M/s Mangalam Cement Ltd., Aditya Nagar, Morak Ramganjmandi, Kota V. DCIT, Circle-2, Kota

ITTPA 6/JPR/2022

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M/s. Mangalam Cement Ltd. appealed against the order of the Deputy Commissioner of Income Tax (DCIT), Circle-2, Kota, which included adjustments in the assessee's income for the assessment year 2018-19. The primary issues revolved around the adjustments made under section 80-IA for the deduction not claimed due to negative Gross Total Income (GTI), the computation of Arms Length Price (ALP) for electricity transferred from captive power plants, and discrepancies in the carried forward unabsorbed depreciation and tax calculations under section 115JB and interest under section 244A. The Tribunal found that the adjustments made were revenue neutral as the assessee did not benefit from the deductions claimed due to the negative GTI and directed the AO to reconsider the calculations post the CIT(A)'s decision for AY 2017-18.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 132412 (ITAT-JAIPUR)
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 27-11-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 16-11-2022
• Assessment Year: 2018-2019
• Appeal Filed On: 04-09-2022
• Other Referred Cases: CIT vs. Shirke Construction Equipment Ltd (2007) 291 ITR 0380 (SC), ACIT vs Goldmine Shares & Finance (P) Ltd (2008) 116 TTJ 0705 (SB)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Tax effect; Revised return; Unabsorbed depreciation; TDS; Set aside
• Section: 143(3); 244A; 92E; 115JB; 143(1); 80IA; 44AB; 48

Judgement Text

vk;djvihyh; vf/kdj.k] t;iqjU;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,’A’ JAIPUR Mk0 ,l- lhrky{eh]U;kf;dlnL; ,oaJhjkBksMdeys'kt;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM IT(TP)A No. 6/JP/2022 fu/kZkj.ko"kZ@AssessmentYear : 2018-19 M/s. Manglam Cement Ltd. Aditya Nagar, Morak Ramganjmandi lKota cuke Vs. The DCIT Circle-2 Kota LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCM 6602 Q vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksjls@Assesseeby : Shri Yogesh Parwal, CA and Shri P.C. Parwal, CA jktLo dh vksjls@Revenue by: Shri Anil Kumar Bhardwaj, CIT lquokbZ dh rkjh[k@Date of Hearing : 17/11/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 28/11/2022 vkns'k@ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal by the assessee is directed against the order of the ld. DCIT/ACIT, Circle-2, Kota dated 30-07-2022 for the assessment year 2018-19 raising therein following grounds of appeal. Ground No 1: Based on the facts and in law, the Ld. AO has erred in making an adjustment of Rs.67,34,34,228/- u/s 92CA(3) on account of deduction u/s 80-IA of IT Act by not appreciating that due to losses assessee has not claimed any deduction under this section and thus, no adjustment is required and the Ld. DRP has erred in not issuing any direction on this issue raised before it. 2 IT(TP)A NO.6/JP/2022 MANAGLAM CEMENT LTD VS DCIT, CIRCLE-2, KOTA Ground No 2: Based on the facts and in law, the Ld. DRP has erred in confirming the computation of Arms Length Price (ALP) of the power transferred by captive power plant (CPP) to the cement plant at Rs.3.78 per unit as determined by the TPO as against Rs.7.77 per unit determined by the assessee on the basis of rates at which Jaipur Vidyut Vitran Nigam Ltd. (JVVNL) supply electricity units to the assessee and the ALP of electricity generated by the wind power plant transferred to JVVNL at Rs.5.26 per unit as determined by the TPO as against Rs.6.796 and Rs.6.749 per unit determined by the assessee on the basis of rates at which JVVNL supply electricity units to the assessee and the Ld. AO has erred in adopting the same in making the adjustment. Ground No 3: Based on the facts and in law, the Ld. AO has erred in working out the amount of carried forward unabsorbed depreciation at Rs.2,22,80,10,821/- as against Rs.2,41,09,69,810/- claimed by the assessee. Ground No 4: Based on the facts and in law, the Ld. AO has erred in calculating tax u/s 115JB at Rs.3,02,72,288/- as against Rs.2,95,30,545/- and calculating interest u/s 244A at Rs.21,43,128/- as against Rs.45,50,893/-. 