2018 (5) TMI 1853 - AT - Income Tax

International transaction u/s 92B - corporate guarantee - HELD THAT - Where a fee has been charged for the intra service which has been rendered (in the context of corporate guarantee), and, therefore, the assessee or the Court has treated it as an international transaction, then the charge of corporate guarantee has to be in accordance with Arm s Length principle. This means that the price for corporate guarantee should be that which would have been paid and accepted by independent enterprises in comparable circumstances. In that case transfer pricing adjustments are required. In that case, it has to be determined what will be the ALP of corporate guarantee commission paid by associate enterprise to the parent company providing corporate guarantee. Since that is not the case before us, we need not go into it. Explanation was introduced by Finance Act 2012, the rules were notified only on 10.6.2013. Hence the assessee cannot be expected to report this transaction also as an international transaction in its transfer pricing study and the audit report thereon. Transfer Pricing Adjustment - interest on loan given by the assessee to its AE - determining the cost of interest on the international transaction in respect of interest to be charged on the loan advanced to AE - HELD THAT - In this regard we are of the view that for the purpose of credit rating of the assessee as well as the credit rating of the AE should be taken into account. In similar facts & circumstances in the own case of the assessee. We restore the issue to the file of TPO/AO for the fresh adjudication according to law and in the light of above stated discussion. Thus the ground of appeal of the assessee is allowed for statistical purposes. Disallowance u/s. 14A r.w.s. Rule 8D - HELD THAT - Disallowance made under the second limb of Rule 8D(2)(ii) of the Rules is hereby directed to be deleted. With regard to the third limb of Rule 8D(2)(iii) of the Rules, we hold that the assessee has got investments in foreign companies, the dividend earned from which would be taxable income and hence should be outside the ambit of disallowance u/s 14A read with Rule 8D of the Rules. Similarly, investments made in subsidiary companies would have to be reckoned as strategic investments and hence the same should be excluded while working out the disallowance under Rule 8D(2)(iii) of the Rules. Similarly, the investments which had yielded dividend income alone, are to be considered while working out the disallowance under Rule 8D(2)(iii) of the Rules as has been held by the decision of this tribunal in the case of REI Agro Ltd 2013 (9) TMI 156 - ITAT KOLKATA - if the disallowance made under second limb of Rule 8D(2) of the Rules is deleted, then the disallowance made by the ld AO would remain at ₹ 23,77,882/- and whereas the assessee itself had voluntarily disallowed ₹ 42,48,850/-. Hence we direct the ld AO to adopt the disallowance figure of ₹ 42,48,850/- which had already been disallowed by the assessee and hence no further disallowance in that regard is to be made. Addition on account of lease rental expenses as capital expenditure - HELD THAT - There was a clause in the lease agreement giving an option to the lessee to buy back the asset on termination of the lease agreement. In the instant case, the assessee (lessee) falls in a better footing, in as much as there is no clause in the lease agreement, enabling the lessee to buy back the assets on termination of the lease arrangement. Disallowance of aircraft maintenance charges including the depreciation - HELD THAT - No addition could be made on an estimated basis towards running and maintenance of aircrafts. Accordingly, the grounds raised by the assessee in this regard for various assessment years are allowed and grounds raised by the revenue in this regard are dismissed. Not allowing set off of long term capital loss against the Short-Term Capital Gains (STCG for short) u/s 74 - HELD THAT - Assessee is indeed