2023 (10) TMI 916 - AT - Income Tax

Revenue's appeal dismissed; interest rate to match AE's country rate; no disallowance under Section 14A.

The Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s decisions on all contested issues. It affirmed that the rate of interest on loans ... TP adjustment - interest received by the assessee from the AEs - domestic PLR rate application - CIT(A) deleted the addition - HELD THAT:- We find that an identical issue has been decided by the Tribunal in assessee’s own case for the assessment year 2010-11 [2023 (2) TMI 1197 - ITAT DELHI] affirming the order of the ld. CIT (Appeals) in deleting the TP adjustment on interest received by the assessee as held that domestic PLR cannot be applied to benchmark the rate of interest charged on foreign currency loans advanced to AEs located in foreign countries. The rate of interest on loans advanced by the assessee to AEs have to be in accordance with the rate of interest prevailing in the country of residence of the AEs wherein the loan was availed. This is the view expressed in case of CIT vs. Cotton Natural (I) Pvt. Ltd. [2015 (3) TMI 1031 - DELHI HIGH COURT] and many other decisions. Therefore, domestic PLR rate cannot be applied in respect of loans advanced in foreign currency to AEs situated in USA and Europe. As regards, the submission of learned Departmental Representative that certain guiding principles laid down by the Hon'ble jurisdictional High Court have not been followed, we are not convinced. Decided in favour of assessee. Disallowance made towards interest paid to subsidiary - HELD THAT:- As decided in assessee own case [2021 (10) TMI 276 - ITAT DELHI] AY 2009-10, deleted addition stating it is true that the loan was given in earlier F.Y and the assessee had sufficient own funds to give the loan. It is equally true that no disallowance was made in the earlier Assessment Year though the DRP 19 has observed that rest judicata is not applicable under Income Tax proceedings but, in our considered opinion, when the facts are same, and the law has not changed, then the rule of consistency ought to have been followed. Decided in favour of assessee. Disallowance u/s 14A r.w.r. 8D - assessee has not earned any exempt income - HELD THAT:- Admittedly there is no dividend income received by the assessee during the year under consideration. Thus, following the decision of Era Infrastructure (India) Ltd. [2022 (7) TMI 1093 - DELHI HIGH COURT] we hold that there cannot be any disallowance in the absence of any dividend income earned during the assessment year under consideration by the assessee. The ground raised by the Revenue is dismissed. Issues Involved:1. Transfer Pricing (TP) Adjustment on Interest Received from Associated Enterprises (AEs)2. Deletion of Disallowance of Interest Paid to Subsidiaries3. Deletion of Disallowance under Section 14A read with Rule 8DSummary:1. Transfer Pricing (TP) Adjustment on Interest Received from Associated Enterprises (AEs):The Revenue contested the CIT (A)'s rejection of the benchmarking done by the TPO regarding interest received by the assessee from AEs, arguing that the CIT (A) ignored the 'Doctrine of Election' and 'Doctrine of Approbation and Reprobation.' The Tribunal noted that an identical issue was decided in favor of the assessee for the assessment year 2010-11, where the CIT (A) held that domestic PLR cannot be applied to benchmark the rate of interest on foreign currency loans. The Tribunal upheld the CIT (A)'s decision, affirming that the rate of interest should be in accordance with the rate prevailing in the country of residence of the AEs, thereby rejecting the Revenue's grounds.2. Deletion of Disallowance of Interest Paid to Subsidiaries:The Revenue challenged the deletion of disallowance of interest expenditure under Section 36(1)(iii) of the Act. The Tribunal referred to its decision in the assessee's case for the previous assessment year, where it was held that the assessee had sufficient own funds to advance loans to subsidiaries and that the rule of consistency should be followed. The Tribunal upheld the CIT (A)'s decision to delete the disallowance, finding no merit in the Revenue's grounds.3. Deletion of Disallowance under Section 14A read with Rule 8D:The Revenue contested the deletion of disallowance made under Section 14A read with Rule 8D. The Tribunal noted that the assessee did not receive any exempt income during the assessment year under consideration. Citing the jurisdictional High Court's decision in PCIT vs. Era Infrastructure (India) Ltd., the Tribunal held that no disallowance can be made in the absence of exempt income. The Tribunal upheld the CIT (A)'s decision, dismissing the Revenue's grounds.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s decisions on all grounds. The order was pronounced in the open court on 16/10/2023.