9911796707
TMI Blog2024 (2) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... ments raised by the assessee. As far as disallowance of 0.5% on average investment is concerned, it is found there is no specific finding or working has been done by the AO and Ld. DRP, hence same need not be sustained here also. In view of the above, ground no. 2 raised by the assessee is allowed and AO is directed to delete the same. TP Adjustment - transaction of providing Letter of Comfort would fall within the ambit of the term international transaction u/s. 92B or not? - HELD THAT:- As decided in assessee own case [ 2020 (3) TMI 799 - ITAT MUMBAI] held that Letter of Comfort merely indicates the appellant s assurance that respondent would comply with the term of financial transaction without guaranteeing performance in the event of default. The co- ordinate bench of Tribunal in India Hotels Co. Ltd. ( 2019 (9) TMI 1340 - ITAT MUMBAI] on similar ground of appeal held that Letter of Comfort does not constitute international transaction. So far as contention of Id. DR for the revenue that after amendment in Explanation to section 92B is concerned, we have noted that co- ordinate bench in SIRO Clinpharm P. Ltd. ( 2016 (5) TMI 633 - ITAT MUMBAI ) held that amendment in Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and to examine the nature of payment made i.e. payment is not in the nature of penalty and the same is allowable as per law. In the result, this ground of assessee is allowed for statistical purposes. Disallowing expenditure by way of professional charges paid - HELD THAT:- It is found that assessee is substantially failed to adduce any evidence of services rendered in the category of professional fee. We have gone through the contents of agreement reproduced nowhere it looks like an agreement for rendering professional services. Assessee s argument that for earlier 2 years, the same expense was allowed and they are relying on the decision of Radhasoami Satsang [ 1991 (11) TMI 2 - SUPREME COURT] is not applicable here based on the facts of the case. Principle of consistency should have been followed as far as possible and permitted by the facts of the case, but as the concept of res-judicata is also there, to be considered before any adjudication. Hence, in the present situation we also asked the AR of the assessee to substantiate the claim by placing on record any cogent evidence which confirms delivery of service by M/s. VCCPL. But at this stage also, assessee is substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clubs. 2. This ground raised by the assessee is covered by the decision of Coordinate Bench of ITAT Mumbai in assessee's own case for AY 2005-06 in ITA 4376/Mum/2010. The operative portion of the order of Coordinate Bench of ITAT is as under:- "13. Ground no.2 relates to disallowance out of payment made to club. The ld. AR of the assessee submits that this ground of appeal is also covered by Hon'ble Bombay High Court and decision of various benches of Tribunal in Otis Elevator (195 ITR 682). The ld. AR of the assessee submits that the assessee claimed total expenses of Rs. 3,52,200/- out of which, the Assessing Officer allowed Rs. 52,000/- paid to Devas Office and rest of the amount of Rs. 2,99,500/- for subscription fees, annual contribution and membership of various club and other expenses paid on club were disallowed. The ld. CIT (A) granted part relief restricting the disallowance to Rs. 2,65,000/-. The ld. AR of the assessee submits that the issue is stand covered by the decision of jurisdictional High Court in Otis Elevator (supra). 14. On the other hand, the ld. DR for the revenue supported the order of lower authorities. 15. We have considered the submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s had been made from the Appellant's Own Funds and not from any part of the Appellant's borrowed funds, (b) that, therefore, the borrowed funds had been utilised, not for the purpose of making investment in shares, but for the other purposes of the Appellant's business and (c) That, accordingly, the Interest of Rs. 1,65,35,000/- was allowable under Section 36(1) (iii) of the Act. The Appellant submits that the learned AO-DRP erred in this respect in not following the binding order of this Hon'ble Tribunal in the Appellant's own case for the Assessment Years 2000-01 to 2002-03, viz., the Order dated 8th June, 2012 of the Hon'ble Mumbai Bench 'E', in I.T.A. Nos. 3957, 3958 & 3959 / M um / 2006 2.4. without prejudice to the foregoing grounds, the Appellant submits that, in making their determinations in respect of the disallowance under Section 14-A, the learned AO-DRP erred in the following respects: (1) The learned AO-DRP erred in holding that the amount disallowed under Section 14-A was not allowable under Section 36(1)(iii) of the Act (2) The learned AO-DRP erred in holding that a part of the Appellant's borrowed funds had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing respects in such application, viz.: (1) The learned AO-DRP erred in rejecting the Appellant's alternative claim to the effect that the learned AO-DRP ought to have excluded the average cost of such of the Appellant's investments as were made on or before 31 March, 1999 ("Old Investments"). (2) The learned AO-DRP erred in rejecting the Appellant's further alternative claim to the effect that the learned AO-DRP ought to have excluded the average cost of such of the Appellant's investments as had not yielded any dividends during the year under consideration ("Non Dividend Yielding Investments"). (3) The findings of the learned DRP [in paragraph 19 (at page 6) and paragraph 20 (at page 7) of its Directions] to the effect that there is expenditure incurred in respect of the Appellant's investments by way of costs involving decision-making, direct supervision and funding, are based on conjectures and surmises and are unsupported by any evidence on record and, consequently, are perverse. 