TMI Blog2016 (1) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... es assessee’s AE’s request to RBI dated 15-01-2007 seeking approval of the MPSEZ’s shares pledging. The same stood declined on 21-02-2007 at page 229 of the paper book. There is no evidence to the contrary forthcoming from the case record. We conclude in these facts and circumstances that the CIT(A) has rightly held the assessee not to have furnished the impugned corporate guarantee in favour of its AE so as to be taken as an international transaction u/s. 92C of the Act. - Decided against revenue Section 14A disallowance restricted by CIT(A) - Held that:- There is no dispute that interest and administrative expenditure hereinabove form two components of the impugned disallowance. The assessee’s case claims availability of sufficient non-interest bearing funds much more than its tax free investment throughout. Its further case denies to have incurred any administrative expenditure as well. Its categorical case made out in lower proceedings is that its non-interest bearing funds in the nature of general reserves, debt redemption reserves and share premium amounts read ₹ 396.61 crores, ₹ 70 crores and ₹ 181.30 crores respectively. Its tax free investments are of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue receipt. It clarified in the lower appellate proceedings that neither it had passed the abovestated account through P & L account nor raised a deduction claim out of its taxable income. It further filed elaborate detailed involving custom procedure thereby praying for deleting the impugned disallowances. We deem it appropriate to refer to the above extracted lower appellate findings dealing with the leave encashment issue only and without even adverting to assessee’s detailed submission narrated hereinabove. The CIT(A) has simply brushed aside the same with sweeping observations qua applicability of section 43B. We are of the view in these peculiar facts and circumstances that larger interest of justice would be met in case this limited issue of VAT, entry tax and customs duty vis-à-vis application of 43B is restored back to the assessing authority for a fresh adjudication.- Decided in favour of assessee for statistical purposes. Disallowance of exemption claim u/s. 10AA - Held that:- The assessee’s only argument is that the impugned disallowance has to be confined to allocation of expenditure and not its profits derived from the eligible undertaking. It states to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had already been decided in its favour in earlier assessment years. This was followed an alternative plea of netting of prior period income against the impugned expenditure. The Assessing Officer rejected all this explanation by quoting lack of proof of crystallization of the impugned expenditure. He observed that no supportive bills, vouchers, and reasoning for lack of provision thereof had been submitted. He concluded in the end that the netting plea could not be accepted since prior period income hereinabove had not been assessed in corresponding assessment year. All this culminated in the impugned disallowance which in turn stands affirmed in lower appellate proceedings. 3. The assessee raises multi-folded arguments in the course of hearing. It invites our attention to the fact that its prior period income already stand assessed. Relevant bills and vouchers of the impugned prior period expenditure are stated to have been received only in the relevant previous year after being crystalized. It is stated to have been following consistent accounting practice as in preceding assessment years. The assessee accordingly argues that both the lower authorities have erred in disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment i.e. prior period expenditure. We come to Revenue s case law now. The first one is (2013) 33 taxmann.com 92 (Bang) Bearing Point Business Solutions vs. DCIT and (2013) 35 taxmann.com (Hyd) now Bharat Ventures Ltd vs. CIT deciding the issue in Revenue s favour. We find that these tribunal s decisions do not confirm to different views of various hon ble high courts hereinabove. Next case law (2013) 42 taxmann.com 142 (Guj) CIT vs. Gujarat Mineral Development Corporation is an admission order after framing substantial question of law wherein the main case is still pending for final disposal. We observe that this latter order does not settle a ratio. We take into account above stated discussions, relevant facts and case law to conclude that both the lower authorities have wrongly disallowed assessee s claim or prior period expenditure. The same stands deleted. This first substantive ground is treated as allowed. 6. The next two substantive grounds raised in assessee s appeals challenge interest levies u/s. 234B-D of ₹ 13,31,538/-, ₹ 21,96,126/- and ₹ 3,24,127/- respectively. Its further grievance is that once its impugned prior period expenditure is disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) (SC) and after considering the decision of SC the High Court has held that when the assessee has filed form No. 1OCCB during the assessment proceedings, the claim is admissible and CIT(A) has rightly allowed the claim of the assessee and we find that there is no requirement of filing any revised return. 