TaxTMI 
TaxTMI 
2022 (8) TMI 1482
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd No. 10 to 12: Income received under tonnage business treated as non-tonnage income. (iv) Ground No.13: Disallowance of expenditure while computing Short Term Capital Gain. (v) Ground No.14: AO failed to comply with the directions of the DRP in not granting credit for TDS. TRANSFER PRICING ISSUES(T.P ISSUES): (i) Ground No.15 : General (ii) Ground No.16 to 18: T.P adjustment on interest on foreign currency loans to Associated Enterprises. (iii) Ground NO.19 to 21: T.P adjustment in respect of performance guarantee given on behalf of the Associated Enterprises. (iv) Ground No.22 to 24: T.P. Adjustment in respect of financial guarantee given on behalf of the Associated Enterprises. ADDITIONAL GROUNDS OF APPEAL: (i) Ground No.1: Disallowance u/s. 14A r.w.r 8D. (ii) Ground No.2: Challenge to recording of satisfaction u/s. 14A(2). (iii) Ground No.3: Inclusion of disallowance u/s. 14A while computing book profits u/s. 115JBof the Act. 3. Shri Percy j. Pardiwalla narrating the facts of case submitted that the assessee is engaged in the business of shipping, property development and finance. The ld.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Tribunal upheld the findings of First Appellate Authority. 6. The ld.Departmental Representative fairly admitted that the issue pertaining to reallocation of interest expenditure between tonnage and nontonnage activities was considered by the Tribunal in assessee's own case for preceding assessment years. 7. A perusal of assessment order would show that excerpts from the chart furnished by the assessee giving details of the loans initially taken for shipping business but subsequently utilised for non-tonnage activities has been reproduced. The Assessing Officer disallowed interest expenditure without appreciating the facts on record. Undisputedly, the loans were initially taken for acquiring/maintaining ships. Subsequently, the ships were sold and the sales proceeds were utilized for non-tonnage activities. Therefore, the loans taken for business of qualifying ships were eventually utilized for the purpose of business other than that of the business of qualifying ships (non-tonnage activities). In assessment year 2006-07 under similar set of facts, the Coordinate Bench held: "6. .........the Assessing Officer himself has stated in the assessment order that the lo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icating investments yielding tax free income at page-51 of the Paper Book and the details of current investments at page- 13 of the Paper Book. The ld. Counsel further referred to computation of suo motu disallowance made under section 14A of the Act at page 49 of the Paper Book. Further, referring to reserves and surplus at page- 7 of the Paper Book he submits that own funds of the assessee are sufficient to cover investments in mutual funds as reflected in Schedule 5 at page 13 of the paper book. The ld.Counsel for the assessee further argued that total expenditure towards administrative cost of Treasury Department is Rs.69.59 lakhs (at page 49 of the paper book). The entire administrative expenditure cannot be attributed for the purpose of investments. The assessee has other operational activities as well. Therefore, disallowance calculated by Assessing Officer under rule 8D is erroneous. To support his submissions, he placed reliance on the decision rendered in the case of Godrej & Boyce Mfg. Co. Ltd. reported as 328 ITR 81 (Bom). The ld. Counsel for the assessee fairly admitted that the assessee has raised a plea that no disallowance under section 14A could have been made i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er businesses as well. In the instant case the contention of the assessee is that the assessing officer has made disallowance u/s14A of the Act of an amount more than the entire administrative cost of the Treasury Department. 10.3. The third contention of the assessee is own interest free funds of the assessee are sufficient to cover the investments made. It is a settled legal position that where assessee is having mixed bag of own interest free funds and interest bearing funds, the presumption would be that for investment purpose own interest free funds would be utilised by the assessee. 10.4. Taking into consideration entire facts of the case, we deem it appropriate to restore this issue back to the file of Assessing Officer to reexamine the issue in light of above observations. If own interest free funds of the assessee are much more than the investments made no disallowance under rule 8D(2)(ii) is warranted. 10.5. The assessee has raised additional grounds of appeal as well in respect of disallowance u/s.14A of the Act. The findings on the same are as under: - - While computing disallowance under section 14A of the Act r.w.r 8D(2)(iii), the Assessing Officer s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessment year 2006-07 the Assessing Officer had shifted income from tonnage tax business to nontonnage tax income for similar reasons. The Tribunal in appeal ITA No. 4507/Mum/2011 decided on 14/9/2012 decided the issue in favour of the assessee. He further pointed that the issue raised in ground No.11 and 12 were also considered by the Tribunal in appeal of the assessee for assessment year 2006-07. 13. We find that identical grounds were subject matter of appeal in assessment year 2006-07. The Co-ordinate Bench following the decision rendered in the case of Shipping Corporation of India in ITA No.145/Mum/2011 decided these grounds in favour of the assessee. The relevant extract of the findings of Tribunal in assessee's own case for assessment year 2006-07 are reproduced herein below: "14. As submitted by the learned counsel for the assessee and remained uncontroverted/unrebutted by the by the learned DR who has simply relied on the order of the AO in support of the Revenue's case, the issues raised in ground Nos 2, 3 and 4 of the assessee's appeal are squarely covered in favour of the assessee by the decision of coordinate bench of this Tribunal in the case o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hey cannot be treated as nonbusiness income. The Assessing Officer as well as the Commissioner (Appeals) seem to have been influenced by the fact that the assessee has an income of Z 800 crores in its Profit & Loss account and whereas he has offered only Z 18 crores to tax under the tonnage tax scheme. The decision whether a particular income has to be brought to tax or not, cannot be based on such a view of the matter. The legislature in its wisdom provided the manner of computation of income under the tonnage tax scheme. In section 115VA, it is clearly provided that sections 28 to 43C would not over ride the computation of profits and gains under section 115VA. As section 41(1) falls within sections 28 to 43C, no separate addition under that section can be made. As section 41(1) seeks to bring to tax certain specified items of receipts under the head "profits and gains of business"" the scheme should not be invoked while computing profits and gains of business under Chapter-XII-G. Hence, we are of the opinion that the argument of the assessee should succeed. 30. With the introduction of chapter-XII-G, the entire methodology of taxing income from the business of operating....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he ld.Counsel for the assessee referred to the statement at page 71 of the Paper Book, wherein short term capital gain u/s. 50 of the Act for the year ended 31st March 2008 has been computed. He pointed that one of the flat sold by the assessee during the period relevant to the assessment year under appeal was Flat No.18B, Manek, L D Ruparel Marg, Mumbai. While computing capital gain on said flat expenditure relating to building repair funds and share certificate was reduced from total consideration. He pointed that a perusal of Inter Departmental Memo at page 72 would show that 50% of the charges were paid by the purchaser and the remaining 50% were borne by the assessee. Therefore, to the extent of expenditure incurred by the assessee should have been allowed. In support of his submissions, the ld.Counsel for the assessee placed reliance on the decision rendered in the case of Additional CIT vs. Madhur I. Teckchandani, 93 TTJ 721 (Mum). 15. Per contra, the ld.Departmental Representative vehemently defending assessment order submitted that it is not clearly emanating from records that whether the building repair fund and share certificate expenses are recurring expenditure or o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ld. CIT(A) for the simple reason that the loan of USD 4 million was given in earlier accounting year and as per the agreement, the rate of interest was taken at 5%. The fixed rate of interest cannot be accepted to be changed with the subsequent change in LIBOR , if any , and as the loan of USD 17 million has been repaid within the year itself, there is no logic in taking the rate for more than 5 years at 6 months LIBOR plus 350 basis point. In our humble opinion, the benchmarking done by the assessee are based on the interest paid by it on its own borrowings of loan in foreign currency from KEXIM bank and also from State Bank of India as mentioned elsewhere in this order we find that the interest charged by the assessee on the loan given by it to its AE is at arm's length and therefore, no further adjustment is required. We, accordingly, reverse the findings of the Ld. CIT(A) with a direction that no Transfer Pricing adjustment is required on the interest charged by the assessee to its AE. Ground No. 6 to 11 are accordingly allowed." [Emphasized by us] No contrary decision or any distinguishable fact has been brought to the notice of the Bench. Facts in the impugned asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the assessee in issuing performance guarantee on behalf of its AE. Thus, in the facts of the case and the decision by the Coordinate Bench, we hold that no adjustment is warranted on account of performance guarantee. The assessee succeeds on ground no. 19 to 20 of the appeal. 23. In ground No. 22 to 24 of appeal, the assessee has assailed TP adjustment in respect of financial guarantee given by the assessee on behalf of its AE. The ld.Counsel for the assessee submitted that the assessee has made suo-motu charge of 0.55%. The ld. Counsel referred pages 92 to 95 of the paper book to show different rates of guarantee commission charged by different banks. He pointed that vide letter dated 15/07/2011 State Bank of India has given rate of commission charged by it. The rates vary from 2.75% to 1.75% depending upon the quantum of facility availed. Similarly, information was sought by the Transfer Pricing Officer from the Allahabad Bank. As per letter dated 12/07/2011 from Allahabad Bank (at page 94 of the paper book) for extending facility of financial guarantee, charges varies from 0.75% per quarter to 0.60% per quarter. The ld Counsel pointed that ABN AMRO Bank charges guarantee co....