TMI Blog2020 (2) TMI 1485X X X X Extracts X X X X X X X X Extracts X X X X ..... gth and thus addition made by TPO on this account is deleted. Disallowance u/s 14A r.w.r. 8D - assessee company has earned dividend income from its investment in mutual funds which is claimed exempted from tax under section 10(34) - assessee itself made suo-moto disallowance u/s 14A of the Act r.w.r 8D(2)(iii) being 0.50% of average value of investment income from which is exempt from tax - AO being dissatisfied with the suo-motu disallowance made by the assessee made further disallowance in respect of proportionate interest paid by the assessee to various banks invoking the provisions of Rule 8D(2)(ii) - HELD THAT:- The interest paid by the assessee is in respect of loans taken for specific business purposes and thus to earn non-exempt business income. The DRP has given its finding in assessee s own case for AY 2014-15 that loans were taken for specific business purposes. Moreover, the assessee s own funds in form reserves and surplus profits of ₹ 1788.26 Crores are much higher than the investments of ₹ 107.26 Crores. We have already examined this issue in this assessee s own case for AY 2010-11 and on identical facts we held that disallowance u/s 14A read with ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... COURT] held that character of the receipt of a subsidy in the hands of recipient assessee has to be decided with respect to the purpose for which subsidy is granted. If the subsidy is received to enable the assessee to run its business more profitably then such subsidy is revenue in nature. While, if the subsidy has been received by the assessee to set up a new unit or for expansion of existing unit then such subsidy would be capital in nature. We find form the objective of TUF scheme that interest subsidy under such scheme was granted for expansion of capacities, modernisation and up gradation of facilities. In case of CIT v. Sham Lal Bansal [ 2011 (1) TMI 409 - PUNJAB AND HARYANA HIGH COURT] on similar facts held subsidy received under TUF Scheme as capital receipt. Since the issue under hand is related to additional claim which was not entertained by the lower authorities, we therefore allow the assessee s ground for entertainment of above additional claim and remit the issue back to the file of AO to decide the same in accordance with law after granting a reasonable opportunity of being heard to the assessee. Additional Depreciation - assessee claimed additional deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eard to the assessee. - I.T.A. No. 5784/DEL/2016 - - - Dated:- 24-2-2020 - SHRI AMIT SHUKLA AND SHRI PRASHANT MAHARISHI, JJ. Appellant by: Shri Pradeep Dinodia, Adv. Respondent by: Shri H.K. Chaudhary, CIT-D.R. ORDER AMIT SHUKLA, J. The aforesaid appeal has been preferred by the assessee for the assessment year 2012-13, wherein the assessee has challenged the final assessment order passed in pursuance of directions of the Disputes Resolution Panel-II, New Delhi, (DRP), as contained in its order dated 23rd September 2016. 2. Following grounds have been raised in the assessee's appeal in ITA no. 5784/Del/16, for the assessment year 2012-13: 1. The Ld DRP/AO have erred in law and on facts, and in the circumstances of the appellant s case in making an addition/adjustment of ₹ 34,67,318/- on account of the order of the Transfer Pricing Officer (TPO) u/s 92CA(3) and making an addition of ₹ 10,21,16,412 /- on account various non-transfer pricing addition/disallowances. 2. The Ld DRP/AO have grossly erred in not granting an additional claim/allowances, amounting to ₹ 4,57,59,45,187/- made by the assessee during the course of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITAT may be pleased to hold that no adjustment is required as 0.25% charged by the appellant as corporate guarantee fee from its wholly owned subsidiary/AEs is at arm s length and thus upward adjustment of ₹ 34,67,318/- be directed to be deleted. 7.4 That the corporate guarantee fee benchmarked under CUP based on specific quote from ICICI Bank be held at ALP. GROUNDS OF OBJECTIONS IN RESPECT OF CORPORATE TAX ISSUES Disallowance u/s 14A 8. The Ld. DRP/AO have erred in law and in facts and in the circumstances of the assessee by enhancing the disallowance u/s 14A of the Act, to the tune of ₹ 1,54,16,743/- which is wholly untenable in law and based on conjectures and surmises. 