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TMI Blog2021 (2) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... ) has erred in setting aside the issue regarding disallowance u/s. 14A read with Rule ("r.w.r") 8D(2)(ii) regarding the disallowance of interest to the file of the Assessing Officer to examine the issue a fresh. The order passed by the Ld. Commissioner of Income-tax (Appeals) is bad in law. 2. On the facts and in the circumstances of the case and in law, the Appellant prays that disallowance u/s.14A r.w.r 8D(2)(ii) regarding the disallowance of interest amounting to INR 9,52,55,812 be deleted. 3. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in setting aside the issue regarding disallowance u/s. 14A r.w.r 8D(2)(iii) regarding the disallowance of administrative expenses to the file of the Assessing Officer to examine the issue a fresh. The order passed by the Ld. Commissioner of Income-tax (Appeals) is bad in law. 4. On the facts and in the circumstances of the case and in law, the Appellant prays that disallowance u/s. 14A r.w.r 8D(2)(iii) regarding the disallowance of administrative expenses amounting to INR 2,68,77,514 be deleted and the said disallowance be restricted to INR 88,26,166. Disallowance und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-Tax [CIT(A)] has erred in not considering corporate guarantee charges recovered from its AE (Elsamex SA) amounting to Rs. 3,63,17,590 while making transfer pricing addition of Rs. 2,26,04,671 especially when charges recovered from the AE on account of stand by letter of credit (SBLC) were considered by the TPO when computing disallowances for SBLC given by ILFS Limited. 13. Without prejudice to the above ground, the appellant contends that the excess fees collected from its AE on account of SBLC amounting to Euro 42,951 (equivalent to INR 26,01,051) and on account of Letter of Comfort amounting to Euro 44,716 (equivalent to INR 27,08,026) be adjusted against the alleged addition made of INR 2,26,04,671, thereby restricting the transfer pricing adjustment to INR 1, 72,95,592. 14. The CIT(A) has erred in arriving at the Guarantee Fees charges 3.046% for corporate guarantee provided in foreign currency to its overseas AE (Elsamex SA) when the transfer pricing addition on interest on foreign currency loan to another AE (situated in Singapore) was deleted by the CIT(A) on the premise that the F/MMDA rates cannot be applied to foreign currency loan, hence, a similar position should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciating that the CBDT circular does not differentiate between investment which have yielded dividend income during the year and investment which may yield divided income. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the Disallowance of club expenses of Rs. 4,79,225/ - without appreciating the case laws relied upon by the AO, wherein it has been held that expenditure on account of payment of club expenses of the assessee company's executives is not an allowable business expenditure. 5. The appellant prays that the order of CIT(A) on the above ground be reversed and that of the assessing be restored. 6. The appellant craves leave to amend or alter any grounds which may be necessary." On a perusal of the aforesaid additional grounds of appeal, we find that the assessee had sought an adjudication of the respective issues therein involved, based on the facts available on record. As no new facts would be required to be looked into for the purpose of adjudicating the aforesaid issues, therefore, we admit the same in light of the judgment of the Hon'ble Supreme Court in National Thermal Power Company Ltd. Vs. CIT (1998) 229 ITR 383 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee in its return of income was comprised of, as under : Sr. No. Particulars Amount 1. U/rule 8D(2)(i) Nil 2. U/rule 8D(2)(ii) Rs. 9,52,55,812/- 3. U/rule 8D(2)(iii) Rs. 2,68,77,514/- Total Rs. 12,21,33,326/- It was observed by the CIT(A) that as against the aforesaid suo motto disallowance of Rs. 12,21,33,326/- offered by the assessee in its return of income, it had in the course of the assessment proceedings sought scaling of the same to an amount Rs. 88,26,166/- under Rule 8D(2)(iii). It was noticed by the CIT(A) that the A.O had declined to consider the aforesaid revised claim of the assessee, for the reason, that as it was not raised on the basis of any revised return of income, the same, thus, in light of the judgment of the Hon‟ble Supreme Court in the case of Goetz (India) Ltd. Vs. CIT (2006) 204 CTR 182 (SC) could not be admitted. However, the CIT(A) drawing support from the judgment of the Hon‟ble High Court of Bombay in CIT Vs. Pruthvi Brokers and Shareholders (2012) 23 taxman.com 23 (Bom) held a conviction that the assessee‟s claim for reduction of disallowance under Sec. 14A did merit consideration by the A.O. