TaxTMI 
TaxTMI 
2024 (12) TMI 1762
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.... iii. Towards alleged shortfall in rate of interest charged on loan given to Subsidiary Rs. 5,59,267 Total TP Additions Rs. 1,60,36,376 3. Thereafter, the AO made the draft assessment order u/s. 144C of the Act in which the following additions in addition to the additions proposed by the Ld. TPO was made. i. In the ITR, appellant had claimed weighted deduction of 200% in respect of R & D expenditure u/s. 35(2AB) of Income Tax Act. However, approval of DSIR was pending at the time of filing ITR. DSIR subsequently granted approval, but the amount approved was less by Rs. 73,95,976.55. Hence, during assessment proceedings, appellant agreed to the addition of 200% on Rs. 73,95,976.55, but made alternate claim u/s. 35(2) & 37(1) for the amount of Rs. 73,95,976.55 which was not allowed for weighted deduction of 200%. Hence, out of the total disallowance of Rs. 1,47,91,954, appellant is aggrieved to the extent of declining the alternate claim u/s. 35(2)/ 37(1) for Rs. 73,95,976.55 Rs. 1,47,91,954 ii. Disallowance u/s. 14A Rs. 3,32,27,044 iii. Under Companies Act, appellant is bound to maintain books of account under In....
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....nt's customers, both domestic and international and hence under Comparable Uncontrolled Transactions Method of Transfer Pricing, no transfer pricing adjustments should have been done. 2.3. Appellant's trade payables to the same Subsidiary as on 31.03.2017 was Rs. 14,42,36,234/- as against trade receivable of Rs. 2,99,72,765/-. Since the net effect is Rs. 11,42,63,469/- payable to the Subsidiary, the NFAC has erred in charging interest on belated trade receivables ignoring the amount payable to the Subsidiary. In this regard, NFAC ought to have considered the decision of Mumbai Bench of ITAT in Technical ICB House Vs. DCIT [ITA No. 487/ Mum/2014] wherein it was decided that where amount payable to subsidiary is more than the amount receivable, no addition can be made towards interest. 3. Transfer Pricing addition in respect of alleged shortfall in the rate of interest charged on loan to subsidiary - Rs. 5,59,267: 3.1. The NFAC and TPO has erred in applying rate of interest of 4.82% [LIBOR 0.32% + spread of 4.50%] as against 1.3% charged by the appellant on loan given to subsidiary. 3.2. The NFAC and TPO ought to have considered the fact th....
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.... The NFAC ought to have considered that the decision of Hon'ble Supreme Court in Goetze (India) Ltd Vs. CIT (2006) 284 ITR 323 relied upon by, it is not applicable for alternate claim as the appellant can make only one claim at a time in the ITR. 5.3. NFAC ought to have considered the decision of the jurisdictional Bench of ITAT, namely Cochin Bench in Assistant Commissioner of Income Tax Vs. Merchem Ltd [ITA No. 08 & 12/Coch/2014 dated 09.05.2014] in this regard. 6. In respect of disallowance u/s. 14A - Rs. 3,32,27,044/-: 6.1. The NFAC ought to have considered the fact that appellant's own funds on 31.03.2017 was Rs. 1019.03 crores as against Investments of Rs. 332.27 crores and since appellant's own funds are many times more than the Investments, NFAC has erred in making disallowance u/s. 14A. Further, appellant's borrowed funds as on 31.03.2017 was only Rs. 599.55 crores and hence based on the following decisions of the Supreme Court, no disallowance can be made u/s. 14A :- i) CIT Vs. Reliance Industries Ltd [410 ITR 466] ii) South Indian Bank Vs. CIT [ 322 CTR 465] - Civil Appeal No. 9606 of 2011. 6.2. Withou....
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....ly uncontrolled transaction and therefore the Ld. TPO had applied a guarantee commission above 0.5% i.e. 2.20%. 8. In support of the arguments, the Ld.AR also filed the copies of the sanction letters issued by the said banks which were available at pages 11, 12 and 13 in which the commission has been mentioned as 0.50%. Further, we have perused the press release of the GST Council dated 07/10/2023 in which the council had stated that if the corporate guarantee is given to related parties, the guarantee commission to be applied is only 1%. We have also perused the DRP order dated 31/05/2024 in respect of the A.Y. 2020-21 in which the DRP had adopted guarantee commission at 1% which was also accepted by the assessee. As seen from the above said documents filed by the assessee, the guarantee commission may be at the rate given by the banks or at the maximum it can be at 1%. The Ld. TPO had taken the Standard card rates from various banks and had taken the average as guarantee commission and applied the same to the assessee. We do not understand how the Ld. TPO had taken the rates of the various banks and the arrived the average and applied the same to the assessee without taking in....
