TMI Blog2020 (3) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... ore than the investments made - Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. [ 2014 (8) TMI 119 - BOMBAY HIGH COURT] has held that where the assessee is having borrowed funds and own interest free funds, presumption is that the investments are made by utilizing own interest free funds. The same view has been reiterated by the Hon ble High Court in the case of HDFC vs. DCIT [ 2016 (3) TMI 755 - BOMBAY HIGH COURT] and PCIT vs. Shreno Ltd. [ 2018 (12) TMI 1145 - GUJARAT HIGH COURT] . Thus, in principle we hold that no disallowance under section 14A r.w.r. 8D(2)(ii) is warranted if, the assessee is having sufficient own interest free funds to cover the investments made. For the purpose of verification of this fact, we deem it appropriate to restore this issue back to the file of Assessing Officer. The Assessing Officer after examining the financial statements of the assessee, if satisfied, that own interest free funds of the assessee are more than the investments made, shall make no disallowance u/r.8D(2)(ii). Purpose of computing disallowance u/r.8D(2)(iii) only those investments are to be considered which have yielded exempt income - We restore this is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal in assessee s own case for the preceding assessment years we hold ESOP expenditure as revenue in nature. Corporate Guarantee to Subsidiaries - Treating the corporate guarantee given by the appellant for its overseas subsidiary as an international transaction u/s 92 - HELD THAT:- Respectfully following the decision of the Tribunal in assessee s own case, we direct the AO to compute arm s length price of transaction as per the direction given by the Tribunal in the above order for A.Y. 2007-08 as held charging of 0.5% guarantee commission from the AE is quite near to 0.6%, where the assessee has paid independently to the IGIGI Bank and charging of guarantee commission at the rate of 0.5% from its AE can be said to be at arms length. The difference of 0.1% can be ignored as the rate of interest on which IGIGI Bank, Bahrain Branchhas given loan to AE (i.e. subsidiary company) is at 5.5%, whereas the assessee is paying interest rate of more than 10% on its loan taken with IGIGI Bank in India. Thus, such a minor difference can be on account of differential rate of interest. Charging of interest under section. 234B,234C 234D is mandatory and consequential. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the question raised by the revenue does not give raise to any substantial question of law and accordingly, did not entertain the same. This goes to prove that the order passed by this Tribunal on the impugned issue had attained finality. Depreciation on goodwill on account of acquisition of Madura Garments Division to be allowed. Proceedings from sale of certified emission - HELD THAT:- CIT(A) in the impugned Assessment Year granted relief to the assessee by following the order of his predecessor for assessment year 2009-10, which has now been confirmed by the Tribunal. Since, there has been no change in the facts in the Assessment Year under consideration, this ground of appeal by Revenue is dismissed for similar reasons. Provision for pension liability - HELD THAT:- Since, the assessee got benefit of deduction at the time when provision was created in the Assessment Year 2007-08, the reversal of provision would amount to income of the assessee. If the reversal of provision is not taxed, it would result in double deduction to the assessee. Thus, in view of undisputed facts, the findings of CIT(A) on this issue are reversed. The ground No. 8 of the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,497 /- as indirect expenses attributable to earning the exempt income for the purpose of 14A disallowance, ii. The learned CIT(A) erred in treating 50% of audit fees amounting to ₹ 53,42,728/- as indirect expenses connected with earning the exempt income for the purpose of 14A disallowance, iii. The learned CIT(A) erred in treating common expenses of ₹ 5,84,73,070/- as indirect expenses for the purpose of 14A disallowance without any reasonable basis. The learned Additional Commissioner of Income tax (hereinafter referred as AO ) be directed to restrict the addition to ₹ 1,48,32,243/- under Rule 8D(2)(iii) for 14A disallowance or to substantially reduce the disallowance having regard to the facts and circumstances and the law. Additional Grounds of appeal:- 1. On the facts and in the circumstances of the case and in law, the learned AO has erred in disallowing the Interest cost of ₹ 91.33 Crs u/s 14A, treating the same as Interest attributable towards expenditure incurred in relation to the Investment. The AO may be directed to reduce the disallowance u/s 14A accordingly. 