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TMI Blog2023 (11) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... ments made by the assessee are funded out of the own funds of the assessee. It is a settled principle that when the own funds are more than the investments, no disallowance is warranted towards operating cost and therefore, we see no infirmity in the order of CIT(A) deleting the disallowance made under section 8D(2)(ii) read with section 14A. Disallowance u/s 8D(2)(iii) r.w.s. 14A, the Special Bench in the case of Vireet Investments Private Ltd ( 2017 (6) TMI 1124 - ITAT DELHI ) wherein it has been held that only those investments which yielded exempt income during the year are to be considered for computing the average value of investment. Respectfully following the Special Bench decision, we see no merit in the ground raised by the Revenue. MAT computation - Disallowance u/s 14 A of the act cannot be added to the book profit under section 115JB. Disallowance of Director s Salary handover facilities - AO did not accept the submissions of the assessee and disallowed 50% of the expenses towards capitalization to the cost of project - CIT(A) held that the directors salary and handover facility expenses are incurred year after year and they are related to the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion claimed by the assessee in the first year when the sample flat was put use for less than 180 days and nothing has been brought on record to show that the said claim is disputed by the revenue. Considering the facts that the revenue has not disputed the fact that the sample flat is a temporary structure and no contrary findings being brought on record in present case we hold that the assessee's claim of 50% of the cost of construction for the year under consideration be allowed. The disallowance made in this regard is deleted. Capitalization of foreign exchange loss to work-in-progress - HELD THAT:- As relying on own case [ 2023 (5) TMI 153 - ITAT MUMBAI] we hold that the foreign exchange loss cannot be included in the cost of project and accordingly should be allowed as a deduction. The accounting treatment of the assessee is supported by the authoritative pronouncement of the Institute of chartered accountants of India as well as the Ministry of corporate affairs. In view of this, we do not find any substance in the findings of the lower authority that foreign exchange loss on purchase of material should be included in the cost of project. Accordingly, the foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he National Company Law Tribunal (NCLT). The Assessing Officer during the course of assessment noticed that there are specified domestic transactions and also international transactions in the nature of guarantee. Accordingly, the Assessing Officer made a reference to the Transfer Pricing Officer (TPO) for determination of arm s length price. The TPO passed an order under section 92CA(3) dated 28/06/2019 determining the total transfer pricing adjustment of Rs. 4,32,22,246/- towards corporate guarantee given by the assessee towards security cum Guarentee given on senior notes and Tenancy Agreement. The Assessing Officer passed the assessment order incorporating the Transfer Pricing adjustment. The Assessing Officer, in addition to the TP adjustment also made a disallowance under section 14A, disallowance of expenses of director s office and handover facility expenses and loan processing fees. The Assessing Officer also made adjustment of the disallowance under section 14A to the book profits computed under section 115JB. The assessee preferred appeal before the CIT(A) against the final order of assessment. The CIT(A) deleted the TP adjustment and other disallowances made by the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcess of investments related to exempt income and accordingly deleted the addition. With regard to the disallowance under section 8D(2)(iii), the CIT(A) relied on the decision of Special Bench in the case of Vireet Investments Private Limited (165 ITD 27 (Del)(SB)) wherein it was held that for the purpose of disallowance, the investments yielding exempt income only should be considered. Accordingly, the CIT(A) directed the Assessing Officer to re-compute the disallowance. In so far as the disallowance being considered for computing book profit under section 115JB, the CIT(A) held that the same could not be made following various judicial precedence. 7. The Ld.AR submitted the below workings to submit that the own funds of the assessee is more than the investments made in tax free income earning investments. Own Funds workings (Rs in lakhs) Particulars As at 31/03/2015 As at 31/03/2016 Share Capital 11,810.80 11,810.80 Reserves and Surplus 77,763.24 95,505.53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. The Ld.AR also raised contention with regard to the legal issues that the Assessing Officer has not recorded any satisfaction for the purpose of making disallowance under section 14A. 9. The Ld.DR, on the other hand, relied on the order of the Assessing Officer. With regard to the contention that satisfaction is not recorded, the Ld.DR drew our attention to para 6.3 of the assessment order, in which the Assessing Officer has given finding justifying the disallowance under section 14A and this would mean that the Assessing Officer has recorded the satisfaction before making the disallowance under section 14A of the Act. On the merits of the issue the ld DR relied on order of the Assessing Officer. 10. We heard the parties and perused the material on record. The submission of the Ld.AR in order to substantiate the claim that assessee s own funds are more than the investments earning tax free income, with the breakup of own funds and investments to be considered for the purpose of section 14A is extracted in the earlier part of this order. From the perusal of the said details it is clear that the investments made by the assessee are funded out of the own funds of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62,44,565/-. The Assessing Officer called on the assessee to explain why 50% of the above expenditure should not be capitalized to the cost of project. In response, the assessee submitted that the role of the Director is inclusive for the company as a whole and not for specific project. The assessee further submitted that the salary paid to director is irrespective of the development stage of the project and hence, the fixed cost of the company. Accordingly, the assessee submitted that the salary cost is debited to the P L Account and not capitalized to any project. In respect of handover facility, the assessee submitted that the said department look after the administrative facility of the company and not part of cost of project. Therefore, the cost of handover facility expenses was not capitalized to any specific project. The Assessing Officer did not accept the submissions of the assessee and disallowed 50% of the expenses towards capitalization to the cost of project. On further appeal, the CIT(A) held that the directors salary and handover facility expenses are incurred year after year and they are related to the business of the assessee in general and not project specific exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the sister concern for the same assessment year wherein he followed all these judicial precedents, therefore, we do not find any infirmity in the order of learned CIT(A). Accordingly ground number 2 15. Respectfully following the above decision of the co-ordinate bench we see no reason to interfere with decision of the CIT(A). Accordingly, ground no.3 raised by the revenue is dismissed. Transfer Pricing (TP) Adjustment of Guarantee Commission: 16. The assessee had an Associated Enterprise (AE) in Mauritius Lodha Developers (LDIL). LDIL had raised USD 200 million by way of issuance of 12% Senior Notes Due 2020( Bonds) listed in the Singapore Exchange to be used for the purpose of construction and development of real estate projects in UK. The assessee submitted before the TPO that for the issue of bonds, the assessee along with few other group companies had given corporate guarantee as shareholders / direct subsidiary. The TPO noticed that in lieu of the financial guarantee given by the assessee, no commission or guarantee fee was charged by the assessee to the AE. The assessee initially submitted that the guarantee is given as part of shareholder activity a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain to the year under consideration. The Ld.DR further submitted that the CIT(A) in the order has mentioned that the guarantee fee of 0.2% to 0.53% as reasonable without any basis. It is also argued that the CIT(A) had mentioned to 50 : 50 is the ratio in which the economic benefit is share between the assessee and its AE and there is no reason for this mentioned in the order of CIT(A). The Ld.DR also submitted that the CIT(A) before holding that 0.3523% is reasonable, did not do any factual analysis of the terms of the deal. Accordingly, the Ld.DR submitted that there is no basis for the findings given by the CIT(A). 20. We heard the parties and perused the material on record. We notice that the issue of guarantee fees has been considered by the co-ordinate bench in ITA No.2384 2040/Mum/2022 order dated 27/03/2017 where it has been held that 024. Ground number 6 is with respect to the direction of the learned CIT A2 the learned AO/learned TPO to take the arm's-length price of the guarantee commission at the rate of 0.3523 percentage instead of 1.25%. The fact shows that the associated enterprises in Mauritius of the assessee M/s Lodha developers international Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring of the economic benefit as per the relative contributions on 50:50 basis. Therefore, the arm's-length rate of guarantee commission was determined at 35.23%. This finding is challenged by the learned AO. 025. The learned departmental representative supported the order of the learned assessing officer/transfer pricing officer. The assessee supported the order of the learned CIT A. The assessee further submitted that guarantee is not an international transaction is challenged by ground number 2 and 3 of its ground. 