TaxTMI 
TaxTMI 
TaxTMI 
2022 (9) TMI 1681
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....e Supreme Court, the delay in filing of appeal is condoned for the Asst Year 2016-17 and admitted for adjudication. 3. Both the parties mutually agreed before us that the issues in Asst Year 2016-17 may be taken as the lead case and the decision rendered thereon would apply with equal force for the Asst Year 2017-18 also in view of identical facts except with variance in figures. 4. The assessee has raised the following grounds of appeal before us:- Based on the facts and circumstances of the case, Mahindra Homes Private Limited (hereinafter referred to as the 'Appellant) craves leave to prefer an appeal against the order passed by the Additional / Joint/ Deputy / Assistant Commissioner of Income Tax/ Income tax Officer, National e-Assessment Centre, Delhi [hereinafter referred to as the learned AO] under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as the Act), in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel (hereinafter referred to as the 'Hon'ble DRP). On the facts and in the circumstances of the case and in law, the learned AO/ Joint Commissioner of Income-tax (OS....
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....Erred in considering interest paid on loans that too not engaged in real estate industry but in the Oil & Gas and Infrastructure industries as comparable to interest on CCDs under Comparable Uncontrolled Price ('CUP) method without appreciating that the four conditions for application of CUP are not satisfied in these cases i.e. specific characteristics of the products being compared, functions performed, contractual terms and conditions prevailing in the market; 9. Without prejudice to the above, erred in re-characterizing the debt instrument of CCDs as a loan without appreciating the fact that the learned TPO cannot alter the characterization of nature of expenses as specified in the audited financial statements by statutory auditor, 10. Erred in not appreciating that the real estate industry filter is a critical filter for selection of comparable companies and not taking cognizance of the same despite the fact that the Appellant had submitted documentary evidences to substantiate the significance of application of the real estate filter. Contradictory observations made by the Hon'ble DRP 11. Without prejudice to the above, erred in providing contradictor....
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....ccounting treatment enunciated in revised Guidance Note on accounting for real estate transactions issued by ICAI in 2012 and which has been accepted by the statutory auditor also; 19. Erred in considering the entire amount of advertisement and sales promotion expenses charged to the profit and loss account during the year amounting to Rs. 9,17,64,249/- as directly attributable to the project cost; 20. Erred in allowing only 42.08% of the advertisement and sales promotion expenses charged to the profit and loss account during the year by the Appellant as a deduction during the year and considering the balance amount of advertisement and sales promotion expenses as part of work in progress, thereby inventorizing the same to the total project cost; 21. Without prejudice to the above, erred in not allowing proportionate amount of advertisement and sales promotion expenses disallowed in the assessment order passed for the earlier years (i.e. AY 2014-15 and AY 2015-16) which as per the Department stand were considered as integral part of the project cost and added to the cost of work-in-progress/inventory cost, Disallowance of commission and brokerage expenses of Rs 4,98,96,1....
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....section 14A of the Act read with Rule 8D of the Rules: 31. Without prejudice to the above, the Assessing officer while computing the disallowance under section 14A of the Act read with Rule 8D erred in not appreciating the fact that out of total interest expenditure of Rs. 113,04,77,919 Rs. 111.40,37,919 was already included in the cost of the project and hence, only the balance amount of Rs. 1,64,40,000 debited to the profit and loss account, ought to have been considered while computing the disallowance under section 14A of the Act read with Rule 8D of the Rules. Disallowance under Section 14A read with Rule 8D of Rs. 1.63.63.538 under MAT provisions 32. erred in making an addition of Rs. 1,63,63,538 to Book Profits for the purpose of section 115JB on account of disallowance u/s 14A of the Act. Double disallowance of interest paid on CCD's under TP provisions as well as under section 14A of the Act 33. Erred in making double disallowance on interest paid on CCD's to associated enterprises, firstly under the TP provisions and secondly while computing disallowance under section 14A of the Act, Short granting of credit of TDS deducted amounting to Rs. 49,10,59....
