2019 (1) TMI 102 - AT - Income Tax

TPA - ALP adjustment on corporate guarantee fee - Upward adjustment ignoring provisions of section 92CA(3) - Held that - Respectfully following the order of the Co-ordinate Bench of this Tribunal in assessee s own case, we set aside the order of the Ld. CIT(A) and direct that the guarantee commission be benchmarked by taking the rate of 1% of the outstanding guarantee amount be computed and adjustment should be made accordingly. Thus Ground No. 1 of the revenues appeal is partly allowed. Treatment to service charges - business income OR house property income - Held that - As relying on MODEL MANUFACTURING CO. PVT. LIMITED 1986 (3) TMI 7 - CALCUTTA HIGH COURT we confirm the order of the Ld. CIT(A) allowing the treatment of service charges as business income instead of income from house property. Claim of balance additional depreciation on the assets which were put to use in the earlier financial year - Held that - this issue is no longer res integra and the Hon ble Karnataka High Court in CIT vs Rittal (India) Ltd. 2016 (1) TMI 81 - KARNATAKA HIGH COURT - Decided in favour of assessee

Summary

Issues Involved:

1. Deletion of upward adjustment under section 92CA(3) of the I.T. Act.
2. Treatment of service charges as business income instead of house property income.
3. Allowance of balance additional depreciation on assets put to use in an earlier financial year.

Issue-wise Detailed Analysis:

1. Deletion of Upward Adjustment under Section 92CA(3):

The first issue pertains to the deletion of an upward adjustment of ?1,28,07,543/- by the Ld. CIT(A) under section 92CA(3) of the I.T. Act. The Tribunal noted that a similar issue had arisen in the assessee's own case for A.Y. 2011-12 and 2012-13, where the assessee had charged a guarantee commission at 0.38% of the outstanding guaranteed amount. However, the TPO/AO assessed the corporate fee at 3%. The Ld. CIT(A) deleted the ALP adjustment on the corporate guarantee fee, and the Tribunal, upon appeal by the Revenue, benchmarked the guarantee commission at 1% of the outstanding guarantee amount. Following this precedent, the Tribunal directed that the guarantee commission be benchmarked at 1% of the outstanding guarantee amount, thereby partly allowing Ground No. 1 of the revenue's appeal.

2. Treatment of Service Charges as Business Income:

The second issue involves the treatment of service charges as business income instead of house property income. The Tribunal observed that this issue was no longer res integra, as the Hon'ble Calcutta High Court had upheld the decision of the Tribunal and Ld. CIT(A) in the assessee's own case for A.Y. 2006-07, treating the service charge received as business income. The Ld. CIT(A) had followed this precedent and relied on the decisions of the Jurisdictional High Court in the cases of CIT vs Model Mfg. Co. and CIT vs Russel Properties Pvt. Ltd. The Tribunal confirmed the order of the Ld. CIT(A), allowing the treatment of service charges of ?2,29,16,880/- as business income, thus dismissing this ground of appeal of the revenue.

3. Allowance of Balance Additional Depreciation:

The third issue concerns the allowance of balance additional depreciation amounting to ?6,36,83,752/- on assets put to use in the earlier financial year. The AO had disallowed the claim, stating that there was no provision in the Act for claiming the balance 50% of additional depreciation in the subsequent financial year. The Ld. CIT(A) allowed the claim, noting that the Act had been amended by the Finance Act, 2015, which was in the nature of a welfare measure. The Tribunal upheld the Ld. CIT(A)'s decision, referencing the Hon'ble Karnataka High Court's judgment in CIT vs Rittal (India) Ltd., which allowed the balance 10% additional depreciation in the subsequent assessment year. The Tribunal also noted similar decisions by the Coordinate Bench in Century Enka Ltd. vs DCIT and Birla Corporation Ltd. vs DCIT. Consequently, the Tribunal dismissed this ground of appeal.

Conclusion:

In conclusion, the Tribunal partly allowed the revenue's appeal regarding the upward adjustment of the guarantee commission, confirmed the treatment of service charges as business income, and upheld the allowance of balance additional depreciation. The appeal of the revenue was dismissed.