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2020 (1) TMI 203 - AT - Income TaxTP Adjustment - arm s length price adjustment relating to corporate guarantee involving overseas associated enterprise and @3.75% of the amount of guarantee itself - HELD THAT - CIT(A) has followed various judicial precedents i.e Tega Industries Ltd. vs. DCIT 2016 (9) TMI 1456 - ITAT KOLKATA Bharti Airtel Ltd. vs. Addl. CIT 2014 (3) TMI 496 - ITAT DELHI that a corporate guarantee does not amount to an international transaction u/s 92B of the Act. Learned coordinate bench(s) have also taken into consideration section 92B Explanation by the Finance Act 2012 w.e.f. 01.04.02. We therefore decline Revenue s arguments in support of its first substantive ground raised in both the instant appeals. Book profit adjustment u/s 115JB regarding retention money - HELD THAT - As decided in own case 2017 (3) TMI 207 - ITAT KOLKATA the admitted factual and legal position in the present case is that retention money is not in the nature of income till such time the contractual obligations are fully performed to the satisfaction of the customer by the Assessee. Therefore the retention money cannot be regarded as income even for the purpose of book profits u/s.115JB of the Act though credited in the profit and loss account and have to be excluded for arriving at the book profits u/s.115JB of the Act. We hold accordingly and confirm the order of the CIT(A) in this regard. Section 14A r.w.r. 8D disallowance in relation to the exempt income in nature of dividends - Revenue s former case is that the impugned disallowance also deserves to be added for book profits computation u/s 115JB - HELD THAT - Hon ble apex court s decision in Maxopp Investment Ltd. vs. CIT 2018 (3) TMI 805 - SUPREME COURT holds that the purpose of making exempt income yielding investments is no more a guiding factor, we therefore decline the assessee s foregoing argument. The fact also remains that this tribunal s coordinate bench s decision in REI Agro Ltd. vs. DCIT 2013 (9) TMI 156 - ITAT KOLKATA holds that only exempt income yielding investment have to be considered for computing the impugned disallowance. The same has nowhere been considered in either of the lower proceedings. This tribunal s yet another decision in Maruti Traders Investors vs. ACIT 2019 (1) TMI 258 - ITAT KOLKATA holds that since administrative expenditure is an indirect head, the same has to be disallowed on pro rata basis i.e exempt income vis-a-vis total income. We therefore accept this last limb of section 14A r.w. Rule 8D disallowance in Revenue s favour for statistical purposes and direct the Assessing Officer to compute impugned administrative expenditure disallowance in terms of foregoing case law in consequential proceedings. Revenue s further contention that the impugned section 14A r.w. Rule 8D disallowance deserves to be added for book profit adjustment is declined in view of ACIT v. Vireet Investments Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI . We therefore partly accept the Revenue s instant last issue and restore it back to the Assessing Officer for a fresh computation in above terms Leave encashment disallowance u/s 43B(f) - HELD THAT - Both the learned lower authorities have treated the same as a contingent liability being a mere provision only. It transpires during the course of hearing the hon ble jurisdictional high court s decision in the case of Exide Industries Ltd. vs. UOI 2007 (6) TMI 175 - CALCUTTA HIGH COURT had quashed the very statutory provision itself as ultra vires. Hon ble apex court stated 2009 (5) TMI 894 - SC ORDER stated to be pending till date. We therefore direct the Assessing Officer to keep this issue in abeyance for a fresh decision in view of their lordships final call in the above stated lis. Education cess disallowance - TDS u/s 40(a)(ii) - HELD THAT - This issue is also no more res integra. Hon ble Rajasthan in M/s Chambal Fertilisers Chemicals Ltd. vs. JCIT 2018 (10) TMI 589 - RAJASTHAN HIGH COURT considers the CBDT s old circular at 18.05.67 to conclude the statutory expenses tax u/s 40(a)(ii) does not include cess.
Issues Involved:
1. Delay in filing the appeal by the Revenue. 2. Deletion of arm’s length price adjustment relating to corporate guarantee. 3. Retention money amounts and their inclusion in book profit adjustments under section 115JB. 4. Disallowance under section 14A read with Rule 8D regarding exempt income. 5. Disallowance of provision for leave encashment under section 43B(f). 6. Disallowance of education cess. Detailed Analysis: 1. Delay in Filing the Appeal by the Revenue: The Revenue’s appeal ITA No.147/Kol/2018 suffered from a 12-day delay due to various departmental formalities. The assessee did not dispute this delay, and therefore, the delay was condoned, allowing the appeal to be adjudicated on its merits. 2. Deletion of Arm’s Length Price Adjustment Relating to Corporate Guarantee: The Revenue challenged the CIT(A)’s deletion of arm’s length price adjustment for corporate guarantees involving overseas associated enterprises. The CIT(A) followed judicial precedents, including Tega Industries Ltd. vs. DCIT and Bharti Airtel Ltd. vs. Addl. CIT, which held that a corporate guarantee does not amount to an international transaction under section 92B of the Income Tax Act. The tribunal declined the Revenue’s arguments, affirming the CIT(A)’s decision. 3. Retention Money Amounts and Inclusion in Book Profit Adjustments under Section 115JB: The Revenue sought to revive the inclusion of retention money amounts in book profit adjustments under section 115JB. The tribunal referred to its earlier decision in the assessee’s case for assessment years 2006-07 to 2008-09, where it was held that retention money cannot be regarded as income under normal provisions or while computing book profits under section 115JB. The tribunal affirmed the CIT(A)’s order, rejecting the Revenue’s appeal on this issue. 4. Disallowance under Section 14A Read with Rule 8D Regarding Exempt Income: The Revenue’s appeal included a challenge to the deletion of disallowance under section 14A read with Rule 8D for exempt income. The CIT(A) found that the assessee had sufficient own funds to make the investments and had already disallowed a portion of the expenses related to exempt income. The tribunal affirmed the CIT(A)’s decision on interest disallowance but directed the Assessing Officer to recompute the administrative expenditure disallowance based on the tribunal’s decision in REI Agro Ltd. vs. DCIT. The tribunal also declined the Revenue’s contention that the section 14A disallowance should be added for book profit adjustment, referencing ACIT v. Vireet Investments Pvt. Ltd. 5. Disallowance of Provision for Leave Encashment under Section 43B(f): The assessee’s cross-objections included the disallowance of provision for leave encashment under section 43B(f). The tribunal noted the jurisdictional high court’s decision in Exide Industries Ltd. vs. UOI, which quashed the provision as ultra vires, but the Supreme Court’s stay on the decision was still pending. The tribunal directed the Assessing Officer to keep this issue in abeyance pending the Supreme Court’s final decision. 6. Disallowance of Education Cess: The assessee also contested the disallowance of education cess. The tribunal referred to the Rajasthan High Court’s judgment in M/s Chambal Fertilisers & Chemicals Ltd. vs. JCIT, which concluded that “tax” under section 40(a)(ii) does not include cess. The tribunal decided this issue in favor of the assessee. Conclusion: - The Revenue’s appeal ITA No.147/Kol/2018 was disallowed. - The Revenue’s appeal ITA No.109/Kol/2018 was partly allowed for statistical purposes. - The assessee’s cross-objections CO Nos.35 & 36/Kol/2018 were partly accepted. - The tribunal directed the Assessing Officer to recompute certain disallowances and keep some issues in abeyance pending higher judicial decisions.
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