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2024 (4) TMI 88 - AT - Income TaxDisallowance u/s. 14A - CIT(A) restricted disallowance - assessee has suo moto made a disallowance - HELD THAT - Assessee s plea of non recording of dissatisfaction by the A.O rejected as A.O. is casted upon the onus to explain with cogent reason for the dissatisfaction in the assessee s claim and the decisions relied upon by the assessee and the first appellate authority does not support the assessee s case for the facts and circumstances of this case. As settled preposition of law that even the investment made in sister concern has to be taken into consideration for computing the disallowance u/s. 14A of the Act as per the Special Bench decision of Ahmedabad in the case of Shri Vishnu Anant Mahajan 2012 (9) TMI 1205 - ITAT AHMADABAD . It is also pertinent to point out that after the introduction of Rule 8D in the Income Tax Rules vide Notification No. 45/2008 w.e.f. 24.03.2008, no arbitrary disallowance u/s. 14A was to be done by the ld. A.O. and the ld. A.O. was to compute the disallowance in accordance with section 14A r.w.r. 8D of the Rules. In this note, we deem it fit to remand this issue back to the file of the ld. CIT(A) to decide the grounds of disallowance made u/s. 14A on the merits of the case in accordance with the provision of the Act after duly considering the submission of the assessee. Hence, ground allowed for statistical purpose. Adjustment of the book profit u/s. 115JB of the Act in relation to the expenditure relatable to earning income - HELD THAT - As this issue has already been decided in the case of Vireet Investment (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI which has held that for computation under clause (f) of Explanation 1 to section 115JB(2) of the Act restart to computation u/s. 14A r.w. Rule 8D should not be made where there is a separate mechanism available for adjustment to the book profit of such expenditure incurred. As these issues are identical and covered by various decisions including the decision in assessee s case, we deem it fit to allow the grounds raised by the assessee in its cross objection. Disallowance u/s. 36(1)(iii) - advance/funds transfer was not for business activities - assessee had appointed a person Shri Nilesh Janardan Thakkar to identify, assist and aggregate lands and paid the advance to him - DR has contended that the said transaction is a colorable device and there was no genuine business transaction - assessee controverted the said fact and had stated that these advances are from assessee s own fund and not from borrowed funds - HELD THAT - Transaction with Shri Nilesh Janardan Thakkar has been carried out by the assessee since A.Y. 2008-09 for its business purposes and the Tribunal has held that the assessee s interest free funds are in excess of the advances given to the said parties. The Tribunal by placing reliance on the decision of Reliance Utilities Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT has deleted the addition on the ground that if the interest free funds of the assessee are in excess of the loans advance then it can be presumed that the funds invested by the said entities are not out of the borrowed funds. The ld. AR for the assessee vide his submission has furnished the statement of the assessee s interest free funds where it is observed that the interest free funds are more than the investment and the advances made by the assessee. Decided in favour of assessee. Unexplained money with respect to the sale of immovable property - correct assessment year - assessee contended that since the transfer of property had taken place in March, 1999 relevant to F.Y. 1998-99, the same cannot be taxed during the year under consideration - assessee s contention that the sale actually took place in 1999 for a consideration and handed over the possession to the buyer in the same year along with all the original documents, was not accepted by the A.O. for the reason that the assessee has failed to furnished the evidences and the other supporting documents to establish its claim - HELD THAT - As observed that the assessee has furnished additional evidence before the ld. CIT(A) establishing the fact that the original agreement was executed in 1999 for which the assessee has paid consideration and the possession of the property was also handed over in the year 1999 while entering into in Memorandum of Agreement with Siemens. CIT(A) has sought for the remand report from the ld. A.O. on these facts and held that it was only the registration of the said agreement that had taken place during the year under consideration - CIT(A) had deleted the impugned addition made by the ld. A.O. on this ground - we find no infirmity in the