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TMI Blog2023 (5) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in law, the Assistant Commissioner of Income-tax, Central Circle 7(3), Mumbai ("Ld. AO'), the Assistant Commissioner of Income-tax, Transfer Pricing- 3(2)(1), Mumbai, the Hon'ble Dispute Resolution Panel ('DRP') erred in: 1.1. not appreciating that explanation to section 92B of the Act as amended by Finance Act, 2012 does not alter the basic character of the definition of 'international transaction' u/s 92B and therefore, since provision of guarantee (by the assessee to its AE) did not have any bearing on profits, income, losses or assets of enterprise, it would be outside the ambit of 'international transaction'. 1.2. not appreciating that provision of guarantee is essentially in the nature of shareholder activity and is arising out of implicit support due to passive association of the assessee with its AE; accordingly, ALP for the same should be Nil. 1.3. Adopting the arm length rate for the guarantee commission at 0.50% as directed by DRP. 1.4. without prejudice to the above, the Ld. AO/TPO erred in disregarding the detailed benchmarking analysis based on interest savings approach conducted by the appellant without providing any cogent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by the proviso to section 43CA of the Act. 4.3. On the facts and the circumstances of the case and in law, the learned AO/ DRP failed to appreciate that the said tolerance band of 5% / 10% under first proviso to section 43CA of the Act, is curative in even though stated to be prospective must be held to relate back to date when related statutory provisions were made effective. 4.4. Each one of our previously mentioned grounds of appeal is without prejudice to the other 5. On the facts and the circumstances of the case and in law, Ld AO/DRP, erred in: 5.1. making a disallowance of Rs. 3,20,92,006 under section 40(a) (i) of the Act. 5.2. Not appreciating that services availed by the appellant do not make available any technical knowledge, experience, skill, know-how or processes, etc. to the assessee under Article 12 of the India-Singapore DTAA and hence shall not be subject to tax in India. 5.3. Each one of our previously mentioned grounds of appeal is without prejudice to the other 6. On the facts and in circumstances of the case and in law, the learned AO has erred by initiating penalty proceedings under section 270A of the Act and holding that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that it is an international transaction and further the assessee should have charged the guarantee commission fee. viii. He issued show cause notice on 20th January, 2021, noted that the M/s Lodha Developers International Limited, Mauritius has taken a loan from the assessee on interest at the rate of 14% which is without guarantee, He stated that Arm's Length Price interest rate without guarantee is 14% and arm's length rate after guarantee is 12% [ Interest on bonds] therefore, interest spread of 2% is saved which is required to be shared between both the entities on the basis of Functions, Assets and Risk ('FAR') analysis. ix. Assessee without prejudice to the earlier submissions computed the guarantee fee adopting interest saving approach. The assessee analyzed the guarantee transaction by determining the creditworthiness of the Associated Enterprises by Moody's credit ratings result and further carried out search on DealScan database. Based on search, 839 number of deals without guarantee were identified whose average margin of BPS was found to be 500.21 and after that tenor adjustment of (-) 30.08 was made determining arm's length margin of 470.13 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r made following corporate adjustments:- i. Though assessee has not received any dividend income during the year, however, there are investments, which are capable of earning exempt income. Accordingly, the disallowance under Section 14A r.w.r. 8D of the Act was computed at 1% of annual average value of investment amounting to Rs.10,22,402/-. ii. Learned Assessing Officer also noted that assessee has claimed foreign exchange loss of Rs. 99,06,468/- which is incurred because of purchase of material and is revenue expenditure. The learned Assessing Officer held that the foreign exchange loss incurred on material purchases forms part of construction cost and should be part of the cost of the project. Accordingly, he disallowed the foreign exchange loss. iii. During the assessment proceedings, assessee was asked to reconcile information as per annual information return and return of income. The learned Assessing Officer found that on 30th March, 2017, assessee has sold Taj Majala Wing 11, New Cuff pared, Wadala, Mumbai for Rs.4.75 crores whose stamp duty value is Rs.4,77,03,051/- and therefore, according to Section 43CA of the Act the above addition is required. The claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly, confirmed the Transfer Pricing adjustment of Rs.99,14,138/- against adjustment of ld TPO of Rs 1,98,25,276/-. 011. Based on this, the assessment order under Section 143(3) of the Act was passed on 30th July, 2022 determining the total income of the assessee as per normal computation of income at Rs.145,67,53,980/- and book profit at Rs.107,90,96,962/-. 012. Assessee is aggrieved with that and has preferred this appeal. 