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2023 (9) TMI 1428
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....dated 6/1/2015 wherein the returned income of the assessee filed on 29/9/2010 declaring a total income of Rs. 464,468,113/- was assessed at Rs. 2,141,221,370/- in view of the transfer pricing adjustment of Rs. 23,672,543 and disallowance under section 14 A of Rs. 115,296,911 made by the learned assessing officer pursuant to the order of the learned transfer pricing officer and subject to the direction of the learned dispute resolution panel dated 12/11/2014. 03. Assessee is aggrieved with the same and has preferred this appeal before us raising following grounds of appeal:- Non-Transfer Pricing Issues 1. The learned DRP ought in holding that the provisions of section 14 A of the act were applicable in case of the appellant, since the dividend from shares/units of mutual funds is subjected to tax in the hence of the payer under section 115 - O/115 - R of the act and as the appellant receives and amount after the tax has been paid, it cannot be said that the such dividend income is not chargeable to tax under the act and hence the provisions of section 14 A are not attracted in case of the appellant. 2. The learned DRP ought in holding that the aggregate inter....
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....hip (India) Ltd and CGU adjusted Ltd are strategy for long-term investment for business purposes and hence the same are not to be considered as investments yielding tax free income for computing the average value of investments for the purpose of rule 8D. 8. Without prejudice to the aforesaid grounds, the learned DRP order in rejecting the contention of the appellant that the provisions of section 14 A of the act are not applicable to investments held as stock in trade. 9. The AO erred in not granting credit of tax deducted at source Aggregating to Rs. 31,120/- while framing the assessment order under section 143 (3) read with section 144C (13) of the act without assigning any reasons for the non-grant of such credit Transfer Pricing Issues 10. assessing officer/transfer pricing officer erred in making adjustments under section 92C capital (3) without providing reasons as to which conditions of section 92C (3) had not been satisfied. Financial guarantees given on behalf of the associated enterprises 11. The AO/TPO erred in holding that the financial guarantees given by the appellant on behalf of its associated enterprises constituted an int....
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....ions of section 14 A and rule 8D cannot be applied for computing the book profits under section 115JB of the act 05. Briefly stated the fact shows that the assessee company is engaged in the business of shipping, property development and finance operations including dealing in shares, securities, mutual funds and other money market operations and granting of loans and advances. The business of the assessee continued having the same facts and circumstances as compared to the earlier assessment years. It filed return of income on 29/9/2010 declaring total income of Rs. 464,468,113/-. The return of income was picked up for scrutiny. 06. As the assessee has entered into several international transaction, reference was made under section 92C capital (1) of the act for the computation of arm's-length price in relation to the international transaction by the learned assessing officer to the transfer pricing officer -ii (2), Mumbai (the learned TPO) on 18/1/2013. The learned TPO examined the international transaction. He found that 07. The assessee company has given financial guarantee to ICICI bank of US dollar 25 million of rupees hundred and 20.7 crores (at the end rupees nil) ....
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....rm's-length price. Therefore on the financial guarantee of Rs. 461 crores for 201 lazy computed the arm's-length price of Rs. 76,159,726/- and in respect of the performance guarantee outstanding of Rs. 147.87 crores he computed the arm's-length price of Rs. 44,361,000/-. As assessee has already offered the adjustment of Rs. 29,196,121/- the net adjustment of Rs. 91,324,605/- was made by passing an order under section 92CA (3) of the act dated 31/10/2013. 10. The draft assessment order included the above transfer pricing adjustment. 11. Further the learned assessing officer noted that assessee company has shown an amount of Rs. 423,053,242/- as dividend income out of which a sum of Rs. 8,151,229 has been treated as expenditure attributable to earning of dividend income and amount of Rs. 413,198,013 has been claimed as exempt under section 10 (34) of the act. The assessee was asked to furnish the details of the expenditure incurred for earning of the exempt income. Assessee contended that it is not incurred any expenditure for the purpose of earning exempt income and therefore no disallowance under section 14 A squad for. However during the course of assessment proceedings the ....
