TaxTMI 
TaxTMI 
2020 (3) TMI 799
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 27.01.2016, 10.05.2016 and 19.03.2018. Since, the said grounds could be regarded as argumentative and with a view to place the original as well as the additional grounds together, the appellant files these grounds in a concise form. The Appellant submits that each of these grounds are in the alternative and without prejudice to any of the others: ORIGINAL GROUNDS 1. The CIT(A) erred in upholding the disallowance of a sum of Rs. 60,45,662 being claims settled by the Appellant during the year and ought to have held that the said amount may be allowed as a deduction either as bad debts or as business loss. 2. The CIT(A) erred in upholding disallowance out of payments made to extent of Rs. 34,500. 3.1 The CIT(A) erred in not holding that in any event the Ld. AO had not recorded satisfaction with the correctness of the claim of the appellant in respect of the disallowance under Section 14A and therefore he did not satisfy the condition precedent for application of sub-section (ii) & (iii) of Section 14A and Rule 8D. 3.2 The CIT(A) erred in applying rule 8D of the Income-tax Rules, 1962 (the Rules) for the purposes of computing the amount of disallowance under section....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... exports-foreign - Rs. 4,32,730 f. Repairs and maintenance plant and machinery - Rs. 5,000 g. Repairs and maintenance leased residential premises - Rs. 12,989 ADDITIONAL GROUNDS DT. 27.01.2016 5. That, in the present case, the reference made by the AO to the TPO under section 92CA(I) of the Act for determination of arm's length price was without fulfilling the jurisdictional pre-conditions under the Act especially Chapter X thereof, rendering the transfer pricing order dated 29.01.2008 and the adjustment determined therein in respect of issue of letters of comfort to be illegal and bad in law. 6. That no transfer pricing adjustment with respect to issue of "Letters of Comfort" could be made in the present case, as there was no evasion of tax or shifting of profits from India in respect of the same. 7. Assuming without admitting that the issue of "Letter of Comfort" by the Appellant to the Banks is regarded as an international transaction and it is held that a transfer pricing adjustment is required to be made in respect thereof, computation of such adjustment should be restricted to the amount of credit facility actually utilised by the respective ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cumstances of the case the CIT(A) was correct in law in holding that LoC has no binding force when it morally binds the assessee and the AE and failure to honour this will have widespread repercussions on their business" 4. "Whether on the facts and in the circumstances of the case the CIT(A) was correct in law in holding that LoC can't be treated as equivalent to guarantees merely because they are not enforceable notwithstanding various consequences attached with it in case of failure to honour it" 5. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the AO restored. The appellant craves leave to amend or alter any ground or add a new ground that may be necessary." 3. On service of notice of appeal by revenue, the assessee has filed cross objection raising the following grounds of appeal/in its C.O. The grounds set out hereafter are without prejudice to one another. 1. Transfer pricing adjustment 1.1 The Transfer Pricing Adjustment made by the Assessing Officer is bad in law, illegal and unsustainable on the basis of the following grounds, taken singly or cumulatively, and, therefore, its ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al raised either by assessee or by revenue. 7. Considering the position under the law, since no new facts is necessary to be brought on record, therefore, the additional ground of appeal raised by assessee are admitted for adjudication. 8. At the outset of hearing, the ld. AR of the assessee submits that he is not pressing Ground No. 4, 5, 10 & 11. Considering the contention/submission of ld. AR of the assessee, Ground No. 4, 5, 10 & 11 are dismissed as not pressed. 9. Ground No.1 relates to disallowance of expenditure by way of claims settled. The ld. AR of the assessee submits that this ground of appeal is covered by the decision of Tribunal in assessee's own case for Assessment Year 2004-05 in ITA No. 1009 of 2009 dated 13.08.2015. The ld. AR of the assessee further submits that the ld. CIT(A) followed the order of his predecessor for Assessment Year 2003-04 & 2005-05. The appeal for Assessment Year 2003-04 & 2004-05 has been decided by Tribunal as stated above vide order dated 13.08.2015. Thus, this ground of appeal may be allowed in favour of assessee. 10. On the other hand, the ld. DR for the revenue after going through the order of ld. CIT(A) and order of Tribuna....