Income Tax Appellate Tribunal - Kolkata
Tega Industries Limited, Kolkata vs Acit, Circle-12(2), Kolkata, Kolkata on 23 August, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH : KOLKATA
[Before Hon'ble Shri S.S. Godara, JM Hon'ble Shri Dr. Arjun Lal Saini]
I.T. A No. 404/Kol/2017 A.Y 2012-13
I.T. A No. 2527/Kol/2017 A.Y 2013-14
M/s. Tega Industries Ltd. V/s. A.C.I.T., Circle 12(2), Kolkata
PAN: AABCT2074M
(Appellant) (Respondent)
For the Appellant/Assessee : Shri Arvind Agrawal, CA, ld.AR &
Sumit Kumar Gupta, ACA
For the Respondent /Department : Shri Sankar Kumar Halder, JCIT, Sr.DR
Date of Hearing : 22-08-2019
Date of Pronouncement : 23 -08-2019
ORDER
Shri S.S. Godara, JM:
1. These two assessee's appeals for assessment years 2012-13 and 2013-14 arise against the ACIT, Circle-12, Kolkata's separate assessment orders dated 31-12-2016 and 24-10-2017 framed in furtherance to the Dispute Resolution Panels direction's involving proceedings u/s 143(3) r.w.s 144C and 143(3) r.w.s 144C(5) of the Income-
tax Act, 1961 ( in short 'Act'); respectively.
2. We have heard these appeals together since involving almost all of identical issues. Case files including lower authorities' records as well as judicial precedents stand perused.
3. We come to assessee's identical first common substantive ground in these two cases challenging the lower authorities' action making corporate guarantee adjustment(s) of Rs.8226/- and Rs.29,592/- ; assessment year wise; respectively. Suffice to say that it transpires at the outset that this tribunal's co-ordinate bench's 2 ITA No. 404/Kol/2017 A.Y 2012-13 ITA No. 2527/Kol/2017 A.Y 2013-14 M/s. Tega Industries Limited decision in ITA No. 1912/Kol/2012 Tega Industries Ltd V/s. DCIT for AY 2008-09 decides the issue against the department in holding that a corporate guarantee does not amount to an international transaction u/s. 92B of the Act.
4. There is further no dispute that the legislature has introduced Explanation to section 92B of the Act vide Finance Act, 2012 w.e.f 1-4-2002. This tribunal's yet another decision in DCIT, Cir-4(2), Kolkata V/s. M/s. Manaksia Limited decided on 28- 09-2018 concludes that the above stated explanation inserted in the statutory provision is made clarificatory in nature. Relevant discussion to this effect reads as under:-
"5. Ground No. 2, is on the issue of determination of ALP on corporate guarantee on loans availed by AE.
The ld. CIT(A) held that the TP Provisions do not apply to the transactions of providing corporate guarantee prior to the amendment brought in by way of an explanation to Section 92B of the Act, by Finance Act, 2012. Further at page 45 he held that the methodology applied by the TPO in computing the ALP of the transactions was without reasonable and justifiable basis.
We find that the findings of the Ld. CIT(A), are in line with the decision of the Kolkata 'C' Bench of the Tribunal in the case of M/s. EIH Ltd. vs. DCIT (supra) wherein it was held as follows:-
"12.11. Coming to the alternate plea of the assessee that, in the facts and circumstances the corporate guarantee is not an International Transaction u/s. 92B of the Act, we note that term 'guarantee' was inserted in the definition of 'international transaction' in section 92B by inserting an Explanation in the Finance Act, 2012 with retrospective effect from 01/04/2002. The Explanation states that- "For the removal of doubts, it is hereby clarified that (i) the expression "international transaction" shall include ....
