AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (4) TMI 1408
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....after, passed a draft assessment order dated 30.12.2016. 3. Aggrieved by the adjustments proposed in the draft assessment order, the assessee filed its objections before the Dispute Resolution Panel (DRP). The DRP vide its directions dated 18th September, 2017 disposed of the assessee's objections. Pursuant to the DRP's directions, the AO passed the final assessment order dated 12.10.2017. In the final assessment order, the learned AO made the following adjustments / additions:- Sl. No. Nature of disallowance Amount (Rs.) A. Transfer Pricing 1. Adjustment for interest free loan to Associated Enterprises (AE) 5,48,04,95,014 2. Adjustment towards corporate guarantee fee 1,22,24,28,300 3. Adjustment on purchase of raw materials from Whyte & Mackay 68,60,16,563 B. Corporate Tax 4. Disallowance under section 14A of the I.T.Act r.w.r 8D. 48,04,00,000 5. Disallowance u/s 36(1)(iii) of the Act. 1,40,46,63,276 6. Disallowance of payments for promotion and advertisement expenses. 44,33,55,403 7. Disallowance based on Project Spirits Report 54,49,10,000 As a result, the AO r....
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....39;s overseas business. 1.6. The learned TPO has erred in law and on facts by rejecting the Appellant's contention of commercial expediency merely because a loss was suffered on the disposal, though the same .-' was disposed as per Office of Fair Trade in the United Kingdom. Advances made were Quasi-equity in nature 1.7. The learned TPO/Hon'ble DRP ought to have appreciated that the advances made by the Appellant were in fact quasiequity and accordingly, no interest should be computed on the same. 1.8. The learned TPO erred in holding that the Appellant is camouflaging the transaction which would otherwise not be justifiable as the transactions were routed through more than one subsidiary. Loans were made in earlier years 1.9. The learned TPO has erred in law by imputing notional interest on advances made in earlier years. 1.10. Notwithstanding and without prejudice to the above, the learned TPO/ Hon'ble DRP has erred in imputing interest at rates prescribed by CRISIL for long term debts but should have rather computed the same based on the borrowing rate prevalent in the recipient's country. ....
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....rials from W &M by rejecting the contentions of the Appellant that an effective opportunity of being heard was not provided to the Appellant. Reliance placed on report covering transactions of earlier years 3.2. The Hon'ble DRP erred in not appreciating the fact that the internal report on fund diversion was in relation to the years 2007 and 2008 and there was no inference in the report with respect to the purchase transaction made in FY 2012-13. 3.3. The learned TPO ought to have appreciated that the purchases made during the year were through proper import channels and not diversion of funds 4. Disallowance of expenditure under section 14A of the Income-tax Act, 1961 ('the Act') - Rs. 48,04,00,000 Erred in law by invoking section 14A read with Rule 8D 4.1. The learned AO/ DRP has erred in law while disallowing a sum of Rs. 48.04 crores under section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 ("Rules") merely for the reason that no separate books of accounts are maintained by the Appellant. Erred in law by considering the entire interest expenditure incurred during the year was for making investm....
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....le DRP erred in law and on facts, in not appreciating that investments are made with a strategic intent and not for the purpose of earning dividend income; consequently, such investments fall beyond the realm of section 14A. Exclusion of interest disallowed under section 36(1)(iii) 4.11. Notwithstanding and without prejudice to the above, the learned AO/ Hon'ble DRP has erred in law and facts by considering interest on borrowed funds while computing disallowance under section 14A of the Act, when the subject interest is already a matter of disallowance under section 36(1)(iii) and the interest disallowed in relation to Project Spirit report. Investments arising on restructuring included 4.12. Notwithstanding and without prejudice to the above, the learned AO / Hon'ble DRP erred failed to appreciate that the investments which arose as a result of corporate restructuring and not involving the usage of borrowed funds ought to be excluded for computing disallowance under section 14A. 5. Disallowance of interest payments on borrowing under section 36(1)(iii) of the Act - Rs.140,46,63,276 Erred in law by invoking provisions of....
