TaxTMI 
TaxTMI 
2022 (5) TMI 1587
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....30.05.2017 GMR Highways Ltd. 2015-16 12.06.2019 2016-17 16.03.2020 2. From the above impugned orders, following are issues are raised vis-a-vis the grounds in the appeals filed by the assessee and revenue for relevant Assessment Years: For GMR Infrastructure Ltd.: Sl. No. Issues A Y Assessee's Appeal Ground No Department Appeal Ground No Cross Objection No 1 Adjustment towards Stand by Letter of Credit 2010-11 1 1 1 2011-12 1 1 1 2012-13 1 1 1 2013-14 1 1 1 2 Adjustment towards Corporate Guarantee 2010-11 2 2 2011-12 2 2 2012-13 2 2 2013-14 2 2 3 Disallowance under section 14A 2010-11 2 to 6 3& 4 3 2011-12 2 to 6 3& 4 3 2012-13 2 to 5 3& 4 3 2013-14 2 to 5 3 & 4 3 4 Disallowance under section 14A in Book Profit 2010-11 7 & 8 2011-12 7 & 8 2012-13 6 & 7 2013-14 6 & 7 5 Amortization of Upfront Fees and legal Fees paid as revenue expenditure ....
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.... the adjustment should be restricted to the extent of commission amount that the Assessee has borne, and not charged/ recovered from its AE. This Tribunal observed and held as under: "3. The assessee company is in the business of promotion of infrastructure development and investments in the shares and securities, and filed the Return of Income on 29.11.2014 with total loss of Rs.35,66,74,072 under the normal provisions of Income Tax and Book Profits u/sec 115JB Rs.211,85,82,199. The case was selected for scrutiny and Notice under Section 143(2) of the IT Act was issued. The Assessing Officer as per Form 3CB Report filed by the assessee, found that the assessee has international transactions, and referred the matter for determination of Arm's Length Price (ALP) to the Transfer Pricing Officer (TPO). Whereas the TPO made an adjustment of Rs.15,45,49,138 on transaction of Stand By Letter of Credit (SBLC) and similarly on Corporate Guarantee TP adjustment of Rs.41,28,60,585 and passed order u/sec 92CA of the Act. Subsequently, The AO along with the Transfer Pricing Adjustments, made disallowance under Section 14A of the act and unamortized amounts claimed and Finally Asse....
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.... the decisions relied by the Ld.AR in assessee's own case, and in the case of its group concern for the subsequent assessment year. Further, there is no distinguishing facts brought to our notice by the revenue in order to deviate from the above consistent view. 4.10 Respectfully following the above consistent view, by coordinate bench of this Tribunal, we direct the Ld.AO to restrict the addition to the amount of commission not recovered by the assessee from its AE. We therefore do not find any infirmity in the view taken by the Ld.CIT(A). 4.11 Accordingly, Ground No. 1 raised by the assessee and the revenue for assessment year 2010-11 stands dismissed. 4.12 As the ground filed by the revenue on this issue is dismissed, the C.O. of assessee on this issue becomes infructuous. 4.13 It is submitted that identical Ground no. 1 is raised by the assessee as well as the revenue in Assessment years 2011-12, 2012-13 & 2013-14. As the facts and circumstances are the same, following the consistent view taken by the coordinate bench of this Tribunal, we hold that the addition is restricted to the amount of commission not recovered by the assessee from its AE. 4.14 Accordingly, ....
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....ring on the cost, profits, assets and no income has been received; d) Assessee does not carry any risk in view of counter guarantee obtained from AE. 5.7 Against the relief granted by Ld.CIT(A), assessee has filed cross objections on the above issues that has not been adjudicated. The Ld.AR has filed written submission wherein following details in respect of credit rating and the suo moto adjustment considered by assessee have been submitted which is reproduced as under: The details about Credit Rating of the assessee as well as AE and the amount of commission charged by Bank and recovered by the assessee is as under: The details about Credit Rating of the assessee as well as AE and the amount of commission charged by Bank and recovered by the assessee is as under: Credit rating of the Assessee: BBB. Credit rating of the AE being GMR Energy (Netherlands) B V: BBB. Credit rating of the AE being GMR Coal Resources Pte Ltd: BBB+ Sr No AY Amount charged by the Bank Rs. Amount recovered by the Assessee Rs. 1 2010-11 Nil Nil 2 2011-12 Nil Nil 3 2012-13 Nil Nil 4 2013-14 Nil Nil ....