37. In the instant case, on hand, the assessee has filed all the required documents before AO. We find that in support of the claim, audit report in form No. 10CCAC was also submitted and that claim was also forwarded to the AO. Therefore, we are of the view that CIT(A) is justified in allowing the claim. As about the deduction u/s. 80-IB, the condition required for being eligible to the deduction are similar to that of the conditions applicable for section 10B. Moreover, there is specific bar in granting two benefits. The audit report in form No. 1OCCB was furnished in support of the claim. The provision of section 10B(6) applied to post holiday period applicable for section 10B. Therefore, when the assessee is eligible for deduction under section 80-IB. However, first part of production of assessee held not to be from manufacturing activities, the profit derived from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellate authority cannot modify the assessment order on an addition ground even if not raised before the Income-tax Officer. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise an Appellate Authority while hearing appeal against the order of a subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations if any prescribed by the statutory provisions. In the absence of any statutory provision the Appellate Authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. 32. In case of National Thermal Power Co. Ltd. v. CIT[1998] 229 ITR 383 (SC) when the question of law was raised for the first time before the Tribunal though facts were already on record, the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT v. Sam Global Securities Ltd. [2014] 360 ITR 682/[2013] 38 taxmann.com 129 observed that the Courts have taken a pragmatic view and not a technical one as to what is required to be determined in taxable income. In that sense assessment proceedings are not adversarial in nature. With these observations Court confirmed the view of the Tribunal reversing the decision of the assessing officer rejecting the claim of the assessee on the ground that no revised return was filed. 37. In case of Commissioner of Income Tax v. Cellulose Products of India Ltd. [1985] 151 ITR 499 (Gui.). Full Bench of this Court held that merely because a ground has not been raised though it could have been raised in support of the relief sought in the appeal, it cannot be said that such ground cannot be raised before the Tribunal. Such ground can be raised provided it falls within the contours of the subject matter, of the appeal. 38. It thus becomes clear that the decision of the Supreme Court in the case of Goetze (India) Ltd. (supra} is confined to the powers of the assessing officer and accepting a claim without revised return. This is what Supreme Court observed in the said judgment whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is only the Bombay High Court in the case of CIT v. Pruthvi Brokers Shareholders (P.) Ltd. (supra), which has travelled a little beyond this preposition and come to the conclusion that even if facts necessary to examine such a claim are not placed before the assessing officer and, therefore, not on record, there would be no impediment in the Commissioner (Appeals) entertaining such a claim. Such an issue does not arise in these appeals. We would, therefore, reserve our opinion on this limited aspect of the matter if and when in future the question presents before us in such form. For the present, we answer Questions (3) and (4) against the Revenue and in favour of the assessees in manner described above. 9. We draw support from above extracted reasoning to hold that the CIT(A) ought to have entertained assessee s additional ground thereby ignoring technical aspect of the matter. We find that merits of the issue have nowhere been discussed in lower appellate findings under challenge. This makes us to admit this additional ground with directions to Assessing Officer for its appropriate adjudication as per law after affording adequate opportunities of hearing. This ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and AE agreed on the given terms (annexed Enclosure 1 to this letter) the same could not have been done without the permission and approval of RB.I. In order to do so AE wrote a letter (annexed herewith as Enclosure-2) to R.B.I. for obtaining permission for the same. But in response to the said letter RB.I. after doing detailed analysis did not approve the pledge of Shares by the assessee company. The copy of the same letter has been attached as Enclosure-3 to this letter. So the assessee company did not pledge any shares following the orders of RB.I. and accordingly no services were provided to AE. So no question of guarantee commission arises, there is no need to submit the copy of the agreement as no agreement for the same has been entered into. Accordingly the assessee company is of the opinion that the details demanded by your honour cannot be submitted as the said case is not covered within the provisions of transfer pricing, I have gone through assessee's submission and discussion in this regard during transfer pricing proceedings. It is seen that M/s. ICICI Bank Singapore Branch has sanctioned vide their letter dated 28.12.2006 above term loan which includes exte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise M/s. Adani Global PTE Limited, Singapore, raised term loan of Singapore Dollars 239.882 million (converting to ₹ 731.92 crores) from ICICI Bank Limited, for which the appellant company provided guarantee by way of pledging 23.5% shareholding of Mundra Port SEZ Limited. 