TaxTMI 
TaxTMI 
2022 (8) TMI 86
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....and ground no. 1 in the appeals of the revenue. Shri J. P. Khaitan, Sr. Advocate represented the assessee. A brief note on the submissions made along with paper books in nine volumes and charts are placed on record to substantiate the claims made by the assessee in the two assessment years under appeal. 3. In respect of both the appeals of assessee in ITA Nos. 2294 & 2295/Kol/2019 for AY 2009-10 and AY 2010-11, Ld. Counsel submitted that their filing is delayed by 893 and 913 days respectively for which a petition for condonation of delay along with affidavit is placed on record. He further submitted that the solitary issue involved in both the appeals of the assessee is against the action of Ld. CIT(A) in upholding the action of the Ld. AO on account of deduction of education cess. Ld. Counsel for the assessee did not press this ground of appeal against which ld. CIT, DR did not raise any objection. After hearing both the sides, we condone the delay for adjudication and dismiss these two appeals as not pressed. 4. Accordingly, both the appeals of the assessee are dismissed. 5. Now, we take up the two appeals by the Revenue in ITA Nos. 917 & 918/Kol/2017 for AY 2009-10 and....
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....ief facts of the case as culled out from the records are that the assessee is engaged in the business of manufacture and sale of paints having its works located at various places. Assessee filed its return of income on 30.09.2009 reporting total income of Rs. 93,30,91,670/- computed under the normal provisions of the Act. During the year, assessee claimed deduction u/s 80IB of the Act of Rs. 23,49,63,237/- with respect to profits derived from its industrial undertakings located at Jammu, which is tabulated as under: S. No. Industrial Undertaking Amount of deduction claimed (Rs.) 1 Jammu (Solvent based) 2,37,99,835 2 Jammu (Water based) 7,71,11,289 3 Jammu (Rajdoot) 13,40,52,113 Total 23,49,63,237 There is one more unit viz. Jammu (Powder based) eligible for deduction u/s 80IB, however, owing to loss in the said unit, no deduction is claimed in the return in respect of this unit. 7.1 During the assessment proceedings, ld. AO called for details and explanation in respect of deduction claimed by the assessee u/s 80IB of the Act, all of which were complied by furnishing all the necessary details and relevant documents as noted i....
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....t then consider the total head office expense in the year previous to year in which units claiming deduction under chapter- VIA started operating (let us say this figure is 100). (c) Then it adjusts the value in (b) by inflation index of the country and calculate the inflation adjusted expense of head office. For this it uses the Inflation index of the year previous to year in which the units claiming deduction under chapter-IVA started operating and Inflation index of AY 2008-09. Say the figure calculated is 120. (d) It then applies a logic saying that this inflated adjusted expense of head office would have taken place even if the units claiming deduction under chapter-VIA have not started operation. Then it takes the total head office expense for year in consideration (in this case AY 2008-09) (say 150). It then states that out of this 150 the figure of 120 (which was 100 adjusted by inflation) will be expense of head office in AY 2008-09 even if the units claiming deduction under chapter-VIA have not started operation. It thus consider the difference of 150 less 120, which is 30 as expense for units claiming deduction under chapter-VIA. This figure of 30 is th....
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....- Corporate Tax Paper Book]. (b) AY 2002-03 Order in ITA Nos. 290/Kol/2006 & 1166/Kol/2006 dated 13.08.2007 [Page 98 at pages 109-112 of the Part A - Corporate Tax Paper Book]. Against the said order, revenue preferred an appeal before the Hon'ble Calcutta High Court, being ITA No. 230 of 2009, which was dismissed by the Hon'ble High Court on 02.09.2019 [Page 1 of the Corporate Tax Compendium of Case Laws]. (c) AY 2005-06 The Hon'ble Calcutta High Court by a judgment dated May 20, 2011 in WP No. 858 of 2008 [Page 127 at 141-142 of the Part A - Corporate Tax Paper Book]. Ld. CIT sought to direct special audit under section 142(2A) of the Act, inter alia, with regard to allocation of the common head office and selling expenses. The assessee instituted writ proceeding against such direction for special audit. The Hon'ble Calcutta High Court held that this Hon'ble Tribunal having found the allocation of the said expenses as based upon scientific and reasonable basis, which was followed for several years, the Commissioner should not have disregarded such view of this Tribunal and directed special audit. (d) AY 2006-07 ....
