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2020 (2) TMI 1270 - AT - Income TaxDeduction u/s 80IC denied - whether certain items of income, such as, claims received, misc. income, sundry balance written back, etc., can be considered as part of the profits of the eligible unit for computing deduction under section 80IC ? - HELD THAT - Notably, identical issue came up for consideration before the Tribunal in assessee s own case for the assessment year 2009 10. While deciding the issue in 2016 (4) TMI 1163 - ITAT MUMBAI the Tribunal has restored the issue to the Assessing Officer with certain directions. Disallowance under section 14A r/w rule 8D - HELD THAT - We have held that in case no exempt income is earned by the assessee during the year, no disallowance under section 14A of the Act can be made. That being the case, the ground raised by the Revenue has become redundant. Suffice to say, if the assessee had sufficient interest free fund available with it to take care of the investment, disallowance of interest expenditure cannot be made. For this reason also, no disallowance under section 14A r/w rule 8D(2)(ii) can be made. In view of the aforesaid, we dismiss the ground raised by the Revenue. MAT u/s 115JB - not to add back provisions for wealth tax while calculating book profit under section 115JB of the Act - HELD THAT - On a reading of Explanation 1(a) to section 115JB(2) of the Act, it becomes clear that it only speaks about income tax paid or payable or any provisions made for income tax. There is no reference to wealth tax liability under Explanation 1(a) to section 115JB(2) of the Act. Even otherwise also, the issue is covered in favour of the assessee by the decision in CIT v/s Echjay Forgings Pvt. Ltd. 2001 (2) TMI 56 - BOMBAY HIGH COURT wherein while considering pari materia provisions contained under section 115J(IA) of the Act, the Hon ble High Court has held that wealth tax is not contemplated in income tax paid or payable. In view of the aforesaid, we have no hesitation in holding that wealth tax liability does not come within the purview of Explanation 1(a) to section 115JB(2). Insofar as learned Departmental Representative s contention that wealth tax is an unascertained liability, hence, covered under Explanation 1(c) to section 115JB(2) of the Act, we are unable to accept the same. Wealth tax payable is certainly an ascertained liability, hence, cannot be treated as unascertained liability. Therefore, it is not covered under Explanation 1(c) to section 115JB(2) Disallowance u/s 14A r/w rule 8D both under the normal provisions as well as while computing book profit under section 115JB - specific contention of assessee before us that during the year under consideration, the assessee has not earned any exempt income whatsoever and the dividend income referred to by the Assessing Officer was earned from a foreign company and offered to tax in India - HELD THAT - If in the year under consideration the assessee has not earned any exempt income, no disallowance under section 14A r/w rule 8D can be made. Therefore, the Assessing Officer is directed to delete the disallowance after verifying assessee s claim. Even otherwise also, it is now fairly well settled that while computing book profit, the Assessing Officer cannot make any adjustment by invoking the provisions of section 14A of the Act. The only adjustment which the Assessing Officer can make is as per Explanation 1(f) to section 115JB of the Act. Therefore, if there is no exempt income earned during the year, then there is no question of making any disallowance under section 14A of the Act. International transaction u/s 92B - corporate guarantee - assessee has challenged the quantification of arm's length rate of corporate guarantee commission @ 2.5% per annum - HELD THAT - As decided in own case 2016 (4) TMI 1163 - ITAT MUMBAI Tribunal has held that the provision of corporate guarantee to the AE comes within the purview of international transaction as defined under section 92B of the Act. However, noticing that in assessee s own case the Revenue has accepted the arm's length price of corporate guarantee commission @ 0.5% in assessment year 2006 07 and 2007 08, the Tribunal has held that arm s length price of the corporate guarantee commission should be fixed @ 0.5%. The same view was reiterated by the Tribunal while deciding identical issue in assessee s own case for the assessment year 2010 11. Facts being identical, respectfully following the aforesaid decisions of the Co ordinate Bench in assessee s own case, though, we hold that the provision of corporate guarantee to the AEs is an international transaction within the meaning of section 92B of the Act, however, we are of the view that guarantee commission charged by the assessee @ 0.5% is at arm's length requiring no further adjustment. Therefore, we delete the adjustment made by the Transfer Pricing Officer and confirmed by learned DRP. Add back provisions for wealth tax while calculating book profit under section 115JB - HELD THAT - Adjustment made on account of interest on loan advanced to the AE - HELD THAT - On a reading of Explanation 1(a) to section 115JB(2) of the Act, it becomes clear that it only speaks about income tax paid or payable or any provisions made for income tax. There is no reference to wealth tax liability under Explanation 1(a) to section 115JB(2) of the Act. Even otherwise also, the issue is covered in favour of the assessee by the decision of CIT v/s Echjay Forgings Pvt. Ltd. 2001 (2) TMI 56 - BOMBAY HIGH COURT wherein while considering pari materia provisions contained under section 115J(IA) of the Act, the Hon ble High Court has held that wealth tax is not contemplated in income tax paid or payable. In view of the aforesaid, we have no hesitation in holding that wealth tax liability does not come within the purview of Explanation 1(a) to section 115JB(2) of the Act. Insofar as learned Departmental Representative s contention that wealth tax is an unascertained liability, hence, covered under Explanation 1(c) to section 115JB(2) of the Act, we are unable to accept the same. Wealth tax payable is certainly an ascertained liability, hence, cannot be treated as unascertained liability. Therefore, it is not covered under Explanation 1(c) to section 115JB(2) of the Act. In view of the aforesaid, we uphold the direction of learned DRP on the issue. Ground raised by the Revenue is dismissed.
