TaxTMI 
TaxTMI 
2020 (5) TMI 669
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.... case and against the provisions of law. b) The Ld. DRP/TPO/AO erred in law and facts in making addition of Rs. 2,09,85,206A on account of difference in arm's length fees on corporate guarantee provided by the assessee for loan availed by the AE, secured by Tangible Assets of the AE. The reasons given by him for doing so are wrong, contrary to the facts of the case and against the provisions of law. c) Without prejudice to above, the Guarantee commission charged by bank @ 0.75% to the assessee ought to have been accepted as Internal Cup for the commission charged by assessee to its AE @ 1 %. d) The Ld. DRP/TPO/AO erred in law and facts in making addition of Rs. 96,63,002/- on account of difference in arm's length fees for Corporate Guarantee issued by the assessee for loan availed by AE. The reasons given by him for doing so are wrong, contrary to the facts of the case and against the provisions of law. e) The Ld. DRP/TPO/AO erred in law and facts in making addition of Rs. 25,90,376/- being difference in arm's length fees for Guarantee issued by the assessee for operating lease arrangement provided to the AE. The reasons given by him for doing so are wrong, ....
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....eciate that all the investments held by the assessee are strategic investments in subsidiaries promoted by it to take up its own business in different jurisdictions and not for earning exempt income. Hence disallowance u/s 14A is unwarranted and misplaced. d) The Ld. DRP/A.O erred in law and facts in disallowing interest of Rs. 1,32,85,658/- u/s 36(1)(iii) of Act which is also disallowed u/s 14A resulting in to double disallowance of same expenditure. 4. Addition on account of inclusion of cenvat credit in valuation of Closing Stock - Rs. 92,00,204/- a) The Ld. DRP / AO erred in law and facts in confirming the addition of Rs. 92,00,204/- to total income by adding CENVAT credit to stocks. The reasons given by her for doing so are wrong, contrary to the facts of the case and against the provisions of law. b) The Ld. DRP/ AO ought to have accepted that as per accounting policy consistently followed by the assessee and grossing up purchases, sales and stocks as provided in Section 145A, worked out in Form 3CD, there would be no impact on the taxable income of the year. c) The Ld. DRP / AO erred in law and facts in not following the order of Hon'ble ITAT in A.Y. 2006-....
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....and seamless plastic tubes catering to oral care, cosmetic personal care, pharmaceutical, food and industrial sector. The assessee is one of the entity of Essel Group having its head quarter in Mumbai. The assessee, while filing return of income in its Form 3CEB reported transaction with its associated enterprises (AE) that assessee has given corporate guarantee to its following associate enterprises:- No. Type of Corporate Guarantee provided by the assessee No of guarantees Corporate Guarantee Commission Charged by Assessee to its AE 1 Loans to AE backed by SBLCs 4 The assessee has recovered from its AE the amount of commission charged by Indian bank in relation to SBLC issued 2 Loans to AE backed by tangible assets of guarantee issued by the assessee 4 Out of the four cases, In one case, the assessee has charged 1% commission from its AE, For the three cases, no corporate Guarantee commission has been charged 3 Loans to AE backed by only corporate guarantee issued by the assessee 3 The assessee has charged 1.5% commission from its AE 4 Guarantees for operating lease arrangement for assets provided to AE 3 Out....
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..../ FIs Rate charged Currency Guarantee Amount (Rs) Loan Amount as on 31.03.11 Security Provided 1 Lamitube Technologies Limited, Mauritius SBI Mauritius 1.5% USD 222,975,000 167,231,250 Corporate Guarantee 2 Lamitube Technologies Limited, Mauritius Axis Bank HK 1.5% USD 535,140,000 535,140,000 ESCROW on dividend receipt of LTL Mauritius and Corporate guarantee 3 Lamitube Technologies Limited, Cyprus DBS Singapore 1.5% USD 557,437,500 535,140,000 ESCROW on dividend receipt of LTCL Cyprus and Corporate guarantee Guarantees for operating lease arrangement Sr. No. Name of borrower AE Name of Banks / FIs Rate charged Currency Guarantee Amount (Rs) Loan Amount as on 31.03.11 Security Provided 1 Essel Propack America LLC De Lage Lande Financial Services 1% USD 387,976,500 50,724,262 Charge on machine. Corporate Guarantee for additional comfort 2 Arista Tubes INC -do- NIL USD 379,057,500 54,829,472 -do- 3 Arista Tubes Ltd, UK GE Capital Nil USD 160,943,355 160,943,355 -do- 3. Consequent upon the reference....
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....as intern recover the same from its AE, LTLM. Similarly, Essel Propack America LLC USA (EP USA), which is also a wholly-owned subsidiary of assessee also obtained a bank loan of USD 5000000 from Barclays Bank PLC, Mumbai. The amount outstanding as on 31st March 2011 is USD 4850000 (Rs. 21.63 crore). The bank of assessee, ING Vyasya Bank, Mumbai has issued a SBLC on behalf of the assessee's AE. The assessee's bank ING Vyasya Bank, Mumbai has charged a fee of 1.40% of the guarantee amount to the assessee. The assessee has intern recover the same from its AE, EP USA. The learned AR submitted that in both the above cases, the TPO computed the ALP at 2% and held that the assessee ought to have charged the same to its AEs. The TPO suggested TP adjustment of Rs. 39,17,295/-. On objection before the DRP, DRP directed the AO to consider 0.5% in addition to the reimbursement of 1.25% and 1.40% already received by the assessee as the ALP and directed the TPO to compute the transfer pricing adjustment accordingly. 6. With regard to the loan taken by AE backed by tangible assets, the assessee has charged guarantee commission at 1%, while in other cases the assessee has not charged any guaran....
