Assessee wins on exempt income expenses, guarantee commission, TDS credit; professional fees disallowed.

The Tribunal partially allowed the assessee's appeal by ruling in favor of the assessee on the disallowance of expenses related to exempt income and the adjustment on account of guarantee commission. The disallowance of professional fees was upheld, while issues regarding TDS credit and penalty proceedings were dismissed as not pressed. The order was pronounced on 11-12-2018.

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Issues Involved:
1. Disallowance of expenses related to exempt income under Section 14A read with Rule 8D.
2. Adjustment on account of guarantee commission under Section 92C.
3. Disallowance of professional fees treating it as capital expenditure.
4. TDS credit pertaining to the merged entity.
5. Penalty proceedings under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Disallowance of Expenses Related to Exempt Income:
The primary issue was whether the CIT(A) was correct in confirming the AO's disallowance of expenses related to exempt income under Section 14A read with Rule 8D. The assessee received dividend income but did not disallow any expenses related to this exempt income. The AO invoked Section 14A read with Rule 8D, disallowing Rs. 1,64,30,604 under Rule 8D(2)(ii) and Rs. 72,30,600 under Rule 8D(2)(iii). The CIT(A) upheld this disallowance. The Tribunal noted that the AO did not record any satisfaction as required by the Supreme Court in Maxopp Investment Ltd. vs. CIT and Godrej & Boyce Manufacturing Company Ltd. vs. DCIT. The Tribunal found that the assessee had substantial own funds exceeding the investments, and there was no evidence that any expenses were specifically incurred for earning the exempt income. Consequently, the Tribunal ruled in favor of the assessee, deleting the disallowance.

2. Adjustment on Account of Guarantee Commission:
The second issue was the adjustment made by the TPO on account of guarantee commission under Section 92C. The TPO determined the Arms Length Price (ALP) for the guarantee commission at 3%, resulting in an adjustment of Rs. 97,51,164. The CIT(A) upheld this adjustment, referencing the ITAT Mumbai's decision in Everest Kanto Cylinder Ltd. vs. DCIT. However, the Tribunal noted that the Bombay High Court in Everest Kento Cylinder Ltd. had upheld a guarantee commission rate of 0.5%, which the assessee had already benchmarked. Therefore, the Tribunal ruled that no further adjustment was necessary, allowing the assessee's appeal on this issue.

3. Disallowance of Professional Fees:
The third issue involved the disallowance of professional fees amounting to Rs. 50 lakhs, which the AO treated as capital expenditure. The CIT(A) confirmed this disallowance, citing the Supreme Court's decisions in Brooke Bond India Ltd. vs. CIT and Punjab State Industrial Development Corporation vs. CIT, which held that expenses related to the issue of securities are capital in nature. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the assessee's appeal on this issue.

4. TDS Credit Pertaining to Merged Entity:
The fourth issue was the CIT(A)'s failure to direct the AO to grant TDS credit of Rs. 11,20,85,754 pertaining to the merged entity, UTV Motion Pictures (Mauritius) Limited. The assessee's counsel conceded that they were not interested in prosecuting this ground, leading to its dismissal as not pressed.

5. Penalty Proceedings Under Section 271(1)(c):
The final issue was the CIT(A)'s failure to direct the AO to drop the penalty proceedings initiated under Section 271(1)(c). Similar to the TDS credit issue, the assessee's counsel conceded that they were not interested in prosecuting this ground, resulting in its dismissal as not pressed.

Conclusion:
The Tribunal's judgment resulted in the partial allowance of the assessee's appeal, specifically in favor of the assessee regarding the disallowance of expenses related to exempt income and the adjustment on account of guarantee commission. The disallowance of professional fees was upheld, and the issues concerning TDS credit and penalty proceedings were dismissed as not pressed. The order was pronounced in the open court on 11-12-2018.

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