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Facts
The assessee, engaged in telecommunication equipment and infrastructure solutions, entered into international transactions with its Associated Enterprises. The Assessing Officer (AO) made adjustments based on the TPO's report, and the DRP upheld these, except for a long-term capital loss issue which was set aside to the AO. The AO sustained certain disallowances, including under Section 36(1)(iii) and 14A, and additions for notional interest on receivables.
Held
The Tribunal accepted the assessee's contention that if no interest is charged from Non-Associated Enterprises, no interest addition should be made on receivables from Associated Enterprises, but restored the issue to the TPO for detailed examination. The disallowance for warranty provision was restored to the AO for fresh examination. The disallowance under Section 14A was restricted to the quantum of exempt income. Listing fees related to Non-Convertible Debentures were held allowable. The disallowance under Section 36(1)(iii) was restored to the AO for fresh examination. A disallowance under Section 40(a)(ia) was sustained.
Key Issues
Whether notional interest on outstanding receivables from AEs is chargeable when no interest is charged from non-AEs? Whether warranty provisions are allowable? Whether Section 14A disallowance can exceed exempt income? Whether listing fees for NCDs are allowable? Whether interest expenses for funds advanced to subsidiary are disallowable under Section 36(1)(iii)?
Sections Cited
36(1)(iii), 14A, 40(a)(ia)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘H’: NEW DELHI
Before: SHRI PRAKASH CHAND YADAV & SHRI MANISH AGARWAL
(ASSESSMENT YEAR 2018-19) M/s Acme Cleantech Solutions National Faceless Pvt. Ltd., Assessment Centre Plot No.152, Sector-44, Vs. (NFAC), New Delhi. Gurgon, Haryana-122002. PAN-AAECA0914A (Appellant) (Respondent) Assessee by Shri Ved Jain, Adv. and Shri Ayush Garg, CA Department by Shri S. K. Jadhav, CIT-DR Date of Hearing 23/07/2025 Date of Pronouncement 31/07/2025 ORDER PER PRAKASH CHAND YADAV, JM: Both these appeals of the assessee are arising from the orders of Ld. Assessing Officer dated 26thFebruary, 2022 and 31st July 2022 and relates to Assessment Years 2017-18 and 2018-19 respectively. For the sake of convenience, we are disposing of these appeals by way of this consolidated order. Since, the facts and issues are common for both the years, we deciding these appeals together.
We are discussing the facts of AY 2017-18, taking this as lead year. Brief facts of the case as coming out from the orders of authorities below are that the assesse is a provider of telecommunication equipment, comprehensive passive infrastructure solutions including enclosures, cooling and power solutions to wireless telecom players and related services to mobile operators in India as well & 2142 /Del/2022 M/s Acme Cleantech Solutions Pvt. Ltd. vs. NFAC as overseas. During the year under consideration, the assessee has entered into international transactions with its Associated Enterprises (AE). Observing this fact the AO made a reference to the TPO. The Ld. TPO vide its order dated 7th February, 2012 computed the Arm’s Length Price (ALP) of the international transactions after making certain adjustment and restore the matter to the file of AO. Thereafter, the AO passed the draft assessment order, against which the assessee filed its objection before the DRP and the Ld. DRP vide its order dated 20th January, 2022 upheld the adjustment made by the TPO as well as also upheld the disallowance of other expenses made by the AO under the provisions of Domestic Law. It is worthy to note here that the DRP has set aside the issue of long term capital loss to the Assessing Officer for examining afresh and deciding as per law. The Ld. AO while passing the impugned order has not made any addition qua the long term capital loss.
The Assessing Officer, however, sustained the following disallowances a) Disallowance made under section 36(1)(iii), b) Disallowance of 14A, c) Addition of notional interest on outstanding receivables from AE.
Aggrieved with the order of the AO has come up in appeal before us. We are adjudicating Assessment Year 2017-18 and the findings given by this year would apply mutatis mutandis to the order of assessment for Assessment Year 2018-19.
In ground No.1 to 6, the assessee has challenged the addition of Rs.2, 30, 14,135/- on account of interest on outstanding receivables from AEs. Ld. Counsel for the assessee appearing on behalf of the assessee argued following points: (a) that assessee has not charged any interest from the Non-Associated Enterprises. (b) Similar disallowance were deleted by the Ld. CIT(A) in Assessment Year 2012-13 and 2013-14 and Revenue has not filed any appeal against that order and, therefore, no addition can be made on the basis of the principle of consistency.
Ld. Counsel for the assessee has also drawn the attention of the bench towards the application for admission of additional evidence filed by the assessee before the DRP on 29th November, 2021 and contended that the DRP has erred in not considering the additional evidence filed by the assessee with respect to the addition of notional interest on delayed receivables. At last, Counsel for the assessee contended that this issue may kindly be restored to the file of TPO for deciding afresh and the Ld. TPO may be directed to verify if the assessee has not charged any interest from the Non-AEs then no addition on account of delayed receivables can be made.
