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2023 (9) TMI 25 - AT - Income TaxTP adjustment - low rate of interest charged on advance to Associated Enterprises-AE - TPO determined the ALP of the international transaction of lending of USD 110 million also by applying LIBOR 200 basis points and made the transfer pricing adjustment - HELD THAT - considering the purpose for which this USD 110 million was given to its AE by the assessee and also considering the fact that the AE could not utilise the monies received from the assessee for any other purpose other than for the purpose of participation in the bid, we have no hesitation to hold that this lending of USD 110 million should be construed as a special purpose lending and accordingly to be treated as separate and distinct from loan simplicitor. We find that similar issue had come up for adjudication of this Tribunal in the case of Bennett Coleman And Co. Ltd 2021 (9) TMI 340 - ITAT MUMBAI Thus we have no hesitation in directing the ld. TPO / AO to delete the transfer pricing adjustment made in respect of special purpose loan of USD 110 million. Accordingly, ground No.1 raised by the assessee is allowed. Foreign tax credit tax while determining the tax liability on the assessee - HELD THAT - We find that the interest income received by the assessee from Home Field International Ltd. (AE) was duly offered to tax by the assessee company in Mauritius. The assessee paid the due taxes thereon at Mauritius. The assessee is only seeking foreign tax credit for the taxes already paid at Mauritius since the very same interest income received from AE is also subjected to tax in India in the hands of the assessee. We find that this is a legitimate claim of the assessee and hence, we direct the ld. AO to grant foreign tax credit tax while determining the tax liability on the assessee pursuant to this Tribunal order. Accordingly, the additional ground raised by the assessee is allowed. Disallowance of payments made to various institutions by invoking the provisions of section 40A(9) - HELD THAT - As relying on assessee own case 2019 (4) TMI 2064 - ITAT MUMBAI we direct the ld. AO to delete the disallowance made in this regard. Accordingly, the Ground raised by the assessee is allowed. Treatment of subscription paid under the Brand Equity and Business Promotion Agreement - payment was sought to be disallowed by the AO on the ground that the assessee was a Tata Group Company since 1939 and has its own reputation and logo, hence there is no need to use separate Tata Logo. - HELD THAT - As relying on assessee own case A.Y. 2001-02, A.Y. 2002-03 2019 (4) TMI 2064 - ITAT MUMBAI , A.Y. 2003-04 2021 (2) TMI 851 - ITAT MUMBAI and A.Y. 2004-05 2022 (7) TMI 389 - ITAT MUMBAI - Ground raised by the assessee is allowed. Denial of deduction u/s 80IA - profits derived by the Mithapur Power Plant - HELD THAT - We hold that assessee is entitled for deduction u/s. 80IA of the Act in respect of sale of steam from its power plant to non-eligible units. Assessee was justified in recognizing the sale income of power at the rate of 4.74 power unit. Thus we find that basis on which the deduction u/s. 80IA of the Act has been denied by the ld. AO for the year under consideration has no legs to stand in the eyes of law. Hence, we direct the ld. AO to grant deduction u/s. 80IA of the Act in respect of its captive power plant, in accordance with law. Accordingly, ground raised by the assessee is allowed. Denial of deduction u/s. 80IB - fertilizer subsidy received by the Haldia unit in West Bengal - HELD THAT - As stated what assessee has recovered is only part of sale price in the form of subsidy. Hence, in our considered opinion, the same would be eligible for deduction u/s. 80IB of the Act. In fact, in A.Y. 2003- 04 this Tribunal in assessee s own case 2022 (2) TMI 818 - ITAT MUMBAI had accepted the stand of the assessee and held that fertilizer subsidy represent part of the consideration received for sale of fertilizers and hence, the same would be eligible for deduction u/s. 80IB of the Act. This order was subsequently followed by this Tribunal in assessee s own case for A.Y. 2004-05 and 2005-06 2022 (7) TMI 389 - ITAT MUMBAI also. We direct the ld. AO to grant deduction u/s. 80IA of the Act in respect of fertilizer subsidy received by the assessee. Accordingly, the ground raised by the assessee is allowed. Disallowance of commission paid to Managing Director and Executive Director by applying the provisions of Section 36(1)(ii) of the Act - HELD THAT - As it is very clear that in order to apply this provision in the first instance, the Managing Director and Executive Director should be shareholders and they should have been paid commission in lieu of distribution of profit or as dividend. Since the ld. AR placed on record the list of shareholders for the first time before us to drive home the point that both the MD and ED were not shareholders of the assessee company at the relevant point in time, we deem it fit and appropriate to restore this issue to the file of the ld. AO for the limited purpose of verification of facts as to whether Mr. P R Menon and Shri Homi R Khushrokhan were shareholders of the assessee company at the relevant point in time. If they are not found to be shareholders, then the disallowance made u/s.36(1)(ii) of the Act should be deleted. Ground raised by the assessee is allowed for statistical purposes. Deduction made in respect of post retirement medical benefits provided to retired employees by the assessee company - assessee company has a scheme whereby the existing employees and employees who had retired from the services of the company on attainment of normal retirement age, are entitled for their medical check-up and medicines at the company hospital for the rest of their life - HELD THAT - On perusal of the provisions of Section 43B of the Act, this expenditure provision made for post retirement medical benefits would not fall under any of the clauses provided in Section 43B of the Act. It is an admitted fact that no fund is created by the assessee in respect of this post retirement medical benefits. However, since the actuarial valuation report was placed before this Tribunal for the first time to justify the fact that the said provision has been made on a scientific basis by placing reliance on the registered valuation report, and also considering the fact that this report was not in the possession of the lower authorities, we deem it fit and appropriate in the interest of justice and fair play, to remand this issue to the file of the ld. AO for denovo adjudication in accordance with law. Accordingly, the ground No.10 raised by the assessee is allowed for statistical purposes. Weighted deduction in respect of scientific research and development u/s.35(2AB) - AO did not agree to the contentions of the assessee on the ground that this claim is made for the first time before him during the course of assessment proceedings and since the claim was not made either in the return of income or in the revised return of income, applying the decision of Goetze India Ltd 2006 (3) TMI 75 - SUPREME COURT denied to grant deduction for the same - HELD THAT - We find that the decision of Goetze India Ltd does not prohibit an assessee who has a valid claim to be made before the appellate authorities. Moreover the restriction provided by the said decision, shall not apply to appellate authorities. This is provided in the last paragraph of the decision of the Hon ble Supreme Court. However, the veracity of the claim had not been examined at all by the ld. AO. Hence, we deem it fit and appropriate, in the interest of justice and fairplay, to restore this issue to the file of the ld. AO for denovo adjudication.
