TaxTMI 
TaxTMI 
2021 (2) TMI 848
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....d CO are clubbed, heard and disposed off by this consolidated order. Therefore, we are dealing issues ground-wise raised by assessee as well as revenue jointly. For the sake of clarity, the grounds raised by revenue and assessee are given below: Revenue's Grounds: "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in disallowing a sum of Rs. 86,34,268/- u/s. 14A of the IT Act read with rule 8D(2) of the Income Tax Rules 1962. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting interest charged on loan by considering it as share capital issued without appreciating that share capital was issued on last day of F.Y. 2010-11 and throughout the year it was outstanding as loan in the books of AE. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the self-serving agreement between the related parties for not charging interest on optionally convertible loan is to be ignored in terms of section 92F(ii), as the assessee failed to show any comparable cases in which interest has not been charged under uncontrolled circumstanc....
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....immunity to assessee from charging interest for the whole year. 11. On the facts and in the circumstances of the case and law, the Ld. CIT(A) erred in deleting the TP adjustment by stating that recharacterisation of transaction is unjustified without appreciating that this case falls in exception as laid down by decision of Hon'ble Delhi High Court in case of CIT vs. EKL Appliances Ltd. as shares were issued on last day of financial year and till march it was in the name of share application money in the books of accounts of assessee. II. The appellant craves leave to amend or alter any ground or add a new ground that may be necessary. III. The appellant prays that the order of CIT (A) on the above grounds be set aside and that of the AO restored." Assessee's Ground In Cross Appeal and C.Os are: "1. The learned CIT(A)-57 erred in confirming the disallowance u/s 35(2AB) of Rs. 21,17,794/- by the AO. The learned CIT(A) erred in law and on the facts and in circumstances of the case in restricting weighted deduction u/s. 35(2AB) of the Act by relying upon Form 3CL issued by Department of Scientific and Industrial Research (DSIR") with respect ....
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....e case of Cheminvest v. CIT (supra) held as under: "6. We have heard both the sides at some length and carefully perused the orders of the authorities below in the light of the precedence cited. As far as the exemption for the years under consideration were concerned, it was an admitted factual position that the AO has not mentioned any such amount. Meaning thereby, there was no exempt income earned by the assessee for the years under consideration. In reply to one of our questions, the learned AR, Mr. K. P. Dewani has also made a statement at Bar that no dividend was declared, hence, there was no earning of exempted dividend income. He has also clarified that for the purpose of invocation of the provisions of section 14A of the IT Act, the AO has applied the formula only in respect of disallowance of proportionate interest expenditure. There was no allegation of the AO that the exempt income was earned by the assessee. In the light of the undisputed finding on facts, we have perused the decision of the Hon'ble Courts. We may like to mention that a view has been expressed consistently that if there is no exempted profit then there is no question of invocation of the provis....
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.... of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income. The findings of facts recorded by both the Authorities do not give rise to any substantial question of law. Since no substantial question of law arises in this income tax appeal, the income tax appeal is dismissed with no order as to costs." 51. The Hon'ble Jurisdictional High Court held that if there is no exe....
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.... 92B(1) of the Act. However, the TPO held that since no shares have been allotted by AE's to the assessee in respect of the amount paid towards share application the same would be characterized as being in the nature of interest free loan provided to AE's. TPO also observed the fact that AE's were setup for developing global business opportunities for further expanding the assessee's business operations outside the India is not a valid ground for non-allotment of shares by AE's to the assessee. Therefore, in the absence of allotment of shares the share application money is treated as loan given by the assessee to its AE's and applied interest rate at 6% per annum and accordingly made adjustment. The Ld.CIT(A) upheld the adjustment. 43. Before us, Ld. Counsel for the assessee placing reliance on the decision of the Hon'ble Bombay High Court in the case of Director of Income-tax v. Besix Kier Dabhol Stay Application in ITA.No. 776 of 2011 dated 30.08.2012 and PCIT v. Aegis Limited in ITA.No. 1248 of 2016 dated 27.01.2019 contends that recharecterisation of transaction is not permitted in the absence of specific provisions under the Act. 44. We have gone thr....
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....ount of interest of Rs. 5.73 crores paid to Joint Venture Partners. The Commissioner of Income Tax (Appeals) held that Article 7(3)(b) of the Double Taxation Avoidance Agreement forbids allowance of any interest paid to the head office by permanent establishment in India as a deduction. Further, the payment of interest also directly violates the conditions imposed by RBI in its letter dated 3/11/1998. Therefore, the order of the Assessing Officer was upheld. 7) However, the Tribunal allowed the respondent-assessee's appeal. During the course of the proceedings before the Tribunal the revenue contended that the borrowings on which the interest has been claimed as a deduction are in fact capital of the assessee and brought only under the nomenclature of loan for tax consideration. It was the case of the appellant-revenue before the Tribunal that debt capital is required to be re-characterized as equity capital. However, the Tribunal held that in India as the law stands there were no rules with regard to thin capitalization so as to consider debt as an equity. It is only in the proposed Direct Tax Code Bill of 2010 that as a part of the General Anti Avoi....
