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TMI Blog2014 (1) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... on the evaluation of various parameters, of financial credibility and stakes of the client, the bank may not charge any guarantee commission which completely depends upon its evaluation, of a particular client - This is also evident from the fact that, in some of the years, in assessee‟s own case, no charges have been paid on account of guarantee commission - when there was an internal CUP in the form of bank guarantee charges, charged by the bank from the assessee, the same ought to have been first analysed and examined wherein the guarantee commission charged ranged between 0.25% to 0.35% - In the earlier years, the Tribunal has deleted the similar addition and no question of law on this score has been raised by the Department - No upward adjustment in the ALP in relation to charging of guarantee commission over and above 0.20% can be made - Decided against Revenue. Weighted deduction u/s 35(2AB) - Held that:- Following ACIT vs Torrent Pharmaceuticals Ltd. [2009 (11) TMI 819 - ITAT AHMEDABAD] - The relevant provisions of the Act did not contain any specific condition that the deduction u/s 35(2AB) and accordingly the claim of the assessee for deduction u/s 35(2AB) will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses for its advertisement and sales promotion expenses at Rs.1109.81 lacs which is 3.30% of the gross sales vis- -vis such percentage being at 3.28% in the immediate preceding year. ii. The appellant during the year under consideration has incurred expenses of Rs.10.36 cross towards Asian Paints Corporate under captions Cheetah, Colour Week, Colour Week Girls, Colour Week Twins and Return of cutting Shutting. It is this amount which has been treated by the AO as capital expenditure. iii. The appellant has placed reliance on large number of cases wherein it is held that in the consumer industry, the advertisement expenses have to be incurred regularly for keeping the brand name in the notice of the public and such expenses does not amount to creating any new brand and are recurring expenses necessary for the purpose of business. iv. Even in the case laws relied upon by the AO also have held that if the expenditure is in respect of an ongoing business of the assessee and there is no enduring benefit it can be treated as revenue expenditure. It is further not the cae that has been made out that by incurring such expenditure by the appellant any new capital asset has come i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the corporate brand is capital expenditure is not appropriate. Even if there is a promotion of a corporate brand, it directly facilitates the business of the assessee and in the result has affect on the sales and profitability of assessee‟s business. The brand building of the corporate in such advertisement is inherent and it cannot be inferred that such an advertisement goes to create a fixed capital. Even if there is some enduring benefit on account of brand building through advertisement then also, it cannot be held that it is on capital field. In this era, advertisement creates on impression of the brand and product in the mind of the consumer and if there is no frequent advertisement of brand or the product, it is very difficult to push sales in the market. The advertisement on the TV, whether be it for the brand or the product, only goes to enhance the sales and profitability of the assessee company and, hence, the same is to be held as revenue in nature. Accordingly, we hold that, such an expenditure incurred on advertisement on TV has to be allowed as revenue expenditure." 5. As the issue involved in the year under consideration as well as all the material facts rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under:- "26) I have considered the submission and persued the assessment order as well as the TPO's order. Guarantee fees or a financial loan guarantee is a commitment entered into by a parent corporation with a third party lender on behalf of the parent company's subsidiary which obliges the parent company to cover the risk of default for the subsidiary should it fail to meet its financial obligation to the third party lender. 26.1 At times this transaction is labeled as gratuitous transaction by the taxpayer and so no consideration is charged. However, it does involve performance or carrying out of service to cover the risk of default and so 'price' has to be charged. 26.2 The TPO has collected data from the Website of Allahabad Bank, HSBC Bank and Robo India Finance and applied the flat rate of 3%. That is to say the TPO has adopted a 'naked quote' without factoring in the qualitative factors which determine the fees. A quotation given by a third party e.g a Banker does not constitute a CUP since it is quotation and not an actual uncontrolled "transactions". The TPO has adopted a 3% rate or guarantee fees when the Citi Bank Singapore (the bank providing the loan amount) it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment on the basis of the 'naked quote' available in the website of the Allahabad Bank, HSBC Bank and ICICI Bank where even the report itself indicate that the rates varied from 0.15% to 3%. In view of the facts of the case, we are of the opinion that there is no need to make any adjustment in the transfer pricing provisions and the order of the CIT(A) required to be confirmed. Accordingly the ground raised by Revenue is rejected." The facts of the case this year also remained the same as in the assessment year 2005-06. Accordingly keeping in view the principles of judicial discipline and judicial consistency, the adjustment made by the TPO/AO to arrive at the ALP of the international transaction relating to providing of corporate guarantee cannot be sustained and is accordingly directed to be deleted. This ground of appeal is accordingly allowed. As the issue pertaining to adjustment made by the TPO/AO in respect of the corporate guarantee has been decided in favour of the appellant, the without prejudice sub ground that the adjustment shall be made net of recovery of 0.20% amounting to Rs.14.83 lacs becomes inconsequential and is accordingly dismissed. 9. We have heard the arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Department. Thus, under these facts and circumstances, we hold that no upward adjustment in the ALP in relation to charging of guarantee commission over and above 0.20% can be made and, accordingly, the adjustment so made by the TPO / A.O. is hereby deleted. 10. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Y. 2006-7, we respectfully follow the decision of the Tribunal rendered in A.Y. 206-07 and uphold the impugned order of the ld. CIT(A) deleting the addition made by the AO on account of TP adjustment made in respect of commission/fees for the guarantee given by the assessee-company to its AEs. Ground no. 2 of the Revenue's appeal is accordingly dismissed. 11. Now we shall take up the appeal of the assessee which involves a solitary issue relating to the addition of Rs.27.17 lakhs made by the AO and confirmed by the ld. CIT(A) on account of weighted deduction claimed by the assessee u/s 35(2AB) on account of research and development expenditure. 12. In its return of income for year under consideration, the assessee company had claimed weighted deduction u/s 35(2AB) of the Act on account of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support of the assessee's case on the issue under consideration. In the said case, weighted deduction claimed by the assessee u/s 35(2AB) on account of R D expenditure was partly disallowed by the AO relying on the figure contained in the certificate issued by DSIR and the same was held to be unsustainable by the Tribunal holding that There was no justification in harping upon the figure contained in the certificate issued by DSIR as was done by the Assessing Officer. It was held by the Tribunal that the relevant provisions of the Act did not contain any specific condition that the deduction u/s 35(2AB) and accordingly the claim of the assessee for deduction u/s 35(2AB) will be restricted to the amount of R D expenditure as contained in the certificate. The Tribunal found on verification of the relevant details that even the expenditure is not included in the said certificate was eligible for deduction u/s 35(2AB) in respect of the said expenditure was allowed by the Tribunal. In our opinion, the issue involved in the case of Torrent Pharmaceuticals ltd. thus is similar to the one involved in the present case and this position is not disputed even by the ld. DR at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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