MAY CONSIDER HYPOTHETICAL SITUATION AS WELL. HAD THE A SSESSEE NOT BEEN SADDLED WITH RESTRICTIONS OF SUPPLYING SURPLUS POWE R TO THE STATE ELECTRICITY BOARD, IT WOULD HAVE SUPPLIED POWER T THE ULTIMATE CONSUMERS AT RATES SIMILAR TO THOSE OF THE BOARD OR SUCH OTHER COMPETITIVE RATES, MEANING THEREBY THAT PRICE RECEI VED BY THE ASSESSEE WOULD BE IN THE VICINITY OF RS.3.72 PER UN IT I.E. CHARGED BY THE BOARD FROM ITS INDUSTRIAL CONSUMERS/USERS. THUS , UNDER THE GIVEN CIRCUMSTANCES, IT WOULD BE IN THE FITNESS OF THINGS TO HOLD THAT THE CONSIDERATION RECORDED BY THE ASSESSEE'S UNDERT AKING GENERATING ELECTRIC POWER FOR TRANSFER OF POWER FOR CAPTIVE CO NSUMPTION AT THE RATE OF RS.3.72 PER UNIT CORRESPONDS TO THE MARKET VALUE OF POWER. THEREFORE, ON THIS ASPECT, WE UPHOLD THE STAND OF T HE ASSESSEE AND SET ASIDE ORDER OF THE COMMISSIONER (APPEALS) AND D IRECT THE ASSESSING OFFICER TO ALLOW RELIEF TO THE ASSESSEE U NDER SECTION 80-IA AS CLAIMED. ASSESSEE SUCCEEDS ON THIS GROUND. 15 ITA NO. 7176/DEL/2017 61. WE FIND THE DECISION OF THE DELHI BENCH OF THE TRIB UNAL HAS BEEN UPHELD BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN ITA N O.53/2008. SIMILARLY, THE HONBLE CHATTISGARH HIGH COURT IN THE CASE OF C IT VS. GODAWARI POWER & ISPAT LTD. REPORTED IN 42 TAXMANN.COM 551 HAS HELD THAT WHERE ASSESSEE HAD ESTABLISHED A CAPTIVE POWER PLANT IN STATE OF CHHAT TISGARH TO SUPPLY ELECTRICITY TO ITS STEEL DIVISION, FOR PURPOSE OF SECTION 80-IA DEDUCTION MARKET VALUE OF POWER SUPPLIED BY ASSESSEE TO STEEL DIVISION SHOULD BE COMPUTED CONSIDERING RATE OF POWER CHARGED BY CHHATTISGARH STATE ELECTRI CITY BOARD FOR SUPPLY OF ELECTRICITY TO INDUSTRIAL CONSUMERS. 62. WE FIND THE HONBLE CALCUTTA HIGH COURT IN THE CAS E OF CIT VS. KANORIA CHEMICALS & INDUSTRIES LTD. REPORTED IN 35 TAXMANN. COM 566 HAS CONFIRMED THE DECISION OF THE TRIBUNAL HOLDING THAT THE PRICE AT WHICH STATE ELECTRICITY BOARD SELLS ELECTRICITY TO INDUSTRIAL CONSUMERS IS REPRESENTATIVE OF THE PRICE THAT ELECTRICITY WOULD ORDINARILY FETCH IN THE OPEN MARKET AND I.E. THE PRICE WHICH HAS BEEN, ADOPTED BY THE ELIGIBLE BUSINESS T RANSFERRED TO ITS OTHER BUSINESS FOR THE FOR THE PURPOSE OF COMPUTATION OF PROFITS AND GAINS OF THE ELIGIBLE BUSINESS IN TERMS OF SECTION 80-1 A(8) OF THE I.T. ACT. 63. WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CA SE OF DEEPAK FERTILIZERS IN ITA NO.2116/2013 ORDER DATED 30.01.2 015 FOR THE ASSESSMENT YEAR 2010-11 WHILE DECIDING AN IDENTICAL ISSUE HAS ALSO TAKEN SIMILAR VIEW. THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF SR I MATHA SPINNING MILLS (P.) LTD. VS. DCIT REPORTED IN (2013) 141 ITD 238 HAS AL SO TAKEN IDENTICAL VIEW IN FAVOUR OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE ID. CIT(A) IN DELETIN G THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 80-IA(8) OF THE I.T. ACT. WE, THEREFORE, DISMISS THE GROUNDS RAISED BY THE REVENUE ON THIS ISSUE. SINCE THE IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE FOR A.Y. 2009-10 WHEREIN SIMILAR FACTS ARE INVOLVED, THERE I S NO NEED TO ADOPT A DIFFERENT APPROACH AS THE LD. DR COULD NOT POINT OUT THE DIFF ERENT FACTUAL MATRIX IN THE 16 ITA NO. 7176/DEL/2017 PRESENT ASSESSMENT YEAR. THEREFORE, GROUND NO. 3(A) IS ALLOWED. 13. AS REGARDS TO GROUND NO. 3 (B), THE LD. AR SUBM ITTED THAT THE DRP HAS ERRONEOUSLY QUESTIONED THE BUSINESS PRUDENCE RESULT ING PARTIAL ADDITIONS ON ACCOUNT OF MANAGERIAL REMUNERATION AMOUNTING TO RS. 8,22,798 WHICH WAS PAID AND ALREADY TAXED IN TERMS OF MS. SHALLU JINDA LS CONTRACTUAL ADVISORY SERVICE TO AE AND WHATEVER THE SERVICES PROVIDED, W AS NOT DISPUTED. THE LD. AR SUBMITTED THAT SHE IS THE DIRECTOR OF THE COMPANY A ND IS A KEY PERSONNEL IN RESPECT OF VARIOUS POLICY DECISIONS WHICH WAS REFLE CTED IN MINUTES OF ALL BOARD MEETINGS. THUS, THE LD. AR SUBMITTED THAT THE BASIS FOR DISALLOWANCES ARE NOT SUSTAINABLE BECAUSE THE COMPETITIVE FIGURES HAVE NO BEARING ON THE PRESENT ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT THE REM UNERATION PAID TO ALLEGED DIRECTOR HAS NOT BEEN DISALLOWED IN PAST YEARS AND THEREFORE BY FOLLOWING THE RULE OF CONSISTENCY, THERE IS NO OCCASION TO DISTUR B THE ALREADY PAID AND TAXED REMUNERATION. IN THIS REGARD, THE LD. AR RELIED UPO N THE HON'BLE DELHI HIGH COURT DECISION IN CASE OF SIGMA CORPORATION VS. DCI T BEING ITA NO. 795/2016 ORDER DATED 15.02.2017, CIT VS. INDIA THERMIC CORPO RATION LTD. BEING ITA NO. 350/2011 ORDER DATED 16.05.2012, CIT VS. SHRIRAM PI STONS & RINGS LTD. 181 ITR 230. THEREFORE, THE LD. AR SUBMITTED THAT THE E RRONEOUS FINDINGS TOWARDS MANAGERIAL REMUNERATION ARE LIABLE TO BE DELETED. T HE LD. AR FURTHER SUBMITTED THAT MS. SHALLU JINDAL IS AN INDIVIDUAL OF HIGH STA NDING AND ALSO HAS A VERY STRONG AND INFLUENTIAL SOCIAL PRESENCE. SHE IS ALSO THE FOUNDER-PRESIDENT OF YOUNG FICCI LADIES ORGANIZATION. SHE WAS ALSO SELEC TED BY THE GOVERNMENT OF INDIA TO REPRESENT THE COUNTRY IN JAPAN AS PART OF TWENTY PEOPLE DELEGATION FROM ALL OVER THE INDIA. SHE HAD ALSO INTERACTED WI TH DELEGATES FROM ASIAN COUNTRIES LIKE BHUTAN, BANGLADESH, SRI LANKA AND JA PAN ON VARIOUS TOPICS VIZ. EDUCATION, POLITICS, WOMEN, CULTURE AND EMPLOYMENT. THEREFORE, THE LD. AR SUBMITTED THAT IT SHOULD BE APPRECIATED TO HAVE SUC H A HIGHLY REPUTED INDIVIDUAL AS THE WHOLE TIME DIRECTOR OF THE ASSESS EE COMPANY. AS SHE REPRESENTED THE COMPANY AT VARIOUS HIGH LEVEL FORUM S AROUND THE WORLD WHICH OPENED THE DOORS OF IMMENSE BUSINESS OPPORTUNITY FO R THE COMPANY TO EXPAND 17 ITA NO. 7176/DEL/2017 