2021 (4) TMI 998 - AT - Income Tax

Contribution to Ranbaxy Community Healthcare Society (RCHS) u/s. 37(1) and disallowing on the ground of non-deduction of TDS u/s. 40(a)(ia) - HELD THAT - As identical issue on similar fact has been adjudicated in the case of the assessee itself in its favour by the Co-ordinate Bench of the ITAT Ahmedabad for assessment year 2009-10 2019 (9) TMI 438 - ITAT DELHI - The ld. Departmental Representative is fair enough not to controvert these undisputed facts that the instant issue in this ground of appeal is covered by the aforesaid cited decision of the ITAT wherein direct to delete the disallowance of contribution made by appellant to Ranbaxy Community Healthcare Society and Ranbaxy Science Foundation. Furthermore regarding failure to deduct tax on this sum, Ld. DR. could not point out particular section, which warrants deduction of tax at sources on this payment. Therefore, we also hold that in absence of specific section under which the tax is required to be deducted on such contribution without their being any service rendered by the recipient of the contribution disallowance u/s 40a(ia) also cannot be made TP Adjustment - Erred in not considering overseas associated enterprise as tested party being the least complex of the transacting entities and instead considering assessee as tested party thus violating basic principles of transfer pricing - HELD THAT - As relying on own case 2019 (9) TMI 438 - ITAT DELHI we restore this issue to the file of the TPO for fresh adjudication considering A.E s. as tested party. Therefore, this ground of appeal of the assessee is allowed for statistical purposes. Disallowance u/s 14A - HELD THAT - Respectfully following the decision of the Hon ble High Court of Gujarat in the case of Corrtech Energy Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT wherein held that in case no dividend income is claimed as exempt no disallowance is to be made u/s. 14A of the Act. Therefore, following the decision of Hon ble Gujarat High Court as cited above, this ground of appeal of the assessee is allowed. Disallowance of deduction claimed u/s. 80IB and 80IC - assessee claimed these deductions in respect of undertakings located in backward area for deduction u/s. 80IB (Goa Unit) and for deduction u/s. 80IC (Paontashahib, Himachal Pradesh) - Assessing Officer stated that no separate books of account have been maintained in respect of the eligible undertaking and concluded that as held in the earlier assessment year the assessee was not eligible for deduction u/s. 80IB/80IC - HELD THAT - In view of the discussion and following the order of the ITAT Delhi 2019 (9) TMI 438 - ITAT DELHI in which the deduction claimed by the assessee under section 80IB/80IC was completely allowed. Market to market gain as taxable income - disallowance of market to market loss made while completing assessment year 2009-10 - why these expenditure should not be added back to income for the relevant accounting period? - HELD THAT - Following the decision of ITAT on the identical issue 2019 (9) TMI 438 - ITAT DELHI we hold that the amount written back by the assessee cannot be subject to tax either under normal computation of income tax act or under section 115JB of the Act in the year under consideration. Therefore, following the decision of the ITAT as supra reversal of amount is not taxable under the normal provision and ₹ 1534.16 Mn under section 115JB of the Act as the same was already suffered to tax in the preceding assessment year 2009-10. Therefore, following the decision of the ITAT as supra, this ground of appeal of the assessee is partly allowed. Disallowance on premium paid on FCCB - HELD THAT - There is clear distinction between bonds and share capital because a bond does not represent ownership of equity capital. Bonds are interest bearing instrument which represents a loan. Therefore, FCCB issued by the assessee company were debt instrument issued by assessee company engaging its liability to pay the debt amount. These bonds are distinguishable from shares since bonds forms part of the loan and does not represent ownership in share capital. Therefore, the premium paid on redemption of FCCB is interest eligible for deduction. The liability to pay premium is contingent upon the right of redemption being exercised by the assessee company. The liability to pay premium is further contingent upon the right of conversion of FCCB to equity share not being exercised by the holders of the FCCB. Therefore, payment of interest in the form of premium which is incurred wholly and exclusively for the purpose of business is to be allowed in the year in which it is incurred. Therefore we consider that premium on redemption of debenture is in the nature of interest allowable as deduction under the provision of the act, therefore, this ground of appeal of the assessee is allowed. Disallowing weighted deduction u/s. 35(2AB) merely on account of failure to produce form 3CL - HELD THAT - As relying on own case 2016 (12) TMI 1539 - ITAT AHMEDABAD we direct the Assessing Officer to allow the claim of the assessee after verification of the necessary particulars as directed in the above decision of the ITAT. Therefore, this ground of appeal of the assessee is allowed. Weighted deduction u/s. 35(2AB) on cost of assets provided to employees working in approved R D facilities and engaged in execution of R D activities) - HELD THAT - The ground raised before us is identical to the issue raised before Delhi ITAT in the case no. 2016 (5) TMI 157 - ITAT DELHI . Hence taking the same view on such issue, we set aside the order of ld. CIT-A to the AO for fresh adjudication. Hence the ground of appeal of the assessee is allowed for statistical purposes. Claim towards investment made by company in overseas subsidiaries expenses) on account of Adjustment of hedging charges - HELD THAT - Following the decision of the ITAT in the case of the assessee itself 2019 (9) TMI 438 - ITAT DELHI this ground of appeal of the assessee is allowed with direction to the Assessing Officer to adjudicate this issue de-novo as per the direction laid down in the findings of the ITAT as cited above. Deduction for the cess paid by the assessee - Whether the said cess is revenue expenditure (ii) the said cess is not rate or tax debarred by seciton40(a)(ia) of the act.? - HELD THAT - The similar issue on identical facts was adjudicated by the Co-ordinate Bench of the ITAT Ahmedabad in the case of Jindal Worldwide Ltd. 2020 (12) TMI 439 - ITAT AHMEDABAD and the matter was restored to the A.O. for deciding afresh in view of the judicial pronouncement and the circular of the CBDT as referred above. Therefore after taking into consideration the circular of the CBDT and decisions of M/S. CHAMBAL FERTILIZERS AND CHEMICALS LTD., GADEPAN, DISTT. KOTA. 2018 (10) TMI 589 - RAJASTHAN HIGH COURT and SESA GOA LIMITED, 2020 (3) TMI 347 - BOMBAY HIGH COURT we restore this issue to the file of the Assessing Officer for deciding afresh after taking into consideration the direction laid down in the aforesaid decisions of the Hon ble High Court and the Circular of the CBDT.

