TaxTMI 
TaxTMI 
2021 (4) TMI 768
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....ies engaged in exploration, development and production of oil and gas both in domestic and international markets. The company is also engaged in the ownership and operation of wind turbines for generation of wind power in India. 3. The Assessee had filed the return of income for the Assessment Year 2015-16 electronically on 27.11.2015 admitting a total income of Rs. 126,66,09,760/-. The return filed by the Assessee was processed u/s.143(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). Subsequently, the case was selected for scrutiny under Computer Aided Scrutiny Selection (CASS) and notice u/s.143(2) of the Act dated 22.09.2016 was served on the Assessee. During the previous year relevant to the assessment year under consideration, the Assessee had entered into an international transaction with Associated Enterprises to the tune of Rs. 1018,47,03,207/- and specified domestic transactions to the tune of Rs. 19,32,98,095/-. The case has been referred to the Transfer Pricing Officer [TPO] and thereafter a notice u/s.142(1) of the Act was issued and after following the due procedures, the draft assessment order dated 31.12.2018 was completed and communicated....
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....ge his own obligation. He alternatively submitted that if the Corporate Guarantee is an International Transaction, the rate charged by the Assessing Officer at 1% is higher and submitted that 0.25% may be charged. Further, he relied upon the decision in the case of Asian Paints Limited Vs. Additional Commissioner of Income-Tax, Large Tax Payer Unit (LTU) reported in [2014] 41 Taxmann.com 71 (Mumbai - Trib.). He also relied upon the decision of the Hyderabad Bench of the Tribunal in the case of the Deputy Commissioner of Income-Tax, Circle - 16(1), Hyderabad Vs. Lanco Infratech Limited reported in [2017] 81 Taxmann.com 381 (Hyderabad - Trib.) 7. On the other hand, the learned Departmental Representative has submitted that the Corporate Guarantee given by the Assessee to an AE is an International Transaction and the rate charged by the Assessing Officer at 1% is reasonable and strongly supported the order passed by the Assessing Officer. 8. We have heard both the sides and considered the arguments and had gone through the orders of the lower authorities. 9. In so far as the issue that whether Corporate Guarantee issued by the Assessee to its AEs comes within the definition o....
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.... substantial question of law and it is dismissed." 10. From the above decision of the Hon'ble Mumbai High Court, it is clear that Corporate Guarantee by an entity on behalf of its AEs a subsidiary company is a international transaction. However, while arriving at a rate, the Assessing Officer has taken comparables from commercial banks to at arrive at mean margin of 1.04% and adopted such rate to determine the ALP of corporate guarantee issued by the Assessee. The Hon'ble Mumbai High Court has confirmed the order of the Tribunal wherein the Tribunal estimated the guarantee commission at the rate of 0.50%. We therefore by considering the facts and circumstances of the case, we are of the opinion that we will fix the guarantee commission at the rate of 0.50%. 11. Accordingly, we set aside the order passed by the Assessing Officer and direct the Assessing Officer to adopt at the rate of 0.50% commission on guarantee issued by the Assessee on behalf of its AEs, a subsidiary company. Thus the ground of appeal filed by the Assessee for the Assessment Year 2015 - 2016 is partly allowed for statistical purposes. 12. The third ground of appeal relating to Disallowance of Interes....
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....ed during the year. The interest expenses towards investment in shares are to be capitalized, if the Assessee is not doing share trading business. The Assessing Officer by following the decision of the Hon'ble Jurisdictional High Court in the case of Commissioner of Income Tax Vs Trishul Investments Limited [2008] 305 ITR 434 (MAD) has observed that the interest paid for acquisition of shares would partake character of cost of share and therefore the same was rightly capitalized along with the cost of acquisition of shares. 13. The Assessing Officer further noted that in the Assessee's own case for the Assessment Year 2010 - 2011, the Hon'ble DRP has upheld the Assessing Officer's decision on the same issue, since the facts of the case remain the same, the panel agrees with the findings for the Assessment Year 2010 - 2011 and reaffirms the reasons given by Panel. Considering the above, the objection of the Assessee is not acceptable. The Assessing Officer has further noted that even with the decision of the Hon'ble DRP, this case has been reversed by the Hon'ble ITAT, the addition under this head is made to keep the issue alive, since the appeal of the department is pending befo....
