Reliance Industries Ltd. Vs ACIT (ITAT Mumbai)
The issue under consideration is whether deletion of addition of sales tax incentive/ subsidy as capital in nature is justified in law?
In the present case, the assessee in this case is engaged in the business of oil and gas exploration, refining of crude oil, manufacturing of and trading in petrochemicals, polyester, fiber intermediates, textiles, generation & distribution of power, operation of jetties and related infrastructure, retail marketing of petroleum products and investments. The assessee filed its original return of income declaring total income of Rs. 1,49,12,6 1,56,700/- under normal provisions and Rs.2,62,07,76,56,848/- under section 115JB of the Income tax Act,1961. The assessee subsequently revised its return of income and filed revised return on 31/03/2015 declaring total income of Rs.1,49,56,85,42,970/- under normal provisions and Rs.2,62,07,76,56,848/-under section 115JB of the Income tax Act, 1961. Assessment was completed at total income of Rs.1,92,23,66,55,142/- under the normal provisions of the Act and book profit of Rs.2,64,85,46,16,823/- under section 115JB of the Act. Against the assessment made, assessee raised several grounds of appeal before the learned CIT(A). The learned CIT(A) gave part relief to the assessee. One issue on which addition was made by the Assessing Officer was bringing to tax sales tax incentive receipt which was claimed by the assessee as capital receipt not liable to tax. Learned CIT(A) had allowed the appeal on this issue by referring to several case laws from ITAT in assessee’s own case from A.Y. 2007-08 to 2012-13. Against this order Revenue has filed appeal before us.
ITAT states that, at the outset, learned Counsel of the assessee submitted that this issue is covered in favour of the assessee by a catena of decisions of ITAT in assessee’s own case as well as several other decisions. He further referred that ITAT Special Bench in assessee’s own case reported in 88 ITD 273 decided the issue in favour of assessee. Learned Departmental Representative on the other hand could not dispute the above said proposition. The ITAT in assessee’s own case in a number of orders for preceding years has decided the issue in favour of the assessee and the same order has not been reversed by Hon’ble Jurisdictional High Court. Accordingly, ITAT follow the doctrine of stare-decisis and uphold the order of learned CIT(A). Hence, Revenue’s appeal on this issue stands dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
These are appeals by the assessee and Revenue arising out of order of learned CIT(A) dated 9.10.2017 and pertains to A.Y. 2013-14.
2. Grounds raised in assessee’s appeal read as under :-
1. The learned Commissioner of Income-tax-(Appeals-57) [hereinafter referred to as CIT(A)] erred in rejecting the Appellant’s alternative plea that there is a deemed payment of sales tax and therefore the amount of Rs.266,72,89,043/- is allowable as per the provisions of Section 43B of the Income-tax Act, 1961
2. The Appellant submits that there is a deemed payment of Sales tax which is allowable u/s.43B of the Act and the CIT(A) ought to have given a decision on this issue in favour of the Appellant.
2. The CIT(A) erred in confirming the disallowance of depreciation of Rs.5,35,215/-on the capitalized value of goods purchased from Durga Iron & Steel Ltd. and Surajbhan Rajkumar Pvt. Ltd. in A.Y. 2003-2004.
The Appellants submits that the cost of the goods purchased from the above parties were capitalised as plant and machinery in A.Y. 2003-04 and were used during the year under consideration and hence depreciation u/s. 32 of the Act on such capitalised value of the goods is allowable.
3. The CIT(A) erred in remanding back the appellant’s claim of depreciation on office equipment’s @ 15%, to the file of the assessing officer for verifying the correctness of classification vis-a-vis the law.
The appellant submits that it had submitted complete details of additions to the assets viz. office equipment’s which are in the nature of Plant & Machinery and hence the depreciation u/s.32 of the I T Act ought to have been allowed @ 15%.
4. The CIT(A) erred in confirming the disallowance of deduction u/s 80IB(9) of the Act of Rs. 698,07,88,5197- in respect of Refinery SEZ Undertaking by holding that once claim u/s 10AA of the Act has been made on profits of Refinery SEZ Undertaking, no deduction u/s 80IB(9) of the Act be allowed to the appellant.
