AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (12) TMI 1428
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....l income to Rs.35,14,66,440/- and book profit of Rs.261,11,26,258/- by filing revised return of income on 31.03.2016. The case was selected for scrutiny and notice u/s 143(2) & 142(1) of the Act was issued and served on the assessee. AO noticed that during the year under consideration, assessee had entered into international transactions with its Associate Enterprises (AEs) and the aggregate value of such transactions exceeded Rs.15 crore. He therefore, after taking approval of the component authorities, made reference to TPO for determination of Arm's Length Price (ALP) of international transactions. TPO vide order passed u/s 92CA(3) of the Act on 31.10.2017 suggested enhancement of the income of the assessee by Rs.216,468,063/- on account of Transfer Pricing Adjustment. AO thereafter passed draft assessment order u/s 143(3) r.w.s 144C(1) of the Act vide order dated 27.12.2017 whereby he computed the total income at Rs.82,07,64,487/- and book profit at Rs.2,61,38,57,201/-. Aggrieved by the draft assessment order passed by AO, assessee carried the matter before the DRP. DRP vide direction passed u/s 144C(5) of the Act dated 13.07.2018 directed the AO to incorporate its finding in r....
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....ased to hold:- 6.1 That extension of corporate guarantee by the appellant on behalf of its AEs [wholly owned subsidiaries] is not an international transaction and, therefore, not amendable to any adjustment under Chapter X of the Income Tax Act. 6.2 In the alternative and without prejudice to the above, the Hon'ble ITAT may be pleased to hold that no adjustment is required as 0.25% charged by the appellant as corporate guarantee fee from its AEs [wholly owned subsidiaries] is at arm's length and thus upward adjustment of Rs.2,28,67,811/- be directed to be deleted. 6.3 That the corporate guarantee fee benchmarked by the appellant under other method based on specific quotations obtained from HDFC Bank and ICICI Bank be held at arm's length. Interest on foreign currency loans - Rs.12,98,917/- 7. The Ld. DRP/TPO and consequently Ld. AO have grossly erred in law and on facts and in the circumstances of the appellant's case in proposing an upward adjustment of Rs.12,98,917/- (using LIBOR + 250 basis points i.e. 4.024%(1.524% + 2.5%) as ALP) on the ground that interest charged by the appellant on foreign currency loan granted to its AE @6M LIBO....
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....t granting the allowance of brought forward losses of Rs.24,84,48,618/- which was claimed by assessee while filing the tax return. Disallowance of depreciation of Goodwill - Rs.25,53,577/- 17. The Ld. DRP/AO have erred in law and in facts and in the circumstances of the appellant by not granting the allowance of depreciation of Rs.25,53,577/- on goodwill arising on account of excess payment by the appellant for purchase of business units from SRF Polymers. 18. The Hon'ble ITAT may be pleased to grant the allowance of depreciation on Goodwill of Rs.25,57,577/-. Computation of Book Profit under MAT 19. The Ld. AO has grossly erred in inadvertently taking the amount of book profit as per P&L Account at Rs.2,61,11,26,258/- as against the correct amount of Rs.2,16,54,54,365/- which was although correctly reflected in the draft assessment order dated 27th December, 2017. The Ld. AO has therefore, inadvertently enhanced the book profit u/s 115JB of the Act by Rs.44,56,71,893/- [Rs.2,61,11,26,258/- (-) Rs.2,16,54,54,365/-]. 20. making an addition of Rs.54,31,53,772/- on account of current tax /MAT/deferred tax while computing the book p....
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....ditional ground now raised is a legal ground which can be raised at any time by the assessee and it does not require any investigation of fresh facts. He further submitted that in the interest of justice, the additional ground be admitted and the same be adjudicated along with the other grounds. For the admission of additional ground, he relied upon the decision of Hon'ble Apex Court in the case of National Thermal Power Company Ltd vs CIT reported in (1998) 229 ITR 383. 6. Ld DR however objected to the application for admission of additional ground stating that the claim was never made before the lower authorities. 7. On the issue of admission of additional grounds, we have heard the rival submissions and perused the material on record. We find force in the argument of the Ld. AR that the ground raised is legal in nature. Hon'ble Apex Court in the case of National Thermal Power Company Ltd (supra) has held that the purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. It has further held that if as a result of a judicial decision given while the appeal is pending before the Tribunal....
