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2025 Supreme(Online)(ITAT) 5108
INCOME TAX APPELLATE TRIBUNAL (CHENNAI BENCH)
Aby T. Varkey, JM
ASHOK LEYLAND LIMITED CHENNAI – Appellant
Versus
DCIT NON CORP CIRCLE 8(1) LTU - II CHENNAI – Respondent
Cross Appeals | ITA No. 554/Chny/2023 | ITA No. 1664/Chny/2024
For the Appellants/Petitioners: Ld. AR, Ld. Counsel
For the Respondents: Ld. DR
Corporate guarantees are considered international transactions subject to transfer pricing provisions, while CSR expenditures can be eligible for deduction under section 80G despite being non-deductible under section 37.
Headnote:(A) Income Tax Act, 1961 - Sections 14A, 35(2AB), 80IC - Corporate guarantee fees of Rs. 1,22,93,500 upheld at 1% by CIT(A); plea rejected that it doesn't constitute transfer pricing - No exempt income means disallowance u/s 14A not applicable; CIT(A) erred in completely disallowing R&D expenses without scrutiny of DSIR's approval for deductions under 35(2AB) resulting in eligibility for weighted deduction of Rs. 40,21,77,735. (Paras 3.1, 5.1, 7.7, 8.2)
(B) CSR Expenditure - Expenditure on CSR is not classified under business expenses (37) but still qualifies for deductions under section 80G if conditions met; hence, Revenue's disallowance of CSR donations of Rs. 4,32,97,964 under 80G found unsustainable. (Paras 10.3, 10.4)
| Table of Content |
|---|
| 1. introduction of cross-appeals and explanation of delays. (Para 1 , 2) |
| 2. assessee's appeal grounds outlined regarding legality and justifications of additions. (Para 3) |
| 3. transfer pricing and adjustments related to corporate guarantees. (Para 5 , 6 , 7 , 8) |
| 4. deduction for csr expenditures under section 80g not restricted by mandatory provisions. (Para 10 , 11) |
PER ABY T. VARKEY, JM:
These are cross-appeals preferred by the assessee as well as the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as ‘Ld.CIT(A)‘), Delhi, dated 16.03.2024 for the Assessment Year (hereinafter referred to as ‘AY‘) 2019-20.
2. At the outset, it is noted that the Revenue’s appeal is delayed by ‘16’ days, for which, the Ld. DR explained the reason for delay, and, the Ld. Counsel of the assessee has not raised any serious objection. Consequently, the delay of ‘16’ days in filing of the appeal stands condoned and the appeal filed by the Revenue as well as that of assessee-company are taken up for hearing on merits. Since the issues involved in these cross appeals were inter related, both these appeals were heard together and are accordingly being disposed off by this common order.
3. We first take up the assessee's appeal in ITA No.554/Chny/2023. The grounds urged by the assessee are as follows:-
“1. The order of the Commissioner of Income-tax (Appeals) ('CIT(A)- NFAC') is contrary to law, facts and circumstances of the case.
2. Additions @ 1% u/s 92CA(3) towards notional Corporate Guarantee fees - Rs. 1,22,93,500:
2.1. The CIT(A)-NFAC is not justified in upholding the additions towards corporate guarantee fee @ 1% as proposed by the TPO.
2.2. The CIT(A)-NFAC ought to have appreciated that issuing of guarantees does not fall under the ambit of transfer pricing, since it does not have any bearing on profits, income, losses or assets of the assessee;
2.3. The CIT(A)-NFAC ought to have appreciated that, the corporate guarantees have been provided by the appellant as a stewardship /shareholder activity and not a business transaction that needs to be tested for ALP, since, the appellant is not in the business of issuing guarantee for this activity to qualify as international transaction.
2.4. Without prejudice to the above, Adjustment may at the most be restricted to 0.325% (as per the letter issued by SBI, specific to your Appellant) following the principle laid down by CIT(A) -16 for AY 2010- 11 (Appeal No. CIT (A), Chennai- 17/10740/2014-15) and 2011-12 (Appeal No. CIT (A), Chennai- 17/10834/2015-16) in Appellant's own case
2.5. In any case, Fees can be charged only to the extent of Guarantees utilized in the subject AY and in proportion to the number of months /days in force, which the TPO has failed to do so.
3. Disallowance u/s 14A r.w.r. 8D - Rs. 18,82,33,000:
3.1. CIT(A)-NFAC erred in upholding disallowance u/s 14A despite the fact that Appellant had not earned any exempt income during the subject year, thereby ignoring decision of Apex Court in the case of CIT v. Chettinad Logistics (P.) Ltd [2018] 257 Taxman 2 (SC).
3.2. CIT(A)-NFAC Ought to have appreciated that the Explanation to section 14A is applicable prospectively from with effect from 1.4.2022 and not for the year under appeal.
3.3. Without prejudice to above grounds, even if Rule 8D is held as applicable, investments from which no dividend income is earned should not be considered while applying Rule 8D as held in Appellant's own case by CIT(A) -16 for AY 2010-11 (Appeal No. CIT (A), Chennai- 17/10740/2014-15) and 2011-12 (Appeal No. CIT (A), Chennai 17/10834/2015-16).
3.4. CIT(A)-NFAC erred in incorrectly assuming that Appellant had not provided details called for and in not striking down prima facie incorrect assumptions made by the AO in regards to management of investments.
4. Disallowance of 100% R&D Revenue Expenditure capitalised in books of accounts - Rs. 2,34,28,46,960:
4.1. CIT(A)-NFAC erred in disallowing 100% revenu
