2018 (5) TMI 333 - AT - Income Tax

Arm s length price adjustment in respect of interest free loan - Held that - The relevant details in support of the Euro PLR being taken at 4.11% are not before us. Therefore, unable to uphold or approve the rate as canvassed by the assessee, even though we accept the plea of the assessee in principle and remit the matter to the file of the Assessing Officer for recomputing the ALP adjustment on the basis of Euro PLR and in the light of our observations as above. Assessee is directed to place all the material in support of its stand, on the quantification part only, before the Assessing Officer, and the Assessing Officer shall decide the matter taking into account the same and in the light of such material, as he may be available to him in respect of Euro PLR- though after confronting the assessee with the same, in accordance with the law and after giving a reasonable of hearing to the assessee. Disallowance u/s 14A - Held that - As in the case of CIT Vs Corrtech Energy Pvt Ltd 2014 (3) TMI 856 - GUJARAT HIGH COURT have adopted the same approach and held that when there is no tax exempt earnings, there cannot be any occasion for disallowance under section 14A. Clearly, therefore, the very foundation of the impugned disallowance under section 14A is devoid of legally sustainable substance. For this short reason alone dealing with the basic stand of the Assessing Officer, and without dealing with the merits any further, we uphold the plea of the assessee and delete the impugned disallowance. Disallowance being delayed payments of PF/ESI dues - Held that - This issue is concluded against the assessee by Hon ble jurisdictional High Court s judgment in the case of CIT Vs Gujarat State Road Transport Corporation Ltd 2014 (1) TMI 502 - GUJARAT HIGH COURT . We, therefore, uphold the disallowance and decline to interfere in the matter. Exclusion of foreign exchange gain for the purpose of computing deduction u/s 80IB - Held that - Admittedly there is no bar on this Tribunal to admit the claim and, as the matter has not been examined on merits at any stage, in remitting the matter to the file of the Assessing Officer for adjudication on merits. That is, by and large, the normal practice being adopted by the coordinate benches as well. Consistent with the stand of the coordinate benches, while we admit the claim of the assessee for consideration, we remit this issue also to the file of the Assessing Officer for fresh adjudication on merits after giving a reasonable opportunity of hearing to the assessee, in accordance with the law and by way of a speaking order.

Summary

Issues Involved:
1. Arm's Length Price (ALP) adjustment for interest-free loans to associated enterprises.
2. Disallowance under section 14A of the Income Tax Act.
3. Disallowance of delayed payments of PF/ESI dues.
4. Exclusion of foreign exchange gains for computing deduction under section 80IB.

Detailed Analysis:

1. Arm's Length Price (ALP) Adjustment for Interest-Free Loans:
The appellant contested the ALP adjustment for interest-free loans given to its associated enterprise, Synexel Research International SAS, France. The appellant's grievance was not against the ALP adjustment itself but the interest rate applied. The authorities used the domestic prime lending rate of 10.91%, but the appellant argued that since the loan was in Euro, the Euro PLR of 4.11% should be applied. The Tribunal referred to the case of UFO Movies India Ltd Vs ACIT and other precedents, which supported the appellant's stance that loans in foreign currency should be benchmarked using the relevant foreign currency PLR. The matter was remitted to the Assessing Officer to recompute the ALP adjustment using the Euro PLR, with the appellant directed to provide necessary supporting materials.

2. Disallowance Under Section 14A:
The Assessing Officer disallowed ?31,379 under section 14A, asserting that proportionate interest expenses must be disallowed even if no dividend income is earned, citing the Cheminvest Ltd vs ITO case. However, the Tribunal noted that this view was overturned by the Delhi High Court in Cheminvest Ltd Vs CIT, which held that tax-exempt income is a prerequisite for invoking section 14A disallowance. The Gujarat High Court in CIT Vs Corrtech Energy Pvt Ltd also supported this view. Consequently, the Tribunal deleted the disallowance, stating that the foundation of the disallowance was legally unsustainable.

3. Disallowance of Delayed Payments of PF/ESI Dues:
For the assessment year 2009-10, the appellant challenged the disallowance of ?3,19,362 for delayed payments of PF/ESI dues. The Tribunal upheld the disallowance, referencing the Gujarat High Court's judgment in CIT Vs Gujarat State Road Transport Corporation Ltd, which ruled against the appellant.

4. Exclusion of Foreign Exchange Gains for Computing Deduction Under Section 80IB:
The appellant's claim for including foreign exchange gains of ?11,60,755 in computing deduction under section 80IB was rejected by the CIT(A) on procedural grounds, citing the Supreme Court's decision in Goetze India Ltd Vs CIT. The Tribunal acknowledged that while the CIT(A) was correct in procedural terms, the Tribunal itself could admit the claim. The issue was remitted to the Assessing Officer for fresh adjudication on merits, allowing the appellant to present their case.

Conclusion:
The appeals for both assessment years 2008-09 and 2009-10 were partly allowed. The Tribunal directed the Assessing Officer to recompute the ALP adjustment using the Euro PLR, deleted the disallowance under section 14A, upheld the disallowance of delayed PF/ESI payments, and remitted the issue of foreign exchange gains for fresh adjudication.