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....essee raised funds from its shareholders for the land acquisition through issuance of debentures as under: Type of instrument Compulsory Convertible Debentures ('CCDs') (Series A Debentures) Optionally Convertible Debentures ('OCDs') (Series B Debentures) Subscriber SCM Real Estate MLDL Amount INR 320 crores INR 320 crores Date of Investment July 2013 -Approx. 75% November 201 3 - Approx. 10% February 2014 -Approx. 15% July 2013 -Approx. 75% November 201 3 -Approx. 10% February 2014 -Approx. 15% Coupon rate 17.65% gross of tax (15% net of tax) per annum 15% net of tax (17.65% gross of tax) per annum Terms of conversion Fully, compulsorily converted into equity shares on expiry of twelve years from the date of allotment of CCDs Fully, optionally converted into preference shares on expiry Payment terms Quarterly Quarterly 6.2. The nature of disputed international transaction carried out by the assessee with its AE together with Most Appropriate Method (MAM) adopted by the assessee and details of its margins are tabulated as under:- Nature of the international transaction Value of the international transaction (in INR) Method Dat....
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....f its directions and upheld the action of the ld. TPO. We find that this Tribunal in assessee's own case for the A.Y. 2014-15 in ITA No.7159/Mum/2018 dated 03/08/2022 had rejected the above two comparables chosen in A.Y. 2014-15 and deleted the entire transfer pricing adjustment made by the ld. TPO by observing as under:- 7. We have heard the rival submissions of both the parties, perused the paper book filed by the assessee, orders of the authorities below and the material available on record. In the instant case, we find that similar issue on hand has been came before the Mumbai Bench of the Tribunal in the case of India Debt Management in ITA.No.7518/Mum/2014 order dated 10.03.2016 and the order of the Tribunal has been affirmed by the Hon'ble Bombay High Court in the case of India Debt Management Pvt. Ltd., vide ITA.No.266/2017 order dated 15.04.2019 wherein the Hon'ble Court observed that as far as the benchmarking done by the lower authorities based on external data using Thomson Reuters, Deal Scan and Bloomberg Database is not correct. The relevant observations of Hon'ble Jurisdictional High Court is reproduced as under : "15. The last leg of the controversy is, whether....
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....een 11% to 12%, then in the case of the assessee which is admittedly BBBQ credit rating company, 11.30% interest paid by the assessee to its AE is much within the ami's length rate. This data/document from public domain now made available before us is worth reiving to benchmark and analyse the current transaction of coupon rate of interest paid/payable on CCDs issued by the assessee. Accordingly, we hold that 11.30% interest rate is at arm's length price. Thus, in our conclusion, the transfer pricing adjustment made by the TPO and as confirmed by the DRP at Rs.48,53,19,310/stands deleted, and consequently ground no. 1 is allowed." 7.1. In the TP study the assessee had taken the comparables in CUP method related to database used NSE, BSE and NSDL database margin of the appellant is 17.65% gross or 15% net of tax system whereas the rate or merging as per database 18.13%. The assessee in secondary analysis calculated the rate at the rate of 17.89% on basis of the term loan lending rates offered by various banks in India as published in the Reserve Bank of India. the learned TPO undertook a fresh search using Bloomberg database to benchmark the international transaction with....
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....ssessee are challenging the allowability of legal & professional charges, advertisement & sales promotion expenses and Commission & brokerage charges in full as revenue expenditure. 7.1. During the course of assessment proceedings, details were called for by the ld. AO with respect to expenses debited to profit and loss account and income credited thereon. It was noticed by the ld. AO that assessee had earned interest income of Rs 65,91,521/- which was reduced from the business income for taxing it under income from other sources. From the perusal of computation of income and breakup of expenses filed with the office, it was noticed that the assessee company had claimed various expenses as deduction as under:- Legal and Professional Fees - Rs 7,15,26,276/- Advertisement & Sales expenses - Rs 9,17,64,249/- Commission & Brokerage expenses - Rs 8,61,46,719/- 7.2. The assessee submitted that it had incurred certain indirect expenses debited to profit and loss account of which deduction was claimed while filing the return of income on account of the same being revenue in nature as mandated in Accounting Standard 7 (AS-7) and Guidance Note on Accounting for Real Estate Trans....
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....ote in 2012 prescribes application of Percentage of Completion Method. Accordingly, it was submitted that the assessee herein had adopted the Guidance Note on Accounting for Real Estate transactions issued by ICAI in 2012 for recognizing revenue and expenditure for books and tax purposes and ha been consistently following the same over the years. The assessee submitted that as per the Guidance Note on Real Estate Transactions 2012 issued by ICAI, the revenue and expenditure is to be recognized as under:- 39. As per para 2.2 of the Real Estate Guidance Note - "Project costs in relation to a project ordinarily comprise (a) Cost of land and cost of development rights- All costs related to the acquisition of land, development rights in the land or property including cost of land, cost of development rights, rehabilitation costs, registration charges, stamp duty, brokerage costs and incidental expenses (b) Borrowing costs- In accordance with Accounting Standard (AS) 16, Borrowing Costs which are incurred directly in relation to a project or which are apportioned to a project (c) Construction and development costs- These would include costs that relate directly ....
