HYUNDAI MOTOR INDIA LIMITED, KANCHEEPURAM V. DCIT LTU-2, CHENNAI

ITTPA 70/CHNY/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 4975 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 15-03-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 18-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAM SESHADRI
• Keywords: Capital asset; Depreciation; Transfer pricing; Business expenditure; International transaction; Wholly owned subsidiary; Capital receipt; Revenue expenditure; Capital expenditure; Rule 8D; Set aside
• Section: 32; 43B; 92; 92F; 92A; 14A; 32(1)(iia); 80IA; 144C; 80IC; 80IC; 13

Judgement Text

आयकर अपीलीय अिधकरण, ‘डी’ यायपीठ, चे ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI ी वी.दुगा राव, याियक सद य एवं ी जी.मंजुनाथ, लेखा सद य के सम BEFORE SHRI V.DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER आयकर अपीलसं./I.T.(TP).A.No.70/CHNY/2018 ( नधा रण वष / A sse s s m e nt Y e ar : 20 1 4- 1 5) M/s. Hyundai Motor India Ltd., Plot No.H-1, SIPCOT Industrial Park Irrungattukottai, Sriperumbudur Taluk Kancheepuram Dist. PIN: 602 117. Vs The Asst. Commissioner of Income Tax, LTU-2, Chennai - 34. PAN: AAACH 2364M (अपीलाथ /Appellant) ( यथ /Respondent) अपीलाथ क ओर से/ Appellant by : Shri Sri Ram Seshadri, CA यथ क ओर से/Respondent by : Shri S. Palani Kumar, CIT स ु नवाई क तार ख/Da t e o f h e a r i n g : 20.12.2021 घोषणा क तार ख /D a t e o f Pr o n o u n c e m e nt : 16.03.2022 आदेश / O R D E R PER G. MANJUNATHA, AM: This appeal filed by the assessee is directed against final assessment order passed by the Assessing Officer u/s.143(3) r.w.s 144C(13) r.w.s.144B of the Income Tax Act, 1961 (hereinafter the ‘Act’) dated 26.09.2018, in pursuant to the directions of the learned DRP-2, Bengaluru dated 18.09.2018 u/s.144C(5) of the Act for the assessment year 2014-15. 2. The assessee has raised following grounds of appeal:- 2 IT(TP)A No.70/Chny/2018 i. Common Grounds The lower authorities have erred in finalizing an order of assessment which suffers from legal defects such as being passed in violation of principles of natural justice and the provisions of the Act and is devoid of merits and are contrary to facts on record and applicable law, and has been completed without adequate inquiries and as such is liable to be quashed. 1.2. The lower authorities have finalized their order with improper adjustments to the reported taxable profits of the Appellant, as a result of misapplying the provisions of the Act and by adopting faulty assessment procedure to finalize the adjustment, such as but not limited to, application of filters, analysis of the functions carried out by the Appellant and those of the comparable companies, analysis of the economic circumstances experienced by the Appellant, selection of comparable companies, computation of profit margins of the Appellant and comparable companies, usage of appropriate adjustments, and consideration of the information, arguments and evidence provided by the Appellant. 2. Disallowance under section 14A of the Act 2.1. The lower authorities have, in the facts and circumstances of the case and in law, erred in disallowing a sum of INR 83,20,451 under section 14A of the Act by applying provisions of Rule 8D of the Income tax Rules, 1962 (“Rules”). 2.2 The lower authorities have, in the facts and circumstances of the case and in law, erred in applying the provisions of under section 14A of the Act read with Rule 8D of the Rules, without sufficient satisfaction on record and 3 IT(TP)A No.70/Chny/2018 without considering that the quantum of dividend received by the Appellant was only INR 62,847/- 3. Disallowance of capital subsidy 3.1 The lower authorities, in the facts and circumstances of the case and in law, ought to have appreciated that the subsidy was a capital receipt not chargeable to tax and that it cannot also be adjusted against the cost of fixed assets in computing the depreciation allowable to the Appellant. 4. Disallowance of Bonus/ Performance reward under section 43B of the Act The lower authorities have, in the facts and circumstances of the case and in law, erred in disallowing expenditure incurred by the Appellant towards “performance reward” as it is not in the nature of “bonus”. 5. Tax Treatment of Output VAT Incentive The lower authorities have, in the facts and circumstances of the case and in law, erred in not adjudicating and not allowing the claim made by the Appellant to treat output VAT incentive income offered to tax for the subject AY, as a capital receipt not chargeable to tax. 6. Disallowance of investment allowance under section 32AC of the Act 6.1 The lower authorities have, in the facts and circumstances of the case and in law, erred in disallowing investment allowance amounting to INR is 156,19,82,157 under section 32AC of the Act. 4 IT(TP)A No.70/Chny/2018 6.2 The lower authorities have, in the facts and circumstances of the case and in law, failed to appreciate that the investment made by the Appellant was in a ‘plant’, and that a plant would be acquired only on being installed. 6.3. The lower authorities have, in the facts and circumstances of the case and in law, failed to appreciate that the new engine plant was installed and put to use during the relevant AY 2014-15 and hence is eligible for investment allowance in the current year. 7 Adjustment for Brand development services 7.1 The lower authorities have, in the facts and circumstances of the case and in law, erred in making in adjustment towards brand building activity amounting to INR 209,16,43,935. 7.2 The lower authorities have, in the facts and circumstances of the case and in law, while acknowledging that the facts and circumstances are similar to the previous years, erred in not following the binding order of this Hon’ble Tribunal in the Appellant’s own case from AY 2007-08 to AY 2011-12 wherein similar adjustment towards brand adjustment has been deleted. 7.3 The lower authorities have, in the facts and circumstances of the case and in law, exceeded their jurisdiction and erred in making the adjustment towards a fees for a purported brand development service alleged to be provided by the Appellant to its AE, without first establishing that there was any international transaction in this regard between the Appellant and its AE, which can be subject to section 92 of the Act. 5 IT(TP)A No.70/Chny/2018 7.4 The lower authorities have, in the facts and circumstances of the case and in law, erred in arbitrarily attributing 5% of the Appellant’s AMP expenses to the brand building activity, without establishing the existence of an agreement between HMIL and the AE for the provision of AMP services. 7.5 The lower authorities have, in the facts and circumstances of the case and in law, erred in making an adjustment for AMP expenses, without appreciating that such adjustment cannot be made to a full- fledged manufacturer. 7.6 The lower authorities have, in the facts and circumstances of the case and in law, erred in not providing detailed search process conducted for selecting the comparable companies for calculating the markup on AMP expenses. The Appellant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra and all consequential relief thereto. The grounds of appeal raised by the Appellant herein are without prejudice to each other. The Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal. 3. The assessee had filed a petition for admission of additional grounds on 09.06.2020. The relevant additional grounds of appeal raised by the assessee are reproduced as under:- 6 IT(TP)A No.70/Chny/2018 Without prejudice to the main grounds of appeal, the Appellant prefers the following additional grounds among other grounds of appeal: 1. On the facts and circumstances of the case and in law, the Appellant prays that the licenses received under the Focus Market Scheme are capital in nature and ought to be excluded from the computation of total income of the Appellant for the subject AY. 2. On the facts and circumstances of the case and in law, the Appellant prays that Education Cess and Secondary Education Cess be allowable as a business expenditure in the computation of total income of the Appellant. The Appellant craves leave to add/ modify/ alter the additional ground. The Appellant submits that the omission to raise the aforesaid Additional Grounds of Appeal in the original grounds of appeal was neither deliberate nor willful and prays that the Hon’b1e ITAT may consider it as part of the original Grounds of Appeal. 4. Brief facts of the case are that the assessee M/s. Hyundai Motor India Ltd., is wholly owned subsidiary of M/s. Hyundai Motor Company Ltd., South Korea. The assessee is engaged in the business of manufacturing and selling passenger cars in domestic and export market. The assessee company has filed its return of income for assessment year 2014-15 on 28.11.2014 admitting total income of Rs.1240,81,74,240/- under normal provisions of the Act and book 7 IT(TP)A No.70/Chny/2018 profit u/s.115JB of the Act at Rs.1108,20,10,996/-. The assessee had entered into various international transactions with its AEs and international transactions were duly reported in Form 3CEB filed in accordance with provisions of Indian Transfer Pricing Regulations contained in section 92, 92A to 92F of the Income Tax Act, 1961. The case was taken up for scrutiny and during the course of assessment proceedings; a reference was made to JCIT (Transfer Pricing) for determination of arm’s length price of international transactions of the assessee with its AEs. The learned TPO vide its order dated 31.10.2017 has suggested upward adjustment for brand development services. 5. The Assessing Officer, in pursuant to TPO order, has passed draft assessment order u/s.143(3) r.w.s 144C of the Act on 27.12.2017 and made transfer price adjustments as suggested by the TPO at Rs.209,16,43,935/-. The Assessing Officer had also proposed certain corporate tax adjustments including disallowances u/s.14A, r.w.r 8D of IT Rules, 1962, disallowance of subsidy received towards capital expenditure, disallowance of focus marketing scheme expenses, disallowance of additional depreciation claimed on fixed assets for regional offices, disallowance of bonus / performance reward u/s.43B 8 IT(TP)A No.70/Chny/2018 of the Act, disallowance of guarantee charges paid to HMC and disallowance u/s.32AC of the Act. The assessee has filed objections before learned DRP against draft assessment order, but the learned DRP vide its directions dated 18.09.2018 has rejected objections and partly allowed filed by the assessee. The Assessing Officer, in pursuant to the directions of the learned DRP has passed final assessment order incorporating directions of the ld. DRP. Aggrieved, the assessee has filed present appeal before the Tribunal. 