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TMI Blog2023 (11) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... we see no merit in the ground raised by the Revenue. We also notice that the issue of disallowance under section 14A made to book profit under section 115JB is considered by the co-ordinate bench in assessee's own case [ 2023 (5) TMI 153 - ITAT MUMBAI] held that disallowance under section 14 A of the act cannot be added to the book profit under section 115JB. Disallowance of Director s Salary handover facilities - AO disallowed 50% of the expenses towards capitalization to the cost of project - HELD THAT:- As decided in own case [ 2023 (4) TMI 190 - ITAT MUMBAI] held as considering the accounting standard - 1 and 7, the guidelines issued by the Institute of chartered accountants of India and after considering the provisions of section 145A of the act held that such expenses are to be allowed in the year in which they are incurred and not to be included in the cost of work in progress. Expenditure pertaining to employee cost, administrative expenses and selling and marketing expenses debited to the profit and loss account are to be allowed in the year in which those are incurred. TP Adjustment of Guarantee Commission -TPO rejected the bench marking done by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO 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 - 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 ground of the revenue in this regard is rejected. - Shri Kuldip Singh (Judicial Member) And Ms. Padmavathy S. (Accountant Member) For the Assessee : Shri Niraj Sheth For the Department : Shri Samuel Pitta Sr.AR ORDER PER PADMAVATHY. S (AM): These two appeals of the revenue are against separate orders of assessment by the Commissioner of Income-tax (Appeals)-57, Mumbai both dated 17/06/2022 for the assessment years 2016-17. The issues contended are common in both the appeals and hence, they were heard together and disposed off by this common order. 2. The issues and the grounds raised in both the appeals are tabulated as under:- Issues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Assessing Officer. The revenue is in appeal before the Tribunal against the order of the CIT(A). Disallowance under section 14A 4. The Assessing Officer noticed that the assessee has claimed dividend income of Rs. 11,91,27,112/- as exempt income. The Assessing Officer called on the assessee to furnish the details of the exempt income and also the expenditure incurred to earn the exempt income since the assessee has not made any disallowance under section 14A in the return of income. The assessee submitted that they are having own funds more than investments earning exempt income and, therefore, no disallowance under section 14A can be made in its case. The assessee relied on the decision of the Hon ble Bombay High Court in the case of CIT vs HDFC Bank Ltd (49 taxmann.com 335(Bom)) in this regard. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Total 89,574.04 1,07,316,33 (Rs. In lakhs) Particulars Page of PB As at 31/03/2015 As at 31/03/2016 Non current investments 78 95,303.52 1,07,952.98 Current investments 78 1,0117.75 1,017.75 Total investments as per Balance Sheet 96,321.30 1,08,970.74 Less : Investment in Gold 91 36.68 0.00 Less: Investment in Bonds / Optionally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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. 11. With regard to the disallowance under section 8D(2)(iii) read with section 14A, the Special Bench in the case of Vireet Investments Private Ltd (supra) 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. We also notice that the issue of disallowance under section 14A made to book profit under section 115JB is considered by the co- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 expenses. The Ld.CIT(A) further held that these expenses are neither capital in nature nor deferred revenue expenditure. The Ld.CIT(A) relied on the decision of the co-ordinate bench in assessee s sister concern s case M/s Lodha Palazzo in ITA No.2298/Mum/2012 and held that director s salary and handover facility expenses had to be allowed in the year of spending as the same is in the nature of overhead cost not specific to any project. 14. We heard the parties and perused the materials on record. We notice that similar issue has been considered by the co-ordinate bench in ITA No.2384 2040/Mum/2022 order dated 27/03/2017 where it is held that 018. We find that the identical issue has been decided by the coordinate bench in assessee's sister concerns case on identical facts anc circumstances. In case of Lodha Pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, 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 and, therefore, not within the purview of transfer pricing provisions. The assessee based on the bench marking submitted that a margin of 0.35% is at ALP. The TPO rejected the bench marking done by the assessee and proceeded to make TP adjustment of Rs. 4,14,84,664 by applying the guarantee commission rate of 1.25% i.e. USD 200 x Rs. 66.33 x 1.25% x 365/1459. 17. The TPO also noticed that the AE of the assessee has taken office premises on lease in UK for a period of 9 years with the total rental of GBP 25,89,307 payable on quarterly basis. The TPO noticed that the assessee had given a guarantee to the landlord in this regard. The assessee submitted that the guarantee given is in the nature of additional security to the rental to the insure in case of recovery of unpaid rent over the lease period of 9 years and therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has raised bonds for US dollar 200 million which is listed on the Singapore stock exchange. For the issuance of bonds along with its parent company and to other group companies (total 6 entities) has given joint and several corporate guarantees as shareholders as well as direct subsidiary of the Mauritius entity. ODI forms were also submitted. The assessee did not charge any guarantee commission leading that it is a shareholders activity and therefore is not an international transaction. The learned AO held to be an international transaction and further determine the arm's-length price of the international transaction at the rate of proportionate amount of guarantee commission adopting the arm's-length price at the rate of 1.25% and made an adjustment of ₹ 5,910,140. The learned CIT (A) rejected arguments of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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, we dismiss ground number 2 and 3 of the appeal of the assessee. With respect to the benchmarking of the guarantee commission, the find that on the same transaction, adopting interest saving approach after considering the credit rating of the issuer company and after making all the adjustments, sharing of the risk on the interest saving approach, the arm's-length price of the rate of guarantee commission was determined at 0.3523% base points. The learned departmental representative could not show us any reason that the guarantee commission rate determined by the learned CIT A is faulty for any reasons. The rate of guarantee commission is required to be determined on the basis of credit rating of the issuer company, comparison of interest rates without guarantee and with guarantee. The difference of the two is required to be sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 100%. The assessee further submitted that the sample flat was constructed at a cost of Rs. 3,71,85,082/- during FY 2014-15 and was put to use on 31.03.2015. Accordingly, the assessee submitted that the depreciation @ 50% was claimed during AY 2015-16 i.e. Rs. 3,71,85,082 * 100% * 50% since the asset was put to use for less than 180 days and that the balance 50% is claimed during the year consideration. The assessee also made an alternate claim before the AO that since the expenses incurred towards sample flat is for the purpose of business the same should be allowed as a deduction under section 37(1). The AO held that since the gestation period of the project is four year from it inception as per the submissions of the assessee the depreciation on the overall cost incurred towards the sample structure should be claimed over four year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 year under consideration. The CIT(A) has allowed the claim stating that the depreciation claim in terms rate etc., can be questioned only in the first year of claim and once allowed in the first year cannot be disturbed in the subsequent year. From the perusal of the assessment order we notice that the assessing officer has not disputed the fact that the sample flat is a temporary structure since the AO himself is holding that the gestation period is four years based on the assessee's submission that the sample flat is demolished in 2020. Taking note of the fact that temporary structures are entitled to depreciation at the rate of 100% as per the depreciation rates under Income-tax Rules,1962, as per rule 5, Appendix-I, and considering the fact that the structure being temporary not controverted by the Revenue, we see no infirmit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 2239/Mum/2022 dated 17.04.2023 has considered the similar issue and held that 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 settl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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