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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 ..... e guarantee issued by the assessee to its associated enterprises is not an international transaction is not acceptable. Issuance of the corporate guarantee in favor of subsidiary - To be treated as a shareholders' activity or not - non-charging of corporate guarantee commission - Guarantee was issued for the business of the fellow subsidiary. Further when Guarantee is covered in clause 92B (2)(1)(C) specifically and it is a capital financing transaction specifically included there in, it is unnecessary to stretch it to bring in to clause (d) of ' Provision of services'. Immediate benefit to subsidiary is demonstrated by the assessee as well as ld TPO by showing substantial interest savings due to guarantee which both the parties accrued that to both the contracting parties. AR heavily relied on decision of Coordinate bench [ 2015 (12) TMI 143 - ITAT AHMEDABAD] for AY 2006-07. However, he could not show us a single paragraph on facts to show that what are the compelling factors existing to call it as shareholders' activity. Not every transaction with a subsidiary can be called a shareholder's activity unless reasons are demonstrated with credible facts. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of project. Accordingly, we allow ground of the appeal of the assessee. Addition by invoking the provisions of section 43CA - difference between the sale consideration and stamp duty value is merely 0.43% - HELD THAT:- The difference between the stamp duty value of a stock in trade and the transaction value covered by the provisions of section 43CA is less than 10% even prior to 1/4/2021, does not warrant any addition in the hands of the assessee. Accordingly, we direct the learned assessing officer to delete the addition made under section 43CA of the act. Ground number 4 of the appeal of the assessee is allowed. TDS u/s 195 - disallowance u/s 40 (a) (i) - amount paid to non-resident without deduction of the tax - contention 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 - HELD THAT:- The claim of the revenue is that those services fall under article 12 (4) (b) and it has been made available to the assessee, which is unfounded, we hold that the services do not satisfy the make available conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Grant of minimum alternative tax credit to the assessee of merged entities - Whether there is any provision in the act itself to grant any such credit under section 115JAA? - HELD THAT:- When the effective date of merger is 1/4/2017 whereby 11 companies merged with the assessee company by the order of the National company law Tribunal. We direct the learned assessing officer to allow the minimum alternative tax credit available in the hence of those 11 companies to the assessee after proper verification. Accordingly, ground number 7 of the appeal is allowed. Short granting of tax deduction at source credit including the tax credit of merged entities - HELD THAT:- We direct the learned assessing officer to grant credit of such sort deduction of tax at source of the assessee as well as of merged entities after proper examination. - ITA Nos. 2266 And 2239/Mum/2022 - - - Dated:- 17-4-2023 - Shri Prashant Maharishi, AM And Shri Pavan Kumar Gadale, JM For the Assessee : Shri Vijay Mehta, AR For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (the Rules) as expenditure incurred for earning exempt dividend income under normal provisions of the Act without considering the fact that the Appellant has not earned any exempt income during the year under consideration 2.2. adding the disallowance made under section 14A of the Act to the book profits computed under section 115JB of the Act. 2.3. not appreciating the fact that amendment to Section 14A by Finance Act, 2022 is prospective in nature and not retrospective. 2.4. On the facts and circumstances of the case and in law, the learned AO / DRP has erred in not following the binding decision of the Hon'ble Jurisdictional Tribunal, Mumbai in the appellant own case on the issue under consideration. 2.5. Each one of our previously mentioned grounds of appeal is without prejudice to the other 3. On the facts and the circumstances of the case and in law, Ld AO/Hon'ble DRP, erred in: 3.1. disallowing foreign exchange loss of Rs. 99,06,468 by capitalizing the same to inventory. 3.2. Without prejudice to the above, if it is held that foreign exchange loss is capitalize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of builders and developers. Assessee has undertaken residential and commercial projects. It is following Percentage Completion Method for revenue recognition. 04. Assessee filed its return of income on 31st October, 2017, declaring total income of ₹140,25,03,230/- as per normal computation and book profit under Section 115JB of the Income-tax Act, 1961 (the Act) at ₹105,54,66,739/-. The ld AO selected it for scrutiny. 05. Assessee has entered into international transactions and therefore, the learned Assessing Officer referred the matter to the learned Asst. Commissioner of Income Tax, Transfer Pricing, 3(2)(1), Mumbai [ The Ld TPO ] for determination of Arm's Length Price. 