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TMI Blog2018 (5) TMI 2008X X X X Extracts X X X X X X X X Extracts X X X X ..... , presumption has to be made that the investment made are from own funds. The Honble Jurisdictional High Court in HDFC Bank Ltds case [ 2014 (8) TMI 119 - BOMBAY HIGH COURT]. has upheld the above proposition. Respectfully following the jurisdictional High Court judgment we direct AO to delete the disallowance of interest. Disallowance under Rule 8D(2)(iii) is restored to AO to compute in accordance with the latest decision of Supreme Court in the case of Maxoop Investment [ 2018 (3) TMI 805 - SUPREME COURT] - ITA 1017/MUM/2017 - - - Dated:- 21-5-2018 - Pawan Singh (Judicial Member) And R.C.Sharma (Accountant Member) JUDGMENT R.C.Sharma (A.M): This is an appeal filed by the assessee against the order of AO)-1 (WZ)-Mumbai passed u/s.143(3) r.w.s.144C(13) of the IT Act giving effect to the directions issued by DRP u/s.144C dated 13/12/2016. 2. Following grounds have been taken by the assessee:- 1. i.The Ld. AO/ TPO has erred in considering guarantees issued by the assessee to banks on behalf of its AEs as international transactions under section 92B(1) of the Act. ii.The Ld. AO/ TPO has erred in not considering the fact that bank guarantees are different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has grown to become a diversified manufacturer of home textiles, apparel fabrics, garments and polyester yarns, selling the same directly to manufacturers, exporters, importers and retailers and brands the world over. The Assessee has five major divisions - Cotton Yarn, Apparel Fabric, Home Textiles, Garments and Polyester Yarn. Apart from these divisions, the Company also has retail operations, which is now being handled by H A Ltd since 16 December 2009. 6. The assessee has five major divisions Cotton Yarn, Apparel Fabric, Home Textiles, Garments and Polyester Yarn, Apart from these divisions, the Company also has retail operations, which is now been handled by H A Ltd., since 16 December 2009. 7. During the year the Assessee has issued corporate guarantees for the following AEs:- Name of the AE Bank to whom guarantee issued Date on which guarantee issued Amount of guarantee Amount of guarantee in 1 Triumphant Victory Holdings Limited Axis Bank DIFC Dubai Branch 31st July 2011 130,000,000 6,650,345,000 2 Garbal Alok UK State Bank of India, UK 16th July 2011 12,000,000 981,590,400 8. These guarantees were issued by Alok India to enable the banks to grant loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee during the course of assessment submitted that guarantees were issued by Alok India to enable the banks to grant loan to its AEs. The Assessee submits that the said guarantees have been given by the Assessee with the objective of furtherance of its business interests in the overseas markets and hence, the same constitutes shareholder's activities. 13. We have considered rival contentions and found that the issue is covered by the decision of ITAT dated 08/07/2016 in case of Grabal Alok Impex Limited, CIT(A) No.1776/Mum/2015 [Sister concern of the assessee which has been merged with the assessee with effect from 01.04.2011 having similar facts. Precise observation of the Tribunal was as under:- 9.We have considered rival contentions, carefully gone through the orders of authorities below and also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by ld. AR and DR during the course of hearing before us. The issue under consideration is squarely covered by the decision of ITAT Mumbai in the case of Everest Kento Cylinders Ltd. in ITA No.542/M/2012, vide order dated 23rd November, 2012, wherein the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given advances to its Associate Enterprise Grabal Alok International Ltd ('GAlL') of ₹ 81,08,748/-. The said advance were given in the normal course of business and adjusted against payables. Based on the various precedents of Courts and Tribunals, it has been held that ALP interest in the case of foreign currency loans should be arrived on the basis of LBOR. In this regard, reliance is placed on various decisions which are as follows: i) Tata Autocomp Systems Limited (ITA No. 1320 of 2012) (Bom HC); ii) Cotton Naturals (I) Pvt Ltd (ITA No 233/2014) (Delhi HC); iii)Cotton Naturals (I) Pvt Ltd (ITA No 3265/Del/2011) (Del Tribunal); iv) Everest Kanto Cylinders Limited (ITA No 7073/Mum/2012) ated 25 September 2014 (Mumbai Tribunal) v)Bharti Airtel Limited (ITA No 5816/DeI/2012) dated 11 March 2014 (AY 2008-09) (Delhi Tribunal) 14.Respectfully following the judicial precedents, we direct the AO to restrict the disallowance in respect of notional interest adjustment towards advance granted to AE, on the basis of LIBOR. We direct accordingly. 14. As the facts and circumstances during the year under consideration are same, respectfully following the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited to the Profit Loss account on account of subsidy received. The assessee has made the detailed submission in this regard during the assessment proceedings. However, the Ld. DCIT while framing the Draft Assessment Order wrongly taken the amount from Notes to Account. However, the AO treated the TUF subsidy as revenue in nature, accordingly brought the same to the tax net.189. By the impugned order, CIT(A) confirmed the action of the AO. 18. Contention of learned AR was that the purpose of the subsidy scheme is to enable modernization through technology upgradation of textile industry. The assessee undertook significant expansion in a phased manner over a period right from 2001 under the said TUF Scheme. Hence, the said subsidy should be treated as capital in nature. 