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TMI Blog2019 (2) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... king a notional adjustment on account of provision of corporate guarantee by the Appellant to its AEs. without appreciating the fact that such transactions do not qualify as international transactions within the meaning of Section 92B of the Act; 3. erred in making a notional adjustment of guarantee commission of Rs. 7,14,67,809 by determining the Arm's Length Price ('ALP') on the corporate guarantee provided by the Appellant to its subsidiaries, over and above the voluntary adjustment in respect of guarantee commission made in the return of income, aggregating to Rs. 4,71,28,451. 4. erred in not appreciating the fact that the guarantee commission of Rs. 7,14,67,809 does not accrue or deemed to accrue or received or deemed to receive to/by the Appellant from its AEs: 5. erred in not appreciating the fact that the guarantee given by the Appellant is for strategic purpose and in its capacity of a shareholder; 6. erred in not appreciating the fact that no benefit arose to the AEs from corporate guarantee given by the Appellant; 7. without prejudice to above, erred in making an adjustment of guarantee commission 1.22% [in case of Cox & Kings (Australia) Ply L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, we direct the AO to restrict the adjustments to 0.5% as upheld by the Hon'ble High Court in the case of Everest Kanto Cylinders (supra). Accordingly, the relevant ground nos. 6 to 9 are partly allowed." 5. We find that this issue is squarely covered by Tribunals decision in assessee own case for immediately preceding years and hence, respectfully following the Tribunals view and the decision of Hon'ble Bombay High Court in the case of Everest Kanto Cylinder Limited (supra) we direct the AO to restrict the adjustment at 0.5% of the loan amount advanced by the bank to its AE. We direct the AO accordingly. This issue of assessee's appeal is partly allowed. 6. The next issue in this appeal of assessee is against the order of AO/TPO/ DRP is regarding making disallowance of expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules 1962 (hereinafter the 'Rules'). For this assessee has raised the following ground: - "Disallowance under Section 14A of the Act by applying Rule 8D of Rules 11. erred in making disallowance of Rs. 2,57,57,212 under Section 14A of the Act read with Rule 8D of the income Tax Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Rules be computed considering the growth oriented mutual funds in the average investment and accordingly, he disallowed a sum of Rs. 2,57,60,872/-, over and above the suo moto disallowance made by the assessee at Rs. 43,96,340/-. The assessee before us filed comparative chart of disallowance consider by assessee and the AO as under: - Sr. No. Investment Amount (Rs.) 31 March 2012 Amount (Rs) 31 March 2011 Amount 1. Ezeego One Travel and Tours Private Limited (Ezeego) 10,00,00,000 10,00,00,000 Considered by the Assessee in Suo moto disallowance- Average investments is Rs. 12.24 cr. 2. Business India Publications Limited (BIPL) 24,75,000 24,75,000 Additionally considered by the learned AO 3. Radius Global Travel Company 59,16,063 59,16,063 4. Tulip Stars Hotels Limited (Tulip) 1,40,25,000 1,40,25,000 5. Mutual Funds (Growth Option) 7,02,300 1,58,22,40,335 Total 12,31,16,063 1,70,46,56,398 Average Investments 91,38,86,731 Accordingly, the AO made disallowance under Rule 8D(2)(ii) of interest at Rs. 2,55,87,778/- and administrative expenses being indirect expenses at 0.5% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of Special Bench of Delhi ITAT in the case of ACIT vs. Vireet Investments (P.) Ltd. [2017] 58 ITR(T) 313 (Delhi - Trib.) (SB), wherein it is held as under: - "11.16 Therefore, in our considered opinion, no contrary view can be taken under these circumstances. We, accordingly, hold that only those investments are to be considered for computing average value of investment which yielded exempt income during the year." 12. When this facts were confronted to the learned CIT Departmental Representative, he stated that the issue can be remitted back to the file of the AO for verifying whether the investment of Rs. 12,24,16,063/- as claimed by assessee is giving exempt income or not. In view of the decision of Special Bench of ITAT Delhi in the case of Vireet Investments (P.) Ltd. (supra), we direct the AO to consider those investments only for computing the disallowance which related to exempt income during the year. We direct the AO accordingly. This issue of assessee's appeal is set aside and allowed for statistical purposes. 