2023 (10) TMI 1135 - AT - Income Tax

Assessee fails to prove advances are quasi-capital, TP adjustment on notional interest upheld, liaison services benchmarking favored

Kalpataru Power Transmission Ltd. Versus Deputy Commissioner of Income Tax, Gandhinagar Circle, Gandhinagar And (Vice-Versa) And Kalpataru Power Transmission Ltd. Versus Deputy Commissioner of Income Tax, Gandhinagar Circle, Gandhinagar And (Vice-Versa)

ITAT Ahmedabad decided multiple transfer pricing and tax issues. The assessee failed to demonstrate that advances to subsidiaries were quasi-capital ... TP Adjustment on notional interest on advances - HELD THAT:- The issue has already been decided against the assessee for A.Y. 2012-13 [2022 (7) TMI 888 - ITAT AHMEDABAD] holding that advances were not in the nature of quasi capital. The main argument of the assessee against the transfer pricing adjustment made on account of the short term advances given to its subsidiaries in Mauritius and Nigeria, fails. The assessee being unable to demonstrate that the advances were not in the nature of loan/advance but were quasi capital in nature and for commercially expedient purposes of the assessee and hence the LIBOR rate could not be applied to them for the purposes of making ALP adjustment on the interest to be charged, the decision of the Ahmedabad Bench in the case of Micro Inks Ltd. is not applicable to the assessee - Decided against assessee. Disallowance u/s 14A - strategic investment made in SPV - HELD THAT:- As relying on own case for A.Y. 2012- 13 [2022 (7) TMI 888 - ITAT AHMEDABAD] assessee seeking exclusion of strategic investments while computing disallowance as per Rule 8D of the Rules is dismissed. TP Adjustment on Liason Support Services - company has benchmarked the transaction by applying CUP as MAM using US Census Bureau annual data relating to commission on sales made by agents, wherein the rate determined was at 4.1% - TPO made downward adjustment by applying rate of 2% instead of 3% following the order for A.Y. 2012-13 - HELD THAT:- The issue is decided in favour of the assessee in A.Y. 2012-13 [2022 (7) TMI 888 - ITAT AHMEDABAD] wherein it is held that the assessee has applied appropriate comparables for determining the ALP and benchmarking the transaction. TPO has selected the comparables which are functionally different from the assessee. Decided against revenue. Nature of receipt - profit on sale of carbon credit - capital receipt or revenue receipt - HELD THAT:- Issue is decided in favour of the assessee in A.Y. 2012-13 & 2013-14 [2022 (7) TMI 888 - ITAT AHMEDABAD] as held CER receipts as capital in nature and income earned there from also being capital receipt. Issues Involved:1. Transfer Pricing Adjustment2. Disallowance under Section 14A r.w. Rule 8D3. Incorrect Levy of Interest under Sections 234D and 234C4. Profit on Sale of Carbon CreditSummary:1. Transfer Pricing Adjustment:The issue pertains to the addition of Rs. 10,99,989 made by the Assessing Officer (AO) and Transfer Pricing Officer (TPO) on account of notional interest on short-term advances to overseas subsidiaries. The Tribunal upheld the addition, citing that the advances were not quasi-equity capital and reaffirmed the decision from the assessee's own case for A.Y. 2012-13. The Tribunal rejected the assessee's argument that the advances were for commercial expediency and upheld the application of the LIBOR rate for the ALP adjustment.2. Disallowance under Section 14A r.w. Rule 8D:The AO disallowed Rs. 1,79,97,598 under Section 14A, which was partially upheld by the CIT(A) and the Tribunal. The Tribunal confirmed that the AO had validly recorded his dissatisfaction with the assessee's explanation for suo moto disallowance and rightly applied Rule 8D. The Tribunal also rejected the assessee's contention to exclude strategic investments and investments that did not earn dividend income during the year from the computation of disallowance, citing the Supreme Court's decision in Maxopp Investments Ltd. v. CIT.3. Incorrect Levy of Interest under Sections 234D and 234C:The Tribunal upheld the levy of interest under Sections 234D and 234C, stating that the provisions are mandatory and consequential. The assessee's arguments against the computation of interest were dismissed.4. Profit on Sale of Carbon Credit:The issue involved the treatment of income from the sale of carbon credits. The AO treated it as revenue receipt, while the CIT(A) and Tribunal held it as a capital receipt, relying on the decisions of the jurisdictional High Court and the ITAT Ahmedabad in the assessee's own case for previous years. The Tribunal noted that the income from the sale of carbon credits is capital in nature and not chargeable to tax.Conclusion:The Tribunal dismissed the appeals of both the assessee and the Revenue, upholding the CIT(A)'s orders on all issues. The decisions were consistent with prior rulings in the assessee's own cases and relevant judicial precedents.