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2023 (9) TMI 1428 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - dividend from shares/units of mutual funds is subjected to tax in the hence of the payer under section 115 O/115 R of the act - treatment to expense or interest made out of tonnage tax income computation - HELD THAT - We find that identical issue arose in the case of the assessee for assessment year 2009 10 2023 (9) TMI 1427 - ITAT MUMBAI wherein held grounds of appeal concerning disallowance u/s 14 A rwr 8 D while computing normal computation of income to the file of the ld AO, assessee is directed to submit revised computation before AO, AO may examine the same and following our above directions and finding recompute the disallowance by - i. No disallowance of expense or interest should be made out of tonnage tax income computation ii. As there is no interest expenditure liable for a disallowance as the own funds consisting of the share capital and reserves, are far more than the aggregate value of investments held by the company. No Interest disallowance should be made. iii. The administrative expenses cannot exceed the actual expenditure incurred. iv. Those investments on which no exempt dividend income was received by the Appellant during the year are to be excluded while computing the disallowance under Rule 8D(2)(iii). MAT computation for addition u/s 14A - Both the lower authorities are not correct in holding that the disallowance made under Section 14A of the Act under the normal computation of income is also required to be added back for computing book profits under section 115JB of the Act. This issue is covered in favour of the assessee by the decision of Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI wherein it was held that the computation under clause (f) of Explanation 1 to Section 115JB(2) is to be made without resorting to the computation as contemplated under Section 14A read with Rule 8D of the Income-tax Rules, 1962. Non-granting of tax deduction at source credit - After hearing the parties we direct the learned assessing officer to verify the availability of the credit to the assessee and if it is found in accordance with the law, grant the same. Accordingly, ground number 9 of the appeal is allowed with above direction. TP Adjustment - determination of the arm s-length price of the financial guarantee given by the assessee to its associated enterprises - adjustment is with respect to 1.15% as guarantee fees made by the assessee on its own - HELD THAT - We find that the issue in this ground is identical to the ground of the appeal of the assessee for assessment year 2009 10 2023 (9) TMI 1427 - ITAT MUMBAI wherein we have held that assessee has adopted the internal cup and taken the average of the guarantee fee is charged by the bankers from the assessee. We find that the issue is of benchmarking with respect to the corporate guarantee fee is corporate guarantee issued by the assessee to associated enterprises which is quite different then the bank guarantees. Perhaps the bank guarantee rates adopted by the assessee are the highest rates by which the ALP is determined. For assessment year 2009 10 we have already upheld 0.55% being the arm s-length price of the guarantee issued by the assessee to its associated enterprises. For this year, the assessee has computed ALP at the rate of 1.15% on its own. Therefore, we have no hesitation in upholding that the guarantee commission rate adopted by the assessee is at arm s-length price. Accordingly, ground of the appeal is allowed. Performance guarantee given by the assessee on behalf of the associated enterprises - Assessee has not charged any guarantee fees and not disallowed any sum on this account - AO after the direction of the learned dispute resolution panel has computed 1% guarantee fee commission as arm s-length price of such performance guarantee - HELD THAT - While deciding that ground of appeal, the coordinate bench in assessment year 2009 10 2023 (9) TMI 1427 - ITAT MUMBAI has held that performance financial guarantee is equivalent to the financial guarantee only and is and international transaction and therefore it needs to be benchmarked. Coordinate bench has Set-aside the issue back to the file of the learned assessing officer with a direction to the assessee to benchmark the international transaction of performance guarantee and the learned AO/TPO was directed to examine the arm s-length price. Accordingly, ground of this appeal are also set-aside to the file of the learned assessing officer with similar direction.
Issues Involved:
1. Non-Transfer Pricing Issues 2. Transfer Pricing Issues 3. Financial guarantees given on behalf of the associated enterprises 4. Performance guarantees given on behalf of the associated enterprises Summary: Non-Transfer Pricing Issues: 1. The assessee contested the applicability of Section 14A, arguing that dividend income received after tax cannot be considered non-taxable under the Act. The Dispute Resolution Panel (DRP) upheld the applicability. 2. The assessee argued that interest expenditure for tonnage activities should not be considered for disallowance under Rule 8D(2)(ii). The DRP disagreed. 3. The DRP directed that if disallowance under Rule 8D(2)(ii) exceeded non-tonnage interest expenditure, it should be limited to non-tonnage indirect interest expenditure. The assessee contested this. 4. The assessee claimed the disallowance of Rs. 36,828,776 was excessive and arbitrary. 5. The DRP confirmed the disallowance of administrative expenditure of Rs. 86,623,364 under Rule 8D(2)(i) and (iii), which the assessee argued was excessive. 6. The assessee argued the actual administrative expenditure was only Rs. 2,237,696, and the disallowance should be proportionate. 7. The assessee contended that investments in certain companies were for long-term business purposes and should not be considered for tax-free income computation under Rule 8D. 8. The DRP rejected the contention that Section 14A does not apply to investments held as stock-in-trade. 9. The AO failed to grant credit for tax deducted at source aggregating to Rs. 31,120. Transfer Pricing Issues: 10. The AO/TPO made adjustments under Section 92C(3) without providing reasons. 11. The AO/TPO held that financial guarantees given by the assessee constituted an international transaction under Section 92B. 12. The AO/TPO rejected the internal comparable rate of 1.15% for benchmarking financial guarantees. 13. The AO/TPO/DRP held the arm's-length price for financial guarantees was 1.5% per annum. 14. The AO/TPO held that performance guarantees constituted an international transaction under Section 92B. 15. The AO/TPO rejected the contention that the arm's-length price for performance guarantees was nil. 16. The AO/TPO held the arm's-length price for performance guarantees was 1% per annum. Findings: - The tribunal set aside the disallowance under Section 14A to the AO for recomputation, directing that no disallowance should be made out of tonnage tax income, and administrative expenses should not exceed actual expenditure. Investments yielding no dividend income should be excluded. - The tribunal upheld the assessee's internal CUP method for financial guarantees, confirming 1.15% as the arm's-length price. - For performance guarantees, the tribunal noted they are akin to financial guarantees and need benchmarking, remanding the issue to the AO for proper benchmarking. Conclusion: - The appeals for AY 2010-11, 2012-13, and 2014-15 were partly allowed, with directions for recomputation and verification by the AO. - The tribunal confirmed no adjustment to book profits under Section 115JB due to disallowance under Section 14A. - The AO's appeal for AY 2014-15 was dismissed, confirming the CIT(A)'s deletion of interest expenditure disallowance related to tonnage tax computation.
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