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TMI Blog2022 (2) TMI 1326X X X X Extracts X X X X X X X X Extracts X X X X ..... nd direct the AO to adopt 12 months LIBOR plus 300 basis points for determining the interest income om the loan advanced to the AE and asses the same accordingly . Interest on outstanding balance from the Associated Enterprise Tejas Communications Pte. Ltd., Singapore - After haring both the parties we observe that this issue was covered by the decision given in the case of CIT-9 Vs Indo American Jewellery Ltd. [ 2013 (1) TMI 804 - BOMBAY HIGH COURT] . In view of the above order, this issue is decided in favour of the assessee. Guarantee Commission with respect to the corporate guarantee provided by the assessee to its Associated Enterprises - This issue is covered by the orders of the Tribunal in Medrich Limited [ 2021 (4) TMI 1321 - ITAT BANGALORE ] in the case of M/s. Manipal Global Education Services Pvt. Ltd. [ 2019 (5) TMI 1942 - ITAT BANGALORE ] and in the case of Xchanging Solutions Ltd. [ 2016 (10) TMI 1211 - ITAT BANGALORE ] wherein it was directed to AO/TPO to make TP adjustments in respect of corporate guarantee at 0.50% for the assessment years under consideration. In view of the above order, we decide these issues in favour of the assessee. Disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r giving an opportunity of hearing to the assessee. He has not suggested any addition on this count. Being so, we do not find any infirmity in the findings of Ld. Principal CIT. Further we make it clear that the A.O. shall not be influenced by any observations made by Principal CIT in his order. The A.O. should carry out the enquiry independently and pass fresh assessment order after giving opportunity of hearing to the assessee. Hence, the appeal filed by the assessee is dismissed. - IT(TP)A Nos.296/Bang/2015, IT(TP)A Nos.468/Bang/2015, IT(TP)A Nos.1119/Bang/2015 & IT(TP)A No.621/Bang/2016, IT(TP)A Nos.694/Bang/2016 & IT(TP)A No.582/Bang/2021, IT(TP)A Nos.1674/Bang/2018 - - - Dated:- 9-2-2022 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER Appellant by : Shri Jairam Raipura, D.R. Respondent by : Shri Annamalli Shri Narendra Sharma, A.Rs ORDER PER BENCH: These are appeals filed by the revenue and the cross appeals filed by the assessee against different orders of the Ld. DRP-2 Principal CIT (Central), Bangalore for the assessment years 2010-11 2011-12. IT(TP)A No.582/2021 (A.Y. 2010-11): 2. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntra no hardship or injury would be caused to the Respondent if this application of Condonation of delay is allowed. Reliance is placed on the decision of the Hon'ble Apex Court in the case of Collector, Land Acquisition Vs. MST. Katiji and Others (1987) 167 ITR 471 and also in the case of Concord of India Insurance Co. Ltd., Vs Smt. Nirmala Devi and Others 118 ITR 507. Further, the assessee relies on another decision of the Hon'ble Apex Court in the case of Radha Krishna Rai Vs. Allahabad Bank Et Others [2000] 9 Supreme Court Cases 733 and Commissioner of Income-tax Vs. West Bengal Infrastructure Development Finance Corporation limited (2011) 334 ITR 269 (SC). The assessee placed reliance on the decision of the Hon'ble Jurisdictional High Court in the case of CIT Et Another Vs. ISRO Satellite Center, in ITA No. 532 of 2008 and other batch of appeal The assessee placed reliance on the decision of this Hon'ble Tribunal in the case of Smt. Shakuntala Hegde, Legal Heir of Mr. Ramakrishna Hegde Vs. ACIT, in ITA No. 2785/Bang/2004 order dated 25/04/2006 wherein the Tribunal has condoned the delay of 1,331 days i.e. 3 Years, 8 Months and 22 days in filing the appeal by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her side will be a relevant factor. So the case calls for a more cautious approach but in the later case, no such consideration may arise and such a case deserves a liberal approach. The court has to exercise the distinction on the facts of each case keeping in mind that in considering the expression sufficient cause , the principles of advancing substantial justice is of prime importance. The delay cannot be condoned simply because the assessee s case calls for sympathy or merely out of benevolence to the party seeking relief. In condoning the delay, the assessee shall show that he was diligent and was not guilty of negligence of whatsoever. In the present case, there was inordinate delay of 1694 days and according to the assessee, it was because of wrong understanding of the assessee s case and only on advice of new counsel, assessee opted to file this appeal. In our opinion, there is no good and sufficient reason to condone the delay. Had the assessee exercised due care and diligence, the delay could have been very well avoided. The delay in this case was due to the negligence and inaction on the part of the assessee, which cannot be condoned. In the present case, assessee want ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.2.4 in not appreciating that the loan is in foreign currency and is a cross border transaction and hence a domestic bond yield rate of India cannot be construed as an appropriate benchmark. 