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....on'ble DRP has erred in relying on the decisions of the Hon'ble Punjab & Haryana HC in the case of CIT v. Abhishek Limited reported in 286 ITR 1 which has been overruled by the Hon'ble Supreme Court in the case of Munjal Sales Corporation reported in 298 ITR 298 5.10. The Hon'ble DRP has erred in placing reliance on the decision of the Kerala High Court in the case of Harrisons Malayalam Limited reported in 25 taxmann.com 546 as the same is distinguishable on facts that in the Appellant' case as the advances were not made out of borrowed funds 5.11. Notwithstanding and without prejudice to the above grounds, the learned AO has erred in computing the amount of disallowance of interest under section 36(1)(iii) of the Act by including non-interest free loans to related parties. 5.12. Notwithstanding and without prejudice to the above grounds, the learned AO has erred in not computing the interest from the date of advancement of loans to related parties/ subsidiaries. 5.13. Notwithstanding and without prejudice to the above grounds, the methodology adopted by the learned AO to disallow interest expenditure is in fact imputing an i....
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.... has erred in law and on facts in disallowing payments made on sales promotion and advertisement expenditures, by treating the same as capital in nature. 7.2. The learned AO / Hon'ble DRP has erred in considering that the incurrence of such expenditure results in enduring benefit to the Assessee and accordingly capital in nature. 7.3. The learned AO / Hon'ble DRP has erred in not observing that the Assessee had already an established brand logo and the expenditures were only incurred towards maintenance of the brand logo by the way of enhanced visibility among the customers. 7.4. The learned AO / Hon'ble DRP has erred in concluding that the payment to the above entity has been incurred for brand promotion and consequently provides an enduring benefit of brand identity. 7.5. The learned AO / Hon'ble DRP has erred in not appreciating the fact that the expenditure was to be incurred on year on year basis and hence purely revenue in nature. The learned AO has erred in law in concluding that the subject expenditure is not allowable under section 37(1) of the Act. 7.6. The learned AO / Hon'ble DRP have erred in law by not a....
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....firming the addition towards interest made by the learned AO by applying the State Bank of India's PLR rate of 14.5% without any basis. 9. Levy of interest under section 234B of the Act - Rs. 181,25,18,840 9.1. The learned AO has erred in computing interest under section 234B which is consequential to the above grounds of appeal. 10. Excess levy of interest under section 234C of the Act - Rs.402,730 10.1. The learned AO has erred in computing interest under section 234C of the Act without appreciating the fact that the same is to be computed on the tax due on the returned income. 11. Short Credit of TDS/ TCS - Rs. 17,23,384 11.1. The learned AO has erred in granting credit of TDS / TCS of Rs. 24,02,13,490 as against the credit of Rs. 24,19,36,874 claimed by the Appellant, resulting in a short credit of Rs. 17,23,384 without providing any reasons for the same. 11.2. The learned AO ought to have appreciated that the TDS/TCS claimed by the Appellant was as per Form 26AS. The Appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at th....
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....ndment made to the definition of the term `international transaction' by the Finance Act, 2012 with effect from 01st April, 2012, the advance made by the assessee would qualify as an `international transaction' and interest is to be imputed on the same. Further, the DRP also upheld the action of the TPO of applying interest at the rate of 14.18% being the SBI PLR. 7.3 Based on the directions of the DRP, the addition in respect of the transfer pricing adjustment of Rs.548,04,95,014 towards interest on loans extended to the AEs was retained by the AO in the final assessment order. 7.4 Aggrieved by the final assessment order, the assessee has raised this issue before the ITAT. The learned AR at the outset fairly submitted that a similar issue had arisen in assessee's case for A.Y. 2012-2013, wherein the Tribunal in IT(TP)A No.489/ Bang/2017 (order dated 29.05.2017) has upheld the view of the TPO / DRP that interest needs to be imputed on the loans in question. However, the Bangalore Bench of the Tribunal directed the TPO to examine the claim of the assessee as to the computation of arm's length price by considering the judgment of the Hon'ble Apex Court in the case o....
