ACIT, Cen.Cir.-4(4), kolkata , Kolkata V. M/s Electrsteel Castings Ltd., Kolkata

ITSSA 71/KOL/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 8438 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 12-01-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-12-2020
• Assessment Year: 2006-2007
• Appeal Filed On: 11-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: IMOKABA JAMIR
• Assessee Lawyers: S K TULSIYAN; PUJA SOMANI
• Keywords: Transfer pricing; Set aside
• Section: 250; 80IA; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA A BENCH, KOLKATA (VIRTUAL COURT) (BEFORE SRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER & SRI S.S. GODARA, JUDICIAL MEMBER) I.T.(S.S.)A. NO. 71/KOL/2019 ASSESSMENT YEAR: 2006-07 ACIT, CENTRAL CIRCLE-4(4), KOLKATA................................................APPELLANT VS. M/S. ELECTROSTEEL CASTINGS LTD.....................................................................................RESPONDENT [PAN: AAACE 4975 B] C.O. NO. 23/KOL/2020 ARISING OUT OF I.T.(S.S.)A. NO. 71/KOL/2019 ASSESSMENT YEAR: 2006-07 M/S. ELECTROSTEEL CASTINGS LTD.........................................................................................APPELLANT [PAN: AAACE 4975 B] VS. ACIT, CENTRAL CIRCLE-4(4), KOLKATA............................................RESPONDENT APPEARANCES BY: SH. IMOKABA JAMIR, CIT(DR), APPEARED ON BEHALF OF THE REVENUE. SH. S.K. TULSIYAN, ADV. & MS. PUJA SOMANI, APPEARED ON BEHALF OF THE ASSESSEE. DATE OF CONCLUDING THE HEARING : DECEMBER 10 TH , 2020 DATE OF PRONOUNCING THE ORDER : JANUARY 12 TH , 2021 ORDER PER J. SUDHAKAR REDDY, AM : THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-22, KOLKATA, [HEREINAFTER THE CIT(A)], PASSED U/S. 250 OF THE INCOME TAX ACT, 1961 (THE ACT), DATED 30.07.2019 FOR THE ASSESSMENT YEAR 2006-07. 2. AFTER HEARING RIVAL CONTENTIONS WE FIND THAT THE LD. CIT(A) HAS FOLLOWED THE PROPOSITIONS OF LAW LAID DOWN BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE AY 2013-14 IN ITA NOS. 138/KOL/2018, 139/KOL/2018, 191/KOL/2018, 192/KOL/2018 AND GRANTED RELIEF TO THE ASSESSEE. THE DISCUSSION ON THIS ISSUE IN THE LD. CIT(A)S ORDER ON 2 I.T.(S.S.)A. NO. 71/KOL/2019 C.O. NO. 23/KOL/2020 ASSESSMENT YEAR: 2006-07 M/S. ELECTROSTEEL CASTINGS LTD. THE ABOVE ISSUE IS AT PAGE 29 PARA 16. FOR THE SAKE OF BREVITY, WE DO NOT EXTRACT THE SAME. SUFFICE TO SAY THAT WE FIND NO ERROR IN THE ORDER OF THE LD. CIT(A) AS HE HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER AYS 2003-04 TO 2011-12. THE LD. CIT(A) AT PAGE 32 PARA 6 TO PAGE 34 PARA 10 HELD AS FOLLOWS: 1. I HAVE CAREFULLY CONSIDERED THE ACTION OF THE LD. AO, AS ALSO EQUALLY CAREFULLY PERUSED THE SUBMISSIONS MADE BY THE LD. A.RS, AND THE DOCUMENTS AVAILABLE IN THE