Appeal details
Counselvise Citation
[2022] 103 COUNSELVISE.COM (IT) 8971 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 8 month(s) 13 day(s)
Appellant
Respondent
Appeal Type
Income Tax (Transfer Pricing) Appeal
Pronouncement Date
03-11-2022
Appeal Filed By
Department
Order Result
PartlyAllowed
Bench Allotted
D
Next Hearing Date
21-09-2022
Assessment Year
2014-2015
Appeal Filed On
21-02-2019
Judgement Text
आयकर अपीलीय अिधकरण, ‘डी’ Ɋायपीठ, चेɄई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI ŵी वी. दुगाŊ राव, Ɋाियक सद˟ एवं ŵी मनोज कु मार अŤवाल, लेखा सद˟ के समƗ । Before Shri V. Durga Rao, Judicial Member & Shri Manoj Kumar Aggarwal, Accountant Member I.T(TP).A. No.18/Chny/2019 िनधाŊरण वषŊ/Assessment Year: 2014-15 M/s. Siva Industries and Holdings Limited, Old No. 19, New No. 32, Cathedral Garden Road, Nungambakkam, Chennai 600 034. [PAN: AAACS4460M] Vs. The Deputy Commissioner of Income Tax, Corporate Circle 6(2), Chennai. (अपीलाथŎ /Appellant) (ŮȑथŎ/Respondent) I.T(TP).A. No.19/Chny/2019 िनधाŊरण वषŊ/Assessment Year: 2014-15 The Assistant Commissioner of Income Tax, Corporate Circle 6(2), Chennai. Vs. M/s. Siva Industries and Holdings Limited, Old No. 19, New No. 32, Cathedral Garden Road, Nungambakkam, Chennai 600 034. (अपीलाथŎ /Appellant) (ŮȑथŎ/Respondent) Assessee by : Shri B. Ramakrishnan, CA & Shri Shrenik Chordia, CA Department by : Dr. S. Palanikumar, CIT सुनवाई की तारीख/ Date of hearing : 22.09.2022 घोषणा की तारीख /Date of Pronouncement : 04.11.2022 आदेश /O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: Both the cross appeals filed by the assessee as well as Revenue are directed against the order of the ld. Commissioner of Income Tax I.T(TP).A. Nos. 18 & 19/Chny/19 2 (Appeals) 15, Chennai, dated 29.11.2018 relevant to the assessment year 2014-15. I.T(TP).A. No.18/Chny/2019 2. Grounds No. 1 & 2 raised in the appeal of the assessee are general in nature and no adjudication is required. 3. Ground No. 3 to 5 relates to capital gains. 3.1 Facts are, in brief, relating to capital gains that the assessee, during the assessment year 2014-15 sold the land situated in Vengal Village, measuring 28 cents and resulted in capital gains of ₹.34,05,867/- and the assessee claimed the same exempt as the agricultural land is not a capital asset under section 2(14) of the Income Tax Act, 1961 [“Act” in short]. The Assessing Officer denied the claim of the assessee on the ground that there is no agricultural income offered by the assessee and the land falls under residential category in Tnreginet.net-TN Government official site. 4. On appeal before the ld. CIT(A), the assessee has submitted that though the agricultural income was not offered by the assessee, the land situated in a village and the assessee carried the agricultural operations and the gains out of ale transaction is exempt under section 2(14) of the I.T(TP).A. Nos. 18 & 19/Chny/19 3 Act. However, the ld. CIT(A) simply confirmed the assessment order by observing as under: “7.3. CIT(A)’s remarks and decision: I have carefully gone through the observation of the AO in the assessment order as mentioned above under para 7.1, the appellant’s submission before the CIT(A) under para 7.2. 7.3.1 It is an admitted fact by the appellant that it did not carry out any agricultural activity and therefore no agricultural income was claimed as exempt in any of the AYs for which the returns of income have been filed. There were no books of accounts maintained for such activity either. Under these circumstances, the onus on the part of the appellant who had claimed the gain as arising out of sale of agricultural land having not been discharged, I have no option other than to concur with the addition of Assessing Officer. This ground is therefore dismissed.” 5. On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the ld. CIT(A) has confirmed the assessment order on the ground that the agricultural operations are not carried out by the assessee. He further submitted that neither the Assessing Officer nor the ld. CIT(A) have given a finding that as to when the land has been converted into residential category as per the Tnreginet.net-TN Government official site as has been considered by the Assessing Officer and prayed that the issue may be remitted back to the Assessing Officer to examine the date of conversion of the particular land. 6. On the other hand, the ld. DR supported the orders of authorities below. I.T(TP).A. Nos. 18 & 19/Chny/19 4 7. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. In this case, the reasons for the denial of the claim of exemption under section 2(14) of the Act was mainly (1) the assessee has not carried out agricultural operation and (2) the land sold by the assessee is coming under residential category. It is not clear from the appellate order or the assessment order as to when this agricultural land was converted into residential property and the ld. CIT(A) has not given any findings on this aspect. Therefore, we set aside the order of the ld. CIT(A) and remit the matter back to the file of the Assessing Officer to re-adjudicate the issue afresh in accordance with law by affording an opportunity of being heard to the assessee. The assessee is also directed to file all details such as patta, chitta, adangal, etc. with regard to the title of the property. 8. The next ground raised in the appeal of the assessee in grounds No. 6 to 9 relates to transfer pricing adjustment on interest on loan to overseas subsidiary @ 2.64%. The TPO determined the ALP for the interest on loan to AE Winwind OY which was under bankruptcy, on invocation of corporate guarantee @ 2.64%. In the books of account, the assessee has treated the amount discharged by the assessee consequent to the failure of the borrower in repaying the loan to the I.T(TP).A. Nos. 18 & 19/Chny/19 5 banker and on such a loan amount, the assessee recognized interest for the broken period during the relevant previous year. However, the Assessing Officer made addition of interest of ₹.11,29,175/- receivable on the loan repaid on behalf of bankrupt overseas subsidiary. 8.1 On appeal, it was contended before the ld. CIT(A) that it is a sticky loan and therefore, there is no requirement to recognize any interest as per the principle applicable to banking sector. It was also submitted that having recognized the amount paid as loan outstanding and following the mercantile system of accounting, the assessee has to recognize the interest in the books and if the same is not done, the same requires to be covered with reasons therefor. After considering the submissions of the assessee, ld. CIT(A) upheld the ALP determination of interest for the broken period. 8.2 We have heard both the parties and gone through the orders of authorities below. The case of the assessee is that the assessee has utilized its own funds to repay the above loan and has not incurred any cost for raising the funds. It was also submitted that the assessee has a legal right to recover the advance along with interest from the AE, which is non-existent and dissolved. After considering the submissions of the assessee, the ld. CIT(A) has observed as under: I.T(TP).A. Nos. 18 & 19/Chny/19 6 “4.3.3 Now, I deal with the issue of TPO adjustment towards interest on loan to Overseas subsidiary @ 2.64%. The short point for consideration is whether the treatment given by the appellant in its books treating the amount discharged by the appellant consequent to the failure of the borrower in repaying the loan to the banker and whether on such a loan amount, the appellant would be required to recognize any interest for the broken period during the relevant previous year. The appellant principally contends that this is a sticky loan and therefore there is no requirement to recognize any interest as "per the principle applicable to banking sector. The appellant having recognized the amount paid as loan outstanding and following the mercantile system of accounting, has to recognize the interest in the books and if the same is not done, the same requires to be covered with reasons therefor. Since the appellant has not done so, rightly the TPO has taken cognizance of the international transaction recorded in the books and determined the arm's length interest thereon. The appellant cannot take shelter under the provisions applicable to the banking sector. Its conduct needs to be expressive. Reliance on accounting standards may be for maintaining the books of accounts. But such a standard should be recognized by the Revenue Authorities. Therefore, the appellant's arguments are treated as devoid of merit and the ALP determination of interest for the broken period is upheld. This ground of the appellant is therefore treated as dismissed.” 8.3 While recognizing the interest in the books, the assessee has taken shelter under the provisions applicable to the banking sector without following the accounting standards for maintaining the books of accounts. Under the above facts and circumstances, we find that the arguments advanced by the assessee are of devoid of merits and the ld. CIT(A) has rightly upheld the ALP determination of interest for the broken period. Thus, we find no infirmity in the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the assessee is dismissed. I.T(TP).A. No.19/Chny/2019 9. In ground No. 2 to 2.6 raised in the appeal of the Revenue relates to deletion of the TP adjustment of ₹.54,44,31,250/- made on account of I.T(TP).A. Nos. 18 & 19/Chny/19 7 commission on corporate guarantee @ 2.19% by following the decision of the Tribunal in assessee’s own case for the assessment year 2013-14 holding that the corporate guarantee given by the assessee to the benefit of its AE was not an international transaction without recording any finding that the corporate guarantee given by the assessee had no impact on profits, income, losses or assets of the assessee. 