2.1 Apropos Ground No. 1, the assessee is a company engaged in manufacturing of cement and generation of coal-based power under the name and style of Manglam Cement Ltd. The original return of income for the A.Y. 2018-10 has been e-filed by the assessee on 30-11-2018 declaring current year loss at Rs.81,40,855/- and filed its revised ROI on 26-03-2019 declaring current year loss at Rs.86,81,397/- and claimed refund of Rs.33,96,070/- against advance tax at Rs.5,50,00,000/-, TDS at Rs.38,63,828/- and self-assessment tax at Rs.43,77,040/-. Further the assessee company filed Audit Report u/s 44AB of the Act in a case where the accounts of business of profession of person have been audited under any other law on 28-11-2018 and also a Report from an Accountant to be furnished u/s 92E relating to International Transaction(s) and specified domestic 3 IT(TP)A NO.6/JP/2022 MANAGLAM CEMENT LTD VS DCIT, CIRCLE-2, KOTA transaction(s) had been filed on 28-11-2018 for the period under consideration. Further the case of the assessee was selected for scrutiny through CASS under the flag complete scrutiny and TP risk parameter norms to examine. In this case, it is noted that this company has its manufacturing plant of cement at Morak, Kota. The two coal based Capital Power Plants (“CPP”) having installed capacity of 17.5 MW each is also situated at Morak, Kota and two Wind Power Plants (“WPP”) having an aggregate capacity of 13.65 MW is installed in the district Jaisalmer, Rajasthan. The electricity generated from CPP is used at cement plant of the Appellant and the electricity units generated from WPP is transferred to Jaipur Vidyut Vitran Nigam Ltd. (“JVVNL”) who gives credit of the electricity units in the electricity bills issued by them. For the assessment year under consideration, the assessee filed return of income declaring a loss of Rs 86,81,399/- under normal provisions of the Act without claiming any deduction under Chapter VI-A/ section 80-IA of the Income-tax Act, 1961 (“ITA”). As the Assessee had supplied electricity from its CPP and WPP to its cement plant, the profits of which are eligible for deduction under section 80-IA of the IT Act, though in fact the same is not available to the assessee as the Gross Total Income (“GTI”) of the Assessee is negative. The Assessee obtained and filed accountants report in Form 10CCB for compliance purpose. Since the transaction is in the nature of specified domestic transaction (“SDT”), therefore, the case was referred to the transfer pricing officer 4 IT(TP)A NO.6/JP/2022 MANAGLAM CEMENT LTD VS DCIT, CIRCLE-2, KOTA (“TPO”) wherein the TPO computed arm’s length price (“ALP”) of the electricity supplied by the CPP and WPP to cement plant in contradiction to the ALP computed by the Assessee and proposed an addition of Rs 67,34,34,228 for the purpose of determining deduction under section 80-IA of the IT Act. Accordingly, the AO in the draft assessment order dated 21-09-2021 made the said addition. Against the draft assessment order dated 21-09-2021, the assessee filed objections before the Dispute Resolution Panel (“DRP”). The DRP upheld the addition made in draft assessment order without adjudicating the main issue that in the absence of making any claim of deduction under section 80-IA of the I.T. Act, no adjustment is warranted. The Assessing Officer (“AO”) passed the final assessment order dated 30-07-2022 making addition of Rs 67,34,34,228 to the total income of the assessee. Against this order, the assessee is in appeal before us. 2.2 During the course of hearing, the ld. AR submitted that in this case no addition can be made for which the ld. AR of the assessee filed the following written submission. ‘’Submission: Deduction under section 80-IA is not available as GTI is negative and therefore no adjustment is warranted ‘’1. As mentioned above, deduction under section 80-IA/ Chapter VI-A is not available to the Appellant since the GTI is negative (loss of Rs 86,81,399). As per section 80A(2) of the ITA, the aggregate of deductions under Chapter VI-A should not exceed the GTI. As the GTI is negative, no deduction is available/ claimed by the Appellant and therefore in absence of any deduction, no adjustment is warranted. 5 IT(TP)A NO.6/JP/2022 MANAGLAM CEMENT LTD VS DCIT, CIRCLE-2, KOTA 2. The TPO/ AOin the assessment order has made addition of Rs 67.34 cr [Rs 65.07 cr + Rs 2.26 cr] by reducing the sale price of power by the eligible unit to non-eligible unit for the purpose of determining deduction u/s 80-IA of the ITA ignoring that when no deduction is claimed by the Appellant under section 80-IA of the ITA (PB 11) as the GTI is negative, the adjustment of sale price of power sold by eligible units to non-eligible unit will not result in any addition. 