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TMI Blog2019 (2) TMI 619X X X X Extracts X X X X X X X X Extracts X X X X ..... to 11 raised by the assessee are allowed in terms of our aforesaid observations. Addition u/s 14A - revised claim of disallowance u/s 14A that was raised by the assessee on the basis of a revised computation of income - Held that:- We are in agreement with the view of the A.O that in terms of the ratio of the decision of the Hon’ble Supreme Court in the case of Goetz (India) Ltd.[2006 (3) TMI 75 - SUPREME COURT], the A.O was not vested with any jurisdiction to have allowed the revised claim of disallowance under Sec. 14A that was raised by the assessee on the basis of a revised computation of income in the course of the assessment proceedings. We thus are of the considered view that in the backdrop of the aforesaid settled position of law the assessee remained at a liberty to assail the disallowance made under Sec. 14A, as long as such claim was based on the facts available on record. No disallowance u/s 14A is liable to be made if no exempt income is received or receivable by the assessee during the relevant previous year. On the basis of our aforesaid observations we restore the issue to the file of the A.O for readjudicating the issue pertaining to disallowance under Sec. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g disallowance of ₹ 1,88,87,845/- u/s 14A of the Income Tax Act, 1961, by applying the provision of Rule 8D(2)(iii) of the Income Tax Rules against Nil Dividend Income. 5. On the facts and in the circumstances of the case and in law, the appellant prays that the appellant has not incurred any administrative expenses which can be attributable to earning income not chargeable to tax. The appellant prays that the addition confirmed by the Learned Commissioner of Income Tax(Appeals) may be deleted. 6. On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax(Appeals) has erred in confirming the addition of ₹ 11,04,04,539/- made by way of the adjustment to the international transaction in terms of the order passed by the Deputy Commissioner of Income Tax, Transfer Pricing u/s. 92CA(3) of the Income Tax Act, 1961. The appellant prays that the addition made by the Learned Commissioner of Income Tax (Appeals) amounting to ₹ 11,04,04,539/- by way of adjustment to the international transaction is not justified and be deleted. 7. On the facts and in the circumstances of the case and in law, the Learned Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of Goetze India Ltd. (284 ITR 283) while holding that the A.O should have considered appellant s claim. 3. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the assessing officer be restored. 4. The appellant craves leave to add, amend, vary, omit or substitute any grounds at any time before or at the time of hearing of appeal. 2. Briefly stated, the assessee company which is engaged in the business of a developer, operator and facilitator of surface transportation infrastructure projects had filed its return of income for A.Y. 2009-10 on 30.09.2010, disclosing a total income of ₹ 109,50,86,310/- under the normal provisions, and a book profit of ₹ 57,18,01,260/- under Sec. 115JB of the I.T. Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the I.T. Act. 3. During the course of the assessment proceedings the A.O made a reference under Sec. 92CA(1) of the I.T. Act to the Addl. CIT [Transfer Pricing-1(10)], Mumbai (for short TPO ) for computation of the arm s length price of the international transactions of the assessee with its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest in foreign currency as per TPO with rate of 15.41% [B] Exposure [B-A] FOREX rate as per RBI 31 March 2009 Exposure in INR 1. Elsamex Euro 9,738,000 104,040 235,426 131,386 67.48 8,865,927 2. IIPL USD 46,500,000 1,926,910 3,682,771 1,755,861 50.95 89,461,118 3. IMPOL USD 6,500,000 267,648 504,694 237,046 50.95 12,077,494 Total 110,404,539 The A.O on the basis of the order passed by the TPO under Sec. 92CA(3) of the I.T. Act, dated 30.01.2013 made an adjustment of ₹ 11,04,04,539/- to the value of the international tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vings of the borrower. The CIT(A) drawing force from the aforesaid order of the Tribunal wherein the interest on bank FDR was adopted as the safest comparable subject to further adjustments after taking into account the risk factors involved in granting the loan to the AEs, thus observed that the TPO had rightly computed the ALP of the interest charged on the amounts advanced to the AEs by using the Bond Yield rates corresponding to the assessee lender and the borrower AEs. On the basis of the aforesaid deliberations the CIT(A) upheld the TP adjustments of ₹ 11,04,04,539/- as regards the determination of the ALP of the interest charged by the assessee on the advances given to its AEs. 7. Insofar the disallowance under Sec. 14A was concerned, it was observed by the CIT(A) that the assessee by relying on the CIT(A) s order for the earlier years, had by way of a revised computation restricted the disallowance under Sec. 14A to ₹ 2,60,29,275/- as against the disallowance of ₹ 7,51,15,797/- as was offered in its return of income. It was further observed by him that the said reduction of disallowance under Sec. 14A by the assessee was rejected by the A.O. Further, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the formation and continuation of the SPVs. The CIT(A) was of the view that as the return on investments including dividend that has or shall be issued by such SPVs would be exempt from tax as and when received, therefore, to that extent, some of the indirect expenses would be relatable to the receipt of such exempt income which was to be computed as per Rule 8D(2)(iii). Insofar, reliance was placed by the assessee on the order of the ITAT, Delhi in the case of Oriental Structural Engineers P. Ltd. (ITA 605/2012), it was noticed by the CIT(A) that in the said case 2% of the dividend receipts was retained by the Tribunal as a reasonable disallowance towards administrative expenses viz. management salary, telephone, stationery, postage expenses etc. As regards the reliance that was placed by the assessee on the order of the ITAT, Kolkata in the case of AEI Agro Ltd. (ITA 