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2021 (9) TMI 595 - AT - Income TaxTP adjustment in respect of interest payment on debentures - not done the benchmarking of the payment of interest on debentures/compulsory Convertible debentures (CCDs) properly - HELD THAT - As decided in own case 2021 (8) TMI 979 - ITAT PUNE tribunal has countenanced the assessee's stand by holding that the assessee rightly issued debentures and CCDs to its AEs and the AO was not justified in re-characterizing the transactions. As regards the ALP determination, the Tribunal restored the matter to the file of AO/TPO for a fresh determination. Addition on reworking of WIP - As argued by assessee alternatively interest accrued and paid on the CCDs had been capitalized to its WIP and had not been claimed as expenditure in the year under consideration - HELD THAT - The amount of capitalized interest on debentures/CCDs to the work in progress for the assessment year 2013-14 only as is in excess of its ALP freshly determined by the Assessing Officer/TPO should be disallowed proportionately in the years in which the work in progress containing the amount of such interest standing as on 31.03.2013, i.e. FY 2013-14 relevant to AY 2014-15, is reversed on the sale of flats/plots. The same exercise has to be carried on for the assessment years 2014-15 and 2015-16 as well. Following the same parity of reasoning in assessee own case's decision of the Pune Bench of the Tribunal 2021 (8) TMI 1037 - ITAT PUNE . 'Education cess' and 'Secondary and Higher Education Cess' - whether claim may be allowed as a deduction while computing the total income of the assessee company? - HELD THAT - As decided in own case 2021 (8) TMI 979 - ITAT PUNE matter is remanded to the file of the Assessing Officer to ascertain the exact amount of education cess and then allow a deduction for it, after allowing opportunity of hearing to the assessee.
Issues Involved:
1. Transfer Pricing Adjustment related to interest payments on debentures. 2. Addition on reworking of Work-in-Progress (WIP). 3. Deduction of 'Education Cess' and 'Secondary and Higher Education Cess'. Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment related to interest payments on debentures: The primary issue was the Transfer Pricing Officer's (TPO) adjustment regarding the interest payment on Compulsory Convertible Debentures (CCDs) issued to the assessee's Associated Enterprises (AEs). The TPO determined that the interest payment was a shareholder activity, leading to a self-inflicted loss, and thus, the Arm's Length Price (ALP) of the interest payment was taken as Nil. The TPO's decision was based on the OECD guidelines and various case laws, resulting in an upward adjustment of ?3,92,81,275/-. The CIT(A) partially allowed the appeal based on precedents from previous assessment years and the Tribunal's decision in the assessee's own case for AY 2013-14. The Tribunal upheld the CIT(A)'s decision, stating that the AO was not justified in re-characterizing the transaction and directed the AO/TPO to recompute the ALP of the interest payments on debentures/CCDs. 2. Addition on reworking of Work-in-Progress (WIP): The second issue involved the addition of ?2,75,41,987/- based on reworking of WIP. The Assessing Officer (AO) added this amount to the total income of the assessee, following the CIT(A)'s decision for AY 2013-14, which upheld the TP adjustment and directed the reduction of WIP by the debenture interest. The CIT(A) confirmed this addition for AY 2016-17, stating it emanated from the previous decision. The Tribunal referred to its own order for AY 2015-16, which followed the precedent set for AY 2013-14, and directed that the amount of capitalized interest on debentures/CCDs should be disallowed proportionately in the years when the WIP is reversed. Consequently, Ground No. 2 was allowed. 3. Deduction of 'Education Cess' and 'Secondary and Higher Education Cess': The third issue was the deduction of 'Education Cess' and 'Secondary and Higher Education Cess' amounting to ?42,46,460/-. Both parties agreed that this issue was covered in favor of the assessee based on the Tribunal's decision for AY 2014-15. The Tribunal admitted the additional ground, citing the Hon'ble Supreme Court's decision in National Thermal Power Company Ltd. Vs. CIT, which allows raising a question of law even if not previously raised. On merits, the Tribunal followed the Hon'ble jurisdictional High Court's judgment in Sesa Goa Ltd. Vs. JCIT, which held that Education Cess is not disallowable u/s 40(a)(ii) of the Income Tax Act. The matter was remanded to the AO to ascertain the exact amount of education cess and allow a deduction after providing an opportunity for hearing to the assessee. Thus, Ground No. 3 was allowed for statistical purposes. General Grounds: Grounds No. 4 and 5 were general in nature and did not require adjudication. Conclusion: The appeal was partly allowed for statistical purposes, with specific directions for recomputing the ALP of interest payments on debentures/CCDs and allowing the deduction of education cess after due verification. The Tribunal's order was pronounced on 06th September 2021.
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