1.2. The Transfer Pricing Officer mentioned that for providing the aforesaid guarantee, no guarantee fee was charged by the Appellant Company, and therefore, the Transfer Pricing Officer issued a Show Cause Notice calling upon the Appellant Company to explain as to why the Arm's Length Value of the guarantee fees be not computed as per CUP method. 1.3. In response to the show cause notice, the appellant company vide its letter dated 16.10.2010 submitted that the appellant company intended to provide guarantee by pledging the shares. However, since the permission was not granted by the RBI, the transaction was not taken place. Accordingly, the service was not provided to the AE of the appellant company. Hence, the question for guarantee commission also does not arise. 1.3.1. However, the Ld. TPO held that the appellant company has provided the guarantee by pledging the shares to its A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder passed by the Ld. TPO is based on non-existent and incorrect facts. The Transfer Pricing Officer has referred to the letter dated 28th December, 2006 of ICICI Bank Limited, Singapore the copy of same is enclosed herewith as Annexure - A - 8. From this letter it is clear that the loan was sanctioned to Adani Global PTE Limited on the basis of certain securities which included extension of pledge of 23.5% shareholding (212.5 million shares) of Mundra Port SEZ Limited. In this regards, we submit that the transaction was to be done by pledging the shares of MPSEZ to IDBI Trusteeship Services Ltd. and not ICICI Bank Ltd. 1.6. In so far as the Appellant company is concerned, no shares held by it were offered by way of pledge against raising loan by the associate enterprise. In these circumstances, it may kindly be appreciated that no services whatsoever were rendered by the Appellant Company by way of furnishing guarantee and the upward adjustment made by the Transfer Pricing Officer is on assumptions without any basis whatsoever. 1.7. Based on above facts, we state that the Ld. TPO has grossly erred in understanding the facts that since no guarantee has been given, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clear that appellant did not provide guarantee services by pledging shares of MPSEZ for which any adjustment of guarantee commission can be made. The addition made by the assessing officer is therefore not sustainable on facts. Apart from this, appellant also relied upon the decision of ITAT Hyderabad in which it is held that for providing corporate guarantee in obtaining loans by AE, no adjustment can be made. ITAT in the case of Four Soft Ltd. vs DCIT, Circle-1(3), Hyderabad (ITA No. 1495/Hyd/10) dated 09-09-2011 held as under: 21. We have considered the rival submissions and perused the materials available on record. We find that the JP legislation provides for computation of income from international transaction as per Section 928 of the Act. The corporate guarantee provided by the assessee company does not fall within the definition of international transaction. The TP legislation does not stipulate any guidelines in respect to guarantee transactions. In the absence of any charging provision, the lower authorities are not correct in bringing aforesaid transaction in the TP study. In our considered view, the corporate guarantee is very much incidental to the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure incurred. It denied to have put on use any borrowed funds in making the impugned tax free investments. And also that no administrative expenditure had been incurred on its part. The Assessing Officer appears to have entered into a much lengthier discussion for observing that though Rule 8D of the Income Tax Rules applied from assessment year 2008-09 only, the same would still provide a reasonable basis for computing the impugned disallowance. He proceeded accordingly to make proportionate interest disallowance of ₹ 4,54,30,654/- and arrived at administrative expenditure of ₹ 3,59,35,275/- totaling to ₹ 8,13,65,928/- u/s. 14A of the Act. The CIT(A) partly confirms the same by adopting the following reasoning:- 7.3 I have considered the facts of the case; assessment order and appellant's written submission. Appellant earned dividend income from shares and also share of profit from partnership firm which are exempt from tax. Assessing officer disallowed interest and part of administrative expenses under section 14A by holding those expenses relating to exempt income. Appellant submitted that it was maintaining separate books of accounts for treasury and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 14 A. The disallowance of interest under section 14 A can still be made if appellant paid interest which is not directly relating to earning taxable income and all expenses relating to investment are discernible. Since appellant was not able to demonstrate the working of disallowable expenses from separate books, this argument of the appellant is not accepted. The other argument of the appellant that it made investment resulting in exempt income out of owned fund and therefore as per recent decision of Gujarat High Court, no disallowance of interest can be made. Assessing officer found that common pool of funds were used in investments as well as business and therefore it cannot be said that investments were made only from own funds and not borrowed funds. Since appellant is not able to prove direct nexus between owned fund with investment in exempt assets, the decision of Gujarat High Court relied upon by the appellant is not directly applicable to the facts of its case. Coming to the last argument of the appellant that assessing officer while reducing the interest income from interest expenses, did not reduce RS 59.71 crores being interest received from subsidiarie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from partnership firm is not really exempt as held by Bombay tribunal in the decisions relied upon by the appellant and accordingly no disallowance of expenses relating to this income can be made. 2- The disallowance of administrative expenses till assessment year 2007-08 cannot be made as per Kerala High Court decision in the case of Catholic Syrian bank Ltd since rule 8D is applicable from assessment year 2008-09. 