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....airs & Maintenance 83,13,256 5. Payment to auditors 11,30,806 6. Rent expenses 7,52,400 7. Communication expenses 12,75,971 8. Interest others 1,198 9 Rates & taxes 1,41,17,729 10 Travelling & Conveyance 11,11,857 11 Printing & Stationery 3,02,101 12. Miscellaneous expenses 8,42,135 13. Power & Fuel 18,23,040 14 Bank Charges 1,15,910 Total 27,92,23,547 7.6. The ld. AR relied on the provisons of section 37(1) of the Act which states that for the purpose of availing deduction thereon, the expenses should be - (i) should be incurred in the previous year relevant to the assessment year; (ii) should not be personal in nature; (iii) should not be capital in nature; and (iv) should be incurred wholly and exclusively for the purpose of the business 7.7. Accordingly, the ld. AR submitted that the indirect revenue expenses incurred towards legal and professional charges, advertising and sales promotion and commission & brokerage expenses should be allowed as deduction u/s 37(1) of the Act once it is proved that they are incurred for the purpose of business of the assessee. In the instant case, there is absolutely no dispute that the said expe....
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....allenging the disallowance u/s 14A of the Act under normal provisions of the Act. 8.1. We have heard the rival submissions and perused the materials available on record. Before us, the ld. AR stated that if Ground No. 30 raised by the assessee alone is adjudicated, the other grounds i.e Ground 26 to 29 and 31 would become academic in nature. We find that the assessee had derived dividend income of Rs 77,77,844/- from mutual funds which were closed during the year. The remaining mutual funds invested by the assessee are only growth oriented mutual funds, on which receipt of dividend or even declaration of dividend is not possible. Moreover, from the perusal of the balance sheet, we find that all these growth oriented mutual funds were invested only during the year. Accordingly, the ld AR argued that the computation mechanism provided in Rule 8D of the Income Tax Rules fails and hence no disallowance u/s 14A of the Act could be made thereon. 8.2. The assessee had pleaded that these investments were made out of funds received as advance from customers for sale of flats and hence no expenditure has been incurred for earning the dividend income. Accordingly, no suo moto disallowance w....
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....437 6,51,43,437 SBI Premier Liquid Fund Growth 11,51,43,437 11,51,43,437 DSP Blackrock DSP Blackrock Money Manager Fund Dividend 3,80,00,000 38,020 3,80,38,0202 - DSP Blackrock Money Manager Fund Growth 3,80,38,020 3,80,38,020 77,77,844 27,89,95,432 8.4. We hold that the computation mechanism provided in Rule 8D(2) of the Rules fails in the instant case and hence no disallowance u/s 14A of the Act need to be done in the instant case by applying Rule 8D(2) of the Rules. However, the purpose of section 14A of the Act is only to ensure that no expenses are claimed as deduction against the exempt income. Admittedly, the assessee had earned exempt income of Rs 77,77,844/- during the year. Hence some expenditure is definitely to be disallowed u/s 14A of the Act thereon. Accordingly, we feel that the disallowance of administrative expenses at the rate of 1% of dividend income u/s 14A of the Act would meet the ends of justice. This decision would also be in consonance with the decision of Hon'ble Calcutta High Court in the case of CIT vs R.R.Sen &....
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....ld. AO had granted credit of brought forward unabsorbed depreciation against the income earned by the assessee from other sources amounting to Rs 67,35,500/- and balance amount of Rs 1,43,479/- is allowed to be carried forward. However, in the computation sheet accompanying the final assessment order passed by the ld.AO pursuant to be directions issued by ld. DRP, the ld. AO had failed to grant credit for the said unabsorbed depreciation brought forward against the income earned from other sources. This aspect requires factual verification. Hence we direct the ld. AO to verify the same factually and decide the issue in accordance with law. Accordingly, the Ground No. 35 raised by the assessee is allowed for statistical purposes. 13. The Ground No. 36 raised by the assessee is challenging the levy of interest u/s 234A of the Act. We find that the return of income has been filed in time u/s 139(1) of the Act in the instant case. Hence the ld. AO is directed not to charge any interest u/s 234A of the Act. Accordingly, the Ground No. 36 raised by the assessee is allowed. 14. The Ground No. 37 raised by the assessee is challenging the levy of interest u/s 234B of the Act. This is cons....