TMI Blog2022 (4) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue. We also noticed that the Co ordinate Bench in assessee s own case [ 2016 (4) TMI 1316 - ITAT MUMBAI ] restored the issue to the file of the Assessing Officer observing only those investments which yield exempt income needs to be considered for computation of average value of investments. In this case, we notice that the Assessee has himself disallowed an amount owhich has not been found to be accepted by the AO or the DRP - total investments and investments which yield exempt income is not readily available before us. We, therefore, are of the considered view that ends of justice would be met if the disallowance is made after re-computing average value of investment by considering only those investments which yield exempt income - thus we deem it appropriate to restore this issue to the file of the Assessing Officer for denovo adjudication in accordance with the directions of the Co ordinate Bench of the Tribunal in the order cited supra. Re computation of book profit under section 115JB by making addition towards expenditure incurred for earning exempt income under section 14A - HELD THAT:- We direct the Assessing Officer to delete the addition of disallowance under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jha (CIT) ORDER PER SANDEEP SINGH KARHAIL, J.M. The present appeal has been filed by the assessee challenging the final assessment order dated 31.10.2019, passed by the Assessing Officer under section 143(3) r/w section 144C(13) of the Income Tax Act, 1961 ( the Act ), for the assessment year 2015 16. 2. The assessee is engaged in the business of manufacturing and marketing of pharmaceutical products. The assessee filed its return of income electronically on 27.11.2015, declaring total income at ₹ 663,51,10,460. 3. The issue arising in ground no.2, in assessee s appeal is with regard to imputation of interest on share application money paid to the Associated Enterprises ( A.Es ). 4. The brief facts of the case pertaining to this issue as emanating from the record are: During the relevant assessment year, the assessee had invested as share application money in two A.Es namely Strides Pharma Asia Pte. Ltd., Singapore, and Strides Pharma International Ltd., Cyprus. The share application money was remitted to its A.Es from time to time during the relevant assessment year. In addition to this, during the earlier years, the assessee had invested the share a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee from its A.Es. The TPO further noted that in respect of share application money invested by the assessee during the relevant assessment year interest imputation is not required as either the investment was itself made in March 2015, or the amount was refunded during the same year. However, in respect of share application money investment which was outstanding as on 31.03.2014, the TPO by applying Boomberg rate for the respective country made an adjustment of ₹ 3,11,09,890, towards notional interest on share application money remitted by the assessee to its A.Es for which shares were allotted after more than six months. The Assessing Officer passed draft assessment order dated 20.12.2018, under section 143(3) r/w section 144C(1) of the Act, inter alia, on the basis of adjustment proposed by the TPO. 6. The DRP, vide its directions dated 30.09.2019, issued under section 144C(5) of the Act, inter alia, upheld the order passed by the TPO following its directions issued in preceding assessment years and accordingly rejected the objections filed by the assessee. Being aggrieved, the assessee is in appeal before us. 7. During the course of hearing, Shri Nishit Gandh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord. The undisputed facts are that the assessee has advanced money as share application money to Golden Harvest a foreign AE to set up a plant in free trade zone in Sharjah. It is also undisputed that the AE could not convert the share application money into share capital by issuing shares to the assessee as the permission from the free trade zone authorities with whom the AE was registered was pending and this was the only sole reason for not issuing the shares in favour of the assessee. Now the issue before us is whether the share application money could be treated as loan and could be subjected to the transfer pricing provisions. After perusing the facts on record and going through the decision relied on by the Ld. A.R., we find that no income has accrued from the share application money to the assessee and therefore such transactions could not be subjected to transfer pricing provisions. The Hon ble Jurisdictional Bombay High Court in the case of Shell India Markets Pvt. Ltd. vs. ACITAnd others has also held that the provisions of chapter 10 of the Act would apply only when income arises from the international transactions. The relevant portion of the said order is reproduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no rise to any income. The fact that the petitioner chose not to declare issue of shares to its non-resident associated enterprises in Form 3CEB as in its understanding it fell outside the scope of Chapter X of the Act now stands vindicated by the decision of this court in Vodafone IV. If the petitioner did not file a particular transaction in Form 3CEBwhen so required to be filed, the consequences of the same as provided in the Act would follow. However, the mere not filing of Form 3CEB on the part of the petitioner would not give jurisdiction to the Revenue to tax an amount which it does not have jurisdiction to tax. Therefore, we do not find any substance in this objection also. 11. The last objection taken by the