4. During the year under reference, the appellant has earned exempt income of Rs. 4, 52, 05,031/-. The appellant has not incurred any expenditure for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that where the Appellant's own funds are in excess of investments then it should be presumed that the investments are made from the Own Funds and not from Borrowings, consequently disallowance u/s. 14A of the Act in respect of interest expenditure ought to be deleted. (i) South Indian Bank Ltd vs. Commissioner of Income Tax 438 ITR 1 (SC) (09- 09-2021) (Para 27 Page 51) (Page 45 to 51) (ii) CIT vs. Reliance Utilities & Power Ltd [2009] 313 ITR 340 (Bom) (Page 52 to 55) (iii) HDFC Bank Ltd vs. DCIT 383 ITR 529 (Bom. HC) (Page 56 to 68) 8. Alternatively and without prejudice to the above, it is submitted that interest expense of Rs. 1144.02 Lakhs includes interest aggregating to Rs. 1041.99 Lakhs which is in relation to (EPC) Export Packing Credit and Pre Shipment Credit in Foreign Currency incurred for the purpose of export/ import business of the appellant. The appellant is prohibited, under Reserve Bank of India's Regulations, from using any part of such credit for any purpose other than the appellant's export business. Hence, such interest has to be excluded while computing the amount of disallowance. The details of interest expenditure are submitted at Pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with reference to the sanctioned credit limit actually utilised by the concerned AE and, (iii) in any event, at least with reference to the sanctioned credit limit. 3.3. The Appellant submits, without prejudice to the foregoing ground, and assuming whilst denying that any Transfer Pricing Adjustment was required to be made to the Total Income returned by the Appellant in respect of the Appellant's non-recovery of any fees or commission from its concerned AEs, that bank guarantee commission is not the appropriate benchmarking tool for determining the arm's length price of the "Income" accruing to the Appellant from the issue of each of the LOCs aforesaid. 3.4. without, prejudice to the foregoing grounds, and assuming whilst denying (1) that any Transfer Pricing Adjustment was required to be made to the Total Income returned by the Appellant in respect of the Appellant's non-recovery of any fees or commission from its concerned AEs and (i) that the rates of bank guarantee commission charged to the Appellant by its Bankers are relevant for making any such Adjustment, the Appellant submits that, having regard to the fact that the rates of such bank gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Mum/2010 dated 29 January 2020). A copy of the said decision was submitted before the Bench during the course of hearing on 24 January 2024 (refer para Nos. 19 to 24 on page nos. 31 to 36 of the order) and is enclosed herewith at page 21 to 38 for ease of reference. The relevant extracts of the said decision are reproduced hereunder: "The Id. CIT(A) after considering the submission of assessee concluded that by issuing Letter of Comfort to the Bankers of AE, the assessee did not incurred any cost. The issuance of Letter of Comfort by assessee have no bearing on the profit, income or loss as the assessee did not incur any cost or expenditure for issuing such Letter of Comfort and it does not constitute international transaction under section 92B of the Act. The Id. CIT (A) concluded that there is a fundamental gap between guarantee and Letter of Comfort. Guarantee is a legally enforceable; however, Letter of Comfort is not. We have noted that Hon'ble Karnataka High Court in United Braveries (Holding) Ltd. vs. Karnataka State Industrial Investment and Development Corporation (supra) held that Letter of Comfort merely indicates the appellant's assurance that respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by the appellant to its AEs, the TPO selected Comparable Uncontrolled Price method ("CUP") as the most appropriate method for determining the arm's length price of this transaction and in determining the price, the TPO mentioned that Indian bank charged a fee ranging from 0.25% to 15% of the value of guarantee given to its customers depending upon the risk involved. The TPO proceeded to determine the arm's length commission to be 50% of 1.5% at 0.75%. Based on this the TPO proposed an adjustment of Rs. 5, 75, 38,800/- be made to the total income of the appellant. The adjustment was computed on the value of the LOCs issued by the appellant to its AE's as against the actual draw down of funds from the bank by the AE's. ii. The AO under Section 143(3) of the Act passed the assessment order in conformity with the addition proposed by the TPO incorporating the proposed addition of Rs. 5,75,38,800/- to the returned income of the appellant. iii. The appellant has filed detailed submissions distinguishing a letter of comfort with intra-group credit guarantees together with other related issues. iv. In view of the facts of the case and position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant vide its letter dated 23.08.2012 has submitted that it does not press ground No. 6C(ii) which is in respect of comparable data for benchmarking and accordingly the appellant would not like to press ground No. 6C(ii) of appeal However in view of the position above such letter filed by the appellant becomes in consequential vii. In view of the facts of the case, discussion herein above and consistent with the decision taken by my predecessor for A.Y. 2005-06 and by me for A.Y 2006-07 in the appellant's case, the adjustment of Rs. 5,75,38,800/- is therefore deleted. viii Thus, this ground of appeal is allowed. 