2020 (2) TMI 563 - AT - Income Tax

MAT - Addition made u/s. 115JB on account of provision for contingency - HELD THAT - Upon careful consideration we find that if finally assessee has been called upon to pay more than the amount provided for the concerned period the same cannot be said to be unascertained liability. Hence we direct that if against the same liability which has been held to be unascertained subsequently assessee has paid the amount the same cannot be said to be provision for unascertained liability. The Assessing Officer shall examine the subsequent payment and decide as per our observation as above. Deduction u/s 80IA of the Act for other income - HELD THAT - We find that the learned CIT(A) s finding is cogent that these receipts cannot be said to be profit derived from the industrial undertaking. They are admittedly beyond the first degree and the decision of Hon ble Apex Court in Liberty India 2009 (8) TMI 63 - SUPREME COURT is squarely applicable. Since this issue is decided on the basis of applicable Hon ble Supreme Court decision dealing with other decisions is not relevant. Moreover as regards the issue of foreign exchange gain is concerned the learned CIT(A) has given a finding that no detail regarding the same was furnished before him. Before us also the learned counsel of the assessee has shown his inability and submitted that details are not available. In these circumstances in our considered opinion there is no infirmity in the order of learned CIT(A). Hence we uphold the same. TP Adjustment - proportionate adjustment sustained under Section 92C of the Act with respect to the arm s length price of technical services made to the associated enterprise - HELD THAT - In assessee s own case for assessment year 2008-09 keeping the principles of judicial consistency and judicial discipline it is directed that the arm s length price of the said transaction of technical service fees be taken at 50% of the amount claimed by the appellant (full consideration for clauses (a) and (b) of the agreement and half consideration for clauses (c) (d) and (e) of the agreement). Hence the arm s length price of the international transaction would be Rs. 1, 73, 25, 000/-. This means an adjustment of Rs. 1, 73, 25, 000/- is required to be made to the said international transaction. The AO is directed accordingly. Disallowance of expenses under Section 14A - First contention is that disallowance under Section 14A of the Act is to be limited to the extent of exempt income earned - HELD THAT - We find that the contention of the learned counsel of assessee is cogent inasmuch as the same view was taken by the Hon ble Apex Court in the case of Maxopp Investment Ltd. vs CIT 2018 (3) TMI 805 - SUPREME COURT Second contention of assessee is having sufficient interest free funds and hence no disallowance for interest is to be done under Section 14A - This claim is supported by Hon ble Jurisdictional High Court decision in the case of CIT vs HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT and CIT vs Reliance Utilities Power Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT . We find this submission is also cogent. Hon ble Jurisdictional High Court in the aforesaid case has duly accepted that no disallowance for interest is to be done under Section 14A of the Act if assessee is having sufficient interest free funds available with it. It was also expounded that assessee was not required to bring out a one-to-one co-relation - we remit this issue to the file of the Assessing Officer to do computation of disallowance u/s 14A of the Act afresh.

Summary

Issues Involved:
1. Addition under Section 115JB of the Income Tax Act on account of provision for contingency.
2. Deduction under Section 80IA of the Income Tax Act for other income.
3. Transfer pricing adjustment under Section 92C of the Income Tax Act.
4. Disallowance of expenses under Section 14A of the Income Tax Act.

Detailed Analysis:

1. Addition under Section 115JB of the Income Tax Act on Account of Provision for Contingency:
The issue pertains to the addition made under Section 115JB related to the provision for contingency for the assessment years 2009-10 and 2010-11. The Assessing Officer (AO) added the provision for contingencies to the book profit, considering it a contingent liability. The CIT(A) dismissed the assessee's appeal by referring to his order for the previous year. The Tribunal, referencing its own order for the assessment year 2008-09, found that the provision for disputed claims was contingent and not ascertainable. The Tribunal remitted the issue back to the AO to verify the current status of the liability. If the liability was subsequently paid, it should not be considered unascertained.

2. Deduction under Section 80IA of the Income Tax Act for Other Income:
The issue involves the denial of deduction under Section 80IA for various other incomes such as rent recovery, scrap sales, interest income, miscellaneous income, and exchange gain for the assessment years 2009-10, 2010-11, and 2011-12. The Tribunal, referencing its decision for the assessment year 2008-09, upheld the assessee's claim for interest income qualifying for deduction under Section 80IA based on the jurisdictional High Court's decision. However, the Tribunal agreed with the CIT(A) that rent recovery, scrap sales, and sundry revenue do not qualify for deduction under Section 80IA as they are not derived directly from the industrial undertaking. The Tribunal also upheld the CIT(A)'s decision that foreign exchange gains do not qualify for deduction under Section 80IA due to lack of details and supporting evidence.

3. Transfer Pricing Adjustment under Section 92C of the Income Tax Act:
The common issue raised is the proportionate adjustment sustained under Section 92C regarding the arm’s length price of technical services made to the associated enterprise. The AO disallowed 50% of the fees paid for technical services to the associated enterprise. The CIT(A) upheld this adjustment, referencing similar decisions in the assessee’s own case for previous years. The Tribunal, following its own precedent, upheld the CIT(A)'s order, confirming the 50% adjustment as the arm’s length price for the technical services.

4. Disallowance of Expenses under Section 14A of the Income Tax Act:
For the assessment years 2010-11 and 2011-12, the AO made disallowance under Section 14A read with Rule 8D. The assessee contended that the disallowance should be limited to the extent of exempt income earned and that it had sufficient interest-free funds. The Tribunal found the assessee’s contentions valid, referencing the Hon'ble Apex Court's decision in Maxopp Investment Ltd. vs CIT and the jurisdictional High Court's decisions in CIT vs HDFC Bank Ltd. and CIT vs Reliance Utilities & Power Ltd. The Tribunal remitted the issue to the AO for fresh computation of disallowance under Section 14A.

Conclusion:
The Tribunal's order addressed multiple issues, providing detailed analysis and directions for each. The appeals were partly allowed, with specific issues remitted back to the AO for further examination and computation. The Tribunal's decisions were based on precedent and relevant case law, ensuring consistency and adherence to judicial principles.