Corporate guarantee commission and software development salary were allowed on settled principles, while tax-credit mismatches were sent back for verification.
Corporate guarantee commission was benchmarked at 0.5% of the loan advanced to associated enterprises, following the assessee's own earlier years and the Everest Kanto Cylinder principle, so the adjustment was restricted accordingly. Salary expenditure for developing the travel booking engine and SAP software was treated as revenue in nature because it improved an existing business through technology upgradation rather than creating a new asset or business line, and was allowed. AIR tour sales mismatch, foreign tax credit, TDS credit and dividend distribution tax credit were all remitted for verification and consequential action after consideration of supporting records and pending rectification applications.
Issues: (i) whether the transfer pricing adjustment on account of corporate guarantee commission was to be restricted to 0.5% of the loan amount advanced to the associated enterprises; (ii) whether the addition arising from mismatch in AIR-reported tour sales required fresh verification by the Assessing Officer; (iii) whether salary expenditure incurred for development of the travel booking engine and SAP software was allowable as revenue expenditure; (iv) whether foreign tax credit, TDS credit and dividend distribution tax credit were to be granted after verification and disposal of the pending rectification applications.
Issue (i): whether the transfer pricing adjustment on account of corporate guarantee commission was to be restricted to 0.5% of the loan amount advanced to the associated enterprises.
Analysis: The benchmark for corporate guarantee commission had already been fixed in the assessee's own earlier years by the co-ordinate Bench, following the Bombay High Court decision in Everest Kanto Cylinder Ltd., at 0.5%. The facts for the year under appeal were identical, and the same approach was applied to the guarantee furnished in favour of the associated enterprises.
Conclusion: The adjustment was restricted to 0.5% of the loan amount advanced by the bank to the associated enterprises, in favour of the assessee.
Issue (ii): whether the addition arising from mismatch in AIR-reported tour sales required fresh verification by the Assessing Officer.
Analysis: The mismatch was treated as a factual reconciliation exercise. Additional material was admitted because it related only to reconciliation of AIR entries with the books and did not introduce a new controversy. The matter was therefore restored for verification at the assessment stage, with direction to follow the CBDT's verification mechanism and give the assessee a reasonable opportunity.
Conclusion: The issue was remitted to the Assessing Officer for fresh adjudication and verification, in favour of the assessee for statistical purposes.
Issue (iii): whether salary expenditure incurred for development of the travel booking engine and SAP software was allowable as revenue expenditure.
Analysis: The expenditure was held to be incurred for improving and expanding the existing business by technology upgradation, and not for acquiring a new asset or entering a new line of business. On identical facts in the assessee's own earlier year, such expenditure had already been treated as revenue in nature and allowed under the business expenditure provision.
Conclusion: The salary expenditure was held allowable as revenue expenditure, in favour of the assessee.
Issue (iv): whether foreign tax credit, TDS credit and dividend distribution tax credit were to be granted after verification and disposal of the pending rectification applications.
Analysis: The foreign tax credit claim was supported by the Australian withholding certificate and corresponding interest income details, while the TDS and dividend distribution tax claims were also stated to be backed by rectification applications already filed before the Assessing Officer. The appropriate course was verification and disposal under the Act, rather than outright denial.
Conclusion: The matters relating to foreign tax credit, TDS credit and dividend distribution tax credit were directed to be verified and decided by the Assessing Officer, in favour of the assessee for statistical purposes.
Final Conclusion: The appeal succeeded substantially on the corporate guarantee and software expenditure issues, while the remaining grievances were restored for verification or consequential action, resulting in partial relief to the assessee.
Ratio Decidendi: Where identical facts exist, corporate guarantee commission may be benchmarked at the rate earlier accepted in the assessee's own case; expenditure incurred for technology upgradation of an existing business may be revenue in nature; and factual tax-credit mismatches should be resolved by verification rather than summary denial.
TaxTMI 
AI Drafter ✕
TaxTMI 
