TaxTMI 
TaxTMI 
2023 (10) TMI 1135
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....eal) is taken as a lead case 2. The Grounds of appeal raised by the assessee are as under: "Transfer Pricing Adjustment 1. The learned CIT(A) has erred in confirming addition made by the learned AO and the learned TPO to the value of the International transactions with Associated Enterprises ("AE") and consequently to the total income of the appellant u/s 92C of Rs. 10,99,989. 2. The learned CIT(A) has erred in confirming the order of the learned AO and the learned TPO in making addition of Rs. 10,99,989 by charging notional interest on short term advance made to its overseas subsidiaries being Kalpataru Power Transmission (Mauritius) Ltd and Kalpatary Power Transmission (Nigeria) Ltd. 3. The learned CIT(A), the learned AO and the learned TPO erred in fact and in law in making the addition of Rs. 10,99,989 by rejecting the explanation given by the Appellant for making advances as well as the benefits received by the appellant from the same. 4. Without prejudice to Grounds No. 1 to 3 above, the learned CIT(A) erred in fact and in law in confirming the action of the learned AO and the learned TPO in computing the notional interest charg....
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....upholding levy of interest of Rs. 39,58,529 u/s 234C made by learned AO by holding that the same is mandatory and consequential in nature which is without appreciating the fact that the interest u/s 234C shall not be invoked in the case of the Appellant as the Appellant has already paid necessary amount of advance tax installments within due date to make payment of its tax liability on returned income. Accordingly, such levy of excessive interest prayed to be deleted. Your appellant prays for leave to add, alter and/or to amend any of the grounds before the final hearing of the appeal" 3. Ground No.1:- This ground relates to TP Adjustment on notional interest on advances. 4. The short fact is this that the company had given short term advances of Rs. 3.18 crores to Kalpataru Power Transmission (Mauritius) Ltd. and Rs. 1.68 lakhs to Kalpataru Power Transmission (Nigeria) Ltd. for meeting their requirements. The advances were in nature of quasi equity capital and therefore, no interest was charged by the company. The Transfer Pricing Officer (in short "TPO") followed the decision on the identical issue for A.Y. 2012-13 and made upward adjustment on account of notional ....
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....ment on account of interest on the loans using LIBOR rate of 4.16% in respect of the Mauritius loan and 4.03% in respect of the Nigeria loan. Ld.Counsel pointed out that the assessee had pleaded no such adjustment to be made on the ground that they were not in reality loans but were quasi capital in nature and were given interest free out of commercial expediency since the AEs were subsidiaries of the assessee floated to explore various business opportunities for the assessee only. That notional interest could not be assessed in the context of transfer pricing. The A.O. however rejected all the contentions of the assessee relying on the decision of the ITAT Delhi Bench in the case of Perot Systems TSI vs. DCIT (ITAT Delhi) and bench marked the transmission for interest to be charged thereon @ 4.16% in respect of the Mauritius loan and 4.03% in respect of the Nigeria loan accordingly proposing an adjustment of Rs. 2,52,390/- (Rs. 87,279 + Rs. 1,65,040) respectively for the two loans. The proposed adjustment was made by the A.O. in his order passed u/s. 143(3) of the Act. 7. The matter was carried before the Ld. CIT(A) who upheld the adjustment relying on the decision of the....
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....he arm's length price of the loan is to be ascertained. The source of funds is immaterial in the present context. We have also noted that the assessee has not offered any assistance on the quantum of ALP adjustment in respect of this loan transaction, and that in the subsequent assessment years, the assessee himself has accepted ALP adjustment by adopting the LIBOR + 2% interest rate. In this view of the matter, no interference is warranted on the quantum of the ALP adjustment either. In view of these discussions, we confirm the stand of the authorities below on this issue and decline to interfere in the matter." The facts of the appellant's case being identical, addition of Rs. 2,52,391/- made on short term advance to its overseas subsidiaries is held justified and is hereby confirmed. Relevant ground of appeal is rejected. 8. Before us, the Ld. Counsel for the assessee reiterated the contentions made before the lower authorities that the impugned advances were in the nature of quasi equity capital since they were given to the subsidiaries which were floated to explore business opportunities in their respective regions; the advances had no repayment sched....
