TaxTMI 
TaxTMI 
2021 (2) TMI 666
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.... law, the Ld. Commissioner of Income-tax (Appeals) has erred in setting aside the issue regarding disallowance u/s. 14A read with Rule ("r.w.r") 8D(2)(ii) regarding the disallowance of interest to the file of the Assessing Officer to examine the issue a fresh. The order passed by the Ld. Commissioner of Income-tax (Appeals) is bad in law. 2. On the facts and in the circumstances of the case and in law, the Appellant prays that disallowance u/s.14A r.w.r 8D(2)(ii) regarding the disallowance of interest amounting to INR 9,52,55,812 be deleted. 3. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in setting aside the issue regarding disallowance u/s. 14A r.w.r 8D(2)(iii) regarding the disallowance of administrative expenses to the file of the Assessing Officer to examine the issue a fresh. The order passed by the Ld. Commissioner of Income-tax (Appeals) is bad in law. 4. On the facts and in the circumstances of the case and in law, the Appellant prays that disallowance u/s. 14A r.w.r 8D(2)(iii) regarding the disallowance of administrative expenses amounting to INR 2,68,77,514 be deleted and t....
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....o the extent of exempt income earned during the year." AND "12. The transfer pricing officer [TPO] / Commissioner of income-Tax [CIT(A)] has erred in not considering corporate guarantee charges recovered from its AE (Elsamex SA) amounting to Rs. 3,63,17,590 while making transfer pricing addition of Rs. 2,26,04,671 especially when charges recovered from the AE on account of stand by letter of credit (SBLC) were considered by the TPO when computing disallowances for SBLC given by ILFS Limited. 13. Without prejudice to the above ground, the appellant contends that the excess fees collected from its AE on account of SBLC amounting to Euro 42,951 (equivalent to INR 26,01,051) and on account of Letter of Comfort amounting to Euro 44,716 (equivalent to INR 27,08,026) be adjusted against the alleged addition made of INR 2,26,04,671, thereby restricting the transfer pricing adjustment to INR 1, 72,95,592. 14. The CIT(A) has erred in arriving at the Guarantee Fees charges 3.046% for corporate guarantee provided in foreign currency to its overseas AE (Elsamex SA) when the transfer pricing addition on interest on foreign currency loan to another AE (situated in Si....
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....of the assessee, on the first day and "till last day of the previous year" needs to be disallowed. 3. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in not appreciating that the CBDT circular does not differentiate between investment which have yielded dividend income during the year and investment which may yield divided income. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the Disallowance of club expenses of Rs. 4,79,225/ - without appreciating the case laws relied upon by the AO, wherein it has been held that expenditure on account of payment of club expenses of the assessee company's executives is not an allowable business expenditure. 5. The appellant prays that the order of CIT(A) on the above ground be reversed and that of the assessing be restored. 6. The appellant craves leave to amend or alter any grounds which may be necessary." On a perusal of the aforesaid additional grounds of appeal, we find that the assessee had sought an adjudication of the respective issues therein involved, based on the facts available on record. As no new facts would be required to be....
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.... of Rs. 88,26,166/- as against Rs. 12,21,33,326/- that was offered in the return of income. On a perusal of the records, it was observed by the CIT(A) that the suo motto disallowance under Sec. 14A r.w Rule 8D of Rs. 12,21,33,326/- offered by the assessee in its return of income was comprised of, as under : Sr. No. Particulars Amount 1. U/rule 8D(2)(i) Nil 2. U/rule 8D(2)(ii) Rs. 9,52,55,812/- 3. U/rule 8D(2)(iii) Rs. 2,68,77,514/- Total Rs. 12,21,33,326/- It was observed by the CIT(A) that as against the aforesaid suo motto disallowance of Rs. 12,21,33,326/- offered by the assessee in its return of income, it had in the course of the assessment proceedings sought scaling of the same to an amount Rs. 88,26,166/- under Rule 8D(2)(iii). It was noticed by the CIT(A) that the A.O had declined to consider the aforesaid revised claim of the assessee, for the reason, that as it was not raised on the basis of any revised return of income, the same, thus, in light of the judgment of the Hon‟ble Supreme Court in the case of Goetz (India) Ltd. Vs. CIT (2006) 204 CTR 182 (SC) could not be admitted. However, the CIT(A) drawing support....
