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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 ..... e grounds of appeal filed by the assessee. 3. The assessee had also filed a petition for admission of additional grounds vide letter dated 28.01.2012 and has taken specific ground on the issue of computation of Dividend Distribution Tax (in short "DDT"), including interest u/s.115P of the Act and argued that additional grounds taken up by the assessee is a legal issue which can be taken at any time including the proceedings before the Tribunal in light of the decision of the Hon'ble Supreme Court in the case of M/s.National Thermal Power Co. Ltd. v. CIT reported in [1998] 229 ITR 383 (SC). The Ld.DR, on the other hand, although, opposed the petition filed by the assessee for filing additional grounds, but fairly agreed that the additional grounds of appeal filed by the assessee, may be admitted and the issue may be restored to the file of the AO for further verification. 3.1 We have heard both the parties, perused the materials available on record and considered the petition filed by the assessee for admission of additional grounds. We find that the assessee has taken a specific ground challenging levy of DDT on the ground that the assessee had already remitted DDT on 06.10.2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs.64,26,250/- in respect of corporate guarantee given to their AEs. The AO had also proposed various other additions on corporate tax issues, including the disallowance at interest expenses u/s.36(1)(iii) of the Act, amounting to Rs.82,40,26,367/- for diversion of interest bearing funds to make investments in subsidiary company of the assessee, M/s.Aban Holdings Pvt. Ltd., Singapore. The AO had also proposed disallowance of technical services fee paid to non-residents u/s.40(a)(i) of the Act, for nondeduction of tax at source u/s.195 of the Act, for Rs.1,42,60,560/-. The AO had also disallowed payment made to a non-residents u/s.40(a)(i) of the Act, for non-deduction of TDS u/s.195 of the Act. Similarly, the AO denied credit for tax paid u/s.90 of the Act and further, disallowed loss on FOREX contracts, etc. 5.2 Aggrieved by the draft assessment order, the assessee filed their objection before the DRP-2, Bangalore. The DPR vide their directions dated 05.02.2021 rejected the objections filed by the assessee and uphold the TP adjustment made by the AO and also various other additions in respect of corporate tax issues. The AO in pursuant to the directions of the DRP, had passed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate guarantee fee @ 0.5% of total corporate guarantee given to their AEs. 6.3 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. In so far as the first arguments of the assessee that corporate guarantee per se is not an international transaction, we find that as per the definition of international transaction u/s.92B of the Act, the definition includes lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises. Therefore, from the definition of international transaction, which is very clear that the transaction of lending or borrowing also considered as international transaction. Since, corporate guarantee given to their AEs is in the nature of lending of money, which is having a bearing on the profit of the assessee, the same needs to be considered as international transaction and thus, we reject the arguments of the assessee on corporate guarantee per se is not an international transaction. 6.4 Having said so, when it comes to the rate, on which, such guarantee commission needs to be computed, we find that the co-ordinate Bench of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the Assessee would make good the amount and repay the loan. The considerations which apply for issuance of a corporate guarantee are distinct and separate from that of bank guarantee are distinct and separate from that of bank guarantee and accordingly commission charged cannot be called in question, in the manner TPO has done. The comparison is not as between like transactions but the comparisons are between guarantees issued by the commercial banks as against a Corporate Guarantee issued by holding company for the benefit of its AE, a subsidiary company. In view of the above discussion, appeal does not raise any substantial question of law and it is dismissed." 10. From the above decision of the Hon'ble Mumbai High Court, it is clear that Corporate Guarantee by an entity on behalf of its AEs a subsidiary company is an international transaction. However, while arriving at a rate, the Assessing Officer has taken comparables from commercial banks to at arrive at mean margin of 1.04% and adopted such rate to determine the ALP of corporate guarantee issued by the Assessee. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd contributions to their equity. Therefore, he submitted that the investment made in the subsidiary company as an object to capture the business in the world market through the subsidiary company and thus, when the assessee has established commercial expediency, the question of disallowance of interest expenses does not arise. 7.2 The Ld.DR, on the other hand, supporting the order of the AO, submitted that the assessee has failed to make out a case of commercial expediency by bringing on record necessary evidences to prove that what is the business advantage derives by the assessee by investing in equity capital of subsidiary company in Singapore. The Ld.DR further submitted that the assessee had also failed to make out a case that investments made in Singapore company, will aid the business interest of the assessee. The AO after considering relevant facts has rightly disallowed interest expenses u/s.36(1)(iii) of the Act and his order should be upheld. 7.3 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that M/s.Aban Holdings Pvt. Ltd., Singapore, is a 100% su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity is under taken as an investment activity and interest incurred up to the acquisition of the shares of subsidiary company could be considered as part of investment. Once it is acquired, then it will be a revenue expenditure. In the present case, it is an admitted fact that the wholly owned subsidiary company has already acquired shares and it is functioning. 