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....ang/2017 (order dated 29.05.2020) considered all the arguments and held that TP adjustment on interest free advances is to be made. As regards the computation of TP adjustment based on LIBOR, the Tribunal restored the said issue to the file of AO/TPO with a direction to examine the claim of the assessee by duly considering the decisions relied on by the assessee in the set aside proceedings. The relevant finding of the Tribunal on identical facts in assessee's own case for assessment year 2012-2013, read as follows:- "26. We heard the parties on this issue and perused the record. Admitted fact is that the assessee has given interest free loans to its AE located in British Virgin Islands. It is stated that, in the earlier years also, the assessee has given such kinds loans, but no adjustment was made by the TPO. However, the principle of resjudicata shall not apply to the income tax proceedings and hence there cannot be any bar on the AO to examine the applicability of the transfer pricing provisions to the loan transactions in this year. Further, the Finance Act, 2012 has amended the provisions of sec.92B by inserting an Explanation under it, wherein the definitio....
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....e manner laid down in the Act. The term "income" is defined in sec. 2(24) in an inclusive manner. The said income, when computed in the manner laid down in the Act becomes "total income". Hence there is difference between the expression "income" and "total income". The Income tax Act contains certain legal fictions/deeming provisions like sec. 40A(3), 40(a)(ia) etc., The Ld A.R, during the course of arguments also pointed out that sec. 50CA, 50D, 45(4) contain deeming provisions. While computing total income, the real income is adjusted by including therein various legal fictions/deeming provisions incorporated in the Income tax Act. After this process only, the total income is arrived at. Sec.92(1) states that any "income" arising from an international transaction shall be computed having regard to the arms' length price. U/s 92C(4), the AO may compute the total income of the assessee having regard to the arms' length price so determined. Hence, if the income arising from an international transaction is not at arms length, the AO is entitled to compute the total income by substituting the actual income with the arms length income. In effect, under Chapter X also, the Income tax Ac....
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....reliance on Shoorji Vallabhdas & Co.'s case (supra) in this regard, is wholly misplaced because that proposition is in the context of tax laws in general, whereas, transfer pricing provisions, being anti abuse provisions with the sanction of the statute, come into play in the specific situation of certain transactions with the associated enterprise. The general provisions of the law have to give way to these specific anti abuse provisions. While a notional interest income cannot indeed be brought to tax in general, the arm's length principle requires that income is computed, in certain situations, on the basis of certain assumptions which are inherently notional in nature. When the legal provisions are not in pari materia, as the provision of normal computation of income and the provision of computation of income in the case of international transactions between the associated enterprises, what is held to be correct in the context of one set of legal provisions has no application in the context of the other set of legal provisions. 38. As for the assessee' s claim that the loan being extended free of interest was in the nature of shareholder service, this plea ....
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....o mean that an arm's length price of an interest free loan cannot be adopted for ascertaining income from loan transaction. 39. In our considered view, the assessee is not really correct in contending that when the assessee has not reported any income from a particular international transaction, the ALP adjustment cannot compute the same. The computation of income on the basis of arm's length price does not require that the assessee must report some income first, and only then it can be adjusted for the ALP. Section 92(1) is not an adjustment mechanism; it is a computation mechanism. The arm's length price principle requires that an arm's length price is assigned to the transactions between the associated enterprise, and if the income in computed, if any, on the basis of the arm's length price so assigned. As regards reliance on the Vodafone India Services (P.) Ltd.'s case (supra), that deals with a situation in which the international transaction was inherently incapable of producing the income chargeable to tax as it was in the capital field. This is evident from the observation of Hon'ble Bombay High Court to the effect that, "In this case, t....
