ITAT deletes interest imputation on share application money, directs LIBOR plus 300 basis points for advances, allows section 35(2AB) deduction

ITAT Mumbai allowed assessee's appeal on multiple grounds. Regarding TP adjustments, tribunal deleted interest imputation on share application money to associated enterprises, following precedent from assessee's own case for AY 2015-16. For advances recoverable from associated enterprises, tribunal directed AO/TPO to benchmark interest at LIBOR plus 300 basis points, considering net credit period. Section 14A disallowance was remanded to AO for recomputation considering only exempt income-yielding investments. Section 36(1)(iii) disallowance was also restored to AO with directions. Tribunal allowed weighted deduction under section 35(2AB) as Form 3CL requirement was introduced from July 1, 2016. AO was directed to dispose of TDS rectification application per law.

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Issues Involved:

1. Transfer Pricing Adjustments
2. Corporate Tax Disallowances
3. Re-computation of Book Profits under Section 115JB
4. Disallowance of Weighted Deduction under Section 35(2AB)
5. Credit for Tax Deducted at Source and Advance Tax
6. Levy of Interest under Section 234B
7. Initiation of Penalty Proceedings under Section 271(1)(c)

Summary:

1. Transfer Pricing Adjustments:

* Interest on Share Application Money: The Tribunal found that the issue of imputing interest on share application money pending allotment was already decided in favor of the assessee in earlier years. The Tribunal directed the AO to delete the adjustment on account of interest imputed on share application money, following the precedent set in the assessee's own case for AY 2014-15 and 2015-16.

* Interest on Advance Recoverable: Similar to the share application money, the Tribunal noted that the issue of imputing interest on advances recoverable from associated enterprises was decided in favor of the assessee in earlier years. The Tribunal directed the AO/TPO to compute the interest on advances recoverable using LIBOR plus 300 basis points, considering the credit period allowed by the AEs.

2. Corporate Tax Disallowances:

* Section 14A Disallowance: The Tribunal restored the issue to the AO for re-computation, considering only those investments which yield exempt income, following the directions given in earlier years.

* Alternative Disallowance under Section 36(1)(iii): The Tribunal set aside the issue to the AO, directing consideration of the non-interest-bearing funds available with the assessee and the directions relevant to Section 14A disallowance.

* Business Promotion Expenses: The Tribunal upheld the DRP's direction to restrict the disallowance to 50% of the expenses incurred, consistent with earlier years.

3. Re-computation of Book Profits under Section 115JB:

The Tribunal directed the AO to delete the increase in book profit under Section 115JB by the disallowance under Section 14A, as the issue was already decided in favor of the assessee by the Bombay High Court in CIT vs. JSW Energy Limited.

4. Disallowance of Weighted Deduction under Section 35(2AB):

The Tribunal allowed the assessee's claim for weighted deduction, directing the AO to grant the deduction under Section 35(2AB) following the precedent set in the assessee's own case and other relevant judgments.

5. Credit for Tax Deducted at Source and Advance Tax:

The Tribunal directed the AO to dispose of the rectification applications filed by the assessee for short credit of TDS and Advance Tax in accordance with the law.

6. Levy of Interest under Section 234B:

The Tribunal noted that the issue was not pressed by the assessee.

7. Initiation of Penalty Proceedings under Section 271(1)(c):

The Tribunal found the ground premature and dismissed it.

Conclusion:

The appeal filed by the assessee for AY 2016-17 was allowed, with various issues being decided in favor of the assessee based on precedents set in earlier years and relevant judicial pronouncements. The Tribunal directed the AO to re-compute and grant relief accordingly.

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