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Income Tax Appellate Tribunal, PUNE BENCH, ‘C’ PUNE – VIRTUAL COURT
Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI
Revenue - arise out of the order passed by the ld. CIT(A) on 22.09.2020 in relation to the assessment year 2014-15. M/s. City Corporation Ltd.,
The Departmental appeal is time barred by 63 days. The ld. AR did not raise any objection to the condonation of the delay. The delay is hereby condoned and the appeal is admitted for hearing.
The only issue raised by the Revenue in its appeal is against the deletion of transfer pricing addition towards interest on debentures/CCDs.
Briefly stated, the facts of the case are that the assessee is a leading real estate development, township development, construction and property Management Company of Pune. It initiated some major real estate development projects including development of one of the largest township – Amanora Park Town at Hadapsar, Pune. A return was filed declaring total income of Rs.41.87 crore. The assessee reported certain international transactions and Specified Domestic transactions (SDTs) in Form No. 3CEB. The Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) for determining the Arm’s Length Price (ALP) of the transactions. Instantly, we are concerned with the international transaction of interest of CCDs paid to IIRF Cyprus V. Holding Limited amounting to Rs.8,84,87,000/- and the Specified Domestic transaction of payment of interest on debentures to M/s. City Corporation Limited amounting to Rs.9,27,50,000/-. M/s. City Corporation Ltd., The assessee applied the Comparable Uncontrolled Price (CUP) method to demonstrate that the international transaction and the SDT were at ALP. The TPO observed that the assessee, in fact, availed funds from its related concerns as share capital but wrongly classified them as debentures/CCDs for claiming interest deduction.
Relying on his decision for the A.Y. 2013-14, the TPO finally held that such financing by the related concerns was a shareholders’ activity. He, thus recharacterized the transactions of issue of debentures/CCDs as that of issue of equity shares and held that no interest payment was called for. That is how, he determined Nil ALP of the transactions and accordingly proposed transfer pricing adjustment of Rs.18,12,37,000/-. The AO made such an addition, which came to be deleted by the ld. CIT(A) by means of his order dated 22-01-2018. The ld. CIT(A) also directed the TPO to verify certain facts regarding the ALP determination of the interest on debentures/CCDs paid by the assessee at 17.5% and restrict the addition to 1.13% in a certain eventuality. Both the sides have come up in their respective appeals before the Tribunal.
Having heard both the sides through Virtual Court and gone through the relevant material on record, it is seen that similar issue came up for consideration before the Tribunal in the assessee’s own M/s. City Corporation Ltd., case for the immediately preceding assessment year 2013-14. In fact, the TPO also referred to his own decision taken for the assessment year 2013-14 for determining NIL ALP. The Tribunal, vide its order dated 18-12-2020 in has countenanced the assessee’s stand by holding that the assessee rightly issued debentures and CCDs to its AEs and the AO was not justified in re-characterizing the transactions. As regards the ALP determination, the Tribunal restored the matter to the file of AO/TPO for a fresh determination. Since the facts and circumstances of the instant appeal are mutatis mutandis similar to those of the preceding year, respectfully following the precedent, we approve the view taken by the ld. CIT(A) and hold that the AO was not justified in re-characterising the transaction of issue of debentures/CCDs as that of equity shares. As regards the ALP determination, we again follow the view taken by the Tribunal for the immediately preceding year and direct the AO/TPO to re- compute the ALP of the transactions of payment of interest on debentures/CCDs. Thus the departmental grounds are dismissed.
Since the matter of ALP determination has been sent back to the AO/TPO, the direction given by the ld. CIT(A) in this regard, which M/s. City Corporation Ltd., forms the subject matter of the assessee’s ground, has become infructuous.
The assessee has also raised an additional ground stating that Education Cess and Secondary and Higher Secondary Cess amounting to Rs.26,66,359/- may be allowed as a deduction while computing the total income of the assessee company.
The Hon’ble Supreme Court in National Thermal Power 7.
Company Ltd. Vs. CIT (1998) 229 ITR 383 (SC) has observed that “the purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant facts are on record in respect of that item”. Answering the question posed before it in affirmative, their Lordships held that on the facts found by the authorities below, if a question of law arises (though not raised before the authorities) which has bearing on the tax liability of the assessee, the Tribunal has jurisdiction to examine the same. Having gone through the M/s. City Corporation Ltd., subject matter of the additional ground taken by the assessee, it is discernible that it raises a pure question of law. We, therefore, admit the same.
8 On merits, the issue raised through the additional ground is no more res integra in view of the judgment of Hon’ble jurisdictional High Court in Sesa Goa Lt. Vs. JCIT (2020) 423 ITR 426 (Bom.) in which it has been held that Education Cess is not disallowable expenditure u/s.40(a)(ii) of the Income tax Act. 1961 (hereinafter also called as `the Act’). Similar view was earlier taken by the Hon’ble Rajasthan High Court in Chambal Fertilisers and Chemicals Ltd. and Another Vs. JCIT (2018) 102 CCH 0202 (Raj- HC). We, therefore, direct the AO to ascertain the correct amount of education cess and then allow a deduction for it, after allowing opportunity of hearing to the assessee.
In the result, the appeal of the Revenue is dismissed and that of the assessee is partly allowed. Order pronounced in the Open Court on 17th August, 2021.