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TMI Blog2021 (4) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... effective grounds, namely, ground Nos.2, 3 and 4 relating to assessment year 2008-2009 are reproduced below:- "2. On facts of the case, whether the ld.CIT(A) is right in allowing the appeal of the assessee by deleting the disallowance made by the AO on professional fee amounting to Rs. 76,66,432/- u/s 40A(2) and alternatively u/s 37 of the I T Act holding that the TPO while determining the ALP has not disputed the genuineness of the payment and has accepted the ALP declared by the assessee. 3. On the facts of the case, whether the ld.CIT(A) was justified in deleting the above addition made without appreciating the fact that under sub-section (3) of Section 92C the TPO only computes the arm's length price in relation to an international transaction and is not empowered to examine the genuineness of the said payment. 4. On facts of the case, whether the ld.CIT(A) is right in deleting the disallowance made on premium on forward cover u/s 43(5) treating it as speculative loss which is capital in nature and allowing the appeal of the assessee." Ground Nos.2 and 3 (Professional fees) : 4. The assessee has made payment to its group / associate enterprises, namely, RNA Resources Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to how and why the aforesaid expense is not wholly and exclusively incurred for business purpose. (iv) The aforesaid expense is a capital expenditure of the assessee and therefore, to this extent, the section 40A(2) of the Act / section 37 of the Act itself cannot be made applicable. 4.3 Aggrieved by the order of the CIT(A), the Revenue has filed this appeal before the Tribunal. The learned Departmental Representative relied on two orders of the Bangalore Benches of the Tribunal in the case of (i) DRHL India Services (P.) Ltd. [2019] 102 taxmann.com 334 (Bang.Trib.), and (ii) Gemplus India (P.) Ltd. [2010] 3 taxmann.com 755 (Bang.Trib.), and contended that since evidence filed by the assessee did not substantiate the nature of services rendered by the holding company / associate enterprises, disallowance u/s 40A(2) / 37 of the I.T.Act is correct. 4.4 The learned AR, on the other hand, submitted a brief written submission essentially reiterating the submissions made before the Income Tax Authorities. The AR also filed a paper book comprising of judicial pronouncements, which were cited before the CIT(A). Apart from the judicial pronouncements cited before the CIT(A), the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "10.4 We have considered the rival submissions as well as the relevant material on record. This transaction of payment of administrative service fee has been declared by the assessee as international transaction and is also subjected to TP provisions of sec.92CA, however, the AO made an alternative addition by invoking the provisions of sec.40A(2) of the Act. The AO allowed only 2% of the turnover amounting to Rs. 1,02,62,530/- and the balance of Rs. 4,81,97,802/- has been disallowed under section 40A(2) of the Act. There is no dispute that the transaction has been reported by the assessee as international transaction which was also accepted by the AO and the TPO as an international transaction. Thus, once a particular transaction is admitted as international transaction then the same falls in the ambit of the provisions of X chapter of the Act which are specific provisions to deal with such transactions between the assessee and its AE. Therefore, once the transaction is undisputedly subject matter of Chapter X of the IT Act, then the other general provisions of the Act cannot be applied simultaneously. The AO, having considered the transaction being international transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame in his opinion is found to be excessive or unreasonable. It was also held that provisions of section 40A(2) are not automatic and can be called into play only if the AO establishes that expenditure incurred is in fact in excess of fair market value. In the case of CIT v. Modi Revlon (Pvt.) Ltd. (supra), the Hon'ble Delhi High Court has held that in order to determine whether the payment is not sustainable, the AO has to first return a finding that payment made is excessive, under section 40A(2) of the Act. If it is found to be so, that AO has to determine what constitutes the fair market value of the services rendered and disallow the difference between what is claimed and what is such value determined fair market value. In the case of the DCIT Vs. Institute of planning and Management Pvt. Ltd., (supra) it was held that if incurring of expenses had not been doubted, there should be some evidence on the basis of which action of the AO would be held to be justified to show that expenses are unreasonable or excessive. In the case of DCIT Vs. Microtex Separators Ltd., (supra) the jurisdictional High Court has held that so long as there is no intention to evade tax and so long as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. (iv) Sharing of knowledge on global trends, advices on sourcing of the products from global markets, advising on way to increase footfalls and other similar services. 