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2021 (3) TMI 472 - AT - Income TaxDepreciation on goodwill - main reason for disallowance of depreciation is that the assessee has not shown or established any such intangible assets or intellectual assets re-cognised in the books of accounts of the transferor - assessee has failed to establish its claim of the parameters - HELD THAT - At the very outset we have to state that this is not the initial year of claim of depreciation. In our considered opinion unless the claim is disturbed in the initial year of claim subsequent years cannot be disturbed. Disallowance made u/s 14A r.w.r 8D of the Rules - HELD THAT - A perusal of the assessment order shows that no satisfaction was recorded by the Assessing Officer with respect to the examination of the books of account. While making disallowance the Assessing Officer observed that It is unbelievable that for earning income of 3.70 crores no expenditure was made by the assessee . AO has failed to record any satisfaction with regard to the correctness of the claim of the assessee that it has not incurred any expenditure. The learned assessing officer did not cite any of the expenditure in the profit and loss account of the assessee which is incurred by the assessee for earning of the exempt income. There is not even a whisper of examination of books of account of the assessee to verify the correctness of the claim of the assessee that no expenditure was incurred for earning exempt income. Therefore in absence of any satisfaction recorded by the learned AO with respect to the examination of the books of account of the assessee to verify the correctness of the claim of the assessee the disallowance u/s 14A cannot be sustained. Since we have already deleted the disallowance u/s 14A of the Act in normal computation of total income we direct the Assessing Officer to delete the above addition while calculating the book profit u/s 115JB of the Act. This common grievance in all the appeals is allowed. Levy of interest u/s 234C - HELD THAT - In so far as levy of interest u/s 234C is concerned we direct the Assessing Officer to levy interest on the returned income of the assessee. Deductibility of education cess - HELD THAT - As relying on CHAMBAL FERTILISERS AND CHEMICALS LTD 2018 (10) TMI 589 - RAJASTHAN HIGH COURT we direct the Assessing Officer to allow claim of deductibility of cess from the income in the captioned A.Ys. Additional ground in all the appeals is allowed. TP Adjustment - enhancement of income of the assessee holding that the international transaction pertaining to the provision of corporate guaranteed to the bank on behalf of the AE does not satisfy the Arm s length principle - HELD THAT - The said guarantee was issued by HDFC for and on behalf of the AE and no corporate guarantee was issued by the assessee company. The said guarantee was issued by HDFC on the basis of Fixed Deposits of the assessee company on which the assessee continued to receive interest from the bank and hence there was no cost/expenses incurred by the assessee company. Cost charged by the bank at the time of issuing the guarantee in F.Y. 2009 10 was charged by the assessee from its AE with mark up of 14%. Most importantly as mentioned elsewhere the said guarantee was issued by HDFC bank to the Income Tax department against the tax liability of the AE only. Therefore in case if any demand is raised upon conclusion of MAP proceedings liability to pay the said tax demand will only be on AE of the assessee and not on the assessee company. Considering the facts in totality we are of the considered view that the TPO/DRP erred in imputing notional income equivalent to commission charged by banks. We accordingly direct the Assessing Officer to delete the addition - Decided in favour of assessee.
Issues Involved:
1. Objection to the hearing of appeals. 2. Disallowance of depreciation on goodwill. 3. Disallowance under Section 14A read with Rule 8D. 4. Levy of interest under Sections 234A, 234B, and 234C. 5. Deductibility of education cess. 6. Transfer pricing adjustment related to corporate guarantee. Detailed Analysis: 1. Objection to the hearing of appeals: The Revenue objected to the hearing of ITA Nos. 5435 and 5436/DEL/2012 by the current bench, arguing that it should be heard by the regular bench assigned to such appeals. The Tribunal dismissed this objection, citing a prior order that scheduled the appeals before the same bench for convenience and brevity. 2. Disallowance of depreciation on goodwill: The assessee acquired a business unit from American Express India Pvt Ltd. and recognized goodwill in its books. The Assessing Officer disallowed depreciation on this goodwill, arguing that the assessee failed to establish the existence and valuation of intangible assets. The CIT(A) upheld this disallowance, noting discrepancies in the facts presented for different assessment years. However, the Tribunal found that depreciation on goodwill had been allowed in previous years and should not be disturbed in subsequent years unless initially challenged. The Tribunal directed the deletion of the disallowance, emphasizing that the goodwill amount of ?476 million was never considered for depreciation and was shown under "Other Current Assets." 3. Disallowance under Section 14A read with Rule 8D: The assessee earned dividend income from mutual funds, which was claimed as exempt. The Assessing Officer applied Rule 8D to disallow expenses related to earning this income without recording satisfaction regarding the correctness of the assessee's claim. The CIT(A) upheld this disallowance. The Tribunal, however, found that no satisfaction was recorded by the Assessing Officer after examining the books of accounts, which is a mandatory requirement. Consequently, the Tribunal directed the deletion of the disallowance under Section 14A and also ordered the deletion of the addition while calculating book profit under Section 115JB. 4. Levy of interest under Sections 234A, 234B, and 234C: The Tribunal noted that the levy of interest is mandatory and consequential. However, for interest under Section 234C, the Tribunal directed the Assessing Officer to levy interest based on the returned income of the assessee. 5. Deductibility of education cess: The assessee claimed that education cess should be deductible while computing income under "Profits and gains from business or profession," citing a decision by the Rajasthan High Court and a CBDT circular. The Tribunal agreed and directed the Assessing Officer to allow the deduction of education cess. 6. Transfer pricing adjustment related to corporate guarantee: The issue pertained to the enhancement of the assessee's income by ?19,87,075 for providing a corporate guarantee to a bank on behalf of its Associated Enterprise (AE). The Tribunal found that the guarantee was issued by HDFC Bank based on the assessee's fixed deposits, with no cost incurred by the assessee. The Tribunal concluded that the TPO/DRP erred in imputing notional income equivalent to the commission charged by banks and directed the deletion of the addition. Conclusion: The Tribunal allowed all the appeals of the assessee, directing the deletion of disallowances related to depreciation on goodwill, Section 14A disallowance, and transfer pricing adjustment. It also allowed the deductibility of education cess and provided specific directions regarding the levy of interest under Section 234C.
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