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....sidiaries to explore business opportunities in respective regions * Short term interest free advance granted to easily repatriate money back to India once the entities start earning revenue * Advance has no repayment schedule and granted without any condition for repayment * Refer Page 204 to 205 of Paper Book & Page No 701 to 702 of Paper Book * Reliance placed on decision of ITAT Ahmedabad in case of Micro Inks Ltd. v. Asstt. CIT [2013] 144 ITD 610 (Refer Page No 702 to 704 of Paper Book) * Decision of Perot Systems TSI (India) Ltd vs DCIT 37 SOT 358 2010 not applicable (Refer Page No. 702 of Paper Book) * Argument of quasi-equity capital rejected on the basis of facts * Core legal issue i.e. whether ALP adjustments will also be warranted in case of interest free loans given as quasi capital, was left open * There was no material on record to establish that the loans were in reality not loans but were quasi-capital * Without prejudice to above, application of LIBOR + rate for arm's length price determination in case of short-term advance is not permitted. Reliance is placed on decision of ITAT Ah....
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.... no assistance to the assessee. The advances therefore we hold are in the nature of loans and since no interest has been charged by the assessee on the same, the transfer pricing adjustment made by charging interest applying LIBOR is, we hold, justified. 12. In view of the above, we see no reason to interfere in the order passed of the Ld. CIT(A) upholding the transfer pricing adjustment of Rs. 2,52,319/- on account of determination of Arms Length Price (ALP) of interest to be charged on short term advances given to the AE of the assessee. 13. Ground of appeal No. 1 & 1.1 is accordingly dismissed." 6. Keeping in view of the entire aspect of the matter we do not find any reason to deviate from the stand taken by the Coordinate Bench and respectfully relying upon the same in assessee's own case for A.Y. 2012- 13 we reject this ground of appeal preferred by the assessee. 7. In the result, Ground No. 1 of the assessee's appeal is dismissed. 8. Ground No.2:- This ground relates to disallowance under Section 14A r.w.r. 8D of the Act. 9. The brief facts of the case is this that the company has earned exempt income of Rs. 2,37,41,870/- and has disallowed Rs. 7....
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....on of the assessee before the A.O. for the disallowances made by it. Any explanation given to the CIT(A) is of no relevance and as noted above since the assessee had given no plausible explanation for making a suo moto disallowance of Rs. 60,000/- and considering the huge investments made by the assessee averaging Rs. 40 crores and huge dividend income earned by the assessee during the year of approximately 8 crores and also noting the substantial activity in the investments made, moving from Rs. 39 crores to Rs. 40 crores from the beginning to the end of the year, the A.O. had rightly recorded his non satisfaction with the reply of the assessee. Therefore even considering the decision of the Hon'ble Apex Court in the case of Godrej & Boyce Manufacturing Co.Ltd. (supra), pointed out by the Ld. Counsel for the assessee before us, we hold that there was valid satisfaction of the A.O. for rejecting the explanation of the assessee . The argument of the Ld. Counsel for the assessee therefore that the A.O. had recorded no satisfaction before proceeding to apply Rule 8D for calculating the disallowance to be made u/s. 14A, is therefore dismissed. 23. The next contention raised by....
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....lling purposes (strategic investment), it would make no difference to the applicability of section 14A as long as such investments earn exempt dividend income. The theory of apportionment would come into play in such cases and expenses incurred in relation to earning exempt income needs to be disallowed. The relevant findings of the Hon'ble apex court in this regard at para 34-35 of the order is as under: "34. Having clarified the aforesaid position, the first and foremost issue that falls for consideration is as to whether the dominant purpose test, which is pressed into service by the assessees would apply while interpreting Section 14A of the Act or we have to go by the theory of apportionment. We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the dividend income, th....
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.... Investment Limited as well as similar cases where shares were purchased by the assessees to have controlling interest in the investee companies have to fail and are, therefore, dismissed." 26. In view of the same the argument of the Ld.Counsel for the assessee seeking exclusion of strategic investments while computing disallowance as per Rule 8D of the Rules is dismissed." 13. Keeping in view of the entire aspect of the matter we do not find any reason to deviate from the stand taken by the Coordinate Bench and respectfully relying upon the same in assessee's own case for A.Y. 2012- 13 we reject this ground of appeal preferred by the assessee. 14. In the result, Ground No. 2 of the assessee's appeal is dismissed. 15. Ground No. 3:- Since this ground is consequential in nature, hence, no order needs to be passed separately. 16. In the result, the appeal preferred by the assessee in ITA No. 244/Ahd/2020 for A.Y. 2014-15 is dismissed. Now we shall take up Revenue's appeal in ITA No. 270/Ahd/2020 for A.Y. 2014-15 17. The Revenue has taken the following grounds of appeal:- "1. Whether on the facts and circumstances of the case and in law, the ld.CIT(....