31.2 In this case the assessee claimed the interest incurred on loan which was used for the purpose of purchase of shares as revenue expenditure, but it was not capitalized as part of the investment in shares. The contention of the DR was that it is to be added to the cost of the investment so as to increase the value of the capital asset. 31.3 In the present case, there is no dispute that the assessee has borrowed funds for the purpose of investment in shares and thereafter the assessee has incurred interest on it. In our opinion, the interest is to be considered as part of the cost of investment till date of acquisition and interest paid by the assessee commencing from the date of acquisition of shares till the date of sale would not form part of the cost of acquisition. 31.4 Further, it is a settled legal posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne a step further in the case of CIT vs. Rajendra Prasad Moody [1978] 115 ITR 519, wherein it has been held that deduction on account of interest paid on borrowed funds is allowable as deduction in computing the income under the head 'Income from other sources', even where the dividend is not received in a particular year. If this is the legal position, then we are afraid, how the interest paid by the assessee can be considered as part of the cost of acquisition of the shares. If the contention of the assessee is accepted then it would amount to allowing double deduction i.e., under section 57 as well as under section 48 of the Act, which can never be the intention of the Legislature. As already stated, the double deduction is prohibited as laid down by the Supreme Court in the case of Escorts Ltd. (supra). The entire scheme of the Act, therefore, reveals that interest component after the date of acquisition and till the date of sale cannot be treated as the cost of acquisition. It is only allowable as a revenue deduction on year to year basis against the income generated from such asset or likely to be generated to the extent provided by the Legislature under different heads. 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest, then the Assessing Officer should see that there cannot be any disallowance in respect of investment of assessee's own fund. This is so because the borrowed funds and own funds are admittedly mixed up in such cases, the disallowance of interest has to be made on proportionate basis and benefit has to be given to the assessee towards investment of own fund. It is also to be noted that while computing disallowance if any u/s.36(1)(iii) of the Act, interest considered for disallowance u/s.14A of the Act was required to be excluded. With this observation, we restore the issue to the file of the Assessing Officer for fresh consideration after necessary examination and after allowing opportunity of hearing to the assessee. In the result, ITA No.585/Mds/2016 is partly allowed for statistical purpose. 5. Respectfully following the aforesaid order of the Tribunal we are inclined to remit the issue to the file of AO on similar direction. Further, we direct the AO to verify whether the investment is made in subsidiary to have a controlling interest, or to avoid the dilution of controlling interest, or to keep the controlling interest intact as per object clause of Memorandum of As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is not required to deduct TDS on said payments. We find that an identical issue had been considered by the Tribunal, in the assessee's own case for the AY 2015-16, wherein, the Tribunal by following its earlier decision for the AYs 2007-08 & 2012-13 held that the payment made by Branch Office of the assessee at Dubai to non-resident service provider does not come under the definition of fee for technical services and thus, remitted the matter back to the file of the AO to examine the issue afresh in light of the discussions and Article-7 of DTAA between India and UAE. The relevant findings of the Tribunal are as under: 30. We have heard both the parties sides, perused the material available on record and gone through the orders of the authorities below. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the definition of fee for technical services u/s.9(1)(vii) of the Act. It was the explanation of the assessee before the lower authorities that payment made to M/s.Haledon International Corporation, Dubai, was towards operation expenditure incurred in respect of operation of rigs in Iran and further, the services were rendered outside India and the payments were also made outside India. Therefore, unless the impugned payment made to non-resident is taxable in India, the assessee does not require to deduct TDS u/s.195 of the Act and consequently, impugned payment cannot be disallowed u/s.40(a)(i) of the Act". 9.1 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. An identical issue has 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, by following its earlier decision for the AY 2012-13, held that twin conditions of rendering services in India and utilization of such services in India are not satisfied to bring the impugned payment within the definition of fee for technical services as per Sec.9(1)(vii) of the Act read with explanation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and decide the issue in accordance with law. 10. The next issue that came up for our consideration from Ground No.6 of the assessee's appeal is denial of tax credit u/s.90 of the Act, amounting to Rs.5,97,27,171/- towards Income Tax paid in Singapore. During the course of assessment proceedings, the AO noticed that the assessee has claimed credit for an amount of Rs.5,97,27,171/- being withholding tax deducted by the Singapore Tax Authorities on interest income earned by the assessee from M/s.Aban Holdings Pvt. Ltd., Singapore, on the ground that the assessee could not furnish the return of income filed before the Singapore Tax Authorities and also if the interest payable and interest received in relation to loan, is taken into account, there is no real income offered in India. The AO discussed the issue in light of Article-11 of DTAA between India and Singapore and according to the AO, the benefit of credit of taxes paid to contracting state shall be available in the other contracting state, if such income in suffered tax in other contracting state. 