3. Without prejudice to above, even if the reduced sales price as determined by the TPO/ AO is taken, it will result in generation of loss for the eligible captive power plant (“CPP”). Such losses are eligible to be set-off and carried forward against profits of other eligible units of current year/ subsequent years [Ref: CIT vs. Shirke Construction Equipment Ltd (2007) 291 ITR 0380 (SC) and ACIT vs Goldmine Shares & Finance (P) Ltd (2008) 116 TTJ 0705 (SB)]. Thus, though the Appellant is not claiming deduction under section 80-IA of the ITA, even then pursuant to adjustment by the TPO/ AO, losses will arise to the Appellant’s eligible unit as per the following table: Particulars CPP1 CPP2 WPP1 & 2 Total Eligible profit for claim under section 80-IA (though not claimed as GTI is negative) 8,87,47,266 14,05,57,727 5,93,94,737 28,86,99,730 Add: Addition proposed by TPO 31,80,88,785 33,26,94,734 2,26,50,709 67,34,34,228 Eligible profit/ (loss) for claim under section 80- IA (22,93,41,519) (19,21,37,007) 3,67,44,028 (38,47,34,498) Thus, from the above table it can be noted that if the addition as made by the AO/ TPO is considered as correct, there would arise loss of Rs 38,47,34,498 in the eligible units which would get set off against the non-eligible units and consequently no addition can be made.’’ 2.3 On the other hand, the ld. DR supported the order of the AO, but at the same time did not controvert the argument of the ld. AR of the assessee that the adjustment is revenue neutral. 2.4 We have heard the rival submission and perused the material on record. We noted that assessee filed the return of income declaring loss of Rs.86,81,399/- under normal provisions of the Act without claiming any deduction u/s 80-IA of the Act. The TPO, however, has computed the Arms Length Price of electricity supplied by the captive power plant and wind power plant to the cement unit by holding that the price charged by the assessee is higher and thus, proposed addition 6 IT(TP)A NO.6/JP/2022 MANAGLAM CEMENT LTD VS DCIT, CIRCLE-2, KOTA of Rs.67,34,34,228/-. The DRP in its order held that there is no infirmity in the action of TPO in proceeding to benchmark the specified domestic transaction. Accordingly, the objection raised by the assessee was rejected. However, no specific finding is given in respect of the objection of assessee that when assessee has not claimed any deduction u/s 80-IA, the adjustment proposed has no revenue effect while making the assessment in this case as there is in fact a loss in the returned income of the assessee company. Based on these facts, we are of the view that adjustment made against the deduction claimed u/s 80-IA could have been made if the assessee had claimed deduction under this section or because of addition made by the AO, the income would have been positive on which deduction u/s 80-IA could have been allowed. However, in the present case, neither the assessee claimed deduction u/s 80-IA due to losses nor the AO made any addition wiping off the losses and assessing the income. Therefore, in the absence of any deduction claimed u/s 80-IA, addition of Rs.67,34,34,228/- made by AO to the loss declared by the assessee is incorrect and the same is deleted being revenue neutral, without commenting on the merits of the case so as to decide as to whether the adjustment made are in accordance with the law or not. Both the parties may take their case on merits in any of the subsequent year as prayed by the ld. AR of the assessee. Thus Ground NO. 1 raised by the assessee is allowed in terms of these observations. 7 IT(TP)A NO.6/JP/2022 MANAGLAM CEMENT LTD VS DCIT, CIRCLE-2, KOTA 3.1 Apropos Ground No. 2 of the assessee, it is noted that the adjustment proposed by the TPO, is confirmed by the AO/ DRP but at the same time the ld. AR of the assessee submitted that these adjustment are to be considered on its merit only when the assessee has taken any benefit u/s 80IA of the Act. Since gross total income of the assessee as per computation of income placed on record is negative, therefore the assessee has not claimed any benefit. The ld. AR of the assessee further submitted that the transactions are revenue neutral. At the same time, the ld. DR had not controverted this primary fact adduced by the ld. AR. Since the grievance of the assessee has not resulted into any adverse effect on taxability of the assessee, we are of the view that the adjustment being revenue neutral does not require any adjudication on merit in this case for the year under consideration but at the same time, we consider the arguments of the ld. AR of the assessee that it may be given liberty to the assessee to contest these adjustment on its merits in any of the other assessment years where element of tax effect is involved. The ld. AR of the assessee may take the arguments at that time as we have not given our findings on merit and the assessee may take grounds on merit at appropriate stage. Hence, this ground is not decided for the time being and is kept open for decision as and when the issue arises effecting the tax liability of the assessee. In terms of this observation, the ground raised by the assessee is allowed for statistical purpose. 