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....sustained. As regards the transfer pricing adjustment of Rs. 2,36,59,502/- made by the A.O/TPO in respect of the guarantee/counter guarantee given by the assessee to the various foreign banks and other corporate bodies for and on behalf of its AE, viz. Elsamex S.A, it was observed by the CIT(A) that the TPO in his order had narrated the basis for computing the arm‟s length price. Observing, that the reasoning given by the TPO was more logical and credible as in comparison to a simpliciter reliance placed by the assessee on a letter received from "Credit Analysis And Research Ltd" (for short "CARE"), the CIT(A) finding no infirmity in the transfer pricing adjustment made by the A.O/TPO, thus, confirmed the same. Accordingly, on the basis of his aforesaid observations the CIT(A) partly allowed the appeal of the assessee. 5. Aggrieved, both the assessee and the revenue have assailed the order of the CIT(A) in appeal before us. Adverting to the grievances of the assessee, we find that it had inter alia assailed the order of the CIT(A), on the ground, that the appellate authority instead of accepting its claim for reduction of the disallowance u/s 14A r.w Rule 8D to an amoun....
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....iven by the assessee to the various foreign banks and other corporate bodies for and on behalf of its AE, it was submitted by the ld. D.R that in the backdrop of the claim of the assessee‟s counsel that the TPO/CIT(A) had failed to consider the amount of the bank guarantee charges reimbursed by the AE, viz. Elsamex SA to the assessee company, the matter may be restored to the file of the CIT(A) for fresh adjudication after carrying out necessary verification. 7. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. We shall first deal with the observation of the CIT(A), wherein, he had directed the A.O to consider the assessee‟s claim for reduction of the disallowance u/s 14A r.w Rule 8D to an amount of Rs. 88,26,166/-, as against that suo motto offered by it in its return of income at Rs. 12,21,33,326/-. As noticed by us hereinabove, the A.O was of the view that in light of the judgment of the Hon‟ble Supreme Court in the case of Goetze (Indi....
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....cernible from the records, the assessee in the course of the assessment proceedings had sought reduction of the disallowance u/s 14A on two counts, viz. (a). that the disallowance of interest expenditure offered by the assessee in its return of income U/rule 8D(2)(ii) of Rs. 9,52,55,812/- be reduced to Nil; AND (b). that the disallowance of administrative expenditure offered by the assessee in its return of income U/rule 8D(2)(iii) of Rs. 2,68,77,514/- be restricted to Rs. 88,26,166/-. As observed by the CIT(A), the assessee had sought for reduction of the disallowance u/s 14A on the basis of exhaustive reasons. On a perusal of the assessment order, we find that the assessee vide its letter dated 13.03.2014 filed with the A.O had given multiple reasons for reduction of the aforesaid disallowance u/s 14A, viz. (i) that as per the terms of NHAI the assessee on being awarded a project was compelled to incorporate a separate "Special Purpose Vehicle" (SPV) for executing the project and being a promoter had to invest as equity holder as per the terms of the concessionaire agreement; (ii) that the investments made by the assessee company to the extent of its net worth were out of its own....
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....he revenue does not find favour with us. At the outset, we may herein observe that the judgment of the Hon‟ble High Court in the case of HDFC Bank Ltd. Vs. DCIT (2016) 383 ITR 529 (Bom) pertains to A.Y 2008-09, and the issue before the Hon‟ble High Court was the disallowance made by the A.O in the case of the assessee before them u/s 14A r.w Rule 8D vide his order passed u/s 143(3), dated 22.12.2010. Be that as it may, the principle laid down by the Hon‟ble High Court in its aforesaid judgments was that in a case where the assessee‟s capital, profit reserves, surplus and current account deposits were higher than the investment in tax-free securities, it was to be presumed that investment made by the assessee was out of the interest-free funds available with it and no disallowance was warranted u/s 14A. In our considered view, the CIT(A) had rightly directed the A.O to consider the aforesaid judicial pronouncements in the course of the "set aside‟ proceedings. As regards the claim of the revenue that the CIT(A) was in error in directing the A.O to consider only those investments made in non-subsidiary company which had yielded dividend income for the....
