2018 (4) TMI 1205 - AT - Income Tax

ITAT decision: Partial allowance, deletion of excessive disallowance, TDS credit, transfer pricing upheld, mark to market loss.

The ITAT partially allowed the assessee's appeal, directing the AO to delete the excessive disallowance under rule 8D(2)(iii) and sustain it at Rs. ... Disallowance made u/s. 14A - Held that:- As own funds available with the assessee is in far excess of the value of investments and hence as per the decision rendered by Hon'ble Jurisdictional Bombay High Court in the case of HDFC Bank Ltd. (2014 (8) TMI 119 - BOMBAY HIGH COURT), no disallowance out of interest expenditure is called for. Thus direct the Assessing Officer to delete the disallowance under rule 8D(2)(iii) out of interest expenditure. As already noticed that the assessee itself has disallowed a sum of ₹ 50,000/- under rule 8D(2)(iii). Accordingly, we direct the Assessing Officer to sustain disallowance u/s. 14A of the Act to the extent disallowed by the assessee. Addition on the basis of ITS record - Held that:- If the difference has arisen for the reason as stated by the assessee alone, then we are of the view that there is merit in the contention of the assessee. As submitted by the assessee the difference, if any, would automatically get adjusted when concerned deposits are closed. We have already noticed that neither of the parties have brought on record the details of deposits, details of accrued interest accounted by the assessee and that was uploaded by the bank, difference between both the figures etc. Any kind of decision can be taken only if these details are examined, which requires verification at the end of the Assessing Officer. If the difference has arisen on account of accrued interest on deposits kept with the banks, we are of the view that no addition is called for. Accordingly, we restore this issue to the file of the Assessing Officer with the direction to examine these details and take decision as per discussion made. Addition being the difference between income booked by the assessee and income shown in TDS certificate - AS submitted that if income of ₹ 1,24,282/- is assessed in the hands of the assessee, corresponding TDS should be given credit - Held that:- We find merit in the alternative contention of the assessee and accordingly, we direct the Assessing Officer to give corresponding TDS credit to the assessee. Addition on TP adjustment - non-collection of interest from its AE for advances made - Held that:- No correspondence exchanged between the parties that both the parties are waiving their right to collect interest/commission in view of cross services, was shown to tax authorities or to us. In the absence of any material to support the submissions, we are unable to accept the oral submissions. In any case, as submitted by learned DR, loan transactions and the agency transaction, if any, are two different transactions. Since alleged marking efforts cannot be linked to the advance given by the assessee interest free, we are of the view that the explanation of the assessee for not charging interest to its AE is not appealing. - Decided against assessee. Disallowance of mark to market loss of forward contracts - Held that:- We notice that the assessee has also revalued the underlying asset, i.e., export receivables and credited the income in the profit and loss account. The loss arising on revaluation of forward contract, in our view, deserves to be allowed. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow the claim of the assessee. - Decided in favour of assessee. Issues:1. Disallowance made u/s.14A of the Act.2. Addition of Rs. 1,74,090/- on account of unreconciled income from ITS record.3. Addition of income based on TDS certificate.4. Transfer pricing adjustment.5. Disallowance of mark to market loss of forward derivate contracts.Issue 1 - Disallowance u/s.14A:The Assessing Officer disallowed Rs. 4,55,191/- under rule 8D for the assessee's dividend income of Rs. 550 lakhs, even though the assessee voluntarily disallowed Rs. 50,000. The CIT(A) upheld this. However, the ITAT found the disallowance excessive due to the substantial own funds of the assessee compared to investments. Relying on a Bombay High Court decision, the ITAT directed the AO to delete the disallowance under rule 8D(2)(iii) and sustain the disallowance at Rs. 50,000.Issue 2 - Unreconciled Income from ITS Record:The AO added Rs. 1,74,090 based on discrepancies between the assessee's accounts and the ITS record. The assessee attributed the difference to accrued interest receivable from banks, but failed to provide detailed reconciliation. The ITAT found the lack of details concerning and remanded the issue to the AO for further examination based on the explanation provided by the assessee.Issue 3 - Addition Based on TDS Certificate:An addition of Rs. 1,24,282 was made due to a mismatch between the income booked by the assessee and the TDS certificate. The ITAT directed the AO to give corresponding TDS credit to the assessee, accepting the alternative contention presented by the assessee.Issue 4 - Transfer Pricing Adjustment:The TPO proposed an addition of Rs. 1,82,598 due to the assessee not charging interest on advances to its AE. The ITAT found the assessee's justification lacking evidential support, as no material substantiated the claim of marketing efforts by the AE. Consequently, the ITAT upheld the addition made by the CIT(A) on account of TP adjustment.Issue 5 - Disallowance of Mark to Market Loss:The ITAT allowed the claim for mark to market loss of forward contracts as the underlying assets, export receivables, were revalued and income was offered to tax. Relying on legal precedents, the ITAT directed the AO to allow the claim of the assessee.In conclusion, the ITAT partly allowed the appeal filed by the assessee, addressing each issue comprehensively and providing detailed reasoning for its decisions.