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed by the CIT(A) that the TPO in his order had narrated the basis for computing the arm‟s length price. Observing, that the reasoning given by the TPO was more logical and credible as in comparison to a simpliciter reliance placed by the assessee on a letter received from "Credit Analysis And Research Ltd" (for short "CARE"), the CIT(A) finding no infirmity in the transfer pricing adjustment made by the A.O/TPO, thus, confirmed the same. Accordingly, on the basis of his aforesaid observations the CIT(A) partly allowed the appeal of the assessee. 5. Aggrieved, both the assessee and the revenue have assailed the order of the CIT(A) in appeal before us. Adverting to the grievances of the assessee, we find that it had inter alia assailed the order of the CIT(A), on the ground, that the appellate authority instead of accepting its claim for reduction of the disallowance u/s 14A r.w Rule 8D to an amount of Rs. 88,26,166/- as against that offered by it in its return of income at Rs. 12,21,33,326/-, had erred in restoring the issue to the file of the A.O for reconsideration. In order to buttress its aforesaid claim, it was submitted by the ld. A.R that the Tribunal had in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges reimbursed by the AE, viz. Elsamex SA to the assessee company, the matter may be restored to the file of the CIT(A) for fresh adjudication after carrying out necessary verification. 7. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. We shall first deal with the observation of the CIT(A), wherein, he had directed the A.O to consider the assessee‟s claim for reduction of the disallowance u/s 14A r.w Rule 8D to an amount of Rs. 88,26,166/-, as against that suo motto offered by it in its return of income at Rs. 12,21,33,326/-. As noticed by us hereinabove, the A.O was of the view that in light of the judgment of the Hon‟ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT (2006) 204 CTR 182 (SC), in the absence of a revised return of income, the seeking of reduction of the disallowance that was suo motto offered by the assessee in its return of income was not tenable. In fact, the A.O was of the view that in case the assessee wanted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l; AND (b). that the disallowance of administrative expenditure offered by the assessee in its return of income U/rule 8D(2)(iii) of Rs. 2,68,77,514/- be restricted to Rs. 88,26,166/-. As observed by the CIT(A), the assessee had sought for reduction of the disallowance u/s 14A on the basis of exhaustive reasons. On a perusal of the assessment order, we find that the assessee vide its letter dated 13.03.2014 filed with the A.O had given multiple reasons for reduction of the aforesaid disallowance u/s 14A, viz. (i) that as per the terms of NHAI the assessee on being awarded a project was compelled to incorporate a separate "Special Purpose Vehicle" (SPV) for executing the project and being a promoter had to invest as equity holder as per the terms of the concessionaire agreement; (ii) that the investments made by the assessee company to the extent of its net worth were out of its own funds, internal accruals or opening balances of internal accruals; (iii). that the borrowings were not utilised for equity investments of domestic companies; (iv). that the capital gains from the equity investments were taxable etc. In our considered view, the exhaustive contentions that were raised by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the assessee before them u/s 14A r.w Rule 8D vide his order passed u/s 143(3), dated 22.12.2010. Be that as it may, the principle laid down by the Hon‟ble High Court in its aforesaid judgments was that in a case where the assessee‟s capital, profit reserves, surplus and current account deposits were higher than the investment in tax-free securities, it was to be presumed that investment made by the assessee was out of the interest-free funds available with it and no disallowance was warranted u/s 14A. In our considered view, the CIT(A) had rightly directed the A.O to consider the aforesaid judicial pronouncements in the course of the "set aside‟ proceedings. As regards the claim of the revenue that the CIT(A) was in error in directing the A.O to consider only those investments made in non-subsidiary company which had yielded dividend income for the purpose of disallowance under Sec. 14A r.w. Rule 8D(2)(iii), as the same was contrary to the CBDT Circular No. 5 of 2014, dated 11.02.2014, we are unable to persuade ourselves to accept the same. Similar reliance placed by the revenue on the aforesaid CBDT Circular No. 5 of 2014, dated 11.02.2014 was rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er authorities that the guarantee fees charged to the AE @ 