Assessing Officer has disallowed the interest of Rs. 72,83,21,913/- on
the ground of borrowed funds were used by the assessee for making
investment in shares. The contention of the assessee is that in the
earlier Assessment Year 2006-07 where no dividend income was received by
the assessee, the Tribunal has held that no disallowance of expenditure
can be made u/s. 14A of the Act and therefore, the disallowance made in
the year under appeal may also be deleted as in this year also the
assessee has not received any dividend income on the shares, which is
exempt from tax. We find that the Tribunal while deciding the appeal of
assessee for Assessment Year 2006-07 failed to consider the decision of
the Delhi Special Bench of the Tribunal in the case of Cheminvest Ltd.
(supra) where it was held that even in a year where no exempt income was
earned or received by the assessee, disallowance u/s. 14A can be made.
Respectfully following the decision of the Delhi Special Bench of the
Tribunal, we dismiss this ground of appeal of assessee.
IN THE ITAT CHENNAI BENCH `A'
Siva Industries & Holdings Ltd.
v.
Assistant Commissioner of Income-tax, Co. Circle VI(4), Chennai
IT APPEAL NO. 1917 (MDS.) OF 2011
[ASSESSMENT YEAR 2007-08]
APRIL 30, 2012
ORDER
N.S.
Saini, Accountant Member – This is an appeal filed by the assessee
against the order of Dispute Resolution Panel (DRP) dated 08.09.2011.
2.
The ground No. 1 of the appeal is directed against the disallowance of
Rs. 72,83,21,913/- made by the Assessing Officer u/s. 14A read with Rule
8D of the Act.
3. The brief facts of the case are that the Assessing
Officer observed that whether the shares are held as investments or as
stock-in-trade or held for strategic purposes is a business decision
taken by the assessee. Whatever be such decision, any dividend earned on
such shares will be exempt by virtue of section 10. As the dividend
income does not form part of the total income under the Act, the
provisions of Sec.14A would come into play. Therefore, the Assessing
Officer disallowed the interest of Rs. 72,83,21,913/- on the ground of
borrowed funds utilized for investment in shares. The same was confirmed
in appeal by the DRP.
4. Ld. Authorised Representative of the
assessee filed a copy of order of the Tribunal for immediately preceding
Assessment Year 2006-07 in assessee's own case in ITA No.
2148/Mds./2010 order dated 20th May, 2011 wherein the Tribunal at
page-14, para Nos.7 to 8 of its order held that where the assessee does
not have any income, which does not form a part of the total income, no
disallowance u/s.14A can be made on the assessee. Ld. AR submitted that
following the same as the facts in the present year are also same, the
disallowance made should be deleted.
5. Ld. DR, on the other hand,
submitted that the decision of the Tribunal was per incurim as the
Tribunal failed to take into consideration the decision of Special Bench
of the Tribunal in the case of Cheminvest Ltd. v. ITO [2009] 121 ITD
318 (Delhi)(SB) where it was held that disallowance u/s. 14A can be made
in the year in which no exempt income has been earned or received by
the assessee.
6. After considering the rival submissions and perusing
the orders of lower authorities and materials available on record, we
find that the Assessing Officer has disallowed the interest of Rs.
72,83,21,913/- on the ground of borrowed funds were used by the assessee
for making investment in shares. The contention of the assessee is that
in the earlier Assessment Year 2006-07 where no dividend income was
received by the assessee, the Tribunal has held that no disallowance of
expenditure can be made u/s. 14A of the Act and therefore, the
disallowance made in the year under appeal may also be deleted as in
this year also the assessee has not received any dividend income on the
shares, which is exempt from tax. We find that the Tribunal while
deciding the appeal of assessee for Assessment Year 2006-07 failed to
consider the decision of the Delhi Special Bench of the Tribunal in the
case of Cheminvest Ltd. (supra) where it was held that even in a year
where no exempt income was earned or received by the assessee,
disallowance u/s. 14A can be made. Respectfully following the decision
of the Delhi Special Bench of the Tribunal, we dismiss this ground of
appeal of assessee.
