9911796707
TMI Blog2019 (2) TMI 2018X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding disallowance (of Rs. 2.76 crore directed to be reduced to Rs. 2.18 crore after verification) on account of Administrative Expenditure made by the learned Assessing Officer u/s. 14A read with Rule 8D(2)(iii) @ one-half per cent, of the average value of investments, income from which did not form part of the appellant's total income, in the following terms (emphasis supplied): "3.3 I have considered the facts of the case; assessment order and appellant's written submission. Assessing Officer disallowed expenses relating to earning of exempt income under section 14A read with rule 8D since appellant did not disallow any such expense in the return of income filed. Since appellant did not disallow any expense, sub section 3 of section 14A is applicable and as per that the computation of disallowance has to be made as per rule 8D. From assessment year 2008-09, rule 8D is mandatory as held by Bombay High Court in the case of Godrej and Boyce and therefore assessing officer is justified in applying rule 8D while computing disallowance under section 14A. In view of this the decisions r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anner envisaged by subsection (2) of Section 14A but after assuming that there was always some kind of indirect expenditure in relation to income not forming part of total income (emphasis supplied): "4.12 regarding the administrative expenditure 0.5% of average investments is worked out as per rule 8D(iii). Assessee argued that once the expenditure of the treasury department is disallowed, administrative expenditure as per Rule 8D cannot be disallowed. In this regard it is to be noted that there 3 items under which the disallowance under Rul3 8D has to be worked out and the 50% of treasury expenditure is disallowed under clause (i). Apart from the direct expenditure, there is always some kind of indirect expenditure in the form of unquantifiable services of Finance department personnel and the managerial personnel and Directors of the company in decision making and time and energy spent there on. Therefore the formula needs to be applied under all clauses to work out the expenditure disallowable u/s. 14Ar. w. rule 8D ---" (e) that thus, the very assumption of jurisdiction by the learned Assessing Officer under Rule 8D was without legal basis. (f) that in the peculiar facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench in the case of Vireet Investments (supra). To this extent, we uphold the plea of the assessee and modify the orders of the authorities below by directing the Assessing Officer to compute the 0.5% of the investments yielding tax exempt income during the relevant previous year. 5. Ground no. 1 is thus partly allowed in the terms indicated above. 6. In ground no. 2, the assessee has raised the following grievance: 2. In law and in the facts and circumstances of the appellant's case, the teamed CIT(A) has grossly erred [even as he had directed the learned Assessing Officer to allow the appellant's claim for deduction of bad debts after verifying that the debts in question had been taken into account in the computation of the appellant's income in earlier year/s as required by Section 36(2)] in rejecting the appellant's alternative claim made on the ground that in any case, the debit balances aggregating to Rs. 1,64,13,841 written off to the appellant's Profit and Loss Account had arisen in the course of the appellant's business and whose loss, therefore, represented business loss deductible u/s. 28 of the Income-tax Act, 1961. 7. In a connected ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r transaction is not concluded. Assessing Officer derived the strength from CBDT instruction No.3/2010 in which IT authorities have been asked to treat such marked to market losses as notional and to make addition of such losses. I have gone through the said instruction and it is clear that such notional loss is not allowable. The relevant extract of the instruction is quoted below: ............. Since the assessing officer has made the disallowance on the basis of aforesaid BINDING instruction, I DO NOT SEE ANY INFIRMITY IN THE ORDER. The judicial decisions relied upon by the appellant are prior to the issue of this Instruction. Since this instruction clarifies the treatment to be given to such notional losses uniformly, the same is within the powers conferred upon CBDT under IT Act. No contingent liabilities are allowable under income tax act, though the same may be allowable in accounting standards. Marked to market losses are nothing but contingent liabilities which are to be disallowed. ................" 3.2 The learned CIT(A) ought to have appreciated, inter alia,: (a) that the appellant's accounting for the impugned loss was not only in conformity with its cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer making the impugned disallowance in conformity with the aforesaid Instruction but further, in not deciding the appellant's ground using his own discretion in the matter of considering the appellant's elaborate submissions including the decisions of the Supreme Court and other authorities relied upon by the appellant; (g) that his attempt at dismissing the authorities including the decisions of the Supreme Court on which the appellant had relied before him, by suggesting that they had been rendered before the issue of the aforesaid CBDT Instruction, was indeed curious and belied the approach which a semi-judicial authority such as the CIT(A) is enjoined upon to adopt under the Income-tax Act, 1961; (h) that it was also not open to him to dismiss the appellant's contention that the CBDT Instruction on the basis of which the learned Assessing Officer had made the impugned disallowance had been issued long after the previous year corresponding to the present assessment year had ended and, therefore, the learned Assessing Officer's applying the same to the appellant's present case amounted to giving it a retrospective effect which was impermissible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility not allowable. 