1.2.5 in rejecting a spread of Libor plus 150 basis points as considered by the Appellant in the Transfer Pricing Documentation and arriving at a spread of Libor plus 500 basis points to compute the arm's length price. 1.3 The Hon'ble DRP has erred in not adjudicating the contention with regard to imputing interest on the outstanding balance from the AEs. 1.4 The learned AO / learned TPO erred in imputing interest on the outstanding balance from the AE ignoring the fact that the appellant followed the same policy of not charging interest on the outstanding balance from the non AEs as well. 1.5 The learned AO/learned TPO erred in imputing interest on the outstanding balances from the AEs on an ad-hoc basis considering prime lending rate and arbitrary mark up of 14.74% towards various risks. 1.6 The learned AO/TPO ought to have appreciated the fact that no interest was charged to the appellant on the balance payables (creditors) which indicates that the appellant had bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the expenditure represents expenditure incurred on in-complete projects and hence the same is in the nature of Capital Work In Progress ( CWIP ) and hence not revenue in nature. 3.7 The learned AO erred in disallowing the weighted deduction claimed under section 35(2AB) of the Act on Rs. 32,21,39,357 which was transferred to CWIP in the books of accounts on the contention that the expenditure represents expenditure incurred on in-complete projects and hence the same is in the nature of CWIP and hence not revenue in nature. 3.8 The learned AO erred in disallowing the weighted deduction claimed under section 35(2AB) of the Act on Rs. 3,39,36,528 which was capitalised in the books of accounts under the head fixed assets on the contention that the expenditure represents know-how / technology ready for use contributing to increase in revenue and giving enduring benefit. 3.9 The learned AO thereby erred in disallowing Rs. 53,72,75,727 under section 35(2AB) of the Act. 4. Deduction under section 35(1)(iv) of the Act 4.1The learned AO erred in not allowing the claim for deduction amounting to Rs. 1,91,05,549 under section 35(1)(iv) of the Act in respect of the expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the interest rate spread noticed by the Ld DRP was between 3% to 8%. Accordingly we are of the view that the ALP may be determined at 12 months LIBOR plus 300 basis points. We modify the directions given by Ld. DRP and direct the AO to adopt 12 months LIBOR plus 300 basis points for determining the interest income om the loan advanced to the AE and asses the same accordingly. In view of the above order, this issue is decided in favour of the assessee. 6. With regard to Ground Nos.1.3 to 1.6 the issue is interest on outstanding balance from the Associated Enterprise Tejas Communications Pte. Ltd., Singapore. After haring both the parties we observe that this issue was covered by the decision given by Hon ble High Court of Bombay in the case of CIT-9 Vs Indo American Jewellery Ltd. (2014) 44 taxmann.com 310 in para 5. In view of the above order, this issue is decided in favour of the assessee. 7. With regard to Ground Nos.1.7 to 1.9 are on the issue of imputing Guarantee Commission with respect to the corporate guarantee provided by the assessee to its Associated Enterprises. After hearing both the parties, this issue is covered by the orders of the Tribunal in Medric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own funds available with the assessee is in far excess of the investments made by the assessee. Accordingly, as per decision rendered by Hon ble Karnataka High Court in the case of Micro Labs Ltd. 383 ITR 490, no disallowance out of interest expenditure is called for. Accordingly, we confirm the decision rendered by Ld. CIT(A) in deleting this disallowance for the reasons stated above. In view of the above order of the Tribunal, we inclined to remit the issue in dispute to the file of AO for re-examination to see whether investment which yielded exempt income made out of interest free own funds and decide accordingly. 