TaxTMI 
TaxTMI 
2021 (2) TMI 1013
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....ed by the Ld. Dispute Resolution Panel ('DRP') is a vitiated order, as the Dy. Commissioner of Income-tax, Circle-9(1)(1) ('Assessing Officer' or 'AO')/DRP erred both on facts and in law in making/confirming the addition made by the Ld. AO to the Appellant's income. The Appellant prays that the assessment order passed by the AO be quashed. 2. On the facts and in the circumstances of the case and in law, the Ld. AO / DRP erred in confirming the upward adjustment of INR 22,61,25,615 to the income of the Appellant in respect to the international transaction of freight receipts and expenses. In doing so, the DRP has erred in agreeing with the Transfer Pricing Officer ('TPO') / AO action of: a. rejecting Operating Profit ('OP') to Value Added Expenses ('VAE') ratio selected by the Appellant as the Profit Level Indicator ('PLI'), and instead using OP to Total Cost (TC) ratio as the PLI; b. rejecting economic analysis undertaken by the appellant by disregarding search of comparables undertaken by the appellant by considering OP/VAE as PLI; c. including companies in the compara....
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....urn of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Thereafter, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 4. Observing that the assessee had during the year entered into international transactions with its Associated Enterprise (for short 'AEs') in excess of an amount of Rs. 15 crores, the A.O made a reference under Sec. 92CA(1) of the Act to the Dy. Commissioner of Income-tax (Transfer Pricing)- 1(1)(1), Mumbai (for short "TPO") vide his order dated 11.08.2014 after obtaining approval of the Pr. CIT-9, Mumbai. 5. During the course of proceedings it was observed by the TPO that the assessee had entered into the following international transactions during the year in question : Sr. No. Nature of the Transactions Amount (Rs.) Method adopted Amount Method adopted 1. Freight Expenses 277,37,84,357/- TNMM 257,42,03,615/- CUP 2. Freight Revenue 167,54,23,515/- TNMM 145,82,64,735/- CUP 3. Issue of equity shares 12,57,67,894/- Other Method N.A N.A 4. Reimbursement of expenses 2,62,43,633/- CUP 1,93,47,585/- CUP....
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....inal list of comparables for benchmarking the international transactions of the assessee. The final list of companies that was used by the TPO to benchmark the assessee's international transactions using OP/TC, was as under: Sr. No. Comparable Companies OP/VAE OP/TC 1. SDV International Logistics 14.61% 2.16% 2. Allcargo Logistics Ltd. (Multimodal Segment) 14.82% 3.76% 3. Shreyas Relay Systems Limited 42.66% 6.96% 4. Sical Logistics Limited 82.85% 8.75% 5. Om Logistics Limited 7.82% 7.82% Mean 32.55% 5.89% Assessee's Margin 30.22% 2.54% On the basis of the above the TPO worked out the arm's length price of the international transactions of freight receipts & expenses, as under: Particulars Reference Amount (Rs.) Operating Revenue A 8,79,00,19,390 Operating Cost B 8.57,21,09,721 Operating Profit for the year C = A - B 21,79,09,669 Arm's Length margin (OP/TC) D 5.89% Arm's Length profit E = B* D 58.46,17,883 Arm's Length Revenue F = B + E 9,07,70,06,984 Transfer Pricing adjustment G = A - F 28,69,87,59....
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....ata by the assessee for benchmarking its international transactions. As regards the rejection of OP/VAE as PLI and adoption of OP/TC by the TPO, it was observed by the DRP that the PLI of OP/VAE was a very fragile PLI and in fact one which was mot used earlier in the case of any logistic concern providing freight forwarding services. It was further observed by the DRP that the assessee had made false claims regarding the pass through costs, and thus, the TNMM was based on improper financial and factual data. In the backdrop of its aforesaid observations the DRP was of the view that as the assessee had not benchmarked its international transactions as per the provisions of Sec. 92C(1) r.w.s 92C(3) of the Act, thus, its objection that the A.O could take recourse to Sec. 92C(3) only under the circumstances enumerated in clauses (a) to (d) was not maintainable. .As regards the seeking of inclusion of certain comparables by the TPO viz. (i). Shreyas Relay System Ltd; (ii). Sical Logistics; and (iii) Om Logistics Ltd, the DRP though accepted the objection of the assessee wherein it had sought exclusion of Sical Logistics that was included as a comparable by the TPO, but upheld the inclus....