17. The CIT(A) accepts assessee's arguments as follows :- '7.1. During the course of assessment proceedings, vide order sheet entry dated 01.11.2011, the assessee was required to give the full details of the provision entry of Rs. 34,35,000/- on account of forward contract payable. The assessee vide its submission dated 16.12.2011 submitted that the account shown as payable as per MTM certificate for A.Y. 2008-09 was reversed in the A.Y. 200910. Assessing officer observed that this liability which is worked out as on 31.03.2008 has not crystallised as on that date. According to A.O the same represents unascertained liability & is therefore, not allowable as expenditure under the I. T Act. On the basis of these observations, provision of forward contract payable of Rs. 34,35,000/- has been disallowed and added to the total income of assessee. Submissions of the Appellant 7.2. During the course of appellate proceedings, the learned AR made various submissions; the relevant portion of the same is reproduced hereunder: "In the course of appellate proceedings, it is submitted that assessing officer has erred in making addition of Rs. 34,35,000/- to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The addition made by assessing officer has thus, resulted into double taxation as after set off of provision entry of Rs. 34,35,000/- made at the end of current year, only the balance amount is claimed as deduction in subsequent year." Decision: 7.3. I have considered the reasons given by assessing officer & also the submissions of appellant. The assessee has made provision in respect of forward contract entered into by it on the basis of difference in exchange rate prevailing as on the date on which forward contract has been booked and the exchange rate prevailing at the end of the year i.e. on 31.03.2008 as per MTM certificate issued by ABN Amro Bank. It is not in dispute that assessee is following mercantile method of accounting and as per this method, all the expenses/gains which pertains/arises during the year under consideration is required to be considered in the Profit and Loss account for that year itself. The provision entry has been made because the exchange as on 31st day of March has gone up as compared to the exchange rate of forward contract prevailing as on the date of transaction. In my view, the entry passed in the books of account in respect of the differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is one of the most fundamental principles of accounting that while all anticipated losses are taken into account in computing the profits and losses of business, even though such losses may not have crystallized, as long as these losses can be reasonably quantified. This approach can be contrasted with the anticipated profits being ignored, in the computation of profits and losses of an enterprise, unless the profits are actually realized. To that extent, there is a dichotomy in accounting approach but then this is what is the sound accounting policy and it has the sanction of law. As a matter of fact, it is this principle, as recognized by Hon'ble Supreme Court in the case of Chainrup Sampatram v. CIT [1953] 24 ITR 481, which explains the valuation of closing stock on market price or cost price whichever is less. There is thus, in principle, no difficulty is seeking a deduction in respect of a reasonably anticipated loss, even though it may not have actually fructified, in computation of profits and gains of business. To this extent, the Assessing Officer was clearly in error in treating the loss on foreign exchange as a notional loss not deductible in computation of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by business during the year can only materialize when a comparison of the assets of the business at two different dates is taken into account. Sec. 145(1) enacts that for the purpose of s. 28 and s. 56 alone, income, profits and gains must be computed in accordance with the method of accounting regularly employed by the assessee. In this case, we are concerned with s. 28. Therefore, s. 145(1) is attracted to the facts of the present case. Under the mercantile system of accounting, what is due is brought into credit before it is actually received; it brings into debit an expenditure for which a legal liability has been incurred before it is actually disbursed. (See judgment of this Court in the case of United Commercial Bank v. CIT (1999) 156 CTR (SC) 380 : (1999) 240 ITR 355 (SC). Therefore, the accounting method followed by an assessee continuously for a given period of time needs to be presumed to be correct till the AO comes to the conclusion for reasons to be given that the system does not reflect true and correct profits. As stated, there is no finding given by the AO on the correctness of the Accounting Standard followed by the assessee(s) in this batch of civil appeals. 