TMI Blog2019 (7) TMI 1647X X X X Extracts X X X X X X X X Extracts X X X X ..... .5%. Facts being identical, respectfully following the aforesaid decision of the Co-ordinate Bench in assessee's own case, we direct the Assessing Officer to compute the corporate guarantee fee @ 0.5%. This ground is allowed. Addition on account of arm's length price of interest on interest free loans to AEs - HELD THAT:- If the loan has been advanced to the overseas AEs in foreign currency, it will be appropriate to compute the interest on such loan by applying prevailing LIBOR with basis points. However, the assessee is required to furnish the necessary supporting evidence to substantiate its claim. In view of the aforesaid, we restore the issue to the Assessing Officer for verifying the primary facts and thereafter considering assessee's plea of applying the appropriate LIBOR rate of interest. This ground is allowed for statistical purposes. Nature of receipt - interest subsidy received under the TUFS - as a capital receipt or revenue receipt - HELD THAT:- Following Tribunal in assessee's own case [ 2019 (4) TMI 1847 - ITAT MUMBAI] we hold that the interest subsidy received by the assessee being in the nature of capital receipt is not taxable, hence, the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no disallowance out of interest expenditure should be made - HELD THAT:- As applying the aforesaid principle, the Tribunal in assessee's own case in assessment year 2012-13 [ 2019 (4) TMI 1847 - ITAT MUMBAI] has deleted the disallowance of interest expenditure made under section 36(1)(iii) of the Act. As it appears, neither the Assessing Officer nor learned DRP have controverted assessee's claim regarding availability of surplus fund. What the Departmental Authorities have observed while disallowing interest expenditure is, the assessee failed to establish nexus between the advancement of interest free loan to the sister concern and the business expediency. Thus, in the aforesaid factual position, applying the ratio laid down by the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities And Power Ltd. [ 2009 (1) TMI 4 - BOMBAY HIGH COURT] as well as the decision of the Tribunal in assessee's own case cited supra, we hold that no disallowance under section 36(1)(iii) of the Act can be made. This ground is allowed. Disallowance of employees contribution to Provident Fund (PF) & ESIC - HELD THAT:- As seen from the factual details relating to payment of employees' contri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om Indian Banks in respect of different guarantees. Though, the assessee objecting to the guarantee commission proposed by the Transfer Pricing Officer @ 1.75% made various submissions, however, the Transfer Pricing Officer did not find merit in them. He observed, not only the transactions relating to provision of corporate guarantee to the AEs is an international transaction but he also rejected assessee’s alternative plea of accepting corporate guarantee fee rate of 0.5%. Having done so, the Transfer Pricing Officer proceeded to compute the arm’s length price of corporate guarantee commission by applying the rate of 1.75%. While doing so, he followed the transfer pricing order passed for the assessment year 2012–13. Accordingly, he made an adjustment of ₹ 14,35,92,450. 4. The learned DRP also sustained the adjustment made by the Transfer Pricing Officer by following its order in assessee’s own case for the assessment year 2012–13. 5. The learned Authorised Representative submitted, while deciding identical issue in assessee’s own case for the assessment year 2012–13, the Tribunal following the order passed by it in case of assessee’s sister concerned has held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the objections raised by the assessee against the draft assessment order, learned DRP on verifying the audit report found that the assessee has advanced loans to the AEs without charging any interest. Since the Transfer Pricing Officer had not looked into this aspect, learned DRP issued a notice for enhancement by directing the assessee to show cause as to why the arm’s length price of interest on interest free loan should not be computed. After considering the reply of the assessee and the report called from the Transfer Pricing Officer, learned DRP observed, since the assessee had advanced loan to the AEs in Indian currency, bank interest rate has to be applied. Accordingly, applying the rate of interest of 10.27% to the loan transaction, an adjustment of ₹ 4,77,76,278, was made. 10. The learned Authorised Representative submitted, since the loan was advanced to the overseas AEs in foreign currency i.e., US$, prime lending rate of interest of Indian Banks cannot be applied. He submitted, let interest be computed by applying LIBOR rate. 11. The learned Departmental Representative submitted, if the assessee demonstrates that the loan was advanced in foreign currency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved, applying the purpose test, the subsidy cannot be considered to be for reducing loan or capital cost of the plant and machinery. Therefore, it has to be treated as revenue receipt. Thus, on the aforesaid premises, the Assessing Officer added back the interest subsidy to the income of the assessee. 