6. Ground no.1 filed by the assessee is general in nature and does not require specific adjudication and hence, the same is dismissed. 7. The next issue that came up for our consideration from ground no.2 of assessee appeal is disallowances u/s.14A r.w.r 8D of Income Tax Rules, 1962, amounting to Rs.83,20,451/-. The facts with regard to impugned dispute are that during the year under consideration, the assessee has earned dividend income from mutual funds, however, did not made any suo-motto disallowance of expenditure relatable to exempt income. Therefore, the Assessing Officer has invoked provisions of Rule 8D of Income Tax Rules, 1962, and determined disallowances of Rs.83,20,451/- u/s.14A of Income Tax Act, 1961. 9 IT(TP)A No.70/Chny/2018 7.1 The ld.AR for the assessee, at the time of hearing submitted that this issue is covered in favour of the assessee by the decision of ITAT., Chennai in assessee’s own case for the assessment year 2015- 16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal order for assessment year 2013-14 in ITA No. 3192/Chny/2017, held that disallowance u/s.14A should be restricted to the extent of exempt income earned for the impugned assessment year. 7.2 The ld.DR on the other hand, fairly agreed that this issue is covered in favour of the assessee. 7.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. An identical issue has been considered by Tribunal in assessee’s own case for the assessment year 2015-16 in IT(TP) No.10/CHNY/2020, dated 17.09.2021, wherein the Tribunal by following its earlier decision in assessee’s own case for assessment year 2013-14 in ITA No.3192/Chny/2017, dated 01.09.2021 directed the AO to restrict disallowances u/s.14A of the Act, to the extent of exempt income 10 IT(TP)A No.70/Chny/2018 earned for the impugned assessment year. The relevant findings of the Tribunal in ITA No.3192/Chny/2017 are as under:- “10. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. It is well settled principles of law that disallowances u/s.14A cannot exceed amount of exempt income. The Hon’ble Supreme Court in the case of Pr.CIT Vs State Bank of Patiala (supra), while dismissing SLP filed by the Revenue against order of the Hon’ble Punjab & Haryana High Court in the case of Pr.CIT Vs State Bank of Patiala, held that disallowance u/s.14A could be restricted to amount of exempt income only. The Hon’ble Jurisdictional High Court of Madras in the case of Marg Ltd Vs.CIT (2020) 120 Taxmann.com 84, has taken a similar view and held that disallowances under Rule 8D r.w.s 14A can never exceed exempt income earned by the assessee during particular assessment year. In this case, admittedly, exempt income for impugned assessment year was Rs.57,826/-, whereas the Assessing Officer has determined disallowance u/s.14A at Rs.86,54,491/- contrary to settled principle of law. Therefore, considering facts and circumstances of this case and also by following the decisions of Hon’ble Supreme Court and Hon’ble Madras High Court, we direct the Assessing Officer to restrict disallowances u/s.14A to the extent of exempt income earned for the impugned assessment year.” In this view of the matter and consistent with view taken by the Co-ordinate Bench, we direct the AO to restrict disallowance u/s.14A to the extent of exempt income earned for the impugned assessment year. 11 IT(TP)A No.70/Chny/2018 8. The next issue that came up for our consideration from ground no.3 of assessee appeal is disallowance of depreciation on capital subsidy. During the financial year 2002-03, the State Industrial Promotion Corporation of Tamil Nadu (SIPCOT) had granted subsidy of Rs.100 lakhs to encourage and recognize huge investments made for setting up of mega project viz., passenger car manufacturing unit in Irungattukottai. The assessee has treated subsidy received from SIPCOT as capital receipt and did not reduce the same from cost of assets, as it was not directly or indirectly used for purchase of any asset. The Assessing Officer has held that capital subsidy received from SIPCOT being utilized by the assessee for capital expenditure, same ought to have been reduced from the cost of asset added in that year by contending that subsidy was directly or indirectly used to purchase of asset and as per explanation (10) to section 43, the same needs to be deducted from cost of assets and consequently, reworked depreciation by reducing amount of subsidiary and disallowed a sum of Rs.1,72,435/-. 8.1 The learned AR for the assessee submitted that this issue is covered in favour of the assessee by the decision of ITAT., Chennai, in assessee’s own case for assessment year 2015-16 in IT(TP)A 12 IT(TP)A No.70/Chny/2018 No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal order for assessment years 2006-07 & 2013-14 in IT(TP)A.No.14/Chny/2018 & ITA No. 3192/Chny/2017, held that subsidiary received from SIPCOT is capital receipt not liable for tax. 8.2 The learned DR, on the other hand, fairly agreed that this issue is covered in favour of the assessee, however strongly supported AO/DRP orders. 8.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. An identical issue has been considered by Tribunal in assessee’s own case for the assessment year 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the decision of the Tribunal in assessee’s own case for assessment year 2013-14 in ITA No.3192/Chny/2017, dated 01.09.2021 & 2006-07 in IT(TP)A No.14/Chny/2018 and after considering nature of subsidy has allowed claim of the assessee by observing that for earlier years, the CIT(A) has allowed claim of the assessee and the AO has accepted decision of the CIT(A) and deleted additions, while passing order giving effect to the order of the CIT(A). Therefore, consistent with the view taken by the coordinate Bench, we 13 IT(TP)A No.70/Chny/2018 direct the AO to delete addition made towards disallowance of depreciation on capital subsidy received from SIPCOT. 9. The next issue that came up for our consideration from ground No.4 of assessee appeal is disallowance u/s.43B(c) of the Act, in respect of performance incentive paid to employees. Facts with regard to impugned dispute are that for the financial year relevant to the assessment year 2014-15, the assessee has paid performance reward to employees in the cadre of executives and senior executives. The assessee has provided for expenses for the year ended March, 2014. However, payment was made only after due date of filing return of income for assessment year 2014-15. The Assessing Officer has disallowed performance incentive paid to staff u/s.43B(c) r.w.s. 36(1)(ii) of the Act, amounting to Rs.37,94,474/- on the ground that as per section 43B(c), any sum referred to in clause (ii) of sub-section (1) of section 36, shall not be allowed as deduction, unless the same is paid on or before due date for furnishing return of income u/s.139(1) of the Act. The Assessing Officer further noted that as per section 36(1)(ii), any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profit or dividend, if it had not been paid as bonus or 14 IT(TP)A No.70/Chny/2018 commission is covered, cannot be allowed unless it is paid within due date. Therefore, he opined that any payment made to an employee which is in the nature of bonus or commission for services rendered is covered u/s. 36(1)(ii) of the Act, and thus, if such payment is not made on or before due date of filing of return of income u/s.139(1) of the Act, then same cannot be allowed as deduction, as per section 43B(c) of the Act. The assessee has filed objections before learned DRP and challenged additions made by the AO. The learned DRP vide its directions dated 18.09.2018 has rejected objections filed by the assessee and confirmed additions made by the AO. 9.1 The learned A.R for the assessee submitted that the learned DRP erred in sustaining additions made by the AO towards disallowance of performance incentive paid to employees u/s.43B(c) of the Act, without appreciating fact that said payment is neither bonus nor commission and thus, same cannot be brought within the ambit of provisions of section 36(1)(ii) r.w.s.43B(c) of the Income Tax Act, 1961. 9.2 The ld.DR on the other hand strongly supporting order of the ld.DRP submitted that this issue is covered against the assessee by 15 IT(TP)A No.70/Chny/2018 the decision of ITAT., Chennai in assessee’s own case for assessment year 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal order for assessment year 2013-14 in ITA No. 3192/Chny/2017, decided the issue against the assessee. 9.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in assessee’s own case for assessment year 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal order for assessment year 2013-14 in ITA No. 3192/Chny/2017, where under identical circumstances, the Tribunal has held that payment made to an employee which is in the nature of bonus or commission for services rendered is covered u/s. 36(1)(ii) of the Act, and thus, if such payment is not made on or before due date of filing of return of income u/s.139(1) of the Act, then same cannot be allowed as deduction, as per section 43B(c) of the Act. The relevant findings of the Tribunal are as under:- “23. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, none of the employees of the assessee are covered under payment of Bonus Act, because all employees’ salary is above threshold limit fixed under payment of Bonus 16 IT(TP)A No.70/Chny/2018 Act. It is also an admitted fact that the assessee is paying performance incentive/reward to employees regularly and such incentive has been paid for services rendered by the employees. Therefore, it is necessary to examine performance incentive paid to employees in light of provisions of section 36(1)(ii) read with section 43B(c) of the Income Tax Act, 1961. As per section 36(1)(ii) of the Act, any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend, if it had not been paid as bonus or commission is allowable as deduction. The provisions of Section 43B(c) provides that any sum referred to in section 36(1)(ii) will not be allowed as deduction, unless actually paid. Therefore, from a combined reading of provisions of section 36(1)(ii) read with section 43B(c), it is seen that provisions of section 36(1)(ii) is not only covers for payment of bonus to staff, but it also applies to commission paid to the employees for services rendered. The assessee claims that expenditure incurred is towards performance reward, which is not in the nature of bonus and hence, will not be covered u/s. 36(1)(ii) of the Act. 24. We have given our thoughtful consideration to facts brought out by the ld. AO in light of arguments of the ld. AR for the assessee and we do not ourselves subscribe to the arguments of ld. AR for the assessee, for simple reason that once performance incentive is paid for rendering services, then such payment is in the nature of bonus or commission which comes under the provisions of section 36(1(ii) of the Act. It is immaterial whether the assessee terms it as performance reward or bonus. But, what is relevant is nature of payment and purpose of payment. In this case, it is in the nature of bonus or commission and such payment is for services rendered by employees. Just because nomenclature was changed to some other name, a particular expenditure would not change its original character. In this case, sum was paid to 17 IT(TP)A No.70/Chny/2018 employees for services rendered and further, this sum would not have been paid as profits or dividend had it not been paid as commission or performance reward. Therefore, we are of the considered view that provisions of section 36(1)(ii) of the Act is squarely applicable and consequently, mischief of section 43B(c) would come into play, if such payment is not made on or before due date of furnishing of return of income. In this case, admittedly, the assessee has paid performance incentive only after due date of filing of income-tax return. Insofar as case laws relied upon by the assessee, we find that facts those case laws are different from facts of present case and has no application to case of the assessee. Therefore, we are of the considered view that there is no error in the reasons given by the Assessing Officer as well as learned DRP to disallow performance reward u/s.43B(c) of the Act. Hence, we are inclined to uphold the order of Assessing Officer as well as directions of learned DRP and reject ground taken by the assessee.” In this view of the matter and consistent with view taken by the Co-ordinate Bench, we are inclined to uphold the order of the AO as well as the directions of ld.DRP and reject ground taken by the assessee. 10. The next issue that came up for our consideration from ground no.5 of assessee appeal is addition towards VAT incentive received from Government of Tamil Nadu. During the year under consideration, the assessee has received refund of output VAT amounting to Rs.32,24,91,983/- from Govt. of Tamil Nadu and credited to profit and 18 IT(TP)A No.70/Chny/2018 loss account under the head income from other sources. The assessee has treated above incentive as revenue receipt both for its books of account and its tax returns. However, during the course of assessment proceedings, the assessee has raised a fresh claim to treat incentive as capital receipts not chargeable to tax. The AO has not adjudicated fresh claim made by the assessee. The learned DRP has rejected objections filed by the assessee without giving any specific direction. 10.1 The learned AR for the assessee submitted that this issue is also covered in favor of the assessee by the decision of ITAT., Chennai in assessee’s own case for 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal order for assessment year 2013-14 in ITA No. 3192/Chny/2017, where under identical circumstances, the Tribunal has remanded the matter to the file of the AO to consider the issue in accordance with law. Therefore, the issue may be set aside to file of the Assessing Officer for verification. 10.2 The learned DR, on the other hand, fairly agreed that this issue has been set aside to the file of AO for earlier years and hence, this 19 IT(TP)A No.70/Chny/2018 year also the issue may be remanded back to the file of Assessing Officer. 10.3 Having heard both the parties and considered material on record, we find that the Tribunal had considered an identical issue for assessment year 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal orders 2011-12 & 2013-14 in ITA Nos.853/Chny/2014 & 3192/Chny/2017, where the issue has been remanded back to the file of AO to consider the issue denovo on merits in accordance with law, has set aside issue to the file of Assessing Officer. Facts being identical for the year under consideration, by following the decision of Tribunal in assessee’s own case for assessment year 2015-16, we set aside the issue to file of the AO and direct him to reconsider the issue in accordance with law. 11. The next issue that came up for our consideration from ground no.6.1 to 6.3 of the assessee appeal is disallowance of investment allowance u/s.32AC of the Income Tax Act, 1961. 11.1 The brief facts of the impugned dispute are that the assessee claimed that a sum of Rs.17,95,41,84,175/- has been invested in 20 IT(TP)A No.70/Chny/2018 plant and machinery and the same is eligible for investment allowance u/s.32AC of the Act, and thus, has claimed investment allowance @ 15% on total investment made in plant & machinery during financial year relevant to assessment year 2014-15 at Rs.269,31,27,626/-. The assessee further claimed that out of total investment of the assessee Rs.1795,4184,175/-, a sum of Rs.1041.32 crores was acquired during the financial year 2012-13 and kept in capital work-in- progress and balance amount of Rs.754.09 crores was acquired and installed during financial year relevant to assessment year 2014-15. The assessee claimed that as per provisions of Section 32AC(1A) of the Act, when the assessee acquired and installed new asset after 31.03.2013, but before 01.04.2015, then it is eligible for investment allowances @ 15% on said plant or machinery. The assessee never disputed fact that out of total investments made in new plant or machinery, a sum of Rs.1041.32 crores was acquired and installed during previous financial year 2012-13. According to the assessee, the term ‘acquire’ as defined under the provisions of Section 32AC of the Act, should be given wider meaning so as to include any plant which is under construction, but installed during relevant financial year, even though certain installed assets were acquired during the earlier financial year, because a plant is a continuous process which cannot 21 IT(TP)A No.70/Chny/2018 be completed during the same financial year. The assessee has also explained the term ‘acquire’ in light of certain judicial precedents and argued that acquisition of any asset or plant is not limited to purchase, but also includes creation or formation of asset by taxpayer on his own. Therefore, claimed that total amount invested in plant and machinery of Rs.17,95,41,84,175/- is eligible for investment allowance of 15% as per provisions of section 32AC (1) of the Income Tax Act, 1961. 11.2 The Assessing Officer, however was not convinced with explanation furnished by the assessee and according to him, as per provisions of section 32AC(1A) of the Act, the assessee is required to acquire and install new asset after 31.03.2013 but before 01.04.2015. Therefore, he opined that any amount invested for acquiring plant or machinery before said date is not entitled for investment allowance. The Assessing Officer has discussed the issue in light of provisions of section 32AC of the Act, the purpose of introduction of said provision to the statute in light of Budget speech of the Hon’ble Finance Minister and came to the conclusion that statute has provided investment allowance to promote growth of economy and boost employment after 22 IT(TP)A No.70/Chny/2018 specified date and thus, investments made after specified date is only entitled for allowances. The Assessing Officer had also discussed the issue in light of memorandum explaining Finance bill for introduction of provisions of section 32AC of the Act, and observed that purpose is very clear as per which investment allowance is provided to enhance investment and boost economy and thus, if at all, the legislature intend to give benefit on investment made in earlier financial year, then it would not have specifically mentioned the term ‘acquire and install’ new asset after 31.03.2013 but before 1 st April, 2014. He therefore, opined that there is no merit in arguments taken by the assessee that even plant or machinery acquired in immediately preceding financial year and kept in capital work in progress is also entitled for investment allowance, when such capital work in progress was converted into plant after successful installation of plant or machinery during financial year relevant to assessment year 2014-15. Therefore, he has disallowed investment allowances claimed by the assessee @ 15% on capital work in progress of Rs.1041.32 crores and added back a sum of Rs.156,19,82,157/-. The relevant findings of the Assessing Officer are as under:- The submission of the assessee company is carefully considered as follows: 23 IT(TP)A No.70/Chny/2018 The assessee is claiming the deduction u/s 32AC(1)(a). As per the clause a to the sub-section 1 of section 32AC, the assessee is required to acquire and install the new asset after 3lst March 2013 but before the 1st day of April, 2014. Thus, the investment allowance was given to promote growth of economy and boost employment after the specific date in time i e, 01-04 2013. As per the deposition given above, out of the overall eligible acquisition and installation of the assets of Rs.1795,41,84,175, a sum of Rs. 1041,32,14,382 was kept as WIP as on 01.04.2013. This means that the sum of Rs.1041,32,14,382 was not acquired during the period commencing from 01-04.2013. To qualify for the claim of investment allowance, two conditions namely, acquisition and installation are to be fulfilled. As these two conditions are referring to two different activities, which can be rarely completed on the same day, there will be some time lapse between these two activities. Usually the process commences with the project report and the bill of materials and services and other payments are mostly identified before commencement of the project. The supply of materials and other services for erection etc are made available as and when the same are needed as per thercj.ect plan. The assets may be simple items such as drilling machine which