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....ormal provisions at Rs. 38,35,58,302/- and determined its 'book profit' under Sec.115JB at Rs. 5,73,68,044/-. 9. The assessee being aggrieved with the assessment order passed by the A.O passed under Sec.143(3) r.w.s 144C(13), dated 15.11.2017 has carried the matter in appeal before us. We have heard the authorised representatives for both the parties at length, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought for adjudicating as to whether the A.O/DRP had rightly worked out the TP adjustment as regards the freight segment of the assessee. Ld. Authorised Representative (for short "A.R") for the assessee at the very outset of the hearing of the appeal submitted that the issues involved in the present appeal were squarely covered by the order of this Tribunal in the case of DHL Logistics Private Limited vs. DCIT, Circle 9(3)(1), Mumbai, ITA No. 1030/Mum/2015, dated 20.12/.2019. (copy enclosed). After perusing the orders of the lower authorities in the backdrop of the contentions advanced by the ld. Authorised representatives fo....
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....in. As per the details provided by the assessee, the OP/TC margin of final comparables worked out at 2.36% as against the assessee's OP/TC of 2.54%. However, the TPO after retaining only two comparables (out of 5 comparables) selected by the assessee and further including three new comparables, viz. (i). Shreyas Relay Systems Limited; (ii). Sical Logistics Limited; and (iii). Om Logistics in the final list of comparables, therein determined the mean PLI (OP/TC) of the comparables at 5.89% as against 2.54% of the assessee and made a TP adjustment of Rs. 28,69,87,594/- w.r.t the entire international transactions of the freight segment of the assessee. 11. As observed by us hereinabove, the A.O/DRP had rejected the PLI of OP/VAE adopted by the assessee for benchmarking its international transactions of Freight receipts & expenses and had substituted the same by the PLI of OP/TC. Insofar the validity of the PLI of OP/VAE for benchmarking the international transactions of freight receipts and expenses is concerned, we find, that the said issue had earlier came up before this Tribunal in the case of DHL Logistics Private Limited vs. DCIT, Circle 9(3)(1), Mumbai, ITA No. 1030/Mum/2015,....
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....id services i.e shipping, transportation etc. on its own, then the same would have been liable to be included in its cost. In sum and substance, it was the claim of the ld. A.R that as the aforesaid services are provided to the customers on "as is" basis, therefore, the assesses profits could not be compared on the basis of such costs, which in fact are pass through costs. It was submitted by the ld. A.R, that the services of a logistics service provider could only be measured on the basis of the adequacy of its gross margin over the value added expenses so incurred by it. Accordingly, it was the claim of the ld. A.R that applying PLI of OP/TC would mean that the assessee was expected to earn a return on such third party/direct costs despite the fact that it was not performing any of the functions therein involved. On the basis of his aforesaid contentions, it was claimed by the ld. A.R that a comparison of the margin of the assessee in the backdrop of its Value Added Expenses as against that of its comparables would be the appropriate basis to measure the profitability of its logistics business. It was submitted by the ld. A.R, that a comparison of the returns/margins of the asses....
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....ee was to act as an agent for the various member carriers. As per the 'agreements' the assessee was vested with a limited authority to represent various member carriers while selling the air cargo transportation services to the customers and was bound to adhere to the various terms and conditions imposed by the member carriers. In sum and substance, it was the claim of the ld. A.R that the conduct of the assessee at all times was governed by the carriers. Also, as per the terms of the 'agreement' the assessee was bound to represent itself as an "agent" in all its communications viz. letterheads, telephone listings, office signs etc. with the customers, and was specifically prohibited from representing or projecting itself as a "Principal". Further, the 'agreement' also provided for indemnification of the assessee by the member carrier in the event of a loss/damage arising in the course of transportation pursuant to the sale made by the assessee. As such, it was the claim of the ld. A.R that the assessee did not assume any risks while undertaking its business. In order to fortify his aforesaid claim the ld. A.R had drawn our attention to the "house airway bill" that was issued by th....
