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TMI Blog2019 (9) TMI 1340X X X X Extracts X X X X X X X X Extracts X X X X ..... incomplete and unreliable to justify the TP adjustment made by the AO/TPO and this finding recorded by the learned CIT(A) has not been rebutted or contributed by the learned DR. The learned DR has also not been able to point out any reason given by the AO/TPO to justify the change of tested party from the assessee company to the AE in US. We, therefore, find no justifiable reason to interfere with the impugned order of the learned CIT(A) deleting the TP adjustment made by the AO/TPO in respect of the international transaction involving availing of sales promotion services by the assessee from its AE in US. Disallowance of interest on advances to subsidiary and group company - HELD THAT:- As decided in own case [ 2018 (1) TMI 1573 - ITAT MUMBAI ] we direct the AO to delete disallowance of interest in respect of advances to Taida trading and Industries Ltd and recompute the disallowance of interest in respect of loan to KTC Hotel as per the direction of the Tribunal in earlier years. In the result this ground of appeal is partly allowed. Disallowance of interest on share application money pending allotment - HELD THAT:- As decided in the assessee s own case for the A.Y. 2003-04 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . - Shri G.S. Pannu, Vice President And Shri Pawan Singh, Judicial Member Appellant by: Shri Kanchun Kaushal And Aliasgar Rampurawala AR s Respondent by: Shri Anand Mohan CIT-DR ORDER Pawan Singh, This appeal by assessee under section 253 of Income-tax Act, 1961 (Act) is directed against the assessment order dated 27-10-2010 passed u/s 143(3) r.w.s. 144C dated 27-10-2010, passed in pursuance of direction of DRP dated 26-09-2010 for Assessment year (AY) 2006-07. The assessee has raised the following grounds of appeal:- The grounds stated here under are independent of, and without prejudice to one another: Adjustment 7 Addition to Total Income: ₹ 53,24,92,2887- 1) On the facts and in the circumstances of the case and in law, the learned Transfer Pricing Officer (TPO') and the learned Assessing Officer ('AO') under the directions issued by Hon'ble Dispute Resolution Panel ('DRP'), erred in making an addition of ₹ 53,24,92,2887- to the Appellant's total income (i.e.,₹ 25,39,55,9127- based on the provisions of Chapter X of the Income-tax Act, 1961 ('the Act') and ₹ 27,85,36,376 based on the other provisions of the Act) and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued by it to banks in respect of the borrowings made by the AEs. Letter of Comfort erroneously treated as a guarantee 6) On the facts and in the circumstances of the case and in law and without appreciating the fact that issue of letter of comfort would not constitute an international transaction as per the provisions of the Act,, the learned TPO erred in and the Hon'ble DRP further erred in upholding / confirming the action of TPO in holding that Letter of Comfort issued by the Appellant constitutes a guarantee and that therefore, the Appellant ought to have charged guarantee fees for issuing such letters of comfort. Arbitrary rejection of rat^of guarantee fee obtained by the Appellant from its own bank / Opportunity to examine the material relied upon by Ihc TPQ not granted 7) On the facts and in the circumstances of the case and in law, the learned TPO erred in and the Hon'ble DRP further erred in a) not considering the without prejudice plea of the Appellant that the adjustment, if any, on account of guarantee fees to be charged to the AEs must be made based on the guarantee fee/rate obtained by the Appellant from its own bank. b) not providing the Appellant an opportu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 92C(3) - Not satisfied 12) On the facts and in the circumstances of the case and in law, the learned TPO erred and the Hon'ble DRP further erred in upholding 7 confirming the action of the TPO in not stating any reasons to show that either of the conditions mentioned in clauses (a) to (d) of Section 92C(3) of the Act were satisfied before making an adjustment to the income of the Appellant. B) Ground No. 13 to 23 relate to other additions/disallowances of ₹ 27,85.36.376 based on the provisions other jjian those contained in Chapter X of the Act. 13) On the facts and in the circumstances of the case and in law, the Hon'ble DRP has legally erred in not following the decision of higher authority rendered in the Appellant's own case and thereby erred in not following principle of judicial propriety. Disallowance of interest on advances given to group companies 14) On the facts and in the circumstances of the case and in law, the Learned AO erred in and the Hon'ble DRP further erred in confirming the action of the Learned AO in making interest disallowance of ₹ 25,52, 566/- in respect of advances given to group companies of the Appellant. Disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the circumstances of the case and in law, as against the disallowance of ₹ 2,00,01,8337- computed by Appellant under section 14A of the Act, the learned AO erred in proposing disallowance of ₹ 6,39,10,8167- and the Hon'ble DRP further erred in upholding 7 confirming the said disallowance to the extent of ₹ 6,20,00,0007- which was further wrongly computed by AO at Rs, 14,80,00,0007- (i.e., ₹ 5,49,00,0007- on account of interest and ₹ 9,31,00,000 on account of expenses) and said disallowance of ₹ 12,79,98,167/-(i.e., after reducing the disallowance of ₹ 2,00,01,8837- made by Appellant itself in its computation of income) is wholly unjustified and liable to be deleted. Premium on redemption of foreign currency convertible Bonds 21) On the facts and in the circumstances of the case and in law, the Learned AO erred in and the Hon'ble DRP further erred in confirming the action of the Learned AO in making the addition of ₹ 859,34,837 being pro rata premium on redemption of foreign currency convertible bonds resulting into double taxation as the Appellant had already offered the same for taxation in its computation of Total Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld various additions made in the draft assessment order. On receipt of direction of DRP, the AO passed the final assessment order u/s 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961. Aggrieved by various additions, the assessee has filed present appeal before this Tribunal. 