06. Assessee has issued a corporate guarantee in the name of its Associated Enterprise, Lodha Developers International Limited (LDIL) along with few other group companies. Fact show that during F.Y. 2014-15, i. Lodha Developers International Limited (LDIL), a Mauritius base company, has raised USD 200 Million by way of issuance of 12% Senior Notes Due 2020 ( Bonds ) listed on Singapore Exchange to be used for the purpose of construction and development of real estate project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 BPS where deals are guaranteed. Based on that, it found that savings in interest cost due to guarantee is 70.46 BPS and distributed this interest saving at the rate of 50:50 between both the parties. Therefore, the arm s length rate of guarantee commission was determined at 35.23 BPS i.e. 0.35%. Thus, the assessee contended that at the most guarantee fee could be 0.35%. x. Learned Transfer Pricing Officer rejected the benchmarking of the assessee. The learned Transfer Pricing Officer held that interest rate without guarantee is 14% charged by Palava Developers Private Limited to Lodha Developers International Limited and further when assessee stood guarantor for the bonds the interest paid by the Associated Enterprises is 12%. Therefore, interest saved is 2%. He also challenged the tenor adjustment computed by the assessee and reached at the calculation of 1.088% and reached at the interest rate with guarantee at 13.05%, the resultant analysis was that interest rate as per internal CUP was 12%, interest rate after tenor adjustment is 13.05% in USD terms and interest rate after tenor and currency adjustment in bonds was determined at 12.73%. Accordingly, the comparable interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of 10% is increased from 5% is curative in nature as held by several judicial precedents and therefore, no addition is required. The learned Assessing Officer rejected the same and made the addition of ₹2,03,051/- u/s 43CA of the Act. iv. Learned Assessing Officer also found that assessee has made a payment of ₹3,20,92,006/- to Singapore based non-resident entities and assessee has not deducted tax at source u/s 195 of The Act and therefore, same are disallowable u/s 40(a)(i) of The Act . Assessee submitted that the amount paid to Singapore entities are not 'fees for technical services' as they do not satisfy 'Make Available Test'. The learned Assessing Officer rejected the argument of the assessee and disallowed the above sum for non-deduction of tax at source. 09. Accordingly, the total income of the assessee was computed at ₹146,55,52,430/- as per normal computation. Further, book profit was increased by disallowance under Section 14A of the Act of ₹10,22,402/- at ₹107,19,96,962/-. Accordingly, the draft assessment order was passed on 25 September 2021. 010. Assessee preferred the objections before the learned Dispute Resolut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and are apparent from assessment order that can be raised at any time. 015. The learned Departmental Representative vehemently objected the same. 016. We find that the grounds raised by the assessee are apparently verifiable from the records available before us and no fresh facts are required to be investigated. In view of this, we admit the additional grounds raised by the assessee. We direct the ld AO to grant credit to the assessee of prepaid taxes in accordance with the law. With respect to addition to the book profit of disallowance computed u/s 14 A of The Act , we find that this issue is now squarely covered in favour of the assessee by the decision of PCIT V J J Glastronics P Limited [2022] 139 taxmann.com 375 (Karnataka) where in it has been held that :- 8. Section 115JB of the Act is a complete code in itself. The controversy relating to disallowance under section 14A of the Act for determining book profit under section 115JB was dealt with, in extenso by the Delhi ITAT Bench in the case of Vireet Investment (P.) Ltd. (supra) and the relevant portion of the said decision has been quoted by the Tribunal in the order impugned which reads thus:- 6. We have con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putation of book profit. Any disallowance computed under section 14A pertains to computation of income under the normal provisions of the Act and cannot be read into the provisions of section 115JB of the Act pertaining to computation of book profits for levy of minimum alternate tax. Amounts disallowed under section 14A cannot be added to the book profits computed under section 115JB. 10. Similarly, in the case of CIT v. Gokaldas Images (P.) Ltd. [2020] 122 taxmann.com 160/276 Taxman 420/429 ITR 526 (Kar.), having regard to clause (f) of Explanation 1 to section 115JB(2) of the Act, it has been observed that additions made by the assessing officer determining book profit under section 115JB of the Act cannot be sustained. Any disallowance computed under section 14A of the Act pertains to computation of income under the normal provisions of the Act and cannot be read into the provisions of section 115JB of the Act pertaining to levy of minimum alternate tax and there is no express provision in clause (f) of Explanation 1 to section 115JB of the Act to that extent. 017. Thus we hold that increase of book profit by the addition u/s 14 A of the Act is not correct, hence ld AO i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approach and therefore it should be upheld. He also referred to several judicial precedents wherein the honourable High Court has also upheld the guarantee commission rate at less than 0.5%. Accordingly, he submitted that 0.35% of the arm's-length price of the guarantee commission, subject to the other contention of the assessee, is the arm's-length price of the international transaction. 