can be installed within days of supply while another could be any item that is forming part of a bigger structure such as furnace fitting, gauges, conveyor belt systems, panels etc which could take weeks or even months to 24 IT(TP)A No.70/Chny/2018 install. Thus there will be a definite time lag between the time of acquisition and installation. The application of the section with reference to the eligibility of the assesse in claiming investment allowance should be examined with reference to the overall operation of the section perceived with the intention behind the introduction of this section. In the budget speech, for the Financial year 2013 the Finance Minister explained the intent behind this investment allowance and stated inter alia the following: To attract new investment and to quicken the implementation of projects, I propose to introduce an investment allowance for a new high value investments. A company investing 100 crore or more in plant and machinery during the period 1.4.2013 to 31.3.2015 will be entitled to deduct an investment allowance of 15 percent of the investment. This will be in addition to the current rates of depreciation. There will be enormous spill-over benefits to small and medium enterprises.” This speech clearly explains that the intention of the legislature was to promote growth, creating of jobs by giving incentive to investment to be made within a specified period commencing 31st March 2013. The key words to see here are “Attract new investment and to quicken the implementation of projects” and “during the period 1.4.2013 to 31.32015”. From the above, it can be seen that the intention of the legislature is to ensure more investments during the period 1.4.2013 to 31.3.2015 in 25 IT(TP)A No.70/Chny/2018 the form of new investments, but not for the investments already made in the prior years. As mentioned by the assesse, large projects take a longer time to execute and therefore the period of time given for acquiring and installing is also covering two years. As reasoned above, the intention behind the legislation of this section is to promote development of economy after 1-04-2013 and not before and this development should be as a result of acquisition and installation of new assets in these two activities, it is the acquisition of the asset that triggered the expenditure and when this activity was not carried out the boost that was expected by the expenditure did not happen. In its reply, the assessee, states that the assessee, acquired and installed these assets within the period prescribed in the act for this purpose as the project is a large one and this can hardly be completed in a single financial year. In a typical scenario, any manufacturing business takes long periodtq acquire and install the assets The whole plant and machinery could be of various items and they are likely to be acquired and installed on a continuous basis and in sequential order, but the plant itself would be available for production at a later date. The principal requirements that are laid out in the section for eligibility conditions are acquiring and installing and not others such as put to use or commence production. This is distinct from the operation Section 32(1) where depreciation is allowed only when the asset is put to use. Certain deductions envisaged in Sections 801A and 80IC are allowable on 26 IT(TP)A No.70/Chny/2018 condition of commencement of commercial production. In all such cases i.e 801A and 801C, the eligibility conditions are for the entire undertaking in contrast with claim of depreciation where the items falling under various blocks of assets that are allowed depreciation commencing from the date such asset is put to use. All these various assets could be part of a plant or machinery and many such complex items could form as the assets of the undertaking that is allowed to claim the benefit of sections 801A or 801C. The assessee is confusing the issue by bringing in the concept of commencement of commercial production as the primary requirement for the eligibility condition. Without prejudice to the arguments made thus far, if the issue should be decided on the basis of the claim, then, the entire assets forming part of the project form part of the original purchase order raised prior to the 31-03-2013 and hence u/s 32AC these assets are not eligible for the claim of investment allowance as per Section 32AC of the Act. The legislation was not aiming at the boost that may happen out of the commercial activities after the entire plant comprising these assets commences commercial production. In contrast to that, It is safely intended to create economic benefits and multiplier actions out of the acquisition of the assets. Thus the items of assets acquired whether installed or not that are kept in Capital Work in Progress (CWIP) are not to be considered as eligible for investment allowance within the meaning of the section 32AC of the Act. 27 IT(TP)A No.70/Chny/2018 The assessee makes another claim that the plant was installed during the period 01-04-2013 to 31-03-2014 and therefore the investment allowance should be allowed as the entire plant which is complex unit was installed. Again the reasoning of the assessee while being imaginative lacks serious backing of reason and misleading. In the first place, this investment allowance is to be allowed on the Capital Expenditure incurred on assets acquired and installed during the specified period. It is a fact that these assets form part of the overall complex plant The intent of the legislation was not to allow any incentive to the investments made on the plant itself The incentive is make the ‘manufacturing sector to book more Capex during the period. Thus the eligibility conditions prescribed being acquired and installed cannot be applied to the entire project but only to individual asset. It is also abundantly clear that the assets acquired prior 1.4.20 13 cannot be, taken into account white computing the investment allowance merely because the assets were installed during the period 1.4.2013 to 31.3.2015. Thus the arguments of the assessee are not maintainable. At the end of the year, the assets acquired and allied expenditure of various project that are still not completed, are kept in the books as Capital Work in Progress (CWIP). The investment allowance is to be allowed on assets that are acquired and installed after 31-03-2013 and the assets that are in CWIP as on 01-04-2016 are not eligible for the claim of investment allowance. In contrast to this, in section 32 the 28 IT(TP)A No.70/Chny/2018 section, the assets eligible for depreciation are those wholly or partly owned by the assesse and used for the purpose of the business, that is put to use. Here the ownership of the asset was already passed on to the assesse. In the case of claim of depreciation, the determinant factor is the date when the asset was put to use. But in the case of additional depreciation, Section 32(u) mentions “acquired and installed” and again the additional depreciation can be claimed only for the assets that were put to use. Thus the claim of depreciation claim cannot be made on assets that are not owned or not put to use. Whereas in the case of section 32AC of the Act, the principal conditions are “acquire and install”. As explained by the Hon’ble Finance Minister, for the purpose of allowing incentive of investment allowance, the asset should have been acquired within the window period made available and it can be claimed only in the FY in which the same are installed if that falls within the window period. Additionally, this incentive is not available to the assessee when the commercial production is commenced as seen in respect of provisions of section 80IA or 80IC. From the above it can be seen that the intention of the legislature is to ensure were investments during the period 1.04.2013 to 31.03.2015, in the form of new investments. Not for the investments already under in the prior years. An asset is said to be “acquired” when the assessee purchases the asset and receives it. In other words, the assessee becomes the owner of the asset. When such assets are brought to the assessee’s premises (where they are 29 IT(TP)A No.70/Chny/2018 required to be used) and made them ready for use, the assets are said to be “installed”. This processes starts after the transportation of the assets purchased to the assessee’s premises. This process involves assembling of different components/assets in are / or several units, making alternations, fixing of the asset with some civil works on to the platforms, aligning the various components/assets in a series to perform coordinated jobs of manufacturing work, integrating with each other, and so on. This process continues till the asset (or where various individual components are brought together for coordinated simple purpose, it is called plant) is ready to perform the task for which it is intended for. Once it is ready for purpose, the asset (or plant) is said to be “installed”. When the manufacturing of goods/articles by using the above assets/plant actually states, the assets are said to be put to use. While depreciation u/s. 32 in allowable at the point when the asset are actually put to use, the investment allowance u/s. 32 AC(1) is allowable when the first two conditions i.e acquisition and installation are completed. It is also important to note that legislature has clearly worked that statues “acquires and installs new asset”, meaning there by that both of these components i.e acquisition as well as the installation, should take place within the prescribed time limits. In other words, if any of these components i.e acquisition or installation falls outside the specified time limits, the asset will not be eligible for investment allowance u/d. 32 AC (1) of the Act. 30 IT(TP)A No.70/Chny/2018 As per deposition of the assessee the following table is prepared: S.No. Additions made during F.Y. 2013-14 Capital work in progress During FY 2013-14 Total 1. Rs.754,09,69,793 Rs.1041,32,14,382 179541,84,175 In the instant case of the assesse, many of the assets that were in CWIP as on 31-03-2013 may have been installed already even though they may not have been put to use. Accordingly, a sum of Rs.156,19,82,157 being 15% of the CWIP (Rs.1041,32,14,382) that is cost to the assessee of the eligible assets cannot be allowed and therefore not allowed. The balance of Rs.113,11,45,469 being 15% of the assets (Rs.754,09,69,793) acquired and installed during the FY 01-04- 2013 to 31-03-2014 is allowed.” 