3. We have heard the Ld. authorised representative (AR) of the assessee and Ld. departmental representative (DR) for the revenue and with their assistance perused the material available on record. 4. Ground 1 is general and needs no specific adjudication. Ground No. 2 to 4 relates to addition on account of adjustment of arm s length price of interest charged on loan given to AE. The Ld.AR of the assessee submits that this ground of appeal is covered in favour of the assessee by the decision of Tribunal in assessee s own case for AY 2005-06 in ITA No.841/Mum/2010 dated 31.01.2018. The DRP while confirming the action of TPO followed the order of CIT(A) for AYs 2003-04 to 2004-05 2005-06, which has been by the Tribunal in favour of assessee holding that the LIBOR is acceptable arm s length interest rate. 5. On the other hand, the Ld. DR for the revenue supported the order of lower authorities. 6. We have con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural (I) P. Ltd. Vs. DCIT, that the CUP method is the most appropriate method to determine the arm s length rate of interest of the international transaction involving lending of money by the assessee company in foreign currency to its AE and LIBOR being interbank rate fixed for the international transaction has to be adopted as arm s length rate. Respectfully following this decision of the coordinate Bench of this Tribunal, we uphold the impugned order of the ld. CIT (A) deleting the addition made by the A.O./TPO in respect of international transaction involving interest charged by the assessee on outstanding interest from its AE. 23. Since, this issue has already been decided in favour of the assessee in the assessee s own case for the A.Y. 2003-04 and 2004-05 aforesaid by the ITAT holding that the LIBOR is acceptable arm s length interest rate, we respectfully following the decision of the coordinate Bench decide this issue in favour of the assessee and dismiss this ground of appeal of the revenue. 7. Considering the decision of Tribunal for AY 2005-06 wherein the Tribunal has followed the earlier order for AYs 2003-04 to 2004-05, these grounds of appeal are allowed in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89 (Chennai Trib) has held that the letter of comfort is outside the ambit of international transaction. Hence, following the decisions of the Hon ble Karnataka High Court and the Chennai Tribunal, we hold that the letter of comfort issued by the assessee in this case is outside the ambit of international transaction. We, therefore, dismiss this ground of appeal of the revenue. 11. Considering the decision of Tribunal for AY 2005-06 wherein the Tribunal has followed the earlier order for AYs 2003-04 to 2004-05, therefore respectfully following the order of the coordinate bench of the Tribunal, these grounds of appeal are allowed in favour of the assessee. 12. Grounds 8 to 10 relates to disallowance of sales promotion expenses. The Ld.AR of the assessee submits that the TPO made adhoc and arbitrary adjustment which is not permissible. The ld AR for the assessee submits that this ground of appeal is covered by the order of Tribunal in assessee s own case for AY 2003-04 and 2004-5 in ITA No.6712/M/2010 2678/M/2009. The Ld. Counsel of the assessee also placed reliance n the following decisions:- 1. Firmenich Aromatics India P Ltd vs DCIT ITA No.2590/Mum/2017 2. CIT vs Johnson Johnson ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to denial of 5% benefit rate and Ground No.12 relates to non compliance of conditions of section 92C(3). These grounds of appeal were not pressed by ld AR for the assessee hence, dismissed. 17. Ground 13 pertains to disallowance other than those contained under Chapter X. This ground is general in nature, thus needs no specific adjudication. 18. Ground 14 pertains to disallowance of interest on advances to subsidiary and group company. The Ld.AR of the assessee submitted that the issue stands decided in favour of the assessee in assessee s own case for 2005-06 in ITA No.841/Mum/2010, which in turn, relied upon the decisions of the Tribunal for AY 2003-04 and 2004-05 ( ITA No. 6712/M/2008 2678/M/09). 19. On the other hand, the Ld. DR for the revenue supported the order of lower authorities. 20. We have considered the submissions of both the parties and perused the record. During the year under consideration the assessee has advanced loan of ₹ 3,50,00,000/- to M/s KTC Hotel Ltd and ₹ 1,0336,844/- to Taida Trading Industries Ltd. We have noted that on identical ground of appeal is assessee s own case for AY 2005-06 in ITA No. 841/M/2010, by following the order in AY 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mum/ 2009. The findings of ornate bench are reproduced as under:- 8. We have heard the arguments of both the sides and also produce the relevant material placed on record. As agreed by the learned a percentage of both the sides, this issue is squarely covered in fear of assessee by the decision of tribunal rendered in assessee s own case for earlier years. In AY 1995-96, it was held by the tribunal wide its order dated 12 September 2006 passed in ITA No. 2527/Mum/2002 that there being no diversion of interest-bearing funds for non-business purpose as alleged by the AO, there was no justification in making any disallowance on account of interest paid on the borrowed funds. It was noted by tribunal that the share application money was finally returned to the assessee with interest @ 19% and the interest so received was duly offered by the assessee in the relevant year. Similar view has been taken by the tribunal in subsequent years i.e. assessment year 199697 to 2002-03. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to the earlier years, we respectfully follow the order of the tribunal for the said years and uphol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout prejudice, allowance of depreciation @15% and not 10% for linen. The Ld.AR of the assessee submitted that that the issue is squarely covered by the decision of the Tribunal for AY 2005-06 in ITA No.841/Mum/2010 which followed the order of Tribunal for AYS 2003-04 2004-05 in ITA No. 6712/Mum/2008 2678/Mum/2009. 29. On the other hand, the Ld. DR for the revenue supported the order of lower authorities. 30. We have considered the submissions of the parties and have noted that identical ground of appeal the Tribunal in assessee s own case in AY 2003-04 2004-05 in ITA No. 6712/Mum/2008, 2678/Mum/20119, which was followed by Tribunal in AY 2005-06 in ITA No.841/Mum/2010 dated 31.01.2018 on identical grounds passed the following order:- 15. We notice that coordinate bench has decided this issue in fear of the assessee in assessee s own case report of the list hence, respectfully following the decision of coordinate benches aforesaid, we uphold the finding of learned CIT(A) and dismissed this ground of appeal of the revenue. 31. Considering the decision of the Tribunal, which is consistently followed in all years, thus, respectfully following the same these grounds of appeals are allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y item which was required to be reported/recognised at the exchange rate prevailing on the date of relevant transaction as per AS-11 has rightly held by learned CIT appeals. We, therefore, find no infirmity in the impugned order of the learned CIT(Appeals) deleting the addition is made by the AO on this issue and upholding the same, we dismiss relevant grounds of revenue s appeal. 19. Since, this issue has already been decided in favour of assessee s own case aforesaid, we dismiss this ground of appeal of the revenue by respectfully following the decision of coordinate bench in assessee s own case for the assessment years mentioned above. 34. Considering the decision of the Tribunal in AY 2005-06, wherein the order of ld CIT(A) in allowing relief to the assessee was affirmed on the identical ground of appeal, thus, respectfully following the same these grounds of appeals are allowed. 35 Ground 20 pertains to disallowance u/s 14A. The Ld.AR of the assessee submitted that the issue is squarely favour of the assessee in assessee s own case by the decision of the Tribunal for AY 2005-06 in ITA No.841 /Mum / 2010 and for AY 2004-05. 35. On the other hand, the Ld. DR for the revenue supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer to accept the 10% of exempt income, which is allowed as suo moto disallowance by the assessee. In the result this ground of appeal is allowed. 38 Ground 21 pertains to addition of premium on redemption of foreign currency convertible bonds. This ground is not pressed before us. Therefore, this ground is dismissed. 39. Ground 22 pertains to addition on account of notional interest on deposits with Taj Karnataka Ltd. The Ld.AR of the assessee submitted that the assessee had placed deposit of ₹ 5.35 crores with Taj Karnataka in earlier years with interest accrual at 7% p.a. Since the financial condition of Taj Karnataka was extremely weak, it was decided to waive off interest w.e.f. 01-04-2002 and therefore, in current year, no interest was charged. The assessing Officer disallowed, as according to him, no evidence of interest waiver or copy of Board resolution was furnished and therefore, right to received interest was crystallised. Accordingly, he added an amount of ₹ 37,45,000/- to the total income. Relying on Accounting Standard 9, the Ld.AR of the assessee submitted that revenue to be recognised only when it becomes reasonably certain that the ultimate collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. The assessee had borrowed from third parties and had been paying interest thereon. The assessee claimed deduction in respect of the interest payment to the third parties. The assessing authority disallowed the deduction claimed by the assessee to the extent of interest-free advances standing in the name of N on the ground that the amounts borrowed were not utilised by the assessee for its own business. On second appeal, the Tribunal held that since no additions had been made in the earlier years, the opening balance could not be considered in the year in question and the enquiry had to be limited only to the increase in the year in question. On reference to the Hon ble Court it was held that in the instant case the status of the amount standing as outstanding due from N on the first day of the accounting year was the amount that stood outstanding on the last day of the previous accounting year; therefore, its nature and status could not be different on the first day of the current accounting year, from its nature and status as on the last day of the previous accounting year. Regarding the past years, the assessee s claims for deductions were allowed in respect of the sums adva ..... X X X X Extracts X X X X X X X X Extracts X X X X
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