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.... the eligible units of the assessee. We also note that there is no change in the fact pattern and applicable law in respect of the claim of deduction made by the assessee u/s 80IB in the years under consideration before us vis-à-vis the years for which appellate orders of Co-ordinate of ITAT Kolkata or that of Hon'ble jurisdictional High Court of Calcutta in assessee's own case have been referred and relied upon. The methodology adopted by the assessee for apportionment of common head office expenses and selling expenses has consistently been followed year-on-year basis which has been held to be reasonable and scientific. It is thus noted that the issue in hand before us is no longer res integra considering the decisions in assessee's own case. Relevant extracts from one of the several decisions referred above in assessee's own case are reproduced hereunder for ease of reference from AY 2008-09 in ITA Nos. 1105 & 1403/Kol/2013, dated 14.12.2016 by ITAT Kolkata: "10. Heard rival submissions and perused the material available on record. We find that the assessee submitted before the CIT-A that the Tribunal has accepted the method of allocating the Head office and comm....
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....aper Book, we note that all the common expenses (viz. MCRE, rent - office & residence, Office & flat un keep, law charges. tea room, medical, electricity, rates and taxes, TTP, BP & BE, printing & stationery, boo & perm lea. traveling, LTA, bank charges, in-house computer expenses, cash commission, repacking expenses, HRA, incentive salesman, other expenses, canteen, staff welfare, donation & subscription, directors fees, gratuity, machine accounting. sec. off expenses, insurance, training & developments, professional fees.. brokerage & commission, in-house Xerox, ESI, shifting expenses, ARB, internal audit expenses' etc.) including expenses on salaries, advertisement and sales promotion etc. have been duly considered by the assessee for allocation to the unit eligible for deduction u/s. 80ID and thus there cannot be any question of inflated profits as raised by the Department in Ground No. (iv). On going through the basis of allocation of the said common head office and se1Jing expenses adopted by the assessee consistently from the AY 98-99, we are of the considered view that the said basis adopted by the assessee for allocation of common expenses is a reasonable and scientifi....
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....ings given by the ITAT Kolkata. The said judgment is reproduced hereunder for ease of reference which covers ground nos. 1, 2 and 3 of revenue's appeal in favor of the assessee: "The Court: This appeal by the revenue filed under Section 260A of the Income tax Act (the "Act" in brevity) is directed against the order dated 14th December, 2016 passed by the Income Tax Appellate Tribunal, A-Bench, Kolkata (the 'Tribunal') in ITA Nos. 1105/Kol/2013 for the Assessment Year 2008-09. The revenue has raised the following substantial questions of law for consideration: i) Whether on the facts and in the circumstances of the case the Learned Tribunal has erred in law in upholding the order of CIT(Appeal) in allowing deduction under Section 80IB of Income Tax Act, 1961 in respect of "common expenses" of Rs. 10,21,06,200/- in respect of its Units at Pandicharry, Goa and Jammu by disregarding that it was not correctly apportioned ? ii) Whether on the facts and in the circumstances of the case the Learned Tribunal has erred in law in upholding the order of CIT (Appeal) in allowing deduction under Section 80IB of Income Tax Act, 1961 in respect of "interest inco....
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....al position. With regard to the third substantial question of law, the Tribunal granted relief taking note of the decision in favour of the assesses by placing reliance in the case of Commissioner of Income Tax, Central-I, Calcutta -vs- Ashish Jhunjhunwala, reported in 2015(12) TMI 905. The said decision lays down the correct legal principle. Therefore, there is no error in the order passed by the Tribunal. In the result, the appeal fails and the same stands dismissed. The substantial questions of law are answered against the revenue." [emphasis supplied by us by underline] 11.2 Admittedly, it is a fact that this is a recurring issue from preceding assessment years. By adopting judicial consistency in the given facts and circumstances, we affirm the order of ld. CIT(A) and direct to delete the addition made by the ld. AO of Rs. 9,38,54,750/-. Thus, ground no. 1 is dismissed. 12. Second ground of revenue's appeal is with regard to deletion of disallowance made u/s 14A read with rule 8D of the Income Tax rules, 1962 (hereinafter referred to as the "Rules"). 12.1 Briefly stated, facts for this issue are that during the year assessee earned dividend ....