2. The Appellant craves leave to add and/or to ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted. In support of his contention ld. Authorized Representative for the assessee placed reliance on the following decisions:- (1) CIT vs. HDFC Bank Ltd., 366 ITR 505 (Bom) (2) HDFC Bank Ltd. vs.DCIT,383 ITR 529 (Bom) 3.3 The third argument made by ld. Authorized Representative for the assessee on the issue of disallowance under section 14A of the Act was that only those investments which have yielded exempt income should be considered for making disallowance. The ld. Authorized Representative for the assessee furnished a chart giving details of the securities on which the assessee has earned dividend income. As per the chart the assessee has earned dividend income on following investments:- (i) Hindalco Industries Ltd. - ₹ 4,52,33,555/- (ii) Kotak Mahindra Bank Ltd. - ₹ 770/- (iii) Aaditya Birla Finance Ltd. Praf. Share - ₹ 3,29,10,960/- (iv) Mutual Funds Birla Sunlife Cash Balance - ₹ 19,47,050/- To support his third ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er enhanced the disallowance by ₹ 24.55 crores. The assessee carried the issue in appeal before CIT(A). The CIT(A) restricted the disallowance u/r. 8D(2)(iii) to ₹ 17,04,69,294/- (including suo-motu disallowance of ₹ 1.48 crores). 5.1 The first contention of the assessee is that before rejecting assessee s computation of disallowance u/r. 8D, the Assessing Officer has not recorded satisfaction. We have examined the assessment order. The Assessing Officer after reproducing the extracts of the assessee s submission has negated the contention of the assessee by expressing his view in para 3.5 of the assessment order. Thereafter, in para 3.7 the Assessing Officer has computed the disallowance u/r. 8D(2). The Assessing Officer after examining books of the assessee accepted disallowance made by assessee in respect of interest expenditure. The manner of recording satisfaction under section. 14A r.w.r.8D(2) is subjective. There is no specified method or performa for recording of satisfaction by the Assessing Officer. If the Assessing Officer has recorded his express satisfaction in whatsoever manner in rejecting assessee s suo motu disallowance, the condition as envisa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. Vireet Investments Pvt. Ltd.(supra). Thus in view of our above finding, ground No.1 and additional ground No.1 of the appeal by the assessee are partly allowed for statistical purpose. Disallowance u/s.14A vis-a-vis computation of Book Profits u/s.115JB: 6. Grounds -2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in :- i) Applying the disallowance quantified as per Rule 8D to book profit also, ii) Not restricting the disallowance of ₹ 1,48,32,2437- under Rule 8D(2)(iii) r.w.s.14A for computing Book Profit u/s 115JB. The learned AO be directed to allow the deduction of the above amount from MAT income and reduce the total income accordingly. 6.1 In this ground, the assessee has assailed the order of CIT(A) in upholding the findings of Assessing Officer in computing disallowance u/r.8D(2)(iii) r.w.s.14A of the Act on book profits. The ld. Authorized Representative for the assessee contended that the Hon'ble Bombay High Court in the case of Bengal Finance Investments Pvt. Ltd., in Income Tax Appeal No.337 of 2013 decided on 10/02/2015 has held that amount disallowed under section 14A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r assessment years. The ld. Authorized Representative for the assessee submitted that similar issue had come up before the Tribunal in assessee s appeal for assessment year 2009-10 in ITA NO.2525/Mum/2014(supra). The Tribunal following the judgment of Hon'ble Bombay High Court in the case of PCIT vs. Godrej Industries Ltd., Income Tax Appeal No.511 of 2016 decided on 24/04/2018 has allowed the similar ground raised by the assessee. 