10.1 The Ld.AR for the assessee submitted that the AO erred in not appreciating the fact that as per the provisions of Sec.90 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order is extracted as under: "21. After hearing both the parties, we are of the opinion that the similar issue was considered by the Tribunal in assessee's own case in ITA Nos.585/Mds/2015 & 267/Mds/2016 for the assessment years 2010-11 and 2011-12 dated 14.9.2016 wherein Tribunal held that:- "23. We have heard both the parties and perused the material on record. This issue came for consideration in assessee's own case in I.T.A.No.1159/Mds/2012 challenging the action of the CIT(A) in restricting the assessee's claim of relief u/s 90 of the Act of Rs. 224,67,411/- to the extent of tax payable in India on net income of Rs. 516,93,732/- i.e difference between interest earned from M/s AHPL and interest paid on borrowings made for advancing the loans to M/s AHPL. The Tribunal while adjudicating the grounds, placed reliance on the order of the Tribunal in the case of Bank of Baroda vs CIT in I.T.A.No.2927/Mds/2011 dated 25.7.2014 wherein the Tribunal has given a direction that the income of the branches of the assessee shall also taxable in India i.e it would be included in the return of income filed by the assessee in India and whatever taxes have been paid by the branches in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter and consistent with view taken by the coordinate Bench in the assessee's own case, we restore the issue to the file of the AO and direct the AO to decide the issue in accordance with the directions given by the Tribunal for the AY 2015-16 while deciding the issue for the impugned assessment year. 11. The next issue that came up for our consideration from Ground No.7 of the assessee's appeal is disallowance of loss of forward contracts amounting to Rs.2,47,21,356/-. The AO disallowed loss on forward contracts 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 thus, the same cannot be allowed as deduction u/s.37(1) of the Act. It was the explanation of the assessee before the AO that the assessee had entered into forward contracts to hedge the possible loss on account of fluctuation in foreign currency in the course of import of various equipments and thus, Forex loss on forward contracts needs to be allowed as Revenue expenditure. 11.1 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The AO has disallowed Forex loss claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second objection raised by the AO, non furnishing of details i.e, risk analysis statement submitted to the banks, we are setting aside the order passed by the Assessing Officer and we direct the Assessing Officer to consider the details and pass the order thereupon, keeping in view the decision of the Hon'ble ITAT of Bangalore Bench in the case of M/s. Essilor India Private Limited Vs. The Deputy Commissioner of Income Tax (supra). Thus the ground of appeal filed by the Assessee is allowed for statistical purposes. 11.2 The facts being identical for the impugned AY, we are of the considered view that the issue needs to be set aside to the file of the AO and thus, we set aside the issue to the file of the AO and direct the AO to re-consider the issue in light of the findings of the Tribunal for earlier assessment years while deciding the issue for the impugned assessment year. 12. The next issue that came up for our consideration from Ground No.8 of the assessee's appeal is disallowance u/s.14A r.w.r.8D of Income Tax Rules, 1962. The assessee has earned dividend from mutual funds amounting to Rs.6,37,992/- and claimed the same as exempt income u/s.10(34) of the Act. However, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit computed u/s.115JB of the Act, we find that the ITAT Special Bench in the case of M/s.Vireet Investments Pvt. Ltd. v. JCIT reported in 82 taxmann.com 45 held that computation under Clause (f) of Explanation-1 to Sec.115JB(2) of the Act, is to be made without resorting the computation as contemplated u/s.14A r.w.r.8D of Income Tax Rules, 1962, which means, disallowance made u/s.14A r.w.r.8D of Income Tax Rules, 1962, cannot be added to book profit computed u/s.115JB of the Act. Hence, we direct the AO to delete the additions made towards disallowance u/s.14A r.w.r.8D of Income Tax Rules, 1962, to book profit computed u/s.115JB of the Act. 13. The next issue that came up for our consideration from Ground No.9 of the assessee's appeal is addition towards interest receipts amounting to Rs.8,52,000/- on the basis of Form 26AS. The 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. It was the explanation of the assessee before the AO that the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice tax credit availed is not a penalty, but interest levied as per Sec.75 of the Finance Act, 1994 and thus, the same is allowable deduction. 14.1 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The assessee claims that expenses reported by the Tax Auditor in Clause 21(a) of Form 3CD pertains to interest paid on delayed reversal of service tax credit, whereas, the AO noted that the assessee has paid penalty for delayed reversal of service tax credit. Facts need to be verified by the AO. Hence, we set aside the issue to the file of the AO and direct the AO to re-examine the issue in light of claim of the assessee in accordance with law. 15. The next issue that came up for our consideration from Ground No.11 of the assessee's appeal is disallowance of MAT credit amounting to Rs.53,38,21,021/- for the AYs 2014-15 & 2015-16. The assessee was asked to submit the details working of the MAT credit available as per Income Tax calculation. The AO has rejected credit for MAT on the ground that the tax payable by the assessee for the AY 2014-15 as per the normal provisions of the Act is higher than tax payable u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DDT") amounting to Rs.15,91,12,275/-. The 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. It was the explanation of the assessee that the assessee has paid DDT on 06.10.2015 and the same has been reported in Form 26AS for the AY 2015-16. 16.1 We have heard both the parties, 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. If assessee has already paid DDT, then the AO is directed to delete the addition towards DDT. 17. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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