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2023 (12) TMI 1312 - ITAT MUMBAITP Adjustment - interest on advances given to associated enterprises - HELD THAT:- The assessee being one of the JV partner advanced a sum which is outstanding without charging any interest. The claim of the assessee is that the amount was given in earlier years and the joint-venture is now facing a huge cash crunch due to operational losses and therefore it is not appropriate to charge any interest. The assessee also claimed that the advance has been made to the joint-venture to meet the deficit in cash flow while executing project in South Africa. It is the advance out of matter of commercial prudence to protect the business interest of the assessee in the project of the joint-venture. Assessee has also stated that there is a difference between providing advance and loan to its associated enterprises and providing advances as a business partner. It is also claimed by the assessee that the entire advances are not recoverable and therefore substantial part of those advances are written off in the financial year 2016 – 17. Therefore, no interest could be charged. The learned transfer pricing officer held that no independent party would have given such advance to any third-party and therefore the interest is required to be charged. We find that in KEC International Ltd. Versus DCIT-5 (1) (1) , Mumbai And (Vice-Versa) [2020 (9) TMI 1101 - ITAT MUMBAI] wherein as per ground number 1 transfer pricing adjustment were made on account of interest on business advances, the coordinate bench has deleted the adjustment as held that advances were more in the nature of capital contribution and by advancing the same, the assessee had protected its own business interest which is evident from the financial statements of JV. The advances were towards fulfilment of the assessee’s obligation of being a JV partner as any financial incapacitation of JV would adversely affect the continuation of the project and ultimately jeopardize the interest of the assessee. Therefore, the said advances could not be put in the category of loans as done by the lower authorities. It could not be said that JV entity derived / gained certain benefits out of such advances but rather it was the assessee who would ultimately gain by continuing with the projects and taste the fruits of the success of project. Hence, not convinced with impugned adjustments as confirmed by first appellate authority, we direct Ld. AO to delete the same. Decided in favour of assessee. Addition of corporate guarantee - HELD THAT:- As all financial guarantee and performance guarantee issued by the assessee are covered by the decision of the coordinate bench in assessee’s own case wherein the guarantee fees with respect to various guarantees where the assessee has recovered the guarantee commission at the rate of 0.6% was upheld, therefore all these guarantees are continuing guarantee from the earlier years and there is no change pointed out before us in the functions, assets and risk of the parties or any change in the economic conditions, respectfully following the decision of the coordinate bench we confirm the order of the learned CIT – A. With respect to the financial guarantee given to ICICI bank United Kingdom on behalf of keys the transmission LLC and KC US LLC (whole owned subsidiary of the assessee), no guarantee fee was charged, the learned CIT – A following the decision of the coordinate bench in assessee’s own case has upheld the arm’s-length guarantee fees of 0.20%. As the learned departmental representative could not point out any change in the facts and circumstances of the case as well as any variation in the functions, assets and risk of the parties or change in economic conditions and further as it is a continuing guarantee from earlier years, respectfully following the decision of the coordinate bench we uphold the order of the learned CIT – A in benchmarking the guarantee fee income at the rate of 0.20%. Addition on account of foreign exchange loss mark to market provided by the assessee - CIT(A) deleted addition - HELD THAT:- The issue is covered in assessee’s favor by the decision of this Tribunal for AY 2009-10 - In fact, the decision of learned first appellate authority for AY 2010-11 [2019 (9) TMI 437 - ITAT MUMBAI] was under challenge before this Tribunal by the revenue [2019 (9) TMI 437 - ITAT MUMBAI] wherein the co-ordinate bench followed the order for AY 2009-10 and held that MTM losses on hedging contracts would be accrued losses and hence, an allowable expenditure. Addition u/s 14 A r.w.r. 8D in computing the book profit under section 115JB - HELD THAT:- We find that this issue is squarely covered in favour of the assessee by the decision of special bench in case of ACIT versus Vireet investments private limited [2017 (6) TMI 1124 - ITAT DELHI] Even otherwise it is stated that assessee has not received any exempt income during the year and therefore there is no question of making any disallowance under section 14 A of the income tax act even in the normal computation of total income and therefore the same also cannot be imputed while computing the book profit u/s 115JB of the act.
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