2021 (1) TMI 74 - AT - Income Tax

Disallowance u/s 14A - assessee has contended that learned CIT(A) has disallowed 0.5% of average investment excluding investment which did not earn taxable income - HELD THAT - ITAT in assessee's own case for assessment year 2010-11 2011-12 has noted that in the earlier order Tribunal has directed the Assessing Officer to examine the sufficiency or correctness of allowance made by the assessee having regard to assessee's accounts and explanations. The Tribunal had further noted that to maintain the consistency, the matter was being remitted to the file of Assessing Officer with same direction. The Tribunal also directed to take into account the order of Tribunal Special Bench in the case of ACIT vs. Vireet Investments (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI - Here we also make it clear that we are not acceding to the request of learned Counsel of the assessee to delete the entire disallowance for lack of satisfaction by the Assessing Officer. The Assessing Officer has dealt with the issue with reasonable details and only for the sake of consistency we are following the earlier Tribunal direction. TP Adjustment - interest charged on the share application money given by the assessee to the Associated Enterprise by the Transfer Pricing Officer (TPO) - HELD THAT - As decided in own case , Tribunal had held that the undisputed position that emerges is the fact that assessee has advanced share application money to one of its Associated Enterprise to acquire further stake in that entity. That the Associated Enterprise has become whollyowned subsidiary of the assessee-company during the month of January, 2009. That the financial health of the Associated Enterprise was not good and the money was advanced in view to infuse further capital in the Associated Enterprise with a view to acquire controlling stake. The money was utilised by the Associated Enterprise for the purpose of business and to meet working capital requirement. The Tribunal further noted that ultimately the shares have been allotted to the assessee during December, 2015 after getting the desired regulatory approvals. The Tribunal accepted that the delay was genuine and was substantiated. In these facts, ITAT agreed with the view that the amount cannot be treated as loan transaction. In this regard, the Tribunal also referred to the decisions of Hon'ble Bombay High Court in the case of Pr. CIT vs Aegis Ltd. 2019 (4) TMI 858 - BOMBAY HIGH COURT - Accordingly, transfer pricing adjustment in this regard, proposed by the TPO, was to be deleted. Transfer pricing adjustment on commission on corporate guarantee - Since the assessee had not charged any fees in this regard the Assessing Officer proceed to refer to the normal guarantee fees charged by the bankers and adopted rate of 1.5% - HELD THAT - Transfer pricing adjustment for corporate guarantee fees is no more an issue which is res integra. Adjustment for corporate guarantee fees has been upheld by Hon'ble Bombay High Court. We find that the view taken by learned CIT(A) is in consonance with the decision of Hon'ble Bombay High Court in the case of Everest Kento Cylinders 2015 (5) TMI 395 - BOMBAY HIGH COURT - The same has been followed by ITAT in several decisions. Hence we direct that guarantee fees should 0.5%. Disallowance u/s. 43B - assessee had deposited employees contribution to ESIC within the permissible grace period and before the due date of filing of return for the present assessment year - HELD THAT - CIT(A) had correctly deleted this addition holding that as the payments get covered u/s. 43B of the Act as they were deposited within stipulated time. See M/S. ALOM EXTRUSIONS LIMITED 2009 (11) TMI 27 - SUPREME COURT and GHATGE PATIL TRANSPORTS LTD. 2014 (10) TMI 402 - BOMBAY HIGH COURT . Disallowance of education cess and secondary and higher education cess u/s. 40(a)(ii) - HELD THAT - As relying on case SESA GOA LIMITED 2020 (3) TMI 347 - BOMBAY HIGH COURT we allow additional ground raised by the assessee in this regard and direct that disallowance of education cess and secondary and higher education cess is to be deleted. Capital gain on sale of buildings - Special provision for computation of capital gains in case of depreciable assets u/s 50 - assessee s plea is that the same should be taxed @ 21.63%u/s. 112 of the I.T. Act instead of 32.45% as the said buildings were held for more than three years - On the said capital gains the assessee had also claimed that it was entitled for exemption under Section 54E - HELD THAT - As decided in ACE BUILDERS (P.) LTD. 2005 (3) TMI 36 - BOMBAY HIGH COURT Section 50 of the Income Tax Act which is a special provision for computing the capital gains in the case of depreciable assets is not only restricted for the purposes of Section 48 or Section 49 of the Act as specifically stated therein and the said fiction created in sub-section (1) (2) of Section 50 has limited application only in the context of mode of computation of capital gains contained in Sections 48 and 49 and would have nothing to do with the exemption that is provided in a totally different provision i.e. Section 54E of the Act. Section 48 deals with the mode of computation and Section 49 relates to cost with reference to certain mode of acquisition As relying on M/S. MANALI INVESTMENT 2013 (12) TMI 333 - BOMBAY HIGH COURT deeming fiction of section 50 is limited and cannot be extended beyond method of computation of the gain. That the distinction between short term and long term capital gain is not obliterated by this section. Hence, we respectfully follow the same and reject this submission of learned Departmental Representative. This additional ground is allowed and the Assessing Officer is directed to reexamine the detailed facts and allow as per the ratio of above said decisions as discussed above.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Deletion of interest charged on share application money by the Transfer Pricing Officer (TPO).
3. Transfer pricing adjustment on commission on corporate guarantee.
4. Disallowance under Section 43B.
5. Disallowance of education cess and secondary and higher education cess under Section 40(a)(ii).
6. Tax rate applicable on capital gain on sale of buildings.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:
The common issue in these appeals pertains to the direction of the learned CIT(A) to exclude assets that did not yield income for the computation of the average value of investment under Section 14A of the Income Tax Act, 1961. The assessee contended that it had already offered ?25 lacs as disallowance under Section 14A for operating and administrative expenses related to earning exempt dividend income. The Assessing Officer had made a deduction at 0.5% of the administrative expenses under Rule 8D(ii). The Tribunal noted that in earlier years, the matter was remitted to the Assessing Officer to examine the sufficiency or correctness of the allowance made by the assessee. Following the precedent, the Tribunal remanded the issue to the Assessing Officer with similar directions.

