Electrosteel Castings Ltd. v. Dy. CIT

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The Tax Publishers2017 TaxPub(DT) 0187 (Kol-Trib) : (2017) 053 ITR (Trib) 0005 Electrosteel Castings Ltd. v. Dy. CIT INCOME TAX ACT, 1961 --Search and seizure--Assessment under section 153AAdjustment in an already completed assessment year --No incriminating material found relatable to that particular year found in search --Where no incriminating material was found in search which was relatable to a particular one of the six assessment years AO was not justified in making adjustments in the assessment of that particular assessment year based on a thing discovered during search.--While framing assessment under section 153A, AO denied deduction under section 80-IA and also made transfer pricing adjustment in respect of a particular assessment year. That years had already been completed before the search date. Assessee's case was that no material suggesting impugned addition was discovered during the course of search. *Held:* In relation to the years whose assessment is completed, assessment under section 153A has to be to the extent of income escaping assessment which comes to the knowledge of AO during search. These may relate to valuable articles or things found or documents seized during the search which were not disclosed in the original assessment. The power given in the first proviso to section 153A to 'assess' income for six assessment years has to be confined to the undisclosed income unearthed during search and cannot extend to items which had already been disclosed in the original assessment proceedings. When nothing incriminating was found in the course of search being relatable to any particular assessment year, the already completed assessments for such year could not be disturbed. Income Tax Act, 1961 Section 153A *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 2003-04 to 2011-12 INCOME TAX ACT, 1961 --Deduction under section 80-IA--Power unit for captive consumptionApplicability of proviso to section 80-IA(8)----Where power generated by assessee was for captive consumption, the proviso to section 80-IA(8) was to be applied to arrive at the amount deductible under section 80-IA from the power units. Matter was remanded for proceeding accordingly.--Assessee had set up unit for generation of electricity for captive consumption and was enjoying deduction under section 80-IA on profits derived from the eligible business of generation of electricity. As the power generated was for captive, consumption the mode of computing profits derived from the eligible business had to be done by finding out the 'market value' of the power generated in view of section 80-IA(8). Assessee applied State Electricity Board rate charged from its consumers. AO, however, applied the tariffs determined by the State Electricity Regulatory Commission for purchase of power by distribution licensee from power generating companies, resulting into addition. *Held:* In the circumstances of the case, there were exceptional difficulties in computing the profits and gains of the eligible business by applying the main provisions of section 80-IA(8). Therefore, the proviso to section 80-IA(8) got attracted. AO was, therefore, directed to determine the profits and gains of the undertaking generating power on a reasonable basis after affording the assessee an opportunity of being heard. Income Tax Act, 1961 Section 80-IA(8) *REFERRED :* FAVOUR : Case remanded. A.Y. : 2003-04 to 2011-12 INCOME TAX ACT, 1961 --Reference to DRP--Power to entertain a new claimRevision of computation of income--Return not, however, revised--DRP being the first appellate authority, has the power to entertain a new claim even in the absence of a revised return having been filed.--The issue for consideration was as to whether Dispute Resolution Panel (DRP) could have directed AO to entertain the claim of the assessee for treating sales tax remission received by it as capital receipt when such claim was not made by filing a revised return of income but showed only by filing a revised computation of income. *Held:* DRP as the first appellate authority, has the power to entertain a new claim even in the absence of a revised return. Income Tax Act, 1961 Section 144C *Relied:*CIT v. Jai Parabolic Springs Ltd. (2008) 306 ITR 42 (Del) and CIT v. Bharat Aluminium Co. Ltd. (2008) 303 ITR 256 (Del). *Distinguished:*Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC). *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 2003-04 to 2011-12 INCOME TAX ACT, 1961 --Income --Capital or revenue receiptSales tax subsidy for setting up new units----Subsidy in the form of sales tax exemption to assist the assessee for setting up new units or expanding existing units in backward areas was capital receipt in assessee's hands, therefore, not taxable.--Assessee received subsidy in the form of sales tax exemption under a scheme framed by State Government to assist enterpreneurs in setting up new units or expansion of existing units in backwared areas. It claimed the subsidy as capital receipt. AO, however, treated the same as revenue receipt. *Held:* Purpose for which subsidy is granted is determinative of the true nature thereof. Since impugned subsidy was granted for extending financial assistance in setting up new units or expanding existing units, and not for assisting the assessee in carrying out its trade operations profitably the subsidy constituted a capital receipt in assessee's hands. Income Tax Act, 1961, Section 4 *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 2003-04 to 2011-12 INCOME TAX ACT, 1961 --Reference to DRP--Contravention of DRP directions by AO----Since there was no direction by the DRP to reduce the value of sales tax remission from the block of fixed assets and allow lesser depreciation to the extent of sales tax remission treated as capital receipt not chargeable to tax, thereby action of AO in reducing value of the incentive from the block of fixed assets was in clear violation of the mandate laid down in section 144C(10).--Dispute Resolution Panel (DRP) directed AO to treat impugned sales tax subsidy as capital receipt. AO, however, deducted the incentive amount from the written down value of assets resulting into reduced depreciation.Held: There was no direction by the DRP to reduce the value of sales tax remission from the block of fixed assets and allow lesser depreciation to the extent of sales tax remission treated as capital receipt not chargeable to tax. AO is bound by the directions of the Dispute Resolution Panel and the action of AO in reducing the value of sales tax remission from the block of fixed assets was in violation of the mandate laid down in section 144C(10). Income Tax Act, 1961, Section 144C(10) *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 2003-04 to 2011-12 INCOME TAX ACT, 1961 --Depreciation--Actual costSubsidy quantum linked with gross value of fixed asset on particular date --No restriction regarding manner of utilization of subsidy, however --Where quantum of Government subsidy was linked to the value of fixed assets, but no restriction was there as to utilisation of subsidy amount, AO could not invoke Explanation 10 to section 43(1) to reduce the actual cost of fixed assets by the subsidy amount.--Assessee received subsidy in the form of sales tax exemption under a Government scheme to assist entrepreneurs in setting up new units or expansion of existing units in backward areas. The quantum of subsidy was based on the maximum of a specified percentage of gross value of fixed assets on the first date of commercial production. AO treated the incentive as reimbursement of cost, invoking Explanation 10 to section 43(1). *Held:* There was no restriction imposed on assessee as to utilization of the subsidy amount for acquisition of fixed assets only. Assessee was at liberty to utilise the subsidy amount in any manner it needed. Merely because the quantum of subsidy was subject to a maximum of specified percentage of gross value of fixed assets as on the first date of commercial production of did not mean that subsidy was given to finance acquisition of the fixed assets only. The amount of subsidy was not thereafter deductible from the actual cost under Explanation 10 to section 43(1). SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2017 TaxPub(DT) 0187 (Kol-Trib) : (2017) 053 ITR (Trib) 0005

Electrosteel Castings Ltd. v. Dy. CIT

INCOME TAX ACT, 1961

--Search and seizure--Assessment under section 153AAdjustment in an already completed assessment year --No incriminating material found relatable to that particular year found in search --Where no incriminating material was found in search which was relatable to a particular one of the six assessment years AO was not justified in making adjustments in the assessment of that particular assessment year based on a thing discovered during search.--While framing assessment under section 153A, AO denied deduction under section 80-IA and also made transfer pricing adjustment in respect of a particular assessment year. That years had already been completed before the search date. Assessee's case was that no material suggesting impugned addition was discovered during the course of search. Held: In relation to the years whose assessment is completed, assessment under section 153A has to be to the extent of income escaping assessment which comes to the knowledge of AO during search. These may relate to valuable articles or things found or documents seized during the search which were not disclosed in the original assessment. The power given in the first proviso to section 153A to 'assess' income for six assessment years has to be confined to the undisclosed income unearthed during search and cannot extend to items which had already been disclosed in the original assessment proceedings. When nothing incriminating was found in the course of search being relatable to any particular assessment year, the already completed assessments for such year could not be disturbed.

Income Tax Act, 1961 Section 153A

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2003-04 to 2011-12

INCOME TAX ACT, 1961

--Deduction under section 80-IA--Power unit for captive consumptionApplicability of proviso to section 80-IA(8)----Where power generated by assessee was for captive consumption, the proviso to section 80-IA(8) was to be applied to arrive at the amount deductible under section 80-IA from the power units. Matter was remanded for proceeding accordingly.--Assessee had set up unit for generation of electricity for captive consumption and was enjoying deduction under section 80-IA on profits derived from the eligible business of generation of electricity. As the power generated was for captive, consumption the mode of computing profits derived from the eligible business had to be done by finding out the 'market value' of the power generated in view of section 80-IA(8). Assessee applied State Electricity Board rate charged from its consumers. AO, however, applied the tariffs determined by the State Electricity Regulatory Commission for purchase of power by distribution licensee from power generating companies, resulting into addition. Held: In the circumstances of the case, there were exceptional difficulties in computing the profits and gains of the eligible business by applying the main provisions of section 80-IA(8). Therefore, the proviso to section 80-IA(8) got attracted. AO was, therefore, directed to determine the profits and gains of the undertaking generating power on a reasonable basis after affording the assessee an opportunity of being heard.

