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2024 (1) TMI 1291 - AT - Income TaxTP Adjustment - Interest on delayed realization of export proceeds from AEs - assessee submitted that the assessee is not charging interest on delayed realization either from the Associated Enterprises (AEs) or Non-AEs - DR submitted that average realization period from AEs is far greater than average realization period from Non-AEs. There are stray incidence of delay in recovery from Non-AEs - HELD THAT - Except from one AE i.e. Stride Inc. where there is substantial delay of 311 days in respect of transactions on single day i.e. 29/06/2011 realization of the receivable is within the period. Apart from above there is nominal delay of 58 days in recovery from Co Pharma Ltd. another AE of the assessee. A perusal of the details from Non-AE at page 85 to 125 shows that there is a delay of 398 days and 219 days in respect of the transactions with Non-AEs on different dates. As evident from documents on record that in some of the transactions with AEs and Non-AE there is delay in recovery of receivables. The assessee has been following uniform policy of not charging interest on delayed realization from AEs and Non-AEs. The Hon ble Jurisdictional High Court in the case of Indo American Jewellery 2013 (1) TMI 804 - BOMBAY HIGH COURT has held that where there is complete uniformity in not charging interest from AEs and Non-AEs for delay in realization of export proceeds the Assessing Officer was not justified in making addition of notional interest in respect of transactions with AEs in the course of transfer pricing proceedings. DRP while disposing of objections of the assessee in Assessment Year 2011-12 deleted the adjustment made by TPO for similar reasons by following the decision of Indo-American Jewellery 2013 (1) TMI 804 - BOMBAY HIGH COURT TPO in Assessment Year 2010-11 had made adjustment in respect of delayed receivables. The Co-ordinate Bench in assessee s appeal 2023 (5) TMI 1101 - ITAT MUMBAI held that there is no requirement to charge any interest towards receivable albeit in the said Assessment Year there was only two instances of marginal delay of 60 days and 26 days. Thus we hold that imputing of interest on delayed payment of receivables from AEs is unwarranted. The ground No. 2 of the appeal is thus allowed. Interest on share application money pending allotment - HELD THAT - In immediate preceding Assessment Year the Co-ordinate Bench in turn following the order in assessee s appeal in 2023 (5) TMI 1101 - ITAT MUMBAI for Assessment Year 2010-11 deleted the addition as held AO or the TPO are not empowered to convert and re-characterize a transaction of share application into a loan transaction. This aspect of the matter has been overlooked by the DRP in its order for earlier year. As such it could not be followed. Secondly the remittance of the said share application money was approved and supervised by the RBI and the purpose of remittance as approved was investment in share capital. As such there is no dispute to the fact that the amounts paid were on account of investment in share capital of the associates or subsidiaries. We further note that even otherwise the transaction of issue of shares is a capital account transaction and not a revenue account transaction and therefore could not be said to result in any income per se. We further notice that the co-ordinate benches of the Tribunal have also taken a view that no imputation of interest could be made on a transaction of share application money paid to subsidiaries. Decided in favour of assessee. Disallowance of FCCB issue expenses - HELD THAT - We find that the expenditure incurred on issuance of FCCBs has been amortized by the assessee over a period of five years. The assessee had claimed 1/5th expenditure each year in the past starting from Assessment Year 2008-09. The Co-ordinate Bench in appeal by the assessee 2023 (6) TMI 1388 - ITAT MUMBAI directed the AO to allow 1/5th expenditure. Since there is no change in facts in the impugned assessment year and no contrary material is brought on record by the Revenue we see no reason to take a different view on this issue. The assessee succeeds on this ground of appeal. Disallowance u/s. 14A - HELD THAT - It is no more res-integra that no disallowance u/s. 14A of the Act is warranted where the assessee has not earned any exempt income during the relevant period. Re. PCIT vs. State Bank of Patiala 2018 (11) TMI 1565 - SC ORDER PCIT vs. Ballarpur Industries Ltd 2016 (10) TMI 1039 - BOMBAY HIGH COURT . In light of undisputed facts and the settled legal position ground of appeal is allowed. Adjustment made to book profits u/s. 115JB of the Act with respect to disallowance u/s.14A - HELD THAT - The Special Bench of Tribunal in the case of Vireet Investment Pvt. Ltd 2017 (6) TMI 1124 - ITAT DELHI has held that computation u/s. 115JB of the Act is to be made without considering disallowance made u/s.14A of the Act r.w. Rule 8D. The Hon ble Gujarat High Court in the case of PCIT vs. Gujarat Flouro Chemicals Ltd 2020 (10) TMI 252 - GUJARAT HIGH COURT has reiterated the position that no addition in Book Profit is to be made on the basis of calculation worked out u/s.14A of the Act. In light of settled legal position we find merit in ground No. 8 of appeal hence the same is allowed. Disallowance made u/s. 14A suo-moto while computing the total income - Directions to reduce suo-motu disallowance while determining the taxable income as no exempt income has been earned by the assessee during the relevant period.