11.3 Being aggrieved by draft assessment order, the assessee filed its objections before the learned DRP-II, Bangalore, in terms of section 144C(5) of the Income Tax Act, 1961 . The assessee has challenged disallowance of investment allowance on capital work in progress u/s.32AC of the Act. The assessee has filed detailed written submissions on the issue, which has been reproduced at para 7 on 31 IT(TP)A No.70/Chny/2018 pages 13 to 16 of the learned DRP order. The sum & substance of arguments of the assessee before the learned DRP are that since provisions of section 32AC is a beneficial provision to encourage new investments in manufacturing sector to promote growth and employment, same needs to be interpreted literally so as to achieve purpose of insertion of said provisions to the statute. The assessee further submitted that the assessee has intended to set up new engine plant which would facilitate in production of petrol as well as diesel engines for which the assessee had purchased certain machinery prior and post March 31, 2013. However, installation of new engine plant was completed in financial year 2013-14 i.e., year in which claim was made by the assessee. The assessee further submitted that it is very important to understand difference between the term ‘plant’ and ‘machinery’. The word ‘machinery’ is not defined in the Act. However, the term ‘plant’ is defined to mean a set of machines, tools, apparatus etc. necessary to conduct manufacturing enterprise or other business. The word ‘machinery’ is different in scope than ‘plant’. The word ‘plant’ includes within its scope a set of machines put together. Therefore, when the assessee is in the process of setting up of a plant, it has to acquire various machines and tools necessary for setting up of a plant which may take place prior to specified period under the provisions of 32 IT(TP)A No.70/Chny/2018 section 32AC of the Act, but what is to be seen is that such plant was completed during specified period or not. Since, the assessee has successfully installed plant for manufacturing of engines and said installation was completed in financial year 2013-14 relevant to the assessment year 2014-15, the said plant can be termed as new asset which qualifies for investment allowance u/s.32AC of the Income Tax Act, 1961. The learned AR further referring to provisions of section 32AC of the Act, purpose of insertion of said provisions to statute and memorandum explaining finance bill, including speech of Hon’ble Finance Minister submitted that sole purpose of allowing investment allowance is to encourage investments in manufacturing sector for growth of industry and promote job avenue. In this context, the Hon’ble Finance Minister very categorically clarified that even the provision applies to projects already initiated before specified date. Therefore, if you see purpose of insertion of said proviso, it very clearly states that to attract new investments and to quicken implementation of new projects, proposed investment allowance was brought into statute. Therefore, from the above, what is clear is that investment allowance prescribed u/s.32AC(1) of the Act, is applicable not only to new plant or machinery acquired or installed during specified period, but also those plant or machinery which were already initiated, but completed 33 IT(TP)A No.70/Chny/2018 installation during the relevant financial year. Therefore, he submitted that the Assessing Officer is incorrect in disallowing investment allowance on capital work in progress by holding that asset acquired and installed prior to 31.03.2013 and 01.04.2014 is only eligible for investment allowance, but not assets already acquired prior to said date. 11.4 The learned DRP, after considering relevant submissions of the assessee and has also taken note of provisions of section 32AC of the Act, rejected arguments taken by the assessee and sustained additions made by the Assessing Officer towards disallowance of investment allowance on capital work in progress by holding that as per provisions of section 32AC of the Act, the assessee who acquires and installs new asset after 31.03.2013, but before 01.04.2014 alone are eligible to claim investment allowance. The learned DRP further observed that in order to claim investment allowance, there should be new asset and further, said new asset should have been acquired between 01.04.2013 & 31.03.2015 and unless above conditions are satisfied, the assessee is not eligible to claim investment allowance. Therefore, the learned DRP opined that investment allowance claim on 34 IT(TP)A No.70/Chny/2018 capital work in progress being plant or machinery acquired before 01.04.2013 is not eligible for investment allowance and thus, rejected arguments of the assessee. The relevant findings of the learned DRP are as under:- “The assessee claimed that assets (plant machinery) for Rs.1795,41,l75/- were eligible for investment allowance. However. AO noticed that Rs.1041,32,14,382/- worth of these plant and machinery were acquired in the Previous year 2012-13 and shown in the balance sheet as on 31.03.2013. As per the provisions of Section 32AC the assessee who acquires and installs new assets after 31.03.2013 but before 1 ST April, 2015 alone are eligible to claim investment allowance. As brought out clearly by the AO in the order, in order to be eligible to claim investment allowance. • There should be new asset/s • The new asset/s should have been acquired between 01.04.2013 &31.3.2015 and The new asset/s should have been installed between 01.4.2013 & 31.3.2015 Unless the above conditions are satisfied, the assessee is not eligible. The provisions of 32AC(I) are introduced specifically with a view to promote new investment. When the provisions are obvious they do not requite further 35 IT(TP)A No.70/Chny/2018 interpretations. The assets are purchased and acquired and shown in the balance sheet. The assessee tries to give different meaning to the words ‘acquire’ as if purchase in earlier year does not amount to acquisition. According to assessee’s interpretation the asset came into existence only when it is installed. This is farfetched interpretation and not tenable. If that is so, then the legislature would not have used words like “new”“acquire”“install” separately. One word like “install” would have been sufficient. Further the relevant phrase “invests a sum of more than Rs. 100 crore in new assets (plant or machinery) during the period beginning from 1st April, 2013 and ending on 31st March, 2015 “in the explanatory notes is very crucial here. The assessee in the present case has not made investment in the relevant previous year but the investments are made in earlier years. Considering the above the arguments of the assessee are not accepted. The assessee produced certain additional documents which are in the nature of additional evidence on 12/07/2018. Since the assessee has not produced these evidences before the AO, the same are rejected by the Panel. After careful consideration the Panel is in agreement with the TPO that the assessee is not eligible for the investment allowance. Ground rejected.” 11.5 The learned A.R for the assessee submitted that the learned DRP has erred in rejecting arguments taken by the assessee on 36 IT(TP)A No.70/Chny/2018 investment allowance claimed towards capital work in progress amounting to Rs.1041.32 crores, without appreciating fact that investments made by the assessee was in a plant and said plant was completed in assessment year 2014-15. The learned A.R further submitted that the learned DRP has erred in not appreciating fact that new engine plant was installed and put to use during relevant assessment year 2014-15 and hence, even if, certain individual machinery or tools acquired before specified date, but because the term ‘plant’ is a continuous process which can be said to have put to use only when said plant was successfully installed. Since, the assessee has successfully installed plant during the financial year relevant to assessment year 2014-15, the assessee has rightly claimed investment allowance as per provisions of section 32AC of the Income Tax Act, 1961. The learned AR further referring to term ‘plant’ and ‘machinery’ argued that it is important to understand difference between the term ‘plant’ and ‘machinery’. The word ‘machinery’ is not defined in the Act. However, the term ‘plant’ is defined to mean a set of machine, tools, apparatus etc. necessary to conduct manufacturing of an enterprise or business. The word ‘machinery’ is different in scope than ‘plant’. The word ‘plant’ includes within its scope a set of machines put together. Therefore, when the assessee is in the 37 IT(TP)A No.70/Chny/2018 process of setting up of a plant, it needs to acquire various machines and tools necessary for setting up of a plant which may take place prior to specified period under the provisions of section 32AC of the Act, but what is to be seen is that such plant was completed since the assessee has successfully installed plant for manufacturing of engines and said installation was completed in financial year 2013-14 relevant to the assessment year 2014-15. The said plant can be termed as new plant or machinery which qualifies for investment allowance u/s.32AC of the Income Tax Act, 1961. The learned A.R further referring to various decisions of courts, including decision of the Hon’ble Gujarat High Court in the case of IDMC Ltd. Vs. JCIT (93 ITR 441), submitted that the term ‘acquisition’ u/s.32AC of the Act, should not be restricted to mean purchase from another party or transfer of property from another person. The term ‘acquisition’ is to be construed in a much wider sense to include an asset which is created by a person and person gets rights of ownership in that asset. He further referring to decision of the Hon’ble Gujarat High Court in the case of CIT vs. Mohanbhai Pamabhai (91 ITR 393), submitted that when capital asset is created by the assessee, it becomes his property, he comes to own it and therefore, he acquires it, the moment it is created. Creation or production of a capital asset is not foreign to 38 IT(TP)A No.70/Chny/2018 the concept of acquisition. The plant owned by the assessee has not purchased, whereas it is created by the assessee, therefore in process, the assessee has to purchase various machineries and deploy resources in order to complete acquisition of new engine plant. Therefore, he submitted that although, the assessee has purchased certain individual machinery and tools prior to 31.03.2013, but whole plant for manufacturing of engines has been completed and installed during the financial year relevant to assessment year 2014- 15, and thus, the assessee has rightly claimed investment allowances on total amount invested in new plant or machinery and thus, the Assessing Officer as well as learned DRP has erred in restricting investment allowances to the extent of amount invested during specified period. The learned A.R referring to decision of the ITAT., Mumbai in the case of JCIT Vs. Lotus Energy India Ltd.