ITS BUSINESS AROUND THE WORLD, THUS THE PRESENCE OF MS. SHALLU JINDAL IN THE BOARD OF DIRECTORS OF THE COMPANY IS HIGHLY BENEFIC IAL AND HELPED IN GENERATING A BRAND IMAGE OF THE COMPANY AND AS A RESULT THE PE RFORMANCE OF THE COMPANY WHICH MAY BE APPRECIATED FROM THE COMPARISON WITH O THER COMPANIES, AND WHICH ALONE SHOWS THAT THE PROFIT OF THE COMPANY HA S GOT MANY FOLDS WHEN COMPARED TO OTHER COMPANIES. THE LD. AR ALSO POINTE D OUT THAT MS. SHALLU JINDAL IS PROFESSIONALLY QUALIFIED AS SHE POSSESS A DIPLOMA IN BUSINESS MANAGEMENT AND ALSO HAS ENTREPRENEURSHIP SKILLS AND THEREFORE IT SHOULD BE LEARNT FROM HER PRIMARY RESPONSIBILITIES THAT HER R OLE IS TO PROMOTE AND DEVELOP STRATEGIES LEADING TO EFFICIENT AND SMOOTH RUNNING OF BUSINESS ACTIVITIES OF THE COMPANY AT PRESENT AS WELL AS IN COMING YEARS. THE LD. AR FURTHER POINTED OUT THAT THE COMPARISON DONE BY THE ASSESSING OFFICER B ETWEEN THE REMUNERATION PAID BY THE ASSESSEE COMPANY TO MS. SHALLU JINDAL W ITH THE REMUNERATION PAID BY ESSAR STEEL LTD TO SH. ASHUTOSH AGARWALA IS NOT JUSTIFIED AND IS INCORRECT CONSIDERING THE FACTS THAT ON THE ONE HAND THE ASSE SSEE COMPANY IS A PROFIT MAKING VENTURE WHEREAS ON THE OTHER HAND ESSAR STEE L LTD. IS INCURRING LOSSES YEAR ON YEAR. IT SHOULD ALSO BE NOTED THAT THE COMP ANY HAS ALSO COMPLIED WITH ALL THE PROVISIONS OF THE COMPANIES ACT, 1956, RELA TING TO THE PAYMENT OF MANAGERIAL REMUNERATION TO ITS MANAGERIAL PERSONNEL APPOINTED AND THE SAID PAYMENT OF MANAGERIAL REMUNERATION HAS ALSO BEEN AP PROVED BY THE BOARD OF DIRECTORS. THE LD. AR MADE REFERENCE TO CIRCULAR NO. 6P DATED 08.07.1968 ISSUED BY THE CBDT. THE LD. AR SUBMITTED THAT THE ASSESSING OFFIC ER ALSO FAILED TO APPRECIATE THE FACT THAT MS. SHALLU JINDA L IS A HIGH NET WORTH INDIVIDUAL AND A REGULAR INCOME TAX ASSESSEE AND MA JOR PORTION OF HER INCOME IS SUBJECT TO TAX AT THE MAXIMUM MARGINAL RATE AS I S THE CASE OF THE ASSESSEE AND THE ASSESSEE HAS DULY OFFERED THE REMUNERATION RECEIVED TO TAX. THE LD. AR SUBMITTED THAT THERE HAS BEEN NO LOSS OF INCOME TAX TO THE EXCHEQUER IN THIS REGARD. 14. THE LD. DR RELIED UPON THE ORDER OF THE TPO, DI RECTIONS OF THE DRP AND ASSESSMENT ORDER. 18 ITA NO. 7176/DEL/2017 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT T HE PARTIAL ADDITIONS ON ACCOUNT OF MANAGERIAL REMUNERATION AMOUNTING TO RS. 8,22,79 8 WHICH WAS PAID TO MS. SHALLU JINDALS CONTRACTUAL ADVISORY SERVICE TO AE AND OTHER SERVICES PROVIDED BY HER WERE NOT DISPUTED BY THE REVENUE AT ANY POIN T OF TIME. THE SAME IS ALREADY TAXED IN THE HANDS OF MS. SHALLU JINDAL. TH E LD. AR POINTED OUT THROUGH THE DOCUMENTS THAT SHE IS THE DIRECTOR OF T HE COMPANY AND IS A KEY PERSONNEL IN RESPECT OF VARIOUS POLICY DECISIONS WH ICH WAS REFLECTED IN MINUTES OF ALL BOARD MEETINGS. THE SUBMISSION OF THE LD. AR WAS THAT THE BASIS FOR DISALLOWANCE IS NOT SUSTAINABLE BECAUSE THE COMPETI TIVE FIGURES HAVE NO BEARING ON THE PRESENT ASSESSEE. FROM THE RECORDS I T CAN BE SEEN THAT THE REMUNERATION PAID TO DIRECTOR HAS NOT BEEN DISALLOW ED IN PAST YEARS AND THEREFORE THE SUBMISSION OF THE LD. AR THAT THE RUL E OF CONSISTENCY HAS TO BE FOLLOWED IN THE PRESENT ASSESSMENT YEAR AS WELL. TH E CASE LAWS RELIED UPON BY LD. AR OF THE HONBLE DELHI HIGH COURT IS RELEVANT TO THAT EXTENT AND SUPPORT THE CASE OF THE ASSESSEE. THE COMPARISON DONE BY TH E ASSESSING OFFICER BETWEEN THE REMUNERATION PAID BY THE ASSESSEE COMPA NY TO MS. SHALLU JINDAL WITH THE REMUNERATION PAID BY ESSAR STEEL LTD TO SH . ASHUTOSH AGARWALA IS NOT PROPER AS WELL CONSIDERING THE FACTS THAT THE ASSES SEE COMPANY IS A PROFIT MAKING VENTURE WHEREAS ESSAR STEEL LTD. IS INCURRIN G LOSSES. IT SHOULD ALSO BE NOTED THAT THE ASSESSEE COMPANY HAS ALSO COMPLIED W ITH ALL THE PROVISIONS OF THE COMPANIES ACT, 1956, RELATING TO THE PAYMENT OF MANAGERIAL REMUNERATION TO ITS MANAGERIAL PERSONNEL APPOINTED AND THE SAID PAYMENT OF MANAGERIAL REMUNERATION HAS ALSO BEEN APPROVED BY THE BOARD OF DIRECTORS. THE REFERENCE MADE TO CIRCULAR NO. 6P DATED 08.07.1968 ISSUED BY THE CBDT IS APT IN THE PRESENT CASE. THUS, THE ASSESSING OFFICER WAS NOT C ORRECT IN MAKING ADDITION ON ACCOUNT OF MANAGERIAL REMUNERATION. GROUND NO. 3 (B) IS ALLOWED. 16. AS REGARDS TO GROUND NO. 3(C) RELATING TO ADDIT ION ON ACCOUNT OF 19 ITA NO. 7176/DEL/2017 ALLOCATION OF COMMON EXPENSES U/S 80IA, THE TPO RED UCED AMOUNT OF RS. 44,76,197 AND DRP DIRECTED TO ENHANCE THE SAID AMOU NT TO RS. 47,78,634. THE LD. AR SUBMITTED THAT ALL THE ADDITIONS ARE BASELES S AS THE SUBMISSIONS MADE ON THESE ISSUES HAVE NOT BEEN PROPERLY CONSIDERED A ND APPRECIATED. IN RELATION TO THE ALLOCATION OF EXPENSES THE ASSESSING OFFICER /TPO ALLOCATED THE FOLLOWING EXPENDITURES IN THE RATIO OF TURNOVER BETWEEN ELIGI BLE AND NON-ELIGIBLE UNITS ALLEGING THAT THE SAID EXPENSES HAD NOT BEEN APPORT IONED BY THE ASSESSEE: A. DIRECTOR REMUNERATION AMOUNTING TO RS. 97,24,981; B. SALARY PAID TO EMPLOYEES AMOUNTING TO RS. 741.40 L AKHS; C. REPAIRS INCURRED ON BUILDING AMOUNTING TO RS. 1,15 ,41,000; AND D. INTERNAL AUDIT FEE PAID OF RS. 5, 00,000. THE LD. AR SUBMITTED THAT IN THE ABOVE FOUR EXPENDI TURES THE ASSESSING OFFICER/TPO/DRP DID NOT APPRECIATED THE FACT THAT T HE ABOVE EXPENDITURES HAD ALREADY BEEN ALLOCATED TO ELIGIBLE AND NON-ELIGIBLE UNIT ON THE BASIS OF GENERALLY ACCEPTED ACCOUNTANCY PRINCIPLES, ON THE BASIS OF ID ENTIFIED COST DRIVERS AND IN A PRUDENT MANNER, THE ASSESSING OFFICER/TPO/DRP RE-AL LOCATED THE EXPENDITURE IN THE RATIO OF TURNOVER BETWEEN ELIGIBLE AND NON-E LIGIBLE UNITS WITHOUT BRINGING INTO THE LIGHT THE FLAW OR INACCURACY OR ANY SUITAB LE EXPLANATION INVOLVED IN RELATION TO THE METHOD OF ALLOCATION ADOPTED BY THE ASSESSEE COMPANY. THE AR RELIED UPON THE DECISION IN CASE OF DCIT V. M/S PRA VEEN INDUSTRIES LTD. ITA NO. 1790/DEL/2013 WHEREIN THE DECISION IN CASE OF DELHI PRESS SAMACHAR PATRA PRAKASHAN (P) LTD. V. CIT (2006) 101 ITD 253 WAS A LSO CONSIDERED AND IS AFFIRMED BY THE HONBLE DELHI HIGH COURT IN FAVOR O F THE ASSESSEE. THE LD. AR SUBMITTED THAT THE ASSESSEE ALREADY SEGREGATED AND BIFURCATED ALL THE EXPENSES THEREFORE HE PRAYED THAT ENTIRE ADDITIONS ARE LIABL E TO BE DELETED. 