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TMI Blog2023 (3) TMI 1296X X X X Extracts X X X X X X X X Extracts X X X X ..... this Tribunal for A.Y. 2012- 13 has deleted the disallowance u/s. 14A [ 2022 (2) TMI 1279 - ITAT BANGALORE ] as assessee do not have any exempt income for the year under consideration. Thus, as there is no difference in facts, we direct the Ld.AO to delete the addition made u/s. 14A r.w.Rule 8D. MAT computation on addition u/s 14A - addition made to the books profits by applying the provisions of section 14A - HELD THAT:- This issue is no longer resintegra by virtue of the decision of ACIT vs. Vireet Investments Pvt. Ltd. [ 2017 (6) TMI 1124 - ITAT DELHI ] and the decision of Gokaldas Images Pvt. Ltd. [ 2020 (11) TMI 345 - KARNATAKA HIGH COURT ] - Thus we direct the Ld.AO to delete the disallowance u/s. 14A while computing book profits u/s. 115JB of the Act. Short credit of TDS - HELD THAT:- We direct the Ld.AO to verify the same and consider the claim in accordance with law. Interest charged u/s. 244A - HELD THAT:- As submitted that the Ld.AO has not provided the consequential interest u/s. 244A - We direct the Ld.AO to verify the same and consider in accordance with law. X X X X Extracts X X X X X X X X Extracts X X X X ..... bed in the Income-tax Act and Income-tax Rules ("Rules"). g. Failed to appreciate that the CCD were already accepted as debt in the scrutiny assessment proceedings for the assessment years of AY 11-12 to AY 13-14 and erred in not following the principles of Res Judicata having already accepted the requirement for payment of interest in the same CCDs during the previous assessment years of AY 11-12 to AY 13-14. h. Erred in disregarding the independent benchmarking analysis undertaken by the Assessee identifying the comparable transactions involving the CCDs to demonstrate the arm's length nature of interest payment on CCDs. 4. The learned TPO/ learned AO/ Hon'ble DRI ' failed to take cognizance of the fact that the CCDs were repaid by the Assessee in the future year and therefore, erred in concluding that the same were to be converted into equity. 5. The learned AO/ learned TPO/ Hon'ble DRP erred in restricting the royalty payment to 1% of net sales to its AE and thereby: a. Erred in making an addition of INR 47,57,01,597/- to the total income of the Appellant b. Erred in stating that no direct/primary evidences was furnished to justify th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 14A inspite of the fact that no dividend/ exempt income has been earned during the year from such investments. 7.3. The learned AO/ Honourable DRP erred in not appreciating that the investments made in JSW Steel Limited of an amount of INR 100,000; in Jindal Praxair Oxygen Company Private Limited ("JPOCPL") (now known as JSW Industrial Gases Private Limited) of an amount of INR 1,78,31,00,000; and in TVH Energy Resources Private Limited (`TVH Energy') of an amount of INR 45,00,000are historical in nature and as such no expenditure has been incurred towards the same. 7.4. The learned AO/ Honourable DRP erred in not appreciating the fact that investment in JPOCPL was acquired by way of swap of shares during Financial Year (` FY') 2010-11 and not by way of actual cash outflow. Further, investment in JSW Steel Limited and in TVH Energy was made in the previous years, out of the own funds of the Appellant. Additionally, investment in TVH Energy was done during the FY 2015-16, of an amount of INR 25,00,000 and in Renew Wind Energy Karnataka Private Limited of an amount of INR 8,00,000, out of the cash flow from operating activities generated during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned AO erred in applying the provisions of section 14A to Chapter XII-B of the Act without having regard to the restriction that the provisions of section 14A of the Act is restricted to computing the total income under Chapter IV of the Act. 8.4. The learned AO/ Honourable DRP erred in not considering the order of the Commissioner of Incometax (Appeals) in Appellant's own case in AY 2008-09 which directed the learned AO to delete the disallowance under section 14A of the Act in computation of book profits under section 115JB of the Act on the basis that section 115JB of the Act is a complete code by itself and the importing of such disallowances into the scope of adjustment of book profit is not permissible. 9. Short credit of tax deducted at source The learned AO erred in giving credit of tax deducted at source of INR 77,61,556 instead of INR 5,85,89,000 as claimed by the Appellant in Return of Income. 