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....mains that in the present case, it is the case of the assessee that they had not charged any interest on the delayed receivables and therefore the charging of notional interest on the delayed trade receivables by the lower authorities is without any basis and also against the business practice of the assessee. We have also perused the reasoning given by the Ld. TPO for arriving the notional interest in which the TPO had merely relied on the fact that the trade receivables were received after 180 days and therefore the assessee might have charged interest for the belated trade receivables. Except the above said reason, the authorities below had not pointed out any such charging of interest for the belated receivables by the assessee. 13. We have also perused the RBI Master Circular on exports of goods and services No. 14/2014-15 dated 01/07/2014 which reads as follows: "It has been decided in consultation with Government of India that the period of realization and repatriation of export proceeds shall be 9 months from the date of export for all exports including units in SEZ". 14. Further, we have also perused the table submitted by the assessee about the trade receiv....
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....sanction letter given by the Standard Chartered Bank. Accordingly, ground no. 3 is restored to the file of the Ld.AO to arrive the correct rate of interest. Ground No. 4 17. The next dispute is in respect of the additions made on the Mark to Market gain in forward contracts. The Ld.AR had filed the copy of the income tax computation statement for the A.Y. 2017-18 and draw our attention to the said statement in which the assessee had added forex gain on forward contracts as per ICDS-VI amounting to Rs. 9,27,91,905.30/-. They further submitted that the said computation was made as per the Indian Accounting Standards as mandated by the Companies Act. The Ld.AR further submitted that while preparing the profit and loss account under the Indian Accounting Standards method, the Mark to Market gain on forward contract was credited at Rs. 11,76,85,712/-. But the section 145(2) of the Act mandates that the total income is to be computed in accordance with the Income Computation and Disclosure Standards. Therefore the assessee reworked its mark to market gain on forward contracts under the ICDS method which comes about Rs. 9,27,91,905.30/-. The said amount was added back to the tax ....
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.... a letter on 23/02/2021 and prayed to grant a deduction of Rs. 73,95,976/- u/s. 35(1) and 35(2) of the Act. The Ld.AO not accepted the claim of the assessee for the reason that assessee had not claimed the same in its original return of income and also not claimed the same by filing a revised return and therefore, at this stage, the claim made by the assessee could not be entertained. The Ld. DRP also for the very same reasons confirmed the said finding of the AO and as against this, the assessee has raised the said ground and contended that the approval of DSIR was granted only on 23/10/2020 by which time the period for filing the revised return also expired. The assessee also apportioned the disallowance of Rs. 73,95,976/- and treated Rs. 8.93 Lakhs as allowable deduction u/s. 35(1)(iv) r.w.s. 35(2) being the capital expenditure on the research and development. The assessee also further submitted the balance amount of Rs. 65.03 Lakhs is in the nature of revenue expenditure and therefore the same is also allowable as normal deduction u/s. 35(1)(i) or section 37(1) of the Act. 21. From the above, it could be seen that the assessee had made an alternate claim for deduction u/s. 3....
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.... the assessee submitted that they had not incurred any expenditure for earning the exempt income. The assessee further contended that all the investments were made out of own funds and not out of borrowed funds and therefore no other costs were incurred for making the investments. In any event, the assessee himself voluntarily disallowed a sum of Rs. 57,37,105/- u/s. 14A of the Act and contended that the disallowance of expenditure is not warranted. The AO not accepted the explanation offered by the assessee and quantified the expenses related to investment activities u/s. 14A of the Act at Rs. 3,32,27,044/-. The AO granted the deduction on the expenditure voluntarily declared by the assessee and arrived a final amount of Rs. 2,74,89,939/-. Even though, the assessee filed their detailed objections before the Ld. DRP, the Ld. DRP had rejected the claim of the assessee and confirmed the addition at Rs. 2,74,89,939/-. The said addition is in dispute before this Tribunal. 24. The Ld.AR argued that the assessee's own funds are three times of the total investments and therefore the disallowance made u/s. 14A is not correct. The Ld.AR also further submitted that the investments whi....
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....thite Brazil Rs. 1,03,61,443/- Rs. 1,03,61,443/- Total Rs. 65,85,77,843/- Rs. 65,85,77,843/- Average Value Rs. 65,85,77,843/-. 26. Therefore the Ld.AR contended that there are so many mistakes in the computation of the disallowance made u/s. 14A of the Act and infact the assessee had also furnished a statement showing the exact amount to be disallowed u/s. 14A of the Act which is as follows: Average value of investments as worked out earlier Rs. 3,23,06,06,445 Less: Investments in foreign subsidiaries - Average value Less: Difference between actual cost of investment in Cochin Rs. 65,85,77,843 International Airport Ltd and Fair value as shown in the Balance Sheet Rs. 1,23,27,11,547 Correct value of investments on which disallowance of 1% to be applied Rs. 1,33,93,17,055 Disallowance under Rule 8D - 1% Rs. 1,33,93,170 Less: Disallowance already made in the ITR Rs. 57.37,105 Disallowance to be made based on the formula applied by AO Rs. 76,56,065 27. Finally the Ld.AR also made a submission that the disallowance made by the AO u/s. 14A itself is not correct since the assessee had voluntarily made a disallowance u....