TaxTMI 
TaxTMI 
2019 (7) TMI 1647
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....s Associated Enterprises (AE) and benchmarked them in the transfer pricing study report. The Transfer Pricing Officer, in the course of proceedings before him found that the assessee had provided corporate guarantee to its overseas AEs which is continuing from earlier years. After calling for necessary details relating to the corporate guarantee provided to the AEs, he called upon the assessee to show cause why the arm’s length price of corporate guarantee fee should not be computed @ 1.75%. In this regard, the Transfer Pricing Officer also confronted the commission rate obtained from Indian Banks in respect of different guarantees. Though, the assessee objecting to the guarantee commission proposed by the Transfer Pricing Officer @ 1.75% made various submissions, however, the Transfer Pricing Officer did not find merit in them. He observed, not only the transactions relating to provision of corporate guarantee to the AEs is an international transaction but he also rejected assessee’s alternative plea of accepting corporate guarantee fee rate of 0.5%. Having done so, the Transfer Pricing Officer proceeded to compute the arm’s length price of corporate guarantee commission by ....
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..../Mum./2017, dated 21st May 2018, the Tribunal has followed its own order passed in case of a sister concern of the assessee and held that corporate guarantee fee should be computed @ 0.5%. Facts being identical, respectfully following the aforesaid decision of the Co–ordinate Bench in assessee’s own case, we direct the Assessing Officer to compute the corporate guarantee fee @ 0.5%. This ground is allowed. 8. In ground no.1(b), the assessee has challenged the addition of Rs. 4,77,76,278, on account of arm’s length price of interest on interest free loans to AEs. 9. Brief facts are, while considering the objections raised by the assessee against the draft assessment order, learned DRP on verifying the audit report found that the assessee has advanced loans to the AEs without charging any interest. Since the Transfer Pricing Officer had not looked into this aspect, learned DRP issued a notice for enhancement by directing the assessee to show cause as to why the arm’s length price of interest on interest free loan should not be computed. After considering the reply of the assessee and the report called from the Transfer Pricing Officer, learned DRP observed, since the as....
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....ng it as a capital receipt, the assessee has not offered it as income. The Assessing Officer called upon the assessee to furnish complete details pertaining to the interest subsidy to justify its claim. In compliance, the assessee furnished the required details. On going through the details furnished by the assessee, the Assessing Officer noticed that the Ministry of Textiles, Government of India has formulated Technology Upgradation Fund Scheme (TUFS) for Textile and Jute Industry. Under the said scheme, the interest subsidy is allowed for purchase of machinery for modernization. The Assessing Officer observed, applying the purpose test, the subsidy cannot be considered to be for reducing loan or capital cost of the plant and machinery. Therefore, it has to be treated as revenue receipt. Thus, on the aforesaid premises, the Assessing Officer added back the interest subsidy to the income of the assessee. 15. Learned DRP also sustained the addition made by the Assessing Officer. 16. The learned Authorised Representative submitted, identical issue arose in assessee’s own case in assessment year 2012–13. He submitted, while deciding the issue, the Tribunal has accepted asses....
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....hrough the department has filed a further appeal before the Hon’ble High Court, however the decision of Tribunal on the issue of TUF subsidy was accepted by department and no further appeal on this issue was filed before the High Court has been accepted. Sr.no. Decision ITAT/HC Citation / ITA no. Type of Subsidy received under TUF Scheme Relevant Para of the decision 1. Grabal Alok (Now merger with Alok Industries Ltd.) for A.Y. 2010–11 Mumbai ITAT ITA no1776/ Mum./2015 Interest Subsidy 22 to 27 2. Sham Lal Bansal P&H HC 200 Taxman 14 Credit Linked Capital Subsidy 6 3. Dicitex Mumbai 4375/Mum./ 2015 Interest Subsidy 7, 71 to 7.5, 8 4. Manohar Processor Pvt. Ltd. Mumbai ITAT 7120/Mum./ 2013 Interest Subsidy 2.1 5. Dicitex Furnishings Ltd. Mumbai ITAT 2148/Mum./ 2015 Interest Subsidy 5 6. SVG Fashions Ltd. Delhi ITAT ITA no.8565/Mum./ 2010 Interest Subsidy 9 to 15 7. Shivalik Prints Ltd. Delhi ITAT 4698/Del./ 2011 Credit Linked Capital Subsidy 9 8. Sutlej Textiles & Industries Ltd. Chennai ITA no.5142/Del./ 2013 Interest Su....