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.... considered to be a valid CUP. TPO thereafter by applying the interest saved approach and using the data from Bloomberg database, computed the external comparable interest rate range to be 4.45% and the rate at which the AEs obtained funds with corporate guarantee of the assessee at 3.01% and thus computed the interest saved to be at 1.44%. He thereafter worked out the total guarantee fee that should have been charged by using the interest saved rate of 1.44% at Rs.172,00,08,122/-. He noted that since the assessee has already received Rs 22,854,407/-recommended the enhancement of income by AO to the extent of Rs 14,91,53,715/-. AO thereafter in the draft assessment order enhanced the income as suggested by the TPO. Aggrieved by the order of TPO, assessee carried the matter before the DRP. DRP noted that various jurisdictional decisions have held the guarantee fee rate to be near about 0.5% and TPO had not given any reason for applying a higher rate of 1.3% based on SBI general Bank guarantee fee. DRP also noted that in assessee's own case for A.Y. 2011-12, 2012-13 & 2013-14, DRP has held that the guarantee fee of 0.5% to be fair and just. It further noted that since the facts of th....
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....parable data in terms of Rule 10D (3) of the Rules. Therefore, rejection of asseessee's CUP in form of ICICI Bank quotation in not valid. 13. It is pertinent to note that even TPO has used general bank rates obtained from various Indian banks. These bank guarantee rates are also in the nature of offers which are general rates and not specific to the assessee. Therefore, the approach of TPO itself is contradictory, when on the one hand he rejects the assessee's specific quotation saying the same as offers while on the other hand he himself uses the general bank guarantee rates which are again the offers and that too far from being comparable to the case. 14. Further the issue of using bank guarantee rates for benchmarking corporate guarantee transaction has been put to rest by the Hon'ble Supreme Court in case of Glenmark Pharmaceuticals Ltd. [2019] 107 taxmann.com 445 (SC), where in the judgment of Hon'ble Bombay High Court was upheld. Further, DRP in assessee's own case in subsequent years rejected the TPO's approach of using India band guarantee rates for benchmarking corporate guarantee. Therefore, bank guarantee rates as applied by the TPO is not an a....
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....ncy loan to foreign subsidiaries not be done at 7.33 % (i.e. 6 months LIBOR rate of 1.524 % + 5.81%) for loan granted to AEs. Assessee inter alia submitted that it has charged interest from its AEs on foreign currency loan granted on quarterly basis and the average of all four quarters works out to 0.3647% instead of 1.524% worked out by the TPO. It was further submitted that assessee was not into the business of lending, but while lending foreign currency money to its AEs it had charged interest @ LIBOR + 224 BPS which are higher than its borrowing costs. It was further submitted that the comparable determined on the basis of TP documentation is LIBOR + 218 BPS as against the interest charged by the assessee @ LIBOR + 224 BPS which are therefore as Arm's Length and no further adjustment is therefore required. The submissions of the assessee were not found acceptable to TPO. TPO thereafter bench marked the interest receipt from the AE @ 7.33% (by considering the average 6 months LIBOR rate @ 1.524% + 581%) and accordingly worked out the adjustment at Rs.24,340,908/-. 18. Aggrieved by the order of TPO, assessee carried the matter before the DRP. DRP noted that in A.Y. 2012-13 and....
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....of foreign currency lending. The appropriate rate for benchmarking is rate prevailing in the country where the loan has been utilized. Correctly stated by Ld. AR is that LIBOR is an international benchmark used globally as interest benchmark. Various courts have held that LIBOR is an appropriate benchmark for foreign currency loan granted to overseas AE(s). The AE has also availed loan in its home country rate of which is also denominated in LIBOR. In our view LIBOR rate should be used while undertaking the benchmarking analysis in respect of foreign currency loans extended to AE. Well the assessee has charged 250 basis points over an above such benchmark viz. LIBOR. Therefore, no addition is justified and the entire addition of Rs.2,18,98,274/- is hereby deleted." 22. Before us, Revenue has not pointed to any distinguishing feature in the facts of the case in the year under consideration and that of the earlier years. Revenue has also not placed any material on record to demonstrate that the aforesaid decision of the Co-ordinate Bench of Tribunal in assessee's own case for A.Y. 2010-11 has been stayed/ set aside/ overruled by higher judicial forum. In view of the aforesaid fact....
