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TMI Blog2022 (4) TMI 1582X X X X Extracts X X X X X X X X Extracts X X X X ..... n to their AEs. Disallowance of interest expenditure u/s.36(1)(iii) - assessee has diverted interest bearing funds for the purpose of investments made in subsidiary company M/s.Aban Holdings Pvt. Ltd., Singapore - AO has disregarded the arguments of the assessee that the investment made in share capitals of subsidiary company is for commercial expediency and the assessee derives business advantage in the nature of sharing Revenue from operations along with its subsidiary company. Therefore, when there is a commercial expediency, the question of disallowance of interest expenses does not arise - HELD THAT:- There is no dispute with regard to the fact that M/s.Aban Holdings Pvt. Ltd., Singapore, is a 100% subsidiary of assessee company. It was also not in dispute that the assessee company and subsidiary companies are in the business of rendering services in connection with exploration of oil and gas. The assessee had owned rigs required for carrying out its business activity in the name of subsidiary company in Singapore, for the sole purpose of getting financial advantage by arranging funds required for acquiring rigs. Assessee has filed necessary evidences to prove that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s u/s.90 of the Act, is squarely covered in favour of the assessee by the decision of co-ordinate Bench in the assessee s own case for the AY 2015-16 [ 2021 (4) TMI 768 - ITAT CHENNAI in IT (TP) A No.86/Chny/2019 , wherein, the Tribunal by following its earlier order for the AY 2012-13, remitted the issue back to the file of the AO and direct the AO to re-examine the issue in light of the directions given by the Tribunal for the earlier years. Disallowance of loss of forward contracts - AO has disallowed Forex loss claimed by the assessee on the ground that the transactions are in the nature of speculative transactions as per the provisions of Sec.43(5) and further, the assessee has failed to file necessary evidences to prove that the import/export obligation is in excess of value of forward contracts entered into by the assessee - HELD THAT:- We find that an identical issue had been considered by the Tribunal in the assessee s own case for the AY 2015-16 [ 2021 (4) TMI 768 - ITAT CHENNAI] in IT (TP) A No.86/Chny/2019, wherein, the Tribunal by following its earlier decision for the AY 2012-13, set aside the issue to the file of the and direct the AO to re-consider the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. Addition towards interest receipts on the basis of Form 26AS - AO has made additions towards interest receipts on the basis of Form 26AS on the ground that the assessee could not file reconciliation explaining the difference between interest received from M/s.Aban Green Power Pvt. Ltd., as per the books of accounts, when compared to Form 26AS - explanation of the assessee before the AO that the assessee has filed reconciliation explaining the difference between interest income accounted for the books of accounts of the assessee and the interest income reported in Form 26AS - HELD THAT:- We find that the AO has made addition towards interest income on the basis of Form 26AS by observing that there is a difference between interest income reported in Form 26AS and interest income as per the books of accounts. It was the explanation of the assessee that it has filed a reconcile explaining the difference and according to the assessee, the difference amounting to Rs.8,52,000/- represents lease rental received by the assessee from the very same company, which includes service tax portion. Further, the assessee has accounted lease rental and service tax separately which resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is higher than tax payable under normal provisions of the Act. Therefore, we are of the considered view that the facts need to be examined by the AO to allow credit for MAT in accordance with the provisions of Sec.115JB of the Act. Hence, we set aside the issue to the file of the AO and direct the AO to re-examine the claim of the assessee in accordance with law. Levy of dividend distribution tax ( DDT ) - AO has passed final assessment order u/s.143(3) r.w.s.144C(13) of the Act, without considering the fact that the assessee had paid DDT and such tax was reported in Form 26AS - HELD THAT:- As perused the materials available on record. The AO has levied DDT on the ground that the assessee does not paid tax within specified period. It was the explanation of the assessee that the assessee has paid DDT on 06.10.2015 and the same was reported in Form 26AS. The facts need to be verified. Therefore, we are of the considered view that the issue needs to be set aside to the file of the AO. Hence, we set aside the issue to the file of the AO and direct the AO to reexamine the claim of the assessee in light of evidences filed to prove the facts that the assessee had already paid DDT. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue and further, the question of computation of DDT is purely depend upon taxes paid by the assessee on distribution of dividend and hence, by following the decision of the Hon ble Supreme Court in the case of M/s.National Thermal Power Co. Ltd. v. CIT (supra), we admit additional grounds filed by the assessee. 4. We find that appeal filed by assessee is barred by limitation for which necessary petition for condonation of delay explaining the reasons for the delay has been filed. The learned counsel submitted that assessee could not file appeal within the time allowed under the Act, therefore, delay may be condoned. Having heard both sides and considered the petition filed by the assessee for condonation of delay, we are of the considered view that reasons given by assessee for not filing the appeal within the time allowed under the Act, comes under reasonable cause as provided under the Act for condonation of delay and thus, delay in filing of above appeal is condoned and appeal filed by the assessee is admitted for adjudication. 