TaxTMI 
TaxTMI 
TaxTMI 
2018 (5) TMI 1256
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....ise(AE) M/s G.V.K. Coal Developers (Singapore) PTE Limited, (in short GVK Singapore) and extended Corporate guarantee of INR 2814,32,00,000/- as on 31st March, 2013 and has charged commission to it's A.E. amounting to Rs. 25,25,67,213/-. The A.O. referred the International transaction u/s 92CA(1) of the Income Tax Act, 1961 (hereinafter called as 'the Act') to Transfer Policy Officer (TPO) for determination of Arms Length Price (ALP) of the tax payer company. The commission charged by the tax payer for corporate guarantee has worked out to 0.90%. The assessee has made the transfer pricing (TP) study and adopted the Comparable Uncontrolled Price ("CUP") method as most appropriate method for bench marking the transaction of corporate guarantee. The assessee in it's Transfer pricing documentation has conducted the search using the 'Bloomberg' database to identify the market yield on debt securities with credit ratings. The assessee has used the US Industrial Bond Yield Curve to determine the bench mark of guarantee fee range. The assessee has considered the one year US Industrial Yield Curve as bench mark for the market interest rates, since the duration for the transaction of....
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....rgued that the A.O. has not brought on record the terms and conditions of the comparable transaction of guarantee of State Bank of India which has charged the bank guarantee commission @ 1.30% for the assessment year 2013-14. The assessee argued before the A.O. that as per the decision of Hon'ble Bombay High Court in the case of Everest Kanto Cylinders Limited and other Tribunals the corporate guarantee commission charged from 0.25% to 0.53% is considered to be appropriate for issuance of corporate guarantees. The assessee placed reliance on the following decisions of various Tribunals: Sl. No. Name of the Case Law Assessment Year Guarantee Fees 1. Everest Kanto Cylinder Limited High Court -ITA No.1165 No.2013 ITAT -ITA No.542/Mum/2012 AY 2007-08 0.53% 2. Foursoft Limited ITA No.1903/HYD/2011 AY 2007-08 0.53% 3. Prolifice Corporation Limited ITA No.237/HYD/2014 ITA No.1646/HYD/2014 AY 2009-10 AY 2010-11 0.53% 4. Glenmark Pharmaceuticals Limited ITA No.5031/MUM/2012 AY 2008-09 0.535 5. Asian Paints Limited ITA No.7801/MUM/2010 0.35% 6. Reliance Industries Limited ITA No.4475/Mum/2007 AY 2003-04 0.38% 7. Nimbus Communication Limited ITA....
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....,94,387/- on account of adjustment of corporate guarantee. 4. Aggrieved by the order of the A.O/DRP, the assessee carried the matter to the Tribunal. During the appeal hearing, the Ld. A.R. argued that the assessee has conducted transfer pricing study and adopted the US Bond Yielding Curve method to bench mark the transaction for guarantee commission for corporate guarantee. The assessee's A.E. M/s. GVK Coal to borrow USG Denominated loan of US D$ 1.25 Billion for which the assessee has provided the corporate guarantee to third party lender i.e. Consortium of ICICI Bank, Bank of India, Bank of Baroda, Canara Bank and Kotak Mahindra Bank. With this borrowing, GVK Coal acquired holdings in certain coal companies in Australia towards the said loan and GVK Coal has given its assets, securities and mining tenements and other fixed assets of the target company and additional security in the form of all shares owned by GVK coal, and the assessee has extended its corporate guarantee to the third party lenders. The Ld. A.R. further argued that the primary securities are the stocks, the assets and the mining tenements of the associated enterprises and the corporate guarantee is an additiona....