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....which was rejected by the Hon'ble High Court by an order dated 14.12.2021 by answering the question of law against the revenue (judgment reproduced above). Relevant extract from the said order of ITAT Kolkata in assessee's own case for AY 2008-09 (supra) is reproduced for ease of reference: "19. During the assessment proceedings the AO found that the assessee has earned dividend income o f Rs.20,53,923/- and offered Rs.21,921/- as expenditure incurred towards earning such exempt income. According to AO , the assessee invested Rs.29.52 crores against total loan fund of Rs.78.05 crores and observed that investment is made only 37.82%. The AO not satisfied with the correctness of claim of assessee in respect of determined expenditure as incurred in relation to exempt income and applying Rule 8D disallowed Rs.38,07,778/- for the purpose of computation of expenditure u/s. 14A o f the Act. 20. Before the CIT-A the assessee contended that all the details relating to said expenditure were filed before the AO and without satisfying the precondition as required to be followed before application o f Rule 8D, disallowed the impugned addition arbitrarily. The CIT-A observe....
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....ture, as the case may be , in relation to exempted income , the AO has to indicate cogent reasons. We find the AO without assigning any reasons to the claim o f the Assessee applied Rule 8D, therefore , the disallowance as made to an extent of 38,07,778/- is not maintainable. Respectfully following the decision supra, we have no hesitation to delete the impugned addition as made by the AO and confirmed by the CIT-A and sole ground o f as raised in this appeal is allowed." 13.1 Ld. CIT, DR opposed the contentions of the Ld. Counsel and relied on the order of ld. AO. 13.2 Per contra, the Ld. Counsel for the assessee submitted that there is no doubt that the assessee's own funds far exceeded its investments in each of the two years. Assessee's own funds as on March 31, 2008 comprising of share capital and reserves and surplus amounted to Rs. 349.01 crores whereas the investments made by it as on March 31, 2009 were only to the tune of Rs.29.52 crores (Page 1 of Part A - Corporate Tax Paper Book for assessment year 2009-10). Further, assessee's own funds as on 31.02.2009 were Rs. 425.14 crores whereas the investments as on 31.03.2010 were to the tune of Rs. 170.20 cro....
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....wn case for AY 2008-09 (supra). He further stated that against the said order, revenue preferred an appeal before the Hon'ble Calcutta High Court, vide appeal no. ITAT 256 of 2017, which was dismissed by the Hon'ble Calcutta High Court by order dated 14.12.2021 by answering the question against the revenue (judgment reproduced above). It was thus submitted by the Ld. Counsel of the assessee that the said ground is squarely covered against the revenue and in favour of the assessee. 15.2 Ld. CIT, DR placed reliance on the order of ld. AO. 16. We have heard the rival submissions and gone through the facts and circumstances of the case. We note that there is no change in the factual matrix and applicable law on the issue before us when compared with the preceding years. We have perused the order of Co-ordinate bench of ITAT Kolkata in assessee's own case for AY 2008-09 (supra), relevant extracts of which are reproduced as under: "12. Ground no.2 is relating to disallowance of deduction u/s. 80IB of the Act in respect of income of Rs.57,93,000/- on account of sale of scrap. 13. During the assessment proceedings the AO found that the assessee credited an a....
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.... of which is reproduced herein below: "With respect to the second issue the assessee submitted that ".....other income' of Rs.15,86,OOO/- as appearing in the Profit & Loss A/c of the Unit at Pondicherry comprises of income arising on account of sale of scrap generated in the manufacturing process employed at said Unit. The said fact would be apparent from the complete set of invoices reused by the unit In this regard. Since such general of scrap is directly connected with the production process employed by the company at its Unit at Pondicherry the profit derived from which is eligible for deduction under sect/on 80-IB of the Act. The generation of scrap has therefore a direct nexus with the goods produced by the company at the said eligible Unit and the profit derived therefrom is incidental to the activity of the industrial undertaking. The provision of section 80-IB under which the impugned deduction has been allowed by the Assessing Officer is in pari material to section 80-I and 80IA. It is submitted that in the under noted decisions which have been rendered in the context of section 80-I of the Act by various High Courts, it has been inter alia held that scrap ge....
