2019 (8) TMI 1450 - AT - Income Tax

Assessee wins on corporate guarantee & interest disallowance. Club expense disallowed.

The tribunal ruled in favor of the assessee on the issues of corporate guarantee adjustment, proportionate interest disallowance under section 14A, club ... TP Adjustment - corporate guarantee adjustment - international transaction u/s. 92B - HELD THAT:- This tribunal’s co-ordinate bench’s decision in Tega Industries Ltd V/s. DCIT for AY 2008-09 [ 2016 (9) TMI 1456 - ITAT KOLKATA] decides the issue against the department in holding that a corporate guarantee does not amount to an international transaction u/s. 92B of the Act. There is further no dispute that the legislature has introduced Explanation to section 92B of the Act vide Finance Act, 2012 w.e.f 1-4-2002. This tribunal’s yet another decision in DCIT, Cir-4(2), Kolkata V/s. M/s. Manaksia Limited decided on 28- 09-2018 concludes that the above stated explanation inserted in the statutory provision is made clarificatory in nature. We adopt the above detailed discussion mutatis mutandis to conclude that assessee’s corporate guarantee (s) in issue do not amount to international transactions u/s. 92B of the Act. Both the corresponding transfer pricing adjustment in question stand deleted. This first identical issue in both the appeals is decided in assessee’s favour. Section 14A r.w.r 8D disallowance in relation to its exempt income(s) - HELD THAT:- Lower authorities have nowhere recorded any satisfaction regarding corresponding explanation as per its books of account u/s. 14A(2) of the Act, we find no merit since the Assessing Officer had found no reason to accept the above stated suo motu figures. It has further filed necessary details of the financial position as well as either heads of avialbility of funds in the paper book. The same suggests that the assessee had made assessment year wise investments of ₹ 170.32 corres and ₹ 217.42 crores in exempt income yielding investments whereas corresponding non interest bearing amount in assessment year wise of ₹ 326.08 and ₹ 386.59 corres; respectively. These clinching figures have gone rebutted from the revenue side. Hon’ble Bombay High Court’s landmark decision in CIT V/s. Reliance Utilities Power Ltd [2009 (1) TMI 4 - BOMBAY HIGH COURT] holds that necessary presumption that arises in such a case is deployment of non interest security fund is exempt income yielding interest. We thus reverse both the lower authorities’ action disallowaning proportionate interest amount in question. Club expenditure disallowance - HELD THAT:- Hon’ble Apex Court’s decision in CIT V/s. United Glass MGF Ltd [2012 (9) TMI 914 - SUPREME COURT] (ii) concludes that such club expenditure in case of company is very much allowable as incurred for business promotion. This was not Revenue’s case as per lower authorities’ order that the impugned claim involves any personal element as per documents on record. We therefore accept assessee’s instant grievance to delete club expenditure disallowance Administrative expenditure disallowance - HELD THAT:- We find that neither of the lower authority has considered the foregoing legal proposition relating to the impugned disallowance. We therefore restore the instant issue of administrative expenditure disallowance back to the Assessing Officer for necessary computation as per law. Claim education cess on provision for Income-tax as allowable in computing total income other than MAT u/s. 115JB - Admission of additional ground - HELD THAT:- Hon’ble Apex Court’s land mark decision National Thermal Power Corporation Ltd (NTPC) V/s. CIT [1996 (12) TMI 7 - SUPREME COURT] as considered by this tribunal’s Special Bench order M/s. All Cargo Global Logistics Ltd V/s. DCIT [2012 (7) TMI 222 - ITAT MUMBAI(SB)] settles the law that we can very well entertain such a legal question in order to determine the correct tax liability when all the relevant facts form part of records. We thus allow assessee’s additional ground to be raised. Coming to merits of the hon’ble Rajasthan high court’s decision in Chmbal Fertilisers & Chemicals Limited V/s. JCIT [2018 (10) TMI 589 - RAJASTHAN HIGH COURT] taking note of CBDT’s Circular No. 91/58/66 dated 18-05-1965 as well as co-ordinate bench’s order in ITC Limited V/s. ACIT [2019 (4) TMI 1574 - ITAT KOLKATA] hold that such a claim of education cess is very much allowable in computing total income under the provisions of the Act Issues Involved:1. Corporate Guarantee Adjustment2. Section 14A r.w.r 8D Disallowance3. Club Expenditure Disallowance4. Section 234B/234C Interest5. Education Cess on Provision for Income-taxDetailed Analysis:1. Corporate Guarantee Adjustment:The assessee challenged the lower authorities' action of making corporate guarantee adjustments for the assessment years 2012-13 and 2013-14. The tribunal referenced its co-ordinate bench’s decision in ITA No. 1912/Kol/2012, Tega Industries Ltd V/s. DCIT, which held that a corporate guarantee does not amount to an international transaction under section 92B of the Income Tax Act. The tribunal also noted that the Explanation to section 92B, introduced by the Finance Act, 2012, is clarificatory in nature. The tribunal concluded that corporate guarantees provided by the assessee to its associated enterprises do not constitute international transactions under section 92B, and thus, the corresponding transfer pricing adjustments were deleted.2. Section 14A r.w.r 8D Disallowance:The assessee contested the disallowance made under section 14A read with Rule 8D concerning its exempt income. The Assessing Officer had computed proportionate interest and administrative expenses, which were affirmed by the CIT(A). The tribunal found that the Assessing Officer had not recorded any satisfaction regarding the assessee’s explanation as per its books of account under section 14A(2). The tribunal noted that the assessee had sufficient non-interest-bearing funds to cover the investments in exempt income-yielding assets. Citing the Bombay High Court’s decision in CIT V/s. Reliance Utilities Power Ltd, the tribunal reversed the disallowance of proportionate interest. However, for administrative expenditure, the tribunal restored the issue to the Assessing Officer for recomputation as per the legal precedents set by REI Agro Ltd V/s. DCIT and ACB India Ltd v/s. ACIT.3. Club Expenditure Disallowance:In the assessment year 2012-13, the assessee challenged the disallowance of club expenditures amounting to Rs. 73,839. The tribunal referred to the Supreme Court’s decision in CIT V/s. United Glass MGF Ltd, which allows club expenditure for business promotion. Since there was no evidence of personal use, the tribunal deleted the disallowance of Rs. 7,38,319.4. Section 234B/234C Interest:The tribunal treated the assessee’s grounds regarding section 234B/234C interest as consequential in nature, implying that the outcome would depend on the final tax liability determined after addressing the other issues.5. Education Cess on Provision for Income-tax:The assessee sought to claim education cess on the provision for income-tax as allowable in computing total income other than MAT under section 115JB. The tribunal, referencing the Supreme Court’s decision in National Thermal Power Corporation Ltd V/s. CIT and the Rajasthan High Court’s decision in Chambal Fertilisers & Chemicals Limited V/s. JCIT, held that such a claim is allowable. The tribunal directed the Assessing Officer to make the necessary computations to allow the education cess.Conclusion:The appeals were partly allowed, with the tribunal ruling in favor of the assessee on the issues of corporate guarantee adjustment, proportionate interest disallowance under section 14A, club expenditure disallowance, and education cess. The administrative expenditure disallowance issue was remanded back to the Assessing Officer for recomputation.