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2019 (5) TMI 1542 - AT - Income TaxDisallowance u/s 14A r.w.r 8D - suo-moto disallowance by assessee - as per AO investment in shares for the purpose of earning dividend income and long term capital gains which are exempt and not chargeable to tax under the Act - HELD THAT - Assessee has suo moto disallowed ₹ 25,817/- u/s 14A of the Act for earning tax free dividend income of ₹ 78,037/-. It is also not in dispute that the Assessing Officer has not recorded any satisfaction in so far as correctness or otherwise of the suo moto disallowance of ₹ 25,819/- made by the assessee is concerned. There is also no finding that the assessee has used interest bearing funds for making the investment in shares. The Revenue has failed to establish the nexus between the borrowed funds and the investment in shares. No satisfaction being recorded by the AO and considering the suo moto disallowance qua the dividend income we direct the Assessing Officer to restrict the disallowance to the extent of exempt income of ₹ 78,037/-. Loss on sale of finance receivables/securitization - Debt recovery agent - assessee entered into an assignment agreement with Shriram Transport Finance Company Ltd STFCL for outright sale of each of these receivables for an agreed consideration and in terms of the above arrangement, all rights, title and interest with respect to these loan facilities were transferred to STFCL without any recourse to the assessee. The aggregate book value of loans is at ₹ 10,11,71,94,000/- after adjusting the sale consideration of ₹ 9,08,29,87,000/- received from STFCL and resultant loss at ₹ 103,42,07,000/- has been claimed as expenses in the Profit and Loss Account. HELD THAT - There is no dispute that the assessee has lent money to around 45000 borrowers who gave security of vehicles in the form of hypothecation to the assessee. In this line of trade, the lender takes post dated cheques from the borrowers in advance. Since on the date of sale agreement executed with STFCL the assessee was holding post dated cheques of the borrower, therefore, for the period to which post dated cheques were with the assessee, the assessee collected installments for and on behalf of STFCL and after retaining the commission at 1.75%, the assessee remitted the amount to STFCL. The assessee acted as collection agent of STFCL. In so far as hypothecation of vehicle is concerned, in our understanding, the vehicles are hypothecated only as security against loan given. Hypothecation of around 45000 vehicles to be transferred in the name of STFCL would take a substantial period of time and moreover, it is for STFCL to get hypothecation transferred in its name, the assessee cannot be held liable after sale of receivables to STFCL. After addressing to the objection of the AO/DRP/DR, we are of the considered opinion that if the Revenue is objecting to the appointment of the assessee as Debt Recovery Agent, then, principally the revenue has accepted that the transfer of loan has taken place. Further, when the Revenue is objecting to indemnity of 20%, then also the revenue is accepting that actual transfer has taken place. In the light of the sale agreement and various relevant clauses discussed hereinabove, we are of the considered opinion that transaction has taken place during the year under consideration and loss has crystallized during the year under consideration and the assessee is entitled for claim of loss of ₹ 103.87 crores in the year itself. We, accordingly direct the Assessing Officer to delete the addition of ₹ 104.87 crores. TP Adjustment - international transactions entered into by the assessee revealed that it was making payments for certain Intra Group services IGS which had been bench marked under TNMM - HELD THAT - Dispute has to be given a fresh look by the TPO in the light of several documentary evidences brought in support of the IGS fee paid by the assessee. We, accordingly, remit the matter back to the file of the TPO/Assessing Officer with the direction to consider the issue afresh in light of the decision of the co-ordinate bench. Ground No. 3 is allowed for statistical purposes. No interest charged on credits to its AEs - HELD THAT - There is no dispute that the TPO has solely based his findings on the retrospective amendment to section 92B. We are of the opinion that when the impugned T P study report was furnished by the assessee as per the then applicable provision, outstanding receivables were not considered as international transaction. In our humble opinion, a party cannot be called upon to perform an impossible act i,e., to comply with a provision not in force at the relevant time but introduced later by retrospective amendment. We draw support from the judgment in the case of NGC Networks India Pvt Ltd 2018 (5) TMI 1148 - BOMBAY HIGH COURT wherein followed the view taken by it in CIT Vs. Cello Plast 2012 (8) TMI 527 - BOMBAY HIGH COURT wherein the court has applied the legal maxim Lex non cogit impossibilia law does not compel a man to do that which he cannot possibly perform. Though the TPO has computed the interest by observing that substantial amount of outstanding receivables from the AEs remained outstanding period for a prolonged period. However, no such substantial amount has been mentioned nor the delay considered as delay for a prolonged period has been mentioned. On the contrary, we find force in the contention of the ld. AR. Exhibit 42 of the paper book under the head Service Income Receivable . Since the facts are not coming out from the orders of the authorities below, we deem it fit to restore this issue to the file of the TPO. The TPO is directed to furnish details of substantial amount which, according to him, has been outstanding for a prolonged period. Application filed u/s 155(4) - improper credit of tax deducted at source - HELD THAT - We direct the Assessing Officer to examine the matter afresh in light of the TDS details furnished by the assessee in its original return, revised return and application filed u/s 155(4) of the Act. TPO is further directed to verify whether any refund was allowed to the assessee to justify the withdrawal of interest u/s 244A of the Act and levy of interest u/s 234D. The TPO is directed to charge such interest as per provisions of law and after allowing reasonable opportunity of being heard to the assessee. Miscellaneous grounds are treated as allowed for statistical purposes.
Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act, 1961. 2. Disallowance on account of loss on sale of finance receivables. 3. Addition made by the Transfer Pricing Officer (TPO) in respect of Regional Headquarter Services availed from Associated Enterprises (AEs). 4. Addition of notional interest on overdue receivables from AEs. 5. Not granting TDS credit and withdrawal of interest under Section 244A, and levying interest under Section 234D of the Income-tax Act, 1961. Detailed Analysis: Issue 1: Disallowance under Section 14A - Background: The Assessing Officer (AO) observed that the assessee had made investments in shares for earning exempt income and computed disallowance as per Rule 8D of the ITAT Rules at ?7.94 crores. - Assessee's Argument: The assessee claimed that investments were made out of own funds and no interest-bearing funds were used. The assessee had suo moto disallowed ?25,819/- under Section 14A. - DRP's Decision: The Dispute Resolution Panel (DRP) upheld the AO's findings but directed the AO to record specific satisfaction of the incorrectness of the assessee’s workings. - Tribunal's Decision: The Tribunal found no satisfaction recorded by the AO regarding the correctness of the assessee's disallowance and no evidence of using interest-bearing funds for investments. The Tribunal directed the AO to restrict the disallowance to the extent of exempt income of ?78,037/-. Issue 2: Disallowance on account of loss on sale of finance receivables - Background: The AO disallowed ?103.87 crores claimed as a loss on the sale of finance receivables to Shriram Transport Finance Company Ltd (STFCL). - Assessee's Argument: The assessee argued that the sale was outright without recourse, and the loss was a legitimate business expense. - AO's Findings: The AO concluded that the transaction was not genuine, citing reasons such as the interim service agreement for collection and security, lack of proper valuation explanation, and indemnity clauses. - Tribunal's Decision: The Tribunal found the objections of the AO unsubstantiated. It held that the transaction was genuine, the loss had crystallized during the year, and the assessee was entitled to claim the loss. The Tribunal directed the AO to delete the addition of ?104.87 crores. Issue 3: Addition by TPO for Regional Headquarter Services - Background: The TPO added ?12.31 crores for Regional Headquarter Services availed from AEs, determining the arm's length price at NIL. - Assessee's Argument: The assessee provided detailed documentation and argued that the services were necessary and at arm's length. - TPO's Findings: The TPO rejected the documentation and determined the arm's length price as NIL. - Tribunal's Decision: The Tribunal referred to a similar case where the matter was remanded for verification of facts. It directed the TPO to re-examine the issue in light of the provided documentation and the co-ordinate bench's decision. Issue 4: Addition of notional interest on overdue receivables - Background: The TPO added ?43.79 lakhs as notional interest on overdue receivables from AEs. - Assessee's Argument: The assessee contended that the outstanding receivables were not considered an international transaction at the time of the TP study report. - Tribunal's Decision: The Tribunal found the TPO's basis for the computation unclear and noted the retrospective amendment to Section 92B. It directed the TPO to provide detailed information on the substantial amounts and prolonged periods and decide the issue afresh. Issue 5: Not granting TDS credit and withdrawal of interest under Section 244A, and levying interest under Section 234D - Background: The assessee raised grievances regarding improper TDS credit and withdrawal of interest under Section 244A and levying interest under Section 234D. - Tribunal's Decision: The Tribunal directed the AO to examine the TDS details afresh, verify any refund allowed, and charge interest as per the law after allowing the assessee a reasonable opportunity of being heard. Conclusion: The Tribunal partly allowed the appeal for statistical purposes, directing the AO and TPO to re-examine various issues with specific instructions and in light of relevant documentation and judicial precedents.
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