2023 (10) TMI 1012 - AT - Income Tax

Disallowances u/s. 14A r.w.r.8D - Assessee has earned dividend income from mutual funds, which is exempt from tax however, did not made any suomotu disallowance of expenditure relatable to exempt income - HELD THAT - We find the issue of disallowance u/s. 14A of the Act r.w.r.8D of the IT Rules, 1962, is covered in favour of the assessee by the decision of the ITAT Chennai Benches in the assessee s own case 2021 (9) TMI 1013 - ITAT CHENNAI for AY 2013-14, wherein following the decision of Marg Ltd. 2020 (10) TMI 102 - MADRAS HIGH COURT held that disallowances contemplated u/s. 14A of the Act, cannot exceed exempt income, and thus, directed the AO to restrict disallowance to the extent of exempt income. Thus we direct the AO to restrict disallowance u/s. 14A of the Act, to the extent of exempt income earned for the impugned assessment year. Depreciation on capital subsidy - HELD THAT - We find that the Tribunal had considered an identical issue in assessee s own case for assessment year 2006-07 2019 (2) TMI 1962 - ITAT CHENNAI and after considering nature of subsidy, has allowed claim of the assessee by observing that for earlier years, the CIT(A) has allowed claim of the assessee and the AO has accepted decision of the CIT(A) and deleted additions, while passing order giving effect to the order of the CIT(A). Therefore, consistent with the view taken by the coordinate Bench, we direct the AO to delete additions made towards disallowance of depreciation on capital subsidy received from SIPCOT. Excess depreciation claimed on UPS, Printers Scanners under the block computers - assessee has claimed depreciation on printers scanners on the ground that printers scanners and also UPS is an integral part of computer and computer software - AO had restricted depreciation claimed on printers scanners to 15% on the ground that these are only office equipments - HELD THAT - We find that an identical issue had been considered by the Tribunal in the assessee s own case for AYs 2009-10 to 2011-12 2017 (4) TMI 1193 - ITAT CHENNAI where, the Tribunal by following the decision of BSES Yamuna Powers Ltd 2010 (8) TMI 58 - DELHI HIGH COURT held that computer accessories and peripherals such as printers scanners and UPS forms an integral part of computer system and eligible for higher rate of 60% depreciation. Therefore, we are of the considered view that the assessee is entitled for higher rate of 60% depreciation on UPS, printers scanners, and thus, we direct the AO to delete disallowance of excess depreciation on UPS, printers scanners. Disallowance u/s. 43B(c) - performance incentives paid to employees - HELD THAT - We find that an identical issue had been considered by the Tribunal in the assessee s own case for AYs 2013-14 2021 (9) TMI 1013 - ITAT CHENNAI , 2014-15 2022 (3) TMI 1558 - ITAT CHENNAI , 2015-16 2021 (9) TMI 1070 - ITAT CHENNAI and 2016-17 2022 (1) TMI 1030 - ITAT CHENNAI where, it has been held that performance bonus paid to employees is in the nature of bonus which comes under the provisions of Sec.36(1)(ii) of the Act, and if such payment is not remitted on or before due date, then, same is covered u/s. 43B(c) of the Act - we are inclined to uphold the findings of the DRP and reject the ground taken by the assessee. Fresh claim of deduction towards foreign exchange loss on restatement of loans utilized for purchase of domestic assets - HELD THAT - As only legitimate tax payable by the assessee needs to be collected. Further, even in a case where the assessee has failed to make a claim towards any expenditure or allowance, it is the duty of the AO to compute correct taxable income after allowing deductible losses/expenses. Since, the assessee claims that foreign exchange loss on restatement of loans availed for purchase of domestic assets is allowable deduction, in our considered view, the AO ought to have admitted claim made by the assessee towards deduction for expenditure and decide the issue in accordance with law. Therefore, we admit the fresh claim made by the assessee and restore the issue to the file of the Assessing Officer. We, also direct the AO to verify the issue with reference to relevant materials that may be filed by the assessee and decide the issue in accordance with law. Nature of receipt - Investment Promotion Subsidy ( IPS ) received from Government of Tamil Nad u - HELD THAT - In the present case, IPS Scheme given by the Government of Tamil Nadu aims reimbursing cost of infrastructure of setting up/expansion of manufacturing facility in Mega Automobile Industry. If you go by the Scheme, it aims to reimburse cost incurred by an entity to set up a manufacturing facility which consists of various forms of assets. Although the Scheme does not specify any particular asset on which reimbursement is granted, but it aims to provide reimbursement towards total cost incurred by an entity for setting up/expansion of manufacturing facility - subsidy given to an entity in any form including reimbursement by