(c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business."2 3 ITA No. 404/Kol/2017 A.Y 2012-13 ITA No. 2527/Kol/2017 A.Y 2013-14
M/s. Tega Industries Limited The Explanation states that it is clarificatory in nature and is 'for the removal of doubts'. Thus, it does not alter the basic character of definition of 'international transaction' under the main section 92B. Under this Explanation, five categories of transactions have been clarified to have been included in the definition of 'international transactions'. Clauses (a) (b) and
(d) do not cover guarantee, lending or loans. Other two, (c) and (e) deal with
(i) capital financing, and (ii) business restructuring or reorganization. Clause (c ) refers to lending or guarantee. But the Explanation which is for removal of doubts or is clarificatory, cannot be read independent of Section 92B(1). Section 92B(1), provides those transactions as international transactions which are in the nature of purchase, sale or lease of tangible or intangible property (explained by clauses (a) and (b) of the Explanation), or provision of services, (explained by clause (d) of the Explanation), or lending or ITA No. 980/Kol/2017 Assessment Year: 2012-13 M/s. Manaksia Limited borrowing money (explained by Clause (c) of Explanation). The plain reading of provisions of sec. 92B(1) of the Act indicate that the various transactions mentioned in section 92B(1) of the Act, (i.e. purchases, sales, provision for services, lending or borrowing or any other transaction) should have bearing on the profits, incomes, losses or assets of such enterprises. In our opinion, the condition precedent of a transaction having a bearing on profits, incomes, losses, or assets would apply to each of the aforesaid transactions namely purchase, sale, or lease of tangible or intangible property or provision of services, or lending or borrowing money or any such transaction. This understanding of ours gets further clarified by way of insertion of Explanation in section 92B(1)by the Finance Act 2012 with retrospective effect from 01.04.2002 vide clause (a) to (d). We find that in the said explanation, clause (e) alone has been carved out as an exception wherein, the transaction thereon has been specifically mandated to be an international transaction where a transaction of business restructuring or reorganization, entered into by an enterprise with an AE irrespective of the fact that it has bearing on the profits, incomes, losses, or assets of such enterprises at the time of transaction or at any future date. 12.12. Thus, we hold that when a parent company extends an assistance to the subsidiary, being associated enterprise, such as corporate guarantee to a financial institution for lending money to the subsidiary, which does not cost anything to the parent company, and which does not have any bearing on its profits, income, losses or assets, it will be outside the ambit of international transaction under section 92B(1) of the Act. In this regard, we would like to hold that issuance of corporate guarantee by the assessee to its AE would have 'influence on the profits , incomes, losses or assets of enterprise' but not necessarily have 'any impact on the profits, incomes, losses or assets' as 3 4 ITA No. 404/Kol/2017 A.Y 2012-13 ITA No. 2527/Kol/2017 A.Y 2013-14 M/s. Tega Industries Limited admittedly no consideration was received by the assessee in respect of this corporate guarantee from its AE. We find that the Ahmedabad Tribunal in the case of Micro Ink in ITA No. 2873/Ahd/2010 had observed that if a subsidiary (AE in the instant case) could not borrow money from third party sources on its own standing and the guarantee provided by the parent (assessee in the instant case) enables it to make such borrowing, then the guarantee could be said to be a shareholder function, not warranting a guarantee fee. This ratio would squarely be applicable to the facts of the instant case before us. 12.13 The Ld. CIT, DR's reliance in the case of Everest Kanto Cylinder Ltd. (supra) would not come to the rescue of Revenue because in that case, the parent company charged a fee of 0.5% on the AE for rendering this service. On this factual aspect, the Tribunal as well as the Hon'ble High Court held that it is an international transaction. Since in the case in hand, the assessee has not charged a penny from the AE, so the facts of the case are different and case law is distinguishable and, therefore, the Hon'ble High Court's order cannot come to the rescue of the Revenue. We find that the ld. AR pointed out that in the said case, the Hon'ble Bombay High Court did not answer the specific question as to whether the issuance of corporate guarantee is inherently within the ambit of definition of 'international transaction' irrespective of whether or not such transactions have any "bearing on profits, income, lossess or assets of such enterprises"
u/s. 92 B of the Act. We also note that the Ahmedabad Bench of this Tribunal supra after considering the decision of the Hon'ble Bombay High Court in Everest Kanto Cylinder Ltd. (supra) observed as under:
"We are unable to see, in the judgment of Hon'ble Bombay High Court, any support to the proposition that issuance of corporate guarantee is inherently within the ambit of definition of 'international transaction' under section 92B irrespective of whether or not such transactions have any 'bearing on profits' incomes, losses, or assets of such enterprises'. Revenue, therefore, does not derive any help from the said decision."ITA No. 980/Kol/2017 Assessment Year: 2012-13 M/s. Manaksia Limited
12.14. The ld CIT DR would have had a case where a fee has been charged for the intra service which has been rendered (in the context of corporate guarantee), and, therefore, the assessee or the Court has treated it as an international transaction, then the charge of corporate guarantee has to be in accordance with Arm's Length principle. This means that the price for corporate guarantee should be that which would have been paid and accepted by independent enterprises in comparable circumstances. In that case transfer pricing adjustments are required. In that case, it has to be 4 5 ITA No. 404/Kol/2017 A.Y 2012-13 ITA No. 2527/Kol/2017 A.Y 2013-14 M/s. Tega Industries Limited determined what will be the ALP of corporate guarantee commission paid by associate enterprise to the parent company providing corporate guarantee. Since that is not the case before us, we need not go into it.