13. The next issue in this appeal of assessee is against the order of AO/DRP against disallowance in respect of difference in tour sales as per Annual In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplained it was sales of balance 21 parties appearing in the books of accounts were less than those appearing in AIR statement by an amount of Rs. 25,86,068/-. The DRP also rejected the objection of the assessee and agreed with the order of the Assessing Officer. It was contended before us that the AIR statement is generated on system basis, the details provided by various parties and according to them there could be instances of possible errors therein and such errors are in regard the name, PAN, TAN of the assessee and grossing up of TDS etc. But the assessee before us could not filed any reconciliation qua the difference of Rs. 25,86,068/- except making verbal submissions. At last, the assessee contended that the addition should be restricted to the profit margin of sales at the rate of 11.47% on un accounted sales of Rs. 25,86,068/-. We are of the view that there are no matching unaccounted purchases which has been sold by assessee. Hence, we are of the view that the lower authorities have rightly added the non-reconciled tour sales amounting to Rs. 25,86,068/- in respect of these 21 parties. Hence, we find no infirmity in the orders of the lower authorities and this issue of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee. The AO while framing assessment disallowed an expenses of Rs. 1,20,24,914/- mainly incurred by assessee on account of salary expense of staff/ employees and according to the AO these were not wholly and exclusively involved in the development and implementation of software and their involvement is less than 60% of the total activity. The assessee carried the matter to DRP and raised objections which were rejected by holding that the expenses incurred on travel booking engine and SAP software was to acquire new capital asset to be used in a new line of business of assessee allowing the customers to book tickets, tour packages etc. and accordingly the same cannot be allowed under section 37(1) of the Act. Aggrieved, assessee came in appeal before Tribunal 17. The assessee before us contended that this expenditure is normal revenue expenditure and eligible for deduction under section 37(1) of the Act but alternatively the assessee also contended that in case these expenses are held to be capital in nature depreciation should be allowed on the same under section 32 of the Act. On the other hand, the learned CIT Departmental Representative relied on the orders of the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansion of its business and those expenditure are in the nature of revenue (being mostly paid to employees). These are allowable in the year itself as per ratio of aforementioned decision of the Hon'ble Bombay High Court in the case of Kothari Auto Parts Mfg. (P.) Ltd. (supra) and Hon'ble High Court of Gujrat in the case of Alembic Glass Industries Ltd. (supra). These expenditures did not create any asset and also did not provide enduring benefit to the business of the assessee so as to say that the expenditure was capital in nature. Therefore, we hold that expenditure are allowable in the year under consideration irrespective of the fact that assessee has given dual status to such expenditure in its books of account vis-à-vis computation of income filed alongwith return. 6.2 So far as it relates to the observations made by Ld. CIT(A) in his order that assessee vide his letter dated 28/6/2011 has merely given the name, designation and amount paid with reference to salary paid without giving any proof of work actually being done, we may mention that we have carefully gone through the details filed by the assessee before Ld. CIT(A). Copy of the documents submitted be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for providing tours and travel services can be carried out more effectively and efficiently. Thus, incurring of these expenses for travel booking engine, the assessee is expanding its existing line of business. Further, it is also a fact that the expenses incurred for travel booking engine and SAP software was only for the purpose of technology upgradation to the existing business of the assessee and by incurring the same the assessee has not created any new line of business or asset which can be given enduring benefit to the assessee. Thus, according to us, in view of the above factual and legal submission, the salary and profession expenses incurred and disallowed by AO amounting to Rs. 1,20,24,914 over the development of travelling booking engine and SAP software is to be allowed as Revenue expenses under section 37(1) of the Act. The facts and circumstances are similar to the decision of Mumbai, ITAT in the case of Reliance Footprint Limited (supra) and hence, respectfully following the same, we allow the claim of the assessee.
20. In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 03-01-2019. X X X X Extracts X X X X X X X X Extracts X X X X
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