ASST CIT CC 43, MUMBAI vs. ROHA DYECHEM .P. LTD, MUMBAI
What did the Tribunal hold?
The Tribunal held that since the assessee's own funds exceeded its investments, no disallowance of interest expenditure under Rule 8D(2)(ii) was warranted. For transfer pricing, the Tribunal directed the AO to compute adjustments using LIBOR plus 300 bps as the ALP rate for interest.
What were the facts?
The assessee claimed dividend income as exempt but made no disallowance under Section 14A. The Assessing Officer disallowed expenses as per Rule 8D, which was confirmed by the CIT(A). The assessee also had transfer pricing adjustments related to interest on loans to associated enterprises.
What were the issues?
Whether disallowance under Section 14A is required when own funds exceed investments, and the correct ALP rate for interest on loans to associated enterprises.
Which sections of the Income-tax Act were involved?
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- CIT v. HDFC Bank Ltd.1,261 citing366 ITR 505 · 2014 · HC
Income Tax Appellate Tribunal, “K” Bench, Mumbai
Before: Shri B.R. Baskaran (AM) & Shri Ramlal Negi (JM)
Heard together (2 matters)
Read from the judgment's own cause title. This page is filed under one of them.
O R D E R Per B.R. Baskaran (AM) : These cross appeals are directed against the order dated 12.12.2013 passed by the learned CIT(A)-15, and they relate to A.Y. 2008-09.
The assessee-company is engaged in the business of manufacturing of good colours of various types. We shall first take up the appeal filed by the assessee. The first issue relates to disallowance made u/s. 14A of the I.T. Act.
The Assessing Officer noticed that the assessee has declared dividend income of ` 4,31,514/- and claimed the same as exempt. However, the assessee did not make any disallowance. During the course of assessment proceedings, the assessee worked out the disallowance as per rule 8D of the ITAT rules at ` 6,66,374/- and the Assessing Officer disallowed the same u/s. 14A of the Act. The learned CIT(A) also confirmed the same
The Learned AR submitted that the own funds available with the assessee is more than the value of investment and hence no disallowance out of interest expenditure as per Rule 8D(2)(ii) is called for. In support of the same he furnished copy of the balance sheet of the assessee-company.
We have heard learned DR on this issue and perused the record. We noticed from the balance sheet that the opening and closing balance of own funds available with the assessee was ` 232.07 crores and ` 244.16 crors. The assessee held that investment of ` 36.36 crores and ` 43.98 crores respectively as at the beginning and end of the year. Admittedly, own fund available with the assessee is in far excess of the value of investment. Hence, as per the decision rendered by Hon'ble Bombay High Court in the case of HDFC Bank Ltd. (366 ITR 505), no disallowance out of interest expenditure is called for. Accordingly, we modify the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to delete the disallowance of interest expenditure made u/r. 8D(2)(ii) of the I.T. Rule.
Next issue contested by the assessee relates to transfer pricing adjustment made on interest received on the loans advanced to associated enterprises. The assessee had received ` 1.66 crores as interest on loan advanced to associated enterprises. The TPO noticed that the assessee has charged interest ranging from 5% to 8% per annum. The TPO also noticed that the assessee has not charged interest on loan given to certain associated enterprises. Since the assessee has charged interest @ 8% to some of the associated enterprises, the TPO took the view that interest should have been charged by the assessee at uniform rate of 8% on all the loans advanced to associated enterprises. Accordingly, he worked out interest income by applying rate of 8% and made TP adjustment of ` 92.02 lakhs. The TPO also took the view that the assessee should have charged certain fees from associated enterprises for meeting its administrative expenses. The Assessing Officer estimated the same at 0.5% of the average amount of loan and accordingly made adjustment of ` 11.03 lakhs. In aggregate, the TPO made adjustment of ` 103.06 lakhs on account of loan given to associated enterprises. The AO made the addition in conformity with the order of TPO.
The learned CIT(A) upheld the adjustment made towards interest expenditure and deleted the adjustment made towards administrative charges. Assessee is aggrieved by the decision of the learned CIT(A) in upholding the addition made towards interest income. The Revenue is aggrieved by the decision of the learned CIT(A) in deleting the addition relating to administrative charges.
With regard to TP adjustment made on interest income, the learned AR submitted that an identical issue was considered by the Coordinate Bench in assessee’s own case in relating to A.Y. 2010-11 and the Tribunal, vide its order dated 27.10.2017, has upheld the view taken by the learned CIT(A) in that year that the interest computed @ of LIBOR+300 bps is to be considered as ALP rate of interest. Accordingly, learned AR submitted that same direction may be given in this year also.
We have heard learned DR and perused the record. Since the Coordinate Bench of the Tribunal has already expressed the view that LIBOR rate plus 300 bps should be taken as ALP of the rate of interest, we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to compute TP adjustment by adopting LIBOR rate plus 300 bps as ALP rate of interest.
We shall now take up the appeal filed by the Revenue, wherein the revenue is contesting the decision of Ld CIT(A) in deleting the TP adjustment relating to administrative charges amounting to ` 11.03 lakhs.
Admittedly, tax effect involved on the above said issue is less than ` 10 lakhs and hence the Revenue is precluded from pursuing this appeal as per Circular No. 21/2015 dated 10.12.2015 issued by CBDT. Accordingly, we reject the appeal filed by the Revenue in limine.
In the result, appeal filed by the assessee is partly allowed and appeal filed by the Revenue is dismissed. Order has been pronounced in the Court on 30.5.2018.
More judgments on Section 14A
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