9. The Ld. DRP/AO has while enhancing disallowance u/s 14A of the Act, grossly erred in holding that the entire amount of interest expense of ₹ 66,10,88,728/- is indirectly attributable for earning a dividend income of ₹ 13,47,69,585/-. 10. That the Ld. DRP/ AO has grossly erred in law and on the facts circumstances of the assessee in attributing interest u/r 8D(2)(ii) although all loans were explained to be for specific business purpose. 11. That th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld at best be disallowed and not whole of the amount of inter unit transfer. Claims made during the assessment proceedings 19. The Ld. DRP/AO have erred in law and on the facts of the assessee's case in not admitting and allowing the following additional allowances/claims made by the assessee, during the course of assessment proceedings and subsequently before Ld. DRP. a) exclusion of ₹ 4,39,72,72,157/- received by the assessee on account of transfer of Carbon emission reductions (CERs) from the taxable income of the assessee since this was a capital receipt not liable to tax under the Act. b) exclusion of ₹ 3,08,96,338/- received by the assessee on account of interest subsidy under Technology Up gradation Fund (TUF) scheme since this was a capital receipt not liable to tax. c) allowance of remaining additional depreciation @ 10% u/s 32(1)(iia) amounting to ₹ 2,50,78,490 /- d) allowance of depreciation of ₹ 45,39,692/- on goodwill which was inadvertently left to be claimed while filing the tax return. e) exclusion of ₹ 11,81,58,510/- being the excise duty component on sale effected by the eligible unit (u/s 80-IC at Kashipu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsidy under TUF scheme, being capital receipt in nature. vi) Excise duty component amounting to ₹ 11,81,58,510/- on sale affected by eligible unit u/s 80 IC (Kashipur unit) of worked out on reverse calculation mechanisms being capital receipt in nature vii) That the following amounts/receipts should have been included, while computing book profit u/s 115JB of the Act but appellant failed to include the same:- a) Inclusion of ₹ 22,66,432/-, on account of provision for doubtful debt created. b) Inclusion of ₹ 7,64,706/-, on account of provision for doubtful advances created. c) Inclusion of ₹ 9,07,600/-, on account of provision for doubtful advances created. 22. The Ld. DRP/AO has grossly erred in not excluding/ including the following receipts/ items while computing the book profits u/s 115JB of the Act. a) exclusion of ₹ 4,39,72,72,157/- received by the assessee on account of transfer of Carbon emission reductions (CERs) from the book profit of the assessee. b) exclusion of ₹ 35,02,570/- on account of provisions for doubtful debts written back. c) exclusion of ₹ 4,00,00,000/- on account of provisions for doubtful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained from the SBI @ 1.15%. DRP has granted the partial relief by reducing the arm s length corporate guarantee fee rate from 1.15% to 0.50%. 5. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. We have examined identical issue in detail in the assessee s own case for AY 2010-11 (ITA no. 356/Del/15) upholding the corporate guarantee fee at 0.25% as arm s length rate of such transaction. Since facts, legal position and other factors are same for this year, we uphold the transaction of corporate guarantee fee at 0.25% charged by the assessee from its AE at arm s length and thus addition of ₹ 1,27,82,374/- made by TPO on this account is deleted. Disallowance u/s 14A (Ground no.8 to 11): 6. The assessee company has earned dividend income of ₹ 13.47 Crores from its investment in mutual funds which is claimed exempted from tax under section 10(34) of the Act. The assessee itself made suo-moto disallowance of ₹ 53,51,280/- u/s 14A of the Act r.w.r 8D(2)(iii) being 0.50% of average value of investment income from which is exempt from tax. The AO being dissatisfied with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no