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....n of the ship therefore it the learned AO was of the view that the said expenditure has to be necessary classified as pertaining to the tonnage tax activity. Accordingly the interest of Rs. 5,670,168 is classified as the interest expenditure which should relate to the shipping activity of the assessee chargeable to tax under the tonnage tax scheme but the assessee has claimed this interest as deduction from the regular income, hence the learned AO made the addition of the same. 14. Accordingly the draft assessment order was passed on 19/2/2014 determining total income of the assessee at Rs. 90,58,24,995/- wherein the adjustment of arm's-length price of international transaction of Rs. 93,024,605/-, disallowance under section 14 A of Rs. 344,362,109/- and reallocation of the interest expenditure amounting to Rs. 5,670,168/- was made to the returned income of Rs. 46,44,68,113. The book profit was also enhanced by disallowance under section 14 A of the act. 15. Assessee preferred an objection before the learned dispute resolution panel, directions were passed under section 144C (5) of the act on 12/11/2014. On the ground of the judicial consistency, the dispute resolution panel ....
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....31, 2010, relevant to the Assessment Year 2010-11 has been submitted in the compilation filed (Pages 3&4 of the Compilation). The tonnage tax income of Rs.183.61 crores has been excluded while computing the Business Income in accordance with the provisions of Section 115VF of the Act and tax is paid on the income computed in accordance with the provisions of Section 115V-I of the Act, based on the tonnage of the ships operated by the Appellant Company. Hence, the gross receipts of the tonnage tax business (Rs.1931.34 crores) and the expenses pertaining to the tonnage tax business (Rs.1747.73 crores) have been excluded while computing the Business Income of the Appellant Company. Disallowance under Rule 8D(2)(i) of the Rules iii) The actual administrative expenditure incurred by the Treasury Division including employee costs and other relatable expenses has been allocated by the Appellant between the taxable and non-taxable gross receipts of the Treasury Division and the disallowance under Rule 8D(2)(i) is computed accordingly. There is therefore no dispute on this disallowance. Disallowance under Rule 8D(2)(ii) of the Rules iv) As regards the dis....
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....opt the prescribed formula and the amount of indirect interest attributable to exempt income also has to be computed by this formula. Reliance is also placed on the decision of Bharti Overseas Ltd. (ITA No. 802/2015) (Del.). Without prejudice to the contention of the Appellant that there is no interest expenditure liable for disallowance under Rule 8D, it is respectfully submitted that in any event, the tonnage tax interest expenditure is required to be excluded while computing the disallowance under Rule 8D(2)(ii). This issue is covered in favour of the Appellant by the Hon'ble Income Tax Appellate Tribunal, Mumbai, in the Appellant's own case for the Assessment Year 2008-09 (Page 8, Para 10.1) whereby the interest expenditure of the tonnage tax business is to be excluded while computing the disallowance under Rule 8D(2)(ii). vii) The Appellant contends that there is no interest expenditure which is liable for disallowance under Section 14A of the Act read with Rule 8D. On a perusal of the Share Capital and Reserves and Surplus in the Balance Sheet as at the year end, the Reserves and Surplus amount to Rs.521883 lakhs and the Share Capital amounts to Rs.15229 lak....
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....khs incurred by the Treasury Division of the Appellant Company and claimed accordingly, the Assessing Officer has disallowed notional expenditure aggregating to Rs.8.57 crores under clause 2(iii) of Rule 8D, which is completely erroneous and unwarranted. Reliance in this regard is placed on the following decisions: a) Adani Agro (P.) Ltd. - 253 Taxman 507 (Guj) This issue is covered in favour of the Appellant by the Hon'ble Income Tax Appellate Tribunal, Mumbai, in the Appellant's own case for the Assessment Year 2008-09 (Page 8, Para 10.2). General Applicability of Rule 8D of the Rules x) The Appellant further submits that both the lower authorities erred in applying Section 14A of the Act in respect of several investments on which no dividend income was received by the Appellant during the year. Without prejudice to the contention of the Appellant that there is no further disallowance of interest expenditure or administrative expenditure, the Appellant submits that the disallowance under Section 14A read with Rule 8D2(ii) and (iii) be recomputed by excluding those investments on which no dividend income was received during the year. The stateme....