The appellant submits that on the facts and circumstance of the case and as per the provision of the Act, the appellant is eligible to claim deduction u/s 80IB(9) of the Act of Rs. 698,07,88,519/- being non-export profit of SEZ refinery unit, since the deduction under u/s 10AA and u/s 80IB(9) of the Act has not exceeded the profit of the undertaking of Rs.7530,26,45,346/-.
The appellant further submits that the CIT(A) has wrongly interpreted the provisions of the Act and misplaced reliance on various judicial pronouncements which are distinguishable in law and on facts.
5. The CIT(A) erred in confirming the action of the AO that the appellant was not entitled to claim the total cost incurred in respect of KG-DWN-98/3 (‘KGD’) assets as “intangible asset” eligible for deprecation u/s. 32 of the Act.
The Appellant submits that, on the facts and circumstances of the case, the total cost incurred by the Appellant in respect of KGD constitutes cost of acquisition of “intangible assets” eligible for depreciation u/s 32 of the IT. Act.
6. The CIT(A) erred in disallowing deduction of Rs 206,22,11,0007- u/s 37(1) of the Act, being expenses incurred on corporate social responsibility (CSR) on the ground that it does not fall under business expenditure.
The CIT(A) failed to appreciate that the amendment in the scheme of section 37(1) of the Act has been effective from 1st April 2015 and the same cannot be constructed as disadvantage to the assessee in the period prior to this amendment.
7. Reference to the Transfer Pricing Officer (‘TPO’) under section 92CA of the Act.
7.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of Assessing Officer (‘AO’) in making a reference of the Appellant’s case to the TPO, without applying his mind and without recording his satisfaction, thereby making the entire process of referring the matter to the TPO as invalid;
7.2 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the learned AO in not stating reasons to show that any of the conditions mentioned in clauses (a) to (d) of Section 920(3) of the Act were satisfied before making an adjustment to the total income of the Appellant;
7.3 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of AO of not demonstrating the motive of the Appellant to shift profits outside of India by manipulating the prices charged in its international transaction, either at the stage of invoking or initiating the assessment or at the stage of framing the assessment;
7.4 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the learned AO in not demonstrating that the course of business between the Appellant and the closely connected person was so arranged that it produces to the Appellant more than ordinary profits which might be expected to arise in its eligible business;
7.5 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the learned AO in not demonstrating the motive of the Appellant, to carry out transactions between an eligible business and other business, to reduce the taxable profits by manipulating the prices of its Specified Domestic transactions, either at the stage of invoking or initiating the assessment or at the stage of framing the assessment. :
8 Guarantee Commission charged in respect of corporate guarantee provided on behalf of Associated Enterprises
8.1 The learned CIT(A) erred in confirming the order of the AO/ TPO in treating the guarantee given by Appellant to banks for giving loan to its Associated Enterprises as International Transaction within the meaning of Section 92B r.w.s 92(1) of the Act.
8.2 The learned CIT(A) erred in determining the ALP of guarantee commission at 0.38% p.a. in case of short term guarantees given by the Appellant on behalf of its Associated Enterprises instead of 0.30% determined by the Appellant for the period of January to March 2013 even after accepting the yield spread approach adopted by the Appellant
9. Availing of Business Support Services (‘BSS’) from RCITPL:
9.1 On the facts and in the circumstances of the case and in law, the learned AO erred in making and the learned CIT(A) erred in determining the arm’s length mark-up of 8.20% on the cost of the services without considering the mark-up of 5.90% as determined by the Appellant and proposing the transfer pricing adjustment of INR 3,40,64,984/-;
9.2 The learned CIT(A) erred in rejecting the comparable companies namely Cameo Corporate Services Limited, Neilsoft Limited and Goldmine Advertising Limited without providing any cogent reasons.
9.3 On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the action of the learned AO in cherry picking the comparable company namely Asian Business Exhibition & Conference Limited.
