ABAN OFFSHORE LIMITED,CHENNAI vs. DCIT CORPORATE CIRCLE 1(1), CHENNAI

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ITTPA 5/CHNY/2019Status: DisposedITAT Chennai31 December 2024AY 2014-156 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal decided each issue based on its previous rulings for the assessee or similar cases. For the TP adjustment of corporate guarantee, it followed its order for AYs 2017-18 and others, restricting the ALP adjustment to 0.5%, thus partly allowing the ground. Regarding the disallowance of interest expenditure, the Tribunal restored the issue to the AO to verify it in accordance with directions given for AY 2012-13, allowing the ground for statistical purposes. For disallowance under Section 14A, the Tribunal directed the AO to compute indirect expense disallowance under Rule 8D(2)(iii) considering only investments yielding exempt income, and to re-adjudicate interest disallowance based on Section 36(1)(iii) disallowance, partly allowing the grounds. The foreign tax credit under Section 90 was allowed, endorsing previous directions issued by the Tribunal in a related appeal for the same year. For set-off of brought forward business losses, the Tribunal directed the AO to allow set-off in accordance with law, allowing the ground for statistical purposes. For MAT Credit and DDT Credit, the Tribunal endorsed previous directions issued in other appeals for the assessee and directed the AO to consider a pending rectification application, allowing the grounds for statistical purposes. The appeal was partly allowed, and the stay application was dismissed as infructuous.

What were the facts?

The assessee, M/s. Aban Offshore Limited, is in appeal before the Income Tax Appellate Tribunal (ITAT) against the final assessment order dated 30-11-2018 passed by the Assessing Officer (AO) for Assessment Year (AY) 2014-15. This order was passed pursuant to directions from the Dispute Resolution Panel (DRP). The case involved international and specified domestic transactions with Associated Enterprises (AEs), leading to a reference to the Transfer Pricing Officer (TPO). The TPO proposed adjustments, which were incorporated into a draft assessment order. The assessee raised objections before the DRP, whose directions were then implemented in the final assessment order. The appeal concerns multiple grounds, including Transfer Pricing (TP) adjustments for corporate guarantee, disallowance of interest expenditure, disallowance under Section 14A, allowance of foreign tax credit, set-off of brought forward business losses, and allowance of MAT and Dividend Distribution Tax (DDT) credit.

What were the issues?

The Tribunal had to decide the following issues: 1. Whether the Transfer Pricing (TP) adjustment for corporate guarantee was correctly computed, and if not, what should be the Arm's Length Price (ALP) adjustment. The assessee argued that corporate guarantee did not fall within the ambit of 'international transaction', while the TPO computed ALP at 1%, leading to an adjustment of Rs. 20.69 Crores. The DRP confirmed this. 2. Whether the disallowance of interest expenditure of Rs. 159.39 Crores was justified, considering the assessee's equity investments in its subsidiary. The assessee contended investments were for commercial expediency and dividends would be taxable. The AO disallowed the interest and proposed capitalization, which the DRP upheld. 3. Whether the disallowance under Section 14A was correctly computed, particularly regarding exempt dividend income of Rs. 8.45 Lacs. The assessee claimed no expenditure was incurred, but the AO computed disallowance as per Rule 8D(2), including Rs. 3.10 Lacs under Rule 8D(2)(iii). 4. Whether the assessee was eligible for foreign tax credit of Rs. 117.02 Lacs under Section 90, as deducted by Singapore Tax Authorities from interest income. The AO denied credit, arguing that netting interest payable and receivable from the subsidiary meant no real income was offered to tax in India. 5. Whether the assessee was entitled to set-off brought forward business losses of Rs. 147.19 Crores. The AO and DRP denied this, stating no business loss remained after giving effect to prior year orders. 6. Whether the assessee was entitled to allowance of MAT Credit and Dividend Distribution Tax (DDT) Credit. Specific directions were sought for these allowances.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C,Section 92CA,Section 14A,Section 36(1)(iii),Section 90

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, CHENNAI

Before: HON’BLE SHRI MAHAVIR SINGH, VP & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

