TaxTMI 
TaxTMI 
2024 (2) TMI 921
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....bmits that this ground of appeal is also covered by Hon'ble Bombay High Court and decision of various benches of Tribunal in Otis Elevator (195 ITR 682). The ld. AR of the assessee submits that the assessee claimed total expenses of Rs. 3,52,200/- out of which, the Assessing Officer allowed Rs. 52,000/- paid to Devas Office and rest of the amount of Rs. 2,99,500/- for subscription fees, annual contribution and membership of various club and other expenses paid on club were disallowed. The ld. CIT (A) granted part relief restricting the disallowance to Rs. 2,65,000/-. The ld. AR of the assessee submits that the issue is stand covered by the decision of jurisdictional High Court in Otis Elevator (supra). 14. On the other hand, the ld. DR for the revenue supported the order of lower authorities. 15. We have considered the submission of both the parties and perused the record and find that the Hon'ble Bombay High Court in Otis Elevator (supra) held that the payment made to clubs are revenue in nature and are allowable as such. We have further noted that in assessee's own case for Assessment Year 1996-97, 1997-98 & 1998-99, the co-ordinate bench of Tribunal in ITA No. ....
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....) That, accordingly, the Interest of Rs. 1,65,35,000/- was allowable under Section 36(1) (iii) of the Act. The Appellant submits that the learned AO-DRP erred in this respect in not following the binding order of this Hon'ble Tribunal in the Appellant's own case for the Assessment Years 2000-01 to 2002-03, viz., the Order dated 8^th June, 2012 of the Hon'ble Mumbai Bench 'E', in I.T.A. Nos. 3957, 3958 & 3959 / M um / 2006 2.4. without prejudice to the foregoing grounds, the Appellant submits that, in making their determinations in respect of the disallowance under Section 14-A, the learned AO-DRP erred in the following respects: (1) The learned AO-DRP erred in holding that the amount disallowed under Section 14-A was not allowable under Section 36(1)(iii) of the Act (2) The learned AO-DRP erred in holding that a part of the Appellant's borrowed funds had been used for the purpose of making investments in shares, particularly in view of the fact that the Appellant's Own Funds (Rs. 294.23 Crores) were far in excess of the Appellant's Total Investments ( Rs. 133.67 Crores). (3) The learned AO-DRP erred in hol....
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....lant's investments as were made on or before 31 March, 1999 ("Old Investments"). (2) The learned AO-DRP erred in rejecting the Appellant's further alternative claim to the effect that the learned AO-DRP ought to have excluded the average cost of such of the Appellant's investments as had not yielded any dividends during the year under consideration ("Non Dividend Yielding Investments"). (3) The findings of the learned DRP [in paragraph 19 (at page 6) and paragraph 20 (at page 7) of its Directions] to the effect that there is expenditure incurred in respect of the Appellant's investments by way of costs involving decision-making, direct supervision and funding, are based on conjectures and surmises and are unsupported by any evidence on record and, consequently, are perverse. 4. During the year under reference, the appellant has earned exempt income of Rs. 4, 52, 05,031/-. The appellant has not incurred any expenditure for earning the exempt income. The appellant's Owned Funds aggregated to Rs. 31,048.70 Lakhs which comprise of Share Capital amounting to Rs. 2,153.80 Lakhs and Reserves and Surplus amounting to Rs. 29,048.70 Lakhs. The Annual ....
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....u/s. 14A of the Act in respect of interest expenditure ought to be deleted. (i) South Indian Bank Ltd vs. Commissioner of Income Tax 438 ITR 1 (SC) (09- 09-2021) (Para 27 Page 51) (Page 45 to 51) (ii) CIT vs. Reliance Utilities & Power Ltd [2009] 313 ITR 340 (Bom) (Page 52 to 55) (iii) HDFC Bank Ltd vs. DCIT 383 ITR 529 (Bom. HC) (Page 56 to 68) 8. Alternatively and without prejudice to the above, it is submitted that interest expense of Rs. 1144.02 Lakhs includes interest aggregating to Rs. 1041.99 Lakhs which is in relation to (EPC) Export Packing Credit and Pre Shipment Credit in Foreign Currency incurred for the purpose of export/ import business of the appellant. The appellant is prohibited, under Reserve Bank of India's Regulations, from using any part of such credit for any purpose other than the appellant's export business. Hence, such interest has to be excluded while computing the amount of disallowance. The details of interest expenditure are submitted at Page 57 of Paper Book (Corporate Grounds). 9. The appellant submits that the disallowance under Rule 8D(2)(iii) may be restricted to 0.5% of only those investments which have yie....
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....ppellant submits, without prejudice to the foregoing ground, and assuming whilst denying that any Transfer Pricing Adjustment was required to be made to the Total Income returned by the Appellant in respect of the Appellant's non-recovery of any fees or commission from its concerned AEs, that bank guarantee commission is not the appropriate benchmarking tool for determining the arm's length price of the "Income" accruing to the Appellant from the issue of each of the LOCs aforesaid. 3.4. without, prejudice to the foregoing grounds, and assuming whilst denying (1) that any Transfer Pricing Adjustment was required to be made to the Total Income returned by the Appellant in respect of the Appellant's non-recovery of any fees or commission from its concerned AEs and (i) that the rates of bank guarantee commission charged to the Appellant by its Bankers are relevant for making any such Adjustment, the Appellant submits that, having regard to the fact that the rates of such bank guarantee commission ranged from 0.30% per annum to 2.0% per annum [Paragraph 57, at Page 19 of the learned DRP's Directions), it is the lowest of those rates, i.e., 0.3....
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....para Nos. 19 to 24 on page nos. 31 to 36 of the order) and is enclosed herewith at page 21 to 38 for ease of reference. The relevant extracts of the said decision are reproduced hereunder: "The Id. CIT(A) after considering the submission of assessee concluded that by issuing Letter of Comfort to the Bankers of AE, the assessee did not incurred any cost. The issuance of Letter of Comfort by assessee have no bearing on the profit, income or loss as the assessee did not incur any cost or expenditure for issuing such Letter of Comfort and it does not constitute international transaction under section 92B of the Act. The Id. CIT (A) concluded that there is a fundamental gap between guarantee and Letter of Comfort. Guarantee is a legally enforceable; however, Letter of Comfort is not. We have noted that Hon'ble Karnataka High Court in United Braveries (Holding) Ltd. vs. Karnataka State Industrial Investment and Development Corporation (supra) held that Letter of Comfort merely indicates the appellant's assurance that respondent would comply with the term of financial transaction without guaranteeing performance in the event of default. The co- ordinate bench of Tribunal ....
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....hod for determining the arm's length price of this transaction and in determining the price, the TPO mentioned that Indian bank charged a fee ranging from 0.25% to 15% of the value of guarantee given to its customers depending upon the risk involved. The TPO proceeded to determine the arm's length commission to be 50% of 1.5% at 0.75%. Based on this the TPO proposed an adjustment of Rs. 5, 75, 38,800/- be made to the total income of the appellant. The adjustment was computed on the value of the LOCs issued by the appellant to its AE's as against the actual draw down of funds from the bank by the AE's. ii. The AO under Section 143(3) of the Act passed the assessment order in conformity with the addition proposed by the TPO incorporating the proposed addition of Rs. 5,75,38,800/- to the returned income of the appellant. iii. The appellant has filed detailed submissions distinguishing a letter of comfort with intra-group credit guarantees together with other related issues. iv. In view of the facts of the case and position of letter of comfort 1 am not inclined to treat letter of comfort (LOC) at par with intra-group credit guarantee....
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....ground No. 6C(ii) which is in respect of comparable data for benchmarking and accordingly the appellant would not like to press ground No. 6C(ii) of appeal However in view of the position above such letter filed by the appellant becomes in consequential vii. In view of the facts of the case, discussion herein above and consistent with the decision taken by my predecessor for A.Y. 2005-06 and by me for A.Y 2006-07 in the appellant's case, the adjustment of Rs. 5,75,38,800/- is therefore deleted. viii Thus, this ground of appeal is allowed. 12. We find that the Tribunal in A.Y.2005-06 has decided this issue in favour of the assessee after observing as under:- Ground No.6 to 9 relates to Transfer Pricing Adjustment with respect to issuance of "Letter of Comfort". This issue is interconnected with the grounds of appeal raised by revenue in its cross appeal. The Id. AR of the assessee submits that Id. CIT (A) deleted the adjustment against which the revenue has filed its cross appeal. The Id. AR of the assessee submits that the assessee issued Letter of Comfort to Bankers of Associated Enterprises (AE) of assessee. The assessee not reported this t....
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....t in United Braveries Holding Ltd. Karnataka State Industrial Investment and Development Corporation Ltd. (M.F.A. No. 4234 of 2007 (SFC), wherein it was held that Letter of Comfort merely indicates the parties assurance that respondent would comply with the term of financial transaction without guaranteeing performance in the event of default. 13. since in the earlier year this precise issue has been decided in favour of the assessee, therefore, as precedence, following the aforesaid decision, we uphold the order of the ld. CIT (A) and consequently grounds raised by the Revenue are dismissed. 15. Since in the earlier assessment years namely 2005-06, 2006-07 and 2007-08 issue has been discussed and examined by the Coordinate Benches and revenue is not able to bring anything adverse on record to deviate from the earlier views, we respectfully follow the decisions of Coordinate Benches in earlier years and allow the ground taken by the assessee. In the result, AO is directed to delete the addition made on this count. 4.1. The learned AO-DRP erred in making an addition of Rs. 20, 79,633/- to the Total Income returned by the Appellant, as and by way of a Transfer Pr....
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.... November 2023) and the rate of interest charged by the Appellant is 6%, which is higher than the said LIBOR rate. 18. The dispute here is applicability of interest rate on amounts due from AEs is to be calculated based on PLR rate declared by RBI (being Central Bank of India where assessee is based) or LIBOR rate (as AE is based outside India). It's a legal issue and precisely the same issue has been dealt in by the Hon'ble Delhi High Court in the case of CIT-I vs. Cotton Naturals (I) (P) Ltd. [2015] 231 Taxmann 401 (Del.) and held as under: "The question whether the interest rate prevailing in India should be applied, for the lender was an Indian company/assessee, or the lending rate prevalent in the United States should be applied, for the borrower was a resident and an assessee of the said country, must be answered by adopting and applying a commonsensical and pragmatic reasoning. The interest rate should be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid. Interest rates should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of residence of either....
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....e determinative. Thus, in case of a capital investment, the borrowing rate will apply, whereas in case of credit allowed to a customer on sale of goods, the lending rate would apply. We do not deem it necessary to enter into this controversy and express our view as regards the same. [Para 43]" 19. As the identical situation was there and analysed by the Hon'ble High Court (supra) and there is no argument advanced by the revenue to counter the same, we respectfully follow the same and confirmed the treatment on this issue given by the assessee. In view of above, ground raised by the assessee is allowed and AO is directed to delete the addition made on this count. 5. the Learned AO-DRP in disallowing expenditure aggregating Rs. 1, 74,544/-, by way of payments made to the Tata Public School, Devas Madhya Pradesh. 20. This ground of appeal is not pressed by the AR of the assessee, hence the same is dismissed. 6. the learned AO-DRP erred in disallowing expenditure aggregating 17, 76,270/-, by way of Additional Sales Tax paid. 21. This ground relates to disallowance of expenditure incurred by way of "Additional Sales Tax" amounting to Rs. 17,76,270/-. During th....
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....es. The appellant also submitted the invoices raised by the said party. However, the AO disallowed said expenditure for want of proof of services rendered. 25. The appellant had entered into an agreement with M/s Vaishnavi Corporate Communications Pvt Ltd. A copy of said agreement is placed at Page 73 to 83 of the Paper Book (Corporate Ground). Annexure A attached to said agreement (Page 83) describes the scope of work. In terms of the said agreement following services have been rendered to the appellant: (i) Public Relation services in India from its various office locations across the country like Delhi, Mumbai, Chennai & Kolkata. (ii) A contact person was made available to address all day-to-day matters and serve appellant's needs, interact with the Company's key personnel. (iii) Responsibilities for public relations including proactive strategy sessions for image building and product & market related public relations. (iv) Responsibilities for the appellant's output to the media/external audiences. The Scope of work is reproduced hereunder: 26. The appellant has explained the nature of services rendered and has subm....
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.... Tata Coffee Ltd. • Trent Ltd. • Titan Industries Ltd. • CMC Limited • Tata International Limited • Tata Autocomp Systems Ltd." Page 21 of the order: "Since, the assessee having made investments in various group companies would certainly like to have a unified media focus for the entire Tata group and since VCCPL is a company which has got the necessary expertise of providing such services, the assessee had entered into the agreement dated 21/11 / 2006 with them and has made payments of Rs. 12.66 Cores towards media relation agency fees. We also find that similar services were rendered by VCCPL to the assessee in earlier years as well as in subsequent years which were duly allowed as deduction by the Revenue as under:" Para 7.8 of the order: "Hence, in view of the aforesaid observations and applying the principle of consistency as has been held by the Hon'ble Supreme Court in the case of Radhasoami Satsang reported in 193 ITR 321 (SC), in allowing such claim to the assessee in earlier as well as in subsequent years, we hold that there is absolutely no case made out by the revenu....
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....audiences. The submissions of the assessee were considered. On perusal thereof, it was seen that the assessee has failed to establish rendering of service to VCCPL for which the amount in question was paid to it. In spite of repeated reminders, Assessee Company did not produce any supporting papers of evidencing the rendering of the service by them to the assessee. M/s. VCCPL In view of this, it was held that the assessee has failed to establish the business connection of the service involved and rendering of the service itself so as to claim the same by way of expenditure in the books of accounts maintained for the year. DRP's Directions Pages 10 to 12, Paras 30 to 33 The DRP has rejected the assessee's ground of objection on this issue (Pages 11 to 12, Para 33). In view of this, the amount of Rs. 36, 32,040/- paid to M/s VCCPL is disallowed and added to the income of the assessee. Objection 8 Proposed Disallowance out of Expenditure by way of Professional Charges Paid 30. During the year under consideration, the Assessee had incurred expenditure in a sum of Rs 36,32,040/-, representing fees paid to Vaishnavi Corporate ....
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....endering of the service itself. Directions: 33. We have considered the submissions of the assessee, views of the AO and the material on record. The assessee has not submitted any substantial evidence regarding the services rendered. The only evidence is some reports which have been periodically received from the assessee. Simply because there is a contract does not mean that services have been rendered proportionate to the payment that has been made. Further, the assessee is a star trading house whose activity is mainly from exports. It is neither a consumer company, nor a hotel where public relation services are of significant importance, like the other group companies, viz. Indian Hotels etc. Similar agreements have been made with other companies also. In the case of Indian Hotels, the DRP in the earlier year had occasion to examine the expenditure on the same issue. It came to the definite conclusion that the assessee had not provided evidence regarding services rendered top justify the payments made. The DRP disallowed the payments in that case. We find that the facts & circumstances with regard t the payment made to the assessee company is similar. The eviden....
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....nation 1 to section 115JB (2) of the Act is warranted and as hold (supra) that the appellant has not incurred any expenditure towards earning exempt income addition otherwise also cannot be made. In view of this AO is directed to delete the addition of Rs. 1, 65, 35,000/- made u/s. 115JB of the Act. Ground raised by the assessee is allowed. 9. The learned AO erred in charging from the Appellant, an amount of 2,77,01,822/-, as "Amount already refunded", having regard to the fact that no amount whatsoever has ever been refunded to the Appellant in respect of the year under consideration. 10. The learned AO erred in charging from the Appellant, an amount of 67,32,000, as "Additional Income Tax and Interest Payable on Distributed Profits", having regard to the fact that the Tax on Distributed Profits payable under Section 115-O during the year under consideration, viz., 67,98,000 (representing 16.995% of the Dividend of 4,00,00,000 paid by the Appellant for the year ended on 31st March, 2007) had been paid by the Appellant on 19th September, 2007. 11. The learned AO erred in charging from the Appellant, an amount of 29,08,689, as "Interest u/s 244A", having r....
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.... direct the AO to verify the relevant documents to be submitted by the assessee and resolve the matter as per law within 3 months from the end of the month in which our order is being received. In view of above, ground nos. 9, 10 & 11 are allowed for statistical purposes. 38. with above directions, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 6^th of February 2024. ============= Document 1 Scope of Work VAISHNAVI mandate partains to the Public Relations Services relating to the Client. Accordingly. VAISHNAVI will allocate adequate full-time and part-time resources and expertise to service the Client. VAISHNAVI will offer its Public Relations Services in India from its various office locations across the country, at Delhi, Mumbai, Bangalore, Hyderabad , Chennai, Kolkata, Ahemdabad, Lucknow. and Bhushaneshwar. Each Vaishnavl branch will be appropriately organized to address the separate activities of Public relations, and Public Affairs matters for the Cloht at each of the specific locations mentioned above; the. head of each branch will be fully networked with tho heads o....