(2016) 68 taxmann.com 364 submitted that although, said decision was rendered in the context of depreciation u/s.32(1)(iia) of the Act, but ratio laid down by the Tribunal is that word ‘acquire’ & ‘install’ are used in the section are similar to assessee’s case and thus, even if certain machinery or tools are acquired prior to 31.03.2014, but said machineries to be put together forms integrated plant and said plant was acquired and installed during specified period and hence, the 39 IT(TP)A No.70/Chny/2018 assessee is entitled for investment allowance on total amount including amount of capital work in progress. 11.6 The learned A.R further referring to provisions of section 32AC of the Act, memorandum explaining finance bill and speech of Hon’ble Finance Minister while presenting Budget submitted that sole purpose of insertion of provisions of section 32AC of the Act is to attract new investments and to quicken implementation of projects to accelerate growth and employment in manufacturing sector. Therefore, when the provision was inserted to give benefits to the industry, such provision should be construed liberally so as to achieve larger objectives. The Hon’ble Finance Minister very categorically stated that said provision is even applicable to projects are already initiated and thus, being the case, it is incorrect on the part of the authorities below to restrict meaning of acquisition and installation of plant & machinery to only assets or plants or machineries purchased, acquired and installed during relevant period. Therefore, he submitted that there is clear error in the findings recorded by the Assessing Officer as well as learned DRP in disallowing investment allowance on capital work in progress and hence, the Assessing Officer may be directed to allow investment 40 IT(TP)A No.70/Chny/2018 allowance as claimed by the assessee. In this regard, the assessee has relied upon following judicial precedents:- 1. ITAT., Delhi (SB) Twenty First Century Steels Ltd. Vs. DCIT 94 ITD 258 2. Gujarat High Court in the case of CIT Vs. Mohanbhai Pamabhai 91 ITR 393 (Guj) 3. Karnataka High Court in the case of Biyar Rubber P.Ltd. vs.CIT 160 taxmann 377(Kar) 4. Andhra Pradesh High Court in the case of CIT Vs S.Vijaya Kumar 376 ITR 226 5. Karnataka High Court in the case of Pathange Poulty Farm vs. CIT 210 ITR 668 (Kar) 6. Calcutta High Court in the case of CIT Vs. Tribeni Tissues Ltd. 206 ITR 92 7. Extract of Budget Speech 8. Business Line Article on Investment Allowance u/s.32AC 9. Extract of Sampath Iyengar’s law of Income Tax-Part3 10. Hon’ble Supreme Court in the case of PCIT Vs. IDMC Ltd. T.A. No.824 of 2016 11. Gujarat High Court in the case of PCIT Vs. IDMC Ltd. 93 ITR 441 12. ITAT., Mumbai in the case of JCIT Vs Lotus Energy India Ltd. 68 taxmann.com 364 13. Bombay High Court in the case of Lotus Energy India Ltd. 14. ITAT., Pune in the case of Dia Aluminium India Pvt.Ltd. vs.DCIT in ITA No.1374/Pune/2016 41 IT(TP)A No.70/Chny/2018 15. ITAT., Pune in the case of Bekaert Industries P.Ltd. vs. ACIT 94 taxmann.com 120 16. Hon’ble Supreme Court in the case of Bajaj Tempo Ltd. vs. CIT 196 ITR 188 (SC) 17. Hon’ble Supreme Court in the case of McGregor and Balfour Ltd. vs.CIT 36 ITR 65 18. Hon’ble Supreme Court in the case of CIT Vs. Mir Mohammed Ali 53 ITR 165 19. Madras High Court in the case of CIT vs. Sri Rama Vilas Service P. Ltd. 38 ITR 25 20. Hon’ble Supreme Court in the case of CIT Vs. Taj Mahal Hotel 82 ITR 44 21. ITAT., Pune in the case of ACIT Vs.Aurgangabad Holiday Resorts P.Ltd. 118 ITD 1 11.7 The learned DR, on the other hand, supporting order of the learned DRP submitted that in order to claim investment allowance u/s.32AC of the Act, law is very clear, as per which new asset should have been acquired between 01.04.2013 and 31.03.2015 and new asset should have been installed during the same period. Unless, the assessee satisfies above condition, it cannot claim deduction u/s.32AC(1) of the Income Tax Act, 1961. In this case, there is no dispute with regard to fact that the assessee has started purchasing certain assets which were kept in capital work in progress amounting 42 IT(TP)A No.70/Chny/2018 to Rs.1041.32 crores and further, the assessee has made additional investments during the period covered under section 32AC of the Act, and claimed allowance on total investments, including assets acquired prior to 01.04.2013 contrary to the provisions. The learned DR further submitted that case law relied upon by the assessee is on the issue of depreciation claimed u/s.32(1)(ii) of the Act, but not on the issue of investment allowances. The newly inserted provisions of section 32AC has made it mandatory for any assessee to make investments by acquiring and installing plant & machinery and other assets within the specified period. Unless the assessee fulfills two conditions, it cannot claim additional allowance. Therefore, the learned Assessing Officer and learned DRP have rightly rejected investment allowance claimed by the assessee and their orders should be upheld. 11.8 We have heard both the parties, perused material available on record and gone through orders of the authorities below. We have also carefully considered various case laws cited by the assessee. There is no dispute with regard to fact that the assessee has claimed investment allowance @ 15% on total assets of Rs.1795.42 crores, which includes a sum of Rs.1041.32 crores pertains to assets acquired before 01.04.2013 and kept in work in progress. The 43 IT(TP)A No.70/Chny/2018 argument of the assessee was that, it was in the process of setting up a plant for manufacturing of engines and project is larger one and thus, hardly cannot be completed in a single financial year. Therefore, he argued that various small plant and machinery acquired to make larger plants for manufacturing of engines should be treated as integrated one and same needs to be considered as acquired & installed during the financial year relevant to assessment year 2014- 15, because the assessee has completed construction of plant during the period from 01.04.2013 onwards. The assessee has argued the issue in light of provisions of section 32AC of the Act, and intent of legislature to insert said provisions to the statute in light of speech of the Hon’ble Finance Minister. According to the assessee, provisions of section 32AC of the Act, has been brought into statute to attract new investments in manufacturing sector and consequently, allowed the assessees to set up new plant and machinery or plant within specified period. Further, said plant and machinery should be acquired and installed between 01.04.2013 to 31.03.2015 . The term ‘acquisition of asset’ cannot be limited to purchase alone, if the assessee constructed larger plant which consists of various plant and machinery & process, then acquisition of smaller plant and machinery prior to that date, but, installed during specified period also needs to be considered as 44 IT(TP)A No.70/Chny/2018 acquired and installed for deduction u/s.32AC(1) of the Income Tax Act, 1961. 11.9 We have given our thoughtful consideration to the reasons given by the learned Assessing Officer in light of various arguments advanced by the learned A.R for the assessee and we ourselves do not subscribe to the arguments taken by the learned A.R for simple reason that provisions of section 32AC(1) has been introduced specifically with a view to promote new investments in manufacturing sector. As per said provision, where an assessee being a company engaged in the business of manufacture or production of any article or thing acquires or installs new asset after 31 st March, 2013, but before 1 st day of April, 2015 and aggregate amount of actual cost of such asset exceeds 100 crore rupees, then the assessee shall be allowed 15% allowance on total plant and machinery acquired and installed during the specified period. From the plain reading of provisions of section 32AC, it is abundantly clear that in order to claim benefit of investment allowances, the assessee should acquire new assets and new assets should have been acquired between 01.04.2013 and 31.03.2015. Further, new asset should be installed between 01.04.2013 and 31.03.2015. From the plain language used in section 45 IT(TP)A No.70/Chny/2018 32AC of the Act, it is obvious and clear that there is nothing to interpret, because provisions has been inserted in a plain language as per which in order to claim benefit, the assessee must satisfy two conditions prescribed therein. In this case, the assessee claims that it was in the process of constructing a plant for manufacturing engines and said plant is a continuous process which cannot be installed in a single year. As per claim of the assessee, it started acquiring certain plant and machinery required for constructing plant for manufacturing of engines before 01.4.2013 and same has been kept in capital work in progress. As per the claim of the assessee, the assessee has acquired plant and machinery and other assets worth Rs.1041.23 crores before 01.04.2013 and kept in capital work in progress. The assessee has spent additional amount of 754.10 crores during the financial year relevant to assessment year 2014-15. Thus, the assessee claims that it has acquired and installed plant and machinery worth Rs.1795.42 crores during the specified period covered u/s.32AC (1) of the Income Tax Act, 1961, and same is entitled for investment allowances @ 15% as per said provisions. 