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.... was further submitted that similar reimbursement are made by the assessee to its AEs also at cost to cost basis. It was further submitted that assessee had entered various business transactions with its AEs which are in the nature of export of goods, import of goods, corporate guarantee fee, interest on loan, management support services etc. the volume of which is Rs.126.93 crore as against which the nature of reimbursement received and paid from and to the AEs are Rs.3.86 crore which is normal considering the volume of business transactions entered into with the AEs. He further submitted that no adjustment is required when it is reimbursement of expenses. He further submitted that transactions were undertaken from commercial expediency point of view and were not intended for the exploitation of return. He thereafter submitted that Co-ordinate Bench of Tribunal in the case of Vedanta Ltd. vs. ACIT in ITA No.12/Del/2010 order dated 21.09.2020 for A.Y. 2014-15 has held that no mark up was warranted on the reimbursement of primary third party expenses for which no value addition was done by the assessee and which are subsequently reimbursed by the AEs on cost to cost basis. He pointe....
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....-ordinate Bench in the case of Vedanta Ltd. (supra), we are of the view that no addition is called for in the present case. Thus the grounds of assessee is allowed. 30. Ground No.16 is with respect to disallowance on brought forward Business Losses. 31. AO noticed that at the time of revising its return of income for A.Y. 2014-15 that was filed on 31.03.2016, assessee had set off the brought forward business loss of Rs.24,84,48,618/- of A.Y. 2013-14 against the business income of Rs 60,15,52,573/- for A.Y. 2014-15. The claim of the assessee was disallowed by the AO for the reason that the brought forward loss was primarily because of receipt from transfer Carbon Emission Reduction (CER) which was claimed as exempt income and since the claim of exempt income has not been accepted by the AO in the order passed for A.Y. 2013-14 therefore the loss has been converted into income and therefore no carry forward business loss for A.Y. 2013-14 was available for set off in A.Y. 2014-15. Aggrieved by the order of AO, Assessee carried the matter before DRP. DRP directed the AO to verify the claim and allow the same as per law. Aggrieved by the order of AO, assessee is now before us. 3....
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.... noted that the assessee had purchased three business for a consideration of Rs.150,31,26,228/- as slump sale without making its valuation. He noted that assessee, after the purchase had made valuation of the assets and liabilities which was determined at Rs.146,62,32,222/- and the balancing amount of Rs.3,68,94,006/- was treated as Goodwill. AO was of the view that the aforesaid amount of Goodwill was a balancing figure and was not Goodwill for which assessee had paid in excess of its valuation to its group companies. He was of the view that since the assets and liabilities has not been valued; no Goodwill can be purchased by the assessee. He accordingly disallowed the claim of depreciation on Goodwill amounting to Rs.25,53,577/-. 37. When the matter was carried before the DRP, DRP noted that in assessee's own case in earlier year, DRP vide order dated 13.07.2018 had upheld the action of AO with respect of disallowance. DRP therefore, following the order of its predecessor, upheld the action of AO. Pursuant to the action of DRP, AO in the final assessment order disallowed the claim of depreciation. Aggrieved by the order of AO, assessee is now before us. 38. Before us, Learn....
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....the ground of assessee is allowed. 41. Ground No. 21 is with respect to incorrect computation of Book Profit under MAT. 42. AO while computing the Book Profit u/s 115JB of the Act added the disallowance of depreciation on goodwill amounting to Rs.25,53,577/- to work out the adjusted Book Profit. When assessee carried the matter before the DRP, DRP upheld the order of AO in view of Clause (g) of Explanation (1) of Section 115JB(2) of the Act. Aggrieved by the consequential order passed by AO, assessee is now before us. 43. Before us, Learned AR reiterated the submissions made before the lower authorities and further submitted that as per Explanation to Section 115JB, only amount of depreciation which is debited to the P & L account attributable to revaluation of assets is to be added back and not the normal depreciation on goodwill. He further submitted that depreciation which has been added back is as per the book of account and not as per the I.T. Act. He thereafter submitted the claim of depreciation on goodwill has been held to be allowable in A.Y. 2012-13 and following the same decision, if it is held to be allowable then the same cannot be added to the book profits. H....
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....e decision of Hon'ble Apex Court in the case of Goetze (India) Ltd. vs. CIT reported in 284 ITR 323. Aggrieved by the directions of DRP, assessee is now before us. 48. Before us, Learned AR reiterated the submissions made before the lower authorities and further submitted that AO has failed to appreciate that claim of assessee was a bonafide claim and was supported by necessary documentary evidences. Learned AR thereafter submitted that identical issue of additional claim which was made during the course of assessment proceedings but was not allowed came from consideration before the Coordinate Bench of Tribunal in assessee's own case for A.Y. 2010- 11 in ITA No.356/Del/2015 and the Co-ordinate Bench of Tribunal vide order dated 24.02.2020 vide para 40 of the order has inter alia observed that the Revenue authorities cannot simply turn down the genuine and bonafide claims of the assessee on some technicalities and that instead of rejecting the additional claims of the assessee outrightly, authorities should endeavor to examine the bonafide claims of the assessee on its merit which would also avoid further litigation at higher forums. He therefore submitted that the issue may be ....
