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TMI Blog2019 (2) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... cided in assessee's own case irrespective of the fact whether the debenture issued is convertible or non–convertible, it is in the nature of loan. Therefore, any expenditure incurred in relation to issuance of such debenture is allowable as expenditure. There being no material difference in facts in the impugned assessment year, the aforesaid decision of the Co–ordinate Bench clearly applies to the facts of the present appeal. Therefore, respectfully following the decision of the Co–ordinate Bench referred to above, we delete the addition made by the Assessing Officer. Disallowance of provision for warranty expenses - Held that:- We have considered rival submissions and perused material on record. Notably, no specific disallowance has been made by the Assessing Officer on this account in the final assessment order. Therefore, the issue is of mere academic nature. In view of the aforesaid, we do not intend to delve further into the issue. Accordingly, this ground is dismissed. Disallowance of write back provisions for doubtful debt - AO disallowed assessee’s claim simply on the ground that it was not made by way of a revised return of income - Held that:- in course of assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as the submissions made justifying the bench marking of the interest charged at LIBOR Plus 15 basis points requires re–consideration keeping in view the fact, whether the rate provided in the RBI Master Circular dated 1st July 2005 can at all be applicable as in case of the assessee it is a loan advanced and not loan availed. Since, the aforesaid aspects have not been properly examined and various workings furnished in the written notes have not been looked into by the departmental authorities, we are inclined to restore the issue to the Assessing Officer for fresh consideration. Adjustment made to book profit computed under section 115JB - Held that:- Any adjustment to the income of the assessee which is not in conformity with the directions of the DRP is invalid and not in strict compliance to the provisions of section 144C(13) of the Act. The very fact that section 144C(13) of the Act mandates the Assessing Officer to complete the assessment without affording any opportunity of being heard to the assessee indicates that while completing the final assessment the Assessing Officer has to implement the directions of the DRP only. If the Assessing Officer does not make any adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt. Therefore, he called upon the assessee to explain why disallowance of expenditure for earning exempt income should not be made under section 14A r/w rule 8D. In response, though, the assessee filed a detailed submission stating that no expenditure was incurred for earning the exempt income, hence, no disallowance under section 14A of the Act can be made. However, without prejudice to the aforesaid submission, the assessee furnished a working of notional disallowance under section 14A of the Act which worked out to ₹ 11.63 crore. The Assessing Officer did not find merit in the submissions of the assessee and proceeded to disallow expenditure under section 14A of the Act by applying the methodology provided in rule 8D. In the process, he disallowed an amount of ₹ 52 crore. The assessee challenged the disallowance before the DRP. 4. The DRP after considering the submissions of the assessee, directed the Assessing Officer to compute the disallowance under section 14A of the Act following the ratio laid down by the Hon'ble Jurisdictional High Court in Godrej Boyce Mfg. Co. Ltd. v/s DCIT, 328 ITR 001 (Bom.). While implementing the directions of the DRP in the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy its claim. After considering the submissions of the assessee, the Assessing Officer observed that as per the annual report of the company, the assessee has issued FCCNs aggregating to 11,760 Japanese Yen. He observed, FCCNs were listed in the Singapore Stock Exchange. He observed, as per the terms of issue the holders have an option to convert the FCCNs into ordinary shares or American Depository Shares. Thus, from the aforesaid facts, he concluded that FCCNs are in the nature of convertible debentures. Hence, any expenditure relatable to it has to be considered as share issue expenses, therefore, capital in nature. Accordingly, he disallowed assessee s claim of deduction. Though, the assessee objected to the aforesaid disallowance before the DRP, however, it was unsuccessful. Accordingly, the Assessing Officer carried out the disallowance in the final assessment order. 10. The learned Authorised Representative submitted, while deciding identical issue in assessee s own case for assessment year 2005 06, the Tribunal has deleted the disallowance made by the Assessing Officer. Thus, he submitted, the issue is covered by the decision of the Tribunal in assessee s own case for as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowed the amount of ₹ 20.77 crore. The assessee challenged the aforesaid disallowance before the DRP. 15. The DRP after considering the objections of the assessee directed the Assessing Officer to verify all the relevant facts and estimate the disallowance by following the ratio laid down in Rotork India Pvt. v/s CIT, 314 ITR 062 (SC). While implementing the aforesaid direction of the DRP in the final assessment order, though, the Assessing Officer held that the warranty provision amounting to ₹ 20.77 crore is not allowable, however, no specific disallowance in this regard was made in the computation of income. 16. The learned Authorised Representative submitted, there is no financial effect/implication on account of such disallowance in this year since the assessee has already offered to tax the amount on reversal of provision. However, he submitted, in principle assessee s claim is allowable. In this context, he relied upon the decision of the Tribunal in assessment year 2005 06. 17. The learned Departmental Representative submitted, since the assessee did not furnish the required details the Assessing Officer disallowed the provision. 