TaxTMI 
TaxTMI 
2025 (3) TMI 1634
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....of Credit to Citibank (China), Citibank India has charged commission of only 0.15% on the Subsidiary in a completely unrelated arms length transaction. Hence, charging guarantee commission above 0.15% is against equity and against the CUP method prescribed under Rule 10B (1)(a) of the Income Tax Rules. iii. The amount actually recovered by the appellant company from the Subsidiary towards guarantee commission amounting to Rs. 11,33,177/- and which was allowed by the TPO in the Order u/s 92CA (3) and also by the AO in the Draft Order u/s 144C (1) ought to have been allowed by the AO in the order u/s 143(3) also. iv. The DRP has relied on 8 ITAT decisions as per paragraph 2.8.8 of its order all of which prescribes guarantee commission of 0.50% or lower rates. Hence, DRP having relied on these 8 ITAT decisions to emphasize the point that guarantee commission is to be applied, has completely erred in ignoring the rate of guarantee commission of 0.50% or lower as adopted by the ITAT in those decisions. v. Appellant's Banker, The Federal Bank Ltd had sanctioned Bank Guarantee to the appellant at a Commission of 0.50% in a completely unrelated transaction. H....
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....2011]. b. CIT Vs. Reliance Industries Ltd [410 ITR 466]. iv. The assessing officer ought to have considered the fact that Assessee is following Ind AS Accounting as mandated by the Companies Act, 2013 and hence, investments in equity instruments are to be shown in the financial results at fair value ad not at cost. Accordingly, investments in the equity shares of Cochin International Airport Ltd (CIAL) had to be revalued at market value. Hence, as against actual cost of investment amounting to Rs. 24.98crores, the revalued figure shown in the audited accounts was Rs. 117.67 crores. For working out disallowance u/s 14A, the assessing officer adopted the fair value of Rs. 117.67 crores as against actual cost of Rs. 24.98 crores. Hence, investments in CIAL was inflated by Rs. 92.68crores (Rs. 117.69 cr less Rs. 24.98 cr)." IT(TP)A No. 04/Coch/2024 (Assessment Year : 2021-22) 1. In respect of Transfer Pricing addition towards Corporate Guarantee Commission -Rs. 1,89,46,358:- 1.1. The Dispute Resolution Panel (DRP) has erred in adopting a high rate of corporate guarantee commission of 1%. 1.2. The DRP ought to have considered the fact that....
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....hands of the directors @ 30%. This is against all norms of equity. 3.6. The Assessment Unit has erred in relying on the decision of the Karnataka High Court [which is upheld by Supreme Court] in the case of CIT Vs. United Breweries. In that case, the Chairman of the Company, Shri Vijay Mallya had net worth of only Rs. 70 lakhs and he received guarantee commission of Rs. 1.15 crores. Further, High Court observed that he being an NRI, permission of RBI was required which was not taken. On the facts of the case, High Court came to the conclusion that the assessee company paid the MD commission "on the pretext" of paying guarantee commission and it is a clear case of "a ploy to divert the income of the companies under his management". Further, in that case, the guarantees were executed long back and had expired. In Assessee Company's case there is no such finding by the Assessment Unit and the Assessment Unit has blindly followed the case as if guarantee commission is not allowable at all. The Assessment Unit ought to have considered the fact that all the directors have substantial wealth and the Banks have obtained CA certified copies of Net Worth Certif....
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.... Due to dispute regarding quality of goods/ rates/ quantity mismatches, negotiations go on for long periods and only when a settlement is reached, the same is accounted as purchases. Hence, the Assessment Unit has erred in treating this as prior period expenses and disallowing it. 5.2. The Assessment Unit has no dispute regarding the fact that the expenses are actually incurred by the assessee. 5.3. Though the invoices bear the date of earlier years, the expenses have crystallized during the year on account of settlement of various disputes. 5.4. The Assessment Unit ought to have considered the fundamental accounting assumption of "going concern" concept. In any going concern, there will be some ongoing disputes and the accounting for such items is done on settlement of the disputes and the Assessment Unit has erred in treating such items as prior period expenses and disallowing it. 6. In respect of addition of 10% of expenses incurred towards Freight & Forwarding Charges, Contract Expenses, Legal & Professional Fee and Repairs & Maintenance - Rs. 8,89,03,530/-: 6.1. The Assessment Unit has erred in disallowing 10% of Freight & Forwardin....
