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2023 (11) TMI 936 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - Sufficiency of own funds - HELD THAT - The investments made by the assessee are funded out of the own funds of the assessee. It is a settled principle that when the own funds are more than the investments, no disallowance is warranted towards operating cost and therefore, we see no infirmity in the order of CIT(A) deleting the disallowance made under section 8D(2)(ii) read with section 14A. Adjustment of book profit on Disallowance u/s 8D(2)(iii) read with section 14A - As in the case of Vireet Investments Private Ltd ( 2017 (6) TMI 1124 - ITAT DELHI ) wherein it has been held that only those investments which yielded exempt income during the year are to be considered for computing the average value of investment. Respectfully following it, we see no merit in the ground raised by the Revenue. We also notice that the issue of disallowance under section 14A made to book profit under section 115JB is considered by the co-ordinate bench in assessee's own case 2023 (5) TMI 153 - ITAT MUMBAI held that disallowance under section 14 A of the act cannot be added to the book profit under section 115JB. Disallowance of Director s Salary handover facilities - AO disallowed 50% of the expenses towards capitalization to the cost of project - HELD THAT - As decided in own case 2023 (4) TMI 190 - ITAT MUMBAI held as considering the accounting standard - 1 and 7, the guidelines issued by the Institute of chartered accountants of India and after considering the provisions of section 145A of the act held that such expenses are to be allowed in the year in which they are incurred and not to be included in the cost of work in progress. Expenditure pertaining to employee cost, administrative expenses and selling and marketing expenses debited to the profit and loss account are to be allowed in the year in which those are incurred. TP Adjustment of Guarantee Commission -TPO rejected the bench marking done by the assessee and proceeded to make TP adjustment by applying the guarantee commission rate of 1.25% - As per CIT(A) addition @ 0.3523% is reasonable - HELD THAT - We notice that the issue of guarantee fees has been considered by the co-ordinate bench in 2023 (4) TMI 190 - ITAT MUMBAI no infirmity in the order of the learned CIT A in holding that arm's-length price of the guarantee commission is 0.3523 percentage. Depreciation on sample flat - asset put to use - AO held that since the gestation period of the project is four year from it inception as per the submissions of the assessee the depreciation on the overall cost incurred towards the sample structure should be claimed over four years - AO accordingly allowed depreciation at 25% - CIT(A) has allowed the claim stating that the depreciation claim in terms rate etc., can be questioned only in the first year of claim and once allowed in the first year cannot be disturbed in the subsequent year - HELD THAT - From the perusal of the assessment order we notice that the assessing officer has not disputed the fact that the sample flat is a temporary structure since the AO himself is holding that the gestation period is four years based on the assessee's submission that the sample flat is demolished in 2020. Taking note of the fact that temporary structures are entitled to depreciation at the rate of 100% as per the depreciation rates under Income-tax Rules,1962, as per rule 5, Appendix-I, and considering the fact that the structure being temporary not controverted by the Revenue, we see no infirmity in the claim of the assessee to the entire amount of expenditure on construction of temporary flat as sample flat is eligible for depreciation at 100% . Revenue has allowed the claim of 50% of the depreciation claimed by the assessee in the first year when the sample flat was put use for less than 180 days and nothing has been brought on record to show that the said claim is disputed by the revenue. Considering the facts that the revenue has not disputed the fact that the sample flat is a temporary structure and no contrary findings being brought on record in present case we hold that the assessee's claim of 50% of the cost of construction for the year under consideration be allowed. The disallowance made in this regard is deleted. Capitalization of foreign exchange loss to work-in-progress - AO held that in assessee's case the material purchased form part of the cost of construction which is added to the cost of project and not to the P L A/c and therefore, the foreign exchange loss attributable to purchase of material should also be added to the cost of construction - HELD THAT - As relying on own case 2023 (5) TMI 153 - ITAT MUMBAI we hold that the foreign exchange loss cannot be included in the cost of project and accordingly should be allowed as a deduction. The ground of the revenue in this regard is rejected.
Issues Involved:
1. Disallowance under section 14A. 2. Disallowance under section 14A while computing book profit under section 115JB. 3. Disallowance of Director's salary and handover facility expenses. 4. Transfer Pricing (TP) adjustment of guarantee commission. 5. Depreciation on sample flat. 6. Capitalization of foreign exchange loss to work in progress. Summary of Judgment: Disallowance under section 14A: The Assessing Officer (AO) disallowed expenses under section 14A, arguing that the assessee's own funds were insufficient for investments yielding exempt income. The assessee contended that their own funds exceeded such investments and cited the Bombay High Court decision in CIT vs HDFC Bank Ltd. The CIT(A) found that the AO had erred by including investments in gold and foreign companies while computing disallowance under rule 8D(2)(iii). The CIT(A) directed the AO to re-compute the disallowance, excluding these investments. The Tribunal upheld the CIT(A)'s decision, noting that own funds were indeed more than the investments, thus no disallowance was warranted. Disallowance under section 14A while computing book profit under section 115JB: The CIT(A) held that disallowance under section 14A could not be added to book profit under section 115JB, following judicial precedents. The Tribunal agreed, referencing a similar decision in the assessee's own case, and dismissed the revenue's grounds. Disallowance of Director's salary and handover facility expenses: The AO disallowed 50% of the director's salary and handover facility expenses, arguing they should be capitalized to the cost of the project. The CIT(A) allowed the expenses, citing that they were general business expenses, not specific to any project. The Tribunal upheld the CIT(A)'s decision, referencing similar cases where such expenses were allowed as revenue expenditure in the year incurred. Transfer Pricing (TP) adjustment of guarantee commission: The AO made a TP adjustment by applying a 1.25% rate for guarantee commission, rejecting the assessee's benchmark rate of 0.3523%. The CIT(A) accepted the assessee's rate, noting the AO's lack of specific reasons for rejection. The Tribunal upheld the CIT(A)'s decision, citing consistent rulings in favor of the assessee in similar cases. Depreciation on sample flat: The AO allowed only 25% depreciation on a sample flat, while the assessee claimed 100% depreciation, arguing it was a temporary structure. The CIT(A) allowed the full depreciation, noting it was already allowed in the first year. The Tribunal upheld the CIT(A)'s decision, confirming the temporary nature of the structure and the applicability of 100% depreciation. Capitalization of foreign exchange loss to work in progress: The AO disallowed the foreign exchange loss, arguing it should be capitalized. The CIT(A) allowed the loss as revenue expenditure, citing the Supreme Court decision in Woodward Governor (I.) Pvt. Ltd. The Tribunal agreed, noting the consistent treatment of such losses as revenue expenditure in similar cases. Conclusion: The Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s decisions on all grounds.
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