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....land, securities, mining tenements and other fixed assets of the target company and all shares owned by the GVK Coal. We agree with the argument of the Ld.AR that the bank guarantee and the corporate guarantees are issued on different approaches and with different motivations. In corporate guarantee, the risk factor is lesser since the credit facilities granted by the bank was firstly covered by the assets of the borrowing company, whereas in the bank guarantee, the risk factor is more since immediate monetary transaction is involved. Therefore, the commission charged in bank guarantee would be more than the corporate guarantee to cover the risks and the profits. Further in case of bank guarantee, the bank guarantees are undertaken with a profit element, whereas, in the case of corporate guarantee mutual commercial interest and long term benefits are prime factors. Further, though the Ld. A.O. adopted the bank guarantee commission as a comparable and at ALP, the terms and conditions of the bank guarantee and the terms and conditions of the corporate guarantee were not brought on record and did not allow the necessary adjustments to various risks. If the A.O. is taking any of the co....
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....in the facts and circumstances of the assessee's case. The Ld. D.R. did not place any other judgement or order of the High Court or any other court to controvert the decision cited (supra). In the assessee's case the corporate guarantee commission charged by the assessee was 0.90% which is more than the corporate guarantee commission of 0.25% to 0.53% approved by various judicial forums. Therefore, respectfully following the view taken by the coordinate benches, we hold that the corporate guarantee commission charged by the assessee company is at ALP and no adjustment is required. Accordingly, we delete the addition made by the A.O. and allow the appeal of the assessee. 7. Ground No.2 is related to the Transfer pricing adjustment made by the A.O. amounting to Rs. 22,44,330/- by imputing notional interest on outstanding amounts from A.E.. The transfer pricing officer found that the assessee has receivables of Rs. 7,32,97,465/- as at the end of the year. The TPO requested the assessee to submit the details of raising the invoice and subsequent receipt of the amount and also called for an explanation as to why notional interest should not be charged @ 14.45% on receivables which was ....
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....n 92B by Finance Act, 2012, the DRP held that the differed receivables would constitute international transaction and interest has to be bench marked for delay beyond the allowable credit period and accordingly directed the A.O. to determine the ALP. However, the DRP was of the view that the adjustment proposed by the TPO @14.45% is unreasonable and directed the TPO to adopt the adjustment taking the domestic term deposit rates of SBI. Accordingly, the assessing officer made the adjustment of Rs. 22,44,330/- towards the notional interest on outstanding amounts receivable from AE. 8. Aggrieved by the order of the A.O., the assessee is in appeal before us. During the appeal hearing, the Ld. A.R. argued that the transactions were entered into by the assessee at the end of the year and there was marginal delay in realizing the receivables from the A.E. The assessee has not engaged in the organized activity of realizing the receivables beyond the due date provided in the invoice. On couple of occasions, there was a delay, hence, argued that there is no case for charging notional interest. The assessee relied on the decision of Motherson Sumi Infotech & Designs Limited Vs. DCIT reported....
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....6 186 4,740,154 31 Mar 2013 8,924,356 02 May 2013 1,341,500 60 32 - - 31 Mar 2013 21 Aug 2013 7,582,856 60 143 83 249,164 Total 4,989,318 Since the invoices were raised on 31.3.2013 and credit period allowed was 60 days, we agree with the Ld. A.R's argument that the notional interest does not accrue or arise in the year under consideration, therefore, the addition made by the A.O. on account of notional interest is unsustainable as per the system of accounting followed by the assessee. The assessee is following the mercantile system of accounting and the interest accrues only when the debt falls due and the same is remained unpaid. Since the debt do not fall due in the impugned Assessment year, we hold that the interest is neither accrued nor crystalised in the year under consideration. Accordingly, the same is deleted. 12. Even otherwise as observed from the order of the TPO on three occasions, there was a delay of receivables and pointed out by the Ld. A.R. the assessee is not indulged in any systematic or organized activity of allowing the undue credit to the AEs. The assessee relied on the decision of Motherson Sumi Infotech & Designs Limited Vs. DC....