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....to the tonnage tax business is required to be excluded. • The administrative expenses cannot exceed the actual expenditure incurred. • Without prejudice to the foregoing contentions, it is respectfully submitted that even if a disallowance is warranted under Rule 8D (2)(ii) & 8D(2)(iii), those investments on which no exempt dividend income was received by the Appellant during the year are to be excluded while computing such disallowance. • No disallowance can be made under Section 14A of the Act when computing the Book Profit under Section 115JB of the Act. The statement giving the disallowance under Rule 8D as per the above contentions has been submitted in the compilation filed (Pages 36 to 38 of the Compilation), whereby the disallowance under Section 14A of the Act read with Rule 8D aggregates to Rs.22.37 lakhs. 18. The learned departmental representative vehemently supported the order of the learned assessing officer, which was passed pursuant to the directions of the learned dispute resolution panel. 19. However, both the parties submitted that identical issue has been raised in the appeal of the assessee for assessment ye....
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....21. Accordingly, with similar direction allowing ground number 1 - 8 of the appeal along with three additional issues raised, we restore the issue back to the file of the learned assessing officer. 22. Ground number 9 is with respect to the non-granting of tax deduction at source credit aggregating to Rs. 31,120. After hearing the parties we direct the learned assessing officer to verify the availability of the credit to the assessee and if it is found in accordance with the law, grant the same. Accordingly, ground number 9 of the appeal is allowed with above direction. 23. Ground number 10 was against the transfer pricing issues, no arguments were advanced and therefore, it is dismissed. 24. Ground number 11 - 13 is with respect to the determination of the arm's-length price of the financial guarantee given by the assessee to its associated enterprises. Both the parties confirmed that the facts and circumstances of the case are identical except to the fact that in that assessment year 2009 - 10, the assessee made assumed to adjustment of 0.55% of the financial guarantee, whereas in this case the adjustment is with respect to 1.15% as guarantee fees made by the assessee on....
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....in different rates for guarantee commission were charged, upheld 0.43% commission p.a. charged by the assessee as ALP. In the instant case, the TPO had made adjustment by determining guarantee commission @3%. The rate of guarantee commission was restricted by the DRP to 1.5%. As is evident from the letters from various banks on record, different rates of guarantee commission are charged by different banks depending upon the extent and duration of facility availed. Taking note of wide-ranging guarantee commission rates being charged by different banks, we adopt guarantee commission rate approved by Hon'ble Bombay High Court in the case of Everest Kanto Cylinders Ltd., 378 ITR 57(Bom), i.e. 0.55%. We uphold guarantee commission charged by the assessee at 0.55%. Hence, no adjustment is warranted on this issue. The, assessee succeeds on ground No.22 to 24 of the appeal." 048. We have carefully considered the reasons given by the coordinate bench while deleting the adjustment on account of corporate guarantee commission. However, we are not inclined to accept that as the honourable Bombay High Court in case of Everest Kanto cylinders Ltd (378 ITR 57 (Bom)) has upheld the be....
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....rantee charged by the bankers on the assessee is 0 .56%, is compared with the corporate guarantee issued by the assessee to the bankers on behalf of its associated enterprises, in any way cannot exceed 0.56%. Therefore, the adjustment made by the assessee is at maximum. Therefore, even otherwise, when the assessee has offered the income being adjustment of ALP of international transaction more than what it could have been in a worst-case scenario, no further adjustment can be made. Therefore, for this solitary reason we do not find that the method adopted by the assessee is improper and further for comparison, the assessee has selected maximum what could have been charged as corporate guarantee fees. Accordingly, ground number 12 and 13 of the appeal of the assessee are allowed upholding the benchmarking analysis made by the assessee and thereby deleting upward adjustment made by the learned lower authorities." 26. For this year, the assessee has computed ALP at the rate of 1.15% on its own. Therefore, we have no hesitation in upholding that the guarantee commission rate adopted by the assessee is at arm's-length price. Accordingly, ground number 11 - 13 of the appeal is allowed....
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....ed by the assessee assailing the adjustment. 22. Both sides heard. The assessee had extended performance guarantee to shipyard in respect of its 100% subsidiary based in Singapore. The assessee has taken ALP of the performance guarantee facility as „Nil‟. The DRP has determined ALP of the transaction @1%. The agreement in respect of which performance guarantee has been extended by the assessee on behalf of its foreign subsidiary is with respect to construction of a ship. Guarantee has been extended to a shipyard. If guarantee were invoked, the assessee would be under obligation to pay guarantee, in turn the assessee would acquire the vessel. We find force in the argument of the Counsel for the assessee, there is no element of risk involved. In any case, on enforcement of guarantee clause, the assessee would acquire vessel, the assessee can use the same in its own business. 22.1. We find that the Tribunal in the case of ACIT vs. KEC International Ltd. 108 taxmann.com 172 (Mumbai) deleted adjustment made on account of performance guarantee where there was absolutely no risk involved for the assessee in issuing performance guarantee on behalf of its AE. T....