9.1 The contention of the ld. DR is that the decision of the ITAT for the assessment year 2013-14 in assessee’s own case, wherein, the decision of the Tribunal in the case of Redington India Ltd. v. JCIT (2014) 40 CCH 527 for the assessment year 2009-10 has been followed, has been over- ruled by Kolkata ITAT Special Bench in the case of Instrumentarium Corporation in ITA Nos. 1548 & 1549/Kol/2009 dated 15.07.2016 to the effect that for existence of an international transaction, there is no need for admission of any positive income and thus pleaded for reversing the order of the ld. CIT(A). 9.2 On the other hand, the ld. Counsel for the assessee supported the order passed by the ld. CIT(A). 9.3 We have heard both the parties. Similar issue was subject matter in appeal before the Tribunal in assessee’s own case for the assessment I.T(TP).A. Nos. 18 & 19/Chny/19 8 year 2011-12 in I.T.A. No. 919/Chny/2018 dated 12.08.2022, wherein, the transaction has been treated as an international transaction and the amount was restricted to 0.5% instead of 2.19% of the total corporate guarantee, by observing as under: “16. We have heard both the parties, perused material available on record and gone through orders of the authorities below. As regards, first argument of the assessee that extending corporate guarantee is not international transaction, we find that Tribunal has considered an identical issue in the case of Indian Public School Pvt. Ltd. Vs DCIT (supra) and held that after amendment of section 92B of the Income Tax Act, 1961, corporate guarantee given by the assessee to its AE is an international transaction. Therefore, first argument of the assessee is hereby rejected. As regards, rate at which such guarantee is required to be benchmarked, the Tribunal in the very same decision, after considering judgement of the Hon’ble Bombay High Court in the case of Everest Kento Cylinders Ltd (supra) had directed the TPO/A.O. to compute guarantee commission @ 0.5% on total corporate guarantee given by the assessee to its AE. The relevant findings of the Tribunal are as under:- “7. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. As regards the first argument of the assessee that providing corporate guarantee per se is not an international transaction, we find that the provisions of Sec.92B of the Act, has been amended to expand the definition of international transaction, as per which, lending or borrowing money or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more AEs for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprise, is also an international transaction. From plain reading of definition, it is clear that lending or borrowing of money between two or more enterprises also comes under the definition of international transaction. Therefore, when the assessee has provided guarantee on behalf of its AE for availing loan facility, it definitely bearing on the profits or loss of the assessee and thus, it falls within the definition of international transaction and thus, providing corporate guarantee is an international transaction, which needs to be bench marked to determine ALP of such transaction. Therefore, the TPO has rightly held that providing corporate guarantee is an international transaction and hence, we reject the arguments of the Counsel for the assessee. 8. As regards imputing rate of commission on guarantee. It is a well settled principle of law by the decision of various courts, including the decision of the Hon'ble Bombay High Court in the case of CIT v. Everest Kento Cylinders Ltd. (supra), wherein, It has been clearly held that no Comparison can be made between the guarantee issued by commercial banks as against corporate guarantee issued by holding company for benefit of its I.T(TP).A. Nos. 18 & 19/Chny/19 9 AE, a subsidiary company for computing ALP of guarantee commission. The Hon'ble Bombay High Court further held that when it comes rate of commission, at Which, such corporate guarantee needs to be bench marked, then depending upon each case, a reasonable rate may be adopted and thus, in the said case has upheld 0.5% commission on corporate guarantee. Therefore, considering the facts and circumstances of the present case and also by following the decision of the Hon'ble Bombay High Court in the case of CIT v. Everest Kento Cylinders Ltd. (supra), we are of the considered view that 0.5% is the reasonable rate for benchmarking corporate guarantee given by the assessee to Its subsidiary AE. Therefore, we direct the AO to make adjustment towards corporate guarantee fee @ 0.5% of total corporate guarantee given by the assessee to its AE.” 17. In this view of the matter, and by following decision of the co-ordinate Bench of the Tribunal in the case of Indian Public School Pvt. Ltd. vs. DCIT (supra), we direct the Assessing Officer to impute guarantee commission @ 0.5% on total corporate guarantee given by the assessee to its AE.” 9.4 Respectfully following the decision of the Coordinate Benches of the Tribunal in assessee’s own case for the assessment year 2011-12, we direct the Assessing Officer to make adjustment towards corporate guarantee @ 0.5% of the total corporate guarantee given by the assessee to its AE. Thus, the ground raised by the Revenue is partly allowed. 