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....in ITA Nos. 1548 & 1549/Kol/2009 & ITA No. 2058/Kol/2010 by order dated 03.08.2018 deals on this aspect at great length and therefore any transaction that has an impact on the profit or loss of the assessee has to be considered as per section 92(3) of the Act. Accordingly, the decision relied by the Ld.AR under this proposition cannot be of any assistance. 5.12 A corporate guarantee is a legal agreement between a borrower, lender, and guarantor, whereby a corporation takes responsibility for the debt repayment of the borrower provided it faced bankruptcy. A personal guarantee is a similar document to the corporate guarantee. 5.13 In the matter of guarantee commission, the adjustment made by the TPO is based on instances restricted to the commercial banks providing guarantees. When a commercial bank issues bank guarantees which being a part of their business activity, in the event of any default, a higher commission is charged. In the present case, it is assessee company that is issuing Corporate Guarantee to the effect that if the foreign AE does not repay loan availed by it, then in such event, the assessee would make good the amount and repay the loan. The considerations wh....
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....nce with the principles laid down in CIT Vs Tata Autocomp Systems Ltd. and CIT vs. Cotton Naturals (I)(P) Ltd.,(supra). Further in case of Xchanging Solutions Ltd. vs. DCIT reported in [2017] 78 taxmann.com 54 (Bangalore-Trib.), Coordinate Bench of this Tribunal on identical issue observed and held as under: "15. We have considered the rival submissions as well as the relevant material on record. At the outset we note that the assessee has raised the objection before the DRP as recorded in paras 6.1 and 6.2 as under : '6.1 Grounds 1, 2 and 3 are considered together for convenience. Briefly stated the assessee provides software development and information technology enabled services (ITES) to its AEs. During the FY 2005-06 the assessee provided a corporate guarantee to a third party bank on behalf of an AE but failed to charge a fee for the guarantee. The assessee conducted a TP study and concluded that this transaction was at arm's length however during audit proceedings the TPO rejected the analysis of the assessee and made adjustments to this transaction. The taxpayer cites the order of Four soft Ltd wherein the Hon'ble ITAT Hyderabad observed as und....
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.... as the nature of transaction between the related parties. The Tribunal has taken a view that the guarantee fees for providing corporate guarantee should not be more than 0.5%. The Hyderabad Benches of this Tribunal in the case of Four Soft Pvt. Ltd. Vs. DCIT (supra) has considered an identical issue in paras 24 to 26 as under : 24. It is noted by the TPO, during the F.Y. 2005-06 the assessee has provided bank guarantees on behalf of its Overseas subsidiary, Foursoft BV, Netherlands for an amount of Rs.69,81,16,000/- which is continuing for the year under consideration also. The TPO following the order passed for A.Y. 2006-07 treated the commission changed by ICICI Bank at 3.75% arms length price for the corporate guarantee provided by the assessee to its AE worked out the TP adjustment of Rs.2,61,79,350/-. The DRP also rejected assessee's objection on the issue. 25. We have heard the parties and perused the material on record. The sum and substance of the submissions made by the learned AR is, the corporate guarantee provided by the assessee cannot be equated to bank guarantee and resultantly the commission rate for bank guarantee cannot be applied to the corpora....
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....ssed in assessee 's own case for A Y 2006-07 no longer holds good since the order passed by the coordinate bench is prior to the amendment made to provision of sect ion 92B of the Act. It will be pertinent to mention here that this issue was also considered by the ITAT Mumbai Bench in case of Mahindra & Mahindra Vs. DCIT in ITA No. 8597/Mum/2010, 54 SOT (UR) 146. The coordinate bench of this Tribunal while considering similar argument advanced on behalf of the assessee by placing reliance on the decision of the Four Soft Ltd.(supra), held as under: "15. 2 After hearing the rival submissions we feel that Assessing Officer will have to follow the decision of the ITAT Hyderabad or the amended provision of the Act in this regard. If the Finance Bill of 2012 is passed by the Parliament amending the provisions of section 92B, with effect from 1st April , 2002, he will have to ignore the decision of the ITAT Hyderabad. In case section 92B is not amended with retrospective effect, he should grant relief to the appellant. " 25.4 In the aforesaid view of the matter, we agree with the TPO that ALP of the corporate guarantee has to be determined as it falls within the scope a....