5. The brief facts of the case are that the assessee is a Public Ltd. Co. engaged in the business of providing offshore drilling and production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45/- by making various additions, including the additions towards corporate guarantee fee. The AO had also re-computed the book profit u/s.115JB of the Act, by making additions towards disallowance u/s.14A r.w.r.8D of Income Tax Rules, 1962 and further, addition towards difference in receipts as per Form No.26AS. Aggrieved by the final assessment order, the assessee has filed present appeal before the Tribunal. 6. The first issue that came up for our consideration from Ground No.2 of the assessee s appeal is upward adjustment of ALP of Rs.64,26,250/- towards corporate guarantee fee in respect of corporate guarantee given to their AEs. The AO has made TP adjustment of Rs.64,26,250/- towards corporate guarantee fee @ 1% on total corporate guarantee outstanding at the end of the year amounting to Rs.64,26,25,000/- on the ground that corporate guarantee given by the assessee to their AEs, is an international transaction, which needs to be bench marked to determine the ALP of the transaction. It was the submission of the assessee before the TPO that corporate guarantee given to their AEs is not resulting into any quantifiable benefit to the AEs. Therefore, the same cannot be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by following the decision of the Hon ble Bombay High Court in the case of CIT v. Everest Kento Cylinders Ltd. [2015] reported in 58 taxmann.com 254, has directed the TPO to compute corporate guarantee commission @ 0.5% of total corporate guarantee given to their AEs and outstanding at the end of the relevant Financial Year. The relevant findings of the Tribunal are as under: 8. We have heard both the sides and considered the arguments and had gone through the orders of the lower authorities. 9. In so far as the issue that whether Corporate Guarantee issued by the Assessee to its AEs comes within the definition of International Transaction or not? The Finance Act, 2012 has inserted, an explanation to Section 92B with retrospective effect from 1st April, 2002 to include the term guarantee within the definition of international transaction. Therefore, the Corporate Guarantee issued by an entity on behalf of its AEs is an international transaction as considered by the Bombay High Court in the case of the Commissioner of Income Tax Vs. Everest Kentor Cylinder Limited reported in [2015] 58 Taxmann.com 254 (Bom.). The Hon ble High Court has considered the issue in the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the guarantee commission at the rate of 0.50%. We therefore by considering the facts and circumstances of the case, we are of the opinion that we will fix the guarantee commission at the rate of 0.50%. 6.5 In this view of the matter and consistent with view taken by the coordinate Bench, we direct the AO/TPO to compute corporate guarantee fee @ 0.5% of total corporate guarantee given to their AEs. 7. The next issue that came up for our consideration from Ground No.3 of the assessee s appeal is disallowance of interest expenditure u/s.36(1)(iii) of the Act, amounting to Rs.82,40,26,367/- on the ground that the assessee has diverted interest bearing funds for the purpose of investments made in subsidiary company M/s.Aban Holdings Pvt. Ltd., Singapore. The AO has disregarded the arguments of the assessee that the investment made in share capitals of subsidiary company is for commercial expediency and the assessee derives business advantage in the nature of sharing Revenue from operations along with its subsidiary company. Therefore, when there is a commercial expediency, the question of disallowance of interest expenses does not arise. The AO, however, did not convince with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidiary companies are in the business of rendering services in connection with exploration of oil and gas. The assessee had owned rigs required for carrying out its business activity in the name of subsidiary company in Singapore, for the sole purpose of getting financial advantage by arranging funds required for acquiring rigs. The assessee has filed necessary evidences to prove that the investment made in subsidiary company is facilitated the subsidiary company to rise further capital from the Banks and Financial Institutions, to have a better debt equity ratio. We further noted that the assessee and the subsidiary company are in common business, having some business advantage in growing business in international market. Therefore, we are of the considered view that the assessee, as a businessman, has taken a prudent decision to make investments in subsidiary company to derive commercial advantage and thus, we are of the considered view that the AO as well as the DRP are erred in disallowing interest expenses u/s.36(1)(iii) of the Act, for diversion of interest bearing funds to make investment in subsidiary company. 7.4 We further noted that this issue is squarely covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified under section 14 of the Act. Therefore, the deductions are to be allowed in computing the income under various heads only to the extent it is provided by the Legislature under that very heads. The computation of capital gain is provided in section 48 of the Act. According to this section, the only deductions which are allowable are - (1) the cost of acquisition of the asset, (2) the cost of any improvement thereto and (3) expenditure incurred wholly and exclusively in connection with the transfer of the asset. The cost of acquisition, in our opinion, means the amount paid for acquiring the asset. Once the asset is acquired, then any expenditure incurred thereafter cannot be considered as the cost of acquisition, since such expenditure would not have any nexus with the acquisition of the asset. Wherever the Legislature intended to allow such expenditure as deduction, it had specifically provided so under various heads. For example, in computing the income from