10. The next ground raised in ground Nos. 3.1 to 3.2 relates to the deletion of the TP adjustment of ₹.2,46,62,750/- made towards the difference of 0.64% between assessee’s rate (2%) and arm’s length rate (2.64%) of interest on OFCD (Optionally Fully Convertible Debentures) but also in directing the Assessing Officer to charge interest only at LIBOR (0.64%) by claiming to follow the decision of the Tribunal in assessee’s own case in the assessment year 2013-14. I.T(TP).A. Nos. 18 & 19/Chny/19 10 10.1 The TPO has determined the transfer pricing adjustment on Optionally Fully Convertible Debentures [OFCD] @ 2.64%. Before the ld. CIT(A), the assessee has relied on the decision of the Tribunal in assessee’s own case and by considering the same, the ld. CIT(A) has noted that in that case, the Assessing Officer was directed to charge interest on OFCD at LIBOR. Since the issue is covered in favour of the assessee by the decision of the ITAT in assessee’s own case, the ld. CIT(A) deleted the addition and directed the Assessing Officer to charge interest on OFCD at Libor. 10.2 We have heard both the parties. We have also perused the order of the Tribunal in assessee’s own case for the assessment year 2013-14, wherein, it was held as under: “6. Coming to grounds 4 & 5, which are on upward adjustment for interest charged on “Optionally and Fully Convertible Debentures’’ (OFCD). Ld. Counsel for the assessee submitted that ld. TPO had considered the investments in OFCD by the assessee in its Associated Enterprise, which carried an interest of 2% as not at Arm’s Length. According to the ld. Authorised Representative, the ld. TPO had considered the LIBOR rate of 0.95% and added such LIBOR rate to 2% interest applicable on OFCD and erroneously took 2.95% as the Arms Length Interest rate. Contention of the ld. Authorised Representative was that if the LIBOR rate of 0.95% was considered, assessee’s rate of interest of 2% being more than such rate, it was at Arms Length. According to him, no reason was given by the ld. TPO for adopting 2% plus LIBOR rate as the Arms Length rate of interest chargeable on OFCD. As per the ld. Authorised Representative, the ld. DRP has confirmed the upward adjustment without properly appreciating the submissions made by the assessee. Reliance was placed on the decision of Co-ordinate Bench in assessee’s own case in ITA No.2148/Mds/2010, dated 20.05.2011 for assessment year 2006-07. 7. Per contra, ld. Departmental Representative submitted that OFCD cannot be considered as equivalent to equity. According to him, it was only a debt. Contention of the ld. Departmental Representative was that even the conversion rate was not fixed I.T(TP).A. Nos. 18 & 19/Chny/19 11 upfront nor any a fixed method or formula mentioned. As per the ld. Departmental Representative, there was a clear violation of FDI Rules. Contention of the ld. DR was that the investments made by the assessee through OFCD were more like ECB. Vis-à- vis, corporate guarantee according to the ld. Departmental Representative, the upward adjustment recommended by the ld. TPO and confirmed by ld. DRP was justified. 8. We have considered the rival contentions and perused the orders of the authorities below. Relevant observation of the ld. TPO is reproduced hereunder:- “10.1. Interest received / receivable on' investments made in OFCD issued by Siva Skylink Ltd formerly known as Avis Ventures Limited: The interest rate on the above debentures is a flat 2%. The LIBOR rate applicable for the interest receivable / received works out to 0.95%. Interest rate must have been charged at the rate of LIBOR plus a spread of 2 percent. Applying the above rate of 2.95% the arm's length price of the interest receivable is worked out as under: Period Interest charged by the assessee @2% No. days Interest to be charged @ 2.95% Balance Interest 01.4.2012 to 31.3.2013 6,84,82,964 365 10,10,12,372 3,25,29,408 Total 3,25,29,408 10.2 Interest received / receivable on investments made in OFCD issued by Lotus Ventures Limited: The interest rate on the above debentures is a flat 2%. The UBOR rate applicable