2018 (9) TMI 1937 - AT - Income Tax

Tribunal partially allows appeal, remands issues for fresh review, aligns with prior rulings.

The Tribunal partly allowed the appeal for statistical purposes, remanding several issues back to the AO/TPO for fresh consideration and verification. The ... TP Adjustment - determination of arm’s length price of Corporate Guarantee Fees - HELD THAT:- As decided in own case [2018 (5) TMI 1853 - ITAT KOLKATA] we hold that the issuance of Corporate Guarantee by the assessee to its subsidiary company does not fall under the ambit of International Taxation u/s 92B of the Act in the facts and circumstances of the case, in as much as there was no guarantee fee charged by the assessee from its subsidiary company. Determination of arm’s length price for rate of interest on loan provided to AE - HELD THAT:- As decided in own case [2018 (5) TMI 1853 - ITAT KOLKATA] LIBOR and basis points should be the criteria for meeting the cost of interest on the international transaction in respect of interest to be charged on the loan advanced to AE. For this purpose the credit rating of the assessee as well as the credit rating of the AE should be taken into account. Accordingly we deem it fit to remand the issue to the ld. TPO to determine the basis points on the basis of the aforesaid parameters and such other relevant parameter in accordance to law. Therefore, we remand this issue for this limited purpose back to the ld TPO / ld AO and to determine the issue as directed by us. Disallowance u/s 14A r.w.r. 8D of the Rules both under normal provision of the Act as well as u/s 115JB - HELD THAT:- We find from the comparative statement of own funds vis-àvis the investment made for the last six years as submitted by the ld. AR that the assessee is possessing sufficient own funds which are much more than the domestic investments made by it. Hence by placing reliance on the decision of Hon’ble Bombay High Court in the case of Reliance Utilities and Power Limited [2009 (1) TMI 4 - BOMBAY HIGH COURT] we hold that no disallowance of interest is required to be made under Rule 8D(2)(ii) of the Rules. Disallowance under Rule 8D(2)(iii) of the Rules, the assessee pleaded that domestic investments which had yielded dividend income alone should be considered for the purpose of computing the disallowance under Third limb of Rule 8D(2) of the Rules, We find this argument is in consonance with the decision rendered by this Tribunal in the case of REI Agro Ltd. [2013 (9) TMI 156 - ITAT KOLKATA] . Accordingly, we direct the ld. AO to re-compute the disallowance in the light of the decision referred to supra. There is no dispute with regard to disallowance made under Rule 8D(2)(i) of the Rules. Accordingly, ground raised by the assessee are partly allowed for statistical purposes. Disallowance u/s 14A of the Act read with Rule 8D of the Rules while computing the book profits u/e 115JB - As in the case of ACIT vs. Vireet Investment Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI] that the computation mechanism provided under Rule 8D of the Rules cannot be applied for the disallowance u/s 14A in the computation of book profit u/s 115JB of the Act and for this purpose, the expenditure debited in the profit & loss account is to be gone into by the ld. AO. In the instant case, the assessee had voluntarily disallowed a sum of ₹ 30,73,963/-having regard to its accounts by considering various expenditures debited in the profit and loss account and had attributed some percentage of the same towards the disallowance. We direct the ld. AO to verify the veracity of the said workings and proceed to make disallowance u/s 14A of the Act vis-à-vis computation of book profits u/s 115JB of the Act in the light of the aforesaid Special Bench decision Disallowance of principal repayment of finance lease charges - HELD THAT:- As decided in own case [2018 (5) TMI 1853 - ITAT KOLKATA] the agreement provided that during the lease period, only the lessor shall be treated as owner of the trucks and not the lessee. Moreover, the lessor had been allowed depreciation on the trucks. Therefore, considering the terms and conditions of the lease agreement and the fact that depreciation on these trucks had been allowed to the lessor, the lease rent was deductible as revenue expenditure Disallowance of certain foreign currency payments u/s 40a(ia) - ‘make available clause’ - HELD THAT:- various expenditures, nature of remittances, country wise foreign remittances, taxability of the same under the domestic law as well as under DTAA, availability of FTS clause, availability of make available clause in DTAA and non-existence of Permanent Establishment (in short PE) in India have been narrated hereinabove. The same are not reproduced herein for the sake of brevity. We find that the ld. CIT(A) had granted relief to the assessee in the earlier years on the very same issue by placing reliance of ‘make available clause’ prevailing in various tax treaties but the same was not done by the ld. DRP in the year under consideration. Since various factual and legal submissions were indeed made by the assessee before lower authorities as narrated above which were not properly examined by the ld. AO, we deem it may fit and appropriate, to remand this entire issue to the file of ld. AO, for de novo adjudication of the issue afresh in accordance