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....er dated 30.11.2018 for the Assessment year 2012 - 2013 and the addition made u/s.36(1)(iii) of the Act has been deleted. 18. He further submitted that the Hon'ble ITAT for the Assessment Year 2010 - 2011 and for the Assessment Year 2011 - 2012 in M.A.Nos.067 & 68/Mds/2017, vide order dated 29.11.2017 in Paragraph No.21 has directed the Assessing Officer to comply with the directions of the Hon'ble ITAT with regard to the relevance of expenditure u/s.36(1)(iii) of the Act. 19. Subsequently, a consequential order has been passed by the Assessing Officer on 04.01.2018 for the Assessment Years 2010 - 2011 and 2011 - 2012, wherein the same issue has been deleted. He further submitted that even for the Assessment Year 2013 - 2014, DCIT finally has passed an order dated 26.03.2019 by allowing the interest expenditure u/s.36(1)(iii) of the Act. 20. The learned Counsel for the Assessee has further submitted that as per the Assessment Order which shows that the addition made by the Assessing Officer is only because the appeal is pending before the Hon'ble High Court and submitted that the issue is squarely covered by the decision of the Coordinate Bench of the Tribunal in the Asses....
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....bunal, the Assessing Officer deleted the addition for the Assessment Years 2010 - 2011, 2011 - 2012 and 2012 - 2013. We find that in ITA No.450/Mds/2017 forAY 2012-13 vide order dated 19.06.2017, the Tribunal has followed the assessee's own case in ITA Nos. 585/Mds/2015 & 267/Mds/2016 for AYs 2010-11 & 2011-12 dated 14.09.2016. For the sake of convenience, the relevant portion of the order extracted by the Tribunal in assessee's own case is extracted as under: "After hearing to both the parties, we are of the opinion that the similar issue was considered by the Tribunal in Assessee's own case in I.T.A.Nos.585/Mds/2015 & 267/Mds/2016 for the Assessment Years 2010-2011 and 2011 - 2012 dated 14.09.2016 wherein the Tribunal held that:- 31. We find that the reliance placed on by the learned Departmental Representative on the judgement of the Madras High Court in the case of Trishul Investments (supra) is misplaced. The main contention of the learned Departmental Representative is that the interest expenditure on borrowings used for investment in wholly owned subsidiary cannot be allowed as deduction u/s.36(1)9iii) of the Act instead it should be added to the cost of in....
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....ee is allowed deduction under section 24 of the Act on account of interest paid on the borrowed funds utilised for acquiring the immovable property. Similarly, when the income is to be computed under the head "Profits and gains from business or profession", the deduction account of interest on borrowed fund is provided under section 36(1)(iii) the Act, where the business assets are acquired out of borrowed funds. At this stage, it may be pertinent to note that depreciation is also allowable as deduction under section 32 in respect of business assets on the cost of acquisition. In determining the cost of acquisition, the interest component after bringing the asset into existence is not taken into consideration as Explanation 8 to section 43 of the Act. If the interest is to be added to cost of acquisition, then the assessee would be entitled to double deduction once under section 36(1)(iii) and the other under section 32 of Act, which is not permissible in view of the decision of the Supreme Court in the case of Escorts Ltd. v. UOI[1993] 199 ITR 43. 31.5 Similarly, when the shares are purchased by way of investment, and the dividend is received in respect of such shares, th....
