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2018 (4) TMI 863 - AT - Income TaxTPA - Adjustment made on account of arm s length price in relation to interest received / receivable on loans extended to associated enterprises - Held that - The issue in the present assessment year has also to be decided in line with the issue decided in earlier years and following the same parity of reasoning, we direct the Assessing Officer to verify whether the loans were advanced to associated enterprises on LIBOR or WIBOR rates, as the case may be, and if so, then the said transaction was within arm s length price; otherwise; the TPO can re-compute the arm s length price of international transactions. Accordingly, the matter is set aside to the file of Assessing Officer/TPO to compute adjustment, if any, in the hands of assessee after verifying the claim of assessee. The ground of appeal raised by the assessee allowed for statistical purposes. Disallowance made u/s 14A read with Rule 8D - non-recording of satisfaction by the Assessing Officer before invoking provisions of section 14A - Held that - In the present case, the Assessing Officer has failed to record necessary satisfaction as to why suo moto disallowance made by the assessee was not correct and in the absence of the same and applying the ratio laid down by the Hon ble Supreme Court in Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT (2017 (5) TMI 403 - SUPREME COURT OF INDIA) and in Maxopp Investment Ltd. Vs. CIT (2018 (3) TMI 805 - SUPREME COURT OF INDIA) we find no merit in the disallowance worked out by the Assessing Officer by invoking provisions of Rule 8D(iii) of the Rules. In the absence of recording of satisfaction under section 14A(2) of the Act, the action of Assessing Officer is not as per law and the same is reversed MAT computation - disallowance worked out under section 14A read with Rule 8D of the Rules not to be added - Held that - We direct the Assessing Officer not to include the disallowance under section 14A of the Act read with Rule 8D of the Rules, if any, as part of book profits under section 115JB of the Act.
Issues Involved:
1. Adjustment to Arm's Length Price (ALP) for interest on loans to Associated Enterprises (AE). 2. Disallowance under Section 14A read with Rule 8D. 3. Proportionate increase of deduction under Section 10A for disallowance under Section 14A. 4. Inclusion of disallowance under Section 14A in the computation of book profit under Section 115JB. Detailed Analysis: Issue 1: Adjustment to Arm's Length Price (ALP) for interest on loans to Associated Enterprises (AE) The assessee contested the addition of ?74,38,465 to the ALP of international transactions related to interest received/receivable on loans extended to AE. The Tribunal noted that the issue had been previously decided in favor of the assessee in its own case for the assessment years 2008-09 and 2009-10. The Tribunal directed the Assessing Officer (AO) to verify whether the loans were advanced at LIBOR+ or WIBOR+ rates. If so, the transactions would be within the arm's length price; otherwise, the Transfer Pricing Officer (TPO) could re-compute the ALP. The matter was thus set aside to the AO/TPO for verification and computation of any necessary adjustment. Issue 2: Disallowance under Section 14A read with Rule 8D The assessee had suo moto disallowed ?50,000 as expenses related to earning exempt income under Rule 8D(iii). The AO, however, disallowed ?15,50,542. The assessee argued that the AO failed to record satisfaction as required under Section 14A(2) before making the disallowance. The Tribunal referenced the Supreme Court rulings in Godrej & Boyce Manufacturing Co. Ltd. and Maxopp Investment Ltd., which mandate that the AO must record satisfaction that the assessee's disallowance is incorrect before applying Rule 8D. The Tribunal found that the AO had not recorded such satisfaction and thus reversed the disallowance, allowing the assessee's appeal on this ground. Issue 3: Proportionate increase of deduction under Section 10A for disallowance under Section 14A This was an alternative plea to Issue 2. Since the Tribunal allowed the appeal on Issue 2, the alternate plea did not stand and was not addressed further. Issue 4: Inclusion of disallowance under Section 14A in the computation of book profit under Section 115JB The assessee argued that the disallowance under Section 14A should not be added to the book profit under Section 115JB. The Tribunal noted that this issue had been decided in the assessee's favor in previous years and by other Tribunal decisions. It directed the AO to exclude any disallowance under Section 14A from the computation of book profits under Section 115JB, aligning with prior Tribunal rulings. Conclusion: The appeal was partly allowed. The Tribunal directed the AO/TPO to verify and compute adjustments related to the ALP for interest on loans to AE, reversed the disallowance under Section 14A due to lack of recorded satisfaction, and excluded the disallowance under Section 14A from the computation of book profits under Section 115JB. The alternate plea regarding Section 10A was not addressed as it was contingent on the disallowance under Section 14A, which was reversed.
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