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2019 (9) TMI 1340 - AT - Income TaxAdjustment of arm s length price of interest charged on loan given to AE - HELD THAT - As decided in favour of the assessee in the assessee s own case for the A.Y. 2003-04 and 2004-05 2014 (4) TMI 1097 - ITAT MUMBAI aforesaid by the ITAT holding that the LIBOR is acceptable arm s length interest rate, we respectfully following the decision of the coordinate Bench decide this issue in favour of the assessee and dismiss this ground of appeal of the revenue. Non charging of fees from AE for providing letter of comfort - HELD THAT - As decided in favour of the assessee in the assessee s own case for the A.Y. 2003-04 and 2004-05 2014 (4) TMI 1097 - ITAT MUMBAI held that the letter of comfort is outside the ambit of international transaction. Disallowance of sales promotion expenses - HELD THAT - As decided in favour of the assessee in the assessee s own case for the A.Y. 2003-04 and 2004-05 2014 (4) TMI 1097 - ITAT MUMBAI relevant art of the US comparable companies was incomplete and unreliable to justify the TP adjustment made by the AO/TPO and this finding recorded by the learned CIT(A) has not been rebutted or contributed by the learned DR. The learned DR has also not been able to point out any reason given by the AO/TPO to justify the change of tested party from the assessee company to the AE in US. We, therefore, find no justifiable reason to interfere with the impugned order of the learned CIT(A) deleting the TP adjustment made by the AO/TPO in respect of the international transaction involving availing of sales promotion services by the assessee from its AE in US. Disallowance of interest on advances to subsidiary and group company - HELD THAT - As decided in own case 2018 (1) TMI 1573 - ITAT MUMBAI we direct the AO to delete disallowance of interest in respect of advances to Taida trading and Industries Ltd and recompute the disallowance of interest in respect of loan to KTC Hotel as per the direction of the Tribunal in earlier years. In the result this ground of appeal is partly allowed. Disallowance of interest on share application money pending allotment - HELD THAT - As decided in the assessee s own case for the A.Y. 2003-04 and 2004-05 2014 (4) TMI 1097 - ITAT MUMBAI there was no justification in making any disallowance on account of interest paid on the borrowed funds. It was noted by tribunal that the share application money was finally returned to the assessee with interest @ 19% and the interest so received was duly offered by the assessee in the relevant year. Similar view has been taken by the tribunal in subsequent years i.e. assessment year 1996-97 to 2002-03. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to the earlier years, we respectfully follow the order of the tribunal for the said years and uphold the impugned order of learned CIT(A) giving relief to the assessee on this issue. Expenditure on replacement of carpet - HELD THAT - As decided in the assessee s own case for the A.Y. 2003-04 and 2004-05 2014 (4) TMI 1097 - ITAT MUMBAI issue decided in favour of assessee. Difference on rate of foreign exchange on deposit placed with WOS (TIHK) - HELD THAT - The said amount thus was in the nature of nonmonetary item which was required to be reported/recognised at the exchange rate prevailing on the date of relevant transaction as per AS-11 has rightly held by learned CIT appeals. We, therefore, find no infirmity in the impugned order of the learned CIT(Appeals) deleting the addition is made by the AO on this issue and upholding the same, we dismiss relevant grounds of revenue s appeal. Disallowance u/s 14A - HELD THAT - We direct the assessing officer to accept the 10% of exempt income, which is allowed as suo moto disallowance by the assessee. In the result this ground of appeal is allowed. Addition on account of notional interest on deposits with Taj Karnataka Ltd. - HELD THAT - As relying on decision of Hon ble Karnataka High Court in CIT Vs Sridev Enterprises 1991 (1) TMI 52 - KARNATAKA HIGH COURT we restore this ground of appeal to the file of assessing officer to verify the facts and grant relief to the assessee. The AO shall verify that as to whether no fresh deposits wad made with Taj Karnataka Ltd., during the period under consideration and in case the deposits were made in earlier years and no such disallowance on account of notional interest in earlier years, therefore, no such disallowance be made for this year. In the result this ground of appeal is allowed for statistical purpose.
Issues Involved:
1. Adjustment to Total Income 2. Transfer Pricing Adjustments 3. Disallowance of Sales Promotion Expenses 4. Disallowance of Interest on Advances 5. Treatment of Capital Expenditure 6. Foreign Exchange Fluctuation 7. Disallowance under Section 14A 8. Premium on Redemption of Foreign Currency Convertible Bonds 9. Notional Interest on Deposits 10. Levy of Interest under Sections 234B and 234D 11. Lack of Adequate Opportunity Detailed Analysis: 1. Adjustment to Total Income: The assessee contested an addition of ?53,24,92,288 to its total income, which included ?25,39,55,912 based on Chapter X of the Income-tax Act, 1961, and ?27,85,36,376 based on other provisions. The Tribunal allowed the appeal in favor of the assessee, referencing previous decisions in the assessee's own case for earlier years. 2. Transfer Pricing Adjustments: - Interest on Loans to Associated Enterprises (AEs): The TPO added ?24,45,05,589 for charging interest at a lower rate than the arm's length price. The Tribunal, referencing its decision for AY 2005-06, held that LIBOR is an acceptable arm's length interest rate and allowed the appeal in favor of the assessee. - Letter of Comfort: An addition of ?6,66,408 was made for not charging fees for providing a letter of comfort. The Tribunal, following its earlier decisions, ruled that the letter of comfort does not constitute an international transaction and allowed the appeal in favor of the assessee. - Sales Promotion Expenses: The TPO made arbitrary adjustments for sales promotion expenses paid to AEs, which the Tribunal found unjustified, referencing its earlier decisions and allowed the appeal in favor of the assessee. 3. Disallowance of Sales Promotion Expenses: The TPO disallowed ?87,83,915 on account of sales promotion expenses paid to AEs. The Tribunal referenced its earlier decisions and found the adjustments arbitrary and unjustified, allowing the appeal in favor of the assessee. 4. Disallowance of Interest on Advances: - Advances to Group Companies: The AO disallowed ?25,52,566 as interest on advances given to group companies. The Tribunal, referencing its earlier decisions, directed the AO to delete the disallowance for advances to Taida Trading and Industries Ltd and recompute the disallowance for KTC Hotels Ltd. - Share Application Money: The AO disallowed ?1,12,600 as interest on share application money pending allotment. The Tribunal, following its earlier decisions, allowed the appeal in favor of the assessee. 5. Treatment of Capital Expenditure: - Replacement of Carpet: The AO treated ?1,51,75,946 as capital expenditure. The Tribunal, referencing its earlier decisions, allowed the appeal in favor of the assessee. - Replacement of Linen: The AO treated ?4,30,17,260 as capital expenditure. The Tribunal, following its earlier decisions, allowed the appeal in favor of the assessee. 6. Foreign Exchange Fluctuation: The AO did not consider the loss arising from foreign exchange fluctuation. The Tribunal, referencing its earlier decisions, allowed the appeal in favor of the assessee. 7. Disallowance under Section 14A: The AO disallowed ?6,39,10,816 under Section 14A. The Tribunal, referencing its earlier decisions, directed the AO to accept the 10% of exempt income as disallowed by the assessee. 8. Premium on Redemption of Foreign Currency Convertible Bonds: The AO added ?8,59,34,837 as pro-rata premium on redemption of foreign currency convertible bonds. This ground was not pressed by the assessee and thus dismissed. 9. Notional Interest on Deposits: The AO added ?37,45,000 as notional interest on deposits with Taj Karnataka Ltd. The Tribunal, referencing the decision of the Karnataka High Court, restored the matter to the AO for verification and allowed the appeal for statistical purposes. 10. Levy of Interest under Sections 234B and 234D: The AO levied interest under Sections 234B and 234D. The Tribunal directed the AO to allow consequential relief to the assessee. 11. Lack of Adequate Opportunity: The assessee claimed lack of adequate opportunity before the TPO, AO, and DRP. This ground was not pressed and thus dismissed. Conclusion: The Tribunal adjudicated various grounds of appeal, referencing its earlier decisions and those of higher authorities, allowing most of the appeals in favor of the assessee while dismissing a few that were not pressed. The order emphasized consistency and adherence to judicial precedents.
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