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....(Bolix). The said acquisition was a leverage buy-out by the assessee for which it would infuse funds for the acquisition in a mix of debt and equity/quasi- equity since assessee was not having sufficient own funds to acquire the entire shares of Bolix. For this, Cyprus Subsidiary obtained loan at lower interest rates from foreign banks outside India for acquiring shares of Bolix. Assessee took the route of a leveraged buyout wherein the assets of the target entity, viz. Bolix were used as collateral for availing the loans by Cyprus subsidiary. Corporate guarantee was given by the assessee to the foreign banks over and above the said security for the loans availed by the Cyprus subsidiary. Thus, Cyprus Subsidiary was the borrower and the assessee was the guarantor for the loans borrowed from BNP Paribas and Standard Chartered Bank. 17.2 Loan agreements were made between BNP Paribas, Cyprus Subsidiary and the assessee as also between Standard Chartered Bank, Cyprus Subsidiary and the assessee. Aggregate amount borrowed was US $40.69 million equivalent to Rs.204.29 crores. The equity infusion by the assessee was US $2,290. Assessee intended to infuse equity into the Cyprus Subsidia....
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....eved, revenue is in appeal before this Tribunal. 19. At the outset, ld. CIT, DR submitted that ld. CIT(A) while deleting the addition made in respect of corporate guarantee, placed reliance on the decision of Co-ordinate bench of ITAT Kolkata in the case of Tega Industries v. DCIT in ITA No. 1912/Kol/2012 which has been held to be per incuriam by the Co-ordinate bench of ITAT Kolkata in the decision rendered in DCIT v. National Engineering Industries Ltd in ITA No. 986 & 987/Kol/2017 dated 12.09.2018 and it has held that corporate guarantee is indeed an international transaction amenable to transfer pricing provisions contained in Chapter X of the Act. Ld. CIT, DR further referred to the decision of this Tribunal in Electrosteel Castings Ltd v. DCIT in IT(SS)A No. 47 to 60/Kol/2014 and others dated 25.11.2016 wherein ALP has been determined on the corporate guarantee provided. 19.1 According to the ld. CIT, DR, with the insertion of Explanation to section 92B by Finance Act, 2012 with retrospective effect from 01.04.2002, this issue is now well settled. He stated that the guarantee provided by the assessee, which provides a benefit to the Associated Enterprise (AE), is in the....
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....guarantee commission of 3.6% p.a. charged by commercial banks. According to him, bank guarantees are easily encashable for which commercial banks charge higher commission whereas a corporate guarantee to repay the loan of a subsidiary, if the subsidiary does not repay it, it is distinct and different from a bank guarantee and the two cannot be compared. Similarly, for AY 2010-11, according to the ld. Counsel, the ld. TPO is not justified in arbitrarily applying the rate of 3% by assuming the credit rating of the two subsidiaries and estimating the alleged benefit on account of provision of corporate guarantee by the assessee. 20.3 Ld. Counsel also submitted without prejudice that the charge for guarantee fees should be apportioned based on number of days for which the guarantee was effective and not be charged for the full year as has been done by the ld. AO. For this, he referred to detailed working on loan disbursement to the AEs placed at page 101 of the order of ld. CIT(A). 21. We have heard the rival contentions, perused the material placed on record and given our thoughtful consideration to the submissions made before us. Admittedly, it is a fact that assessee has given....
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.... Corpn. Ltd. (supra). In the said case, the Revenue contended that the transaction of providing Corporate Guarantee is covered by the definition of international transaction after retrospective amendment made by Finance Act, 2012. The assessee argued that the Corporate Guarantee is an additional guarantee, provided by the Parent company. It does not involve any cost of risk to the shareholders. Further, the retrospective amendment of section 92B does not enlarge the scope of the term "international transaction" to include the Corporate Guarantee in the nature provided by the assessee therein. The Tribunal held that in case of default, Guarantor has to fulfill the liability and therefore, there is always an inherent risk in providing guarantees and that may be a reason that Finance provider insist on non-charging any commission from Associated Enterprise as a commercial principle. Further, it has been observed that this position indicates that provision of guarantee always involves risk and there is a service provided to the Associate Enterprise in increasing its creditworthiness in obtaining loans in the market, be from Financial institutions or from others. There may not be immedi....