020. The learned departmental representative vehemently supported the direction of the learned dispute resolution panel that upheld the arm's-length price of the guarantee commission at 0.5% following the decision of the honourable Bombay High Court. 021. We have carefully considered the rival contention and perused the orders of the Ld TPO as well as the direction of the learned dispute resolution panel. Claim of the assessee is that provision of corporate guarantee to the associated concerns is not an international transaction and further it is a shareholder activity and therefore, assessee is not required to be remunerated. Second limb of the argument is that the guarantee commission upheld by the learned Dispute Resolution Panel at the rate of 0.5% is not correct. 022. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not acceptable. 024. Another argument of the assessee is that issuance of the corporate guarantee is a shareholders' activity and therefore non-charging of corporate guarantee commission is proper. We find that assessee is not a shareholder in an associated enterprises but a subsidiary of the shareholder of the company in whose favour of the guarantee is issued. We find that it is not the shareholder, which is issued corporate guarantee in favour of its subsidiary company. The relationship between the assessee and the company in whose favour of the guarantee is given is of fellow subsidiary. Further, it is not shown before us that Guarantee is given for supporting continuous cash flow of subsidiary. It is also not for control of capital structure and not solely for ownership purposes. Guarantee was issued for the business of the fellow subsidiary. Further when Guarantee is covered in clause 92B (2)(1)(c) specifically and it is a capital financing transaction specifically included there in, it is unnecessary to stretch it to bring in to clause (d) of ' Provision of services'. Immediate benefit to subsidiary is demonstrated by the assessee as well as ld TPO by showi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % interest. Therefore, interest saving of 2% was further reduced/adjusted by the tenor adjustment. The cup available was indifferent jurisdiction where the learned TPO applied the currency swap and adjusted the interest saved. After that, the learned TPO looked at the financial worth of the AE as well as the assessee and based on that he found that 80% of the interest saving should go to the FAR of the assessee and accordingly he held that 1% of the guarantee commission rate is at arm's-length. 026. Thus, there is no difference between methodology adopted by assessee and LD TPO, both adopted interest saving approach. Both also reached at same interest rate saved. i.e. 2 %. The only difference is in Tenor adjustment, Currency swap and attribution of interest saved between contracting parties. 027. The learned Dispute Resolution Panel issued the direction as per paragraph number 20 is under:- 20. We have used the TPO's order. We have also considered the written submissions of the assessee. Briefly stated the facts of the issuer that the company has provided security, guarantee given on senior notes on behalf of its AE station outside of India. The assessee has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el has failed to look that transfer pricing is more an economic concept than a judicial concept. 029. We are not saying that judicial decisions should not have been applied but there should have been applied if they pertain to the similar assessment year, shows similar economic conditions, have proper benchmarking methodology adopted, and is in consonance with the provisions of transfer pricing assessment and computation. 030. According to us, the corporate guarantee commission can be benchmarked by employing (1) CUP method, (2) yield method or interest saving method, (3) cost to the guarantor. The yield method or interest saving method could be the maximum guarantee commission charges and cost may be considered as the lowest guarantee commission rate. We find that the corporate guarantee commission is required to be benchmarked, in absence of cup available, and where no cost is found to be incurred by the guarantor, following the credit rating of the company in whose favour of the guarantee is issued, geographical location of the AE, adopting yield method. This has been done by the assessee as well as by the learned TPO. The learned TPO further went in a more scientific mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y stated that there is no requirement of earning any exempt income to make any disallowance under section 14 A of the act. He further referred to the explanation introduced with effect from 1/4/2022. 