for the interest receivable / received works out to 0.95%. Interest rate must have been charged at the rate of UBOR plus a spread of 2 percent. Applying the above rate of 2.95% the arm's length price of the interest receivable is worked out as under: Period Interest charged by the assessee @2% No. days Interest to be charged @ 2.95% Balance Interest 01.4.2012 to 31.3.2013 3,16,23,701 365 4,66,44,959 1,50,21,258 Total 1,50,21,258 Though the ld. TPO had given a clear finding that LIBOR rate applicable for interest was 0.95%, he had adopted the Arms Length interest rate as 2.95%. No reason whatsoever has been given by the considered the interest rate at LIBOR plus 2%. Though adoption of LIBOR as the appropriate rate cannot be faulted, in our opinion ld. TPO erred in adopting 2+ LIBOR. At this juncture it is apposite to have a look at para 11 of the decision of this Tribunal in assessee’s own case for assessment year 2006-07 in ITA No.2148/Mds/2010, dated 25.05.2011. “11. We have considered the rival submissions. A perusal of the order of the TPO clearly shows that the assessee had raised the funds by way of issuance of 0% optional convertible preferential shares. Thus it IS noticed that the funds . raised by the assessee company for giving the loan to India I.T(TP).A. Nos. 18 & 19/Chny/19 12 Telecom Holdings Ltd., Mauritius, which is its Associated Enterprises and which is the subsidiary company, is out of the funds of the assessee company. It is not borrowed funds. The assessee has given the loan to the Associated Enterprises in US dollars. The assessee is also receiving interest from the Associated Enterprises in Indian rupees. Once the transaction between the assessee and the Associated Enterprises is in foreign currency and the transaction is an international transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, we are of the view that it LIBOR rate which has to be considered while determining the arm's length interest rate in respect of the transaction between the assessee and the Associated Enterprises. As it is noticed that the average of the LIBOR rate for 1.4.2005 to 31.03.2006 is 4.42% and the assessee has charged interest at 6% which is higher than the LIBOR rate, we are of the view that no addition on this count is liable to be made in the hands of the assessee. In the circumstances, the addition as made by the Assessing Officer on this count is deleted’’. Once assessee had charged rate of interest more than the LIBOR rate, there could be no question of any Transfer pricing adjustment. Nevertheless, how the ld. TPO had arrived at the LIBOR rate of 0.95% is not clear. LIBOR rate for assessment year 2006-07 was 4.42% whereas what was considered by the ld. TPO as LIBOR rate for the impugned assessment year is 0.95%. We are therefore of the opinion that ld. Assessing Officer/TPO has to revisit the issue to fix the correct LIBOR rate, before deciding whether any adjustment for Arms Length Pricing is required. We set aside the orders of the lower authorities on the Arms Length Price adjustment, if any, required on interest on OFCD, and remit it back to the file of the ld. Assessing Officer/ld. TPO for consideration afresh in accordance with law. Ground 4 & 5 of the assessee are allowed for statistical purpose.” 10.3 Respectfully following the decision of the Coordinate Benches of the Tribunal in assessee’s own case for the assessment year 2013-14, we direct the TPO/Assessing Officer to decide the issue afresh in accordance with law and thus, the ground raised by the Revenue is allowed for statistical purposes. 11. The next ground in ground Nos. 4 & 4.1 raised in the grounds of appeal relates to restricting the disallowance under section 14A r.w. Rule I.T(TP).A. Nos. 18 & 19/Chny/19 13 8D to the extent of exempt income earned by relying upon the decision of the Hon’ble Delhi High Court in the case of Joint Investment v. CIT 372 ITR 694. 11.1 We have heard both the parties. In the assessment order, the Assessing Officer has noted that the assessee has earned income from dividend to the extent of ₹.2,41,441/-, which was claimed as exempt. From the balance sheet, the Assessing Officer has noted that the assessee has investment to the extent of ₹.3540,14,09,313/- as on 31.03.2014. Further, from the profit and loss account, the Assessing Officer has noted that the assessee has claimed interest expenditure to the extent of 250.05 crores during the year. However, the assessee has not disallowed any expenditure attributing to earning of exempt income and to maintain such huge investment, the Assessing Officer was of the opinion that it was unrealistic to state that NIL expenditure incurred to earn dividend income and to maintain the investment amount of ₹.3540.14 crores. Accordingly, the Assessing Officer determined the disallowed ₹.73,13,88,925/- section 14A of the Act, under normal provision as well as computing book profit under section 115JB of the Act. On appeal, after considering the submissions of the assessee, the ld. CIT(A) directed the Assessing Officer to restrict the disallowance under I.T(TP).A. Nos. 18 & 19/Chny/19 14 section 14A of the Act to the extent of income treated as exempt by observing as under: 6.3 CIT(A)’s remarks and decision: I have carefully gone through the observation of the AO in the assessment order as mentioned above under para 6.1, the appellant’s submission before the CIT(A) under para 6.2. 