with law. We find that the similar direction has been given by this Tribunal in assessee’s own case for assessment year 2012-13 [2018 (5) TMI 1853 - ITAT KOLKATA]. Credit of tax deducted at source and tax collected at source - HELD THAT:- this requires factual verification and accordingly we direct the ld. AO to verify the veracity of the said claim of the assessee and grant necessary TDS/TCS credit to it as per law. Error in calculation of dividend distribution tax of gross dividend - HELD THAT:- This issue has been adjudicated by this Tribunal in assessee’s own case for assessment year 2012-13 [2018 (5) TMI 1853 - ITAT KOLKATAwherein, this issue was remanded back to the file of the ld. AO. Issues Involved:1. Determination of Arm’s Length Price (ALP) of Corporate Guarantee Fees.2. Determination of ALP for the rate of interest on loans provided to Associated Enterprises (AE).3. Disallowance under Section 14A of the Income Tax Act read with Rule 8D.4. Disallowance of principal repayment of finance lease charges.5. Disallowance of certain foreign currency payments under Section 40(a)(ia).6. Credit of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS).7. Error in calculation of Dividend Distribution Tax (DDT).8. Charging of interest under Section 234D.Detailed Analysis:1. Determination of Arm’s Length Price (ALP) of Corporate Guarantee Fees:The issue regarding the ALP of Corporate Guarantee Fees was previously addressed in the assessee’s own case for AY 2011-12 and AY 2012-13. It was held that the provision of corporate guarantee by the assessee to its subsidiary was a matter of commercial prudence to protect its investment interest and not to earn a guarantee fee. The Tribunal concluded that such guarantees are shareholder activities and do not constitute an international transaction under Section 92B of the Act, as they do not have any bearing on the profits, incomes, losses, or assets of the enterprise. Consequently, no TP adjustment was required. The Tribunal followed the same reasoning for the current assessment year, allowing ground nos. 1.1 to 1.4 raised by the assessee.2. Determination of ALP for the Rate of Interest on Loans Provided to AE:The Tribunal remanded the issue back to the Transfer Pricing Officer (TPO) for fresh consideration, emphasizing that both the credit rating of the assessee and the AE should be taken into account. This approach was consistent with the Tribunal's decision in the assessee’s own case for AY 2011-12 and AY 2012-13. The Tribunal directed the TPO/AO to determine the basis points for the cost of interest on the international transaction, allowing ground nos. 2.1 to 2.3 for statistical purposes.3. Disallowance under Section 14A read with Rule 8D:The assessee had earned dividend income and made a suo-moto disallowance under Section 14A. The AO, however, applied Rule 8D, resulting in a higher disallowance. The Tribunal held that since the assessee had sufficient own funds, no disallowance of interest was required under Rule 8D(2)(ii). For Rule 8D(2)(iii), only domestic investments yielding dividend income should be considered, in line with the decision in REI Agro Ltd. The Tribunal directed the AO to re-compute the disallowance accordingly and to verify the disallowance for book profits under Section 115JB as per the Special Bench decision in ACIT vs. Vireet Investment Pvt. Ltd. Ground nos. 3.1 to 3.4 were partly allowed for statistical purposes, and ground no. 3.5 was allowed for statistical purposes.4. Disallowance of Principal Repayment of Finance Lease Charges:The Tribunal found that the issue was covered in favor of the assessee in its own case for AY 2012-13. It was held that the lease arrangement did not confer ownership of the asset to the assessee, and thus, the entire lease rental was deductible as revenue expenditure. The Tribunal directed the AO to delete the disallowance, allowing ground nos. 4.1 to 4.3.5. Disallowance of Certain Foreign Currency Payments under Section 40(a)(ia):The AO had disallowed various foreign currency payments made by the assessee, treating them as fees for technical services (FTS) or royalty. The Tribunal noted that the CIT(A) had granted relief in earlier years based on the 'make available' clause in various tax treaties. The Tribunal remanded the issue back to the AO for de novo adjudication, directing a fresh examination of the nature of remittances and their taxability under domestic law and DTAA. Ground nos. 5.1 to 5.3 were allowed for statistical purposes.6. Credit of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS):The Tribunal directed the AO to verify the assessee’s claim for TDS/TCS credit and grant it as per law. Ground no. 6 was allowed for statistical purposes.7. Error in Calculation of Dividend Distribution Tax (DDT):The Tribunal remanded the issue back to the AO for re-examination, following its decision in the assessee’s own case for AY 2012-13. Ground no. 7 was remanded.8. Charging of Interest under Section 234D:The Tribunal noted that the issue was consequential in nature and did not require specific adjudication.Conclusion:The appeal was partly allowed for statistical purposes, with several issues remanded back to the AO/TPO for fresh consideration and verification. The Tribunal’s directions were consistent with its previous rulings in the assessee’s own cases for earlier assessment years.