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2018 (5) TMI 1256 - AT - Income TaxTransfer pricing adjustment - ALP determination - corporate guarantee commission charged by the assessee company - Held that - The assessee s case the corporate guarantee commission charged by the assessee was 0.90% which is more than the corporate guarantee commission of 0.25% to 0.53% approved by various judicial forums. Therefore respectfully following the view taken by the coordinate benches we hold that the corporate guarantee commission charged by the assessee company is at ALP and no adjustment is required. Accordingly we delete the addition made by the A.O. and allow the appeal of the assessee. TPA imputing notional interest on outstanding amounts from A.E. - Held that - Since the invoices were raised on 31.3.2013 and credit period allowed was 60 days we agree with the Ld. A.R s argument that the notional interest does not accrue or arise in the year under consideration therefore the addition made by the A.O. on account of notional interest is unsustainable as per the system of accounting followed by the assessee. The assessee is following the mercantile system of accounting and the interest accrues only when the debt falls due and the same is remained unpaid. Since the debt do not fall due in the impugned Assessment year we hold that the interest is neither accrued nor crystalised in the year under consideration. Accordingly the same is deleted - The department has not made out case of systematic planning of allowing the undue credit to the AE - the revenue has not made out case of disallowance of notional interest on delayed payments and accordingly we set aside the orders of the authorities below and delete the addition - Decided in favour of assessee Sponsorship expenses - allowable business expenses - Held that - There is no need to have direct nexus of the assessee s business with the sponsorship linked events. Even indirect benefit is sufficient to sponsor the sports or social or economic events. We are of the considered view that the social events sports events and the business events which involves the participation of various institutions would have direct or indirect impact on the assessee s business and the expenditure incurred on such events is business expenditure.Therefore we hold that the sponsorship amount is a business expenditure which required to be allowed as deduction - Case of JCIT Vs. ITC Limited followed 2007 (9) TMI 295 - ITAT CALCUTTA - Decided in favour of assessee Legal and professional charges allowability - Held that - We hold that the expenditure incurred for the purpose of Okha Project in connection with the field study as discussed is a business expenditure and allowable u/s 37(1). Accordingly we set aside the orders of the authorities below and allow the appeal of the assessee. Disallowance is called for u/s 14A - Held that - A.O. is not permitted to entertain the additional claim of the assessee without the revised return of income the appellate authorities are not barred to entertain the additional claim of the assessee during the appellate proceedings. This view is supported by the case laws relied upon by the assessee as well as the decision in the case of Goetz India Ltd. Vs. CIT 2006 (3) TMI 75 - SUPREME Court . In the assessee s case the assessee has made disallowance of expenditure u/s 14A of the Act but there was no exempt income as claimed by the assessee. Therefore we are of the view that the issue required to be remitted back to the file of the A.O. to consider the disallowance u/s 14A of the Act on the facts and merits of the case. Remit the matter back to the file of the A.O. to consider the issue afresh on merits.
Issues Involved:
1. Transfer pricing adjustment related to corporate guarantee commission. 2. Transfer pricing adjustment related to notional interest on outstanding amounts from Associated Enterprises (AEs). 3. Disallowance of sponsorship expenses. 4. Disallowance of legal and professional charges. 5. Disallowance under Section 14A of the Income Tax Act. 6. Charging of interest under Sections 234B and 234C of the Income Tax Act. Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment Related to Corporate Guarantee Commission: The assessee, GVK Power & Infrastructure Limited, extended a corporate guarantee to its AE, GVK Coal Developers (Singapore) PTE Limited, charging a commission of 0.90%. The Transfer Pricing Officer (TPO) proposed an adjustment, suggesting a 1.30% commission based on bank guarantee rates. The assessee argued that corporate guarantees differ from bank guarantees in terms of risk and purpose, citing various tribunal decisions supporting a lower commission rate. The Dispute Resolution Panel (DRP) upheld the TPO's adjustment. However, the Tribunal found that the TPO failed to account for differences in risk and terms between bank and corporate guarantees. The Tribunal ruled that the 0.90% commission charged by the assessee was at arm's length, citing multiple judicial precedents favoring lower rates for corporate guarantees. Consequently, the Tribunal deleted the upward adjustment of ?11,32,94,387/-. 2. Transfer Pricing Adjustment Related to Notional Interest on Outstanding Amounts from AEs: The TPO imputed notional interest on receivables from AEs, proposing an adjustment based on a 14.45% interest rate. The DRP adjusted this to the domestic term deposit rate of SBI, resulting in an addition of ?22,44,330/-. The assessee argued that the receivables were not overdue within the assessment year and that there was no systematic delay in payments. The Tribunal agreed, noting that the invoices were raised at the end of the financial year, and the credit period did not fall within the assessment year. The Tribunal also cited judicial precedents supporting the non-imposition of notional interest in such cases. Therefore, the Tribunal deleted the addition. 3. Disallowance of Sponsorship Expenses: The A.O. disallowed ?10,68,138/- claimed as sponsorship expenses, citing a lack of nexus with the assessee's business. The DRP upheld this disallowance. The assessee argued that the expenses were for promoting public awareness and corporate image, which is incidental to its business. The Tribunal agreed, noting that sponsorship expenses for events can promote the company's image and are common in business practices. The Tribunal cited various judicial precedents supporting the allowance of such expenses as revenue expenditure. Consequently, the Tribunal deleted the disallowance. 4. Disallowance of Legal and Professional Charges: The A.O. disallowed ?2,41,47,303/- incurred for feasibility studies and due diligence related to the development of Okha Port, treating it as capital expenditure. The DRP upheld this view. The assessee argued that these expenses were for business expansion and should be treated as revenue expenditure. The Tribunal referred to its earlier decision in the assessee's case for AY 2010-11, where similar expenses were allowed as revenue expenditure. Following this precedent, the Tribunal held that the expenses were incurred for business purposes and allowed the deduction under Section 37(1) of the Income Tax Act. 5. Disallowance under Section 14A of the Income Tax Act: The assessee initially disallowed certain expenses under Section 14A but later claimed no disallowance was warranted as no exempt income was earned during the year. The A.O. and DRP rejected this claim, stating that the assessee did not file a revised return. The Tribunal noted that appellate authorities are not barred from entertaining fresh claims during appellate proceedings, citing the Supreme Court's decision in Goetze India Ltd. vs. CIT. The Tribunal remitted the matter back to the A.O. to reconsider the disallowance under Section 14A on merits. 6. Charging of Interest under Sections 234B and 234C of the Income Tax Act: The Tribunal noted that charging interest under Sections 234B and 234C is consequential and mandatory. Therefore, this ground of appeal was dismissed. Conclusion: The Tribunal allowed the appeal of the assessee on most grounds, deleting the additions related to transfer pricing adjustments, sponsorship expenses, and legal and professional charges. The matter related to disallowance under Section 14A was remitted back to the A.O. for reconsideration. The appeal was partly allowed, and the order was pronounced on 18th May 2018.
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