AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 190
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....r on the facts and circumstances of the case and in law, the Learned CIT(A) is justified in deleting the disallowance made on the Director's salary and Handover Facility of Rs. 8,01,74,844/- by overlooking the facts and the Director's Office is entirely involved in the project activity in real estate business. 3. Whether on the facts and circumstances of the case and in law, the Learned CIT(A) is justified in deleting the disallowance made on the Director's salary and Handover Facility Expenses of Rs. 8,01,74,844/- overlooking the fact that assessee engaged in the business of real estate and following percentage completion method for revenue recognition and all the expenses directly related to the project have to be carried over and debited to the cost of project. 4. Whether on the facts and circumstances of the case and in law, the Learned CTI(A) is justified in deleting the disallowance of Rs. 3,31,070/- made u/s. 14A of the Act in the light of CBDT Circular No. 5 of 2014 dated 11.02.2014. 5. Whether on the facts and circumstances of the case and in law, the Learned CIT(A) is justified in deleting the disallowance of Rs. 3,31,070/- made u/s. 14A of the Act while computing t....
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....A)'] erred in upholding the action of the learned Assessing Officer [Ld AO] by not appreciating that explanation to section 92B of the Act as amended by Finance Act, 2012 does not alter the basic character of the definition of 'international transaction' u/s. 92B and therefore, since provision of guarantee (by the assessee to its AE) did not have any bearing on profits, income, losses or assets of enterprise, it would be outside the ambit of 'international transaction'. 3. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax(appeals) ['CIT(A)'] erred in upholding the action of the learned Assessing Officer [Ld AO]by not appreciating that provision of guarantee is essentially in the nature of shareholder activity and is arising out of implicit support due to passive association of the assessee with its AE; accordingly, ALP for the same should be nil." 04. Brief facts of the case shows that assessee is a company engaged in construction and development of real estate projects in manufacturing industry - Textile/handloom/power looms. It filed its return of income on 17/10/2016 at a total income of Rs. 655,997,290 as per the normal comput....
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....policy of the Lodha global Ltd is same to the assessee company as that of the other companies in the Lodha group and therefore it should be considered at arm's-length. The learned TPO held that the brokerage expenses paid by the group concerns are also a controlled transaction and therefore the cup method cannot be accepted for benchmarking the transaction. The AO found that 1% of the brokerage is at arm's-length rate of brokerage for availing such services. Accordingly he computed the arm's-length price of the brokerage at the rate of 1% of the transaction value and made an adjustment of Rs. 13,33,554/-. 06. The assessee also has entered into international transaction of incurring certain expenses on behalf of Lodha developers UK Limited aggregating to Rs. 2,800,148/-. The assessee was asked to justify the nature of reimbursement and show cause as to why markup of 10% should not be charged as assessee has provided employee services to its associated enterprises. The assessee submitted that the payment is towards reimbursement/advances to the employees visit to the United Kingdom in connection with the project activities of Lodha UK. These are routine expenses incurred....
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....ent proceedings the learned AO noted that assessee has claimed dividend income of Rs. 7,548,937/- as exempt income however no disallowance under section 14 A was made by the assessee. The AO issued a show cause notice on 4/11/2019 asking why disallowance under section 14 A should not be worked out. The assessee as per letter dated 2/12/2019 submitted that about dividend has been received from mutual funds and the assessee is not incurred any expenses in relation to earning exempt income and hence there cannot be any disallowance under section 14 A. Assessee also submitted that even otherwise assessee had sufficient network for making investment in shares and mutual fund and there is no interest attributable/related to making such investment for which income is exempt. The learned AO rejected the contention of the assessee and computed the average value of the investment at Rs. 6,62,14,000 and made a disallowance under rule 8D (2) (iii) of the act at the rate of 0.5% amounting to Rs. 331,070/-. 010. The learned assessing officer further on perusal of the tax audit report found that assessee has deposited employees contribution to the provident fund beyond the due dates prescribed i....
