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2019 (2) TMI 1815 - AT - Income TaxTP Adjustment - addition on account of interest on loan from Associated Enterprise (AE) at LIBOR 200 basis points - LIBOR 300 points made by the AO, whereas the assessee has benchmarked the said international transaction with its AE at LIBOR 100 basis points - HELD THAT - We find merits in the contention of Ld. AR that there was no geographical difference as observed by the TPO for the reason that DVB Merchant Bank (Asia) Ltd., Singapore and assessee is operating from the same country i.e., Singapore. In our opinion, assessee has rightly followed the CUP method to benchmark the international transaction at the same rate at which it borrowed the loan from the bank, thereby incurring no extra cost nor earning any income on the transaction from the AE. We are of the considered view that the transaction by assessee with AE has rightly been benchmarked on CUP basis at LIBOR 100 basis points as the DVB Merchant Bank (Asia) Ltd., Singapore has lent the money to assessee at the same rate at which the assessee lent the money to its AE meaning thereby had the AE borrowed funds from the Bank directly , these would have been available at the same rate of interest i.e. Libor 100 basis point. In our view, the order of CIT(A) cannot be sustained on this point for this reason that the AE of the assessee and DVB Merchant Bank (Asia) Ltd., is operating from the same country, so the reasons sought by the TPO and CIT(A) are not reasonable, accordingly we direct the AO the delete the addition. The ground no. 6 is allowed. Addition u/s. 14A r.w. Rule 8D - assessee is covered by Tonnage Tax Scheme - HELD THAT - Once the department has allowed the option to the assessee under Clause (1) Sub-section (3) of Section 115VP of the Act, then, we are of the view that disallowance u/s. 14A will not be attracted - direct the AO to delete the disallowance u/s. 14A r.w. Rule 8D. Ground of appeal no. 7 is allowed. Including tax free interest on Government Bonds as taxable interest income - vide letter dt. 09-09-2009 the assessee claimed that same is not taxable - HELD THAT - We are of the view that the income which is totally exempt from tax i.e., tax free interest income on 6.85% tax free bonds cannot be included in the income and brought to tax. In our opinion, such a claim of assessee could have been admitted at the appellate stage by the CIT(A). But unfortunately, it was not done. We therefore relying on the aforesaid CBDT circular and BALMUKUND ACHARYA 2008 (12) TMI 88 - BOMBAY HIGH COURT decision are of the considered view that the income which is exempt and does not fall in the charging provisions of the Act has to be excluded from the total income. In this regard, we direct the AO to exclude the amount from the total income of assessee. This ground no. 8 is allowed. Deduction of Municipal Taxes while computing total income - AO denied claim of assessee on the ground that it is not made in the return of income or revised return - HELD THAT - First Appellate Authority is well within its jurisdiction to accept the fresh claim made by assessee even if not made in the return of income or as per the revised return. We therefore following the CBDT circular no14(XL-35) of 1955 and Balmukund Acharya 2008 (12) TMI 88 - BOMBAY HIGH COURT reverse the order of CIT(A) on this issue and direct the AO to allow the deduction of municipal taxes. Income tax refund from the income of the assessee - Claim under the head Miscellaneous Income should not be included in the income of assessee as the same repesented the refund of income tax for AYs. 1993-94 and 1994-95 - HELD THAT - In our view, when the refund is an asset of the assessee, which has been given by the department on account of being excess payment by assessee of tax and therefore, same cannot be included in the income of assessee. In our view, the Ld. CIT(A) should have directed the AO to exclude the said income tax refund from the income of the assessee, but wrongly relying on the decision in the case of Goetze India Ltd., 2006 (3) TMI 75 - SUPREME COURT upheld the action of AO. In our view, the claim of assessee could have been entertained by the appellate authority as the ratio laid down in the case of Goetze India Ltd (supra) is not applicable to the appellate authorities. We therefore, direct the AO to exclude an amount from the income of assessee. Accordingly, this ground of appeal no. 11 is allowed. Adjustment by applying profit split method - TPO has rejected the CUP method after giving detailed reasons in the order passed u/s. 92CA(3) - HELD THAT - Addition on account of interest charged from AE on the loan advanced was adjudicated by us herein above vide para No.3.7 upholding the CUP method for banking transactions and also upholding LIBOR 100 basis points. Therefore, the addition is covered by the said decision on this issue. We accordingly dismiss this limb of the ground no. 1 of the Revenue. Addition to the book profits on account of profit on sale of depreciable assets - as per the Income Tax rules, sale price is deductible from written down value of Block of Assets and therefore there is no profit on sale of fixed assets while calculating the book profit u/s. 115JB - HELD THAT - Since the facts of the case before us are same as decided by the Co-ordinate Bench in the case of the Shivalik Venture (P) Ltd., Vs. DCIT 2015 (8) TMI 979 - ITAT MUMBAI respectfully following the same, we direct the AO not to include the profit on sale of Vessel while computing book profits u/s. 115JB. Disallowing the set-off of Long-term Capital Loss arising on account of units of mutual funds on which STT has been paid against Long-term Capital Gains on which no STT is paid - HELD THAT - After carefully perusing the decision of the co-ordinate Bench in Raptakos Brett Co Ltd. 2015 (6) TMI 529 - ITAT MUMBAI we agree contentions of the Ld. AR