2020 (8) TMI 833 - AT - Income Tax

Tribunal Rules on Transfer Pricing, Maintenance Expenses, Interest Set-Off, Section 14A Disallowances, and Business Expenses

The Tribunal directed the Transfer Pricing Officer to consider the arm's length price of the corporate guarantee fee at 0.5% following High Court ... TP Adjustment - corporate guarantee fall within the ambit of international transaction or not? - HELD THAT:- We find that the Hon’ble Jurisdictional High Court in number of occasions had restricted the Arm’s Length Price (ALP) from the guarantee fee to be at 0.5%. We find that these decisions were subsequently followed by the Co-ordinate benches of this Tribunal and one such decision which was quoted by the ld. AR at the time of hearing in the case of Virgo Engineers Ltd. [2019 (1) TMI 1841 - ITAT MUMBAI] wherein ALP of corporate guarantee fee was restricted to 0.5%. Respectfully following the same, we direct the ld. TPO to consider the ALP of corporate guarantee fee at 0.5% and further reduce 0.25% already charged by the assessee and make adjustment accordingly. Expenses incurred towards providing additional services in respect of which service charges were collected by the assessee and separately offered to tax in addition to rent - HELD THAT:- It is not in dispute that assessee had duly offered rental income as well as amounts received towards amenities and service charges under the head ‘income from house property’. We find that the ld. AR referred to the decision rendered in group companies case of the assessee by this Tribunal in the case of Ewart Investments Ltd., [2019 (2) TMI 1647 - ITAT MUMBAI] wherein this issue was restored to the file of the ld. AO. The ld. AR fairly prayed for similar direction to be given in the impugned case. We have gone through the said decision and respectfully following the said decision, we deem it fit and appropriate to restore this issue to the file of the ld. AO and decide the issue before us on the same lines as directed. Set off of interest charged and paid to the Income Tax department against interest granted by the Income Tax department on refunds in the same year - HELD THAT:- Issue decided in own case [2019 (11) TMI 411 - ITAT MUMBAI] issue is already covered positively in favour the assessee. Disallowance u/s.14A - AO applied the computation mechanism provided in Rule 8D(2) of the Rules and made the disallowance - HELD THAT:- We hold that the business and commercial expediency of assessee making investments in these Tata group companies either with or without the use of borrowed funds have been proved beyond doubt in the instant case. The assessee company had earned both taxable income as well as tax free income out of these investments as detailed supra. Hence, there is absolutely no question of disallowance of interest u/s.36(1)(iii) of the Act. If the borrowed funds have been used for making investment for shares which inturn had yielded exempt income to the assessee, then, the allowability of interest need to be looked into from the angle of Section 14A of the Act r.w.r. 8D(2)(ii) of the Rules. This fact has been correctly dealt, in our considered opinion, by the ld. CIT(A) in his order. We also find that this issue is also covered in favour of the assessee’s group company case by the order of this Tribunal in the case of Tata Industries Ltd. [2016 (7) TMI 1011 - ITAT MUMBAI] wherein this Tribunal by placing reliance on various decisions of the Hon’ble High Courts including the Hon’ble Jurisdictional High Court in the case of CIT vs. Phil Corporation Ltd, [2011 (6) TMI 187 - BOMBAY HIGH COURT] had decided the issue in favour of the assessee with regard to allowability of interest. Hence, we do not find any infirmity in the observation made by the ld. CIT(A) that the interest on borrowed funds used for making investments would be allowable u/s.36(1)(ii) of the Act subject to the provisions of Section 14A. Disallowance made u/s.14A vis-à-vis computation of book profits u/s.115JB - HELD THAT:- We find that assessee had actually disallowed the sum of ₹ 474.19 Crores by identifying the actual expenditure under normal provisions of the Act. We find that the Special Bench of Delhi Tribunal in the case of Vireet Investments [2017 (6) TMI 1124 - ITAT DELHI] had held that actual expenditure alone should be considered for disallowance in terms of Clause(f) to Explanation 1 to Section 115JB of the Act. Accordingly, we direct the ld. AO to disallow ₹ 474.19 Crores u/s.14A while computing book profits u/s.115JB. Disallowance of payments made to Media Relations Agency - HELD THAT:- Applying the principle of consistency as has been held by the Hon’ble Supreme Court in the case of Radhasaomi Satsang [1991 (11) TMI 2 - SUPREME COURT]in allowing such claim to the assessee in earlier as well as in subsequent years, we hold that there is absolutely no case made out by the revenue for disallowing