PAPER BOOK FILED BY THE APPELLANT. THE APPELLANT OPERATED ELIGIBLE POWER UNDERTAKINGS ('CPPS') IN WEST BENGAL. THE POWER GENERATED BY THE ELIGIBLE UNIT WAS CONSUMED CAPTIVELY BY OTHER NON-ELIGIBLE UNIT. FOR THE PURPOSES OF SECTION 80IA(8) AND IN ORDER TO DETERMINE THE STAND-ALONE PROFITS OF THE ELIGIBLE UNIT, THE TRANSFER VALUE OF POWER TO NON-ELIGIBLE UNIT WAS ADOPTED AT RS.4.36/UNIT HAVING REFERENCE TO AVERAGE LANDED COST AT WHICH THE NON-ELIGIBLE UNIT PROCURED POWER FROM THE SEB. THE LD. AO IN HIS ORIGINAL ASSESSMENT ORDER PASSED U/S 153A/143(3) HAD TAKEN THE RATE OF RS.L.85/UNIT AS OPPOSED TO RS.4.36/UNIT ADOPTED BY THE APPELLANT AND ACCORDINGLY REDUCED THE DEDUCTION CLAIMED U/S 80IA TO THE EXTENT OF RS.5,32,91,803/-. THEREAFTER, THE MATTER TRAVELLED TO THE HON'BLE ITAT, KOLKATA WHICH IN ITS CONSOLIDATED ORDER PASSED IN IT(SS) NO. 47 TO 53/KOL/2014 DATED 25.11.2016 SET ASIDE THE MATTER BACK TO THE LD. AO TO ASCERTAIN THE TRANSFER RATE U/S 80IA(8) AFRESH. PURSUANT TO THE APPELLATE ORDER PASSED BY THE HON'BLE ITAT, KOLKATA; THE LD. AO PASSED THE IMPUGNED ORDER DATED 31.08.2017 WHEREIN ALTHOUGH HE ACCEPTED THE ASSESSEE'S CONTENTION TO THE EXTENT THAT, FOR THE PURPOSES OF SECTION 80IA(8), THE AVERAGE RATE AT WHICH THE NON-ELIGIBLE UNIT PROCURED POWER FROM THE SEB IS A GOOD COMPARABLE BUT ACCORDING TO LD. AO HOWEVER THE AVERAGE LANDED COST, AFTER EXCLUDING THE ELECTRICITY DUTY, IS REQUIRED TO BE CONSIDERED AS THE TRANSFER RATE. THE LD. AO ACCORDINGLY ADOPTED THE AVERAGE TARIFF RATE OF RS.3.66/UNIT I.E. THE TARIFF RATE OF CESC AS OPPOSED TO RS.4.36/UNIT BEING THE AVERAGE LANDED COST AT WHICH THE APPELLANT PROCURED POWER FOR ITS NON-ELIGIBLE UNIT. IN THIS FACTUAL BACKGROUND, THE LIMITED DISPUTE BEFORE THE UNDERSIGNED IS WHETHER ELECTRICITY DUTY COMPONENT IS TO BE CONSIDERED FOR ARRIVING AT THE OPEN MARKET VALUE I.E. THE TRANSFER PRICE OF POWER BY THE ELIGIBLE UNIT TO THE NON-ELIGIBLE UNIT. 2. FROM THE ORDERS OF THE LOWER AUTHORITIES, IT IS NOTED THAT THE LD. AO HAD RELIED ON THE DECISION OF THE HON'BLE ITAT, MUMBAI IN THE CASE OF WEST COAST PAPER MILLS LTD (103 ITD 19) TO ARRIVE AT HIS CONCLUSION THAT ELECTRICITY DUTY COMPONENT SHALL NOT BE CONSIDERED OR INCLUDED FOR DETERMINING THE TRANSFER PRICING OF POWER FOR THE PURPOSES OF SECTION 80IA(8) OF THE ACT. ON THE OTHER HAND, THE LD. AR IN HIS WRITTEN SUBMISSIONS HAS RELIED ON PLETHORA OF JUDGMENTS INTER ALIA INCLUDING THE DECISIONS OF THE HON'BLE HIGH COURTS AS WELL AS THE JURISDICTIONAL ITAT, KOLKATA IN SUPPORT OF ITS CASE THAT THE AVERAGE LANDED COST (INCL. ELECTRICITY DUTY) IS THE MOST REASONABLE TRANSFER PRICE FOR THE PURPOSES OF SECTION 80IA(8) OF THE ACT. 3. AFTER GIVING A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE AND THE DECISIONS