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2019 (6) TMI 31
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....ct"). 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") in ITA no. 6789/Mum/2013 for AY 2007-08, read as under:- 1. "Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 8,91,860/- incurred by the assesses on kavesar Unit for expenses pertaining to kavesar Unit without appreciating the fact that assessee has discontinued its pigment operation at kavesar from 1.4.1999 and this expenditure cannot be treated as expenditure incurred wholly and solely for the purposes of business of the assessee?. 2. "Whether on the facts and in circumstances of the case and in law, the Ld CIT(A) erred in deleting the disallowance of Rs. 77,948/- being depreciation in respect of assets of kavesar factory without appreciating the fact that assessee has discontinued its pigment operation at kavesar from 1.4.1999 and the assets in question were never put to use?. 3. "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary". 3. The grounds of appeal raised b....
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....Associated Concern. b. The learned Commissioner of Income-tax (Appeals) erred in upholding action of the Assessing Officer of confirming the adjustment/addition of Rs. 53,16,420/- on account of notional guarantee fee for which no reference was made by the Assessing Officer to the Transfer Pricing Officer." 4. The brief facts of the case are that the assessee is engaged in the business of manufacturing of paints and varnishes. The AO observed from the earlier year orders that assessee had not continued its pigment operations at Kavesar (Thane) from 01.04.1999. The AO observed that the assessee has however continued claiming expenses incurred with respect to said unit which were incurred under various heads of income to the tune of Rs. 10,37,610/- which stood debited to Profit and Loss Account. Further, the AO observed that the assessee has also claimed depreciation to the tune of Rs. 77,948/- u/s. 32 of the 1961 Act with respect to aforesaid unit. These expenses were also disallowed in earlier years by the AO. The assessee reiterated its submissions as were made in earlier years. The AO disallowed the expenses to the tune of Rs. 10,11,504/- incurred with respect to Ka....
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....h respect to Kavesar unit by learned CIT(A), while assessee on the other hand is aggrieved by disallowance of insurance expenses by learned CIT(A). The Ld. DR has mainly relied on the assessment order passed by the AO, while Ld. Counsel for the assessee submitted that the tribunal has allowed the entire expenses including depreciation and insurance expenses with respect to Kavesar Unit for AY 2004-05 vide order dated 19.03.2018 in ITA no. 212/Mum/2008 for AY 2004-05 by following the decision of tribunal for AY 2003-04 in ITA no. 1525/Mum/2007 and our attention was drawn to para 2.5 of the appellate order dated 19.03.2018 passed by tribunal. Our attention was also drawn to paper book filed by the assessee with tribunal at page 4 wherein detailed note on expenses on Kavesar unit is placed. It is claimed that the assessee company is engaged in manufacture of paints. It has been claimed that Pigments is a basic raw material used for production of paints. The Kavesar Unit at Thane was engaged in manufacturing of pigments which was used by assessee for manufacturing of paints in its factories located at various locations in India. It is claimed that after closure of Kavesar factory all t....
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....as deduction as held by Hon'ble Bombay High Court in the case of Hindustan Chemical Works Ltd. 124 ITR 561. It was also held by the Tribunal that the assets of Kavesar Unit having already entered the block of assets of the assessee, depreciation thereon could not be disallowed on the ground of non-user as the use of block of assets was to be considered and not the use of individual assets. Respectfully following the orders of the coordinate bench of this Tribunal on a similar issue in assessee's own case for assessment year 2000-01 and 2001-02, we delete the disallowance partly sustained by the Ld. CIT(A) on account of various expenses and depreciation in relation to Kavesar unit and allow ground No. 1 of the assessee's appeal." Facts being identical, we follow the above decisions of the Coordinate Bench and allow the 1st ground of appeal." 8. We have observed that this issue is a recurring issue before the tribunal in the case of the assessee. It is also observed that the tribunal in the preceding year AY 2004-05 had held that expenses incurred by the assessee ( including deprecation ) with respect to Kavesar Unit situated at Thane which was lying closed since 01.04.19....