10. Inter-unit transfer of Power:
10.1 On the facts and in the circumstances of the case and in law, the learned AO erred in making and the learned CIT(A) erred in confirming the transfer pricing adjustment of INR 32,45,02,729 in relation to the transaction of inter-unit transfer of Power from the Captive Power Plant (‘CPP’) to Other Manufacturing Division (‘OMD’) by computing the arm’s length rate at INR 6.155 per KHW without considering INR 6.45 per KHW as determined by the Appellant;
10.2 On the facts and in the circumstances of the case and in law, the learned AO erred in reducing and the learned CIT(A) erred in confirming the reduction of deduction by INR 17,52,72,214 claimed under section 80IA of the Act;
10.3 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the learned AO in rejecting the economic analysis or the benchmarking analysis of the Appellant, on the application of internal Comparable Uncontrolled Price Method by the Appellant, without providing any cogent reasons;
10.4 On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the action of the learned AO in accepting the economic analysis of the learned TPO without providing cogent reasons and specifically:
The learned AO and CIT(A) failed to appreciate that the turnover of the comparable company is more than 10 times that of the tested transaction;
The learned AO and CIT(A) failed to appreciate that the level of market of the comparable transaction adopted by the learned TPO, is different as compared
with the level of market in which appellant (manufacturing units) operate;
The learned AO and CIT(A) erred by relying on non-contemporaneous data, order dated 29 April 2014, to determine the arm’s length rate.
11. Each of the above Grounds of Appeal are without prejudice to each other.
The Appellant craves leave to add, amend, delete, rectify, substitute, modify, or otherwise, all or any of the aforesaid grounds or add a new ground(s) at any time before or during the hearing of the above appeal.”
3. Grounds raised in the Revenue’s appeal read as under :-
1. “On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of sales tax incentives/subsidy ofRs 266,72,89,043’/- holding it as capital in nature.”
2. “On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing depreciation as claimed by the assessee by holding that the claim of depreciation for the year was optional in nature.”
3. “On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance u/s 14A of the Act r. w. Rule 8D(2)(iii) to 0.5% by taking average value of that investment which have yielded dividend during the year under consideration”
4. “On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance u/s 14A of the Act r. w. Rule 8D(2)(iii) to 0.5% by taking average value of that investment which have yielded dividend during the year under consideration while adding the same for the purpose of income u/s 115JB of the Act.”
5. “On the facts and in the circumstances of the case and in law, the Id CIT(A) erred in deleting the disallowance of Rs. 791.19 Crores incurred by the assessee on aborted blocks of other contract areas under Production Sharing contracts other than KGD.”
6. “On the facts and in the circumstances of the case and in law, the Id CIT(A) erred in allowing deduction u/s 80IB(9)(ii) of the Act at Rs. 3041,36,90,094/- instead of Rs. 375,50,57,395/- as held by the Assessing Officer.”
7. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in deleting the addition of Rs. 2,70,91,704/- with regard to transfer pricing adjustment on provision of support services to REP DMCC.”
8. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in deleting the TP adjustment on support services by simply relying on her orders for AY 2011-12 and 2012-13 without demonstrating as to how the facts of those years are similar to the impugned year.”
9. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in deleting the TP adjustment on support services without appreciating the import of rule 10B(2)(d) as there is no government order against arriving at arm’s length price.”
10. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in relying the agreement between the AE and Khurdish government as it would only serve as evidence for cost incurred and there is no binding bilateral treaty between India and Iraq for not charging mark up on cost.”
11. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in deleting the mark up on the cost without appreciating the fact that it would lead to base erosion for India.”
12. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in not appreciating the fact that no party would render support services to an unrelated party at cost without mark up, the concept being very basis of transfer pricing.”
13. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in deleting the addition of Rs. 39,77,60,683/- in respect of debts receivable from AE made by the TPO by holding that recharacterisation of such transaction is not permissible under the law even when the TPO had not recharacterised the debtors as loan and held the same as receivable.
14. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in deleting the addition of Rs. 39,77,60,683/- in respect of debts receivable from AE made by the TPO without appreciating the fact that the quotes relied upon by the assessee for benchmarking the transaction are not actual transaction are not actual transactions and thus the same cannot be used for benchmarking.”
15. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in not appreciating the method of weighted average of cost of borrowing plus 3% mark up followed by the TPO factoring in various risks involved.”
16. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in not giving any valid reasons for adopting the rate as it is as followed by the assessee for charging the interest on debts receivables.”
17. “On the facts and circumstances of the case and law, the Ld. CIT(A) has failed to appreciate the fact that LIBOR + spread is adopted for finance transactions like loans whereas recovery of trade receipts intends to recover the cost of production which includes cost of borrowings. “
18. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in not giving any reason for dismissing the method followed by the TPO to arrive at the rate chargeable on debt receivables.”
