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2021 (2) TMI 1319 - AT - Income TaxDisallowance u/s. 14A r.w.r 8D(2)(iii) - suo motto amount offered by it in its revised return of income - HELD THAT - The additional ground of appeal raised by the assessee wherein it had sought restriction of the disallowance u/s 14A to the extent of the dividend income received during the year under consideration merits acceptance. Accordingly, following our view taken while disposing off the cross-appeals of the assessee and the revenue for A.Y 2010-11 and A.Y 2011-12 2021 (2) TMI 666 - ITAT MUMBAI vide our consolidated order passed we herein direct the A.O to restrict the disallowance u/s 14A to the extent of the exempt dividend income received by the assessee during the year in question. Accordingly, the additional ground of appeal no. 1 raised by the assessee is allowed Whether no disallowance u/s 14A r.w Rule 8D was called for in its case? - We are afraid the same does not find favour with us. As the method for computing the disallowance u/s 14A had been prescribed in Rule 8D vide the IT(Fifth Amendment) Rules 2008, w.e.f 24.03.2008 thus, no infirmity arises from the disallowance worked out by the A.O by following the said prescribed method. The Ground of appeal No. 1 raised by the assessee is dismissed. Disallowance u/s 14A r.w Rule 8D(2)(iii) while disposing off the assessee s appeal - We herein direct the A.O to consider only those investments which had yielded dividend income for the purpose of computing the average value of investments‟ for computing the disallowance u/s 14A r.w. Rule 8D(2)(iii). The Ground of appeal No. 2 is partly allowed for statistical purposes. Disallowance of interest expenditure u/s 14A r.w Rule 8D(2)(ii) - revenue is aggrieved with the order of the CIT(A) wherein it is stated that the appellate authority had wrongly directed the A.O to follow the decision in the case of HDFC Bank, Mumba 2014 (8) TMI 119 - BOMBAY HIGH COURT - HELD THAT - We find that no such direction/observation is discernible from the order of the CIT(A). In fact, as the A.O had not made any disallowance of any interest expenditure u/s 14A r.w Rule 8D(2)(ii) during the year in question thus, there was no occasion on the part of the CIT(A) to have relied upon the aforesaid judgments of the Hon ble High Court of Bombay which are in context of the issue of disallowance of interest expenditure u/s 14A r.w Rule 8D(2)(ii) in the backdrop of availability of sufficient interest free funds with the assessee. CIT-A Advising the A.O to consider only those investments made in the non-subsidiary companies which had yielded dividend income for the purpose of disallowance u/s 14A r.w Rule 8D(2)(iii), which as claimed by the revenue is contrary to the CBDT Circular No. 5 of 2014, dated 11.02.2014 - As respectfully following the view taken by the Tribunal while disposing off the revenue s appeal for A.Y 2010-11 2021 (2) TMI 666 - ITAT MUMBAI , though approve the view taken by the CIT(A) that only those investments which had yielded exempt income during the year are to be considered for computing the average value of investments‟ while working out the disallowance u/s 14A r.w Rule 8D(2)(iii), but then considering the judgment of the Hon ble Apex Court in the case of Maxopp Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT are not persuaded to further confine the same only to the extent of such investments which were made by the assessee in non-subsidiary companies. The Grounds of appeal No. 2 3 raised by the revenue are partly allowed in terms of our aforesaid observations. TP Adjustment - international transaction of providing corporate guarantee/counter guarantee by the assessee to various banks and other corporate bodies for and on behalf of its AEs - HELD THAT - Hon ble High Court of Bombay in the case of CIT Vs. Everest Kento Cylinders Ltd. 2015 (5) TMI 395 - BOMBAY HIGH COURT had observed, that considerations which applied for issuance of a Corporate guarantee are distinct and separate from that of bank guarantee and thus, no feasible comparison could be made between the guarantees issued by the commercial banks as against a corporate guarantee issued by a holding company for the benefit of its AE, a subsidiary company. After so observing, the Hon ble High Court had approved the guarantee fees of 0.5% charged by the assessee before them from its AE, as against that of 3% that was adopted by the TPO by referring to the bank guarantee rate. In our considered view the guarantee fee of 1% p.a of the value of the international transaction charged by the assessee before us from its AEs for providing corporate guarantee for and on their behalf, which was been benchmarked by it by applying external CUP method was at arm s length and no adjustment as regards the same was liable to be made. We herein direct the A.O/TPO to vacate the upward transfer pricing adjustment made as regards the international transaction of providing of corporate guarantee by the assessee to its AEs. The Grounds of appeal raised by the assessee are allowed in terms of our aforesaid observations. Levy of Education Cess and the Secondary and Higher Education Cess on the total income of the assessee is allowable as deduction u/s 37 - HELD THAT - As relying on SESA GOA LIMITED case 2020 (3) TMI 347 - BOMBAY HIGH COURT we herein direct the A.O to allow the assessee s claim for deduction of education cess and secondary and higher education cess u/s 37 of the Act. The additional ground of appeal no. 2 is allowed.
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D regarding administrative expenses. 2. Disallowance under Transfer Pricing for corporate guarantee/counter guarantee. 3. Allowability of Education Cess and Secondary and Higher Education Cess as a deduction under Section 37. Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The assessee challenged the disallowance of administrative expenses under Section 14A read with Rule 8D(2)(iii). The assessee argued that the disallowance should be restricted to INR 1,46,90,230 instead of INR 8,17,52,359. The CIT(A) had set aside the issue to the Assessing Officer (A.O) for re-examination, which the assessee contested. The Tribunal upheld the CIT(A)'s decision to re-examine the issue but directed that the disallowance under Section 14A should be restricted to the extent of the exempt income earned during the year, in line with the Delhi High Court's judgment in Joint Investments Pvt. Ltd. vs. CIT. The Tribunal also directed the A.O to consider only those investments which yielded dividend income for computing the disallowance under Rule 8D(2)(iii). 2. Disallowance under Transfer Pricing for Corporate Guarantee/Counter Guarantee: The assessee contested the upward adjustment made by the Transfer Pricing Officer (TPO) for providing corporate guarantees to its Associate Enterprises (AEs). The TPO had used the average bank guarantee rate of 2% per annum for benchmarking, which was reduced to 1.80% by the CIT(A). The assessee argued that the corporate guarantee provided to its AEs was at arm's length and no adjustment was required. The Tribunal agreed with the assessee, citing the Bombay High Court's decision in CIT vs. Everest Kento Cylinders Ltd., which differentiated between corporate guarantees and bank guarantees. The Tribunal directed the A.O/TPO to vacate the upward adjustment of Rs. 6,19,73,996. 3. Allowability of Education Cess and Secondary and Higher Education Cess as a Deduction: The assessee claimed that Education Cess and Secondary and Higher Education Cess should be allowed as a deduction under Section 37. The Tribunal referred to the Bombay High Court's decision in Sesa Goa Limited vs. Joint Commissioner of Income-tax, which held that "cess" is not included in the term "any rate or tax levied" under Section 40(a)(ii) and thus, is allowable as a deduction. The Tribunal directed the A.O to allow the deduction for Education Cess and Secondary and Higher Education Cess. Conclusion: The Tribunal partly allowed both the assessee's and the revenue's appeals. For the disallowance under Section 14A, the Tribunal restricted it to the exempt income earned and directed the A.O to consider only those investments yielding dividend income. For the transfer pricing adjustment, the Tribunal vacated the upward adjustment for corporate guarantees. Lastly, the Tribunal allowed the deduction for Education Cess and Secondary and Higher Education Cess under Section 37.
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