17. THE LD. DR RELIED UPON THE ORDER OF THE TPO, DI RECTIONS OF THE DRP AND ASSESSMENT ORDER. 20 ITA NO. 7176/DEL/2017 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE RECORDS IT CAN BE SEE N THAT THESE EXPENDITURES WERE ALREADY ALLOCATED TO ELIGIBLE AND NON-ELIGIBLE UNIT ON THE BASIS OF GENERALLY ACCEPTED ACCOUNTANCY PRINCIPLES, ON THE BASIS OF ID ENTIFIED COST DRIVERS AND IN A PRUDENT MANNER BY THE ASSESSEE COMPANY. THE ASSESSI NG OFFICER/TPO/DRP RE- ALLOCATED THE EXPENDITURE IN THE RATIO OF TURNOVER BETWEEN ELIGIBLE AND NON- ELIGIBLE UNITS WITHOUT ANY INVESTIGATION AND WITHOU T COLLECTING ANY MATERIAL. THE ASSESSING OFFICER/TPO/DRP HAS NOT BROUGHT ON RE CORD ANY DISCREPANCY ON PART OF THE ASSESSEE COMPANY IN RELATION TO THE MET HOD OF ALLOCATION ADOPTED BY THE ASSESSEE COMPANY. THE TRIBUNAL (THIRD MEMBER DE CISION) IN CASE OF DCIT VS. DELHI PRESS SAMACHAR PATRA (P) LTD. HELD AS UND ER: 39. IT IS CLEAR FROM THE ASSESSMENT ORDERS THAT IN COME SHOWN AND EXPENSES CLAIMED BY THE ASSESSEE HAVE BEEN DULY ALL OWED IN THE ASSESSMENT ORDER. NONE OF THE EXPENDITURE HAS BEEN TREATED AS INGENUINE OR NOT CONNECTED OR RELATED TO THE BUSINESS CARRIED OUT BY THE ASSES SEE. IN THE ABOVE BACKGROUND AND WITHOUT ANY MATERIAL, AND WITHOUT AN Y JUSTIFICATION ON THE PART OF THE AO, SOME OF THE EXPENSES CLAIMED BY THE ASSESSEE WERE HELD TO BE INFLATED IN UNIT NO. I AND WERE DEFLATED IN UNIT NO S. II AND III. ENTIRE CASE OF AO IN BOTH THE ASSESSMENT YEARS IS BASED ON SURMISE S AND CONJECTURES. THE LEARNED CIT(A) HAD PASSED A FAIR, RATIONALE AND JUS T ORDER. THERE WAS NO SCOPE TO INTERFERE WITH THE IMPUGNED ORDERS AS RIGH TLY HELD BY THE LEARNED AM IN HIS PROPOSED ORDER. ON SIMILAR FACTS CLAIM IN EA RLIER YEARS WAS ALLOWED TO THE ASSESSEE. 43. I SEE SOME PARALLEL BETWEEN THE FACTS OF THE AB OVECITED CASE AND CASE IN HAND, BECAUSE PROFIT WAS DISCLOSED IN UNIT NOS. II AND III ON WHICH DEDUCTION UNDER S. 80-I WAS CLAIMED AND NO PROFIT W AS DISCLOSED IN UNIT NO. I ON WHICH NO SUCH DEDUCTION WAS PERMISSIBLE AND EXPE NSES IN AFORESAID UNIT NO. I WERE MUCH HIGHER THAN IN THE OTHER TWO UNITS. IT WAS PROBABLE THAT MORE EXPENSES WERE CLAIMED IN UNIT NO. I AND SOME OF THE EXPENSES OF UNIT NOS. II AND III WERE DIVERTED AND CLAIMED IN UNIT NO. I. BU T NO PRESUMPTION UNDER THE 21 ITA NO. 7176/DEL/2017 LAW COULD BE RAISED THAT EXPENSES WERE SO DIVERTED. THE ASSESSEE HAS PRODUCED ACCOUNTS AND DETAILS AND, THEREFORE, CORRE CT POSITION COULD HAVE BEEN ASCERTAINED FROM THE MATERIAL STATEMENT OF REL EVANT PERSONS INCLUDING MANAGEMENT AND STAFF OF THE ASSESSEE COULD HAVE BEE N EXAMINED. BUT WITHOUT ANY INVESTIGATION AND WITHOUT COLLECTING AN Y MATERIAL AN ARBITRARY ASSESSMENT BY HOLDING THAT EXPENSES IN UNIT NO. I S HOULD BE PROPORTIONATE TO THOSE IN UNIT NOS. II AND III WAS MADE. ASSESSMENT BASED ON SUCH INFERENCE HAS TO BE HELD AS ARBITRARY. 46. IT IS EVIDENT FROM ABOVE THAT EVEN WHEN THE MAT ERIAL PRODUCED BY THE ASSESSEE IS REJECTED, THE AUTHORITIES CANNOT PR OCEED TO LEVY WHATEVER TAX THEY MAY LEVY. THE ASSESSMENT MUST BE BASED ON SOME MATERIAL. IF IT IS NOT BASED ON ANY MATERIAL THEN IT HAS TO BE HELD TO BE CAPRICIOUS AND ARBITRARY. THE QUESTION WHICH IS RAISED IN MOST OF THE CASES B EFORE THE TRIBUNAL IS WHETHER THE ASSESSMENT BY THE AO HAVE BEEN MADE IN ACCORDANCE WITH LAW. THE AFORESAID QUESTION HAS BE DETERMINED OBJECTIVEL Y AND NOT BY RAISING MERELY DOUBTS AND CERTAINLY NOT BY ENTERTAINING SUS PICION AGAINST THE ASSESSEE, OR AGAINST PEOPLE CONNECTED WITH THE ASSE SSMENT OR DISPOSAL OF APPEALS. IF THE TRIBUNAL DOES NOT DISCHARGE ITS DUT IES WITH RESPONSIBILITY AS ENJOINED UNDER THE LAW, THE CONFIDENCE THAT IS PLAC ED BY THE PUBLIC ON THE TRIBUNAL WOULD STAND ERODED. WITH THE AFORESAID OBS ERVATIONS, I AGREE WITH THE ORDER PROPOSED BY LEARNED AM, CONFIRMING THE IM PUGNED ORDERS OF CIT()A. LET THE MATTER BE NOW PLACED BEFORE THE REGULAR BEN CH FOR DISPOSAL IN ACCORDANCE WITH LAW IN BOTH THE ASSESSMENT YEARS. THUS, FROM PERUSAL OF THE ASSESSMENT ORDER/ORDER OF THE TPO/DIRECTIONS OF THE DRP, IN THE PRESENT CASE NONE OF THE AUTHORITIE S HAVE DOUBTED THAT THERE WAS NO EXPENSES. IN FACTS, THE ASSESSING OFFICER/TP O/DRP RE-ALLOCATED THE EXPENDITURE IN THE RATIO OF TURNOVER BETWEEN ELIGIB LE AND NON-ELIGIBLE UNITS WITHOUT BRINGING INTO THE LIGHT THE FLAW OR INACCUR ACY OR ANY SUITABLE EXPLANATION INVOLVED IN RELATION TO THE METHOD OF A LLOCATION ADOPTED BY THE ASSESSEE COMPANY. HENCE, GROUND NO. 3(C) IS ALLOWED . 22 ITA NO. 7176/DEL/2017 19. AS REGARDS TO GROUND NO. 4, THE LD. AR SUBMITTE D THAT THE REVENUE AUTHORITIES AS WELL AS DRP HAVE WRONGLY REDUCED THE SELLING PRICE OF POWER EVEN WITHOUT BRINGING ON THE RECORD ANY ADMISSIBLE EVIDE NCE TO SUPPORT THE OBSERVATION AS WELL AS INCREASED THE EXPENSES TOWAR DS THE CLAIM OF DEDUCTION U/S 80IA(8) INSTEAD OF REDUCING THE CLAIM U/S 80IA( 8) OF THE ACT. THE LD. AR SUBMITTED THAT THE AO/TPO/DRP HAS ERRED IN NOT ALLO WING THE BENEFIT OF DOWNWARD ADJUSTMENT AS PROVIDED IN THE PROVISO OF S ECTION 92C OF THE ACT FROM THE ARM'S LENGTH PRICE AND THEREFORE, RESULTED THE ENTIRE ADDITION MADE JUST ON PRESUMPTION AND ASSUMPTION. THEREFORE, THE LD. AR S UBMITTED THAT THE FINDING OF ASSESSING OFFICER IS LIABLE TO BE DELETED. 