TaxTMI 
TaxTMI 
2019 (4) TMI 1504
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....T (A) erred in upholding the upward adjustment of ALP done by the AO/TPO of Rs. 43,22,478/- in respect of corporate guarantee fees. The appellant prays that the upward adjustment may please be held as bad-in-law and be deleted. (b) On the facts and circumstances of the case and in law, the CIT (A) erred in upholding that corporate guarantee is an international transaction. The appellant prays that the said action taken by Ld. CIT(A) may kindly be deleted. (c) On the facts and circumstances of the case and in law, the Learned CIT (A) erred in disregarding the fact that guarantee was advanced by the appellant as a matter of commercial prudence to protect the business interest of the group. (d) Without prejudice, the Learned CIT (A) erred on facts and in law in upholding the transfer pricing adjustment by confirming the rate of commission on guarantee fee. The appellant prays that the said action taken by Ld. CIT(A) may kindly be deleted. Ground No. 3: (a) On the facts and circumstances of the case and in law, the Learned CIT (A) erred in confirming the addition of Rs. 25,55,509/- in respect of loan and short term business advances given to....
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....irmed the action of the AO. 5. The Ld. AR has relied on the decision of Thomas Cook (India) Ltd. v. Addl. CIT [2016] 69 taxmann.com 443 (Mum. - Trib.) wherein guarantee commission was directed to charge @ 0.5% after having the following observation : "6. We have carefully considered the rival submissions. Be that as it may, the only dispute that the assessee has contested before us relates to the application of the rate of 3% take by the Transfer Pricing Officer to determine the arm's length rate of the international transaction of provision of corporate guarantee on behalf of the associated enterprise. Therefore, we confine ourselves to examine the veracity of the arm's length rate adopted by the income-tax authorities. In the present case, assessee company issued corporate guarantee on behalf of the it's associated enterprise which enabled it's associated enterprise to avail banking facilities from HSBC Bank in Mauritius. The Hon'ble Bombay High Court in the case of Everest Kento Cylinders Ltd. (supra) was considering a somewhat similar situation, where in the matter of guarantee commission fee the adjustment made by the income-tax authorities was ....
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....ct assessee partly succeeds." 6. The Ld. AR also placed on record, order of the Tribunal in assessee's own case in the assessment year 2009-10 dated 31.07.2018 wherein addition on account of corporate guarantee was upheld to the extent of 0.9% after having the following observation: "5. We have considered rival contentions and found that, as discussed in various judgments the rate adopted was in the range of 0.25% - 0.50%. These rates were in case of corporate guarantee whereas in case of assessee, it is issuance of SBLC. Hence, the said rates are not applicable in case of the assessee. We observe that the assessee has been charged a rate of 0.9% by an Indian bank for SBLC. In our view, this is a clear case of internal CUP. Further, in this case, the DR has not raised any objection on adoption of internal CUP of 0.9% p.a. Hence, in our opinion since the internal CUP is available with the assessee, the said rate of commission of 0.9% p.a. should be considered as arm's length rate of commission. Accordingly, AO is directed to compute guarantee fees @0.9%." 7. We have considered rival contentions and carefully gone through the orders of the authorities below as ....
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.... As the facts and circumstances of during the year under consideration are same we direct the AO to restrict the addition on account of interest as per rates applicable to currency in which loan was required to be repaid to the assessee i.e. LABOR rate. 13. Ground No. 4 related to disallowance of Rs. 50 lakhs claimed by the assessee u/s 37(1)of the Act in respect of donation made to Shanti Seva Nidhi. 14. We have heard the rival contentions and found that during the year under consideration the assessee has claimed deduction u/s 37(1) sum of Rs. 50 lakhs in respect of donation made to Shanti Seva Nidhi.Before the lower authorities the assessee had submitted detailed submission as to why such donation made by the assessee was exclusively linked to the business of assessee along with list of employees who had qualified from Shanti Seva Nidhi and were deployed by the assessee. The CIT(A) has dismissed the ground taken by the assessee. The assessee is in further appeal before us. It was argued by the Ld. AR that the appellant company is a manufacturer who exports majority of its finished products. To complete in the international arena, the appellant company has to be up-to-da....
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....of any expenditure u/s 37 lays in the above mentioned three conditions mentioned: 1. Expenditure is incurred wholly and exclusively for the purpose of the business. The word 'wholly' refers to the Quantum of expenditure and the word 'exclusively' refers to the motive, object or purpose of the expenditure. The expression ' for the purpose of the business' is essentially wider than the expression ' for the purpose of earning profits'. 2. Such Expenditure is not in the nature of personal expenditure. 3. Such expenditure is not of Capital in nature i.e. expenses should be of revenue in nature. The word ''Capital" connotes permanency and "Capital Expenditure" is, therefore, closely akin to the concept of securing something, tangible or intangible property, or corporeal or incorporeal right, so that they could be of a lasting or enduring benefit to the enterprise in issue. Revenue expenditure. On the other hand, is operational in its perspective and solely intended for the furtherance of the enterprise. On perusal of the portions highlighted in the pre-conditions for claiming an expenditure u/s 37(1]of the Income Tax A....