033. We have carefully considered the rival contention and perused the orders of the lower authorities. It is an admitted fact that during the year assessee has not earned any exempt income. As assessee has not earned any exempt income during the year, the disallowance under section 14 A of the act is not warranted. We find that this issue is squarely covered in favour of the assessee by the decision of the honourable Delhi High Court in PRINCIPAL COMMISSIONER OF INCOME-TAX vs. [2022] 448 ITR 674 (Del) wherein it has been held that the explanation inserted in section 14 A of the act by the finance act 2022 with effect from 1/4/2022 is prospective in nature. Accordingly, ground number 2 of the appeal of the assessee is allowed and the learned AO is directed to delete the disallowance under section 14 A the act. 034. Ground number 3 is with respect to the foreign exchange gain incurred on purchase of material claimed by the assessee as revenue expenditure and the learned assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tmental representative vehemently supported the orders of the lower authorities. He specifically referred to the direction of the learned dispute resolution panel wherein it has been held that the above foreign exchange loss is required to be added to the cost of inventory. 036. We have carefully considered the rival contentions and perused the orders of the lower authorities. The assessee is engaged in the business of construction and development of realistic projects including purchase and sale of building materials. The assessee purchases various materials for its construction activity. During the year, it earned foreign exchange loss by making payment for the various raw materials imported by the assessee for the purpose of its business. The expenditure incurred on material purchased by the assessee for its construction activity business is debited to the profit and loss account of the assessee. The foreign exchange gain or loss arises when the amount of sundry creditors outstanding at the time of payment are settled. The sundry creditors are the monetary items as per the Ind As 21. Even as per the Accounting Standard 2, monetary items are not required to be carried to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the addition requires to be deleted. 039. The learned departmental representative supported the orders of the lower authorities and submitted that such tolerance bench should not be applied retrospectively. The learned departmental representative referred to the historical background of provisions of section 43CA of the act and submitted that earlier it did not apply to transfer of immovable property held as stock in trade and for curbing the use of unaccounted money by parties involving in transfer of immovable property where the stock in trade is sold the above provisions were included. He relied upon the decision of the honourable Bombay High Court in case of principal Commissioner of income tax versus Swanand properties private limited (2019) 111 taxmann.com 94, the decision of the honourable allowable High Court where retrospective operation of rule 6AA was held to be prospective in case of CIT versus Rajasthan Charm Kal Kendra (2005) 144 taxman 320 and decision of the coordinate bench in welfare properties private limited versus deputy Commissioner of income tax 180 ITD 591 wherein it has been held that prior to incorporation of proviso to section 43CA (1) with effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment effective from 1-4-2021 can even apply to prior assessment years as well. The assessee had relied on Pune Tribunal decision in ITA No. 923/PUN/2019 (supra) where the Tribunal has given retrospective effect in regard to section 43CA first proviso where the tolerance margin of 10% has been held to be applicable even for the prior assessment years. However, in this decision, reliance was placed on another decision of Bombay Tribunal in the case of Maria Fernandes Cheryl v. ITO (International Taxation) [2021] 123 taxmann.com 252/187 ITD 738 (Mum) which relates to section 50C of the Act. It was contended that section 43CA and section 50C of the Act are pari materia provisions and therefore, holding of retrospective application of section 50C is even applicable making retrospective application to section 43CA of the Act as well. The ld. A.R was unable to place on record before us any direct decision where the first proviso of section 43CA which has been brought into effect from 1-4-2021 was held to be applicable retrospectively. In such scenario, we place reliance on the doctrine enshrined in the judgment of the full bench decision of Hon'ble Supreme Court in the case of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the tax has to be collected, in such case the persons should not be fastened with any liability to pay tax. It was further observed that though the Chief Commissioner in their Conference suggested that there should be retrospective amendment to section 113 of the Act, the Legislature chose not to do so even though for other provisions in which the legislature in its wisdom felt the need to do so has brought in amendments made with retrospective effect. The CBDT circular No. 2002 dated 27-08-2002 also makes it clear that the amendment to section 113 is prospective. Consequently, the conclusion reached in N. Suresh Gupta (supra) treating the proviso to section 113 of the Act as clarificatory and having retrospective effect was held to be incorrect and was over-ruled. 5-6. The essence of the decision is that if any liability has to be fastened with the assessee tax-payer retrospectively then the statute and the provision must spell out specifically regarding such retrospective applicability. However, if the provision is beneficial for the assessee, in view of the welfare legislation spirit imbibed in the Income-tax Act, such beneficial provision can be applied in a retrospective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , then such an amendment should be given retrospective effect. Therefore, even without going into the merits of the case by the application of first proviso to section 43CA having retrospective effect, the grounds of appeal of the assessee stands allowed. 