9. We find that the Assessing Officer has disallowed the assessee s claim of additional depreciation amounting to ₹ 5,71,08,316/- in respect of the assets acquired and put to use for less than 180 days in the earlier assessment years. The Assessing Officer has allowed 50% claim of additional depreciation in the current assessment year and has directed to reduce the total income accordingly. We observe that in the immediately preceding assessment year similar issue had come up before the Tribunal. The Co-ordinate Bench of the Tribunal after placing reliance on the decision of Hon'ble Jurisdictional High Court in the case of PCIT vs. Godrej Industries (supra) allowed the claim of the assessee. 9.1 The ld. Departmental Representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- 12. Ground No.5: On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming the disallowance of ESOP expenses of ₹ 9,83,7727- by treating the expenses to be capital in nature. The learned AO be directed to treat ESOP expenses of ₹ 9,83,7727- as revenue expenditure and to reduce the total income accordingly 12.1 The ld. Authorized Representative for the assessee submitted that the assessee had claimed ESOP expenditure of ₹ 9,83,772/-. The Assessing Officer held the expenditure to be on capital account and disallowed assessee s claim. The ld. Authorized Representative for the assessee pointed that similar expenditure was claimed by the assessee in assessment year 2009-10 and the same was disallowed by the Assessing Officer for identical reasons. The Tribunal in assessee s appeal for assessment year 2009-10 in ITA No.2525/Mum/2014(supra) allowed the assessee s claim holding the expenditure to be on revenue account. 13. We have heard the submissions made by rival sides. We find that identical issue was raised in an appeal by the assessee before the Tribunal in assessment year 2009-10. The Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks for AE has been held to be international transaction and has upheld arm s length price of such transaction at 0.5%. The ld. Departmental Representative, to substantiate his contentions referred to following decisions:- 1. Instrumentarium Corporation Ltd. vs. ADIT, 71 taxmann.com 193 (Kol) (Trib)(S.B) 2. Mahindra Mahindra Ltd. vs. DCIT, 24 taxmann.com 267 (Mum) 3. CIT vs. Everest Kanto Cylinder Ltd.,58 taxmann.com 254(Bom) 4. Aditya Birla Minacs Worldwide Ltd. vs. DCIT, 56 taxmann.com 317 (Mum- Trib) 16. Both sides heard. The ground No.6 of the appeal is against confirming of addition in respect of corporate guarantee given by the assessee for its foreign AE. The CIT(A) has confirmed the addition by adopting 0.5% commission rate. The ld. Authorized Representative for the assessee has fairly admitted that in the case of assessee s sister concern, similar addition has been confirmed by the Tribunal. For the sake of completeness the relevant extract of Tribunal s decision in the case of Aditya Birla Minacs Worldwide Ltd. is reproduced below:- 2.5 Having considered the rival submissions as well as relevant material on record, we agree with the alternative plea of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be on account of differential rate of interest. Thus, on these facts, we do not find any reason to uphold any kind of upward adjustment in ALP in relation to charging of guarantee commission. As the facts and circumstances of the case during the year under consideration are pari materia, respectfully following the decision of the Tribunal in assessee s own case, we direct the AO to compute arm s length price of transaction as per the direction given by the Tribunal in the above order for A.Y. 2007-08. 2.6 Similar view has been taken by the Tribunal in all above referred decisions. Accordingly, following the earlier decisions of this Tribunal, we direct the AO/TPO to adopt 0.5% as arm s length guarantee commission charges in respect of the guarantee provided by the assessee for obtaining the loan by the AE. Thus, in view of above findings of Tribunal in assessee s group concern and the nature of transaction in the present case being similar, the ground No.6 of the appeal is decided against the assessee, for parity of reasons. Interest under section.234B,234C 234C:- 17. Ground No.7: On the facts and in the circumstances of the case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal ground No.3 of the appeal of the assessee is allowed for statistical purposes. 21. The appeal of the assessee is partly allowed in the terms aforesaid. ITA NO.4704/MUM/2015(A.Y.2010-11): 22. The Revenue has assailed the findings of CIT(A) by raising 11 grounds of appeal. The grounds raised by the Revenue are taken up for adjudication in seriatim. 