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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 ..... 5JB of the Act Ground No.2 Ground No.2 Disallowance of depreciation on sample Flat Ground No.3 & 4 Capitalisation of foreign exchange loss to work in progress Ground No.5 Disallowance of Director's salary and Handover facility expenses Ground No.3 Taking ALP of guarantee commission at 0.352% instead of 1.25% Ground Nos. 4 to 6 Ground Nos. 6 to 8 ITA No.2382/Mum/2022 3. The assessee is engaged in the business of real estate, construction and development. For the year under consideration, the assessee filed the return of income on 17/10/2016 declaring total income of Rs. 62,08,53,170/- and book profit under section 115JB of Rs. 45,42,04,660/-. Subsequently, the return was revised on 29/03/2018 declaring Nil income after setting off all brought forward losses of Rs. 21,37,37,597/-. The case was selected for scrutiny under CASS and the notices were duly served on the assessee. The revised return is filed due to the merger of M/s Suryakripa Constructions Ltd with effect from 01.04.2015 vide order dated 24.04.2017 of the National Company Law Tribunal (NCLT). The Assessing Officer during the course of assessment noticed that there are specified domesti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning control over the investing company to be considered for making disallowance under section 14A and therefore held that the total current and non-current investments are more than the shareholders funds as of 31.03.2015 as well as 31.03.2016. The Assessing Officer though had accepted that investment in gold and in foreign companies income from which is taxable should be excluded but while computing the disallowance under section 14A r.w.r.8D(2)(iii) had included the same. Thus the Assessing Officer proceeded to compute the disallowance by applying rule 8D(2)(ii) and 8D(2)(iii) to the tune of Rs. 12,88,29,482/-. The Assessing Officer while computing the book profits under section 115JB of the Act also considered disallowance under section 14A. 6. The CIT(A), with respect to the disallowance under rule 8D(2)(ii) noted that the assessing officer himself has accepted that investment in gold and in foreign companies should be excluded and if the same excluded the CIT(A) held that the assessee is having sufficient own funds, which are in excess of investments related to exempt income and accordingly deleted the addition. With regard to the disallowance under section 8D(2)(iii), the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Macrotech Developers Limited (Successor of Shreeniwas Cotton Mills Ltd.,ITA No.2384 & 2040/Mum/2022 dated 27.03.2023) where the issue has been held in favour of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished that the employee cost allocated to the project includes directors office expenses of Rs. 74,51,510/- and handover facility expenses of Rs. 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1576/2017 for assessment year 2012 - 13 per order dated 3/3/2020. The learned GIT - A while deciding the appeal of the assessee relied on the 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has raised bonds for US dollar 200 million which is listed on the Singapore stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, 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, we dismiss ground number 2 and 3 of the appeal of the assessee. With respect to the benchma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 100%. The assessee further submitted that the sample flat was constructed at a cost of Rs. 3,71,85,082/- d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 year under consideration. The CIT(A) has allowed the claim stating that the depreciation claim in terms rate etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 & 2239/Mum/2022 dated 17.04.2023 has considered the similar issue and held that - 036. We have carefully considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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