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....prejudice, the AO computed 10% as further disallowance. Accordingly total disallowance of Rs. 80,174,844/- was made. 012. Accordingly the draft assessment order was passed determining the total income of the assessee at Rs. 744,632,810/-. The learned assessing officer further made an addition while computing the book profit under section hundred and 15 JB of the disallowance under section 14 A of Rs. 331,070/-. Accordingly, the book profit was also adjusted and revised book profit was computed at Rs. 526,180,729. 013. The assessee did not file any objection before the learned dispute resolution panel and accordingly assessment order under section 143 (3) read with section 144C (3) of the act computing the normal income at Rs. 744,632,810 and the revised book profit at Rs. 526,180,729/-. 014. Assessee aggrieved with the above order preferred an appeal before the learned CIT - A who passed an order on 17/06/2022. The learned CIT - A with respect to the transfer pricing adjustment of corporate guarantee commission of Rs. 5,910,40 /- following the decision of CIT - A4 assessment year 2016 - 17 holding that the facts are similar computed the guarantee commission arm's-length pric....
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.... disallowance deleted by the learned CIT - A with respect to the late payment of employees contribution of provident fund of Rs. 606,000/-. There is no dispute that assessee has deposited the employees' contribution late beyond the due dates prescribed in the respective provident fund act. The learned CIT - A has allowed the claim of the assessee following the decision of the honourable Bombay High Court. However, now honourable Supreme Court has decided this issue in checkmate services private limited versus CIT [2022] 143 taxmann.com 178 (SC) holding that non-deposit of employees contribution within the due date prescribed under the respective statute is disallowable under section 36 (1) (BA) read with section 2 (24) (x) of the act. Therefore, now in view of the above decision and the decision of the learned CIT - A is unsustainable in law and accordingly the ground number one of the appeal of the learned assessing officer is allowed. The order of the learned assessing officer on this ground is restored. 016. The second ground of appeal is with respect to the deletion of the disallowance made on the director's salary and administrative facility of Rs. 80,174,844/-. The b....
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....any cost to the third project which is hundred percent complete. The learned assessing officer rejected the claim of the assessee for the reason that according to him the director's office is epic centre of all the construction and development activity carried out by the assessee. The strategy for construction of project, planning, finance and other project rejected activities are discussed in determined in the office of the director and therefore the director officer is entirely involved in the project activity hence the contention of the assessee that no expenditure on account of directors office is attributable to project cost is not acceptable. Accordingly without prejudice disallowance computed by the assessee was further increased by 10% of the director's office expenses with respect to the third project which was completed hundred percent. Accordingly the disallowance was worked out to Rs. 80,174,844/-. When the matter reached before the learned CIT - A, the assessee referred to the projects of the assessee as well as the revenue recognition in those entire project. It was submitted that assessee was having 5 projects out of which revenue recognition commenced in thr....
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....owed to the assessee in the year in which those are incurred. 017. The learned departmental representative may mentally supported the order of the learned assessing officer and the learned authorized representative relied upon the order of the learned CIT - A and submitted that this issue is covered in favour of the assessee by the decision of the coordinate bench in assessee's sister concern case where after considering the identical facts and circumstances the coordinate bench has held that directors office expenses and handover facility expenses are to be allowed to the assessee in the year in which those are incurred and not to be included in the cost of work in progress. 018. We find that the identical issue has been decided by the coordinate bench in assessee's sister concerns case on identical facts and circumstances. In case of Lodha Plaza versus ACIT in ITA number 2298/M/2012 for assessment year 2008 - 09 the issue before the tribunal was that whether the indirect expenses such as employees cost, office and administration and marketing and selling expenses have to be allowed as a revenue expenditure in the year in which they are incurred or are to be included in ....
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....as filed an application for additional ground of appeal as per letter dated 18 January 2023 wherein assessee has raised following additional grounds:- 2. On the facts and circumstances of the case disallowance under section 14 A of the income tax act, 1961 or to be deleted 3.on the facts and circumstances of the case the learned Commissioner of income tax (appeals) order in not appreciating the fact that the learned assessing officer has failed to record satisfaction for making disallowance under section 14 A of the act. 4.On the facts and circumstances of the case the learned Commissioner of income tax (appeals) erred in directing the learned assessing officer to recompute the disallowance made under rule 8D (2) (ii) of the income tax rules and upholding the disallowance made under section 14 A of the act 5. on the facts and circumstances of the case the learned Commissioner of income tax (appeals) erred in not appreciating the fact that the appellant had sufficient own funds much more than the investment is made and as such no disallowance can be made in view of the decision of the honourable Supreme Court in the case of principal Commissioner of income tax versus syntax ....