043. Therefore, the above decision of the coordinate bench clearly clinches the issue in favour of the assessee wherein it has been held that tolerance band of 10% would be applicable retrospectively. We also find that similar view has also been taken in i. SHRI HARISH H GANDHI VERSUS ACIT 33 (1) , MUMBAI ITA No.1244/Mum/2019 And ITA No.2603/Mum/2019 ii. V.K. DEVELOPERS VERSUS THE ACIT, CIRCLE-3, PUNE. ITA No.923/PUN/2019 iii. M/S. SHETH DEVELOPERS PRIVATE LIMITED VERSUS DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-4 (2) , MUMBAI AND (VICE-VERSA) TA No.1953/Mum/2020 And ITA No.1954/Mum/2020 And ITA No.11/Mum/2021 And ITA No.12/Mum/2021 iv. M/S. CITY CORPORATION LIMITED, (EARLIER KNOWN AS M/S. AMANORA FUTURE TOWERS PVT. LTD.,) VERSUS DCIT, CIRCLE-1 (1) PUNE AND VICE VERSA [2022] 96 ITR (Trib) 246 (ITAT [Pune]) 044. We find that the decision of the coordinate bench in case of welfare properties private limite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondition. The learned assessing officer rejected this contention holding that from the plain reading of the nature of work mentioned in the assessee's submission, it is clear that the designing services were provided by the consultant in clause connection with the architect/contractor appointed by the assessee and the whole process was approved by the owner after satisfying itself about understanding the designing services stop the consultant even interprets the whole design to the onus contractor which clearly makes available the service to the owners' contractor for using the said design independently. These service providers submit that report to the assessee. Therefore, it is clear that the services were made available to the assessee. The learned AO was also of the view that provisions of section 195 are attracted. However the main reason of making the about disallowance was that during the course of survey of group entities for assessment year 2015 16 this information was found and AO has reached at the conclusion that it is required to deduct tax at source on such payment. 049. When objections were raised before the learned dispute resolution panel, it was held: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the vendor's are unique, project specific and cannot be performed by anybody and everybody unless such person is a possession of a specific skill set and knowledge. Therefore the assessee cannot on its own apply those services/ skill etc in a different project. Each project requires expertise of the vendor to prepare reports/design separately. He further referred to the article 12 (4) (b) of the India Singapore tax treaty where it is provided that the services would be characterized as 'fees for technical services' if such services 'make available' technical knowledge, experience, skill, know-how or processes which enables the person acquiring the services to apply the technology contained therein. He further referred to the definition of Article 12 of the treaty along with the definition of the term 'fees for included services' specifically contain the condition of 'make available'. He further referred to the memorandum of understanding under the India US tax treaty where the meaning of the expression make available used in article 12 is explained examples. Submitted that the direction of the learned dispute resolution panel is vague, not sustai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DTAA provided that :- 4. The term fees for technical services as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein ; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person. 054. The assessee has made payment to following parties:- serial number name of party nature of remittance amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 long time. The DRP also noted that the services are of such a nature that training of the main power of the assessee would be a prerequisite for subsequent observation and upkeep. Therefore in the considered opinion of the learned DRP was a dominant possibility of make available element being present in rendering of the services. We do not approve the findings of the learned dispute resolution panel because it is apparent that the services rendered by the consultant are highly technical and cannot be replicated by the assessee on its own. Even the lower authorities have also expressed merely a possibility of make available condition being satisfied, however, no evidences were led which shows that those consultants have made available the technical skill or expertise to the assessee which assessee can a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontained 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 case of Buro Happlod Ltd versus Deputy Commissioner Of Income Tax where the coordinate bench was concerned with the interpretation of Double Taxation Avoidance Agreement between India and United Kingdom wherein in paragraph number 20 of that decision it simply followed the decision of the coordinate bench in case of Gera developments private limited. iii. The third decision relied upon by the learned authorized representative is of Deputy Commissioner Of Income Tax, Mumbai Vs Forum Homes Pvt Ltd in ITA number 5804/M/2018 dated 4/10/2021 wherein an assessee was engaged in the business of real estate and has availed services of consultancy and architect services of Singapore resident. The