1331/Kol/2011), it was observed by the CIT(A) that the said order was only in context of the method of computing the average value of investments for the purposes of Rule 8D(2)(iii) and had not given any finding on the disallowance to be made under the said rule. The CIT(A) after deliberating on the facts of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied on the judgment of the Hon ble High Court of Bombay in the case of Commissioner of Income Tax-2 Vs. Tata Autocomp Systems Ltd. (ITA No. 1320 of 2012; dated 03.02.2015) (copy placed on record). The Ld. A.R drawing force from the aforesaid judgment in the case of Tata Autocomp Systems Ltd (supra) submitted that no infirmity did emerge from the determination of the ALP of the interest charged by the assessee on the loans advanced to its AEs on the basis of the rate of interest that was being charged in the country where the loans were received/consumed by the respective AEs viz. (i) LIBOR + 5.50%; and (ii) EURIBOR + 1.75%. It was thus submitted by the Ld. A.R that the lower authorities were in error in adopting the Indian rates and therein benchmarking the ALP of the interest charged by the assessee @ 15.41% p.a. by considering the corresponding annualized average yield (%) from CRISIL Ltd. credit rating scale for the year under consideration. 9. Per contra, the Learned Departmental Representative (for short D.R ) relied on the order passed by the Tribunal in the assesses own case for the A.Y. 2008-09 and submitted that the matter may be restored to the file of the A.O for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the determination of the ALP, and resultantly worked out the shortfall in charging of interest by the assessee on loans advanced to its AEs at ₹ 11,04,04,539/-. It is the contention of the Ld. A.R that the lower authorities was in error in benchmarking as per the Indian rates the ALP of the interest charged by the assessee @ 15.41% p.a. 11. We have deliberated at length on the issue under consideration and find that the assessee had provided financial assistance by way of loans in USD/EUROS to its aforementioned AEs viz. (i) IMOPL (USD 6.50 million towards financial assistance by way of loan); (ii) IIPL [(USD 33.5 million towards loan for the purpose of meeting its long term financial requirements USD 13 million as advance towards share capital which was subsequently converted into a loan during the year]; and (iii) Elsamex (EURO 9,738,000 towards term loan by way of four transfers). We have perused the judgment of the Hon ble High Court of Bombay in the case of CIT Vs. Tata Autocomp Systems Ltd. (2015) 374 ITR 516 (Bom) and find that the Hon ble High Court had dismissed the appeal of the revenue for the reason that as the Tribunal while passing the impugned order had f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. DCIT had observed that in the case of a transaction in foreign currency between two cross border entities the ALP should be computed in context of the prevailing lending practices in the international market. The Tribunal had further observed that in respect of such international transactions, the domestic bank rate would not be a sound basis and rather internationally accepted LIBOR rate would be the proper basis for benchmarking the ALP of the interest rate in respect of the said transactions. We further find that the Hon ble High Court of Delhi in the case of Commissioner of Income Tax-1 Vs. M/s Cotton Naturals (I) Pvt. Ltd. (ITA No. 233/Mum/2014, dated 27.03.2015) had observed that the interest rate applicable should be that of the currency concerned in which the loan has to be repaid. The Hon ble High Court had disagreed with the view that the interest rates were to be computed on the basis of interest payable on the currency or legal tender of the place or the country of residence of either party. It was further observed by the High Court that the currency in which the loan is to be repaid normally determined the rate of interest. The aforesaid judgment of the Hon ble High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s return of income had computed the disallowance under Sec. 14A at ₹ 7,51,15,797/-. However, in the course of the assessment proceedings the assessee on the basis of the CIT(A) s order for the earlier years filed a revised computation of income with the A.O and restricted the disallowance under Sec. 14A to ₹ 2,60,29,275/-. The revised computation of disallowance under Sec. 14A did not find favour with the A.O who remained under a strong conviction that the said revised claim of disallowance could not be considered in the absence of a revised return of income of the assessee. On the basis of his aforesaid conviction, the A.O taking support of the judgment of the Hon ble Supreme Court in the case of Goetz (India) Ltd. Vs. CIT (2006) 284 ITR 323 (SC) rejected the claim of the assessee and assessed its income by retaining the disallowance under Sec. 14A at ₹ 7,51,15,797/-. 13. It is contention of the Ld. A.R before us that in the absence of any exempt dividend income no disallowance could have been validly made under Sec. 14A in the hands of the assessee. We have given a thoughtful consideration to the issue before us and are in agreement with the view of the A.O t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... com 415 (Delhi-Trib) (SB) has held that disallowance under Sec. 14A r.w. Rule 8D(2)(iii) shall be computed only on those investments which had yielded tax free income during the year. Apart therefrom, the Hon ble High Court of Delhi in the case of Cheminvest Ltd. Vs. CIT 378 ITR 33 (Del) has held that section 14A will not apply if no exempt income is received or receivable by the assessee during the year. We find that the Hon ble High Court of Bombay in the case of Pr.CIT Vs. M/s Ballapur Industries Ltd. (ITA No. 51 of 2016; dated 13.10.2016) while rejecting the appeal of the revenue and holding that no substantial question of law did arise therefrom, has held as under : On hearing the Ld. Counsel for the department and on a perusal of the impugned orders, it appears that both the authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression does not form part of the total income in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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