Income Tax Act, 1961 Section 80-IA(8)

REFERRED :

FAVOUR : Case remanded.

A.Y. : 2003-04 to 2011-12

INCOME TAX ACT, 1961

--Reference to DRP--Power to entertain a new claimRevision of computation of income--Return not, however, revised--DRP being the first appellate authority, has the power to entertain a new claim even in the absence of a revised return having been filed.--The issue for consideration was as to whether Dispute Resolution Panel (DRP) could have directed AO to entertain the claim of the assessee for treating sales tax remission received by it as capital receipt when such claim was not made by filing a revised return of income but showed only by filing a revised computation of income. Held: DRP as the first appellate authority, has the power to entertain a new claim even in the absence of a revised return.

Income Tax Act, 1961 Section 144C

Relied:CIT v. Jai Parabolic Springs Ltd. (2008) 306 ITR 42 (Del) and CIT v. Bharat Aluminium Co. Ltd. (2008) 303 ITR 256 (Del). Distinguished:Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2003-04 to 2011-12

INCOME TAX ACT, 1961

--Income --Capital or revenue receiptSales tax subsidy for setting up new units----Subsidy in the form of sales tax exemption to assist the assessee for setting up new units or expanding existing units in backward areas was capital receipt in assessee's hands, therefore, not taxable.--Assessee received subsidy in the form of sales tax exemption under a scheme framed by State Government to assist enterpreneurs in setting up new units or expansion of existing units in backwared areas. It claimed the subsidy as capital receipt. AO, however, treated the same as revenue receipt. Held: Purpose for which subsidy is granted is determinative of the true nature thereof. Since impugned subsidy was granted for extending financial assistance in setting up new units or expanding existing units, and not for assisting the assessee in carrying out its trade operations profitably the subsidy constituted a capital receipt in assessee's hands.

Income Tax Act, 1961, Section 4

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2003-04 to 2011-12

INCOME TAX ACT, 1961

--Reference to DRP--Contravention of DRP directions by AO----Since there was no direction by the DRP to reduce the value of sales tax remission from the block of fixed assets and allow lesser depreciation to the extent of sales tax remission treated as capital receipt not chargeable to tax, thereby action of AO in reducing value of the incentive from the block of fixed assets was in clear violation of the mandate laid down in section 144C(10).--Dispute Resolution Panel (DRP) directed AO to treat impugned sales tax subsidy as capital receipt. AO, however, deducted the incentive amount from the written down value of assets resulting into reduced depreciation.Held: There was no direction by the DRP to reduce the value of sales tax remission from the block of fixed assets and allow lesser depreciation to the extent of sales tax remission treated as capital receipt not chargeable to tax. AO is bound by the directions of the Dispute Resolution Panel and the action of AO in reducing the value of sales tax remission from the block of fixed assets was in violation of the mandate laid down in section 144C(10).

Income Tax Act, 1961, Section 144C(10)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2003-04 to 2011-12

INCOME TAX ACT, 1961

--Depreciation--Actual costSubsidy quantum linked with gross value of fixed asset on particular date --No restriction regarding manner of utilization of subsidy, however --Where quantum of Government subsidy was linked to the value of fixed assets, but no restriction was there as to utilisation of subsidy amount, AO could not invoke Explanation 10 to section 43(1) to reduce the actual cost of fixed assets by the subsidy amount.--Assessee received subsidy in the form of sales tax exemption under a Government scheme to assist entrepreneurs in setting up new units or expansion of existing units in backward areas. The quantum of subsidy was based on the maximum of a specified percentage of gross value of fixed assets on the first date of commercial production. AO treated the incentive as reimbursement of cost, invoking Explanation 10 to section 43(1). Held: There was no restriction imposed on assessee as to utilization of the subsidy amount for acquisition of fixed assets only. Assessee was at liberty to utilise the subsidy amount in any manner it needed. Merely because the quantum of subsidy was subject to a maximum of specified percentage of gross value of fixed assets as on the first date of commercial production of did not mean that subsidy was given to finance acquisition of the fixed assets only. The amount of subsidy was not thereafter deductible from the actual cost under Explanation 10 to section 43(1).