Issues Involved:
1. Transfer pricing adjustment on account of low rate of interest charged on advance to Associated Enterprises (AE). 2. Additional ground for foreign tax credit. 3. Disallowance of payments to various institutions under Section 40A(9). 4. Disallowance of subscription paid to Tata Sons Ltd under the Brand Equity and Business Promotion Agreement. 5. Disallowance of computer upgradation expenses. 6. Denial of deduction under Section 80IA for Mithapur Power Plant. 7. Denial of deduction under Section 80IB for fertilizer subsidy. 8. Disallowance of commission paid to Managing Director and Executive Director under Section 36(1)(ii). 9. Disallowance of machinery hire charges. 10. Refusal to withdraw deduction of loss on foreign exchange fluctuation. 11. Disallowance of deduction for early settlement scheme/voluntary retirement scheme expenses. 12. Unilateral addition made by the AO. 13. Adjustment to book profits under Section 115JB. 14. Disallowance under Section 14A. 15. Claim for post-retirement medical benefits. 16. Weighted deduction for scientific research and development under Section 35(2AB). 17. Validity of order under Section 154. Summary: 1. Transfer Pricing Adjustment: The Tribunal held that the special purpose loan of USD 110 million given to the AE for bid participation should be treated separately from regular loans. The interest received at 3% was deemed appropriate, and the adjustment made by the TPO was deleted. The Tribunal referenced the case of Bennett Coleman And Co. Ltd vs. DCIT to support its decision. 2. Additional Ground for Foreign Tax Credit: The Tribunal allowed the assessee's claim for foreign tax credit for taxes paid in Mauritius on interest income, directing the AO to grant the credit. 3. Disallowance under Section 40A(9): The Tribunal directed the AO to delete the disallowance of payments made to various institutions, following precedents in the assessee's own case for previous years. 4. Subscription to Tata Sons Ltd: The Tribunal allowed the deduction for payments made under the Brand Equity and Business Promotion Agreement, following its own decisions in prior years. 5. Computer Upgradation Expenses: The ground was dismissed as not pressed since depreciation was granted in later years. 6. Deduction under Section 80IA: The Tribunal allowed the deduction for the Mithapur Power Plant, stating that the assessee was justified in recognizing the sale income of power at the rate of Rs. 4.74 per unit and that the deduction was granted in the first year of its claim. 7. Deduction under Section 80IB: The Tribunal directed the AO to grant the deduction for fertilizer subsidy received, as it was part of the sale price. 8. Commission Paid to Directors: The issue was remanded to the AO to verify if the Managing Director and Executive Director were shareholders. If not, the disallowance under Section 36(1)(ii) should be deleted. 9. Machinery Hire Charges: The ground was dismissed as not pressed, following the Tribunal's decision in A.Y. 2002-03. 10. Foreign Exchange Fluctuation Loss: The ground was dismissed as not pressed, with the issue left open for subsequent years. 11. Early Settlement Scheme Expenses: The ground was dismissed as not pressed, as proportionate deduction was allowed over five years. 12. Unilateral Addition: The ground was dismissed as not pressed due to the smallness of the amount. 13. Adjustment to Book Profits: The ground was dismissed as not pressed, with the issue left open. 14. Disallowance under Section 14A: The ground was dismissed as not pressed due to smallness of the amount. 15. Post-Retirement Medical Benefits: The issue was remanded to the AO for re-adjudication based on the actuarial valuation report provided by the assessee. 16. Weighted Deduction for Scientific Research: The issue was remanded to the AO for re-adjudication, allowing the assessee to produce fresh evidence. 17. Validity of Order under Section 154: The Tribunal dismissed the appeal as infructuous, as the main issue was resolved in favor of the assessee in the related appeal for A.Y. 2007-08. Conclusion: The appeals for A.Y. 2006-07 and 2007-08 were partly allowed, while the appeal under Section 154 was dismissed as infructuous.
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