Summary

Issues Involved:
1. Legality of the DRP's directions and adherence to principles of natural justice.
2. Deduction of contributions to Ranbaxy Community Healthcare Society (RCHS) under Section 37(1) and disallowance under Section 40(a)(ia).
3. Transfer Pricing adjustments and selection of the tested party.
4. Disallowance under Section 14A.
5. Deduction under Sections 80IB and 80IC.
6. Taxability of Marked to Market (MTM) gains.
7. Disallowance of non-compete fees.
8. Disallowance of premium paid on FCCBs.
9. Disallowance of weighted deduction under Section 35(2AB) due to non-submission of Form 3CL.
10. Non-adjudication of the claim of weighted deduction under Section 35(2AB) on the cost of assets provided to employees.
11. Non-adjudication of the claim of hedging charges.
12. Double taxation of income from capital gains and other sources.
13. Short grant of TDS credit.
14. Computation of interest under Sections 234B and 234C.
15. Non-grant of deduction under Section 80G.

Detailed Analysis:

1. Legality of DRP's Directions:
The assessee argued that the DRP's directions were against the principles of natural justice as they were non-speaking and based on observations from previous years without considering the specific grounds for the current year. The Tribunal dismissed this general ground as it was not specifically contested.

2. Contribution to RCHS:
The assessee's contribution to RCHS was disallowed by the AO on the grounds of non-deduction of TDS under Section 40(a)(ia) and treated as a donation eligible only for deduction under Section 80G. The Tribunal, following its own decision in the assessee's case for earlier years, allowed the deduction under Section 37(1), holding that the contribution was for business purposes and not subject to TDS.

3. Transfer Pricing Adjustments:
The AO and TPO considered the assessee as the tested party, leading to an upward adjustment. The Tribunal, following its decision in the assessee's case for earlier years, directed the AO to consider the overseas associated enterprises as the tested party, being the least complex entity, and to recompute the ALP accordingly.

4. Disallowance under Section 14A:
The AO disallowed expenses under Section 14A, which was contested by the assessee on the grounds that no exempt income was earned during the year. The Tribunal, following the Gujarat High Court's decision in Corrtech Energy Ltd., held that no disallowance under Section 14A could be made in the absence of exempt income and allowed the assessee's appeal.

5. Deduction under Sections 80IB and 80IC:
The AO disallowed the deduction claimed under Sections 80IB and 80IC, citing non-maintenance of separate books of accounts and misallocation of expenses. The Tribunal, following its decision in the assessee's case for earlier years, held that the assessee had maintained adequate records and the allocation of expenses was justified. The Tribunal allowed the deduction, emphasizing the principle of consistency and the absence of any change in facts or law.

6. Taxability of MTM Gains:
The AO taxed the MTM gains while disallowing MTM losses in earlier years. The Tribunal, following its decision in the assessee's case for earlier years, held that the MTM gains should not be taxed as the corresponding losses were disallowed in earlier years, resulting in double taxation.

7. Disallowance of Non-Compete Fees:
The assessee did not press this ground, and the Tribunal dismissed it accordingly.

8. Disallowance of Premium Paid on FCCBs:
The AO treated the premium paid on FCCBs as a capital expenditure. The Tribunal, relying on the Supreme Court's decision in Taparia Tools Ltd. and the Bombay High Court's decision in Raymond Ltd., held that the premium paid on redemption of FCCBs was in the nature of interest and allowable as a revenue expenditure.

9. Disallowance under Section 35(2AB):
The AO disallowed the weighted deduction under Section 35(2AB) due to non-submission of Form 3CL. The Tribunal, following its decision in the assessee's case for earlier years, held that the deduction could not be denied merely due to the non-submission of Form 3CL and allowed the deduction.

10. Non-Adjudication of Claim under Section 35(2AB):
The Tribunal set aside the issue to the AO for fresh adjudication, following its decision in the assessee's case for earlier years, to verify the claim of weighted deduction on the cost of assets provided to employees.

11. Non-Adjudication of Hedging Charges:
The Tribunal set aside the issue to the AO for fresh adjudication, following its decision in the assessee's case for earlier years, to verify the claim of hedging charges.

12. Double Taxation:
The assessee did not press this ground as the AO had already passed a rectification order. The Tribunal dismissed this ground.

13. Short Grant of TDS Credit:
The Tribunal directed the AO to verify and allow the TDS credit accordingly.

14. Computation of Interest:
The Tribunal dismissed this ground as the charging of interest under Sections 234B and 234C is mandatory as per law.

15. Non-Grant of Deduction under Section 80G:
The Tribunal restored this issue to the AO for verification and fresh adjudication.

Additional Ground - Deduction for Cess:
The Tribunal restored this issue to the AO for fresh adjudication in light of judicial pronouncements and the CBDT circular, following its decision in the case of Jindal Worldwide Ltd.

Conclusion:
The Tribunal allowed the assessee's appeal on most grounds, particularly those related to deductions under Sections 37(1), 80IB, 80IC, 35(2AB), and the treatment of MTM gains, while dismissing or setting aside others for fresh adjudication by the AO. The revenue's appeal was dismissed.