2020 (3) TMI 942 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - as argued AO has not recorded satisfaction - HELD THAT - AO after examining books of the assessee accepted disallowance made by assessee in respect of interest expenditure. The manner of recording satisfaction u/s 14A r.w.r.8D(2) is subjective. There is no specified method or performa for recording of satisfaction by the AO. If the Assessing Officer has recorded his express satisfaction in whatsoever manner in rejecting assessee s suo motu disallowance, the condition as envisaged in Section 14A(2) is complied with. We do not concur with the contention of the ld. Authorized Representative for the assessee that the Assessing Officer has not recorded satisfaction before rejecting assessee s method of computation of suo-motu disallowance. Hence, the first contention of the assessee fails. No disallowance u/r.8D(2)(ii) is warranted as the assessee is having own interest free funds in the shape of share capital, reserves surplus and profits more than the investments made - Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT has held that where the assessee is having borrowed funds and own interest free funds, presumption is that the investments are made by utilizing own interest free funds. The same view has been reiterated by the Hon ble High Court in the case of HDFC vs. DCIT 2016 (3) TMI 755 - BOMBAY HIGH COURT and PCIT vs. Shreno Ltd. 2018 (12) TMI 1145 - GUJARAT HIGH COURT . Thus, in principle we hold that no disallowance under section 14A r.w.r. 8D(2)(ii) is warranted if, the assessee is having sufficient own interest free funds to cover the investments made. For the purpose of verification of this fact, we deem it appropriate to restore this issue back to the file of Assessing Officer. The Assessing Officer after examining the financial statements of the assessee, if satisfied, that own interest free funds of the assessee are more than the investments made, shall make no disallowance u/r.8D(2)(ii). Purpose of computing disallowance u/r.8D(2)(iii) only those investments are to be considered which have yielded exempt income - We restore this issue to the file of Assessing Officer for recomputation of disallowance u/r.8D(2)(iii) in line with the decision of Special Bench in the case of DCIT vs. Vireet Investments Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI Disallowance u/s.14A vis-a-vis computation of Book Profits u/s.115JB - HELD THAT - The Special Bench of the Tribunal in the case of Vireet Investments Pvt. Ltd.(supra) reiterated the view by holding that computation under clause (f) of Explanation 1 to Section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A r.w.r. 8D. Additional depreciation u/s 32 - 10% on the assets acquired and put to use for less than 180 days in earlier assessment year i.e AY 2009-10 - HELD THAT - We observe that in the immediately preceding assessment year similar issue had come up before the Tribunal. The Co-ordinate Bench of the Tribunal after placing reliance on the decision of Hon'ble Jurisdictional High Court in the case of PCIT vs. Godrej Industries 2018 (12) TMI 64 - BOMBAY HIGH COURT allowed the claim of the assessee. Departmental Representative has not been able to controvert the findings of Co-ordinate Bench of the Tribunal on this issue in assessee s own case. Expenditure on Corporate Advertisement - Revenue or capital expenditure - HELD THAT - We find that similar disallowance of advertisement expenditure was made in assessment year 2009-10. The Co-ordinate Bench of the Tribunal, following the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. Asian Paints (India) Ltd. 2016 (11) TMI 258 - BOMBAY HIGH COURT held the expenditure as revenue in nature. The ld. Departmental Representative has not been able to controvert the findings of then Co-ordinate Bench of the Tribunal in assessee s own case on the same issue. Following the same reasoning, we hold corporate advertisement expenditure as revenue expenditure ESOP Expenses - allowable revenue expenses or not? - HELD THAT - The Tribunal in turn following the order of Co-ordinate Bench in assessee s own case in 2015 (12) TMI 1825 - ITAT MUMBAI for assessment year 2008-09 decided on 09/12/2015 allowed assessee s claim and held he expenditure in respect of ESOP as revenue in nature. No contrary decision has been placed by ld. Departmental Representative. Respectfully following the decisions of Coordinate Bench of the Tribunal in assessee s own case for the preceding assessment years we hold ESOP expenditure as revenue in nature. Corporate Guarantee to Subsidiaries - Treating the corporate guarantee given by the appellant for its overseas subsidiary as an international transaction u/s 92 - HELD THAT - Respectfully following the decision of the Tribunal in assessee s own case, we direct the AO to compute arm s length price of transaction as per the direction given by the Tribunal in the above order for A.Y. 2007-08 as held charging of 0.5% guarantee commission from the AE is quite near to 0.6%, where the assessee has paid independently to the IGIGI Bank and charging of guarantee commission at the rate of 0.5% from its AE can be said to be at arms length. The difference of 0.1% can be ignored as the rate of interest on which IGIGI Bank, Bahrain Branchhas given loan to AE (i.e. subsidiary company) is at 5.5%, whereas the assessee is paying interest rate of more than 10% on its loan taken with IGIGI Bank in India. Thus, such a minor difference can be on account of differential rate of interest. Charging of interest under section. 