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....eal of the assessee vide appellate order dated 24.09.2013 passed by learned CIT(A), by holding as under: " 5.3 I have considered the facts of the case, submission of the appellant as against the findings / observations of the AO in his order u/s 143(3)/144C(3) of the I.T. Act. The contentions and submissions of the appellant are being discussed and decided here in under: i. The AO has allowed the depreciation @ 60% on the software purchased by the assessee after treating the same as capital expenditure. The appellant argued that the expenses relate to the software for downloading data from SAP system processing and hence relying upon several decisions same was claimed to be revenue in nature. ii. From records I find that identical issue in appellant's own case had come up before Hon'ble ITAT in A.Y. 2003-04 wherein the findings of the AO to allow depreciation @ 60% after holding the expenditure being capital in nature have been upheld. Since the facts are identical, following the same the disallowance made by the AO is upheld. iii. Accordingly, this ground of appeal is dismissed." 11. The assessee being aggrieved by appellate order pas....
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....rious web sites and other online material to different employees of the assessee. It is claimed that this software restricts access to web and it did not create any benefit of enduring nature. It is also claimed that these application software are upgraded in a year time as the old version gets outdated and upgraded versions are required to be purchased again to keep up pace with technological advancement. The details and invoices for these application software are placed in paper book/page 7-12. The AO treated these application software as capital assets and allowed depreciation on rates as prescribed for Computer including Computer Software as prescribed in Appendix-I of the Income-tax Rules, 1962 which was later confirmed by learned CIT(A). We have observed that the tribunal in assessee‟s own case for AY 2004-05 in ITA no. 212/Mum/2008 for AY 2004-05 vide appellate order dated 19.03.2018 has granted relief to the assessee by holding that the expenditure incurred by the assessee toward purchase of application software is revenue in nature and has allowed relief to the assessee by following the decision of Hon‟ble Delhi High Court in the case of CIT v. Amway India Ente....
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....an exempt income by invoking provisions of Section 14A of the 1961 Act to the tune of Rs. 58,15,881/-, which was arrived at after allowing deduction of suo motu voluntary disallowance of expenditure incurred in relation to earning of an exempt income to the tune of Rs. 1,50,725/- u/s. 14A as was made by the assessee.The AO held as under vide assessment order dated 18.02.2011 passed u/s 143(3) read with Section 144C(3) of the 1961 Act:- " 5.4. In view of the above, the disallowance in the case of the assessee has to be made as per Sub-section (2) of Section 14A of the Income Tax Act.. In assessee's case for A.Y.2006-07, the disallowance u/s 14A was computed out as per formula worked out by DRP [Dispute Resolution Panel] on the basis of directions given in the case of Godrej & Boyce Mfg. Ltd [supra]. On the same basis, disallowance u/s 14A for the current year is worked out as below Working of Disallowance u/s.14A: i) Direct Expenditure relating to exempt income - ii) a) Expenditure by way of interest other than (i) above 96,15,000 Value of the investments as on 1st April 1,043,315,111 Val....
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....disallowances of corresponding expenditure debited by the appellant in its P & L A/c, The appellant's initial submission to the AO, that no disallowance should be made as no expenditure has been incurred is not acceptable. Because apart from the direct costs that, may have been incurred in respect of management/employee's salary deciding/ handling this work in the company, there would be costs associated with the infrastructure facilities used for investments, there would be certain direct and indirect expenses relating to such investments, such as expenses relating to portfolio management, supervisory charges, audit charges, taxation and law charges etc. Further there would interest costs of the funds deployed in the investments yielding tax exempt incomes, as the appellant has not been able to clearly establish that it had no interest costs towards the funds deployed for such purposes. It may further be pointed out that the appellant itself had offered disallowance of Rs. 1,50,725/-. Therefore, it cannot be said that there are no costs/expenses attributable to earning of the income which is not forming part of the total income. ii. The appellant has contended tha....