20. THE LD. DR RELIED UPON THE ORDER OF THE TPO, DI RECTIONS OF THE DRP AND ASSESSMENT ORDER. 21. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE REVENUE AUTHORITIES REDUCE D THE SELLING PRICE OF POWER EVEN AS WELL AS INCREASED THE EXPENSES TOWARDS THE CLAIM OF DEDUCTION U/S 80IA(8) INSTEAD OF REDUCING THE CLAIM U/S 80IA(8) O F THE ACT. TO ARRIVE AT THIS CONCLUSION, NONE OF THE AUTHORITIES HAVE GIVEN ANY PLAUSIBLE EXPLANATION IN THE ORDERS. THE ASSESSING OFFICER/TPO WHILE NOT ALLOWIN G THE BENEFIT OF DOWNWARD ADJUSTMENT AS PROVIDED IN THE PROVISO OF SECTION 92 C OF THE ACT FROM THE ARM'S LENGTH PRICE, HAS NOT GIVEN ANY REASON WHILE MAKING THIS ADDITION. THIS ADDITION IS BASED ON PRESUMPTION AND ASSUMPTION WHI CH IS NOT PERMISSIBLE UNDER THE INCOME TAX ACT, 1961. THUS, GROUND NO. 4 IS ALLOWED. 22. AS REGARDS TO GROUND NO. 5 RELATING TO BANK GUA RANTEE COMMISSION OF RS. 1,14,085/-, THE DRP DIRECTED FOR THE DELETION BY FOLLOWING THE CBDT CIRCULAR ON THE FOOTING THAT BANK GUARANTEE COMMISS ION IS NOT SUBJECT TO THE TDS PROVISIONS, BUT FINALLY THE ASSESSING OFFICER M ADE THE ADDITIONS IN VIOLATION OF THE DRPS DIRECTIONS EVEN WITHOUT CHAL LENGING THE FINDING BY THE 23 ITA NO. 7176/DEL/2017 DEPARTMENT. 23. THE LD. DR RELIED UPON THE ORDER OF THE TPO, DI RECTIONS OF THE DRP AND ASSESSMENT ORDER. 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE DRP HAS DIRECTED TO DELETE THE BANK GUARANTEE COMMISSION AND WITHOUT APPRECIATING THE SAME, THE A SSESSING OFFICER MADE AN ADDITION WHICH IS UNSUSTAINABLE. THEREFORE, WE DIRE CT THE ASSESSING OFFICER TO COMPLY WITH THE DIRECTIONS OF THE DRP AND GRANT THE RELIEF TO THE ASSESSEE. GROUND NO. 5 IS ALLOWED. 25. AS REGARDS TO GROUND NO. 6 RELATING TO DEPRECIA TION CHARGED BY THE ASSESSEE IN RESPECT OF ELECTRICAL INSTALLATION, THE LD. AR SUBMITTED THAT IT IS FULLY COVERED IN ASSESSEES OWN CASE AND MOREOVER T HE DRP HAS ALSO GIVEN THE DIRECTION FOR DELETION. 26. THE LD. DR RELIED UPON THE ORDER OF THE TPO, DI RECTIONS OF THE DRP AND ASSESSMENT ORDER. 27. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THIS ISSUE IS COVERED IN ASSES SEES OWN CASE AND THE DRP ALSO DIRECTED TO DELETE SAID ADDITION. WITHOUT APPR ECIATING THE SAME, THE ASSESSING OFFICER MADE AN ADDITION WHICH IS UNSUSTA INABLE. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO COMPLY WITH THE DIR ECTIONS OF THE DRP AND GRANT THE RELIEF TO THE ASSESSEE. GROUND NO. 6 IS ALLOWED . 24 ITA NO. 7176/DEL/2017 28. AS REGARDS TO GROUND NO. 7 RELATING TO CSR EXPE NSES OF RS. 45,04,273/-, THE LD. AR SUBMITTED THAT THE ISSUE IS COVERED IN F AVOUR OF THE ASSESSEE ON THE BASIS OF THE TRIBUNALS ORDER IN ACIT VS. JINDAL PO WER LTD IN ITA NO. 99/BLPR/2012 WIDE ORDER DATED 23.06.20116 AND THERE ARE NO BASIC CHANGE IN FACTUAL MATRIX OF THE ASSESSEES CASE. 29. THE LD. AR FURTHER SUBMITTED THAT THE ASSES SING OFFICER NOTICED THAT THE ASSESSEE CLAIMED A DEDUCTION OF RS. 45,04,273/- ON ACCOUNT OF EXPENSES INCURRED BY WAY OF DIFFERENT NATURE OF REVENUE EXPE NSES AND DETAILS THEREOF, ON DISCHARGING CORPORATE SOCIAL RESPONSIBILITY. IN RES PONSE TO THE QUESTIONS OF THE ASSESSING OFFICERS/TPO/DRP, IT WAS EXPLAINED BY THE ASSESSEE THAT THESE EXPENDITURE MAINLY RELATE TO THE EXPENSES INCURRED ON POST EXCAVATION WORK, TALAB REPAIR/BEAUTIFICATION, PLANTATION WORK, OCCAS ION CELEBRATION EXPENSES, OTHER EXPENSES, DISTRIBUTION EXPENSES, VEHICLE HIRI NG, CONSTRUCTION OF SCHOOL BUILDING, DEVASTHAN /TEMPLE, DRAINAGE, BARBED WIRE FENCING, EDUCATIONAL SCHEMES AND DISTRIBUTIONS OF CLOTHES ETC VOLUNTARIL Y. IN THIS BACKGROUND, AND WITHOUT MUCH OF A DISCUSSION ON THE FACTUAL ASPECTS , THE ASSESSING OFFICER DISALLOWED THE CLAIM OF CSR EXPENSES EVEN WITHOUT D ISPUTING THE FACTUAL MATRIX OR BRINGING ON RECORD ANY ADVERSE MATERIAL. 30. THE LD. AR SUBMITTED THAT THE AO/TPO AS WELL AS THE DRP HAS ERRED ON FACTS AND LAW BY NOT PROPERLY APPRECIATING THAT COR PORATE SOCIAL RESPONSIBILITY, ALSO CALLED CORPORATE CONSCIENCE, CORPORATE CITIZEN SHIP, SOCIAL PERFORMANCE, OR SUSTAINABLE RESPONSIBLE BUSINESS/ RESPONSIBLE BUSIN ESS IS A FORM OF CORPORATE SELF REGULATION INTEGRATED INTO A BUSINESS MODEL. C SR POLICY FUNCTIONS CORPORATE SELF-REGULATING MECHANISM WHEREBY A BUSIN ESS MONITORS AND ENSURES ITS ACTIVE COMPLIANCE WITH THE SPIRIT OF THE LAW, E THICAL STANDARDS AND INTERNATIONAL NORMS. THE GOAL OF CSR IS TO EMBRACE RESPONSIBILITY FOR THE COMPANY'S ACTIONS AND ENCOURAGE A POSITIVE IMPACT T HROUGH ITS ACTIVITIES ON THE ENVIRONMENT, CONSUMERS, EMPLOYEES, COMMUNITIES, STA KEHOLDERS AND ALL OTHER 25 ITA NO. 7176/DEL/2017 MEMBERS OF THE PUBLIC SPHERE WHO MAY ALSO BE CONSID ERED AS STAKEHOLDERS. CSR IS TITLED TO AID AN ORGANIZATION'S MISSION AS W ELL AS GUIDE TO WHAT THE COMPANY STANDS FOR AND WILL UPHOLD TO ITS CONSUMERS . DEVELOPMENTS BUSINESS ETHICS IS ONE OF THE FORMS OF APPLIED ETHICS THAT E XAMINES ETHICAL PRINCIPLES AND MORAL OR ETHICAL PROBLEMS THAT CAN ARISE IN A BUSIN ESS ENVIRONMENT. THE GOVT. OF INDIA HAS BEEN TRYING TO MAKE IT MANDATORY TO SP END AT LEAST 2% OF NET PROFIT ON CSR, THOUGH SOME CORPORATE VEHEMENTLY OPPOSED IT S MANDATORY NATURE, MADE THE SPENDING VOLUNTARY. BUT THE