11. With regard to ground No.6 it is preposterous and does not require any adjudication and dismissed. 12. Ground No.7 is consequential in nature. 13. The following additional grounds were raised by the assessee in this appeal which are reproduced as under:- The additional grounds raised by the assessee in this appeal are as under:- 1. The appellant claims that it has not claimed a deduction under section 35(1)(i) of the Act amounting to Rs. 3,62,56,000/- in the return of income filed on 06.10.2010 being revenue expenditure incurred on scientific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act amounting to Rs.3,62,56,000/-. In this regard it is observed that the assessee has raised this ground for the first time before this Tribunal. The assessee places reliance on the decision of this Tribunal in the assessee s own case for the A.Y. 2014-15 and Hon ble jurisdictional High Court decision in the case of Principal CIT Vs. Karnataka State Co operative Federation Ltd. (2021) 128 taxmann.com 1 (Karn) and in the case of CIT Vs. Pruthvi Brokers Share Holders (2012) 349 ITR 336 (Bom). Hence, this issue is remitted back to the file of the A.O. for fresh adjudication. 15. In the additional ground No.3 the assessee states that without prejudice a sum of Rs.3,62,56,000/- being incurred as revenue expenditure for scientific research is allowable expenditure as per section 37(1) of the Act. In this regard it is observed that the assessee has raised this ground for the first time before this Tribunal. Hence, this issue is remitted back to the file of the A.O. for fresh adjudication. 16. The additional ground No.4 above, the assessee claims that without prejudice the assessee is entitled for claim weighted deduction u/s 35(2AB) of the Act in respect of the amount of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -12): (Revenue s appeal) 21. Revenue filed this appeal on the ground that DRP relying on the Hon ble Karnataka High Court decision (Writ petition No.7004/2014 (T-IT) in assessee s own case has allowed the assessee s appeal in respect of addition made u/s 35(2AB) of the Act. The revenue has preferred further writ appeal against the Hon ble High court of Karnataka order. In this regard, the assessee submits that this ground raised by the revenue is identical to the ground raised by the revenue for A.Y. 2014-15 in ITA No.3191/Bang/2018 dated 8.10.2021 in which the Tribunal has dismissed the appeal. On perusal of the aforesaid order in respect of appeal of the revenue, the Tribunal has decided the issue against the revenue. Further, for A.Y. 2010-11, in ITA No.468/Bang/2015 in earlier part of this order, we decided this issue in favour of assessee. Accordingly, this issue decided against revenue. In the result, the appeal of the revenue is dismissed. ITA No.694/Bang/2016 (A.Y. 2011-12) 22. The grounds of appeal raised by the assessee are as under: I Transfer pricing The grounds mentioned hereinafter are without prejudice to one another. 1. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of tax assets , as Rs. 6,96,93,19,197 and closing value as Rs. 7,34,16,21,069. Average of these, which should have been adopted by the learned AO, works out to be Rs. 7,15,54,70,133, as against sum of Rs. 3,57,77,35,067 taken by the learned AO. 9. Deduction under section 35 / 37 of the Act amounting to Rs. 11,72,82,988 9.1. The learned AO erred in not considering the allowance of deduction under section 35(1) of the Act, pertaining to amounts not recognized by the Department of Scientific Research and Development ( DSIR ) for weighted deduction under section 35(2AB) of the Act. The learned AO erred in not following the order of the Honourable DRP, which has allowed the claim of the Appellant in entirety. 9.2 The learned AO erred in not appreciating the fact that the expenditure incurred by the assessee is for the purposes of scientific research and the same should be allowable under section 35(1)(i) and 35(1)(iv) of the Act, as the case may be. 9.3. Notwithstanding and without prejudice to the above, the learned AO erred in not appreciating the fact that the expenditure incurred by the assessee is for the purposes of its business and hence allowable und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the income of the assessee has been finally assessed under the provisions of Minimum Alternate Tax of the Act, whereas adjustments have been made only under normal provisions of the Act. This has been affirmed by the Honourable Delhi High Court in its judgement in ITA No. 1420 of 2009 in the case of CIT v. Nalwa Sons Investment Ltd. [affirmed by Honourable Supreme Court in in [20121 21 taxmann.com 184 (SC)], which has been accepted by the Central Board of Direct Taxes vide Circular 25/2015 dated December 31, 2015. 