23. Grounds No.1: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A), relying on submissions of the assessee, erred in directing the AO to restrict the disallowance u/s 14A of the I. T. Act at ₹ 17,04,69,294/- without appreciating the fact that, the AO has computed the disallowance correctly as per provisions of section 14A r.w.r. 8D of the I. T. Act. 23.1 Ground No.1 of appeal is corresponding to Ground No.1 and Additional ground No.1 2 of the assessee s appeal. Since, the ground No.1 and additional grounds No. 1 2 of the assessee in respect of disallowance under section 14A r.w.r. 8D, have been allowed for statistical purposes, the ground No.1 of the appeal by Revenue is also allowed for statistical purpose. 24. Ground No.2: 2. On the facts and in the ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessee s claim by following the decision of his predecessor in assessment year 2005-06 to 2008-09, wherein the CIT(A) had in turn followed the decision of the Hon ble Apex Court in the case of CIT vs.Indo Nippon Chemical Co. Ltd., reported as 261 ITR 275(SC). The ld. Authorized Representative for the assessee further pointed that the Tribunal in assessment year 2008-09 in ITA No.3033/Mum/2012(supra) had decided this issue in favour of the assessee. We do not find any infirmity in the findings of CIT(A) in deleting the addition by following the decision of Hon ble Apex Court. The Co-ordinate Bench of the Tribunal in assessee s own case for assessment year 2008-09 has affirmed the finding of CIT(A) in deleting the addition in the past. No material has been brought before us by the ld.Departmental Representative distinguishing facts or the findings of Tribunal on this issue in A.Y. 2008-09. We see no reason to interfere with the findings of CIT(A) on this issue. Accordingly, the same are confirmed and ground No.3 of appeal is dismissed. 26. Ground No.4: 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the provision fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue to the file of Assessing Officer for adjudication after the SLP in the case of Exide Industries Ltd. (supra) pending before the Hon ble Apex Court is finally decided. The ld.Departmental Representative prayed that this ground of appeal may be restored to the Assessing Officer with similar direction. 28. Both sides heard. The Co-ordinate Bench of the Tribunal in assessee s own case in appeal by the Revenue in ITA No.3033/Mum/2012 for assessment year 2008-09(supra) has decided the issue in favour of the assessee by observing as under:- 7.Next ground is about disallowance of ₹ 2.07 crores u/s.43B(f), being provision made for leave salary.The AR and the DR agreed that identical issue was stands decided in favour of the assessee by the Tribunal by earlier years orders. We find that the Tribunal had dealt the issue as under,while deciding the appeal for the AY.2006-07(ITA/8427 8483/Mum/10 dt.17/09/2014): 4.Ground no.4 deals with disallowance of ₹ 1.73 crores,made u/s.43B(f) of the Act,being provision made for leave salary.We find that similar issue had arisen in the AY 2002-03, 2003-04, 2004-05 and 2005- 06 also.While deciding the appeal for the last thre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th following observations:- 4. We have heard rival submissions. Both the parties fairly agreed that this issue is covered by the order of this Tribunal in assessee s own case in ITA No.3033/Mum/2012 dated 09/12/2015 for A.Y.2008-09. But we find that though the Hon ble Calcutta High Court in the case of Exide Industries Ltd. vs Union of India reported in 292 ITR 470 (Cal) had struck down the provisions of Section 43B Clause (f) of the Act as unconstitutional, the revenue had carried the matter further to the Hon ble Supreme Court which initially in Special Leave to appeal (Civil) CC12060/2008 dated 08/09/2008 had held as under:- The petition was called on for hearing today. Upon hearing the Counsel, the Court made following order. Issue Notice In the meantime, there shall be stay of the impugned judgment, until further orders. 4.1. Later, the Hon ble Supreme Court in Special Leave to Appeal (Civil) No.