Section 14A, corporate guarantee pricing, temporary structure depreciation, and forex loss treatment were clarified in favour of revenue claims.

Investments funded from sufficient own funds did not justify a section 14A read with rule 8D disallowance, and the same adjustment could not be imported into book profit under section 115JB. Director's salary and handover facility expenses were treated as general business overheads, so capitalisation to work-in-progress was rejected and the s remained revenue in nature. Corporate guarantee commission was benchmarked on an interest-saving basis, with 0.3523% accepted. Depreciation on a temporary sample flat used as a site facility was allowed at 100%. Foreign exchange loss on settlement of monetary liabilities for materials was not capitalised to project cost and was allowable as revenue expenditure.

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Issues: (i) Whether disallowance under section 14A read with rule 8D could be sustained, including while computing book profit under section 115JB; (ii) Whether director's salary and handover facility expenses were liable to be capitalised to work-in-progress; (iii) Whether the transfer pricing adjustment on corporate guarantee commission was to be made at 1.25% or at 0.3523%; (iv) Whether depreciation on the sample flat, treated as a temporary structure, was allowable at 100% and the balance claim for the year could be allowed; (v) Whether foreign exchange loss on purchase of materials had to be capitalised to project cost.

Issue (i): Whether disallowance under section 14A read with rule 8D could be sustained, including while computing book profit under section 115JB.

Analysis: The investments were found to be funded out of own funds, which were in excess of the investments yielding exempt income. For the administrative expenditure component, only investments that actually yielded exempt income during the year were relevant. The adjustment under section 14A was also not permissible for the purpose of computing book profit under section 115JB.

Conclusion: The disallowance under section 14A and the corresponding adjustment to book profit under section 115JB were not sustainable.

Issue (ii): Whether director's salary and handover facility expenses were liable to be capitalised to work-in-progress.

Analysis: These expenses were held to be general overheads incurred year after year for the business as a whole and not project-specific capital outlays. They were neither capital in nature nor deferred revenue expenditure, and were allowable in the year of incurrence.

Conclusion: The proposed capitalisation was rejected and the expenses were allowable as revenue expenditure.

Issue (iii): Whether the transfer pricing adjustment on corporate guarantee commission was to be made at 1.25% or at 0.3523%.

Analysis: Corporate guarantee was treated as an international transaction. However, on the facts, the interest-saving approach was accepted as the appropriate method for benchmarking, and the arm's length guarantee commission rate already adopted at 0.3523% was found to be justified.

Conclusion: The transfer pricing adjustment at 1.25% was not upheld, and the rate of 0.3523% was accepted.

Issue (iv): Whether depreciation on the sample flat, treated as a temporary structure, was allowable at 100% and the balance claim for the year could be allowed.

Analysis: The sample flat was accepted as a temporary structure used as a site facility for customer display during construction. Temporary structures are eligible for 100% depreciation, and the Revenue had not disputed the foundational character of the asset or the allowance granted in the first year when the asset was used for less than 180 days.

Conclusion: The depreciation claim was allowable and the disallowance was deleted.

Issue (v): Whether foreign exchange loss on purchase of materials had to be capitalised to project cost.

Analysis: The loss arose on settlement of monetary liabilities for materials used in the business. Such foreign exchange fluctuation does not form part of inventory or project cost merely because the materials relate to construction activity, and it is allowable as revenue expenditure.

Conclusion: Capitalisation to project cost was not warranted and the loss was allowable.

Final Conclusion: No interference was called for with the relief granted by the appellate authority on all disputed issues, and the Revenue's appeals failed in entirety.

Ratio Decidendi: Where investments yielding exempt income are funded from sufficient own funds, disallowance under section 14A is not justified; section 14A adjustment cannot be imported into section 115JB book profit; corporate guarantee pricing may be benchmarked on an interest-saving basis; temporary structures qualify for 100% depreciation; and foreign exchange loss on settlement of business monetary liabilities remains revenue in nature.

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