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2019 (5) TMI 732 - AT - Income TaxDeduction u/s 80IAB - netting of interest - interest income is eligible for deduction under section 80IAB - HELD THAT:- The coordinate bench has held that the entire interest income is eligible for deduction under section 80IAB, and, for this short reason, the grievance against netting of interest is wholly academic and infructuous. The stand of the CIT(A) thus attained finality. In the case of CIT Vs Nirma Limited [2014 (10) TMI 388 - GUJARAT HIGH COURT] has held that netting of interest for the purpose of this deduction can be allowed. Whichever way one looks at it, the issue is covered, in favour of the assessee, by the binding judicial precedents. We, therefore, have no reasons to disturb the conclusions arrived at by the learned CIT(A). We uphold the relief granted by the CIT(A) and decline to interfere in the matter. Deduction u/s 80G - eligible donations in proportion of the turnover and to that extent the deduction u/s 80IB - HELD THAT:- It is only in computation of total income that the deduction u/s 80G is to be allowed, and, as learned CIT(A) rightly observes, it is not an expense which is to be allocated to different heads or sources of income. A donation is in the nature of allocation of income and the tax deduction for eligible deduction is a tax policy driven deduction for encouraging such public spirited application of income. The stand of the assessee was indeed correct and the CIT(A) was perfectly justified in upholding the same. We approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. Re-compute the deduction u/s 80IAB - increasing the amount of deduction by the amount of disallowance u/s 14A - HELD THAT:- When the profit goes up as a result of disallowances of expenses, the eligibility for deduction in respect of such profit correspondingly increases. Circular does not specifically deal with section 14A disallowance, as the circular itself states in so many words the cases cited above are only illustrative and the principle is that “the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits”. We uphold the conclusions arrived at by the CIT(A) on this point as well, and decline to interfere in the matter. TP adjustment regarding guarantee fees - Re-compute the adjustment by adopting the rate of guarantee fee at 2% against the rate of 3% adopted by the TPO - HELD THAT:- In the case of Micro Ink [2015 (12) TMI 143 - ITAT AHMEDABAD] we hold that issuance of guarantees, without incurring any specific costs, does not constitute an international transaction, and, accordingly, no arm’s length price adjustment can be made in respect of issuance of corporate guarantees. Once we hold so, the ALP adjustment sustained by the CIT(A) must stand deleted. Grievance of the Assessing Officer against the partial relief granted by the CIT(A), in view of the findings above, becomes infructuous and is dismissed as such. Disallowance u/s 14A - HELD THAT:- In the light of Hon’ble jurisdictional High Court’s judgment in the case of CIT Vs Corrtech Energy Pvt Ltd [2014 (3) TMI 856 - GUJARAT HIGH COURT] the disallowance u/s 14A cannot exceed the amount of tax exempt income. In the present year, admittedly the dividend income is only ₹ 1,77,47,783. . The disallowance u/s 14A cannot, therefore, exceed the said amount. To this extent, we uphold the grievance of the assessee and restrict the disallowance u/s 14A. TP upward adjustment - non-charging of interest on the loan provided to Associate Enterprise for purchase of Aircraft - ALP adjustment by adopting 7.14% as arm’s length interest for borrowings by the AE - HELD THAT:- When the AE itself has borrowed the monies from the SBI at LIBOR plus 145 bps the arm’s length price of the borrowings cannot indeed be taken as more than LIBOR plus 145 bps. The additional risk adjustment for credit rating of the subsidiary is clearly unwarranted. The correct ALP interest rate, in the present case, thus works out to 2.69% plus 1.45%, i.e. 4.14%. We, accordingly, direct the Assessing Officer to restrict the ALP adjustment to 4.14%.
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