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.... so long as the transactions fall under the category of "international transactions", the arms length principle has to be applied. We may look at another instance also. The new definition of "International transaction" shall also include "the purchase, sale, transfer, lease or use of tangible property including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing" The purchase transaction is in the nature of expenditure and the same, per se, does not produce any income. Yet the purchase transaction is included under the definition of "International transaction". The purpose of the same is explained hereafter. The product purchased by an assessee from its AE shall produce income, only when it is sold. However, if an assessee purchases certain article or product from its AE, then the said purchase transaction is reported as an International Transaction and the same is also tested under Arms length principle. If it is found that the price paid by the assessee for the said purchase is not at arms length, i.e., if it is more than the arms length price, then the AO is required to substitute act....
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....ed. Various other decisions relied upon by Ld A.R are related to the computation of income under general provisions of the Act, whereas Chapter X is Special provision relating to Avoidance of Tax. As held by the Special bench, the general provisions have to give way to the special provisions. The Special bench has also observed that the decision rendered by Hon'ble Bombay High Court in the case of Vodafone India Services (P) Ltd (supra) has been rendered in a different context. So is the case with the decision rendered by Hon'ble Delhi High Court in the case of Maruti Suzuki Ltd (supra). 32. In view of the above, we hold that the tax authorities are justified in invoking the provisions of Chapter X to the impugned loan transactions. 33. The Ld A.R also argued that the loan transactions are in the nature of quasi equity, since the impugned loans are intended to be converted into equity capital. The fact remains that, during the year under consideration, the impugned transactions remained as loan transactions only. The loan has been given to a holding company and the proposed acquisition of a foreign company was proposed to be executed through Special Purpos....
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....r, it was held that if there has to be an arm's length consideration under the CUP method, other than interest, for such funding, it has to be net effective gains (direct and indirect), attributable to the risks assumed by the sponsorer of the SPV, of the SPV in question. The said decision rendered was on its peculiar facts and the Tribunal decided the issue on first principles without relying on any of the decided cases. The Hon'ble Mumbai ITAT has come to a categorical finding that when borrower has no discretion of using funds gainfully, commercial interest rates do not come into play at all, whereas in the instant case, assessee has not been able to establish that borrower has no discretion of using funds gainfully. In the present case, as mentioned earlier, the co-ordinate bench in assessee's own case for the earlier assessment year has considered all the facts, arguments, decisions and passed a very elaborate order. It is not in dispute that the facts are same in this year as compared to earlier year. Therefore, we bound to follow the co-ordinate bench decision in assessee's own case in IT(TP)A No 489/Bang/2017 for the AY 2012-13 and confirm the action of the AO/TPO in ma....
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....al assessment was passed retaining the addition in respect of corporate guarantee fee at Rs.122,24,28,300. 8.4 Aggrieved, the assessee has raised this issue before the ITAT. The learned AR submitted that `corporate guarantee' would constitute as international transaction under the provisions of the Act, if issuance of such guarantee has bearing on the profits, income, losses or assets of the assessee. The learned AR submitted that Chapter X cannot be invoked in absence of real income. It was further submitted that the TPO has in fact imputed commission on corporate guarantee by the assessee, which were not extended by the assessee in the year under consideration but in prior years. Further, during the year of extending the corporate guarantee and upto assessment year 2012-2013, no commission was imputed by the tax department. Notwithstanding any and without prejudice to the above contentions, the learned AR submitted that the TPO has erred in considering the rate of corporate guarantee fee at 3%. In this context, the learned AR relied on various judicial pronouncements wherein the corporate guarantee fee was determined in range of 0.5% instead of 3% as arrived by the TPO in the ....
