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TMI Blog2023 (12) TMI 1299X X X X Extracts X X X X X X X X Extracts X X X X ..... declaring total income at Rs.130,94,30,870/-. The assessee's case was selected for scrutiny and notice u/s. 143(2) and 142(1) of the Act were duly issued and served upon the assessee. The source of income declared by the assessee is out of profit and gains of business and profession and income from capital gains. 4. During the assessment proceeding, the ld. Assessing Officer ('A.O.' for short) observed that the assessee has entered into the international transaction with its associated enterprises (AE for short) as per Form No. 3CEB. The ld. A.O. made a reference to the ld. Transfer Pricing Officer ('TPO' for short) vide letter dated 17.03.2015 u/s. 92CA(1) of the Act for determining the arm's length price ('ALP' for short) of the international transaction entered into by the assessee with its AE. The ld. TPO vide order dated 28.01.2016 passed u/s. 92CA(3) of the Act proposed the following TP adjustment, mentioned as below: Sr. No. Nature of TP adjustment Amount (Rs.) 1 Corporate guarantee fee 77,19,074 5. The ld. A.O. then passed the assessment order dated 29.03.2016 u/s. 143(3) r.w.s. 144C(3) of the Act by determining the total income at Rs.13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in repaying the said loan to the bank making the assessee liable for the said default. The assessee further contended that the same would not be "provision of service" and it was only to increase the value of the assessee's investment in its subsidiaries and had not earned any income out of the said transaction. The assessee further to this stated that without prejudice, to consider the standard chartered bank as a comparable which had offered 0.7% for similar guarantee. 10. The ld. A.O./TPO held that the transaction of giving corporate guarantee on behalf of its AE comes under the purview of international transaction u/s. 92B read with Explanation (1)(c) which is inserted with retrospective effect from 01.04.2002 by Finance Act, 2012. The ld. A.O./TPO further held that the said transaction would have a greater impact on the income and the assets of the assessee in case where the AE defaults the payments to the banks. The ld. A.O/TPO relied on the decision of the co-ordinate bench in the case of Everest Kanto Cylinders Ltd.(in ITA No. 542/Mum/2012 vide order dated 23.11.2012) and Nimbus Communication Ltd. (in ITA No. 3664 & 2359/Mum/2010) and bench marked the transaction of corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tmental Representative ('ld.DR' for short), on the other hand, controverted the said fact and relied on the various decisions which has held the transaction of corporate guarantee on behalf of the AE to be an international transaction. The ld. DR further stated that the ld. CIT(A) has erred in determining the ALP @ 0.70% without taking into consideration the credibility of AEs and the risks involved in the said transaction when the AE defaults the repayment of the loan for which the assessee has given corporate guarantee to the banks. The ld. DR relied on the order of the ld. A.O./TPO. 15. We have heard the rival submissions and perused the materials available on record. It is evident that the issue of corporate guarantee commission by the assessee to its AEs was dealt with by the Tribunal in A.Y. 2008-09 in ITA No. 2750/Mum/2014 where the Tribunal has restricted the corporate guarantee commission @ 0.5% by relying on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Everest Kento Cylinders [2015] 378 ITR 57 (Bom). It is also pertinent to point out that the issue of the impugned transaction whether an international transaction falling within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 92CA of the Act which makes it compulsory to benchmark the international transactions every year. Exception may be if no significant difference between FAR or economic circumstances exists. We, therefore, remand this issue back to the ld. A.O. on the above observation. Hence, ground nos. I & II of the assessee's appeal are allowed for statistical purpose. 17. Ground no. III pertains to the disallowance u/s. 14A read with Rule 8D of the Rules amounting to Rs.53,72,465/-. The facts of this ground is that the assessee had earned exempt income as dividend amounting to Rs.2,48,02,871/- as share of profit from partnership firm and had made a suo moto disallowance of Rs.13,10,845/- u/s. 14A read with Rule 8D of the Rules. The ld. A.O. observed that the assessee has computed the disallowance without considering the investment in the group concerns on the pretext that the same are strategic investments where the assessee has invested in the capital of the firms in which the share of profit received by the assessee has been claimed as exempt u/s. 10(2A) of the Act. The ld. A.O. by relying on the decision of Special Bench of the Tribunal in the case of Cheminvest Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Nimbus Communication Ltd. (supra) and the Kolkata Tribunal decision in the case of Coal India Ltd. (supra) wherein it was held that even in case of investment made in the subsidiary companies disallowance u/s. 14A is attracted. The contention of the assessee that these are strategic investment made in sister concerns for which it should not be included in computing the average value of the investments for the purpose of Rules 8D(2)(iii) of the Rules, does not hold merit as per the proposition laid down by the Hon'ble Apex Court in the case of Maxopp Investment Ltd. vs. CIT (in Civil Appeal Nos. 104-109 of 2015 vide order dated 12.02.2018). It is also pertinent to point out that as per the decision of the Special Bench of Ahmedabad Tribunal in the case of Shri Vishnu Anant Mahajan vs. ACIT (in ITA No. 3002/Ahd/2009) which held that the investments made in the partnership firms are also to be considered for computing the disallowance under Rule 8D of the Rules. We are not in agreement with the view of the Revenue in relying on the decision of ITAT in the case of Cheminvest Ltd. (supra) as the same has been reversed by the Hon'ble Delhi High Court. 