AVAILABLE ON THIS SUBJECT, IT IS NOTED THAT THE DECISION RELIED UPON BY THE LD. AO IN THE CASE OF WEST COAST PAPER MILLS LTD (SUPRA) WHICH WAS RENDERED IN 2006 HAS BEEN IMPLIEDLY OVERRULED BY THE SUBSEQUENT ORDER PASSED BY THE HON'BLE ITAT, MUMBAI IN THE CASE OF WEST COAST PAPER MILLS LTD WHICH IS REPORTED IN 33 ITR(TRIB) 560. IN THE SUBSEQUENT DECISION, THE HON'BLE ITAT, MUMBAI HAS HELD THAT FOR DETERMINING THE MARKET PRICE IN TERMS OF SECTION 80IA(8), THE LANDED COST CANNOT REDUCED BY THE TAXES, DUTIES, CESS ETC. WHICH ARE EMBEDDED THEREIN. IN THESE CIRCUMSTANCES I FIND MERIT IN THE LD. AR'S CONTENTION THAT THE DECISION RELIED UPON BY THE LD. AO FOR MAKING THE IMPUGNED DISALLOWANCE OF DEDUCTION CLAIMED U/S 80IA WAS DISTINGUISHABLE AND NO LONGER GOOD LAW. 4. IT IS FURTHER NOTED THAT THE COORDINATE BENCHES OF THE TRIBUNAL AT KOLKATA IN THE FOLLOWING CASES DISMISSED THE REVENUE'S APPEAL AGAINST THE CIT(A)'S ORDER WHEREIN THE RELIEF WAS ALLOWED UNDER SECTION 80IA IN RESPECT OF PROFITS OF CPPS BY TAKING SELLING PRICE OF ELECTRICITY, EQUAL TO THE LANDED COST (INCLUDING ELECTRICITY DUTY) AT WHICH THE ELECTRICITY WAS SUPPLIED BY SEBS TO THE ASSESSEE'S OTHER UNITS CONSUMING ELECTRICITY. 3 I.T.(S.S.)A. NO. 71/KOL/2019 C.O. NO. 23/KOL/2020 ASSESSMENT YEAR: 2006-07 M/S. ELECTROSTEEL CASTINGS LTD. DY.CIT VS KANORIA CHEMICALS & INDUSTRIES LTD (ITA NO.944/K/16) GRAPHITE INDIA LTD VS ADDL.CIT (ITA NO. 304-305/K/08) 5. I FURTHER NOTE THAT THE HON'BLE GUJARAT HIGH COURT IN ITS JUDGMENT DATED 03.10.2016 IN THE CASE OF PR.CIT VS GUJARAT ALKALIES & CHEMICALS LTD (ITA NO. 544 OF 2016) DISMISSED THE REVENUE'S APPEAL ON THE FOLLOWING SPECIFIC QUESTION: '(II) WHETHER THE TRIBUNAL WAS RIGHT IN LAW IN ALLOWING THE ASSESSEES CLAIM OF DEDUCTION OF RS. 1954 CRORES U/S 80IA(4) OF THE I.T. ACT, 1961, WHEN THE ASSESSEE HAD ADOPTED RATE OF POWER GENERATION AT RS.4.73 PER UNIT, RATE ON WHICH THE GEB SUPPLIED POWER TO ITS CONSUMERS, IGNORING THE RATE OF RS.2.36 PER UNIT, THE RATE ON WHICH POWER GENERATING COMPANY SUPPLIED ITS POWER TO GEB?' 6. THE HON'BLE GUJARAT HIGH COURT THUS SPECIFICALLY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE DEDUCTION UNDER SECTION 80IA IN RESPECT OF CPP SHALL BE COMPUTED BY TAKING THE PER UNIT SELLING PRICE OF ELECTRICITY EQUAL TO THE RATE AT WHICH THE ASSESSEE PURCHASED THE ELECTRICITY FROM SEB. 7. RELIANCE IS ALSO PLACED ON THE JUDGMENT OF THE HON'BLE CHHATTISGARH HIGH COURT IN CASE OF CIT V. GODAWARI POWER &ISPAT LTD. [2014] 42 TAXMANN.COM 551/223 TAXMAN 234, IN WHICH THE COURT HELD AND OBSERVED AS UNDER: '31. THE MARKET VALUE OF THE POWER SUPPLIED TO THE STEEL-DIVISION SHOULD BE COMPUTED CONSIDERING THE RATE OF POWER TO A CONSUMER IN THE OPEN MARKET AND IT SHOULD NOT BE COMPARED WITH THE RATE OF POWER WHEN IT IS SOLD TO A SUPPLIER AS THIS IS NOT THE RATE FOR WHICH A CONSUMER OR THE STEEL-DIVISION COULD HAVE PURCHASED POWER IN THE OPEN MARKET. THE RATE OF POWER TO A SUPPLIER IS NOT THE MARKET RATE TO A CONSUMER IN THE OPEN MARKET. 