013. During the course of hearing, the assessee has raised an additional ground of appeal as per letter dated 24th November, 2022, raising following two issues:- i. That tax deduction at source of Rs.6,40,23,793/- was claimed by the assessee, however, the learned Assessing Officer granted the credit of only Rs.6,38,02,475/- and therefore, there is a short credit of Rs.2,21,318/- which should be granted to the assessee ii. The second issue was that disallowance under Section 14A of the Act computed in the normal computation of total income was also added by computing the book profit under Section 115JB of the Act. It further challenges charging of interest under Section 234B and 234C of the Act. 014. It was claimed that these additional grounds are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re than the tax computed under the normal provisions of the Act, then the former becomes the final tax liability of the assessee. The mode of computation of Book Profits has been prescribed under MAT provisions. The issue posed for our consideration is whether computation provisions prescribed for computation of total income under normal provisions with reference to section 14A can or cannot be taken into consideration while computing Book Profits under MAT provisions." 9. Having regard to this decision, the decision cited by the revenue in the case of Sobha Developers (supra) has been considered. At this juncture, it would be beneficial to refer to the co-ordinate bench decision of this Court in the case of Karnataka State Industrial and Infrastructure Development Corporation Ltd. v. Dy. CIT [2021] 125 taxmann.com 221/278 Taxman 126/431 ITR 255 (Kar.), wherein the computation of book profit with reference to sections 14A and 115JB has been considered and it is held that Explanation 1 in section 115JB(2) has been inserted so as to provide that if any provision for diminution in the value of any asset has been debited to the profit and loss account, it shall be added to the net pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n distributed the interest saved to the respective parties. However, the learned dispute resolution panel has rejected the finding of the learned transfer-pricing officer and has held that 0.5% is the appropriate arm's-length price of the guarantee commission following the decision of the honourable Bombay High Court. He submitted that the approach of the assessee is also based on the interest saved by the assessee and after that, it has been appropriately allocated between these two parties. Therefore, the arm's-length price determined by the assessee is to be accepted. He submitted that originally, assessee did not compute the arm's-length price, but without prejudice, the ALPA was computed at 0.35%, the learned TPO computed at 1% and the learned DRP upheld at 0.5%. He therefore submitted that 0.5% arm's-length price of the guarantee commission is not sacrosanct. He further submitted that scientific approach adopted by the assessee based on the credit rating of associated enterprises coupled with proper search on standard database and thereafter deriving the interest saved after making adjustment on tenure of the bond and then allocating the benefit between the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sk in providing guarantees and that may be reasons that finance provider insist on non- charging any commission from associated enterprise as a commercial principle. Further, it has been observed that this position indicates that pro- vision of guarantee always involves risk and there is a service provided to the associated enterprise in increasing its creditworthiness in obtaining loans in the market, be from financial institutions or from others. There may not be immediate charge on profit and loss account, but inherent risk cannot be ruled out in providing guarantees. Ultimately, the Tribunal upheld the adjustments made on guarantee commissions both on the guarantees provided by the bank directly and also on the guarantee pro- vided to the erstwhile shareholders for assuring the payment of associated enterprise. 76. In the light of the above decisions, we hold that the Tribunal committed an error in deleting the additions made against corporate and bank guarantee and restore the order passed by the Dispute Resolution Panel." 023. In view of this, we find that the argument of the learned authorized representative that corporate guarantee issued by the assessee to its associate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be 0.5% of the guarantee amount. It was held so only for the reason that the learned transfer-pricing officer in that particular case has compared the corporate guarantee with the bank guarantee. That is not the case before us. In the present case, assessee without prejudice to the other argument, benchmarked the guarantee commission by looking at the credit rating of the company in whose favour of the guarantee is issued, based on that interest saving approach (yield approach) was used to find out difference between interest rates charged, where the loans are guaranteed and interest rates where the loans are not guaranteed. The difference between these two rates was further adjusted by the tenure of the loan (Tenor adjustment). The resultant interest was found to be the interest saved because of corporate guarantee of the assessee along with others issued in favour of the AE. The assessee distributed the same between the guarantor and AE equally. The learned transfer-pricing officer found that there is a cup available where assessee has given loan to the associated enterprise without guarantee at the rate of 14% interest. The interest rates of the bonds, which are guaranteed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of m/s Everest Kanto cylinders Ltd by the honourable Bombay High Court (Para 10 of income tax appeal number 1165 of 2013, dated 8/05/2015). We find that the issue of charging of rate of guarantee commission has been a matter of adjudication in several honourable Mumbai ITAT decisions. These decisions were 0.5% as the arm's-length and the proper rate of commission on corporate guarantee. Therefore, in our considered opinion, the arm's-length rate for a commission should be adopted at 0.5%, which was the adjustment of Rs. 9,914,138/-. The ground of objection number six with sub- grounds is disposed of accordingly." 