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....t in the case of CIT Vs. Indo American Jewellery Ltd. (supra) squarely apply to the facts of the case. 5.1 Considering the nature of business of assessee and the facts explained above, we are of the view that there was non justification for the authorities below to make adjustment to the income declared by assessee. Recently, the ITAT, I-2 Bench in the case of Terradata India Pvt. Ltd. Vs. ACIT in ITA No.7855/Del/2017 vide order dated 21st February, 2018, following the order in the case of same assessee, in which the decision of Hon'ble jurisdictional Delhi High Court in the case of Pr. CIT Vs. M/s. Kusum Healthcare Pvt. Ltd. (supra) have been relied upon, allowed the appeal of assessee on the similar ground. In view of the above discussion and in the light of various decisions above and facts of the case, we are of the view that the adjustment to the income of the assessee is wholly unjustified on account of interest on receivables. We, accordingly, set aside the orders of the authorities below and delete the entire addition." The department has not made out case of systematic planning of allowing the undue credit to the AE. Further Ld.AR relied on the decision of Pr.CIT vs B....
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....nt to assessment year under consideration, the Assessee has incurred an amount of INR 10,68,138/- incurred towards sponsorship. The break-up of such expenses is summarized in the table below: Sl. No. Name of Party Nature of Event Amount 1 The Financial Times Limited Sponsorship fee paid for conducting the 2nd Financial Times - Yes Bank International Banking Summit held in Mumbai 9,06,338 2 Young Indian National Summit Acting as co-sponsor for conducting 9th Young Indian National Summit held in Delhi 1,61,800 Total 10,68,138 - The Ld. AO disallowed the said expenses on ground that there is no nexus between such expenditure and the business of the assessee. - In this regard, the Assessee would like to submit that said expenses were incurred to sponsor various events that have taken place wherein hoarding of the assessee are displayed, the senior management people of the assessee are invited to address the forum. It may be noted that the advertisements through sponsorship of events are incidental to the business of assessee to promote create public awareness of the company and, therefore, such expenditures are incidental to the business and hav....
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....medabad Trib.) The Hon'ble Tribunal held that the amount paid by assessee as contribution for construction of collector's office was allowable as business expenditure. CIT -vs.- Delhi Cloth & General Mills Co. 119991 240 ITR 9 (Delhi) The Hon'ble Delhi High Court in this case held that expenditure incurred by assessee company for running a football tournament is allowable as revenue expenditure. CIT -vs.- Lake Place Hotels & Motels (P) Ltd. 120071 293 ITR 281 (Raj) The Hon'ble High Court affirmed the view of Tribunal wherein it was held that expenses incurred by the assessee for sponsoring the trophy had the ingredient of advertisement of its business and, consequently, the assessees claim to deduction as expenses wholly and exclusively incurred for the purpose of its business is justified. In view of the above, the Assessee would like to submit that the disallowance made by Ld. A.O. is without considering the facts and is purely based on assumption/presumptions/conjectures and surmises and hence should be deleted." 15. During the appeal hearing the Ld.AR argued that expenses were incurred for the purpose of business and reiterated the submissions m....
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....ake Place Hotels and Motors Pvt. Ltd. 293 ITR 281 (Raj) have also taken the similar view. Therefore, we hold that the sponsorship amount is a business expenditure, which required to be allowed as deduction and accordingly, we delete the addition made by the A.O. and allow the appeal of the assessee. 18. Ground No.4 is related to the legal and professional charges of Rs. 2,41,47,303/-. During the assessment proceedings, the A.O. found that the assessee had incurred legal and professional charges as under: Name of the party Nature of expenditure Amount in Rs. AECOM India (P) Ltd. Fee for conducting feasibility studies for Oka Port 98,47,869 Beckett Rankine India P Ltd. For due diligence of Okha port 32,67,800 Coastal Marine Construction & Engineering Ltd. Geotechnical studies for development of Okha port 81,16,901 Deloitte touché Tohmatsu India P Ltd. Traffic study for development of Okha port 19,30,250 M.K. Soil Testing Laboratory Field work of soil testing for development of Okha port 9,84,483 Total 2,41,47,303 19. A.O. was of the view that the expenditure is capital in nature, hence, proposed to disallow the same. Against the proposal for di....