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....i) In a case where the appellant has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely: A X B C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; B = the monthly weighted average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee. C = the average of total assets as appearing in the balance sheet of the assesses, on the first day and the last day of the previous year. iii) An amount equal to one-half percent of the monthly weighted average of the value of investment, income from which does not or shall not form part of total income. " The information as aforesaid together with your say/submission on the proposed disallowance under section 14A be submitted on the date of next hearing. " In response to the above appellant submitted that method adopted by it to....
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....31.03.2006). It was submitted by learned counsel for the assessee that since interest free own funds are much higher than investments made by the assessee, then presumption will apply that the assessee made investments out of own interest free funds available with it. The learned counsel for the assessee relied upon the decision of Hon‟ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Limited (2009) 313 ITR 340(Bom.) and CIT v. HDFC Bank Limited (2014) 366 ITR 505(Bom.) to contend that no interest expenditure can be disallowed as there will be presumption that the assessee made investments out of own interest free funds available with it. The learned counsel for the assessee also submitted that in AY 2004-05 in assessee‟s own case in ITA no. 212/Mum/2008 vide appellate order dated 19.03.2018, the tribunal has upheld the disallowance u/s 14A of the 1961 Act to the tune of 2% of the exempt income. It was prayed that the disallowance u/s 14A be restricted to 2% of exempt income. 17. The Ld. DR on the other hand relied upon the order of the Ld. CIT(A). 18. We have considered rival contention and perused the material on record. We have observed t....
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....of 2% of the total exempt income, by holding as under:- " 5.5 We have heard the rival submissions and perused the relevant materials on record. We are concerned here with the assessment year 2004-05. In M/s Godrej Agrovet Ltd. v. ACIT (ITA No. 1629/Mum/2009) for the assessment year 2005-06, the ITAT 'G' Bench Mumbai restricted the disallowance u/s 14A to 2% of the total exempt income on the reason that Rule 8D of the Income Tax Rules 1962 is applicable only prospectively from AY 2008-09 as held by the Hon'ble Bombay High Court in Godrej and Boyce Mfg. Co. Ltd. v. DCIT (2010) 194 Taxman 203 (Bom). The above decision of the ITAT has been confirmed by the Hon'ble Bombay High Court vide order dated 08.01.2013 in CIT v. M/s Godrej Agrovet Ltd. (ITA No. 934 of 2011). As we are dealing with the assessment year 2004-05, following the above decisions, we direct the AO to restrict the disallowance u/s 14A to 2% of the total exempt income of the assessee, in place of the disallowance made by the AO and the enhancement done by the Ld. CIT(A). Thus the 4th & 5th grounds of appeal are partly allowed." 18.3 We have no reason to take a different view than what was taken by tri....
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....le affirming the order of High Court, has observed that the income was not generated to the extent of Modvat credit or unconsumed raw-material. Merely because the Modvat credit was irreversible credit offered to manufacturers upon purchase of duty paid raw-materials, that would not amount to income which was liable to be taxed under the Act. It is also held that whichever method of accounting is adopted, the net result would be the same. 6. Considering the above, the amount of the un-utilized Cenvat credit could not have been directly added to the closing stock." 6.5.1 Facts being identical, we follow the above decision of the Hon'ble Bombay High Court and delete the addition of Rs. 3,93,57,123/- made by the AO. Thus the 6th ground of appeal is allowed." The assessee is contending that it is following exclusive method of accounting while accounting for cenvat credits. Our attention was drawn to the decision of Hon‟ble Bombay High Court in the case of CIT v. Diamond Dye Chem Limited in ITA no. 146 of 2015 reported in 396 ITR 536(Bom.). 20. The Ld. DR on the other hand relied upon the appellate order of the Ld. CIT(A). 22. We have considered rival con....