coordinate bench applying the India Singapore DTAA held that from the nature of services provided by the non-re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 at source on this payment under section 195 of the income tax act. The coordinate bench also upheld the order of the learned CIT A. Therefore it is conclusively now held by the coordinate bench in assessee's own case for earlier years and assessment year 2018 19, appeal of which is also decided by the same order by us, that assessee was not required to deduct tax at source under section 195 of the income tax act on payment made to the Singapore entities as they were not chargeable to tax in India according to article 12 of the DTAA. v. Furthermore ITA number 782 and 7834 assessment year 2015 16 and 2016 17 as well as cross objection number 83 84 for the same assessment year was also decided by the coordinate bench on 24/1/2023 (same date as another appeal for different years on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit of ₹ 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 ₹ 46,843,401/ . 5. The learned assessing officer/DRP has erred in disallowing ₹ 105,373,481/ under section 40 (a)(i) of the act by categorizing consultancy fees as fees for technical services 6. The learned assessing officer has erred in disallowing an amount of ₹ 444,627,471/ under section 43CA of the act. The learned assessing officer/DRP ought to have held that no addition is called for under section 43CA of the act including the sumo to addition made by the appellant in its return of income. 7. The learned assessing officer ought to have granted MAT credit of merged entities. 8. The learned assessing officer/DRP has erred in short granting tax deduction at source credit of ₹ 48,157,988/ including TDS credit of merged entities. 9. The learned assessing officer has erred in computing/charging interest under section 234B of the act 10. The learned AO erred in holding that the appellant has underreported the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 1.20 percent was taken as the arm's-length price for this guarantee. Therefore on the lease rent the amount of guarantee commission was determined at ₹ 569,235/ . iii. The assessee has also given various guarantees for interest shortfall and demolition cost and procurement guarantee, right of light guarantee, financial guarantee, completion, cost overrun and interest guarantee and indemnity, sponsored guarantee to its various associated enterprises. These were not benchmarked, as assessee did not receive any guarantee commission. The learned transfer-pricing officer considered all these guarantees, adopted the arm's-length price of the guarantee commission at 1.20%, and determined the arm's-length price of the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit of disallowance offered by it in its return of income. iii. With respect to the disallowance of loan processing fee of ₹ 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 ₹ 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 than the value adopted for assessed by the authority of state government for the purpose of stamp duty amounting to ₹ 383,532,986/ was also upheld. In this case, the assessee has offered addition of RS. 1 44,25,474/ in its return of income. 067. Accordingly order under section 143 (3) read with section 144C capital (13) of The Income Tax Act was passed on 30/7/2022 determining the total income of the assessee at ₹ 1,451,242,270/ in the book profit computed under section 115JB of the act in addition of ₹ 54,199,690/ was also made on account of disallowance under section 14 A. The book profit was determined at ₹ 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irected 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 rent payment for those years. Accordingly amount of guarantee commission charged by the learned TPO at the rate of 1.20% is ₹ 5 69235/ we direct the learned AO/TPO to compute the arm's-length price of the guarantee commission at 0.35%. Accordingly, the adjustment to the extent of ₹ 166,026 is confirmed. 073. With respect to the various guarantee amount on loan raised by associated enterprise the AO has adopted the same guarantee rate of 1.20%. The learned DRP has reduced it to 0.5%, based on nature of guarantee is which are for borrowing obtained by the associated enterprises, as held in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 year 2017 18 wherein we have followed the decision of the honourable Karnataka High Court and held that disallowance under section 14 A of the act cannot be added to the book profit under section 115JB of the act. Accordingly we direct the learned assessing officer to not to make any adjustment in the book profit with respect to disallowance under section 14 A of the act. Ground number 3 of the appeal is allowed. 