9911796707
TMI Blog2015 (10) TMI 2053X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the explanations of the assessee. Since the disallowance of administrative expenses is to be worked out on a reasonable basis as per the decision of Godrej 10.00 lakhs made by the AO. - Decided against assessee. Disallowance of foreign travel expenses - Held that:- This issue has been decided against the issue by the Tribunal in the assessee's own case, vide its order for AY-2004-05 - Decided against assessee. Assessment of rental income of house property and service charges as income from house property - Held that:- This issue has been decided in the assessee's own case CIT(A) confirmed the assessment of proper rental income as income from house property and recovery of service charges as income from other sources. The CIT(A) accordingly, directed the AO to allow the deduction of the expenses incurred for earning the income from service charges as directed earlier by the Tribunal in the assessment year 1990-91. So following the same, the CIT(A) has sustained the assessment of rental income as income from property and the income from service charges under the head income from other sources” and directed the AO to grant deduction of expenses incurred for earning from servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower purchase prices. In view of the foregoing, we are of the view that the assessee should be considered as having paid the purchase price to its AE at ALP only and hence there is no necessity to make adjustments. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the addition. - Decided in favour of assessee. Addition u/s 92CA in respect of Corporate Guarantee fee - Held that:- Rate of 0.50% is consistently followed in many of the cases by the Tribunal. In fact, in the case of Everest Kanto Cylinder Ltd, [2015 (5) TMI 395 - BOMBAY HIGH COURT ] has determined the rate at 0.50% and the same has not been disturbed by the Hon'ble Bombay High Court. Accordingly, we modify the order of Ld CIT(A) on this issue and direct the AO to compute the addition by adopting the rate of 0.50%. Eligibility of the assessee to claim deduction u/s 80IA allowed to assessee. Since the assessee is eligible to claim deduction u/s 80IA of the Act in respect of Co-generation Plat 2, he was justified in holding that the assessee could exercise option u/s 80IA(2) of the Act. State electricity board rates has to be taken as market value for computing deduction u/s 80IA of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mina, reduction of alumina into aluminium by electrolytic process, manufacture of Aluminium semi-fabricated products, Aluminium Foils etc. 5. The first issue relates to the disallowance made u/s 14A / 36(1)(iii) of the Act. The AO noticed that the assessee has made investment in shares, Tax free bonds, GOI stock and Mutual Funds (Dividend Scheme). The AO noticed that the assessee has also borrowed funds for the purpose of business and paid interest thereon. Hence, the AO took the view that the assessee has used the interest bearing borrowed funds for making the above investments. Accordingly he worked out the interest attributable to said investments at ₹ 27.93 crores and added the same to the total income of the assessee. In the appellate proceedings, the ld. CIT(A) enhanced the interest disallowance by 0.22 crores and accordingly held that the interest to the extent of ₹ 28.15 crores is disallowable. The AO also disallowed a sum of ₹ 10.00 lakhs towards administrative expenses attributable to earn tax free income. The Ld CIT(A), however, enhanced the same to ₹ 11.00 crores calculated at 0.5% of the average value of investments. It is pertinent to note tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue had come up before the Tribunal in the assessee‟s own case and the Tribunal has taken the view that the assessee has not used borrowed funds for the purpose of making investments. The assessee has furnished a copy of its Annual report before us. A perusal of the Balance sheet shows that the assessee had held own funds of ₹ 6857.9 and ₹ 7666.5 crores respectively as on 31.3.2004 and 31.3.2005, as against investments of ₹ 3377.2 and ₹ 3702.1 crores respectively on those dates. Hence, in our view, the decision rendered by Hon‟ble Bombay High Court in the case of HDFC Bank (supra) shall apply to the facts of the instant case. Accordingly, consistent with the view taken by the co-ordinate bench in the assessee‟s own case in the earlier years, we hold that the interest disallowance made by the tax authorities is not called for. Accordingly, we set aside the order of ld.CIT(A) in respect of interest disallowance and direct the AO to delete the same. 9. In respect of disallowance of administrative expenses relating to exempted income, we notice that the Ld CIT(A) has worked out the same as per Rule 8D(iii) of IT Rules, even though he accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of proper rental income as income from house property and recovery of service charges as income from other sources. The CIT(A) accordingly, directed the AO to allow the deduction of the expenses incurred for earning the income from service charges as directed earlier by the Tribunal in the assessment year 1990-91. So following the same, the CIT(A) has sustained the assessment of rental income as income from property and the income from service charges under the head income from other sources" and directed the AO to grant deduction of expenses incurred for earning from service charges. This view is consistent to the view taken by the Tribunal for the earlier years. This ground is rejected" Consistent with the view taken by the co-ordinate bench of Tribunal in the earlier years, we confirm the order of ld CIT(A). However, the AO is directed to allow admissible deductions allowable under the respective heads. 