Issues Involved:
1. Interest on delayed realization of export proceeds from AEs 2. Interest on share application money pending allotment 3. Disallowance of FCCB issue expenses 4. Disallowance u/s. 14A of the Act 5. Adjustment made to book profits u/s. 115JB of the Act with respect to disallowance u/s.14A of the Act 6. Levy of interest u/s. 234C of the Act 7. Initiation of Penalty proceedings u/s. 271(1)(c) of the Act 8. Additional Ground of Appeal regarding disallowance u/s. 14A Summary: Issue 1: Interest on delayed realization of export proceeds from AEs - Rs. 22,91,372/- The assessee argued that no interest was charged on delayed realization from both AEs and Non-AEs. The Tribunal found that the assessee followed a uniform policy of not charging interest and cited the case of Indo American Jewellery Ltd., where it was held that no notional interest should be imputed if there is uniformity in not charging interest. The Tribunal allowed the appeal on this ground. Issue 2: Interest on share application money pending allotment - Rs. 13,03,61,705/- The assessee contended that the TPO recharacterized the investment as a loan and charged interest. The Tribunal, following its consistent view in earlier years, held that no interest should be charged on share application money pending allotment, as supported by the case of Shell India Markets Pvt Ltd. The appeal was allowed on this ground. Issue 3: Disallowance of FCCB issue expenses - Rs. 1,70,26,884/- The assessee claimed 1/5th of the FCCB issue expenses u/s. 35D of the Act. The Tribunal, following its earlier decisions, allowed the claim for 1/5th expenditure as there was no change in facts and no contrary material was presented by the Revenue. The appeal was allowed on this ground. Issue 4: Disallowance u/s. 14A of the Act The assessee did not receive any exempt income but made a suo-motu disallowance of Rs. 24,25,840/-. The Tribunal held that no disallowance u/s. 14A is warranted when no exempt income is earned, citing PCIT vs. State Bank of Patiala. The appeal was allowed on this ground. Issue 5: Adjustment made to book profits u/s. 115JB of the Act with respect to disallowance u/s.14A of the Act The Tribunal held that no addition in Book Profit should be made based on disallowance u/s.14A, following the Special Bench decision in Vireet Investment Pvt. Ltd. and the Gujarat High Court's ruling in PCIT vs. Gujarat Flouro Chemicals Ltd. The appeal was allowed on this ground. Issue 6: Levy of interest u/s. 234C of the Act The Tribunal found that charging of interest u/s. 234C is consequential and mandatory. The issue was restored to the Assessing Officer to verify the contentions of the assessee. The appeal was allowed for statistical purposes. Issue 7: Initiation of Penalty proceedings u/s. 271(1)(c) of the Act The Tribunal dismissed this ground as premature. Issue 8: Additional Ground of Appeal regarding disallowance u/s. 14A The Tribunal admitted the additional ground and, following its earlier decision, directed the deletion of the suo-motu disallowance made by the assessee, even if it results in the assessed income going below the returned income. The appeal was allowed on this ground. Conclusion: The appeal of the assessee was partly allowed, with various grounds being accepted based on consistent legal precedents and the facts of the case.
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