23. With regard to ground Nos.1 to 7 above is regarding corporate guarantee issue which is covered by the order of this Tribunal in ITA No.1574/Bang/2019 dated 12.4.2021 in the case of Medrich Limited Vs. ACIT and in ITA No.236/Bang/2015 in the case of M/s. Manipal Global Education Services Pvt. Ltd. Vs. Deputy Commissioner of Income-tax, in which the Tribunal has held as under: 8. We have heard the parties on this issue and perused the record. We notice that the Tribunal is consistently holding the transaction of providing Corporate Guarantee as an international transaction. Hence the same is required to be examined under Arms length principles. There should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest expenditure u/s 8D(2)(ii) is called for when own funds available with the assessee is in excess of the value of investments. Accordingly we direct the AO to compare the own funds available with the assessee against the value of investments and accordingly apply the provisions of Rule 8D(2)(ii) by duly following the decision rendered by Hon ble Bombay High court in the case of HDFC Bank ltd. (supra). 12. In respect of disallowance to be made u/s 8D(2)(iii) out of administrative expenses, the Special bench of Tribunal has held in the case of Vireet Investments Ltd. (supra) that only those investments, which have yielded exempt income should be considered. Accordingly we direct the AO to compute the disallowance u/s 8D(2)(iii) accordingly. 13. The assessee has raised many legal issues. The Ld. A.R. submitted that those legal issues may be kept open, if the assessee gets substantial relief on issues urged on merits. We notice that the ground relating to sec 14A has decided in favour of the assessee as prayed for and the assessee has got substantial relief on the issue relating to TP adjustment on Corporate Guarantee. Accordingly, we are of the view that the legal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved that the assessee has not furnished the details of computation of commission amount and also purpose of payment. Accordingly, the A.O. disallowed provision for commission expenses of Rs.56,97,530/-. 10. Before Ld. CIT(A), the assessee furnished copy of agreement entered by it with Md. Ziaul Hassan Khan with regard to payment of commission. It was submitted that the provision for commission relates to commission payable to the above said agent for procuring sales orders in this year. The Ld. CIT(A) examined the agreement more particularly paragraph 3.3 of the agreement, which reads as under: 3.3 Subject to this Article 3, TEJAS shall pay Service fee to the Service Provider after the sales made pursuant to this Agreement are closed. Service fee shall become due to the Service Provider within thirty (30) days after TEJAS receives for immediate value from or on behalf of the Customer the Price where the relevant PO provides for payment of the Price by shall become due to the Service Provider as soon as such instalments are received for immediate value by TEJAS, that proportion being, equivalent to the proportion which such instalments bear to the total Price. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n shall accrue after the sales is finalized. However, the same shall become due for payment only after receipt of money from the customer. On a reading of whole of clause 3.3 of the agreement, we are of the view that the commission expenditure shall accrue as and when the sales is finalized. Hence, we are of the view that the Ld. CIT(A) was not justified in taking the view that the commission expenditure shall become due only when the payment is received from the customers. In the case of KCP Ltd. (supra), the Hon ble A.P. High Court has upheld the view of the Tribunal in holding that the liability to pay commission accrues when orders were secured by agents and not when supplies were effected by the assessee. 14. There is one more angle with regard to the claim of the assessee. Under revenue cost matching principle , all expenses incurred in generating the revenue should be provided for in the books of account and also under the Principle Prudence , all known liabilities have to be provided for in the books of account. In the instant case, the assessee is aware that it would be liable to pay commission amount to Md. Ziaul Hassan Khan when the sales is finalized and this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the matter reached Hon ble Karnataka High Court, it has expressed the view that the A.O. has no jurisdiction to sit in the judgement over the report submitted by DSIR in form No.3CL. The appeal filed by the revenue before Hon ble Supreme Court against the decision rendered by Hon ble High Court has also been dismissed. In the instant year, the AO has noted the judicial ruling referred above. However, the A.O. chose to disallow weighted deduction amount of Rs.51,94,27,366/-(50% of Rs.103,88,54,734/) in order to maintain consistency. 