DEBATE CONTINU ES. CSR IS NOT PHILANTHROPY AND CSR ACTIVITIES ARE PURELY VOLUNTAR Y. TO PROVIDE COMPANIES WITH GUIDANCE IN DEALING WITH THE ABOVE MENTIONED E XPECTATIONS, WHILE WORKING CLOSELY WITHIN GUIDANCE IN DEALING WITH THE ABOVE M ENTIONED EXPECTATION, WHILE WORKING CLOSELY WITHIN THE FRAMEWORK OF NATIONAL AS PIRATIONS AND POLICIES, VOLUNTARY GUIDELINES FOR CSR AND THEIR IMPLEMENTATI ON HAS BEEN DEVELOPED. WHILE THE GUIDELINES HAVE BEEN PREPARED FOR THE IND IAN CONTEXT, ENTERPRISES THAT HAVE A TRANSNATIONAL PRESENCE WOULD BENEFIT FO R USING THESE GUIDELINES FOR THEIR OVERSEAS OPERATIONS AS WELL. SINCE THE GUIDEL INES ARE VOLUNTARY AND NOT PREPARED IN THE NATURE OF PERSPECTIVE ROADMAP, THEY ARE NOT INTENDED FOR REGULATORY OR CONTRACTUAL USE. 31. THE LD. AR SUBMITTED THAT FUNDAMENTAL OBJECTION OF THE ASSESSING OFFICER IS THAT THE EXPENSES IS VOLUNTARY, NOT MANDATORY AN D NOT FOR BUSINESS PURPOSES. THE LD. AR FURTHER SUBMITTED THAT THE EXP ENSES BEING IN THE NATURE OF VOLUNTARY EXPENSES, WHICH ARE NOT MANDATORY, AND WHICH THE ASSESSEE WAS NOT STATUTORILY REQUIRED TO INCUR, ARE NOT ADMISSIB LE DEDUCTION IN COMPUTATION OF BUSINESS INCOME. THE LD. AR SUBMITTED THAT AS LO NG AS EXPENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF EARNING THE INCOME FROM BUSINESS OR PROFESSION, MERELY BECAUSE SOME OF THES E EXPENSES ARE INCURRED VOLUNTARILY, I.E. WITHOUT THERE BEING ANY LEGAL OR CONTRACTUAL OBLIGATION TO INCUR THE SAME, THOSE NECESSARY THAT EVERY EXPENSE THAT C OULD BE ALLOWED AS A DEDUCTION SHOULD BE SUCH AS A HARDNOSED AND PERHAPS DEVOID OF SENSES OF COMPASSION, BUSINESSMAN ALONE WOULD INCUR IN FURTHE RANCE OF HIS BUSINESS 26 ITA NO. 7176/DEL/2017 PURSUITS. IN SUPPORT OF THE ASSESSEES CLAIM TOWARD S CSR EXPENSES A GUIDANCE FROM PASSAGE FROM THE JUDGMENT OF HOUSE OF LORDS IN THE CASE OF ATHERTON VS. BRITISH INSULATED & HELSBEY CABLES LTD. (1925) 10 T AX CASES 155 (HL) WAS REFERRED BY THE LD. AR WHICH WAS TAKEN INTO CONSIDE RATION BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS CHANDULAL KESHA VLAL & CO. (1960) 38 ITR 601 (SC). 32. THE LD. AR FURTHER SUBMITTED THAT IN VIEW OF IN SERTION OF EXPLANATION 2 TO SECTION 37(1), WITH EFFECT FROM 1 ST APRIL 2015, THE EXPENSES INCURRED IN DISCHARGING CORPORATE SOCIAL RESPONSIBILITY ARE NOT DEDUCTIBLE IN COMPUTATION OF BUSINESS INCOME. THE LD. AR FURTHER SUBMITTED THAT THE AMENDMENT SHOULD NOT BE TREATED AS CLARIFICATORY IN NATURE. THE AMEN DMENT IN LAW, WHICH WAS ACCOMPANIED BY THE STATUTORY REQUIREMENT WITH REGAR D TO DISCHARGING THE CORPORATE SOCIAL RESPONSIBILITY, IS A DISABLING PRO VISION WHICH PUTS AN ADDITIONAL TAX BURDEN ON THE ASSESSEE IN THE SENSE THAT THE EXPENSES THAT THE ASSESSEE IS REQUIRED TO INCUR, UNDER A STATUTORY OB LIGATION. THE AMENDMENT U/S 37(1) WHICH HAS BEEN INTRODUCED WITH EFFECT FRO M 01.04.2015 CANNOT BE CONSTRUED AS TO DISADVANTAGE TO THE ASSESSEE IN THE PERIOD PRIOR TO THE AMENDMENT. IN THE COURSE OF ASSESSEES BUSINESS DED UCTIONS ARE NOT ALLOWED IN THE COMPUTATION OF INCOME. THIS DISALLOWANCE IS RES TRICTED TO THE EXPENSES INCURRED BY THE ASSESSEE UNDER A STATUTORY OBLIGATI ON UNDER SECTION 135 OF COMPANIES ACT 2013, AND THERE IS THUS NOW A LINE OF DISCHARGING CORPORATE SOCIAL RESPONSIBILITY AS FOR THE FORMER, THE DISALL OWANCE UNDER EXPLANATION 2 TO SECTION 37(1) COMES INTO PLAY, BUT AS FOR LATTER, T HERE IS NO SUCH DISABLING PROVISION AS LONG AS THE EXPENSES EVEN IN DISCHARGE OF CORPORATE SOCIAL RESPONSIBILITY OF VOLUNTARY BASIS, CAN BE SAID TO B E 'WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS'. THERE IS NO DISPUTE THAT THE EXPENSES IN QUESTION ARE NOT INCURRED UNDER THE AFORESAID STATUTORY OBLI GATION. FOR THIS REASON ALSO, AS WELL AS FOR THE BASIC REASON THAT THE EXPLANATIO N 2 TO SECTION 37(1) COMES INTO PLAY WITH EFFECT FROM 1 ST APRIL 2015' DOES NOT AFFECT ADVERSELY AND THE ASSESSEE IS ENTITLED FOR THE ENTIRE EXPENSES. 27 ITA NO. 7176/DEL/2017 33. THE LD. DR RELIED UPON THE ORDER OF THE TPO, DI RECTIONS OF THE DRP AND ASSESSMENT ORDER. 34. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. AR RELIED UPON THE DEC ISION OF THE TRIBUNAL IN CASE OF JINDAL POWER LTD. (SUPRA). THE TRIBUNAL HELD AS UNDER: 16. WE HAVE NOTED THAT FUNDAMENTAL OBJECTION OF TH E ASSESSING OFFICER IS THAT THE EXPENSES IS VOLUNTARY, NOT MANDATORY AND N OT FOR BUSINESS PURPOSES. AS FOR THE CONTENTION THAT THE EXPENSES BEING IN TH E NATURE OF VOLUNTARY EXPENSES, WHICH ARE NOT MANDATORY, AND WHICH THE AS SESSEE WAS NOT STATUTORILY REQUIRED TO INCUR, ARE NOT ADMISSIBLE D EDUCTION IN COMPUTATION OF BUSINESS INCOME, WE ARE OF THE CONSIDERED VIEW THAT AS LONG AS EXPENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF EARNING THE INCOME FROM BUSINESS OR PROFESSION, MERELY BECAUSE SOME OF THES E EXPENSES ARE INCURRED VOLUNTARILY, I.E. WITHOUT THERE BEING ANY LEGAL OR CONTRACTUAL OBLIGATION TO INCUR THE SAME, THOSE EXPENSES DO NOT CEASE TO BE DEDUCTI BLE IN NATURE. IN OTHER WORDS, IT IS NOT NECESSARY THAT EVERY EXPENSE THAT COULD BE ALLOWED AS A DEDUCTION SHOULD BE SUCH AS A HARDNOSED, AND PERHAP S DEVOID OF SENSES OF COMPASSION, BUSINESSMAN ALONE WOULD INCUR IN FURTHE RANCE OF HIS BUSINESS PURSUITS. WE FIND GUIDANCE FROM A PASSAGE FROM THE JUDGMENT OF HOUSE OF LORDS IN THE CASE OF ATHERTON VS. BRITISH INSULATED & HELSBEY CABLES LTD. (1925) 10 TAX CASES 155 (HL), REFERRED TO WITH APPR OVAL BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. CHANDULAL KESH AVLAL & CO. (1960) 38 ITR 601 (SC), WHICH READS AS FOLLOWS: 'IT WAS