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TMI Blog2017 (4) TMI 862X X X X Extracts X X X X X X X X Extracts X X X X ..... s division from NIPL as a going concern on slump sale basis for a net consideration of 186.52 crores. In the absence of specific values being ascribed to the various assets while arriving at the above sale consideration, the net slump purchase consideration of 186.52 crores was apportioned over various assets and liabilities on fair basis. These values were arrived at on the basis of Technical estimates made by the management in accordance with Accounting Standard-10. The assessee claimed depreciation u/s 32 on values recorded in the books of assessee Company. In the alternative, the assessee claimed depreciation @25% on non-compete fees being ‘intangible assets’. But DRP following Tribunal’s order in assessee’s own case for earlier years, decided both the alternatives against assessee. The Ld. Counsel for Assessee [AR] has fairly conceded that depreciation on fixed assets have not been allowed in earlier years. Even the claim of 25% depreciation on non-compete fees paid by him was also not allowed by Tribunal in AY 1999- 2000. But thereafter, Tribunal in AY 2001-02, relying upon the judgment of Madras High Court in Pentasoft Technologies Ltd. V DCIT [2013 (11) TMI 1057 - MADRAS HI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.50% upheld by the Tribunal. Therefore, respectfully following the same, we restrict TP adjustment against bank guarantee to 0.50%. This ground is partly allowed. Addition on account of certain interest income - Held that:- Adequate efforts have been made by assessee and the assessee cannot be asked to prove the negative. We agree with AR’s stand that additions cannot be made solely on the basis of Form 26AS entries only which is well settled by various judicial pronouncements. The revenue has not brought anything on record to substantiate its stand and relied merely upon entries in Form 26AS. It appears that the same is erroneous and has crept in due to quoting of wrong PAN by the Bank in their TDS returns and therefore, at least addition, in such a scenario, in the hands of assessee could not be in made. Thus, we are inclined to delete the impugned addition. The bench was informed that similar entries are appearing in Form 26AS of the assessee for other assessment years also. Therefore, the assessee is directed to pursue the correction thereof forthwith with due diligence. The revenue is also directed to scrutinize the TDS return of ‘Bank of America’ and enable to Bank to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various issues arising out of AO's final order by raising eighteen grounds of appeal out of which Ground Nos. 1, 3 4 & 5 are not pressed during proceedings before us. Ground No. 18 is general in nature. Hence, we are left with Ground Nos. 2 & 6 to 17 which are taken one by one in the succeeding paragraphs. 4. Ground No. 2 is related with application of correct rate of surcharge on dividend distribution tax [DDT]. The assessee proposed dividend in the accounts for the year ended 31/03/2011. The same got approved in Annual General Meeting on 12/08/2011. The corresponding Dividend Distribution Tax was paid on 24/08/2011 at the following rates specified by Finance Act, 2011:- Particulars Rate Tax 15% Surcharge (5% of 15%) 0.75% Education Cess (3% of 15.75%) 0.4725% Effective Rate 16.2225% The assessee declared dividend of ₹ 28,15,21,576/- and worked out DDT liability @16.2225% which amounted to ₹ 4,56,69,838/-. However, AO following Finance Act, 2010, worked out effective rate as follows:- Particulars Rate Tax 15% Surcharge (7.5% of 15%) 1.125% Education Cess (3% of 16.125%) 0.48375% Effective Rate 16.60875% The difference in rate resulted into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon the judgment of Madras High Court in Pentasoft Technologies Ltd. V DCIT 222 Taxmann 209 & Karnataka High Court in CIT Vs Ingersoll Rand International Ltd. 227 Taxmann 176 and Mumbai Tribunal in Shreya Life Science ITA No. 7071/Mum/2010, allowed the claim of 25% depreciation on noncompete fees being 'intangible assets'. Further, the issue was again settled in favor of assessee by Tribunal in AY 2006-2007. The Ld. DR fairly conceded the settled position. We have perused various orders of Tribunal in assessee's own, the details of which are as follows:- i. ITA No. 4842/M/04 order dated 05/04/2013 AY 1999-2000 ii. ITA No. 9645 & 9498/M/04 order dated 02/03/2016 AY 2001-02 iii. ITA No. 8360/M/10 order dated 16/12/2016 AY 2006-07 After perusal of the same and following the above, we dismiss Ground No. 6 of assessee's appeal but allow Ground No. 7. Ground No. 8 relates with write-off of the impugned expenditure and since we have already allowed Ground No. 7, the same is dismissed as infructuous. The assessee is entitled for depreciation @25% on WDV of non-compete fees, being intangible in nature. Ground No. 6 & 8 is dismissed. Ground No. 7 is allowed. 6. Ground No. 9 is relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that the same was not used for business purpose. Before DRP, the assessee contended that investment formed integral part of its business activity and assessee derived various benefits viz. Dividend, royalty, technical / management fees, sale of goods out of said investments which have duly been offered to tax over several years. Reliance was placed in various judicial pronouncements. Rejecting the same, DRP concluded that the said investment were made to gain controlling interest in subsidiary company and were pure investment activity in nature which called for impugned disallowance. AO following, DRP directions, made impugned disallowance. Before us, the Ld. AR has made various contentions, the foremost being that the assessee has sufficient owned funds to make these investments and investments are made to acquire controlling interest in subsidiary and out of the said investment, the assessee has derived multiple benefits which are duly offered to tax. Thus the investments have been made out of commercial expediency. Further, these were old investments only and no new fresh investment has been made during the year. Our attention is drawn to Page-284 & 285 of the paper bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Phil Corp. Ltd. 14 Taxmann.com 58 has taken a view that investment in subsidiary company for acquisition of shares form integral part of assessee's business and hence interest thereupon is allowable. Keeping all these factors in mind, we are inclined to delete impugned additions. Ground No. 10 relating to allowability of interest u/s 36(1)(iii) is allowed whereas Ground No. 11 is alternative ground and therefore, the same becomes infructuous and hence dismissed. 