2019 (4) TMI 1761 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - HELD THAT - As the assessee had not earned any exempt dividend income during the year under consideration, thus no disallowance under Sec.14A could have been made in its hands. We thus delete the disallowance made by the A.O under Sec.14A of the I.T Act. The Ground of appeal No. 1 is allowed. Deduction under Sec.10AA - Part disallowance - HELD THAT - As the provisions of Sec.10AA are pari materia to those envisaged in Sec.10A, therefore, the view taken by Tribunal in the assesses own case for the aforementioned preceding years i.e A.Y. 2004-05 and A.Y. 2005-06 squarely covers the issue under consideration in favour of the assessee. Apart there from, we find that the contention advanced by the assessee before us that the profits of STP units are not liable for adjustment against the loss of non-STP units for the purpose of quantifying the claim of deduction under Sec.10AA is also supported by the view taken in the case of CIT Vs. Black Veatch Consulting Pvt. Ltd. 2012 (4) TMI 450 - BOMBAY HIGH COURT . Lower authorities had erred in disallowing part of the assesses claim of deduction under Sec.10AA by wrongly aggregating the income and loss of various units while quantifying its entitlement towards deduction under Sec.10AA of the I.T Act. In terms of our aforesaid observations, we vacate the disallowance under Sec.10AA Rectification of mistake - short credit of TDS - HELD THAT - We find that the assessee is stated to have also filed a rectification application dated 14.02.2017 with the A.O, requesting him to rectify the error apparent on record as regards allowing of short credit of TDS. We are of the considered view that the said claim of the assessee as regards the failure on the part of the A.O to allow credit of TDS of ₹ 21,13,229/- would require verification on facts. Be that as it may, in all fairness we direct the A.O to look into the said claim of the assessee, and in case if the same is found to be in order, then allow the credit for the deficit amount TDS. We thus in terms of our aforesaid observations restore the issue as regards allowing of short credit of TDS to the file of the A.O. The Ground of Appeal raised by the assessee is allowed for statistical purposes. Increasing of the book profit‟ by the amount of disallowance worked out under Sec.14A r.w. Rule 8D - HELD THAT - We find ourselves to be in agreement with the ld. A.R that the disallowance worked out under Sec. 14A is not to be considered while computing the book profit‟ under Sec.115JB of the I.T Act. In fact, the said issue is squarely covered in favour of the assessee by the decision of Vireet Investments (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI . We thus are of the considered view that the A.O had erred in increasing the book profit‟ under Sec.115JB by the amount of the disallowance worked out in the hands of the assessee under Sec.14A r.w. Rule 8D. In terms of our aforesaid observations we vacate the observations of the lower authorities in context of the issue under consideration TP Adjustment - HELD THAT - Assessee had gone for an Advance Pricing Agreement ( APA‟) which had been finalised on 08.01.2019. As per the APA the guarantee commission‟ had been settled @ 0.73% and the assessee is stated to have already offered the incremental amount to tax in terms of the modified return of income filed pursuant to signing of the APA. As submitted by the ld. A.R, in the backdrop of the aforesaid facts the grounds of appeal no. 6 and 7 raised by the assessee before us in context of the TP adjustment on account of guarantee commission‟ would no more survive and would resultantly be rendered as infructuous. Levy of interest under Sec. 234D is consequential to our aforesaid adjudication on the substantive issues

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act, 1961.
2. Computation of deduction under Section 10AA of the Income-tax Act, 1961.
3. Credit for tax deducted at source (TDS).
4. Levy of interest under Section 234D of the Income-tax Act, 1961.
5. Disallowance under Section 14A while computing book profits under Section 115JB of the Income-tax Act, 1961.
6. Transfer Pricing Adjustments on account of Guarantee Commission.
7. Penalty Proceedings under Section 271(1)(c) of the Income-tax Act, 1961.
8. General grounds.

Detailed Analysis:

1. Disallowance under Section 14A:
The assessee contested the disallowance under Section 14A, arguing that no exempt income was earned during the year, thus no disallowance was warranted. The Tribunal agreed, citing precedents from the Hon’ble Supreme Court in CIT (Central)-1 Vs. Chettinad Logistics (P) Ltd. and PCIT-18 Vs. M/s Oil Industry Development Board, which held that Section 14A cannot be invoked if no exempt income is earned. Consequently, the disallowance of ?20,51,901 was deleted.

2. Computation of Deduction under Section 10AA:
The assessee argued that deduction under Section 10AA should be allowed unit-wise, not by aggregating profits/losses of all units. The Tribunal supported this contention, referencing the Hon’ble Supreme Court's decision in CIT vs. Yokogawa India Ltd., which affirmed unit-wise deduction. The Tribunal also relied on its own previous decisions in the assessee's case and the Bombay High Court's ruling in CIT Vs. Black & Beatch Consulting Pvt. Ltd. Consequently, the disallowance of ?6,19,82,739 was vacated.

3. Credit for Tax Deducted at Source (TDS):
The assessee claimed that the Assessing Officer (A.O) erred by not granting full TDS credit. The Tribunal directed the A.O to verify and allow the credit of ?21,13,229 if found in order, thus restoring the issue to the A.O for verification.

4. Levy of Interest under Section 234D:
The Tribunal noted that the levy of interest under Section 234D is consequential to the adjudication of the substantive issues. Therefore, this ground was dismissed as consequential.

5. Disallowance under Section 14A while Computing Book Profits under Section 115JB:
The Tribunal agreed with the assessee that disallowance under Section 14A should not be considered while computing book profits under Section 115JB. This view was supported by the Special Bench of the ITAT, Delhi in ACIT vs. Vireet Investments (P) Ltd. Consequently, the increase in book profits by ?20,51,901 was vacated.

6. Transfer Pricing Adjustments on Account of Guarantee Commission:
The assessee had entered into an Advance Pricing Agreement (APA) which settled the guarantee commission rate at 0.73%. The Tribunal noted that the assessee had already offered the incremental amount to tax as per the APA, rendering the grounds related to transfer pricing adjustments infructuous. Thus, these grounds were dismissed.

7. Penalty Proceedings under Section 271(1)(c):
The Tribunal found the initiation of penalty proceedings premature and dismissed this ground.

8. General Grounds:
The Tribunal dismissed the general grounds as not pressed.

Conclusion:
The appeal was allowed in terms of the Tribunal's observations, providing relief on several grounds, particularly the disallowance under Section 14A and the computation of deduction under Section 10AA. The Tribunal also directed the A.O to verify and grant the correct TDS credit and vacated the increase in book profits under Section 115JB. The transfer pricing adjustments were rendered infructuous due to the APA, and the penalty proceedings were found premature.