MADE CLEAR IN THE ABOVE CITED CASES OF USHERS WILSHIRE BREWERY VS. BRUCE (SUPRA) AND SMITH VS. INCORPORATED COUNCIL OF LAW REPORTING (1914) 5 TAX CASES 477 THAT A SUM OF MONEY EXPENDED NOT WITH A NECESSITY AND WITH A VIEW TO DIRECT AND IMMEDIATE BENEFIT TO THE TRADE, BUT VOLUNTARILY AND ON THE GROUNDS OF COMMERCIAL EXPEDIENCY AND IN ORDER TO INDIRECTLY FA CILITATE, CARRYING ON OF BUSINESS MAY YET BE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE 28 ITA NO. 7176/DEL/2017 TRADE; AND IT APPEARS TO ME THAT THE FINDINGS OF TH E CIT IN THE PRESENT CASE, BRING THE PAYMENT IN QUESTION WITHIN THAT DESCRIPTI ON. THEY FOUND (IN WORDS WHICH I HAVE ALREADY QUOTED) THAT PAYMENT WAS MADE FOR THE SOUND COMMERCIAL PURPOSE OF ENABLING THE COMPANY TO RETAI N THE EXISTING AND FUTURE MEMBERS OF STAFF AND FOR INCREASING THE EFFICIENCY OF THE STAFF; AND AFTER REFERRING TO THE CONTENTION OF THE CROWN THAT THE S UM OF STERLING POUND 31,784 WAS NOT MONEY WHOLLY AND EXCLUSIVELY LAID OUT FOR T HE PURPOSE OF THE TRADE UNDER THE RULE ABOVE REFERRED TO, THEY FOUND DEDUCT ION WAS ADMISSIBLE-THUS IN EFFECT, THOUGH NOT IN TERMS, NEGATIVING THE CROWNS CONTENTIONS. I THINK THAT THERE WAS AMPLE MATERIAL TO SUPPORT THE FINDINGS OF THE CIT, AND ACCORDINGLY HOLD THAT THIS PROHIBITION DOES NOT APPLY.' IT WILL , THEREFORE, BE CLEAR THAT EVEN IF AN EXPENSE IS INCURRED VOLUNTARILY, IT MAY STILL BE CONSTRUED AS 'WHOLLY AND EXCLUSIVELY. EXPLAINING THIS PRINCIPLE, HONBLE SU PREME COURT HAS, IN THE CASE OF SASSOON J DAVID & CO. (P) LTD. VS. CIT [(1979) 1 18 ITR 261 (SC)] INTER AHA OBSERVED THAT :'IT HAS TO BE OBSERVED HERE THAT THE EXPRESSION 'WHOLLY AND EXCLUSIVELY' USED IN S. 10(2)(XV) OF THE ACT DOES N OT MEAN 'NECESSARILY'. ORDINARILY, IT IS FOR THE ASSESSEE TO DECIDE WHETHE R ANY EXPENDITURE SHOULD BE INCURRED IN THE COURSE OF HIS OR ITS BUSINESS. SUCH EXPENDITURE MAY BE INCURRED VOLUNTARILY AND WITHOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROMOTING THE BUSINESS AND TO EARN PROFITS, THE ASS ESSEE CAN CLAIM DEDUCTION UNDER S. 10(2)(XV) OF THE ACT EVEN THOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH EXPENDITURE. IT IS RELEVANT TO REFER AT THIS STAGE TO THE LEGISLATIVE HISTORY OF S. 37 OF THE IT ACT, 1961, WHICH CORRESP ONDS TO S. 10(2)(XV) OF THE ACT. AN ATTEMPT WAS MADE N THE IT BILL OF 1961 TO L AY DOWN THE 'NECESSITY' OF THE EXPENDITURE AS A CONDITION FOR CLAIMING DEDUCTI ON UNDER S. 37. SEC. 37(1) IN THE BILL READ 'ANY EXPENDITURE, LAID OUT OR EXPE NDED WHOLLY, NECESSARILY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED.' THE INTRODUCTION OF THE WORD 'NECESSARILY ' IN THE ABOVE SECTION RESULTED IN PUBLIC PROTEST. CONSEQUENTLY, WHEN S. 3 7 WAS FINALLY ENACTED INTO LAW, THE WORD 'NECESSARILY' CAME TO BE DROPPED. THE FACT THAT SOMEBODY OTHER THAN THE ASSESSEE IS ALSO BENEFITED BY THE EXPENDIT URE SHOULD NOT COME IN THE 29 ITA NO. 7176/DEL/2017 WAY OF AN EXPENDITURE BEING ALLOWED BY WAY OF DEDUC TION UNDER S. 10(2)(XV) OF THE ACT IF IT SATISFIES OTHERWISE THE TESTS LAID DOWN BY LAW.' 17. THE NEXT ISSUE IS WHETHER IT IS FOR THE PURPOSE S OF BUSINESS OR NOT. WE MAY, IN THIS REGARD, USEFULLY REFER TO THE OBSER VATIONS OF A COORDINATE BENCH OF THIS TRIBUNAL, SPEAKING THROUGH ONE OF US (I.E. THE ACCOUNTANT MEMBER) AND IN THE CASE OF HINDUSTAN PETROLEUM CORP ORATION LTD VS DCIT [(2005) 96 ITD 186 (BOM)], AS FOLLOWS: 7. WE FIND THAT AS HELD BY HONBLE KARNATAKA HIGH C OURT IN THE CASE OF MYSORE KIRLOSKAR LTD. V. CIT [1987] 166 ITR 836 1, WHILE THE BASIC REQUIREMENTS FOR INVOKING SECTIONS 37(1) AND 80G AR E QUITE DIFFERENT, 'BUT NONETHELESS THE TWO SECTIONS ARE NOT MUTUALLY EXCLU SIVE THUS, THERE ARE OVERLAPPING AREAS BETWEEN THE DONATIONS GIVEN BY TH E ASSESSEE AND THE BUSINESS EXPENDITURE INCURRED BY THE ASSESSEE. IN O THER WORDS, THERE CAN BE CERTAIN AMOUNTS, THOUGH IN THE NATURE OF DONATIO NS, AND NONETHELESS, THESE AMOUNTS MAY BE DEDUCTIBLE UNDER SECTION 37(1) AS WELL. THEREFORE, MERELY BECAUSE AN EXPENDITURE IS IN THE NATURE OF D ONATION, OR, TO USE THE WORDS OF THE CIT(A), PROMOTED BY ALTRUISTIC MOTIVE S, IT DOES NOT CEASE TO BE AN EXPENDITURE DEDUCTIBLE UNDER SECTION 37(1). IN M YSORE KIRLOSKAR LTD.S CASE (SUPRA), THEIR LORDSHIPS HAVE OBSERVED THAT EV EN IF THE CONTRIBUTIONS BY THE ASSESSEE IS IN THE FORMS OF DONATIONS, BUT I F IT COULD BE TERMER) AS EXPENDITURE OF THE CATEGORY FALLING IN SECTION 37(1 ), THEN THE RIGHT OF THE ASSESSEE TO CLAIM THE WHOLE OF IT AS A DEDUCTION UN DER SECTION 37(1) CANNOT HE DECLINED. WHAT IS MATERIAL IN THIS CONTEXT IS WH ETHER OR NOT THE EXPENDITURE IN QUESTION WAS NECESSITATED BY BUSINES S CONSIDERATIONS OR NOT. ONCE IT IS FOUND THAT THE EXPENDITURE WAS DICT ATED BY COMMERCIAL EXPEDIENCIES, THE DEDUCTION UNDER SECTION 37(1) CAN NOT BE DECLINED AS TO WHAT SHOULD BE RELEVANT FOR EXAMINING THIS ASPECT O F THE MATTER, WE MAY ONLY REFER TO THE OBSERVATIONS OF HONBLE SUPREME C OURT IN THE CASE OF SRI VENKATA SATYANARAYNA RICE MILL CONTRACTORS CO. V. C IT [1997] 223 ITR 101 2: 30 ITA NO. 7176/DEL/2017 * . . ANY CONTRIBUTION MADE BY AN ASSESSEE TO A PUB LIC WELFARE FUND WHICH IS DIRECTLY CONNECTED OR RELATED WITH THE CAR RYING ON OF THE ASSESSEE'S BUSINESS OR WHICH RESULTS IN THE BENEFIT TO THE ASSESSEES BUSINESS HAS TO BE REGARDED AS AN ALLOWABLE DEDUCTI ON UNDER SECTION 37(1) OF THE ACT. SUCH A DONATION, WHETHER VOLUNTAR Y OR AT THE INSTANCE OF THE AUTHORITIES CONCERNED, WHEN MADE TO A CHIEF MINISTER'S DROUGHT RELIEF FUND OR A DISTRICT WELFARE FUND ESTABLISHED BY THE DISTRICT COLLECTOR OR ANY OTHER FUND FOR THE BENEFIT OF THE PUBLIC AND WITH A VIEW TO SECURE BENEFIT TO THE ASSESSEE'S BUSINESS, CANNO T BE REGARDED AS PAYMENT OPPOSED TO PUBLIC POLICY IT IS NOT AS IF TI E PAYMENT IN THE PRESENT CASE HAD BEEN MADE AS AN ILLEGAL GRATIFICAT ION. THERE IS NO LAW WHICH PROHIBITS THE MAKING OF SUCH A DONATION. THE MERE FACT THAT MAKING OF A DONATION FOR CHARITABLE OR PUBLIC CAUSE OR IN PUBLIC INTEREST RESULTS IN THE GOVERNMENT GIVING PATRONAGE OR BENEF IT CAN BE NO GROUND TO DENY THE ASSESSEE A DEDUCTION OF THAT AMOUNT UND ER SECTION 37(1) OF THE ACT WHEN SUCH PAYMENT HAD BEEN MADE FOR THE PUR POSE OF ASSESSEE'S BUSINESS. 