9911796707
TMI Blog2024 (1) TMI 549X X X X Extracts X X X X X X X X Extracts X X X X ..... authority in deleting the above addition and therefore his order is confirmed. The main ground and sub grounds of ground number 1 are dismissed. TP adjustment - Addition as made at the rate of 0.5% in respect of negative lien provided in favour of associated enterprises for obtaining bank loan by AE - HELD THAT:- We find that undertaking by the assessee to not to transfer its holding in another company without prior approval of the bankers of the AE is an international transaction resulting in to a benefit to the AE in obtaining loan. IT needs to be benchmarked. Coordinate bench has held that benchmarking at rate of 0.25 % of the amount of investment. As the issue is decided by the coordinate bench in assessee s own case , we do not find any reason to disturb the order of the learned CIT A as the transaction has originated in the earlier years and not in this year and further there is no difference in the facts and circumstances as well as the risk and assets employed by the assessee pointed out before us. In view of this, the benchmarking at the rate of 0.25% adopted by the learned CIT A was found to be correct as same is also not agitated by assessee, accordingly ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the head income from business and not income from other sources. Accordingly ground number 4 of the appeal of the learned assessing officer is dismissed. Interest expenditure disallowed as business expenditure u/s 36 (1) - HELD THAT:- As per assessee s own case for earlier years, we held that the disallowance made by AO has been correctly deleted by the CIT A of the business interest expenditure under section 36 (1) (iii) of the act. Accordingly ground of the appeal of the learned assessing officer is dismissed confirming the order of the learned CIT- A. Disallowance of common interest expenditure - HELD THAT:- We found that the identical issue arose in the case of the assessee for assessment year 2013 14 [ 2020 (3) TMI 430 - ITAT MUMBAI] AO apportioned the said expenditure on the basis of turnover between tonnage and non tonnage activities. We do not find any merit in the order of the A.O. in so far as the interest expenditure is periodic cost of borrowing incurred for the purpose of financing business activities. Therefore it has to be apportioned on basis of cost of financing i.e. value of assets and not on basis of turnover, since the turnover of the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case and in law, the Id. CITA) is justified in not appreciating that Section 115VA starts with Notwithstanding any to the contrary contained in section 28 to section 43... , therefore it overrides Section 28 to Section 43 only and therefore the Arm's Length Pricing adjustment made under provisions of Section 92 to Section 92F under Chapter X is fully applicable. 1.2 Whether the Id. CIT(A) is right in law in holding that the Arm's Length Pricing adjustment made under Chapter X has no application in cases where assessee has computed tax on presumptive basis under Tonnage Tax Scheme as per Chapter XII-G of the Act even when CBDT Circular No 05/2005 dated 15.07.2005 explicitly confirms that principles pertaining to arm's length price will be applicable to transactions between tonnage tax companies and unconnected (as well as connected) non- tonnage and tonnage tax entities 1.3 Whether on the facts and circumstances of the case and in law, the Id. CIT(A) has erred in ignoring the intent of the legislature evident in the fact that Chapter XII-G has specific sections to address exclusions i.e. Sections 115VL 115VM and does not have any section that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n not recognizing the facts of the case that the assessee has given negative lien, which is in the nature of a corporate guarantee, for its AE, thereby exposing itself to a 'lending business' risk, foreign exchange rate risk, country specific risk as well as the 'single customer' risk without charging any fee for such guarantee which the assessee would have done, had it stood guarantee to any third party in uncontrolled conditions as in section 92F(ii)? 2.6 Whether, on facts and circumstances of the case and in law, the Id. CIT(A) was justified in deleting the adjustment of Rs. 36,50,000/- by relying on Hon'ble ITAT's decision in assessee's own case, without deciding on the merits of benchmarking of the transaction and without appreciating that the decision of the Hon'ble ITAT cited has been contested on merits by the Department is pending for adjudication before the Hon'ble Bombay High Court? 3.1 Whether on the facts and circumstances of the case and in law, the Id. CIT(A) is justified in not appreciating that Section 115VA starts with Notwithstanding any to the contrary contained in section 28 to section 43.... ; therefore it o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f turnover of tonnage and non-tonnage activities? 8.1 On the facts and circumstances of the case, whether the Ld. CIT (A) has not erred in admitting the additional ground raised by the assessee in spite of the assessee's erroneous act of not filing revised return of income even after having ample time and raising an issue at the appeal stage? 