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....31 of the paper book, being the relevant extracts of the Transfer Pricing Study Report). 9.1 During the course of proceeding before the TPO, the sample copies of invoices evidencing the purchases made from Whyte & Mackay was made available to him (page 704 of the paper book). The TPO relying upon an internal report on funds diversion pertaining to transactions for financial year 2007- 2008, recomputed the arm's length price in respect of the said purchase transaction entered into by the assessee during the year under consideration, i.e., assessment year 2013-2014 at `Nil'. (page 249 of the paper book). 9.2 Aggrieved the assessee filed objection before the DRP. The assessee has furnished detailed submissions along with the sample copies of invoices before the DRP (page 172 to 173 of the paper book; page 988 of paper book). The DRP confirmed the addition made by the TPO (para 8.2; page 64 of the paper book). Pursuant to the DRP's directions, final assessment order was passed incorporating the above TPO adjustment. 9.3 Aggrieved by the final assessment order, the assessee has raised this issue before the ITAT. The submission of the learned AR are summarized as follows:- ....
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....on with W&M is same as indicated in the internal report. The TPO therefore determined the ALP of this transaction to be NIL by such other method prescribed by the CBDT and the entire amount of Rs. 68,60,16,563 was determined as the adjustment under section 92CA. Before the DRP, assessee assailed the impugned findings of the TPO on various factual reasons as incorporated at page 23 and 24 of the DRP directions. The assessee also argued that proper opportunity of hearing was not provided to the assessee in this regard. The DRP however relied on the TPOs impugned findings and confirmed the above adjustment. 9.5.1 On a perusal of the material on record, we find that the assessee was not allowed sufficient opportunity of hearing in connection with the impugned addition. The submissions of the assessee before the DRP has also not been considered and addressed on merits. We thus set aside the impugned TP adjustment of Rs. 68,60,16,563 and restore the issue to the file of the AO/TPO for proper consideration of facts and to decide as per law after allowing sufficient opportunity of hearing to the assessee. 9.6 In the result, grounds 3.1 to 3.3 are allowed for statistical purposes. ....
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....R are similar to the arguments considered by the Tribunal in the above order. The findings of the ITAT for the earlier year are as under:- "36. We heard the parties on this issue and perused the record. The Ld A.R made various contentions and hence this issue requires to be restored to the file of the AO for examining it afresh in the light of various contentions of Ld A.R, which are summarized below:- (a) It is the contention of Ld A.R that the own funds available with it is in excess of the investments. The jurisdictional Hon'ble Karnataka High Court in the case of CIT vs. Microlabs Limited (2016)(383 ITR 490) has dealt with an identical issue. The High Court extracted following decision rendered by the Tribunal:- ........ Accordingly, we direct the AO to examine the claim of the assessee and if it is found that the own funds available with the assessee is in excess of the value of investments, then no disallowance u/r 8D(2)(ii) out of interest expenditure is called for. (b) In the alternative, the assessee has also submitted that the loan funds were taken for specific purposes and utilised the same for those purposes. Accordingly,....
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....wance was made to the extent of Rs.1,38,05,93,276 by applying SBI's Prima Lending Rate on the amount of outstanding loans as on 31st March, 2013. 11.1 Aggrieved by the draft assessment order, the assessee filed objection before the DRP. The DRP retained the disallowance proposed by the AO, but directed to exclude notional interest income imputed by the TPO with respect to the advances made to AE's outside India but upheld the disallowance under section 36(1)(iii) on a protective basis. 11.2 In the final assessment order, the AO has computed the disallowance u/s 36(1)(iii) at an amount of Rs.140,46,63,276 being higher than the proposed disallowance in the draft assessment order, out of which Rs.26,77,06,867 was on protective basis. 11.3 Aggrieved by the final assessment order, the assessee raised this issue before the ITAT. At the outset, the learned AR submitted that in assessee's own case for assessment year 2012-2013, the Bangalore Bench of the Tribunal following the decision of the Hon'ble Apex Court in Reliance Industries reported in (2019) 102 taxmann.com 52 (SC) have held that no disallowance shall be made u/s 36(1)(iii) of the Act when own funds are in excess of the....