8. Ground No.12 assails additions of proportionate interest on borrowed funds for ₹ 73.87 lacs qua 'receivables' from subsidiary companies. AO noted that assessee paid interest on borrowed loans at ₹ 44.82 crores whereas it had advanced loans to its subsidiaries, some of which were interest free. AO computed average cost of assessee's borrowing as 5.98% and made disallowance in the following manner:- No. Name of the Party Total Loans/Advances Rate of Interest Charged Proportionate interest @5.98% 1. M/s Ceylon Glass Ltd.-Sri Lankareceivables on account of debtors for sales / technical fees 12,35,43.056/- Nil 73,87,875/- 2. Gujarat Glass International USA (now known as Piramal Glass USA Inc) 47 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of Tribunal in assessee's own case for 2006-07, ITA No. 8360/Mum/2010 order dated 16/12/2016. But a perusal of paragraphs 20 to 25 of the said order reveals that Tribunal has relied firstly upon order for AY 2001-02 and secondly upon the fact that TP adjustment qua these transactions was already made by the TPO and disallowing the same would amount to double deduction. We also find that the assessee was allowed relief in AY 2001-02 on account of 'commercial expediency' and following Apex court judgment in S.A.Builders Vs. CIT 288 ITR 1. But the facts are different here. No TP adjustment has been made for the impugned transaction and secondly the outstanding amount represent 'receivables' on account of debtors for sales / technical fees as per the contention of the assessee. Therefore, on the facts and circumstances of the case, we deem it fit to restore this issue back to the file of AO for fresh adjudication in proper perspective including benefits derived by AE on account of receivables vis-à-vis normal debtors of the business. The assessee is directed to cooperate with the lower authorities forthwith to substantiate its claim forthwith falling which the AO shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res. Before DRP, the assessee contested that guarantee is not international transaction and without prejudice, contested the benchmarked rate of 3% and relying upon various judicial pronouncements, pleaded to restrict the same to maximum of 0.5%. But rejecting the same, DRP confirmed the said benchmarked rate. Before us, Ld. AR raised similar contentions but fairly conceded that in view of amendment in Section 92B and jurisdictional Bombay High Court judgment in CIT Vs. Everest Kento Cylinders Ltd. 378 ITR 57, the said transaction constitute international transaction. On merits, he asserted that rate of 3% benchmarked by applying mark up on SBI rate is too high and not correct. In number of judgments, the rate ranging from 0.20% to 0.50% has been found to be acceptable. The Ld. DR has justified the said rate. We have heard rival contentions and find strength in Ld. AR's argument. Hon'ble Bombay High Court in CIT Vs. Everest Kento Cylinders Ltd. (supra) has observed that issuance of a corporate guarantee are distinct and separate from that of bank guarantee and therefore, no TP adjustment can be made in respect of guarantee commission by making comparison between guarantees issued b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s given to subsidiaries. The assessee stood benefitted to the extent of ₹ 37.12 Lacs on account of reinstatement of foreign currency loan at year end advanced to its subsidiary companies. It treated the same as capital in nature and reduced it from the profit in computation of income. Relying upon the decision of Bombay High Court in Solid Containers Ltd. Vs. DCIT 308 ITR 417, AO and DRP found the gain to be revenue in nature and concluded the same to be taxable in the hands of the assessee. Before us, the primary contention of the AR is that it incurred losses on this account in AY 2010-11 but it did not claim the same as allowable expenditure. It has consistently followed accounting policy regarding treatment of foreign exchange on loans. The loans advanced to subsidiary are capital in nature and therefore, the same are not taxable. Reliance has been placed on the Apex court judgment of Sutlej Cotton Mills Ltd. V CIT 116 ITR 1 to contend that gain / loss on foreign exchange held on 'Capital Account' is capital in nature and held in 'revenue account' is revenue in nature. Per contra, Ld. DR contended that when assessee made suomoto disallowance of exchange loss in 2010-11 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y bound to assess the correct income of the assessee. But DRP and AO rejected the same relying upon Apex Court decision in Goetz India Ltd. Vs CIT(Supra). Before us, the Ld. AR has raised similar contentions. As the factual matrix is not in dispute and the lower authorities, in principal, agreed with the claim of the assessee, the issue is decided in favor of the assessee and hence the AO is directed the give the benefit of impugned amounts in computation of Book Profit u/s 115JB. 13. In Ground No. 17, the assessee is aggrieved by the stand of AO in not allowing set off of brought forward of business losses and unabsorbed depreciation amounting to ₹ 104.23 crores. The assessee recomputed brought forward business losses and unabsorbed depreciation on the basis of outcome of appeals of earlier years at ₹ 104.23 crores, the set off of which was not allowed to assessee. DRP concluded that since the issue was consequential, AO was directed to consider the said claim. However, in the final computation of income, we find that credit thereof was not granted to the assessee. Therefore, reiterating the stand of DRP, AO is directed to verify the claim of assessee in this respect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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