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.... the real transaction or that the transaction in question was sham. The Tribunal observed that the TPO cannot question the commercial expediency of the assessee entered into such transaction. 3. We are broadly in agreement with the view of the Tribunal. The facts on record would suggest that the assessee had entered into a transaction of purchase and sale of shares of an AE. Nothing is brought on record by the Revenue to suggest that the transaction was sham. In absence of any material on record, the TPO could not have treated such transaction as a loan and charged interest thereon on notional basis. No question of law arises." 46. Similar view has been taken by the Hon'ble Bombay High Court in a recent Judgement in the case of Pr.CIT v. Concentrix Services India Pvt. Ltd., in ITA.No. 778 of 2017 and 867 of 2017 dated 04.09.2019. Further, the Ld. DR has not brought any contrary decisions to our notice. The ratio of the above decisions squarely applicable to the facts of the assessee's case. The TPO has recharectersied the transaction of investment of preference shares into loan which is not permissible in view of the judgments of the Hon'ble Bombay High Court.....
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....rival submission and material placed on record. We notice from the records that the identical ground has already been decided by the Coordinate Bench of ITAT(Mumbai and Pune ) and Hon'ble Gujarat High Court on merits, which are given below:- i) Glenmark Pharmaceuticals Ltd. vrs. ACIT (2019) ITA No. 5651/Mum/2017 (Mum-Trib) ii) ACIT vrs. Crompton Greaves Ltd. (2019) 111 taxmann.com 338 (Mum-ITAT) iii) Cummins India Ltd. vrs. DCIT (2018) ITA No. 309/Pun/2014 (Pune ITAT) iv) CIT vrs. Claris Lifescience Ltd. (2008) 174 taxmann.com 113 (Guj-HC). 14. For the sake of clarity, the decision in the case of Cummins India Ltd (supra) is reproduced below:- 38. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is against the claim of deduction under section 35(2AB) of the Act i.e. expenditure incurred on Research & Development activity. For computation of business income under section 35 of the Act, expenditure on scientific research is to be allowed on fulfillment of certain conditions which are enlisted in the said section. Under various subsections of section 35 of the Act, the conditions an....
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....(4), application for obtaining approval under section 35(2AB) of the Act is to be made in form No.3CK. Under sub-rule (5A) of rule 6 of the Rules, the prescribed authority shall, if satisfied that the conditions provided in the rule and in subsection (2AB) being fulfilled, pass an order in writing in form No.3CM. The proviso however lays down that reasonable opportunity of being heard is to be granted to the company before rejecting an application. So, the application has to be made under sub-rule (4) in form No.3CK and the prescribed authority has to pass an order in writing in form No.3CM. Sub-rule (7A) provides that the approval of expenditure under subsection (2AB) of section 35 of the Act, shall be subject to the conditions that the facilities do not relate purely to market research, sales promotion, etc. Clause (b) to sub-rule (7A) at the relevant time provided that the prescribed authority shall submit its report in relation to the approval of in-house R & D facility in form No.3CL to the DG (Income-tax Exemption) within sixty days of its granting approval. Under clause (c), the company at the relevant time had to maintain separate accounts for each approved facility, which ....
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....cility by the prescribed authority, which is DSIR; and (iv) allowance of weighted deduction on the expenditure so incurred by the assessee. 9. The provisions nowhere suggest or imply that R&D facility is to be approved from a particular date and, in other words, it is nowhere suggested that date of approval only will be cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading clearly manifests that the assessee has to develop facility, which presupposes incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. The Tribunal has, therefore, come to the conclusion that on plain reading of section itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered r. 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of Rule and Form clearly suggests that once facility is approved, the entire exp....
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....te mentioned in the certificate issued by DSIR would be of no relevance where once the certificate was issued by DSIR, then that would be sufficient to hold that the assessee had fulfilled the conditions laid down in the aforesaid provisions. 45. The issue which is raised in the present appeal is that whether where the facility has been recognized and necessary certification is issued by the prescribed authority, the assessee can avail the deduction in respect of expenditure incurred on in-house R&D facility, for which the adjudicating authority is the Assessing Officer and whether the prescribed authority is to approve expenditure in form No.3CL from year to year. Looking into the provisions of rules, it stipulates the filing of audit report before the prescribed authority by the persons availing the deduction under section 35(2AB) of the Act but the provisions of the Act do not prescribe any methodology of approval to be granted by the prescribed authority vis-à-vis expenditure from year to year. The amendment brought in by the IT (Tenth Amendment) Rules w.e.f. 01.07.2016, wherein separate part has been inserted for certifying the amount of expenditure from year t....