4.5.5 RNA has rich experience in setting up, running of stores and other related matters. It is providing such inputs to the other group concerns world over. The A.O. has nowhere doubted the genuineness of the agreement, the retention of services as well as the fact of actual payment of professional fees. The A.O. has disallowed the payment merely because he considered that there was no necessity of incurring such expenses by stating that the assessee had full-fledged management team and well-equipped resources. The A.O. cannot take a place of the management of the company and decide from its own point of view, whether an expense has to be incurred or not. Merely because there is expert management and team and resources, it cannot be contended that the expenditure was not at all required. The Hon'ble Delhi High Court in the case of CIT v. Dalmia Cement (P.) Ltd. reported in [2002] 254 ITR 377 (Delhi) had held that "the jurisdiction of the revenue is confined to deciding reality of the expenditure, namely, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee during the relevant assessment years, had incurred expenses on premium on forward cover amounting to Rs. 71,56,668 and Rs. 73,88,783 for A.Y's 2008-2009 and 2010-2011, respectively. 5.1 The Assessing Officer for A.Y's 2008-2009 and 2010-2011 disallowed the same u/s 43(5) r.w.s. 73 of the I.T.Act by stating that - (i) it is in the nature of speculation transaction u/s 43(5) of the I.T.Act considering that the settlement is happening on the currencies and not on the goods in which the assessee is trading, and (ii) the transaction does not fall within any of the exclusive provisos u/s 43(5) of the I.T.Act. 5.2 Aggrieved by the orders of the Assessing Officer for A.Y's 2008-2009 and 2010-2011, the assessee preferred appeals to the first appellate authority. The CIT(A) deleted the disallowance made by the Assessing Officer. The relevant finding of the CIT(A) for Asst.Year 2008-2009, reads as follow:- "8.3. The observations / findings of the AO and submissions of the Appellant have been carefully perused. The judicial position on the issue at hand has been analysed. The primary argument of the AO is that, the since the final settlement of the forward contracts, happened on currenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 71,56,668 /- on account of premium on forward-cover, cannot be upheld. The disallowance is accordingly directed to be deleted." 5.3 Revenue being aggrieved, has raised this appeal before the Tribunal. The learned DR relied on the grounds and the order of the Assessing Officer. 5.4 The learned AR reiterated the submission made before the Income Tax Authorities and relied on the findings of the CIT(A). 5.5 We have heard rival submissions and perused the material on record. The forward contracts were entered into mainly to hedge the import payments and working capital loans repayment which is in the ordinary course of trade or business of the assessee. The hedging contracts are in the nature of foreign exchange contract to purchase foreign exchange on a specified future date at a predetermined date. The bankers levied premium for entering into such forward contract. These are in the nature of actual charges levied by the bankers. It is nothing but bank charges which is purely revenue in nature. The said expenditure is incurred to secure the assessee's business from foreign exchange fluctuation risk. In case the assessee would not have taken the forward contract to cover itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... economic good, especially a raw material or an agricultural product. 5.9 The other definitions include: (i) Articles of commerce (ii) Anything movable which is bought and sold (iii) A raw material that can be sold (iv) An article of trade or commerce, especially an agricultural or mining product that can be processed and resold (v) Reasonably homogenous good or material bought and sold freely as an article of commerce. Commodities include agricultural products, fuels, metals, etc., and are traded in bulk on a commodity exchange or on spot market. 5.10 The Delhi Bench of ITAT in the case of Munjal Showa Ltd. v. DCIT, has held as under: "Foreign currency or any currency is neither commodity nor shares. The Sale of Goods Act specifically excludes cash from the definition of goods. Besides, no person other than authorised dealers and money changers are allowed in India to trade in foreign currency, much less speculate. S. 8 of the Foreign Exchange Regulations Act, 1973, provides that except with prior general or special permission of the RBI, no person other than an authorised dealer shall purchase, acquire, borrow or sell foreign currency. In fact, prior to the LERMS, residents ..... X X X X Extracts X X X X X X X X Extracts X X X X
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