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....posed additions for which the assessee filed their objections before the DRP. The DRP had granted partial relief by reducing the rate of guarantee commission from 2.24% to 1% and directed the AO to apply guarantee commission only on prorate basis for 175 days since the guarantee was given on 09/10/2019. The DRP also reduced the rate of interest applied on the trade receivables from the subsidiary beyond 270 days from 7.818% to 6.818%. In respect of the addition made u/s. 14A r.w. Rule 8D, the DRP directed the AO to exclude the taxable investments from the total investments calculation. Thereafter the AO made the final assessment order u/s. 143(3) in which the AO had made the additions based on the DRP directions. 4. Aggrieved with the order of the AO, the assessee filed this appeal before this Tribunal. 5. In respect of the A.Y. 2021-22, the assessee filed their return of income declaring a total income of Rs. 286,68,35,104/-. Thereafter this case was also selected for complete scrutiny under CASS to examine the issue of international related party transactions and accordingly a draft assessment order was passed. The assessee filed their objections as against the draft ....
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....23 vide order dated 11/12/2024. The Ld.AR also furnished the copy of the said order and prayed to follow the said findings insofar as the issues covered are concerned. The Ld.AR also filed a paper book enclosing the written submissions as well as the other documents and also the judgment of Hon'ble Supreme Court and Hon'ble High Court and prayed to consider the documents and grant the benefits granted in the said orders. 8. The Ld.DR relied on the order of the lower authorities insofar as the transfer pricing additions are concerned. 9. We have heard the arguments of both sides and perused the materials available on record. 10. We have perused the order of the Coordinate Bench of this Tribunal in assessee's own case in IT(TP)A No. 01/Coch/2023 in which this Tribunal had dealt with the notional corporate guarantee commission issue in which the Tribunal had considered the banker's letter insisting for the assessee on a counter guarantee in the form of corporate guarantee by the assessee company and this Coordinate Bench had analyzed the issue in detail and also considered the order of the Bangalore Tribunal and other Tribunal orders relied on by the assessee ....
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....he CUP method prescribed under Rule 10B(1)(a) of the rules. We have also considered the submission that the original sales transactions itself are benchmarked and has passed the test of transfer pricing scrutiny, the receivables generating out of the said sales cannot again be subjected to transfer pricing adjustment for which proposition we have also considered the judgment of the Hon'ble Delhi High Court reported in 398 ITR 66 in the case of CIT vs. Kusum Healthcare Pvt. Ltd. We were also informed that the said judgment of the Hon'ble Delhi High Court was later on confirmed by the Hon'ble Supreme Court by dismissing the Special Leave Petition filed by the department. We have also considered the submission that the DRP had applied a very high interest rate at 6.818% when the appellant has obtained foreign currency loan from the Union Bank of India at the rate of interest from 1.52% to 4.13%. 15. We have also perused the judgment of the Hon'ble Delhi High Court cited supra in which the Hon'ble Delhi High Court has held as follows: "Held: The inclusion in the Explanation to section 92B of the expression 'receivables' does not mean that dehors ....
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....erest on loan to subsidiary which finds place in the A.Y. 2020-21. We have considered the submission made by the assessee that the DRP had fixed a higher rate of interest at 7.818% as against the interest adopted by the assessee at 3.676%. In this connection, the assessee submitted that they have availed the foreign currency loan from the Union Bank of India at a rate of interest from 1.52% to 4.13% and therefore the interest now fixed by the DRP at 7.818% is an abnormal one and it is against the rate of interest charged by the banks. We have also considered the fact that the assessee had followed CUP method prescribed u/s. 92CA(1)(a) of the Act and therefore we are of the opinion that the rate of interest adopted at 7.818% by the DRP is on the higher side and it requires an interference. Even though the assessee had submitted that the Union Bank of India had charged the rate of interest varied from 1.52% to 4.13% for availing the foreign currency loan, the assessee had adopted an interest rate of 3.67% which seems to be a reasonable one since the loan is given to the assessee's subsidiary only. In order to fix the interest rate at 7.818%, we have not found any justification by....
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.... Equity Share Capital 1.06 1.06 Other Equity 1,258.31 1,246.09 Total 1,259.37 1,247.15 Total Investments at Fair Value (not cost) as on 31.03.2019 and 31.03.2020 are as follows :- 31.03.2020 31.03.2019 Non Current Investments 345.32 Cr 429.16 Cr Current Investments 59.63 Cr 33.85 Cr Total 404.95 Cr 463.01 Cr The above statement clearly shows that there is net reduction in investments of Rs. 58.06 crores as against net increase in own funds by Rs. 12.22 crores. Further, appellant's borrowings as on 31.03.2019 and 31.03.2020 are as follows :- 31.03.2020 31.03.2019 Non Current Borrowings 39.46 Cr 15.00 Cr Current Investments 160.32 Cr 233.35 Cr Total 199.78 Cr 248.35 Cr 20. As seen from the above statement filed by the assessee, it is clear that there is a net deduction in borrowings to the extent of Rs. 48.57 crores during the year. Therefore it is clear that the assessee has not obtained any borrowings in order to make the investments. The Ld.AR also filed the copy of the audited accounts along with the paper book and also relied on th....
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....nancial statements at the fair value. 24. We have considered the alternate argument made by the Ld.AR and satisfied ourselves that the argument may be good enough but this argument is not required to be adjudicated since in the earlier paragraphs, we have held that disallowance made u/s. 14A itself is not warranted. In the result, the disallowance made u/s. 14A is deleted. 25. Now we will take up the other non-transfer pricing additions made by the AO in respect of the A.Y. 2021-22 which are as follows: Non Transfer Pricing Additions: i. Disallowance of Guarantee Commission paid to Directors for providing personal guarantee to Bankers for granting loans to the appellant company 10,85,10,000 ii. Disallowance of obsolete stock written off on the ground that the Board Meeting to write off stock was held in subsequent year and hence the deduction is allowable only in subsequent year 17,97,14,722 iii. Disallowance of purchases for which invoices related to earlier years 16,05,594 iv. Addition of flat 10% of Freight & Forwarding Charges, Contract Expenses, Legal and Professional Fees and Repairs & Maintenance on the ground that ledger account wi....
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....and therefore there is no need for the assessee company to pay the Directors remuneration in the pretext of guarantee commission. The AO had disallowed the guarantee commission in the hands of the assessee and subjected the same to tax at 22%. Further the guarantee commission received by the Directors were shown in their return of income and they have paid the tax at the rate of 30% and therefore the very same income was subjected to tax twice in the hands of the assessee as well as in the hands of the Directors. 29. The Ld. DR relied on the order of the lower authorities and also relied on the judgment of Hon'ble Karnataka High Court which was also relied on by the AO and prayed to dismiss the appeal. 30. We have also considered the arguments advanced by both the parties and also the documents filed in support of their arguments and it is a fact that the assessee company had obtained loan from the bank for which the bankers had issued sanction letters in which the bankers insisted for the personal guarantee of the Directors and also treated the properties of the Directors as collateral security. We have also perused the net worth certificate issued by the Chartered Accou....
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....ent with the argument made by the Ld.AR to the effect that the disallowance in the hands of the assessee would amount to double taxation one in the hands of the assessee and another in the hands of the Directors and therefore we accept the argument submitted by the Ld.AR that the guarantee commission given to the Directors would not be disallowed by the AO. We have also gone through the judgment of the Hon'ble Delhi High Court reported in 254 ITR 691 in the case of Mahalakshmi Sugar Mills Co. Ltd. vs. CIT in which the Hon'ble Delhi High Court has held that the payment of guarantee commission to the Director was eligible for deduction by following the judgment of Hon'ble Supreme Court reported in 227 ITR 464 in the case of Addl. CIT vs. Akkamamba Textiles Ltd. In such circumstances, we are of the view that the guarantee commission paid to the Directors are eligible for deduction otherwise it amounts to double taxation. Even though we are agreeing with the assessee on merits, in order to ascertain the fact that whether the Directors had included the said commission received as income in their return of income, we remit this issue to the AO for proper verification and if t....
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....sidered the submissions made by the Ld.AR as well as the Ld. DR and we are satisfied ourselves, that the inventories were segregated on 21.03.2021 itself and the Committee also recommended to write off the same. Therefore it is clear that the inventories are related to the A.Y. 2021-22 and it should become obsolete during the A.Y. itself and therefore the expenses claimed by the assessee as an expenditure during the A.Y. 2021-22 is correct. Even though the Board Resolution was made in the A.Y. 2022-23, the inventories became obsolete during the A.Y. 2021-22 and therefore the assessee had rightly claimed the expenses during the A.Y. 2021-22. Further we have perused the Board Resolution and in the resolution it was mentioned only as "Moreover, most of these materials are more than 365 days", which does not mean that the Board had approved only the inventories which are more than 365 days. The number of days is irrelevant when the Committee found that the inventories are obsolete and cannot be used. 37. We have also gone through the judgment of the Hon'ble Supreme Court reported in 358 ITR 295 in the case of CIT vs. Excel Industries, wherein it was held as follows: "32....
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....d. For the sake of clarity, the Ld.AR take us through the reply filed by the assessee to the show cause notice, which reads as follows: "You have directed us to provide details of the following expenses with PAN of each of the payee: a) Freight & Forwarding Charges b) Processing Expenses c) Security Expenses d) Contract Expenses e) Maintenance Expenses f) Legal & Professional Fee g) Repairs & Maintenance Charges You may note that there is no requirement in the Income Tax Act, Income Tax Rules or in any of the Circulars issued by CBDT that we should deal only with parties with PAN. Requirement of TDS is mandated by Chapter XVII - B of the Income Tax Act, 1961. In respect of the following heads of accounts, TDS is mandated by section 194C of the Income Tax Act, 1961: a) Freight & Forwarding Charges b) Processing Expenses c) Contract Expenses d) Maintenance Expenses e) Repairs & Maintenance Charges It is specifically stated in sub-section (5) of section 194C as follows :- "No deduction shall be made from amount of any sum credited or ....
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....f the sum paid to a person does not exceed Rs. 30,000/-. In the Tax Audit Report, in Form 3CD, full particulars of TDS is given. You may kindly refer to the same. If you want any other evidences like invoice, name & address of party etc, we are glad to provide the same. We have provided the PAN is most cases. If you want the PAN for any other party, kindly let us know so that we can provide the same". 42. It was submitted by the Ld.AR that the assessee had supplied the details of the most of the parties and informed the AO that the list is very lengthy and therefore filed the details of the parties which are readily available and undertook to file the balance, on hearing from the A.O. The Ld.AR also pointed out that the Statute also not prescribed that the said details should be furnished even for the amount credited below Rs.30,000/-. The Ld.AR also relied on the Audit Report and submitted that no deficiency was pointed out about the non-compliance of TDS provisions. The Ld.AR submitted that the total number of line items are more than 2000 and undertook to produce all the details on hearing from the AO. The Ld.AR submitted that instead of calling for the deta....