2021 (12) TMI 462 - HC - Income Tax

Addition u/s 14A r.w.r. 8D - Sufficiency of assessee own funds - HELD THAT - As per the decision of South Indian Bank Ltd. 2021 (9) TMI 566 - SUPREME COURT issue decided is against the revenue. Disallowance of aircraft and maintenance charges including depreciation being 10% of the expenditure on running, repairs and maintenance of aircraft of which were used for the personal purposes of the Directors - HELD THAT - We find that the issue is fully factual and the Tribunal had pointed out that such claim made by the assessee was allowed in the assessee's own case for the earlier assessment years 2018 (7) TMI 2238 - CALCUTTA HIGH COURT Deemed short term capital gains computed under section 50 on long term depreciable assets set off against long term capital loss under section 74 - HELD THAT - Tribunal followed the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax, Panji Vs. V. S. Dempo Company Ltd. 2016 (10) TMI 62 - SUPREME COURT . Therefore, the question no.(iv) is not entertained. Appeal is admitted only on the following substantial questions of law (i) Whether on the facts and in the circumstances of the case, the Learned Tribunal fell in error in excluding investment in subsidiaries and consider only such investment that had yielded only dividend income/exempt income for computing disallowance under section 14A of the Income Tax Act read with Rule 8D(iii) of the Rules? (ii) Whether on the facts and in the circumstances of the case, the Learned Tribunal fell in error in reversing the order passed by the Assessing Officer and upheld by the Dispute Resolution Panel holding that providing corporate guarantee by the assessee to its Associated Enterprise for the purpose of business amounts to international transaction as per the explanation to section 92B of the Income Tax Act and rightly applied the Arms Length Method (ALP) fixing the guarantee fee rate at 3%? (iii) Whether the Learned Tribunal committed substantial error of law in deletion of the addition of ₹ 2,56,49,228/- made by the Assessing Officer by holding that guarantee fee rate of 3% to the Arms Length for marking the transaction of receipts of corporate guarantee from the subsidiary? (iv) Whether the Learned Tribunal fell in error in disregarding that there was a clear benefit accrued to the Associated Enterprises by the guarantee provided accepted even by the assessee and when such benefit was passed on by the assessee to the AE's, guarantee commission should have been charged at the Arms Length Price?

Summary

Issues:
1. Exclusion of investment in subsidiaries for computing disallowance under section 14A of the Income Tax Act.
2. Providing corporate guarantee to Associated Enterprise being considered an international transaction.
3. Deletion of addition made by the Assessing Officer regarding guarantee fee rate.
4. Disregarding the benefit accrued to Associated Enterprises by the provided guarantee and the need for Arms Length Price for guarantee commission.

Issue 1: Exclusion of investment in subsidiaries for computing disallowance under section 14A of the Income Tax Act:
The Hon'ble Court admitted the appeal on this issue, questioning whether the Tribunal erred in excluding investment in subsidiaries and only considering investments yielding dividend income for disallowance under section 14A. The Court found merit in examining this issue further.

Issue 2: Providing corporate guarantee to Associated Enterprise as an international transaction:
The Court admitted the appeal on this issue, focusing on whether providing corporate guarantee to an Associated Enterprise for business purposes constitutes an international transaction under section 92B. The Arms Length Method (ALP) was applied, fixing the guarantee fee rate at 3%. This issue raises questions about the nature of such transactions and the application of international tax laws.

Issue 3: Deletion of addition regarding guarantee fee rate:
The Court admitted the appeal on this issue, questioning the deletion of an addition made by the Assessing Officer regarding the guarantee fee rate. The Tribunal's decision to mark the transaction of receiving corporate guarantee from the subsidiary at a 3% rate was under scrutiny, highlighting the importance of proper valuation and assessment in such cases.

Issue 4: Disregarding benefit accrued to Associated Enterprises by the provided guarantee:
The Court admitted the appeal on this issue, focusing on the benefit accrued to Associated Enterprises due to the provided guarantee. The question of whether the guarantee commission should have been charged at the Arms Length Price was raised, emphasizing the need for fair and accurate pricing in related-party transactions.

The Court dismissed certain questions of law based on precedents and factual considerations. Notably, questions regarding the deletion of addition under section 14A and the disallowance of aircraft and maintenance charges were not entertained due to previous decisions and factual findings. The Court directed the appellant to submit necessary documents within a specified timeline for further proceedings. The case is scheduled for a future hearing to address the admitted substantial questions of law.