234B,234C 234D is mandatory and consequential. Accordingly, the ground No. 7 is dismissed sans-merit. Disallowance of Education Cess and Secondary Higher Education Cess - HELD THAT -R estore this issue back to the file of Assessing Officer for verification of the assessee s claim and allow the same accordingly. Addition on account of CENVAT credit - HELD THAT - We do not find any infirmity in the findings of CIT(A) in deleting the addition by following the decision of Hon ble Apex Court in INDO NIPPON CHEMICALS CO. LTD. 2003 (1) TMI 8 - SUPREME COURT - The Co-ordinate Bench of the Tribunal in assessee s own case for assessment year 2008-09 has affirmed the finding of CIT(A) in deleting the addition in the past. No material has been brought before us by the ld.Departmental Representative distinguishing facts or the findings of Tribunal on this issue in A.Y. 2008-09. We see no reason to interfere with the findings of CIT(A) on this issue. Accordingly, the same are confirmed and ground No.3 of appeal is dismissed. Disallowance of provisions made for the leave salary u/s 43B - HELD THAT - Co-ordinate Bench of the Tribunal while deciding the appeal of the assessee for assessment year 2008-09 decided the issue on merits in turn by placing reliance on Tribunal order for A.Y. 2008-09. The Tribunal allowed relief to the assessee by following the decision of the Hon ble Apex Court in the case of Bharat Earth Movers vs. CIT 2000 (8) TMI 4 - SUPREME COURT . Dehors the issue of constitutional validity of clause(f) to section 43B of the Act, the Co-ordinate Bench after considering the issue on merits has deleted the addition. Taking into consideration, entirety of facts we respectfully follow the decision of Tribunal in assessee s own case for assessment year 2008-09 and confirm the findings of CIT(A) in deleting the disallowance. Consequently, ground No.4 of the appeal by the Revenue is dismissed. Deduction u/s 10B - CIT(A) holding that the Head Office expenses cannot be allocated to profits derived from 100% export oriented units falling under section 10B and in directing to reduce interest income - HELD THAT - We find that this issue is already covered in favour of the assessee by the orders of this Tribunal from A.Yrs 2003-04 to 2008-09. We also find that for A.Y.2006-07, the revenue had carried this matter to the Hon ble Jurisdictional High Court and the Hon ble Jurisdictional High Court had held that the question raised by the revenue does not give raise to any substantial question of law and accordingly, did not entertain the same. This goes to prove that the order passed by this Tribunal on the impugned issue had attained finality. Depreciation on goodwill on account of acquisition of Madura Garments Division to be allowed. Proceedings from sale of certified emission - HELD THAT - CIT(A) in the impugned Assessment Year granted relief to the assessee by following the order of his predecessor for assessment year 2009-10, which has now been confirmed by the Tribunal. Since, there has been no change in the facts in the Assessment Year under consideration, this ground of appeal by Revenue is dismissed for similar reasons. Provision for pension liability - HELD THAT - Since, the assessee got benefit of deduction at the time when provision was created in the Assessment Year 2007-08, the reversal of provision would amount to income of the assessee. If the reversal of provision is not taxed, it would result in double deduction to the assessee. Thus, in view of undisputed facts, the findings of CIT(A) on this issue are reversed. The ground No. 8 of the appeal by Revenue is allowed. ALP of the corporate guarantee/performance guarantee at 0.5% by following various decision - in the case of Everest Kanto Ltd. 2015 (5) TMI 395 - BOMBAY HIGH COURT wherein the rate of guarantee commission @ 0.5% was accepted. Subsidy received under TUF - Revenue or capital receipt - HELD THAT - The assessee has received subsidy under TUF scheme. The assessee has claimed the subsidy as capital receipt, whereas, the Department treated the subsidy as Revenue in nature. We find that the Hon ble Rajasthan High Court in the case of PCIT vs. Nitin Spinners Ltd. 2019 (9) TMI 1154 - RAJASTHAN HIGH COURT examined the scheme in the light of various decisions and held the subsidy under TUF scheme as capital in nature. Similar view has been taken by the Hon ble Calcutta High Court in the case of CIT vs.Gloster Jute Mills Ltd. 2018 (8) TMI 1474 - CALCUTTA HIGH COURT - Thus, in view of above judgements of Hon ble High Courts, we see no infirmity in the findings of CIT(A)