46 IT(TP)A No.70/Chny/2018 11.10 Having heard both sides, we do not find any merit in the arguments advanced by the learned A.R for the assessee for simple reason that when law is very clear and purpose of introduction of said provision into statute is to attract new investments in the manufacturing sector and further, law mandates investments should be made within the specified period, then benefit of said provision cannot be extended to assets acquired and installed prior to the specified period. From the plain language of provisions of section 32AC(1) and Memorandum explaining Finance Bill, it is very clear, in order to attract new investments in the manufacturing sector, a new provision has been inserted to statute to provide for additional investment allowance, if conditions prescribed therein are satisfied. In the speech of the Hon’ble Finance Minister, it was categorically stated that to accelerate investments and to attract new investments, new provision has been inserted so as to make entities eligible for claiming investment allowances on the new asset acquired and installed between 01.04.2013 and 31.03.2015 . The speech of the Hon’ble Finance Minister clearly explains intention of the legislature as per which it was intended to promote, growth, and create jobs by giving incentives on investments made within the specified period . If you see key words in the Memorandum explaining Finance Bill, to attract new 47 IT(TP)A No.70/Chny/2018 investments and to quicken implementation of the project during the period between 01.04.2013 and 31.03.2015, it is very clear that only investments made in acquiring and installing asset between 01.04.2013 and 31.03.2015 is eligible for investment allowances. Therefore, we are of the considered view that in order to eligible for benefit of investment allowance u/s.32AC(1) of the Act, the assessee must satisfy two conditions as per which new asset should be acquired and installed between 01.04.2013 and 31.03.2015. Unless the assessee satisfies two conditions, it cannot claim benefit of additional investment allowance. In this case, there is no dispute with regard to fact that the assessee has acquired plant and machinery worth of Rs.1041.32 crores prior to 01.04.2013 and kept in capital work in progress. Therefore, to the extent of amount invested before specified period, the assessee cannot claim investment allowance u/s.32AC(1) of the Income Tax Act, 1961. 11.11 As regards arguments of the assessee that it is in the process of continuous process plant which takes longer period and thus, even if certain plant and machinery was acquired before specified period, but when whole plant was completed during the specified period, then additional investment allowance cannot be denied. We find that law is very clear from the said provision of 48 IT(TP)A No.70/Chny/2018 section 32AC(1), as per which it was intended to attract additional investment in manufacturing sector and consequently, allowances is provided to investments made within the specified period between 01.04.2013 and 31.03.2015. Therefore, even if, the assessee acquires certain plant and machinery which are used in plant meant for manufacturing of certain engines and completed during the financial year relevant to the assessment year 2014-15, we are of the considered view that unless the assessee satisfies conditions prescribed therein, it cannot claim benefit of investment allowance. Since, the principle requirements that are laid down in section for eligibility to claim benefit are acquiring and installing assets and not such as ‘put to use’ or commence production, we are of the considered view that arguments of the assessee that it is only when ‘put to use’, the assessee is entitled for depreciation may not be relevant in the context of allowing additional investment allowance, like depreciation as per section 32(1) of the Act. The provisions of section 32(1) and provisions of section 32AC operates in a different form. As per section 32(1) of the Act, depreciation is allowed only when asset is ‘put to use’, whereas, as per provisions of section 32AC of the Act, investment allowance alone is allowed only when the asset is ‘acquired and installed’. Therefore, case laws relied upon by the 49 IT(TP)A No.70/Chny/2018 assessee, including the decision of the Hon’ble Gujarat High Court in the case of IDMC Ltd. Vs. JCIT (93 ITR 441) and in the case of CIT vs. Mohanbhai Pamabhai (91 ITR 393) cannot be applied to the facts of the present case, because those cases are rendered in the context of allowing depreciation as per provisions of section 32(1) of the Income Tax Act, 1961. Insofar as other case laws relied upon by the assessee, including decision of the ITAT., Mumbai in the case of JCIT Vs. Lotus Energy India Ltd. (2016) 68 taxmann.com 364, we are of the considered view that said judgement was rendered in the context of depreciation allowance u/s. 32(1)(iia) of the Act, and not in the context of investment allowance as provided under section 32AC of the Act, and thus, words ‘acquired & installed’ are used in section 32(1)(iia) is different from the provisions of section 32AC of the Act. Therefore, case laws relied upon by the assessee are rejected as not applicable to the facts of the present case. 11.12 In this view of the matter and considering facts & circumstances of the case, we are of the considered view that there is no error in the reasons given by the Assessing Officer as well as learned DRP to sustain additions made towards disallowance of investment allowance @ 15% u/s.32AC of the Act on plant and machinery amounting to Rs.1041.32 crores acquired and kept in 50 IT(TP)A No.70/Chny/2018 capital work in progress before 01.04.2013, beyond the specified period as per the provisions of section 32AC of the Income Tax Act, 1961. Hence, we are inclined to uphold findings of the learned DRP and reject ground taken by the assessee. 12. The next issue that came up for our consideration from ground no.7 of assessee appeal is transfer pricing adjustment made towards brand development services. During the year under consideration, the learned TPO has made upward adjustment of Rs.209,16,43,935/- in relation to brand fees receivable from its AEs towards enhancement of brand value of assessee parent company. The learned TPO used Spearman’s Rank Correlation method to conclude that there is positive correlation between the brand value of Hyundai Motor India Limited and market capitalization of Hyundai market Corporation, South Korea. Therefore, by applying Spearman’s Rank Correlation method, the ld. TPO has computed incremental brand value and attributed a portion of the same to the assessee in proportionate to its sales. 12.1 The ld.AR for the assessee, at the time of hearing submitted that this issue is covered in favour of the assessee by the decision of ITAT., Chennai in assessee’s own case for the assessment year 2015- 16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the 51 IT(TP)A No.70/Chny/2018 earlier Tribunal order for assessment year 2013-14 in ITA No. 3192/Chny/2017, held that the issue is identical to earlier years and accordingly deleted the brand fee adjustment. 12.2 The ld. DR on the other hand, fairly agreed that this issue is covered in favour of the assessee, but strongly supported ld. TPO/DRP order. 12.3 We have heard both the parties, perused material available on record and gone through orders of the authorities below. An identical issue has been considered by Tribunal in assessee’s own case for the assessment year 2015-16 in IT(TP) No.10/CHNY/2020, dated 17.09.2021, wherein the Tribunal following the earlier decision in assessee’s own case for assessment year 2013-14 in ITA No.3192/Chny/2017, dated 01.09.2021, held that learned TPO as well as learned DRP were erred in making transfer pricing adjustments towards brand services by adopting Spearman’s Rank Correlation method and concluded that there is positive accretion between brand value and market capitalization of HMC Korea and hence, directed the AO/TPO to delete transfer pricing adjustment made towards brand development services. Therefore, consistent with the view taken by 52 IT(TP)A No.70/Chny/2018 the coordinate Bench, we direct the AO to delete addition made towards brand fee adjustment. 13. The next issue that came up for our consideration from Additional ground no.1 of assessee appeal is amount received from Focus Market Scheme to be treated as capital in nature and exclude from total income. Facts with regard to impugned dispute are that Government of India with an intention to promote exports to certain regions / countries introduced Focus Market Scheme which provides incentive of 2.5% of FOB value for each licensing year commencing from 1 st April, 2006. The export of products to those countries which are covered under list of countries in Schedule 37C would be entitled for duty credit scrip equivalent to 2.5% of FOB value of exports. During the year under consideration, the assessee was eligible for above scheme, as it has export sales to specified markets. Accordingly, the assessee has received an amount of Rs.209,06,24,730/- as incentive from Govt. of India. The license under the scheme was given only for exports to potential new markets / specified products and not for all exports or all products to all markets. The assessee has treated amount received under Focus Market Scheme as revenue in nature and has offered to tax. Based on certain subsequent decisions, the 53 IT(TP)A No.70/Chny/2018 assessee has raised additional ground and argued that subsidy received under Focus Market Scheme is capital in nature and not chargeable to tax. 13.1 The ld.AR for the assessee submitted that the character of receipt has to be determined with respect to purpose for which subsidy is given and in the present case, if you consider the purpose for which subsidy was given, it is clearly it is in the nature of capital receipts, because said subsidy was given to explore new market across the globe. Therefore, the same is in the nature of capital receipt and not chargeable to tax. In this regard, he relied upon the decision of ITAT Chennai, in the case of Eastman Exports Global Clothing Pvt. Ltd. in ITA No.47 & 48/Chny/2016, where the issue relating to taxability of subsidy received under Focus Market Scheme was held to be capital in nature. 13.2 The ld.DR, on the other hand, strongly supporting order of learned DRP submitted that this issue is covered against the assessee by the decision of ITAT, Chennai for the assessment year 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal orders 2007-08 & 2013-14 in ITA Nos.2157/Chny/2007 & 3192/Chny/2017 had decided the issue against the assessee. 