19. “On the facts and circumstances of the case and law, the Ld. CIT(A) failed to appreciate the provisions of Rule 10B(4) as CUP adopted for AYs 2010-11, 2011-12 and 2012-13 based on bank rate cannot be taken as it is for AY 2013-14 also as application of contemporaneous data is mandatory.”
20. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in deleting the TP adjustment of Rs. 1,04,60,29,112/- being interest on investment in preference stock of AEs by relying on the decision of Bombay High Court in case of DIT vs. Besix Kier Dhabol SA (210 Taxman 151) holding that recharaterisaction of subscription amount as loan is not permitted without appreciating the difference in the facts of the case involved and the case law quoted as the amount involved was not share application money and the decision quoted is on share application money.”
21. “On the facts and circumstances of the case and law, the Ld. CIT(A) failed to see that the assessee has not demonstrated any rationale in investing in the preference stock of AEs in spite of the fact that AEs are loss making and are not declaring dividends, which no unrelated third party would do so at arm’s length which is the very essence of transfer pricing.”
22. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in not appreciating the fact that assessee which is bound to earn income at fixed coupon rate on preference stock has not received any income in this regard with huge investment which will not be the case in any third party scenario as envisaged in section 92F(ii).”
23. “On the facts and circumstances of the case and law, the Ld. CIT(A) has failed to see the fact even when the AE- RGBV had profits of Rs. 33,31,606/-euro in FY 2009-10, the mandatory fixed income at the coupon rate of 5% on the preference stock was not paid to the assessee.”
24. “On the facts and circumstances of the case and law, the Ld. CIT(A) has failed to see the fact even when the AF- RIME had profits of 11,494,125 UAE Dirhams, 5188402 UAE Dirhams and the 742,069 dollars during calendar year 2007, 2008 and 2010 respectively, assessee has not received the fixed 5% coupon rat income.
25. “On the facts and circumstances of the case and law, the Ld. CIT(A) has failed to “look through” the “substance” of transaction and instead “looked at” the superficial nomenclature of the transaction to arrive at the decision that the investment is quasi-equity in nature whereas in substance it is “loan” in nature and that the nomenclature of preference stock was used to avoid taxation of interest leading to base erosion in India.”
26. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in ignoring the para 1,36 of OECD commentary which provides for recharacterisation of a transaction in the circumstances as that of assesses by looking through the substance of the transaction.”
27. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in ignoring the decision of Hon’ble Delhi High Court in the case of CIT v/s EKL Appliances Ltd., wherein it has been held that recharacterisation of transaction is permissible in circumstances as that of assessee.”
28. “On the facts and circumstances of the case and law, the Ld. C1T(A) has erred in deleting the rate of 1.5% charged by the TPOI arriving at corporate guarantee fee chargeable on the assessee.”
29. “On the facts and circumstances of the case and law, the Ld. C1T(A) contradicted himself instating in one place that he accepted the yield spread method as followed by assessee for AYs 2011-12 & 2012-13 and at another place relying on the Hon’ble ITAT’s decision for AY 2005-06 to 2009-10 wherein assessee followed CUP method.”
30. “On the facts and circumstances of the case and law, the Ld. CIT(A) has failed to appreciate the mandatory provisions of Rule 10B(4) to use contemporary data to arrive at ALP.”
31. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in relying on the rate arrived at for earlier years without appreciating the fact that the corporate guarantee rate would vary year on year based on credit rating of assessee and AE, interest rates prevailing and various credit risks.”
32. “On the facts and circumstances of the case and law, the Ld. CIT(A) failed to demonstrate as to how the rates were arrived at by the assessee based on yield spread method followed by assessee for the impugned AY and has erred on simply accepting the rates adopted by assessee without looking into actual working of the yield spread methodology of assessee.”
33. “On the facts and circumstances of the case and law, the Ld. CIT(A) has failed to show as to how assessee followed yield spread method correctly for impugned AY.”
34. “On the facts and circumstances of the case and law, the Ld. CIT(A) has failed to give any reason for rejecting the CUP rate adopted by the TPO.”
35. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in including the comparable M/s Allsec Technologies Ltd. without appreciating the fact that company is loss making in earlier years as well as in subsequent year.”
36. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in excluding the comparable M/s Axis Integrated Systems Limited without appreciating the fact that Business Support Services and Management Services are highly skill-based services and by no stretch of imagination BSS and MSS can be treated as low-end services.”
37. On the facts and circumstances of the case ld. CIT(A) has erred in including comparable M/s. Empire Industries Ltd. without appreciating that comparable is functionally dissimilar.
38. “On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in excluding comparable M/s BVG India Ltd. without appreciating that comparable is functionally similar.”
39. The appellant prays that the order of the Id. CIT(A) on the above ground be set aside and that of the Assessing Officer restored.
40. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
4. Assessee has also filed additional grounds which read as under :-
1. The learned Commissioner of Income Tax-(Appeals-57)(hereinafter referred to as the CIT(A)] erred in not allowing exemption u/s 10(15)(iv)(h) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) in respect of interest amounting to Rs.112,26,74,490/- on Tax Free Bonds while computing total income under the Normal Provisions of the Act and Book Profit u/s 115JB of the Act
The appellant submits that CIT(A) ought to have allowed exemption u/s 10(15)(iv)(h) of the Act while computing total income under the normal provisions of the Act and book profit u/s 115JB of the Act.
2. The learned CIT(A) Mumbai, erred in not excluding notional sales tax incentive of Rs. 266,72,89,043/- held as capital receipt not liable to tax [while computing income under the normal provisions of the Income-tax Act, 1961 (‘Act’)], from the Book profit computed u/s 115 JB of the Act.
The Appellant submits that notional Sales Tax incentive is not an “Income” liable to tax under the Act, and hence the same shall be directed to be excluded while computing the Books profit u/s 115 JB of the Act.
3. The learned CIT(A) Mumbai, erred in confirming the disallowance while computing book profit u/s.115JB of the Act, by applying provisions of Section 14A read with Rule 8D and erred in directing to re-compute the said disallowance @ 0.5% by taking average value of those investment which have yielded dividend during the year under consideration. .
The appellant submits that the provisions of Section 14A of the Act r.w.r. 8D is not applicable while computing book profits u/s. 115JB of the Act, and therefore no disallowance should be made while computing book profit u/s. 115JB of the Act.
4. The learned CIT(A) Mumbai erred in not allowing weighted deduction u/s. 35(l)(ii) of the Act while computing total income under the normal provisions, in respect of amount of Rs.42,36,570/- contributed to Indian Institute of Technology, Mumbai vide receipt dated 09.10.2012. The appellant submits that CIT(A) ought to have allowed weighted deduction u/s. 35(l)(ii) of the Act while computing total income under the normal provisions.
5. The learned CIT(A) Mumbai erred in allowing the deduction in respect of export profits of SEZ unit u/s 10AA of the Act with reference to the income computed under the head ‘profits and gains of business or profession’ of the SEZ unit instead of ‘gross profits and gains’ of SEZ unit, as interpreted by Supreme Court in the recent judgement in the case of Vijay Industries.
The Apex court while interpreting the provisions of section 80HH relevant to AY 1979-80 and 1980-81 has held that phrase “profits and gains” means gross profits of the business i.e. before computing income as specified in section 30 to 43D of the Act in para (18) and (19) as under:-
“It is most humbly submitted that the concept ‘profits and gains’ is a wider concept than the concept of ‘income’. The profits and gains/loss are arrived at after making actual expenses incurred from the figure of sales by the assesses. It does not include any depreciation and investment allowance, as admittedly these are not the expenses actually incurred by the assessee. However, the term ‘income’ does take into consideration the deductions on account of depreciation and investment allowance. Therefore, the term profits and gains are not synonymous with the term ‘income’
Reading of Section 80HH along with Section 80A would clearly signify that such a deduction has to be of gross profits and gains, i.e., before computing the income as specified in Sections 30 to 43D of the Act.”
5. For the admission of additional grounds assessee has also filed addition evidence with respect to Ground No. 4.
Revenue’s appeal
6. Apropos ground No.1 deletion of addition of sales tax incentive/subsidy of Rs. 2,66,72,89,043/- holding it as capital in nature.