8. IN THE CASE OF CIT V. MADRAS REFINERIES LTD. [20 04] 266 ITR 170 1, HON'BLE MADRAS HIGH COURT HAS UPHELD DEDUCTIBILITY OF THE AMOUNT SPENT BY THE ASSESSEE EVEN ON BRINGING DRINKING WATER TO LOCALITY AND IN AIDING LOCAL SCHOOL. WHILE DOING SO, THEIR LORDSHIPS OBSER VED AS FOLLOWS: THE CONCEPT OF BUSINESS IS NOT STATIC. IT HAS EVOLV ED OVER A PERIOD OF TIME TO INCLUDE WITHIN ITS FOLD THE CONCRETE EXPRES SION OF CARE AND CONCERN FOR THE SOCIETY AT LARGE AND THE LOCALITY I N WHICH BUSINESS IS LOCATED IN PARTICULAR. BEING A GOOD CORPORATE CITIZ EN BRINGS GOODWILL OF 31 ITA NO. 7176/DEL/2017 THE LOCAL COMMUNITY AS ALSO WITH THE REGULATORY AGE NCIES AND SOC.ETY AT LARGE, THEREBY CREATING AN ATMOSPHERE IN WHICH THE BUSINESS CAN SUCCEED IN A GREATER MEASURE WITH THE AID OF SUCH G OODWILL.... 9. LET US NOW TAKE A LOOK AT THE UNDISPUTED FACTS O F THIS CASE. THE ASSESSEE IS A COMPANY OWNED BY THE GOVERNMENT OF IN DIA AND WORKING UNDER THE CONTROL AND DIRECTIONS OF THE GOVERNMENT OF INDIA. AS THE STATEMENT OF FACTS CLEARLY SETS OUT, THE EXPENDITUR E ON 20-POINT PROGRAMMES WAS INCURRED IN VIEW OF SPECIFIC DIRECTI ONS OF THE GOVERNMENT OF INDIA. THIS FACTUAL ASPECT IS NO. EVEN DISPUTED OR CHALLENGED BY THE REVENUE AT ANY STAGE, IT CANNOT BUT BE IN THE BUSIN ESS INTEREST OF THE ASSESSEE-COMPANY TO ABIDE BY THE DIRECTIONS OF THE GOVERNMENT OF INDIA WHICH ALSO OWNS THE ASSESSEE-COMPANY. IN ANY EVENT, AS OBSERVED BY THE HON'BLE MADRAS HIGH COURT IN MADRAS REFINERIES LTD. 'S CASE (SUPRA), MONIES SPENT BY THE ASSESSEE AS A GOOD CORPORATE CI TIZEN AND TO EARN THE GOODWILL OF THE SOCIETY HELP CREATING AN ATMOSPHERE IN WHICH THE BUSINESS CAN SUCCEED IN A GREATER MEASURE WITH THE HELP OF S UCH GOODWILL. THE MONIES SO SPENT THEREFORE ARE REQUIRED TO BE TREATE D AS BUSINESS EXPENDITURE ELIGIBLE FOR DEDUCTION UNDER SECTION 37 (1) OF THE ACT. WHAT IS THE EXPENDITURE FOR THE IMPLEMENTATION OF 20-POINT PLANT AFTER ALL? IT IS SOLELY FOR THE WELFARE OF THE OPPRESSED CLASSES OF SOCIETY, FOR WHICH EVEN THE CONSTITUTION OF INDIA SANCTIONS POSITIVE DISCRI MINATION, AND FOR CONTRIBUTION TO ALL AROUND DEVELOPMENT OF VILLAGES, WHICH HAS ALWAYS BEEN THE CENTRAL THEME OF GOVERNMENT'S DEVELOPMENT INITI ATIVES. AN EXPENDITURE OF SUCH A NATURE CANNOT BUT BE, TO USE THE WORDS EM PLOYED BY THE HONBLE MADRAS HIGH COURT IN MADRAS REFINERIES LTD.S CASE (SUPRA), 'A CONCRETE EXPRESSION OF CARE AND CONCERN FOR THE SOCIETY AT L ARGE' AND AN EXPENDITURE TO DISCHARGE THE RESPONSIBILITIES OF A 'GOOD CORPOR ATE CITIZEN WHICH BRINGS GOODWILL OF WITH THE REGULATORY AGENCIES AND SOCIET Y AT LARGE, THEREBY CREATING AN ATMOSPHERE IN WHICH THE BUSINESS CAN SU CCEED IN A GREATER MEASURE WITH THE AID OF SUCH GOODWILL. 32 ITA NO. 7176/DEL/2017 18. WE HAVE ALSO TAKE NOTE OF THE FACT THAT IN VIEW OF INSERTION OF EXPLANATION 2 TO SECTION 37(1), WITH EFFECT FROM 1S T APRIL 2015. WHICH PROVIDES THAT FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLA RED THAT FOR THE PURPOSES OF SUB-SECTION (1), ANY EXPENDITURE INCURRED BY AN ASS ESSEE ON THE ACTIVITIES RELATING TO CORPORATE SOCIAL RESPONSIBILITY REFERRE D TO IN SECTION 135 OF THE COMPANIES ACT, 20 3 (18 OF 2013) SHALL NOT BE DEEME D TO BE AN EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BU SINESS OR PROFESSION, THE EXPENSES INCURRED IN DISCHARGING CORPORATE SOCIAL R ESPONSIBILITY ARE NOT DEDUCTIBLE IN COMPUTATION OF BUSINESS INCOME. LEARN ED DEPARTMENTAL REPRESENTATIVE SUBMITS THAT THIS AMENDMENT SHOULD B E TREATED AS CLARIFICATORY IN NATURE, AS IT IS STATED TO BE IN S O MANY WORDS, AND WE SHOULD, THEREFORE, HOLD THAT THE EXPENSES IN DISCHARGING CO RPORATE SOCIAL RESPONSIBILITY WERE OUTSIDE THE AMBIT OF EXPENSES DEDUCTIBLE UNDER SECTION 37(1). 19. WE ARE UNABLE TO SEE LEGALLY SUSTAINABLE MERITS IN THIS PLEA EITHER THE AMENDMENT IN THE SCHEME OF SECTION 37(1), WHICH HAS BEEN INTRODUCED WITH EFFECT FROM 1ST APRIL 2015, CANNOT BE CONSTRUE D AS TO DISADVANTAGE TO THE ASSESSEE IN THE PERIOD PRIOR TO THIS AMENDMENT. THI S DISABLING PROVISION, AS SET OUT IN EXPLANATION 2 TO SECTION 37(1), REFERS O NLY TO SUCH CORPORATE SOCIAL RESPONSIBILITY EXPENSES AS UNDER SECTION 135 OF THE COMPANIES ACT, 2013, AND, AS SUCH, IT CANNOT HAVE ANY APPLICATION FOR TH E PERIOD NOT COVERED BY THIS STATUTORY PROVISION WHICH ITSELF CAME INTO EXISTENC E IN'2013. EXPLANATION 2 TO SECTION 37(1) IS THEREFORE, INHERENTLY INCAPABLE OF RETROSPECTIVE APPLICATION ANY FURTHER. IN ANY EVENT, AS HELD BY HONBLE SUPREME C OURTS FIVE JUDGE CONSTITUTIONAL BENCHS LANDMARK JUDGMENT, IN THE CA SE OF CIT VS VATIKA TOWNSHIPS PVT. LTD. [(2014) 367 ITR 466 (SC)] THE L EGAL POSITION IN THIS REGARD HAS BEEN VERY SUCCINCTLY SUMMED UP BY OBSERVING THA T OF THE VARIOUS RULES GUIDING HOW LEGISLATION HAS TO BE INTERPRETED, ONE ESTABLISHED RULE IS THAT UNLESS A CONTRARY INTENTION APPEARS, LEGISLATION IS PRESUMED