8.2 On the facts and circumstances of the case, whether the Ld. CIT (A) has not erred in admitting the additional ground raised by the assessee in spite of the objection of the Assessing Officer and disregarding the decision of Hon'ble Supreme Court in the case of Goetze India Ltd v CIT 284 ITR 323 wherein it is clear that there is no provision in the Act to make amendment in the return of income by modifying an application at the assessment stage without revising the return? 8.3 On the facts and circumstances of the case, whether the Ld. CIT (A) has not erred in allowing the claim of the assessee not made through the revised return and instead made through addition ground at appeal stage? The appellant prays that the order of the Ld. CIT (A) be set aside and the order of the AO be restored. 03. Assessee is a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parent company of the assessee and that company has obtained loan from ICICI bank Hong Kong branch and Singapore branch. The assessee has given an undertaking that it will not transfer its 49% of the equity shares in its subsidiary company without prior approval of the lenders. The cost of the investment is ₹ 730,000,000 being 49 percent and value of negative lien comes to ₹ 35.77 crores. The assessee was asked to show cause as to why the fee for providing above-mentioned lien on shares shall not be charged at the rate of 0.5% as is decided by the learned transfer-pricing officer in the case of the assessee for assessment year 2011 12. The assessee has not charged any fees. The reply of the assessee was as in the earlier years also and saying that it is not an international transaction. As for assessment year 2011 12 such fee is considered to be at arm‟s-length at the rate of 0.5% on negative lien facility by the LD TPO, the learned transfer pricing Officer similarly computed the remuneration on such agreement at the rate of 0.5% for 365 days making an adjustment of ₹ 3,650,000/ on this issue. 3. Assessee has paid vessel hire charges of ₹ 54.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pared these rates and found the ALP. 4. The learned transfer-pricing officer found that assessee is earning income of provision of support services from its associated enterprises of US$ 199,200 per annum. The assessee was supposed to prepare bill at the end of the each month which assessee has not prepared and prepared a consolidated bill as on the last day of the accounting year and therefore the learned TPO was of the view that interest at the rate of 1% per month should have been received by the assessee within a month of the provision of the services on monthly basis and therefore the outstanding receivable should be subject to interest. He computed such interest by adopting interest rate of 1% per month where the assessee stated that it should be only LIBOR only. Accordingly an adjustment of 4,67,059/ was made by the learned TPO. 5. Assessee is also providing services of supervision charges to Essar shipping Cyprus Ltd. During the year, three invoices were raised. As recovery was after more than 30 days and therefore the learned AO computed the interest for number of days the payment is delayed by adopting the interest rate of 12% making an adjustment amounting to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de the addition of ₹ 32.91 lakhs holding that assessee has allocated more common interest expenditure to non-tonnage tax activities instead of tonnage tax activities. iii. The assessee has made a disallowance of ₹ 16,671,018/ because of section, 14 a read with rule 8D. The learned assessing officer computed the disallowance under section 14 A according to the rule 8D of ₹ 2, 03, 21,018 and made the additional disallowance of ₹ 3,650,000/ . 08. The assessment order was passed on 16/ 5/2016 at ₹ 626,450,031/ under section 144C (3) read with section 143 (3) of the income tax act. 09. Aggrieved with assessment order assessee preferred appeal before the learned CIT A whole of the appeal of the assessee was allowed and therefore the assessing officer is aggrieved. 010. The ld AR at the initial stage submitted a chart and stated that all the issues raised by the ld AO in his appeal are covered by the decision of coordinate benches in assesses own case for number of Assessment years, therefore the whole of the appeal is covered against the revenue. 011. Ground number 1 is with respect to the transfer pricing adjustment made on account of dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed u/s 115VE of the Act. According to which profits of tonnage taxation shall be computed separately from profits and gains of any other business. The formulae for calculating tonnage income has been prescribed and is dependent on presumptive rate of daily tonnage income and number of days of operation. Once the assessee opts for tonnage tax scheme, the income of the assessee has to be computed as per the provisions prescribed in the said chapter. Chapter XII-G is a complete code in itself and income has to be computed strictly as per the said provisions. 