23. On the above observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ratings? 27. During the appellate proceeding, the ld. AR for the assessee stated that this appeal would be covered under the low tax effect as per the CBDT Circular No. 17 of 2019 dated 08.08.2019. 28. The ld. DR had nothing to controvert the same. 29. We have heard the rival submissions and perused the materials available on record. As this appeal filed by the Revenue would be covered under the low tax effect vide CBDT Circular No. 17 of 2019 dated 08.08.2019, we deem it fit to dismiss the said appeal with the liberty given to the Revenue to restore the appeal if in case the same would fall under the Exception to the said Circular. 30. In the result, this appeal filed by the Revenue is dismissed. ITA No. 2384/Mum/2018 (A.Y. 2013-14) 31. This appeal has been filed by the assessee challenging the order of the ld. CIT(A) on various grounds. 32. Ground nos. I & II are on corporate guarantee commission and is identical to ground nos. I & II of ITA No. 2383/Mum/2018 and the observation given in the said appeal applies mutatis mutandis to this ground of appeal also. 33. Ground no. III pertains to the disallowance made u/s. 14A which on identical facts has been decided in grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. vs. CIT 141 CTR 387 (SC), which has held that interest out of the short term investment of funds borrowed for setting up of factory has to be assessed as income from other sources until the commencement of the business. The ld. A.O. added the interest income u/s. 56 of the Act and the corresponding adjustment is made as work-in-progress under fixed assets. 35. The assessee was in appeal before the first appellate authority challenging the impugned addition made by the ld. A.O. and the ld. CIT(A) by relying on the decision of the co-ordinate bench of the Tribunal in the case of M/s. Z Square Shopping Mall Pvt. Vs. DIT [2016] 65 Taxmann.com 139 (LKW Tribunal) and various other decisions upheld the addition made by the ld. A.O. on the interest income u/s. 56 of the Act. 36. The assessee is in appeal before us, challenging the order of the ld. CIT(A). 37. The learned Authorised Representative ('ld. AR' for short) for the assessee contended that the assessee had availed ECB for setting up for new plant as SEZ unit at Pitampur, Madhya Pradesh which has not commenced its operation during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty (P) Ltd. [2023] 148 taxmann.com 196 (Del) along with other decisions. The moot question here would be whether the interest earned out of the surplus borrowed fund in the fixed deposit would be a capital receipt or revenue receipt. The Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (supra) has dealt with the Hon'ble Apex Court decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. (supra) and has also relied on the decision of the Hon'ble Apex Court in the case of CIT vs. Bokaro Steels Ltd. [1999] 236 ITR 315 (SC) where if the assessee was able to prove that the funds are inextricably linked to the set up of the plant then the same would be capitalized as preoperative expenses. The assessee draws support from the said decision which has held that the interest income out of the temporary funds has to be capitalized and not to be taxed under the head 'income from other sources'. In the present case in hand, we do not find any observation by the lower authorities as to how the borrowed fund and the surplus amount parked in the fixed deposits are not 'inextricably linked' to the setting up of the new unit by the assessee. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee from the date of setting of the business but prior to commencement is chargeable to tax depending on whether it is of a revenue nature or capital receipt. The income of a newly set up business, post the date of its setting up can be taxed if it is of a revenue nature under any of the heads provided under Section 14 in Chapter IV of the Act. For an income to be classified as income under the head "profit and gains of business or profession" it would have to be an activity which is in some manner or form connected with business. The word "business" is of wide import which would also include all such activities which coalesce into setting up of the business. See Mazagaon Dock Ltd vs CIT & Excess Profits Tax; (1958) 34 ITR 368 (SC), and Narain Swadeshi Weaving Mills vs Commissioner of Excess Profits Tax; (1954) 26 ITR 765 (SC). Once it is held that the assessee's income is an income connected with business, which would be so in the present case, in view of the finding of fact by the CIT(A) that the monies which were inducted into the joint venture company by the joint venture partners were primarily infused to purchase land and to develop infrastructure - then it cannot be held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allapalli Sugars Ltd vs CIT (1975) 98 ITR 167. The Supreme Court went on to observe at page 175 as follows: "We have already referred to section 208 of the Companies Act