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.... involved of making a payment to the Singapore entity in the event of failure of payment by associated Enterprises to Singapore entity, by the assessee. Therefore, there is a financial liability involved. The agreement of the assessee with its associated enterprises to take the possession of 2 vessels is only mitigates or risk management action of the assessee arising out of the corporate guarantee. Thus, the argument of the assessee cannot be accepted that the situation is akin to the assessee placing an order for construction of vessels. It is immaterial that assessee has any number of vessels in its business in the current financial year; the only material aspect is that whether any independent party would have issued such performance guarantee on behalf of associated enterprises of the assessee without charging any commission for issue of such guarantee. The answer is clearly in negative. Therefore, there exists an international transaction; this international transaction should have resulted into remuneration to the assessee. Such remuneration should have been benchmarked and it should have been demonstrated that it is at arm's-length. 060. Performance guarantee is sh....
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.... Suo Motto adjustment with respect to the financial guarantee of 0.55% of the outstanding guarantees. These performance guarantees in the nature of financial guarantees needs to be benchmarked, which can be remunerated at less than that rate. As in the case of financial guarantees without any security, the assessee has offered Suo Motto disallowance of 0.55% as guarantee. In addition, here the assessee has adequate security and therefore the benchmarking of this performance guarantee needs to be substantially lower than pure financial guarantees. Thus the rates adopted by the learned TPO and the learned dispute resolution panel are not at all relevant and are exorbitant high without any basis. Therefore, those rates are already rejected by us. 064. Accordingly ground number 14 - 16 of the appeal of the assessee is set-aside to the file of the learned assessing officer with a direction to the assessee to benchmarked the above international transaction and produce relevant details of benchmarking to the learned assessing officer/transfer pricing officer, the learned AO/TPO may examine the same and decide the issue in accordance with the law." 29. While deciding that groun....
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.... - 10. The facts and circumstances are also similar. The learned departmental representative also confirmed the above fact. 34. On careful consideration of the facts and circumstances of the case, we find that identical issue arose in the case of the assessee for assessment year 2009 - 10 wherein we have set-aside the issue back to the file of the learned assessing officer with certain directions to compute the disallowance under section 14 A of the act. The similar directions were also repeated in the appeal of the assessee for assessment year 2010 - 11 disposed of by this order. With identical directions, we also set-aside ground number 1 - 8 of the appeal of the assessee along with the three additional issues raised by the assessee with respect to the above disallowances. The learned assessing officer may recompute the disallowance in pursuance of the above directions. Accordingly, ground number 1 - 8 of the appeal is allowed with above directions. 35. Ground number 9 - 11 is with respect to the arm's-length price of performance guarantee issued by the assessee to the associated enterprises. Both the parties confirmed these ground are identical to the facts and circumstanc....
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....28/11/2014 as per normal computation of income at Rs. 129,580,418 and the book profit of Rs. 249,557,343., Was partly allowed. Therefore both the parties are aggrieved and are in appeal. 39. The assessee is aggrieved with the order of the learned CIT - A wherein the disallowance under section 14 A of the income tax act made by the learned assessing officer was upheld except to the exception that the learned assessing officer was directed to consider the interest expenditure liable for disallowance under section 14 A of the act with respect to the interest under the head of non-tonnage income after reducing the items of interest expenditure already disallowed by the appellant in the return of income and the interest expenditure on investment yielding taxable income. The assessee has preferred this appeal raising 1 - 5 grounds of appeal on that issue. Further the learned CIT - A upheld the adjustment of book profit by the disallowance under section 14 A of the act, it is challenged by the assessee as per ground number six of the appeal. 40. The learned AO is aggrieved by the order of the learned CIT - A wherein, he has deleted the adjustment of Rs. 26,794,152/- being the intere....