TaxTMI 
TaxTMI 
2024 (6) TMI 317
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....respect of aforesaid loan transaction and corporate guarantee. The Assessing Officer further made additions/disallowances under various provisions of the Act. Aggrieved by the draft assessment order dated 29/12/2011, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP vide directions dated 28/09/2012 granted part relief to the assessee. The Assessing Officer passed the final impugned assessment order, accordingly. The assessee in appeal has raised multiple grounds assailing the assessment order and the directions of DRP confirming additions. 3. Shri Nitesh Joshi appearing on behalf of the assessee submitted that the assessee has filed concise grounds of appeal vide letter dated 18/11/2021,the same may be considered for adjudication. Since, the assessee has raised multiple grounds of appeal, the grounds raised in appeal are decided in seriatim. Ground No.1: Disallowance u/s. 14A of the Act - Rs. 32.60 crores. 4. The ld.Counsel for the assessee submitted that during the period relevant to assessment year under appeal, the assessee has earned following income exempt from tax:- Clause of item 2 Head of Income Amount (crores of Rs. ) (b) Interest ....
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....fficer has rejected assessee's computation of disallowance by giving detailed reasons and after having examining the books of account of the assessee. 6. We have heard the submissions made by rival sides and have examined orders of authorities below. In ground No.1 of appeal, the assessee has assailed disallowance made by Assessing Officer u/s. 14A of the Act. The Assessing Officer while making disallowance u/s. 14A of the Act invoked the provisions of Rule 8D of Income Tax Rule,1962 [ in short 'the Rules']. The contention of the assessee is that assessee has computed disallowance u/s. 14A of the Act in the same methodology as was adopted in the preceding Assessment Years. Once the method of computation of disallowance u/s. 14A has been accepted by the Tribunal in the past the same cannot be rejected. 6.1 It is pertinent to mention that Rule-8 was inserted by the Income Tax (5th Amendment) Rules, 2008 w.e.f. 24/03/2008. Thus, the provisions of Rule 8D would be applicable in the impugned assessment year i.e. Assessment Year 2008-09. Section 14A(1) of the Act mandates the assessee to make disallowance of expenditure incurred in relation to income exempt from tax. In the instant cas....
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....enditure. The Department has been consistently disallowing the same stating it to be on capital account. The Tribunal in Assessment Year 1997-98 to Assessment Year 2000-01 has decided this issue in favour of assessee. The Assessing Officer records this fact but decided the issue against the assessee on the ground that the Department has not accepted the decision of the Tribunal in the past and the matter is sub-juiced. The ld.Counsel for the assessee submitted that the issue is squarely covered by the order of Tribunal in Revenue's appeal for Assessment Year 2006-07 in ITA No.4050/Mum/2012 (supra). 8. The ld.Counsel for the assessee vehemently defended the findings of Assessing Officer on this issue, however, he fairly stated that this issue has been considered by the Tribunal in assessee's own case in appeal by the Revenue in the preceding Assessment Years. 9. Both sides heard. The assessee has incurred expenditure to the tune of Rs. 8,77,45,024/- on various projects/ feasibility reports which were subsequently shelved. The assessee claimed the expenditure as revenue, the Assessing Officer rejected the contentions of the assessee and treated the expenditure as capital. We fi....
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....Tribunal in assessee's own case in ITA No.3452/Mum/2012 for Assessment Year 2006-07 (supra). The facts are identical in impugned assessment year. 14. The Ld. Departmental Representative supported the assessment order and directions of the DRP. However, he fairly admitted that this issue has been considered by the Tribunal in Assessment Year 2006-07. 15. Both sides heard. The assessee had issued 7.875% Euro Notes (2007) and 8.50% Euro Notes(2017)at a discount in Assessment Year 1998-99. The assessee has been consistently writing off discount on issue of Euro Notes over the period of debentures. The same has been consistently allowed by the Department from Assessment Year 1998-99 to Assessment Year 2003-04. The Assessing Officer disallowed the amount in Assessment Year 2004-05 and 2005-06 but the same was allowed by the CIT(A). We find that in Assessment Year 2006-07 discount on issue of Euro Notes was again disallowed by the Assessing Officer. The Co-ordinate Bench vide order dated 29/11/2019 reversed the decision of Assessing Officer by observing as under: "8.1 ............... We find that the assessee has been consistently claiming the write off on account of discount on i....