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....aforesaid AE had the requisite funds for carrying out its business activities. Accordingly, to facilitate funding of the AE, viz. Elsamex SA it was submitted by the assessee that it had provided guarantees, Letter of Comfort, SBLC to foreign banks for and on behalf of the said AE. In order to impress upon the lower authorities that the guarantee fees charged to the AE @ 1% was justified, it was submitted by the assessee that it had also recovered from its AE viz. Elsamex SA, the guarantee charges (ranging between 1.25% to 2.60% depending upon the nature of guarantee/letter of comfort/SBLC) of the banks that had issued the guarantee/SBLC in favour of the AE. Accordingly, it was the claim of the assessee before the lower authorities that the total guarantee charges levied on the AE, viz. Elsamex SA ranged between 2.25% to 3.60%. As is discernible from the order passed by the TPO under Sec. 92CA(3), dated 29.01.2014, we find that the assessee for the purpose of benchmarking the aforesaid international transaction of providing guarantee/counter guarantee to the various banks and the other corporate bodies for and on behalf of its AE, had used external CUP to arrive at the arm‟s l....
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....s to the bank, as under: Sr. No. Particulars As per TPO @ 3.046% As charged by assessee Difference Conversion Rate Amount in INR Euro Euro 1. Stand By Letter of Creidt 25,777 68,728 (42,951) 60.56 Nil 2. Letter of Comfort 8,550 53,266 (44,716) 60,56 Nil 3. Corporate Guarantee 5,55,695 1,82,434 3,73,261 60.56 2,26,04,671 Guarantee fee on L/C Given by IL & FS Transportation Networks Limited 5,90,022 3,04,428 2,85,594 2,26,04,671 4. Stand By Letter of Credit Given by IL & FS Limited 81,205 63,787 17,418 60.56 10,54,831 Total Bank Guarantee Fee 6,71,227 3,68,214 3,03,012 2,36,59,502 11. In the backdrop of the aforesaid facts, the solitary contention which had been raised by the ld. A.R before us is that the TPO/CIT(A) had erred in failing to appreciate that over and above the corporate guarantee charges of 1%, the assessee had also recove....
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....A were not considered by the TPO while benchmarking the transaction of providing of guarantee/counter guarantee by the assessee to the various foreign banks and other corporate bodies for and on behalf of its aforesaid AE. It is further stated by the ld. A.R that if over and above the corporate guarantee charges of 1% charged by the assessee to its AE, the aforesaid bank guarantee charges of Rs. 5.67 crores recovered from the AE (which are in the range of 1.25% to 2.6%) are taken into consideration, then, no transfer pricing adjustment would be called for in the hands of the assessee. On being confronted with the aforesaid facts, the ld. D.R fairly submitted that the matter may be restored to the file of the TPO for considering the aforesaid claim of the assessee. In the backdrop of the aforesaid facts, we are of the considered view that as the aforesaid claim was not raised by the assessee before the lower authorities, therefore, in all fairness the matter requires to be restored to the file of the TPO for fresh adjudication after considering the same. Accordingly, we "set aside‟ the issue to the file of the TPO, with a direction to consider the aforesaid claim of the assess....
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....nse as a revenue expenditure is squarely covered by the Judgment of the Hon'ble High Court of Bombay in the case of Otis Elevator Company India Ltd. Vs. CIT (1992) 195 ITR 682 (Bom). In the said case, the Hon‟ble High Court had approved the view taken by the Tribunal that the payment of club membership is allowable as a revenue expenditure. Also, we find, that a similar view had been arrived at by the Hon'ble High Court of Punjab and Haryana in the case of CIT Vs. Patyala Vs Groz Beckert Asia Limited (2013) 351 ITR 196 (P&H) and by the Hon'ble High Court of Karnataka in CIT vs. Infosys Technologies (No.1)(2012) 349 ITR 582 (Kar). Accordingly, on the basis of our aforesaid observations, we are of the considered view that the CIT(A) had rightly allowed the assessee‟s claim for deduction of the club membership fees of Rs. 4,79,225/- as a revenue expenditure. Also, we concur with the observation of the CIT(A) that the rejection of the assessee‟s claim for deduction of club membership expenses by the A.O, de hors any verification on his part that as to whether or not the said expenditure was incurred by the assessee wholly and exclusively in the course of its business,....