20. The Ld. CIT(A), deleted the disallowance of Rs.51,94,27,366/- by following the decision rendered by Hon ble High Court of Karnataka in the assessee s own case in writ petition No.7004/2014. The revenue is aggrieved by the decision of Ld. CIT(A). 21. We heard the parties on this issue and perused the record. The decision rendered by Hon ble jurisdictional High Court is binding on all authorities below it. Since the Ld. CIT(A) has followed the decision rendered by jurisdictional High Court, we do not find any reason to interfere with the decision rendered by Ld. CIT(A) on this issue. Accordingly, we confirm his order passed on this iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granting of foreign tax credit and short credit of tax deducted at source. In this regard, the A.O. is directed to give corresponding TDS credit to the assessee. 28. ground Nos.13 14 are consequential in nature and does not require adjudication. 29. Ground No.15 does not require adjudication. 30. The additional grounds raised by the assessee in this appeal are as under: 1. The learned Assessing Officer erred in not allowing a sum of Rs.2,84,32,055/- reduction in book profit calculation under section 115JB of the Act on the facts and circumstances of the case. 2. The Learned Assessing Officer is erred in not allowing a sum of Rs.2,84,32,055/- being reversal of provision for doubtful debts in computing the book profit under section 115JB of the Act when the same was allowed by the learned Assessing Officer in the normal computation on the facts and circumstances of the case. 3. The appellant craves leave of this Hon ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal as may be necessary at the time of hearing. 30.1 We have heard the rival submissions and perused the materials available on record. With reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the exercising of jurisdiction u/s 263 of the Act by Ld. CIT is bad in law since the issue dealt by him with regard to the disallowance made u/s 14A of the Act cannot be added for the purpose of computation of book profit u/s 115JB of the Act and there were judgements in the case of assessee, which are available with the following judgements in favour of the assessee are available at the time of passing of assessment order on 28.1.2016. 1. Apollo Tyres Vs. CIT 255 ITR 275 2. ACIT Vs. Spray Engineering Devices Ltd. (2012) 23 Taxmann.com 267 (Chd) 3. Beach Minerals Company Vs. ACIT (2015) 64 Taxmann.com218 (Chennai) Further, he submitted that the order passed by A.O. is not erroneous so far as it is prejudicial to the interest of revenue so as to invoke jurisdiction u/s 263 of the Act. He relied on the following judgements:- 1. Malabar Industrial Company Ltd. Vs. CIT 243 ITR 83, 2. CIT Vs. Max India Ltd. 295 ITR 282, 3. CIT Vs. Kelvinator of India Ltd. 332 ITR 231, 4. CIT Vs. Arvinda Jewellers 259 ITR 502 5. CIT Vs. Saluja Exim Ltd. 329 ITR 603 34. Further, he submitted that the Principal CIT cannot substitute his own views on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eyes on the issues raised by the Principal CIT for the reasons best known to him and accepted the deduction claimed by the assessee in his return of income. Though AO is required to make necessary enquiries himself regarding the various claims of the assessee, he failed to do so. Therefore, the issues dealt by the Principal CIT were within his powers to invoke the provisions of the section 263 of the Act where such enquiry was prima facie warranted. In view of the above, we are of the opinion that the Ld. Principal CIT was justified in invoking the provisions of section 263 of the Act. 37.1 Regarding the merit of the issue dealt by the Principal CIT, the Ld. A.R. submitted that regarding ground Nos.05-09 relating to disallowance made under section 14A read with Rule 8D a sum of Rs.1,92,74,539/- in the normal computation cannot be added back while computing book profits under section 115JB of the Act the assessee submits that the amount of calculation is not correct. The correct amount is mentioned in the order passed under section 263 of the Act a sum of Rs.96,37,269/-. The assessee submits that addition made under section 14A of the Act should not be added to book profit of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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