TaxTMI 
TaxTMI 
2025 (4) TMI 2220
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.... Rs. 17.60 crore without appreciating the fact that the same brings into existence benefit of enduring in nature and hence amounts to capital expenditure. 1.2 Whether on the facts and in the circumstances of the case and in law, the CIT(A) is right in allowing assessee's claim of Brand Development expense of Rs. 17.60 crore without appreciating the fact that the expenditure incurred was not wholly and exclusively for the purpose of assessee's business but, also related to the assessee's group companies. 2.1 Whether on the facts and in the circumstances of the case and in law, the CIT(A) is right in deleting disallowances made by the AO of premium on zero percent fully redeemable non-convertible marketable debentures of Rs. 66.73 crore without appreciating the fact that the same does not amount to the expenditure. Since it is not at all payable by the assessee on ZCNCD. Secondly, since this premium amount was not claimed in return of income as per decision of Hon'ble Supreme Court in the case of Goetze (India) ltd. Vs. CIT 157 Taxman 1(SC), the same is not allowable for deduction. 2.2 Whether on the facts and in the circumstances of the cas....
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....d building and logo/trade mark and for professional services are related to carrying on the business and they have been regarded as integral part of the profit earning process and not for an acquisition of an asset. Thus such expenditure are in the nature of revenue expenditure and they are allowable expenditure. The Id. CIT(A) further allowed the expenditure of Rs.116.86 lacs in respect of rent by holding that sufficient evidence had been brought on record by the assessee to establish that the said property is being used for the purpose of its business. The Department has not brought on record any adverse evidence that such expenses are bogus and inflated. Thus, the Id. CIT(A) allowed this expenditure in terms of provision of Section 30 of the I.T. Act. Taking into consideration the above facts and circumstances of the case, we find that the Department has not filed any supporting evidence/ rebuttal against the written submission Id. AR of the assessee except arguing that the Id. CIT(A) has erred in deleting the above expenditure. We find on perusal of evidence on record that learned CIT(A) has dealt with the facts and evidence on record extensively while granting relief in the ca....
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....the quantum. Expenditure incurred on development of brand in respect to existing activity of business is clearly allowable business expenditure and cannot be considered as capital expenditure as concluded by A.O. Conclusion of A.O. is rightly reversed by CIT(A) for detailed reasons indicated in the appellate order. Considering the totality of facts and circumstances and evidence on record we find no merit in appeal of revenue. Thus Ground Nos. 3 & 4 of the Department are dismissed." 5. Since the issue for our adjudication is identical to the issue decided above, consistent with the view taken therein, we dismiss the connected ground(s) raised by the Revenue by upholding the impugned order passed by the learned CIT(A) for both the years under consideration viz. A.Y. 2011-12 and 2012-13. 6. The next issue which relates to non-convertible debentures. This issue is involved in both the years under consideration viz. A.Y. 2011-12 and 2012-13. The issue is common, except variation in figures. 7. Both the parties agree before us that the issue regarding non- convertible debentures is also mutatis mutandis identical to the issue decided by a Co-ordinate Bench of this Trib....
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....ot contravened the submission of appellant in the course of hearing before Tribunal. The direction of Hon'ble CIT(A) to allow accrued premium as deduction for computing the income from business on issue of nonconvertible debenture cannot be faulted. The nonconvertible debentures are transferable by delivery and thus payee of debenture remains not identifiable till the date of redemption on 12/09/2012. In the absence of payee being identifiable it is not possible to deduct tax at source under the provisions of Income Tax Act 1961. Payment of premium and payee being not identifiable there is no obligation to deduct tax at source u/s 194A of I.T. Act 1961. In the absence of obligation to deduct tax at source provisions of section 40(a)(ia) of I.T. Act 1961 cannot be invoked. The reasons for disallowance given by A.O. is unjustified and has correctly being held by CIT(A) to be not a valid reason for not allowing the claim of deduction. It is also noted that at the time of date of redemption due compliance of tax deducted at source has been made by appellant. On above undisputed factual position relief granted by CIT(A) in the case of appellant cannot be faulted. Considering the tot....