54 IT(TP)A No.70/Chny/2018 13.3 We have heard both the parties, perused material available on record and gone through orders of the authorities below. An identical issue has been considered by the Tribunal in assessee’s own case for the assessment year 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal orders 2007-08 & 2013-14 in ITA Nos.2157/Chny/2007 & 3192/Chny/2017 held that duty credit scrips received from Govt. of India under Focus Market Scheme is revenue in nature. The relevant findings of the Tribunal are as under:- “32. We have heard both the parties, perused material available on record and gone through orders of the authorities below. The Government of India, Ministry of Commerce and Industry has come out with Foreign Trade Policy for the period 1 st September, 2004 to 31.03.2009 and as per the said policy, it has announced a scheme for exporters of certain goods to certain regions called Focus Market Scheme . As per said scheme, export of products to those countries which are covered under list of countries in Schedule 37C would be entitled for duty credit scrip equivalent to 2.5% of FOB value of exports. The assessee being eligible exporter had received licenses/duty credit scrip/ market linked focus scrips amounting to Rs.150.57 crores for the year under consideration. The assessee has considered amount received under focus market scheme as revenue receipt and offered to tax. However, based on some subsequent decisions of appellate authorities has filed an additional claim seeking exclusion of said receipt from taxation on the ground that it is in the nature of capital receipt and not exigible for tax. Therefore, in order to understand whether amount received from Focus Market Scheme is revenue in nature or capital 55 IT(TP)A No.70/Chny/2018 receipt, which is exempt from tax, one has to understand objectives of Focus Market Scheme announced by Govt. of India. As per Foreign Trade Policy document, the objective of the scheme is to offset high freight cost and other disabilities to select international market with a view to enhance our competitiveness to these countries. On the basis of objectives of the scheme alone, it can be easily concluded that amounts received under the scheme is revenue in nature, because it is primarily focusing to reduce cost of our exporters to compete with other export markets to these regions. However, various courts including Hon'ble Supreme Court in number of cases has examined nature of subsidy received from Govt. of India on the basis of purpose test and has held capital or revenue in nature depending upon purposes for which said subsidy was given. In our considered view, this controversy can be resolved if we apply test laid down in the judgement of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. Vs. CIT (228 ITR 253). The importance of judgement of Hon'ble Supreme Court in the above case lies in the fact that it has discussed and analyzed the entire case laws on the issue and it has laid down basic test to be applied in judging the character of subsidy. That test is the character of receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply purpose for test. The point of time at which subsidy paid is not relevant. The source is immaterial. The form of subsidy is immaterial. 33. Therefore, in the light of decision of the Hon'ble Supreme Court, in the case of Sahney Steel & Press Works Ltd. Vs. CIT(supra), if we examine facts of the present case, we are of the considered view that duty credit scrips received by the assessee from Govt. of India for export of certain goods to some specified regions is certainly in the nature of revenue receipt, because which is primarily given to offset higher freight cost and other disabilities to select international 56 IT(TP)A No.70/Chny/2018 markets, with a view to enhance our export competitiveness to these countries. We further, are of the opinion that this subsidy was given by way of assistance in carrying on of trade or business and to meet recurring expenses, but it was not for acquiring any capital asset. It was not to meet part of the cost to manufacturing activity. It was not granted for production or bringing into existence any new asset. The subsidy was given year after year only after setting up of industry and only after commencement of production and therefore, such subsidy could only be treated as assistance given for the purpose of carrying on business of the assessee. It is well settled principles of law that any subsidy given for the purpose of offsetting part of cost of setting up of new industry, as per industrial policy of various State Governments or Govt. of India is considered as part of capital contribution and capital in nature, whereas subsidy given after commencement of production of products and further for enhancing profitability of the assessee is certainly in the nature of assistance given for running of business of the assessee more profitable and hence, it is definitely revenue in nature. 34. In this case, on perusal of facts available on record including foreign trade policy of Government of India, it is very clear from documents that main objective of Focus Market Scheme is to offset high freight cost and other disabilities of exporter to select international market with a view to enhance our export competitiveness to these countries. The expenditure incurred by the assessee under this scheme for exploring new market across the globe is mainly freight cost and other recurring expenses like sales promotion expenses, including manpower cost of staff employed in marketing department. Those expenses are generally in the nature of revenue expenditure and thus, can be considered as revenue expenditure. Since, the assessee got duty credit scrip benefit to offset cost incurred for exploring new market including higher freight cost and further, said expenditure is in the nature 57 IT(TP)A No.70/Chny/2018 of revenue expenditure, then any subsidy including duty credit scrips given by Govt. of India for such purpose is definitely in the nature of revenue receipt. Thus, at any stretch of imagination, the amount received under Focus Market Scheme cannot be considered as capital in nature, which is given to offset cost or part of cost of any asset or facility created by the assessee. Moreover, in this case, the assessee itself had considered amount received under Focus Market Scheme as revenue receipts and offered to tax, considering nature and purpose of receipt of subsidy from the Govt. of India. It is a well known fact that the assessee is best judge to decide a particular item of income or expenditure, because it is well aware facts of its case. In this case, the assessee, after considering nature and purpose of amount received under Focus Market Scheme, has very well considered the same as revenue receipt and offered to tax. Therefore, based on some judgements of higher forum making a claim for excluding said receipt from tax by claiming that it is in the nature of capital receipt is not correct, unless the assessee demonstrates that facts of those case laws considered by appellate forum and facts of assessee’s case are similar in nature. As regards various case laws relied upon by the assessee including the decision of ITAT., Chennai in the case of Eastman Exports Global Clothing Pvt.Ltd. in ITA No.47 & 48/Chny/2016, we find that the ITAT, Chennai Bench in above case has not apprised facts in right perspective of law and hence, the judgment of Chennai Bench is not considered. As regards decision of Hon’ble Rajasthan High Court in the case of Pr.CIT Vs. Nitin Spinners Ltd. in Income Tax Appeal No.31 of 2019, we find that facts of case before Hon’ble High Court and facts of present case are different and hence, same is not considered. 35. In this view of the matter, and considering facts and circumstances of the case, we are of the considered view that duty credit scrips received from Govt. of India under Focus Market scheme is revenue in nature and further, same was 58 IT(TP)A No.70/Chny/2018 given to offset higher cost of freight and other disabilities of exporters to be more competitive in exports to certain regions. Thus, the same cannot at any stretch of imagination be considered as capital in nature. Hence, we reject the ground taken by the assessee.” In this view of the matter and consistent with view taken by the Co-ordinate Bench, we are of the considered view that subsidy received from Govt. of India under Focus Market scheme cannot be considered as capital in nature and hence, we reject ground taken by the assessee. 14. The next issue that came up for our consideration from additional ground no.2 of the assessee appeal is deduction towards education and secondary education cess u/s.37(1) of the Act. 14.1 The ld.AR for the assessee submitted that this issue is covered in favor of the assessee by the decision of ITAT., Chennai in assessee’s own case for 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal order for assessment year 2013-14 in ITA No. 3192/Chny/2017, where under identical circumstances, the Tribunal has remanded the matter to the file of the AO to consider the issue in accordance with law. 14.2 The learned DR, on the other hand, fairly agreed that this issue has been set aside to the file of AO for earlier years and hence, this 59 IT(TP)A No.70/Chny/2018 year also the issue may be remanded back to the file of Assessing Officer. 14.3 Having heard both the parties and considered material on record, we find that the Tribunal had considered an identical issue for assessment year 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal orders 2013-14 in 3192/Chny/2017, where the issue has been remanded back to the file of AO to consider the issue denovo on merits in accordance with law, has set aside issue to the file of Assessing Officer. Facts being identical for the year under consideration, by following the decision of Tribunal in assessee’s own case for assessment year 2015-16, we set-aside the issue to file of the AO to re-examine the issue as per the directions given by the Tribunal. 15. In the result, appeal filed by the assessee is treated as partly allowed for statistical purposes. Order pronounced in the court on 16 th March, 2022 at Chennai. Sd/- Sd/- ( (( (वी द ु गा राव) (V. Durga Rao) याियक सद य/Judicial Member (जी. मंज ु नाथ) (G. Manjunatha) लेखा सद य /Accountant Member चे ई/Chennai, दनांक/Dated, the 16 th March, 2022 DS 60 IT(TP)A No.70/Chny/2018 आदेश क ितिलिप अ ेिषत/Copy to: 1. अपीलाथ /Appellant 2. यथ /Respondent 3. आयकर आयु (अपील)/CIT(A) 4. आयकर आयु /CIT 5. िवभागीय ितिनिध/DR 6. गाड फाईल/GF.