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....lementing and operations all kinds of projects such as infrastructure and also undertake development execute and implement various projects for itself or for others including subsidiaries. 15. The assessee to carry out the above activities has to indentify the project, thereafter, conduct feasibility study of the project. Further for that purpose assessee has to consult various technical experts such as HOK International Ltd., Zen Energy Consultants Pvt. Ltd. and Consulting Engineers Group Ltd. etc and after obtaining the reports, it has to participate in the bid. Further for this purpose, assessee has incurred legal and professional fees. The Assessing Officer and ld. CIT(A) were of the opinion that it is capital in nature. The ld. CIT(A) has observed that the expenditure incurred by the assessee prior to participation in the bid and allotment of project to enable its subsidiaries/associate companies to bid in the projects. The assessee do not bid for the project, therefore, the ld. CIT(A) was of the opinion that it had not incurred for the purpose of business, but genuineness of the expenditure incurred by the assessee has not been doubted by the authorities below. It is also ....
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....activities carried out by the assessee and the expenses incurred by the assessee, we are of the opinion that the expenditure incurred by the assessee is wholly and exclusively for the purpose of business and it has to be allowed under section 37 of the Act. 16. So far as case-laws relied upon by the learned counsel for the assessee is concerned, in the case of Tamilnadu Industrial Development Corporation Ltd., (supra), the Hon'ble Madras High Court has observed that the assessee corporation having been formed with the main object to finance and promote industrial development through partnership with private enterprises, pre-project expenses written off by the assessee in respect of projects being promoted by it are allowable as deduction. 17. In the case of Kerala State Industrial Development Corporation Ltd. (supra) the Hon'ble Kerala High Court has held that the expenditure incurred in investigation, research and feasibility studies are only revenue expenditure and not capital expenditure. In the case of Tata Robins Fraser Ltd. (supra), the Hon'ble Jharkhand High Court has held that if the expenditure has been incurred for setting up a new unit which was subsequ....
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....ered to tax, but during the assessment proceedings, the assessee sought to withdraw the income offered otherwise than by revised return which is impermissible. The A.O. would not be in a position to entertain a revised claim to reduce the income offered to tax without revised return. Accordingly, rejected the objection of the assessee, and consequent to the DRP's order, the A.O. passed the assessment order without allowing the request of the assessee. 26. Aggrieved by the order of the A.O., the assessee is in appeal before this Tribunal. 27. During the appeal hearing, the Ld. A.R. argued that the assessee did not get any exempt income during the year under consideration. Hence, no expenditure required to be disallowed as per the judicial precedents. During the pendency of assessment proceedings, the assessee has made the claim before the A.O. but the A.O. neither considered the request nor did he give any reason for rejecting the assessee's claim. The Ld. A.R. argued that though the assessing officer is not permitted to entertain the claim of the assessee other than by revised return, Appellate authorities are not barred from taking up the fresh claim made by the assessee during ....
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....on was not imposed by Hon'ble Supreme Court in the case of appellant authority. Thus, it can be concluded that the appellant authority are very much entitled to admit the fresh claim of the assessee which was not made in the income tax return. 8.1 We also find that assessee is entitled to raise additional claim which was not made in its return of income in terms of judgement of Hon'ble Supreme Court in the case of Jute Corporation of India Ltd. (supra) where in it was held that the additional claim of assessee can be admitted by the appellant authority though the same was not made in the income tax return. In the instant case, the deduction was omitted to be claimed by the assessee in its income tax return filed electronically inadvertently. The A.O. has not brought anything on record showing any infirmity in the amount of deduction claim by the assessee by way of filing a separate letter during the course of assessment proceedings. In the background of the above discussions and precedent we do not find any infirmity in the order of Ld. CIT(A0 and accordingly we uphold the same. This ground of Revenue's appeal is dismissed." 28. We have heard both the parties, perused the mate....