18. We have c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve considered rival submissions and perused material on record. Undisputedly, the Assessing Officer has disallowed assessee s claim simply on the ground that it was not made by way of a revised return of income. However, fact remains, in course of assessment proceedings, the assessee did make the claim by placing relevant facts to indicate that write back of provision offered to tax was inadvertently made at a higher figure instead of actual amount accruing as income to the assessee. As per the settled principle of law, real income of the assessee has to be taxed. If by mistake or inadvertence the assessee has offered more than the actual income, assessee s claim has to be considered on the basis of facts and material brought on record. Therefore, the departmental authorities, in our view, were not justified in rejecting assessee s claim on technical ground. Accordingly, we restore this issue to the Assessing Officer for verifying assessee s claim in the context of facts and material brought on record and keeping in view the relevant case laws to be cited by the assessee. The Assessing Officer must afford reasonable opportunity of being heard before deciding the issue. 25. In gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 143(1) of the Act the assessee has offered the amount of ₹ 44,89,065, as income instead of ₹ 24,81,284 actually granted to the assessee. We direct the Assessing Officer to verify the facts relating to the claim of the assessee and decide the issue after due opportunity of being heard to the assessee. This ground is allowed for statistical purposes. 31. In ground no.6, the assessee has challenged disallowance of deduction claimed amounting to ₹ 42.70 crore on account of excise duty paid on vehicle held as stock in trade as on 31st March 2006. 32. Brief facts are, the aforesaid deduction was not claimed by the assessee in the return of income. In course of assessment proceedings, the assessee vide letter dated 23rd November 2009, claimed the aforesaid amount as deduction by stating that such amount was paid towards excise duty, education cess on shipment of vehicles held as stock in trade on 31st March 2006. Relying upon the decision of the Hon'ble Jurisdictional High Court in Bharat Petroleum Corporation Ltd., [2001] 252 ITR 43 (Bom.) the assessee submitted that since the amount was actually paid in the relevant assessment year it is allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or statistical purposes. 36. In ground no.7, the assessee has challenged addition made of ₹ 3,79,55,599, on account of transfer pricing adjustment. 37. Brief facts are, in the course of assessment proceedings the Assessing Officer noticing that the assessee course of international transaction with its Associated Enterprises (AE) viz. Tata Technologies USA (TTUS) has received interest on loan amounting to ₹ 9,69,82,205, made a reference to the Transfer Pricing Officer to determine the arm's length price of the interest charged to the AE. The Transfer Pricing Officer after calling for necessary details found that the assessee has bench marked the arm's length price of the interest charged by using Comparable Uncontrolled Price (CUP) method. He observed, the assessee has compared the interest rate received from TTUS at LIBOR Plus 15 basis points with the interest rate of LIBOR plus 30 basis points payable by TTUS to Calyon and Standard Chartered Bank from whom TTUS has availed loan. On further examination, he found that the assessee has lent GBP 53 million to TTUS on 16th August 2005, for a period of six months. The Transfer Pricing Officer observed that sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, the loan given to the AE was out of funds received through FCCN. Therefore, there is no interest coupon payable. If notes are not converted, they are redeemable at a discount of 4.12%. Therefore, the effective interest rate works out to 3.78% p.a. Whereas, the assessee has charged interest @ 4.72% which is more than the rate of interest at which the assessee has raised the fund. Further, he submitted, the internal CUP by way of loan availed by the AE from Bank is a valid comparable, hence, should not have been rejected. He submitted, the applicability of internal CUP also finds support under the OECD guidelines. For such proposition, he relied upon the following decisions: i) Tecnimont ICB Pvt. Ltd. 138 ITD 23; and ii) VVF Ltd. v/s DCIT, 31 CCH 474 40. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer. 41. We have considered rival submissions and perused material on record. The dispute is primarily with regard to the rate at which the assessee should have charged interest on the loan advanced to its AE viz. TTUS. While the assessee has charged the rate of interest at four months LIBOR Plus 15 basis poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llenged the adjustment made to book profit computed under section 115JB of the Act in the final assessment order. 43. Brief facts are, though, in the draft assessment order, the Assessing Officer had not made any adjustment to book profit computed under section 115JB of the Act, however, in the final assessment order, the Assessing Officer enhanced the book profit under section 115JB of the Act by making the following adjustments. i) Fringe benefit tax ₹ 19,00,00,000 ii) Deferred Tax ₹ 142,15,00,000 iii) Provision for Wealth Tax ₹ 43,00,000 iv) Disallowance u/s 14A ₹ 4,15,00,000 44. However, subsequently, vide rectification order passed under section 154 of the Act, the Assessing Officer himself deleted the addition of fringe benefit tax of ₹ 19 crore. 45. The learned Authorised Representative submitted, without making any adjustment in the book profit in the assessment order, the Assessing Officer cannot make such adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the final assessment order. 49. We have considered rival submissions and perused material on record. Admittedly, while proposing the draft assessment order, the Assessing Officer has not made any adjustments to the book profit shown by the assessee. Only in the final assessment order, the Assessing Officer has made adjustment to the book profit computed under section 115JB of the Act by making certain additions / disallowances. On a careful perusal of the provisions contained under section 144C of the Act, it is noted that the power of the Assessing Officer under section 144C(13) of the Act is very limited. As per the said provision, after receipt of the directions issued by the DRP under sub section (5) of section 144C of the Act, the Assessing Officer shall complete the assessment in conformity with the directions of the DRP. The word shall used in section 144C(13) of the Act makes it mandatory on the part of the Assessing Officer to pass the assessment order strictly implementing the directions of the DRP. Therefore, any adjustment to the income of the assessee which is not in conformity with the directions of the DRP is invalid and not in strict compliance to the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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