028. The learned DRP neither looked at the methodologies required to benchmark the international transaction of issuing a corporate guarantee and nor cared to look into the economic aspect of the whole international transaction. The approach and adopted by the learned DRP in rejecting the benchmarking methodology without writing a one single word that which method should have been applied by the parties for benchmarking international transaction of corporate guarantee. This is in clear violation of the provisions of section 92CA (3) of the act. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarantee commission at the rate of 0.5%. We find that between the above two, we would be more likely to uphold the benchmarking of the assessee of the guarantee commission based on yield approach, which is derived after the proper credit rating of associated enterprises, on DealsScan database, determining the appropriate interest saving and thereafter attributing it between the two parties. It is also to be noted that the arm's-length price of the guarantee commission by yield method would be the maximum rate. Therefore, we uphold the alternative benchmarking provided by the assessee of the guarantee commission at the rate of 0.35%. Accordingly, ground number 1 of the appeal is partly allowed. 031. Ground 2 of appeal is with respect to the disallowance under section 14 A of the act. The learned authorized representative submitted that assessee has not earned any exempt income during the year and therefore there is no question of any disallowance under section 14 A of the act. He specifically referred to the decision of honourable Delhi High Court in case of principal Commissioner of income tax versus Era infrastructure (India) Ltd 448 ITR 674 032. The learned departmental rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss is not to be included. He specifically referred to paragraph number [8] of that order. He further submitted that in ITA number 3735 and 2013 for assessment year 2009 - 10 dated 29/6/2016 also the coordinate bench per paragraph number 10 has held that foreign exchange gain or loss does not increase or decrease the value of the cost of the raw material and therefore it is not required to be included in the valuation of closing stock or in project cost. He therefore submitted that the treatment given by the assessee in its books of accounts clearly is in conformity with the accounting standards issued by the Institute of chartered accountants of India and supported by the judicial precedents. Therefore, the foreign exchange gain or loss on purchase of raw material should not be included in the cost of inventory or in project cost but is to be allowed as revenue expenditure in the year in which it is incurred. Alternatively he referred that assessee is also on the foreign exchange gain and it should be net of and further loss on account of foreign exchange should also be carried forward as cost of project and should be granted as deduction as opening stock in the next year. 035. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the stamp duty authority is Rs. 47,703,051/- which exceeded the value of the sale consideration by Rs. 203,051. Thus, the difference between the sale consideration and stamp duty value is merely 0.43%. The learned assessing officer has made the addition of the above sum by invoking the provisions of section 43CA of the act. This was also upheld by the learned dispute resolution panel. 038. The learned authorized representative submitted that first proviso to section 43CA (1) of the act states that where the difference between the sale consideration and value adopted for the purpose of stamp duty does not exceed 1 10% of the sale consideration, the deeming provisions of this section will not apply and the actual sale consideration will be considered for the purpose of calculation of the profit. Prior to 1 April 2021, the proviso provided tolerance band of 105% of the sale consideration it was submitted that the enhancement of the tolerance band should apply retrospectively as it is amended to your the genuine hardship faced by the stakeholders and therefore it should be applied retrospectively. The assessee relied upon several judicial precedents. Accordingly, it was argued that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave carefully considered the rival contention and perused the orders of the lower authorities. 042. We find that identical issue arose before the coordinate bench in case of Sai Bhargavanath Infra v Assistant Commissioner of Income-tax* 2022] 144 taxmann.com 168 (Pune - Trib.) For assessment year 2015 - 16 wherein it has been held that:- "4. We observe from plain reading of sec. 43CA that it provides in a case where consideration received or accruing as a result of the transfer by an assessee of an asset other than the capital asset being land or building is lesser than the value adopted or assessed by any Government authority for the purpose of payment of stamp duty then the difference will taxed as deemed income. At the same time, the proviso to this section states that if there is a difference of such value within 10% margin then there cannot be any addition on the pretext of deemed income and this 10% margin has been inserted by Finance Act, 2020 w.e.f. 1-4-2021. The assessment year under consideration before us is A.Y. 2015-16 that is prior to the date when the amendment took place and such 10% margin was inserted. The question therefore, arises whether this amendment effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court in CIT v. Rajiv Bhatara [2009] 178 Taxman 285/310 ITR 105 by holding the proviso u/s 113 to be retrospective in nature. Then the Supreme Court was of the view that the issue ought to be referred to a larger Bench of Five Judges. In this decision, the Hon'ble Supreme Court has given fundamental doctrine of retrospective applicability of provision. It has been held that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in terms of the Act or arises by necessary and distinct implication. The assessment creates a vested right on the assessee. The assessee cannot be subjected to re-assessment unless the provision to