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ibunal in ITA No. 4976, 4977 & 4978/Mum/2005 vide order dated 26.03.2009 allowed similar claim in favour of assessee. Therefore, considering the decision of Tribunal in assessee's own case for Assessment Year 1996-97, 1997-98 & 1998-99 and decision of jurisdictional High Court, this ground of appeal is allowed in favour of assessee. 16. Ground No.3 relates to disallowance under section 14A. The ld. AR of the assessee submits that the Assessing Officer made addition/disallowance of Rs. 4.5 crore on pro-rata basis. The Assessing Officer also followed the decision of CIT(A)-XXXIII, Mumbai dated 02.01.2006. The ld. CIT(A) affirmed the action of Assessing Officer by following the decision of ITO vs. Daga Capital [(2009) 117 ITD 169 (Mum SB)]. The ld. AR of the assessee submits that it is an admitted position under law that Rule 8D is prospective in nature and cannot be made applicable for Assessment Years prior to A.Y. 2008-09. The ld. AR further submits that in assessee's own case for similar disallowance, the co-ordinate bench in appeal for A.Y. 2000-01, 2001-02 & 2002-03 in ITA No. 3957, 3958 & 3959/Mum/2006 dated 08.06.2012, restricted the disallowance under section 14A to 5% of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ause, the assessee submitted that no adjustment is ought to be made as Letter of Comfort would not represent international transaction within the meaning of section 92B(1). It was further stated that merely an unequivocal statement of intention expressed by assessee not being bilateral, is not a transaction and letter is a private affair between the assessee and the lender/banker (non associate and is not a transaction between two associate). The contention of assessee was not accepted by TPO by taking view that transaction relating to provision for Letter of Comfort and payment of commission for the services by AE to the assessee would fall within the definition in term of international transaction 92B of the Act. The TPO made adjustment of Rs. 8.70 crore on account of issuance of Letter of Comfort. The ld. CIT(A) after appreciating the contention of assessee concluded that issuance of Letter of Comfort does not constitute an international transaction. The ld. CIT(A) appreciated the difference between corporate guarantee and Letter of Comfort. The ld. AR further submits that there is a basic difference between corporate guarantee and Letter of Comfort. In a Letter of Comfort, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of AE of assessee. The TPO has noted the relevant clause of Letter of Comfort in para-3.5.8 of its order, consisting the following undertaking/assurance: a) it would be its endeavor not to permit the AE to enter into liquidation (whether Voluntary or compulsory); b) to enter into an arrangement with its creditors without its liability to the bank and its subsidiary and / or Associated companies being completely discharged; c) the assessee will not dispose off any shares in the AE which would result in its shareholding in the AE being reduced to a minority and non-controlling shareholding without first having received the Bank's written consent or having ensured that the AE's liability to the bank is discharged in full; d) it would be its endeavor that AE at all times has' .adequate financial resources to meet its obligations promptly and it shall be its endeavor that AE will be in a financial position to pay the moneys from time to time due to the bank; e) it would agree not to press for repayment of amounts due to it, in preference to the amounts due by the AE to the bank, from time to time; f) The assessee would f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....00 8,70,62,437.5 R/o 8,70,62,438 24. Before ld. CIT(A), the assessee made elaborate submission and explained the difference between Letter of Comfort within Intra Group as well as the corporate guarantee. The ld. CIT()A) after considering the submission of assessee concluded that by issuing Letter of Comfort to the Bankers of AE, the assessee did not incurred any cost. The issuance of Letter of Comfort by assessee have no bearing on the profit, income or loss as the assessee did not incur any cost or expenditure for issuing such Letter of Comfort and it does not constitute international transaction under section 92B of the Act. The ld. CIT(A) concluded that there is a fundamental between guarantee and Letter of Comfort. Guarantee is a legal enforceable; however, Letter of Comfort is not. We have noted that Hon'ble Karnataka High Court in United Braveries (Holding) Ltd. vs. Karnataka State Industrial Investment and Development Corporation (supra) held that Letter of Comfort merely indicates the appellant's assurance that respondent would comply the term of financial transaction without guaranteeing performance in the event of default. The co-ordinate bench of Trib....