19. We have considered rival contentions and found from record that the main object behind the said subsidy was to upgrade modernize the Indian textile industry by encouraging it to undertake adopt modern technological process and / or undertake capacity expansion. In view of the above object, it was argued that the subsidy received was capital in nature. From perusal of the objective and the salient feat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Ltd., the Tribunal have observed as under:- 21. Next grievance of the assessee relates to treating interest subsidy received under Technology Upgradation Fun d (TUF) Scheme as revenue receipt. 22. We have considered rival contentions and found that assessee had availed loans from various banks under the TUF Scheme. In order to encourage the upgradation of technology so as to meet the global challenges, the Ministry of Textiles had launched the TUF Scheme from April 1, 1999. Under this scheme the lending agency would reimburse 5% interest cost to the borrowers upon satisfaction of certain conditions. The assessee had received interest subsidy under this scheme during the year which was offered to tax in the return of income. During the assessment proceedings, the Assessee had made a claim for considering interest subsidy received under TUF scheme as a capital receipt not chargeable to tax and requested to exclude the interest income from the income returned by the assessee. However the AO refused to acknowledge the claim of the Assessee on the ground that the claim was made otherwise than by filing a revised return of income. The AO observed that as per decision of the Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held the plea of the assessee, which view has been affirmed by the Tribunal with the following observations: -Having regard to the aforesaid, in our view, it is quite clear that the objective of the subsidy scheme was to enhance the technology apparatus of the assessee by assisting in acquiring machinery and further that the subsidy so received was utilized for repayment of loans taken by the assessee to set up the new unit, as was the intention of the subsidy. 10. Considered in the aforesaid light, in our view, the facts of the instant case are on all fours comparable to those considered by the Honble Supreme Court in the case of Ponni Sugars Chemicals Ltd. (supra) and therefore, a natural corollary is that the nature of the subsidy in question is capital. Therefore, both on the issue of the objective of the scheme and on the utilization of the funds received as subsidy, the subsidy is to be viewed as capital in nature having regard to the judgment of the Honble Supreme Court in the case of Ponni Sugars Chemical Ltd. (supra). 11. Reliance placed by the Revenue on the case of Sawhney Steels and Press Works Ltd. others (supra), in our view, is not appropriate having rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the term loan account of the beneficiary after a lock in period of three years on a pro-rate basis in terms of release of capital subsidy. There is no apparent or real financial loss to a borrower since the countervailing concession is extended to the loan amount. 7. In view of above, the view taken in Sahney Steel Press Works Ltd. Ors., could not be applied in the present case as in said case the subsidy was given for running the business. For determining whether subsidy payment wasrevenue receipt or capital receipt, character of receipt in the hands of the assessee had to be determined with respect to the purpose for which subsidy is given by applying the purpose test, as held in Sahney Steel Press Works Ltd. Ors. itself and reiterated in later judgment in CIT v. Ponni Sugars Chemicals Ltd. ors. (2008) 306 ITR 392, referred to in the impugned order of the Tribunal. 8. In view of above, since the matter is covered by judgment of the Honble Supreme Court in CIT v. Ponni Sugars Chemicals Ltd. ors. [2008] 306 ITR 392(SC) against the revenue, no substantial question of law arises. 11. Thus we find that on identical issue the matter has been decided in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5JB. 24. Facts in brief are that the company has credited TUF subsidy to profit loss account which is capital in nature amounting to ₹ 125,89,89,420/-. The summary of TUF subsidy submitted to Ld. DCIT as below:- Tuf Subsidy Received in Alok Industries Limited ₹ 131,11,30,466/- Tuf Subsidy Received in M/s. Grabal Alok Impex Limited ₹ 4,84,51,807/- Total ₹ 135,95,82,273/- Less: Subsidy Credited to CWIP Account ₹ 10,05,92,853/- Balance Subsidy Credited to Profit Loss A/c. ₹ 125,89,89,420/- 25. Contention of learned AR was as under:- i. Section 115JB should be considered subject to charging provision under Section 4 read with definition of an income: under Section 2(24). ii. The definition of income under Section 2(24) has been amended