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue items. Para 9 of AS-11 recognises exchange differences as income or expense. In cases where, e.g., the rate of dollar rises visa-vis the Indian rupee, there is an expense during that period. The important point to be noted is that AS-11 stipulates effect of changes in exchange rate vis-avis monetary items denominated in a foreign currency to be taken into account for giving accounting treatment on the balance sheet date. Therefore, an enterprise has to report the outstanding liability relating to import of raw materials using closing rate of exchange. Any difference, loss or gain, arising on conversion of the said liability at the closing rate, should be recognized in the P&L account for the reporting period. 10. As stated above, on facts in the case of M/s. Woodward Governor India (P) Ltd., the Department has disallowed the deduction/debit to the P&L a/c made by the assessee in the sum of Rs. 29,49,088 being unrealized loss due to foreign exchange fluctuation. At the very outset, it may be stated that there is no dispute that in the previous years whenever the dollar rate stood reduced, the Department had taxed the gains which accrued to the assessee on the basis of acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) or accounting standards as notified under sub-s. (2), have not been regularly followed by the assessee, the AO may make an assessment in the manner provided in s. 144." 13. As stated above, one of the main arguments advanced by the learned Addl. Solicitor General on behalf of the Department before us was that the word "expenditure" in s. 37(1) connotes "what is paid out" and that which has gone irretrievably. In this connection, heavy reliance was placed on the judgment of this Court in the case of Indian Molasses Company (supra). Relying on the said judgment, it was sought to be argued that the increase in liability at any point of time prior to the date of payment cannot be said to have gone irretrievably as it can always come back. According to the learned counsel, in the case of increase in liability due to foreign exchange fluctuations, if there is a revaluation of the rupee vis-a-vis foreign exchange at or prior to the point of payment, then there would be no question of money having gone irretrievably and consequently, the requirement of "expenditure" is not met. Consequently, the additional liability arising on account of fluctuation in the rate of foreign exchange wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee. 9. We have also noted that, as per the details filed by the assessee, the foreign exchange contracts have been entered into for genuinely restricting its bonafide risk exposure of the assessee in respect of its exports and imports transactions. These contracts cannot, therefore, be viewed on a standalone basis as speculative transactions. These transactions are integral part of the business transactions and any loss or gains arising from these transactions, for the detailed reasons set out above, are deductible in computation of profits and gains of business. 10. In view of the above discussions, we uphold the action of the CIT (A) so far as this relief in respect of deleting the disallowance of Rs. 22,15,55,371 on account of loss, at the end of the year, on foreign exchange contracts. We confirm the same and decline to interfere in the matter. 15. In view of these binding judicial precedents, with which we are in considered agreement, we uphold the plea of the assessee and direct the Assessing Officer to delete the impugned disallowance of Rs. 73,00,000. The assessee gets the relief accordingly. 16. Ground no 3 is thus allowed. 17. In the result, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk limited, Singapore and RBI's letter refusing the permission for pledge of shares is in respect of same shares which were provided for guarantee to ICICI bank Limited, Singapore. Thus, it is clear that entire addition is based on the misconception that these two entities represented separate transactions. In view of this it is clear that appellant did not provide guarantee services by pledging shares of MPSEZ for which any adjustment of guarantee commission can be made. The addition made by the assessing officer is therefore not sustainable on facts. Apart from this, appellant also relied upon the decision of ITAT Hyderabad in which it is held that for providing corporate guarantee in obtaining loans by AE, no adjustment can be made. ITAT in the case of Four Soft Ltd. vs. DCIT, Circle - 1(3), Hyderabad (ITA No. 1495/Hyd/10) dated 09-09-2011 held as under: "21. We have considered the rival submissions and perused the materials available on record. We find that the TP legislation provides for computation of income from international transaction as per Section 92B of the Act. The corporate guarantee provided by the assessee company does not fall within the definition of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts are like this. The amount which has been deleted, out of disallowance under section 14A, is Rs. 1,22,15,784 bring 50% of the administrative expenses of treasury division. The Assessing Officer had disallowed these expenses by observing that "as understood from the explanations given by the assessee during the assessment proceedings, the treasury department manages the investment functions and also the foreign currency operations like entering into forward contracts, currency swap contracts and cancellation and realization of such receipts" and, for the reason of this understanding, the AO was of the view that "it can be said that part of expenditure of treasury department is the direct expenditure incurred for earning the tax free income under rule 8D(i)" and "therefore, 50% of the expenditure incurred for the year on treasury department being Rs. 1,22,15,784 (50% of Rs. 2,44,31,5568) is treated as direct expenses disallowable