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....pellate authorities are entitled to consider the new claim of the assessee and adjudicate upon the same on merits of the case. As all the facts are available on record, we adjudicate assessee’s claim of TUF subsidy. From the record we found that the assessee has received reimbursement of interest cost as per TUF scheme. The object of the scheme was to encourage the upgradation of technology. Therefore, the income to the extent of duty credit and reimbursement of interest cost under TUF scheme, which though credited to profit and loss account, should be treated as capital receipt, not chargeable to tax. The issue under consideration is squarely covered by the decision of Hon’ble Punjab & Haryana High Court in the case of Shri Sham Lal Bansal (200 Taxman 14)(P&H).We find that identical issue under the Technology Upgradation Fund Scheme (in short ‘TUFS’) of Ministry of Textiles was considered by the Hon’ble Punjab & Haryana High Court in ITA No. 472 of 2010 vide decision dated 17.01.2011. Hon’ble High Court has considered and held the issue as under:- “2. The assessee is engaged in manufacture and sale of woolen garments. It received subsidy for repayment of loa....
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....e of CIT vs. Ponni Sugars Chemicals Ltd. [2008] 306 ITR 392 (SC). 3. We have heard learned counsel for the appellant. 4. Learned counsel for the revenue submitted that the subsidy was not given at the time of setting up of the industry but after commencement of production for repayment of loan. In such situation, the amount should have been treated as revenue receipt as per judgment of the Hon’ble Supreme Courtin Sahney Steel & Press Works Ltd. & Ors. v. CIT (1997) 228 ITR 253. 5. We are unable to accept the submission. 6. The purpose of scheme under which the subsidy is given, has been discussed by the Tribunal. To sustain and prove the competitiveness and overall long term viability of the textile industry, the concerned Ministry of Textile adopted the TUFS scheme, envisaging technology upgradation of the industry. Under the scheme, there were two options, either to reimburse the interest charged on the lending agency on purchase of technology upgradation or to give capital subsidy on the investment in compatible machinery. In the present case, the assessee has taken term loans for technology upgradation and subsidy was released under agreeme....
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....veness in the domestic as well as international markets and overall long-term viability of the industry, the concerned Ministry adopted the TUFS scheme envisaging Technology Upgradation of the Industry. Hence the subsidy received in this regard falls into capital field. 26. Similar view has been taken by Delhi Bench of the Tribunal in the case of DCIT vs M/s. Sutlej Textiles & Industries Ltd (ITA No 5142/Del/2013) dated 3 July 2015; and by Chennai Bench of the Tribunal M/s CNV Textiles Pvt Ltd vs OCIT (ITA 746/Mds/2014) dated 21-11-2014. The issue is also covered by the decision of ITAT Mumbai Bench in the case of SVG Fashions Ltd., ITA No.8565/Mum/2010, order dated 23-12-2015. Recently Hon’ble Supreme Court in the case of Shree Balaji Alloys held that subsidy by way of refund of excise duty and interest for setting up new industrial undertaking is capital receipt and not taxable as income. 27. In view of the above, respectfully following the decisions of Hon’ble Supreme Court, High Court and the Tribunal, as discussed above, we set aside the orders of lower authorities and direct the AO to treat the interest subsidy received under TUF Scheme as capital receip....
