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TMI Blog2014 (1) TMI 1024X X X X Extracts X X X X X X X X Extracts X X X X ..... on reasonable basus which was not disputed by the DR - Decided against Revenue. - ITA No.7519/Mum/2011, ITA No.7990/Mum/2011 - - - Dated:- 8-1-2014 - Shri I. P. Bansal, JM And Shri N. K. Billaiya, AM,JJ. For the Petitioners : Mr. Pankaj R. Toprani For the Respondent : Ms. Neeraja Pradhan ORDER Per I. P. Bansal (J. M. ) : These are cross appeals directed against order dated 13-9-2011, passed by learned CIT(A)-15, Mumbai for assessment year 2007-08. 2. Grounds of appeal by the assessee are as under :- 1. The Learned CIT(A) erred in law and on facts in upholding the disallowance of deduction under Section 10B in respect of interest income of Rs.21,61,170/ - earned by the Appellant in making early payment of its dues outstanding on account of purchase of raw materials without appreciating that the said interest income is inextricably linked with the core business activity of the Appellant. 2. The Learned CIT(A) erred in law and on facts in upholding an addition of Rs.52,24,068/ - being upward adjustment made by the Transfer Pricing Officer to the arms-length price without appreciating that there was no international transaction inasmuch as the Appellant st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D is reasonable in its nature." "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in giving relief of Rs.21,49,426/-, in the light of the judgment of the Jurisdictional High Court in the case of M/s. Godrej and Boyce Manufacturing Co.Ltd. vs.DCIT (328 ITR 81) (supra) which has not been accepted by Revenue." The Appellant prays that the order of the CIT(A) on the above ground be set aside and that of the ITO/ACIT/DCIT be restored. Assessee s Appeal 3. At the outset, it was submitted by the learned AR that the assessee does not want to press ground No.3. Accordingly, ground No.3 is dismissed being not pressed. 4. So far as it relates to ground No.1, it may be mentioned that the assessee is eligible for deduction under Section 10B, which in the return of income was claimed at Rs.7,83,31,945/-. It was noticed by the AO that certain receipts shown by the assessee which, inter alia, include interest amounting to Rs.21,61,170/- was not eligible for deduction under Section 10B of the Act and he required the assessee to explain as to why the said amount should not be excluded from the eligibility of deduction under Section 10B. It was explained th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different stand before him. Learned AR submitted that all the documents filed before him were clearly showing that the interest received by the assessee was in respect of early payments made by the assessee with regard to purchases made during the course of business of the assessee. He submitted that by mistake in the submission made before the AO, the said amount was related to sale invoices. Learned AR submitted that this fact could be verified by the CIT(A). 6.1 Learned AR further relied upon the decision of the Hon ble Delhi High Court in the case of CIT Vs. Advance Detergents Ltd., reported in (2011) 339 ITR 81 (Delhi), wherein it has been held that the interest received by the assessee on overdue payments from the customers is to be considered as profit and gains derived from industrial undertaking eligible for deduction under Section 80-IA of the Act. In this manner, it was pleaded by the learned AR that the claim of the assessee to the extent of Rs.19,87,300/- should be allowed. 7. On the other hand, learned DR relying upon the order passed by the AO and CIT(A), submitted that the assessee is not entitled to claim interest as eligible for the deduction under Section 10B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said amount, as not being an expenditure incurred by the assessee for its business, was held to be not allowable in the hands of the assessee. It was further noticed that the assessee did not charge any fee from its AE for rendering guarantee to the bank. According to the TPO for the purpose of arms length price, such service could not be provided without consideration. Accordingly, show cause notice was issue to the assessee to evaluate the said transaction for the purpose of transfer pricing provisions. In response, the assessee provided following comparables :- Name of Bank Name of the party Average Guarantee fee charged for giving financial guarantee SCB India As per Rate Card (copy enclosed at Annexure-I) 300 bppa HSBC India AEs as well as Non-AEs 75bppa# FMO (Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V.) Rabo India (Finance) Ltd. 250bppa Average 208.33 bppa #Since HSBC India has quoted the rate of 75 bppa as explained by the assessee, the same rate is taken. However, it was claimed by the assessee that since guarantee charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held. 12. Learned AR narrated the facts before us and he submitted that as there is no cost to the assessee over and above the amount paid by the assessee to bank which is a sum of Rs.15,49,880/-, therefore, the TP adjustment, if any, should not exceed the amount paid by the assessee to the bank. He further submitted that the assessee is mainly agitating the addition of Rs.35,98,244/-, which has been evaluated for providing service of guarantee by the assessee to its associate enterprise. He further submitted that in any case, the rate of 2.08% applied by the TPO should not be upheld as HSBC India s bppa is only 75. Thus, it was pleaded by the learned AR that appropriate relief should be given to the assessee. 13. On the other hand, it was submitted by learned DR that comparables have been provided by the assessee itself to the TPO. Therefore, she submitted that the assessee cannot dispute the comparability of the comparables with the assessee s case. She also submitted that before the CIT(A), the case of the assessee was only that the impugned transaction is not an international transaction. She also submitted that the assessee has never contended that on merits, the said addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rantee given by State Bank of India in which on a Bank guarantee of Rs. 75.00 lacs commission was charged @1.2%. Copy of such Bank Guarantee is filed at pages 402 to 403 of the paper book. It was submitted that on the basis of above guarantee the rate was charged by the assessee and same should be taken as comparable in place of information gathered by Ld. TPO from the bank. It may be mentioned that Ground No.9 was not pressed by Ld. AR. 12. On the other hand, Ld. DR submitted that Ld. TPO has collected the information from SBI in which it was clearly stated that they are charging 2.75% as guarantee fee in respect of Bank Guarantee of Rs.1.00 crore to Rs.5.00 crores. He submitted that the evidences submitted by the assessee relates to a sum of Rs.75.00 lacs which is less than Rs.1.00 crore, therefore, the said evidence cannot be accepted. He submitted that assessee has not produced any evidence to suggest that the rate charged by it was at arm s length. Therefore, he submitted that deletion as sought by the assessee should not be approved. 13. We have heard both the parties on this issue. The assessee has not submitted any contradictory evidence to suggest that the rate applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal before the CIT(A). Learned CIT(A) on the basis of decision of the Hon ble Bombay High Court in the case of M/s. Godrej and Boyce Manufacturing Co.Ltd. vs DCIT, reported in 328 ITR 81, has held that the said rule was not applicable in respect of assessment year 2007-08. However, learned CIT(A) has evolved following formula to calculate the reasonable disallowance :- Expenditure incurred by way of interest during the previous year which is not directly attributable to any particular income or receipt other than 1 above -A The weighted monthly average value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the -B The average of total assets as appearing in the balance sheet of the appellant as on the first day and the last day of the previous year C An amount equal to one-half per cent of the monthly weighted average of the value of investment, income from which does not or shall not form part of the total income -D The amount of expenditure directly relating to income which does not form part of the total income -E Accordingly, disallowance was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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