ACIT-7(2)(2), MUMBAI V. NETWORK18 MEDIA & INVESTMENT LTD., MUMBAI

ITA 7501/MUM/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5319 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 28-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Gift; Transfer pricing; International transaction; Earning of tax free income; Rule 8D
• Section: 14A; 115JB; 37(1)

Judgement Text

1 I.T.A. NO.7501/MUM/2018 IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR (VICE PRESIDENT) AND SHRI SAKTIJIT DEY (JUDICIAL MEMBER) I.T.A. NO.7501/MUM/2018 (ASSESSMENT YEAR 2013-14) ACIT, CIRCLE-7(2)(2), MUMBAI VS M/S NETWORK 18 MEDI A & INVESTMENT LTD, 414, 1 ST FLOOR,EMPIRE COMPLEX SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI-400 013 PAN :AABCS2472G APPELLANT RESPONDENT APPELLANT BY SHRI VIJAYKUMAR SUBRAMANYAM, DR RESPONDENT BY SHRI NIMESH VORA, AR DATE OF HEARING 25-06-2021 DATE OF PRONOUNCEMENT 22-09-2021 O R D E R PER SAKTIJIT DEY (JM): THIS IS AN APPEAL BY THE REVENUE AGAINST ORDER DAT ED 09-10-2018 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-57, MUMBAI, FO R THE ASSESSMENT YEAR 2013-14. 2. IN GROUNDS 1,2 AND 3, THE REVENUE HAS CHALLENGED THE DECISION OF LEARNED COMMISSIONER (APPEALS) IN REDUCING THE CORPORATE GU ARANTEE FEE TO 0.5% AS AGAINST 1.5% DETERMINED BY THE TRANSFER PRICING OFF ICER (TPO, HEREINAFTER). 2 I.T.A. NO.7501/MUM/2018 3. BRIEFLY THE FACTS ARE, IN COURSE OF PROCEEDINGS BEFORE THE TPO, HE NOTICED THAT THE ASSESSEE HAS PROVIDED CORPORATE GUARANTEE TO ITS OVERSEAS ASSOCIATE ENTERPRISE (AE, HEREINAFTER), VIZ. M/S B.K. HOLDING S LTD, MAURITIUS, WHICH WAS NOT REPORTED IN 3CEB REPORT. WHEN CALLED UPON TO EXPLAI N AS TO WHY SUCH TRANSACTION RELATING TO PROVISION OF CORPORATE GUARANTEE HAS NO T BEEN BENCHMARKED, THE ASSESSEE STATED THAT THE TRANSACTION BEING IN THE N ATURE OF SHAREHOLDERS ACTIVITY, CANNOT BE REGARDED AS AN INTERNATIONAL TRANSACTION. THE TPO, HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND PROCEEDED TO BENCHMARK THE TRANSACTION WITH AE BY DETERMINING ARMS LENGTH PRI CE OF GUARANTEE COMMISSION @1.5% OF THE AMOUNT ON WHICH SUCH GUARANTEE WAS PRO VIDED AND PROPOSED AN ADJUSTMENT OF RS.1,99,80,691/-. THE ADJUSTMENT SO PRO POSED WAS ADDED BACK TO THE INCOME OF THE ASSESSEE. ASSESSEE CHALLENGED THE AFORESAID ADDITION BEFORE LEARNED COMMISSIONER (APPEALS). FOLLOWING HER DECIS ION ON IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012-13, LE ARNED COMMISSIONER (APPEALS) DIRECTED THE ASSESSING OFFICER TO RESTRIC T THE GUARANTEE COMMISSION TO 0.5% AND DELETE THE BALANCE AMOUNT. 4. HAVING CONSIDERED RIVAL SUBMISSIONS, WE DO NOT F IND ANY INFIRMITY IN THE AFORESAID DECISION OF LEARNED COMMISSIONER (APPEALS ). THE HONBLE JURISDICTIONAL HIGH COURT IN CASE OF CIT VS EVEREST KENTO CYLINDER S LTD (2015) 58 TAXMANN.COM 254 (BOM), HAS UPHELD THE DECISION OF THE TRIBUNAL IN CHARGING GUARANTEE COMMISSION ON CORPORATE GUARANTEE AT 0.5%. THE SAME VIEW WAS EXPRESSED BY THE HONBLE JURISDICTIONAL HIGH COURT IN CASE OF CIT VS M/S GLENNMARKPHARMCEUTICALS LTD IN INCOME TAX APPEAL NO.1203 OF 2014 BY JUDGEMEN T DATED 2 ND FEBRUARY, 2017. THE AFORESAID DECISION OF THE JURISDICTIONAL H IGH COURT WAS UPHELD BY THE HONBLE SUPREME COURT WHILE DECIDING THE APPEAL OF THE REVENUE IN CIVIL APPEAL 3 I.T.A. NO.7501/MUM/2018 NO.12632 OF 2017 ON 11-120-2018. IN VIEW OF THE AFO RESAID, WE UPHOLD THE DECISION OF LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE. GROUNDS ARE DISMISSED. 