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2022 (7) TMI 385 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - As per assessee no exempt income has been earned by the assessee - HELD THAT - Factum of earning no dividend income by the assessee company during the years under consideration i.e. A.Y. 2009-10, 2010-11 2013-14 is admitted one. It is settled principle of law that when no exempt income has been earned by the assessee during the years under consideration no disallowance can be made under section 14A read with rule 8D of the Act. So finding no illegality or perversity in the impugned deletion of addition, findings returned by Ld. CIT(A) are upheld. - Decided against revenue. Addition u/s 14A read with rule 8D under Minimum Alternate Tax (MAT) computation under section 115JB - HELD THAT - When there is no disallowance under section 14A read with rule 8D of the Act, no disallowance is sustainable under section 14A read with rule 8D under MAT computation under section 115JB of the Act as has been held by Special Bench of the Tribunal in case of ACIT vs. Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI - Decided against revenue. Disallowance of write off of the security deposits - CIT(A) decided the issue by referring the same back to the AO to verify whether the same were actually written off and if so allow the sum as deduction - HELD THAT - Since department is not prejudiced in any manner with the findings returned by the Ld. CIT(A) as the amount if actually written off is an allowable deduction. It would be done by the AO only after verification. So this ground is determined against the Revenue. TP adjustment qua interest on shareholders deposit - Addition on the ground that the assessee has taken risk by giving deposit to an international Associate Enterprise (AE) without taking any security and charged the interest @ 11.71% with additional amount of 1% to the rate of interest for not taking any security, to the amount of shareholders deposit - HELD THAT - The co-ordinate Bench of the Tribunal 2017 (11) TMI 376 - ITAT MUMBAI decided the identical issue qua transfer pricing adjustment in relation to non-interest bearing shareholders deposit by considering the permission accorded by RBI and by considering the decision rendered in case of CIT vs. Hukumchand Mills Ltd. 1983 (2) TMI 1 - BOMBAY HIGH COURT and decision rendered in case of Uco Bank 1999 (5) TMI 3 - SUPREME COURT and as such no addition on account of transfer pricing adjustment qua non-interest bearing shareholders deposit is sustainable in the eyes of law. Hence, ground No.3 of A.Y. 2009-10, 2010-11 grounds No.1 to 7 of A.Y. 2013-14 of Revenue are determined against it. TP adjustment towards accrual of technical knowhow fees from AE in Indonesia PTFSI - technical fee received/receivable from AE were not reported in the agreement - HELD THAT - Co-ordinate Bench of the Tribunal by relying upon the decision rendered by the Hon ble Supreme Court in case of Godhra Electricity Co. Ltd. 1997 (4) TMI 4 - SUPREME COURT held that when there is an uncertainty involved in collection of technical knowhow fees from PTFSI due to its bad financial conditions the assessee has rightly not recognized the Revenue. So the necessary entries made by the assessee company are merely on hypothetical income and as such the impugned amount brought to tax by the AO has not represented the income which has really accrued to the assessee company during the years under consideration. In view of the matter the Ld. CIT(A) has rightly deleted the addition by following the order passed by the Tribunal in assessee s own case for A.Y.L 2012-13. TP Adjustment on accrual of interest on outstanding balances of the AE - HELD THAT - This issue is no longer resintegra having been decided by co-ordinate Bench of the Tribunal in assessee s own case in A.Y. 2007-08 AND 2008-09 . 2018 (4) TMI 1925 - ITAT MUMBAI , 2010-11 2012-13 2017 (11) TMI 376 - ITAT MUMBAI the debit balance outstanding with the AE on the year end does not fall within the ambit of international transactions and as such Ld. CIT(A) has rightly deleted the adjustment proposed by TPO and made by AO. Nature of receipt - subsidy received by the assessee under the package scheme of incentives 2007 from the Government of Maharashtra - revenue or capital receipt - HELD THAT - As decided in own case since the subsidy has been given as an incentive to set up a new unit or to expand an existing unit to encourage industrial development in the state, the subsidy/incentives received by the assessee is on capital account and as such not chargeable to tax. So the Ld. CIT(A) has rightly decided the issue in favour of the assessee LTCG computation - assessee has offered Long Term Capital Gain (LTCG) by applying the percentage completion method and by taking indexation till the year of sale - AO by disagreeing with the assessee proceeded to hold that the assessee is not entitled for this claim and by removing the wrong claim of indexation and by rejecting the percentage completion method for the working of LTCG, the AO made addition being the differential amount in capital gain offered - HELD THAT - Since the issue before hand is identical to the issue decided by the co-ordinate Bench of the Tribunal in A.Y. 2012-13 2017 (11) TMI 376 - ITAT MUMBAI so by following the order we hereby set aside the same for verification purpose only to verify the sale of stock in trade affected and offered the proportionate capital gains in the relevant years to tax the same accordingly. Because whole of the capital gain on conversion of land to stock in trade in the year in which only part of sale of stock in trade is affected cannot be brought to tax. TP Adjustment on corporate guarantee - assessee company stood as guarantor for a loan availed of by its AE without charging anything for the risk involved - HELD THAT - As when corporate guarantee has been provided by the parent company for the overall benefit of business of the group and ultimately to the benefit of the parent company itself, the transaction qua providing corporate guarantee is to be treated at arms length without any separate mark up. Moreover, as already decided by co-ordinate Bench of the Tribunal the transaction as to providing corporate guarantee qua the loan availed of by the AE does not cover under the definition of international transactions as defined under section 92B of the Act. So we hereby set aside the order passed by the Ld. Lower Authorities and addition made by Ld. Lower Authorities on account of transfer pricing adjustment qua risk involved in giving guarantee on loan advance to the AE is ordered to be deleted. So ground No.1 of A.Y. 2009-10 2010-11 is determined in favour of the assessee. MAT computation qua the subsidy received under package incentive scheme - HELD THAT - CIT(A) by way of specific ground qua the subsidy received under package incentive scheme of 2007 of Government of Maharashtra as capital subsidy and to exclude the subsidy amount while computing the book profit under section 115JB of the Act which is purely a legal issue, the Ld. CIT(A) was required to decide the issue on merits having been declined by the AO on the ground that this claim was not raised by the assessee by way of filing revised return. So we set aside this issue back to the Ld. CIT(A) to decide afresh.