12.15. We also find that this very same issue came up for adjudication by this tribunal in assessee's own case for the Asst Year 2010-11 in ITA No. 530/Kol/2015 dated 9.6.2017 , wherein by placing reliance on the decision of co-ordinate bench of Mumbai Tribunal in the case of
a) Marico Ltd vs ACIT reported in (2016) 70 taxmann.com 214 (Mumbai Trib) wherein it was held that corporate guarantee was not an international transaction ; and
b) Siro Clinpharm P Ltd vs DCIT in ITA No. 2618/Mum/2014 dated 31.3.2016 , wherein it was held that the Explanation introduced by Finance Act 2012 can be made applicable only from Asst Year 2013-14 onwards. 12.16. Moreover, we find that though the Explanation was introduced by Finance Act 2012, the rules were notified only on 10.6.2013. Hence the assessee cannot be expected to report this transaction also as an international transaction in its transfer pricing study and the audit report thereon.
12.17. In view of the aforesaid findings and respectfully following the various judicial precedents, we allow the Grounds 1.1. to 1.4 raised by the assessee."
5.1. Consistent with the view taken therein, we uphold the order of the ld. CIT(A) on this issue and dismiss this ground of the revenue. Accordingly, Ground No. 2 of the revenue is dismissed."
5. We adopt the above detailed discussion mutatis mutandis to conclude that assessee's corporate guarantee (s) in issue do not amount to international transactions u/s. 92B of the Act. Both the corresponding transfer pricing adjustment in question stand deleted. This first identical issue in both the appeals is decided in assessee's favour.
6. Next comes the assessee's second identical issue of section 14A r.w.r 8D disallowance in relation to its exempt income(s) of Rs. 4.95 crores and Rs. 5.5 crores; respectively. It had suo motu disallowed respective sums of Rs.4,55,540/- and Rs.5,57,270/- as direct expenditure. The Assessing Officer computed proportionate interest and administrative expenses under Rule 8D(2)(ii) & (iii) involving figures of 5 6 ITA No. 404/Kol/2017 A.Y 2012-13 ITA No. 2527/Kol/2017 A.Y 2013-14 M/s. Tega Industries Limited Rs.4038101 & Rs. 13,68,167/- as well as Rs.25,34,347/- and Rs.39,26,353; head wise/assessment year-wise respectively whilst disallowing the impugned sum of Rs. 65,752,848/- and Rs.52,92,520/- over and above, the suo motu figures. The CIT(A) has affirmed the same in his lower appellate finding.
7. Coming to assessee's first and former plea qua the instant issue of section 14/R.W.R 8D disallowance that the lower authorities have nowhere recorded any satisfaction regarding corresponding explanation as per its books of account u/s. 14A(2) of the Act, we find no merit since the Assessing Officer had found no reson to accept the above stated suo motu figures. It has further filed necessary details of the financial position as well as either heads of avialbility of funds in the paper book. The same suggests that the assessee had made assessment year wise investments of Rs. 170.32 corres and Rs. 217.42 crores in exempt income yielding investments whereas corresponding non interest bearing amount in assessment year wise of Rs. 326.08 and Rs. 386.59 corres; respectively. These clinching figures have gone rebutted from the revenue side. Hon'ble Bombay High Court's landmark decision in CIT V/s. Reliance Utilities Power Ltd (2009) 313 ITR 340 holds that necessary presumption that arises in such a case is deployment of non interest security fund is exempt income yielding interest. We thus reverse both the lower authorities' action disallowaning proportionate interest amount in question.
