2020 (2) TMI 1485 - AT - Income Tax

TP Adjustment - corporate guarantee fee - assessee has charged corporate guarantee fee at the rate of 0.25% in respect of corporate guarantee extended on behalf of its overseas AE which is wholly owned overseas subsidiary of the company as based on the quotation obtained by it from ICICI bank which was specific to the case of the assessee and AE - TPO rejected the assessee s benchmarking and imputed the corporate guarantee rate at 1.15% based on the bank guarantee rate obtained u/s 133(6) of the Act from State Bank of India and made upward adjustment being the differential on the account of assessee s corporate guarantee rate @ 0.25% and the bank guarantee rate obtained from the SBI @ 1.15% - HELD THAT - We have examined identical issue in detail in the assessee s own case for AY 2010-11 2018 (2) TMI 2030 - ITAT DELHI upholding the corporate guarantee fee at 0.25% as arm s length rate of such transaction. Since facts, legal position and other factors are same for this year, we uphold the transaction of corporate guarantee fee at 0.25% charged by the assessee from its AE at arm s length and thus addition made by TPO on this account is deleted. Disallowance u/s 14A r.w.r. 8D - assessee company has earned dividend income from its investment in mutual funds which is claimed exempted from tax under section 10(34) - assessee itself made suo-moto disallowance u/s 14A of the Act r.w.r 8D(2)(iii) being 0.50% of average value of investment income from which is exempt from tax - AO being dissatisfied with the suo-motu disallowance made by the assessee made further disallowance in respect of proportionate interest paid by the assessee to various banks invoking the provisions of Rule 8D(2)(ii) - HELD THAT - The interest paid by the assessee is in respect of loans taken for specific business purposes and thus to earn non-exempt business income. The DRP has given its finding in assessee s own case for AY 2014-15 that loans were taken for specific business purposes. Moreover, the assessee s own funds in form reserves and surplus profits of ₹ 1788.26 Crores are much higher than the investments of ₹ 107.26 Crores. We have already examined this issue in this assessee s own case for AY 2010-11 and on identical facts we held that disallowance u/s 14A read with rule 8D(2)(ii) is not sustainable. In view of above, the disallowance u/s 14A made by the assessing officer is therefore deleted. Disallowance of deduction u/s 10(1A) in respect of Scrap Sale - HELD THAT - The amount realized from sale of scarp has been shown as other income in profit loss account of such unit. Alternatively, the same could have been reduced from the cost of production and in that case profits of eligible would remain unaffected for the purpose of deduction u/s 10(1A). Thus, respectfully following the Hon ble Jurisdictional High Court in case of Sadhu Fording Ltd. 2011 (6) TMI 9 - DELHI HIGH COURT the disallowance of deduction u/s 10(1A) made by the AO is hereby deleted. Inter-unit transfer of goods eligible deduction u/s 10A(1A) - The provisions of section 10A(7) read with section 80-IA(8) of the Act are there to ensure that profits of eligible unit are not overstated. These provisions specifically provides for the purpose of deduction under aforesaid section that transactions in the nature of transfer of goods and services between eligible unit and other non-eligible unit should be entered into at market value or arm s length price. In the case on hand, the assessee has entered into transactions at the market price and therefore profits of Indore SEZ units are not overstated. Therefore, the disallowance made u/s 10(1A) in respect of inter-unit transfers is hereby deleted. Receipt from transfer of Carbon emission reduction (CER) certificates - assessee has received carbon emission reduction ( CER or carbon credits ) certificates on account of its efforts to reduce the emission of greenhouse gases in terms of Kyoto Protocol - HELD THAT - As we allowed the assessee s plea for admission of admission claim in respect of CERs and remitted back the issue to the file of AO. Similarly in this year, we allow the assessee s ground for entertainment of above additional claim and remit the issue back to the file of AO to decide the same in accordance with law after granting a reasonable opportunity of being heard to the assessee. The assessee shall be free to file such documents, explanations, submissions as it deems fit in respect of this claim. Interest subsidy under Technology Upgradation Fund (TUF) Scheme - Revenue or capital receipt - HELD THAT - In the judgment of Ponni Sugars Chemicals Ltd. 2008 (9) TMI 14 - SUPREME COURT held that character of the receipt of a subsidy in the hands of recipient assessee has to be decided with respect to the purpose for which subsidy is granted. If the subsidy is received to enable the assessee to run its business more profitably then such subsidy is revenue in nature. While, if the subsidy has been received by the assessee to set up a new unit or for expansion of existing unit then such subsidy would be capital in nature. We find form the objective of TUF scheme that interest subsidy under such scheme was granted for expansion of capacities, modernisation and up gradation of facilities. In case of CIT v. Sham Lal Bansal 2011 (1) TMI 409 - PUNJAB AND HARYANA HIGH COURT on similar facts held subsidy received under TUF Scheme as capital receipt. Since the issue under hand is related to additional claim which was not entertained by the lower authorities, we therefore allow the assessee s ground for entertainment of above additional claim and remit the issue back to the file of AO to decide the same in accordance with law after granting a reasonable opportunity of being heard to the assessee. Additional Depreciation - assessee claimed additional depreciation @10% (half of 20%) on assets being the plant and machinery put to use for less than 180 days - HELD THAT - We have dealt the identical issue in the assessee s own case for AY 2010- 11 and set aside the issue to the file of AO to consider the claim of the assessee. Following the same, we hereby direct the AO to consider the claim of the assessee and give his findings thereon. For this purpose this issue is set aside to the file of AO. The AO shall be free to call for such information and explanation as he deems fit in order to adjudicate this claim of the assessee after granting reasonable opportunity to the assessee of being heard. The assessee is also free to file such documents, explanations, submissions as it deems fit in respect of this claim. Depreciation on Goodwill - HELD THAT - In case of Smifs securities 2012 (8) TMI 713 - SUPREME COURT has held that goodwill amounts to intangible assets which are eligible for depreciation. The issue is however an additional claim and require examination by AO, we therefore set aside this issue back to the file of AO to decide the same in accordance with law after granting a reasonable opportunity of being heard to the assessee. The assessee shall be free to file such documents, explanations, submissions as it deems fit in respect of this claim. Claim of Excise Duty Component Included In Sales - HELD THAT - As facts as submitted to us are that during the financial year, one of the unit at Technical textiles business at Kashipur has made sale inclusive of excise duty. Such excise duty component, as claimed by the assessee being in the nature of capital receipt, be excluded from the taxable income of the assessee. The AO did not entertain the additional claim of the assessee. The DRP did not admit the additional claim of the assessee relying on the judgment in Goetze (India) Limited vs CIT 2006 (3) TMI 75 - SUPREME COURT - Having heard the assessee, we hereby remand back the issue to the file of the AO for fresh adjudication. Exclusion/inclusion of capital receipts/items in the book profit u/s 115JB - HELD THAT - The issue involves additional claim which were not adjudicated by the lower authorities. We therefore set aside the issues relating to computation of books profits back to the file of AO to decide the same in accordance with law after granting a reasonable opportunity of being heard to the assessee.