6.3.1 Identical issue has been adjudicated for the AY 13-14 in ITA No. 295/CIT(A)-15/2017-18 wherein the disallowance was directed to be restricted to the extent of exempt income placing reliance on the decision in the case of Joint Investments Ltd. v. CIT 372 ITR 694 (Delhi HC). Since the facts are being identical for this AY, I direct the AO to restrict the disallowance made u/s 14A to the extent of income treated as exempt. To this extent, this ground is partly allowed.” 11.2 Similar issue in assessee’s own case for the assessment years 2008-09 to 2010-11, the Tribunal has decided the issue by observing as under: “8. Having said so, let us come to disallowances computed by the Assessing Officer. The Assessing Officer has computed disallowances u/s.14A of the Act by invoking Rule 8D of the Income Tax Rules, 1962 for the assessment years 2008-09 to 2010-11, which is in excess of exempt income earned by the assessee for the relevant assessment years. It is well settled principle of law by decisions of various courts, including Hon'ble High Court of Madras in the case of Marg Ltd. Vs. CIT (supra), where the Hon’ble High Court has very clearly held that disallowance under section 14A w.r.Rule 8D can never exceed exempt income earned by the assessee during particular assessment year. The Hon’ble Delhi High Court in the case of Cheminvest Vs. DCIT 378 ITR 33 (Del) had considered very similar issue and held that disallowance contemplated u/s.14A cannot swallow entire exempt income earned for the relevant assessment year. The sum & substance of ratios laid down by various High Courts are that disallowance of expenditure u/s.14A of the Act cannot exceed exempt income earned for relevant assessment year. In this case, the assessee has earned exempt income of Rs.1,95,75,000/- for the assessment year 2008-09, whereas, the Assessing Officer had disallowed expenditure u/s.14A of the Act at Rs.75,07,26,240/-, which is in excess of exempt income earned for the relevant assessment year. Therefore, we are of the considered view that disallowance computed by the Assessing Officer cannot exceed exempt income earned for the relevant assessment year and thus, by respectfully following decision of the Hon’ble Madras High Court in the case of Marg Ltd. Vs.CIT (supra), we direct the Assessing Officer to restrict disallowances u/s.14A r.w.Rule 8D of the I.T. Rules, 1962, to the I.T(TP).A. Nos. 18 & 19/Chny/19 15 extent of exempt income earned for the relevant assessment years 2008- 09 to 2010- 11. 9. In the result, appeals filed by the assessee for the assessment years 2008-09 to 2010-11 are partly allowed. 11.3 In view of the above decision of the Tribunal, wherein, decision of the Hon’ble Jurisdictional High Court in the case of Marg Ltd. v. CIT(supra) has been followed, the ld. CIT(A) has rightly directed the Assessing Officer to restrict the disallowance made under section 14A to the extent of income treated as exempt. Thus, we find no infirmity in the order passed by the ld. CIT(A) and accordingly, the ground raised by the Revenue is dismissed. 12 The last ground raised in the appeal of the Revenue in ground No. 5 relates to addition to book profits under section 115JB of the Act. While computing the book profits under section 115JB of the Act, the Assessing Officer made the addition of ₹.73,13,88,925/- on account of disallowance under section 14A of the Act. On appeal, by following the decision of the Tribunal in the case of ACIT v. Vireet Investment (P) Ltd. (2017) 82 taxmann.com 415 (Del-Trib)(SB), the ld. CIT(A) directed the Assessing Officer to exclude the disallowance under section 14A of the Act while computing the book profit under section 115JB of the Act and allowed the ground raised by the assessee, against which, the Revenue preferred further appeal before the Tribunal. I.T(TP).A. Nos. 18 & 19/Chny/19 16 12.1 We have considered the rival contentions. So far as disallowance under section 14A of the Act while computing the book profit under section 115JB of the Act is concerned, in the recent judgement in the case of Sobha Developers Ltd. v. DCIT 434 ITR 266 (Kar), wherein, the Hon’ble Karnataka High Court has held that the disallowance made under section 14A of the Act