giving refund of Output VAT is to share/reimburse part of cost incurred by an entity in setting up a plant or facility. Therefore, we are of the considered view that there is not merit in the arguments taken by the Ld. Counsel for the assessee that the IPS is not given to offset cost of any particular asset and is merely issued with an objective of accelerating the industrial development. Although, the SIPCOT has issued final eligibility certificate quantifying the amount of investment and subsidy therein, no details are forthcoming from said certificate. Further, in order to ascertain the nature of investment and to consider the exact amount of investment made in any asset or fixed asset, these details are necessarily to be examined. The issue needs to go back to the file of the AO for further verification and thus, we set aside the issue to the file of the AO and direct the AO to re-examine the claim of the assessee in light of provisions of Explanation-10 to Sec.43(1) of the Act, provided thereunder and also by considering IPS Scheme given by the Government of Tamil Nadu and other relevant evidences to ascertain whether the subsidy given by the State Government is to offset portion of the cost of an asset acquired by the assessee or is merely issued with an objective of accelerating the industrial development. Amounts received under the Focus Market Scheme - capital OR revenue receipt - Whether to be excluded from the total income? - HELD THAT - We find that an identical issue had been considered by the Tribunal in the assessee s own case for AY 2013-14 2021 (9) TMI 1013 - ITAT CHENNAI in light of subsidiary received from Government of India, Ministry of Commerce Industry under the Focus Market Scheme, and held that said subsidy is Revenue in nature which is taxable as income of the assessee. Thus subsidy received from Government of India under the Focus Market Scheme is Revenue in nature and the same was given to offset higher cost of freight and other disabilities of exporters to be more competitive in exports to certain regions. Thus, same cannot be at any stretch of imagination considered as capital in nature. Additions towards brand adjustment - HELD THAT - We find that an identical issue had been considered by the Tribunal in the assessee s own case for AY 2013-14 2021 (9) TMI 1013 - ITAT CHENNAI decided the issue in favour of the assessee wherein as held TPO as well as learned DRP were erred in making transfer pricing adjustments towards brand services by adopting Spearman s Rank Correlation method and concluded that there is positive accretion between brand value and market capitalization of HMC Korea and hence, we direct the Assessing Officer/TPO to delete transfer pricing adjustment made towards brand development services. TP adjustment - international transactions of the assessee with its AE - assessee is engaged in the business of manufacture and sale of passenger vehicles in domestic as well as export market. The sourcing, purchasing, manufacturing and warehousing facility of the assessee is common for cars manufactured for all geographies - HELD THAT - We find that an identical issue had been considered by the Tribunal in the assessee s own case in light of TP adjustment carried out by the TPO by considering total margins of the assessee including margins earned from domestic transactions and after considering relevant facts held that the whole issue of TP adjustment in respect of import of goods pertains to domestic sale segment needs to go back to the file of the TPO to reconsider the issue in light of directions given therein. Thus we set aside the order of the TPO/AO and restore the issue back to the file of the AO/TPO to re-consider the TP adjustment towards international transactions of the assessee with reference to import of raw materials related to domestic car sale segment and decide the issue in accordance with direction given in the assessee s own case for earlier assessment years. Excess levy of interest u/s. 234C - HELD THAT - In case, calculation errors, if any, then same needs to be rectified by the AO by considering relevant pre-paid taxes paid by the assessee including TDS credit as per records. Therefore, we direct the AO to re-examine the contention of the assessee with regard to computation of interest u/s. 234 of the Act, and decide the issue in accordance with law. Short credit of TDS and relief u/s. 90 - assessee submitted that a direction may be given to the AO to verify the claim of TDS available as per records and adjust against tax demand and also prayed to give a direction to the AO to allow relief u/s. 90 of the Act, in accordance with law - HELD THAT - We find that credit for TDS should be given as per Form No.26AS and also other relevant details filed by the assessee. Similarly, if assessee is entitled for any relief u/s. 90 of the Act, then same needs to be allowed in accordance with law. Therefore, we direct the AO to consider the contentions of the assessee and decide the issue in accordance with law.

