2022 (9) TMI 1608 - HC - Income Tax

Appeal is admitted on substantial questions of law - additional depreciation for the previous year - Education Cess is allowable deduction under section 40(a)(ii) or not? - Employee s contributions to PF ESI to be governed by the provisions of Section 43B and separately dealt in section 36(va) - TP adjustment on account of Corporate Guarantee provided by the assessee to its foreign associate enterprises (AE) - determination of ALP of interest on loan HELD THAT - We are of the considered view that the above issue in the said case is fully factual. Therefore the substantial question of law no.(8) is not admitted. Learned Advocate for the appellant shall file requisite number of informal paper books prepared out of Court within a period of 10 (ten) weeks from date including therein all relevant papers and documents serving a copy thereof on the learned Advocate for the respondent. Let the appeal be listed after 12 (twelve) weeks. Since the respondent is represented by their learned Advocate service of notice of this appeal on the respondent stands waived.

Summary

Issues:
1. Additional depreciation claim without express enabling provision.
2. Allowability of Education Cess deduction under section 40(a)(ii).
3. Consideration of High Court's view on Education Cess.
4. Treatment of employee contributions to PF & ESI under different sections.
5. Deletion of Transfer Pricing adjustment for Corporate Guarantee.
6. Classification of Corporate Guarantee as an International Transaction.
7. Determination of ALP of interest on loan.

Analysis:

1. The first issue revolves around the claim of additional depreciation by the assessee. The Tribunal upheld the claim based on a previous case without a specific enabling provision in the statute and without considering the prospective nature of the amendment. The question of law raised challenges the Tribunal's decision in allowing the additional depreciation without a corresponding provision in the statute.

2. The second issue concerns the allowability of Education Cess as a deduction under section 40(a)(ii) of the Income Tax Act. The Tribunal's decision to allow the deduction is questioned based on the argument that Education Cess is part of income tax and should not be separately deductible. The issue delves into the interpretation of the Finance Act provisions regarding Education Cess.

3. The third issue questions the Tribunal's failure to consider the jurisdictional High Court's view on Education Cess, as conveyed in a specific case. The appellant challenges the Tribunal's decision by arguing that the High Court's stance on Education Cess should have been taken into account, leading to a discrepancy in the Tribunal's ruling.

4. The fourth issue pertains to the treatment of employee contributions to PF & ESI under different sections of the Income Tax Act. The appellant contests the Tribunal's decision by highlighting the separate treatment of these contributions under different sections and the introduction of declaratory explanations in the Finance Bill of 2020, raising concerns about the correct legal interpretation.

5. The fifth issue involves the deletion of a Transfer Pricing adjustment related to a Corporate Guarantee provided by the assessee to its foreign associate enterprises. The Tribunal's decision to delete the adjustment is challenged, questioning whether the Corporate Guarantee should be considered an International Transaction and subject to Transfer Pricing regulations.

6. The sixth issue addresses the classification of Corporate Guarantee as an International Transaction. The appellant disputes the Tribunal's ruling that a Corporate Guarantee does not amount to an International Transaction, arguing that the provision of Guarantee falls within the definition of International Transaction as per the Income Tax Act, leading to a legal interpretation conflict.

7. The seventh issue focuses on the determination of the Arm's Length Price (ALP) of interest on a loan. The Tribunal's summary rejection of the Revenue's Appeal is contested, as the appellant argues that a speaking order should have been passed regarding the ALP determination, highlighting the factual nature of the issue and the need for a detailed consideration of the ALP calculation.