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.... allowed as deduction in Assessment Year 2004-05, 2005-06 and 2006-07, respectively. The ld. Counsel for the assessee pointed that this issue has been decided by the Tribunal in assessee's own case in ITA NO.3452/Mum/2012 (supra) in Assessment Year 2006-07. The facts in the impugned assessment year are identical. Thus, this issue can be disposed of in the similar terms. 17. The ld. Departmental Representative vehemently supported the findings of the Assessing Officer on the issue. However, the ld. Departmental Representative fairly stated that the issue has been considered by the Tribunal in assessee's own case in the preceding Assessment Years and there has been no change in facts in the instant Assessment Year. 18. Both sides heard. We find that the issue in regard to reduction in allowance of premium on pre-payment of debentures is recurring since Assessment Year 2004-05. The Co-ordinate Bench while deciding this issue in Assessment Year Assessment Year 2006-07 has held as under: "5.1. We have heard rival submissions. The brief background of this issue is that the assessee prepaid debentures liability with premium in the A.Y.2004-05. The premium on prepayment of debe....
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....he revenue succeeds in High Court for A.Yrs 2004-05 and 2005-06, then adjudication of allowability of premium on prepayment of debentures in A.Y. 2006-07 would become relevant. Hence, the ld. AR fairly pleaded only for a finding / direction in this regard in this year. The ld DR also fairly agreed in this regard for issuance of the said direction / finding in this order. We find lot of force in the fairness exhibited by both the parties before us that the issue under dispute before us would resume its life, in case if the revenue succeeds in its appeal before the Hon'ble High Court. Hence, we direct the ld. AO accordingly to give life to the issue of allowability of deduction towards premium on prepayment of debentures based on the final outcome of the appeals of the revenue for the Asst Years 2004-05 and 2005-06. The ground Nos. 3(a) to 3(d) raised by the assessee are disposed off subject to the directions mentioned herein above." Both sides are unanimous in stating that the facts in the impugned assessment year are identical to Assessment Year 2006-07. Thus, the issue is restored to Assessing Officer with similar directions. The ground No.5 of appeal is allowed for statistical ....
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....ssee's claim of deduction has been accepted in the initial Assessment Year, the same cannot be denied in the subsequent Assessment Years. Ergo, ground No.6 of appeal is allowed. Ground No.7: Duplicate disallowance u/s.80IA of the Act: 22. The ld. Counsel for the assessee submits that that the DRP/Assessing Officer have erred in disallowing the claim of deduction u/s. 80IA for an amount of Rs. 2,49,19,983/- twice. Once while allowing deduction of premium on pre-payment of debentures and again while allowing aggregate deduction u/s. 80IA of the Act. Since, the amount of Rs. 2,49,19,983/- was not considered as deductible for arriving at the assessed income, the same cannot be attributed to any unit for calculating deduction u/s. 80IA of the Act in respect of any of the units. Similar issue was raised by the Assessing Officer in reassessment proceedings initiated for Assessment Year 2006-07. However, considering the submissions of the assessee, reassessment proceedings were dropped by the Assessing Officer. 23. The ld. Departmental Representative strongly supported the findings of Assessing Officer /DRP on the issue of duplicate disallowance u/s.80IA of the Act. 24. We have heard ....
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....ssessing Officer merely following the reasoning given in Assessment Year 2006-07. The ld. Counsel for the assessee has pointed that in First Appellate proceedings for Assessment Year 2006-07 the issue was restored to the Assessing Officer for examining as to whether the assessee was following WDV or SLM for claiming depreciation and if the assessee's method of depreciation is WDV, the additional depreciation claimed be allowed u/s. 32(1)(iia) of the Act. The Assessing Officer while giving effect to the directions of the CIT(A) in Assessment Year 2006-07 allowed the assessee's claim of depreciation. These facts have not been rebutted by the Department. The contention of the assessee is that the method of assessee's claim of depreciation is similar to the one as was in Assessment Year 2006-07. Thus, in view of un-rebutted facts, ground No.9 of appeal is allowed. Ground No.10: Transfer Pricing Additions- Disregard of Rule 10B(2): 29. The ld.Counsel for the assessee submits that the TPO has not provided any reason for rejecting systematic benchmarking analysis undertaken by the appellant for the underlined loan transaction and guarantee commission, which is mandatory as per provisio....
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....ng the guarantee rates is of a general nature and does not mention the specific conditions, the kind of margin or the security placed for the purpose of such guarantee. He asserted that the letter issued by SBI is very specific to the case of assessee and therefore is more authentic than rates applied by the TPO based on rate charged by SBI and Allahabad bank which is used in another assessee's case. He submitted that the CUP method requires a high degree of comparability of products and functions and the rates adopted by TPO based on generic rates provided by Allahabad Bank and SBI, where there is no information on a specific comparable transaction that has been undertaken by the bank/ third party. 33. Without prejudice to the primary submissions, the ld.Counsel for the assessee made alternate prayer to adopt the weighted average guarantee rate of 0.46% based on unilateral APA of the assessee with CBDT. He referred to relevant extract of APA at page 182 to 185 of the paper book filed along with chart. He made second alternate prayer to adopt corporate guarantee rate of 0.5% as approved in the case of CIT vs. Everest Kento Cylinders Ltd. 58 taxmann.com 254 (Bom) and followed b....