further disallowance u/s 14A was warranted in the assessee s case as assessee s own funds are much higher than the investments made by it from which the exempt income could arise. The ld AR pointed out that amount of investments in respect of which tax free income could have been received is ₹ 107.02 Crores (Page no. 10 of AO s order), while on the other hand the total amount of reserve and surplus of the assessee as on 31st March, 2010 as per the audited balance sheet was ₹ 1788.26 Crores (Page no.1 of Paper Book). He highlighted that assessee s reserve and surplus was around 16.70 times of aforesaid investments. Further, the assessee has cash profits of ₹ 831.64 Crores for the year under consideration. The whole purpose of above submission of AR was to demonstrate that assessee had adequate surplus funds in fact much higher than the investments. 9. The ld. AR has submitted that DRP in assessee s own case for AY 2014-15 deleted the identical enhanced disallowance u/s 14A rwr 8D(2)(ii) after examining the facts in details. The AR submitted that there is no change in facts for the year under consideration as well. 10. The assessee further relied upon vario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n u/s 10A. 14. The ld. counsel of assessee submitted that the DRP relying on the Hon ble Delhi High Court in case of CIT vs Sadhu Forging Ltd [2011] 336 ITR 444 (Delhi- HC) has given finding in assessee s own case for AY 2011-12 that scrap is by-product of its eligible activity and therefore eligible for deduction. 15. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. There is no dispute that scarp has been generated out by the normal production activities of the eligible unit. The amount realized from sale of scarp has been shown as other income in profit loss account of such unit. Alternatively, the same could have been reduced from the cost of production and in that case profits of eligible would remain unaffected for the purpose of deduction u/s 10(1A). Thus, respectfully following the Hon ble Jurisdictional High Court in case of Sadhu Fording Ltd. (Supra) the disallowance of deduction u/s 10(1A) of ₹ 49,32,423/- made by the AO is hereby deleted. Inter-unit transfer of goods of ₹ 7,52,64,246/- eligible deduction u/s 10A(1A) (Ground no.15-18) 16. The assessee has two sep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits of Indore SEZ units are not overstated. Therefore, the disallowance made by AO of ₹ 7,52,64,246/- u/s 10(1A) in respect of inter-unit transfers is hereby deleted. In view of above, the ground no.18 raised by assessee becomes academic and is therefore dismissed. Additional Claims (Ground no.19-20): 19. During the course of assessment proceedings, the assessee preferred certain additional claims before the AO. The AO however did not even discuss such claims of the assessee in his order. The assessee thereafter raised said claims before DRP. The assessee relied upon on the judgment of CIT v SAM Global Securities Ltd [2014- 360-ITR-682 (Del)] and MIT Mohan Singh v DCIT [2013-155-TTJ-1-Chd] prayed that a legal claim can be made at the time of during assessment proceedings. The DRP also did not entertain the claim relying on the Goetze (India) Limited vs CIT 284 ITR 323. 20. In assessee s appeal for AY 2010-11 (ITA no. 356/Del/15) we have dealt this issue of admission of additional claims. In the said case for AY 2010-11, we had relied on the judgment of Hon ble Supreme Court in case of NTPC Ltd [229 ITR 383 (1998)] and other judgments holding that tribunal s power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such documents, explanations, submissions as it deems fit in respect of this claim. Claim 2. Interest subsidy under Technology Upgradation Fund (TUF) Scheme: 23. During the year, Assessee had obtained loan of ₹ 6,250 Lacs from SBI and ₹ 3,500 Lacs from State Bank of Mysore under TUF Scheme issued by the ministry of textile, Government of India. Whether the Loan was utilized as per the scheme is not under question. Under the TUF scheme, the assessee was eligible for 5% Interest subsidy calculated on the loan outstanding which amounted to ₹ 3,08,96,338/-. The assessee made such additional claim vide letter dated 16.02.2016 before the AO. The AO did not entertain the additional claim of the assessee. The DRP did not admit the additional claim of the assessee relying on the judgment in Goetze (India) Limited vs CIT 284 ITR 323. 