12. We find that the Tribunal in A.Y.2005-06 has decided this issue in favour of the assessee after observing as under:- Ground No.6 to 9 relates to Transfer Pricing Adjustment with respect to issuance of "Letter of Comfort". This issue is interconnected with the grounds of appeal raised by revenue in its cross appeal. The Id. AR of the assessee submits that Id. CIT (A) deleted the adjustment against which the revenue has filed its cross appeal. The Id. AR of the assessee submits that the assessee issued Letter of Comfort to Bankers of Associated E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that assessee and decision of Hon'ble Karnataka High Court in United Braveries Holding Ltd. Karnataka State Industrial Investment and Development Corporation Ltd. (M.F.A. No. 4234 of 2007 (SFC), wherein it was held that Letter of Comfort merely indicates the parties assurance that respondent would comply with the term of financial transaction without guaranteeing performance in the event of default. 13. since in the earlier year this precise issue has been decided in favour of the assessee, therefore, as precedence, following the aforesaid decision, we uphold the order of the ld. CIT (A) and consequently grounds raised by the Revenue are dismissed. 15. Since in the earlier assessment years namely 2005-06, 2006-07 and 2007-08 issue has been discussed and examined by the Coordinate Benches and revenue is not able to bring anything adverse on record to deviate from the earlier views, we respectfully follow the decisions of Coordinate Benches in earlier years and allow the ground taken by the assessee. In the result, AO is directed to delete the addition made on this count. 4.1. The learned AO-DRP erred in making an addition of Rs. 20, 79,633/- to the Total Income returned b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbook-volume 2 filed on 15 November 2023) and the rate of interest charged by the Appellant is 6%, which is higher than the said LIBOR rate. 18. The dispute here is applicability of interest rate on amounts due from AEs is to be calculated based on PLR rate declared by RBI (being Central Bank of India where assessee is based) or LIBOR rate (as AE is based outside India). It's a legal issue and precisely the same issue has been dealt in by the Hon'ble Delhi High Court in the case of CIT-I vs. Cotton Naturals (I) (P) Ltd. [2015] 231 Taxmann 401 (Del.) and held as under: "The question whether the interest rate prevailing in India should be applied, for the lender was an Indian company/assessee, or the lending rate prevalent in the United States should be applied, for the borrower was a resident and an assessee of the said country, must be answered by adopting and applying a commonsensical and pragmatic reasoning. The interest rate should be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid. Interest rates should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be determinative. Thus, in case of a capital investment, the borrowing rate will apply, whereas in case of credit allowed to a customer on sale of goods, the lending rate would apply. We do not deem it necessary to enter into this controversy and express our view as regards the same. [Para 43]" 19. As the identical situation was there and analysed by the Hon'ble High Court (supra) and there is no argument advanced by the revenue to counter the same, we respectfully follow the same and confirmed the treatment on this issue given by the assessee. In view of above, ground raised by the assessee is allowed and AO is directed to delete the addition made on this count. 5. the Learned AO-DRP in disallowing expenditure aggregating Rs. 1, 74,544/-, by way of payments made to the Tata Public School, Devas Madhya Pradesh. 20. This ground of appeal is not pressed by the AR of the assessee, hence the same is dismissed. 6. the learned AO-DRP erred in disallowing expenditure aggregating 17, 76,270/-, by way of Additional Sales Tax paid. 21. This ground relates to disallowance of expenditure incurred by way of "Additional Sales Tax" amounting to Rs. 17,76,270/-. During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the invoices raised by the said party. However, the AO disallowed said expenditure for want of proof of services rendered. 