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2025 (3) TMI 1454 - AT - Income TaxTP adjustment - corporate guarantee and letter of comfort provided by the appellant to its AEs - HELD THAT - AR had brought to our notice that this Tribunal in their own case for AY 2013-14 by relying on the decision in the case of CIT v. Everest Kento Cylinders Ltd 2015 (5) TMI 395 - BOMBAY HIGH COURT had ascertained the ALP guarantee commission at 0.5%. Respectfully following the same we direct the AO to adopt the guarantee commission @ 0.50% as against 2% and accordingly re-compute the transfer pricing adjustment. This ground therefore stands partly allowed. Brand promotion expenses incurred during the year was in the nature of international transaction and thereafter making TP adjustment - HELD THAT - Hon ble Delhi High Court has held in the case of Maruti Suzuki Ltd 2015 (12) TMI 634 - DELHI HIGH COURT that the Revenue needs to establish the existence of international transaction before undertaking benchmarking of AMP expenses. Hence applying this ratio decidendi laid down in these judgments we agree with the assessee that the approach of the TPO cannot be upheld. We note that the aforesaid judgments of Hon ble Delhi High Court (supra) had not been considered by this Tribunal in assessee s own case for AY 2011-12 Even the assessee has not brought on record all the relevant facts concerning the Indonesian AE AMP expenses incurred by the latter and if not then whether can it be said that the assessee had indeed incurred expenses on its behalf etc. Also the nature of AMP expenses incurred by the assessee reasons for such excessive AMP costs vis- -vis sales etc. have also not been explained before the TPO. Without these facts being brought on record one cannot objectively ascertain and decide as to whether there exists any arrangement between the parties at all or not. For the aforesaid reasons and in fitness of the matters we set aside the order passed by the AO on AMP expenses and restore the same to the file of AO/TPO for examining it afresh. TP adjustment on account of royalty - HELD THAT - In this case assessee following the mercantile system of accounting there is no question of deferment of receipt of income since the assessee was in a position to create the document as the transaction with AE which cannot be appreciated. It is only afterthought so as to postpone the liability of taxation. Accordingly we are of the opinion that lower authorities were justified treating the accrued royalty as income of assessee. Disallowance of u/s.14A read with Rule 8D - HELD THAT - We note from the factual matrix discussed supra that assessee had total own funds more than Rs 1121 crores and the total investment made only to the tune of Rs. 930 crores therefore the presumption in the cases of Reliance Utilities Power Ltd supra is clearly applicable and the Ld. DR could not demonstrate that this presumption is factually incorrect therefore the disallowance made under section 14A read with Rule 8D(2)(ii) of the Rules was not warranted and is directed to be deleted. Coming to disallowance under Rule 8D(2)(iii) it is noted that in the case of ACIT v. Vireet Investment (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI has held that only the dividend yielding investments are to be considered in computation of disallowance under this Rule. Assessee also referred to the revised computation of disallowance in terms of Rule 8D(2)(iii) with reference to dividend yielding investments. Respectfully following the decision of Special Bench (supra) the AO is directed to verify the computation provided by the assessee and re-compute the disallowance under section 14A read with Rule 8D(2)(iii) accordingly. This ground is therefore partly allowed. Disallowance of export agency commission paid to non-residents u/s.40(a)(i) - HELD THAT - We note that this issue has already come up before this Tribunal in the assessee s own case for earlier assessment year 2011-12 wherein this Tribunal was pleased to allow the contentions of the assessee by relying on the decision of this Tribunal in AY 2008-09. It is noted that the Tribunal has relied on the decision in the case of CIT v. Faizan Shoes Pvt. Ltd. 2014 (8) TMI 170 - MADRAS HIGH COURT wherein held opening of letters of credit for the purpose of completing the export obligation was an incident of export and therefore the non-resident agent was under an obligation to render such services to the assessee for which commission was paid. The non-resident agent did not provide technical services for the purposes of running of the business of the assessee in India. Therefore the commission paid to the non resident agents would not fall within the definition of fees for technical services and the assessee was not liable to deduct tax at source on payment of commission. Disallowance of loss on actual re- payment of External Commercial Borrowings ( ECB ) loan during the year - HELD THAT - In the present case the assessee is noted to have obtained ECBs for acquiring indigenous fixed assets. It had accordingly entered into forward contracts to hedge the foreign exchange fluctuation at the time of repayment of loan. For this it had paid an upfront premium to the seller of the contract. Further the assessee had also incurred foreign exchange loss at the time of repayment of such ECBs. The assessee is noted to have amortized the premium cost over the life of contract which along with the loss incurred on repayment of foreign currency loan was claimed as deduction from business profits. The first claim in dispute before us relates to amortized portion of premium paid on foreign exchange forward contracts entered into by the assessee. These foreign exchange forward contracts were entered for the purposes of repayment of foreign exchange loan/external commercial borrowing taken by the assessee for acquiring indigenous fixed assets. We find that this identical issue had come up for consideration in the case of CLP Wind Farm (India) Ltd 2022 (9) TMI 299 - ITAT AHMEDABAD wherein it was held that the premium paid on foreign exchange forward contracts entered into by assessee for purpose of repayment of loan was to be amortized as revenue expenditure over life of contract. Thus we direct the AO to allow the deduction for the amortized sum of forward premium claimed by way of hedging cost. Disallowance is the loss arising upon repayment of ECBs which were used for acquiring indigenous fixed assets in India - HELD THAT - In the relevant FY 2011-12 the ICAI had modified Para 46A of AS-11 in December 2011 in terms of which the company now had an option to either debit such foreign exchange loss to the Profit Loss Account or capitalize the same to the cost of assets. The assessee in the present case chose the latter option. Merely because the assessee chose the latter option would not be determinative of the character of the cost. It is by now trite in law that the entries whether the assessee is entitled to a particular deduction or not depends upon the provision of law relating thereto. The existence or absence of entries in the books of account be decisive or conclusive in the matter. As the reasoning given by the AO for making the impugned disallowance is found to be unjustified. Overall therefore we hold that the impugned disallowance was untenable and is therefore directed to be deleted. This ground is allowed. Denying the claim of balance additional depreciation on the assets which were put to use in the earlier FY 2011- 12 - HELD THAT - In this case the intention of the legislation is absolutely clear that the assessee shall be allowed certain additional benefit which was restricted by the proviso to only half of the same being granted in one assessment year if certain condition was not fulfilled. But that in our considered view would not restrain the assessee from claiming the balance of the benefit in the subsequent assessment year. The Tribunal in our view has rightly held that additional depreciation allowed under Section 32(1)(iia) of the Act is a one time benefit to encourage industrialization and the provisions related to it have to be construed reasonably liberally and purposively to make the provision meaningful while granting additional allowance. We are in full agreement with such observations made by the Tribunal. We direct the AO to delete the impugned disallowance and allow this ground of appeal.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS Corporate Guarantee and Letter of Comfort
Brand Promotion Expenses
Royalty Adjustment
Disallowance under Section 14A
Export Agency Commission
Loss on ECB Repayment
Additional Depreciation
3. SIGNIFICANT HOLDINGS
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