2022 (6) TMI 839 - AT - Income Tax

Deduction u/s.80IB(9) - interest income would be taxable as business income OR income from other sources - HELD THAT - This Tribunal in assessee s own case for A.Y.2009-10 by holding the interest income be treated as income from business and not as income from other sources . We find that this Tribunal in assessee s own case for A.Y.2009-10 had held that temporary business funds were deposited by the assessee into the bank account till the date of its requirement and therefore by placing reliance on the decision of the Hon ble Jurisdictional High Court in the case of CIT vs. Lok Holdings 2008 (1) TMI 365 - BOMBAY HIGH COURT the said interest income would be taxable as business income . Respectfully following the same, the ground No.1 raised by the Revenue is dismissed. Deduction u/s.80IB(9) on profit earned by the assessee from exploration of natural gas - As per AO the provisions of Section 80IB(9) of the Act which restricts the deduction to exploration of mineral oil - AO in his assessment order took a view that natural gas does not fall into the category of mineral oil and hence restricted deduction u/s.80IB(9) of the Act to the proportionate profit relating to sale of only crude oil - CIT-A allowed the deduction - HELD THAT - In view of the aforesaid decisions of this Tribunal in the case of Reliance Industries Ltd. which is a 90% joint venture partner of assessee and the decision of the Hon ble Gujarat High Court in the case of Niko Resources Ltd., 2015 (3) TMI 986 - GUJARAT HIGH COURT which is a sister concern of the assessee, we hold that the ld. CIT(A) had rightly granted relief to the assessee by allowing deduction u/s.80IB(9) of the Act on profit earned by the assessee for exploration of natural gas. Accordingly, the ground No.2 raised by the Revenue is dismissed. TP Adjustment made on account of interest chargeable on outstanding receivables - applying LIBOR rates - HELD THAT - It is not in dispute that the receivables from AE were outstanding for more than two years. Accordingly, the ld. TPO observed that the same constitutes indirect funding by the assessee to its AE and therefore, the imputation of interest need to be made on the same. Whether the transaction of imputation of interest on outstanding receivables from AE would constitute an international transaction or not, is not in dispute before us. For the purpose of imputation of interest, the ld. TPO proposed the interest rate at 14.45% being the SBI prime lending rate. We hold that adoption of SBI prime lending rate @14.45% is definitely excessive and is not in order. In our considered opinion, applying LIBOR rates plus two basis points would be a reasonable rate of interest which should be adopted for benchmarking the international transaction of interest on outstanding receivables. We direct the ld. TPO / ld. AO to make transfer pricing adjustment in this regard accordingly.

Summary

Issues Involved:
1. Deduction under Section 80IB(9) on interest income.
2. Deduction under Section 80IB(9) on profit from exploration of natural gas.
3. Transfer pricing adjustment on account of interest chargeable on outstanding receivables.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IB(9) on Interest Income:
The primary issue was whether the assessee was eligible for deduction under Section 80IB(9) of the Income Tax Act on interest income amounting to Rs. 25,54,050/-. The Revenue contended that this interest income should be classified as "income from other sources" as it was not derived from the activities mentioned in Section 80IB(9). The assessee argued that the interest income was earned from business funds deposited in a designated bank account, making it an integral part of the business income. The CIT(A) and the Tribunal had previously ruled in favor of the assessee in earlier years, treating such interest income as "income from business." The Tribunal upheld this view, dismissing the Revenue's appeal on this ground.

2. Deduction under Section 80IB(9) on Profit from Exploration of Natural Gas:
The second issue was whether the assessee could claim a deduction under Section 80IB(9) on profits amounting to Rs. 208,96,63,164/- earned from the exploration of natural gas. The Revenue argued that Section 80IB(9) restricts the deduction to the exploration of mineral oil, not natural gas. The assessee countered that the term "mineral oil" includes natural gas, referencing definitions in other sections of the Income Tax Act and the Oil Fields (Regulation and Development) Act, 1948. The CIT(A) had granted the deduction by relying on previous orders in favor of the assessee's joint venture partner. The Tribunal cited the Gujarat High Court's decision in Niko Resources Ltd. and its own earlier decisions, concluding that "mineral oil" includes natural gas for the purposes of Section 80IB(9). Thus, the Tribunal dismissed the Revenue's appeal on this ground as well.

3. Transfer Pricing Adjustment on Account of Interest Chargeable on Outstanding Receivables:
For the assessment year 2013-14, the Revenue challenged the deletion of a transfer pricing adjustment of Rs. 15,72,431/- made on account of interest on outstanding receivables from an associated enterprise (AE). The assessee had not charged any interest on these receivables, which were outstanding for more than two years. The TPO proposed an interest rate of 14.45% based on the SBI prime lending rate. The Tribunal found this rate excessive and directed that a reasonable rate of interest, specifically LIBOR plus two basis points, should be used for benchmarking the transaction. Consequently, the Tribunal allowed the Revenue's appeal for statistical purposes on this ground.

Summary of Judgments:
- ITA No. 5/Mum/2018 (A.Y. 2011-12): Revenue's appeal dismissed.
- ITA No. 642/Mum/2018 (A.Y. 2012-13): Revenue's appeal dismissed.
- ITA No. 643/Mum/2018 (A.Y. 2013-14): Revenue's appeal allowed for statistical purposes.

The Tribunal pronounced the order on 15/06/2022.