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.... Transfer Pricing Officer to examine the issue a fresh. The order passed by the Ld. Commissioner of Income-tax (Appeals) is had in law. 6. On the facts and in the circumstances of the case and in law prevailing on the subject. the Appellant submits that the international transaction of' providing guarantee / counter guarantee to various banks and other corporate bodies for and on behalf of the associate enterprise is at arm's length and no adjustment was required to be made in respect thereof and the stand taken by the Assessing Officer/Transfer Pricing Officer is incorrect and illegal and the Ld. Commissioner of Income-tax (Appeals) ought to have held as such. 7. The Ld. TPO has erred in determination of the arm's length corporate guarantee rate at 2.58% in respect of the guarantee / counter guarantee given/arrange by the Appellant, based on the average corporate guarantee fee rate charged by the commercial banks as against the corporate guarantee issued by the Indian Holding Company to its AE, subsidiary company. The Appellant submits that the said approach is arbitrary, ad-hoc & not justified. 8. On the facts and in the circumstances of the....
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....revious year" needs to be disallowed. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that the CBDT circular does not differentiate between investment which have yielded dividend income during the year and investment which may yield divided income. 4. On the facts and circumstance of the case and in law, the ld. CIT(A) erred in going beyond his power u/s 251(1)(a) by setting aside the case to AO/TPO to conduct fresh benchmarking for determination of arm's length price of fee for corporate guarantee, letter of comfort, standby letter of credit provided to banks on behalf of AE, Elsamex SA, after giving opportunity of being heard to the assessee. 5. On the facts and circumstance of the case and in law, the Ld. CIT(A) erred in directing the AO/TPO to conduct fresh benchmarking for determination of arm's length price of fee for corporate guarantee, letter of comfort, standby letter of credit provided to banks on behalf of AE, Elsamex SA, ignoring the fact that for similar guarantees provided by the assessee on behalf of its AE, Elsamex S.A. in A.Y. 2012-13, the CIT(A) has upheld methodology used by th....
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....respect of the international transaction of providing of guarantee/counter guarantee by the assessee to the various banks and other corporate bodies for and on behalf of its AE, viz. Elsamex SA, it was observed by the CIT(A) that the assessee had explained the basis for charging 1% guarantee fees from the AE, however, the TPO on the basis of the corporate guarantee fee that was charged by the banks, which worked out at 2.58%, had made an adjustment towards the arm‟s length price of the aforesaid transaction under consideration. Observing, that the Hon'ble High Court of Bombay in the case of CIT(A) Vs. Glenmark Pharmaceuticals (ITA No.1302 of 2014) and M/s Everest Kento Cylinder Vs. DCIT (LTU)-1, Mumbai (ITA No. 1042/ Mum/2015), had observed, that for computing the arm‟s length price of guarantee commission, no comparison can be made between guarantee issued by commercial banks as against the corporate guarantee issued by a holding company for the benefit of its AE, as subsidiary company, thus, observed that the comparison made by the TPO was in conflict with the aforesaid orders of the jurisdictional High Court. In the backdrop of the aforesaid facts, the CIT(A) restore....
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....nefit of its AE. In the backdrop of his aforesaid observation, the CIT(A) had restored the issue to the file of the A.O/TPO, with a direction to conduct a detailed transfer pricing analysis after excluding the rates applied by commercial banks, and conduct a fresh benchmarking keeping in view the aforesaid judicial pronouncements of the Hon‟ble Jurisdictional High Court. Finding no infirmity in the aforesaid course of action adopted by the CIT(A), we uphold his order to the said extent. Insofar, the claim of the revenue that the CIT(A) had exceeded his powers under Sec.251(1)(a) by "setting aside‟ the matter to the file of the A.O/TPO for carrying out a fresh benchmarking and determining the arm‟s length price of the guarantee fees, we are unable to concur with the same. On a perusal of the order of the CIT(A), we find that as observed by him, instead of quashing the addition on a mere technical ground i.e a wrong basis of comparison adopted by the TPO, the CIT(A) had in all fairness restored the issue to the file of the A.P/TPO, with a limited direction and a defined line of action for carrying out a fresh benchmarking and determining the arm‟s length pr....