आयकर अपीलीय अिधकरण “डी” �ायपीठ चे�ई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, CHENNAI माननीय �ी महावीर िसंह, उपा ! एवं माननीय �ी मनोज कुमार अ&वाल ,लेखा सद) के सम!। BEFORE HON’BLE SHRI MAHAVIR SINGH, VP AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM 1. आयकरअपील सं. / IT(TP)A No.5/Chny/2019 (िनधा*रणवष* / Assessment Year: 2014-15) & 2. ,े यािचका सं.. / S.P No.55/Chny/2024 (Arising out of IT(TP)A No.5/Chny/2019) (िनधा*रण वष* / Assessment Year: 2014-15) M/s. Aban Offshore Limited DCIT बनाम/ C/o M/s P. Murali & Co. CA Corporate Circle-1(1), 6-3-655/2/3, Somajiguda, Chennai. Vs. Hyderabad-500 082. �थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACA-3012-H (अपीलाथ�/Appellant) : (� थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : Shri P. Murali Mohan Rao (CA) - Ld.AR � थ�कीओरसे/Respondent by : Shri A. Sasikumar (CIT) - Ld. DR सुनवाईकीतारीख/Date of Hearing : 10-10-2024 घोषणाकीतारीख /Date of Pronouncement : 31-12-2024 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)

1.1 Aforesaid appeal by assessee for Assessment Year (AY) 2014-15 arises out of final assessment order dated 30-11-2018 passed by Ld. Assessing Officer (AO) u/s 143(3) r.w.s.144C r.w.s 92CA of the Act pursuant to the directions of Ld. Dispute Resolution Panel-2, Bengaluru (DRP) u/s 144C(5) dated 28-09-2018. Since the assessee carried out

certain international transactions as well as specified domestic transactions with its Associated Enterprises (AE), the same were referred to Ld. DCIT (TPO)-1(1), Chennai (TPO) for determination of Arm’s Length Price (ALP). The Ld. TPO passed an order u/s 92CA (3) on 31-10-2017 proposing certain Transfer Pricing (TP) adjustment. Incorporating the same, a draft assessment order was passed on 28-12- 2017 which was subjected to assessee’s objections before Ld. DRP. Pursuant to the directions of Ld. DRP, final assessment order was passed against which the assessee is in further appeal before us. 1.2 Though the assessee has raised multiple grounds of appeal as well as additional grounds of appeal, however, in sum and substance, the issues that fall for our determination are (i) Transfer Pricing (TP) adjustment of Corporate Guarantee; (ii) Disallowance of interest expenditure; (iii) Disallowance u/s 14A; (iv) Allowance of foreign Tax Credit u/s 90; (v) Set-off of brought forward business losses; (vi) Allowance of MAT and Dividend Distribution Tax (DDT) Credit. 1.3 The Ld. AR advanced arguments and relied upon the orders of Tribunal in assessee’s own case for earlier years. The copies of the same have been placed on record. The Ld. CIT-DR also advanced arguments supporting the orders of lower authorities. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. 2. TP Adjustment of Corporate Guarantee 2.1 The assessee advanced corporate guarantee for its AEs. The amount outstanding as on 31-03-2014 was Rs.2069.69 Crores. The assessee pleaded that the same would not fall within the ambit of term international transaction. However, Ld. TPO rejected the same and

computed ALP of the same at 1% which resulted into TP adjustment of Rs.20.69 Crores in the hands of the assessee. The Ld. DRP confirmed the same against which the assessee is in further appeal before us. 2.2 We find that this issue is covered by earlier decisions of Tribunal. In its common order for AYs 2017-18 & ors. vide ITA Nos.21/Chny/2022 dated 08-11-2023, the bench, in para 8.4, restricted the ALP adjustment to 0.5%. Following the consistent view of Tribunal, we direct Ld. AO to compute TP adjustment @0.5% of Corporate Guarantee. The corresponding grounds stand partly allowed. 3. Disallowance of Interest Expenditure 3.1 This disallowance was computed by Ld. AO since the assessee had made equity investment of Rs.2541.56 Crores in its subsidiary entity viz., M/s Aban Holdings Pte. Ltd. (AHPL). The assessee had capital & reserves for Rs.2180 Crores whereas its loan funds were Rs.6047 Crores. The assessee claimed interest expenditure of Rs.159.39 Crores. The assessee submitted that the investments were out of commercial expediency and dividend earned on the investments would be taxable in India. However, Ld. AO disallowed the interest expenditure of Rs.159.39 Crores and held that the same would be capitalized along with the cost of investments. The Ld. DRP, following DRP directions in AY 2011-12, upheld the disallowance against which the assessee is in further appeal before us. 3.2 We find that this issue is covered by earlier decisions of Tribunal. In its common order for AYs 2017-18 & ors. vide ITA Nos.21/Chny/2022 dated 08-11-2023, the bench, in para 9.4, restored the issue back to the file of Ld. AO to verify the issue in accordance with the directions given by Tribunal for AY 2012-13. Following the consistent view of Tribunal, we

