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TMI Blog2022 (2) TMI 1328X X X X Extracts X X X X X X X X Extracts X X X X ..... THAT:- We find that certain expenditure alleged to be relating to prior period was payable during the previous year 2008-09, as per the claim of the assessee. It is evident, the reason for disallowing assessee s claim is, it was not made through a revised return of income. As we find, identical issue came up for consideration before the coordinate bench in assessee s own case in assessment years 2000-01 to 2008-09. Adjustment made to the Arm s Length Price (ALP) of reimbursement of expenses - HELD THAT:- As in a cryptic order passed, learned Commissioner (Appeals) has disposed of the issue by stating that the assessee offered average mark-up of 21.21% and accordingly directed the Assessing Officer to compute the adjustment by charging mark-up of 21.21% on cost. On perusal of materials on record, we are convinced that the conclusion drawn by Commissioner (Appeals) is erroneous, as, the assessee has never offered mark-up of 21.21%. The assessee has sought risk adjustment of 21.21% to be made to the margin of the comparables towards credit risk differences - Commissioner (Appeals) has completely misconstrued the submissions of the assessee - various other submission made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarded as an international transaction in terms of section 92B of the Act. The Hon ble Madras High Court in case of PCIT v. Redington (India) Ltd. 2020 (12) TMI 516 - MADRAS HIGH COURT after taking note of the amendment to section 92B of the Act, has held that provision of corporate guarantee will fall within the scope and ambit of international transaction as defined under section 92B of the Act. Therefore, we hold that provision of corporate guarantee towards loan availed by the AEs constitutes international transaction under section 92B of the Act. Commissioner (Appeals) has deleted the adjustment made in relation to provision of corporate guarantee simply on the reasoning that it is not an international transaction. Therefore, he has not considered the issue on merits. On perusal of material on record, we have observed, in course of proceeding before the TPO as well as before learned Commissioner (Appeals), the assessee had advanced detailed submissions on merits contesting the adjustment made on account of provision of corporate guarantee. While the TPO has completely rejected the submissions of the assessee, learned Commissioner (Appeals) did not deal with them as he h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the materials on record. The departmental authorities have disallowed the aforesaid expenses on the reasoning that the expenditure was not incurred wholly and exclusively for the purpose of business. Further, learned Commissioner (Appeals), relying upon the decisions of learned first appellate authority in the earlier assessment year, upheld the disallowance. However, before us, it is a common point between the assessee and the Revenue that the issue is squarely covered by the decision of the Tribunal in assessee s own case in assessment years 2000-01 to 2008-09. 3.2 On perusal of the order dated 12.03.2019 passed in ITA No. 4410/Del/2003 and others, we find while deciding identical issue in assessee s own case, the Tribunal has held as under: 75. The 3rd ground of appeal is with respect to disallowance of club expenses of INR 48751/-. The fact shows that during year appellant has made certain payment to various clubs, which was disallowed by learned assessing officer holding that it is not for purpose of business of assessee. The learned CIT - A also upheld disallowance holding that assessee being a corporate body is not capable of utilizing club facilities itself. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed orders of lower authorities. The learned assessing officer has given a clear-cut finding that it was not found that these expenses were quantified during relevant previous year only. By deleting above disallowance also vide para number 1 of order, learned CIT appeal noted that it is clear that assessing officer has not allowed proper opportunity to explain same to assessee and learned AO has straight way referred notes of accounts as mentioned by auditor and concluded that disallowance is made without appreciating proper facts. We do not agree with finding of learned CIT - A that disallowance cannot be sustained as assessee has also been taxed on miscellaneous income of earlier years charged to tax this year. The logic- given by learned CIT appeal that assessing officer should have treated both these items of prior period income and expenses on same parity is devoid of any merit. It is also not acceptable that without examining facts of case that when these expenses have been crystallized, disallowance cannot be deleted. Before neither learned assessing officer nor before learned CIT appeals or before us has assessee shown that, this expenditure has been crystallized during year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of business support services would not have been provided by any other independent entity in similar circumstances, the Assessing Officer issued a show-cause-notice to the assessee proposing to charge mark-up of 29.71% on the cost of Rs.23,67,46,713/-. 5.1 While doing so, he compared the mark-up charged by seven comparables averaging to 29.71%. Though, the assessee objected to the proposed adjustment, however, the TPO was unconvinced and ultimately proceeded to charge a mark-up of 27.13% on the cost incurred, resulting in an adjustment of Rs.6,42,29,383/-. The assessee contested the adjustment before learned Commissioner (Appeals). After considering the submissions of the assessee in the context of facts and materials on record, learned Commissioner (Appeals) directed the Assessing Officer to compute the adjustment to ALP on reimbursement of expenses by charging mark-up of 21.21% on cost. As a result, the adjustment proposed by the TPO was reduced to 5,02,13,977/-. 