7. From the record we found that the similar additions were made by the TPO in assessees own case in the A.Y. 2011-12 and were confirmed by the DRP, the assessee has been demerged from Essar Ports Limited w.e.f. 01/10/2010 i.e. A.Y. 2011-12. From the record we also found that since earlier the activities of assessee being carried on by Essar Ports Ltd., the assessment was made in case of Essar Ports Ltd. up to 30/09/2010. For the similar disallowance, the assessee came in appeal before the Tribunal and the Tribunal vide its order dated 26/06/2019 for the A.Y. 2011-12, deleted the similar addition so made by the A.O. after o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of determining the tonnage income of the company. The entire computation of the tonnage income depends on the tonnage capacity of qualifying ships and number of days it has been held. At this stage, we may contrast the sphere in which the transfer pricing provisions of Chapter-X operate. The transfer pricing provisions envisage computation of income from specified international transactions of receipt or expenditure, ofcourse with reference to the stated price of such transactions. This is completely in contrast to Chapter-XII G, where the stated price of the transaction has no relevance to the computation of income of qualifying ships, which is based on the weight of the ship and the number of days it has been held. In other words, the determination of income/ expense having regard to arm's length price as envisaged in Chapter-X has no relevance, as it would not affect the computation of income liable for taxation in Chapter- XII G. 7. Section 115VA of the Act starts with Notwithstanding any to the contrary contained in section 28 to section 43. . TTS thus, provides for computation of income to the exclusion of section 28 of the Act. In case of an ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een used for a related party or an unrelated party. Once again, therefore, the computation provisions of Chapter X of the Act fail and in such circumstances, the application of Chapter X of the Act fails. 9. In this context, the learned Counsel pointed out that a similar situation has been considered by the co-ordinate bench of this Tribunal in the case of Shreyas Shipping Logistics Ltd (supra) which has held as follows: Now we would like to discuss the TTS. Section 115VA of the Act is unique in the sense that it deals with the computation of income from the business of operating qualifying ships which opt for Tonnage Tax Scheme(TTS).The method of computation of income under the scheme, as provided by the section, stipulates that income has to be assessed in a particular manner. In other words, no expenditure can be allowed or disallowance can be made, while computing the income under TTS. The income of the assessee is computed at affixed rate and all other provisions of the Act are not to be applied, once an assessee opts for the scheme. In short, if the assessee cannot claim any expenditure after opting out of the scheme, then the AO is also barred by making any disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of section 115VR. Circumstanes and conditions where in tonnage tax scheme cannot be opted are the subject matter of Section 115VS.As per the provisions of section 115VT every Asses see has to transfer profits to tonnage tax reserve account at a fix rate and has to utilise it for specific purpose, once he opts of TTS. Companies opting for TTS have to comply with minimum training requirement as required by Section 115VU. Limit for charter in of tonnage has been determined by section 115VV. Maintenance and audit of accounts of the TTS companies is governed by the provisions of section 115VW of the Act, whereas section 115VX determines tonnage. Amalgation is subject matter of section 115VY. Next section i.e. Section 15VZBtakes care of the tonnage tax companies which are found to be a party to any transaction or arrangement that amounts to an abuse of the scheme. Last section, section 115VZC, deals with exclusion from TTS. From the above it is clear that chapter XII-G is a complete code in itself and it provides for non applicability of section 28 to 43C of the Act i.e. chapter IV of the Act, when income is to be computed as per the provisions of the said section. Chapter-XII-G, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a separate code by itself in as much as it provides a self- contained changing provision as well as 'method of computation of income in the chapter, and, the method of computation of income under TTS is not dependent on receipt or expenditure of the assessee. Under Tonnage Tax Scheme, the income has to be computed as per the method prescribed in section 115VG. The income as per Tonnage Tax Scheme is computed on the basis of the weight of the vessel and number of days it is held, irrespective of its revenue realisations and the expenditure incurred for the purpose of the business. Hence, neither the business receipts nor the business expenditure of the assessee has any bearing on the method prescribed for computation of income under TTS as per section 115VG. The tonnage tax scheme, in that sense, is a presumptive method of computation of taxable income which is not dependent on actual receipts and expenditure of the assessee. 