3-There were hardly any administrative expenses for earning dividend and other income therefore a nominal disallowance as last year should be made. The decision of Bombay ITAT with respect to share of profit from partnership firm is directly applicable against the assessing officer's action of disallowing 5% of profit from partnership firm. As per this decision, disallowance of administrative expenses computed by the AO is not sustainable. The decision of Kerala High Court that disallowance of administrative expenses should be made from assessment year 2008-09 is not followed in several decisions of ITAT. Apart from this, Bombay High Court decision in the case of Godrej and Boyce confirmed the disallowance of interest and administrative expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a specific finding regarding involvement of actual administrative expenditure has also to be given while making such a disallowance. The above extracted portion of the relevant finding makes it clear that the same neither takes into account assessee s non-interest bearing funds nor its plea of having incurred no administrative expenditure for making the impugned section 14A disallowance. The CIT(A) has indirectly been guided by rule 8D otherwise not applicable in the impugned assessment year. We hold in these facts and circumstances that the impugned section 14A r.w. Rule 8D disallowance in question is liable to be deleted in entirety. Ordered accordingly. This substantive ground raised in Revenue s appeal fails. The assessee s corresponding ground (supra) succeeds. 15. The Revenue s third substantive ground pleads that the CIT(A) has wrongly deleted depreciation disallowance of ₹ 8,97,576/- made by the Assessing |Officer. This claim relates to purchase of office premises of ₹ 3.75 crores including a sum of ₹ 2.32 crores of unquoted shares numbering 160 of A type category followed by along with 1280/- of B type ;each having fully paid up value of ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that the assessee has claimed deprecation in question on shares of the above stated assets. The Revenue fails in rebutting the crucial appellate finding that the same already forms part of the relevant bloc of assets since 1998 treated eligible for deprecation. We further find that a co-ordinate bench decision of the tribunal in Deepak Fertilizer case (supra) already allows identical depreciation claim on shares of the relevant assets. There is no distinction on facts or law pointed out in the courses of hearing. We affirm the CIT(A) s finding thereby declining with Revenue s instant substantive ground. Its appeal ITA 558/Ahd/2012 fails. 18. Now, we come to assessee s appeal ITA 486/Ahd/2012. Its first substantive ground challenges section 43B disallowance of ₹ 1,33,82,156/- comprising of leave encashment sum of ₹ 70,46,416/-, VAT payable (Karnataka) of ₹ 3,720/-, entry tax of ₹ 5470/- and Customs duty of ₹ 73,26,550/-; respectively incurred in the previous year and not paid on or before furnishing the return of income. The CIT(A) s findings under challenge discussed the issue as under:- 4. The third ground of appeal is against addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 43B(f) is on the Statute Book. Accordingly, since the assessee has not paid the amount of provision for leave encashment debited in its books of accounts during this year before the due date of filing the return of income (there is no dispute on these facts), the same are clearly disallowable u/s.43B(f) and are accordingly added. Penalty u/s.271(1)(c) is separately being initiated for furnishing inaccurate particulars of income. d) 6.6 As regards amount outstanding on account of VAT Payable (Karnataka) 3,720/-, Entry Tax of 5,470/- and Custom Duty of 63,26,550/-, the contention of the assessee is that these amounts have not been passed through the P L Account and therefore, they should not be considered for disallowance u/s.43B. If is a settled Law that entries in the books of account are not determinative of the nature of the transactions as has been held by the Hon'ble Supreme Court in the case of M/s. Kedarnath Jute Manufacturing Co. (SC) [82 ITR 363]. The observations of the Hon'ble Supreme Court are reproduced for ready reference: e) The main contention of the learned Solicitor- General is that the assessee failed to debit the liability in its books of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sates account. Thus, to this extent the credits in the P L Account are reflected less. i) The assessee has the ability to pay these amounts to the Government which if passed to the P L Account, would be debited to it. Hence, by not passing the entries to the P L Account the credits have been recorded less and similarly, the corresponding liability of payment representing the debit to the P L Account has also not been shown, which should be disallowable under the provisions of Section 43B. Thus, looked from any angle i.e. whether from the angle of short recording of credits in the P L Account or from the angle of amount unpaid liable to be disallowed u/s.43B which should have been debited to P L Account, the net impact would be to increase the profits of this year. Accordingly, these amounts are added and disallowed in the total income. Penalty u/s.271(1)(c) is separately being initiated for furnishing inaccurate particulars of income. 