5.2 Before us, learned counsel for the assessee submitted, learned first appellate authority has completely misconceived the submissions made by the assessee and has erroneously concluded that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o compute the adjustment by charging mark-up of 21.21% on cost. On perusal of materials on record, we are convinced that the conclusion drawn by learned Commissioner (Appeals) is erroneous, as, the assessee has never offered mark-up of 21.21%. 5.5 On the contrary, the assessee has sought risk adjustment of 21.21% to be made to the margin of the comparables towards credit risk differences. Thus, in our view, learned Commissioner (Appeals) has completely misconstrued the submissions of the assessee. Further, various other submission made by the assessee, including the submissions made relating to selection of comparables, have not at all been considered by learned Commissioner (Appeals). Considering the above, we deem it appropriate to restore the issue to the file of the Assessing Officer for de-novo adjudication after providing due opportunity of being heard to the assessee. 5.6 It is open to the assessee to furnish further evidence to demonstrate that the reimbursement by AEs on cost to cost basis does not require charging of any mark-up. While deciding the issue, the Assessing Officer must also examine assessee s claim that in assessment year 2010-11, reimbursement of expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered the submissions of the parties, we find, identical issue came up for consideration before the Coordinate Bench in assessee s own case in assessment year 2000-01 to 2008-09 (supra). While deciding the issue, the Bench has held as under: 11. We have carefully considered rival contention and perused orders of lower authorities. The facts stated above are undisputed. The first ground of rejection of claim of assessee is that dieselgenerating sets are imported where invoices show that these were imported for home consumption. The learned assessing officer has noted that the marking show that goods are not used for purpose of business. There is a clear misunderstanding on part of learned AO in holding that when custom authorities have marked for home consumption means that they are not to be used for purpose of business. The only meaning of that particular Mark is that goods are to be used for consumption in Indian Territory. Therefore, Page | 10 allegation of learned assessing officer that Gen sets imported for home consumption and therefore deduction under section 80 IA of income tax act is not allowable on it is devoid of any merit. Further, with respect to power generat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escribing manner in which and procedure by which incomes derived in part from agriculture and in part from business shall be arrived at. It was observed that there could be erosion or deviation from principle that one cannot make profit by trading or doing business with oneself. It would be appropriate to also reproduce following observations of Supreme Court in Tata Iron and Steel Co. Ltd. (supra):- It could not be disputed that factually profit from mining operation and winning of mineral is imbedded in profit realised from sale of end product. A simple illustration would demonstrate this. Let us assume that cost of winning ore is Rs. 50/-a ton and market price of similar ore which would have to be used in absence of ore mined is Rs. 60/-per ton. There could not be any doubt that this difference of Rs. 10/- per ton of ore would be reflected in profit and loss resulting from sale of steel. It is needles to add that if in a given case mined product costs more than market price of commodity, there would be loss on mining operation notwithstanding that there is a profit realised from sale of end product -steel, but these are matters of calculation not relevant at presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant into two -first as a mine- owner winning ore and later by a Steel Manufacturing Co., consuming won ore and then posing question as to whether transfer of ore from mining section to manufacturing one could in law involve a sale of product so as to yield a profit . It would be apparent that if one proceeded on basis of treating businesses as a single and integrated one, as learned Attorney-General desired us to do, as one unbroken chain from start of mining operation to sale of finished steel or steel products by company -no question of a person trading with himself would arise, but very different one as to whether there could be a disintegration of profits of an integrated business, between component constituents which go to make it up. Undoubtedly, in order to ascertain profits from mine there would have to be a disintegration of gross profits which finally emerge from sale of finished steel or steel products. What we desire to point out is that this involves no disintegration of business affording scope for contention based upon principle that a person cannot trade with himself, but one far removed from it, viz., whether when a profit has been made as a conjoint result o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is derived, falling under sub -section covered by sub-section (4) of section 80-IA of Income-tax Act, such profit or gain derived by assessee can be deducted in its entirety for a period of 10 years starting from date of functioning of set up. The contention that profit or gain can be claimed by assessee only if such profit or gain is derived by sale of its product or power