25. The appellant had entered into an agreement with M/s Vaishnavi Corporate Communications Pvt Ltd. A copy of said agreement is placed at Page 73 to 83 of the Paper Book (Corporate Ground). Annexure A attached to said agreement (Page 83) describes the scope of work. In terms of the said agreement following services have been rendered to the appellant: (i) Public Relation services in India from its various office locations across the country like Delhi, Mumbai, Chennai & Kolkata. (ii) A contact person was made available to address all day-to-day matters and serve appellant's needs, interact with the Company's key personnel. (iii) Responsibilities for public relations including proactive strategy sessions for image building and product & market related public relations. (iv) Responsibilities for the appellant's output to the media/external audiences. The Scope of work is reproduced hereunder: 26. The appellant has explained the nature of services rendered and has submitted the agreement alongwith copies of invoices raised by the said part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies would certainly like to have a unified media focus for the entire Tata group and since VCCPL is a company which has got the necessary expertise of providing such services, the assessee had entered into the agreement dated 21/11 / 2006 with them and has made payments of Rs. 12.66 Cores towards media relation agency fees. We also find that similar services were rendered by VCCPL to the assessee in earlier years as well as in subsequent years which were duly allowed as deduction by the Revenue as under:" Para 7.8 of the order: "Hence, in view of the aforesaid observations and applying the principle of consistency as has been held by the Hon'ble Supreme Court in the case of Radhasoami Satsang reported in 193 ITR 321 (SC), in allowing such claim to the assessee in earlier as well as in subsequent years, we hold that there is absolutely no case made out by the revenue for disallowing this sum of Rs. 12.66 Crores during the year under appeal. Hence, the ground No.5 raised by the assessee is allowed and ground No.3 raised by the revenue is dismissed." 28. The appellant has also incurred similar expenses in earlier years wherein no disallowances were ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held that the assessee has failed to establish the business connection of the service involved and rendering of the service itself so as to claim the same by way of expenditure in the books of accounts maintained for the year. DRP's Directions Pages 10 to 12, Paras 30 to 33 The DRP has rejected the assessee's ground of objection on this issue (Pages 11 to 12, Para 33). In view of this, the amount of Rs. 36, 32,040/- paid to M/s VCCPL is disallowed and added to the income of the assessee. Objection 8 Proposed Disallowance out of Expenditure by way of Professional Charges Paid 30. During the year under consideration, the Assessee had incurred expenditure in a sum of Rs 36,32,040/-, representing fees paid to Vaishnavi Corporate Communications Pvt. Ltd. ("VCCPL"), for Media and Public Relations Services. Upon being required by the Id AO to furnish details of the said sum, the Assessee submitted to the Id AO that VCCPL had provided to it, the following services: (i) Public Relations services in India from its various office locations across the country like Delhi, Mumbai, Chennai & Kolkata. (ii) A contact person was made available for addressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... star trading house whose activity is mainly from exports. It is neither a consumer company, nor a hotel where public relation services are of significant importance, like the other group companies, viz. Indian Hotels etc. Similar agreements have been made with other companies also. In the case of Indian Hotels, the DRP in the earlier year had occasion to examine the expenditure on the same issue. It came to the definite conclusion that the assessee had not provided evidence regarding services rendered top justify the payments made. The DRP disallowed the payments in that case. We find that the facts & circumstances with regard t the payment made to the assessee company is similar. The evidence does not substantiate the payments made. In view of the above, we decline to interfere with the disallowance of payments made in Vaishnavi Communication. The ground is rejected." 30. We have gone through the submissions of the assessee alongwith the findings of AO and Ld. DRP. It is found that assessee is substantially failed to adduce any evidence of services rendered in the category of professional fee. We have gone through the contents of agreement also reproduced (supra), nowhere it lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that no amount whatsoever has ever been refunded to the Appellant in respect of the year under consideration. 10. The learned AO erred in charging from the Appellant, an amount of 67,32,000, as "Additional Income Tax and Interest Payable on Distributed Profits", having regard to the fact that the Tax on Distributed Profits payable under Section 115-O during the year under consideration, viz., 67,98,000 (representing 16.995% of the Dividend of 4,00,00,000 paid by the Appellant for the year ended on 31st March, 2007) had been paid by the Appellant on 19th September, 2007. 11. The learned AO erred in charging from the Appellant, an amount of 29,08,689, as "Interest u/s 244A", having regard to the fact that no amount under Section 244- A whatsoever has ever been paid to the Appellant in respect of the year under consideration. 34. Ground 9 mentioning amount of Rs. 2, 77, 01,822/- as amount already refunded. In the computation sheet attached to the Assessment Order, the AO has mentioned that amount of Rs. 2, 77, 01,822/- has been refunded to the appellant. The appellant has not received any refund for the Assessment Year under reference. A copy of In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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