Ld. DR relied upon the orders of authorities below.
We have heard the rival submissions and perused the materials available on record. 9. Principally we accept the contention of the Ld. Counsel for the assessee and hold that in case an enterprise could not charge any interest from the Non- Associated Enterprises (Non AEs) then no addition qua interest on receivables outstanding with AE can be made by the TPO. However, the facts and figure i.e., what are the figures of amounts qua Non-AE, what was the period of credit given to the Non-AEs as well as AEs etc, are required to be examined at the end of the TPO, therefore, we restore this issue to the file of TPO and direct him to examine in accordance with observations made by us. 10. Coming to the next grounds of appeal i.e., Ground No.7 and 8 sub-ground it is the case of the revenue that assessee has made a provision for warranty of Rs.4,29,90,551/- and the same is not allowable as the assessee has failed to furnish relevant documentary evidence before the AO and DRP. The Ld. Assessing Officer has made the disallowance on the ground that the provisions are related to financial year 2015-16 and, hence, cannot be allowed in this year. The contention of the Ld. Counsel for the assessee is that the reference to Financial Year 2015-16 is made only for computation purposes and the assessee & 2142 /Del/2022 M/s Acme Cleantech Solutions Pvt. Ltd. vs. NFAC has made these provisions on scientific basis. It is the contention of the Ld. Counsel for the assessee that assessee was creating a provision for providing warranty of two years and for calculating rate the assessee taking the rate of one day and then multiplying with the remaining days falling in the next financial year for computing the figure of amount (AR has also drawn the attention of the Bench towards relevant pages of Paper Book, wherein per day rate working is exhibited). Ld. Counsel of the assessee further contended that the assessee reversing the unutilized provisions in next year and offering the same as “other income”. In simple words the balance amount of provisions, which has not been used by the assessee, has been offered for taxation in the next financial year under the head of “other income”.
Ld. DR relied upon the orders of authorities below.
We have heard the rival submissions and perused the materials available on record. We are of the view that this issue requires fresh examination at the end of the AO in as much as it is observations of the DRP that the assessee has failed to provide relevant documentary evidences. So far as the contention of the assessee that audited financial statements were duly submitted showing the working of calculations vis-à-vis provisions and reversal to the same in next financial year. We are of the view that these documents have not been examined properly by the lower authorities, therefore, we restore this issue to the file of AO for examining afresh.
In Ground No.8, the assessee has challenged the disallowance of Rs.8,92,20,989/- u/s 14A of the Income Tax Act, 1961. It is the contention of the assessee that assessee has earned exempt income to the tune of Rs.29,447/- in Assessment Year 2017-18 and Rs.14,243 in Assessment Year 2018-19. Against this income, the assessee has suo moto disallowed an amount of Rs.4,187/- for Assessment Year 2017-18 and Rs.8,827/- for Assessment Year 2018-19. The alternative contention of the assessee is that under no circumstances disallowance of Rs.14A can exceed the amount of exempt income.
& 2142 /Del/2022 M/s Acme Cleantech Solutions Pvt. Ltd. vs. NFAC 14. Ld. DR relied upon the orders of authorities below.
We have heard the rival submissions and perused the materials available on record. We find force in the argument of the Ld Counsel for the assessee that in any case the disallowance of 14A cannot exceed the quantum of exempt income accrued to assessee, this proposition of law has been laid down by the Hon’ble Jurisdictional High Court in the case of Joint Stock Investment reported in 59 taxman.com 295(Del),. Respectfully following the verdict of the Hon’ble Jurisdictional High Court, we are hereby direct the AO to sustain the disallowance to the tune of Rs.29,447/- for Assessment Year 2017-18 and Rs.40,243/- for Assessment Year 2018-19.
In Ground No.9, the assessee has challenged the disallowance of Rs.59,500/-, which the AO has disallowed on the ground that the listing fees was in fact related to issuance of Non-Convertible Debentures and, hence, the same are allowable in nature.
Ld. DR relied upon the orders of authorities below.
After considering the rival submissions and perused the materials available on record, we are of the view that no disallowance can be made with respect to the listing fees related to issuance of Non-Convertible Debentures. We order accordingly.
In ground No.10, the assessee has challenged the disallowance of Rs.55,31,70,479/- u/s 36(1)(iii) of the Income Tax Act, 1961.
It is the case of the AO that the assessee has diverted interest bearing funds to the subsidiary company for non-business purposes. DRP affirmed the findings of AO.
Ld. Counsel for the assessee appearing before us argued that the assessee is also engaged in the development of solar power products through its subsidiary and in that context the assessee has advanced certain sums to the