15. In fact, the fallacy in the approach of the Assessing Officer can be gauged from a perusal of the computation of taxable income made in para 11 of the assessment order. The Assessing Officer has sought to add Rs. 5,40,887/- as a separate line ite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus we find that this issue has already been decided by the coordinate bench in assessee s favour in assessee s own case for earlier years and also in case of subsequent assessment years. The learned departmental representative could not point out us any reason to deviate from the same and this judicial precedent binds us. As the learned CIT A has also followed the decision of the coordinate bench we do not find any infirmity in the order of the first appellate authority in deleting the above addition of ₹ 5,661,760/ and therefore his order is confirmed. The main ground and sub grounds of ground number 1 are dismissed. 016. Ground number 2 of the appeal is with respect to the transfer pricing adjustment of ₹ 3,650,000 which was made at the rate of 0.5% in respect of negative lien provided in favour of associated enterprises for obtaining bank loan by AE. The assessee has stated it has provided a negative lien of not transferring the shares owned by assessee without the prior approval of the bankers of the associated enterprises. The learned CIT A decided the issue in favour of the assessee holding that in the case of the assessee s own case for assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make adjustment by applying 0.25% to the said transaction instead of 0.5% applied by the AO. We direct accordingly. 020. On carefully considering the decision of coordinate bench, we find that undertaking by the assessee to not to transfer its holding in another company without prior approval of the bankers of the AE is an international transaction resulting in to a benefit to the AE in obtaining loan. IT needs to be benchmarked. Coordinate bench has held that benchmarking at rate of 0.25 % of the amount of investment. As the issue is decided by the coordinate bench in assessee s own case , we do not find any reason to disturb the order of the learned CIT A as the transaction has originated in the earlier years and not in this year and further there is no difference in the facts and circumstances as well as the risk and assets employed by the assessee pointed out before us. In view of this, the benchmarking at the rate of 0.25% adopted by the learned CIT A was found to be correct as same is also not agitated by assessee, accordingly ground number 2 and its sub- grounds are dismissed confirming the order of the learned CIT appeal. 021. Ground number 3 is with respect t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of the assessee for assessment year 13 14 wherein the coordinate bench has held in assessee s own case that the interest income of ₹ 1.36 crores received from the banks and ₹ 54.15 crores received from the group companies during the year is the business income chargeable to tax under the head Income from business profession. Therefore, respectfully following the decision of the coordinate bench the learned CIT A decided so . The learned AO is aggrieved. 026. The learned departmental representative vehemently submitted that the interest of Rs. 54.15 crores received by the assessee from subsidiary companies is not the business income of the assessee and further the bank interest of ₹ 1.36 crores received by the assessee cannot be said to be the business income and therefore it has been rightly charged by the learned assessing officer as income from other sources. 027. The learned authorized representative vehemently supported the order of the learned CIT A which followed the decision of the coordinate bench in assessee s own case for earlier years and therefore stated that the issue is squarely covered in favour of the assessee and the judicial d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting that the interest expenditure has been held to be allowable under section 36 (1) (iii) of the act by the coordinate bench in assessee s own case , in absence of any change in the facts and circumstances of the case, it needs to be followed as the issue is squarely covered in favour of the assessee. 