under clause (i) of rule 8D". In appeal, learned CIT(A) noted that what can be disallowed under rule 8D(i) is only direct expenses incurred in earning the exempt income and when indirect and administrative expense are disallowed under section 8D(i) as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res). That explanation did not find favour with the Assessing Officer, as, according to him, the balance in these accounts was positive and it was not a case of making payment for purchases. It was also noted that these payments were also forwarded by Paras Trade Links Limited to Brakel Kinnaur Power Ltd which, in turn, paid the money to the Government of Himachal Pradesh as fees for Hydel Power Project. It was on the basis of this analysis that the Assessing Officer came to the conclusion that the monies borrowed from UCO Bank were diverted to Brakel Kinnaur Power Limited with which the assessee had no business connection, and as such the monies were put to non business use. The proportionate interest paid to UCO Bank, which worked out to Rs. 24,26,571, was therefore disallowed. Aggrieved, assessee carried the matter in appeal before the CIT(A) who deleted the disallowance and noted that the assessee had substantial business connection with Aditya Corpex as also Gagan Realty and the payments were in the nature of advance payments for purchases. It was also noted that the assessee had interest free funds to the tune of Rs. 3,616.70 cores, including share capital of Rs. 24.65 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respectfully following the same, we confirm the relief granted by the CIT(A) and decline to interfere in the matter. 35. Ground no. 4 is thus dismissed. 36. Ground no. 5 is already dealt with, in the course of dealing with the appeal filed by the assessee earlier in this order, and we need not repeat our findings thereon. Suffice to say, for the reasons set out earlier, this ground is also dismissed. 37. In ground no. 6, the Assessing Officer has raised the following grievance: 6. That the Id. CIT(A) has erred in law and on facts in deleting the disallowance of deduction u/s 80IA to the extent of Rs. 1,23,18,585/- despite the fact that the said receipts represents miscellaneous income which was not derived from the undertaking itself." 38. So far as this grievance of the Assessing Officer is concerned, the Assessing Officer was of the view that Rs. 1,23,18,585 received by the assessee as miscellaneous receipts on account of weighment charges of the trucks was "a step removed from the port operations" and not eligible for deduction under section 80IA. The plea of the assessee that these charges represent weighment charges and token fees from the trucks entering the port area a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 152.85 crores to the lenders providing borrowings to the said subsidiaries. (B) On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) erred in confirming the above mentioned upward adjustment of Rs. 4,51,82,460 to the extent of Rs. 3,05,70,000 by adopting an arbitrary rate of 2% of the total guarantee amount as against the rate of 2.956% adopted by the Transfer Pricing Officer. (C) Without prejudice to the above, on the facts and in the circumstances of the case, the learned C.IT. (Appeals) erred in adopting excessive and unreasonable rate of guarantee commission at 2%, completely ignoring the comparable case of Everest Kanto Cylinder cited before him by the appellant-company wherein the Hon'ble Mumbai ITAT had considered a rate of 0.5% as reasonable. (D) On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) further erred in rejecting the factual claim made by the appellantcompany and supported by documentary evidence, that it had obtained guarantee from State Bank of India, in connection with appellant-company's operating contract with Karnataka Power Corporation at a guarantee fee of 0.25%, and therefore, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been handed over to the assessee alongwith the show cause letter in a CD. A currency risk of 25 basis points is found sufficient to cater to currency risk as Indian currency is more likely to fluctuate against dollar raising the risk assumed by the Indian company giving the guarantee, the guarantee fee would work out to 2.956% . The assessee has given guarantees to the extent of Rs. 152.85 crore on behalf of the Dubai company. Accordingly, the guarantee fee is computed at Rs. 4,51,82,460/-." 48. It was in this backdrop that an Arms Length Price adjustment of Rs. 4,51,82,460/- was made by the Assessing Officer. Aggrieved, the assessee carried the matter in appeal before the CIT(A). While the CIT(A) upheld the stand of the TPO in principle, he reduced the ALP adjustment for the guarantees @ 2% of the total guarantee provided. The operative portion of the order of the CIT(A) is as follows:- "4.5 I have given my careful consideration to the observations of the TPO and the contentions of the Ld. A.R. The transaction representing the advancement of loan is covered by the definition of "international transaction" which needs to be benchmarked. Similarly providing guarantee is also co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to ICICI Bank India for its credit arrangement. This could be a very good parameter and a comparable for taking it as internal CUP and comparing the same with the transaction with the AE. The charging of 0.5% guarantee commission from the AE is quite near to 0.6%, where the assessee has paid independently to the ICICI Bank and charging of guarantee commission at the rate of 0.5% from its AE can be said to be at arms length." In the instant case the appellant has furnished documentary evidence to show that it had obtained guarantee from SBI in connection with the appellant's operating contract with Karnataka Power Corporation at a guarantee fee of 0.25%. Going by the above mentioned decision of the Mumbai Tribunal, similar rate of 0.25% can be adopted for the purposes of benchmarking in the instant case. However, it is seen that one of the group concerns of the appellant company Viz. Adani Port & SEZ Ltd. paid guarantee fee @ 0.95% to Axis bank in connection with the listing agreement with Bombay Stock Exchange. This goes to demonstrate that the guarantee fee charged by the banks is not fixed, but varies from transaction to transaction. Since the appellant has not furnishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction' first. The expression 'International transaction' is a defined expression. Section 92B defines the expression 'international transaction'. [Para 21] ii. The 'OECD' Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations' specifically recognises that any activity in the nature of shareholder activity, which is solely because of ownership interest in one or more of the group members, i.e., in the capacity as shareholder "would not justify a charge to the recipient companies". It is thus clear that a shareholder activity, in issuance of corporate guarantees, is taken out of ambit of the group services. Clearly, therefore, as long as a guarantee is on account of, what can be termed as 'Shareholder's activities', even on the first principles, it is outside the ambit of transfer pricing adjustment in respect of arm's length price. It is essential to appreciate, at this stage, the distinction in a service and a benefit. One may be benefited even when no services are rendered, and, therefore, in many a situation it's a 'benefit test' which is crucial for transfer pricing legislation. [Para 36] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries, is ill conceived because while banks seek to be compensated, even for the secured guarantees, for the financial risk of liquidating the underlying securities and meeting the financial commitments under the guarantee, the guarantees issued by the corporate for their subsidiaries are rarely, if at all, backed by any underlying security and the risk is entirely entrepreneurial in the sense that it seeks to maximise profitability through and by the subsidiaries. vi. It is inherently impossible to decide arm's length price of a transaction which cannot take place in arm's length situation. The motivation or trigger for issuance of such guarantees is not the kind for consideration for which a banker, for example, issue the guarantees, but it is maximization of gains for the recipient entity and thus the MNE group as a whole. In general, thus, the consideration for issuance of corporate guarantees are of a different character altogether. [Para 39] vii. At this stage, it would be appropriate to analyze the business model of bank guarantees, with which corporate guarantees are sometimes compared, in the context of benchmarking the arm's length price of corporate guaran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imburse it for the defaulted guarantee amounts, when invoked, the group entity will issue the guarantee nevertheless because these are compulsions of his group synergy rather than the assurance that his future obligations will be met. x. There is no meeting ground in these two types of guarantees, so far their economic triggers and business considerations are concerned, and just because these instruments share a common surname, i.e., 'guarantee', these instruments cannot be said to be belong to the same economic genus. Of course, there can be situations in which there may be economic similarities, in this respect, may be present, but these are more of an exception than the rule. In general, therefore, bank guarantees are not comparable with corporate guarantees. [Para 40] xi. There has to be something on record to indicate or suggest that the funds raised by the subsidiary, with the help of the guarantee given by the assessee, are not for its own business purposes. As a plain look at the details of corporate guarantees would show, these guarantees were issued to various banks in respect of the credit facilities availed by the subsidiaries from these banks. The guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the corporate guarantees issued by the assessee were in the nature of quasi capital or shareholder activity and, for this reason alone, the issuance of these guarantees should be excluded from the scope of services and thus from the scope of 'international transactions' under section 92B. xv. Of course, once a transaction is held to be covered by the definition of international transaction, whether in the nature of the shareholder activity or quasi capital or not, ALP determination must depend on what an independent enterprise would have charged for such a transaction. In this light of these discussions, it is held that the issuance of corporate guarantees in question was not in the nature of 'provision for services' and these corporate guarantees were required to be treated as shareholder participation in the subsidiaries. [Para 43] xvi. As for the words 'provision for services" appearing in section 92B, and connotations thereof, this expression, in its natural connotations, is restricted to services rendered and it does not extend to the benefits of activities per se. Whether one looks at the examples given in the OECD material or even in Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on with the main provisions, and