2021 (8) TMI 979 - AT - Income Tax

TP Addition - addition towards interest on debentures/CCDs - HELD THAT - Since the facts and circumstances of the instant appeal are mutatis mutandis similar to those of the preceding year, respectfully following the precedent 2020 (12) TMI 779 - ITAT PUNE we approve the view taken by the ld. CIT(A) and hold that the AO was not justified in re-characterising the transaction of issue of debentures/CCDs as that of equity shares. As regards the ALP determination, we again follow the view taken by the Tribunal for the immediately preceding year and direct the AO/TPO to recompute the ALP of the transactions of payment of interest on debentures/CCDs. Thus the departmental grounds are dismissed. Since the matter of ALP determination has been sent back to the AO/TPO, the direction given by the ld. CIT(A) in this regard, which forms the subject matter of the assessee s ground, has become infructuous. Education Cess and Secondary and Higher Secondary Cess - whether claim may be allowed as a deduction while computing the total income of the assessee company? - HELD THAT - The issue raised through the additional ground is no more res integra in view of the judgment of Hon ble jurisdictional High Court in Sesa Goa Lt. 2020 (3) TMI 347 - BOMBAY HIGH COURT in which it has been held that Education Cess is not disallowable expenditure u/s.40(a)(ii) - Similar view was earlier taken in Chambal Fertilisers and Chemicals Ltd. 2018 (10) TMI 589 - RAJASTHAN HIGH COURT . We, therefore, direct the AO to ascertain the correct amount of education cess and then allow a deduction for it, after allowing opportunity of hearing to the assessee.

Summary

Issues:
1. Condonation of delay in Departmental appeal.
2. Deletion of transfer pricing addition towards interest on debentures/CCDs.
3. Allowance of Education Cess and Secondary and Higher Secondary Cess as a deduction.

Analysis:
1. The Departmental appeal was found to be time-barred by 63 days, but the delay was condoned as the ld. AR did not object to it. Thus, the appeal was admitted for hearing.

2. The main issue raised by the Revenue was against the deletion of transfer pricing addition concerning interest on debentures/CCDs. The case involved the recharacterization of transactions by the Transfer Pricing Officer (TPO) for the assessment year 2014-15. The TPO determined Nil Arm’s Length Price (ALP) for the transactions, resulting in a proposed transfer pricing adjustment. However, the ld. CIT(A) deleted the addition, directing the TPO to reevaluate certain facts regarding ALP determination. The Tribunal, considering a similar issue from the previous year, upheld the CIT(A)'s decision, emphasizing that the AO was not justified in re-characterizing the transactions. The Tribunal directed the AO/TPO to recompute the ALP of the transactions, dismissing the departmental grounds.

3. An additional ground raised by the assessee concerned the deduction of Education Cess and Secondary and Higher Secondary Cess while computing total income. The Tribunal admitted this ground as it raised a pure question of law. Referring to relevant judgments, the Tribunal directed the AO to determine the correct amount of education cess and allow a deduction after providing an opportunity of hearing to the assessee.

In conclusion, the appeal of the Revenue was dismissed, while that of the assessee was partly allowed, with directions given for further assessment and deductions.