14. The next issue relates to the disallowance of ₹ 7,19,01,340/- paid to IFFCO as per the arbitration proceedings. The facts relating to the issue is that the copper plant of erstwhile Indo Gulf Corporation Ltd (IGCL) was amalgamated with the assessee w.e.f.1.4.2002. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age 943 of its latest edition. On the contrary, the Ld D.R submitted that the assessee has not accepted the arbitration award and hence it has filed appeal challenging the same before the Hon‟ble High Court. Accordingly he submitted that the arbitration award cannot be considered to have been finally settled during the year under consideration. He submitted that the Tribunal, in AY 2003-04, has held that the claim of the assessee shall be allowable in the year in which the dispute got finally settled. 17. We have heard rival contentions on this issue and perused the record. The Hon‟ble Gujarat High Court had an occasion to consider an identical issue in the case of Navijan Roller Flour and Pulse Mills Ltd Vs. Dy. CIT (supra). The assessee therein placed an order with an Australian Company for import of yellow gram and it was required to open irrevocable letter of credit. However, the assessee did not open the letter of credit within the extended period also and in fact, repudiated the contract through a letter. Arbitration proceedings were initiated by the Australian company with Grain and Feed Trade Association (GAFTA). However, the assessee objected to the jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. The facts relating to the issue are that the assessee‟s subsidiary company named M/s Birla Mt. Gordon Pty Ltd, Australia owned a mine in Australia. The assessee purchased copper concentrates from this subsidiary company. The assessee had purchased copper concentrates from unrelated parties also. The prices of copper concentrates are determined on the basis of prices of Copper quoted in London Metal Exchange (LME) less the processing charges towards smelting, refining and margin for the seller. From the value so arrived at, a further reduction towards Treatment charges/refining charges (TC/RC) are allowed. The TC/RC is determined by Japanese buyers of concentrates, normally in the beginning of the calendar year and the price so determined is considered to be the industry average. The TC/RC determined is further adjusted for freight differentials. 19. In its T.P. study, the assessee followed CUP method and compared the TC/RC charges of the goods purchased from its AE with TC/RC charges of the goods purchased from a non-AE company named M/s PT Freeport for the calendar year 2004. There was no difference between the two. The AO referred the matter to the TPO. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld A.R invited our attention to a chart placed at page 221 of the paper book. He further submitted that the assessee has explained before the AO about the practice consistently followed by the assessee. However, the AO has not addressed the same. He further submitted that the Ld CIT(A) has also appreciated the fact that the assessee is determining the rate with AE on financial year basis by observing that the same may be alright for administrative convenience. 21. The Ld A.R further submitted that the tax authorities have to compare the long term contracts entered with AEs with similar kind of long term contracts entered with non-AEs. He submitted that the assessee has pointed out this principle at page 12 of its TP study (page 172 of paper book). The parties also enter into "No holiday" contract with the mine owners and the no holiday contract is also a type of long term contract only. During the year under consideration, the assessee has entered into a „no-holiday‟ contract with two companies, but they are for purchase of fixed quantity viz., PT Freeport and Escondida for purchase of 90000 DMT each. Hence they cannot also be considered as comparables. He further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f copper and (d) adjust the price so arrived at for freight differentials. The difference in prices has occurred only due to the fact that the non-AEs have synchronized the reduction of TC/RC charges with the Japanese rates, i.e., they have changed the TC/RC charges on calendar year basis. However, the AE has followed financial year basis for effecting such kind of change, i.e., the AE has given effect to the modified TC/RC charges from 1st April of every year, even though the modified rates were announced in the month of January itself. The effect of this practice is that the non-AEs shall adopt new rate of TC/RC charges for January to March every year, while the AE shall adopt old rates for that period. The natural effect of this practice is that there is bound to be price difference between the AE and non-AEs in these three months, mainly on account of TC/RC charges. 