7. The ground No.2 of the appeal of assessee
relates to Hon'ble DRP erred in holding that the transaction between the
assessee and its AE were not at arm's length and in upholding the
adjustments of Rs. 4,72,06,208/- made to the interest income of the
assessee by the TPO. Ld. AR submitted that this issue is covered in
favour of the assessee by the order of Tribunal in assessee's own case
in the immediately preceding Assessment Year 2006-07 in ITA No.
2148/Mds./2010 order dated 20th May, 2011. Ld. DR also agreed with the
submissions of the assessee.
8. We have heard the rival submissions
and perused the orders of the lower authorities and materials available
on record. The brief facts of case are that the assessee has entered
into international transaction with its associated enterprises, India
Telecom Holdings Ltd., Mauritius by way of granting a loan in Indian Rs.
248.50 crores. As the case was covered under transfer pricing,
reference was made to the TPO. The TPO vide order u/s. 92CA(3) dated
28.10.10 suggested upward revision in the income of assessee amounting
to Rs. 4,72,06,028/- by adopting interest rate at 14% on the loans
advanced for the reason that assessee had huge adverse foreign currency
movement risk which assessee had not factored in. Rupee appreciated by
10% in 2006 and 13.5% in 2007. Therefore, interest should have been
charged @ 14%.
9. On appeal, DRP confirmed the action of the
Assessing Officer by observing that though it is true that the decision
in the earlier year is in favour of the assessee, with due respect the
decision is not being followed as it has not attained finality.
10.
We find that the Tribunal in the immediately preceding Assessment Year
2006-07 while deciding the same issue, has observed at page-19 at
para-11 as under:-
"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 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 Associate Enterprises.
As it is noticed that the average of the LIBOR rate for 1.4.05 to
31.3.06 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."
Ld. DR could not bring any material on record to
show that the above quoted decision of the Tribunal has been reversed in
appeal by a higher forum. As the facts are identical, therefore,
respectfully following the same, we reverse the order of DRP and allow
this ground of appeal of assessee.
11. The ground No. 3 of the appeal
is directed against the order of DRP in confirming the disallowance of
TDS credit made by the Assessing Officer. The brief facts of the case
are that the Assessing Officer had taken the figure of Rs. 61,04,722/-
as TDS paid for computing the tax payable. The assessee claimed TDS in
the return of income at Rs. 7,49,23,898/-. The DRP has observed that in
the submissions assessee has not given any basis for TDS claim made by
it. In the earlier year also, dispute on TDS has raised and it was found
by the DRP that the TDS credit was not given for defective
certificates. The issue was restored t the Assessing Officer by the
Hon'ble ITAT. In the present year, the assessee's claim was quite bad
and unsubstantiated and therefore, the objection was not accepted.
However, DRP directed the Assessing Officer to consider the claim as per
law with respect to the claim of TDS.
12. Before us, the Ld.
Authroised Representative of the assessee submitted that issue of credit
of TDS should be restored to the file of Assessing Officer by following
the order of the Tribunal for the Assessment Year 2006-07. We find that
the Tribunal in the case of the assessee in Assessment Year 2006-07
held as under:-
"We have considered the rival submissions. As it is
noticed that the remand report has been received by the DRP on
27.08.2010 and the same has not been granted to the assessee for its
rebuttal, this issue is restored to the file of the Assessing Officer
for re-adjudication. The Assessing Officer shall reconsider the issue of
grant of credit for the TDS certificates and if he finds any of them to
be defective, he shall give the assessee adequate opportunity to
rectify the same and re-adjudicate the issue in accordance with law."
We
find that the DRP has held that the Assessing Officer will be free to
consider the claim as per law before completing the assessment with
respect to claim of TDS. Thus, we find that in fact the assessee has no
grievance from the above direction of the DRP. Therefore, we dismiss
this ground of appeal of the assessee.
13. In the result, the appeal of the assessee is partly allowed.