in harmony with the scheme of the provisions, under section 92B. Under this Explanation, five categories of transactions have been clarified to have been included in the definition of 'international transactions'. The first two categories of transactions, which are stated to be included in the scope of expression 'international transactions' by the virtue of clause (a) and (b) of Explanation to section 92B, are transactions with regard to purchase, sale, transfer, lease or use of tangible and intangible properties. These transactions were anyway covered by transactions 'in the nature of purchase, sale or lease of tangible or intangible property'. xix. The only additional expression in the clarification is 'use' as also illustrative and inclusive descriptions of tangible and intangible assets. Similarly, clause (d) deals with the " provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service" which are anyway covered in "provision for services" and "mut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e important distinction between these two categories is that while latter is a certainty, and only its crystallization may take place on a future date, there is no such certainty in the former case. In the instant case it is an undisputed position that corporate guarantees issued by the assessee to the various banks and crystallization of liability under these guarantees, though a possibility, is not a certainty. In view of the discussions above, the scope of the capital financing transactions, as could be covered under Explanation to section 92B read with section 92B(1), is restricted to such capital financing transactions, including inter alia any guarantee, deferred payment or receivable or any other debt during the course of business, as will have "a bearing on the profits, income, losses or assets or such enterprise". xxiii. This pre-condition about impact on profits, income, losses or assets of such enterprises is a pre-condition embedded in section 92B(1) and the only relaxation from this condition precedent is set out in clause (e) of the Explanation which provides that the bearing on profits, income, losses or assets could be immediate or on a future date. These guarante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one can be expected to prove a negative. The onus of demonstrating that the costs have been incurred can only be on the revenue authorities, and that onus has not been discharged. Even during the course of hearing when it was asked as to what are the costs incurred by the assessee, learned Departmental Representative did not have anything to say. Respectfully following the views of the coordinate benches on the issue, in the case of Micro Ink (supra), we hold that issuance of guarantees, without incurring any specific costs, does not constitute an international transaction, and, accordingly, no arm's length price adjustment can be made in respect of issuance of corporate guarantees. Once we hold so, the ALP adjustment sustained by the CIT(A) must stand deleted. Grievance of the Assessing Officer against the partial relief granted by the CIT(A), in view of the findings above, becomes infructuous and is dismissed as such. 53. Ground no. 1 of the assessee is allowed and ground no. 1 of the Assessing Officer's appeal is dismissed as infructuous. 54. In ground no. 2, the assessee has raised the following grievances: 2. On the facts and in the circumstances of the case, the learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the I.T. Rules 58. Learned representatives submit that an identical issue has come up for adjudication before us in the immediately preceding assessment year, i.e., 2008-09, and whatever we decide in that assessment year will apply mutatis mutandis to this assessment year as well. 59. We find that, while dealing with identical grievance of the Assessing Officer for the assessment year 2008-09, and for the reasons set out earlier in this order vide paragraph no.25, we have upheld the conclusions arrived at by the ld. CIT(A). In any case, there is no dispute that the interest free funds available to the assessee were far more than the funds invested in securities yielding tax exempt income. On these facts, in the light of the binding judicial precedents, one has to proceed on the basis that such interest free funds in making these investments, and no part of interest can thus be disallowed under section 14A read with rule 8D. We see no reasons to take any other view of the matter for this assessment year as well. Respectfully following the view so taken, we approve the stand of the CIT(A) and decline to interfere in the matter. 60. Ground no. 3 is thus dismissed. 61. In groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance. The assessee gets the relief accordingly. 66. Ground no 5 is thus allowed. 67. In ground no. 6, the assessee has raised the following grievance: 6. On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) erred in sustaining disallowance of interest expenditure of Rs. 1,93,55,168, made by the Assessing Officer by invoking the provisions of section 40(a)(i) of the I.T. Act. 68. So far as this grievance raised by the assessee is concerned, the relevant material facts are like this. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has paid interest amounts aggregating to Rs. 1,93,55,168/- in respect of borrowings from certain foreign banks viz. (i) Citi Bank, Manama (Rs. 46,33,308), (ii) ABN Amro Bank, Singapore (Rs. 44,86,482) and (iii) Standard Chartered Bank, Singapore (Rs. 1,02,35,378). The Assessing Officer accordingly required the assessee to show-cause as to why he did not deduct tax at source from these payments. It was explained by the assessee that these amounts were paid through Indian branch of the said International banks in Indian Rupees and accordingly the requirements of tax deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73. In the result, the appeal of the assessee for the assessment year 2009-10 is partly allowed in the terms indicated above. 