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....uit for the supply of the goods by the manufacturers in the territory of the distributor. On the basis of his aforesaid observations, it was submitted by the ld. D.R that the assessee in the field of logistics management had not merely facilitated the delivery of the consignments, but had in fact carried out part of the activities related to delivery of goods from one place to another. It was further submitted by the ld. D.R that the assessee assumed the entire responsibility, whether those were the goods received from the customer or from its AE, for delivery of the same to the consignee. Also, it was submitted by the ld. D.R that the assessee guaranteed proper, timely and safe delivery of the goods, as well as provided the details of current status of the goods to the client. Apart from that, it was averred by the ld. D.R that the assessee was responsible for managing the goods and handling complaints in case of loss/misdelivery of goods. On the basis of his aforesaid contentions, it was the claim of the ld. D.R that as the assessee in its field of logistic management was rendering functions by assuming responsibility for proper, safe and timely delivery of goods, providing detai....
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....(Air) and Destination Charges ('DC'). • DHL AE invoices and collects from DHL India the OC and Freight. Only DC is considered as revenue for DHL India. • Given that the actual amount of OC and Freight (Air) agreed between the Shipper and DHL AE are merely collected by DHL India from the consignee and passed on back to back basis to DHL AE, the OC and Freight (Air) are netted off in the Profit & Loss Account of DHL India i.e the assessee. (b). Inbound Collect - Ocean Shipments : • The Shipper (outside India) hands over the consignment to DHL AE to forward the same via ocean to the consignee in India. DHL AE takes the assistance of DHL India for the same. • DHL AE negotiates the terms of the transaction with the Shipper. In this case, the consignee pays for the freight (ocean). • DHL India invoices and collects from the consignee the OC, Freight (ocean) and the DC. Freight and DC are considered as revenue for DHL India. • DHL AE invoices and collects from DHL India the OC and Freight (ocean). (c). Inbound Prepaid : • The Shipper (outside India) hands over the consignment to DH....
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....e available to a normal exporter or importer. TPO observed, that the assessee group in anticipation of the expected shipments would book cargo spaces in bulk around the world at the competitive rates so offered to them by the shipping companies. The TPO held a conviction that the assessee after making bulk bookings with the carriers would enter into bargains depending upon the time, space and the paying capacity of the client. It was observed by the TPO, that though the assessee would collect freight from the customers at an amount in excess of the rate it had negotiated with the shipping company, however, it would issue a "House Airway Bill" of a similar amount of fare and the difference would be collected as handling charges. On the basis of his aforesaid observations, it was concluded by the TPO that the additional amount charged by the assessee from its client would in fact represent the 'mark up' on freight. Accordingly, it is in the backdrop of his aforesaid observations that the TPO had concluded that the handling charges which were charged by the assessee varied from customer to customer because they were dependent upon the 'mark up' on freight which it was obtaining from t....
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.... ALP with reference to the costs, assets, sales etc. of the enterprise in question, i.e the assessee, as opposed to the AE or any third party. In our considered view, the considering of the freight cost of the airlines/ship liners in the total cost base of the assessee had resulted to a distorted picture of the 'net margin' realized by the assessee from its international transactions. Our aforesaid view is fortified by the order of the ITAT, Mumbai in the case of FedEx Express Transportation and Supply Chain Services India Pvt. Ltd. Vs. Dy. CIT, Range 8(1), Mumbai [ITA No. 435/Mum/2014; dated 10.12.2014]. In the said case, it was observed by the Tribunal that the payment made by the assessee to the third party for and on behalf of the AE which had been reimbursed by the AE, could not have been included in the total costs of the assessee for the purpose of determining its profit margin. Also, the Hon'ble High Court of Delhi in the case of LI and Fung India Pvt. Ltd. Vs. CIT (2014) 361 ITR 85 (Del), had observed, that for applying the TNMM the assesse's net profit margin realised from the international transactions had to be calculated only with reference to the cost incurred by it a....
