Disallowance of interest claimed under section 36(1)(iii) | Disallowance u/s 14A r.w. rule 8D | Transfer pricing adjustment – non inclusion of export incentive received by the assessee as part of the price – M/s. Videocon Industries Ltd. And Others Versus. The Addl. Commissioner of Income Tax And Others – ITAT Mumbai

M/s. Videocon Industries Ltd. And Others Versus. The Addl. Commissioner of Income Tax And Others

Disallowance of interest claimed under section 36(1)(iii) – advances made to subsidiary of the assessee company namely Videocon Energy Holding Ltd. – Held that:- The addition is mainly based on the fact that assessee is entitled to receive interest as the money advanced was in the nature of share capital and since it was not refunded to the assessee within stipulated time, the assessee was entitled to get interest. This contention of Revenue does not have any force as if the assessee is entitled to get interest on this advance, then in absence of any actual receipt of the interest, the computation of interest will be notional. However, it is not even the case of Revenue that any notional interest income is assessable in the hands of the assessee. What is the case of the Revenue is that disallowance of interest claimed by the assessee on borrowed funds. In view of sufficient own funds available with the assessee, according to aforementioned decision of Hon’ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd.(2009 (1) TMI 4 – HIGH COURT BOMBAY) and HDFC Bank Ltd. (2014 (8) TMI 119 – BOMBAY HIGH COURT) no such disallowance under section 36(1)(iii) could be made. – Decided in favour of assessee.

Disallowance u/s 14A r.w. rule 8D – Held that:- As per requirement of section 14A(2), the AO is under an obligation to determine the amount of expenditure incurred in relation to an income which is not included in the total income with the method prescribed under Rule 8D in a case where AO, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of the expenditure incurred by it in relation to income which does not form part of total income under the Act. Thus it would serve the interest of justice if the issue relating to these administrative expenses is restored back to the file of AO with a direction to readjudicate this issues as per provisions of law after giving the assessee a reasonable opportunity of placing all the material on record to support its contention and then after considering all the materials, if AO arrive at a conclusion that disallowance calculated by the assessee is incorrect then he will record such non-satisfaction and thereafter he will proceed to make disallowance with regard to component of expenses as per provisions of law. – Decided in favour of assessee for statistical purposes.

Inclusion /exclusion of disallowance made under section 14A for the purpose of computing book profit under section 115JB – Held that:- Decide this ground in favour of Department subject to the condition that the AO will include the amount of disallowance for the purpose of computing book profit under section 115JB of the Act, as he will re-compute as per direction given in respect of Ground No.2 of assessee’s appeal in respect of all the impugned assessment years. – Decided in favour of revenue for statistical purposes.

Transfer pricing adjustment – non inclusion of export incentive received by the assessee as part of the price – CIT(A) held the action of TPO in excluding export incentive received by the assessee on account of exports to the AE while doing the bench marking was not proper – Held that:- As relying on Arviva Industries P. Ltd. vs. ACIT (2011 (10) TMI 107 – ITAT MUMBAI) it has been held that there cannot indeed be any rational in comparing domestic invoice price of the goods with export invoice price of the goods without taking into account neither the export incentive which form part of the net realization on account of exports nor for the expenses, such as discount and domestic sales promotion expenses, which are incurred for the sole purpose of domestic sales and the TPO was clearly in error in not taking into account these facts while comparing the price in domestic uncontrolled transactions and international controlled transactions. No contrary decision was brought to our notice, therefore we decline to interfere in the relief granted by Ld. CIT(A) – Decided against revenue.

TP adjustment made on account of loans/advances given by the assessee to its AE – Held that:- the basis adopted by Ld. CIT(A) to uphold the addition is incorrect. The Tribunal in all the decisions relied upon by Ld. AR has adopted the rule of consistency and has accepted the contentions of the assessee that bench marking of ALP of such type of transactions should be in accordance with LIBOR rates. Since assessee is charging interest from its AE at LIBOR standards, therefore, the impugned addition for both the years is liable to be deleted and the same is deleted – Decided in favour of assessee.

TP adjustment in respect of share application money – Held that:- In respect of share application money advanced to Videocon Global Ltd. interest according to LIBOR standards should have been charged by the assessee and addition to that extent will be liable for upholding. Therefore, we direct the AO to re-compute the amount of interest applying LIBOR rates in respect of share application money advanced to M/s. Global Energy Inc. and TP adjustment should be made accordingly.So far as it relates to addition made in respect of share application money to Saffair Overseas Inc., it will serve the interest of justice if this issue to this extent is verified by the AO that whether or not the said concern is AE of the assessee. Therefore, the issue is restored back to the file of AO for re-examination in the manner aforesaid. This is being done in view of the fact that no such TP adjustment has been made in respect of A.Y 2010-11. – Decided in favour of assessee for statistical purposes.

TP adjustment on account corporate guarantee provided by the assessee to its AE – Held that:- No material has been brought on record by the Revenue authorities to show that the corporate guarantee issued by the assessee to its AEs involved any cost or it was having bearing on profits, income, losses or assets of the AE. the corporate bank guarantee given to AEs which does not involve any cost and which does not have bearing on profits, income, losses or assets of the AE will be outside the purview of international transaction. Applying the ratio laid down by Co-ordinate Bench in the case of Bharati Airtel Ltd. vs. Addl. CIT (2014 (3) TMI 495 – ITAT DELHI) , we hold that no transfer pricing adjustment could be made with regard to corporate guarantee issued by the assessee to its AEs and impugned additions are deleted. – Decided in favour of assesse.

Addition made on account of bogus purchases – Held that:- Found substance in such contention of the assessee that assessee is required to be provided with reasonable and sufficient opportunity to rebut the evidence in the possession of the Department on the basis of which it is the case of the Revenue that assessee did not make purchases from these parties. This in our opinion is necessary in view of the fact that according to the facts evidence filed by the assessee can be said to be sufficient to discharge the primary onus as assessee has produced invoices of purchases and payments have also been made through account payee cheques/RTGS. It is only on the basis of presumption, it is the case of AO that the said amount which is deposited in the bank account of the sellers have come back to the coffers of the assessee. – issue restored back to the file of AO with a direction to re-adjudicate this issue – Decided in favour of assessee for statistical purposes.

Credit for TDS and levy of interest under section 234A, 234B and 234C – Held that:- We direct the A.O to give the assessee the appropriate credit for tax deducted at source as per provisions of law after giving the assessee a reasonable opportunity of hearing. Similarly, with regard to levy of interest under section 234A, 234B & 234C of the Act, we direct the AO to re-compute these interest as per law after giving the assessee a reasonable opportunity of hearing and after giving effect to this order of the Tribunal. – Decided in favour of assessee for statistical purposes.

Source – TMI

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