6.7 Thus, the total disallowance works out to ₹ 133,82,1561-u/s.43B as under: Particulars Amt.(ln Rs.) Leave Encashment 70,46,416 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the decision of Hon'ble Calcutta High Court is good in law till the ultimate outcome of the Department's civil appeal by the Supreme Court. Further, we state that the said cannot be applied as a universal principal for other cases. We also submit that till today the hon'ble Supreme Court has not passed its final order. The last hearing of the said case was called on 13.07.2011, wherein both appellant Respondent have filed their statement of cases. The copy of order of Hon'ble Supreme Court is enclosed on Page No. 72 of Paper Book, for your honour's reference. 1.4. Further, we submit that the appellant company was making provision of the said expenses in its books of accounts. At this juncture, it is pertinent to take through the procedure for making provision by the appellant company for your honour's reference: On import of materials, the Appellant Company files Info Bond of Entry based on provisional invoice received from the supplier. Based on the filing of provisional bill on entry, the Appellant Company clears the material from Custom Bonded Area by paying custom duty for the required material. Many a times it happens that by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Eimco Elecom (India) Ltd vs. Addl. CIT accepting the very argument. The Revenue places strongly reliance on the case of (2014) 45 taxmann.com 428 (Kerala) South Indian Bank Ltd vs. CIT in support of the impugned disallowance qua leave encashment provision. It is to be seen that hon ble Calcutta high court quashed section 43B(f) being ultra-vires. Hon ble apex court admitted Revenue s special leave petition against the same. The ld. co-ordinate bench (supra) deletes the impugned disallowance after quoting he above stated high court decision. The hon ble Kerala high court adopts a contrary view after taking into view hon ble apex court admission of the Revenue s SLP. We observe in these facts that the latter decision prevails over the co-ordinate bench view in these facts and circumstances. We accordingly reject assessee s contentions and confirm the impugned leave encashment disallowance of ₹ 70,46,416/-. 20. Now, we come to the VAT component coupled with entry tax and custom duty sum (supra) as disallowed by both the lower authorities. Pages 94 to 95 of the paper book contained assessee s argument justifying its accounting treatment in not crediting the impugned heads in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting Software, the fact remains that the common head office expense have not been charged to P L Account for working out the profits eligible for exemption u/s, 10AA. At this juncture, attention is invited to Note-838 of Schedule-20 wherein, the commission paid to the Chairman and The Managing Director {@ 2% each} of 4% of the profits earned by the Company has been stated and charged to the P L Account of this year. The profits on which such commission has been worked out includes the profits earned by this SEZ undertaking and claimed exempt u/s. 10AA. Thus, the commission paid to the Directors' has a direct co-relation to the profits earned by the SEZ undertaking. Hence, it is illogical to contend that since the SEZ has a separate office, no expenditure incurred in relation to corporate office should be allocated to the SEZ undertaking of the assessee. Further, there are bound to be expenses debited to the corporate office account for administrative work relating to the SEZ undertaking for eg. travelling by the Directors for work of the SEZ, communication expenses, printing stationery etc. In this connection, attention is invited to Section 44C of the Income-tax Act as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account has been maintained in respect of SEZ and all expenses relating to this unit have already been debited in the books of SEZ unit. It is respectfully submitted that the expenses should not be assumed, that the said expenses has been incurred by the appellant company. Further no allocation can be made merely on assumptions as done by Ld. A.O. 1.1.4. In view of above, it is humbly submitted that the addition of ₹ 50,41,149/- may kindly be deleted. 6.3 I have considered the facts of the case; assessment order and appellant's written submission. Appellant claimed the profit from SEZ unit at Surat exempt under section 10 AA of the act. Appellant maintained separate accounts for SEZ unit but did not allocate head office expenses to this unit and accordingly claimed excess deduction. Assessing officer found that Chairman and MD each are entitled to 2% of the net profit as commission. Such commission is also given on income from this unit. Therefore it cannot be said that the managerial commission is not an expense relating to SEZ unit income of which is exempt. Considering this, assessing officer estimated head office expenses to the extent of 5% of the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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