house property, the assessee is allowed deduction under section 24 of the Act on account of interest paid on the borrowed funds utilized for acquiring the immovable property. Similarly, when the income is to be compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinate Bench of the Tribunal in the case of Macintosh Finance Estates Ltd. vs. ACIT(12 SOT 324), wherein it has been held once we find that interest expenses is an allowable expenditure under the head Income from other sources , it cannot be allowed to be added to the cost of investment only because in this year no deduction is allowable because the dividend income has been made exempt . The following observations of Supreme Court in the case of Saharanpur Electric Supply Co. Ltd vs. CIT (1992) 194 ITR 294 (SC) were relied on by the Court:- In case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalized and added to the cost of the fixed assets . 31.7 A bare look at the above observations reveals that actual cost would include all expenditure necessary to bring the assets into existence and put them in working condition. Nowhere in the above observations, the Supreme Court held that the expenditure incurred after the acquisition of asset would be included in the cost of assets. The terminal point is the time wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereupon. Hence, this ground is partly allowed for statistical purposes. 7.5 In this view of the matter and consistent with view taken by the coordinate Bench, we set aside the issue to the file of the AO and direct the AO to verify the issue in accordance with the directions given by the Tribunal for the AY 2012-13 and decide the issue for the impugned assessment year. 8. The next issue that came up for our consideration from Ground No.4 of the assessee s appeal is disallowance of professional and consultancy fee paid to non-residents u/s.40(a)(i) of the Act, for non-deduction of TDS u/s.195 of the Act. The AO has disallowed the payment made to certain non-resident service providers for rendering professional and consultancy services u/s.40(a)(i) of the Act, for non-deduction of TDS u/s.195 of the Act, on the ground that the payment made to non-residents are in the nature of fee for technical services as per the provisions of Sec.9(1)(vii) of the Act. It was the explanation of the assessee before the AO that the payment made to non-residents for rendering professional and consultancy services, is for services rendered outside India. Since, the services were rendered outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (v), (vi) and (vii) and sub-sec.(1), such income shall be included in the total income of the non-resident, whether or not be resident as a residence or place of business or business connection in India . The plain reading of the said provisions suggests that criterion of residence, place of business or business connection of a non-resident in India has been done away with for fastening the tax liability. However, the criteria of rendering service in India and the utilization of the service in India to attract tax liability u/s.9(i)(vii) remained untouched and unaffected by the Explanation to Section 9 of the Act and outside India. Therefore, the twin criterion of rendering of services in India and utilization of services in India become evidently necessary condition to deduct tax. However, in respect of the said payments, the rendering of services being purely off shore and outside India, the whatever paid towards the said services does not attract tax liability . 12.1 In view of the above, we are inclined to remit the issue to the file of the Assessing Officer to examine the issue afresh in the light of the above order along with the concerned DTAA and decide thereupo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of deduction of TDS on said payments does not arise. The relevant findings of the Tribunal are as under: 31. The similar issue has been considered by the Co-ordinate Bench of the Tribunal in assessee s own case for AY 2012-13 in ITA No.450/Mds/2017 dated 19.06.2017, wherein the Hon ble Tribunal has remitted the matter back to the file of AO by observing as under: 12. We have heard both the parties and perused the material on record. The Explanation incorporated in Section 9 declares that where the income is deemed to accrue or arise in India under clause (v), (vi) and (vii) and sub-sec.(1), such income shall be included in the total income of the non-resident, whether or not be resident as a residence or place of business or business connection in India . The plain reading of the said provisions suggests that criterion of residence, place of business or business connection of a non-resident in India has been done away with for fastening the tax liability. However, the criteria of rendering service in India and the utilization of the service in India to attract tax liability u/s.9(i)(vii) remained untouched and unaffected by the Explanation to Section 9 of the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, the assessee is eligible to claim tax credit towards taxes paid on the foreign income if the same income is liable to tax in India. Since, the assessee has already offered interest income for taxes in India, the relevant taxes paid in contracting state (Singapore) should be allowed as credit. 10.2 The Ld.DR, on the other hand, supporting the order of the AO, submitted that the AO has brought out clear facts in light of Article-11 of DTAA between India and Singapore and observed that the assessee has not proved with evidence that they had received interest income in excess of the interest expenditure claimed in its P L A/c and thus, relief u/s.90 of the Act, could not be provided. 