032. We have carefully considered the rival contention and perused the orders of the lower authorities. We have also considered the decision of the coordinate bench in assessee s own case for earlier years i.e. assessment year 2013 14 where the identical issue arose about the interest expenditure of ₹ 1,368,229,021/ which has been decided by the coordinate bench as per paragraph number 32 as under:- 32. We had carefully gone through the entire details placed on record and found that the interest expenditure of Rs. 136,82,29,021 (174,57,93,544 - 37,75,64,523) is as under: Sr.No. Particulars Amount (Rs) and Purpose of loan 1. Interest paid to Yes Bank 19,91,29,094 Amount borrowed in A.Y. 2012-13 and used for investment in shares of Essar Oilfields Services Ltd Mauritius which is wholly owned subsidiary of assessee established for purpose of carrying out oilfield ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Limited [(370 ITR 728) (Bom)] c) CIT v. Investa Industrial Corpn. Ltd. [(119 FUR 380) (Bom.)] d) CIT v. RPG Transmission Ltd. [359 ITR 673 (Mad)] e) Raptakos Brett Co. Ltd vs. PCIT. (ITA No. 2251/Mum/2015) (Mumbai Tribunal) 35. In all the above cases, it has been held that if the investment is made in subsidiary for the purpose of business, the loss or expenditure incurred by assessee would be allowable as business expenditure. With respect to interest on aircraft taken on lease, we observe that assessee had offered income earned from operation of aircraft as business income, the interest paid for aircraft taken on lease is essentially allowable as business expense u/s.36(1)(iii) of the IT Act. 36. We also observe that even otherwise the interest expenditure incurred on the loans which are given to its subsidiaries as ICD on which interest was received by the assessee, such interest expenditure is eligible to be allowed U/s 57(iii) of the Act while computing net interest income, our this observation is without prejudice to our above observation that interest on loan is eligible for deduction U/s 36(1)(iii) of the Act. 37. It was also argued by the ld AR that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we found that AO had disallowed the interest paid on the funds borrowed which was given to subsidiaries / group companies. Since the ICDs were given to subsidiary in order to promote the business since an amount advanced to subsidiary would ultimately benefit the assessee, the interest paid is allowable as business expenditure. In order to support the said contention reliance is placed on the decision of the Hon'ble Supreme Court in the case of S.A, Builders v. CIT (288 ITR1). In the said decision the Hon'ble Supreme Court has held that if the assessee has borrowed funds and advanced the same to its subsidiary in order to promote the business of its subsidiary, then the interest paid by the assessee on borrowed funds is a business expenditure and no interest disallowance can be made u/s 36(l)(iii) of the Act. In the present case, the assessee has advanced ICD to its subsidiary in order to promote their business and charged interest thereon. Applying the ratio laid down by the Hon'ble Supreme Court in the case of S.A. Builders v. CIT (supra), wherein it has been held that interest expenditure incurred by the assessee is allowable as business expenditure, the interest inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come in scrutiny assessment framed u/s 143(3) of the Act. The relevant assessment order so passed U/s 143(3) of the Act for the A.Y. 2010-11 and 2011-12 are placed on record. However, during the year under consideration, the assessee continued to receive similar interest income on the lCD from EOSIL which was given out of money borrowed from LIC. The assessee offered the same as business income but the he A.O. treated the same as income from other sources. There is no change in the facts and circumstances of the case during the year under consideration as compared to earlier years wherein the AO had assessed the very same income under the head of business income. Hence, even on the principles of consistency, the interest income received by the assessee should be taxed as business income. In order to support the said contention reliance is placed on the decision of the Hon ble Supreme Court in the case of CIT vs. Excel Industries (358 ITR 295). Accordingly, we do not find any justification in the order of AO for treating interest income as income from other sources. 44. In view of the above discussion, we direct the AO to treat interest income as income from business and to allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2013 14 wherein the coordinate bench has held as under:- 45. The last grievance of the assessee relates to disallowance of common interest expenditure of Rs. 35,98,89,248/-. The A.O. has dealt with the issue at page No. 11 and 12. From the record we found that the assessee had claimed common interest expenditure of Rs. 48,82,67,263/- which has been apportioned to tonnage and non tonnage activity. The assessee allocated the said expenditure in the ratio of assets employed between tonnage and non tonnage activities. The Assessing Officer apportioned the said expenditure on the basis of turnover between tonnage and non tonnage activities. We do not find any merit in the order of the A.O. in so far as the interest expenditure is periodic cost of borrowing incurred for the purpose of financing business activities. Therefore it has to be apportioned on basis of cost of financing i.e. value of assets and not on basis of turnover, since the turnover of the business has got no relation with the interest expenditure so incurred by the assessee. We, accordingly, restore this issue to the file of the A.O. to recompute the same by allocating interest expenditure in the ratio of assets ..... X X X X Extracts X X X X X X X X Extracts X X X X
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