2023 (4) TMI 1155 - AT - Income Tax

Disallowance of depreciation - adopting wrong actual cost of the assets vested in pursuance of Scheme of Arrangement by relying on his predecessor's assessment order - HELD THAT - As identical issue arose in the case of A.Y. 1999-2000 to A.Y. 2013-14 2013 (2) TMI 927 - ITAT MUMBAI , 2022 (8) TMI 1368 - ITAT MUMBAI , 2020 (7) TMI 155 - ITAT MUMBAI , 2017 (4) TMI 862 - ITAT MUMBAI , 2019 (6) TMI 542 - ITAT MUMBAI , 2019 (5) TMI 411 - ITAT MUMBAI respectively where the co-ordinate Bench restored issue back to the file of the learned Assessing Officer for the computation. Therefore, this matter as per this ground should also be restored to the file of the learned Assessing Officer. CENVAT credit addition - assessee company has followed the inclusive method for valuation of inventory - HELD THAT - As in the opening and closing stock, both, the assessee has included the amount of excise duty. Therefore, the effects of excise duty in the closing stock in pursuance of provisions of Section 145A of the Act were already included in the profit offered by the assessee. There was no adjustment / addition was required to be made. AO made the adjustment. This issue is already decided by the co-ordinate Bench and therefore, respectfully following the decision of the co-ordinate Bench in assessee s own case for A.Y. 2005-06 and 2007-08 to 2009-10, the addition deserves to be deleted. Disallowance of claim of writing off non-moving and obsolete finished goods - AO held that there is no concrete evidence of any write off or co-relation of sale out of such alleged written off material, made the addition - HELD THAT - As the provision is made by the assessee in the earlier year which was not claimed as deduction in that year but would actually provisions are reversed and actual write off of the inventory is made in this year and assessee has claimed it as deduction. We find that the above sum disallowed amounts to double disallowance. Accordingly, we direct the learned Assessing Officer to delete the disallowance. TP Adjustment - addition on account of the Arm's Length Price of interest on interest free loan given by the assessee to Piramal Glass, UK Limited - HELD THAT - As respectfully following the decision of the coordinate bench in assessee's own case in many assessment years, we do not find any infirmity in the order of the learned assessing officer/transfer pricing officer in adopting interest on interest for loan to the UK subsidiary company at arm's length at LIBOR 200 points. Accordingly, the adjustment made by the learned AO/TPO on this count is confirmed. Argument that LIBOR rate without any markup should have been used based on certain decisions is devoid of any merit because the London interbank offered rate (LIBOR) is benchmarking interest rate at which major global banks lend to one another in the international interbank market for short-term loans. Before us, it is not established that the lender as well as the borrower is a bank - it is not a short-term loan. Therefore, we need not refer to the several judicial precedents cited before us. Hence, this argument is rejected. Commercial expediency can also not be tested in transfer pricing because the assessee has given loan to an independent entity, may be subsidiary of the assessee, however in normal course the assessee would not have given any sum to an independent party without charging interest. Further, the reliance placed by the learned and authorized representative on the decision of coordinate bench 2013 (10) TMI 1569 - ITAT MUMBAI is also not correct because the fact in that case shows that the advances were given only for the period of six months - it has been categorically held that the coordinate bench agreed with the submission of the revenue that commercial expediency is not relevant in making transfer-pricing adjustments. As it was an initial year of the subsidiary company and assessee has advanced interest-free funds to its subsidiary as a matter of commercial production by fulfilling the shareholder obligation - Any financial incapacitation of the subsidiary would joke arise the appellant's investment. Accordingly, the appellant's expectation from granting of loan is not on interest but to protect its investment interest and help the subsidiary company achieve its business objectives thus the said loan was granted in the nature of shareholder activity. It was further stated that though the said interest free loan is a loan in a legal firm but in substance is in the nature of quasi equity. The assessee has merely made the submission however has not substantiated it by putting any financial data to justify the above claim. In the transfer pricing study report also assessee has not given any justification on these grounds. Assessee submitted that it had sufficient own funds available at its disposal out of which the loan was given to the subsidiary company to meet its working capital requirements and therefore knowing charging of interest is justified - AR failed to show us any provision of the income tax act in chapter X to show that payment of interest by the lender is a necessary condition to determine the arm's-length price of an international transaction of loan by assessee to its subsidiary company. Therefore, this argument also deserves to be rejected. Addition on account of compensation for providing corporate guarantee to Piramal glass USA and Grammar Glass Europe - TPO adopted compensation at the rate of 3% per annum and computed the arm's-length price of the guarantee commission. When the matter was set aside by the coordinate bench back to the file of the learned dispute resolution panel, found that in the assessee's own case for assessment year 2007 08, 2009 10 and 2011 12 to 2012 13 the arm's-length rate of 0.5% was considered at arm's length. DRP also followed the decision of the honourable Bombay High Court in adopting such rate. No infirmity in such direction. Based on the same the guarantee commission was considered at arm's length. We do not find any infirmity in the direction of the learned dispute resolution panel and consequent adjustment made by the learned TPO/AO. Appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Disallowance of depreciation on adoption of wrong actual cost of various fixed assets.
2. Addition on account of unutilized CENVAT credit under Section 145A.
3. Jurisdiction of the AO beyond the directions of the appellate authority.
4. Disallowance of claim for write-off of non-moving and obsolete finished goods.
5. Claim for additional depreciation.
6. Addition to Arm's Length Price (ALP) of corporate guarantee commission.
7. Addition to ALP of international transactions for interest-free loan advanced to a subsidiary.
8. Incorrect grant of interest under Section 234D.

Detailed Analysis:

1. Disallowance of Depreciation on Adoption of Wrong Actual Cost of Various Fixed Assets:
The assessee challenged the disallowance of depreciation on the grounds that the AO adopted an incorrect actual cost of assets. The issue first arose in AY 1999-2000 and was restored by the ITAT to the file of the CIT(A), which has not yet been adjudicated. The ITAT set aside this ground back to the AO for consequential effect, allowing the appeal for statistical purposes.

2. Addition on Account of Unutilized CENVAT Credit under Section 145A:
The assessee followed the inclusive method for inventory valuation, including excise duty in both opening and closing stock. The AO made an addition of Rs. 19,82,740/-, which was set aside by the ITAT for fresh consideration. The ITAT found that the inclusive method already accounted for excise duty and directed the AO to delete the addition, allowing the appeal.

3. Jurisdiction of the AO Beyond the Directions of the Appellate Authority:
This ground was not pressed by the assessee and hence dismissed.

4. Disallowance of Claim for Write-off of Non-moving and Obsolete Finished Goods:
The assessee claimed a write-off of Rs. 71.25 lakhs for obsolete inventory, which was disallowed by the AO. The ITAT found that this resulted in double disallowance, as the provision was added back in earlier years. The ITAT directed the AO to delete the disallowance, allowing the appeal.

5. Claim for Additional Depreciation:
This ground did not arise from the order of the AO or the ITAT's earlier directions and was dismissed.

6. Addition to Arm's Length Price (ALP) of Corporate Guarantee Commission:
The AO made an adjustment of Rs. 8,70,041/- for corporate guarantee commission, adopting a rate of 0.5% as per ITAT's directions in earlier years. The ITAT found no infirmity in this and confirmed the adjustment, dismissing the appeal.

7. Addition to ALP of International Transactions for Interest-Free Loan Advanced to Subsidiary:
The AO made an adjustment using LIBOR + 300 basis points, which was reduced to LIBOR + 200 basis points by the DRP following ITAT's earlier directions. The ITAT confirmed this approach, rejecting the assessee's arguments for using only the LIBOR rate and dismissed the appeal.

8. Incorrect Grant of Interest under Section 234D:
The issue of incorrect grant of interest under Section 234D was not specifically addressed in the provided judgment text.

Conclusion:
The appeal was partly allowed by the ITAT, with specific directions to the AO on several grounds, while other grounds were either dismissed or confirmed based on prior rulings and established principles. The judgment emphasizes adherence to precedent and proper accounting methods in tax assessments.