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....ence grounds 5.1 to 5.14 is allowed for statistical purposes. Disallowance of payments for promotion and advertisement expenses (Ground 6 and 7) (Corporate Tax Issue) 12. Brief facts in relation to the above grounds are as follows: During the assessment year 2012-2013, the assessee had made payments to the following parties amounting to Rs.44,33,55,403 for promotion of its brand logo and claimed it as revenue expenditure on advertisement and promotion. Party name Amount in Rs. Royal Challengers Sports Pvt.Ltd. 10,00,00,000 United Racing & Bloodstock Breeders 16,07,37,530 United Mohun Bagan Football Team Pvt. Ltd. 10,83,75,465 Force India F1 Team Limited 7,42,28,408 Total 44,33,55,403 12.1 The AO in draft assessment order held that the payments made on the account of brand promotion results in enduring benefit to the assessee and accordingly treated the said payments as a capital expenditure. 12.2 Aggrieved by draft assessment order, the assessee filed objection before the DRP. The DRP agreed with the view of the AO that the subject expenditure gives enduring benefit to the assessee and upheld the disallowance proposed by ....
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....ng the capitalisation of sponsorship. Treating it as an intangible asset, he allowed depreciation on it @25%. 3.1. The FAA after considering the elaborate submissions of the assessee,held that it had entered into an agreement with the sports company namely India-Win in the month of March, 2010, that the assessee-group became cosponsor of Mumbai Indian IPL cricket team as an associate partner, that as per the agreement the ground logo of the assessee group was displayed permanently in the cricket stadium is also on the playing gear of the players,that in the terms of the agreement and amount of Rs.4.50 crores was paid towards sponsorship fees during the year under consideration, that the sponsorship fees for different years had been apportioned and allocated to 3 entities of the assessee group which were using the brand logo in the ratio of their respective turnovers during the year, that out of the expenditure of Rs. 2.50 crores and amount of Rs. 21.61 lakhs was allocated to the assessee, that the expenditure incurred on IPL sponsorship did not provide it any benefit of enduring nature, that the expenditure had been incurred year after year by the assessee group with a vie....
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....re with the following observations:- "Re: Disallowance of INR 3,85,15,497/- being sponsorship fees paid to ICC 87. In Grounds No. 7 to 7.3 in I.T.A. No. 1044/DEL/2014 for AY 2009-10, the assessee has challenged the disallowance of INR 3,85,15,497/- being sponsorship fees paid by the assessee to ICC. Our attention was drawn to paras 4 to 4.3 of the final assessment order wherein the said issue has been discussed by the AO. It has been submitted that during the relevant previous year the assessee entered into an agreement dated 20.08.2008 with ICC Development (International) Limited (ICC) for obtaining sponsorship rights in respect of various ICC cricketing events around the world. The assessee paid an amount of Rs. 3,85,15,497/- for sponsoring cricketing events held during 2008 to ICC. The said amount was proposed to be disallowed by the AO in the Draft Assessment Order, for the following reasons: - (i) Similar expense has been disallowed in the earlier years as part of the Transfer Pricing Adjustment on account of AMP expenses. (ii) Assessee has been bearing substantial portion of the fees paid to ICC for acquiring sponsorship rights even though ....
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....d orders, we find that, here the disallowance of Rs.3,85,15,497/- has been made on account of sponsorship fee by the assessee to the ICC on the ground that similar expenditure was disallowed in the earlier years as part of Transfer Pricing Adjustment on account of AMP expenses; and secondly, assessee has been bearing substantial portion of the fees to the ICC for acquiring the sponsorship rights even though benefit of the same is derived by either entity of the world. The contention raised by the learned counsel that since major viewer of cricket is an Indian subcontinent looking to its mass popularity in India, the assessee company has been consistently promoting its range of products using cricket as an advertisement platform. The said payment has been made after obtaining the approval of Ministry of Health Affairs and Sports and after deducting TDS u/s.195. Once the expenditure has been incurred wholly and exclusively for the purpose of business which fact has not been disputed by the Department, then even if some incidental benefit which may arise to any other entity cannot be a bar for allowance of expenditure u/s. 37. Under the principle of commercial expediency such an expen....
