Revenue's appeal dismissed on transfer pricing adjustment, interest disallowance under section 36(1)(iii), and depreciation claims

The ITAT Mumbai dismissed the Revenue's appeal on multiple grounds. Regarding transfer pricing adjustment for corporate guarantee to associated enterprise, the Tribunal held no TP adjustment was required, following its earlier decision for AY 2009-10. For interest disallowance under section 36(1)(iii) on advances to joint ventures, the Tribunal found no disallowance warranted as the assessee had sufficient own funds. The Tribunal also upheld depreciation claims on speed boat's written down value and allowed professional fees for arbitration award, consistently following precedents from the assessee's earlier assessment year.

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Issues Involved:

1. Adjustment in respect of corporate guarantee to Afcons Construction Mideast LLC.
2. Disallowance of interest under section 36(1)(iii) in respect of loans to Afcons Pauling JV, Afcons Strabag AG, and Afcons Gunanusa JV.
3. Disallowance of depreciation of Rs. 0.64 lacs on the written down value of Speed Boat of Rs. 4.27 lacs.
4. Disallowance of Professional Fee of Rs. 64.33 lacs paid for Arbitration Award.

Issue-Wise Detailed Analysis:

1. Adjustment in respect of corporate guarantee to Afcons Construction Mideast LLC:

The TPO noticed that the assessee had extended a guarantee to First Gulf Bank for banking facilities availed by its AE without charging any fee. The TPO proposed a TP Adjustment of Rs. 1,48,64,959/- by applying a 0.5% rate on the various guarantees given by the assessee. The CIT(A) reduced the rate to 0.23%. The Tribunal, following its own decision in the assessee's case for AY 2009-10, held that no TP Adjustment is required. It was noted that the guarantee was given to facilitate the AE's contract execution, which ultimately benefited the assessee significantly. The Tribunal dismissed the Revenue's grounds on this issue.

2. Disallowance of interest under section 36(1)(iii) in respect of loans to Afcons Pauling JV, Afcons Strabag AG, and Afcons Gunanusa JV:

The AO disallowed interest of Rs. 316.61 lacs, applying a rate of 12.41% on advances given to JVs without charging interest. The CIT(A) deleted the disallowance, noting that the assessee's own funds were sufficient to cover the advances and there was no nexus between borrowed funds and advances. The Tribunal upheld the CIT(A)'s decision, referencing its own decision in the assessee's case for AY 2009-10, where it was held that no disallowance is warranted for loans continued from earlier years.

3. Disallowance of depreciation of Rs. 0.64 lacs on the written down value of Speed Boat of Rs. 4.27 lacs:

This issue was recurring, and the Tribunal had previously ruled in favor of the assessee for AY 2009-10. The Tribunal noted that the asset was used for business purposes and had been capitalized in the assessee's books. The Tribunal dismissed the Revenue's ground, upholding the CIT(A)'s decision.

4. Disallowance of Professional Fee of Rs. 64.33 lacs paid for Arbitration Award:

The AO disallowed the professional fee for arbitration, citing non-inclusion of corresponding arbitration award income for taxation. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, following its own ruling in AY 2009-10. The Tribunal noted that the professional fee was incurred for business purposes and rejected the AO's rationale for disallowance.

Cross Objections by the Assessee:

The assessee filed cross objections regarding the CIT(A)'s decision to reduce the guarantee fee rate to 0.23%. The Tribunal, having already decided that no TP adjustment is required, dismissed the cross objections as infructuous and directed the AO to delete the entire TP adjustment.

Conclusion:

The appeal of the Revenue and the cross objections of the assessee were dismissed. The Tribunal's decisions were pronounced in the open court on 21-06-2024.

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