M/S. SAINT GOBAIN GLASS INDIA PRIVATE LIMITED,KANCHEEPURAM vs. DCIT, CHENNAI

आयकर अपील�य अ�धकरण, ‘ डी’ �यायपीठ, चे�नई IN THE INCOME TAX APPELLATE TRIBUNAL , ‘D’ BENCH, CHENNAI �ी ए. मोहन अलंकामणी, लेखा सद�य एवं �ी धु�वु� आर.एल रे�डी, �या�यक सद�य के सम� BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER

आयकरअपीलसं./I.T.A.No.2096/Mds/2011 (�नधा�रणवष� / Assessment Year: 2007-08) M/s. Saint Gobain Glass India Pvt.Ltd. Vs The Deputy Commissioner of Plot No.A-1, SIPCOT Industrial Park, Income Tax, Sriperumbudur-602 105. Large Taxpayer Unit, Kanchipuram Dist. Chennai. PAN: AABCS4338M (अपीलाथ�/Appellant) (��यथ�/Respondent) : अपीलाथ�क�ओरसे/ Appellant by Mr.R.Vijayaraghavan & S.P.Chidambaram, Advocates : Dr.B.Nischal, JCIT ��यथ�क�ओरसे/Respondent by 28th April, 2016 : सुनवाईक�तार�ख/Date of hearing 13th July, 2016 : घोषणाक�तार�ख /Date of Pronouncement आदेश / O R D E R Per A. Mohan Alankamony, AM:- This appeal is filed by the assessee aggrieved by the

order of the learned Deputy Commissioner of Income Tax,

Large Taxpayer Unit, Chennai dated 19.10.2011 passed

under section 143(3) r.w.s. 144C(13) of the Act pursuant to

the order of Dispute Resolution Panel dated 30.12.2010

passed under section 144C(5) r.w.s 144C(8) of the Act.

grounds, however the cruxes of the issues are as follows:-

2 ITA No.2096/Mds/2011

i) The learned DRP as well as the learned Assessing Officer has erred in disallowing an `1,55,27,938/- estimated amount of as expenditure attributable for earning exempt dividend income under section 14A r.w.r.8D of the Rules under normal computation as well as in computing the book profit under section 115JB of the Act. ii) The learned DRP as well as the learned Assessing Officer has erred in disallowing an amount of `65,90,076/- as allowable deduction being foreign exchange loss relating to the interest on loan for acquiring assets by treating it to be capitalized under normal computation as well as in computing book profit under section 115JB of the Act.

iii) The learned DRP as well as the learned Assessing Officer has erred in making addition of `3,04,15,010/- in relation to interest on loan for acquiring fixed assets by treating it to be capitalized under normal computation as well as in computing book profit under section 115JB of the Act.

iv) The learned DRP as well as learned Assessing Officer erred in confirming the order of the learned Assessing Officer in making addition of ` 1,54,19,582/- in relation to provision for doubtful debts while arriving at the books profits under section 115JB of the Act.

v) The learned Assessing Officer has erred in determining the arm’s length price with respect to the international transaction relating to the commission paid by the assessee to M/s. Saint-

3 ITA No.2096/Mds/2011

Gobain Exproover of `5,02,99,206/- towards availing marketing services.

Ground No.1 Disallowance of `1,55,27,938/- under section 14A r.w.r.8D of the Rules under normal computation as well as in computing book profit under section 115JB of the Act: 4.1 During the course of assessment proceedings, it was noticed that the assessee has earned Rs. 27,44,155/- as dividend income which is exempt from tax by virtue of section 10(23D) of the Act. It was further noticed that the assessee had borrowed funds for making these investments. Therefore, the Revenue invoked the provisions of section 14A r.w.r.8D of the Rules and accordingly computed disallowance of Rs.1,55,27,938/-. This amount was

4 ITA No.2096/Mds/2011

disallowed while computing the profit and loss of the

assessee under normal provisions of the Act as well as under

section 115JB of the Act. This issue is double fold and they

are discussed and adjudicated as follows:-

Disallowance under section 14A of the Act r.w.r.8D of the Rules under normal computation of profit & loss:-

4.2 Since this issue is relating to the assessment year

2007-08, the provisions of Rule 8D will not be applicable in

the case of the assessee as it came into effect from

24.03.2008. On earlier occasion, in the case of M/s. Hyundai

Motor India Ltd. Vs. DCIT in ITA No.2157/Mds/2011 vide

order dated 28.08.2015 this Bench of the Tribunal had

observed that disallowance of 2% to 5% of the dividend

income earned would suffice for meeting the requirement of

section 14A of the Act. Accordingly, we hereby direct the

Assessing Officer to disallow 5% of dividend income as

allowable expenditure invoking the provisions of section 14A

of the Act while computing the profit and loss under normal

computation.