26. As submitted by Ld A.R that it so happened that the assessee had to pay higher purchase price during the year under consideration for the purchases effected in the months of February and March, due to adoption of lower TC/RC charges applicable to immediately preceding calendar year. However, as can be seen fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uations in TC/RC charges should be ignored. These submissions brings out the exact reason for the price difference and in our view, the said reasons are reasonable and need to be factored in, i.e., adjustments should be permitted, in which case it would result that the payments made to AE was at ALP. Further, it is not the case that the assessee was paying higher purchase price to its AE year after year in the months of Jan to March. In subsequent years, the assessee has gained by paying lower purchase prices. In view of the foregoing, we are of the view that the assessee should be considered as having paid the purchase price to its AE at ALP only and hence there is no necessity to make adjustments. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the addition. 28. The next issue relates to addition made u/s 92CA made on account of corporate guarantee fee, which has resulted in an addition of ₹ 9,70,40,250/-. In the additional ground no.3, the assessee is challenging the addition on the ground that the Explanation (i)(c) to sec. 92B was inserted by Finance Act, 2012 and hence the same should not be made applicable to the year under c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arantee. Accordingly he contended that the tax authorities are not justified in adopting the rate quoted by a bank for giving bank guarantee to the case of the assessee. 32. The ld D.R, on the contrary, submitted that the assessee has not given any bench mark and hence the TPO/AO was constrained to adopt the rate charged by the banks. Accordingly he submitted that this matter may be restored back to the file of the AO for fresh consideration. 33. We have heard rival contentions and perused the record. We notice that the assessee has also referred to the decision dated 25.3.2015 rendered by the co-ordinate bench in the case of Manugraph India Ltd (ITA No.4761/Mum/2013), wherein the co-ordinate bench has determined a rate of 0.50% for guarantee given. We further notice that the rate of 0.50% is consistently followed in many of the cases by the Tribunal. In fact, in the case of Everest Kanto Cylinder Ltd, which was considered by the Hon‟ble Bombay High Court, the Tribunal has determined the rate at 0.50% and the same has not been disturbed by the Hon‟ble Bombay High Court. Accordingly, we modify the order of Ld CIT(A) on this issue and direct the AO to compute the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we do not find any infirmity in his order on this issue. „ 36. The next issue relates to eligibility of the assessee to claim deduction u/s 80IA of the Act in respect of Co-Generation Plant-1. Both the parties agreed that this issue is covered in favour of the assessee by the order of Tribunal rendered for AY 1999-2000 in the assessee‟s own case in ITA No.4775/Mum/2003 (referred supra). It was further submitted that the order passed for AY 1999-2000 was followed by the Tribunal in AY 2004-05 also. Since the decision rendered by Ld CIT(A) on this issue is in accordance with the decision taken by the Tribunal, we do not find any infirmity in his order on this issue. 37. The next issue relates to the eligibility of the assessee to claim deduction u/s 80IA of the Act in respect of Co-generation plant no.2. The assessee commissioned Co-generation plant no.2 during the financial year relevant to the assessment year 2005-06, i.e., the year under consideration. However, the assessee did not claim deduction u/s 80IA of the Act, since the provisions of sub-sec. (2) give an option to the assessee to claim deduction for any ten consecutive assessment years out of fifteen years b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of interest received from Dahej Harbour and Infrastructure Limited (DHIL). The assessee claimed exemption u/s 10(23G) of the Act on the gross interest receipts. However, the AO noticed that the assessee is also paying interest to DHIL. Accordingly, the AO allowed exemption u/s 10(23G) of the Act on the net interest. In the appellate proceedings, the ld. CIT(A) by following the decision of Tribunal rendered in the assessee‟s own case for the assessment year 2003-04 and 2004-05 held that the assessee is eligible to claim exemption on gross interest receipts. It was brought to our notice that the decision rendered by the Tribunal for AY 2003-04 has since been upheld by the Hon‟ble Bombay High Court, vide its order dated 16-08-2012 rendered in the assessee‟s own case in ITA No.6392 of 2010 with the following observations:- "11. The DHIL had pad interest o the respondent in respect of the loans advanced by the respondent to DHIL. The respondent paid interest to DHIL in respect of the outstanding bills issued by DHIL. There was no connection between the two transactions. The section does not require or permit the netting of payments under two independent contra ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