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....without considering the Explanation to the said Section. As we have discussed in the foregoing part of this order that the Tribunal has been taken a consistent view that corporate guarantee provided to the AE falls in the ambit of international transactions as per Section 92B(1) even without considering the Explanation inserted vide Finance Act, 2012. The Mumbai Bench of this Tribunal in the case of Siro Clinpharm Pvt. Ltd. Vs. DCIT (supra) has restricted its finding only to the applicability of Explanation in the cases where the assessment was completed prior to the insertion of the said Explanation retrospectively. Even otherwise the earlier decisions of the Tribunal on this issue were not considered by the Delhi Bench of the Tribunal. In the case of M/s. Nimbus Communication Ltd. Vs. ACIT in ITA Nos.6816/Mum/2010 and 7105/Mum/2011, the Tribunal vide order dt.7.8.2013 has considered an identical issue in paras 4 & 5 as under : " 4. As regards the issue raised in ground No. 2 relating to TP adjustment made on account of guarantee commission in respect of corporate guarantee given by the assessee to its Associated Enterprises (AEs) for obtaining bank loans, the ld. represe....
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....uarantees in the form of commercial benefits secured for future. In our opinion, such commercial expediency cannot be equated with business strategy, which is specific and well laid out. As rightly held by the ld. CIT(A), a financial loan guarantee is a commitment entered into by the assessee company with a third party lender of its Associated Enterprises which obliges the assessee company to cover the risk of default by its Associated Enterprise and this act thus involves performance or carrying out of service to cover the risk of default for which "price" has to be charged. Even the OECD Transfer Pricing Guidelines 2010 supports this view in para 7.13 where it is explained that where higher credit rating of Associated Enterprise is due to a guarantee by another group member, such association positively enhances the profit making potential of that Associated Enterprise. We, therefore, find ourselves in agreement with the contention of the ld. D.R. that there was a clear benefit accrued to the Associated Enterprises by the guarantee provided by the assessee and when such benefit was passed on by the assessee to the said Associated Enterprises, guarantee commission should have been ....
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....t 0.5% being the arm's length price. Ground No. 2 of the assessee's appeal for A.Y. 2006-07 is partly allowed." As it is clear that the Tribunal has followed the decision of the Tribunal for the earlier assessment year and while taking a consistent view held that guarantee provided by the assessee gives the benefit to the AE and such benefit was passed on by the assessee to the said AE and therefore should have been charged at ALP." 5.18 In the above decision, this Tribunal has considered the commission on guarantee fee at 0.5%. In view of the above, we direct the Ld.AO/TPO to recomputed the rate of commission attributable to the corporate guarantee in the present facts, in the light of the above. 5.19 Accordingly this ground raised by revenue for assessment years 2010-11 to 2013-14 stands partly allowed and the cross objection filed by the assessee stands dismissed. 6. ISSUE No. 3: 6.1 The next issue in assessee and revenue appeals relates to disallowance u/s. 14A under normal provisions. 6.2 We note that issue relating to 14A disallowance under normal provisions of the Act, is been challenged by both assessee as well as revenue. In case of GMR I....
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....see. The Ld. AO on the other hand, disallowed an amount of Rs. 53,72,22,595/- u/s. 14A r.w. Rule 8D, and thus, made addition to the returned income of the assessee of Rs.42,45,05,642/- (53,72,22,595 - 11,27,16,953). 6.8 Aggrieved by the order of the Ld.AO, the assessee preferred appeal before the Ld.CIT(A). 6.9 The Ld.CIT(A), considering the fact that, the own funds were more than tax free investments, and the fact that, the assessee did not earn any exempt income during the year, deleted the disallowance made by the Ld.AO, but upheld the suo-moto disallowance of Rs.11,27,16,953/- made by the assessee in its return of income, by relying on the CBDT Circular No. 549 dated 31.10.1989, wherein it is stated that, the assessed income cannot be less than the amount of returned income. 6.10 The Assessee is in appeal before this Tribunal for disallowance upheld by the Ld.CIT(A) to the extent of Rs.11,27,16,953/-. 6.11 The Department is in appeal before this Tribunal against the relief granted by the Ld. CIT(A). 6.12 The Ld.AR primarily submitted that, the fact that the assessee has not earned any exempt income is undisputed and self evident from Schedule 13 of the financial ....
