2022 (5) TMI 767 - AT - Income Tax

Deduction u/s 80IC - eligible units excluding certain items forming part of the operational income of such eligible units and in reducing the deduction - HELD THAT - We find in the assessee s own case for the A.Ys 2009-10, 2010-11 2011-12 the Hon ble Tribunal has restored the matter to the file of the AO to determine whether the said items form part of the operational income of the eligible units and allow the deduction u/s 80IC - As relying on 2020 (2) TMI 1270 - ITAT MUMBAI - We restore the disputed issues to the file of the assessing officer with the similar directions and allow the ground of appeal for statistical purpose. Reallocating 50% of certain administrative and selling and marketing expenses of the non eligible units to the eligible units while computing the deduction u/s 80IC - HELD THAT - Considering the facts and ratio of the judicial decisions and the DRP directions for the A.Y.2011-12 2020 (2) TMI 1270 - ITAT MUMBAI we direct the assessing officer not to restrict the claim u/sec 80IC of the Act by reallocating 50% of administrative and selling marketing expense of the non eligible unit. Disallowance u/s 14A r.w.r 8D(2) - HELD THAT - We find the facts of the present year are similar to earlier year were the contentions envisaged by the Ld.AR that the assessee has not earned tax exempt income and therefore no disallowance U/sec 14A r.w.r 8D(2) is applicable. We considered the ratio of judicial decisions were no disallowance u/sec 14A of the Act is warranted in the absence of earning the exempt income. Accordingly, with the similar directions in the earlier year the assessing officer is directed to delete the disallowance after examination and verification of assessees claim. Transfer pricing adjustment on account of guarantee commission - HELD THAT - We find the Hon ble High Court of Bombay 2019 (9) TMI 473 - BOMBAY HIGH COURT and Hon ble Tribunal in assessee s own case 2020 (2) TMI 1270 - ITAT MUMBAI has observed that the rate of guarantee commission cannot exceed 0.5% of the guarantee amount. We direct the TPO/AO to restrict the corporate guarantee commission charged by the assessee as against the 2% of the actual barrowed amount considered for ALP by the TPO. Interest on delayed debtors/outstanding receivables from the AE - AR emphasized that the export sales to AEs and non-AEs are similar and the assesssee does not charge any interest from the AEs as well from the Non-AEs, and receives the outstanding amounts generally within the stipulated credit period. AR relied on the judicial decisions supporting the non chargeability of interest. We considering the facts, and circumstances are of the opinion that the assessee is fallowing a consistency approach of equality by not charging any interest from its AEs and non AEs though the payment in exceptional cases received beyond the credit period. Accordingly, we direct the AO/TPO to exclude the charging of interest on delayed debtors in computing the ALP.

Summary

Issues Involved:
1. Computation of deduction under Section 80IC/80IE.
2. Reallocation of administrative and selling expenses.
3. Applicability of Section 14A for disallowance in the absence of exempt income.
4. Transfer pricing adjustments related to corporate guarantees.
5. Interest on outstanding receivables from Associated Enterprises (AEs).

Detailed Analysis:

1. Computation of Deduction under Section 80IC/80IE:
The Dispute Resolution Panel (DRP) confirmed the action of the Assessing Officer (AO) in excluding claims received, miscellaneous income, and sundry balances written back from the operational income of eligible units, thus reducing the deduction claimed under Section 80IC/80IE. The Tribunal restored the matter to the AO to determine whether these items form part of the operational income of the eligible units, following the precedent set in the assessee’s own cases for previous assessment years (AYs 2009-10, 2010-11, and 2011-12).

2. Reallocation of Administrative and Selling Expenses:
The DRP confirmed the AO's action of reallocating 50% of certain administrative and selling expenses from non-eligible units to eligible units while computing the deduction under Section 80IC. The Tribunal found this issue to be covered in the assessee’s favor in previous AYs (2005-06, 2006-07, 2008-09, and 2009-10). The Tribunal directed the AO not to restrict the claim under Section 80IC by reallocating these expenses.

3. Applicability of Section 14A for Disallowance in the Absence of Exempt Income:
The DRP confirmed the AO's disallowance under Section 14A, even in the absence of exempt income. The Tribunal, following its decision in the assessee's case for AY 2011-12, directed the AO to delete the disallowance after verifying the assessee's claim that no exempt income was earned during the year. The Tribunal emphasized that no disallowance under Section 14A is warranted if no exempt income is earned and that adjustments under Section 14A cannot be made while computing book profits under Section 115JB.

4. Transfer Pricing Adjustments Related to Corporate Guarantees:
The DRP confirmed that the provision of corporate guarantees by the assessee to its AEs falls within the definition of "international transactions" under Section 92B. The Tribunal upheld this view but found that the arm's length price (ALP) of the corporate guarantee commission should be 0.5%, following the precedent in the assessee’s own cases for previous AYs (2006-07, 2007-08, 2009-10, and 2010-11). The Tribunal directed the AO/TPO to restrict the corporate guarantee commission to 0.5% instead of the 2% determined by the TPO.

5. Interest on Outstanding Receivables from Associated Enterprises (AEs):
The DRP confirmed the recharacterization of outstanding receivables from AEs beyond 60 days as a "Loan to AEs" and imputed interest on the said amount. The Tribunal found that the assessee follows a consistent approach by not charging interest from both AEs and non-AEs, even if payments are received beyond the credit period. The Tribunal directed the AO/TPO to exclude the charging of interest on delayed debtors in computing the ALP.

Conclusion:
The appeal filed by the assessee was partly allowed for statistical purposes, with specific directions given to the AO/TPO on various issues, including the computation of deductions under Section 80IC/80IE, reallocation of expenses, disallowance under Section 14A, transfer pricing adjustments for corporate guarantees, and interest on outstanding receivables from AEs.