2022 (2) TMI 1326 - AT - Income Tax

Revenue appeals dismissed, assessee appeals partly allowed. Delays & section 263 issues dismissed.

ACIT, Circle-1, LTU Bangalore Vs. M/s. Tejas Networks Ltd., M/s. Tejas Networks Ltd. Versus. ACIT, Circle-1, LTU Bangalore, DCIT, Circle-1, LTU Bangalore Vs. M/s. Tejas Networks Ltd., M/s. Tejas Networks Ltd. Bangalore 560 100 Vs. DCIT, Circle-1, LTU Bangalore And M/s. Tejas Networks Ltd. Bangalore 560 100 Vs. Principal CIT, Central, Bangalore

The appeals filed by the revenue were dismissed. Appeals filed by the assessee were partly allowed for statistical purposes, with certain issues remitted ... TP Adjustment - interest on loan advanced to its Associated Enterprise - HELD THAT:- After hearing both the parties we are of the opinion that this issue is covered by the order of Tribunal in assessee’s own case - reasoning given by Ld. DRP for rejecting the TPO’s methodology of adopting interest rates applicable to loan transactions between Indian parties, in our view, is justified. We notice that the Ld DRP has determined the ALP of interest rate at 12 months Libor + 500 basis points. There is no dispute with regard to the fact that the loan transaction is with its AE and further the interest rate spread noticed by the Ld DRP was between 3% to 8%. Accordingly we are of the view that the ALP may be determined at 12 months LIBOR plus 300 basis points. We modify the directions given by Ld. DRP and direct the AO to adopt 12 months LIBOR plus 300 basis points for determining the interest income om the loan advanced to the AE and asses the same accordingly. Interest on outstanding balance from the Associated Enterprise Tejas Communications Pte. Ltd., Singapore - After haring both the parties we observe that this issue was covered by the decision given in the case of CIT-9 Vs Indo American Jewellery Ltd. [2013 (1) TMI 804 - BOMBAY HIGH COURT]. In view of the above order, this issue is decided in favour of the assessee. Guarantee Commission with respect to the corporate guarantee provided by the assessee to its Associated Enterprises - This issue is covered by the orders of the Tribunal in Medrich Limited [2021 (4) TMI 1321 - ITAT BANGALORE] in the case of M/s. Manipal Global Education Services Pvt. Ltd. [2019 (5) TMI 1942 - ITAT BANGALORE] and in the case of Xchanging Solutions Ltd. [2016 (10) TMI 1211 - ITAT BANGALORE] wherein it was directed to AO/TPO to make TP adjustments in respect of corporate guarantee at 0.50% for the assessment years under consideration. In view of the above order, we decide these issues in favour of the assessee. Disallowance of deduction under section 35(2AB) - After hearing both the parties it has been observed that this issue is covered by this Tribunal [2015 (3) TMI 535 - ITAT BANGALORE] where in the Tribunal has reversed the findings of the A.O. in his assessment order passed for A.Y. 2008-09 and the appeals were decided in favour of the assessee. Hence, keeping in view of the above order of the Tribunal, these grounds of the assessee are decided in favour of the assessee and hence these grounds of appeal are allowed. Disallowance u/s 14A of the Act read with Rule 8D - HELD THAT:- We inclined to remit the issue in dispute to the file of AO for re-examination to see whether investment which yielded exempt income made out of interest free own funds and decide accordingly. Revenue expenditure for scientific research is allowable expenditure as per section 37(1). Charge interest at the rate of LIBOR + 500 points - The loan has been given by the Indian Entity, therefore, the annualized average yield rating of interest rate of 14.74% is to be applied. Depreciation in respect of capital expenditure on fixed assets since the A.O. disallowed the same on the reason that this expenditure is allowed as revenue expenditure on the direction of the Ld. DRP - The claim of deduction u/s 35(2AB) of the Act has been allowed to the assessee. Now this ground has become infructuous and dismissed accordingly. Revision u/s 263 - As seen from the assessment order, the AO closed his eyes on the issues raised by the Principal CIT for the reasons best known to him and accepted the deduction claimed by the assessee in his return of income. Though AO is required to make necessary enquiries himself regarding the various claims of the assessee, he failed to do so. Therefore, the issues dealt by the Principal CIT were within his powers to invoke the provisions of the section 263 of the Act where such enquiry was prima facie warranted. In view of the above, we