by the Finance Act 2015 to include subsidy within its scope, but only with prospective effect from A.Y. 2016-17. iii. Therefore, such subsidy which is capital in nature cannot be brought within the purview of Section 115JB as the charging provision fails. iv. Also, the intention of the legislature in bringing Section 115JB on statute should also be considered [Refer Memorandum explaining Finance B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if we look at Explanation 1 to section 115JB(2), We find that the legislature has defined book profit. For calculation of such book profit, one has to reduce certain items, which inter alia include, item ii which states that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the profit and loss account . Thus, what can be discerned from above item is that, for calculation of book profit one has to reduce those items of income which do not from part of total income under normal provisions. If that be the case, then it logically follows that those items which do not constitute income at all cannot form part of book profit and no MAT can be levied thereon at all. Even sub-section (5) of section 115JB states that 'Save as otherwise provided in this section, all provisions of this Act shall apply to every assessee, being a company, mentioned in this section. Thus, provisions of section 4 and section 2(24) shall necessarily apply for computation of book profit and MAT u/s 115JB and as such provisions of section 115JB cannot override the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt as per doctrine of mutuality 13 15 Goldgerg Finance Pvt. Ltd. Mumbai ITAT 7496/Mum/2013 Share from AOP which was not taxable under normal provisions as per Sec. 86 11 on this issue was not admitted as not having a substantial question of law. Thus, it can be concluded that this issue is now being settled by a judgment of the Rajasthan High Court. It also distinguished the decision of Apollo Tyres Ltd. vs. CIT 255 A- _ and Rain Commodities Ltd. vs. DCIT 41 DTR 449. Also very recently, Madras HC in the case of Metal Chromium Plater (P) Ltd. (TCA No. 359 of 2008) has also decided the said issue in the favour of the assessee. The case of Krishi Rasayan Exports Pvt. Ltd. vs. ACIT (ITA No. 883 / Kol / 2014 is on the similar interest subsidy which was required to be excluded from Book profit. We accordingly direct AO to exclude the TUF subsidy while computing book profit u/s.115JB. 30. During the course of assessment, the AO had also made disallowance u/s.14A amounting to ₹ 10,88,24,112/-. 31. Rival contentions have been heard and record perused. Facts in brief are that the assessee company is manufacturing concern and during the year under consideration had earne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome *176.38 164.92 34. From the record we found that in the appellate order passed for AY 2008-09 and AY 2009-10, the CIT(A) has accepted the fact of the investments (including share application money) being funded through own funds of the assessee and has deleted the disallowance of interest expenditure. The investment yielding tax free income includes Interest in Alok Benefit of ₹ 38,69,08,480/- which is not actually an investment but the said treatment has been given on account of the Merger Order of the High Court, (Merger Order of Grabal Alok Impex Limited and Alok Industries Limited.) 35. Contention of learned AR was that the majority of the dividend income is arising from investment made with a strategic interest i.e., Strategic Investment. Further, it was argued that the investment made with a strategic interest is not for the purpose of earning dividend income and therefore should not be considered for the purpose of computing disallowance u/s 14A. Further, it was argued that the entire dividend has been earned from the investments made by the Company out of its own fund. Thus, there was no cost or interest attached to investment and investing activities. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... group concern are not for the purpose of earning any dividend income. Therefore, the said investment should be ignored while computing disallowance u/s.14A. The judgments at serial number (i) to (vi) above supports the contention of the assessee that the strategic investment made in group concerns should not be considered for calculating the action u/s. 14A. 38. We also found that as per the documents placed on record, sufficient interest free funds were available with the assessee company and therefore, no disallowance under Rule 8D(2)(ii) be made of interest expenditure. The same is also clear from the Balance Sheet and the relevant annexures placed on record. Further, in respect of own funds, presumption has to be made that the investment made are from own funds. The Honble Jurisdictional High Court in HDFC Bank Ltds case has upheld the above proposition. Respectfully following the jurisdictional High Court judgment we direct AO to delete the disallowance of interest. Disallowance under Rule 8D(2)(iii) is restored to AO to compute in accordance with the latest decision of Supreme Court in the case of Maxoop Investment dated 12/02/2018. We direct accordingly. 39. In the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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