10. Consequential interest under section 244A of the Act The learned AO erred in not providing the Company with consequential interest under section 244A of the Act. 11. Penalty proceedings under section 271(1)(c) of the Act The learned AO erred in law and on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the draft assessment order, assessee filed its objections before the DRP. The DRP considered the issue alleged by assessee at length, however dismissed the contentions of assessee and upheld the proposed addition by the Ld.AO. Pursuant to the directions of the DRP, the Ld.AO passed the impugned order making additions in the hands of the assessee. Aggrieved by the impugned order passed by the Ld.AO, assessee is in appeal before this Tribunal. 3. Ground nos. 1 & 2 raised by the assessee are general in nature and therefore do not require adjudication. 4. Ground nos. 3-4 is in respect of the addition made by the Ld.AO with regard to payment of interest on CCDs by recharacterising the same to be external commercial borrowings. 4.1 The Ld.AR submitted that this issue is covered by the decision of Coordinate Bench of this Tribunal in assessee's own case in ITA No. 506/Bang/2016 vide order dated 06/12/2021 for A.Y. 2011-12 and in ITA No. 2209/Bang/2016 vide order dated 25/02/2022 for A.Y. 2012-13, wherein Coordinate Bench of this Tribunal has considered identical arguments advanced by both sides. 4.2 The Ld.DR on the contrary relied on the orders passed by authorities below. 4.3 We h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble Supreme Court in the case of Sahara India Real Estate Corporation Limited and Sahara Housing Investment Corporation Limited & Ors. Vs. Securities and Exchange Board of India & Anr. in Civil Appeal No. 9813 of 2011 dt. 31-08-2012 (supra) while assigning the jurisdiction to SEBI as an 'equity instrument'. Further, the policy of Govt. of India and also RBI effective from 01- 04-2010 also indicate that issuance of CCD is part of FDI being quasi-equity in nature and considering the same as a loan would be completely, against regulations laid by DIPB, RBI and FEMA. It is to be reiterated that issuance of CCDs was denominated in Indian Rupees and not foreign currency. Therefore, TPO has erred in considering LIBOR as benchmark rate which is in complete contradiction to the principles on the issue. The following judicial precedents supports that the rate interest has to be considered in the currency in which loan has originated. i. India Debt Management Pvt. Ltd., IT(TP)A No. 7518/Mum12014; ii, CIT Vs. Cotton Naturals (I) Ltd., ITA No. 23312014 (Deli- HC); iii. M/s. Brahma Center Development Pvt. Ltd., Vs. [TO, ITA No. 3 73/Del/2016 (ITA T Del). By respectfully fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 § AStG). A differentiation between debt- claims or debts in national currency and those in foreign currency is normally no use, because, for instance, a US $ loan advanced by a US lender is to him a debt- claim in national currency whereas to a German borrower it is a foreign currency debt (the situation being different, however, when an agreement in a third currency is involved). Moreover, a difference in interest levels frequently reflects no more than different expectations in regard to rates of exchange, rates of inflation and other aspects. Hence, the choice of one particular currency can be just as reasonable as that of another, despite different levels of interest rates. An economic criterion for one party may be that it wants, if possible, to avoid exchange risks (for example, by matching the currency of the loan with that of the funds anticipated to be available for debt service), such as taking out a US $ loan if the proceeds in US $ are expected to become available (say from exports). If an exchange risk were to prove incapable of being avoided (say, by forward rate fixing), the appropriate course would be to attribute it to the economically more powerful party. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by arriving at average rupee cost and comparing the same with SBI prime lending rate is correct. It is ordered accordingly. 18. Respectfully following the decision of the coordinate bench of the Bangalore Tribunal we uphold the TP study done by the assessee to arrive at the interest rate of 9% and 12% calculated based on the average rupee cost comparing the same with SBI prime lending rate. The assessee's claim in this ground is allowed." 4.5 Respectfully following the decision of the coordinate bench of the Bangalore Tribunal we uphold the TP study done by the assessee to arrive at the interest rate of 9% and 12% calculated based on the average rupee cost comparing the same with SBI prime lending rate. Accordingly, ground nos. 3-4 raised by assessee stands allowed. 5. Ground nos. 5-6 is in respect of the adjustment made by the Ld.TPO with respect to the payment of royalty at 1%. 