2023 (2) TMI 1197 - AT - Income Tax

TP adjustment - interest charged on loan advance to Overseas Associated Enterprises (AEs) - assessee is a resident corporate entity and is engaged in manufacture and sale of tractor implements, linkage parts, system and forging - while ultimately computing the adjustment, the TPO has applied domestic PLR applied by Indian Banks on commercial loans - HELD THAT - It is fairly well settled that the rate of interest on loans advanced by the assessee to AEs have to be in accordance with the rate of interest prevailing in the country of residence of the AEs wherein the loan was availed. This is the view expressed in case of CIT vs. Cotton Natural (I) Pvt. Ltd. 2015 (3) TMI 1031 - DELHI HIGH COURT . Therefore, domestic PLR rate cannot be applied in respect of loans advanced in foreign currency to AEs situated in USA and Europe. As regards, the submission of learned Departmental Representative that certain guiding principles laid down by the Hon'ble jurisdictional High Court have not been followed, we are not convinced. Considering the fact that the assessment year involved is 2010- 11 and more than 12 years have passed, we are disinclined to restore the issue to the AO at this stage. Thus, having considered the overall facts and circumstances of the case in the light of judicial precedents cited before us, we do not find any infirmity in the decision of learned Commissioner (Appeals). Grounds raised are dismissed. Disallowance of interest expenditure u/s 36(1)(iii) - interest paid to banks on loans utilized for non-business purposes like advancing loan to subsidiaries at a lesser rate - HELD THAT - It is observed, while considering identical nature of dispute in assessee s own case in assessment year 2009-10, 2021 (10) TMI 276 - ITAT DELHI is true that the loan was given in earlier F.Y and the assessee had sufficient own funds to give the loan. It is equally true that no disallowance was made in the earlier Assessment Year though the DRP 19 has observed that rest judicata is not applicable under Income Tax proceedings but, in our considered opinion, when the facts are same, and the law has not changed, then the rule of consistency ought to have been followed - we do not find any merit in the addition made by the AO. Delayed payment of ESIC - Addition u/s 36(1)(va) - CIT(A) has deleted the disallowance made u/s 36(1)(va) on the ground that the payments were made before the due date of filing of return of income u/s 139(1) - HELD THAT - As decided in Checkmate Services (P)Ltd. 2022 (10) TMI 617 - SUPREME COURT has held that unless the payment towards employees contribution to PF and ESIC are paid within the time limit prescribed under the relevant statutes, as provided under explanation to section 36(1)(va) of the Act, no deduction can be allowed to the assessee. Disallowance u/s 14A read with Rule 8D - HELD THAT - As agreed the assessee has not earned any exempt income. That being the factual position emerging on record, no disallowance under Section 14A read with Rule 8D can be made in absence of any exempt income earned during the year. In this regard, we refer to the decision of the Hon'ble jurisdictional High Court in case of PCIT vs. Era Infrastructure (India) Ltd., 2022 (7) TMI 1093 - DELHI HIGH COURT . - Accordingly, we uphold the decision of learned Commissioner (Appeals) by dismissing the grounds.

Summary

Issues:
1. Condonation of delay in filing the appeal.
2. Challenge to deletion of transfer pricing adjustment on interest charged on loan advance to Overseas Associated Enterprises.
3. Challenge to deletion of disallowance of interest expenditure under Section 36(1)(iii) of the Act.
4. Challenge to deletion of disallowance of delayed payment of ESIC under Section 36(1)(va) of the Act.
5. Challenge to deletion of disallowance made under Section 14A read with Rule 8D of the Act.

Condonation of Delay in Filing the Appeal:
The appeal by the Revenue arose due to a delay of 108 days in filing, which was sought to be condoned. The delay was deemed to have a reasonable cause, leading to its condonation, and the appeal was admitted for adjudication on merits.

Challenge to Deletion of Transfer Pricing Adjustment on Interest Charged on Loan Advance to Overseas Associated Enterprises:
The Revenue contested the deletion of an addition of Rs.1,87,18,942, which was a transfer pricing adjustment on interest charged on a loan advance to Overseas Associated Enterprises (AEs). The dispute revolved around the arm's length nature of interest rates charged on loans advanced to AEs in foreign countries. The Tribunal upheld the decision of the learned Commissioner (Appeals), ruling that domestic Prime Lending Rate (PLR) cannot be applied to benchmark interest rates on foreign currency loans to AEs located abroad.

Challenge to Deletion of Disallowance of Interest Expenditure under Section 36(1)(iii) of the Act:
The Revenue challenged the deletion of disallowance of interest expenditure amounting to Rs.1,41,63,945 under Section 36(1)(iii) of the Act. The dispute centered on the interest rates charged on loans availed from banks compared to those advanced to wholly-owned subsidiaries. The Tribunal upheld the decision of the learned Commissioner (Appeals) based on consistency with a previous decision in a similar case.

Challenge to Deletion of Disallowance of Delayed Payment of ESIC under Section 36(1)(va) of the Act:
The Revenue raised an issue regarding the deletion of disallowance of Rs.8,95,765 for delayed payment of ESIC under Section 36(1)(va) of the Act. The Tribunal reversed the decision of the learned Commissioner (Appeals) based on a recent Supreme Court ruling, thereby upholding the disallowance made by the Assessing Officer.

Challenge to Deletion of Disallowance Made under Section 14A read with Rule 8D of the Act:
The Revenue challenged the deletion of disallowance made under Section 14A read with Rule 8D of the Act. However, as the assessee had not earned any exempt income during the year, the Tribunal upheld the decision of the learned Commissioner (Appeals) by dismissing the grounds raised by the Revenue.

In conclusion, the Tribunal partially allowed the appeal while maintaining the decisions of the learned Commissioner (Appeals) on various issues, including transfer pricing adjustments, disallowance of interest expenditure, delayed payment of ESIC, and disallowance under Section 14A read with Rule 8D of the Act.