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2017 (12) TMI 1745 - AT - Income TaxTP Adjustment - addition on account of guarantee provided to Associated Enterprise - Whether Appellant was justified in not charging any guarantee fees since guarantee provided by the Appellant was in the capacity of parent company and out of commercial expediency of the Appellant - HELD THAT - Guarantees in question are, to use the words of the CIT(A), continuing guarantees from the immediately preceding year and that except for the figures, entire facts of the case are similar to that of the immediately preceding assessment year 2008-09 . Vide our order dated 2017 (4) TMI 1406 - ITAT AHMEDABAD the Tribunal has allowed the appeal of the assessee, on the same point, and held that no such ALP adjustments are permissible in law. We see no reasons to take any other view of the matter that the view so taken, by the co-ordinate bench, for the immediately preceding assessment year. We, therefore, uphold the grievances of the assessee and delete the impugned ALP adjustments. As we have held that no such ALP adjustment is permissible, grievances raised by the Assessing Officer, with respect to quantification of ALP adjustment, are dismissed as infructuous. Disallowance u/s 14A r.w.r. 8D - HELD THAT - CIT(A) has merely remitted the matter to the file of the Assessing Officer for a factual verification. There cannot be any infirmity in this approach, and the grievance of the Assessing Officer is devoid of any rationale. It is difficult to understand that when the matter is remitted to the file of the Assessing Officer, how can the Assessing Officer be aggrieved of such a direction. We see no merits in the grievance raised by the Assessing Officer. We, therefore, uphold the order of the learned CIT(A) and decline to interfere in the matter. Notional loss on account of foreign exchange fluctuation loss amounting claimed on account of Mark to Market basis - HELD THAT - As decided in own case 2017 (4) TMI 1406 - ITAT AHMEDABAD the assessee is consistently following the mercantile method of accounting, the same accounting treatment for the foreign exchange losses and gains has been given by the assessee all along, the assessee is making entries in respect of such losses and gains, and the treatment is consistent with the Accounting Standards. As a matter of fact, the Assessing Officer has not even raised any issues with respect to the above. His case is confined to the loss being notional in nature and contrary to the CBDT guidelines. As for the CBDT instructions, it is only elementary that any instructions issued by the CBDT cannot bind the assessee even though the assessee is entitled to, and can legitimately ask for, any benefits granted to the assessee by such instructions or circulars. Nothing, therefore, turns on the CBDT instruction even if it is actually contrary to the claim of the assessee. As per the details filed by the assessee, the foreign exchange contracts have been entered into for genuinely restricting its bonafide risk exposure of the assessee in respect of its exports and imports transactions. These contracts cannot, therefore, be viewed on a standalone basis as speculative transactions. These transactions are integral part of the business transactions and any loss or gains arising from these transactions, for the detailed reasons set out above, are deductible in computation of profits and gains of business. We uphold the action of the CIT(A) so far as this relief in respect of deleting the disallowance on account of loss, at the end of the year, on foreign exchange contracts. Disallowance u/s.36(1)(va) r.w.s.2(24)(x) on account of employees contribution towards PF ESI - HELD THAT - This issue is to be decided against the assessee, in the light of Hon ble jurisdictional High Court s judgement in the case of CIT vs. Gujarat State Road Transport Corporation Limited 2014 (1) TMI 502 - GUJARAT HIGH COURT . The relief granted by the learned CIT(A), on this issue, is thus vacated. Upward adjustment on account interest charged on the loans granted to the Associated Enterprises' at discounted rate to the prevailing Market rate - HELD THAT - In the light of the above factual position, it is clear that once the Revenue authorities accept the stand of the CIT(A) on an issue and allow it to reach finality in one assessment year, it cannot be open to them to challenge the same in the subsequent assessment year. As noted by Hon ble Supreme Court, in the case of CIT vs. Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT while strictly speaking, res judicata does not apply to income tax proceedings , where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not at all be appropriate to allow the position to be changed in a subsequent year . In view of these discussions, grievance raised by the Assessing Officer is not maintainable, and is dismissed as such. Fresh claim of the Assessee in respect of Revenue expenditures for issue of debenture of LIC of India - HELD THAT - We find that it is a well settled legal position that the bar on accepting a fresh claim in assessment proceedings, except by way of a revised return, is only on the Assessing Officer and not the appellate authorities. There is, thus, no infirmity in learned CIT(A) s accepting the claim in principle and remitting the matter to the Assessing Officer for examination of claim on merits. Hon ble jurisdictional High Court has also, in the case of PCIT vs. UTI Bank Ltd. 2016 (6) TMI 961 - GUJARAT HIGH COURT approved this approach. We, therefore, see no merits in the grievance of the Assessing Officer and reject the same.
Issues Involved:
1. Transfer Pricing Adjustment for Guarantee Fees 2. Disallowance under Section 14A 3. Foreign Exchange Fluctuation Loss 4. Disallowance of Employee’s Contribution towards PF & ESI 5. Interest on Loans to Associated Enterprises 6. Fresh Claim of Revenue Expenditure 7. Withholding Tax on Royalty Income 8. Section 14A Disallowance and MAT Computation Detailed Analysis: 1. Transfer Pricing Adjustment for Guarantee Fees Assessee's Grievance: The CIT(A) confirmed a 0.75% guarantee fee, sustaining a transfer pricing adjustment of ?44,24,250/- and ?3,82,00,000/- for guarantees provided to Associated Enterprises (AEs). The CIT(A) erred by not acknowledging the appellant’s justification for not charging any guarantee fees due to commercial expediency and the parent company’s capacity. Assessing Officer's Grievance: The CIT(A) erred in deleting ?76,68,700/- and ?39,02,19,175/- from the total adjustments made on account of guarantee fees for loans availed by AEs. Tribunal's Decision: The Tribunal noted that the guarantees were continuing from the previous year and similar to the assessment year 2008-09, where no ALP adjustments were permissible. The Tribunal reiterated that corporate guarantees issued by the assessee did not constitute an international transaction requiring ALP adjustments, aligning with the decision in Micro Ink Ltd Vs ACIT. 2. Disallowance under Section 14A Assessing Officer's Grievance: The CIT(A) erred in deleting the disallowance of ?4,10,87,892/- made under Section 14A read with Rule 8D by directing to adopt ‘net assets’ to calculate the ‘Average Total assets’. Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision to remit the matter to the Assessing Officer for factual verification, finding no infirmity in this approach. 3. Foreign Exchange Fluctuation Loss Assessing Officer's Grievance: The CIT(A) erred in allowing a notional loss on account of foreign exchange fluctuation amounting to ?1,26,42,63,740/- on a Mark to Market basis. Tribunal's Decision: The Tribunal followed its earlier decision for the assessment year 2008-09, confirming that foreign exchange losses computed on a Mark to Market basis are deductible, as the assessee consistently followed the mercantile system of accounting and recognized both gains and losses. 4. Disallowance of Employee’s Contribution towards PF & ESI Assessing Officer's Grievance: The CIT(A) erred in deleting the disallowance of ?6,27,955/- made under Section 36(1)(va) read with Section 2(24)(x) on account of employees' contribution towards PF & ESI. Tribunal's Decision: The Tribunal reversed the CIT(A)'s relief, aligning with the jurisdictional High Court’s decision in CIT vs. Gujarat State Road Transport Corporation Limited. 5. Interest on Loans to Associated Enterprises Assessing Officer's Grievance: The CIT(A) erred in deleting an upward adjustment of ?14,91,87,270/- made on account of interest charged on loans to AEs at a discounted rate. Tribunal's Decision: The Tribunal dismissed the grievance, noting that the CIT(A) had followed his order for the assessment year 2008-09, which the Revenue had not challenged. 6. Fresh Claim of Revenue Expenditure Assessing Officer's Grievance: The CIT(A) erred in allowing a fresh claim of ?5.06 crores for debenture issuance expenses, which was not made in the return of income, contradicting the Supreme Court decision in Goetze (India) Ltd. Tribunal's Decision: The Tribunal upheld the CIT(A)'s acceptance of the fresh claim, noting that appellate authorities are empowered to accept new claims not made in the original or revised return. 7. Withholding Tax on Royalty Income Assessing Officer's Grievance: The CIT(A) erred in allowing relief of ?1,40,51,080/- on account of withholding tax on royalty income under Section 90, despite the claim not being made in the return of income. Tribunal's Decision: The Tribunal remitted the issue to the Assessing Officer for adjudication on merits, following the precedent set in the previous assessment year. 8. Section 14A Disallowance and MAT Computation Assessing Officer's Grievance: The CIT(A) erred in directing that the amount of disallowance under Section 14A cannot be added to book profit for MAT computation under Section 115JB. Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, in line with the jurisdictional High Court’s judgment in CIT vs. Alembic Ltd. Conclusion: The Tribunal allowed the assessee's appeal and partly allowed the Revenue's appeal, subject to the observations and remand directions provided.
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