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2023 (4) TMI 190 - AT - Income TaxLate payment of employees contribution of provident fund - CIT-A allowed claim of assessee - HELD THAT - Now honourable Supreme Court has decided this issue in Checkmate services private limited 2022 (10) TMI 617 - SUPREME COURT holding that non-deposit of employees contribution within the due date prescribed under the respective statute is disallowable u/s 36 (1) (BA) r.w.s. 2 (24) (x) of the act. Therefore decision of CIT A is unsustainable in law - Decided in favour of revenue. Disallowance made on the director's salary and administrative facility - As per AO 50% of the director's office expenses should not be capitalized to the cost of project - claim of the assessee is that according to accounting standard 2 it is not permissible and submitted those administrative costs, which are not related to bringing the inventory to the present location, cannot be included in the cost of the project - HELD THAT - The identical issue decided in case of Hiranandani Palace Gardens private limited 2015 (12) TMI 1649 - ITAT MUMBAI following the order of Lodha Plaza 2014 (12) TMI 1272 - ITAT MUMBAI held that such costs are not included in the cost of work in progress. Identical issue arose in 2019 (4) TMI 259 - ITAT MUMBAI wherein held that expenditure pertaining to employee cost, administrative expenses and selling and marketing expenses debited to the profit and loss account are to be allowed in the year in which those are incurred. Decided Against revenue. Disallowance u/s 14 A - necessity of recording satisfaction - HELD THAT - In absence of satisfaction the learned assessing officer was not authorized to make the disallowance u/s 14 A - See case of Maxopp investment Ltd 2018 (3) TMI 805 - SUPREME COURT Accordingly, additional ground fire by the assessee are allowed and AO is directed to delete the disallowance -Consequently, the addition to the book profit under section 115 JB of the act is also not sustain - Decided in favour of assessee. TP Adjustment - arm's-length price of the guarantee commission at the rate of 0.3523 percentage instead of 1.25% - HELD THAT - The rate of guarantee commission is required to be determined on the basis of credit rating of the issuer company, comparison of interest rates without guarantee and with guarantee. The difference of the two is required to be shared between the issuer as well as the guarantor. The proper database for credit rating was used. The database for scanning of various deals was used. The tenor adjustments were also made. No reasons were shown for sharing of the interest saving not properly applied. As in some of the cases the honourable Bombay High Court has also applied guarantee commission rate at 0.20% i.e. Asian paints limited 2014 (1) TMI 16 - ITAT MUMBAI and Everest Kanto cylinders limit Ltd 2015 (5) TMI 395 - BOMBAY HIGH COURT In case of Reliance industries Ltd 2013 (9) TMI 567 - ITAT MUMBAI the coordinate bench has adopted the guarantee commission rate at 0.38%. In view of this, we do not find any infirmity in the order of the learned CIT A in holding that arm's-length price of the guarantee commission is 0.3523 percentage. Adjustment to the brokerage expenses - HELD THAT - We find that the impugned transaction is sale of property to the non-resident Indians. The property is situated in India, the brokerage is paid for the sale of property to the non-resident. Mauritius AE as well as the uncontrolled independent parties in a different location does not make any difference. Even otherwise, the action of the learned TPO to adopt brokerage at the rate of only 1% as arm's-length price is also not supported by any data or transaction. For the purpose of transfer pricing, only transaction is to be compared with a transaction. There is no transaction at the rate of 1% used by the learned TPO for benchmarking the brokerage paid. The comparables shown by the assessee as internal cup cannot be found fault with. No reason to disturb the order of the CIT A. TP Adjustment - 10% mark up on the reimbursement of expenses paid by Lodha developers UK Limited to the assessee company - HELD THAT - These are the amount paid on behalf of Lodha developers UK Limited starting from 4 June 2015 2/29 of March 2016. As on 31st of March 2016, respective bills for prepared stating that these are reimbursement expenses paid on behalf of the UK entity. The fully agree with the orders of the learned lower authorities that no independent party would have kept on paying on behalf of somebody else and as on the last date of the accounting year, the bills raised for reimbursement. For the purpose of reimbursement of the expenditure, firstly the associated entity should have given an authority to the assessee to incur such expenditure on its behalf. In absence of that, it cannot be said that these are merely reimbursement of expenditure. The fully concur with the orders of the lower authorities. Decided against assessee. Appeal of Revenue and assessee are partly allowed.
Issues Involved:
1. Deletion of addition made under section 36(1)(va) read with section 2(24)(x). 2. Deletion of disallowance on Director's salary and Handover Facility expenses. 3. Deletion of disallowance under section 14A. 4. Deletion of adjustment to brokerage expenses. 5. Arm's-length price of Guarantee Commission. 6. Reimbursement of expenses with 10% markup. Summary: 1. Deletion of Addition under Section 36(1)(va) read with Section 2(24)(x): The Tribunal allowed the appeal of the Assessing Officer (AO) and restored the disallowance of Rs. 606,000 for late payment of employees' contribution to the provident fund, following the Supreme Court decision in Checkmate Services Pvt. Ltd. vs. CIT. 2. Deletion of Disallowance on Director's Salary and Handover Facility Expenses: The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] to delete the disallowance of Rs. 80,174,844 related to director's salary and administrative expenses. The CIT(A) relied on previous judicial precedents and accounting standards that excluded such administrative costs from the cost of work in progress. 3. Deletion of Disallowance under Section 14A: The Tribunal allowed the assessee's additional ground, stating that the AO did not record satisfaction regarding the correctness of the assessee's claim of not incurring any expenditure for earning exempt income. Consequently, the disallowance of Rs. 331,070 under section 14A and the corresponding adjustment in the book profit under section 115JB were deleted. 4. Deletion of Adjustment to Brokerage Expenses: The Tribunal upheld the CIT(A)'s decision to delete the adjustment of Rs. 1,333,454 made by the AO/TPO. The Tribunal agreed that the location of the brokerage recipient is immaterial as long as the nature of the transaction remains the same. The internal CUP method adopted by the assessee was considered appropriate. 5. Arm's-Length Price of Guarantee Commission: The Tribunal upheld the CIT(A)'s determination of the arm's-length price of the guarantee commission at 0.3523% instead of 1.25%. The CIT(A) followed an interest-saving approach, considering the credit rating of the issuer company and sharing the interest savings on a 50:50 basis between the issuer and the guarantor. 6. Reimbursement of Expenses with 10% Markup: The Tribunal upheld the CIT(A)'s decision to sustain the 10% markup on the reimbursement of expenses of Rs. 2,800,148 paid by Lodha Developers UK Limited to the assessee. The Tribunal agreed that in a third-party scenario, such services would not be provided without a markup. Conclusion: Both the appeals of the AO and the assessee were partly allowed, with specific adjustments and deletions upheld or restored based on the detailed analysis of each issue. The Tribunal's decision was pronounced in the open court on 27.03.2023.
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