Summary

Issues Involved:
1. Disallowance under section 14A.
2. Disallowance under section 14A vis-a-vis computation of Book Profits under section 115JB.
3. Additional Depreciation.
4. Expenditure on Corporate Advertisement.
5. ESOP Expenses.
6. Corporate Guarantee to Subsidiaries.
7. Interest under section 234B, 234C, and 234D.
8. Penalty under section 271(1)(c).
9. Education Cess.
10. TDS provisions for year-end provisions.
11. Addition on account of CENVAT credit.
12. Provision for leave salary under section 43B(f).
13. Allocation of Head Office expenses to 100% export-oriented units under section 10B.
14. Depreciation on goodwill.
15. Sale of certified emission reductions.
16. Reversal of provision for pension liability.
17. ALP of guarantee fees for corporate and performance guarantees.
18. Interest subsidy from Technology Upgradation Fund (TUF).

Detailed Analysis:

1. Disallowance under section 14A:
The assessee challenged the disallowance under section 14A, arguing that the Assessing Officer (AO) did not record satisfaction as required. The AO had enhanced the disallowance significantly. The tribunal found that the AO had recorded satisfaction and upheld the disallowance. However, it was directed to recompute the disallowance considering only those investments that yielded exempt income and verifying if the assessee's own funds were sufficient to cover the investments.

2. Disallowance under section 14A vis-a-vis computation of Book Profits under section 115JB:
The tribunal held that disallowance made under section 14A cannot be added to book profits for section 115JB purposes, following the precedent set by the Bombay High Court in Bengal Finance & Investments Pvt. Ltd. and the Special Bench decision in ACIT vs. Vireet Investments Pvt. Ltd.

3. Additional Depreciation:
The tribunal allowed the assessee's claim for additional depreciation on assets acquired and put to use for less than 180 days in the previous year, following the Bombay High Court decision in PCIT vs. Godrej Industries Ltd.

4. Expenditure on Corporate Advertisement:
The tribunal held that corporate advertisement expenses should be treated as revenue expenditure, consistent with the decision in the assessee's appeal for the previous year and the Bombay High Court decision in CIT vs. Asian Paints (India) Ltd.

5. ESOP Expenses:
The tribunal allowed the ESOP expenses as revenue expenditure, following its own decision in the assessee's case for the previous assessment years.

6. Corporate Guarantee to Subsidiaries:
The tribunal upheld the CIT(A)'s decision to treat the corporate guarantee as an international transaction and confirmed the addition by applying a 0.5% rate for the guarantee commission, consistent with the decision in the assessee's group concern case.

7. Interest under section 234B, 234C, and 234D:
The tribunal noted that charging interest under these sections is mandatory and consequential, dismissing the ground as meritless.

8. Penalty under section 271(1)(c):
The tribunal dismissed the ground as premature, as the penalty proceedings were still in the initiation stage.

9. Education Cess:
The tribunal restored the issue of disallowance of education cess and secondary higher education cess to the AO for verification, following the decision in the assessee's appeal for the previous year.

10. TDS provisions for year-end provisions:
The tribunal upheld the CIT(A)'s deletion of disallowance under section 40(a)(ia) for year-end provisions, consistent with its decision in the assessee's case for the previous year.

11. Addition on account of CENVAT credit:
The tribunal upheld the CIT(A)'s deletion of the addition for CENVAT credit in closing stock, following the Supreme Court decision in CIT vs. Indo Nippon Chemical Co. Ltd.

12. Provision for leave salary under section 43B(f):
The tribunal deleted the disallowance for provision for leave salary, following its own decision in the assessee's case for the previous years and the Supreme Court decision in Bharat Earth Movers vs. CIT.

13. Allocation of Head Office expenses to 100% export-oriented units under section 10B:
The tribunal upheld the CIT(A)'s decision not to allocate Head Office expenses to 100% export-oriented units, consistent with its decision in the assessee's case for previous years.

14. Depreciation on goodwill:
The tribunal upheld the CIT(A)'s decision to allow depreciation on goodwill, following its decision in the assessee's case for the previous year.

15. Sale of certified emission reductions:
The tribunal upheld the CIT(A)'s decision to treat the proceeds from the sale of certified emission reductions as capital receipts, following the Andhra Pradesh High Court decision in CIT vs. My Home Power Ltd.

16. Reversal of provision for pension liability:
The tribunal reversed the CIT(A)'s decision and held that the reversal of provision for pension liability should be treated as income, as the provision was allowed as a deduction in the previous year.

17. ALP of guarantee fees for corporate and performance guarantees:
The tribunal upheld the CIT(A)'s decision to restrict the ALP of guarantee fees to 0.5%, consistent with the Bombay High Court decision in CIT vs. Everest Kanto Cylinder Ltd.

18. Interest subsidy from Technology Upgradation Fund (TUF):
The tribunal upheld the CIT(A)'s decision to treat the interest subsidy from TUF as capital in nature, following the Rajasthan High Court decision in PCIT vs. Nitin Spinners Ltd. and other similar decisions.