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D. 2. Disallowance under Section 14A under Minimum Alternate Tax (MAT) computation. 3. Transfer pricing adjustment related to interest on shareholders' deposits. 4. Transfer pricing adjustment related to technical know-how fees. 5. Transfer pricing adjustment related to interest on outstanding balances with AE. 6. Nature of subsidy received under the Package Scheme of Incentives, 2007. 7. Long Term Capital Gains (LTCG) on conversion of capital assets into stock-in-trade. 8. Deduction of provisions for inter-corporate deposits and advances written off. 9. Deduction of security deposit written off. 10. Transfer pricing adjustment on account of risk involved in giving corporate guarantee. Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The AO invoked Section 14A read with Rule 8D to disallow Rs.3,58,69,794/-, Rs.68,46,172/-, and Rs.27,97,935/- for A.Y. 2009-10, 2010-11, and 2013-14 respectively. The CIT(A) deleted these additions based on the fact that no exempt income was earned by the assessee during these years. The Tribunal upheld the CIT(A)'s decision, emphasizing that no disallowance can be made under Section 14A read with Rule 8D if no exempt income is earned. 2. Disallowance under Section 14A under MAT computation: The AO made disallowances under Section 14A read with Rule 8D in the MAT computation under Section 115JB. The CIT(A) deleted these disallowances, and the Tribunal upheld this decision, citing the Special Bench decision in ACIT vs. Vireet Investment Pvt. Ltd., which held that no disallowance under Section 14A read with Rule 8D is sustainable under MAT computation if no exempt income is earned. 3. Transfer pricing adjustment related to interest on shareholders' deposits: The AO made transfer pricing adjustments for interest on shareholders' deposits for A.Y. 2009-10, 2010-11, and 2013-14. The CIT(A) deleted these adjustments, following the Tribunal's decision in the assessee's own case for A.Y. 2012-13. The Tribunal upheld the CIT(A)'s decision, noting that the RBI's permission and the decisions in CIT vs. Hukumchand Mills Ltd. and UCO Bank vs. CIT supported the assessee's position. 4. Transfer pricing adjustment related to technical know-how fees: The AO proposed adjustments for technical know-how fees for A.Y. 2010-11 and 2013-14. The CIT(A) deleted these adjustments, following the Tribunal's decision in the assessee's own case for A.Y. 2012-13. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's decision in Godhra Electricity Co. Ltd. vs. CIT, which supported the non-recognition of hypothetical income. 5. Transfer pricing adjustment related to interest on outstanding balances with AE: The AO proposed adjustments for interest on outstanding balances with AE for A.Y. 2009-10, 2010-11, and 2013-14. The CIT(A) deleted these adjustments, following the Tribunal's decision in the assessee's own case for A.Y. 2012-13. The Tribunal upheld the CIT(A)'s decision, noting that such balances do not fall within the ambit of international transactions. 6. Nature of subsidy received under the Package Scheme of Incentives, 2007: The AO treated the subsidy received under the Package Scheme of Incentives, 2007 as revenue receipt, while the CIT(A) treated it as a capital receipt, following the Tribunal's decision in the assessee's own case for A.Y. 2011-12. The Tribunal upheld the CIT(A)'s decision, referencing relevant Supreme Court and High Court decisions that supported treating the subsidy as a capital receipt. 7. Long Term Capital Gains (LTCG) on conversion of capital assets into stock-in-trade: The AO made an addition for LTCG on conversion of capital assets into stock-in-trade. The CIT(A) deleted this addition, following the Tribunal's decision in the assessee's own case for A.Y. 2012-13. The Tribunal upheld the CIT(A)'s decision, directing the AO to verify the sale of stock-in-trade and tax the proportionate capital gains accordingly. 8. Deduction of provisions for inter-corporate deposits and advances written off: The AO disallowed the deduction for provisions for inter-corporate deposits written off. The CIT(A) directed the AO to verify if the amounts were actually written off and allow the deduction if so. The Tribunal upheld this direction for verification. 9. Deduction of security deposit written off: The AO disallowed the deduction for security deposits written off. The CIT(A) directed the AO to verify if the amounts were actually written off and allow the deduction if so. The Tribunal upheld this direction for verification. 10. Transfer pricing adjustment on account of risk involved in giving corporate guarantee: The AO made adjustments for the risk involved in giving a corporate guarantee. The CIT(A) restricted the mark-up to 0.5%. The Tribunal, following its decision in the assessee's own case for A.Y. 2012-13, held that providing corporate guarantees for the overall benefit of the group should be treated at arm's length without any separate mark-up and does not fall under the definition of international transactions. The Tribunal deleted the adjustments. Conclusion: The Tribunal upheld the CIT(A)'s decisions on most issues, emphasizing consistency with previous rulings and relevant judicial precedents. The Tribunal directed verification for certain deductions and set aside some issues for fresh consideration by the CIT(A). The appeals were partly allowed for statistical purposes.
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