5.1 The Ld.AR submitted that this issue is covered by the decision of Coordinate Bench of this Tribunal in assessee's own case in ITA No. 506/Bang/2016 vide order dated 06/12/2021 for A.Y. 2011-12 and in ITA No. 2209/Bang/2016 vide order dated 25/02/2022 for A.Y. 2012-13, wherein Coordinate B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per submission, assessee has stated that out of the total 17 comparable agreements, the related party relationship between licensor and licensee existed in 07 comparable agreements and remaining 10 comparables agreements have unrelated party relationship for which the average royalty rate is computed at 4.10%. Submission of the assessee has been considered. As the average rate of royalty paid by the comparables is more than payment made by the assessee, i.e., at 4%, payment towards royalty is being treated to be at arm's length. 7. Taking all these into consideration, the Royalty payment @ 4% made by the taxpayer to its AE is considered at Arm's Length, hence no adjustment on account of royalty payment is required to be made 7.6 In view of the above orders of the TPO, accepting the payment of royalty at 4% to be at arm's length, we hold that the payment of royalty at 4% in the year under consideration is to be treated as being at arm's length. Accordingly ground 3 is allowed." 13. Considering the decision of coordinate Bench in assessee's own case (supra) we allow this ground in favour of the assessee and hold that payment of royalty @ 4% is at arm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read with Rule 8D has to be made even when taxpayer in a particular year has not earned any exempt income. This court relied on the decision of the Supreme Court in MAXOPP INVESTMENT LTD supra which was reproduced in Paragraph 5 of the decision and reliance was also placed on Circular dated 11.02.2014 issued by Central Board of Direct Taxes (CBDT). However, the aforesaid decision was subsequently considered by this court in judgment dated 16.01.2021 passed in I.T.A.No.271/2017 (PRINCIPAL COMMISSIONER OF INCOME TAX VS. NOVEL SOFTWARE DEVELOPMENT) in which it was held that decision of this court in KINGFISHER FIN VEST LTD. was distinguishable as the basis of the aforesaid decision of this court was the decision of the Supreme Court in MAXOPP INVESTMENTS LTD. supra and it was held that the aforesaid decision does not deal with applicability of Section 14A of the Act. However, eventually this court agreed with the view taken by High Court of Madras in CIT VS. CHETTINAD LOGISTICS P LTD., (2017) 80 TAXMANN.COM 221 (MAD.) AND KEM INVEST LTD. VS. CIT, (2015) 16 TAXMANN.COM 118 (DELHI) and held that since no exempt income has accrued to the assessee therefore, the provisions of Section 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposition that the provision is relatable to earning of actual income. The object of Section 14A is to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. The High Court of Madras has relied on the decision of the Supreme Court in COMMISSIONER OF INCOME TAX VS. WALFORT SHARE AND STOCK BROKERS (2010) 326 ITR 1 wherein it has been held that Section 14A is relatable to income of actual income or not notional or anticipated income. Therefore, the conclusion arrived at by us in MIS NOVEL SOFTWARE INDIA (P) LTD. is affirmed but for different reasons. It is also clarified by us that while recording the conclusion in KINGFISHER FIN VEST LTD. that disallowance under Section 14A has to be made even taxpayer has not earned any exempt income, this court has misread the ratio of the decision of the Supreme Court in MAXOPP INVESTMENT LTD supra and therefore, the aforesaid view being contrary to the law laid down by the Supreme Court is not a binding precedent. In view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Bench of Delhi Tribunal in case of ACIT vs. Vireet Investments Pvt. Ltd. reported in (2017) 82 taxmann.com 415 and the decision of Hon'ble Karnataka High Court in case of CIT vs. Gokaldas Images Pvt. Ltd. reported in (2020) 122 taxmann.com 160. 7.1 We refer to the observations of Hon'ble Karnataka High Court (supra) which is as under: "10. The Commissioner of Income Tax (Appeals) has held that as per Section 115JB of the Act, the assessee being a company is liable to tax on book profits in accordance with the aforesaid provision and there is no exemption granted to the non dividend company in this regard. However, the tribunal by placing reliance on decision of the Supreme Court in APOLLO TYRES, 255 ITR 273 (SC) has held that Assessing Officer while determining book profits under Section 115JB of the Act cannot tamper with the profits as per profit and loss account prepared in accordance with the Companies Act except in the manner provided in Explanation 1 to Section 115JB of the Act. Thus, it has been held that the additions made by the Assessing Officer while determining the book profits under Section 115JB of the Act cannot be sustained. Any disallowance computed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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