8 IT(TP)A NO.6/JP/2022 MANAGLAM CEMENT LTD VS DCIT, CIRCLE-2, KOTA 4.1 Apropos Ground No. 3, the ld. AR of the assessee has filed the following written submission ‘’The Appellant had claimed carried forward unabsorbed depreciation of Rs 241,09,69,810 in the income tax return of AY 2017- 18. However, the AO, while computing the set off has reduced the unabsorbed depreciation of Rs 241,09,69,810 to Rs 222,80,10,821. The reason for the difference is due to addition made by the AO in the assessment order of AY 2017- 18 against which the Appellant has filed an appeal which is pending before the Commissioner of Income Tax (Appeals). As the additions made by the AO have not been accepted by the Appellant and are presently pending adjudication before the CIT(A), it is requested that the AO be directed to consider the carried forward unabsorbed depreciation at Rs 241,08,69,810.’’ 4.2 After hearing both the parties and perusing the materials available on record, we direct the AO to rework out the correct amount of carried forward unabsorbed depreciation after the decision of ld. CIT(A) for AY 2017-18. Hence, this ground is allowed for statistical purpose. 5.1 Apropos Ground No. 4, the assessee has filed the following written submission ‘’Facts and submission: 1. In the intimation dated 27 November 2019 issued by the CPC, the CPC had incorrectly considered profit after tax of Rs 11,74,72,542 as against profit after tax of Rs 11,38,18,950 considered by the Appellant for the purpose of computing book profits under section 115JB of the ITA. Similarly, the tax amount added to the above number has been incorrectly considered by the CPC. Relevant extracts of the intimation issued by the CPC are as under: 9 IT(TP)A NO.6/JP/2022 MANAGLAM CEMENT LTD VS DCIT, CIRCLE-2, KOTA 2. It is submitted that the item number 48 of the Part A-P&L shows profit after tax of Rs 11,38,18,950 only as against figure of Rs 11,74,72,542 considered by the CPC. Relevant extracts of the ITR are as under: 3. Thus, the CPC has incorrectly computed the book profits at Rs 19,32,36,279 as against Rs 18,97,60,706 computed by the Appellant, which resulted in higher tax of Rs 7,41,743 under section 115JB of the Act. Therefore, the AO be directed to correctly compute the tax liability under section 115JB of the Act. 4. Also, it is submitted that the AO has incorrectly computed interest under section 244A of the ITA at Rs 21,43,128 in the order passed under section 143(3) of the ITA dated 30 July 2022. It is submitted that the interest under section 244A of the ITA computed by 10 IT(TP)A NO.6/JP/2022 MANAGLAM CEMENT LTD VS DCIT, CIRCLE-2, KOTA the CPC while passing intimation under section 143(1) of the ITA dated 27 November 2019 was Rs 32,96,850 which was computed as under: Particulars Amount (INR) Refund amount as per 143(1) intimation 3,29,68,580 Add: Interest under section 244A at the rate of 0.5 percent for 20 months (April 2018 to November 2019) 32,96,8580 Total 3,62,65,430 5. However, the above interest computed and determined by the CPC was not granted to the Appellant. Further, the AO while passing order under section 143(3) reduced the interest amount to Rs 21,43,128 without providing any basis/ calculation to arrive at that number. It is submitted that the interest on refund amount determined by the AO is incorrect as the refund was actually received by the Appellant only on 10 July 2020 in its bank account as against the CPC order dated 27 November 2019, and therefore the actual interest under section 244A of the ITA should have been computed till July 2020 as under: Particulars Amount (INR) Refund amount as per income tax return 3,37,10,320 Add: Interest under section 244A at the rate of 0.5 percent for 27 months (April 2018 to November 2019) 45,50,894 Total 3,82,61,214 In view of the above, it is requested to the Hon’ble bench to kindly direct the AO to compute interest under section 244A of the Act till July 2020.’’ 5.2 After hearing both the parties and perusing the materials available on record, AO is directed to consider the objection of assessee and correctly compute the tax liability u/s 115JB. In respect of calculation of interest u/s 244A, AO is directed to grant interest on the amount of refund from 1 st April of the relevant AY to the date 11 IT(TP)A NO.6/JP/2022 MANAGLAM CEMENT LTD VS DCIT, CIRCLE-2, KOTA of grant of refund which is actually granted on 10.07.2020 against the order of CPC dt. 27.11.2019. Thus, this ground is set aside to the AO to act accordingly as indicated above. 6.0 In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 28 /11/2022. Sd/- Sd/- ¼Mk0 ,l- lhrky{eh ½ ¼jkBksMdeys'kt;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;dlnL;@Judicial Member ys[kklnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 28/11/2022 *Mishra vkns'k dh izfrfyfivxzsf’kr@Copy of the order forwarded to: 1. The Appellant- M/s. Mangalam Cement Ltd., Kota 2. izR;FkhZ@ The Respondent- The DCIT, Circle-2, Kota 3. vk;djvk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;djvihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZQkbZy@ Guard File (IT(TP)A No. 6/JP/2022) vkns'kkuqlkj@ By order, lgk;diathdkj@Asst. Registrar