(s) CC22889/2008 dated 08/05/2009 had held as under:- The petition was called on for hearing today. Upon hearing the Counsel, the Court made following order. Delay condoned Leave granted. Upon hearing the final disposal of the Civil Appeal, the department is rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s own case for assessment year 2009-10 (supra). The relevant extract of the finding of the Tribunal read as under:- 5. We have heard rival submissions. We find that this issue is already covered in favour of the assessee by the orders of this Tribunal from A.Yrs 2003-04 to 2008-09. We also find that for A.Y.2006-07, the revenue had carried this matter to the Hon ble Jurisdictional High Court and the Hon ble Jurisdictional High Court in Income Tax Appeal No.433/2015 dated 15/01/2018 had held that the question raised by the revenue does not give raise to any substantial question of law and accordingly, did not entertain the same. This goes to prove that the order passed by this Tribunal on the impugned issue had attained finality. Respectfully following the same, the ground No. 4 raised by the assessee is allowed. The CIT(A) has allowed relief to the assessee by following the decision of Tribunal in assessee s own case for assessment year 2003-04 to 2006-07. We find no infirmity in the impugned order. Accordingly, ground No.5 of the appeal is dismissed. 32. Ground No.6: 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-01.Respectfully following the decision of the Co ordinate Bench, we direct the AO to allow the claim of depreciation on Goodwill. Ground No. 8 is accordingly allowed. Following the above order of the Tribunal for earlier years,ground no.5,9,and 3 for the AY.2003 -04,2004-05,2005-06 are decided in favour of the assessee. In view of the above,ground no.6 is decided in favour of the assessee. Considering the above, we are deciding ground no.9 in favour of the assessee. 15.1. Respectfully following the said decision, we do not find any infirmity in the action of the ld. CIT(A) granting relief to the assessee. Accordingly, the ground No.2 raised by the revenue is dismissed. 32.2 The CIT(A) has granted relief to the assessee by following the order of his predecessor in assessment year 2009-10, The findings of CIT(A) in A.Y. 2009-10 have now been upheld by the Tribunal. We find no infirmity in the impugned order. Accordingly, ground No.6 of the appeal is dismissed. 33. Ground No.7 : 7. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the proceedings from sale of certified emission reduction of ₹ 4,11,58,51 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. Authorized Representative for the assessee fairly submitted that the Co-ordinate Bench of the Tribunal in the appeal by the assessee for assessment year 2007-08 in ITA No.3703/Mum/2011 has allowed the pension liability. Therefore, the write back of the provision ought to be treated as its income. 34.2 The Department has challenged the order of Tribunal for assessment year 2007-08 before the Hon ble High Court in an appeal. However, the appeal is still pending at admission stage. 34.3 Both sides heard. The ld. Authorised Representative has fairly admitted that the Provision for Pension was allowed to the assessee as deduction by the Tribunal in Assessment Year 2007-08. Hence, write back of said provision would amount to income of assessee. We observe that the impugned order of CIT(A) granting relief to the assessee (dated 31-03- 2015) was passed prior to the order of Tribunal for Assessment Year 2007- 08 (dated 24-11-2015) allowing assessee s claim of deduction in respect of provision for pension liability. The CIT(A) had no occasion to consider the order of Tribunal on this issue. Since, the assessee got benefit of deduction at the time when provision was created in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on @ 0.5% was accepted. We see no reason to interfere with the findings of CIT(A) on this issue. Accordingly, the same are upheld and grounds No.9 10 in the appeal by Revenue are dismissed. 38. Ground No. 11: 11. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in directing to treat the interest subsidy of ₹ 15,23,25,727/- as capital in nature. 38.1 In ground No.11 the Revenue has assailed the findings of CIT(A) in holding interest subsidy from Technology Upgradation Fund(TUF) ₹ 15,23,25,727/- as capital in nature. The ld. Authorized Representative for the assessee submitted that the Hon ble Rajasthan High Court in the case of PCIT vs. Nitin Spinners Ltd. in DB Income Tax appeal No.31/2019 decided on 19/09/2019 has held subsidy received under TUF as capital in nature. Similar view has been taken by Mumbai Tribunal in the case of ACIT vs. SVG Fashions Ltd. in ITA No.704/Mum/2016 for assessment year 2012-13 decided on 17/07/2018. The ld. Authorized Representative for the assessee to further buttress his submissions placed reliance on the following decisions:- (1) CIT vs. Gloster Jute Mills Ltd. ,96 taxmann.com 303 (Cal) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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