Revenue was that in view of the variation in the shareholding pattern amongst different shareholders of the petitioner during the year clearly brought the issue of shares within clause (e) of the Explanation to section 92B of the Act. In terms of the above provision an international transaction would include a transaction of restructuring entered into by an enterprise with an associated enterprise. Mr. Pardiwala, learned counsel appearing for the petitioner, poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Petitioner in terms of Chapter X of the Act. However, the Petitioner objected to the Draft Assessment order before DRP. On 30 October 2014, DRP issued directions under Section 144C(5) of the Act to the Assessing Officer for the A.Y. 2010-11 and on identical facts qua equity shares and CCDs holding as under: 3.4 We find that the issue under consideration of applying Transfer Pricing Provisions on issue of shares has been decided in favour of the assessee by the Hon ble Bombay High Court in the case of M/s Vodafone India Services Private Limited in Writ Petition number 871 of 2014 dated 10th October 2014. The honorable High Court has held that the amounts received on issue of shares is a capital account transaction not separately brought within the definition of income as per the provisions of section 2(24) as well as sections 4 5 of the Act. Therefore, such capital account transaction not falling within a statutory exception cannot be brought to tax. Even income arising from international Transaction between AE must satisfy the test of income under the Act and must find its home in one of the above heads i.e. charging provisions. There is no charging section in chap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explain the same. In reply, the assessee submitted that the payment of advances was only incidental to normal course of business and thus not a separate transaction by itself. The assessee further submitted that the advances were neither loan nor in the nature of loan and, therefore, no interest was charged from the A.Es. Similarly, no interest was also charged from the non A.Es on advances. The TPO vide order dated 25.10.2018, noted that the adjustment on account of delayed realization of advance recoverable was also made in assessment year 2014 15, wherein the delayed receipt of advances were treated as loan and interest was imputed thereon. The TPO further noted that the DRP in earlier year has held that the adjustment in respect of advances recoverable should be calculated after allowing the credit period of 180 days as per the agreement. Following the approach, which was followed in earlier years (as per the directions issued by the DRP), the TPO made an adjustment of ₹ 31,26,172, towards interest on advances recoverable from its A.Es. The Assessing Officer passed the draft assessment order dated 20.12.2018, inter alia, on the basis of adjustment proposed by the TPO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions and the transfer pricing provisions are not applicable, we are not convinced with the same. On a reference to section 92B of the Act, it is observed that after amendment effected vide Finance Act, 2012, with retrospective effect from 1st April 2002, the definition of international transactions ITA No.8614/Mum/2011 as provided under the Explanation (i) to section 92B, has been expanded to include the following transactions. Explanation.--For the removal of doubts, it is hereby clarified that-- (i) the expression international transaction shall include-- (a) the purchase, sale, transfer, lease or use of tangible property including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing; (b) the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licenses, franchises, customer list, marketing channel, brand, commercial secret, know-how, industrial property right, exterior design or practical and new design or any other business or commercial rights of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unrelated parties, then the transaction between the related parties cannot be considered to be at arm's length. There is no dispute to the fact that while the assessee has incurred cost by availing credit facility it has advanced interest free funds by not charging interest on the expenditure incurred on behalf of the subsidiaries. Therefore, certainly, a benefit has accrued to the subsidiary on account of the assessee whereas a part of the profit base of the assessee on account of cost incurred on credit facility has been shifted to the subsidiary which otherwise could have been avoided if the surplus funds were available with it. In these circumstances, the principle of commercial expediency would not come into play. Therefore, in our view, as the assessee has not charged interest on outstanding receivables from the overseas subsidiaries, arm's length price of the same has to be determined. Having held so, it is necessary to quantify the rate of interest of such transaction. It is observed, the Transfer Pricing Officer has applied the average interest rate of domestic credit facility availed by the assessee. However, it is seen from the material on ITA No . 8614/Mum/2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer / TPO to consider LIBOR plus 300 basis point to compute the interest on advances recoverable from the A.Es. We further direct that while computing the interest, the credit period allowed by the A.Es to be considered and only on net credit period interest needs to be charged. Accordingly, ground no.3, raised in assessee s appeal is allowed for statistical purpose. 18. In view of our findings given in respect of grounds no.2 and 3, no separate adjudication is required in respect of ground no.1, and the same is decided accordingly. 