TMI Blog2020 (1) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has suo moto made the disallowance - HELD THAT:- As already come on record that the impugned sec. 14A r.w.s. 8D disallowance has to be computed going by apportionment formula by determining the expenditure incurred for deriving business as well as exempt income. We therefore deem it appropriate to restore the instant administrative expenditure disallowance issue back to the Assessing Officer for computation of administrative expenditure disallowance going by the proportionate formula as per this tribunal s co-ordinate bench s decision MARUTI TRADERS AND INVESTORS VERSUS ACIT, CIRCLE-31, KOLKATA [ 2019 (1) TMI 258 - ITAT KOLKATA] . We reiterate that we are dealing with indirect head of expenditure which not be strictly apportioned between regular business activities for deriving exempt income. We accordingly accept assessee s identical grievance raised in both assessment year(s) for statistical purposes in above terms. Education cess and secondary higher education cess u/s 40(a)(ii) r.w.s. 37(1) - HELD THAT:- As decided in Chambal Fertilizers Chemicals Ltd.. [ 2018 (10) TMI 589 - RAJASTHAN HIGH COURT] holds that the relevant statutory provision to this effect as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AY 2008-09 had given an interest free loan of AUD 5,00,000 to its associated enterprise (AE) Technico Pty. Ltd., Australia (TPL). For the purpose of determining the arm s length nature of the transaction, the assessee adopted CUP method and took the arm s length rate of interest @ 8.91% as was prevailing in Australia during the year 2008. The assessee thus computed the arm s length interest of AUD 44,550 which was converted into Indian currency i.e. ₹ 15,75,444/- using the exchange rate as on 31.03.2009. During the assessment proceedings, the assessee filed before the AO copy of the loan agreement and written submission towards justification of arm s length interest computed by the assessee. But the AO did not agree with the interest rate of 8.91% adopted by the assessee and according to him, 10% interest rate would be reasonable and held as under: 4.3. In the light of the above discussion, it is held that the interest rate of 8.91% adopted by the assessee cannot be the arm s length interest rate in an uncontrolled environment and the same is accordingly rejected. Taking into account the totality of facts of the case, it is deemed reasonable to take th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable to corporate s which prevailed in Australia during the current year 2008. The assessee extracted the information from the International Monetary Fund (IMF) data base and the arm s length rate of interest for the current year 2008 mentioned was 8.91% and the assessee computed the amount of arm s length interest denominated in AUD by applying the arm s length interest rate to the amount of loan. Thereafter, the assessee added the arm s length value of interest to its income and offered it to tax thereon. The assessee calculated amount of interest as per AUD came to AUD 44,550 which was converted into Indian currency using the exchange rate applicable as on 31.03.2009 i.e. AUD is equal to ₹ 35.3635 which was not acceptable to the AO though the AO agreed to the CUP method. According to AO, the loan agreement vide clauses 3 and 5 reveals that as soon as the AE ceases to be a wholly owned subsidiary of the assessee interest shall be charged @ 1% over the prevailing bank rate and the borrower shall pay the lender interest at 10% per annum or 1% over the prevailing bank rate whichever is higher for the period of delay beyond the due date i.e. 24.08.2010. According to AO, the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee for the purpose of determining the arm s length nature of the transaction has taken the rate of interest of the same amount if it had been borrowed by the Australian company from an Australian bank at the said point of time and has adopted interest rate of 8.91%. The issue which is before us as to the rate of interest in such a scenario is no longer res integra. The Hon ble Delhi High Court in CIT Vs. Cotton Naturals (I) (P) Ltd. (2015) 55 taxmann.com 523 (Del) at para 39 and 40 has answered this question as under: 39. The question whether the interest rate prevailing in India should be applied, for the lender was an Indian company/assessee, or the lending rate prevalent in the United States should be applied, for the borrower was a resident and an assessee of the said country, in our considered opinion, must be answered by adopting and applying a commonsensical and pragmatic reasoning. We have no hesitation in holding that the interest rate should be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid. Interest rates should not be computed on the basis of interest payable on the currency or legal tende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the economically more powerful party. But, exactly where there is no special relationship , this will frequently not be possible in dealings with such party. Consequently, it will normally not be possible to review and adjust the interest rate to the extent that such rate depends on the currency involved. Moreover, it is questionable whether such an adjustment could be based on Art. 11 (6). For Art. 11(6), at least its wording, allows the authorities to eliminate hypothetically the special relationships only in regard to the level of interest rates and not in regard to other circumstances, such as the choice of currency. If such other circumstances were to be included in the review, there would be doubts as to where the line should be drawn, i.e., whether an examination should be allowed of the question of whether in the absence of a special relationship (i.e., financial power, strong position in the market, etc., of the foreign corporate group member) the borrowing company might not have completely refrained from making investment for which it borrowed the money. 40. The aforesaid methodology recommended by Klaus Vogel appeals to us and appears to be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,134/- ₹6,27,062/- under challenge. 3. Next comes the assessee s second substantive grievance challenging u/s. 14A r.w.s. Rule 8D disallowance(s) of ₹98,47,788/- and ₹34,79,136/-; assessment year-wise; respectively. The assessee had derived exempt income from dividends and mutual funds amounting to ₹186,100,400/- and ₹167,439,252/-; assessment year-wise respectively. It had made suo motu corresponding disallowances of ₹31,392/- and ₹1,65,198/-. The Assessing Officer invoked Rule 8D(2)(iii) administrative expenditure disallowance of ₹120,31,315/- and ₹120,99,174/-; respectively excluding the above suo motu figure(s). The CIT(A) s identical detailed discussion directs the Assessing Officer to exclude the assessee s strategic investments for the proposed of computing the impugned disallowances. He further observes that the assessee s investments not yielding any exempt income have also to be excluded in consequential computations. 4. It emerges during the course that very issue had arisen between the parties in assessment year 2009-10 as well (supra) which stood restored back to the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a)(ii) r.w.s. 37(1) of the Act. It is vehemently contended at the Revenue s behest that the additional ground does not deserve to be admitted at this belated stage. And more so when the relevant facts do not form part of the records. We find no merit in Revenue s instant technical argument. The fact remain hon'ble apex court s landmark decision in National Thermal Power Corporation. Ltd. vs. Commissioner of Income-tax (1998) 229 ITR 383 (SC) considered in tribunal s special bench order in All Cargo Global Logistics Ltd. vs. DCIT (2012) 137 ITD 26 (Mum) holds that we can very well entertain such an additional ground in order to determine correct tax liability of a taxpayer provided all the relevant facts are already on record. Going by the very analogy, we admit the assessee s instant additional ground. We further note that the assessee s corresponding sums of education and higher education cess involved assessment year-wise figures of ₹18,85,062 and ₹6,67,018/-; respectively. Hon'ble Rajasthan high court s judgment in D.B. Tax Appeal No. 52 of 2018 Chembal Fertilizers Chemicals Ltd. holds that the relevant statutory provision to this effect as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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