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....mining the income chargeable under the head "Profits and gains of business or profession" shall be- (a) in accordance with the method of accounting regularly employed by the assessee; and (b) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation.- For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment.]" The Section 145A of the Act was introduced by the Finance (No. 2) Act,1998 w.e.f. April 1,1999 and starts with a non-obstante clause that notwithstanding anything contained in Section 145 of Act, the valuation of purchase and sales of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be in accordance with the method of accountancy regularly employed by the taxpayer and shall be further adjusted to include....
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.... sold by the enterprise as per current schemes pertaining to sales tax and hence is to be absorbed as part of component of cost by the enterprise while State VAT paid on purchase of raw material from supplier within the State is allowed to be set-off against the VAT/CST payable on sale of finished goods to avoid cascading effect of taxes. 2. The second categories of taxes, duties, cess and fees having bearing on bringing the goods to the place of its location and conditions as on the date of valuation of the goods are known as 'Value Added Taxes'-These Value added taxes were introduced in India in 1986 to avoid cascading effect of taxes with an objective to reduce transaction cost and bring transparency in the system. The scheme allowed setting off of duties paid on procurements of inputs against the duty payable on finished goods manufactured by the enterprise thereby restricting the levy of tax to value addition done by the enterprise in manufacturing the finished goods. The scheme when launched in 1986 was called Modified Value Added tax scheme (popularly known as MODVAT scheme) which allowed credit/set off of duties paid on specified inputs used in manufacture ....
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....or vehicles under Heading No. 87.06. However, credit taken on inputs which were lying in the factory on 16-3-1995 either as parts or contained in finished products lying in stock on 16-3-1995 was allowed. Prior to the 1995-96 Budget, the Central excise/additional duty of customs paid on inputs was allowed as credit for payment of excise duty on the final products, in the manufacture of which such inputs were used. The condition required for the same was that the credit of duty paid on inputs could have been used for discharge of duty/liability only in respect of those final products in the manufacture of which such inputs were used. Thus it was claimed that there was a nexus between the inputs and the final products. In the 1995-96 Budget, the MODVAT Scheme was liberalised/simplified and the credit earned on any input was allowed to be utilised for payment of duty on any final product manufactured within the same factory irrespective of whether such inputs were used in its manufacture or not. The experience showed that credit accrued on inputs is less than the duty liable to be paid on the final products and thus the credit of duty earned on inputs gets fully utilised and ....
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....good as tax paid till tax is adjusted on future goods on the basis of the several commitments which would have been made by the assesses concerned. Therefore, the Scheme sought to be introduced cannot be made applicable to the goods which had already come into existence in respect of which the earlier Scheme was applied under which the assessees had availed of the credit facility for payment of taxes. It is on the basis of the earlier Scheme necessarily that the taxes have to be adjusted and payment made complete. Any manner or mode of application of the said Rule would result in affecting the rights of the assessees. ♦ 6. We may look at the matter from another angle. If on the inputs, the assessee had already paid the taxes on the basis that when the goods are utilised in the manufacture of further products as inputs thereto then the tax on these goods gets adjusted which are finished subsequently. Thus a right accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. Therefore, it becomes clear that Section 37 of the A....
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....the enterprise from the taxing authorities), freight inwards and other expenditure directly attributable to the acquisition. Thus AS-2 which is a mandatory standard requires that duties and taxes paid on purchase are to form part of cost of purchases but other than those duties and taxes subsequently recoverable by the enterprise from the taxing authorities meaning thereby that the cenvat credit of duties and taxes paid on inputs which is recoverable from the revenue authorities by way of set off against the excise duty payable on finished goods manufactured by the enterprise shall not form part of the cost of purchase of the inventories in bringing the same to their present location and condition. Thus, the ICAI stipulated enterprises to follow 'exclusive method' also called as 'net method' of accounting (which in the instant case, the assessee company is also following) whereby the taxes and duties paid which are recoverable from revenue authorities shall not be included in the cost of purchases and in valuing inventories. On the other hand Section 145A of the Act requires following the 'inclusive method' also called as 'gross method' of accounting....