8. Next comes the administrative expenditure disallowance aspect in both the assessment years. The assessee's only plea during the course of hearing is that this tribunal's order in REI Agro Ltd V/s. DCIT reported in (2014 160 TTJ 107(Kol) and hon'ble Delhi High Court in ACB India Ltd v/s. ACIT (2015) 374 ITR 108(Del) hold that only exempt income yielding investments have to be taken into consideration for the purpose of computing administrative expenditure under third limb of Rule 8D of the 6 7 ITA No. 404/Kol/2017 A.Y 2012-13 ITA No. 2527/Kol/2017 A.Y 2013-14 M/s. Tega Industries Limited Income Tax Rules. We find that neither of the lower authority has considered the foregoing legal proposition relating to the impugned disallowance. We therefore restore the instant issue of administrative expenditure disallowance back to the Assessing Officer for necessary computation as per law.
9. Next comes the club expenditure disallowance in the assessment year 2012-13 only involving the sum of Rs.73,839/-. It transpires that lower authorities have club subscription of Rs.,5,400/- and Rs.11,700/- paid to Bengal Club and Tollygunge Club but club service expenditure of Rs. 12,786/- and Rs. 61,093/-; respectively has been rejected. Hon'ble Apex Court's decision in CIT V/s. United Glass MGF Ltd 2012- TIOL-102-SC-IT (ii) concludes that such club expenditure in case of company is very much allowable as incurred for business promotion. This was not Revenue's case as per lower authorities' order that the impugned claim involves any personal element as per documents on record. We therefore accept assessee's instant grievance to delete club expenditure disallowance of Rs. 7,38,319/-.
10. The Assessee's remaining last identical substantive grounds regarding section 234B/234C are treated as consequential in nature.
11. We further to notice that assessee has raised an identical additional ground in both cases seeking to claim education cess on provision for Income-tax amount of Rs.71,65,049/- and Rs. 77,76,699 (assessment year wise); respectively as allowable in computing total income other than MAT u/s. 115JB of the Act. Hon'ble Apex Court's land mark decision National Thermal Power Corporation Ltd (NTPC) V/s. CIT (1998) 229 ITR 383 (SC) as considered by this tribunal's Special Bench order M/s. All Cargo Global Logistics Ltd V/s. DCIT (12) 137 ITD 26 (Mum.) settles the law that we can very well entertain such a legal question in order to determine the correct tax 7 8 ITA No. 404/Kol/2017 A.Y 2012-13 ITA No. 2527/Kol/2017 A.Y 2013-14 M/s. Tega Industries Limited liability when all the relevant facts form part of records. We thus allow assessee's additional ground to be raised.
12. Coming to merits of the hon'ble Rajasthan high court's decision in Chmbal Fertilisers & Chemicals Limited V/s. JCIT(D.B Income Tax Appeal No. 52/2018, dated 31-07-2018 taking note of CBDT's Circular No. 91/58/66 dated 18-05-1965 as well as co-ordinate bench's order in ITC Limited V/s. ACIT( ITA No. 685/Kol/2014 dated 27- 11-2018 hold that such a claim of education cess is very much allowable in computing total income under the provisions of the Act We therefore direct the Assessing Officer to disallowance necessary computation in both the assessment years.
13. These two assessee's appeals are partly allowed in above terms.
Order pronounced in the Court on 23 -08-2019
Sd/- Sd/-
[ Arjun Lal Sainiy ] [ S.S.Godara ]
Accountant Member Judicial Member
Dated : 23 -08-2019
**PRADIP, Sr. PS
Copy of the order forwarded to:
1. Appellant/Assessee: M/s. Tega Industries Limited 147 Block-G, New Alipore, Kolkata-53.
2. Respondent/Department: The ACIT, Circle-12(2), Aaykar Bhawan, P-7 Chowringhee Sq., Kolkata-700 069.
3..C.I.T(A).- 4. C.I.T.- Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.
True copy By Order
Assistant Registrar
H.O.O/D.D.O Kolkata
8