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....uch ground, contention or claim are already on record. 51. In view of the aforesaid facts, we are of the view that the claim of the assessee of the deduction u/s 80IA of the Act merits consideration and adjudication by the AO. We therefore set aside the issue back to the file of AO to consider the same on merits after considering the submissions made by assessee and in accordance with law. The AO shall be free to call for such information and explanations as he deems fit to adjudicate the claim of the assessee. Needless to state that AO shall grant adequate opportunity of hearing to the assessee and the assessee shall also be at liberty of file such documents, explanations and submissions as deemed fit in respect of its claim. Thus the ground of assessee is allowed for statistical purposes. 52. Ground No.22.2 is with respect to claim of additional depreciation u/s 32(1)(iia) of the Act. 53. Before us, Learned AR submitted that assessee had not claimed 50% additional depreciation amounting to Rs.58,14,99,012/- u/s 32(1)(iia) of the Act inadvertently on the assets put to use for less than 180 days in the immediately preceding assessment year while filing the return of income....
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.... - Rs.18,67,13,454/-, the assessee filed an additional claim during assessment proceedings for A.Y. 2010-11 however the same was neither entertained by AO nor by DRP. 45. The Ld. Counsel has placed reliance on following judicial pronouncements: • Apollo Tyres Ltd. vs. ACIT (2014) 64 SOT 203 • CIT vs. Cosmo Films Ltd. (2012) (ITA 1404/2008) • CIT vs. SIL Investment Ltd. (2012) (ITA No. 24319 (Del) 2010) • TCPL Packaging Ltd. vs. Deputy Commissioner of Income Tax (2019-TIOL-907-ITAT-MUM) • CIT vs. Kalpataru Power Transmission Ltd. [2019-TIOL- 1424-ITAT-AHD] The coordinate Bench in case of CIT vs. Cosmo Films Ltd. (supra) while holding that remaining additional depreciation shall be allowed in the subsequent year observed as under : "This additional benefit in the form of additional allowance under section 32(1)(iia) is onetime benefit to encourage the industrialization and in view of the decision of Supreme Court in the case of Bajaj Tempo Ltd. vs. CIT [1992] 196 ITR 188/62 Taxman 480, the provision related to it have to be constructed reasonably, liberally and purposively to make the provisio....
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....us, Learned AR submitted that the allowance of TDS deducted on the sale of immovable property amounting to Rs.2,70,000/- and self assessment tax amounting to Rs.47,61,334/- which was inadvertently left to be claimed while filing the return of income. The claim was made before the AO during the course of assessment proceedings but the AO did not discuss it in the order and thereby claim has not been allowed to the assessee. When the matter was carried before the DRP, Hon'ble DRP relying on the decision of the Hon'ble Apex Court in the case of Goetze (India) Ltd. (supra) upheld the order of AO. Aggrieved by the direction of DRP, assessee is now before us. 60. Before us, Learned AR reiterated the submissions made before the lower authorities and further submitted that the claim of the assessee is bonafide and based on documentary evidences furnished before the AO. He submitted that the necessary evidences were furnished before the AO but the same was not examined and considered. He therefore submitted that the matter may be remitted back to the AO for verification and allow the claim on merits. 61. Learned DR on the other hand supported the order of lower authorities. 62. We ....
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....vide order dated 06.09.2021 wherein the issue was decided the issue in favour of the assessee by observing as under: "22. We have heard the rival submissions and perused the materials available on record. The issue in the present additional ground is with respect to claim of deduction of Rs.70,98,828/- on account of payment of education cess. We find that identical issue arose in assessee's own case and the Co-ordinate Bench of Tribunal decided the issue in favour of the assessee by observing as under: "33. By way of additional ground, the assessee has claimed deductibility of education cess. 34. Before us, the ld. counsel for the assessee stated that in the return of income filed for relevant A.Ys, the assessee did not claim deduction for education cess paid before the due date for filing return of income for subject A.Ys It is the say of the ld. counsel for the assessee that the Hon'ble Rajasthan High Court in the case of Chambal Fertilizers and Chemicals Limited in ITA No. 52/2018 order dated 31.07.2018 has held that education cess is an allowable deduction while computing the income under the head "Profits and gains from profession or business". ....