2021 (1) TMI 50 - AT - Income Tax

TP Adjustment - addition of working capital advances - funds transferred by the assessee to its subsidiaries - HELD THAT - We find that the assessee, not only in its T.P. documentation, but also in its reply to notice of the TPO, has clearly stated that these are working capital advances, though at para 2.5 of its submissions before the TPO, assessee had stated that it had invested in its sister concerns. However, neither the TPO nor the DRP have gone into this aspect, nor has the assessee filed any evidence in this context before the authorities below. The board resolutions and the evidence that assessee has been allotted equity shares in the subsequent year were never put before the authorities below. In view of these facts, we deem it fit and proper to set aside the issue to the file of AO/TPO with a direction to consider the evidence filed by assessee to the effect that assessee had invested money in equity shares of its subsidiaries and has not given working capital advances. Corporate guarantee fee - international transaction or not? - HELD THAT - We find that the A.Y. before us is 2011-12, i.e. prior to the amendment of Sec. 92B of the Act, while in the decisions relied upon by the DR, it has been held that even prior to the amendment, the Corporate Guarantee is an international transaction, in the decisions relied upon by the ld Counsel for the assessee, it has been held otherwise. We find that in the assessee's own case for the AY 2010-11, this Tribunal has held the issue in favour of the assessee. Therefore, following the principle of uniformity and consistency, we hold that corporate guarantee is not international transaction prior to amendment of S. 92B w.e.f. 1.4.2012. Therefore, grounds of appeal no. 4 and 5 are allowed. Disallowance u/s. 14A - HELD THAT - We find that the issue of disallowance u/s. 14A where there is no exempt income earned during the relevant financial year, is covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of CIT (Central)1 vs. Chettinad Logistics (P) Ltd. 2018 (7) TMI 567 - SC ORDER wherein it was confirmed that where there is no exempt income earned by the assessee, no disallowance u/s. 14A shall be made. Computation of income u/s. 115JB of the Act and addition of disallowance u/s. 14A to the said income - We find that this issue also is covered in favour of the assessee by the decision of the Special Bench of the ITAT at Delhi in the case of Vireet Investments 2017 (6) TMI 1124 - ITAT DELHI which has been followed by us in our orders in other cases cited Supra. Respectfully following the same, we hold that no addition of the disallowance u/s. 14A is called for while computing the income u/s. 115JB of the Act.

Summary

Issues Involved:
1. Timeliness of passing the assessment order.
2. Validity of reference to the Transfer Pricing Officer (TPO).
3. Addition of interest on advances given to subsidiaries.
4. Addition of corporate guarantee fees.
5. Disallowance under section 14A of the Act.
6. Applicability of disallowance u/s. 14A to book profits u/s. 115JB.
7. Issuance of Draft Assessment Order.
8. Jurisdiction of ITAT to examine new legal questions.

Issue 1: Timeliness of passing the assessment order

The appeal was against the final assessment order dated 29.01.2016 passed under sections 143(3) and 144C(13) of the Income Tax Act, 1961. The appellant argued that the order was passed beyond the stipulated time frame of one month from the receipt of directions from the Dispute Resolution Panel (DRP). However, the issue was not pressed by the appellant during the hearing, leading to its dismissal as not pressed.

Issue 2: Validity of reference to the Transfer Pricing Officer (TPO)

The appellant contended that the Assessing Officer (AO) erred in making a reference to the TPO without meeting the preconditions under section 92CA of the Act. This issue was also not pressed by the appellant during the hearing, resulting in its dismissal as not pressed.

Issue 3: Addition of interest on advances given to subsidiaries

The AO proposed an addition towards interest on working capital advances given to subsidiaries, which the appellant disputed. The Tribunal directed the AO/TPO to reexamine the evidence provided by the appellant to determine if the transactions were indeed investments in equity shares, in which case no adjustment would be necessary. The ground of appeal related to this issue was treated as allowed for statistical purposes.

Issue 4: Addition of corporate guarantee fees

The appellant argued that corporate guarantee fees were not applicable for the relevant assessment year. Relying on previous decisions and the principle of uniformity, the Tribunal held that corporate guarantee fees were not considered international transactions before the relevant amendment to the Act. Therefore, the grounds of appeal related to this issue were allowed.

Issue 5: Disallowance under section 14A of the Act

The appellant contended that no exempt income was earned during the relevant year, hence no disallowance under section 14A should be made. The Tribunal agreed, citing relevant case law, and held that no addition should be made to the income under section 115JB of the Act. Consequently, the grounds of appeal related to this issue were allowed.

Issue 6: Applicability of disallowance u/s. 14A to book profits u/s. 115JB

The Tribunal ruled that no addition of disallowance under section 14A should be made while computing income under section 115JB of the Act. This decision was supported by relevant case law, and therefore, the grounds of appeal related to this issue were allowed.

Issue 7: Issuance of Draft Assessment Order

The appellant raised concerns about the non-issuance of a Draft Assessment Order as per the prescribed procedure. However, this issue was not pressed during the hearing, leading to its dismissal as not pressed.

Issue 8: Jurisdiction of ITAT to examine new legal questions

The appellant referred to the jurisdiction of the ITAT to examine legal questions not raised before lower authorities but arising before the ITAT for the first time. The Tribunal admitted and adjudicated on additional legal grounds raised by the appellant, demonstrating the ITAT's authority to address new legal issues.

In conclusion, the Tribunal partially allowed the appellant's appeal, addressing various issues related to the assessment order, transfer pricing adjustments, corporate guarantee fees, disallowances, and the jurisdiction of the ITAT to examine new legal questions. The Tribunal provided detailed analysis and rulings on each issue, ensuring a comprehensive review of the appellant's contentions.