5. IN GROUND 4, REVENUE HAS CHALLENGED THE DELETION OF DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEDUCTION CLAIM ED ON EMPLOYEE STOCK OPTION (ESOP) EXPENDITURE. 6. BRIEFLY THE FACTS ARE, IN COURSE OF ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED AN AM OUNT OF RS.73,53,010/- TOWARDS EXPENDITURE ON ACCOUNT OF ESOP. BEING OF TH E VIEW THAT ESOP EXPENSES HAVE NOT CRYSTALLIZED DURING THE YEAR AND HAS BEEN CLAIMED ON NOTIONAL BASIS, THE ASSESSING OFFICER DISALLOWED THE SAME. ASSESSEE CON TESTED THE AFORESAID DISALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY. FOLLOWING HER DECISION IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2012-13, LEA RNED FIRST APPELLATE AUTHORITY ALLOWED ASSESSEES CLAIM. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. THE SHORT ISSUE BEFORE US IS, WHETHER ESOP EXPENDIT URE IS ALLOWABLE U/S 37(1) OF THE ACT. WE FIND, WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2012-13, LEARNED COMMISSIONER (APPE ALS), FOLLOWING THE DECISION OF ITAT, BENGALURU SPECIAL BENCH IN CASE O F M/S BIOCON LTD VS DCIT 90 DTR (BANG)(SB)(TRIB) 289 ALLOWED ASSESSEES CLAIM O F DEDUCTION BY HOLDING THAT ESOP EXPENDITURE IS NOT A CONTINGENT LIABILITY; HEN CE, IS AN ALLOWABLE DEDUCTION UNDER SECTION 37(1) OF THE ACT. WE HAVE ALSO NOTED, IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSMENT YEA R 2008-09 VIDE ITA NO.4545/DEL/2015 DATED 19-06-2019. IT IS WORTH MENT IONING, THE DECISION OF THE ITAT SPECIAL BENCH IN CASE OF M/S BIOCON LTD VS DCI T (SUPRA) HAS BEEN UPHELD BY THE HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS BIOCON LTD REPORTED IN [2020] 4 I.T.A. NO.7501/MUM/2018 121 TAXMANN.COM 351(KAR). IN VIEW OF THE AFORESAID, WE UPHOLD THE DECISION OF LEARNED COMMISSIONER (APPEALS) WHILE DISMISSING THE GROUND RAISED. 8. IN GROUND 5, THE ASSESSEE HAS CHALLENGED DELETIO N OF DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A R.W.R. 8D. 9. BRIEFLY THE FACTS ARE, IN COURSE OF ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT DURING THE YEAR UNDER CONSIDER ATION, THE ASSESSEE HAS RECEIVED EXEMPT INCOME BY WAY OF DIVIDEND AMOUNTING TO RS.9,09,40,281/ AND LONG TERM CAPITAL GAIN OF RS. 40,53,95,643/ ON SALE OF SHARES OF DEN NETWORKS LT D. WHEREAS, IN THE COMPUTATION OF TOTAL INCOME THE ASS ESSEE SUO MOTU DISALLOWED AN AMOUNT OF RS.11,68,95,186/-. BEING OF THE VIEW T HAT THE SUO MOTU DISALLOWANCE MADE BY THE ASSESSEE IS NOT IN ACCORDA NCE WITH RULE 8D, THE ASSESSING OFFICER PROCEEDED TO COMPUTE DISALLOWANCE IN TERMS OF THE SAID RULE. IN THE PROCESS, HE COMPUTED DISALLOWANCE OF RS.55,77,4 1,735/- COMPRISING OF THE FOLLOWING:- I. DIRECT EXPENSES U/R 8D(2)(I) RS. 2,02,99,546/ - II. INTEREST EXPENDITURE U/R 8D(2)(II) RS.40,75,9 0,511/- III. ADMINISTRATIVE EXPENDITURE U/R 8D(2)(III) RS. 11,98,51,678/- AFTER REDUCING