2016 (10) TMI 1403 - AT - Income Tax

TP Adjustment of interest free loan and guarantee commission - HELD THAT - Assessee-company advanced interest free loan to its wholly owned subsidiary company at UK. While considering the addition made by the AO on the direction of the DRP this Tribunal found that the matter needs to be re-examined by the DRP and verify the availability of surplus funds with the assessee for the purpose of advancing loan to Associate Enterprise in UK. Since factual situation arises during the year under consideration is similar as that of assessment year 2010-11 this Tribunal is of the considered opinion that the matter needs to be reconsidered in the light of observation made by this Tribunal for assessment year 2010-11. Accordingly the orders of the lower authorities are set aside and the issue of disallowance of interest on the borrowed loan is remitted back to the file of the AO to re-examine the issue as observed by this Tribunal for assessment year 2010-11 2016 (3) TMI 1486 - ITAT CHENNAI and thereafter decide the same in accordance with law after giving a reasonable opportunity to the assessee. Addition of guarantee commission - HELD THAT - It is not known for the earlier assessment year namely assessment year 2010-11 in the case of Redington (India) Ltd. 2014 (10) TMI 669 - ITAT CHENNAI whether the assessee has paid actual commission to bank or not. If the assessee has paid commission actually to the bank then the matter would stand differently. Therefore as rightly observed by the DRP the matter needs to be verified whether in the case of Redington (India) Limited (supra) the assessee has paid the commission actually for availing the facility from the bank. Since the exact factual situation is not available on the record this Tribunal is of the considered opinion that the matter needs to be reconsidered by the AO. Accordingly the order of the lower authority is modified and the AO is directed to refer the matter to TPO once again to find out the actual facts with regard to payment of commission to bank and thereafter decide the issue afresh in accordance with law after giving a reasonable opportunity to the assessee. Disallowance u/s 14A - HELD THAT - As it has to be ascertained whether the assessee has any liquid cash on hand on the date of investment. Moreover the claim of subsidiary company also needs to be verified with reference to shareholding pattern of so-called subsidiary company. Since the shareholding patter is not on record this Tribunal is of the considered opinion that the matter needs to be reconsidered. Accordingly the orders of the lower authorities are set aside and the issue of disallowance u/s 14A of the Act is remitted back to the file of the AO. AO shall re-examine the matter in the light of the material that may be filed by the assessee and thereafter compute the disallowance stipulated under Rule 8D(2) of the Income-tax Rules 1962. Interest free loans granted to subsidiary companies - HELD THAT - Shareholding pattern of the so-called subsidiary company is also not available on record. In those circumstances this Tribunal cannot conclude that the advance was made to subsidiary company. Moreover the commercial expediency in investing the money was not established by filing necessary material before this Tribunal. In those factual circumstances giving one more opportunity to the assessee to produce necessary material would not prejudice the interest of the Revenue. Accordingly the orders of the lower authorities are set aside and the issue of disallowance of interest on the free loans and advances to subsidiary company is remitted back to the file of the AO to reexamine the issue in the light of the material that may be filed by the assessee and thereafter decide the same in accordance with law after giving a reasonable opportunity to the assessee. Disallowance of claim of software expenses - HELD THAT - If the application software is only for a short period then it can be treated as revenue expenditure. However if the application software is for a longer period then it will have enduring benefit therefore it has to be capitalized. Since the facts need to be verified. Tribunal is of the considered opinion that the matter can be verified by the AO. Accordingly the orders of the authorities below are set aside and the AO is directed to verify the nature of expenditure and thereafter decide the issue in accordance with law after giving a reasonable opportunity to the assessee. Disallowance of export commission - HELD THAT - Tribunal is of the considered opinion that the matter needs to be re-examined by the AO. Accordingly the orders of both the authorities below are set aside and the issue of disallowance made by the AO u/s 40(a)(ia) of the Act is remitted back to the file of the AO. AO shall re-examine the issue afresh in the light of the provisions of Income-tax Act after considering the withdrawal of circular issued by CBDT and the judgment of Faizan shoes Pvt. Ltd. 2014 (8) TMI 170 - MADRAS HIGH COURT and thereafter decide the issue in accordance with law after giving a reasonable opportunity to the assessee. Additional depreciation u/s 32(1)(iia) - HELD THAT - Tribunal is of the considered opinion that the matter needs to be reconsidered in the light of the decision of this Tribunal in the assessee s own case for assessment year 2010-11. Accordingly the orders of the authorities below are set aside the issue of additional depreciation is remitted back to the file of the AO. AO shall re-examine the matter afresh in the light of the decision of this Tribunal for assessment year 2010-11 and thereafter decide the issue afresh in accordance with law after giving a reasonable opportunity to the assessee. Credit for TDS - HELD THAT - AO shall verify the TDS certificates and thereafter give credit in accordance with law after giving a reasonable opportunity to the assessee.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment from the ITAT Chennai involves several core legal issues:

Adjustment of interest-free loan and guarantee commission.
Disallowance under Section 14A of the Income-tax Act.
Interest-free loans granted to subsidiary companies.
Disallowance of claim of software expenses.
Disallowance of export commission.
Additional depreciation under Section 32(1)(iia) of the Income-tax Act.
Credit for Tax Deducted at Source (TDS).