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.... "31. The issue relates to the deletion of Arm's Length Price adjustment made to the Success fees paid by the assessee to its subsidiary Kalpataru Power Transmission, USA, for its services in identifying projects in the US market. 32. The assessee had reported international transaction of Liaison Service Fee of Rs. 2,57,27,549/- paid to its associate enterprise Kalapatru Power Transmission USA Inc. and had bench marked it using CUP method in its report filed in Form No.3CEB. The TPO in his order passed u/s. 92CA(3) rejected the bench marking adopted by the assessee and adopted the bench marking of Liaison support Service Fee @ 2% in the case of Cadila Health care Ltd. approved by the ITAT Ahmedabad Bench. Accordingly the difference amounting to Rs. 1,04,85,761/- was proposed to be adjusted by way of reduction in the liaison fees so paid by the assessee. The same was accordingly adjusted by the A.O. in his order passed u/s. 143(3). 33. Ld. CIT(A) however, it was pointed out, deleted the same noting that the liaison fees paid to Pharmaceutical Company i.e. Cadila could not be said to be comparable for the assessee which was engaged in the business of designing Hi....
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.... I am of the opinion that as the expenses paid to AE is a success fee it has to be benchmarked with "the commission paid to third parties and the appellant has rightly used the US Census Bureau data published to benchmark the success fee. TPO on one hand has stated that the figures of the US Census Bureau is not applicable since the nature of service/product dealt by the appellant is totally different. Thereafter, he goes on to compare the appellant with a pharmaceutical company and benchmark the entire transactions at 2%. The data compiled by the US Census Bureau in respect of electronics market, commission agents etc. has also been compiled vide Annexure-G of the Paper-book. The data collection methodology has been elaborately described and jt is seen that it is not merely an estimate but it is actual collection of data from various organizations in different fields of activities. At this juncture, it is relevant to refer to Rule 10D(3) which gives a statutory support to use a Government publication in/the benchmarking process. Clause (a) of Rule 10D(3) categorically specifies that the assessee can use official publications, reports, studies, database from the Government of the c....
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....CIT(A) nor do we find any. 37. We therefore uphold the order of the Ld. CIT(A) deleting the adjustment made to the liaison fee on account of Arm's Length Price adjustment made u/s. 92CA(3) of the Act." 22. Keeping in view of the entire aspect of the matter we do not find any reason to deviate from the stand taken by the Coordinate Bench and respectfully relying upon the same for A.Y. 2012-13 we reject this ground of appeal preferred by the Revenue. 23. In the result, Ground No.1 of the Revenue's appeal is dismissed. 24. Ground No. 2:- This ground relates to profit on sale of carbon credit. 25. The short point is that the company has earned income from sale of carbon credits which was not offered to tax by treating it as capital receipt. 26. During the course of assessment proceedings it is found that the assessee has earned income from sale of carbon credits (in short "CERs"). The assessee has credited to its profit and loss account an amount of Rs. 1,13,58,727/- on account of CERs. During the course of assessment proceedings the assessee submitted the details with regard to the sale of CERs which is similar to earlier year and there is no change in facts of....
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....se of the assessee for A.Y. 2010-11 & 2011-12 in first appeal and further following the decision of the ITAT Ahmedabad Bench in the case of Alembic Ltd. In ITA NO. 1912/Ahd/2012. The order of the Ld. CIT(A) in this regard at para 8.3.4 to 8.3.6 is as under: 8.3.4 On careful consideration of entire facts, it is observed that similar issue was decided by CIT (Appeals)- Ill in case of Appellant in its favour for A.Y. 2009-10 vide order dated 10th December, 2012 and even same order is followed by CIT (Appeals) - 12'in case of Appellant for A.Y. 201-011 and 2011-12 vide order dated 21st February, 2016. The said order has been submitted by Appellant during the course of Appellate proceedings and on careful consideration of such order it is observed that CERs received by Appellant including sale proceeds are capital receipt. The jurisdictional Hon'ble AHMEDABAD ITAT in the case of ALEMBIC LIMITED in TTA No. 1912/Ahd/2012, relied by Appellant, dealt with the issue in the factual matrix of the case where the appellant itself had treated the income from sale of CERs as the revenue income in profit & loss account but the judicial authorities held it to be in the nature of the....
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....dbenefited from a tax-which is not leviable in right earnest. We find merit in the contentions of the Id. Counsel for the appellant that the Hon'ble Karnataka High Court in the case of SubhashKabini Power Corporation Ltd (supra) and the Hon'ble Andhra Pradesh High Court in the case of My Home Power Ltd (supra), have taken a view that the carbon credit realization is capital in nature. No contrary judgment is cited. Therefore, respectfully following these judgments, this additional ground of the appellant in respect of realization of carbon credit as capital receipt is allowed. Thus, this additional ground is accordingly allowed." It is further observed from the above finding given, by the Hon'ble Tribunal later on was confirmed by the Hon'ble Gujarat High Court in Tax Appeal No. 553 of 2017 dated 28/08/2017 wherein it was held as under: "6. The last surviving question pertains to the treatment that the appellant's income from trading of carbon credits should be given. The Tribunal held that receipts should be in the nature of capital receipts and therefore, would not invite tax. This issue has been examined by two High Courts. The Karnataka Hig....
