TaxTMI 
TaxTMI 
TaxTMI 
2021 (2) TMI 848
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....his 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 circumstances." 4. On the facts and in the circumstances of the case and in l....
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....se 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 to the appellant's claim for R&D expenses. The respondent submits that once R&D facility was approved by DSIR, then the expenses incurred by ....
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....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 provisions of section 14A of the IT Act but, we have also carefully perused that very decision of the Tribunal namely Cheminvest Ltd. (supra) was reversed by the Hon'ble Delhi High Court, copy placed in ....
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....ed 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 exempt income there cannot be any disallowance. Respectfully following the said decision, we direct the Assessing Officer to delete the disallowance made u/s. 14A of the Act. Ground raised by the assessee is allowed. 6. Therefore, respectfully foll....
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....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 through the judgment of the Hon'ble Bombay High Court referred to above in the case of DIT v. Besix Ker Dabhol SA (supra). The Hon'ble Bombay High Court while answering the following question observed as under: - "Q.1. Whether on the facts and circumstances of the case and in law the ....
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....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 Avoidance Rules it is proposed to introduce a provision by which a arrangement may be declared as an impermissible avoidance arrangement and may be determined by re-charactersing any equity into debt or vice versa. 8) We find no fault with the above observations of the Tribunal. There were at the relevant time and even today no thin ....
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....s 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. Thus, respectfully following the above decisions, we direct the Assessing Officer to delete the adjustment made towards interest on subscription to share capital of AE's. 10. Therefore, respectfully following the above decision of Coordinate Bench in assessee's own case in turn relying on the decision of Assessment Year 2009-10 & 2010-11. Similarly, revenue has raised grounds o....
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.... 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 and the allowability of expenditure vary. Sub-section (1) to section 35 of the Act deals with expenditure on scientific research, not being in the nature of capital expenditure, is to be allowed to research association, university, college or other institution; for which an application in the prescribed form and manner is to be made to the Central Government for the purpose of grant of approval or continuation thereto. Before granting the approval, the....
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....s 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 had to be audited annually. Clause (b) to sub-rule (7A) has been substituted by IT (Tenth Amendment) Rules, 2016 w.e.f. 01.07.2016, under which the prescribed authority has to furnish electronically its report (i) in relation to approval of in-house R & D facility in part A of form No.3CL and (ii) quantifying the expenditure incurred on in-house R & D facility by the company during the previous year and eligible for weighted deduction under sub-section 2AB of section 35 ....
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....urring 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 expenditure so incurred on development of R&D facility has to be allowed for weighted deduction as provided by s. 35(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up R&D facility in India, the legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the legislature by making above amendment is very clear that the ent....
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....sing 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 to year and the amended form No.3CL thus, lays down the procedure to be followed by the prescribed authority. Prior to the aforesaid amendment in 2016, no such procedure / methodology was prescribed. In the absence of the same, there is no merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted deduction claim under section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of expenditure in form No.3CL. We find no merit in the said order of authorities below. 46. The Courts have held that for ded....