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2012 (10) TMI 890 - AT - Income TaxDisallowance u/s. 14A read with Rule 8D of the Act alleged that borrowed funds utilized for investment in shares -contention of the assessee is that in the earlier Assessment Year 2006-07 where no dividend income was received by the assessee, no disallowance of expenditure can be made u/s. 14A of the Act - Held that - Even in a year where no exempt income was earned or received by the assessee, disallowance u/s. 14A can be made in favor of revenue Arm s length price - assessee has entered into international transaction with its associated enterprises, India Telecom Holdings Ltd., Mauritius by way of granting a loan Held that - it LIBOR rate which has to be considered while determining the arm s length interest rate in respect of the transaction between the assessee and the Associate Enterprises. As it is noticed that the average of the LIBOR rate for 1.4.05 to 31.3.06 is 4.42% and the assessee has charged interest at 6% which is higher than the LIBOR rate, we are of the view that no addition on this count is liable to be made in the hands of the assessee. In the circumstances, the addition as made by the Assessing Officer on this count is deleted Disallowance of TDS credit Held that - DRP has observed that in the submissions assessee has not given any basis for TDS claim made by it - TDS credit was not given for defective certificates - DRP directed the Assessing Officer to consider the claim as per law with respect to the claim of TDS matter remanded to AO
Issues:
1. Disallowance of interest under section 14A of the Act 2. Transfer pricing adjustment on interest income 3. Disallowance of TDS credit Issue 1: Disallowance of interest under section 14A of the Act The appeal involved a disallowance of Rs. 72,83,21,913 made by the Assessing Officer under section 14A read with Rule 8D of the Act. The Assessing Officer disallowed the interest on borrowed funds used for investment in shares, citing that any dividend earned on such shares would be exempt under section 10, triggering the provisions of section 14A. The appellant argued for deletion of the disallowance based on a previous year's Tribunal decision where no disallowance was made due to the absence of dividend income. However, the Tribunal dismissed the appeal, citing a decision by the Delhi Special Bench that allowed disallowance under section 14A even in the absence of exempt income, leading to the dismissal of the appellant's ground of appeal. Issue 2: Transfer pricing adjustment on interest income The second ground of appeal related to the adjustment of Rs. 4,72,06,208 made by the Transfer Pricing Officer (TPO) on the interest income of the assessee in an international transaction with its associated enterprise. The TPO recommended an upward revision in the income of the assessee, justifying it by the adverse foreign currency movement risk not factored in by the assessee. The Dispute Resolution Panel (DRP) upheld the TPO's decision, disregarding the earlier year's Tribunal order favoring the assessee. However, the Tribunal reversed the DRP's decision by following the previous year's Tribunal decision, which emphasized the application of LIBOR rates in determining the arm's length interest rate for international transactions. As the facts were identical, the Tribunal allowed this ground of appeal for the assessee. Issue 3: Disallowance of TDS credit The third ground of appeal contested the DRP's confirmation of the disallowance of TDS credit made by the Assessing Officer. The DRP observed that the assessee's claim for TDS credit was unsubstantiated and directed the Assessing Officer to reconsider the claim as per law. The appellant sought restoration of the issue to the Assessing Officer's file based on the Tribunal's order for the Assessment Year 2006-07. The Tribunal noted that the DRP's direction allowed the Assessing Officer to consider the TDS claim as per law, and as the appellant had no grievance against this direction, the Tribunal dismissed this ground of appeal. In conclusion, the Tribunal partly allowed the appellant's appeal, addressing the issues of disallowance of interest under section 14A, transfer pricing adjustment on interest income, and disallowance of TDS credit comprehensively based on legal interpretations and precedents.
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