2. ISSUE-WISE DETAILED ANALYSIS

Adjustment of Interest-Free Loan and Guarantee Commission

Relevant Legal Framework and Precedents: The Tribunal considered the prior decision in the assessee's own case for the assessment year 2010-11, where the issue was remitted back to the Assessing Officer for reconsideration.
Court's Interpretation and Reasoning: The Tribunal found that the factual situation for the current assessment year was similar to the previous year and required re-examination.
Key Evidence and Findings: The assessee advanced interest-free loans to a wholly-owned subsidiary in the UK, and the Assessing Officer applied LIBOR rates to make an addition.
Application of Law to Facts: The Tribunal decided to remit the issue back to the Assessing Officer for re-examination in light of surplus funds and the Tribunal's previous observations.
Treatment of Competing Arguments: Both parties agreed that the matter should be reconsidered by the Assessing Officer.
Conclusions: The issue was remitted back to the Assessing Officer for re-examination.

Disallowance under Section 14A of the Act

Relevant Legal Framework and Precedents: Section 14A of the Income-tax Act deals with disallowance of expenditure related to exempt income.
Court's Interpretation and Reasoning: The Tribunal noted the need to verify whether the investments were made from the assessee's own funds.
Key Evidence and Findings: The assessee claimed investments were made from its own funds, but this needed verification.
Application of Law to Facts: The Tribunal remitted the issue back to the Assessing Officer for verification of liquid cash availability and shareholding patterns.
Treatment of Competing Arguments: The Tribunal acknowledged the need for further factual verification.
Conclusions: The issue was remitted back for further examination by the Assessing Officer.

Interest-Free Loans Granted to Subsidiary Companies

Relevant Legal Framework and Precedents: The Tribunal referenced the Apex Court's judgment in S.A. Builders Ltd. v. CIT regarding commercial expediency.
Court's Interpretation and Reasoning: The Tribunal found that the commercial expediency and availability of funds needed to be verified.
Key Evidence and Findings: The assessee claimed sufficient surplus funds, but no material evidence was provided.
Application of Law to Facts: The Tribunal remitted the issue back to the Assessing Officer for verification of the commercial expediency and fund availability.
Treatment of Competing Arguments: The Tribunal allowed for further factual investigation.
Conclusions: The issue was remitted back for reconsideration by the Assessing Officer.

Disallowance of Claim of Software Expenses

Relevant Legal Framework and Precedents: The Tribunal considered whether software expenses were capital or revenue in nature.
Court's Interpretation and Reasoning: The Tribunal noted that short-term software expenses could be treated as revenue, while long-term expenses should be capitalized.
Key Evidence and Findings: The nature of the software expenses required verification.
Application of Law to Facts: The Tribunal remitted the issue back to the Assessing Officer for verification.
Treatment of Competing Arguments: The Tribunal allowed for further factual investigation.
Conclusions: The issue was remitted back for verification by the Assessing Officer.

Disallowance of Export Commission

Relevant Legal Framework and Precedents: The Tribunal considered the judgment of the Madras High Court in CIT v. Faizan Shoes Pvt. Ltd.
Court's Interpretation and Reasoning: The Tribunal noted that the withdrawal of a CBDT circular did not impact the legal interpretation.
Key Evidence and Findings: The issue required re-examination in light of the High Court's judgment and the withdrawn circular.
Application of Law to Facts: The Tribunal remitted the issue back to the Assessing Officer for re-examination.
Treatment of Competing Arguments: The Tribunal acknowledged the need for further legal examination.
Conclusions: The issue was remitted back for reconsideration by the Assessing Officer.

Additional Depreciation under Section 32(1)(iia) of the Act

Relevant Legal Framework and Precedents: The Tribunal referenced its own decision in the assessee's case for the previous year.
Court's Interpretation and Reasoning: The Tribunal found that the issue required reconsideration in light of its previous decision.
Key Evidence and Findings: The prior decision was not considered by the Assessing Officer.
Application of Law to Facts: The Tribunal remitted the issue back to the Assessing Officer for reconsideration.
Treatment of Competing Arguments: The Tribunal allowed for further examination based on prior decisions.
Conclusions: The issue was remitted back for reconsideration by the Assessing Officer.

Credit for TDS

Relevant Legal Framework and Precedents: The Tribunal required verification of TDS certificates.
Court's Interpretation and Reasoning: The Tribunal directed the Assessing Officer to verify and give credit for TDS.
Key Evidence and Findings: The TDS certificates needed verification.
Application of Law to Facts: The Tribunal remitted the issue back to the Assessing Officer for verification.
Treatment of Competing Arguments: The Tribunal allowed for verification of TDS certificates.
Conclusions: The issue was remitted back for verification by the Assessing Officer.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The Tribunal is of the considered opinion that the matter needs to be reconsidered in the light of observation made by this Tribunal for assessment year 2010-11."
Core Principles Established: The Tribunal emphasized the need for factual verification and reconsideration in light of prior decisions and legal frameworks.
Final Determinations on Each Issue: All issues were remitted back to the Assessing Officer for further examination and reconsideration, ensuring a reasonable opportunity for the assessee to present evidence.

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