2024 (8) TMI 1428 - AT - Income Tax

Assessee wins on transfer pricing, depreciation, professional fees, and ESOP tax exclusion under Section 115JB

The ITAT Mumbai dismissed the revenue's appeals on multiple grounds. Regarding TP adjustment on bank guarantee, the tribunal followed its own precedent ... TP Adjustment on bank guarantee - HELD THAT:- As decided in own case [2023 (12) TMI 273 - ITAT MUMBAI] for AY 2009-10 it can be seen that the impugned transactions were considered as international transactions and yet the Bench came to the conclusion that no TP adjustment can be made and the addition was deleted. Similar was the fact in AY 2010-11 [2024 (6) TMI 1391 - ITAT MUMBAI] where the Co-ordinate Bench, has decided the quarrel in favour of the assessee and against the revenue. Allowance of depreciation on the written down value (WDV) of plant & machinery - HELD THAT:- As decided in own case AY 2010-11 [2024 (6) TMI 1391 - ITAT MUMBAI] machinery was purchased by the principal but the assessee had been vested with the possession of them and utilized them for its business.It is not disputed that the principal has debited the cost of machinery to the assessee's account and the assessee has capitalized it in its books of account.Ground raised by the Revenue is dismissed. Addition out of professional fees paid for arbitration awarded - HELD THAT:- The reason for disallowance during the year under consideration is simply to follow the earlier year disallowance and to keep the issue alive. AO for the year under consideration also has not disputed the fact that the professional fee is incurred for the purposes of business. Therefore, respectfully following the decision of the Co-ordinate Bench AY 2010-11 [2024 (6) TMI 1391 - ITAT MUMBAI] we hold that the CIT(A) has rightly deleted the disallowance made by the AO. Exclusion of tax on ESOP in computing the book profit u/s 115JB - HELD THAT:- Any any tax payment made by the employer on behalf of the employee is not covered under the definition of income tax. In fact, Section 40(a)(v) of the Act disallows such payments by the employer on behalf of the employee. Considering the definition of Income tax in Clause (a) of Explanation 1 to Section 115JB of the Act, we do not find any reason to interfere with the findings of the ld. CIT(A). This Ground is accordingly dismissed. Issues Involved:1. Limitation on filing cross-objections.2. TP adjustments related to bank guarantee fees.3. Allowance of depreciation on the written down value (WDV) of plant & machinery.4. Disallowance of professional fees paid for arbitration awarded.5. Exclusion of tax on ESOP in computing the book profit u/s 115JB of the Act.Issue-wise Detailed Analysis:1. Limitation on Filing Cross-Objections:The assessee filed cross-objections which were barred by limitation. The Tribunal, after perusing the affidavit and considering the reasons for the delay, found that the assessee was prevented by reasonable and sufficient cause from filing the cross-objections within the stipulated time. Therefore, the delay was condoned, and the cross-objections were admitted.2. TP Adjustments Related to Bank Guarantee Fees:The revenue's grievance was that the CIT(A) erred in reducing the bank guarantee fee levied by the AO, while the assessee challenged the very levy of the bank guarantee. The Tribunal noted that similar issues had been adjudicated in the assessee's favor in previous years. It was observed that the performance guarantee provided by the assessee was for its own contract performance, and no fee was charged to the associated enterprise (AE). The Tribunal concluded that the entire benefit and profit from the guarantee went to the assessee, and no TP adjustment was warranted. Consequently, the Tribunal directed the TPO/AO to delete the adjustments, making the revenue's appeal infructuous.3. Allowance of Depreciation on the Written Down Value (WDV) of Plant & Machinery:The Tribunal noted that this was a recurring issue and had been consistently decided in favor of the assessee in previous years. It was established that the machinery was purchased by the principal but utilized by the assessee for its business, with the cost debited to the assessee's account and capitalized in its books. Following the precedent, the Tribunal saw no infirmity in the CIT(A)'s order and dismissed the revenue's ground.4. Disallowance of Professional Fees Paid for Arbitration Awarded:The AO disallowed professional fees for arbitration on the grounds that the corresponding arbitration award income was not offered for taxation. However, the Tribunal, following its previous decisions, held that the professional fees were incurred for business purposes and justified as an expenditure. The Tribunal noted that the AO's disallowance was merely to keep the issue alive, without disputing the business purpose of the expenditure. Therefore, the Tribunal upheld the CIT(A)'s deletion of the disallowance.5. Exclusion of Tax on ESOP in Computing the Book Profit u/s 115JB of the Act:During scrutiny assessment, the AO added back the tax on ESOP to the book profits, arguing it was covered under clause (a) of Explanation 1 to Section 115JB. The assessee contended that the tax paid on behalf of employees was a business expenditure, not an income tax liability of the company. The CIT(A) agreed, noting that the definition of 'income tax' for the purposes of clause (a) did not include such payments. The Tribunal upheld this view, finding no reason to interfere with the CIT(A)'s findings and dismissed the revenue's ground.Conclusion:The Tribunal dismissed the appeals of the revenue and allowed the cross-objections raised by the assessee. The order was pronounced in the Court on 21st August, 2024, at Mumbai.