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2019 (7) TMI 1647 - AT - Income TaxTP Adjustment - adjustment to the arm s length price of the corporate guarantee fee - HELD THAT - We will proceed on the footing that the provision of corporate guarantee to AE is an international transaction under section 92B - we will deal with the issue whether determination of arm s length price on corporate guarantee fee @ 1.75% is proper. It is evident, the Transfer Pricing Officer has applied the rate of 1.75% on the basis of certain information obtained from Indian Banks on the rate of commission relating to various guarantee. Further, the Transfer Pricing Officer has also relied upon his own order passed in the assessment year 2012-13. It is also a fact that learned DRP has upheld the decision of the Transfer Pricing Officer by relying upon its order passed in assessment year 2012-13. Pertinently, while deciding assessee s appeal in assessment year 2012-13 2019 (4) TMI 1847 - ITAT MUMBAI the Tribunal has followed its own order passed in case of a sister concern of the assessee and held that corporate guarantee fee should be computed @ 0.5%. Facts being identical, respectfully following the aforesaid decision of the Co-ordinate Bench in assessee s own case, we direct the Assessing Officer to compute the corporate guarantee fee @ 0.5%. This ground is allowed. Addition on account of arm s length price of interest on interest free loans to AEs - HELD THAT - If the loan has been advanced to the overseas AEs in foreign currency, it will be appropriate to compute the interest on such loan by applying prevailing LIBOR with basis points. However, the assessee is required to furnish the necessary supporting evidence to substantiate its claim. In view of the aforesaid, we restore the issue to the Assessing Officer for verifying the primary facts and thereafter considering assessee s plea of applying the appropriate LIBOR rate of interest. This ground is allowed for statistical purposes. Nature of receipt - interest subsidy received under the TUFS - as a capital receipt or revenue receipt - HELD THAT - Following Tribunal in assessee s own case 2019 (4) TMI 1847 - ITAT MUMBAI we hold that the interest subsidy received by the assessee being in the nature of capital receipt is not taxable, hence, the Assessing Officer is directed to delete the addition. MAT Computation u/s 115JB - non-reduction of interest subsidy while computing book profit u/s 115JB - HELD THAT - As decided in own case 2019 (4) TMI 1847 - ITAT MUMBAI interest subsidy which was required to be excluded from Book profit. We accordingly direct AO to exclude the TUF subsidy while computing book profit u/s.115JB. Disallowance u/s14A r/w rule 8D - HELD THAT -As could be seen from the details of fund available with the assessee as mentioned in DRP s order, own funds available with the assessee far exceeds the investment made. Prima-facie, a conclusion has to be drawn that the investments in exempt income yielding assets were made out of surplus funds available with the assessee. In that event, no disallowance of interest expenditure under rule 8D(2)(ii) can be made. Therefore, we direct the AO to examine assessee s claim factually and delete the disallowance made under rule 8D(2)(ii). As regards the disallowance of administrative expenditure under rule 8D(2)(iii), we are of the view that such disallowance needs to be upheld, as it has been correctly computed by the Assessing Officer. However, the disallowance already made by the assessee under section 14A of the Act has to be reduced. This ground is partly allowed. Disallowance u/s 14A r/w rule 8D to the book profit computed under section 115JB - HELD THAT - Now it is fairly well settled that while computing the book profit under section 115JB of the Act, the Assessing Officer cannot make any adjustment by referring to the provisions of section 14A r/w rule 8D. However, the Assessing Officer has the power to make adjustment on account of expenditure incurred for earning exempt income as provided under clause (f) of Explanation-1 to section 115JB of the Act. Therefore, in the facts of the present case, we direct the Assessing Officer to make adjustment to the book profit in terms of Explanation- 1(f) to section 115JB of the Act by restricting it to the amount disallowed by the assessee voluntarily. This ground is partly allowed. Disallowance of interest expenditure by apportioning it to interest free loan advanced to associate entities - main contention of the assessee before learned DRP as well as before us is, since it had sufficient interest free fund available with it to take care of the loans advanced to the sister concern, no disallowance out of interest expenditure should be made - HELD THAT - As applying the aforesaid principle, the Tribunal in assessee s own case in assessment year 2012-13 2019 (4) TMI 1847 - ITAT MUMBAI has deleted the disallowance of interest expenditure made under section 36(1)(iii) of the Act. As it appears, neither the Assessing Officer nor learned DRP have controverted assessee s claim regarding availability of surplus fund. What the Departmental Authorities have observed while disallowing interest expenditure is, the assessee failed to establish nexus between the advancement of interest free loan to the sister concern and the business expediency. Thus, in the aforesaid factual position, applying the ratio laid down by the Hon ble Jurisdictional High Court in CIT v/s Reliance Utilities And Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT as well as the decision of the Tribunal in assessee s own case cited supra, we hold that no disallowance under section 36(1)(iii) of the Act can be made. This ground is allowed. Disallowance of employees contribution to Provident Fund (PF) & ESIC - HELD THAT - As seen from the factual details relating to payment of employees contribution to PF & ESIC reproduced in the assessment order, all such payments were made before the due date of filing of return of income for the impugned assessment year in terms of section 139(1) of the Act. That being the case, as per the ratio laid down by the Hon ble Jurisdictional High Court in Ghatge Patil Transports Ltd.. 2014 (10) TMI 402 - BOMBAY HIGH COURT no disallowance can be made keeping in view the amended provisions of section 43B of the Act r/w the proviso. In fact, following the aforesaid decision of the Hon ble Jurisdictional High Court, the Tribunal in assessee s own case in assessment year 2008- 09, has allowed assessee s claim of deduction towards employees contribution on PF & ESIC while deciding the appeal 2019 (4) TMI 1847 - ITAT MUMBAI . Assessee s appeal is partly allowed.