entitled to set off the brought forward long term capital loss of ₹ 9,77,54,843/- against the deemed short term capital gain of ₹ 7,18,74,000/- in the facts of the case. The ld AO is accordingly directed to give benefit of the same to the assessee based on the correctness of the claim of brought forward loss figure made by the assessee. Non-deduction of tax u/s 195 r.w.s. 40(a)(i) - HELD THAT - Assessee had even provide the certificate of tax residency of the parties to whom payments were made in foreign currency and declaration form them that no PE existed for them in India. The assessee had even furnished the copies of agreements entered into with those parties, copy of advertisements, copy of invoice, subscription renewal forms etc. We find that in the earlier years in assessee s own case, the CIT-A had granted relief to the assessee by placing reliance on make available clause prevailing in various tax treaties , but the same is not done by the AO and DRP in the instant case. Assessee had filed various documents with detailed factual and legal submissions with supporting evidences before the ld AO, which had not been appreciated by the AO and DRP in the proper perspective. Hence we deem it fit and appropriate, to remand this entire issue to the file of the AO, for de novo adjudication of this issue afresh in accordance with law. The assessee is also directed to cooperate with the ld AO by producing the necessary evidences in support of its contentions. Disallowance on account of delayed deposit of employees contribution to PF and ESI - assessee failed to furnish the supporting evidence evidencing that the amount of PF/ESI has been deposited within time of income tax return filing as specified u/s 139(1) - HELD THAT - assessee failed to furnish the supporting evidence evidencing that the amount of PF/ESI has been deposited within time of income tax return filing as specified u/s 139(1) of the Act. However, in the interest of justice and fair play we are inclined to restore the issue to the file of Assessing Officer for fresh adjudication in accordance with law. Accordingly, assessee is directed to produce necessary documents justifying that employees contribution to PF/ESI has been deposited within due date of income tax return filing as specified u/s 139(1) of the Act. Hence, this ground of assessee s appeal is allowed for statistical purpose in terms of above direction. Deduction of provision for bad and doubtful debts written back under normal provision as well as under the computation of book profit - HELD THAT - We direct the AO to adjudicate the additional filed by the assessee during the course of assessment proceedings in accordance with law. Thus, this ground of assessee is allowed for statistical purpose. Non granting TDS/TCS credit - HELD THAT - We remit this issue back to the file of AO with a direction to allow the credit of TDS/TCS and adjudicate the same as per law. Hence, this ground of assessee s appeal is allowed for statistical purpose Calculating dividend distribution tax on the gross amount without excluding the dividend receipt from its subsidiary company - HELD THAT - AO should charge the dividend distribution tax after excluding the dividend income from subsidiary company. Therefore, we direct the AO to adjudicate the issue of dividend distribution tax after giving effect of the amount of dividend received from subsidiary company. Hence, in terms of above, this ground of assessee s appeal is allowed for statistical purpose. Non granting set off of Minimum Alternate Tax (MAT for short) credit brought forward from Assessment Year 2011-12 - HELD THAT - As observed that the grievance of assessee relates to non-granting of set off MAT credit brought forward from AY 2011-12. In this regard we direct the AO to grant the MAT credit brought forward from earlier years as per the provision of law. Hence, the matter is remitted back to the file of AO in terms of above direction and to adjudicate the same in accordance with law.