issue similar direction to Ld. AO. The corresponding grounds stand allowed for statistical purposes. 4. Disallowance u/s 14A 4.1 The assessee earned exempt dividend income from mutual funds for Rs.8.45 Lacs. However, the assessee did not offer any disallowance u/s 14A on the ground that no expenditure was incurred to earn the exempt income. However, Ld. AO rejected the same and computed disallowance as per Rule 8D(2). The interest disallowance was computed at Rs.27.18 Lacs. However, the same was not made since entire interest expenditure was separately disallowed u/s 36(1)(iii). The disallowance of indirect expenditure was made at 0.5% of average investments which resulted into disallowance u/r 8D(2)(iii) for Rs.3.10 Lacs. The Ld. DRP, following DRP directions in AY 2011-12, upheld the disallowance against which the assessee is in further appeal before us. 4.2 The Ld. AR has submitted that only those investments are to be considered which have yielded any exempt income during the year. Accepting the same, we direct Ld. AO to computed indirect expense disallowance u/r 8D(2)(iii) accordingly. The interest disallowance would be re-adjudicated considering the interest disallowance, if any, as made u/s 36(1)(iii). The grounds raised by the assessee stand partly allowed. 5. Tax Credit u/s 90 5.1 The assessee claimed credit of withholding tax of Rs.117.02 Lacs as deducted by Singapore Tax Authorities. The same was deducted from interest income of Rs.929.10 Lacs as earned by the assessee from AHPL. The assessee claimed the credit as per India-Singapore DTAA. The Ld. AO denied the same on the ground that if interest payable and interest receivable from AHPL is netted-off, no real income was offered

to tax by the assessee in India. The assessee incurred interest expenditure of Rs.159.39 Crores. Therefore, aforesaid credit was denied by Ld. AO. The Ld. DRP did not issue any direction on the ground that there was no variation in the income or loss returned. Aggrieved, the assessee is in further appeal before us. 5.2 We find that this issue has already been sent back by the Tribunal with certain direction in assessee’s appeal for this year in ITA No.556/Chny/2024 dated 31-07-2024 vide para-11 (this appeal was preferred for this year against rectification order). Therefore, we endorse the same. The corresponding ground stand allowed for statistical purposes. 6. Set-off of brought forward business losses. 6.1 The assessee claimed brought forward losses of Rs.147.19 Crores for AYs 2012-13 and 2013-14. Going by the assessment position of those years, Ld. AO denied the set-off of the same. The Ld. DRP held that after giving effect order for AY 2013-14, there remained no business loss to be set-off by the assessee. 6.2 In this regard, it would suffice on our part to direct Ld. AO to allow set-off of brought forward business losses in accordance with law. The corresponding ground stand allowed for statistical purposes. 7. Allowance of MAT Credit and Dividend Distribution Tax (DDT) 7.1 For MAT Credit, direction have already been issued by Tribunal in para-16 of its order in ITA No.556/Chny/2024 dated 31-07-2024. We endorse the same. 7.2 Similarly, directions have been issued by Tribunal for grant of correct Dividend Distribution Tax in para 13.2 of its order in ITA No. 2757/Chny/2017 for AY 2013-14. We issue similar directions in this year.

We also find that the assessee has already filed rectification application u/s 154 on 01-02-2022, in this regard, before Ld. AO. The Ld. AO is directed to consider the same. The corresponding ground stand allowed for statistical purposes. 7.3 No other ground has been urged by Ld. AR in the appeal. Conclusion 8. The appeal stands partly allowed whereas the stay application stand dismissed as infructuous. Order pronounced on 31st December, 2024

Sd/- Sd/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा34 / VICE PRESIDENT लेखा सद6 / ACCOUNTANT MEMBER चे8ई Chennai; िदनांक Dated :31-12-2024 DS आदेश की Jितिलिप अ&ेिषत / Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. � थ�/Respondent 3. आयकरआयु@/CIT, Chennai. 4. िवभागीय�ितिनिध/DR 5. गाडEफाईल/GF

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