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....aid claim, the ld. A.R had drawn our attention to a sample "house airway bill" (Page 813- 817 of 'APB') that was issued by the assessee to its customer which revealed that the assessee had executed the same as an agent of the carrier. Also, we find that the functions (carriage of goods) and liabilities (indemnification of the loss etc.) assumed by the assessee vis-a-vis the customer (as per its standard terms and conditions) corresponds to those assumed by the carrier vis-à-vis assessee. Accordingly, we are of the considered view that the functions and liabilities were effectively delegated by the assessee to the carrier and no part of the same was effectively assumed by the assessee. On a similar footing, we find that in the case of "ocean business" also the assessee had merely acted as an agent. Further, we find that all the 'agreements' entered into by the assessee with the carriers (under both air and ocean business) were soft block agreements which provided an option to the assessee to cancel the same without incurring any penalty, therefore, no inventory risk was assumed by the assessee. (Page 860 to 865 of 'APB'). As regards the observation of the TPO, that the main c....
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....o the services obtained by the assessee from the third parties viz. shippers/airliners, clearing and forwarding agents, transport service provider etc. neither involved any service element of the assessee nor the assessee had carried any risk or employed any of its assets with respect to the same, therefore, inclusion of the freight cost in the total cost base of the assessee by the TPO was not permissible. We thus are persuaded to subscribe to the claim of the assessee that the TPO/DRP were in error in rejecting the PLI of OP/VAE adopted by the assessee and substituting the same by PLI of OP/TC. As such, we herein restore the matter to the file of the A.O/TPO for the purpose of benchmarking the international transactions of the assessee by adopting the PLI of OP/VAE. Grounds of appeal Nos. 1, 3.1 and 3.2 are allowed in terms of our aforesaid observations." As the issue involved in the present appeal remains the same as was there before the Tribunal in the aforesaid case, therefore, concurring with the view therein taken we respectfully follow the same. Accordingly, we herein observe that as no infirmity did emerge from the adoption of the PLI of OP/VAE by the assessee for bench....
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....P in accordance with Chapter X of the Act and in particular Section 92A & 92B of the Act, requires that the transfer pricing adjustment is to be done only in respect of the transactions entered into between the assessee with its AEs and not with the non-AEs. Further, support was drawn from the order of the Tribunal in context of the aforesaid issue in the case of DHL Logistics Private Limited vs. DCIT, Circle 9(3)(1), Mumbai, ITA No. 1030/Mum/2015, dated 20.12.2019. 14. Per contra, the ld. D.R relied on the orders of the lower authorities. 15. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the ld. A.R to drive home his aforesaid contention. Admittedly, a TP adjustment envisaged in Chapter X is only in respect of the international transactions of the assessee with its AEs and cannot be extended to the transactions entered into by the assessee with the independent unrelated third parties. Insofar the aforesaid settled position of law as had been so canvassed by the ld. A.R before us is c....
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....l list of comparables, the DRP, though found favour with the contentions advanced by the assessee as regards one of the comparable, viz. Sical Logistics and excluded the same from the final list of comparables, but upheld the inclusion of the remaining two companies in the final list of comparables by the TPO//DRP, viz. (i). Shreyas Relay System Ltd; and (ii). Om Logistics Limited. As regards the declining on the part of the TPO for inclusion of two companies in the final list of comparables as was sought by the assessee, viz. (i). TKM Global Logistics Limited; and (ii). Hindustan Cargo Limited, it was observed by the DRP that the neither the said companies figured in the TP study report nor any request for including the same in the final list of comparables was made by the assessee before the TPO. As observed by us hereinabove, the DRP observed that even the order of the TPO was silent on inclusion/exclusion of the aforesaid two concerns in the list of comparables. As such, in the absence of any reference of the aforesaid two comparables in the order of the TPO or in the TP study report, the DRP declined to entertain the aforesaid claim of the assessee. 17. In the backdrop of t....
