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2018 (11) TMI 869 - AT - Income TaxEligibility for deduction u/ 80G - treatment of donation as bogus - allegation of donations to unscrupulous trusts - Held that - Just because the trust was engaged in some unauthorized activity does not mean that the assessee is not entitled to claim the benefit u/s 80G of the Act. Besides, the Income Tax Department has failed to prove that the consideration has been received in form of cash or otherwise. Also no opportunity was afforded to the assessee to cross-examine the departmental witness, that is, the statements of whom were relied upon by the officer of investigation wing of the Income Tax Department. Further, no any copies of documents were provided to the assessee which were relied upon by the income tax authority. AO nowhere stated in his impugned assessment order that the any part of income of Trust (institution) has become taxable for any technical reason and also the Ld. AO did not mention that the certificate issued under section 80G(5)(v) has been cancelled by the Income Tax Department. Under these circumstances the deduction under section 80G cannot be denied to the assessee company.We also note that subsequent to the donation, the withdrawal of benefit or cancellation of certificate of section 80G in the hands of the payee would not affect the interest of the assessee. In we direct the AO to grant the deduction u/s 80G of the Act in respect of donation given by the assessee in accordance with law. - Decided in favour of assessee Upward transfer pricing adjustment - addition of interest charged to the assessee s subsidiary - applicability of LIBOR rate - Held that - It has been consistently held in several decisions by the tribunal that wherever the transaction of loan between the associated enterprises is in foreign currency then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. Therefore the domestic prime lending rate would have no applicability and the international rate LIBOR would come into play. It has therefore been held that LIBOR rate has to be considered while determining the arms length rate of interest in respect of transactions of loan in foreign currency between the associated enterprises. This view has also been accepted by the Hon ble Delhi High Court in the case of CIT vs Cotton Naturals (I) Ltd. 2015 (3) TMI 1031 - DELHI HIGH COURT . Disallowance being 40% of employees contribution towards EPF which was paid beyond the due date - HELD THAT - in the assessee s case under consideration, the employee s contribution towards the PF was made by the assessee before the due date of filing the return of income and thereforeemployee s contribution towards the PF shall be allowed as deduction u/s 43(b) of the Act, therefore, respectfully following the judgment of Hon ble Supreme Court in the case of CIT vs Alom Extrusions Ltd. (2009 (11) TMI 27 - SUPREME COURT) we find no infirmity in the order passed by the Ld. CIT(A) in deleting the addition. Addition u/s 14A read with Rule 8D of the IT Rules - assessee has suo moto disallowed u/s 14A read with Rule 8D - Held that - Assessing Officer has not mentioned the cogent reasons for rejecting the claim of the assessee in the assessment order.If the Assessing Officer proposes to invoke section 14A then he has to record a satisfaction on this issue. This satisfaction is to be done with regard to the accounts of the assessee. In the present case wenote that there is no satisfaction recorded by the Assessing Officer and therefore, in view of case of Ashish Jhunjhunwala (2013 (6) TMI 545 - ITAT KOLKATA) no disallowance u/s 14A can be made. Therefore, the order passed by the Assessing Officer is a non-speaking order and Ld. CIT(A) has rightly restricted the disallowance u/s 14A to the tune of ₹ 44,338/- suo moto disallowed by assessee. MAT computation - addition of sum disallowed u/s 14A to the book profit of the assessee company u/s 115JB of the Act - Held that - The provisions of section 115JB relating to computation of book profit are amply clear and unambiguous. These provisions do not leave any room for adjustment by the assessing officer other than those mentioned in Explanation 1 to section 115JB to the net profit reflected in the accounts of any assessee and adjustment by way of disallowance u/s 14A is not included in the said explanation. Therefore, such upward revision in the sum of ₹ 1,48,506/-to the book-profit by making disallowance section 14A r.w.r. 8D is not permitted as per tribunal s Special Bench s decision in Vireet Investments (2017 (6) TMI 1124 - ITAT DELHI). That being so, we decline to interfere with the order of Id. CIT (A) deleting the aforesaid addition. His order on this issue is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.
Issues Involved:
1. Bogus Donation and Deduction under Section 80G. 2. Arm's Length Rate of Interest under Transfer Pricing Provisions. 3. Disallowance of Employee's Contribution to EPF. 4. Disallowance under Section 14A read with Rule 8D. 5. Addition to Book Profit under Section 115JB. Issue-wise Detailed Analysis: 1. Bogus Donation and Deduction under Section 80G: The primary issue was whether the donation of ?25,00,000/- made by the assessee to Gobind Ram Goel Charitable Trust was bogus and thus not eligible for deduction under Section 80G of the Income Tax Act. The Assessing Officer (AO) treated the donation as bogus based on a report by the Investigation Wing, which alleged that the trust was involved in clandestine dealings. The assessee argued that the donation was genuine and that the trust had a valid 80G certificate at the time of donation. The Tribunal noted that the AO did not provide any evidence or opportunity for cross-examination to the assessee and that the trust's 80G certificate was valid at the time of donation. The Tribunal directed the AO to grant the deduction under Section 80G, emphasizing that subsequent unauthorized activities by the trust do not affect the assessee's eligibility for deduction. 2. Arm's Length Rate of Interest under Transfer Pricing Provisions: The issue concerned the upward transfer pricing adjustment of ?92,42,535/- on account of interest charged to the assessee's subsidiary in Russia. The AO had applied a higher arm's length rate of interest. The Tribunal referred to its earlier decision in the assessee's own case for previous assessment years, where it was held that the LIBOR rate should be used for determining the arm's length interest rate for loans given in foreign currency. The Tribunal upheld the CIT(A)'s decision to delete the adjustment, stating that the AO should have applied the LIBOR rate, which was lower than the interest rate charged by the assessee. 3. Disallowance of Employee's Contribution to EPF: The AO disallowed ?44,35,569/-, being 40% of ?1,10,88,923/-, of employee's contribution towards EPF, which was paid beyond the due date. The CIT(A) deleted the addition, and the Tribunal upheld this decision. The Tribunal noted that the payments were made before the due date of filing the return of income, as evidenced by the tax audit report. The Tribunal cited the Supreme Court's decision in CIT vs. Alom Extrusions Ltd., which allows such deductions if payments are made before the due date of filing the return. 4. Disallowance under Section 14A read with Rule 8D: The AO disallowed ?1,04,168/- under Section 14A read with Rule 8D, stating that the disallowance made by the assessee was not in conformity with Rule 8D. The CIT(A) restricted the disallowance to ?44,338/-, the amount disallowed by the assessee suo moto. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not record any satisfaction for rejecting the assessee's claim and that the AO's order was non-speaking. 5. Addition to Book Profit under Section 115JB: The AO added ?1,48,506/- (disallowed under Section 14A) to the book profit of the assessee under Section 115JB. The CIT(A) deleted this addition, and the Tribunal upheld the deletion. The Tribunal noted that Section 115JB is a code by itself, and adjustments to the net profit should adhere to the items listed in Explanation 1 to Section 115JB. Since Section 14A is not mentioned in the explanation, the AO's adjustment was not permitted. Conclusion: The Tribunal allowed the appeal filed by the assessee and dismissed the appeal filed by the Revenue. The key takeaways are that the assessee was entitled to the deduction under Section 80G, the arm's length interest rate should be based on LIBOR, and disallowances under Sections 36(1)(va) and 14A were not justified. Additionally, adjustments to book profit under Section 115JB should adhere strictly to the items listed in the explanation to that section.
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