2. Deletion of interest charged on share application money by the TPO:
The Revenue's appeal challenged the correctness of the CIT(A)'s order deleting interest charged on the share application money given by the assessee to the Associated Enterprise. The Tribunal noted that in earlier years, the ITAT had held that the share application money advanced to the Associated Enterprise, which had become a wholly-owned subsidiary, was to infuse further capital and meet working capital requirements. The Tribunal had accepted that the delay in allotment of shares was genuine, and the amount could not be treated as a loan transaction. The CIT(A) had correctly deleted the addition, and the Tribunal upheld this order.

3. Transfer pricing adjustment on commission on corporate guarantee:
The Assessing Officer noted that the assessee had extended a corporate guarantee without charging any fees and adopted a rate of 1.5% for the guarantee fees. For A.Y. 2013-14, the CIT(A) deleted the addition, holding that no transfer pricing adjustment was required. For A.Y. 2014-15, the CIT(A) adopted a rate of 0.5%, relying on the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Everest Kento Cylinders Ltd. The Tribunal upheld the CIT(A)'s view, directing that the guarantee fees should be 0.5%.

4. Disallowance under Section 43B:
The assessee had deposited employees' contribution to ESIC within the permissible grace period and before the due date of filing the return. The Assessing Officer disallowed the payments made after the due date under Section 36(1)(va). The CIT(A) deleted this addition, holding that the payments were covered under Section 43B as they were deposited within the stipulated time. The Tribunal confirmed the CIT(A)'s order, following the precedent set by the Hon'ble Supreme Court in CIT Vs. Alom Extrusions Ltd. and the Hon'ble Bombay High Court in CIT Vs. Ghatge Patil Transports Ltd.

5. Disallowance of education cess and secondary and higher education cess under Section 40(a)(ii):
The additional ground related to the disallowance of education cess and secondary and higher education cess under Section 40(a)(ii). The Tribunal admitted this ground and noted that the issue was covered in favor of the assessee by the decision of the Hon'ble Bombay High Court in Sesa Goa Ltd. Vs. JCIT. Following this decision, the Tribunal directed that the disallowance of education cess and secondary and higher education cess be deleted.

6. Tax rate applicable on capital gain on sale of buildings:
The additional ground for A.Y. 2013-14 pertained to the tax rate applicable on the capital gain on the sale of buildings. The assessee argued that the gain should be taxed at 21.63% under Section 112 instead of 32.45% as the buildings were held for more than three years. The Tribunal referred to the decisions of the Hon'ble Bombay High Court in CIT Vs. V.S. Dempo Company Ltd. and the Hon'ble Supreme Court in CIT Vs. M/s. Manali Investment, which held that the deeming fiction of Section 50 is limited to the method of computation of the gain and does not obliterate the distinction between short-term and long-term capital gain. The Tribunal directed the Assessing Officer to reexamine the detailed facts and allow the claim as per the ratio of the above decisions.

Conclusion:
The appeals were partly allowed, with the Tribunal remanding certain issues to the Assessing Officer and upholding the CIT(A)'s orders on others. The Tribunal emphasized consistency and adherence to legal precedents in its judgment.