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2022 (7) TMI 1045 - AT - Income TaxMAT computation u/s 115JB - Disallowing exclusion of Excise Duty Exemption as capital receipt availed during the year under consideration in computing book profit as per section 115JB - HELD THAT - We find that the excise duty exemption has been admittedly the capital receipt and the finding of the CIT(Appeals) that the excise duty exemption is not liable to be taxed under the normal provisions of the Income Tax Act being not in dispute for us, the alleged capital receipt cannot be categorised as part of the book profit. In the case of assessee being covered by the excise duty notification, such sum collected on the goods manufactured and sold is in the nature of incentive subsidy given for establishing the units in backward areas and to generate employment opportunities. As per Memorandum issued by the Ministry of Commerce Industry, we find that the excise duty exemption is purely capital receipt and is neither chargeable to tax under the normal provisions of the Income Tax Act nor is to be included as part of the book profit for computing the minimum alternative tax as per the provisions of section 115JB of the Act. Thus Ground No. 2 raised by the assessee is allowed. Claim of deduction of amortisation of leasehold land expenses - AO rejected the assessee s claim on the ground that the amortisation of leasehold land does not specify the conditions laid down in section 35D(2) of the Act and is also not liable to deduction under section 37 - whether the alleged expense has been expended wholly and exclusively for the purposes of business? - HELD THAT - As it is not in dispute that the leasehold lands taken by the assessee on lease are used for carrying out business operation and the lumpsum lease money was paid as per the agreement and was required to be paid at the beginning of the lease term but the said sum is spread over the entire lease term. Now what is the mechanism to quantify the amount and how to spread the amount across the lease period. Assessee has taken guidance from the Accounting Standard 19 issued by the Institute of Chartered Accountants of India and in accordance with the procedure laid down therein and principal of accounting has debited the annual amount of lease in the profit loss account and balance prepaid lease money is shown on the assets side in each year. The amount of amortisation debited to profit loss account is reduced from the advance lease money paid. We find no error in this way of accounting treatment of the amortisation of the leasehold expenses and thus the same being spent exclusively for the business purposes has been rightly claimed as expenditure by the assessee under Section 37 of the Act. Our view is supported by the decision of the Coordinate Bench of Delhi in the case of NIIT Technologies Ltd 2020 (6) TMI 526 - ITAT DELHI wherein it was held that the assessee would be entitled to claim 1/90th of amount of total lease rent every year till period of lease of 90 years as revenue expenditure and entire lease rent amount would not be allowed during the relevant year. Thus amortization of leasehold land and land development charges deserves to be allowed as an expenditure under section 37 - Decided in favour of assessee. Corporate Guarantee given by the assessee to its Associated Enterprises - HELD THAT - Inter-corporate guarantees are a common business practice. Within an affiliated corporate group, some entities represent higher credit risks than others. The weaker entities may either be unable to obtain financing or may be able to obtain credit facilities only upon unfavourable terms. When a corporate borrowing group includes multiple businesses, it is common for lenders to look to guarantees of corporate affiliates to support the credit facility. In the instant case, the corporate guarantee has been provided by the assessee on behalf of the Associated Enterprise and is in the nature of a downstream guarantee, where the guarantee is provided by the parent company for obligations of its subsidiary. So far as the issue that the present transaction of giving corporate guarantee falls under the category of international transaction, it is not under the dispute before us, as it was held against the assessee by the ld. CIT(Appeals) and against the said view, the assessee has not filed any appeal or Cross Objection. Computation of quantum of Corporate Guarantee fee adjustment to be made in the hands of assessee - As respectfully following the decision of the Coordinate Bench, Mumbai in the case of Everest Kento Cylinder Ltd 2015 (5) TMI 395 - BOMBAY HIGH COURT we confirm the view taken by the ld. CIT(Appeals), who has rightly held that the arm s length guarantee commission charge should be restricted at 0.5% of the guaranteed amount. Thus no interference is called for in the order of ld. CIT(Appeals) and the grounds raised by the revenue on the issue of Corporate Guarantee Fees are dismissed. Downward adjustment in respect of purchases made by eligible unit from non-eligible unit - assessee-company operates various units of which some units eligible for deduction u/s 80IA(10) (hereinafter called as eligible units ) and some are non-eligible units - HELD THAT - TPO had agreed with the TNMM method adopted by the assessee. The reasons given for TPO adjustment is very general in nature merely referring to the profit margin of the eligible units to the non-eligible units. Ld. TPO has not given any analysis to demonstrate that how the purchase of any material by eligible units from non-eligible units could have yielded extra profits. We, therefore, are in conformity with the finding of the ld. CIT(Appeals) that no downward adjustment of profit of eligible units be sustained. As far as the ground raised by the Revenue on account of Rule 46A of the Act, ld. D.R. failed to file the necessary evidences to indicate as to what new documents were filed before the ld. CIT(Appeals) which were not placed before the ld. TPO and the ld. Assessing Officer. Therefore, all the grounds raised by the Revenue on account of issue of inter-corporate transactions deserve to be dismissed.