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.... Recent decision of Hon'ble Bangalore ITAT in Assesseee's own case in ITA Nos.1704 & 1740/Bang/2017 & CO No.110/Bang/2017 for AY 2008-09 [Page no.398-406 of LPB-2] * Hon'ble Bangalore ITAT in group concern, namely: GMR Energy Limited in ITA Nos.1638, 1661 to 1664/Bang/2017, 1733 to 1737/Bang/2017 & CO Nos. 3,4,5,6 & 7/Bang/2017 for AY 2009- 10 to 2013-14 [Page no. 407-445 of LPB-2] * PCIT v. Sintex Industries Limited (82 taxmann.com 171)(Guj HC) [Page no. 450-454 of LPB-2] * PCIT v. Sintex Industries Limited(93 taxmann.com 24)(SC) [Page no.455 of LPB-2] * CIT v. Microlabs Ltd (383 ITR 490) (Karnataka) [Page no. 456-460 of LPB-2] * CIT v. HDFC Bank Ltd. (366 ITR 505) (Bom.) [Page no. 461-463 of LPB- 2] * HDFC Bank Ltd v. DCIT (383 ITR 529)(Bom) [Page no. 464-476 of LPB- 2] * Reliance Utilities & Power Limited (313 ITR 340) (Bom.) [Page no.477-480 of LPB-2] * PCIT v. Subramanya Constructions & Development Co. Ltd (130 taxmann.com 115) (Karnataka) [Page no. 481-484 of LPB-2] C. The Ld.AR then submitted that, it is a settled principle that, only such investments that yielded exempt income, should be considered f....
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....onsidered whereby, the disallowance u/s. 14A is restricted to the exempt income earned by the assessee and not the suo moto disallowance made in the original return of income that was withdrawn during the course of assessment proceedings by filing revised computation of income. The revenue on the contrary supported the orders of authorities below. 6.18 The Ld. DR relied upon the order of the Coordinate Bench of this Tribunal in Assessee's own case for AY 2007-08 in ITA No.1895/Bang/16 by order dated 28.07.2017, wherein the Assessee raised a fresh claim to withdraw its suo-moto disallowance u/s. 14A of the Act in course of 153A proceedings (i.e. after completion of assessment u/s. 143(3) and acceptance of disallowance u/s. 14A in such completed assessment) and the Ld.AO and Ld.CIT(A) did not consider such fresh claim of the assessee to withdraw the suo moto disallowance in 153A proceedings, since the assessment u/s. 143(3) was completed. 6.19 On an appeal before this Tribunal, the action of the Ld.CIT(A) relying on the decision of Hon'ble Rajasthan High Court in case of Jai Steel Limited reported in 36 taxmann.com 523 that, no fresh claim can be made by the assessee in 153A....
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....d on 14.10.2019. 3.2. Aggrieved, the assessee has raised this issue before the Tribunal. The learned AR reiterated the submissions made before the Income Tax Authorities and also placed reliance on the order of the Tribunal in assessee's own case for assessment years 2010-2011, 2011-2012 and 2013-2014 in ITA Nos.2145, 2146 & 2148/Bang/2016 (order dated 08.02.2019). 3.3 The learned Departmental Representative, on the other hand, submitted that the assessee had voluntarily made the disallowance u/s 14A of the I.T.Act amounting to Rs.145,02,09,668 and hence, was precluded from changing its stand and seeking the reduced of disallowance u/s 14A of the I.T.Act to Rs.27,37,47,187. 3.4 We have heard rival submissions and perused the material on record. It is settled position of law that disallowance cannot exceed the amount of dividend income earned during the relevant assessment year. In this context, the following judicial pronouncements support the stand of the assessee:- (i) Joint Investments Pvt. Ltd. v. CIT (59 Taxmann.com 295) - it was held that disallowance u/s 14A of the Act is to be restricted to the tax exempt income. (ii) Daga Global Chemical....
