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2022 (2) TMI 1328 - AT - Income TaxDisallowances of club expenses - expenditure was not incurred wholly and exclusively for the purpose of business - HELD THAT - As noticed that above issue is squarely covered in favour of assessee by order of coordinate bench for assessment year 2001 - 02 in case of assessee wherein it has been held that club expenses are in nature of business expenditure and therefore allowable to appellant relying on decision of honourable Bombay High Court and Gujarat High Court. The honourable Supreme Court has also held in CIT vs. United Glass manufacturing company limited 2012 (9) TMI 914 - SUPREME COURT that club expenses are also PO of business expenditure. The honourable Delhi High Court has also taken similar view 2009 (1) TMI 26 - DELHI HIGH COURT in view of this ground number 3 of appeal of assessee is allowed. Disallowance of prior period expenses - HELD THAT - We find that certain expenditure alleged to be relating to prior period was payable during the previous year 2008-09, as per the claim of the assessee. It is evident, the reason for disallowing assessee s claim is, it was not made through a revised return of income. As we find, identical issue came up for consideration before the coordinate bench in assessee s own case in assessment years 2000-01 to 2008-09. Adjustment made to the Arm s Length Price (ALP) of reimbursement of expenses - HELD THAT - As in a cryptic order passed, learned Commissioner (Appeals) has disposed of the issue by stating that the assessee offered average mark-up of 21.21% and accordingly directed the Assessing Officer to compute the adjustment by charging mark-up of 21.21% on cost. On perusal of materials on record, we are convinced that the conclusion drawn by Commissioner (Appeals) is erroneous, as, the assessee has never offered mark-up of 21.21%. The assessee has sought risk adjustment of 21.21% to be made to the margin of the comparables towards credit risk differences - Commissioner (Appeals) has completely misconstrued the submissions of the assessee - various other submission made by the assessee, including the submissions made relating to selection of comparables, have not at all been considered by Commissioner (Appeals). We deem it appropriate to restore the issue to the file of the AO for de-novo adjudication after providing due opportunity of being heard to the assessee. It is open to the assessee to furnish further evidence to demonstrate that the reimbursement by AEs on cost to cost basis does not require charging of any mark-up. While deciding the issue, the Assessing Officer must also examine assessee s claim that in assessment year 2010-11, reimbursement of expenses on cost to cost basis was accepted by the TPO. Assessing Officer must provide a reasonable opportunity of being heard to the assessee before deciding the issue. This ground is allowed for statistical purposes. Disallowance being the expenditure incurred by the assessee towards purchase of books, magazines and periodicals - HELD THAT - As decided in own case 2000-01 to 2008-09 2019 (3) TMI 735 - ITAT DELHI Expenditure incurred by assessee on 'purchase of books and journals cannot be held to be a capital expenditure. There is no change in facts and circumstances of case, nature of expenditure is also same, no contrary judicial precedent cited, therefore, following decision of coordinate bench, and hence, we dismiss ground of appeal of revenue. Disallowance of deduction claimed u/s 80IA - profit derived from business of generation of power - HELD THAT - As in assessee s own case in assessment year 2000-01 to 2008-09 2019 (3) TMI 735 - ITAT DELHI Revenue has submitted that Tribunal has passed an order of remand on question of computation of profit and gain from business in terms of sub- section (8) to Section 80IA. Learned counsel for respondent-assessee submits that Assessing Officer is competent to decide said question as per law and hands and power of Assessing Officer have not been curtailed and present order does not give any specific or clear finding/direction. We take statement made by learned counsel respondent-assessee on said aspect on record. Both parties will be entitled to raise their contentions on computation of eligible profit/loss from eligible business. Adjustment made on account of ALP of corporate guarantee - HELD THAT - As keeping in view the amendment made to section 92B of the Act, provision of corporate guarantee has to be regarded as an international transaction in terms of section 92B of the Act. The Hon ble Madras High Court in case of PCIT v. Redington (India) Ltd. 2020 (12) TMI 516 - MADRAS HIGH COURT after taking note of the amendment to section 92B of the Act, has held that provision of corporate guarantee will fall within the scope and ambit of international transaction as defined under section 92B of the Act. Therefore, we hold that provision of corporate guarantee towards loan availed by the AEs constitutes international transaction under section 92B of the Act. Commissioner (Appeals) has deleted the adjustment made in relation to provision of corporate guarantee simply on the reasoning that it is not an international transaction. Therefore, he has not considered the issue on merits. On perusal of material on record, we have observed, in course of proceeding before the TPO as well as before learned Commissioner (Appeals), the assessee had advanced detailed submissions on merits contesting the adjustment made on account of provision of corporate guarantee. While the TPO has completely rejected the submissions of the assessee, learned Commissioner (Appeals) did not deal with them as he held that the provision of corporate guarantee is not an international transaction. Thus, in our view, the assessee deserves a fair opportunity to contest the issue relating to the determination of ALP of guarantee commission to be charged on provision of corporate guarantee on merits. We restore the issue to the Assessing Officer for de-novo adjudication after due and reasonable opportunity of being heard to the assesse. Ground is allowed for statistical purposes. TP adjustment - interest chargeable on the loan advanced to the AE by applying the rate of 6% - HELD THAT - Assessee s contention that advancement of loan to AE is a share holders activity, hence, would not come within the purview of international transaction is unacceptable, in view of the amendment made to section 92B of the Act by Finance Act, 2012, with retrospective effect from 01.04.2002. As regards the merits of the issue, the facts on record indicate that while the TPO has determined the ALP of the interest chargeable on the loan advance to AE by applying SBI prime lending rate of 15%, learned Commissioner (Appeals) has substantially reduced it to 6%. The rate of 6% adopted by learned Commissioner (Appeals) is fair and reasonable considering the LIBOR rate of 4.42% prevailing at the relevant point of time. Therefore, we do not find any reasonable basis to interfere with the decision of learned Commissioner (Appeals). Ground raised is dismissed.
Issues Involved:
1. Disallowance of club expenses. 2. Disallowance of prior period expenses. 3. Adjustment to Arm’s Length Price (ALP) of reimbursement of expenses. 4. Deletion of disallowance for purchase of books, magazines, and periodicals. 5. Deletion of disallowance of deduction under section 80IA for profit from power generation. 6. Adjustment of ALP for corporate guarantee. 7. Adjustment of ALP for interest on loan advanced to Associated Enterprise (AE). Issue-wise Detailed Analysis: 1. Disallowance of Club Expenses: The assessee challenged the disallowance of club expenses amounting to Rs. 2,17,799/-. The departmental authorities disallowed these expenses, reasoning they were not incurred wholly and exclusively for business purposes. The Commissioner (Appeals) upheld this disallowance. However, the Tribunal found that this issue was covered in favor of the assessee by its own case in previous assessment years (2000-01 to 2008-09), where it was held that club expenses are in the nature of business expenditure and therefore allowable. The Tribunal allowed the assessee’s claim, deleting the disallowance. 2. Disallowance of Prior Period Expenses: The assessee challenged the disallowance of prior period expenses amounting to Rs. 28,09,028/-. The departmental authorities disallowed these expenses, stating they did not relate to the impugned assessment year and were not claimed through a revised return. The Tribunal found that this issue was also covered in the assessee’s favor in previous assessment years. It was noted that the expenses were payable during the relevant year and should be verified if they were crystallized during the year. The issue was restored to the Assessing Officer for fresh adjudication. 3. Adjustment to Arm’s Length Price (ALP) of Reimbursement of Expenses: The Transfer Pricing Officer (TPO) noticed that the assessee provided services to its AE on a cost-to-cost basis without charging a markup and proposed a mark-up of 27.13%, resulting in an adjustment of Rs. 6,42,29,383/-. The Commissioner (Appeals) reduced the adjustment to Rs. 5,02,13,977/-. The Tribunal found that the Commissioner (Appeals) misconstrued the assessee’s submissions and restored the issue to the Assessing Officer for de-novo adjudication, allowing the assessee to furnish further evidence. 4. Deletion of Disallowance for Purchase of Books, Magazines, and Periodicals: The Revenue challenged the deletion of disallowance of Rs. 32,42,447/- incurred towards the purchase of books, magazines, and periodicals. The Tribunal noted that this issue was covered in favor of the assessee in previous assessment years, where such expenditure was held as revenue expenditure. The Tribunal dismissed the Revenue’s ground, upholding the Commissioner (Appeals)’s decision. 5. Deletion of Disallowance of Deduction Under Section 80IA for Profit from Power Generation: The Revenue challenged the deletion of disallowance of deduction claimed under section 80IA for profit derived from power generation. The Tribunal found that this issue was also covered in favor of the assessee in previous assessment years, where it was held that profits derived from captive consumption of electricity qualify for deduction under section 80IA. The Tribunal dismissed the Revenue’s ground, upholding the Commissioner (Appeals)’s decision. 6. Adjustment of ALP for Corporate Guarantee: The TPO determined the ALP of corporate guarantee provided by the assessee to its AE by applying a commission rate of 4.86%, resulting in an adjustment of Rs. 23.16 crores. The Commissioner (Appeals) held that provision of corporate guarantee does not come within the purview of international transaction as per section 92B and deleted the adjustment. The Tribunal, however, held that provision of corporate guarantee falls within the definition of international transaction under section 92B, as amended by Finance Act, 2012. The issue was restored to the Assessing Officer for fresh adjudication on merits. 7. Adjustment of ALP for Interest on Loan Advanced to AE: The TPO applied an interest rate of 15% on a loan advanced by the assessee to its AE, resulting in an adjustment of Rs. 2,91,01,563/-. The Commissioner (Appeals) reduced the rate to 6%, resulting in an adjustment of Rs. 15,28,849/-. The Tribunal upheld the Commissioner (Appeals)’s decision, finding the rate of 6% fair and reasonable considering the prevailing LIBOR rate. Conclusion: The appeals were partly allowed for both the assessee and the Revenue. The Tribunal restored certain issues to the Assessing Officer for fresh adjudication and upheld the decisions of the Commissioner (Appeals) on other issues. The Tribunal provided detailed reasoning for each issue, ensuring that the principles of natural justice were followed.
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