Issues Involved:
1. Addition on account of adjustment to the arm’s length price of the corporate guarantee fee. 2. Addition on account of arm’s length price of interest on interest-free loans to Associated Enterprises (AEs). 3. Treatment of interest subsidy received by the assessee as a capital receipt. 4. Non-reduction of interest subsidy while computing book profit under section 115JB. 5. Disallowance under section 14A read with rule 8D. 6. Addition of disallowance under section 14A to book profit under section 115JB. 7. Disallowance of interest expenditure by apportioning it to interest-free loans advanced to associate entities. 8. Disallowance of employees' contribution to Provident Fund (PF) & ESIC. Issue-wise Detailed Analysis: 1. Addition on account of adjustment to the arm’s length price of the corporate guarantee fee: The assessee challenged the addition made by the Transfer Pricing Officer (TPO) who computed the arm’s length price of the corporate guarantee fee at 1.75%, resulting in an adjustment of ?14,35,92,450. The DRP upheld this adjustment. However, the Tribunal noted that in the assessee’s own case for the previous year, it was held that the corporate guarantee fee should be computed at 0.5%. Thus, the Tribunal directed the Assessing Officer to compute the corporate guarantee fee at 0.5%, allowing this ground in favor of the assessee. 2. Addition on account of arm’s length price of interest on interest-free loans to AEs: The DRP, upon discovering that the assessee had advanced interest-free loans to AEs, directed the TPO to compute arm's length interest at 10.27%, resulting in an adjustment of ?4,77,76,278. The assessee argued that since the loans were in foreign currency, the LIBOR rate should apply. The Tribunal agreed that if the loans were indeed in foreign currency, the LIBOR rate should be applied and directed the Assessing Officer to verify the facts and apply the appropriate LIBOR rate, allowing the ground for statistical purposes. 3. Treatment of interest subsidy received by the assessee as a capital receipt: The assessee received ?118,09,09,213 as interest subsidy under the Technology Upgradation Fund Scheme (TUFS) and treated it as a capital receipt. The Assessing Officer treated it as revenue receipt, which was upheld by the DRP. The Tribunal noted that in the assessee’s own case for the previous year, the interest subsidy under TUFS was held to be a capital receipt. Following this precedent, the Tribunal directed the Assessing Officer to treat the interest subsidy as a capital receipt and delete the addition, allowing this ground. 4. Non-reduction of interest subsidy while computing book profit under section 115JB: The Tribunal observed that the main charging section provides for the levy of income tax only on income. Since the subsidy was held to be a capital receipt, it should not be included in the book profit for MAT purposes. The Tribunal directed the Assessing Officer to exclude the interest subsidy from the book profit computed under section 115JB, allowing this ground. 5. Disallowance under section 14A read with rule 8D: The Assessing Officer made a disallowance of ?7,82,17,001 under section 14A read with rule 8D. The Tribunal noted that the assessee had sufficient own funds to cover the investments in exempt income yielding assets, thus no disallowance under rule 8D(2)(ii) could be made. The Tribunal directed the Assessing Officer to verify the facts and delete the disallowance under rule 8D(2)(ii). However, the disallowance of administrative expenditure under rule 8D(2)(iii) was upheld after reducing the amount already disallowed by the assessee, partly allowing this ground. 6. Addition of disallowance under section 14A to book profit under section 115JB: The Tribunal held that while computing book profit under section 115JB, adjustments cannot be made by referring to section 14A read with rule 8D. However, adjustments can be made as per Explanation 1(f) to section 115JB. The Tribunal directed the Assessing Officer to restrict the adjustment to the amount disallowed by the assessee voluntarily, partly allowing this ground. 7. Disallowance of interest expenditure by apportioning it to interest-free loans advanced to associate entities: The Assessing Officer disallowed ?87,49,13,686 as interest expenditure, which was upheld by the DRP. The Tribunal noted that the assessee had sufficient surplus funds to cover the interest-free advances. Following the jurisdictional High Court’s decision in CIT v/s Reliance Utilities And Power Ltd., the Tribunal held that no disallowance under section 36(1)(iii) could be made and allowed this ground. 8. Disallowance of employees' contribution to Provident Fund (PF) & ESIC: The Assessing Officer disallowed ?1,90,10,888 for late payment of employees' contribution to PF & ESIC. The Tribunal noted that all payments were made before the due date of filing the return of income under section 139(1). Following the jurisdictional High Court’s decision in Ghatge Patil Transports Ltd., the Tribunal deleted the disallowance, allowing this ground. Conclusion: The Tribunal allowed the appeal partly, providing relief to the assessee on multiple grounds while directing factual verification and appropriate adjustments by the Assessing Officer on others. The judgment emphasized adherence to precedents and proper application of legal principles in transfer pricing and tax assessments.
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