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....dition. Nowhere in the above observations, the Supreme Court held that the expenditure incurred after the acquisition of asset would be included in the cost of assets. The terminal point is the time when the asset is brought into existence or when the asset is put in a working condition. Therefore, on the basis of the Supreme Court judgment, it cannot be said that expenditure incurred after the asset brought into existence, i.e., after the acquisition of the asset would form part of the actual cost. The Supreme Court laid down the proposition that interest paid on monies borrowed for acquisition of capital asset and to meet expenses connected with its installation etc. and capitalized, has to be added to the cost of asset for the purpose of deprecation. 31.8 Thus in our opinion if the money was borrowed for purchase of shares of subsidiary company for the purpose of acquiring controlling interest and acquisition of such controlling interest was of the business of the assessee and it resulted in promote the business of the assessee as well as helpful to the assessee for having management control over said such subsidiary company, then the interest expenditure shoul....
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....red Rs. 64.00 crores towards professional and consultancy fees. On verification of the details, it is seen that the Assessee has not deducted tax for an amount of Rs. 2,48,46,142/- stating that the TDS is not applicable as expenses incurred outside India (Dubai). For the sake of convenience, the relevant portion is extracted as under: "7. Non-Deduction of TDS for Technical Services rendered: 7.1. It is seen from the financials furnished by the assessee that it has incurred an amount of Rs. 64.00 crores towards Professional and Consultancy Fees. On verification of the details, it is seen that the assessee has not deducted tax for an amount of Rs. 2,48,46,142/- stating that the TDS is not applicable as expenses incurred outside India and paid out India (from Dubai). Sl.No. Name of the Service Provider Amount (in Rs.) 1) Anchor Marine Equipment Co., 530,835 2) Aqualis Offshore Marine Services 318,901 3) Bahwan Cybertech Private Limited 340,062 4) Blue Chip Marine fzc 205,620 5) Bureau veritas 11,17,805 6) Capt. Mark O Carroll 42,34,657 7) Capt. Bernardlesage 9,64,960 8) Moreno & Associates ....
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....Vs Commissioner of Income Tax reported in [2010] 327 ITR 456. He also relied upon the decision of the Hon'ble ITAT, Chennai Benches in the case of the Assistant Commissioner of Income Tax Vs. M/s. M.M. Forgings Limited reported in I.T.A. No.2679/Mds/2014. The Ld. Counsel for the assessee has also submitted that the similar issue has been considered by the Co-ordinate Bench of the Tribunal in assessee's own case for A.Y 2012-13 in ITA No.450/Mds/2017 dated 19.06.2017. 28. On the other hand, the learned Departmental Representative relied upon the order of the lower authorities. 29. In the Assessment Order, the Assessing Officer has noted that the Assessee has paid professional & consultation fee and had not deducted the TDS. The case of the assessee is that the Assessee has made certain payments as consultancy fees to various parties. These services were utilized by the company for earnings from the source located outside India, i.e. for rig and consultancy or for the purpose of business or profession carried on outside India, i.e. Dubai Branch; as such these incomes were not chargeable to tax to non-resident service providers. It is submitted that the Assessing Officer with....
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.... of the Tribunal, set aside the order passed by the AO and remit the matter back to the AO and direct the AO to follow the above decision of the Co-ordinate Bench of the Tribunal in assessee's own case and pass assessment order thereupon. Thus the ground of appeal filed by the Assessee is allowed for statistical purposes. 33. The fifth ground of appeal relating to disallowance for non deduction of tax of payment of drilling services & Management fee: Facts are in brief that in the Assessment Order, the Assessing Officer has noted that on verification of the Profit and Loss account for the year ended 31.03.2015, it is seen that the Assessee had claimed an amount of Rs. 6,67,75,950/- towards 'Drilling Services and Management Fees' under the head 'other expenses'. The Assessee has filed the details in respect of the payment on Drilling Services and Management Fees and by considering the same, the Assessing Officer has held that the payment with regard to Management Fees amounting to Rs. 6,67,75,950/- paid to Haledon International Corporation and Hester Development Inc. attracts the provisions of Section 9(1)(vii) and tax has to be deducted at source of these payments. Acco....