74. We now take up appeal of the Assessing Officer for the assessment year 2009-10. 75. Ground no. 1 is already dealt with, in the course of dealing with the appeal filed by the assessee earlier in this order, and we need not repeat our findings thereon. Suffice to say, for the reasons set out earlier, this ground is dismissed. 76. In ground no. 2, the Assessing Officer has raised the following grievance: (2) The ld. CIT(A) has erred in law and on facts in setting aside the issue of prior period expenditure amounting to Rs. 32,53,473/-. 77. This issue has already been dealt with by us while adjudicating ground no. 2 of assessee's appeal for AY 2009-10. This issue is also covered by a coordinate bench decision of this Tribunal, in assessee's own case for the assessment year 2006-07, in ITA No 1859/Ahd/2011. The view so taken by the coordinate bench has been confirmed by Hon'ble jurisdictional High Court as well. We see no reasons to take a different view of the mater in this year. We, therefore, respectfully following the same, reject the plea of the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in deleting the disallowance of Rs. 17,33,265/- u/s 36(1)(iii) on account of interest on borrowings. 87. Learned representatives submit that an identical issue has come up for adjudication before us in the immediately preceding assessment year, i.e., 2008-09, and whatever we decide in that assessment year will apply mutatis mutandis to this assessment year as well. 88. We find that, while dealing with identical grievance of the Assessing Officer for the assessment year 2008-09, and for the reasons set out earlier in this order vide paragraph no.30, we have upheld the conclusions arrived at by the ld. CIT(A). We see no reasons to take any other view of the matter for this assessment year as well. Respectfully following the view so taken, we approve the stand of the CIT(A) and decline to interfere in the matter. 89. Ground no. 5 is thus dismissed. 90. In ground no. 6, the Assessing Officer has raised following grievance: (6) The ld. CIT(A) has erred in deleting the business loss claimed as bad debts of Rs. 1,33,43,000/- out of total disallowance of Rs. 1,38,45,181/- despite the fact that the assessee has not been offered this amount to tax in earlier years or in the current y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a decision of this Tribunal in the vase of ACIT Vs Heavy Metal & Tubes Limited (ITA No. 1951/Ahd/2011; order dated 30th June 2014). The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 96. Having heard the rival contentions, and having perused the material on record, we find that, as rightly noted by the CIT(A), the issue is covered, in favour of the assessee, by decisions of the coordinate benches of this Tribunal, including in the case of Cadila Pharmaceuticals Ltd Vs ACIT [85 taxmann.com 354 (Ahd)] wherein the coordinate bench has, inter alia, followed as follows: ................. The assessee's case throughout has been that it had entered into a forex contract with the State Bank of India on the basis of its foreign currency exposure in import/export transactions with public sector banks to cover fluctuation risk upto Rs. 200crores. One of the bank namely Bank of Baroda is stated to have issued a certificate dated 12.02.2015 claiming realization of Rs. 123,71,57,417/- which could be realized to the tune of Rs. 111,72,18,092/- as on 31.03.2011. Its SBI contract enabled it to book losses against the above unrealized bills. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing the binding judicial precedents, we confirm the conclusions arrived at by the CIT(A), and decline to interfere in the matter. 98. Ground no. 7 is thus dismissed. 99. In the result, the appeal of the Assessing Officer for the assessment year 2009-10 is dismissed in the terms indicated above. 100. We now take up cross appeals for the assessment year 2010-11 which are directed against the order dated 5th June 2015 passed by the CIT(A) in the matter of assessment under section 143(3) r.w.s. 144C of the Income Tax Act, 1961, for the assessment year 2010-11. 101. In the first ground of appeal, the assessee has raised the following grievances: 1.(A) On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) erred in partly sustaining the upward adjustment of Rs. 4,36,97,230 made by the Assessing Officer on the basis of the Transfer Pricing Officer's order dated 28.1.2014 passed u/s.92CA(3) of the I.T. Act, on the assumption that the appellant-company should have charged guarantee commission from its wholly owned foreign subsidiaries in consideration of providing corporate guarantees to the lenders providing borrowings to the said subsidiaries. (B) O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is accordingly allowed and ground no. 1 of the Assessing Officer's appeal is dismissed as infructuous as indicated above. 105. In ground no. 2, the assessee has raised the following grievance: 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in upholding the upward adjustment of Rs. 15,12,800 made by the Assessing Officer on the basis of the Transfer Pricing Officer's order dated 28.1.2014 passed u/s.92CA(3) of the IT. Act, determining the A.L.P. in respect of transaction of export of Maize. 106. The short reason for which the impugned adjustment was made was that, out of 2 CUP variables given by the assessee in support of its benchmarking, quotations from independent enterprises was rejected as valid CUP input. This quotation was from U Kyu Family Trading Company. The stand of the TPO was that there was no independent transaction and it is only actual price in an independent transaction which could be taken as a valid input for External CUP method. When the matter travelled in appeal before the CIT(A), reliance was placed on rule 10BA, inserted with effect from 1st April 2012, and it was contended that quotations were admissible as comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned representatives submit that an identical issue has come up for adjudication before us for the assessment 2008-09, and whatever we decide in that assessment year will apply mutatis mutandis to this assessment year as well. 114. We find that, while dealing with identical grievance of the assessee for the assessment year 2008-09, and for the reasons set out earlier in this order vide paragraph no.4, we have upheld the plea of the assessee to this extent to modify the orders of the authorities below by directing the Assessing Officer to compute the 0.5% of the investments yielding tax exempt income during the relevant previous year. We see no reasons to take any other view of the matter than the view so taken. Accordingly, this ground is partly allowed. 115. Ground no. 4 is partly allowed. 116. In ground no. 5, the assessee has raised the following grievance: 5. On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) erred in sustaining disallowance of business loss in respect of balances of Rs. 2,52,07,995 being advances for business purposes to suppliers, written off in the books of account as irrecoverable, in spite of the fact that such writing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant-company's Foreign Currency Derivative Contracts for hedging, which was wholly and exclusively for business purposes. (B) Without prejudice to the above, on the facts and in the circumstances of the case, the learned C.I.T. (Appeals) erred in rejecting the alternative plea of the appellant-company to restrict the aforesaid disallowance by setting off the sum of Rs. 82,02,615, being the preceding year's provision for similar losses disallowed by the Assessing Officer and reversed by the appellant-company in the books of account during the previous year relevant to the present assessment year. 122 Learned representatives submit that an identical issue has come up for adjudication before us in the immediately preceding assessment year, i.e., 2008-09, and whatever we decide in that assessment year will apply mutatis mutandis to this assessment year as well. 123. We find that, while dealing with identical grievance of the assessee for the assessment year 2008-09, and for the reasons set out earlier in this order vide paragraph nos.12-15, we have upheld the plea of the assessee. We see no reasons to take any other view of the matter for this assessment year as well. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) has erred in law and on facts in deleting the disallowance u/s 80IA in respect of operating income of weighment charges and port entry for Rs. 1,41,00,000/-. 135. So far as this ground is concerned, we find that an identical issue has come up for adjudication before us for the assessment year 2008-09, wherein we have upheld the stand of the CIT(A). We see no reasons to take any other view of the matter than the view so taken by us. 136. Ground No.4 is thus dismissed. 137. In ground no. 5, the Assessing Officer has raised the following grievance: (5) The Id. CIT(A) has erred in law and on facts in deleting the disallowance made of depreciation on vehicle for Rs. 39,64,672. 138. On a perusal of the impugned order passed by the CIT(A), we find that the CIT(A) has simply followed the decision dated 22nd March 2013 passed by a coordinate bench of this Tribunal in the case of Voltemp Transformers Limited (ITA No. 1676/Ahd/12) and extensively reproduced from the same. Neither the learned Departmental Representative has demonstrated any distinguishing features in the said case vis-à-vis the case before us , but has vehemently relied upon the stand of the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted out to us. In this view of the matter, and respectfully following the esteemed views of Hon'ble Delhi High Court in the case of BSES Yamuna Power (supra), we confirm the order of the CIT(A) on this point as well, and decline to interfere in the matter. 146. Ground no. 7 is thus dismissed. 147. In ground no. 8, the Assessing Officer has raised the following grievance: (8) The Id. CIT(A) has erred in law and on facts in deleting the disallowance made of Rs. 2,78,404/- being 10% of aircraft hire charges for Rs. 27,84,038/-. 148. As far as this disallowance is concerned, we find that the impugned disallowance was made on purely adhoc basis @ 10% on the plea that personal use of hired aircraft could not be ruled out. When the matter was carried in appeal before the CIT(A), he deleted the disallowance, by following Hon'ble jurisdictional High Court in the case of Sayaji Iron & Engg Co Ltd Vs CIT (253 ITR 749), and held that no disallowance could be made in the hands of the corporate assessee for personal use by the directors. The Assessing Officer is aggrieved and is in appeal before us. 149. Having heard the rival contentions and having perused the material on record, we find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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