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....,575/-, which was increased to Rs.98,16,104/- by the Assessing Authority. Similarly, for AY 2012-13, against Nil dividend income, the Assessee himself computed disallowance at Rs.8,50,000/-, which was increased to Rs.2,61,96,790/-. 21. We cannot approve even the larger disallowance proposed by the Assessee himself in the computation of disallowance under Rule 8D made by him. These facts are akin to the case of Pragati Krishna Gramin Bank(2018) 95 Taxman.com 41 (Kar.) decided by Karnataka High Court. The legal position, as interpreted above by various judgments and again reiterated by us in this judgment, remains that the disallowance of expenditure incurred to earn exempted income cannot exceed exempted income itself and neither the Assessee nor the Revenue are entitled to take a deviated view of the matter. Because as already noted by us, the negative figure of disallowance cannot amount to hypothetical taxable income in the hands of the Assessee. The disallowance of expenditure incurred to earn exempted income has to be a smaller part of such income and should have a reasonable proportion to the exempted income earned by the Assessee in that year, which can be computed a....
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....sment proceedings u/s. 143(3) r.w.s 153A of the Act. 6.25 There is no dispute in respect of the facts that assessee had not earned any exempt income during the assessment year 2010- 11 6.26 It is also not disputed that assessee had withdrawn the claim by filing a revised computation which the Ld.AO should have considered during the assessment proceedings that was pending. Further, it is not the case of the revenue that assessee do not have sufficient interest free funds to make investments that would yield exempt income. Therefore the decisions relied by the Ld.AR referred to hereinabove supports this contention. 6.27 Respectfully following the view taken by Coordinate Bench in assessee's sister concern case, we are of the view that the Ld.AO is directed to delete the suo moto disallowance made by assessee for A.Y. 2010-11 as the assessee filed revised computation during the original assessment proceedings. 6.28 We note that similar is the situation for appeals pertaining to A.Y. 2011-12. For Assessment Years 2015-16 and 2016-17 in case of GMR Highways Ltd. filed before this Tribunal, the facts were identical wherein assessee had revised the computation of income during....
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.... 1410/Bang/2013 by order dated 09.01.2015. 7.5 The Assessee is in appeal before this Tribunal against the view taken by the Ld.CIT(A). 7.6 The Ld.AR submitted at the outset that, in ACIT Vs. Vireet Investments (P.) Ltd. reported in (2017) 165 ITD 27 Hon'ble Delhi Special Bench held that, computation of book profits u/s. 115JB is to be made without resorting to the computation, as contemplated under section 14A r.w. rule 8D. This view is also upheld by Hon'ble Karnataka High Court in the case of Sobha Developers Ltd v. DCIT reported in (2021) 125 taxmann.com 72 and held that disallowance u/s. 14A is a notional disallowance and therefore, such amount could not be added to book profits of assessee u/s. 115JB. Similar is the view by Hon'ble Karnataka High Court in the case of CIT vs. Gokaldas Images (P.) Ltd. reported in 122 taxmann.com 160. 7.7 The Ld.DR supported the orders passed by the authorities below. 7.8 We have heard the rival submissions. In our opinion, this issue stands squarely covered by the decision of Hon'ble Special Bench of Delhi Tribunal in case of ACIT vs. Vireet Investments (P.) Ltd. (supra), where in it was held that "S.14A/Rule8D: (i) the computation ....
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....is in appeal before this Tribunal. 8.5 The Ld.AR submitted that, the expenditure incurred for obtaining loan is revenue in nature. The Ld.AR submitted that Hon'ble Supreme Court in the case of India Cements Ltd v. CIT reported in (1966) 60 ITR 52 held that, the nature of expenditure incurred in raising a loan does not depend on the nature and purpose of the loan. Thus, Hon'ble Supreme Court held that, the expenditure incurred by the assessee therein on stamp duty, registration fees etc., for raising loan was in the nature of revenue expense to be allowed in the year of raising the loan. 8.6 The Ld.AR also relied on the decision of Hon'ble Supreme Court in the case of Taparia Tools Ltd. V. JCIT reported in (2015) 55 taxmann.com 361, wherein, the assessee issued debentures for 5 years, and as per one of the payment option, made one-time upfront discounted interest payment, instead of making payment of interest periodically, the entire amount so paid was allowed as deduction in year of payment itself, since such interest was a revenue expense. The Ld.AR submitted that, Hon'ble Supreme Court in Para 16 of Taparia Tools Ltd. (supra), discussed how the decision in the case of Madra....