this sum of ₹ 12.66 Crores during the year under appeal. Disallowance of pension payment to wholetime Directors - allowable business expenditure - HELD THAT:- We find there is absolutely no dispute that the wholetime Directors to whom pension of ₹ 89 lakhs was paid by the assessee company had rendered tremendous services to the assessee company which was duly recognised by the assessee company by way of Board resolution appreciating their services and sanction for payment of pension was accorded thereon. Hence, the business expediency of the subject mentioned transaction has been duly approved by the assessee and it cannot be said that it is not incurred for the purpose of the business of the assessee. We find that the case of the assessee squarely falls within the ambit of the decision of the Hon’ble Supreme Court in the case of Sassoon J. David & Co. Pvt. Ltd.[1979 (5) TMI 3 - SUPREME COURT]. Thus pension to wholetime Directors on the basis of Board resolution of the assessee company is incurred wholly and exclusively for the purpose of business of the assessee and is allowable as deduction. Issues Involved:1. Transfer pricing adjustment related to Corporate guarantee fee.2. Deduction of expenses incurred for additional services in property income.3. Set off of interest charged and paid to the Income Tax department against interest granted on refunds.4. Disallowance under Section 14A of the Income Tax Act.5. Disallowance of payments made to Media Relations Agency.6. Disallowance of pension amount.Issue-wise Detailed Analysis:1. Transfer Pricing Adjustment Related to Corporate Guarantee Fee:The assessee provided a corporate guarantee to its associated enterprise (AE) and charged a 0.25% guarantee commission. The Transfer Pricing Officer (TPO) applied the Comparable Uncontrolled Price (CUP) method and determined the arm's length price (ALP) of the guarantee fee at 3.006% per annum, leading to an adjustment of Rs. 6,84,44,433/-. The Commissioner of Income Tax (Appeals) [CIT(A)] adjusted the fee to 0.792%, resulting in a reduced adjustment. The Tribunal directed the TPO to consider the ALP of corporate guarantee fee at 0.5%, following jurisdictional High Court decisions, and adjust accordingly.2. Deduction of Expenses Incurred for Additional Services in Property Income:The assessee deducted Rs. 30,55,040/- from the annual value for maintenance expenses. The Assessing Officer (AO) disallowed this deduction, stating only municipal tax and a flat 30% repair deduction are permissible. The Tribunal restored this issue to the AO, directing consistency with the decision in the case of Ewart Investments Ltd. for similar facts.3. Set Off of Interest Charged and Paid to the Income Tax Department Against Interest Granted on Refunds:The assessee sought to set off interest paid on tax demands against interest received on tax refunds. The Tribunal allowed this set-off, following the jurisdictional High Court's decision in the case of Bank of America NT and SA, where such set-off was permitted as both transactions involved the same party, the Government of India.4. Disallowance Under Section 14A of the Income Tax Act:The AO disallowed Rs. 825.80 crores under Rule 8D, reducing the amount already disallowed by the assessee, leading to an additional disallowance of Rs. 351.61 crores. The CIT(A) partially allowed the assessee's appeal, recognizing the business purpose of investments. The Tribunal ruled in favor of the assessee on several facets, including netting of interest for disallowance computation and considering only investments yielding exempt income. The Tribunal also directed the AO to disallow Rs. 474.19 crores while computing book profits under Section 115JB, following the Special Bench decision in Vireet Investments.5. Disallowance of Payments Made to Media Relations Agency:The AO disallowed Rs. 12.66 crores paid to Vaishnavi Corporate Communications Pvt. Ltd. (VCCPL) for media relations, linking it to land transactions and 2G licenses. The CIT(A) attributed 50% of the payment to non-business purposes. The Tribunal, applying the principle of consistency and recognizing the services rendered by VCCPL, allowed the entire payment as a business expense, dismissing the revenue's appeal.6. Disallowance of Pension Amount:The assessee's provision for pension of Rs. 4.88 crores was not pressed. However, the Tribunal allowed the actual payment of Rs. 89 lakhs as pension to former Directors, recognizing it as a business expense based on Board resolution and business expediency, following the Supreme Court's decision in Sassoon J. David & Co. Pvt. Ltd.Conclusion:The Tribunal's judgment addressed each issue comprehensively, providing relief to the assessee on several grounds while ensuring adherence to legal precedents and principles of consistency. The appeals were partly allowed or dismissed based on detailed legal analysis and factual verification.