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....oes not form part of the total income under this act, the learned assessing officer is empowered to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this act in accordance with the third prescribed. Therefore, before invoking the provisions of disallowance as perennial method prescribed, it is mandatory on the part of the AO to record satisfaction about the correctness of the claim of the assessee with regard to the accounts of the assessee. Therefore, it is mandatory that the learned assessing officer has to record satisfaction that how the claim of the assessee is incorrect. Such satisfaction should be drawn from the accounts of the assessee. In the present case, we do not find any such satisfaction recorded by the learned assessing officer that why the claim of the assessee that it has not incurred any expenditure and further it has sufficient interest free funds available and therefore no disallowance of interest can be made. The issue is squarely covered in favour of the assessee by the decision of the honourable Bombay High Court in case of principal Commissioner of income tax - 2 versus Bombay stock ex....
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....e rate of proportionate amount of guarantee commission adopting the arm's-length price at the rate of 1.25% and made an adjustment of Rs. 5,910,140. The learned CIT (A) rejected arguments of the assessee that it is not an international transaction in view of explanation (c) to section 92B (1) introduced by the finance act 2012 wherein it is clearly held that guarantee is an international transaction. For benchmarking, following his own order in assessee's own case for assessment year 2016 - 17 on issue of guarantee with respect to the above bonds as mentioned in paragraph number 7.8 of that order and reproduced at page number 46 of his order for this year. In that appellate order, on the same transaction in case of Bellissimo Crown build mart private limited (Lodha Crown build mark private limited), the benchmarking of the guarantee commission was made. The method adopted was interest saving approach. The guarantee transactions were analyzed based on the creditworthiness of the borrower from Moody's RiskCalc where standalone credit rating of the issuer company was found act one year and five-year credit rating act B 3 (S&P equivalent B-). Further, the search was made on....
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....n is required to be determined on the basis of credit rating of the issuer company, comparison of interest rates without guarantee and with guarantee. The difference of the two is required to be shared between the issuer as well as the guarantor. The proper database for credit rating was used. The database for scanning of various deals was used. The tenor adjustments were also made. No reasons were shown for sharing of the interest saving not properly applied. Further, in some of the cases the honourable Bombay High Court has also applied guarantee commission rate at 0.20% i.e. additional CIT versus Asian paints limited ITA number 2126/M/2012 and CIT versus Everest Kanto cylinders limit Ltd in ITA number 1165 of 2013. In case of reliance industries Ltd versus ACIT in ITA number 4475/M/2007, the coordinate bench has adopted the guarantee commission rate at 0.38%. In view of this, we do not find any infirmity in the order of the learned CIT - A in holding that arm's-length price of the guarantee commission is 0.3523 percentage. Accordingly, ground numbers 6 - 8 of the appeal of the AO are dismissed. 027. The ground number 9 of the appeal of the AO is with respect to the deletion....
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....erage is paid for the sale of property to the non-resident. The Mauritius AE as well as the uncontrolled independent parties in a different location does not make any difference. Even otherwise, the action of the learned TPO to adopt brokerage at the rate of only 1% as arm's-length price is also not supported by any data or transaction. For the purpose of transfer pricing, only transaction is to be compared with a transaction. There is no transaction at the rate of 1% used by the learned TPO for benchmarking the brokerage paid. The comparables shown by the assessee as internal cup cannot be found fault with. Accordingly, we do not find any reason to disturb the order of the learned CIT - A. Accordingly ground number 9 - 10 of the appeal of the AO is dismissed. 030. The solitary ground in the is ground number 1 of the appeal of the assessee wherein the learned CIT - A has upheld the action of the learned assessing officer/TPO of living 10% mark up on the reimbursement of expenses of Rs. 2,800,148/- paid by Lodha developers UK Limited to the assessee company. The fact shows that assessee has incurred certain expenses on behalf of its associated enterprises of Rs. 2,800,148/-. As....