2021 (9) TMI 138 - AT - Income Tax

Disallowance u/s 14A r/w rule 8D - Addition made with reference to the income claimed as exempt - HELD THAT - As decided in own case 2018 (12) TMI 1905 - ITAT MUMBAI Assessee s own funds are more than the investment as explained - We have gone through the entire facts regarding available of funds and noticed that the presumptions as held by Hon ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT is in favour of assessee because the Revenue could not establish any nexus with the expenses claimed by assessee vis- -vis exempt income. In the absence of the same, the presumptions in favour of assessee and hence, we delete the addition. As delete the addition on the issue of satisfaction. This issue of assessee s appeal is allowed. TP Adjustment on account of guarantee commission u/s 92C - HELD THAT - As decided in own case 2018 (12) TMI 1905 - ITAT MUMBAI guarantee commission is to be charged at 0.5% as bench mark by the assessee - we are of the view that no further adjustment to determine the ALP is to be made. This issue of assessee s appeal is allowed. TP Adjustment on Charging of interest on share application money - TPO held that since the shares are not allotted within a reasonable period, the share application money is in the nature of temporary funding till the allotment is made and proposed interest rate @ 14% and calculated the adjustment - HELD THAT - Share application money being capital account transaction is outside the purview of section 92 of the Act and the transfer pricing adjustment cannot be made on capital account transactions as per the decision of VODAFONE INDIA SERVICES PVT. LTD. 2014 (10) TMI 278 - BOMBAY HIGH COURT - Decided in favour of assessee. Short deduction of TDS - TDS u/s 194C or 194J - Addition u/s 40(a)(ia) - Payment relating to processing charges, photo guard coating and subtitling charges - HELD THAT - As provisions of section 40(a)(ia) of the Act are applicable in case of non deduction of TDS. Provisions of section 40(a)(ia) of the Act are not applicable in case of short deduction of TDS and for this proposition, in our considered opinion, the learned CIT(A) has perfectly relied upon the findings given in Vodafone India Services Pvt. Ltd. 2014 (10) TMI 278 - BOMBAY HIGH COURT . In the present case, the assessee has deduction TDS under section 194C of the Act and deposited the same with the Government. Since the conditions of section 40(a)(ia) of the Act are fulfilled, provisions of section 40(a)(ia) of the Act in not applicable. Excess claim of expenses due to write off - HELD THAT - Since the income on account of withdrawal from business restructuring reserve is recorded in the current year, the corresponding expense on account of discount on commercial paper cannot be allowed in the subsequent year, as held by the Assessing Officer, and the Assessing Officer ought to have allowed the expenses in the current year itself. Consequently, we see no legal infirmity in the impugned decision of the learned CIT(A) warranting us to interference with his order at the instance of the Revenue. Nature of expenses - debenture issue expenses - Revenue or capital expenditure - AO disallowed the claim on the ground that the assessee has not debited the debenture issue expenses in the Profit Loss Account but debited it to the securities premium account which is capital in nature and cannot be considered as revenue expenditure claimable under section 37 - HELD THAT - CIT(A) has perfectly held that the debenture has character of loan unlike share capital and hence the debenture issue expenses are permissible deduction. The learned Departmental Representative has not brought anything on record contrary to the submission of the learned Counsel and the decision of the learned CIT(A) to enable us to take a view other than the view taken by the learned CIT(A). - Decided against revenue.

Issues Involved:
1. Disallowance under section 14A of the Income Tax Act, 1961 r/w rule 8D of the Income Tax Rules, 1962.
2. Transfer pricing adjustment on corporate guarantee fee.
3. Charging of interest on share application money.
4. Disallowance under section 40(a)(ia) of the Income Tax Act.
5. Excess claim of expenses due to write-off.
6. Debenture issue expenses.

Detailed Analysis:

1. Disallowance under section 14A of the Income Tax Act, 1961 r/w rule 8D of the Income Tax Rules, 1962:
The Revenue challenged the deletion of a disallowance amounting to ?7,69,10,639 under section 14A r/w rule 8D. The Assessing Officer (AO) had made the disallowance on the grounds that the assessee had substantial investments and it was inconceivable that such investments were managed without incurring any expenses. The learned CIT(A) directed the deletion of the addition, citing that the assessee had sufficient own funds and the disallowance should not exceed the exempt income earned. The Tribunal upheld the CIT(A)'s decision, noting that the issue was settled in the assessee's favor by previous Tribunal decisions and the Hon’ble Supreme Court ruling in Maxopp Investment Ltd.

2. Transfer pricing adjustment on corporate guarantee fee:
The Transfer Pricing Officer (TPO) had applied a 3% adjustment for the corporate guarantee fee, which the AO followed. The learned CIT(A) restricted this adjustment to 0.5%, aligning with the Hon'ble Jurisdictional High Court's decision in CIT v/s Everest Kanto Cylinders Ltd. The Tribunal upheld the CIT(A)'s decision, noting that the issue was consistently resolved in favor of the assessee in previous Tribunal decisions, including the assessee’s own case for the assessment year 2009-10.

3. Charging of interest on share application money:
The TPO proposed an interest rate of 14% on share application money, treating it as temporary funding until shares were allotted, resulting in an adjustment of ?3,47,57,513. The learned CIT(A) ruled that transfer pricing adjustment on capital account transactions was not permissible, referencing the Hon'ble Jurisdictional High Court's decision in Vodafone India Services Pvt. Ltd. The Tribunal upheld this view, confirming that share application money being a capital account transaction is outside the purview of section 92 of the Act.

4. Disallowance under section 40(a)(ia) of the Income Tax Act:
The AO disallowed expenses amounting to ?55,20,774 due to short deduction of TDS under section 194J instead of 194C. The learned CIT(A) ruled in favor of the assessee, citing that short deduction of TDS does not warrant disallowance under section 40(a)(ia). The Tribunal upheld this decision, referencing the Hon’ble Calcutta High Court's ruling in CIT v/s S.K. Tekriwal and the Tribunal’s own decision in UTV Entertainment Television Ltd.

5. Excess claim of expenses due to write-off:
The AO added back ?15,04,60,771 to the income, considering it an excess claim. The learned CIT(A) held that since the income on account of withdrawal from business restructuring reserve was recorded in the current year, the corresponding expenses should also be allowed in the current year. The Tribunal upheld this decision, agreeing that the expenses should be recognized in the same year as the income.

6. Debenture issue expenses:
The AO disallowed the debenture issue expenses, treating them as capital in nature since they were debited to the securities premium account. The learned CIT(A) allowed the deduction, noting that debenture issue expenses are revenue in nature. The Tribunal upheld this view, referencing the Hon'ble Supreme Court's decision in India Cement v/s CIT and Kedarnath Jute Mfg. Co. Ltd. v/s CIT.

Conclusion:
The Tribunal dismissed the Revenue's appeal on all grounds, upholding the decisions of the learned CIT(A) on each issue. The judgments were consistent with previous rulings and established legal principles, ensuring that the assessee's claims were correctly allowed.

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