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....clusive method) has been withdrawn with effect from accounting year commencing from 1.4.1999. In view of the above, the adjustments under section 145A will have to be made in all cases where 'exclusive method' is followed. 23.12 In this connection, it is worthwhile to note that the Memorandum explaining the provisions of section 145A inserted by the Finance (No.2) Bill, 1998 states as follows: "Computation of value of inventory. The issue relating to whether the value of closing stock of the inputs, work-in-progress and finished goods must necessarily include the element for which MODVAT* credit is available has been the matter of considerable litigation. In order to ensure that the value of opening and closing stock (bold for emphasis) reflect the correct value, it is proposed to insert a new section to clarify that while computing the value of the inventory as per the method of accounting regularly employed by the assessee, the same shall include the amount of any tax, duty, cess or fees paid or liability incurred for the same under any law in force. The proposed amendment which is clarificatory in nature shall take effect retrospectively from the 1st day of Apri....
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....nbsp; ** 23.22 Section 145A of the Income-tax Act provides that the valuation of purchase and sales of goods and inventory for the purpose of computation of income from business or profession shall be made on the basis of method of accounting regularly employed by the assessee but this shall be subject to certain adjustments. Therefore, it is not necessary to change the method of valuation of purchase, sale and inventory regularly employed in the books of account. The adjustment provided for in this section should be made while computing the income for the purpose of preparing the return of income. Therefore, the recommended method for accounting of VAT will not result in non-compliance of section 145A of the Income-tax Act. 23.23 The adjustments envisaged by section 145A will not have any impact on the trading account of the assessee. In other words both under exclusive method of accounting and inclusive method of accounting, the gross profit in the trading account will remai....
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....as detailed above. The ICAI in view of divergence between AS-2 and mandatory requirements of Section 145A of the Act has stipulated in the guidance note on tax audit at para 23.22 that books of account are to be maintained by the enterprise following 'exclusive method' also called as 'net method', while due to mandatory requirement of Section 145A of the Act while preparing return of income to be filed with Revenue, it is stipulated by ICAI to follow 'inclusive method' also called as 'gross method but the gross profits under both the methods will yield same profits which in any case will not cause any prejudice to the Revenue. The provisions of Section 43B of the Act also protect the interest of Revenue that the taxes, duties, fee and cess payable as at the year end by the taxpayer shall only be allowed as deduction from the income under the Act if the same are actually paid to the credit of Government before the due date of filing of return of income as stipulated u/s 139(1) of the Act. The Excise laws, rules and regulation also requires the records to be maintained in an prescribed manner whereby cenvat credit availed and utilized can be clearly demarc....
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....ons as on the date of valuation of the goods has to be included in the cost of purchase and valuation of the goods irrespective of whether the enterprise is following 'exclusive method' or 'inclusive method' of accounting to satisfy the mandatory requirement of Section 145A of the Act. Similarly, for valuation of finished goods manufactured by the enterprises, the excise duty on finished goods manufactured by the enterprises is to be added to value of finished goods as the excise duty on finished goods is actually paid or incurred by the taxpayer to bring the goods to the place of its location and conditions as on the date of valuation irrespective of whether the enterprise is following 'exclusive method' or 'inclusive method' of accounting. As per Section 145A of the Act as it exists in the statute, the assessee company has to mandatorily prepare its accounts as per 'inclusive method' or 'gross method' to compute profit chargeable to tax in accordance with Section 145A of the Act while filing return of income with the Revenue. Thus as per Section 145A of the Act as it exists in the statute, we hold that the assessee company ....