5 ITA No.2096/Mds/2011

Disallowance under section 14A of the Act r.w.r.8D of the Rules under section 115 JB of the Act:

4.3 On this issue, this Bench of the Tribunal in the case of

M/s. Beach Minerals Company P.Ltd. Vs. ACIT reported in

64 Taxmann.com 218 has held that disallowance under

section 14A cannot be made while computing profit and loss

of the assessee under section 115JB of the Act because a

section with legal fiction cannot be imposed on another

section with legal fiction. Undoubtedly both sections 14A &

115JB of the Act are provisions with legal fictions. For the

aforesaid reasons, this Bench of the Tribunal in the case

cited supra has decided that while computing profit and loss

under section 115JB of the Act disallowance under section

14A of the Act cannot be made. The relevant portion of the

order in the case of M/s. Beach Minerals Company P.Ltd

(supra) is extracted herein below for reference.

“8.1. Ground No.5.(a) – Computation of book profit U/s.115JB of the Act by giving effect to the disallowance of expenditure made invoking the provisions of the Section-14A of the Act for `3,11,34,630/- and also the disallowance of expenditure under the normal provisions of the Act. 8.1.1 The Ld. Assessing Officer while computing the tax as per provisions of section 115JB of the Act made additions to the book profit with respect to the disallowance made U/s.14A of the Act read with Rules-8D of the Income Tax Rules. On appeal, the Ld. CIT (A) citing the provisions of clause (f) of Explanation-1 to

ITA No.2096/Mds/2011

Section-115JB, confirmed the order of the Ld. Assessing Officer. The relevant portion of the order of the Ld. CIT (A) is reproduced herein below for reference:-

“10.2 I have gone through the facts and circumstances of the case. The Assessing Officer has taxed the income U/s.115JB since the tax on book profits is more than the tax under normal computation. While doing so, she made disallowance of the amount relatable to exempt income on the basis of the amount worked out U/s.14A r.w.Rule 8D under normal computation. The provisions of clause (f) of Explanation-1 to s.115JB makes it abundantly clear that the amount of expenditure ‘relatable to’ any exempt income, other than s.10(38), is liable to be added back to the amount of net profit as shown in the P&L A/c. Reliance is placed on the latest decision of the ITAT Mumbai in the case of Dabur India Ltd., 37 taxmann.com 289. Reliance is also placed on the latest decision of the ITAT Mumbai in the case of RBK Share Broking P. Ltd in ITA No.6678 & 7546/Mum/2011 dated 24.7.2013 wherein it was held that the amount disallowable U/s.14A can be added back while computing book profit under Explanation-1 to s. 115JB(para 6). Respectfully following the above decisions, I uphold the addition made by the Assessing Officer. This ground is dismissed.”

However, on perusing the Explanation-1(f) of Section-115JB(2) of the Act, we do not find merit in the contention of the Ld. CIT (A). The relevant provision of the Act is extracted herein below for reference:- Section.115JB Explanation-[1] – For the purposes of this section, “book profit” means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section(2), as increased by –

(a) To (e) ---------------------------------------------------- (f) the amount or amounts of expenditure relatable to any income to which [Section-10 (other than the provisions contained in clause (38) thereof] or section 11 or section 12 apply;

(g) To (j) -----------------------------------------------------

From the above it is apparent that the aforesaid provision of the Act does not refer to any disallowance made U/s.14A of the Act while arriving at the Book Profit for the purpose of Section- 115JB(2) of the Act. Further Section 14A of the Act is a provision with fiction disallowing the deemed expenditure attributable to exempt income viz., dividend income U/s. 10 of the Act and Section 115JB of the Act is also a provision with fiction for

ITA No.2096/Mds/2011

payment of tax in respect of deemed income. Therefore while computing the profit for the purpose of Section 115JB of the Act another provision with fiction cannot be superimposed. Hence the question of increasing the ‘Book Profit’ due to the disallowance U/s.14A of the Act will not arise. However, in the instant case of the assessee, since we have already deleted the addition made U/s.14A, increasing the book profit will not arise. Further the decision of Hon’ble Apex Court cited by the assessee in the case M/s.Apollo Tyres Ltd. Vs. CIT reported in 255 ITR 273 is also squarely applicable to the case of the assessee. The gist of the same is reproduced herein below for reference:- “The Assessing Officer, while computing the book profits of a company under section 115J of the Income-tax Act, 1961, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J . The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words “in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act” in section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinized and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company.” From the above decision it is clear that while computing the “Book Profit” of the company under the provisions of section 115JB of the Act; any disallowance made under the normal provisions of the Act also cannot be given effect to for arriving at the “Book Profit” for the purpose of Section 115JB of the Act. Accordingly, this ground raised by the assessee is allowed in its favour.”

Accordingly we hereby direct the learned Assessing Officer to

compute the profit and loss of the assessee under section

8 ITA No.2096/Mds/2011

115JB of the Act without making disallowance of expenditure

under section 14A of the Act.

Ground No.2 – Addition of foreign exchange loss relating to interest on loan for acquisition of fixed assets under normal provisions as well as under section 115JB of the Act:-

Under normal provisions

5.1 It was observed by the Revenue that the assessee had

debited to its profit & loss account net foreign exchange loss

related to interest on the loan obtained for acquiring assets.