generated to an outsider cannot be manner in which provisions contained in section 80- IA(1) can be interpreted. The expression 'derived' used in said section 80 -IA(1) in beginning as well as in last part of sub-section (4) makes it abundantly clear that such profit or gain could be obtained by one's own consumption of outcome of any such undertaking or business enterprise as referred to in sub-section (4) of section 80-IA. The dictionary meaning of expression 'derive' in New Oxford Dictionary of English states 'obtaining something from a specified source'. In section 80 - IA(1) also no restriction has been imposed as regards deriving of profit or gain in order to state that such profit or gain derived only through an outside source alone would make eligible for benefits provided i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a profit out of consumption of his own goods. Since earlier decision of House of Lords had found favour with Supreme Court in Kikabhai Premchand (supra), Supreme Court in Tata Iron and Steel Ltd (supra) decided case by applying principle of disintegration of ultimate profits realized on sale of final product. 15. In view of aforesaid discussion, it has to be held that finding of Tribunal that profits derived by respondent-assessee‟ s power generation unit would be eligible for deduction as a separate undertaking under Section 80 IA, but has referred to decision in West Coast Paper Mills Ltd. vs. Asstt. Commissioner of Income Tax [2006] 286 ITR (AT) 252 (Mum.) is correct. The substantial questions of law mentioned above are accordingly answered in favour of respondentassessee and against appellant Revenue. 16. At this stage, learned counsel for appellant Revenue has submitted that Tribunal has passed an order of remand on question of computation of profit and gain from business in terms of sub- section (8) to Section 80IA. Learned counsel for respondent-assessee submits that Assessing Officer is competent to decide said question as per law and hands and power of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. Accordingly, he deleted the adjustment without going into the merits of the issue. 9.2 Before us, learned Departmental Representative submitted, after amendment to section 92B of the Act vide Finance Act, 2012 with retrospective effect from 01.04.2002, the scope and ambit of international transaction has been expanded and various types of capital financing, including provision of guarantee have been included within the definition. Thus, he submitted, the decision of learned Commissioner (Appeals) that provision of corporate guarantee is not an international transaction, is erroneous. In support of his contention, he relied upon the decision of Hon ble Madras High Court in the case of PCIT v. Redington (India) Ltd. (2021) 430 ITR 298 (Mad.)(HC). 9.3 Learned counsel for the assessee, though, fairly accepted the legal position that provision of corporate guarantee falls within the definition of international transaction under section 92B of the Act, however, he submitted, since, learned Commissioner (Appeals) deleted the adjustment by treating provision of corporate guarantee not to be treated as international transaction, he did not consider various other arguments of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted the adjustment made in relation to provision of corporate guarantee simply on the reasoning that it is not an international transaction. Therefore, he has not considered the issue on merits. On perusal of material on record, we have observed, in course of proceeding before the TPO as well as before learned Commissioner (Appeals), the assessee had advanced detailed submissions on merits contesting the adjustment made on account of provision of corporate guarantee. While the TPO has completely rejected the submissions of the assessee, learned Commissioner (Appeals) did not deal with them as he held that the provision of corporate guarantee is not an international transaction. Thus, in our view, the assessee deserves a fair opportunity to contest the issue relating to the determination of ALP of guarantee commission to be charged on provision of corporate guarantee on merits. 9.7 In view of the aforesaid, we restore the issue to the Assessing Officer for de-novo adjudication after due and reasonable opportunity of being heard to the assesse. Ground is allowed for statistical purposes. 10. In the result, Revenue s appeal is partly allowed for statistical purposes. ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As regards the merits of the issue, the facts on record indicate that while the TPO has determined the ALP of the interest chargeable on the loan advance to AE by applying SBI prime lending rate of 15%, learned Commissioner (Appeals) has substantially reduced it to 6%. The rate of 6% adopted by learned Commissioner (Appeals) is fair and reasonable considering the LIBOR rate of 4.42% prevailing at the relevant point of time. Therefore, we do not find any reasonable basis to interfere with the decision of learned Commissioner (Appeals). Accordingly, ground raised is dismissed. 13. In the result, the appeal is partly allowed. ITA No. 6196/Del/2014 (Revenue s Appeal for AY: 2010-11) 14. Ground nos. 1 and 2 of the instant appeal are identical to ground nos. 1 and 2 of ITA No. 4827/Del/2014 decided by us in the earlier part of the order. Facts being identical, our decision in respect of ground nos. 1 and 2 of ITA No.4827/Del/2014, would apply mutatis mutandis to these grounds also. Accordingly, these grounds are dismissed. 15. Grounds no. 3 of the instant appeal is identical to ground no. 3 of ITA No.4827/Del/2014 decided by us in the earlier part of the order. F ..... X X X X Extracts X X X X X X X X Extracts X X X X
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