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....gth commission for giving corporate guarantee. In support of his submission the learned AR of the assessee relied upon the decision of Bombay High Court in CIT versus Everest Kento Cylinders Ltd (378 ITR 57 Bombay) and Zee Entertainment Enterprises Ltd versus ACIT (81 taxmann.com 379) (Mumbai). The learned AR of the assessee finally prayed that in view of the consistent finding of various courts and benches of Tribunal that 0.5% of guarantee amount is the ALP for guarantee commission, in case where the assessee has charged guarantee commission in excess of 0.5% no further transfer pricing adjustment is warranted as the commission charged by assessee is it arm's length price. In case where no guarantee commission had been charged by the assessee, the adjustment made by TPO and upheld by DRP to 2-2.5% of the guarantee amount is not warranted and the adjustment to be restricted to 0.5% of the commission amount. With regard to guarantee given in relation to operating lease taken by AEs , the learned AR for the assessee submits the transfer pricing adjustment ought to be computed on the basis of lease rental outstanding lease and not the aggregate of future lease rental. Because, on def....
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..... Thus, we accept the alternative submission of the ld. AR for the assessee and direct the AO/TPO to recompute the adjustment on account of other guarantee commissions @ 0.5% in additions to the commissions already charged by the assessee. We also accept the submission of learned AR of the assessee that guarantee commission on the operating lease must be computed on the basis of lease rental outstanding only, and not on the aggregate of all future lease rentals. Needless to direct that before fresh computation the TPO /AO shall grant a fair and proper hearing to the assessee. The assessee is also directed to provide the necessary details to the TPO/AO. In the result ground No. 1 of the appeal is partly allowed. 13. Ground No. 2 relates to disallowance under section 14A read with Rule (rwr) 8D. The learned AR of the assessee submits that this ground of appeal is covered in favour of assessee in assessee's own case for assessment year (AY) 2007-08 in ITA No. 1397/M/2017, for a AY 2008-09 in ITA No 4116/M/2013. The learned AR of the assessee further submits that during the relevant. The assessee earned dividend income on foreign subsidiaries of Rs. 16.77 crore which has been offere....
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....ere is no question of stating that without prejudice, the same is disallowable under section 36(1)(iii) of the Act. The learned AR further submits that there is no question of applicability of disallowance of interest expenditure as the reserve and surplus of the assessee are in far excess of the investment made during the year. 17. In his without prejudice submission the ld AR for the assessee submits that since the own fund of the assessee is more than the investment made by the assessee, therefore, there is no question of disallowance under section 36(1)(iii). The learned AR further submits that as on 31st March 2011 the assessee has Share Capital of Rs. 31.31 Crore and the reserve and surplus of Rs. 612.88 Crore. Thus, total interest free funds i.e. surplus were more than Rs. 644 crore. The assessee has made total investment in foreign subsidiary of Rs. 489 crore and in Indian subsidiary of Rs. 78 crore only. In support of his submission the learned AR of the assessee relied upon the decision of Bombay High Court in CIT versus Reliance Utility & Power Ltd (313 ITR 340 Bom), CIT versus Reliance Industry Ltd (410 ITR 466 SC) and HDFC Bank Versus DCIT (383 ITR 529 Bom).s 18.....
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....counting or exclusive method of accounting, it is tax neutral and there would be no addition to the total income. The assessing officer however made adhock adjustment only with respect to closing stock of the assessee and made addition to the total income of Rs. 92,00,204/-. The action of assessing officer was confirmed by DRP. The learned AR of the assessee further submits that similar addition was made against assessee for assessment year 2007-08 and in AY 2008-09, on appeal before Tribunal the additions were deleted by holding that whether the assessee follows inclusive method of accounting or exclusive, the same is tax neutral and therefore no addition to the total income should be made in that count. 22. On the other hand the learned DR for the revenue supported the order of lower authorities. 23. We have considered the submission of both the parties and have gone through the orders of authorities below. We have noted that similar addition was made in assessment year 2007-08 and again in 2008-09. The appeal of AY 2008-09 in ITA No. 4116/Mum/2013 was adjudicated first vide order dated 11th September 2017, wherein similar addition was deleted. Following the order for AY 20....
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....urt in the case of CIT vs. Indo Nippon Chemicals Co. Ltd. 261 ITR 275. Similar view was also taken by the Hon'ble Calcutta High Court in the case of CIT vs. Berger Paints India Ltd. 264 ITR 503. The Hon'ble Bombay High Court in the case of CIT vs. Mahalaxmi Glass Works (P) Ltd. 318 ITR 116 following the Hon'ble Delhi High Court decision in the case of Mahavir Alluminimum Limited 297 ITR 77 held that to give effect to section 145A if there is a change in the closing stock at the end of the year, there must necessarily be a corresponding adjustment made in the opening stock of that year. This does not amount to giving total benefit to the assessee. It would be necessary to compute the true and correct profit for the purpose of the assessment." Facts being identical, we follow the above order of the Coordinate Bench and allow the 2nd ground of appeal." 24. Considering the similarity of fact and the decision of coordinate bench of tribunal on identical issue and respectfully following the same this ground of appeal is allowed. No contrary fact or law is brought to our notice to take other view. 25. Ground No. 4 relates to disallowance of interest of Rs. 2501460/- u....