that this ground of appeal is covered in favour of the assessee. Not allowing cost of acquiring shares of foreign subsidiary company to be increased while computing LTCG when the sale price of ship increased under Transfer Pricing provisions - HELD THAT - If the price of the ship is increased by making TP adjustments, then the value of shares allotted in lieu of ship transferred should be increased by the corresponding amount. Accordingly we direct the AO to take the cost of acquisition at ₹ 50 Crores. The Ground No. 9 of the assessee is allowed. See M/S. BENGAL FINANCE INVESTMENTS PVT. LTD. 2015 (2) TMI 1263 - BOMBAY HIGH COURT Disallowance u/s 14A while computing Book Profit u/s 115JB - HELD THAT - No disallowance can be made u/s.115JB of the Act on account of disallowance made u/s 14A r.w. Rule 8D. Interest on loan to employees, sundry balances written off and interest income - income from business or income from other sources - AO came to the conclusion that the said income are not connected to the core business of the assessee and hence assessed the same as income from other source - HELD THAT - Company was to buy a new ship for which it had borrowed funds and had obtained RBI approval and it earned interest on the unutilized portion of this amount. AO brought this amount to tax as income from other sources. However, ITAT held that this activity was a part of appellant s business and hence interest earned was liable to be treated as business income. The finding of ITAT was upheld by Bombay High Court in the above decision.Thus case of the appellant is covered by the Bombay High Court in the case of Varun Shipping as 2008 (9) TMI 591 - BOMBAY HIGH COURT - Respectfully following the judgment, addition of interest income as income from other sources is deleted.
Issues Involved:
1. Applicability of Tonnage Tax Scheme and Transfer Pricing provisions. 2. Disallowance under Section 14A. 3. Inclusion of tax-free interest in taxable income. 4. Deduction of Securities Transaction Tax. 5. Deduction of Municipal Taxes and Society Charges. 6. Inclusion of Income Tax Refund as Miscellaneous Income. 7. Computation of Book Profits under Section 115JB. 8. Set-off of Long-term Capital Loss against Long-term Capital Gains. 9. Inclusion of profit on sale of ships in Book Profits. 10. Classification of interest income and other incomes under business income or income from other sources. Detailed Analysis: 1. Applicability of Tonnage Tax Scheme and Transfer Pricing Provisions: The assessee contended that being taxed under the Tonnage Tax Scheme, no adjustments can be made under Section 92 for Transfer Pricing. The Tribunal held that the income of the assessee under the Tonnage Tax Scheme should not be adjusted for Transfer Pricing provisions, as it would result in double fiction. The Tribunal directed the AO to delete the addition on this ground. 2. Disallowance under Section 14A: The AO made a disallowance under Section 14A r.w. Rule 8D. The Tribunal observed that the income of the assessee was computed under the Tonnage Tax Scheme, and no expenses were claimed. Therefore, disallowance under Section 14A was not applicable. The Tribunal directed the AO to delete the disallowance. 3. Inclusion of Tax-Free Interest in Taxable Income: The assessee claimed that tax-free interest on Government Bonds should not be included in taxable income. The Tribunal agreed, stating that exempt income should not be taxed even if erroneously included in the return. The AO was directed to exclude the tax-free interest from the taxable income. 4. Deduction of Securities Transaction Tax: The assessee's claim for deduction of Securities Transaction Tax was not pressed during the proceedings and was dismissed by the Tribunal. 5. Deduction of Municipal Taxes and Society Charges: The assessee claimed a deduction for Municipal Taxes and Society Charges, which was not claimed in the return but through a letter to the AO. The Tribunal held that such claims could be entertained by appellate authorities even if not included in the original return, and directed the AO to allow the deduction. 6. Inclusion of Income Tax Refund as Miscellaneous Income: The Tribunal held that the refund of income tax should not be included in taxable income as it is not an income but a return of excess tax paid. The AO was directed to exclude the refund from the income of the assessee. 7. Computation of Book Profits under Section 115JB: The Tribunal held that the profit on the sale of depreciable assets should not be included in the book profits for MAT purposes if the block of assets continues to exist in the books. The AO was directed to exclude the profit on the sale of the vessel while computing book profits under Section 115JB. 8. Set-off of Long-term Capital Loss against Long-term Capital Gains: The Tribunal allowed the set-off of Long-term Capital Loss on units of mutual funds against Long-term Capital Gains, following the decision in Raptakos Brett & Co Ltd. 9. Inclusion of Profit on Sale of Ships in Book Profits: The Tribunal held that profit on the sale of ships should not be included in book profits under Section 115JB, following the decision in Shivalik Venture (P) Ltd. v. DCIT. 10. Classification of Interest Income and Other Incomes: The Tribunal held that interest income from loans to employees, sundry balances written back, and interest on short-term deposits should be treated as business income, not income from other sources. The AO was directed to classify these incomes accordingly. Conclusion: The Tribunal provided detailed rulings on various issues, primarily favoring the assessee by excluding certain incomes from taxable income and book profits, disallowing certain adjustments under Transfer Pricing provisions, and allowing specific deductions. The appeals were partly allowed for the assessee and dismissed for the Revenue.
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