082. Ground number 4 is with respect to the disallowance of loan processing fee of ₹ 46,843,401. The fact shows that during the year the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 (Bom) wherein it has been held that:- 4. From the facts found by the Tribunal on record, it is clear that assessee undertook two-fold activities. It bought and sold flats. Secondly, the assessee was also engaged in the business of construction of buildings. The profits from both the activities were assessed under section 28 of the Income-tax Act. In this case, we are concerned with the second activity (hereinafter referred to, for the sake of brevity, as Kandivali Project ). According to the Commissioner, loan was raised for securing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 086. Therefore, respectfully following the decision of the honourable Bombay High Court, we direct the learned assessing officer to allow the deduction of ₹ 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 ₹ 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 landscape architectural consultancy services, architectural design consultancy services, interior designing fees, and reimbursement of expenditure. The total sum paid is ₹ 105,373,481/ . The assessing officer was of the view that assessee should have deducted tax at source under section 195 of the income tax act and as assessee has failed to do so, he disallowed the same. The learned dispute resolution panel also confirmed the same. 089. The learned authorized representative submitted identical issue arose in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of ₹ 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, urgency of sale, need of the buyer, other relevant market factors and prevalent market demand and supply conditions. It was submitted that the valuation report of the registered valuer supports the sale price of the assessee. iii. Assessee has objected before the learned assessing officer with respect to the stamp duty value applied as deemed sales consideration by supporting it with a valuation report and pointing out various conditions. Despite this the ld AO has not referred th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect 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 Dwellers Pvt. Ltd. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Saltpan 3,65,94,476 xi The park Residential Lower Parel 3,32,13,013 Total 21,71,55,438 1) Commercial Property - Serial no (i) (1) i. We would like to state that assessee has sold retail shops to customers at Project Lodha Supremus and Lodha Boulevard and during the year under consideration, the real estate market had been sluggish and slow moving. The commercial real estate market is even worse, where the sales are even more difficult to achieve. The prices have not increased over last few years and the company has been finding it difficult to sell its inventory at the expected prices. This has resulted in piling up of inventory with the company. Considering that the company had significant inventory, and huge amount of funds locked up in it and the company was bound to sell the said properties at the prevailing market prices which was lower as compared to stamp duty value adopted. ii. In this regard at the outset we submit that the stamp duty value of the property sold is not at its fair market value . It is wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Copy of the same is enclosed as Annexure - F for your ready reference and records. On perusal of the same, your goodself will observe that in the valuation report it is stated that the sale consideration of the assessee is the fair market value of the property after considering all the relevant factors for determining the fair market value of the property for the period under consideration. Therefore disallowance u/s 43CA is not warranted b. Lodha Supremus (Powai) - With respect to this project, we have obtained the valuation from independent registered valuer of Unit No. 1701 for building Lodha Supremus . Copy of the same is enclosed as Annexure-G for your ready reference and records. On perusal of the same, your goodself will observe that in the valuation report it is stated that the sale consideration of the assessee is the fair market value of the property after considering all the relevant factors for determining the fair market value of the property for the period under consideration. Accordingly, it is submitted that the other units sold by the assessee company in the same building Lodha Supremus are also sold at the fair market value and therefore disallowance u/s 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 recognises that the value adopted for the purpose of stamp duty is the fair market value of the property exchanged between the seller and the buyer. ii. 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 as guide/indicator for the purposes of assessing the duty chargeable on the value or the consideration of any immovable property . Thus, the circle rate so fixed cannot only be considered as the decisive factor in valuation of the immovable property without considering the other relevant factors which contributes greatly to the market value of the property. The following are the relevant factors which also contributes in the determination of fair market value of the property- The area of the plot or the property in question Nature of the Property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units sold by the assessee company in the same project CASA RIO are also sold at the fair market value and therefore disallowance u/s 43CA is not warranted b. CASA RIO GOLD With respect to this project, we have obtained the valuation from independent registered valuer of Flat No. 603 for building Exotica D - Wing under project CASA RIO GOLD . Copy of the same is enclosed as Annexure-I for your ready reference and records. On perusal of the same, your goodself will observe that in the valuation report it is stated that the sale consideration of the assessee is the fair market value of the property after considering all the relevant factors for determining the fair market value of the property for the period under consideration. Accordingly, it is submitted that the other units sold by the assessee company in the same project CASA RIO GOLD are also sold at the fair market value and therefore disallowance u/s 43CA is not warranted. c. Lodha Fresh a - With respect to this project we would like to bring to your kind attention that, we have obtained the valuation from independent registered valuer of Flat No. 102 for building D Wing under project LODHA FRESHIA . Copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that stamp duty rates are not the fair market value of the property and to support such claim it produced valuation reports of authorized valuers. 