are of the opinion that the Ld. Principal CIT was justified in invoking the provisions of section 263. Disallowance made under section 14A read with Rule 8D AND reversal of provision for doubtful debts - As the assessee inadvertently claimed the lower amount of Rs.1,95,17,376/-as against the correct amount to be claimed - In this case, Ld. Principal CIT given a direction to reconsider the above two issues afresh after giving an opportunity of hearing to the assessee. He has not suggested any addition on this count. Being so, we do not find any infirmity in the findings of Ld. Principal CIT. Further we make it clear that the A.O. shall not be influenced by any observations made by Principal CIT in his order. The A.O. should carry out the enquiry independently and pass fresh assessment order after giving opportunity of hearing to the assessee. Hence, the appeal filed by the assessee is dismissed. Issues Involved:1. Delay in filing the appeal.2. Transfer Pricing adjustments.3. Disallowance of deduction under section 35(2AB) of the Act.4. Deduction under section 35(1)(iv) of the Act.5. Disallowance under Rule 8D read with Section 14A.6. Initiation of penalty proceedings.7. Interest under section 234B of the Act.8. Non-grant of foreign tax credit and short credit of tax deducted at source.9. Computation of book profit under section 115JB.10. Validity of the order passed under section 263 of the Act.Detailed Analysis:1. Delay in Filing the Appeal:The appeal was delayed by 1694 days. The assessee attributed the delay to a misunderstanding due to a change in counsel. The Tribunal held that delay could be condoned only for sufficient and good reason supported by cogent evidence. The Tribunal found no sufficient cause to condone the delay, noting that the delay was due to negligence and inaction on the part of the assessee. Therefore, the appeal was dismissed unadmitted.2. Transfer Pricing Adjustments:The Tribunal addressed multiple grounds related to transfer pricing:- Interest on loan advanced to AE: The Tribunal followed its earlier order and determined the ALP at 12 months LIBOR plus 300 basis points, deciding in favor of the assessee.- Interest on outstanding balance from AE: This issue was decided in favor of the assessee based on the decision of the Hon’ble High Court of Bombay in the case of CIT-9 Vs Indo American Jewellery Ltd.- Imputing Guarantee Commission: The Tribunal directed the AO/TPO to make TP adjustments at 0.50%, following previous Tribunal orders, deciding in favor of the assessee.3. Disallowance of Deduction under Section 35(2AB):The Tribunal found that the issue was covered by its earlier orders, where it had reversed the findings of the AO. Hence, the grounds of the assessee were allowed, and the issue was decided in favor of the assessee.4. Deduction under Section 35(1)(iv):The issue was remitted to the file of the AO for fresh examination, following the Tribunal’s decision in the assessee’s own case for A.Y. 2014-15.5. Disallowance under Rule 8D read with Section 14A:The Tribunal remitted the issue to the AO for re-examination to verify if the investment that yielded exempt income was made out of interest-free own funds.6. Initiation of Penalty Proceedings:This ground was found to be preposterous and did not require adjudication.7. Interest under Section 234B:This ground was consequential in nature.8. Non-grant of Foreign Tax Credit and Short Credit of Tax Deducted at Source:The AO was directed to give corresponding TDS credit to the assessee.9. Computation of Book Profit under Section 115JB:The Tribunal admitted additional grounds regarding the computation of book profit and remitted the issue to the AO for reconsideration while passing a fresh order.10. Validity of the Order Passed under Section 263:The Principal CIT invoked section 263, finding the AO’s order erroneous and prejudicial to the interest of the revenue due to lack of proper verification. The Tribunal upheld the Principal CIT’s order, noting that the AO failed to make necessary verification regarding the computation of book profit and disallowance under section 14A. The Tribunal directed the AO to carry out an independent enquiry and pass a fresh assessment order after giving an opportunity of hearing to the assessee.Conclusion:The appeals filed by the revenue were dismissed. Appeals filed by the assessee were partly allowed for statistical purposes, with certain issues remitted back to the AO for fresh consideration. Appeals related to the delay in filing and the order under section 263 were dismissed.