Issues Involved:
1. Education cess on Income Tax and Dividend Distribution Tax. 2. Exclusion of Excise Duty Exemption as capital receipt in computing book profit under section 115JB. 3. Deduction of Amortization of Leasehold Land expenses. 4. Arm's length rate of Corporate Guarantee fees. 5. Downward adjustment in respect of purchases made by eligible units from non-eligible units. Detailed Analysis: 1. Education cess on Income Tax and Dividend Distribution Tax: - Summary: The assessee did not press this ground, and it was dismissed as not pressed. 2. Exclusion of Excise Duty Exemption as capital receipt in computing book profit under section 115JB: - Facts: The assessee claimed excise duty exemption for its manufacturing units located in backward areas, amounting to Rs.87,98,09,432/-. The CIT(A) allowed the deduction under normal provisions but did not address the exclusion while computing book profit under section 115JB. - Arguments: The assessee argued that the excise duty exemption is a capital receipt and should be excluded from book profit computation. Various judgments, including CIT vs. Ponni Sugars & Chemicals Limited and CIT vs. Reliance Industries Limited, were cited to support this claim. - Decision: The Tribunal agreed with the assessee, stating that the excise duty exemption, being a capital receipt, should not be included in the book profit for computing MAT under section 115JB. The Tribunal referred to multiple precedents supporting this view. - Conclusion: The Tribunal allowed the exclusion of the excise duty exemption from the book profit computation under section 115JB. 3. Deduction of Amortization of Leasehold Land expenses: - Facts: The assessee claimed deduction for amortization of leasehold land expenses amounting to Rs.18,73,242/-. The Assessing Officer disallowed this expenditure, and the CIT(A) upheld the disallowance but increased the deduction under section 80IC/80IE for lease rentals attributable to eligible units. - Arguments: The assessee argued that the amortization of leasehold land expenses should be allowed as a deduction under section 37, citing decisions like Empire Jute Co. Limited vs. CIT and DCIT vs. Sun Pharmaceuticals Industries Limited. - Decision: The Tribunal held that the amortization of leasehold land expenses is allowable under section 37, as it is expended wholly and exclusively for business purposes. The Tribunal found no error in the accounting treatment of amortization and allowed the deduction. - Conclusion: The Tribunal reversed the CIT(A)'s finding and allowed the deduction for amortization of leasehold land expenses. 4. Arm's length rate of Corporate Guarantee fees: - Facts: The assessee provided corporate guarantees for loans taken by its Associated Enterprises (AEs) and charged no fees. The TPO suggested a guarantee fee rate ranging from 1.22% to 1.69%, leading to an addition of Rs.43,67,295/-. The CIT(A) reduced the rate to 0.5%. - Arguments: The Revenue argued that the CIT(A) erred in reducing the rate without scientific or logical reasons. The assessee cited various Tribunal rulings where the arm's length guarantee fee was set between 0.3% and 0.5%. - Decision: The Tribunal upheld the CIT(A)'s decision, noting that the 0.5% rate is supported by substantial judicial precedents, including the case of Everest Kento Cylinder Ltd. - Conclusion: The Tribunal confirmed the arm's length guarantee fee rate at 0.5%, dismissing the Revenue's appeal on this issue. 5. Downward adjustment in respect of purchases made by eligible units from non-eligible units: - Facts: The TPO suggested a downward adjustment of Rs.2,48,39,215/- for purchases made by eligible units from non-eligible units, alleging that eligible units earned more than ordinary profits. The CIT(A) deleted the adjustment. - Arguments: The Revenue argued that the CIT(A) erred in deleting the adjustment without sufficient cause and without considering the credit rating of the AE. The assessee contended that the higher profit margins were due to factors like excise duty exemption and lower cost of production. - Decision: The Tribunal agreed with the CIT(A) that the TPO's adjustment was unsustainable, as the eligible units' higher profits were attributable to various legitimate factors. The Tribunal also noted that the TPO failed to provide a detailed analysis of how the purchases yielded excess profits. - Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the downward adjustment. Conclusion: The Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal, providing detailed reasoning for each issue based on judicial precedents and the specific facts of the case.
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