0101. Before ld DRP on the aspect where assessee objects to stamp duty valuation rate , it was held as under :- The assessee has raised without prejudice' sub-ground of objection no. 4.3, which relates to the claim that if its objection supra is not accepted then a reference needs to be made to 'valuation officer by the assessing officer. Briefly stated facts of the issue are that the assessee is claiming tolerance' provided in the proviso to section 43CA of the Act. As held supra, the same is not admissible in the instant AY 2018-19, because it is applicable from AY 2019-20. The assessee submitted valuation reports to the assessing officer to support its claim that the properties were sold at fair market value (FMV), which were lower than the stamp duty valuation of these properties. The assessee claimed before the assessing officer that if the claim under the proviso (in question) was not allowed, then these properties should be referred to a valuation officer, because section 43CA(2)of the Act, provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Court. In our considered opinion, the onus was on the assessee to show that the second condition was also existing in its case before asking the assessing officer to exercise his discretion to refer the matter to a valuation officer. We note that the assessee has not shown before us also that the second condition existed in the instant case. Thus, we are not inclined to grant the without prejudice' sub-objection. Hence, the ground of sub-objection no. 4.3 is dismissed. 0102. On careful perusal of the submission made by the assessee placed at page number 210 to 222 of the paper book we find that assessee has objected before the learned assessing officer per letter dated 27 September 2021 with respect to the sale value of the property being less than the stamp duty rates. Assessee has submitted company wise, project -wise, type wise (commercial or residential), name of the owners, date of booking of the property, saleable area, sales consideration and stamp duty valuation. It objected by submitting the valuation report prepared by Mr Deven K Dadbhawala dated 2/9/2021 with respect to all properties where there is a difference with respect to project (1) Lodha Bouleva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer and thereafter to look at provisions of subsection (3) to substitute the actual sale consideration with the such valuation. The AO has failed to do what the law mandates him to do. He conveniently does not look into the claim of the assessee at all. 0105. When the matter reached before the learned dispute resolution panel, the learned DRP did not reject the claim of the assessee of making a reference to the valuation officer by the learned AO but has held that according to the provisions of section 50 C (2) (b) the assessee has not given any evidence that the stamp valuation authorities valuation has not been disputed before specified authorities. The plain reading of the provisions of section 50 C (2) the assessee's claim is required only with respect to clause (a) of that section. It does not extend to clause (b) of that subsection. Therefore assessee is not required to show that valuation by stamp duty authorities are not disputed before higher forums. The learned DRP therefore rejected the contention of the assessee on the second condition of section 50 C (2) of the act i.e. 50C(2)(b) of the act. We do not find any justification for rejecting the claim of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting companies are transferred to amalgamated company and one of the assets is the minimum alternative tax credit, which is also transferred to the amalgamated company, and therefore the credit should be allowed. He vehemently referred to the decision of coordinate bench in ITA number 1857/Pune/2017 for assessment year 2013 14 dated 30/8/2022 wherein at Para number 48 of 11 ground number 11 of the appeal of the assessee the coordinate bench has held that mat credit of amalgamating company has to be allowed in the hands of the amalgamated company. 0111. The learned departmental representative submitted that the provisions of section 72A of the act clearly prohibit such set of. He specifically referred to number 49 of the decision referred by the learned AR. It was further submitted that there is no provision in the act itself to grant any such credit under section 115JAA of the act. 0112. We have carefully considered the contentions of the parties and find that when the effective date of merger is 1/4/2017 whereby 11 companies merged with the assessee company by the order of the National company law Tribunal. since pursuant to an 'amalgamation', (i) all assets and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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