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....ilitate obtaining permits which were necessary for carrying on export trade. The Court also held that mere fact that donations were voluntary and some merchants got permits even without making donations is not crucial for determining whether donations constituted business expenditure eligible for deduction under section 37(1) of the Act, because the expression "commercial expediency" is not limited to an existing practice prevailing in any particular trade or business and even if incurring of a particular expenditure may not be supported by any prevailing practices, yet if at the time when the expenditure is incurred, commercial expediency justifies it, the expenditure would be taken to be for the purposes of the business. The above decision of the M.P. High Court has been approved by the Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. v. CIT [1997] 223 ITR 101. 17. Reliance was also placed on the decision of the Gujarat High Court in the case of CIT v. Emtici Engg. Ltd. [2000] 242 ITR 86. In the said case the assessee made a donation of Rs. 2,50,000/- to the Gujarat Cricket Club which was eligible for deduction under section 80G of the Act. The ....
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....ely connected with the business and there must be a direct and intimate connection between the business and the expenditure. An expenditure made by businessman by way of commercial expediency must be an expenditure which has been incurred in the expectation that such payment should directly or indirectly benefit the business of the assessee or facilitate the carrying on the assessee's business. A man's business may he benefited in a number of ways. One of them may be promoting of business relations with whom he has to deal with in the course of his business. In the present case, before us the facts are very clear and faking into consideration the peculiarity of the assessee's business the impugned expenditure which the assessee has admittedly incurred In response to an appeal of the Government of Gujarat, imminently pass through the tests of commercial expediency and having been incurred for the purpose of business, it is to be allowed under s. 37(1) of the Act. " 20. It needs to be appreciated that the donations are made to charitable institutions or funds set up by the government or semi government bodies. As far as donations to charitable institutions are concerne....
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....of such bonds and securities is allowable as business loss. The said decisions of the Orissa High Court and Madras High Court were later approved by the Supreme Court in the case of Patnaik & Co. v. CIT [1986] 27 Taxman 287/161 ITR 365) holding that loss on sale of securities purchased with a view to obtain preferential treatment from the government is allowable as business loss. 22. In view of the above discussion, Ld. AR contended that the donation which are eligible for deduction under section 80G can be claimed as allowable deduction under section 37(1) of the Act as business expenditure. 23. We have considered the rival contentions and carefully gone through the orders of the authorities below we have also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by Ld. A.R. and D.R. During the course of hearing us in the context of factual matrix of the case. From the record we found that the appellants manufacturing facilities are located in Murbad Taluka of Thane District. The said area- Murbad is a backward area as evidenced by the classification under "Group B" of Talukas under Package Scheme of Incentives, ....
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....rocess in manufacturing of appellant's various products viz. drum closures, tubes, scaffolding. The huge advantage of the school is that the readymade trained personnel who are well versed with the skills required for appellant's products are available for recruitment when they pass out of the school. From the record we found that following have been absorbed by the company after completing their courses at Shanti Seva Nidhi - Division Employee Name Drum Closure Hanumanthgouda K. Drum Closure Ravi Shanker Bharti Drum Closure Madhukar Kumar Jha Drum Closure Pooja Nair Drum Closure Naraharisetti Deepak Drum Closure Dhiraj Mukhi Drum Closure Mohammed Faizan Yarn Chandru K. Annigeri Garment Pradeep B. Mallapnavr We observed that the Ld. AO has made the disallowance only on two aspects - 1. Contribution made is voluntary 2. In the original return, the claim was made u/s 80G The above two aspects are completely factual and the appellant doesn't deny the existence of the same. On the contrary, it amply proves that the learned AO has not examined the aspect from the legal point of view. As discussed abo....
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.... a benefit to the assessee's business, has to be regarded as an allowable deduction under section 37(1). The best fit application of the above cases can be found in decision of full bench of Madhya Pradesh High Court in the case of Addl. Commissioner of Income-tax Vs. Kuber Singh Bhagwandas (118 ITR 379) wherein the donation made to Chief Minister Drought Relief Fund was allowed as deduction u/s 37 citing the fact that the assesses made donation as a matter of commercial expediency. Further, we can be placed reliance on the decision of CIT vs Rajasthan Spg &Wvg Mills Ltd. (2005-198 CTR 96 RAJ), wherein the Hon'ble Rajasthan High Court ruled for allowability of expenses which were incurred wholly and exclusively for the business of the assessee as the same was for the benefit and welfare of its employees. The facts of the present case under consideration are smilarto that of the case law quoted above. In the present case, the amount donated by the appellant company was towards employee welfare and also for seeking benefit of securing trained/skilled personnel for appellant's manufacturing division. Therefore, as long as there is some benefit accruing to the ....