1% was justified, it was submitted by the assessee that it had also recovered from its AE viz. Elsamex SA, the guarantee charges (ranging between 1.25% to 2.60% depending upon the nature of guarantee/letter of comfort/SBLC) of the banks that had issued the guarantee/SBLC in favour of the AE. Accordingly, it was the claim of the assessee before the lower authorities that the total guarantee charges levied on the AE, viz. Elsamex SA ranged between 2.25% to 3.60%. As is discernible from the order passed by the TPO under Sec. 92CA(3), dated 29.01.2014, we find that the assessee for the purpose of benchmarking the aforesaid international transaction of providing guarantee/counter guarantee to the various banks and the other corporate bodies for and on behalf of its AE, had used external CUP to arrive at the arm‟s length price of the guarantee charges. It was stated by the assessee before the TPO that its credit rating as per the letter received from "Credit Analysis & Research Ltd." (for short "CARE‟) was a "BBB +", while for the credit rating of its AE, viz. Elsamex SA was "BB". In the course of the proceedings the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transportation Networks Limited 5,90,022 3,04,428 2,85,594 2,26,04,671 4. Stand By Letter of Credit Given by IL & FS Limited 81,205 63,787 17,418 60.56 10,54,831 Total Bank Guarantee Fee 6,71,227 3,68,214 3,03,012 2,36,59,502 11. In the backdrop of the aforesaid facts, the solitary contention which had been raised by the ld. A.R before us is that the TPO/CIT(A) had erred in failing to appreciate that over and above the corporate guarantee charges of 1%, the assessee had also recovered bank guarantee charges from its AE of Rs. 5.67 crores (approx.), which are in the range of 1% to 2.6%. In order to fortify his aforesaid claim the ld. A.R had taken us through Page 180 of the "APB‟, wherein the details as regards the reimbursement of bank guarantee charges of Rs. 5,67,28,794/- by the AE viz. Elsamex SA to the assessee are provided, which reads as under: Reimbursement for Bank Guarantee Charges Date Amount Details of Payment 16/06/2009 Rs. 8,85,827/- Paid to IL&FS for Counter Guarantee given to the bank on behalf of Elsamex SA. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D.R fairly submitted that the matter may be restored to the file of the TPO for considering the aforesaid claim of the assessee. In the backdrop of the aforesaid facts, we are of the considered view that as the aforesaid claim was not raised by the assessee before the lower authorities, therefore, in all fairness the matter requires to be restored to the file of the TPO for fresh adjudication after considering the same. Accordingly, we "set aside‟ the issue to the file of the TPO, with a direction to consider the aforesaid claim of the assessee in the course of the "set aside‟ proceedings. Needless to say, the assessee shall be afforded a reasonable opportunity of being heard in the course of the "set aside‟ proceedings. The Grounds of appeal Nos. 5 to 8 AND additional grounds of appeal no(s). 12 to 17 are allowed for statistical purposes in terms of our aforesaid observations. 13. We shall now advert to the claim of the revenue that the CIT(A) had erred in deleting the disallowance of club expenses of Rs. 4,79,225/- made by the A.O, without appreciating that the said expenditure was not allowable as a business expenditure. On a perusal of the assessment order, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur aforesaid observations, we are of the considered view that the CIT(A) had rightly allowed the assessee‟s claim for deduction of the club membership fees of Rs. 4,79,225/- as a revenue expenditure. Also, we concur with the observation of the CIT(A) that the rejection of the assessee‟s claim for deduction of club membership expenses by the A.O, de hors any verification on his part that as to whether or not the said expenditure was incurred by the assessee wholly and exclusively in the course of its business, also, cannot be sustained. The Ground of appeal No. 4 raised by the revenue is dismissed. 16. The Grounds of appeal Nos. 9 and 10 raised by the assessee AND Grounds of appeal Nos. 5 & 6 raised by the revenue being general in nature are dismissed as not pressed. 17. The appeal of the assessee and that of the revenue are partly allowed for statistical purposes. A.Y. 2011-12 ITA No. 2816/Mum/2016 - (Assessee's appeal) ITA No. 3146/Mum/2018 - (Revenue's appeal) 18. We shall now take up the cross-appeals for A.Y. 2011-12. The assessee had raised before us the following grounds of appeal: "1. On the facts and in the circumstances of the case and in law, the Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the arm's length corporate guarantee rate at 2.58% in respect of the guarantee / counter guarantee given/arrange by the Appellant, based on the average corporate guarantee fee rate charged by the commercial banks as against the corporate guarantee issued by the Indian Holding Company to its AE, subsidiary company. The Appellant submits that the said approach is arbitrary, ad-hoc & not justified. 