that effect is inserted by amendment either retrospectively or by necessary implications retrospectively. The Hon'ble Apex Court also opined that there cannot be any imposition of tax without the authority of law and such law has to be unambiguous and should prescribe liability to pay taxes in clear terms. This very principle is based on the doctrine, which means that if a particular provision of statute is not clear regarding imposition of tax or because of persons from whom the tax has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar More v. ITO [IT Appeal No. 1503 (Pune) of 2015, dated 25-1-2019], where the said proposition of applicability of a beneficial provision was considered in light of Hon'ble Apex Court decision in the case of Vatika Township (P.) Ltd. (supra). In the said Tribunal order, the Bench observed that if the legislature is going to confer a benefit then such an averment will have a retrospective effect. The Tribunal observed that while discussing this issue in para 33 of the said judgment, the Hon'ble Apex Court held that "We would also like to point out, for the sake of completeness, that where a benefit is conferred by legislation, the rule against a retrospective construction is different. If legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally and where to confer such benefit appears to have been the legislators object, then the presumption would be that such legislation, giving it a purposive construction, would warrant it to be given a retrospective effect". The net effect of this judgment is that if a fresh benefit is provided by the Parliament in an existing provision, then such an am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the assessee of applicability of article 12 of the India Singapore double taxation avoidance agreement only if the technical knowledge, experience, skill, know-how or process is made available to the non-resident. 048. Brief facts of the case shows that assessee has availed certain services from foreign service providers for development of certain projects and services are in relation to nature of architectural design layout including designing positioning of various buildings, common amenities, inclusion of certain other common amenities such as swimming pool and clubhouse, planning of floor space index with respect to number of units that can be placed on each floor and layout of such unit, landscape play out et cetera. The total fees paid are with respect to make the project aesthetically beautiful and appealing. For these purpose assessee has made payment to Singapore-based parties. On such payment had admittedly no tax is deducted at source under section 195 of the act. Assessee submits that no tax is required to be deducted on such payment in terms of article 12 of the India Singapore DTAA, as it does not satisfy make available condition. The learned assessing officer r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. In any case, the taxability of the payment is not dependent upon certificate issued by chartered accountant. The taxability is decided by the provisions of the act/DTAA. We note that the taxability of such payments as income in the hands of the non-resident are recipient is a complex process of law as provided in the act. It should be left to the expertise of respective assessee officer. Therefore, we are of the considered opinion that the export to have been deducted under section 195 of the act and without such deduction, the payments (expenditure) is liable to be disallowed under section 40 (a) (i) of the act." 050. The learned authorized representative referred to each of the payment and submitted that all the parties are based out of Singapore. The services rendered by them are in the nature of architectural/landscape design and layout, interior designing and lighting services provided by the vendor's while proceeding with the development activities for its project. He referred to each of the agreement based on which the nature of services rendered by those parties was explained. He submitted that the services provided by the vendor's are unique, project specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not make available many services to the assessee and therefore, it is not chargeable to tax in India according to Double Taxation Avoidance Agreement and therefore, no tax should have been deducted at source. Accordingly, the disallowance made by the learned Assessing Officer is not correct. 052. The learned departmental representative vehemently supported the orders of the lower authorities. It was the claim of the learned departmental representative that these consultants have made available the technology and skill to the assessee and therefore it satisfies the conditions of article 12 of the double taxation avoidance agreement and therefore tax should have been deducted at source and hence disallowance, as assessee failed to do so. 053. We have carefully considered the rival contentions and perused the orders of the lower authorities. Admittedly, the assessee has paid fees to various persons based in Singapore for the project consultancy. The services of the consultancy were included undisputedly by the learned assessing officer as well as the assessee under article 12 of the India Singapore DTAA . In Article 12 (4) of DTAA provided that :- "4. The term "fees for tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, skill, know-how or processes that enables the assessee to apply the technology contained therein. The learned DRP is also stating in its direction that the income is falling in article 12 (4) (b) of the Double Taxation Avoidance Agreement and requires to be tested whether 'make available test' is satisfied or not. It is not the case of the revenue that the services falls under article 12 (4) (C) of the DTAA. 056. While paragraph number 10.3 of the assessment order says that that the designing services were provided by the consultant in close coordination with the architect/contractor