SUO MOTU DISALLOWANCE COMPUTED BY TH E ASSESSEE, THE ASSESSING OFFICER MADE A NET DISALLOWANCE OF RS.43, 08,46,549/-. ASSESSEE CONTESTED THE AFORESAID DISALLOWANCE BEFORE THE FIR ST APPELLATE AUTHORITY. FOLLOWING THE ORDER PASSED BY HER IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2012-13 AND OBSERVING THAT THE SUO MOTU DISALLOWANC E MADE BY THE ASSESSEE IS 5 I.T.A. NO.7501/MUM/2018 MORE THAN THE EXEMPT INCOME EARNED DURING THE YEAR, LEARNED COMMISSIONER (APPEALS) DELETED THE DISALLOWANCE. 10. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIALS ON RECORD. AS COULD BE SEEN FROM THE SUMMARY OF AVERAGE VALUE OF EXEMPT INCOME YIELDING INVESTMENTS, INTEREST FREE FUND AVAILABLE AND DISAL LOWANCE COMPUTED UNDER SECTION 14A FILED BEFORE US BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUND AVAILABLE WITH IT . THEREFORE, NO DISALLOWANCE OF INTEREST EXPENDITURE CAN BE MADE. FURTHER, WE ALSO AGREE WITH ASSESSEE THAT DISALLOWANCE UNDER RULE 8D(2)(III) CAN ONLY BE MADE ON THE AVERAGE VALUE OF ASSETS YIELDING EXEMPT INCOME DURING THE YEAR. IT IS THE CASE OF THE ASSESSEE THAT IF DISALLOWANCE UNDER RULE 8D(2)(III) IS COMPUTED ON T HE AVERAGE VALUE OF EXEMPT INCOME YIELDING INVESTMENTS, IT WILL WORK OUT TO RS .64,24,889/ ONLY. WHEREAS, ASSESSEE, SUO MOTU, HAS DISALLOWED RS .11,68,95,186. WE FIND SUBSTANTIAL FORCE IN THE AFORESAID SUBMISSIONS OF THE ASSESSEE. FURTHER, THE CONTENTION OF THE ASSESSEE THAT THE SHARES OF DEN NETWORK HAS NO COST TO THE A SSESSEE AS IT WAS RECEIVED BY GIFT/VOLUNTARY CONTRIBUTION IS ACCEPTABLE. IN VIEW OF THE AFORESAID, WE UPHOLD THE DECISION OF LEARNED COMMISSIONER (APPEALS). THIS GR OUND IS DISMISSED. 11. IN GROUND 6, THE REVENUE HAS CHALLENGED THE DEL ETION OF DISALLOWANCE MADE UNDER SECTION 14A R.W.S. RULE 8D WHILE COMPUTING BO OK PROFIT UNDER SECTION 115JB OF THE ACT. 12. HAVING HEARD RIVAL SUBMISSIONS, WE ARE IN AGREE MENT WITH LEARNED COMMISSIONER (APPEALS) THAT WHILE COMPUTING BOOKS P ROFIT UNDER SECTION 115JB OF THE ACT, THE ASSESSING OFFICER CANNOT INVOKE THE PR OVISIONS OF SECTION 14A R.W.R. 8D FOR MAKING ADJUSTMENT TO THE BOOK PROFIT. THIS LEGAL PROPOSITION HAS BEEN LAID 6 I.T.A. NO.7501/MUM/2018 DOWN IN CASE OF ACIT VS VIREET INVESTMENTS (P) LTD (2017) 82 TAXMANN.COM 415 (DEL)(TRIB)(SB).THOUGH, THE ASSESSING OFFICER IS EM POWERED TO DISALLOW EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME IN T ERMS OF EXPLANATION 1(F) OF SECTION 115JB; HOWEVER, SUCH EXPENDITURE MUST HAVE A DIRECT NEXUS WITH THE EARNING OF EXEMPT INCOME AND NOT SOMETHING WHICH IS COMPUTED UNDER RULE 8D R.W.S. 14A OF THE ACT. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE DECISION OF LEARNED COMMISSIONER (APPEALS) ON THE I SSUE. GROUND IS DISMISSED. 13. GROUND 7 AND 8 BEING GENERAL GROUNDS, ARE DISM ISSED. 14. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED ON 22/09/2021. SD/- SD/- (PRAMOD KUMAR) (SAKTIJIT DEY) VICE PRESIDENT JUDICIAL MEMBER MUMBAI, DT : 22/09/2021 PAVANAN COPY TO : 1. APPELLANT 2. RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) 5. THE DR, ITAT, MUMBAI 6. GUARD FILE /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI