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2022 (5) TMI 1587 - AT - Income TaxAdjustment 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.
Issues Involved:
1. Adjustment towards Standby Letter of Credit 2. Adjustment towards Corporate Guarantee 3. Disallowance under section 14A 4. Disallowance under section 14A in Book Profit 5. Amortization of Upfront Fees and Legal Fees as Revenue Expenditure 6. Interest under section 234B 7. Addition of Difference between Revenue as per Books of Account and Form 26AS Detailed Analysis: 1. Adjustment towards Standby Letter of Credit: *Assessment Year 2010-11:* - The assessee provided SBLC for its AE, recovering a partial amount of the commission charged by the bank. - The TPO made an adjustment for the entire commission amount, while the CIT(A) granted relief for the recovered amount and upheld the adjustment for the unrecovered amount. - The Tribunal followed its earlier decision, restricting the adjustment to the amount not recovered from the AE. - Accordingly, the ground raised by the assessee and the revenue for AY 2010-11 was dismissed, making the cross objection by the assessee infructuous. - Identical grounds for AYs 2011-12 to 2013-14 were also dismissed following the same reasoning. 2. Adjustment towards Corporate Guarantee: *Assessment Years 2010-11 to 2013-14:* - The assessee provided corporate guarantees to facilitate its business expansion, without charging any commission due to bank restrictions. - The TPO made adjustments based on differential bond yields, while the CIT(A) granted relief. - The Tribunal rejected the argument that corporate guarantees are not international transactions, following the decision in Instrumentarium Corporation Ltd. vs. DDIT. - The Tribunal directed the TPO to compute the guarantee commission rate following principles in CIT Vs Tata Autocomp Systems Ltd. and CIT vs. Cotton Naturals (I)(P) Ltd. - The ground raised by the revenue was partly allowed, and the cross objection by the assessee was dismissed. 3. Disallowance under Section 14A: *Assessment Years 2010-11 to 2013-14 (GMR Infrastructure Ltd.) and 2015-16 to 2016-17 (GMR Highways Ltd.):* - The assessee made suo moto disallowances, later withdrawn during assessment proceedings due to no exempt income. - The AO disallowed the amounts, while the CIT(A) deleted the disallowance but upheld the suo moto disallowance. - The Tribunal held that no disallowance under section 14A can be made if no exempt income is earned, following decisions in PCIT vs GVK Project and Technical Services Ltd. and others. - For AYs 2012-13 and 2013-14, disallowance was restricted to the exempt income earned. - Appeals by the assessee were allowed, and those by the revenue were dismissed, making the cross objections infructuous. 4. Disallowance under Section 14A in Book Profit: *Assessment Years 2010-11 to 2013-14:* - The AO added disallowance under section 14A to book profits under section 115JB. - The Tribunal, following the decision in ACIT Vs. Vireet Investments (P.) Ltd., held that computation of book profits should be without resorting to section 14A. - The grounds raised by the assessee were allowed. 5. Amortization of Upfront Fees and Legal Fees as Revenue Expenditure: *Assessment Year 2010-11:* - The assessee claimed the entire upfront fee as revenue expenditure, while the AO amortized it over the debenture tenure. - The CIT(A) upheld the AO’s decision. - The Tribunal, following the decision in Taparia Tools Ltd. V. JCIT, directed the AO to allow the entire claim in the year incurred. - The ground raised by the assessee was allowed. 6. Interest under Section 234B: *Assessment Years 2010-11 and 2011-12:* - The AO levied interest from the 1st day of April of the relevant AY, while the CIT(A) held it should be from the date of intimation under section 143(1). - The Tribunal, following the decision in the group concern case, directed interest to be computed from the date of intimation under section 143(1). - The ground in the revenue’s appeal was dismissed, making the cross objection infructuous. 7. Addition of Difference between Revenue as per Books of Account and Form 26AS: *Assessment Years 2015-16 and 2016-17 (GMR Highways Ltd.):* - The AO added the difference between gross receipts as per Form 26AS and books as undeclared business receipts. - The CIT(A) upheld the addition. - The Tribunal remanded the issue for de novo verification, directing the AO to consider the additional evidence and verify if the income was accounted for in subsequent years. - The ground raised by the assessee was partly allowed for statistical purposes. Conclusion: - Appeals by the assessee for AYs 2010-11 to 2013-14 were partly allowed. - Departmental appeals for AYs 2010-11 to 2013-14 were partly allowed. - Cross objections by the assessee were dismissed. - Appeals by the assessee for AYs 2015-16 and 2016-17 were partly allowed for statistical purposes.
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