NOT TO BE INTENDED TO HAVE A RETROSPECTIVE OPERATION. THE IDE A BEHIND THE RULE IS THAT A 33 ITA NO. 7176/DEL/2017 CURRENT LAW SHOULD GOVERN CURRENT ACTIVITIES. LAW P ASSED TODAY CANNOT APPLY TO THE EVENTS OF THE PAST. IF WE DO SOMETHING TODAY , WE DO IT KEEPING IN VIEW THE LAW OF TODAY AND IN FORCE AND NOT TOMORROWS BA CKWARD ADJUSTMENT OF IT. OUR BELIEF IN THE NATURE OF THE LAW IS FOUNDED ON T HE BED ROCK THAT EVERY HUMAN BEING IS ENTITLED TO ARRANGE HIS AFFAIRS BY R ELYING ON THE EXISTING LAW AND SHOULD NOT FIND THAT HIS PLANS HAVE BEEN RETROS PECTIVELY UPSET. THIS PRINCIPLE OF LAW IS KNOWN AS LEX PROSPICIT NON RESP ICIT: LAW LOOKS FORWARD NOT BACKWARD. AS WAS OBSERVED IN PHILLIPS VS. EYRE [, A RETROSPECTIVE LEGISLATION IS CONTRARY TO THE G RURAL PRINCIPLE THAT LEGISLATION BY WHICH THE CONDUCT OF MANKIND IS TO BE REGULATED WHEN INTRODUCED FOR THE FIRST TIME TO DEAL WITH FUTURE ACTS OUGHT NOT TO CHANGE THE CHARACTER OF PA ST TRANSACTIONS CARRIED ON UPON THE FAITH OF THE THEN EXISTING LAW. IT MAY AP PEAR TO BE SOME KIND OF A DICHOTOMY IN THE TAX LEGISLATION BUT THE WELL SETTL ED LEGAL POSITION IS THAT WHEN A LEGISLATION CONFERS A BENEFIT ON THE TAXPAYER BY RELAXING THE RIGOUR OF PRE- AMENDMENT LAW, AND WHEN SUCH A BENEFIT APPEARS TO H AVE BEEN THE OBJECTIVE PURSUED BY THE LEGISLATURE, IT WOULD A PURPOSIVE IN TERPRETATION GIVING IT A RETROSPECTIVE EFFECT BUT WHEN A TAX LEGISLATION IMP OSES A LIABILITY OR A BURDEN, THE EFFECT OF SUCH A LEGISLATIVE PROVISION CAN ONLY BE PROSPECTIVE. WE HAVE ALSO NOTED THAT THE AMENDMENT IN THE SCHEME OF SECTION 3 7(1) IS NOT SPECIFICALLY STATED TO BE RETROSPECTIVE AND THE SAID EXPLANATION IS INSERTED ONLY WITH EFFECT FROM 1ST APRIL 2015. IN THIS VIEW OF THE MATTER ALS O, THERE IS NO REASON TO HOLD THIS PROVISION TO BE RETROSPECTIVE IN APPLICATION. AS A MATTER OF FACT, THE AMENDMENT IN LAW, WHICH WAS ACCOMPANIED BY THE STAT UTORY REQUIREMENT WITH REGARD TO DISCHARGING THE CORPORATE SOCIAL RES PONSIBILITY, IS A DISABLING PROVISION WHICH PUTS AN ADDITIONAL TAX BURDEN ON TH E ASSESSEE IN THE SENSE THAT THE EXPENSES THAT THE ASSESSEE IS REQUIRED TO INCUR, UNDER A STATUTORY OBLIGATION, IN THE COURSE OF HIS BUSINESS ARE NOT A LLOWED DEDUCTION IN THE COMPUTATION OF INCOME. THIS DISALLOWANCE IS RESTRIC TED TO THE EXPENSES INCURRED BY THE ASSESSEE UNDER A STATUTORY OBLIGATI ON UNDER SECTION 135 OF COMPANIES ACT 2013, AND THERE IS THUS NOW A LINE OF DEMARCATION BETWEEN THE EXPENSES INCURRED BY THE ASSESSEE ON DISCHARGIN G CORPORATE SOCIAL 34 ITA NO. 7176/DEL/2017 RESPONSIBILITY UNDER SUCH A STATUTORY OBLIGATION AN D UNDER A VOLUNTARY ASSUMPTION OF RESPONSIBILITY. AS FOR THE FORMER, TH E DISALLOWANCE UNDER EXPLANATION 2 TO SECTION 37(1) COMES INTO PLAY, BUT , AS FOR LATTER, THERE IS NO SUCH DISABLING PROVISION AS LONG AS THE EXPENSES, E VEN DISCHARGE OF CORPORATE SOCIAL RESPONSIBILITY ON VOLUNTARY BASIS, CAN BE SA ID TO BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. THERE I S NO DISPUTE THAT HE EXPENSES IN QUESTION ARE NOT INCURRED UNDER THE AFO RESAID STATUTORY OBLIGATION. FOR THIS REASON ALSO, AS ALSO FOR THE B ASIC REASON THAT THE EXPLANATION 2 TO SECTION 37(1) COMES INTO PLAY WITH EFFECT FROM 1ST APRIL 2015, WE HOLD THAT THE DISABLING PROVISION OF EXPLANATION 2 TO SECTION 37(1) DOES NOT APPLY ON THE FACTS OF THIS CASE. 20. GROUND NO. 3 IS ALSO THUS DISMISSED. THE FACTUAL MATRIX ARE IDENTICAL IN THE PRESENT CAS E. BESIDES THIS, INSERTION OF EXPLANATION 2 TO SECTION 37(1) IS APPLICABLE W.E .F. 1.4.2015 AND THUS, THE SAID PROVISION WILL NOT BE APPLICABLE IN THE PRESEN T CASE. THERE IS NO DISPUTE THAT THE EXPENSES IN QUESTION ARE NOT INCURRED UNDE R THE STATUTORY OBLIGATION. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF CSR E XPENSES WITHOUT DISPUTING THE FACTUAL MATRIX OR BRINGING ON RECORD ANY ADVERS E MATERIAL WHICH CAN BE SEEN FROM THE ASSESSMENT ORDER. THUS, THIS DISALLOW ANCE DOES NOT SURVIVE. HENCE GROUND NO. 7 IS ALLOWED. 35. AS REGARDS TO GROUND NO. 8, THE LD. AR SUBMITTE D THAT THE DIFFERENCE ON ACCOUNT OF 26AS THE ASSESSEE HAS ALREADY MADE THE S UBMISSION AFTER RECONCILIATION WHICH HAS NOT BEEN APPRECIATED AND T HEREFORE LIABLE TO BE DELETED. 36. THE LD. DR RELIED UPON THE ORDER OF THE TPO, DI RECTIONS OF THE DRP AND ASSESSMENT ORDER. 37. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL 35 ITA NO. 7176/DEL/2017 AVAILABLE ON RECORD. THE LD. AR POINTED OUT THAT TH E DIFFERENCE ON ACCOUNT OF 26AS THE ASSESSEE HAS ALREADY MADE THE SUBMISSION A FTER RECONCILIATION WHICH HAS NOT BEEN APPRECIATED. THERE IS NO PROPER FINDIN G TO THAT EFFECT IN THE ASSESSMENT ORDER, THEREFORE, IT WILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR PROPER ADJUDI CATION. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWI NG PRINCIPLES OF NATURAL JUSTICE. GROUND NO. 8 IS PARTLY ALLOWED FOR STATIST ICAL PURPOSE. 38. AS REGARDS GROUND NOS. 9 AND 10, THE SAME ARE C ONSEQUENTIAL, HENCE NOT ADJUDICATED UPON. 39. IN RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DECEMBER, 2018 . SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 31/12/2018 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 36 ITA NO. 7176/DEL/2017 DATE OF DICTATION 30 .10.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 30 .10.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS . 1 2 .201 8 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT . 1 2 .201 8 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK . 1 2 .201 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER