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TMI Blog2021 (10) TMI 822X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance u/s 14A read with Rule 8D - Assessee argued as no satisfaction has been recorded by the AO before rejecting assessee s computation of suo-moto disallowance - HELD THAT:- The provisions of section 14A(2) of the Act mandates that having regard to the accounts of assessee, if the AO is not satisfied with correctness of the claim of the assessee in respect of expenditure incurred in relation to earning of exempt income, the AO shall determine the expenditure to be disallowed for earning exempt income in accordance with Rule 8D. Thus, the AO is under obligation to record his dissatisfaction before rejecting assessee s computation of suo-moto disallowance under section 14A. Such satisfaction has to be recorded in objective manner having regard to the accounts of the assessee. A perusal of the draft assessment order reveals that the AO has rejected the computation of assessee without even examining the computation furnished by the assessee. The AO in the draft assessment order has discussed general principles for making disallowance under section 14A read with Rule 8D and has also referred to a case laws. However, there is no observation/comments whatsoever by the AO on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance of expenses under section 14A read with Rule 8D; and (iii) Addition made in respect of difference in gross receipts as per Books of assessee and Form-26AS. The Revenue has assailed the assessment order on the solitary issue of interest charged by the assessee from its Associated Enterprises (AEs) on loans advanced in foreign currency. 2. Sh. Nitesh Joshi appearing on behalf of the assessee submitted that in ground no. 1 to 7 of the appeal, the assessee has assailed Transfer Pricing Adjustment (T.P. Adjustment) on account of guarantee commission. The assessee has given guarantee on behalf of its two Associated Enterprises (AE) i.e. Greatship Global Energy Services Pte. Ltd. and Greatship Globle Offshore Services Pte. Ltd., Singapore for facilitation of loan from overseas banks for working capital purpose. The assessee has not charged any guarantee commission from AEs, however, the assessee has made suo-moto adjustment of ₹ 4,77,00,897/- on the basis of guarantee commission paid by the assessee to ABN Amro Bank and Kotak Mahindra Bank. To bench mark the transaction the assessee applied internal CUP and determine Arms Length Price (ALP) of guarantee commission a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. Counsel for the assessee asserted that the assessee was able to reconcile substantial entries. The AO in remand report dated 9th September 2015 accepted that the assessee/appellant has reconciled difference of more than ₹ 86 lakhs out of ₹ 1.04 crores. Where the assessee has been able to reconcile substantial entries no addition on account of mismatch in Form 26AS is warranted. The ld. Counsel in support of his arguments placed reliance on the following decisions: 1. Schindler (I) Pvt. Ltd. v/s. ACIT, 116 taxmann.com 222 (Mum. Trib.). 2. Lintas (I) Pvt. Ltd. v/s. DCIT, 107 taxmann.som 426 (Mum. Trib.). 3. S. Ganesh v/s. ACIT in ITA No. 527/Mum/2010 for AY 2006-07, decided on 08.12.2010. 4. A.F. Ferguson Co. Vs. JCIT in ITA No. 5037/Mum/2012 for AY 2008-09 decided on 10.10.2014. 2.3 The ld. Counsel submitted that in ground no.11, the assessee has assailed charging of interest under section 234B. 2.4 The ld. Counsel for the assessee stated that, he is not pressing ground no.12 of appeal relating to charging of interest under section 234C of the Act, as the issue has been resolved in rectification proceedings under section 154 of the Act. 3. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermined by the TPO at 3.00% which has resulted in enhancement of assessee s income, and the same was restricted by the DRP at 1.50%. The issue before us is restricted to whether the arm s length rate of the Corporate Guarantee is to be taken at 0.55%, which has been suo-motto taken as transfer pricing adjustment by the assessee, or the rate of 1.50% determined by the income-tax authorities. Notably, the TPO has benchmarked the instant transaction of provision of Corporate Guarantee on the basis of respective abilities of the assessee and AE to raise Bonds in the Indian domestic market. The TPO asserted that based on the debt-equity ratio, the credit rating of the assessee company was higher in comparison to that of the AE and, therefore, the rate of interest payable by the AE to raise bonds in the Indian market would be higher than the rate payable by the assessee-company. Such differential has been used to determine the Corporate Guarantee fee that should have been charged by the assessee company from its AE so as to determine the arm s length price of the instant transaction. In our considered opinion, the aforesaid approach of the TPO is clearly inconsistent with the ratio laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se for the preceding years had approved the determining of ALP of corporate guarantee provided by the assessee to a foreign bank for facilitating raising of loan by its AE by applying of Internal CUP by the assessee i.e the guarantee commission paid by the assessee to a bank for guarantee stood by it on behalf of the assessee for a third party thus, we respectfully follow the view therein taken. Accordingly, we find no infirmity in the adoption of internal CUP i.e the average guarantee fees that was paid by the assessee to, viz. RBS (formerly known as ABN Amro Bank); Kotak Mahindra Bank and Yes Bank, for standing guarantee on its behalf of the assessee in case of third parties, viz. ONGC, BG Exploration etc. [emphasized by us] 5. Further, the co-ordinate bench while commenting on adequacy of ALP of the corporate guarantee fees determined by the assessee after examining various decisions rendered by the Tribunal and decision in the case of CIT v/s. Everest Kanto Cylinder Ltd. [378 ITR 57 (Bom.)] concluded, that corporate guarantee as determined by the assessee at 0.43% requires no interference. The relevant findings of the co-ordinate bench on the issue are as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 Aditya Birla Minacs Worldwide Ltd. Vs. JCIT (2016) 47 CCH 760 (Mum) .5% 5 Godrej Household Products Ltd. Vs. Addl. CIT 41 taxmann.com 386 (Mum) .5% 6 Nimbus Communications Limited Vs. Addl. CIT (2014) 149 ITD 0508 (Mumbai) .5% 7 Hindalco Industries Ltd. Vs. Addl. CIT (62 taxmann.com 181)(Mum) .5% 8 Manugraph India Ltd. Vs. DCIT (2015) 43 CCH 348 (Mum) .5% 9 Prolific Corporation Ltd. Vs. DCIT (55 taxmann.com)(Hyd) .5% 10 Glenmark Pharmaceuticals Ltd. Vs. Addl. CIT Addl. CIT Vs. Glenmark Pharmaceuticals Ltd. (43 taxmann.com 191)(Mum) .5% 11 Thomas Cook (India) Limited (2016) 47 CCH 0162 (Mum) .5% Accordingly, in terms of our aforesaid observations we find no reason to dislodge the ALP o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out even examining the computation furnished by the assessee. The AO in the draft assessment order has discussed general principles for making disallowance under section 14A read with Rule 8D and has also referred to a case laws. However, there is no observation/comments whatsoever by the AO on the computation made by the AO. Thus, the satisfaction recorded by the AO in rejecting assessee s computation is not in accordance with the mandate envisaged under section 14A(2) of the Act. We find merit in the contentions of the assessee and direct the AO to delete the additional disallowance of ₹ 4,23,051/-. Consequently, the assessee succeedes on ground no. 8 9 of the appeal. 7. In ground No. 10 of appeal, the assessee has assailed addition made on account of mismatch in books of the assessee and tax statement in Form-26AS. The contention of the assessee is that the assessee has furnished reconciliation statement, the same is at page no. 69 of the Paper Book. A perusal of the draft assessment order shows that the AO had proposed addition of ₹ 7,30,99,620/- on account of mismatch in Form 26AS. In proceedings before the DRP, the assessee furnished additional evidence. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the eyes of law. If the assessee denies that he is in receipt of income from a particular source, it is for the AO to prove that the assessee has received income as the assessee cannot prove the negative. Reliance can also be placed on the decision of Mumbai Bench of Tribunal in the case of Shri S. Ganesh vs. ACIT in ITA No.527/M/2010 decided on 08.12.10 wherein the Tribunal has held that in the absence of any material brought by the revenue authorities that the assessee has received amount more than the professional fees which has been declared by him in the P L account and when the professional income declared by the assessee far exceeds the professional fees shown in the AIR information, then additions solely based on the AIR information are not sustainable. 7. In view of our above observations and in the facts and circumstances of the case, the additions made by the Revenue solely based on the AIR information are not sustainable and the same are hereby ordered to be deleted. Ergo, in the facts of case and in light of above decision, we find no reason to sustain addition made in respect of mismatch in Form-26AS. Consequently, ground no.10 of the appeal is allow ..... 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