15. Learned DRP also sustained the addition made by the Assessing Officer. 16. The learned Authorised Representative submitted, identical issue arose in assessee’s own case in assessment year 2012–13. He submitted, while deciding the issue, the Tribunal has accepted assessee’s claim that the interest subsidy received by the assessee under TUFS is a capital receipt, hence, not taxable. Thus, he submitted, the issue is covered by the decision of the Tribunal in its own case. 17. The learned Departmental Representative, though, agreed that the issue has been decided in favour of the assessee in assessment year 2012–31, however, he relied upon the observations of the Assessing Officer and learned DRP. 18. We have considered rival submissions and perused the material on record. The issue whether the interest subsidy under the TUFS is a revenue or capital receipt arose in assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T ITA no1776/ Mum./2015 Interest Subsidy 22 to 27 2. Sham Lal Bansal P&H HC 200 Taxman 14 Credit Linked Capital Subsidy 6 3. Dicitex Mumbai 4375/Mum./ 2015 Interest Subsidy 7, 71 to 7.5, 8 4. Manohar Processor Pvt. Ltd. Mumbai ITAT 7120/Mum./ 2013 Interest Subsidy 2.1 5. Dicitex Furnishings Ltd. Mumbai ITAT 2148/Mum./ 2015 Interest Subsidy 5 6. SVG Fashions Ltd. Delhi ITAT ITA no.8565/Mum./ 2010 Interest Subsidy 9 to 15 7. Shivalik Prints Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d rival contentions. The Hon’ble Supreme Court, in the case of National Thermal Power Company Ltd. vs CIT (229 ITR 383) (copy is enclosed at PB Page No. 516 - 519), has observed that even if a claim is not made before the AO, it can be made before the Appellate authority. Further the Bombay High Court in the case of CIT vs Pruthvi Brokers & Shareholders Pvt. Ltd (349 ITR 336), having considered the decisions of the Supreme Court in the case of Goetze India Ltd. (supra) and also National Thermal Power Company Ltd. v CIT (supra), held that the Appellate authorities are entitled to consider the new claim of the assessee and adjudicate upon the same on merits of the case. As all the facts are available on record, we adjudicate assessee’s claim of TUF subsidy. From the record we found that the assessee has received reimbursement of interest cost as per TUF scheme. The object of the scheme was to encourage the upgradation of technology. Therefore, the income to the extent of duty credit and reimbursement of interest cost under TUF scheme, which though credited to profit and loss account, should be treated as capital receipt, not chargeable to tax. The issue under consideration is squarel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r acquiring a capital asset. Whereas in the instant case, admittedly, there is no provision in the scheme to grant subsidy to meet any recurring expenditure and neither such a case has been set up by the Department. The only objections of the Department are that the subsidy has been given after commencement of production and, secondly that it was for repayment of loans. Both these factors do not distract from the nature of the subsidy being treated as capital, as explained by the Honble Supreme Court in the case of CIT vs. Ponni Sugars Chemicals Ltd. [2008] 306 ITR 392 (SC). 3. We have heard learned counsel for the appellant. 4. Learned counsel for the revenue submitted that the subsidy was not given at the time of setting up of the industry but after commencement of production for repayment of loan. In such situation, the amount should have been treated as revenue receipt as per judgment of the Hon’ble Supreme Courtin Sahney Steel & Press Works Ltd. & Ors. v. CIT (1997) 228 ITR 253. 5. We are unable to accept the submission. 6. The purpose of scheme under which the subsidy is given, has been discussed by the Tribunal. To sustain and prove the competitivenes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the industry, the concerned Ministry adopted the TUFS scheme envisaging Technology Upgradation of the Industry. Hence, the subsidy received in this regard falls into capital field. Hence respectfully following the precedent as above we set aside the order of the ld. CIT(Appeals) and decide the issue in favour of the assessee. 25. In DCIT vs. Gloster Jute Mills Ltd (ITA 766/Kol/2010) order dated 2nd July 2014, Kolkata Tribunal held that in order to sustain competitiveness in the domestic as well as international markets and overall long-term viability of the industry, the concerned Ministry adopted the TUFS scheme envisaging Technology Upgradation of the Industry. Hence the subsidy received in this regard falls into capital field. 