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....countancy whereby the taxes paid on purchase of raw material are not included in the cost of purchase on the premise that the assessee company is entitled for Cenvat credit on the same to be adjusted against the excise duty liability on finished goods manufactured by the assessee company, while the basic fallacy in contention of the Revenue is that the Revenue is contemplating adding the excise duty paid to the value of closing inventory following the 'inclusive method' also called as 'gross method' and not to the totality of all relevant transactions during the previous year to arrive at a correct income chargeable to tax as per the Act and hence, in our considered view, the 'inclusive method' also called as 'gross method' as mandated by Section 145A of the Act, is to be applied to the totality of all relevant transactions during the previous year to arrive at a correct income chargeable to tax as per the Act and the same cannot be applied in a piecemeal and ad-hoc manner to a few handful chosen and selected transactions as is done by the revenue in the instant case which will lead to distortion of income chargeable to tax which is not permissible u....
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....tilized MODVAT credit had to be included in the closing stock of raw material and work in progress, whereas the excise duty paid on unsold finished goods had to be included in the inventory of finished goods." However, Section 145A of the Act is prospective and does not apply to the AY in question. The Hon‟ble Bombay High Court in the case of Cartini India Limited v. ACIT reported in (2007) 291 ITR 355(Bom.) while adjudicating appeal for AY 1999- 00 held at para 24 that inclusive method while valuing stock is mandatory under new provision as are contained in Section 145A of the 1961 Act, by holding as under: "24. As per the new provisions of section 145A of the Income-tax Act, 1961, the unutilised Modvat credit had to be included in the closing stock of raw material and work in progress, whereas the excise duty paid on unsold finished goods had to be included in the inventory of finished goods. Therefore, the decision of the Commissioner of Income-tax (Appeals) and the subsequent decision of the Tribunal reversing the decision of the Commissioner of Income-tax (Appeals) were only related to unutilised Modvat credit." It is to be noted that Section 145A of the 1....
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.... With a view to mitigating the hardship, it is proposed to amend section 145A to provide that the interest received by an assessee on compensation or enhanced compensation shall be deemed to be his income for the year in which it is received, irrespective of the method of accounting followed by the assessee. Further, it is proposed to insert clause (viii) in sub-section (2) of section 56 to provide that income by way of interest received on compensation or on enhanced compensation referred to in sub-section (2) of section 145A shall be assessed as "income from other sources" in the year in which it is received. This amendment will take effect from 1st April, 2010 and shall accordingly apply in relation to assessment year 1998-99 and subsequent assessment years." Thus, the amendment to Section 145A of the 1961 Act by Finance Act, 2009 w.e.f. 01.04.2010 so far as valuation of inventories was similarly worded as the provision existed vide Finance Act, 1998 wef 01.04.1999. The assessee has heavily relied upon the decision of Hon‟ble Bombay High Court in the case of CIT v. Diamond Dye Chem Limited(supra), wherein Hon‟ble Bombay High Court held t....
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....e concluding, we may mention that, in rejoinder, the learned counsel for the department has brought to our attention section 145A of the Act. He has also invited our attention to the Subsequent Guidance Note issued by the Institute of Chartered Accountants of India on Tax Audit under section 44AB of the Act. It was contended that even the ICAI has subsequently declared that the net/exclusive method adopted by various assessees should be applied with adjustments on account of any tax, duty, cess or fee actually paid or incurred on inputs which should be added to the cost of the inputs if not so added in the books of account. He contended that in the Subsequent Guidance Note, the ICAI once again discussed the above two methods and, in the circumstances, it was urged that the net method followed by the assessee was wrong because the assessee has followed the net method without making any adjustments as required under section 145A. In this connection, we may point of that section 145A was introduced by the Finance (No. 2) Bill 1998. Originally, the Bill contemplated the proposed amendment to apply from 1-4-1986 in relation to the assessment year 1986-87 and subsequent years. H....