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....ummarily accepted on the very face of it. However, in all fairness and in the interest of justice we restore the issue to the file of the A.O/TPO for reconsidering the assessee's claim for exclusion of the aforesaid two companies from the final list of comparables, viz. (i). Shreyas Relay System Ltd; (ii).Om Logistics Ltd. Needless to say, the A.O/TPO shall in the course of the 'set aside' proceedings afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate its aforesaid claim. 18. Resultantly, the appeal of the assessee is allowed in terms of our observations recorded hereinabove. AY: 2014-15 ITA No. 6679/Mum/2018 19. We shall now take up the appeal of the assessee for A.Y. 2014-15, wherein the assessee had assailed the impugned order on the following grounds of appeal before us: "Each of the grounds and/ or sub-grounds of the appeal are independent and without prejudice to the others. 1. On the facts and in the circumstances of the case and in law, the Assessment Order passed in pursuance to the directions issued by the Ld. Dispute Resolution Panel ('DRP') is a vitiated order as the DRP erre....
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.... the income. The Appellant craves leave to alter, amend or withdraw all or any of the grounds herein or add any further grounds as may be considered necessary either before or during the hearing." 20. Briefly stated, the assessee company had e-filed its return of income for A.Y. 2014-15 on 30.11.2014, declaring its total income under the normal provisions at Rs. 13,65,20,320/- and 'book profit' u/s 115JB at Rs. 5,58,32,198/. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 21. Observing that the assessee had during the year entered into international transactions with its Associated Enterprises (for short 'AEs') in excess of an amount of Rs. 15 crores, the A.O made a reference under Sec. 92CA(1) of the Act to the Dy. Commissioner of Income-tax (Transfer Pricing)- 1(1)(1), Mumbai (for short "TPO") vide his order dated 23.08.2016 after obtaining approval of the Pr. CIT-9, Mumbai. 22. During the course of proceedings it was observed by the TPO that the assessee had entered into the following international transactions during the year in question : Sr. No. Nature of the Transactions Amount (Rs.) Meth....
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....he international transactions of freight receipts and expenses were at arm's length. However, the TPO picked up only five comparables (out of the aforesaid) in the final list of comparables for benchmarking the international transactions of the assessee. The final list of companies that was used by the TPO to benchmark the assessee's international transactions using OP/TC was as under: Sr. No. Comparable Companies OP/VAE OP/TC 1. SDV International Logistics 23.50% 3.07% 2. All cargo Logistics Ltd. (Multimodal Segment) 4.84% 3.65% 3. Shreyas Relay Systems Limited 11.30% 2.78% 4. Sical Logistics Limited 53.69% 5.32% 5. Om Logistics Limited 28.21% 8.95% Mean 24.31% 4.75% Assessee's Margin 23.50% 2.25% On the aforesaid basis the TPO worked out the arm's length price of the international transactions of freight receipts & expenses, as under: Particulars Reference Amount (Rs.) Operating Revenue A 7.71,94,29,587 Operating Cost B 7,54,92,49,249 Operating Profit for the year C = A - B 17,01,80,338 Arm's Length margin (OP/TC) D 4.75% ....
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....n of OP/VAE as PLI and adoption of OP/TC by the TPO, the DRP relying on its view that was taken in context of the issue under consideration while disposing off the objection of the assessee for A.Y 2013-14 observed, that the PLI of OP/VAE was a very fragile PLI and in fact one which was not used earlier in the case of any logistic concern providing freight forwarding services. It was further observed by the DRP that the assessee had made false claims regarding the pass through costs, and thus, the TNMM was based on improper financial and factual data. In the backdrop of its aforesaid observations, the DRP was of the view that as the assessee had not benchmarked its international transactions as per the provisions of Sec. 92C(1) r.w.s 92C(3) of the Act, thus, its objection that the A.O could take recourse to Sec. 92C(3) only under the circumstances enumerated in clauses (a) to (d) was not maintainable. As regards the declining on the part of the TPO to include in the final list of comparables 5 companies as was sought by the assessee, viz. (i). First Flight Couriers Ltd; (ii). Overnite Express Ltd; (iii). Hindustan Cargo Ltd; (iv). TKM Global Logistics Ltd; and (v). TVS Logistics....
