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TMI Blog2023 (9) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... ated here under are independent of, and without prejudice to one another. Ground No. 1: On the facts and circumstances of the case and in law, the learned Assessing officer (AO) under directions issued by the Hon'ble Dispute Resolution Panel (DRP), erred in making addition of interest expenditure amounting to Rs. 12,923,055/- by reducing Arms Length Price rate from 15% p.a. to 13.83% paid/payable by Assessee to its associate enterprise, as initiated by the learned Transfer Pricing officer ("TPO") Ground No. 2: On the facts and circumstances of the case and in law, the learned TPO/AO erred and the Hon'ble DRP further erred in upholding/ confirming the action of the learned TPO/AO in not allowing the risk adjustments and yield adjustments, done by the Appellant on account of difference in economic condition and rating of the adjustments. Ground No. 3: On the facts and circumstances of the case, the learned TPO/AO erred and the Hon'ble DRP further erred in completely ignoring the Appellant's evidence/comparable of 15.55% being rate arrived by reputed agency CRISIL. Ground No. 4: Without prejudice to Ground no 1 to 3, the learned AO erred and the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aft assessment order dated 08/11/2013, under section 143(3) read with section 144C(1) of the Act proposing the total assessed income of the assessee of Rs. 8,56,50,380, after incorporating the adjustment of Rs. 1,29,23,055, proposed by the Transfer Pricing Officer ("TPO") vide order passed under section 92CA(3) of the Act and addition on account of interest income of Rs. 6,82,61,252. The assessee filed detailed objections before the learned DRP against the addition/adjustment proposed by the TPO/AO. While deciding the objections filed by the assessee, the learned DRP observed that the assessee has claimed exempt dividend income of Rs. 3,54,39,742, on which no disallowance under section 14A of the Act has been offered by the assessee nor any disallowance under the aforesaid section has been proposed by the AO vide draft assessment order. Accordingly, the learned DRP asked the assessee to show cause as to why the disallowance under section 14A of the Act be not made and the assessment be not enhanced on this count. In response thereto, the assessee submitted that it has not incurred any expenditure during the year in relation to earning the dividend income. The assessee also submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares/ making the investment in shares is to be examined by the Assessing Officer." Further, Hon'ble Supreme Court in Godrej & Boyce Manufacturing Company Ltd. Vs DCIT: [2017] 394 ITR 449 (SC), observed as under: "37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings upon perusal of the schedule of the balance sheet, it was observed that the closing balance of the work in progress has been arrived at after reducing an amount of Rs. 6,82,61,252, which the assessee has also claimed as expenses relating to earning of interest (to the extent of interest earned i.e. Rs. 6,82,61,252). The AO, vide draft assessment order, observed that during the year under consideration, the assessee had surplus funds at its disposal and the same were advanced as interest-bearing loans to the sister concerns. Such advancement of loan to the sister concerns has fetched interest income of Rs. 6,82,61,252. The AO further observed that the interest income of Rs. 6,82,61,252, has been offered to tax under the head "income from other sources" and the said amount has been reduced by the interest expenditure incurred for earning the interest income under section 57(iii) of the Act. In response to the show cause notice, the assessee submitted that during the year under consideration, the assessee has borrowed funds for its real estate project on which it incurred interest cost and capitalised the same in the project cost in accordance with accounting guidelines. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs. It is undisputed that the assessee, during the year under consideration, utilised the said borrowed funds for giving loans to sister concerns and earned interest income therefrom amounting to Rs. 6,82,61,252. In the act of lending borrowed funds to the sister concerns, the assessee incurred interest cost amounting to Rs. 10,25,58,218, which was claimed to have been wholly and exclusively for the purpose of earning such income, i.e. interest income of Rs. 6,82,61,252. In its return, the assessee duly offered the interest income of Rs. 6,82,61,252 to tax under the head "income from other sources" and restricted the claim of deduction under section 57(iii) of the Act to the extent of income offered. On the other hand, as per the AO, the funds were borrowed for the purpose of real estate projects of the assessee and the interest cost incurred thereon has no connection with the interest income earned by the assessee. Before proceeding further, it is relevant to note the provisions of section 57(iii) of the Act, which reads as under:- "57. The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely :- (i)....... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Dispute Resolution Panel ('DRP'), erred in making addition of interest expenditure amounting to Rs. 14,162,850/- by reducing Arms Length Price rate from 15% p.a. to 13.83% paid/payable by Assessee to its associate enterprise, as initiated by the learned Transfer Pricing officer (TPO') Ground No. 2: On the facts and circumstances of the case and in law, the learned TPO/AO erred and the Hon'ble DRP further erred in upholding/ confirming the action of the learned TPO/AO in not allowing the risk adjustments and yield adjustments, done by the Appellant on account of difference in economic condition and rating of the adjustments. Ground No. 3: On the facts and circumstances of the case, the learned TPO/AO erred and the Hon'ble DRP further erred in completely ignoring the Appellant's evidence/comparable of 15.55% being rate arrived by reputed agency CRISIL. Ground No. 4: Without prejudice to Ground no 1 to 3, the learned AO erred and the Hon'ble DRP further erred in upholding/ confirming the action of the learned AO in adding Rs. 14,162,850/- u/s 92CA(3) to the Income of the current assessment year without acknowledging the fact that the adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction of interest expenditure of Rs. 6,99,42,651, under section 57(iii) of the Act against the interest income of Rs. 4,23,07,499, offered under the head "income from other sources". The learned DRP further directed the AO to reduce the inventory valuation in schedule 4 of the books of account by the interest expenditure claimed by the assessee. The relevant findings of the learned DRP are reproduced as under:- "4.2 Since the facts are same as in last year, respectfully following the same, the AO is cted as under: I. On the facts of the case, since there is a direct nexus between the borrowed funds and the amount advanced, the amount of interest expenditure of Rs. 6,99,42,651/-( as per submissions dated 14.10.2014) is allowable as deduction under section 57 (iii) against the interest income offered as income from other sources of Rs. 4,23,07,499/- (interest on FDR Rs. 73,836+ Interest on ICD 4,22,33,663/-). The AO is directed accordingly to allow deduction of this expenditure under section 57(iii), and allow set off and carry forward of the resultant loss as per law. II. Further, since the amount advanced as loan has not been used for the purpose of the project, the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO under section 14A read with Rule 8D of the Rules. Accordingly, the AO vide impugned final assessment order made the addition on the aforesaid count. Since the disallowance under section 14A read with Rule 8D has been admitted by the assessee before the learned DRP and no material has been brought on record to show that the aforesaid directions of the learned DRP were subsequently modified in this regard, we find no merits in the grounds raised by the assessee before us challenging its admitted liability. Accordingly, the impugned final assessment order on this issue is upheld and grounds no.6 and 7, raised in assessee's appeal are dismissed. 26. In the result, the appeal by the assessee is partly allowed for statistical purposes. IT(TP)A no.949/Mum./2015 Revenue's Appeal - A.Y. 2010-11 27. In its appeal, the Revenue has raised the following grounds:- "1. Whether on the facts and in the circumstances of the case and in law, the Hon'ble DRP has erred in allowing the interest expenditure of Rs. 6,99,42,651/- under section 57(iii) of the Income Tax Act against the interest income on loan advanced to its sister concern, without appreciating the fact that the interest expe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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