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.... cited before us for benchmarking @ 0.20 % has different and distinguishing facts. Further corporate guarantee commission is to be charged at that amount of Guarantee given and cannot be reduced to the extent of amount of borrowings by the AE as both are separate and distinct facts. Considering the various decisions in this regard, we direct the AO to limit the adjustment to 0.5% p.a. on the amount of corporate guarantee provided based on the period for which the guarantee was operative in respect of each of the AE‟s during the year under consideration. The learned transfer-pricing officer is directed to compute the arm's-length price of the corporate guarantee at the rate of 0.5%. Accordingly ground number 4 of the appeal is allowed with above directions." The coordinate bench in the above decision has followed the decision of the jurisdictional High Court in the case of Everest Kento Cylinder Ltd (supra) and in assessee's case also the assessee and the revenue could not provide any reason for us to deviate from the decision of the coordinate bench. Accordingly we direct the TPO to apply the rate of 0.5% and re-compute ALP of corporate guarantee. The ground No.11 of ap....
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....% of the transaction value NIL 95% of the transaction value NIL 37. With regard to the USD 73 million, which is given from funds available in India, the TPO applied the weighted average of 7.55% per annum considering that the domestic market borrowing rate ranges from 7.5% p.a. to 10.53% p.a. The TPO added a mark up of 3% on the said average cost of borrowing to cover the risk factor and accordingly applied rate of 10.55% to compute the TP adjustment. 38. Aggrieved, assessee filed objections before the DRP stating that the rate of interest paid by the assessee towards FCCB is 3.88% and compared to the same the rate of interest charged i.e.4.11% from the AE is at arm's length. The assessee also raised objections towards adding 3% towards risk. The DRP upheld the TP adjustment by stating that TPO is correct in adding 3% towards risk and that even in case of loan out of own funds interest rate should be imputed for the purpose of ALP. 39. The Ld.Counsel for the assessee submitted that loan to AE was for investment on behalf of the assessee. The Mauritius entity was a Special Proposed Vehicle (SPV) for the purpose of investments. The assessee had charged effective rate of int....
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....e borrowing cost of 7.55% and added 3% mark-up towards risk element and applied 10.55% for making the TP adjustment. The TPO while making the TP adjustment has considered the rate of interest as Nil, during the relevant period as per agreement between the assessee and AE the rate of interest charged is Nil. The rate of interest for first two years is 0%. The TPO has rejected assessee's theory of weighted average rate. The assessee has shown that the average rate of interest for 14 years period is 4.71%. In this regard we find that in the case of Goodyear South Asia Tyres Pvt. Ltd. vs. ACIT (supra) the Tribunal has accepted the concept of effective rate of interest. The relevant extract of the aforesaid decision reads as under: "20. So however, one pertinent point has been raised by the assessee before us to the effect that in order to benchmark the interest cost incurred by the assessee it would be appropriate to evaluate the effective rate of interest payable by the assessee on the technical knowhow loan and foreign currency cash loan raised from the associated enterprise. Notably, the said argument has been raised by the assessee not only before us but also before the TPO....
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.... nine years there was a moratorium on interest payment and that assessee was not required to incur any interest costs. It is only subsequent to the moratorium period, assessee was to incur interest cost and that too, during the period of repayment of loans. Of course, during the moratorium period the liability towards principal amount of loan was liable to be increased by 5% on account of exchange rate fluctuation. Considering the entirety of terms and conditions, therefore, the cost of borrowings to the assessee (i.e. on technical knowhow and foreign currency cash loans) are to be computed after factoring the initial period of moratorium. Therefore, it would be inappropriate to merely compare the stated rate of interest of 12% with the prevailing rates without taking into consideration the specific terms and conditions of the assessee's borrowings. Therefore, in-principle, we are agreement Avith the assessee for the proposition that it would be appropriate to compute effective rate of interest in respect of international transaction of loan entered into with the associated enterprise before carrying out the exercise of benchmarking such international transactions vis-a-vis the....
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.... contended that the royalty of 3.75% was payable after reducing various expenses from the sale value of the products but the effective rate worked out to 2.30%, which was comparable to arm's length rate being considered by the Revenue. On the basis of the assertion of the assessee to the effect that the effective rate of royalty was lower than the comparable transaction, the addition made by the TPO was deleted by the Tribunal. The Ld. Representative for the assessee submitted that the concept of the effective rate of royalty as against the stated rate of royalty was approved by the Tribunal for the purpose of benchmarking the international transaction of the assessee. In the present case also, in our view the ratio of the decision of the Ahmedabad Bench of Tribunal in the case of Hitachi Home & Life Solutions (India) Ltd. (supra) applies. Therefore, in conclusion, without opining on the other arguments raised by the assessee, we deem it fit and proper to delete the addition with respect to the interest paid on Technical knowhow and foreign currency cash loans on the ground that the effective rate of interest incurred by the assessee is lower than the arm's length rate of i....