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2020 (8) TMI 919 - AT - Income TaxTP Adjustment - interest on outstanding receivables to be computed by applying LIBOR plus 0.5% - HELD THAT - Exactly similar issue has been dealt with by the Tribunal in assessee s own case for the A.Y. 2013-14 2019 (4) TMI 2094 - ITAT MUMBAI wherein the Tribunal has held that interest on outstanding receivables has to be computed by applying LIBOR plus 0.5%. Tribunal in assessee s own case for the A.Y. 2013-14 we direct the A.O. to make adjustment by applying LIBOR plus 0.5%. We direct accordingly. Treatment of interest income received on margin money and on bank deposit and ICD - income from other sources OR business income - HELD THAT - As respectfully following the order of the Tribunal in assessee s own case in 2019 (4) TMI 2094 - ITAT MUMBAI we direct the A.O. to treat interest on margin money as income from business whereas interest on bank deposit and ICD as income from other sources. We direct accordingly. Disallowance u/s 14A r.w.r. 8D under normal provisions as well as while computing book profit U/s 115JB - HELD THAT - In the instant case before us there is no dispute to the fact that the assessee was not in receipt of any exempt income therefore no disallowance is warranted U/s 14A of the Act r.w.r. 8D of the Rules under normal provisions as well as while computing income u/s 115JB of the Act since assessee was not in receipt of any exempt income during the year under consideration. Addition on account of provision of income tax recoverable from GUVNL and Essar Steel Ltd. while computing income under the normal provisions and for the purpose of book profit U/s 115JB - HELD THAT - Respectfully following the orders of the Tribunal in assessee s own case 2019 (4) TMI 2094 - ITAT MUMBAI we confirm the addition made by the AO/TPO under normal provisions of the Act. Addition made while computing book profit U/s 115JB - As relying on 2019 (4) TMI 2094 - ITAT MUMBAI confirm the action of the A.O. on account of provisions of income tax recoverable while computing income under normal provisions of the Act and also direct the A.O. to delete the addition made while computing book profit U/s 115JB of the Act. TP adjustment on account of interest on money advanced as share application money - adjustment by charging interest @ 4.19% on outstanding share application money paid by the assessee to its AE - HELD THAT - No merit in the adjustment made by the TPO on account of interest for the money paid for allotment of shares which was allotted within the period of 6 months. Similar view has been taken by the Coordinate Bench in the case of group concern Essar Steel Orissa Ltd. 2016 (8) TMI 415 - ITAT MUMBAI wherein it was held that recharacterization of the transaction is not permissible without any material or evidence suggesting that such advance is only a loan - Thus we do not find any merit in the adjustment made by the A.O. by charging interest on the advances made for allotment of shares. We direct accordingly.
Issues Involved:
1. Transfer Pricing Adjustment for Interest on Outstanding Receivables 2. Transfer Pricing Adjustment for Interest on Outstanding Share Application Money 3. Classification of Interest Income under "Income from Other Sources" vs. "Business Income" 4. Disallowance under Section 14A of the Income Tax Act 5. Addition of Provision for Income Tax Recoverable while Computing Normal Income and Book Profit 6. Disallowance of Depreciation Claimed on Major Overhauling Expenditure 7. Initiation of Penalty Proceedings under Section 271(1)(c) of the Act Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment for Interest on Outstanding Receivables: The Tribunal considered the rival contentions and noted that a similar issue was addressed in the assessee's own case for AY 2013-14. The Tribunal held that the interest on outstanding receivables should be computed by applying LIBOR plus 0.5%. Respectfully following the precedent, the Tribunal directed the AO to make the adjustment by applying LIBOR plus 0.5%. 2. Transfer Pricing Adjustment for Interest on Outstanding Share Application Money: The Tribunal observed that the TPO made an adjustment by charging interest at 4.19% on the outstanding share application money paid by the assessee to its AE. The Tribunal noted that the share application money was paid on 29/01/2014, and shares were allotted on 25/07/2014, within six months. The Tribunal referenced several judicial precedents which held that recharacterizing a transaction as a loan and charging interest is not permissible without material evidence. Consequently, the Tribunal did not find merit in the adjustment made by the TPO and directed its deletion. 3. Classification of Interest Income under "Income from Other Sources" vs. "Business Income": The Tribunal examined the treatment of interest income received on margin money and bank deposits. It referred to its own decisions in the assessee's cases for previous years, where it was held that interest income on margin money is assessable as business income, while interest on bank deposits and ICDs is assessable as income from other sources. Respectfully following these decisions, the Tribunal directed the AO to treat the interest on margin money as business income and the interest on bank deposits and ICDs as income from other sources. 4. Disallowance under Section 14A of the Income Tax Act: The Tribunal noted that the assessee did not earn any exempt income during the year under consideration. Citing the decision of the Hon'ble Bombay High Court in CIT Vs M/s Rivian International (P) Ltd., the Tribunal held that no disallowance under Section 14A is warranted if the assessee has not earned any tax-free income. Accordingly, the Tribunal directed that no disallowance should be made under Section 14A under normal provisions or while computing book profit under Section 115JB. 5. Addition of Provision for Income Tax Recoverable while Computing Normal Income and Book Profit: The Tribunal referred to its own decisions in the assessee's cases for previous years, confirming the addition made by the AO under normal provisions. However, it directed the AO to delete the addition made while computing book profit under Section 115JB, following the precedent in the assessee's own cases. 6. Disallowance of Depreciation Claimed on Major Overhauling Expenditure: The Tribunal noted that the assessee's representative did not press this ground. Consequently, the Tribunal dismissed this ground as not pressed. 7. Initiation of Penalty Proceedings under Section 271(1)(c) of the Act: The Tribunal did not provide a detailed analysis on this issue. However, it is implied that the Tribunal's directions on the substantive issues would influence the penalty proceedings. Conclusion: The appeal of the assessee was allowed in part, with specific directions provided for each issue based on judicial precedents and the facts of the case. The Tribunal's order was pronounced after considering the extraordinary situation due to the COVID-19 pandemic and lockdown, excluding the period of lockdown days.
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