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....d and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus in the case of Hindustan Aluminium Corporation Ltd. vs. CIT, (1982) 30 CTR (Cal) 363: (1983) 144 ITR 474 (Cal) the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question. 16. Issuing debentures at a discount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures." 8.7 It is the submission of Ld.AR that the facts of the assessee's case is similar to the case of Taparia Tools (supra), and the ratio therein is squarely applicable to the assessee. The Ld.AR further submitted that Coordinate Bench of this Tribunal in Syndicate Bank v. ....
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....ead over a number of years even if the assessee has written it off in his books over a period of years". 8.14 In present facts, the Ld.AO spread over the expenditure over the period of tenure. The Ld.AO treated the same as deferred expenditure, which is an accounting concept and alien to the Act. The provisions of the Act recognizes only capital or revenue expenditure. 8.15 In a subsequent decision by Hon'ble Supreme Court in case of CIT vs. Secure Meters Ltd. reported in 2009 TIOL 93, it was held that an expenditure on loan was allowable as revenue expenditure. Similar is the view expressed in case of Taparia Tools (supra) by Hon'ble Supreme Court. 8.16 Respectfully following the above views by Hon'ble Supreme Court, we direct the Ld.AO to allow the claim of assessee in entirety in the year under consideration. 8.17 Accordingly this ground raised by assessee for A.Y. 2010-11 stands allowed. 9. ISSUE No.6: Levy of interest u/s. 234B: 9.1 This ground is raised in A.Ys. 2010-11 and 2011-12. Ground V - Dept. Appeal Ground IV-C.O. of assessee Facts of the case are as under: 9.2 In the return of income filed by the Assessee, no interest u/s. 234B was calcul....
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....and 6.7.2 and relied on the judicial decision and allowed the ground of appeal with the observation on charging of interest under Section 234B from the date of passing the intimation under Section 143(1) of the Act as under : 6.7.1 In this regard the appellant in the written submissions has contended that the Appellant has filed the return of income on September 30, 2009. Subsequently it has filed the revised return of income on August 30,2010. In the return of income, the Appellant has not calculated any interest u/s. 234B since there was no shortfall in payment of advance tax. The revised return of income filed on August 30, 2010 was processed and Intimation u/s. 143(1) dated March 7, 2011 was passed accepting the income offered for tax. Further, in the said Intimation, no interest u/s. 234B was levied. Consequent to search operation, Income tax assessment has been completed vide Order u/s. 143(3) r.w.s. 153A r.w.s. 144C making certain disallowances/additions. In the assessment order, the AO has levied interest u/s. 234B of Rs.2,00,48,336/- calculated from first day of the assessment year till the date of order passed u/s. 143(3) r.w.s. 153A r.w.s 144C. It is submitted t....
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....maintenance services in the highway sector relating to the development, operations and maintenance of various highway projects. The assessee enters into operation and maintenance agreements with Highway Special Purpose Vehicle (SPV) for the operation, repairs and maintenance of highways. 10.3 During the years under consideration, there is a difference between the gross receipts as per Form 26AS, and the gross receipts as per the returned income and books of account of the Assessee. 10.4 During the course of assessment proceedings, the Ld.AO added the difference as undeclared business receipts to the returned income of the assessee. 10.5 Against the order passed by the Ld.AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) dismissed the appeal of the assessee and upheld the addition made by the Ld.AO. Aggrieved by the order of Ld.CIT(A), the assessee is in appeal before this Tribunal. 10.6 Before this Tribunal, the Ld.AR submitted that, the Ld.AO proceeded to make the addition without considering the submissions of the assessee, with respect to the difference in income reported in Form 26AS and income as disclosed in the return. 10.7 Before reconcil....