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....the above, we respectfully following the order of Co-ordinate Bench of the Tribunal, we set aside the order passed by the AO and remit the matter back to the AO and direct the AO to follow the above decision of the Co-ordinate Bench of the Tribunal in assessee's own case and pass assessment order thereupon. Thus the ground of appeal filed by the assessee is allowed for statistical purposes. 40. The sixth ground of appeal relating to denial of tax credit u/s. 90 of the Act: Facts are in brief that the assessee has earned interest income of Rs. 8,67,00,000/- from M/s. Aban Holdings Pvt. Ltd. which is a Singapore registered company and withholding the tax of SGD equivalent to INR Rs. 1,12,96,962/- has been deducted by M/s. Aban Holdings Pvt. Ltd. under the Singapore Income Tax Act. The assessee has claimed credit of the same in the return of income. The AO disallowed relief u/s. 90 of the Act amounting to Rs. 1,12,96,962/- which was deducted by Singapore authorities on the interest income from M/s. Aban Holding Pvt. Ltd. under the Singapore Income Tax Act. The assessee has submitted before us that since the income from foreign country of Rs. 8,66,10,040/- was offered to ta....
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..../s 90 of the Act of Rs. 224,67,411/- to the extent of tax payable in India on net income of Rs. 516,93,732/- i.e difference between interest earned from M/s AHPL and interest paid on borrowings made for advancing the loans to M/s AHPL. The Tribunal while adjudicating the grounds, placed reliance on the order of the Tribunal in the case of Bank of Baroda vs CIT in I.T.A.No.2927/Mds/2011 dated 25.7.2014 wherein the Tribunal has given a direction that the income of the branches of the assessee shall also taxable in India i.e it would be included in the return of income filed by the assessee in India and whatever taxes have been paid by the branches in the other contracting states i.e the source country, credit of such taxes shall be given. Thereafter, the Tribunal in this case remitted the issue to the file of the Assessing Officer to decide afresh in the light of the above order of the Tribunal in the case of Bank of Baroda in I.T.A.No.2927/Mum/2011 dated 25.7.2014. Later assessee filed MA in MA Nos. 95 & 96/Mds/2016 stating that the direction given by the Tribunal is not appropriate. Since the assessee has no income from any branches in Singapore, that decision cannot be a....
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....the Assessing Officer has noted the export of goods and services to foreign countries and that are exposed to the vagaries of fluctuations in the Forex market. In order to protect against these vagaries of Forex transaction, exporters are allowed to hedge their risk within the regulatory framework of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000. There are many instruments available to hedge their risk like Forward Contract, Option Contract, Swap Contract and others (Generally termed as Forex Derivatives). These instruments protect the foreign currency receivable of the exporters for the exports in goods and services. These instruments offer protection by allowing the exporters to exchange the foreign currencies received out of exports to Indian rupees in a pre-agreed rate of exchange in future specified date, subject to various terms and conditions that vary according to the type of derivative countries. 46. So far as the facts of the Assessee is concerned, the confirmation submitted by the Assessee showed that the contracts were not settled by actual delivery but by cancellation or premature closure by paying or receiving the differe....
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....intenance and upkeep of the offshore rigs in order to ensure uninterrupted drilling operations. 49. He also submitted that when the entire business of the Assessee runs the risk of foreign exchange fluctuation and hence such losses can be nothing but business losses inextricably linked to the business of the Assessee and submitted that the loss on Forex contracts incurred in the course of business to hedge the foreign exchange exposures be allowed as business expenditure. 50. To support the above argument, he relied upon the decision of the Hon'ble ITAT of Bangalore Bench in the case of M/s. Essilor India Private Limited Vs. The Deputy Commissioner of Income Tax in IT(TP)A. No.190, 176 (B)/2014 for the Assessment Year 2013 - 2014. 51. He also submitted that it is a business decision taken by the Assessee and to protect the interest of the business, he has entered into a Forex contract and subsequently he had suffered some loss. The Assessing Officer cannot say that it is not necessary for the Assessee to enter into such a contract. 52. On the other hand, the learned Departmental Representative strongly supported the order passed by the authorities below. 53. We have ....
