2019 (4) TMI 2094 - AT - Income Tax

Appeal partially allowed on adjustments, interest income, disallowance, tax treatment.

The appeal challenged the final assessment order for the assessment year 2013-14. The Tribunal partly allowed the grounds related to adjustments towards ... TP adjustment towards interest of outstanding receivables from its Associated Enterprise - HELD THAT:- Undisputedly, the Transfer Pricing Officer has determined the arm's length price of the interest chargeable on outstanding receivable from the AE by applying the rate of 6.56% as per Bloomberg database. However, it is noticed that before the Transfer Pricing Officer and learned DRP the assessee had submitted that as per LIBOR rate of interest the interest chargeable on such outstanding receivable is LIBOR plus 0.5%. The aforesaid contention of the assessee has not at all been considered by the Transfer Pricing Officer and learned DRP. As held in various judicial precedents, interest on outstanding receivables has to be charged by applying LIBOR rate as applicable in the country of residence of AE. In view of the aforesaid, we direct the Assessing Officer to compute the interest chargeable on outstanding receivables at LIBOR plus 0.5%. This ground is partly allowed. Correct head of income - assessing the interest income under the head income from other sources instead of income from business - HELD THAT:- We direct the AO to assess the interest earned on margin deposit as business income and interest on ICDs and bank deposits as income from other sources. This ground is partly allowed. Disallowance made u/s 14A r/w rule 8D - HELD THAT:- We direct the Assessing Officer to restrict the disallowance under section 14A r/w rule 8D to the exempt income earned by the assessee during the year. Further, while computing book profit under section 115JB of the Act, no adjustment can be made by way of disallowance under section 14A read with Rule 8D. However, Explanation-1(f) of section 115JB of the Act empowers the AO to increase the book profit by disallowing expenditure incurred for earning exempt income. Therefore, the Assessing Officer may look into this aspect. This ground is partly allowed. Disallowance of provision for income tax recoverable from Gujarat State Electricity Board (GSEB) and Essar Steels Ltd. - HELD THAT:- Following the consistent view of the Tribunal, we hold that the income tax recoverable has to be treated as income of the assessee as per the normal provisions of the Act. However, following the aforesaid decisions of the Co–ordinate Bench, we hold that the amount cannot be included while computing book profit u/s 115JB of the Act. Issues involved:1. Challenge to final assessment order under section 143(3) r/w section 144C(13) for the assessment year 2013-14.2. Addition made on account of adjustment towards interest of outstanding receivables from Associated Enterprise (AE).3. Assessment of interest income under the head income from other sources instead of income from business.4. Disallowance made under section 14A r/w rule 8D.5. Disallowance of provision for income tax recoverable from Gujarat State Electricity Board and Essar Steels Ltd.6. Initiation of proceedings under section 271(1)(c) of the Act.Analysis:1. The appeal challenges the final assessment order for the assessment year 2013-14. Ground no.1 is not adjudicated as it is general in nature. Ground no.6 is dismissed as not pressed. The assessee challenged the addition made on account of adjustment towards interest of outstanding receivables from its Associated Enterprise (AE), Essar Africa Holding Ltd. The Transfer Pricing Officer made an adjustment of Rs. 8,90,803 based on the Bloomberg database rate of 6.56%. However, the Tribunal directed the Assessing Officer to compute the interest at LIBOR plus 0.5% as per the submissions made by the assessee. This ground was partly allowed.2. The assessee challenged the decision of assessing interest income of Rs. 27,47,80,861 under income from other sources instead of business income. The Tribunal directed the Assessing Officer to assess interest earned on margin deposit as business income and interest on ICDs and bank deposits as income from other sources. This ground was partly allowed.3. The assessee challenged the disallowance made under section 14A r/w rule 8D amounting to Rs. 1,32,89,000. The Tribunal directed the Assessing Officer to restrict the disallowance to the exempt income earned during the year, citing legal precedents. It was also clarified that while computing book profit under section 115JB, no adjustment can be made by way of disallowance under section 14A read with Rule 8D. This ground was partly allowed.4. The challenge was against the disallowance of provision for income tax recoverable from Gujarat State Electricity Board and Essar Steels Ltd. The Tribunal held that the income tax recoverable has to be treated as income of the assessee under the normal provisions of the Act but cannot be included while computing book profit under section 115JB. This ground was partly allowed.5. The challenge was against the initiation of proceedings under section 271(1)(c) of the Act, which was dismissed as premature. Overall, the appeal was partly allowed.