7. Brief facts of the case are that the assessee in this case is engaged in the business of oil and gas exploration, refining of crude oil, manufacturing of and trading in petrochemicals, polyester, fiber intermediates, textiles, generation & distribution of power, operation of jetties and related infrastructure, retail marketing of petroleum products and investments. The assessee filed its original return of income declaring total income of Rs. 1,49,12,6 1,56,700/- under normal provisions and Rs.2,62,07,76,56,848/- under section 115JB of the Income tax Act,1961. The assessee subsequently revised its return of income and filed revised return on 31/03/2015 declaring total income of Rs.1,49,56,85,42,970/- under normal provisions and Rs.2,62,07,76,56,848/-under section 115JB of the Income tax Act, 1961. Assessment was completed at total income of Rs.1,92,23,66,55,142/- under the normal provisions of the Act and book profit of Rs.2,64,85,46,16,823/- under section 115 JB of the Act. Against the assessment made, assessee raised several grounds of appeal before the learned CIT(A). The learned CIT(A) gave part relief to the assessee. Now Revneue and assessee both are in appeal before us.
8. One issue on which addition was made by the Assessing Officer was bringing to tax sales tax incentive receipt which was claimed by the assessee as capital receipt not liable to tax. Learned CIT(A) had allowed the appeal on this issue by referring to several case laws from ITAT in assessee’s own case from A.Y. 2007-08 to 2012-13.
9. Against this order Revenue has filed appeal before us.
10. At the outset, learned Counsel of the assessee submitted that this issue is covered in favour of the assessee by a catena of decisions of ITAT in assessee’s own case as well as several other decisions. He further referred that ITAT Special Bench in assessee’s own case reported in 88 ITD 273 decided the issue in favour of assessee.
11. Learned Departmental Representative on the other hand could not dispute the above said proposition. The ITAT in assessee’s own case in a number of orders for preceding years has decided the issue in favour of the assessee and the same order has not been reversed by Hon’ble Jurisdictional High Court. Accordingly, we follow the doctrine of stare-decisis and uphold the order of learned CIT(A). Hence, Revenue’s appeal on this issue stands dismissed.
12. Apropos ground No. 2 is relating to allowance of depreciation as claimed by the assessee by holding that the claim of depreciation for the year was optional in nature.
13. This ground of appeal pertains to restricting the allowance of depreciation to Rs.64,47,59,69,037/- as against the assessee’s claim of Rs.65,18,82,98,4587- and disallowing Rs.71,23,29,421/- (Rs.6518,82,98,458-Rs.6447,59,69,037) being depreciation on power plants at Hazira, Patalganga, Cracker Unit at Hazira, Oil & Gas division, SBM Refinery and Polypropylene and Paraxylene complex at Jamnagar and technical know-how fees and consequential change of claim of deduction u/s.80IA of the Act.
14. Assessee had not claimed depreciation in earlier years on the aforesaid plant/units on the ground that the claim for depreciation was optional as laid down by Hon’ble Apex Court in the case of Mahindra Mills case (243 ITR 56). The Assessing Officer, however, thrust depreciation relating to said plant/units upon the assessee in earlier years so reduced the WDV of the said plant/unit. The assessee has during the year under consideration claimed depreciation on the said plant/units as law was amended prospectively making granting of depreciation compulsory in terms of Explanation 5 to section 32(1) of the I.T. Act. Depreciation so claimed was on the basis of WDV as per WDV of the year after which depreciation had not been claimed by the assessee. The Assessing Officer, however, allowed depreciation on the basis of reduced WDV arrived at after thrusting depreciation upon the assessee in preceding year. Accordingly, Assessing Officer allowed depreciation of Rs.64,47,59,69,037/- as against claim of Rs. 65,18,82,98,458/-. The learned CIT(A) decided the issue in favour of the assessee by observing as under :-
“5.3 Decision
I have carefully considered the matter. The only issue for consideration is whether the claim for depreciation for the year under consideration is to be computed on the basis of the WDV as per the WDV of the year after which depreciation had not been claimed by the assessee or on the basis of the reduced WDV arrived at by the AO after thrusting depreciation upon the Appellant in earlier years. This issue has been considered by the Hon’ble ITAT upto AY 2009-10 and my ld. predecessors in this Appellant’s own case in the preceding years including A.Y. 2001-2002 to A.Y. 2012-2013 wherein a view has been taken that the claim for depreciation cannot be thrust upon the Appellant. Nevertheless, the AO has consistently rejected the claim of the Appellant based on the stand taken at the assessment stage in the earlier years. As far as the current year is concerned, the issue is of consequential nature. The issue as to whether the assessee has option not to claim depreciation does not arise for adjudication for this year. In earlier years, this issue has been decided in favour of the Appellant. In this year, the issue relates to the amount of WDV to be taken as on 01.04.2012. Following the decisions of my predecessors in the Appellant’s case in the preceding years and also the decision of the Hon’ble ITAT upto AY 2009-10, the AO is directed to adopt the WDV of the assets as on 01.04.2012 on the basis of effects given to the orders of CIT(A) for the preceding years. The Appellant has worked out the amount of depreciation allowable on the basis of these orders at Rs.6518,82,98458/-.