appointed by the assessee and the whole process was approved by the owner after satisfying. Therefore, consultant even interprets the whole design to the owner's contractors, which clearly makes available the services to the owner's contract for using the said design independently. Therefore the condition of make available a satisfied. The learned DRP at page number 74 of the direction held that the nature of services are such that it would have required very long presence of the service provider or its people to see the desired result on the ground. Such projects go on for a very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of land and construction of the building, the services were with respect to the site requirements, surroundings, conceptual designs and drawings and the issue involved was the interpretation of fees for technical services or royalty with respect to Indo US DTAA which is identically worded as India Singapore DTAA (there were two sub clauses in US DTAA wherein there were three sub clauses in Singapore DTAA) wherein in case of make available condition was applied with respect to the above services. We find that we are concerned here with the India Singapore DTAA which has used a separate clause in article 12(4)(c) "consist of the development and transfer of a technical plan or technical design but excludes any services that does not enable the person acquiring the services to apply the technology contained therein". That is not the question before us as we are concerned only with article 12 (4)(b) in this case which is invoked by the revenue and not concerned with whether the make available condition should also apply to article 12 (4) (C) of the DTAA. ii. Same is the issue with the decision relied upon by the learned authorized representative in case of 103 taxmann.com 344 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n." It gives a hint that it is identical to'make available' condition applicable to article 12 (4) (b) of the Double Taxation Avoidance Agreement. iv. Later on it has come to our notice that coordinate bench in assessee's own case for assessment year 2014 - 15 to 2016 - 17 and 2018 - 19 in ITA number 497 - 500 & 784/M/2022 along with cross objections number 73 - 75 and 85/MUM/2022 dated 24/1/2023 where the learned AO was in appeal against the order of the learned CIT - A deleting the claim under section 201 (1) and interest under section 201 (1A) of the act for not withholding tax under section 195 of the income tax act pertaining to the payment made to architectural consultancy and payment for other services, brokerage payment and reimbursement of expenses. The parties involved were identical to the issue before us. The nature of services is also governed by the same agreement. The coordinate bench upholding the order of the learned CIT - A following the decision of the coordinate bench in case of DCIT versus Forum homes private limited (supra) held that the income of these entities were not taxable in India and therefore the assessee was not required to deduct tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 270A of the act, it is premature, and therefore does not require adjudication, hence dismissed. 060. Accordingly, appeal of the assessee is partly allowed. ITA number 2239/M/2022 Assessment Year 2018 - 19 061. Now we come to the appeal of the assessee for assessment year 2018 - 19 in ITA number 2239/M/2022 wherein the assessee has raised following grounds of appeal. " 1. The learned assessing officer/TPO/DRP has erred in making transfer-pricing adjustment in respect of transaction of provision for guarantee by applying the rate of 0.5% of the guarantee amount. 2. The learned assessing officer/DRP has erred in disallowing an amount of Rs. 54,199,690/- under section 14 A of the act. 3. The learned assessing officer/DRP has erred in enhancing the book profit of Rs. 54,199,690/- by disallowance under section 14 A of the act while calculating MAT liability under section 115JB of the act 4. The learned assessing officer/DRP has erred in disallowing loan processing fee of Rs. 46,843,401/-. 5. The learned assessing officer/DRP has erred in disallowing Rs. 105,373,481/- under section 40 (a)(i) of the act by categorizing consultancy fees as fees for technical ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of releases 30/12/2018. On the requirement of the property owner, assessee has given the guarantee to the property owner for an amount not exceeding the total rental of GBP 2,589,307 over the nine years lease. Towards the unpaid rent if any as well as breach of any other letting terms by the tenant. The unpaid rent as of the financial year 2017 - 18 was GBP 520,771. The claim of the assessee was that it is not involving any cost, the tenant has also not obtained any borrowing of finance for any other benefit. This guarantee is merely a security to the property owner to ensure the recovery of the rent and therefore no guarantee commission was charged. The learned TPO held it to be a guarantee contract for which assessee should have been remunerated. The learned TPO obtained the bank guarantee rate of four different banks whose average was 1.575%. To this rate the learned TPO granted deduction based on the decision of the honourable Bombay High Court in case of CIT versus Everest Kanto cylinders Ltd and decision of the coordinate bench in case of landmark pharmaceuticals Ltd with a downward adjustment of 0.375 percentage to the net" of the bank guarantee. Accordingly, the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of guarantee commission of Rs. 212,448,083 to only Rs. 98,653,150/- directing the learned transfer pricing officer to follow the decision of the honourable Bombay High Court in case of Everest Kanto and computed the arm's-length price of the guarantee commission fee at Rs. 0.5 percent. ii. The disallowance under section 14 A on receipt of dividend income of Rs. 8,303,761/- as exempt income, where the assessee on its own offered a