order of the ld. CIT(A) - Decided against revenue. TP Adjustment - ALP determined for the performance guarantee - prescribed methods for determining the ALP of the international transactions - HELD THAT - As observed that neither the assessee nor the lower authorities have adopted any of the prescribed methods for determining the ALP of the international transactions for the reason that the assessee has not considered the same to be an international transaction and the TPO has also not applied any of the prescribed method as being the most appropriate method for determination of the ALP. CIT(A) has also not determined the ALP for financial guarantee by applying MAP. As the transaction of issuance of corporate guarantee to its AE given by the assessee on behalf of its AE is held to be an international transaction, the same has to be determined at ALP by bench marking the said transaction by applying any of the method prescribed under the provisions of the Act. The determination of the ALP in the case of another assessee or that because in assessee s case for other years cannot be a detrimental factor for determining the ALP, as the provision is clear that TP adjustments has to be made as per the provisions of the Act in case of each assessee for every year. Various decisions of the Hon'ble Jurisdictional High Court relied upon by the AR has held that the letter of comfort given by the assessee on behalf of its AE does not come under the purview of an international transaction and the provision also clearly excludes letter of comfort within the expression of international transaction . Having stated so, there is no necessity for determining the ALP for the said transaction. We are of the considered view that the matter should be remanded back to the file of the TPO for the purpose of applying any of the prescribed methods for determining the ALP of the international transactions only to the extent of the finance guarantee given by the assessee on behalf of its AEs. As the performance guarantee has already expired in 2013, there would not be any necessity to determine the ALP and, hence, we confirm the deletion made by the ld. CIT(A) on this ground.
Issues Involved:
1. Disallowance u/s 14A of the Act. 2. Adjustment of book profit u/s 115JB of the Act. 3. Disallowance u/s 36(1)(iii) of the Act. 4. Addition towards unexplained money u/s 69A of the Act. 5. Transfer pricing adjustment related to guarantee commission. Summary: 1. Disallowance u/s 14A of the Act: The Revenue challenged the ld. CIT(A)'s restriction of disallowance to Rs. 10 lacs against Rs. 6,83,36,620/- disallowed by the A.O., while the assessee contested even the Rs. 10 lacs disallowance. The Tribunal observed that the A.O. recorded dissatisfaction with the assessee's claim and upheld the A.O.'s computation under Rule 8D. The matter was remanded to the ld. CIT(A) to decide on merits, allowing both the Revenue's and assessee's grounds for statistical purposes. 2. Adjustment of book profit u/s 115JB of the Act: The assessee contended that the A.O. erroneously added Rs. 6,93,36,620/- u/s 14A while computing book profits, which should be based on adjusted book profit and not normal provisions. The Tribunal, referencing the Special Bench decision in ACIT vs. Vireet Investment (P). Ltd., ruled in favor of the assessee, dismissing the Revenue's ground and allowing the assessee's grounds. 3. Disallowance u/s 36(1)(iii) of the Act: The A.O. disallowed Rs. 19,81,00,000/- interest, claiming the advances were not for business activities. The ld. CIT(A) deleted the addition, referencing Tribunal decisions for earlier years. The Tribunal upheld the ld. CIT(A)'s decision, noting the assessee's interest-free funds exceeded the advances, dismissing the Revenue's ground and allowing the assessee's grounds. 4. Addition towards unexplained money u/s 69A of the Act: The A.O. added Rs. 67,96,000/- based on ITS data, but the ld. CIT(A) deleted the addition, noting the original transaction occurred in 1999. The Tribunal found no infirmity in the ld. CIT(A)'s order, dismissing the Revenue's ground and allowing the assessee's grounds. 5. Transfer pricing adjustment related to guarantee commission: The ld. CIT(A) restricted ALP for corporate guarantee to 0.5% and deleted the addition for performance guarantee, noting it expired in 2013. The Tribunal remanded the matter to the ld. TPO to apply prescribed methods for determining ALP for financial guarantees, confirming the deletion of performance guarantee adjustment. Both the Revenue's and assessee's grounds were allowed for statistical purposes. Conclusion: The appeals and cross objections filed by both the assessee and the Revenue were partly allowed.
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