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....grieved with the assessment order passed by the A.O under Sec.143(3) r.w.s 144C(13), dated 28.09.2018 has carried the matter in appeal before us. As regards the claim of the assessee that the TPO/DRP had erred in rejecting the assessee's PLI of OP/VAE for benchmarking its international transactions of freight receipts and expense and substituting the same by OP/TC, we find that as the facts and the issue leading to the controversy in question for the year under consideration remains the same as were there before us in the assessee's own case for the immediately preceding year i.e A.Y 2013-14 in ITA No. 7199/Mum/2017, thus, our order therein passed in context of the said issue shall apply mutatis mutandis for the purpose of disposal of the present issue for the year under consideration. Accordingly, in terms of our observations recorded in context of the issue in question while disposing off the assessee's appeal for A.Y 2013- 14 in ITA No. 7199/Mum/2017, we herein direct the A.O/TPO to benchmark the international transactions of freight receipts and expenses by taking TNMM as the most appropriate method and PLI of OP/VAE. 27. We shall now deal with the grievance of the assessee ....
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....t the assessee could not establish that the capital advance was made out of the interest free funds, the A.O, held a conviction that the interest bearing loan funds were diverted by the assessee for the purpose of acquiring capital assets. In the backdrop of his aforesaid deliberations the A.O vide his draft assessment order passed u/s 143(3) r.w.s 144C(1), dated 19.12.2017 proposed to disallow interest expenditure of Rs. 2,67,72,000/-. On objections filed by the assessee with the DRP, it was observed by the panel that the assessee in order to impress upon it that no part of the interest expenditure w.r.t the borrowed capital was liable to be disallowed had for the very first time filed detailed submissions before it. It was noticed by the DRP that the A.O had only made disallowance in respect of capital advance for Bhiwandi land and not in respect of other similar advances. Adverting to the 'proviso' to Sec. 36(1)(iii) of the Act, it was observed by the DRP that interest paid in respect of capital borrowed for 'acquisition of an asset' was to be disallowed for the period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which s....
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....addition/disallowance of Rs. 3,49,61,654/- u/s 36(1)(iii) in the hands of the assessee company. 30. Aggrieved, the assesee has assailed before us the addition /disallowance of interest expenditure of Rs. 3,49,61,654/- made by the A.O u/s 36(1)(iii) of the Act. Mr. Ketan Ved, the ld. A.R for the assessee appellant assailed the disallowance of interest expenditure u/s 36(1)(iii) by the A.O/DRP. It was submitted by the ld. A.R that the A.O while passing the final assessment order under Sec. 143(3) r.w.s 144C(13), dated 28.09.2018 had failed to appreciate the directions of the DRP in the right perspective. It was the claim of the ld. A.R that as the capital advances/investments in the respect of the lands/properties in question were made by the assessee in the years prior to those in which the interest bearing loans were raised, and the assessee at the relevant point of time on all such occasions when the respective advances were given had sufficient self owned funds, therefore, in the absence of any nexus between the interest expenditure and the capital advances/investments in question no disallowance of any part of the interest expenditure was called for under Sec. 36(1)(iii) of t....
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....l advances of Rs. 29,13,47,120/- that were made by the assessee with respect to the various properties, as under : Location F.Y. during which payment of advance was made Closing balance as on 31.03.2014 (in Rs.) Bhiwandi F.Y. 06-07 to 09-10 22,30,97,120 Ahmedabad F.Y. 07-08 & 08-09 3,50,00,000 Pune Wagholi-II F.Y. 09-10 & 11-12 1,22,60,000 Panvel F.Y. 08-09 2,10,00,000 Total 29,13,47,120 As the assessee had failed to disprove the existence of any one-to-one nexus between the capital advances and the interest expenditure, the A.O, thus, had made a disallowance under Sec. 36(1)(iii) of Rs. 3,49,61,654/- (12% of Rs. 29,13,47,120/-) and added the same to the total income of the assessee. 33. We have deliberated at length on the issue under consideration and perused the orders of the lower authorities as well as considered the contentions advanced by the ld. A.R before us. On a perusal of the orders of the lower authorities, we find that it is and always had been the claim the assessee that the respective capital advances/investments in the properties in question were made much prior to raising of the interest bearing lo....