could not be added to book profits of the assessee under section 115JB of the Act. The substantial question of law raised before the Hon’ble Karnataka High Court is reproduced as under: “Whether the tribunal is justified in law in holding that the indirect expenditure disallowed under Section 14A read with rule 8D(iii) of Rs.24,64,632/- in computing the total income under normal provisions of the Act, is to be added to the net profit in computation of book profit for MAT purposes under Section 115JB and thereby importing the provision of Section 14A read with rule 8D into the MAT provisions on the facts and circumstances of the case?” 12.2 After considering the arguments of the both sides, the Hon’ble Karnataka High Court has observed and held as under: “6. We have considered the submissions made on both sides and have perused the record. Before proceeding further, it is apposite to take note of relevant extract of Section 115JB of the Act, which reads as under: 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent. (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; or I.T(TP).A. Nos. 18 & 19/Chny/19 17 (i) the amount or amounts set aside as provision for diminution in the value of any asset, if any amount referred to in clauses (a) to (i) is debited to the statement of profit and loss or if any amount referred to in clause (j) is not credited to the statement of profit and loss, and as reduced by,- (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the statement of profit and loss), if any such amount is credited to the statement of profit and loss: (5) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section. 7. Thus from perusal of the relevant extract of Section 115JB, it is evident that Sub-Section (1) of Section 115JB provides the mode of computation of the total income of the assessee and tax payable on the assessee under Section 115JB of the Act. Sub-Section (5) of Section 115JB provides that save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee being a company mentioned in this Section. Therefore, any expenditure relatable to earning of income exempt under Section 10(2A) and Section 10(35) of the Act is disallowed under Section 14A of the Act and is added back to book profit under clause (f) of Section 115JB of the Act, the same would amount to doing violence with the statutory provision viz., Sub-Section (1) and (5) of Section 115JB of the Act. It is also pertinent to mention here that the amounts mentioned in clauses (a) to (i) of explanation to Section 115JB(2) are debited to the statement of profit and loss account, then only the provisions of Section 115JB would apply. The disallowance under Section 14A of the Act is a notional disallowance and therefore, by taking recourse to Section 14A of the Act, the amount cannot be added back to book profit under clause (f) of Section 115JB of the Act. It is also pertinent to mention here that similar view, which has been taken by this court in Gokaldas Images (P) Ltd. supra was also taken by High Court of Bombay in 'THE COMMISSIONER OF INCOME TAX-8 VS. M/S BENGAL FINANCE & INVESTMENTS PVT. LTD.', I.T.A.NO.337/2013. It is pertinent to note that in Rolta India Ltd., the Supreme Court was dealing with the issue of chargeability of interest under Section 234B and 234C of the ct on failure to pay advance tax in respect of tax payable under Section 115JA/ 115JB of the Act and therefore, the aforesaid decision has no impact on the issue involved in this appeal. Similarly, in MAXOPP Investment Ltd., supra the Supreme Court has dealt with Section 14A of the Act and has not dealt with Section 115JB of the Act. Therefore, the aforesaid decision also does not apply to the fact situation of the case. In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered in favour of the assessee and against the revenue. In the result, the order passed by the tribunal dated 09.01.2015 insofar as it pertains to the findings recorded against the assessee is hereby quashed.” 12.3 The ld. DR could not controvert the above decision of the Hon’ble I.T(TP).A. Nos. 18 & 19/Chny/19 18 Karnataka High Court or filed any other higher Court’s decision having modified or reverted or any decision favouring the Revenue. Respectfully following the above decision in the case of Sobha Developers Ltd. v. DCIT (supra), the ground raised by the Revenue is dismissed. 13. In the result, the appeal filed by the assessee and the Revenue are partly allowed for statistical purposes. Order pronounced on the 04 th November, 2022 at Chennai. Sd/- Sd/- (MANOJ KUMAR AGGARWAL) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER Chennai, Dated, the 04.11.2022 Vm/- आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant, 2.ᮧ᭜यथᱮ/ Respondent, 3. आयकर आयुᲦ (अपील)/CIT(A), 4. आयकर आयुᲦ/CIT, 5. िवभागीय ᮧितिनिध/DR & 6. गाडᭅ फाईल/GF.
