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2016 (4) TMI 1163 - AT - Income TaxDeduction under section 80IC - whether the power and transport subsidy received by the assessee for its Assam and Himachal Pradesh units should be reduced from the profit of the business for computing deduction under section 80IC? - Held that - Coming to a definite conclusion as far as nature of subsidy is concerned, the relevant subsidy schemes have to be examined to find out whether such subsidy are for reimbursement of actual costs incurred by the assessee towards transport and power. As the Departmental Authorities have not examined the nature of subsidy with reference to the relevant industrial policy resolution and subsidy schemes, we are inclined to restore the matter back to the file of the Assessing Officer for deciding afresh. As far as the issue of particular assessment year in which the subsidy deemed to have accrued, we may observe, the Assessing Officer did not raise this issue in course of assessment proceedings. It is only the learned Commissioner (Appeals) who has raised this issue. However, there is nothing in the order of the learned Commissioner (Appeals) to suggest that assessee was given opportunity to explain its stand on the issue. Be that as it may, whether the subsidy has accrued as income in the impugned assessment year has to be decided on the basis of the fact when it was approved / accepted by the concerned authorities. Only when the concerned Government authorities verify the quantum and approve, the subsidy crystallizes as income. The decisions relied upon by the learned Authorised Representative support this view. The Assessing Officer is directed to verify this aspect also. It must be mentioned the Assessing Officer not only should give adequate opportunity of being heard to the assessee but must pass a well reasoned order after considering the submissions of the assessee as well as judicial pronouncements relied upon. Treatment to remission of deferred sales tax loan liability as income of the assessee - Held that - Respectfully following the decision of the Tribunal in assessee s own case, we hold that the amount being capital in receipt cannot be treated as income of the assessee. Disallowance of interest expenditure and administrative and other expenses under section 14A r/w rule 8D - Held that - As before the Assessing Officer itself the assessee has submitted necessary facts which revealed that at the beginning of the year, the assessee had reserves and surplus amounting to Rs. 51122.41 lakh and share capital amounting to Rs. 2569.54 lakh. Thus, own surplus funds available with the company were to the extent of Rs. 53691.95 lakh. As against the aforesaid surplus fund, the investments held by the assessee at the year end aggregated to Rs. 9788.59 lakh which consists mainly of shares in foreign subsidiary amounting to Rs. 7438.59 lakh the dividend income from which is not exempt. Therefore, when enough interest free surplus fund is available with the assessee to take care of the investment, no disallowance under section 14A r/w rule 8D, as far as interest expenditure is concerned, can be made. The Assessing Officer should verify this aspect also before making any disallowance. Disallowance of lease rentals - Held that - Similar issue arose in assessee s own case for assessment year 2006 07, 2007 08 and 2008 09 after considering the submissions of both the parties and relying upon the decision in ICDS Ltd 2013 (1) TMI 344 - SUPREME COURT allowed assessee s claim of expenditure on account of lease rental. Disallowance of expenditure incurred on buy back of shares - Held that - As could be seen from the assessment order as well as the order of the first appellate authority, assessee s claim was not considered only for the reason that it was not made through a revised return of income. However, as held by the Hon ble Supreme Court in Goetz India Ltd. (2006 (3) TMI 75 - SUPREME Court ), restriction imposed therein for not entertaining a claim otherwise by way of revised return of income is only applicable to the Assessing Officer. That being the case, we restore the matter back to the file of the Assessing Officer for considering afresh in the light of the decision relied upon by the assessee. Transfer pricing adjustment made on the corporate guarantee provided by the assessee to its A.E. - whether the arm s length price of corporate guarantee is to be fixed at 0.25% as claimed by the assessee or at 3% as held by the Department - Held that - On a perusal of the letter of HSBC letter dated 3rd February 2008 it is evident that for financial guarantee, the commission charged by the bank is @ 0.50% per annum. It is further relevant to note, in case of Everest Kento Cylinders Ltd. (2015 (5) TMI 395 - BOMBAY HIGH COURT ), the Hon ble Jurisdictional High Court while accepting the commission rate of 0.5% on corporate guarantee provided by the assessee to its A.E. observed that corporate guarantee cannot be equated to bank guarantee. Following the aforesaid decision the Tribunal, Mumbai Bench, in Godrej Household Products Ltd. 2014 (4) TMI 520 - ITAT MUMBAI held the rate of guarantee commission of 0.5% as the arm s length price of the corporate guarantee provided by the assessee to its A.E. In the present case also, there is no dispute that the internal CUP by way of letter received from HSBC indicates that the commission charged for financial guarantee is 0.5%. Further, it is relevant to note that the Department in assessee s own case has accepted the arm s length price of corporate guarantee @ 0.5% in the assessment year 2006 07 and 2007 08. Thus, on consideration of overall facts and circumstances in the light of judicial pronouncements referred to above, we are of the considered opinion that the arm s length price of the corporate guarantee should be fixed at 0.5%. The Assessing Officer / Transfer Pricing Officer is directed to make adjustment accordingly.
Issues Involved:
1. Deduction under Section 80IC of the Income Tax Act, 1961. 2. Remission of deferred sales tax loan liability. 3. Disallowance of interest and administrative expenses under Section 14A. 4. Disallowance of lease rentals. 5. Disallowance of expenditure incurred on buy-back of shares. 6. Transfer pricing adjustment on corporate guarantee provided to Associated Enterprises (A.E.). Issue-wise Detailed Analysis: 1. Deduction under Section 80IC: The assessee challenged the exclusion of subsidy received and expense recoveries from business income for deduction under Section 80IC. The Assessing Officer excluded transport and power subsidies, considering them non-operational. The Commissioner (Appeals) upheld this view, relying on the Supreme Court's decision in Liberty India Ltd. The Tribunal, however, highlighted the operational nature of these subsidies, referencing the Gauhati High Court's decision in CIT v/s Meghalaya Steel Ltd., which considered such subsidies as part of business income. The Tribunal remanded the matter to the Assessing Officer to verify the nature of subsidies and their impact on the cost of production. 2. Remission of Deferred Sales Tax Loan Liability: The assessee claimed that remission of sales tax loan liability should not be treated as income. The Assessing Officer treated it as income under Section 41(1), while the Commissioner (Appeals) considered it taxable under Section 28(iv). The Tribunal, referencing its earlier decisions, held that such remission is a capital receipt and not taxable under Section 41(1). The Tribunal directed the deletion of the addition. 3. Disallowance of Interest and Administrative Expenses under Section 14A: The Assessing Officer disallowed interest and administrative expenses under Section 14A, citing investments in shares. The Tribunal, referencing the Delhi High Court's decision in Cheminvest Ltd., held that no disallowance under Section 14A can be made if no exempt income is earned. The Tribunal directed the Assessing Officer to verify the availability of surplus funds and the earning of exempt income before making any disallowance. 4. Disallowance of Lease Rentals: The assessee claimed lease rentals as revenue expenditure, which the Assessing Officer disallowed, treating it as capital expenditure. The Tribunal, referencing its earlier decisions and the Supreme Court's decision in ICDS Ltd. v/s CIT, allowed the claim of lease rentals as revenue expenditure and directed the deletion of the addition. 5. Disallowance of Expenditure on Buy-back of Shares: The assessee claimed expenditure on buy-back of shares as revenue expenditure. The Assessing Officer rejected the claim, citing the Supreme Court's decision in Goetz India Ltd. The Tribunal restored the matter to the Assessing Officer for reconsideration in light of relevant judicial pronouncements. 6. Transfer Pricing Adjustment on Corporate Guarantee: The Assessing Officer determined the arm's length price of corporate guarantee at 3%, which the assessee contested. The Tribunal, referencing the Bombay High Court's decision in CIT v/s Everest Kento Cylinders Ltd. and its earlier decisions, held that the arm's length price of corporate guarantee should be 0.5%. The Tribunal directed the Assessing Officer to make the adjustment accordingly. Conclusion: The Tribunal allowed the appeal partly, directing the Assessing Officer to verify and reconsider various claims and adjustments in light of relevant judicial pronouncements and factual verifications.
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