2019 (9) TMI 731 - AT - Income Tax

Addition on account of interest received on External Commercial Borrowings ECB , extended to Indian borrowers - levy of Interest u/s 234B - HELD THAT - The issue stands covered in favour of the assessee and against the Revenue held Assessing Officer himself had admitted by grossing up the ECB interest by the amount of tax borne by the borrowers that tax at source has been deducted. We are thus of the view that no interest under section 234B of the Act can be levied for the tax demand on account of ECB interest and interest under section 234B is also not chargeable since ECB interest received by the assessee from the borrowers was subject to tax deduction at source under section 195 of the Act. The Assessing Officer is thus directed to delete the addition made on account of interest received from ECB given to Indian borrowers Levy of interest u/s 234D - HELD THAT - We have carefully considered the intimation u/s 143(1) of the Act dated 31.10.2012 and the Income tax computation form dated 28.07.2016. We find force in the contention of the ld. counsel for the assessee that refund was adjusted against the outstanding demand vide order dated 31.10.2012. Therefore, in our considered opinion, the Revenue erred in levying interest u/s 234D of the Act for the period July 2009 to July 2016. We, accordingly, direct the Assessing Officer to delete the interest so levied. Claim of set off of brought forward business losses and unabsorbed depreciation - HELD THAT - We direct the Assessing Officer to allow set off of brought forward business losses and unabsorbed depreciation as per provisions of law.

Summary

Issues:
1. Addition on account of interest received on External Commercial Borrowings [ECB]
2. Deduction under section 44C of the Income-tax Act
3. Levy of interest under section 234D of the Income-tax Act
4. Claim of set off of brought forward business losses and unabsorbed depreciation

Analysis:

Issue 1: Addition on account of interest received on ECB
The appellant challenged the addition on account of interest received on ECB extended to Indian borrowers. The appellant cited previous Tribunal decisions in favor of the assessee for similar issues in different assessment years. The Tribunal found merit in the appellant's contentions, relying on previous decisions and detailed the process of ECB transactions. It was concluded that ECB interest was not effectively connected with the Indian branches of the assessee, and only the fee was taxable in the hands of the Indian branches. The Tribunal directed the Assessing Officer to delete the addition made on account of interest received from ECB given to Indian borrowers, allowing the appeal in favor of the assessee.

Issue 2: Deduction under section 44C
Since the Tribunal decided in favor of the assessee on the first issue, the third issue regarding deduction under section 44C became irrelevant and was not adjudicated upon.

Issue 3: Levy of interest under section 234D
The appellant contended that interest under section 234D of the Act was erroneously levied for a period when the refund was adjusted against the demand. The Tribunal examined the submissions and found that the refund was indeed adjusted against the demand, leading to the conclusion that no interest was leviable under section 234D. The Assessing Officer was directed to delete the interest levied under section 234D.

Issue 4: Set off of brought forward business losses and unabsorbed depreciation
The Tribunal directed the Assessing Officer to allow the set off of brought forward business losses and unabsorbed depreciation as per the provisions of the law. This issue was resolved in favor of the assessee.

In conclusion, the appeal of the assessee was allowed, and the Tribunal provided detailed reasoning and analysis for each issue raised, ultimately ruling in favor of the assessee on all counts.