026. We have carefully considered the rival contention and perused the orders of the lower authorities. Whether the guarantee issued by the assessee to its AE is an international transaction or not, we find that the amendment made to the provisions of section 92B (1) by introduction of explanation (C) by the finance act 2012, clearly provides that it is an international transaction. Further, the honourable madras High Court in case of principal Commissioner of income tax versus Redington (India) P Ltd has also held that corporate guarantee is an international transaction. Therefore, the learned CIT A has correctly rejected this argument. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g disallowance under section 14A and Ground no.6 to 8 regarding the TP adjustment are common for both the appeals. Considering that the facts for appeal in ITA No.2383/Mum/2022 being similar to issues contended in ITA No.2382/Mum/2022, in our considered view our decision in appeal ITA No.2382/Mum/2022 is mutatis mutandis applicable to ITA No.2383/Mum/2022 also. Accordingly Ground No.1 and 2 regarding disallowance under section 14A and Ground no.6 to 8 regarding the TP adjustment raised by the revenue are dismissed. 23. Ground No. 3 and 4 are regarding the depreciation on sample flat. During the course of assessment the AO noticed that the assessee has claimed depreciation on building by applying the rate 100% and claimed 50% of depreciation at Rs. 1,85,92,541/-. The AO called on the assessee to furnish details of why depreciation is claimed by applying depreciation rate at 100%. The assessee further submitted that the sample flat is purely a temporary structure created at sight for the purpose of showing to the customer when the building is under construction and the same would be demolished subsequently in the year 2020. Therefore the assessee had applied depreciation rate at 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a temporary structure created for showing to the customers when the building is under construction and also to use as sales office and therefore eligible for depreciation at the rate of 100%. The ld. AR also submitted that the depreciation claimed during the year under consideration being 50% balance depreciation should be allowed. The ld. AR in this regard placed reliance on the following judgments: (1) KHs Machinery (P.) Ltd. V. ACIT (2023) 146 taxmann.com 230 (Ahmedabad- Trib.) (2) ACIT v. PSN Automotive Marketing (P.) Ltd. (2023) 147 taxmann.com 397 (Cochin Trib.) 26. We have heard the parties and perused the material on record. The assessee has applied 100% as the rate of depreciation to be applied on the sample flat which is a temporary structure built for showing to customers when the building is under construction. Since the asset was put to use for less than 180 days during the immediately preceding previous year, assessee has claimed the depreciation at 50% between two assessment years i.e. AY 2015-16 2016-17. In this regard it is noticed that the 50% of depreciation claimed during AY 2015-16 has been allowed by the revenue and the same is disallowed in the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and held that in assessee's case the material purchased form part of the cost of construction which is added to the cost of project and not to the P L A/c and therefore, the foreign exchange loss attributable to purchase of material should also be added to the cost of construction. Accordingly, the AO disallowed the entire foreign exchange loss claimed by the assessee. On further appeal, the CIT(A) held that the issue is covered by the decision of Hon'ble Supreme Court in the case of Woodward Governor (I.) Pvt. Ltd. (179 taxman 376) and therefore, decided the issue in favour of the assessee by the deleting the disallowance made by the AO. 28. The ld. AR submitted that the issue is covered by the decision of the Hon'ble Tribunal in assessee's own case in ITA No.2266 2239/Mum/2022 dated 17.04.2023 where the Tribunal has allowed the issue in favour of the assessee. The facts being identical the ld. AR submitted that the issue should be allowed in favour of the assessee. 29. The ld. DR relied on the order of the AO. 30. We have heard the parties and perused the material on record. We notice that the coordinate bench in assessee's own case in ITA No.2266 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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