32. IN OUR OPINION, THE AO COMMITTED AN ILLEGALITY IN COMPUTING THE MARKET VALUE BY TAKING INTO ACCOUNT THE RATE CHARGED TO A SUPPLIER: IT SHOULD HAVE BEEN COMPARED WITH THE MARKET VALUE OF POWER SUPPLIED TO A CONSUMER.' 8. THIS QUESTION AGAIN CAME UP FOR CONSIDERATION BEFORE THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE INDUSTRIES LIMITED [2019] (102 TAXMANN.COM 372) WHEREIN THE HON'BLE COURT AFTER CONSIDERING THE JUDGMENT OF THE HON'BLE CALCUTTA HIGH COURT IN CASE OF CIT VS ITC LTD (SUPRA), HON'BLE CHATTISGARH HIGH COURT IN CASE OF CIT V. GODAWARI POWER & ISPAT LTD. (SUPRA) & HON'BLE GUJARAT HIGH COURT IN THE CASE OF PR.CIT VS GUJARAT ALKALIES & CHEMICALS LTD (SUPRA) HELD THAT THE VALUATION OF ELECTRICITY PROVIDED BY ELIGIBLE UNIT TO ANOTHER NON-ELIGIBLE UNIT FOR THE PURPOSES OF SECTION 80IA(8) SHOULD BE AT RATE AT WHICH ELECTRICITY DISTRIBUTION COMPANIES WERE ALLOWED TO SUPPLY ELECTRICITY TO CONSUMERS. 9. I FURTHER RELY ON THE DECISION OF THE HON'BLE ITAT, KOLKATA IN THE CASE OF DY.CIT VS BIRLA CORPORATION LTD (ITA NOS. 971/KOL/ 2012 & 298/KOL/2013) DATED 25.08.2017 WHEREIN THE HON'BLE ITAT, KOLKATA SPECIFICALLY THAT THE OPEN MARKET VALUE OF ELECTRICITY FOR THE PURPOSES OF SECTION 80IASHOULD BE THE PRICE AT WHICH THE ASSESSEES PROCURES POWER FROM SEBS AND THAT THE ELECTRICITY DUTY EMBEDDED THEREIN IS NOT BE REDUCED TO ARRIVE AT THE AVERAGE LANDED COST OF ELECTRICITY. 10. FOR THE REASONS SET OUT IN THE FOREGOING THEREFORE I HOLD THAT THE METHODOLOGY FOLLOWED BY THE APPELLANT (ALSO JUDICIALLY APPROVED BY HIGHER JUDICIAL FORUMS DISCUSSED ABOVE) DETERMINING THE TRANSFER RATE FOR THE PURPOSES OF SECTION 80IA(8) AT RS.4.36/UNIT WAS JUSTIFIED. ACCORDINGLY THE LD. AO IS DIRECTED GRANT THE DEDUCTION U/S 80IA BASED ON THE TRANSFER PRICE OF RS.4.36/UNIT AND ACCORDINGLY RE-COMPUTE THE ELIGIBLE DEDUCTION U/S 80IA OF THE ACT. WHILE COMPUTING THE DEDUCTION PERMISSIBLE, THE LD. AO SHALL GIVE AN OPPORTUNITY OF HEARING TO THE APPELLANT AND WILL RE-COMPUTE THE DEDUCTION IN TERMS OF THE DIRECTIONS ABOVE. 4 I.T.(S.S.)A. NO. 71/KOL/2019 C.O. NO. 23/KOL/2020 ASSESSMENT YEAR: 2006-07 M/S. ELECTROSTEEL CASTINGS LTD. 3. THE LD. D/R COULD NOT POINT OUT ANY INFIRMITY IN THIS FACTUAL FINDING OF THE LD. CIT(A). HENCE WE UPHOLD THE SAME AND DISMISS THESE GROUNDS OF THE REVENUE. 