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....t this stage it is required to be noted that even the learned Tribunal has in the impugned order has specifically observed that the learned tribunal is making observations on the aforesaid issue to show their understanding on the issue and that they have briefly touched the issue. In any case the learned Tribunal ought not to have decided the issue which as such was academic before it. Therefore, while quashing and setting aside the observations made by the learned Tribunal with respect to the income derived from carbon receipts and/or on sale of CERs, we hold the question in favour of the assessee and against the Revenue by keeping the said question open to be considered in accordance with law in the year in which the income from safe of CERs is received, tinder the circumstances, we hereby set aside the observations made by the learned Tribunal with respect to the income from sale of CERs, made in the Impugned judgment and order, however keeping the said question open to be considered in accordance with law and in the year in which the income from sale of CERs is accrued / received. Thus, Hon'ble Gujarat High Court has held that the taxability of CERs is a question o....
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....Hon'ble ITAT Hyderabad DCIT Vs. Sree Rayataseema Green Energy Ltd. [2015] [58 taxmann.com 62]: Section 28(1) of the Income-tax Act, 1961 - Business income -Chargeable as (Carbon credits) - Assessment year 2010-11 - Appellant, engaged in business of generation of power and sale of transformers, credited income from sale of carbon credits-to its sister concern instead of crediting amount in profit and loss account - It claimed said amount as deduction under section SO-IA from generation of power -Assessing Officer brought income from sale of carbon credits to tax as business income but excluded it from profits considered for deduction under section 80-IA - Whether income received on sale of carbon credits was a capital receipt and not a business receipts - Held, yes [Para 11],[In favour of appellant]. (iv) Decision of Hon'ble Karnataka High court in the case of CIT vs SubhashKabini Power Corporation Ltd [69 taxmann. com 394]: Section 28(1), read with section 263, of the Income-tax Act 1961 - Business income - Chargeable as (Carbon credit) - Assessment year 2009-10-Whether since carbon credit was generated out of environmental concerns and it was not having c....
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....2471&2853/Ahd/2017 & 2472/Ahd/2017 for A.Y. 2012-13 and 2013-14 in assessee's own case and the order of Hon'ble High Court of Gujarat in the case of Suzlon Energy Ltd., reported in 33 taxmann.com 151 for the purpose of computing disallowance excluded investment in foreign subsidiary. 34. At the time of hearing of the instant appeal the Ld. Counsel fairly submitted that the case has already been upheld by the ITAT in A.Y. 2012-13 and the disallowance pertaining to foreign investments is deleted by CIT(A). A copy of the order passed by the Tribunal has also been filed before us. It appears that while dealing with the issue the Coordinate Bench was pleased to observe as follows:- "50. Ground no. 4 reads as under: 4. Whether on the facts & circumstances of the case, the Ld CIT(A) was justified in deleting the disallowance made u/s 14A rws Rule 8D of Rs. 2,05,15,540/- 51. The issue relates to disallowance of expenses pertaining to exempt income earned as per the provisions of Section 14 A of the Act and the revenue is aggrieved by the order of the Ld. CIT(A) deleting the disallowance of expenses pertaining to foreign investment made by the assessee . The ld....
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....espect of Gestamp Kalpataru Solar Steel Structures Pvt. Ltd of Rs. 20,52,68,500 instead of Rs. 16,44,68,500 being the average value of such investment as per books of account after considering the deduction made for provision of diminution in value of investment as per audited books of account while computing disallowance under Rule 8D r.w.s. 14A. Incorrect computation of interest u/s 234B 6. The learned CIT(A) has erred in facts and in law by upholding levy of interest of Rs. 1,39,15.010 u/s 234B of the Act by holding that the same is mandatory and consequential in nature which is without appreciating the fact that the appellant has paid advance tax of Rs. 44,50,00,000 as against the assessed tax of Rs. 44,42,65,844 (net of TDS, relief u/s 90/91 of the Act) and thereby no interest u/s 234C is leviable. Such interest levied by the learned AO is beyond the authority of law. Accordingly, such interest prayed to be deleted. Incorrect computation of interest u/s 234C 7. The learned CIT(A) has erred in facts and in law by upholding levy of interest of Rs. 18,19,145 as against of Rs. 3,94,615 as computed by the Appellate u/s 234C made by learned AO by ....