DCM Shriram Industries Limited vs. ACIT, Circle-7(1), Delhi

ITA No.1000/DEL/2022: DCM Shriram Industries Limited vs. ACIT, Circle-7(1), Delhi

Introduction

The case of DCM Shriram Industries Limited versus the Assistant Commissioner of Income Tax, Circle-7(1), Delhi, pertained to various appeals filed by the assessee against the orders passed by the Commissioner of Income Tax (Appeals) for the assessment years 2015-16, 2016-17, and 2017-18. The pivotal issues revolved around transfer pricing adjustments and disallowances made by the Transfer Pricing Officer (TPO) and the Assessing Officer (AO).

Background

The assessee, DCM Shriram Industries Limited, is engaged in the manufacturing of sugar, industrial fiber, alcohol, power, and organic and fine chemicals. The appeals filed were a consequence of adjustments and disallowances pertaining to transfer of power and steam from eligible units to non-eligible units, the nature of receipts from the sale of Renewable Energy Certificates (RECs), disallowance under section 14A of the Act, and issues related to the marriage fund, among others.

Key Issues and Tribunal’s Decision

The Tribunal’s decisions were crucial on several accounts. Firstly, the Tribunal acknowledged the assessee’s concerns regarding the transfer pricing adjustment for the transfer of power and steam to non-eligible units and directed for deletion of these additions after considering precedents and regulatory provisions. Secondly, the nature of the receipt from the sale of RECs was adjudged to be of a capital nature, not revenue, based on the purposive interpretation and analogy with the nature of carbon credits. Furthermore, the Tribunal tackled the disallowance under section 14A read with Rule 8D of the Act, emphasizing that no disallowance is warranted if no exempt income is earned during the year. Additionally, the dispute concerning the application of the marriage fund and various computational errors in the final assessment orders were addressed, leading to directions for rectification.

Conclusion

The decisions made by the Income Tax Appellate Tribunal, Delhi Bench, in the case of ITA No.1000/DEL/2022, along with ITA No.539/DEL/2021 and ITA No.1841/DEL/2020, provide significant insights into the interpretation of several contentious issues surrounding transfer pricing adjustments, the nature of certain receipts, disallowances under the Income-tax Act, 1961, and the principles of natural justice in terms of providing reasonable opportunities to the assessee for rectification. The case was partly allowed in favor of the assessee, marking a noteworthy development in the realm of income tax appellate jurisprudence.

DCM Shriram Industries Limited vs. ACIT, Circle-7(1), Delhi