Issues Involved:
1. Disallowance of deduction under section 80IC of the Income Tax Act. 2. Disallowance under section 14A r/w rule 8D. 3. Provision of corporate guarantee as an international transaction. 4. Adjustment on account of interest on loan advanced to AE. 5. Allocation of expenditure between eligible and non-eligible undertakings under section 80IC. 6. Disallowance of lease rentals. 7. Addition of provisions for wealth tax while calculating book profit under section 115JB. Issue-wise Detailed Analysis: 1. Disallowance of Deduction under Section 80IC: The assessee challenged the partial disallowance of deduction claimed under section 80IC. The Assessing Officer (AO) excluded certain items of income such as scrap sales, claims received, etc., from the profit of the eligible unit, relying on the Supreme Court decision in Liberty India v/s CIT. The Dispute Resolution Panel (DRP) upheld this decision. The Tribunal restored the issue to the AO for fresh adjudication, following its earlier decisions in the assessee’s own case for previous assessment years. 2. Disallowance under Section 14A r/w Rule 8D: The AO noticed that the assessee earned dividend income and made a disallowance under section 14A r/w rule 8D. The Tribunal noted the assessee's claim that no exempt income was earned during the year and directed the AO to delete the disallowance after verifying this claim. The Tribunal also clarified that no adjustment under section 14A can be made while computing book profit under section 115JB if there is no exempt income. 3. Provision of Corporate Guarantee as an International Transaction: The assessee provided a corporate guarantee to its overseas subsidiary and charged a fee of 0.5%. The AO determined the arm’s length price (ALP) of the guarantee commission at 2.5%. The Tribunal held that the provision of corporate guarantee is an international transaction but accepted the assessee's rate of 0.5% as ALP, deleting the adjustment made by the AO. 4. Adjustment on Account of Interest on Loan Advanced to AE: The AO determined the ALP of interest on a loan advanced to the AE at six months LIBOR plus 3%, instead of the assessee’s rate of six months LIBOR plus 100 basis points. The Tribunal restored the issue to the AO with directions to apply the interest rate prevailing in the country where the loan was given/consumed, following its earlier decision in the assessee’s own case. 5. Allocation of Expenditure between Eligible and Non-Eligible Undertakings under Section 80IC: The Revenue challenged the DRP’s directions regarding the allocation of expenditure between eligible and non-eligible undertakings. The Tribunal upheld the DRP’s directions, noting that they were consistent with earlier decisions in the assessee’s own case and other related cases. 6. Disallowance of Lease Rentals: The AO disallowed lease rentals paid for leased cars, treating the lease as a finance lease. The DRP deleted the disallowance, following its earlier decision. The Tribunal upheld the DRP’s decision, following its own earlier decisions in the assessee’s case. 7. Addition of Provisions for Wealth Tax while Calculating Book Profit under Section 115JB: The AO added back the wealth tax liability while computing book profit under section 115JB. The DRP deleted this adjustment, stating that only income tax can be added back as per section 115JB. The Tribunal upheld the DRP’s decision, referencing the jurisdictional High Court’s decision in CIT v/s Echjay Forgings Pvt. Ltd., which held that wealth tax is not contemplated in income tax paid or payable. Conclusion: The assessee’s appeal was partly allowed, and the Revenue’s appeal was dismissed. The Tribunal provided detailed directions for fresh adjudication on certain issues and upheld the DRP’s decisions on others, ensuring consistency with earlier judicial precedents.
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