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....nd of appeal relating to Disallowance of expenses relates to earning exempt income u/s.14A r.w.R 8D: Facts are in brief that in the Assessment Order, the Assessing Officer has noted that an amount of Rs. 13,82,34,191/- as dividend from mutual funds / shares during the year and claimed the same as exempt u/s.10(34) of the Income Tax Act, 1961. As per the provisions of Section 14A of the Act, no deduction shall be allowed in respect of expenditure incurred in relation to such income which does not form part of the total income. The Assessing Officer has asked the Assessee to clarify as to why the disallowance should not be made u/s.14A r.w.Rule 8D. The Assessee replied that they had not incurred any expenditure in connection with earning exempt income and that the disallowance u/s.14A of the Act is not called for. The Assessing Officer after considering the explanation of the Assessee has noted that the Assessee has incurred an amount of Rs. 93.01 crores as Finance Cost on its borrowed capital during the year. Though the Assessee has claimed that such borrowed funds were not utilized for making investments, it could not clearly establish the same. Funds for a Company come in a com....
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....4A r.w.R 8D of the Income Tax Act, 1961. He has made a disallowance of Rs. 5,35,925/- which is 0.5% of the average investments. 65. On appeal, the Dispute Resolution Panel has modified the order passed by the Assessing Officer and also made one more addition u/s.115 JB of the Act amounting to Rs. 4,73,075/- but according to the Assessee which is not correct as no addition can be made in Section 115 JB of the Income Tax Act, 1961, which is contrary to the decision of the Delhi Special Bench in the case of Vireet Investments, 82 Taxmann.com 415. 66. It is also the case of the Assessee that no disallowance u/s.14A has to be made because the Assessee is having sufficient own funds. However, as for the Assessing Officer, the Assessee is not able to submit the details and substantiate that the borrowed funds are not utilized for the purpose of the business. 67. Thus, we set aside the order passed by the Assessing Officer and remit the issue back to the file of the Assessing Officer to examine afresh, keeping in view the decision of the Delhi Bench Special of the Tribunal (supra), passed order thereupon. Thus the ground of appeal filed by the Assessee is allowed for statistica....
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.... =Rs. 108,61,22,341/- 12.2 It is also to be noted that during the current year the Assessee has reinvested in the shares of the same company in the month of July soon after the sale of investments. 12.3 The dates of sale of shares of M/s. Aban Holdings Private Limited, Singapore in the FY. 2014 - 2015 relevant to the AY.2015-2016 and subsequent investment in the shares of the same company are as under: Sale of Investment in Aban Holdings Private Ltd or Buyback of shares of Aban Holdings Private Limited workings for the FY 2014-15 Rate at which sold Amount of sale Date No. of share sold USD USD 13.06.2014 12,82,051 0.7800 10,00,000 19.06.2014 5,12,821 0.7800 4,00,000 25.06.2014 6,41,026 0.7800 5,00,000 30.06.2014 60,25,641 0.7800 47,00,000 01.07.2014 1,02,56,410 0.7800 80,00,000 Total 1,87,17,949 1,46,00,000 Further investment in the shares of Aban Holdings Private Limited for the FY.2014 - 2015 Date of Investment Explanation No. of shares Amount of USD 14.07.2014 Equity Investment in Wholly owned subsidiary 135,13,513 100,00,0....
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....the Assessee has also not furnished any details in respect of the high cost bank debts being repaid or whether any reconstitution of debts were made. The Assessing Officer has again asked the Assessee as to why such long term capital gain should not be disallowed in the absence of the legitimate undertaking for such a transaction and he is of the opinion that the entire transaction was an arrangement between the associate entities. Again the Assessee has made a detailed submission before the Assessing Officer which is reproduced as under: "We would like to submit that during the year under consideration, M/s Aban Holding Private Limited has bought back the shares from Aban Offshore Limited and accordingly, our company sold 7, SI 7 948 shares at the rate of $0.78 per share, The share price is arrived as per Rule 1JUA of Income Tax Rules, 1962. The company has incurred Long Term Capital Loss of $1,83,33,297 equivalent to INR 1,08,61,22,342/- after claiming index cost of acquisition. A detailed working of Long Term Capital Loss has been enclosed herewith for your kind consideration. Since, the investment in shares was held for more than 2 years and the same were sold....
