2017 (12) TMI 422 - AT - Income Tax

Tribunal limits disallowance under Section 14A, directs review of transfer pricing adjustments

The Tribunal partially allowed the Revenue's appeal by limiting the disallowance under Section 14A to Rs. 25,000. Additionally, the Tribunal allowed the ... Addition u/s 14A - Held that:- As decided in assessee's own case no material has been placed on record to show that the assessee has incurred some expenditure for earning tax-free income. In our opinion, although, there is no disallowance of interest expenditure for earning tax-free dividend income, however, it cannot be said that no administrative expenditure has been incurred for earning the tax-free income of ₹ 3,60,000/- on the investment of ₹ 15,00,000/-. Since the dividend income is on account of investment in Magnum Global Fund of ₹ 15,00,000/-, therefore, considering the totality of the facts of the case, disallowance of ₹ 50,000/- on ad-hoc basis under the facts and circumstances of the case appears to be on higher side. Although, the ld. counsel for the assessee submitted that no disallowance has been made in the past, however, it was not brought to our notice as to whether the disallowance was not made in scrutiny assessment or summary assessment. Considering the totality of the facts of the case, disallowance of ₹ 25,000/- under the facts and circumstances of the case, in our opinion, will meet the ends of justice Disallowance on account of capitalization of interest - assessee company on the one hand has made decapitalization of interest income of ₹ 3066.07 lacs and on the other hand has shown such interest expenses as revenue to the extent of ₹ 9539.99 lacs - Held that:- We find identical issue had come up before the Tribunal in assessee’s own case. We also find the Tribunal has accepted the alternate contention of the assessee and allowed deduction of interest expenses incurred on earning interest income on certain deposits u/s 57(iii). Respectfully following the decision of the Co-ordinate Bench of the Tribunal in assessee’s own case [2017 (6) TMI 591 - ITAT DELHI] we restore the issue to the file of the Assessing Officer with a direction to follow the order of the Tribunal and re-compute the disallowance. The ground raised by the Revenue is accordingly allowed for statistical purposes. Claim of deduction u/s 80IA - Form No.10CCB filed by the assessee is incomplete and proper balance sheet and profit and loss account are not available for each unit - Held that:- Since the Tribunal has already upheld the order of the ld. CIT(A) on this issue in the immediately preceding assessment year, therefore, following the same, we find no infirmity in the order of the ld. CIT(A) allowing the claim of deduction u/s 80IA of the I.T. Act. Accordingly, the order of the ld. CIT(A) is upheld and the ground raised by the Revenue is dismissed. Addition on account of bad debt written off - Held that:- It is held by various decisions including the decision of the Hon’ble Supreme Court in the case of T.R.F. Ltd. vs. CIT [2010 (2) TMI 211 - SUPREME COURT ] that it is sufficient compliance for the claim of bad debts if the debt is actually written off in the books of account of the assessee and he is not required to demonstrate or prove as to whether the debt has actually become bad debt. The Revenue cannot insist on demonstrative proof as to whether the debt has become bad debt and non-initiation of legal proceedings against the debtor would also not automatically lead to the inference that the assessee is not entitled to write off the amount of the bad debt. In view of the above, we find no infirmity in the order of the ld. CIT(A) deleting the disallowance Determination of the arm’s length price - TPA - upward adjustment - MAM selection - CUP v/s TNMM - Held that:- We find the Assessing Officer in the instant case has made upward adjustment of ₹ 27,521,494/- on the basis of order of the TPO. We find in appeal the ld. CIT(A) sustained an amount of ₹ 28,89,032/- and deleted the addition of ₹ 21,54,152/- and such reasons are already mentioned in the preceding paragraphs. Although, the ld. CIT(A) has sustained only an amount of ₹ 28,89,032/- and deleted the balance amount we find the Revenue has challenged the deletion for addition of ₹ 21,54,152/- and has not challenged for the balance addition. So far as the addition of ₹ 21,54,152/- is concerned, the assessee has demonstrated before the ld. CIT(A) that he has also entered into transaction on sale of J4 HRAP Coils with unrelated third parties on 14.03.2005 at the price of USD 1120 PMT. Therefore, the ld. CIT(A) was fully justified in upholding the action of the CUP method. So far as submissions of the ld. counsel for the assessee that price charged by the assessee from its AE is within +/-5% range we find from the submissions that the details are not coming out clearly which requires a re-visit to the file of the TPO for proper appreciation of the facts. We, therefore, in the interest of justice, deem it proper to restore the ground raised by the assessee relating to TP adjustment to the file of the TPO for fresh adjudication of the issue in the light of the submissions/details filed by the assessee in the Paper Book. The grounds by the assessee are accordingly allowed for statistical purposes. Issues Involved:1. Deletion of addition under Section 14A of the Income Tax Act.2. Disallowance of capitalization of interest.3. Claim of deduction under Section 80IA.4. Addition on account of bad debts written off.5. Transfer pricing adjustments.Issue-wise Detailed Analysis:1. Deletion of Addition under Section 14A:The Assessing Officer (AO) made a disallowance of Rs. 50,000 under Section 14A, citing that the assessee earned exempt income of Rs. 482.26 crores on an investment of Rs. 25,209.08 crores without making any disallowance under Section 14A. The CIT(A) deleted this disallowance, observing that the assessee had substantial own funds to make the investment and no nexus was established by the AO to show any expenditure incurred for earning exempt income. The Tribunal, following its earlier order in the assessee’s case, directed the AO to restrict the disallowance to Rs. 25,000.2. Disallowance of Capitalization of Interest:The AO made a disallowance of Rs. 24.91 crores, arguing that the interest earned on borrowed funds for the Orissa Project should be taxable. The CIT(A) deleted this addition, referencing the decision in NTPC SAIL Power Company Pvt. Ltd. vs. CIT, which held that interest earned on borrowed funds for capital investment should be netted off against the expenditure on the project. The Tribunal upheld the CIT(A)’s decision, directing the AO to follow the Tribunal’s earlier order and recompute the disallowance.3. Claim of Deduction under Section 80IA:The AO restricted the deduction under Section 80IA to Rs. 6.43 crores against the assessee’s claim of Rs. 7.32 crores, citing incomplete Form No.10CCB and improper balance sheets. The CIT(A) allowed the full claim, noting that the assessee had sufficient funds and the chartered accountant's certificate was duly verified. The Tribunal upheld the CIT(A)’s decision, following its earlier order in the assessee’s case.4. Addition on Account of Bad Debts Written Off:The AO disallowed the assessee’s claim of Rs. 87.45 crores as bad debts, stating that the conditions under Section 36(2) were not fulfilled. The CIT(A) allowed the claim, noting that the debt was actually written off in the books and the assessee had booked the income in the earlier year. The Tribunal upheld the CIT(A)’s decision, referencing the Supreme Court’s decision in T.R.F. Ltd. vs. CIT, which held that it is sufficient if the debt is written off in the books.5. Transfer Pricing Adjustments:The AO made an upward adjustment of Rs. 27,521,494 based on the TPO’s order. The CIT(A) sustained an adjustment of Rs. 28,89,032 and deleted the balance. The Tribunal found that the CIT(A) was justified in upholding the CUP method and deleted the addition of Rs. 21,54,152. However, it restored the issue of sustaining Rs. 28,89,032 to the file of the TPO for fresh adjudication, directing the TPO to consider the assessee’s submissions and details.Conclusion:The Tribunal partly allowed the Revenue’s appeal by restricting the disallowance under Section 14A to Rs. 25,000 and allowed the assessee’s appeal for statistical purposes by restoring the transfer pricing issue to the TPO for fresh adjudication.