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....nstructing a warehouse. Given that JPMPL had committed several breaches of contract, the assessee entered into arbitration proceedings against JPMPL seeking specific performance of the contract that was entered into. On 9 November 2017 the arbitrator passed the award that JPMPL was required to convey the land measuring 32.06 acres and handover quiet, vacant and peaceful possession of the property to the assessee. Detail of payment of the advance are mentioned in the attached award dated 9 November 2017. It is evident that the payment of advance towards land at Bhiwandi was made long before the loans existing as on 31 March 2014 were taken. Towards land at Ahmedabad The assessee company entered into a Memorandum of Understanding ("MOU") dated 22 December 2008 with Mr. Shrikant Kulkarni as a mediator to purchase land from farmers at Aslali, Ahmedabad. As per the addendum to the MOU (Enclosed at page 120 to 124 of the compilation), payment of Rs. 3,50,00,000 was made during the financial year 2007-08 and 2008-09 as advance towards purchase of the land as follows: Sr. No Date Amount (Rs.) 1 14 May 2007 10,00,000 2 6 December 2008 1,....
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.... is also placed on the jurisdictional Tribunal decisions on this issue. The assessee company would further like to point out that the debt equity ratio during the period when the advances were made was in the range of 0.226:1. Hence, the assessee company had adequate own funds for the purpose of making advances and did not need to utilize borrowed funds for this purpose. Based on the above submissions, your goodselves would appreciate that there is no nexus between the loans taken and advances given. Accordingly, interest ought not to be disallowed under section 36(l)(iii) of the Act." On a perusal of the aforesaid reply, we find that the assessee had stated before the DRP to have made the capital advances/investments in the aforesaid respective properties in the course of its business, which as claimed by it was much prior to the raising of the interest bearing loans/borrowings in question. As can be gathered from the aforesaid reply of the assessee, it is claimed by it that insofar the capital advances of Rs. 22,21,07,120/- towards land at Bhiwandi was concerned, the same were spread over the period 1st April, 2006 to 12th April, 2010 which was much prior to ....
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....s account for the year in question, it was submitted by the assessee before the DRP that the same were taken only w.e.f financial year 2010-11, and thus, had no nexus with the capital advances in question. 34. We have deliberated at length on the issue under consideration and are unable to subscribe to the observation of the DRP that the failure on the part of the assessee to prove that there was no nexus between the capital advances and the interest bearing loans/borrowings justified the disallowance of the interest expenditure u/s 36(1)(iii) of the Act. In the case of CIT (LTU) Vs. Reliance Industries Ltd. (2019) 307 CTR 0121 (SC), we find, that the Hon'ble Supreme Court had observed that when interest free funds available with the assessee are sufficient to meet its investments then, it can be presumed that investments are made from the said interest free funds and hence, no disallowance to the said extent would be called for u/s 36(1)(iii) of the Act. Question of law that was inter alia raised before the Hon'ble Apex Court for its kind consideration read as under : "1. Whether the High Court is correct in holding that interest amount being interest referable to fund....
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....same to the total income of the assessee. At the same time, we also cannot remain oblivious of the fact that the assessee also in the course of the 'set aside' proceedings had failed to place on record any such material which would substantiate its claim that it had sufficient interest free funds to justify the capital advances/investments in question. Be that as it may, on a perusal of the orders of the lower authorities, we hold a strong conviction that the issue as regards the disallowance under Sec. 36(1)(iii) had not been addressed in the right perspective. In the backdrop of the contentions which were advanced by the assessee before the DRP, it prima facie appears that more or less the assessee had been able to drive home its claim that the aforesaid amounts were advanced much prior to raising of the interest bearing loans/borrowings in question, as a result whereof no part of the interest expenditure was liable to be disallowed under Sec.36(1)(iii) of the Act. In sum and substance, the claim of the assessee that at the relevant point of time of giving the capital advances it had with it sufficient self owned funds to justify the same had not fairly been looked into by the lo....