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2021 (9) TMI 464
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....:- "Ground no.1: Disallowance u/s 14A amounting to Rs. 95,19,605/- 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. 95,19,605/- 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. 2013-14 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 law, the Ld. CIT(A) erred in holding that the TPO has recharacterised the transaction, whereas the transaction remained ....
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....t 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." Ground No. 2 Transfer Pricing Issue:- 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the TP adjustment of Rs. 4,18,52,115/- as interest charged on the assessee's investment said to be capital surplus of $1,21,21,437(Rs. 75.14 crores) in its AE - RLS Inc, USA? 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not appreciating the cloudy nature of the transaction that the said capital surplus was claimed to have been paid to the AE as premium on shares when there is no fresh issue of shares to the assessee and that the said premium was claimed to be paid on the existing shares which the assessee already owns? 3. Whether on the facts and circumstances of the case and in law, the Ld.....
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....and circumstances of the case and in law, the Ld. CIT(A) is right in ignoring the amendment by way of Explanation (i)(c) inserted by Finance Act 2012, with retrospective effect from 1.4,2002 whereby the capital investment could be covered as an international transaction under "capital financing" and such transaction would yield accrued interest which is 'income' for the purposes of section 92(1), so as to be dealt under Chapter X of the Income tax Act? 10. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the fact that the assessee has not furnished any detailed valuation report for the said premium claimed to have been paid on the existing shares owned in the AE? 11. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in over-looking the fact that though the sated shares should carry a return of dividend, the assessee has not accounted any such return which casts cloud on the real nature of the excess investment being interest free loan? 12. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in not ascertaining the exact n....
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....nomenclature of the transaction to arrive at the decision that the investment is capital surplus in nature whereas in substance it is "loan" in nature and that the nomenclature of capital surplus was used to avoid taxation of interest leading to base erosion in India? 19. Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in ignoring the essential character of the capital surplus transaction is "loan" in "substance" which the assessee camouflages as 'share premium' in order to avoid tax liability on the interest that accrues coupled with the base erosion in India by shifting of huge amount of Rs. 75 crores out of India without any return? 20. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is correct in ignoring the BEPS (Base Erosion and Profit Shifting) Action Plan 9 of which India is a party which mandates that transactions can be disregarded for TP purposes where they lack commercial rationality, as far as proper return on investments is concerned? 21. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the BEPS Action Plan which emp....
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....ell relying upon certain case laws computed the disallowance under section 14A of the Act in accordance with the provisions of rule 8D, held that the assessee has not claimed any expenditure of administrative nature and there is no expenditure directly relatable to earning of exempt income. He held that the entire expenditure claimed is on account of interest only and hence the disallowance is required to be made in accordance with rule 8D(2)(ii) being proportionate interest on average value of investments. Accordingly, an amount of Rs. 95,91,605, was added to the total income of the assessee. 6. The learned CIT(A) deleted the disallowance made by the Assessing Officer by observing as under:- "Decision I have gone through facts of the issue and perused the materials available on record. It is undisputed that the assessee has made an investment of Rs. 16259.36 lakhs in unquoted equity shares of various companies as mentioned in schedule "10" of the audited financials as on 31/03/2014 but the assessee has not received any income on the said investments during the year. I have also perused the decision in the following cases: (i) Pr. Commissioner....
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....e the assessee has not earned any exempt income on the investments during the year. In view of above discussion and the facts of the case, it is held that the AO was not justified in mechanically following section 14A r.w.r 8D. As no exempt income was earned in the year under appeal no disallowance u/s 14A of the Act is called for. Also similar issue has been decided in Assessee's own case for AY 2011-12, 2012-13 & 2013-14. The facts and circumstances in the present assessment year remain the same and hence following the decision in assessee's own case for AY 2011-12, 2012-13 & 2013-14 the disallowance u/s 14A is hereby deleted. Further based on the decision in the case of Vireet Investment Pvt. Ltd. supra addition made under section 14A r.w.r 8D to books profit as per section 115 J should be deleted. Accordingly Ground No. 1 raised in the appeal is ALLOWED." 7. The Revenue being aggrieved, is in appeal before the Tribunal. 8. Considered the rival submissions and perused the material on record in the light of the decisions relied upon. We find that the issue of disallowance under section 14A of the Act for our consideration has been decided ....
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....sition 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 expendi-ture. 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 the compilation. The Hon‟ble Delhi High Court in ITA No.749/2014 vide order dated 02-09-201....
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....ppellate 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 following the above decisi....
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....A) following the orders passed in assessee's own case for the assessment year 2012-13, 2013-14, decided the issue in favour of the assessee and against the Revenue. The relevant portion of the learned CIT(A)'s decision on the issue is reproduced below:- "16. Decision I have considered the facts of the case and submissions of the Appellant. The undersigned has gone through the order of the TPO/AO and has examined the contentions of the Appellant on this issue. It is seen that for the period under the proceedings, the entire amount is standing as an Additional paid in capital (APIC). The facts of the case are identical to facts in AY 2012-13 and AY 2013-14. The issue is covered in favour of the Appellant by the order of the CIT(A) for AY 2012-13 and AY 201314. Therefore, respectfully following the order of the CIT(A) for AY 2012-13 and AY 2013-14 in the Appellant's case, the appeal of the Appellant is allowed." 13. The Revenue being aggrieved with the aforesaid order of the learned CIT(A), is in appeal before the Tribunal. 14. Considered the rival submissions and perused the material on record in the light of the decisions relied upon. We find tha....
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....ing of the ITAT and keep that reasoning open for debate in an appropriate case. However, in the facts of the present case, the specific finding of the ITAT is that there is complete uniformity in the act of the assessee in not charging interest from both the Associated Enterprises and Non Associated Enterprises- debtors and the delay in realization of the export proceeds in both the cases is same. In these circumstances, the decision of the Tribunal in deleting the notional interest on outstanding amount of export proceeds realized belatedly cannot be faulted." "71. Similarly, in the case of CIT v. M/s. Lingingstones in ITA.No. 887 of 2014 dated 28.11.2016 the Hon'ble Jurisdictional High Court held as under: - "3. The grievance of the revenue is that the respondent-assessee granted longer period of credit to its Associated Enterprises on sale of goods as compared to the period of credit granted to Non Associated Enterprises. Consequently the notional interest on delayed collection of consideration on sale of goods to Associated Enterprises needs to be added to the declared consideration to arrive at an arms length price 4. The Tribunal by the impugned....