26. Similar view has been taken by Delhi Bench of the Tribunal in the case of DCIT vs M/s. Sutlej Textiles & Industries Ltd (ITA No 5142/Del/2013) dated 3 July 2015; and by Chennai Bench of the Tribunal M/s CNV Textiles Pvt Ltd vs OCIT (ITA 746/Mds/2014) dated 21-11-2014. The issue is also covered by the decision of ITAT Mumbai Bench in the case of SVG Fashions Ltd., ITA No.8565/Mum/2010, order dated 23-12-2015. Recently Hon’ble Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e MAT provision without any express authority in this behalf. Also, if we look at Explanation 1 to section 115JB(2), We find that the legislature has defined ‘book profit’. For calculation of such book profit, one has to reduce certain items, which inter alia include, item ‘ii’ which states that "the amount of income to which any of the provisions of section ‘10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the profit and loss account". Thus, what can be discerned from above item is that, for calculation of book profit one has to reduce those items of income which do not from part of total income under normal provisions. If that be the case, then it logically follows that those items which do not constitute income at all cannot form part of book profit and no MAT can be levied thereon at all. Even sub-section (5) of section 115JB states that 'Save as otherwise provided in this section, all provisions of this Act shall apply to every assessee, being a company, mentioned in this section. Thus, provisions of section 4 and section 2(24) shall necessarily apply for computation of book profit and MAT u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Nilgiri Tea Estate Ltd. Cochin ITAT 65 SOT 14 Profits on sale of agricultural land which is not a capital asset 7&8 9. Shivalik Venture Pvt. Ltd. Mumbai ITAT 173 TTJ 238 Profit arising on transfer of development rights 26 to 28 10. Metal & Chromium Plater Pvt. Ltd. Madras HC 76 taxmann.com 229 Long term capital gain exempt u/s 54EC 6&7 11. Sutlej Cotton Mills Ltd. Kolkata Special Bench 45 ITD 22 Capital Gain resulting from sale of capital asset which was exempt 19.2, 19.5 12. Frigsales India Ltd. Mumbai ITAT 4 SOT 376 Profit on sale of depreciable asset which was not taxable due to purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has disallowed an amount of ₹ 24,14,047, under section 14A r/w rule 8D, towards expenditure incurred for earning exempt income. Being of the view that the disallowance made by the assessee is not in accordance with rule 8D, the Assessing Officer proceeded to make disallowance of ₹ 8,06,31,048, comprising of the following:– 1. Direct expenditure under rule 8D(2)(i) ₹ 46.098 2. Interest expenditure under rule 8D(2)(ii) ₹ 7,47,28847 3. Administrative expenditure under rule 8D(2)(iii) ₹ 58,56,103 25. The assessee having already disallowed an amount of ₹ 24,14,047, the Assessing Officer made a net disallowance under section 14A of the Act amounting to ₹ 7,82,17,001. The aforesaid disallowance made by the Assessing Officer was sustained by learned DRP while disposing of the objections of the assessee. 26. The learned Authorised Representative submitted, the disallowance of interest expenditure under rule 8D(2)(ii) cannot be mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for earning exempt income as provided under clause (f) of Explanation–1 to section 115JB of the Act. Therefore, in the facts of the present case, we direct the Assessing Officer to make adjustment to the book profit in terms of Explanation–1(f) to section 115JB of the Act by restricting it to the amount disallowed by the assessee voluntarily. This ground is partly allowed. 31. In ground no.6, the assessee has challenged the disallowance of interest expenditure by apportioning it to interest free loan advanced to associate entities. 32. Brief facts are, during the assessment proceedings the Assessing Officer noticed that the assessee has advanced interest free loans to its sister concerns. Further, he noticed that the assessee has incurred substantial interest expenditure on outstanding loans. Thus, being of the view that part of the interest bearing funds were utilized for non–business purpose, the Assessing Officer disallowed an amount of ₹ 87,49,13,686. 33. Learned DRP while dealing with the objections of the assessee in this regard, sustained the disallowance made by the Assessing Officer. 34. The learned Authorised Representative drawing our attention to Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 36(1)(iii) of the Act can be made. This ground is allowed. 37. In ground no.7, the assessee has challenged the disallowance of employees contribution to Provident Fund (PF) & ESIC amounting to ₹ 1,90,10,888. 38. Brief facts are, during the assessment proceedings, the Assessing Officer noticing that employees’ contribution to PF & ESIC was paid beyond the due date prescribed under section 36(1)(va) of the Act called upon the assessee to explain why the amount of ₹ 1,90,10,888, should not be disallowed. In response, it was submitted by the assessee that employees’ contribution to the PF & ESIC was paid within the grace period, hence, should be allowed. However, the Assessing Officer rejecting the submissions of the assessee disallowed the deduction claimed. 39. Learned DRP while disposing of the objection of the assessee on the issue also sustained the disallowance made by the Assessing Officer. 40. The learned Authorised Representative submitted, all payments relating to employees’ contribution to PF & ESIC was made before the due date of filing of return of income for the impugned assessment year as prescribed under section 139(1) of the Act. Thus, he s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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