2024 (6) TMI 1391 - AT - Income Tax

TP Adjustment in respect of corporate guarantee to Afcons Construction Mideast LLC - TPO noticed that the assessee has extended existing guarantee to First Gulf Bank in respect of the banking facilities availed by its AE - assessee submitted before the TPO that First Gulf Bank has fixed card rate for giving loan and guarantee which is 1.5% and since the assessee has given the counter guarantee the bank has charged 1% towards a guarantee to the AE - HELD THAT - We noticed that during the year under consideration also the assessee has given the same set of guarantees to First Gulf Bank and that the facts for the year consideration are similar to the facts of AY 2009-10. Therefore, respectfully following the decision for AY 2009-10 2023 (12) TMI 273 - ITAT MUMBAI in assessee's own case we hold that no TP Adjustment is required to be made in assessee's case towards corporate guarantee. These grounds raised by the Revenue are dismissed accordingly. Disallowance of interest u/s 36(1)(iii) in respect of loans - AO held that the assessee is paying interest at an average rate of 12.41% and on the other hand the assessee has not charged any interest on the advances given to the Joint Ventures - HELD THAT - With regard to loans which have been continued from earlier years the Tribunal has held that no disallowance u/s 36(1)(iii) is warranted. With respect to the loans extended during the year we noticed that the own funds of the assessee for year ended 31.03.2010 is Rs. 60833.05 lacs and therefore, there is merit in the submission of the ld. AR that when own funds are available for extending advances no disallowance under section 36(1)(iii) is warranted. Thus, no disallowance towards interest u/s 36(1)(iii) is warranted for the year under consideration and accordingly we see no reason to interfere with the decision of the CIT(A). Ground No.5 6 raised by the Revenue in this regard are dismissed. Disallowance of depreciation on the written down value of Speed Boat - HELD THAT - We notice that this is a recurring issue and that Coordinate Bench in assessee's case for AY 2009-10 2023 (12) TMI 273 - ITAT MUMBAI as held as per the facts on record, machinery was purchased by the principal but the assessee had been vested with the possession of them and utilized them for its business. It is not disputed that the principal has debited the cost of machinery to the assessee's account and the assessee has capitalized it in its books of account. The assessee has claimed depreciation on the written down value of the same asset during the year under consideration and therefore, the above decision of the Co-ordinate Bench is clearly applicable for the year under consideration also. Accordingly, we see no infirmity in the order of the CIT(A). Disallowance of Professional Fee paid for Arbitration Award - HELD THAT -Reason for disallowance during the year under consideration is simply to follow the earlier year disallowance and to keep the issue alive. The AO for the year under consideration also has not disputed the fact that the professional fee is incurred for the purposes of business. Therefore, respectfully following the decision for AY 2009-10 2023 (12) TMI 273 - ITAT MUMBAI we hold that the CIT(A) has rightly deleted the disallowance made by the AO. Accordingly this ground raised by the Revenue is dismissed.

Summary

Issues Involved:

1. Adjustment in respect of corporate guarantee to Afcons Construction Mideast LLC.
2. Disallowance of interest under section 36(1)(iii) in respect of loans to Afcons Pauling JV, Afcons Strabag AG, and Afcons Gunanusa JV.
3. Disallowance of depreciation of Rs. 0.64 lacs on the written down value of Speed Boat of Rs. 4.27 lacs.
4. Disallowance of Professional Fee of Rs. 64.33 lacs paid for Arbitration Award.

Issue-Wise Detailed Analysis:

1. Adjustment in respect of corporate guarantee to Afcons Construction Mideast LLC:

The TPO noticed that the assessee had extended a guarantee to First Gulf Bank for banking facilities availed by its AE without charging any fee. The TPO proposed a TP Adjustment of Rs. 1,48,64,959/- by applying a 0.5% rate on the various guarantees given by the assessee. The CIT(A) reduced the rate to 0.23%. The Tribunal, following its own decision in the assessee's case for AY 2009-10, held that no TP Adjustment is required. It was noted that the guarantee was given to facilitate the AE's contract execution, which ultimately benefited the assessee significantly. The Tribunal dismissed the Revenue's grounds on this issue.

2. Disallowance of interest under section 36(1)(iii) in respect of loans to Afcons Pauling JV, Afcons Strabag AG, and Afcons Gunanusa JV:

The AO disallowed interest of Rs. 316.61 lacs, applying a rate of 12.41% on advances given to JVs without charging interest. The CIT(A) deleted the disallowance, noting that the assessee's own funds were sufficient to cover the advances and there was no nexus between borrowed funds and advances. The Tribunal upheld the CIT(A)'s decision, referencing its own decision in the assessee's case for AY 2009-10, where it was held that no disallowance is warranted for loans continued from earlier years.

3. Disallowance of depreciation of Rs. 0.64 lacs on the written down value of Speed Boat of Rs. 4.27 lacs:

This issue was recurring, and the Tribunal had previously ruled in favor of the assessee for AY 2009-10. The Tribunal noted that the asset was used for business purposes and had been capitalized in the assessee's books. The Tribunal dismissed the Revenue's ground, upholding the CIT(A)'s decision.

4. Disallowance of Professional Fee of Rs. 64.33 lacs paid for Arbitration Award:

The AO disallowed the professional fee for arbitration, citing non-inclusion of corresponding arbitration award income for taxation. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, following its own ruling in AY 2009-10. The Tribunal noted that the professional fee was incurred for business purposes and rejected the AO's rationale for disallowance.

Cross Objections by the Assessee:

The assessee filed cross objections regarding the CIT(A)'s decision to reduce the guarantee fee rate to 0.23%. The Tribunal, having already decided that no TP adjustment is required, dismissed the cross objections as infructuous and directed the AO to delete the entire TP adjustment.

Conclusion:

The appeal of the Revenue and the cross objections of the assessee were dismissed. The Tribunal's decisions were pronounced in the open court on 21-06-2024.