Summary

Issues Involved:
1. Violation of principles of natural justice and improper adjustments.
2. Disallowance under section 14A.
3. Disallowance of capital subsidy.
4. Disallowance of excess depreciation on UPS, Printers, and Scanners.
5. Disallowance of Bonus/Performance reward under section 43B.
6. Inadvertent addition of foreign exchange loss.
7. Tax treatment of Output VAT Incentives.
8. Tax treatment of Incentives under the Focus Market Scheme.
9. Allowability of education cess under section 37.
10. Adjustment for Brand development services.
11. Downward adjustment to the value of imports.
12. Exclusion/Inclusion of certain operating income and non-operating expenses.
13. Excess levy of interest under section 234C.
14. Short credit of Tax deducted at source.

Summary:

1. Violation of Principles of Natural Justice and Improper Adjustments:
The Tribunal dismissed the general grounds of appeal as they did not require specific adjudication.

2. Disallowance under Section 14A:
The Tribunal directed the AO to restrict the disallowance under section 14A to the extent of the exempt income earned, following the decision of ITAT Chennai Benches in the assessee's own case for earlier years.

3. Disallowance of Capital Subsidy:
The Tribunal directed the AO to delete the disallowance of depreciation on capital subsidy received from SIPCOT, consistent with the view taken by the coordinate Bench in the assessee's own case for earlier years.

4. Disallowance of Excess Depreciation on UPS, Printers, and Scanners:
The Tribunal directed the AO to delete the disallowance of excess depreciation on UPS, printers, and scanners, following the decision of the Hon'ble Delhi High Court in the case of CIT v. BSES Yamuna Powers Ltd.

5. Disallowance of Bonus/Performance Reward under Section 43B:
The Tribunal upheld the disallowance of performance incentives paid to employees under section 43B(c), following the decision of ITAT Chennai Benches in the assessee's own case for earlier years.

6. Inadvertent Addition of Foreign Exchange Loss:
The Tribunal admitted the fresh claim of the assessee and restored the issue to the AO to verify the claim and decide the issue in accordance with law.

7. Tax Treatment of Output VAT Incentives:
The Tribunal set aside the issue to the AO for verification of the IPS Scheme, details of investment, and the certificate issued by SIPCOT, to ascertain whether the subsidy is to offset the cost of an asset or to accelerate industrial development.

8. Tax Treatment of Incentives under the Focus Market Scheme:
The Tribunal upheld the findings that the subsidy received under the Focus Market Scheme is revenue in nature and taxable, following the decision of ITAT Chennai Benches in the assessee's own case for AY 2013-14.

9. Allowability of Education Cess under Section 37:
The ground relating to deduction towards Education and Secondary Education Cess was dismissed as withdrawn by the assessee.

10. Adjustment for Brand Development Services:
The Tribunal directed the AO to delete the addition made towards brand adjustment, following the decision of ITAT Chennai Benches in the assessee's own case for earlier years.

11. Downward Adjustment to the Value of Imports:
The Tribunal set aside the issue to the AO/TPO to reconsider the TP adjustment towards international transactions of the assessee with reference to import of raw materials related to the domestic car sale segment, consistent with the view taken by the co-ordinate Bench.

12. Exclusion/Inclusion of Certain Operating Income and Non-Operating Expenses:
The Tribunal directed the AO to re-examine the computation of operating margins by considering the findings on other income, consistent with the view taken by the co-ordinate Bench.

13. Excess Levy of Interest under Section 234C:
The Tribunal directed the AO to re-examine the computation of interest under section 234C and rectify any calculation errors in accordance with law.

14. Short Credit of Tax Deducted at Source:
The Tribunal directed the AO to verify the claim of TDS available as per records and adjust against the tax demand, and also to allow relief under section 90 of the Act in accordance with law.

Conclusion:
The appeal filed by the assessee was partly allowed for statistical purposes.