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....s case also it was held that a corporate guarantee given by assessee company to its AE, if it does not involve any cost to the assessee and therefore if it has no bearing on profits, income, losses or assets of assessee than the same is outside the ambit of International transactions. Thus no transfer pricing adjustment should be made with regard to corporate guarantee issued by the assessee to its AE. In this case also the Tribunal decided the matter in favour of the appellant. 6.8. The appellant accordingly had submitted that before the TPO a detailed submission had been made stating that the guarantees were given to the AE as part of performing shareholders function and it did not involve any cost to the appellant. The appellant has submitted that neither the TPO nor the AO in heir order have stated or brought out this fact that any cost was incurred by the appellant and therefore relying on these judgment the appellant has submitted that no transfer pricing adjustment could be made to the corporate guarantee given by it to its Associated Enterprises as it had not involved any cost to the appellant nor it has any bearing on profits, income, losses or assets of the appel....
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....rom that of bank guarantee and, accordingly, commission charged cannot be called in question, in the manner TPO has done. The comparison is not as between like transactions but the comparisons are between guarantees issued by the commercial banks as against a corporate Guarantee issued by holding company for the benefit of its AE, a subsidiary company. In view of the above discussion, appeal does not raise any substantial question of law and it is dismissed." 6.11. I have considered the judgment delivered by Hon'ble Bombay High Court in the case of Everest Kento Cylinders Ltd. where Hon'ble Court has held that a corporate guarantee issued by holding company, for benefit of its AE is distinct from that of bank guarantee and accordingly transfer pricing adjustment cannot be made on the basis of guarantee issued by banks. Bank guarantee is given on commercial terms and in case of any default it is easily encashable as compared to corporate guarantee given by holding company for benefit of its AE. 6.12. I find that rate of commission that should be charged for giving a corporate guarantee by a holding company to its AE depends on a number of factors. The prima....
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.... the same. The credit rating as discussed by the TPO is on Page 6 and 7 of the TPO's order and is being reproduced below: Sr. no. Name of AE Financial Year in which guarantee given Z-score for the relevant F.Y. Z-score Result 1 NQC Global (Mauritius) Ltd. 2006-07 -3.13 -0.36 Distress Zone Distress Zone 2 NQC International (Mauritius) Ltd. 2006-07 2008-09 -3.13 0.07 Distress Zone Distress Zone 3 MTP new Ocean (Mauritius) Ltd. 2008-09 -2.11 3.69 Distress Zone Safe Zone 4 Avantha Business Solutions Inc. 2010-11 0.28 0.30 Distress Zone Distress Zone Based on above analysis, it can be seen that if one were to derive the equivalent credit rating of the assessee in terms of credit rating parameters of other rating agencies, then the credit rating of the assessee for above mentioned years would be D grade for S & P and Fitch and C grade for Moody's. The equivalent credit ratings of the AE's would be D grade for S & P and Fitch and C grade for Moody's except that the credit rating of MTP New Ocean (Mauritius) Limited would be BBB+ or higher fo....
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....ious judicial precedents restricted the corporate guarantee fee to 0.2% and partly allowed the assessee's appeal on this issue. We find no reason to interfere. Accordingly, the concerned ground is dismissed. 12. For the assessment year 2012-13 along is concerned, two grounds are raised by the Revenue which are extracted herein below :- "(iv) Whether on the facts and circumstances of the case in law, the Hon'ble CIT(A) was right in holding that on facts in allowing depreciation on aircrafts @ 40% as against the depreciation allowed @ 15%. (v) Whether on the facts and circumstances of the case in law, the Hon'ble CIT(A) was right in holding transactions of sale of shares as not a business transaction." 13. Ground no.4, raised by the Revenue relates to depreciation. 14. The learned CIT(A) directed the Assessing Officer to delete the addition by observing as under :- "FINDINGS 5.3 I have considered the submission of appellant and perused the evidence on record. Addition is made by disallowing part claim of depreciation on aircraft. A.O. has discussed the addition at para 4 of assessment order. A.O. has concluded that in respect t....
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....15% by the AO. The ITAT Delhi Bench after hearing the parties dismissed this ground of appeal of the revenue and allowed 40% depreciation and upheld the findings of the Ld. CIT (A) holding that this issue is squarely covered in favour of the assessee by the decision of ITAT. Delhi Bench rendered in the case of SRC Aviation Pvt. Ltd. which was affirmed by the Hon'ble Delhi High Court in further appeal. The Hon'ble High Court has upheld the findings of the Delhi Bench of the Tribunal after going through the order of the ITAT and findings regarding the expression aircraft and aeroplane. The observations of the Hon'ble Court are as under- "9. This court is conscious of the fact that the generic term aircraft is broader and there can be no doubt that it encompasses the expression aeroplane. However, this court is not called upon to interpret the term "aircraft" in the present appeal. The question is whether the Beechcraft Super King Air B-200C purchased by the assessee fell within the description of aeroplane. Ld counsel for the revenue sought to urge that the "airplain-aeroengin" included only aero engine which can be used for airplane, covered by the Entry III(3)(....
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....ssing Officer was directed to be deleted, respectfully following the aforesaid case laws, we find no reason to interfere with the order passed by the learned CIT(A). Accordingly, upholding the order passed by the learned CIT(A), the ground no.4, raised by the Revenue is dismissed. 16. Ground no.5, relates to sale of shares. 17. The learned CIT(A) has considered the assessment order and also the entire facts of the case and he passed a detailed order. For the sake of convenience, the findings of the learned CIT(A) on the said issue vide Page- 64 to 67, are reproduced below for ready reference :- "6.3 I have considered the submission of appellant and perused the evidence on record. A.O. has discussed the addition at para 5 of the assessment order. A.O. has concluded that the surplus arising to sale of shares is brought to tax as income from business as against income declared by computing the assessable long term capital gain after indexation at the hands of appellant at Rs. 13,55,259/-. A.O. has concluded that investment made by the appellant in the past assessment years is as business income and hence same is liable to be assessed as business income for the ....
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....the case of Gopal Purohitus JCIT 20 DTR 99 (supra) wherein it has been held that the appellant's claim for short term and long term capital gain from the transaction in shares have been allowed on identical facts in earlier assessment years and that therefore the same could not be disallowed in the year under consideration only because the transaction conferred certain benefits of the appellant. It is further stated in the said judgement that modus operandi of appellant is the same and therefore, the appellant's claim deserves to be accepted by the following rule of consistency. Following the said decision of Gopal Purohitus JCIT (supra), the Nagpur Bench of ITAT has given relief to the appellant in AY 2004-05. 5.2 Even during the year under consideration, it is evident that shares which have been sold by the appellant have been consistently shown as investment in its books of accounts over the years. This fact has not been refuted by the Id. AO. As a matter of fact the Id. AO explicitly states that the said shares have been shown as investment in the books of the appellant. It is also a fact that most of these shares have been held by the appellant for the last se....
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.... that ITAT Nagpur Bench has given the relief to the assessee in view of decision of Gopal Purohit v/s JCIT (supra). It is also pertinent to mention that in the immediately preceding year, similar transaction had been treated by the AO to be assessable under the head capital gains. In this view of the matter, we concur with the findings of the Id. CIT(A) on the issue in question. Thus, Ground Nos. 1 and 2 of the Department are dismissed. UNQUOTE 6.4 Ratio laid down by the aforesaid judgment squarely applies to the facts in the case of appellant and considering the same assessment of surplus arising on sale of shares during the previous year under consideration held as investment are liable to be brought to tax under the capital gain and not income from business. It is worthwhile to note that appellant company has made strategic investment in companies and shares are not acquired to engage itself in any trading activity. A.O. is directed to accept the capital gain as shown in the return and addition made by A.O. at Rs. 65,49,37,331/- is directed to be deleted. Income as shown under the head long term capital gain at Rs. 13,55,259/- be assessed to tax. Ground of appe....
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....ng the share capital, hence provision of corporate guarantee does not lead to any additional risk for the appellant warranting a compensation; b) misinterpreting the concept of shareholder services contained in the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations released by the Organization for Economic Cooperation and Development (OECD Guidelines); c) The appellant is contractually restrained by the lenders to charge any guarantee fees to its AEs as per the guarantee agreement. 4. The Ld. Commissioner of Income Tax (Appeals) erred in holding that there is an element of service provided by the appellant company to its AE while providing these corporate guarantee without appreciating the fact that said Guarantees issued by the appellant are in the form of Corporate Guarantees /quasi capital and not in the nature of provision for services as it did not cost anything to the appellant. 5. That the Appellant Company craves leave to add, amend, alter and withdraw any ground or grounds of appeal before or at the time of haring of this appeal." 21. The only issue raised in this appeal relates to corporate guarantee. ....