2018 (4) TMI 557 - AT - Income Tax

Disallowance under section 14A r.w. Rule 8D - Held that - We have noted that the assessee earned exempt income of ₹ 28,380/- in the form of dividend income. The Hon'ble Delhi High Court in case of Joint Investment Pvt. Ltd. (2015 (3) TMI 155 - DELHI HIGH COURT) held that the window for disallowance indicated in section 14A is only to the extent of disallowing expenditure incurred by assessee in relation to tax exempt income. These proposition or portion of tax exempt income surely cannot swallow the entire amount. Thus, the disallowance under section 14A is restricted to the exempt income/dividend income of ₹ 28,830/-. The Assessing Officer is directed accordingly. Transfer Pricing Adjustment in relation to non-interest bearing shareholder deposit - Held that - Considering the decision of Tribunal in assessee s own case in identical grounds of appeal was allowed in favour of assessee on the same amount of share-holder deposits the Associate Company. Long Term Capital Gain on sale of investment not considered - application of the assessee filed under section 154 - Held that - CIT(A) has already given direction to the Assessing Officer for disposing of the application under section 154 of the Act, filed by assessee which has not been disposed of so far. The Assessing Officer is directed to consider the claim of assessee and pass the order in accordance with law. Needless to say that the Assessing Officer shall grant necessary opportunity of hearing before passing the order. In the result, appeal of the assessee is allowed. Transfer Pricing Adjustment towards this involve in guarantee on loan and advances to Associate Enterprises - Held that - As decided in assessee's own case when the guarantee has been given by the assessee results in a direct or indirect benefit to the assessee itself, then there arises no need to charge any commission on the same. Thus, following the decisions of the co-ordinates benches of the Tribunal we, in the present case are of the view that the above transaction does not fall within the purview of international transaction as defined under section 92B of the Act and hence, the orders of the lower authorities are reversed.

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Disallowance of interest on shareholders' deposits.
3. Taxation of long-term capital gains.
4. Long-term capital loss on sale of investment.
5. Transfer Pricing Adjustment related to non-interest bearing shareholder deposits.
6. Addition of disallowance under Section 14A to the computation of book profit under Section 115JB.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A:
The assessee challenged the disallowance of ?24,58,395/- under Section 14A, arguing that investments were made from own funds and no expenditure was incurred to earn tax-free income. The Tribunal noted that the assessee earned exempt income of ?28,380/- and ruled that disallowance under Section 14A should not exceed the exempt income. The Tribunal restricted the disallowance to ?28,380/-, following the Delhi High Court decision in Joint Investment Pvt. Ltd.

2. Disallowance of Interest on Shareholders' Deposits:
The assessee contested the addition of ?1,37,70,563/- as interest on shareholder deposits, arguing that the deposits were non-interest bearing as per restructuring agreements approved by RBI and the Government of Indonesia. The Tribunal referred to its previous decision in the assessee's own case for AY 2012-13 and concluded that such deposits could not be considered an international transaction for the relevant year. The Tribunal allowed the assessee's appeal, reversing the orders of the lower authorities.

3. Taxation of Long-term Capital Gains:
The assessee did not press this ground of appeal. Consequently, the Tribunal dismissed this ground as not pressed.

4. Long-term Capital Loss on Sale of Investment:
The assessee claimed that the Assessing Officer (AO) did not consider the long-term capital loss on the sale of investments. The Tribunal directed the AO to consider the application under Section 154 filed by the assessee and pass an order in accordance with the law, ensuring necessary opportunity for hearing.

5. Transfer Pricing Adjustment Related to Non-interest Bearing Shareholder Deposits:
The Tribunal referred to its previous decision for AY 2012-13, where it held that non-interest bearing shareholder deposits, approved by statutory authorities, could not be considered an international transaction. The Tribunal reiterated that the deposits were not subject to transfer pricing provisions and allowed the assessee's appeal.

6. Addition of Disallowance under Section 14A to Computation of Book Profit under Section 115JB:
The Tribunal noted that this issue was covered in the assessee's favor by the Special Bench decision in ACIT vs. Vireet Investment (P.) Ltd. and the Tribunal's decision for AY 2012-13. It directed the AO to re-compute the book profit without adding disallowance under Section 14A, following the Special Bench decision.

Conclusion:
The Tribunal allowed the assessee's appeals on issues related to disallowance under Section 14A, interest on shareholders' deposits, and transfer pricing adjustments. It dismissed the ground related to long-term capital gains as not pressed and directed the AO to consider the long-term capital loss claim. The Tribunal also upheld the assessee's position on the addition of disallowance under Section 14A to the computation of book profit under Section 115JB. Appeals by the Revenue were dismissed, and the Tribunal's decisions were consistent with its previous rulings and relevant High Court judgments.

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