4. NOW COMING TO C.O. NO. 23/KOL/2020 WE FIND THAT THERE IS A DELAY OF 303 DAYS IN FILING OF THE CROSS OBJECTION. THE ASSESSEE SUBMITS THAT IT COULD NOT RAISE THE LEGAL GROUND ON THE ALLOWABILITY OF THE DEDUCTION OF EDUCATION CESS, U/S 37 OF THE ACT FOR ARRIVING AT THE TAXABLE INCOME, AS THE JUDICIAL PRONOUNCEMENTS ON THIS ISSUE HAVE COME MUCH LATER. THE ASSESSEE CLAIMED TO KNOW ABOUT THESE JUDICIAL DECISIONS AND THEN FILED THIS CROSS OBJECTION. HE SUBMITS THAT THE GROUND IN ITS CROSS OBJECTION IS PURELY LEGAL IN NATURE NOT REQUIRING VERIFICATION OF FACTS. HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT [1998] 229 ITR 383 (SC) AND PRAYED THAT THE DELAY BE CONDONED AND THE CROSS OBJECTION BE ADMITTED ON THE LEGAL GROUND HE HAS SUBMITTED. 5. THE LD. D/R OPPOSED THIS CONTENTION. HE SUBMITTED THAT THE DELAY CANNOT BE CONDONED ON THE REASON GIVEN BY THE ASSESSEE. 6. AFTER HEARING RIVAL CONTENTIONS WE ARE CONVINCED THAT THE ASSESSEE WAS PREVENTED FROM SUFFICIENT CAUSE FROM FILING OF THE CROSS OBJECTION IN TIME. THE JUDGEMENTS OF THE COURTS ON THIS ISSUE OF DEDUCTIBILITY OF EDUCATION CESS HAVE COME INTO PUBLIC DOMAIN. THE ASSESSEE FILED THIS CROSS OBJECTION TO TAKE BENEFITS OF THESE DECISIONS. WE SEE NO MALA FIDE OR NEGLIGENCE IN THIS ACTION OF THE ASSESSEE. HENCE WE CONDONE THE DELAY AND ADMIT THE CROSS OBJECTION. 7. THE SOLE GROUND ON WHICH THE CROSS OBJECTION IS FILED IS CLAIM OF DEDUCTION OF EDUCATION CESS PAID. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CHAMBAL FERTILIZERS LTD. VS. DCIT IN ITA NO. 52/2018 DATED 31.07.2018, WHEREIN IT WAS HELD THAT EDUCATION CESS IS NOT A PART OF TAX. ACCORDINGLY, THE SAME WAS HELD AS ALLOWABLE AS A DEDUCTION AND THAT DISALLOWANCE U/S 40(A)(II) OF THE ACT CANNOT BE MADE. 7.1. THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF SESA GOA LTD. VS. JCIT IN TAX APPEAL NOS. 17 & 18 OF 2013 DATED 28.02.2020 HELD THAT EDUCATION CESS IS ALLOWABLE EXPENDITURE AS THE WORD CESS IS CONSPICUOUSLY ABSENT UNDER THE PROVISION OF SECTION 40(A)(II) OF THE ACT. THIS BENCH OF THE TRIBUNAL HAS APPLIED AND FOLLOWED THESE 5 I.T.(S.S.)A. NO. 71/KOL/2019 C.O. NO. 23/KOL/2020 ASSESSMENT YEAR: 2006-07 M/S. ELECTROSTEEL CASTINGS LTD. DECISIONS IN THE CASE OF ITC LIMITED VS. ACIT IN ITA NO. 685/KOL/2014 ORDER DATED 27.11.2018 AND OTHER CASES. RESPECTFULLY FOLLOWING THE SAME WE ALLOW THIS CLAIM OF THE ASSESSEE. IN THE RESULT, THE CROSS OBJECTION IS ALLOWED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. KOLKATA, THE 12 TH JANUARY, 2021. SD/- SD/- [S.S. GODARA] [J. SUDHAKAR REDDY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 12.01.2021 BIDHAN (P.S.) COPY OF THE ORDER FORWARDED TO: 1. M/S. ELECTROSTEEL CASTINGS LTD., 19, CAMAC STREET, G.K. TOWER, KOLKATA-700 017. 2. ACIT, CENTRAL CIRCLE-4(4), KOLKATA. 3. CIT(A)-22, KOLKATA. (SENT THROUGH MAIL) 4. CIT- 5. CIT(DR), KOLKATA BENCHES, KOLKATA. (SENT THROUGH MAIL) TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES