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TMI Blog2014 (9) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no basis for arriving at this 2% - relying upon M/s. Four Soft Ltd. Hyderabad Versus DCIT, Circle 1(3) Hyderabad [2011 (1) TMI 651 - ITAT HYDERABAD Ltd.] - for the proposition that LIBOR rate should be the basis of bench marking the interest payments for the purpose of determining the ALP – thus, the TPO is directed to determine the ALP de-novo – Decided in favour of assessee. Determination of notional interest at 10% - Deemed income on the loans given to wholly owned subsidiary company – Held that:- Following the decision in Highway Construction Co. (P.) Ltd. v. CIT [1992 (11) TMI 86 - GAUHATI High Court] - there was no finding of fact to the effect that actually the loan had been granted to the MD or any other person on interest or that interest had actually been collected by the collection of interest was not reflected in the accounts - The finding of the ITO was that the assesses ought to have collected interest - If the assessee had not bargained for interest, or had not collected interest, the Income tax authorities could not fix a notional interest his due, or as collected by the assessee - There was no provision in the IT Act empowering the income tax authorities t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce they are heard together and disposed off by way of this common order. 2. Facts in brief. The assessee is engaged in the business of manufacturing of edible oils and related by-products including bakery shortenings and margarine. It has a manufacturing plant situated in Tadepalligudem, Andhra Pradesh. The company has overseas subsidiaries in Ghana, Sri Lanka and Singapore. For the assessment year 2008-09, the assessee filed its return of income on 27.9.2008 disclosing income of ₹ 18,83,15,208/-. For the assessment year 2009-10, the assessee filed its return of income on 25.9.2009 declaring a total income of ₹ 3,61,17,914/-. The assessing officer completed the assessment u/s 143(3) r.w.s. 144C(13) determining the total income at ₹ 19,48,35,546/- for the assessment year 2008-09 and ₹ 24,88,32,982/- for the assessment year 2009-10. 3. Aggrieved, the assessee is before us on the following grounds for the assessment year 2008-09: 1.0 That under the facts and circumstances of the case the orders passed u/s. 143(3) r.w.s 144C(13) of the I. T. Act are against the facts of the case and provisions of law. 1.1 The orders passed by the teamed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er annum and the same was given to its AE 3F Ghana Ghana Limited at the same rate of interest of 12.5% for the term loan granted and at a rate of interest of 7% for the working capital loan granted. He submitted that the assessee has charged the cost i.e. the rate of interest that it pays to the bank for the borrowings, for the loan granted to the AE but, the DRP considered a mark up of 2% of interest, over and above 12.5%, on the ground that the assessee had paid Exim Bank, one time service commission, documents charges and processing fees of ₹ 6,35,000/-. On the working capital term loan, on the ground that the assessee could not provide evidence that it had borrowed fund @ 7% p.a. the DRP adopted 14.75% i.e. the same rate of interest as in the case of term loan. 6. Before us the assessee moved an application under rule 29 of the ITAT rules, for the admission of additional evidence in the form of, statement of account from M/s Central Bank of India as well as statement from M/s State Bank of India, to demonstrate its claim, that on working capital loan the assessee is paying these banks, interest @ 7.5% only. He submitted that the assessee was prevented by sufficient c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st can be charged when funds are advanced for business expediency. He argued that the funds were given by the assessee company towards share application money and subsequently, it was converted into equity and that the assessee company is not engaged in the business of advancing of loans and advances. He submitted that charging notional interest as against the Act and the addition is not sustainable. 10. He further argued that the assessee had interest free funds and relied on the decision of CIT v. Reliance Utilities Power Ltd. [2009] 313 ITR 340 for the proposition that, if interest free funds are available, it should be presumed that the investments were made from the interest free funds that are available. On ad hoc disallowance of 10% of advertisement and sales promotion expenses he submitted that the assessee has furnished all the vouchers and evidences and the books of accounts were audited and under those circumstances making an ad hoc disallowance is bad in law. He relied on the special bench decided in the case of Jt. CIT v. ITC Ltd. [2008] 112 ITD 57 (Cal.) for the proposition that ad hoc disallowance cannot be made, when auditors have not pointed out that such expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oc disallowance, the submitted that the assessee has not furnished the evidence as required by the assessing officer and in the absence of the assessee discharging the burden of proof that lay on it, it is open for the assessing officer to make an ad hoc disallowance. On the Issue of calculation of surcharge and educational cess, after giving MAT credit, he argued that the ground taken is different from the claim and line of arguments being made now. He submitted that surcharge and educational cess will be calculated on the tax liability and MAT credit is nothing but pre-payment of taxes. 15. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the order of the authorities below as well as the case laws cited, we hold as follows. 16. On the issue of admission of additional evidence, we find that these documents go to the root of the matter and have to be admitted for arriving at the arms length price for interest on working capital loan. In our view, the assessee was prevented by reasonable cause in submitting these documents before the TPO or the DRP, for the reason that he adopted CUP method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the result this ground is allowed for statistical purposes. 19. On the issue of addition of notional interest, we find that the Hon'ble Guwahati High Court in the case of Highway Construction Co. (P.) Ltd. v. CIT [1993] 199 ITR 702 held as under: Held, (ii) That there was no finding of fact to the effect that actually the loan had been granted to the MD or any other person on interest or that interest had actually been collected by the collection of interest was not reflected in the accounts. The finding of the ITO was that the assesses ought to have collected interest. If the assessee had not bargained for interest, or had not collected interest, the Income tax authorities could not fix a notional interest his due, or as collected by the assessee. There was no provision in the IT Act empowering the income tax authorities to include in the income interest which was not due or not collected. The addition of amounts as notional interest was not justified. 20. Applying the propositions laid down therein to the facts of its case, we have no other alternative but to delete the addition made on account of notional interest. 21. In the result, this ground of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deducted at source, advance tax and credit u/s 115JAA should be given effect to (para 9) A perusal of the section 295 makes it clear that the section authorizes the Central Board of Direct Taxes to make rules for whole of India or part of India for carrying out the purposes of the Act and also that it is subject to the control of the Central Government. Sub-section (2) enumerates some of the important matters, which have been provided by the rules. It Is well accepted principle that the rule cannot affect control, enlarge or detract or derogate from the full operative effect of the provisions of section. If any rule purports to do so, it would be void and ultra vires and, further, the rule must be consistent with or in conformity with the Act. If there is conflict between a rule and the substantial provision of the Act, the rule must approve way to the provision of the Act. Further, the delegating authority must exercise power strictly within the limits of the authority. Even though the rule making power is conferred on the said authority, if the rules made are in excess of such delegated power, the rules would be void even if the Act provides that they shall have effect a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g anything in articles 269 and 270, Parliament may at any time increase any of the duties or taxes referred to in those articles by a surcharge for the purposes of the Union and the whole proceeds of any such surcharge shall form part of the consolidated fund of India. The legislative entry 82 in List I relates to taxes on income other than agricultural income, income-tax, super tax and surcharge would all fall under this entry. It is in exercise of the legislative power conferred by that entry that the Union Parliament enacts the provision in the Finance Act each year relating to them. It is that Act which authorities these taxes to be charged and prescribes the rates at which they can be charged. Although under the Act section 4 is the charging section yet income tax can be charged only where the Central Act which, in the present case, will be the Finance Act, enacts that income-tax shall be charged for any assessment year at the rate or rates specified therein. The distinction made by the High Court that the surcharges are levied only under the Finance Act and income-tax under the Act might not hold good if the above view which has been pressed on behalf of the revenue w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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