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TMI Blog2014 (2) TMI 1331X X X X Extracts X X X X X X X X Extracts X X X X ..... e to bring all facts on records. After bringing all facts on record, this issue will be re-adjudicated by the AO as per law. This ground is treated to be allowed for statistical purposes. - ITA No. 5109/MUM/2013, ITA No. 5334/MUM/2012 - - - Dated:- 10-2-2014 - SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER Assessee by : Shri PRV Raghavan Respondent by : Shri Abhinay Kumbhar O R D E R PER I.P.BANSAL,J.M: These cross appeals are directed against order dated 21/05/2013 passed by Ld. CIT(A)-15, Mumbai for assessment year 2008-09. Grounds of appeal read as under: Grounds of Assessee s Appeal: 1. Addition on a/c of imputed interest on Loans / advances to Foreign AEs :- The Hon ble Commissioner of Income-tax (Appeals) 15, Mumbal (The learned CITA) has erred in law and on facts, vide paragraph 4.5 at page nos.9 to 11 of his Appellate Order, in directing the AO to consider the interest on Foreign AEs LIBOR plus 250 basis point and/or LIBOR p/us 150 basis points on the advances. 2. Disallowance u/s 14A:- a. The learned CITA has erred in law and on facts, vide paragraph 5 at page no.11 to 16 of his Appellate Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on facts in not appreciating the evidence of the Order of the Hon ble Bombay High Court dated April 04, 2000, along with the Scheme of Amalgamation of Hydranautics Membranes India Limited and Ion Exchange Finance Limited with your Appellants. f. The learned CIT(A) ought to have appreciated the fact in the absence of establishing any clear nexus that the borrowed funds were used for making the said advance, it cannot be said that the borrowed funds were used for making the said advance. 4. Addition on account of interest on borrowed capital towards Capital Work in Progress: a. The learned CITA has erred in law and on facts, vide paragraph 9 at page nos.25 to 27 of his Appellate Order, in upholding the disallowance of ₹ 39,024/- towards interest paid on borrowed fund towards capital work in progress. b. The learned CITA has erred in law and on facts, vide paragraph 9.4.11 at page nos.27 of his Appellate Order, in holding that Hon ble Supreme Court s decision in Tuticorin Alkali chemicals Fertilizers Ltd. Vs CIT (1997) 227 ITR 172 (SC) is not applicable in your Appellants case. 5. General - The learned CITA has erred in law and on facts, vide paragraph 12 at pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is shown in the following table which is described at page 8 of the order of Ld. CIT(A). Interest Offered by the assessee @LIBOR+1%(4.5 +1)% Rs.10,19,842/- Arm s Length Interest Rate ₹ 17.26% p.a. Arm s Length Price @17.26 p.a. on loan as computed by the assessee. ₹ 28,47,041/- Shortfall being adjustment u/s.92CA ₹ 18,27,199/- The addition was agitated in an appeal field before Ld. CIT(A). 2.2 The aforementioned rate of 17.26% has been computed by TPO based on LIBOR+ Adjustment for credit rating of the A.E, transaction and for loan given without security. The assessee disputed such computation on the basis that the interest rate applied by the TPO is based on hypothetical assumption of credit rating of the AE and assumption cost of transaction, premium over LIBOR towards risk etc. It was pleaded that credit rating assumption by the TPO was purely based on profit of the AE for the year under consideration as the ratio considered by PBIT to interest. Considering such submission of the assessee L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance made by the assessee should only be made and balance disallowance should be deleted. 2.4 We have heard both parties on this issue and we found that Ld. CIT(A) has rightly held that according to aforementioned Master Circular issued by RBI the ALP of impugned international transactions should be worked out. We found that such view taken by Ld. CIT(A) has been consistently followed by ITAT as is observed by Ld. CIT(A) in his order. Therefore, we decline to interfere in such directions issued by Ld. CIT(A). Accordingly, this ground of the assessee s appeal as well as departmental appeals are dismissed. 3. Ground No.2 of assessee s appeal relates to disallowance made under section 14A r.w.r. 8D. Rule 8D is applicable w.e.f. A.Y 2008-09. While computing the disallowance as per rule 8D two components have been taken into consideration. Disallowance on account of interest is computed at ₹ 2,97,957/- and disallowance on account of expenses has been computed at ₹ 1,10,455/-. The aggregate of both these amounts i.e. a sum of ₹ 4,08,412/- is disallowed by following Rule 8D. The total dividend received by the assessee is a sum of ₹ 9,00,459/-. The disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statistical purposes. 4. Apropos Ground No.3 , it was submitted by Ld. AR submitted that the issue has to be restored back to the file of AO as similar issue was restored back by ITAT in respect of assessment year 2005-06 and 2007-08. Reference in this regard was made to the order dated 30/4/2013 passed in ITA No.249 250/Mum/2012. The issue has been discussed by the Tribunal as per following observations:- 2. Vide the first ground of appeal for both the years, the assessee contests the disallowance of interest imputed on interest-free advance to a subsidiary company, as well as the disallowance of interest on investments for acquiring controlling interest in such companies. 3. At the very outset, placing a copy of the order by the tribunal in its own case for an earlier year (in ITA No.7381/Mum/2007 dated 27.02.2009 for A.Y. 2004-05), it was submitted by the ld. AR that the said issue is arising consistently in its case since the past. Even the investments under reference are as made in the past and carried over as such. The tribunal has, in view of the decision by the apex court in the case of S. A. Builders Ltd. v. CIT(Appeals) (2007) 288 ITR 1 (SC), restored the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court in the case of S. A. Builders Ltd. (supra), the first appellate authority called for a report from the A.O. in the matter. The gist of the same, which stands reproduced by him in his orders, states of the assessing authority being not satisfied with regard to the explanation qua commercial expediency as furnished by the assessee. No details or evidence in respect of the said subsidiary company stand furnished, so that it was not clear as to the financial hardship being faced by the loanee company ever since, and how could, as contended before him by the assessee, it be considered that the same was required for - and continues to have - a stabilizing effect on the said company. Commercial expediency could only mean furtherance of one s own business, and not helping the assessee s sister concern, a separate company, in the event of a mishap, i.e., even where so. With regard to the investment in the subsidiary companies for gaining controlling interest, the assessee s claim of the same being out of own funds is not supported, the investments having been made prior to the period for which the cash flow statements stands submitted. In any case, the interest on these investments wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO observed that interest paid for expansion of existing business has to be to be disallowed. Noting that work-inprogress was shown at ₹ 4,59,111/- the AO worked out interest cost @ 8.5% and disallowed a sum of ₹ 39,024/-. 5.1 It was submitted by Ld. AR that it has been case of the assessee that while computing work-in-progress interest relating to borrowed capital was considered in the work-in-progress and this contention of the assessee has never been considered by the AO or Ld. CIT(A). It was submitted by Ld. AR that this issue should be restored back to the file of AO with a direction to examine such contention of the assessee. 5.2 On the other hand, Ld. DR relied upon the order passed by Ld. CIT(A). 5.3 We have heard both the parties and their contentions have carefully been considered. Since we are restoring other issues to the file of AO, therefore, in the interest of justice this issue is also restored back to the file of AO for re-adjudication with a direction to give appropriate opportunity to the assessee to bring all facts on records. After bringing all facts on record, this issue will be re-adjudicated by the AO as per law. This ground is treate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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