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....an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. (2B) Notwithstanding anything contained in subsection (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party. The applicable test as to what constitutes expenses "laid out or expended wholly and exclusively for the purposes of the business or profession" was explained in Gordon Woodroffe Leather Manufacturing Co. v. CIT [1962] Supp. (2) SCR 211. The correct approach, said the Court, which has to be taken in all such cases is to see whether: "was the sum of money expended on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business" Again, in Sassoon J. David & Co. (P.) Ltd. v. CIT [1979] 118 ITR 261/ 1 Taxman 485 (SC) the Supreme Court outlined the correct test of commercial expediency as the guiding principle to decide whether the expenditure was to facilitate profits, as f....
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....s to a sum of Rs.10 lakhs, which were paid by the assessee as a license fee for the use of central court yard, having marble, (for short "Court Yard") in Lallgarh Palace (for short 'Palace'). It appears that there was a Memorandum of Understanding (for short 'MOU') between the Assessee and Maharaja Ganga Sinhji Charitable Trust (for short the "trust"). The assessee, as per the MOU, had acquired a right to use the court yard for their business of hotel, being run in the palace, more efficiently and profitably. The question is whether the expenditure of Rs.10 lakh resulted in any addition to the fixed capital of the assessee. According to the Revenue, the assessee had acquired right to use the court yard apart from the palace, and thus, had acquired an advantage of enduring benefit of a trade. In other words, the expenditure incurred by the assessee for the use of court yard is in the capital field and it cannot be said to have been incurred to facilitate trading operation of the assessee. 7. Learned Counsel appearing for both the sides placed reliance upon the judgment of the Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1/....
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....xpenditure "so long as the benefit is not so transitory as to have no endurance at all. There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case'. ....
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....cerns as to the propriety of the underlying transactions / matters. It is stated that based on the above, the assessee wanted to identify whether the additional parties / matter involved any impropriety, or the transactions were improper. The report namely Project Spirit Report dated 29th June, 2016 was submitted with the AO during the course of assessment proceedings. On analysis of the report, the AO identified the transactions relating to the year under consideration and classified them into capital and revenue transactions. The AO disallowed an amount of Rs.48,14,00,000 u/s 37 of the Act treating them as revenue transactions. Further, an amount of Rs.6,35,10,000 has been treated as interest income on alleged interest free loans / advances provided to the subsidiary at an adhoc rate of 14.5%. 13.1 Aggrieved by the draft assessment order, the assessee filed objection before the DRP. The DRP had confirmed the disallowance proposed by the AO. The final order was passed in accordance with the DRP's directions thereby making an addition of Rs.54,49,10,000. 13.2 Aggrieved, the assessee has raised this issue before the ITAT. The learned AR's submissions are summarized below:- IT(....
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....d the finding of the AO and the DRP. 13.4 We have heard rival submissions and perused the material on record. The AO made an addition of Rs.54,49,10,000 for the reason that the funds of the assessee has been diverted for various non business purposes. The AO relied on the 'Project Spirit Report' prepared by M/s Ernst and Young (E&Y) vide letter dated 14.10.2016 for the purpose of arriving at the impugned finding that the funds of the assessee have been diverted in many ways and hence the revenue expenditure claimed as deduction amounting to Rs.48,14,00,000 is to be disallowed. The AO further held that the diversion of funds to various entities would not be returned back to the assessee. The AO therefore charged an interest of Rs. 6,35,10,000 calculated at 14.5% on Rs. 43.8 crores. The DRP confirmed the AO's additions. Referring to the DRP objections, the learned AR argued that out of disallowance of Rs. 48.14 crores, a sum of Rs. 15.23 crores pertain to other entities and hence the same cannot be disallowed in assessee's case. Similarly, it was argued that the entirety of Rs. 43.8 crores on which interest income of Rs.6,35,10,000 is imputed did not pertain to the assessee and he....