Therefore, the learned Assessing Officer added the same to

the profit of the assessee by capitalizing the interest and

added the same to the cost of the asset by virtue of section

43A of the Act, but however gave the benefit of depreciation

@ 15%. We do not find any infirmity in the orders of the

Revenue on this issue because section 43A of the Act

provides that such expense has to be capitalized. Accordingly

the learned assessing officer has capitalize the loss and

granted the benefit of depreciation. Hence the order of the

Revenue is hereby confirmed on this issue.

9 ITA No.2096/Mds/2011

Under section 115JB of the Act

5.2 As regards addition of foreign exchange loss relating to interest on loan for acquiring fixed assets, under section 115JB of the Act, the same ratio mentioned herein above in

para 4.3 will be applicable because section 43A of the Act and section 115JB of the Act both has a legal fiction and therefore section 43A of the Act cannot be imposed while

making computation under section 115JB of the Act. Hence, the interest expense cannot be excluded from the book profit under section 115JB of the Act.

Ground No.3 : Addition of `3,04,15,010/- in relation to interest on loan for acquiring fixed assets under normal computation as well as in computing book profit under section 115JB of the Act.

6.1 Since we have already held that foreign exchange loss relating to interest on loan for acquisition of fixed assets under normal computation cannot be treated as an allowable deduction under the normal provisions of the Act as the

same has to be capitalized by virtue of section 43A of the Act, however, the benefit of depreciation is allowable as deduction and at the same time such loss cannot be

10 ITA No.2096/Mds/2011

excluded from the book profit under computation of profit and loss under section 115JB of the Act because a provision with fiction cannot be imposed on another provision with fiction, the same treatment will also be applicable in the case of interest payment of `3,04,15,010/-. However, since the learned Authorized Representative submitted before us that the assessee was not granted the benefit of depreciation, we hereby remit back the issue with respect to depreciation to the file of the learned Assessing Officer in order to grant the benefit of depreciation in accordance with law, if the same is not already granted by the Revenue.

Ground No.4: Addition of ` 1,54,19,582/- in relation to provision for doubtful debts while arriving at books profits under section 115JB of the Act:- 7. The Revenue has disallowed provision for doubtful debts amounting to Rs.1,54,19,582/- while computing the income of the assessee under the normal provisions of the Act as well as under section 115JB of the Act. We do not find any infirmity in the order of the Revenue because there is no section in the Act for granting deduction towards provision made for bad and doubtful debts. Further Explanation I(c )&

11 ITA No.2096/Mds/2011

(i) to section 115JB of the Act clearly provides that the book

profit has to be increased by (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities (i) the amount or amounts set aside as

provision for diminishing in the value of any asset. Accordingly this issue is decided against the assessee.

Ground No.5: Determining the arm’s length price of the international transaction relating to the commission paid by the assessee to Saint-Gobain Exproover of `5,02,99,206/- towards availing marketing services. 8.1 The assessee had made export sales through its two AEs outside India. For the sales made through its AE Saint

Gobain Exprover, the assessee had paid commission of Rs.5,02,99,206/- for availing market services. However, for the sales made through its AE Saint Gobain Autover, the

assessee had not paid any commission. The learned TPO opined that the transaction of the assessee with its two AEs is essentially comparable. The Assessing Officer therefore

adopting the internal cup method disallowed the commission paid to its AEs Saint Grover Exprover. At the outset, learned Authorized Representative submitted that the scope of

transactions between both the AEs is altogether different.

12 ITA No.2096/Mds/2011

The learned Authorized Representative further submitted that

for the sale made through Saint Gobin Exprover, the AE Saint

Gobain Exprover only acted as a commission agent and

products were directly sold by the assessee to the purchaser.

However, with regard to transaction with respect to Saint

Gobain Autover the assessee had made outright sale to its

AE . Since there is a basic mistake in understanding the

transaction between the assessee and its AE by the

Revenue, the learned Authorized Representative requested

that the matter may be remitted back to the file of the learned

TPO for fresh consideration.

8.2 The learned Departmental Representative vehemently

opposed to the submissions of the learned Authorized

Representative.

8.3 However, after hearing both the parties, we are of the

considered view that in the interest of justice, the matter

needs to be remitted back to the file of the learned TPO for

de novo consideration. Accordingly, we hereby remit the

13 ITA No.2096/Mds/2011

matter back to the file of the learned TPO for hearing the

issue afresh.

allowed for statistical purposes.

Order pronounced in the open court on the 13th July, 2016

Sd/- Sd/- (धु�वु� आर.एल रे�डी) (ए. मोहन अलंकामणी) ( Duvvuru RL Reddy ) ( A. Mohan Alankamony ) �या�यक सद�य /Judicial Member लेखा सद�य / Accountant Member

चे�नई/Chennai, �दनांक/Dated 13th July, 2016 somu आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF