TaxTMI 
TaxTMI 
2023 (9) TMI 1466
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....ntly, the assessment proceedings and the assessment order be quashed. 2. Transfer pricing addition on account of corporate guarantee: 2.1. On the facts and circumstances of the case and in law, the DRP erred in confirming the action of the TPO/AO in holding that issuance of corporate guarantee is an 'international transaction' and consequently, transfer pricing addition of Rs. 13,97,23,463/- should be made at the rate of 1.16% of the guarantee amount. 2.2. They failed to appreciate and ought to have held that mere issuance of corporate guarantee is not an 'international transaction". 2.3. The Appellant prays that the TPO/AO be directed to delete the transfer pricing adjustment on account of corporate guarantee. 2.4. Without prejudice to the above, the rate of corporate guarantee commission be reduced reasonably. 3. Addition to income based on Service Tax Return: 3.1. On the facts and circumstances of the case and in law, the DRP erred in confirming the action of the AO in considering Rs. 43,42,62,923/- as income of Appellant being the amount of advance received by the Appellant from its customers which was reflected in service tax returns as Advance....
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....sues raised by the assessee ground wise. 4. With regard to Ground No. 1 which is in respect of Non-compliance with section 144B of the Act, Ld. AR of the assessee submitted that this ground is not pressed, accordingly, the same is dismissed as not pressed. 5. With regard to Ground No. 2, which is in respect of, transfer pricing addition on account of corporate guarantee, Ld. AR of the assessee submitted that the issue under consideration is relating to corporate guarantee given by the assessee to its Associate Enterprises in relation to various banks, Ld. AR submitted a chart, for the sake of clarity, it is reproduced below: - Sr. No Given on behalf of (AE) Given to Given on account of Value Rate of Guarantee fees recovered Addition made by DRP Remarks 1. KEC Transmission LLC and KEC US, LLC, USA (WOS) now known as SAE Tower Holding LLC ICICI Bank, UK Financing to SPV for acquistion of SAE USA's business. USD-3,65,37,634 INR237,65,57,520 1.16% Rs.2,75,68,067 The Guarantee was given in earlier years and the Hon'ble ITAT in AY 2011- 12,AY 2012-13, AY 2013- 14 and AY 2017-18 has determined ALP @0.20% 2. Sharif Group and KEC Ltd Company Axis Bank No....
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....1.16% and Coordinate Bench considered the issue and restricted the corporate guarantee @0.60%. He prayed that the same rate may be considered for the assessment year under consideration also. 7. With regard to corporate guarantee given to KEC Transmission LLC and KEC US LLC, USA (WOS) now known as SAE Tower Holding LLC, he submitted that the corporate guarantee given by the assessee in the A.Y.2011-12 and the rate for the same was also sustained by the Ld. DRP @1.16%. However, in the earlier assessment year and subsequent Assessment Years, the Coordinate Bench has sustained the same @0.20%. He prayed that following the rule of consistency the corporate guarantee @0.20% may be sustained by following the decision of the Coordinate Bench in the earlier Assessment Years. 8. However, at the time of hearing, the bench asked the Ld. AR of the assessee to substantiate the claim made on the issue of SAE Tower Holding LLC considering the fact that this guarantee was given in A.Y.2011-12 and how the same guarantee was continued till date without there being any revision. The bench observed that the corporate guarantee is reviewed every year or atleast once in three years. The corporate guar....
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....l prudence primarily to protect the business interest of the group by fulfilling the shareholder's obligations. The Appellant has also claimed that non-charging of commission is justified where additional security is provided. In case of Al Sharif Group which obtained financing facility from SBI. Jeddah and Bank of Muscat, the banks obtained primary right over AEs contract receivables of project of Saudi Electricity company. While these receivables were security for the credit facility provided, the Appellant provided corporate guarantee to comply with administrative requirements. It is thus claimed that no risk was borne by the Appellant under the circumstances. As such charging of guarantee commission is not warranted. The Appellant has further stated that benchmarking rate of 2% adopted by the TPO is ad hoc and is not justified Reliance is placed on decision of the Hon'ble Bombay High Court in the case of Everest Kanto Cylinders Ltd v CIT (ITA 1165 of 2013) for the proposition that consideration applied for issuance of corporate guarantee are from that of the bank guarantee and that high rate of commission in case of corporate guarantee issued by holding company fo....
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.... availing of regular credit facilities whereas credit facilities from ICICI, UK was for certain of which the Appellant was to be the ultimate beneficiary Therefore, the benchmarking rates cannot be same. The Appellant has already charged 0.6% rate which is based on a facility letter by its own bank, which is a good comparable. It is, therefore, held that no interference is called for in the benchmarking @ 0.6% done by the Appellant and the adjustments made by the TPO are deleted" (Emphasis Supplied) 30. On perusal of the above, it can be seen that the CIT(A) held that the transaction of issuance of corporate guarantee to be an international transaction as per Explanation (1)(c) to Section 92B of the Act (inserted with retrospective effect from 01.04.2002 by Finance Act 2012). The CIT(A) rejected the contention of the Assessee to benchmark the guarantee fee in respect of the three corporate guarantees at the rate of 0.2% by highlighting the difference in the purpose of giving corporate guarantees and the reasoning given by the Tribunal that corporate guarantee issued by the Assessee to ICICI, UK on behalf of its AE KEC US LLC and KEC Transmission LLC, was for the ultimate benefit....
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....ice Tax Return, at the time of hearing, Ld. AR of the assessee brought to our notice Page No. 11 of the Ld. DRP and submitted that the Assessing Officer observed that assessee has reported higher turnover in service tax return as compared to ITR and Assessing Officer has considered the turnover reported as per service tax return. 13. Aggrieved assessee filed objection before Ld. DRP and before Ld.DRP assessee has filed the reconciliation of turnover in service tax return and turnover shown in ITR. It was submitted that the gross amount of services as per the service tax return is Rs..5,53,02,46,110/-, out of the aforesaid amount of Rs..5,53,02,46,110/- an amount of Rs..53,61,23,000/- was reported in "sale of services" whereas the balance amount of Rs..4,99,41,23,110/- as part of construction contract revenue in the financials and ITR in line with the requirement of Ind AS. 14. Further, he brought to our notice Page No. 26 of the Paper Book where the assessee has filed detailed note before the Ld. DRP along with Service tax Form ST -3. After considering the submissions of the assessee Ld. DRP partly allowed the objections raised by the assessee with the following observations: - ....
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....that has been fulfilled. The current income and expenses are compared with the total estimated costs to determine the tax liability for the year. For example, a project that is 20% complete in year one and 35% complete in year two would only have the incremental 15% of the revenue recognized in the second year. What is important here, to arrive at the correct percentage of work completed in a year, is to compute the cost of project already incurred and then compare the same with the total project cost. 7.7 It is noted, from the sample data provided by the assessee in respect of one of the projects (Orient Cement for Project no. CV011- Townships & Roads), that the assessee is recognizing the revenue based on the invoices raised, which are in turn based on the physical not the financial, cost based- milestones achieved. The panel has noted that the reliance of the assessee on physical milestones to be achieved brings in a degree of subjectivity in revenue recognition, which is not what the percentage completion method envisages. 7.8 In view of the above, it is held that the assessee has not been able to demonstrate that the revenue recognition model it uses to account for the r....
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....ive payments are included to the extent that the amount can be measured reliably and its receipt is considered probable. The outcome of a construction contract is considered as estimated reliably when all critical approvals necessary for commencement of the project have been obtained. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable to be recovered. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately When contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is shown as amounts due from customers for contract work. For contracts where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is shown as the amounts due to customers for contract work Amounts received before the related work is performed are included in the balance sheet, as a liability, as advances received....
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....an amount of Rs..43,42,62,923/- being amount received as advance from customers [mobilization advances]. As per the provisions of section 66B of Finance Act, 1994 the assessee has to pay the service tax @14% on the value of services provided or agreed to be provided in the taxable territory and collected in such manner as may be prescribed. Since assessee has to pay the service tax on the services provided as well as agreed to be provided i.e., advances, therefore assessee has to pay the service tax on the total amount of Rs..709.47 crores including the advance received by the assessee during the year. As per the prudent method of accounting, assessee has to declare the revenue in its Books of Accounts only to the extent of services provided not the total amount received by the assessee for which there may be certain services to be provided. In this case assessee has recorded as revenue for the value of actual services provided and as per the information submitted before us from the Form ST-3 at Page No. 31 at Sl.No. B1.2 the assessee has received an amount of Rs..36,72,24,482/- as advances. Similarly, Form ST-3 at Page No. 32 an amount of Rs..6,70,38,441/-. From the above two serv....