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2022 (8) TMI 86 - ITAT KOLKATADeduction u/s 80IB - profits derived from its industrial undertakings located at Jammu - Apportionment of common head office and selling expenses for the purpose of computation of profit of units eligible for deduction u/s. 80IB - HELD THAT:- As there is no change in the fact pattern and applicable law in respect of the claim of deduction made by the assessee u/s 80IB in the years under consideration before us vis-à-vis the years for which appellate orders of Co-ordinate of ITAT Kolkata [2017 (4) TMI 106 - ITAT KOLKATA] or that of Hon’ble jurisdictional High Court of Calcutta in assessee’s own case [2011 (5) TMI 1133 - CALCUTTA HIGH COURT] have been referred and relied upon. The methodology adopted by the assessee for apportionment of common head office expenses and selling expenses has consistently been followed year-on-year basis which has been held to be reasonable and scientific. It is thus noted that the issue in hand before us is no longer res integra considering the decisions in assessee’s own case. Disallowance made u/s 14A read with rule 8D - HELD THAT:- We delete the disallowance made by the ld. AO and upheld the findings given by the ld. CIT(A). While holding so on the given set of facts, we also find force from the decision in the case of South Indian Bank Ltd [2021 (9) TMI 566 - SUPREME COURT] wherein it was held that where interest free own funds available with assessee-banks exceeded their investments in taxfree securities; investments would be presumed to be made out of assessee's own funds and proportionate disallowance was not warranted under section 14A on ground that separate accounts were not maintained by assessee for investments and other expenditure incurred for earning tax-free income. Accordingly, ground no. 2 is dismissed. Deduction u/s 80IB - Whether income from sale of scrap generated in the manufacturing process employed in the eligible unit can be taken into consideration for deduction u/s 80IB? - HELD THAT:- As decided in own case [2017 (4) TMI 106 - ITAT KOLKATA] held that scrap generated in the manufacturing activity is eligible for deduction and respectfully following the same, we hold that the Assessee is entitled to claim deduction under the provisions of the section 80IB. TP Adjustment - Addition on account of corporate guarantee - International transaction - HELD THAT:- As the transaction cannot be covered in the definition of international transaction to hold it chargeable for corporate guarantee commission / fees for which he explained the objective behind the transaction undertaken by the assessee with its Cyprus and Nepal AEs. According to him, when the assessee embarked on the acquisition of the Polish company, it had committed itself to providing the entire fund by way of equity. The provision of funds by way of equity by the assessee to the Cyprus Subsidiary to fully fund the acquisition was on the cards from day one. Borrowing from banks was an interim measure till funds by way of equity became available. The assessee having already committed to fund the acquisition on capital account before it furnished the corporate guarantee, it cannot be said that the transaction of furnishing of corporate guarantee had any bearing on the profits, income, losses or assets of the assessee. Subsequent issue of equity shares by the Cyprus Subsidiary to the assessee would add to the assessee's assets by way of investment but such issue of equity is not the transaction under consideration rather it is the issue of provision of corporate guarantee which is under consideration. Issue relating to whether corporate guarantee is an international transaction or not is no longer res integra. Reliance placed by ld. CIT(A) on the decision of Tega Industries Ltd [2016 (9) TMI 1456 - ITAT KOLKATA] to hold that it is not an international transaction, has been held to be per incuriam by the Co-ordinate bench of ITAT Kolkata in the case National Engineering Industries Ltd [2018 (9) TMI 1545 - ITAT KOLKATA] We are inclined to follow the recent judgment of PCIT v. Redington (India) Ltd [2020 (12) TMI 516 - MADRAS HIGH COURT] which has held that corporate guarantees are covered by the definition of international transaction after the retrospective amendment made by the Finance Act, 2012. Charge of guarantee commission / fees in the range of 0.2% and 0.5% - We hold that guarantee fees / commission @ 0.35% will meet the arm’s length criteria in the present case for which assessee has furnished the details relating to interest charged by the lenders of Cyprus and Nepal subsidiaries - Further, on the submission made that the guarantee charge should be apportioned based on number of days for which the guarantee was effective and not to be charged for the full year as done by the ld. AO, we are inclined to direct the ld. AO to give effect to this submission while computing the charge of guarantee fees for both the subsidiaries (AEs) by taking recourse to the details produced in the chart placed at page 100 of the order of ld. CIT(A). This ground no. 4 is partly allowed.
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