disallowance under section 14 A of the act to the exempt income of Rs. 8,303,761/- but the learned assessing officer made a disallowance of Rs. 62,503,451/- was restricted to only Rs. 54,199,690/- granting assessee the benefit of disallowance offered by it in its return of income. iii. With respect to the disallowance of loan processing fee of Rs. 4,68,43,401 as capital expenditure was upheld iv. the disallowance of expenditure of foreign remittance for non-deduction of tax under section 40 (a) (i) of the act with respect to the five different entities from Singapore amounting to Rs. 105,378,481/- was also upheld v. With respect to the disallowance under section 43CA of the act where the sale consideration offered by the assessee is less th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 2018 for payment of rent, the unpaid rent as on the end of financial year 2018 was only GBP 520,771. Assessee did not benchmark this guarantee. The learned AO considered the average bank guarantee rate as arm's-length rate for benchmarking the guarantee issued by the assessee to its AE. The learned TPO computed the average of bank guarantee commission charged by four different banks at 1.575% and granted certain deduction based on the decision of the honourable Bombay High Court of 0.375% and computed the arm's-length price of this guarantee income on this is 1.20%. The learned dispute resolution panel directed the learned TPO to accept the arm's-length price of the guarantee commission income at 0.5% based on the decision of the honourable High Court. When in case of guarantee of borrowing by the associated enterprises we have computed arm's-length price of such guarantee commission at 0.35%, there is no reason that guarantee commission rate should be higher than 0.35% in this case. We are also guided by the fact that guarantee was executed in 2009 for nine years, in earlier years there is no commission charged by the assessee, there is no default in any of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of exempt income and amount of the disallowance. It can even exceed the amount of exempt income also. 079. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that the issue that disallowance under section 14 A cannot exceed the exempt income earned by the assessee is covered in favour of the assessee by the decision of the honourable Bombay High Court in principal chief Commissioner of income tax versus Ajit Ramakant Phatarpekar* [2021] 124 taxmann.com 124 (Bombay) that :- "9. There is no perversity in the orders passed by the Commissioner (Appeals) and the ITAT on this issue. Besides in Nirved Traders (P.) Ltd. (supra), this Court has held that disallowance under section 14A of the IT Act cannot be more than the exempt income earned by the Assessee during the assessment year in question.." 080. Accordingly, ground number 2 of the appeal of the assessee is allowed. 081. Ground number 3 is with respect to the disallowance under section 14 A of the act added by the learned assessing officer while computing the book profit under section 115JB of the act. Identical issue arose in the case of the assessee for assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also be capitalized as a work in progress. 085. We have carefully considered the rival contention and perused the orders of the lower authorities. Assessee is engaged in business of construction and development of realistic projects including purchase and sale of building materials. It is in fact borrowing cost the method adopted by the assessee is that it has allocated the finance cost to a specific project based on the fund flow of the company. The assessee aggregated all project cost incurred up to 31/3/2018 including land and also aggregates own sources of funds. The net deficit if any is calculated and the weighted average borrowing cost are located on such deficit to arrive at the interest cost, which has to be included into the cost of project. Accordingly assessee out of the total loan processing fees of Rs. 46.16 crores and balance sum of Rs. 4.68 crores. The loan processing fee is interest and deductibility is required to be tested under section 36 (1) (iii) of the act. We find that this issue is squarely covered in favour of the assessee by the decision of the honourable Bombay High Court in case of CIT versus Lokhandwala constructions industries Ltd 131 taxman 810 (B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 36(1)(iii) of the Act - Calico Dyeing & Printing Works v. CIT [1958] 34 ITR 265 (Bom.). In that judgment, it has been laid down that where an assessee claims deduction of interest paid on capital borrowed, all that the assessee had to show was that the capital which was borrowed was used for business purpose in the relevant year of account and it did not matter whether the capital was borrowed in order to acquire a revenue asset or a capital asset. The said judgment of the Bombay High Court applies to the facts of this case." 086. Therefore, respectfully following the decision of the honourable Bombay High Court, we direct the learned assessing officer to allow the deduction of Rs. 46,843,401 of loan processing fee as expenditure allowable under section 36 (1) (iii) of the act. Accordingly, ground number 4 of the appeal is allowed. 087. Ground number 5 is with respect to the disallowance under section 40 (a) (i) of the act amounting to Rs. 105,373,481/- being amount paid as a consultancy fees to the foreign parties without deduction of tax at source. 