Assessee wins interest deduction under Section 36(1)(iii) for subsidiary investments, other tax matters remanded for verification

ITAT Chennai ruled on multiple issues in an assessee's case. The court allowed interest expenditure deduction under Section 36(1)(iii) for investments in subsidiary company, finding commercial advantage in international business operations. Regarding TDS on non-resident payments, the matter was remanded to AO to examine under DTAA provisions. The court upheld Section 14A disallowance for exempt income expenses. For foreign tax credit under Section 90, TDS credit claims, corporate guarantee fee adjustment to 0.5%, and DDT credit issues, the court directed AO to verify assessee's claims with supporting evidence and allow credits per law.

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Issues Involved:
1. Reassessment Proceedings under Section 147
2. Disallowance of Foreign Exchange Loss under Section 37(1)
3. Transfer Pricing Adjustment towards Corporate Guarantee Fees
4. Disallowance of Interest Expenditure under Section 36(1)(iii)
5. Disallowance of Professional and Consultancy Fees under Section 40(a)(i)
6. Disallowance under Section 14A read with Rule 8D
7. Denial of Tax Credit under Section 90
8. Incorrect Credit for TDS

Summary:

1. Reassessment Proceedings under Section 147:
The assessee challenged the reassessment proceedings under Section 147 on multiple grounds, including lack of tangible material, change of opinion, and reopening beyond four years without proper satisfaction. The Tribunal condoned the delay in filing the appeal and admitted it for hearing.

2. Disallowance of Foreign Exchange Loss under Section 37(1):
The main issue was the disallowance of foreign exchange loss debited to the profit & loss account. The Assessing Officer disallowed the forex loss on the ground that it related to loans taken for acquiring fixed assets and should be capitalized. The Tribunal found the issue similar to the assessee's own case for the assessment year 2010-11 and set aside the order, directing the Assessing Officer to reexamine the claim.

3. Transfer Pricing Adjustment towards Corporate Guarantee Fees:
The Tribunal addressed the issue of transfer pricing adjustment towards corporate guarantee fees. The Assessing Officer had computed the fee at 1% of the total corporate guarantee. However, the Tribunal, following the decision in the assessee's own case for earlier years and the Bombay High Court's decision in CIT vs Everest Kento Cylinders Ltd, directed the TPO to compute the corporate guarantee fee at 0.5%.

4. Disallowance of Interest Expenditure under Section 36(1)(iii):
The Tribunal considered the disallowance of interest expenditure under Section 36(1)(iii) related to investments in a subsidiary. It found that the issue was covered by earlier decisions in the assessee's favor, which directed the Assessing Officer to verify the commercial expediency and allow the interest expenditure accordingly.

5. Disallowance of Professional and Consultancy Fees under Section 40(a)(i):
The Tribunal addressed the disallowance of fees paid to non-residents without TDS. It found that the issue was covered by earlier decisions, which held that payments for services rendered and utilized outside India do not attract TDS. The Tribunal directed the Assessing Officer to examine the issue afresh in light of relevant DTAA provisions.

6. Disallowance under Section 14A read with Rule 8D:
The Tribunal upheld the disallowance under Section 14A, finding that the assessee had not made any disallowance of expenses related to exempt income. It directed the Assessing Officer to consider only those investments that yielded exempt income for the purpose of determining the disallowance.

7. Denial of Tax Credit under Section 90:
The Tribunal admitted the additional ground regarding the denial of tax credit under Section 90 and directed the Assessing Officer to verify the claim of the assessee for credit of foreign tax paid in Singapore and allow it in accordance with law.

8. Incorrect Credit for TDS:
The Tribunal directed the Assessing Officer to verify the claim of the assessee regarding incorrect credit for TDS and allow the credit as per Form 26AS and other relevant details.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, setting aside the issues to the file of the Assessing Officer for further verification and adjudication in accordance with the directions provided. The appeal filed by the revenue was dismissed as infructuous.

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