which makes provision for payment of interest on share capital in certain contingencies. Clause (b) of subsection (1) of that section provides that in case interest is paid on share capital issued for the purpose of raising money to defray the expenses of constructing any work or building or the provision of any plant in contingencies mentioned in that section, the sum so paid by way of interest may be charged to capital as part of the cost of construction of the work or building or the provision of the plant. The above provision thus gives statutory recognition to the principle of capitalizing the interest in case the interest is paid on money raised to defray expenses of the construction of any work or building or the provision of any plant in contingencies mentioned in that section even though such money constitutes share capital. The same principle, in our opinion, should hold good if interest is paid on money not raised by way of share capital but taken on loan for the purpose of defraying the expenses of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ospectively and challenging the adjustment made towards corporate guarantee commission by the ld. CIT(A) restricting the same to 0.7% as against the adjustment made by the ld. A.O./TPO @ 2.58%. 44. The ground no. 1 is on the claim of additional deposit u/s. 32(1)(ii) of the act. It is observed that the assessee has claimed balance additional deposits of Rs.1,26,46,017/- on the new plant and machinery put to use for less than 180 days during the previous year, i.e., A.Y. 2012-13 by relying on the decision of the co-ordinate bench in the case of DCIT vs. Cosmo Films Ltd. (24 Taxman 189). The assessee has also relied on the decision of the Hon'ble Karnataka High Court in the case of M/s. Rittal India Pvt. Ltd. vs. ACIT (2016-TIOL-180-HC-KAR-IT). 45. The ld. A.O. held that the additional deposits is admissible only in case of new machinery or plant (other than ships and aircrafts) which is acquired and installed after 31.03.2005 and the assessee should have been engaged in the business of manufacturing or production of any article or not. The assessee in the present case is engaged in the manufacturing of empty hard gelatin capsules of various sizes and had claimed 50% of the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court that said newly added third proviso to clause (ii) of subsection 1 of Section 32 of the Act being clarificatory in nature would apply to case covering past period also. Paragraph 5 to 10 of Godrej (supra) reads as under: "5 Having heard Counsel for the Revenue and for the Assessee, we notice that the Assessee's claim of additional depreciation arises out of clause (iia) of subsection 1 of Section 32 of the Act. Clause (ii) of sub-section 1 of Section 32 of the Act recognizes the depreciation on block of assets. Clause (iia) grants additional depreciation in case of acquisition and installation of new machinery or plant by an Assessee after 31st March, 2005, the Assessee being engaged in business of manufacture or production of an article or things. 6 We may also notice that the second proviso to clause (ii) of sub-section 1 of Section 32 of the Act, would restrict Assessee's claim of depreciation to 50% in case, the assets are acquired by the Assessee during the previous year and put to use for the purposes of business or profession for a period less than 180 days in the said previous year. 7 In the context of such statutory provisions, the Revenue has raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as the apex court, that the beneficial legislation, as in the present case, should be given liberal interpretation so as to benefit the assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one assessment year, if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent assessment year. The Tribunal, in our view, has rightly held, that additional depreciation allowed under Section 32(1) (iia) of the Act is a one-time benefit to encourage industrialization, and the provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting the additional allowance. We are in full agreement with such observations made by the Tribunal. In view of the aforesaid, we do not find that any interference is called for with the order of the Tribunal, or that any question of law arises in this appeal for determination by this court." After the said judgment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned amendment was brought about. 11.1: The relevant part of the memorandum is extracted hereafter: ".... To remove the discrimination in the matter of allowing additional depreciation on plant or machinery used for less than 180 days and used for 180 days or more, it is proposed to provide that the balance 50 per cent of the additional depreciation on new plant or machinery acquired and used for less than 180 days which has not been allowed in the year of acquisition and installation of such plant or machinery, shall be allowed in the immediately succeeding previous year. This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years." 11.2:- A perusal of the extract of the memorandum relied upon would show that the legislature recognized the fact that the manner in which the Revenue chose to interpret the provision, as it stood prior to its amendment would lead to discrimination, in respect of plant and machinery, which was used for less than 180 days, as against that, which was used for 180 days or more itxa-511- 2016 11.3:- In our opinion, as indicated above, the amend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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