088. The fact shows that during the year the assessee has paid to several Singapore entities professional fees such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year the assessee company has sold various properties both commercial and residential in nature. Assessee in its computation of total income with respect to several properties has offered few disallowance of Rs. 1,44,25,474/-. The learned assessing officer noted that though the total variation as per section 43CA of the actors Rs. 397,958,460/- however assessee has offered the disallowance only to the extent of Rs. 14,425,474/-, therefore the learned AO made the balance disallowance of Rs. 383,532,986/-. The learned dispute resolution panel confirmed the same. 093. The learned authorized representative referred to page number 210 of the paper book wherein complete arguments were noted. These arguments are:- i. the significant inventory is have been piled up and huge amount of funds have been locked up and therefore the company has sold certain properties at the prevailing market prices which were lower than the stamp duty value adopted by these authorities. ii. The assessee has supported its sale by valuation report from the independent valuer which has considered the relevant factors of the particular property such as area, nature, use, width, adjacent localities, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther aspect also in this ground. As per provisions of (2) of section 43CA provides that provisions of subsection (2) and subsection (3) of section 50 C shall, so far as may be, apply in relation to determination of the value adopted or assessed or assessable under subsection (1). 099. Assessee submitted before ld AO as under :- During the year under consideration the assessee company has sold various properties both commercial and residential in nature. In this respect working u/s 43CA as required by your goodself is enclosed as under for assessee company Macrotech Developers Pvt Ltd (Formerly known as Lodha Developers Pvt Ltd) along with entities which have been merged with assessee company during the year under consideration. Sr. No. Company Commercial Residential Total Variation Suo Moto Disallowed in COI 43 CA working I Macrotech Developers Ltd. (Assessee Company) 5,52,51,772 16,19,03,666 21,71,55,438 1,40,34,524 Annexure-A II Palava Dwellers Pvt. Ltd. (Merged entity) - 17,87,84,264 17,87,84,264 - Annexure -B III Bellissimo Developers Thane Pvt. Ltd. (Merged entity) - 17,15,680 17,15,680 3,90,950 Annexure-C VI Bellissimo Mahavir Associates Dwell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not at its "fair market value". It is well known fact that an immovable property may have various attributes, charges, encumbrances, limitations and conditions. The object of the valuation by the Stamp Valuation Authority is to secure revenue on such sale and not to determine the true, correct and fair market value of the immovable property on which it may be purchased by a willing purchaser subject to and taking into consideration its situation, condition and other attributes. The Stamp Valuation Authority does not take into consideration the attributes which drives the prices of the property for determining the fair market value in a given condition for which it is sold. The Stamp Valuation Authority is bound to value the property as per the circle rates fixed. Further, it is nothing in any law which recognizes that the value adopted for the purpose of stamp duty is the fair market value of the property exchanged between the seller and buyer. iii. Circle rate is nothing, but, a guidance given by the higher ranking Administrative Officer to the subordinate officer. Under the Indian Stamp Act, it has been clearly stated that "The valuation so fixed by the Government shall act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket value and therefore disallowance u/s 43CA is not warranted. Further, if your goodself is not satisfied with the above submission and valuation report of registered valuer substantiating such claim then we would request your goodself to kindly refer the said matter for valuation as per the provisions of section 43CA(2) of the Act ........... II. Palava Dwellers Private Limited The assessee in the year under consideration was developing the projects comprises of residential and commercial units. Details of projects in which units sold during the year and where difference is on account of sale consideration and stamp duty value is as under: Sr. No. Project Nature of units Location Variation as per 43CA working i. Casa Bella Gold Residential Usargar 3,500 ii. Casa Rio Residential Ghesar Village 3,74,56,988 iii. Casa Rio Gold Residential Ghesar Village 8,34,82,637 iv. Lodha Freshia Residential Ghesar Village 5,78,41,139 Total 17,87,84,264 With reference to above we would like to submit as below: 1. Sr.no (ii), (ii) and (iv): In this respect we would like to state that the assessee has sold residential flats to customers at Project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er consideration is an follows; Project Units sold at < RR Unit sold at > Total Units Percentage of units sold Casa Rio 99 25 124 80% Casa Rio 178 54 232 77% Lodha Freshia 62 1 63 98% Average 85% From the above table it may be observed that on an average assessee has sold 85% of units below the ready reckoner rate considered for the purpose of payment of stamp duty. Thus, it is evidently clear that the substantial sales made by the assessee company fails under the "below the ready reckoner rate" category and the value determined by the stamp duty authority is not the fair market value of the property as there was no market existed for such a price determined by stamp duty authority. Accordingly, the circle rate so decided is not the only factor contributing to the fair market value of the property. iv. In support of our claim, we have obtained the valuation report from the independent recognized property valuer determining the fair market value of the property after considering all the relevant as under- a. CASA RIO With respect to this project, we have obtained the valuation from Independent registered valuer of Flat No. 501 for building "Nautica" under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this section. ........ IV. Bellissimo Developers Thane Private Limited The assessee in the year under consideration was developing the projects comprises of residential units. Details of projects in which units sold during the year and where difference is on account of sale consideration and stamp duty value is as under: Sr. No. Project Nature of Units Location Variation as per 43CA working (refer Table 3) i. Amra Residential Kolshet, Khokali & Balkum 17,15,680 Total 17,15,680 Table 3 Project/ Building Above tolerance band of 10% (disallowable under Section 43CA based on Percentage completion method) Percentage of Completion Disallowance Amara 17,15,680 66.00% 11,32,349 Total 11,32,349 Based on the above submission, total disallowance u/s 43CA works out to be Rs. 11,32,349/- and the assessee in its computation of income has suo moto disallowed a sum of Rs. 3,90,950/- and the net disallowance will be Rs. 7,41,399/-. Further, we wish to state that the balance disallowance will be offered to tax in subsequent assessment years as and when the assessee recognises the corresponding revenue based on the percentage completion method. 0100. The Ld AO did not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y' refer the valuation to a 'valuation officer'. Thus we note that the sections provide an exception to the 'rule of stamp duty valuation adopted in section 43CA(1) of the Act. We note that the exception, so provided by virtue of application of section 50C(2) & (3) of the Act, has two preconditions as mentioned supra. The first condition is that the assessee should claim before the assessing officer that the value adopted/ assessed/ assessable by the stamp valuation authority (SVA) exceeds FMV on the date of transfer, and the second condition is that the value adopted/ assessed/ assessable by the SVA has not been disputed in any appeal/ revision/ reference before any other authority/ court the High Court. We note that when these two conditions exist, then the assessing officer 'may' (in his discretion) refer the valuation to a 'valuation officer'. We note that in the instant case of the assessee, only first condition existed, where it had claimed that the stamp duty value exceeded the FMV. We note that the second condition was not existing/ fulfilled by bringing any material on record to establish that the value adopted/ assessed/ assessable by the SVA has not been disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not find any reason to substantiate that actual sale consideration is the market rate, assessee itself accepted and has offered such higher deemed sale consideration for the purpose of computation of profits and gains. Wherever, assessee had objected, it has objected by submitting the reasons, substantiated such reasons with the valuation report and made a specific request to the learned assessing officer to refer the matter to the valuation cell for arriving at deemed sale consideration. Repeatedly saying so before the AO, the learned assessing officer did not care to look into all the submissions and made the addition under section 43CA of the act. The learned AO even did not care to look into the disallowance already offered by the assessee itself. 0104. In fact, in this situation the learned AO is duty-bound to follow the mandate of subsection (2) of section 43CA of the act. That meant that takes the AO to the provisions of 50 C (2) and (3) of the act. Those provisions clearly states that if the assessee claims before AO that the value of the property determined by the stamp valuation authority exceeds the fair market value of the property as on date of transfer, the AO is dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "21. It is further settled law that when a power is given to do certain thing in a certain way, the thing must be done in that way or not at all and other methods of performance are forbidden. [See: Taylor Vs. Taylor,1875) 1Ch.D.426; Nazir Vs. King Emperor, AIR 1936 PC 253, AIR 1975 SC 985; Babu Verghese Vs. Bar Council of Kerala, (1999) 3 SCC 422]." 0107. Thus where the law mandates the learned assessing officer to do the things in a particular manner, if he fails to do so as per the provisions of the law, we do not have any other alternative but to delete the addition. Such a view has been taken even in case of violation of procedures; we are dealing with the substantive addition in the hands of the assessee. 0108. Accordingly, ground number 6 of the appeal of the assessee is allowed. 0109. Ground number 7 of the appeal of the assessee is with respect to the grant of minimum alternative tax credit to the assessee of merged entities. Ground number 8 is with respect to short grant of tax deduction at source credit of Rs. 48,157,988 including the tax deduction at source credit of merged entities. 0110. The learned authorized representative vehemently submitted that on amalgamat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany upon amalgamation. (vi) we find that provisions of section 115JA of the act provides specific treatment with respect to sections 35AB(3), 35D(5), 35DDA(2), 72A(1), 80-IAB(3)/80-IAC(4)/80-IC(7)/80-ID(5)/80-IE(6) read with Section 80-IA(12), 10AA(5) etc which contain specific provision entitling the amalgamated company to claim the benefit of certain deductions to which the amalgamating company was entitled to. Admittedly, there is no such reference of minimum alternative tax credit of amalgamating companies. However, as we have already held that MAT is an asset of that company and therefore there is no specific provision required. Further, 115JAA of the act deals with certain rights of claim of deductions, which are entitled to the amalgamated company. (vii) in several judicial precedents of coordinate benches the above view has been upheld a) M/s. Caplin Point Laboratories Ltd. v. Assistant Commissioner of Income-tax 31/1/ 2014 [ITA No.667/Mad/2013 (Chennai)] b) Ambuja Cements Ltd. v. Deputy Commission of Income-tax 5/9/2019 [ITA no.3643/Mum./2018 ( Mumbai)] c) Capegemini Technologies Services India Limited [1857/PUN/2017 dated 30/8/2022] 0113. In view of this, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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