19. The issue arising in ground no.4, raised in assessee s appeal is with regard to disallowance under section 14A of the Act r/w rule 8D of the I.T. Rules., 1962 ( Rules ). 20. During the relevant assessment year, the assessee has made suo motu disallowance of expenditure under section 14A of the Act to an extent of ₹ 46,77,100, while computing its income. During the course of assessment proceedings, the assessee was asked to explain as to why expenditure attributable to earning of exempt income should not be disallowed under section 14A of the Act r/w rule 8D of the Rules. In reply, the assessee submitted that it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We find that while making a further disallowance under section 14A of the Act, over and above suo motu disallowance offered by the assessee, the Assessing Officer has not considered any of the submissions made by the assessee which have bearing on the issue. We also noticed that the Co ordinate Bench in assessee s own case in Strides Pharma Science Ltd. v/s DCIT, in ITA no.7370/Mum./2018, for the assessment year 2014 15, vide order dated 07.02.2020, has restored the issue to the file of the Assessing Officer by observing as under: 30. .. The sum and substance of ratio laid down by above judgments is that only those investments which yield exempt income needs to be considered for computation of average value of investments. In this case, we notice that the Assessee has himself disallowed an amount of ₹ 21,27,797/- which has not been found to be accepted by the AO or the DRP. Further, the facts with regard to total investments and investments which yield exempt income is not readily available before us. We, therefore, are of the considered view that ends of justice would be met if the disallowance is made after re-computing average value of investment by considering on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessee s own case in Strides Pharma Science Ltd. v/s DCIT, in ITA no.7370/Mum./2018, for the assessment year 2014 15, vide order dated 07.02.2020, deleted the addition made to book profit computed under section 115JB of the Act by observing as under: 34. We have heard both the parties, perused materials available on record and gone through orders of the authorities below along with case laws cited by the ld. AR for the assessee. After considering the facts of the case and the various judgements cited supra, we are of the opinion that no addition to book profits u/s 115JB could be made on the basis of disallowance u/s 14A read with Rule 8D of the Income Tax Rules, 1962. This legal proposition is supported by the decision of Hon;ble Bombay High Court in case of CIT v/s Bengal Finance and Investments (ITXA No. 337 of 2013 Bombay High Court), where it was held that computation contemplated under clause (f) of explanation (1) to section 115JB is to be made without resorting to computation as contemplated u/s 14A r.w.r 8D of the Income Tax Rules, 1962. A similar ratio is laid down by special Bench of ITAT, Delhi in the case of DCIT vs. Vireet Investments Pvt Ltd(Supra). We, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft assessment order dated 20.12.2018, held that the assessee has failed to satisfy the conditions laid down in Article 25(4) of the DTAA. The Assessing Officer further held that the assessee made false claim categorizing the income in a particular category which is eligible for the benefit under Article 25(4) of the Indo Cyprus DTAA. Accordingly, the Assessing Officer rejected the additional claim of foreign tax credit made by the assessee. 39. The DRP vide its directions dated 30.09.2019, inter alia, rejected the objections filed by the assessee following its directions issued in assessment year 2014 15. Being aggrieved, the assessee is in appeal before us. 40. During the course of hearing, the learned A.R. submitted that on identical issue, the Co ordinate Bench of the Tribunal in assessee s own case for the assessment year 2014 15 has decided the issue in favour of the assessee. 41. The learned D.R. vehemently relied on the order of the authorities below. 42. We have considered the rival submissions and perused the material available on record. We find that the Co ordinate Bench of the Tribunal in assessee s own case in Strides Pharma Science Ltd. v/s DCIT, in ITA no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , on interest income offered to tax in the return of income. 45. During the course of hearing, the learned A.R. did not intend to press ground no.8. Consequently, this ground is dismissed as not pressed. 46. The issue arising in ground no.9, raised in assessee s appeal is with regard to levy of interest under section 234A of the Act. 47. As per the assessee, the return of income was filed on 27.11.2015, i.e., before the statutory due date for filing the return of income and thus interest under section 234A of the Act has been erroneously levied by the Revenue. In view of the above, we deem ITAppropriate to direct the Assessing Officer to verify the date of filing of return of income and in case it is found that the return of income has been filed belatedly, the interest may be charged as per law. Accordingly, ground no.9, raised in assessee s appeal is allowed for statistical purpose. 48. Ground no.10, raised in assessee s appeal relates to levy of interest under section 234B of the Act. 49. During the course of hearing, the learned A.R. submitted that the ground is consequential in nature. Thus, the Assessing Officer is directed to compute the interest under section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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