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....ction 11 or section 12 apply, if any such amount is credited to the profit and loss account". Thus, what can be discerned from above item is that, for calculation of book profit one has to reduce those items of income which do not from part of total income under normal provisions. If that be the case, then it logically follows that those items which do not constitute income at all cannot form part of book profit and no MAT can be levied thereon at all. Even sub-section (5) of section 115JB states that 'Save as otherwise provided in this section, all provisions of this Act shall apply to every assessee, being a company, mentioned in this section. Thus, provisions of section 4 and section 2(24) shall necessarily apply for computation of book profit and MAT u/s 115JB and as such provisions of section 115JB cannot override the provision of section 4, which is the basic charging section. Accordingly, looked at from whichever angle, the subsidy has to be reduced from the book profit for computation of MAT under section 115JB. 28. We found that issue is covered by the following decision of the Tribunal / High Court, wherein it was held that under the MAT provisions u/s.115JB is n....
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....so referred to the order of Rajasthan High Court wherein the ground taken up by the revenue on this issue was not admitted as not having a substantial question of law. Thus, it can be concluded that this issue is now being settled by a judgment of the Rajasthan High Court. It also distinguished the decision of Apollo Tyres Ltd. vs. CIT 255 A- _ and Rain Commodities Ltd. vs. DCIT 41 DTR 449. Also very recently, Madras HC in the case of Metal & Chromium Plater (P) Ltd. (TCA No. 359 of 2008) has also decided the said issue in the favour of the assessee. The case of Krishi Rasayan Exports Pvt. Ltd. vs. ACIT (ITA No. 883 / Kol / 2014 is on the similar interest subsidy which was required to be excluded from Book profit. We accordingly direct AO to exclude the TUF subsidy while computing book profit u/s.115JB. 22. Facts being identical, respectfully following the aforesaid decision of the Co–ordinate Bench, we direct the Assessing Officer to exclude the interest subsidy from the book profit computed under section 115JB of the Act. This ground is allowed. 23. In ground no.4, the assessee has challenged disallowance of Rs. 7,82,17,001, under section 14A r/w rule 8D. 24. Brief fac....
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....t of surplus funds available with the assessee. In that event, no disallowance of interest expenditure under rule 8D(2)(ii) can be made. Therefore, we direct the Assessing Officer to examine assessee’s claim factually and delete the disallowance made under rule 8D(2)(ii). As regards the disallowance of administrative expenditure under rule 8D(2)(iii), we are of the view that such disallowance needs to be upheld, as it has been correctly computed by the Assessing Officer. However, the disallowance already made by the assessee under section 14A of the Act has to be reduced. This ground is partly allowed. 29. In ground no.5, the assessee has challenged the decision of the Departmental Authorities in adding the disallowance made under section 14A r/w rule 8D to the book profit computed under section 115JB of the Act. 30. We have heard the parties and perused the material on record. Now it is fairly well settled that while computing the book profit under section 115JB of the Act, the Assessing Officer cannot make any adjustment by referring to the provisions of section 14A r/w rule 8D. However, the Assessing Officer has the power to make adjustment on account of expenditure incu....
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....laid down by the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities And Power Ltd., [2009] 313 ITR 340 (Bom.), no disallowance of interest expenditure can be made, as, the presumption would be, the loans and advances to the sister concern was out of interest free surplus fund available with the assessee. In fact, applying the aforesaid principle, the Tribunal in assessee’s own case in assessment year 2012–13, vide ITA no.1017/Mum./2017, dated 10th April 2019, has deleted the disallowance of interest expenditure made under section 36(1)(iii) of the Act. As it appears, neither the Assessing Officer nor learned DRP have controverted assessee’s claim regarding availability of surplus fund. What the Departmental Authorities have observed while disallowing interest expenditure is, the assessee failed to establish nexus between the advancement of interest free loan to the sister concern and the business expediency. Thus, in the aforesaid factual position, applying the ratio laid down by the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities And Power Ltd. (supra), as well as the decision of the Tribunal in assessee’s own case cited supra, we hold that no ....