24. Going into the details, the Ld. Counsel argued that the Objective of the subsidy/incentive under TUF scheme was expansion of capacities, modernisation and up-gradation of facilities and hence nature of subsidy was capital in nature not revenue in nature. The assessee also placed reliance upon the following judgments wherein suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities, we therefore allow the assessee s ground for entertainment of above additional claim and remit the issue back to the file of AO to decide the same in accordance with law after granting a reasonable opportunity of being heard to the assessee. The assessee shall be free to file such documents, explanations, submissions as it deems fit in respect of this claim. Claim 3. Additional Depreciation: 28. The facts as submitted are that during the preceding financial year 2010-11 (relevant to AY 2011- 12), the assessee claimed additional depreciation @10% (half of 20%) amounting to ₹ 2,50,78,490/- on assets being the plant and machinery put to use for less than 180 days. In view of assessee, it is eligible to claim the balance amount of depreciation i.e. ₹ 2,50,78,490/- in the subsequent year viz. AY 2012-13 under consideration. 29. The Ld. Counsel has placed reliance on following judicial pronouncements: Apollo Tyres ltd vs ACIT (2014) 64 SOT 203 CIT vs Cosmo Films Ltd(2012) (ITA 1404/2008) CIT Vs SIL Investment Limited(2012) (ITA No. 24319 (Del) 2010) M/s TCPL PACKAGING LTD vs Deputy Commissioner Of Income Tax [2019-TIOL-907- ITAT-MUM] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apati Venkataramiah V/s. CIT (57 ITR 185) Evans Fraser and Co. Ltd. (in liquidation) V/s. CIT (137 ITR 493) Smifs securities [TS-639-SC-2012] Birla Global Asset Finance Co. Ltd [TS-791-HC- 2012 (BOM)] Worldwide Media Pvt Ltd [TS-56-ITAT-2014 (Mum)] DCIT v. Intertek India Pvt. Ltd. [2014-TIOL-442- ITAT-DEL] confirmed by Hon'ble Delhi High Court. Dy. CIT v. Zydus Wellness Ltd. [2017] 162 ITD 604 (Ahmedabad - Trib.) CIT v. B.C. Srinivasa Setty [1981] 128-ITR-294 Toyo Engineering India Ltd. [TS-655-ITAT- 2014(Mum)] Hindustan Coca Cola Beverages Pvt. Ltd. [TS-7- I.T.A. No.5784/DEL/2016 28 HC-2011(DEL)] Skyline Caterers (P.) Ltd [TS-59-ITAT-2007(Mum)] Johnson Matthey Chemicals India Pvt Ltd [TS- 604-ITAT-2017(PUN)] 35. We have heard the rival contentions, perused the relevant findings and as well as material referred to before us at the time of hearing. In case of Smifs securities (supra), the Hon ble apex court has held that goodwill amounts to intangible assets which are eligible for depreciation. The issue is however an additional claim and require examination by AO, we therefore set aside this issue back to the file of AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther exclusions/inclusions d) Exclusion of ₹ 35,02,570/- on account of provisions for doubtful debts written back. e) Exclusion of ₹ 4,00,00,000/- on account of provisions for doubtful advances written back. f) Exclusion of ₹ 1,54,10,239/- on account of provisions for investments written back. g) Inclusion of ₹ 22,66,432/- on account of provision for doubtful debt created h) Inclusion of ₹ 7,64,706/- on account of provision for doubtful advances created i) Inclusion of ₹ 9,07,600/- on account of provision for doubtful advances created 39. The assessee placed reliance upon the following judgments to exclude capital receipts from book profits u/s 115JB. Binani Industries Ltd. [TS-111-ITAT-2016(Kol) L.H. Sugar Factory Ltd. (ITA Nos 417, 418 339/LKW/2013) also approved by Hon'ble Allahabad High Court [2016-TIOL-1942-HC-ALL High Court-IT]. PCIT v. Ankit Metal Power Ltd. [416 ITR 591 2019] Cal High Court Alok Industries Ltd. [TS-313-ITAT-2018] 40. In respect of exclusion of other items from book profits the assessee has submitted that as per Explanation 1 to section 115JB of The Income Tax Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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