8. On the facts and in the circumstances of the case and in law, the Appellant prays that no addition by way of adjustment in respect of the international transaction is warranted and that the addition made by the Ld. Assessing Officer amounting to INR 3,89,69,865 is not justified and be deleted. 9. On a without prejudice basis, the Appellant submit that guarantee fee charged by the banks from the Appellant has also been recovered from the Associated Enterprises. The Appellant has recovered these charges from the Associated Enterprise over and above the guarantee fee and same should be reduced from the Guarantee fees computed by the Ld. Assessing Officer. General 10. Each one of the above grounds of appeal is without prejudice to the other. 11. The Appellant reserves the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in directing the AO/TPO to conduct fresh benchmarking for determination of arm's length price of fee for corporate guarantee, letter of comfort, standby letter of credit provided to banks on behalf of AE, Elsamex SA, ignoring the fact that for similar guarantees provided by the assessee on behalf of its AE, Elsamex S.A. in A.Y. 2012-13, the CIT(A) has upheld methodology used by the TPO to benchmark Corporate Guarantee fee using bank guarantee rates with discount and restricted fee 1.80% instead of 2% proposed by the TPO. 6. On the facts and circumstance of the case and in law, the Ld. CIT(A) erred in directing the AO/TPO to conduct fresh benchmarking for determination of arm‟s length price of fee for corporate guarantee, letter of comfort, standby letter of credit provided to banks on behalf of AE, Elsamex SA, ignoring the fact that for similar guarantees provided by the assessee on behalf of its AE, Elsamex SA in A.Y. 2010-11, the CIT(A) has upheld action of TPO of charging of fee @ 3.046%. 7. The appellant prays that the order of CIT(a) on the above ground be reversed and that of the assessing be restored. 8. The appellant craves leave to amend or alter any ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on can be made between guarantee issued by commercial banks as against the corporate guarantee issued by a holding company for the benefit of its AE, as subsidiary company, thus, observed that the comparison made by the TPO was in conflict with the aforesaid orders of the jurisdictional High Court. In the backdrop of the aforesaid facts, the CIT(A) restored the matter to the file of the AO/TPO, with a direction to conduct fresh benchmarking keeping in view the aforesaid judicial pronouncements. 22. Aggrieved, both the parties have assailed the order of the CIT(A) in appeal before us. Insofar the grievance of the assessee and the revenue pertaining to the observations of the CIT(A) as regards the assessee‟s claim for reducing the disallowance under Sec. 14A r.w. Rule 8D, we find that the facts and the issue therein involved remains the same as were there before us in the cross-appeals for the immediately preceding year i.e A.Y. 2010-11. Accordingly, our aforesaid observations and reasoning given while disposing off the respective grounds pertaining to the aforesaid issue in the cross-appeals for A.Y. 2010-11 shall apply mutatis mutandis for disposal of the said issue in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that as observed by him, instead of quashing the addition on a mere technical ground i.e a wrong basis of comparison adopted by the TPO, the CIT(A) had in all fairness restored the issue to the file of the A.P/TPO, with a limited direction and a defined line of action for carrying out a fresh benchmarking and determining the arm‟s length price of the aforesaid international transaction. In light of the aforesaid limited purpose for which the matter had been restored with specific directions to the file of the AO/TPO, we are unable to persuade ourselves to agree with the department that the CIT(A) by so doing had exceeded the jurisdiction vested with him under Sec. 251(1)(a) of the Act. Accordingly, in terms of our aforesaid observations the Grounds of appeal Nos. 5 to 9 raised by the assessee AND Grounds of appeal Nos. 4 to 6 raised by the revenue are dismissed. 24. The Grounds of appeal Nos. 10 & 11 raised by the assessee and the Grounds of appeal Nos. 7 and 8 raised by the revenue being general in nature are dismissed. 25. The appeal of the assessee is dismissed and that of the revenue is partly allowed in terms of our aforesaid observations. 26. Resultantly, the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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