TaxTMI 
TaxTMI 
2019 (7) TMI 1647
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....hem 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 applying the rate of 1.75%. While doing so, he ....
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....wed 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 assessee had advanced loan to the AEs in Indian currency, ban....
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..... 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 assessee’s claim that the interest subsidy received by the assessee under TU....
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....wever 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 Subsidy 11.15 9. CNV Textiles Pvt. Ltd. Kolkata ITAT ITA no. Interest Subsidy 8 10. Gloster Jute Mills Ltd. 766/Kol./2....
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....e’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 loan taken for building, plant and machinery under the Credit Linked Capital Subsidy Scheme under Technology Upgradation Fund Scheme (TUFS) of Ministry of Textiles, Government of India. The assessee c....
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....etting 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 agreement dated 12.7.2005 with Small Industry Development Bank of India. The relevant clause of the agreement under which the subsidy was given is as under: “Para 8. - to prevent misutilization of capital subsidy and to provide an incentive f....
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.... 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 receipt not liable to tax.” 22. From the he judgments, it becomes crystal clear that the subsidy received by the company under the TUF scheme of the Ministry of Textile, Government of India is for helping the growth of textile industries and therefore capital in nature and outside th....
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.... 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 not applicable to capital receipts / exempt income. Sr.no. Decision ITAT / HC Citation / ITA no. Nature of Income held to be not includible in bank profit Relevant Para of the decision 1. Krishi Rasayan Exports Pvt. Ltd. Kolkata ITAT ITA no. 883/Kol./ 2014 Interest subsidy being a capita....
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....y, 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 facts are, during the assessment proceedings the Assessing Officer noticed that during the year the assessee has earned exempt income by way of dividend amounting to Rs. 1,94,14,050. Whereas, the assessee has disallowed an amount of Rs. 24,14,047, under section 14A r/w rule 8D, towards expenditure incurred for earning exempt income. Being of the view that the disallowance made by the assessee is not in accordance wit....
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....orrectly 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 incurred for earning exempt income as provided under clause (f) of Explanation–1 to section 115JB of the Act. Therefore, in the facts of the present case, we direct the Assessing Officer to make adjustment to the book profit in terms of Explanation–1(f) to section 115JB of the Act by restricting it to the amount disallowed by the assessee voluntarily. This ground is partly allowed. 31. In ground no.6, the assessee has challenged the ....
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...../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 disallowance under section 36(1)(iii) of the Act can be made. This ground is allowed. 37. In ground no.7, the assessee has challenged the disallowance of employees contribution to Provident Fund (PF) & ESIC amounting to Rs. 1,90,10,888. 38. Brief facts are, during the assessment proceedings, the Assessing Officer noticing that employees’ contribution to PF & ESIC was paid beyond the due date prescribed under section 36(1)(va) of the Act calle....