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....o. Limited, Japan which is also an AE of the assessee formed a joint venture to take over asset and liabilities of Sime Darby Malyasia Bhd., a Malyasian Company. The new company was formed as Joint Venture Company in Malayasia named Kansai Coating Malayasia Sd. Bhd. with contribution of 55% and 45% shares respectively of assessee and the Kansai Paint Company Limited, Japan for achieving the said purpose of takeover of business assets and liabilities of Sime Darby Malyasia Bhd. The aforesaid new Malaysian Company arranged for a credit facility from RBH Bank Berhad, a Malaysian Bank for its working capital, which was guaranteed by Kansai Paints Company Limited, Japan to the extent of Ringitt Malaysia (RM 24 Million). The Japanese company did not charge any guarantee fee from its Malaysian AE. The assessee company shared the guarantee amount with its Japanese AE to the extent of 55% i.e. in the ratio of its shareholding in Malaysian Company. Thus, the assessee issued letter dated 7th August 2006 wherein it gave counter guarantee of RM 13.2 Million to Kansai Paint Company Limited, Japan its AE. The relevant documents including Board Resolutions are filed by assessee in paper book filed....
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....fit has been availed by Kansai Nerolac Paints Ltd. Japan. However from T.P. angle, the benefit is looked into to its AE which has definitely accrued in the case of Malaysian AE since based on guarantee only, funds, were made available by the bank to it. v. The appellant also asked that the letter given was a voluntary letter issued to the shareholders which is prevalent practice in the commercial world. In this connection it is mentioned that commercial expediency or business needs are not the considerations to be considered under Transfer Pricing regulations. vi. The appellant argued that since it is not in the business of lending and borrowing or giving a guarantee, the amended provision of Sec. 92B would not apply to this case. This contention of the appellant has no force since the definition of international transactions includes lending, borrowing or guarantee. vii. The appellant contended that the letter given was not truly a counter guarantee. In this connection1'it is mentioned that the letter dated 07.08.2006 clearly makes reference to the counter guarantee and hence there is no scope for the assessee to argue otherwise. viii. Furth....
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.... that there is not any actual movement of funds from the assessee and merely counter guarantee is given of which ALP was computed @3% p.a. of the amount of counter guarantee. On being asked by Bench, it was fairly submitted by learned counsel for the assessee that if the aforesaid guarantee given by Japanese AE to Bank in Malayasia devolves owing to default of Malaysian Company with its Bankers, then in that situation the assessee will be liable to pay the aforesaid amount of counter guarantee given by it in favour of its AE in Japan. The assessee relied upon the decision of Mumbai-tribunal in the case of Bombay Dyeing and Manufacturing Company Ltd. v. DCIT reported in (2017) 87 taxmann.com 213(Mum-trib.) and decision of Hyderabad-tribunal in the case of DCIT v. Cyient Ltd. (2018) 91 taxmann.com353(Hyd-trib.) to contend firstly that giving of corporate guarantee to an AE will not constitute International Transaction u/s 92B and secondly that the term "guarantee‟ was inserted in definition of international transaction u/s 92B by Financial Act 2012, w.e.f 01.04.2002 by way of an explanation to Section 92B will only be prospective in nature albeit the explanation was inserted w.....
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....to raise further loans from banks, financial institutions etc. will get reduced as the corporate guarantee will certainly lead to higher debt to equity ratio which will lead to reduction in the capacity of issuer to borrow money from Banks, FI etc which could also lead to higher rate of interests charged by the bankers in case borrower become over leveraged due to higher debts including guarantees issued. Thus, in our considered view, the issue of corporate guarantee by taxpayer in favour of its AE is certainly an international transaction covered by provisions of Section 92B and in our considered view provisions of un-amended provisions of Section 92B duly covered liability created by a taxpayer in favour of its AE which was even by way of non fund based liability such as corporate guarantee issued by taxpayer in favour of AE. Explanation inserted in Section 92B by Finance Act, 2012 w.e.f. 01.04.2002 also clarified the position that guarantees issued by taxpayer in favour of its AE shall also be covered as an international transaction. Section 92B was amended by Finance Act, 2012 w.e.f. 01.04.2012 wherein an Explanation was inserted to clarify the position that international trans....