Summary

Issues Involved:
1. Transfer Pricing Adjustments
2. Disallowance under Section 14A
3. Deduction under Section 10A(1A)
4. Additional Claims during Assessment Proceedings
5. Computation of Book Profits under MAT

Detailed Analysis:

Transfer Pricing Adjustments (Corporate Guarantee):
The assessee charged a corporate guarantee fee of ?36,98,107 at 0.25% for a guarantee extended to its wholly-owned overseas subsidiary. The TPO rejected this rate, applying a 1.15% rate based on information from SBI, resulting in an upward adjustment of ?1,27,82,374. The DRP reduced the rate to 0.50%. The Tribunal upheld the assessee's rate of 0.25%, referencing a similar decision for AY 2010-11, and deleted the adjustment.

Disallowance under Section 14A:
The assessee earned ?13.47 Crores in dividend income and made a suo-motu disallowance of ?53,51,280 under Section 14A. The AO increased this by ?1,54,16,743 for interest expenses, which was upheld by the DRP. The Tribunal found that the interest expenses were for specific business purposes and that the assessee's own funds exceeded the investments, thus deleting the additional disallowance.

Deduction under Section 10A(1A):
Scrap Sale:
The assessee's SEZ unit included ?49,32,423 from scrap sales in its deduction claim under Section 10A(1A). The AO and DRP disallowed this, considering it domestic sales. The Tribunal, referencing the Karnataka HC in GE BE (P) Ltd and Delhi HC in Sadhu Forging Ltd, allowed the deduction, noting the scrap was a by-product of manufacturing activities.

Inter-unit Transfer:
The SEZ unit transferred semi-finished goods worth ?7,52,64,246 to another unit. The AO and DRP disallowed the deduction. The Tribunal found the transfers were at market value, as required by Section 10A(7) read with Section 80-IA(8), and deleted the disallowance.

Additional Claims during Assessment Proceedings:
Carbon Emission Reduction (CER) Receipts:
The assessee received ?439.73 Crores from CER sales, initially included in taxable income but later claimed as capital receipts. The AO and DRP did not entertain this claim. The Tribunal, referencing its decision for AY 2010-11, remanded the issue back to the AO for reconsideration.

Interest Subsidy under TUF Scheme:
The assessee received ?3,08,96,338 as interest subsidy under the TUF scheme, claimed as capital receipts. The AO and DRP did not entertain this claim. The Tribunal remanded the issue back to the AO, noting the subsidy was for capacity expansion and modernization.

Additional Depreciation:
The assessee claimed additional depreciation of ?2,50,78,490 for assets used for less than 180 days in the previous year. The Tribunal remanded the issue back to the AO for reconsideration, referencing its decision for AY 2010-11.

Depreciation on Goodwill:
The assessee claimed ?45,39,692 as depreciation on goodwill. The AO and DRP did not entertain this claim. The Tribunal remanded the issue back to the AO, referencing the Supreme Court's decision in Smifs Securities.

Excise Duty Component:
The assessee claimed the excise duty component of ?11,81,58,510 as a capital receipt. The Tribunal remanded the issue back to the AO for fresh adjudication.

Computation of Book Profits under MAT:
The assessee sought to exclude certain capital receipts and provisions from the computation of book profits under Section 115JB. The Tribunal remanded these issues back to the AO for fresh adjudication, allowing the assessee to present relevant documents and explanations.

Conclusion:
The appeal was partly allowed, with several issues remanded back to the AO for reconsideration and fresh adjudication. The Tribunal upheld the assessee's claims on corporate guarantee fees and disallowance under Section 14A, while directing the AO to re-examine additional claims and the computation of book profits under MAT.