Summary

Issues Involved:
1. Determination of arm's length price for Corporate Guarantee fees.
2. Determination of arm's length interest rate for loan provided to AE.
3. Disallowance u/s 14A read with Rule 8D.
4. Disallowance of principal repayment of finance lease.
5. Ad-hoc disallowance of aircraft maintenance expenses.
6. Non-grant of set-off of long-term capital loss against deemed short-term capital gain.
7. Disallowance u/s 40(a)(i) of the Act.
8. Disallowance of employee's contribution to PF and ESI made beyond due date.
9. Denial of deduction of provision for bad and doubtful debts written back.
10. Short grant of credit for tax deducted at source and tax collected at source.
11. Dividend Distribution Tax.
12. MAT credit set off.

Detailed Analysis:

1. Determination of Arm's Length Price for Corporate Guarantee Fees:
The Tribunal noted that the issue had already been decided in favor of the assessee by the jurisdictional ITAT in the assessee's own case for AY 2011-12. It was held that the corporate guarantee provided by the assessee to its AE was a shareholder activity and not an international transaction under section 92B of the Act. Therefore, no TP adjustment on account of corporate guarantee was required. The Tribunal reversed the order of the authorities below and allowed the ground of appeal filed by the assessee.

2. Determination of Arm's Length Interest Rate for Loan Provided to AE:
The Tribunal remanded the issue back to the TPO/AO for fresh adjudication, noting that the LIBOR and basis points should be the criteria for determining the cost of interest on the international transaction. The credit rating of both the assessee and the AE should be taken into account. The Tribunal directed the TPO to determine the basis points on the basis of the aforesaid parameters and other relevant parameters in accordance with law.

3. Disallowance u/s 14A Read with Rule 8D:
The Tribunal noted that the issue was already decided in favor of the assessee in its own case for AY 2011-12. It was held that the assessee had sufficient own funds for making investments, and there could not be any disallowance of interest under Rule 8D(2)(ii). The Tribunal directed the AO to adopt the disallowance figure of ?42,48,850/- which had already been disallowed by the assessee, and no further disallowance was to be made.

4. Disallowance of Principal Repayment of Finance Lease:
The Tribunal followed its earlier decision in the assessee's own case for AY 2008-09, where it was held that the lease arrangement could not be considered as one of hire purchase, and the entire lease rental was allowable as revenue expenditure. The Tribunal directed the AO to delete the disallowance of ?8,85,68,539/-.

5. Ad-hoc Disallowance of Aircraft Maintenance Expenses:
The Tribunal noted that the issue had already been decided in favor of the assessee in its own case for AY 2007-08 to 2009-10. It was held that no disallowance could be made on an estimated basis towards running, repairs, and maintenance of aircrafts, including depreciation thereon. The Tribunal directed the AO to delete the disallowance of ?53,32,210/-.

6. Non-grant of Set-off of Long-term Capital Loss Against Deemed Short-term Capital Gain:
The Tribunal followed the decision of the Hon'ble Supreme Court in the case of CIT vs. V.S. Dempo Company Ltd. and held that the depreciable assets held for more than 36 months did not lose their character of being long-term capital assets, even though they might get taxed as short-term capital gains under section 50. The Tribunal directed the AO to allow the set-off of brought forward long-term capital loss against the deemed short-term capital gain.

7. Disallowance u/s 40(a)(i) of the Act:
The Tribunal remanded the issue back to the AO for fresh adjudication, noting that the assessee had provided detailed factual and legal submissions with supporting evidences regarding the non-applicability of withholding tax under domestic law and DTAA of the respective countries. The AO was directed to examine the nature of remittances and determine the taxability in accordance with law.

8. Disallowance of Employee's Contribution to PF and ESI Made Beyond Due Date:
The Tribunal restored the issue to the AO for fresh adjudication, directing the assessee to produce necessary documents justifying that the employee's contribution to PF/ESI had been deposited within the due date of income tax return filing as specified u/s 139(1) of the Act.

9. Denial of Deduction of Provision for Bad and Doubtful Debts Written Back:
The Tribunal directed the AO to adjudicate the additional claim filed by the assessee during the course of assessment proceedings in accordance with law, noting that the assessee is entitled to make additional claims without filing a revised return of income.

10. Short Grant of Credit for Tax Deducted at Source and Tax Collected at Source:
The Tribunal remitted the issue back to the AO with a direction to allow the credit of TDS/TCS and adjudicate the same as per law.

11. Dividend Distribution Tax:
The Tribunal directed the AO to adjudicate the issue of dividend distribution tax after giving effect to the amount of dividend received from the subsidiary company, as per the provision of section 115-O(1A) of the Act.

12. MAT Credit Set Off:
The Tribunal directed the AO to grant the MAT credit brought forward from earlier years as per the provision of law and remitted the matter back to the AO for adjudication in accordance with law.

Conclusion:
The appeal was partly allowed for statistical purposes, with several issues remanded back to the AO for fresh adjudication in accordance with the Tribunal's directions. The Tribunal's decisions were based on prior judgments and established legal principles, ensuring that the assessee's claims were evaluated fairly and in compliance with the law.