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....ngs for the Assessment Year 2014 - 2015, the Assessee has not brought to the notice of the Assessing Authority that there was a reinvestment made by the Assessee in the same status of shares during the financial year 2014 - 2015 relevant to the Assessment Year 2015 - 2016. This material fact changes the colour of the transaction in as much as the intention of the Assessee in backing the artificial long term capital loss becomes abundantly clear. Therefore, the comparison cannot be drawn between both the Assessment Years because of the facts pertaining to both the years that are different. 74. In so far as the statement made by the Assessee is that there was a liquidity crisis faced by the Assessee for that the Assessing Officer had noted that no material is placed that shows that the Assessee is facing financial crisis. Accordingly, the Assessing Officer came to a conclusion that the Assessee has undertaken the transaction that is buying and selling of shares of the Assessee's wholly owned subsidiary without any valid reasons and the same is not substantiated by the Assessee by placing relevant materials and not disclosed the real reason behind undertaking such transactions. ....
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....res were again invested by the Assessee in M/s. Aban Holdings Private Limited, Singapore. The Assessing Officer has asked the Assessee as to what is the reason for sale was and what is the reason for subsequent purchases. The Assessee has explained that the Board has taken the decision on 13th November, 2013 to redeem its high cost bank debts. According to the Assessing Officer, there is no reason for buying and selling the shares. In the Assessment Order, the Assessing Officer has further noted that the Minutes of the Meeting were not placed before the Assessing Officer during the course of the assessment proceedings. So far as Assessment Year 2014 - 2015 is concerned, the Assessee has not brought all the details before the Assessing Officer. Therefore, the same cannot be followed for the year under consideration. 80. We find that the Board has taken a decision to buy back the entire shares of M/s. Aban Holdings Private Limited, Singapore, Assessee's wholly owned subsidiary company and that no third party in involved. The transaction is between the Assessee's own sister concern and the Assessee. The Board has taken a decision on 13th November, 2013. As regards to the entire ....
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....e order passed by DRP has to be set aside and the issue has to be remitted back to the A.O. Accordingly, we set aside the order passed by DRP and remit the matter back to the AO to decide the issue afresh keeping in view of the observations made by us. Thus the ground of appeal filed by the Assessee is allowed for statistical purposes. 83. The tenth ground of appeal relating to disallowance of Professional and Consultancy Services: Facts are in brief that in the Assessment Order, the Assessing Officer has noted that the Assessee has claimed a sum of Rs. 1,89,00,000/- under the head professional and consultancy services which was paid to M/s. Emkay Global Financial Services for receipt of services for business strategy. The Assessing Officer has asked the Assessee to furnish the nature of services rendered along with documentary evidences. The Assessee has submitted as under: "The payment is made towards fees for advising on issues relating to business strategy. It is most humbly submitted that during the Financial Year 2014 - 2015, our company was going through difficult business period that had to go for corporate restricting in order to service the liabilities. ....
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....e Hon'ble Supreme Court in the case of India Cements Limited Vs. The Commissioner of Income Tax reported in [1966] 60 ITR 52. 86. Before us, the learned Counsel for the Assessee has submitted that the Assessee has is engaged in the services of M/s. Emkay Global Financial Services Limited towards the business requirements of the Assessee company and therefore the expenses incurred by the Assessee for the purpose of business requirements of the Assessee company and therefore the expenses incurred by the Assessee for the purpose of business and is allowable u/s.37(1) of the Income Tax Act, 1961. 87. The learned Departmental Representative has submitted that the Assessee has not filed any details as to what is the nature of services rendered by M/s. Emkay Global Financial Limited and he strongly placed reliance on the authorities below. 88. The learned Counsel for the Assessee has submitted that the expenditure incurred by the Assessee for the purpose of business is allowable u/s.37 of the Income Tax Act, 1961 and submitted that the Assessee has received consultancy services from M/s. Emkay Global Financial Limited for financial restructuring. It is for the purpose to run the ....