2022 (5) TMI 1587 - ITAT BANGALORE

Adjustment towards stand by letter of credit (‘SBLC’) - assessee provided SBLC for and on behalf of the AE being Istanbul Sabiha Gokcen Havalimani Yatirim Yapim Veisletme A S (ISG), through assessee’s Indian bank out of non-fund based limits to the foreign lenders of the said AE. The bank charged a commission at the rate of 0.90% - 0.95% of the amount of SBLC to the assessee - TPO made adjustment of the entire commission amount charged by the bank to Assessee, stating that the risk premium to be charged by the Assessee from its AE should be the bank rate of 0.90% - 0.95% - CIT(A) granted relief to the extent of commission recovered by the Assessee from the AE and upheld the adjustment made by the Ld.TPO to the extent of the balance amount that was not recovered by the assessee from its AE

HELD THAT:- Respectfully following the above consistent view for assessment year 2014-15 [2020 (2) TMI 1708 - ITAT BANGALORE] and group concern, namely GMR Energy Ltd., for AY 2013-14. by coordinate bench of this Tribunal, we direct the Ld.AO to restrict the addition to the amount of commission not recovered by the assessee from its AE. We therefore do not find any infirmity in the view taken by the Ld.CIT(A).

Adjustment towards Corporate Guarantee - Assessee in these years have advanced corporate guarantee in furtherance to its business of Infrastructure development in the field of Airports, Coal mining, Power projects abroad for which the assessee has set AEs abroad to facilitate in its expanding Infrastructure activities overseas - HELD THAT:- Primarily, we reject the argument of assessee that corporate guarantee is not an international transaction.

A corporate guarantee is a legal agreement between a borrower, lender, and guarantor, whereby a corporation takes responsibility for the debt repayment of the borrower provided it faced bankruptcy. A personal guarantee is a similar document to the corporate guarantee.

The considerations which applied for issuance of a Corporate guarantee are distinct and separate from that of bank guarantee and accordingly we are of the view that commission charged by the Ld.TPO under the facts of the case cannot be approved. In our view the comparison has not been drawn 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.

The issue as to whether LIBOR is to be taken as the basis of interest benchmarking for foreign currency denominated loans or whether Indian PLR will be relevant for the same, is no longer res integra. See Tata Autocomp Systems Ltd [2015 (4) TMI 681 - BOMBAY HIGH COURT]

Thus we direct the Ld.TPO to compute the guarantee commission rate in accordance with the principles laid down in CIT Vs Tata Autocomp Systems Ltd. [2015 (4) TMI 681 - BOMBAY HIGH COURT] and CIT vs. Cotton Naturals (I)(P) Ltd. [2015 (3) TMI 1031 - DELHI HIGH COURT]

Further in case of Xchanging Solutions Ltd. vs. DCIT [2016 (10) TMI 1211 - ITAT BANGALORE] this Tribunal has considered the commission on guarantee fee at 0.5%. In view of the above, we direct the Ld.AO/TPO to recomputed the rate of commission attributable to the corporate guarantee in the present facts, in the light of the above.

Disallowance u/s. 14A under normal provisions - Suo moto addition by assessee - HELD THAT:- In view of the above judgment of the Hon’ble Madras High Court in the case of M/s.Marg Limited v. CIT (supra), it is clear that the disallowance u/s 14A of the I.T.Act cannot exceed the exempt income earned during the relevant assessment year irrespective whether larger amount was disallowed by the assessee u/s 14A of the I.T.Act while filing the return of income. Therefore, the AO is directed to restrict the disallowance u/s 14A

Respectfully following the view taken by Coordinate Bench in assessee’s sister concern case, we are of the view that the Ld.AO is directed to delete the suo moto disallowance made by assessee for A.Y. 2010-11 as the assessee filed revised computation during the original assessment proceedings.

In respect of A.Ys. 2012-13 and 2013-14, we direct the Ld.AO to restrict the disallowance to the extent of exempt income earned by assessee. In support of this view, we refer to the decision of Hon’ble Delhi High Court in case of Cheminvest Ltd. [2015 (9) TMI 238 - DELHI HIGH COURT] and the decision of Vireet Investments Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI]

Disallowance u/s. 14A for computing book profits u/s. 115JB - HELD THAT:- This issue stands squarely covered by the decision of Vireet Investments (P.) Ltd. [2017 (6) TMI 1124 - ITAT DELHI] where in it was held that “S.14A/Rule8D: (i) the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income tax Rules 1962, (ii) Only those investments to be considered for computing the average value of investment which yielded exempt income during the year”. Also see Sobha Developers Ltd. [2021 (1) TMI 378 - KARNATAKA HIGH COURT] We accordingly direct the Ld.AO to compute the book profits under section 115JB without resorting to the computation u/s. 14A r.w. Rule 8D.

Nature of expenses - Amortization of Upfront Fees and legal Fees paid - revenue expenditure or not? - AO disallowed the unamortized upfront fees and allowed the proportionate amortized upfront fees on the premise that, the service for which payment was made, would benefit the assessee over the entire tenure - CIT(A) upheld the disallowance made by the Ld.AO - HELD THAT:- We note that, the authorities below have not verified the facts in correct perspective. Admittedly, the assessee paid non-refundable fee for structuring, processing and advisory services to ICICI Bank in respect of NCD’s issued by assessee to ICICI. The assessee claimed the entire fee in the year of accrual in computation of Income, however amortized the amount in the books of account to the securities premium account, over the tenure of the debentures.

In present facts, the Ld.AO spread over the expenditure over the period of tenure. AO treated the same as deferred expenditure, which is an accounting concept and alien to the Act. The provisions of the Act recognizes only capital or revenue expenditure.

In a subsequent decision by Hon’ble Supreme Court in case of CIT vs. Secure Meters Ltd. [2009 (8) TMI 1135 - SC ORDER] it was held that an expenditure on loan was allowable as revenue expenditure. Similar is the view expressed in case of Taparia Tools [2015 (3) TMI 853 - SUPREME COURT] by Hon’ble Supreme Court. Thus we direct the Ld.AO to allow the claim of assessee in entirety in the year under consideration.

Levy of interest u/s. 234B - HELD THAT:- Interest u/s. 234B is to be computed from the date of intimation u/s. 143(1) and not from the 1st day of April of the relevant Assessment Year.

Addition of notional amount being difference in the revenue as per books of account and Form 26AS - AR submitted that, the Ld.AO proceeded to make the addition without considering the submissions of the assessee, with respect to the difference in income reported in Form 26AS and income as disclosed in the return - HELD THAT:- We remand this issue to the Ld.AO for de novo verification. The Ld.AO is directed to verify the claim in the light of the evidences including the additional evidence. The Ld.AO is also directed to verify if in the subsequent years it is accounted as and when the work was carried out by the assessee, it cannot be taxed in this assessment year and TDS credit to be given in this assessment year.