10.3 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The issue of disallowance of withholding taxes u/s.90 of the Act, is squarely covered in favour of the assessee by the decision of co-ordinate Bench in the assessee s own case for the AY 2015-16 in IT (TP) A No.86/Chny/2019, wherein, the Tribunal by following its earlier order for the AY 2012-13, remitted the issue back to the file of the AO and direct the AO to re-e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the branches in the other contracting states i.e the source country, credit of such taxes shall be given. Thereafter, the Tribunal in this case remitted the issue to the file of the Assessing Officer to decide afresh in the light of the above order of the Tribunal in the case of Bank of Baroda in I.T.A.No.2927/Mum/2011 dated 25.7.2014. Later assessee filed MA in MA Nos. 95 96/Mds/2016 stating that the direction given by the Tribunal is not appropriate. Since the assessee has no income from any branches in Singapore, that decision cannot be applied to the assessee s case. The Tribunal while adjudicating the said MA vide order dated 29.7.2016 held as follows: We have heard the rival submissions and perused the material on record. In our opinion, the interpretation of the order of the Tribunal by the ld. AR is misconceived. The Tribunal was of the opinion that if the income from foreign country is offered to tax by the assessee by whatever means, the assessee has to get tax credit to the extent the tax was paid in foreign country. In other words, once the income is included either in the Profit Loss Account or in the return of income, the corresponding tax credit on the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO has disallowed Forex loss claimed by the assessee on the ground that the transactions are in the nature of speculative transactions as per the provisions of Sec.43(5) of the Act and further, the assessee has failed to file necessary evidences to prove that the import/export obligation is in excess of value of forward contracts entered into by the assessee. We find that an identical issue had been considered by the Tribunal in the assessee s own case for the AY 2015-16 in IT (TP) A No.86/Chny/2019, wherein, the Tribunal by following its earlier decision for the AY 2012-13, set aside the issue to the file of the and direct the AO to re-consider the issue in light of the decision of the ITAT Bangalore Benches in the case of M/s.Essilor India Pvt. Ltd. v. DCIT. The relevant findings are as follows: 53. We have heard both the sides and perused the materials available on records and had gone through the orders of the authorities below. 54. The Assessing Officer has disallowed the Forex loss of the Assessee mainly on the ground that the Assessee need not enter into such a contract for the nature of the business of the Assessee. Secondly, the Assessing Officer had deni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the same as exempt income u/s.10(34) of the Act. However, the assessee has not made suo moto disallowance of any expenditure relatable to exempt income. Therefore, the AO has determined the disallowance of expenses by invoking provisions of Sec.14A r.w.r.8D of Income Tax Rules, 1962 and determined the disallowance of Rs.6,11,500/- under normal provisions of the Income Tax Act, as well as the book profit computed u/s.115JB of the Act. 12.1 The Ld.AR for the assessee submitted that the AO erred in not appreciating the fact that the assessee has sufficient own funds to make investments in mutual funds/shares and thus, the question of disallowance of any expenditure does not arise. 12.2 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We find that there is no merit in the arguments of the assessee that it has sufficient own funds to make investments in shares/mutual funds which yielded exempt income, because, the AO has made disallowance under third limb of Rule 8D @ 0.5% of average value of investment in respect of other expenses, but not towards interest expenses under the second limb of Rule 8D of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the explanation of the assessee before the AO that the assessee has filed reconciliation explaining the difference between interest income accounted for the books of accounts of the assessee and the interest income reported in Form 26AS. The assessee further explained that amount reported in Form 26AS includes interest income from M/s.Aban Green Power Pvt. Ltd., and lease rental income and the assessee has accounted interest income as income in the books of accounts of the assessee. However, in respect of lease rental, the assessee has recognized income including service tax element paid by the party. 13.1 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We find that the AO has made addition towards interest income on the basis of Form 26AS by observing that there is a difference between interest income reported in Form 26AS and interest income as per the books of accounts. It was the explanation of the assessee that it has filed a reconcile explaining the difference and according to the assessee, the difference amounting to Rs.8,52,000/- represents lease rental received by the assessee from the very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014-15 as per the normal provisions of the Act is higher than tax payable u/s.115JB of the Act. Similarly, the AO noted that for the AY 2015-16, tax payable under normal provisions is higher than the tax payable u/s.115JB of the Act and thus, opined that the assessee is not entitled for MAT credit. It was the explanation of the assessee before the AO that the assessee is eligible to take credit arising out of taxes paid u/s.115JB of the Act and such credit shall be carry forward for a period of 10 AYs succeeding to the year in which tax credit becomes allowable. Further, various additions made by the AO for the AY 2015-16 has been deleted by the Tribunal and if the AO gives credit for relief allowed by the Tribunal, then tax payable under normal provisions of the Act, would be less than the tax payable under book profit. Therefore, the assessee is entitled for MAT credit. 15.1 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The AO has denied the MAT credit only on the ground that the tax payable under normal provisions of the Act is higher than the tax payable under book profit for both the assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X
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