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....ancing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business; (d) provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service; (e) a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date; (ii) the expression "intangible property" shall include- (a) marketing related intangible assets, such as, trademarks, trade names, brand names, logos; (b) technology related intangible assets, such as, process patents, patent applications, technical documentation such as laboratory notebooks, technical know-how; (c) artistic related intangible assets, such as, literary work....
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....nsistently held that issuance of corporate guarantee by a taxpayer in favour of its AE within meaning u/s 92A is an international transaction which is covered u/s 92B of the 1961 Act. Reference is drawn to decision of Mumbai-tribunal in the case of Piramal Glass Limited v. DCIT reported in (2017) 80 taxmann.com 68(Mum-trib,) and decision of Mumbai-tribunal in the case of Videocon Industries Limited v. DCIT reported in (2017) 79 taxmannn.com 216(Mum-trib.) and there are several other decision of Mumbai-tribunal. We have also noted that recently Hon‟ble Bombay High Court in the case of CIT v. Glenmark Pharmaceuticals Limited reported in (2019) 101 taxmann. com 84(Bombay) had held that ALP of the corporate guarantee can not be determined on the basis of charges as were prevailing for issuance of Bank Guarantee. The Hon‟ble Bombay High Court held that no substantial question arose in this appeal. The Assessment year before Hon‟ble Bombay High Court was AY 2009-10 and it based its decision on its earlier order in taxpayer‟s own case for AY 2008-09, dated 02.02.2017 in ITA no. 1302 of 2014. The order of Hon‟ble Bombay High Court for AY 2009-10, dated 10.1....
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....ances restricted to the commercial banks providing guarantees and did not contemplate the issue of a Corporate Guarantee. No doubt these are contracts of guarantee, however, when they are Commercial banks that issue bank guarantees which are treated as the blood of commerce being easily encashable in the event of default, and if the bank guarantee had to be obtained from Commercial Banks, the higher commission could have been justified. In the present case, it is assessee company that is issuing Corporate Guarantee to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the assessee would make good the amount and repay the loan. The considerations which applied for issuance of a Corporate guarantee are distinct and separate from that of bank guarantee and accordingly we are of the view that commission charged cannot be called in question, in the manner TPO has done. In our view the comparison is not as between like transactions but the comparisons are between guarantees issued by the commercial banks as against a Corporate Guarantee issued by holding company for the benefit of its AE, a subsidiary company. In view of the above discu....
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....h Price of Corporate Guarantee cannot be determined on the basis of comparison with Bank Guarantee and relied upon the decision of its Co-ordinate bench in the case of Everest Kento Cylinder Ltd. v. Dy. CIT [2013] 34 taxmann.com 19 (Mum. - Trib.). Mr. Suresh Kumar, the learned counsel appearing for the Revenue very fairly states that being aggrieved with the above order in M/s. Everest Kento Cylinders Ltd., the Revenue had filed an appeal to this Court raising an identical issue viz. CIT v. Everest Kento Cylinders Ltd. [2015] 378 ITR 57/232 Taxman 307/58 taxmann.com 254 (Bom.). By an the above appeal was not entertained. (b) As no distinction in facts and/or law has been shown to us in this appeal which would warrant taking a different view on this very issue from that taken by this Court in Everest Kento Cylinders Ltd. (supra), we follow the same. (c) Accordingly, question no.(i) as proposed does not give rise to any substantial question of law for the reasons indicated in our order dated 8th May, 2015 in Everest Kento Cylinders Ltd. (supra). Therefore not entertained." The rate of guarantee commission varies depending upon several factors depending upon risk ....