Similar issue was decided by my predecessors in favour of the appellant. Consequently following the earlier year’s decision of my predecessors this ground of appeal 2(a) is therefore, allowed.
Since Ground no. 2(b) is not pressed by the appellant (as stated above), the same is disposed off.”
15. Against the above order, Revenue is in appeal before us.
16. At the outset, learned Counsel of the assessee submitted that this issue is squarely covered in favour of the assessee by decision of ITAT in assessee’s own case in order for A.Y. 2007-08, 2009-10 & 2010-11 to 2012-13.
17. We find that learned CIT(A) has granted relief following earlier orders of ITAT. He had noted that it was held that the claim for depreciation cannot be thrust upon the assessee. Nevertheless, the Assessing Officer has consistently rejected the claim of the assessee based on the stand taken at assessment stage in earlier year. Learned CIT(A) noted that current year issue is consequential. Accordingly, following earlier orders of ITAT in assessee’s own case, he decided the issue in favour of the assessee. It is not the case that earlier years decision of ITAT has been reversed by Hon’ble High Court.
Learned Departmental Representative also did not dispute that this issue is covered in favour of the assessee. Hence, we uphold the order of learned CIT(A). The Revenue’s ground is dismissed.
18. Apropos ground nos. 3 & 4 relating to restricting disallowance u/s. 14A of the I.T. Act read with Rule 8D(2)(iii) to 5% by taking average value of investment which have yielded dividend during the year under consideration and also under the provisions of Sec. 115JB of the Act.
19. Brief facts on this are as under :-
During the year under consideration assessee has received dividend of Rs. 76,62,32,7857- and same was claimed exempt u/s 10(34) of the I. T. Act in its computation of total income. The assessee had identified the expenditure of Rs. 5,35,34,181/- being salary, administrative & IT cost of employees working in the treasury department and disallowed the same U/S.14A of the Act being expenditure relatable for earning the exempt income.
20. The AO however did not accept the disallowance made by the assessee and disallowed an amount of Rs.272,74,88,313/-being expenditure relatable for earning the exempt income U/S.14A of the Act, i.e. proportionate disallowance out of interest on borrowed funds of Rs 61.16 crores and Rs.211.59 crores being 0.5% of the average value of investments i.e. proportionate administrative and other expenses towards earning of exempt income relying upon rule 8D of the Income Tax Rules which has been inserted w.e.f. 24.03.2008 r.w.s. 14A of the Act.
21. Upon assessee’s appeal as regards issue of disallowance on account of interest expenditure learned CIT(A) relied upon the decision of Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd. (313 ITR 340) for the proposition that when assessee’s own fund far more exceeded investments made on which exempt income has been earned no disallowance for interest is to be done. So learned CIT(A) directed for deletion of addition on this account.
22. As regards disallowance for other expenses learned CIT(A) referred to several judgements relied upon by the assessee and directed that disallowance should be computed @ 0.5% by taking average value of those investments which have yielded dividend during the year under consideration or the expenses disallowed by the assessee whichever is higher, both in normal provisions as well as book profit u/s. 115JB of the Act. Learned CIT(A) also noted that identical issue was similarly decided by the ITAT in earlier years.
23. Against this order, Revenue is in appeal before us.
24. Learned Counsel of the assessee in this regard has submitted that the issue is covered in favour of the assessee by earlier year orders of the ITAT. He also referred to following further case laws :-
