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TMI Blog2023 (9) TMI 1466X X X X Extracts X X X X X X X X Extracts X X X X ..... reported as per service tax return - HELD THAT:- As per the prudent method of accounting, assessee has to declare the revenue in its Books of Accounts only to the extent of services provided not the total amount received by the assessee for which there may be certain services to be provided. In this case assessee has recorded as revenue for the value of actual services provided and as per the information submitted before us from the Form ST-3 the assessee has received an amount of ₹.36,72,24,482/- as advances. Similarly, Form ST-3 an amount of ₹.6,70,38,441/-. From the above two service tax return, it clearly shows that these payments were received by the assessee only as advances. Therefore, the above said amount cannot be treated as revenue for the current Assessment Year. We observe that Ld.CIT(A) has considered the issue in a different dimension wherein he has gone with the notion of Percentage of completion of the project, without considering the fact that assessee has to declare the revenue to the extent of services provided by it but not for the services which is pending to be performed. Therefore, we are not inclined to accept the findings of the Ld.CIT(A). Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of corporate guarantee. 2.4. Without prejudice to the above, the rate of corporate guarantee commission be reduced reasonably. 3. Addition to income based on Service Tax Return: 3.1. On the facts and circumstances of the case and in law, the DRP erred in confirming the action of the AO in considering Rs. 43,42,62,923/- as income of Appellant being the amount of advance received by the Appellant from its customers which was reflected in service tax returns as Advance. 3.2. They failed to appreciate and ought to have held that service tax is payable on advance amounts also and amounts reflected in service tax return are based on the service tax law and need not necessarily be income accrued as per accounting principles as the appellant correctly following accounting Methodology. 3.3. The Appellant prays that the AO be directed to delete the addition of Rs. 43,42,62,923/- being the amount of advance received by Appellant from customers. 4. Claim for taxes paid outside India: 4.1. On the facts and circumstances of the case and in law, the AO/DRP erred in not admitting and allowing the deduction in respect of the taxes paid outside India but not eligible for credit u/s. 90 91 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d KEC US, LLC, USA (WOS) now known as SAE Tower Holding LLC ICICI Bank, UK Financing to SPV for acquistion of SAE USA's business. USD-3,65,37,634 INR237,65,57,520 1.16% Rs.2,75,68,067 The Guarantee was given in earlier years and the Hon'ble ITAT in AY 2011- 12,AY 2012-13, AY 2013- 14 and AY 2017-18 has determined ALP @0.20% 2. Sharif Group and KEC Ltd Company Axis Bank Non fund based credit facility for which charge on the receivable from the project of JV given USD-3,00,00,000 INR 1,95,13,23,000 1.16% Rs.1,58,75,750 This guarantee was provided in earlier Year and the Hon'ble ITAT in AY 2017-18 has determined ALP @0.60%. 3. Kotak Mahindra Bank Limited Non Fund based facility USD-1,72,50,000 INR 1,12,20,10,725 1.16% Rs.1,30,15,324 do 4. ICICI BANK Limited Non Fund based facility USD-3,41,00,000 INR 221,80,03,810 - 1.16% Rs.2,57,28,844 do 5. Bank Muscat S.A.O.G Fund based working capital loan facility SAR-11,46,53,182 INR-197,79,96,682 0.60% 0.56% (1.16- 0.60) Rs.91,27,729 do 6. Banque Saudi Fransi, Jeddah Fund based working capital loan facility SAR-1,78,99,540 INR30,88,02,868 0.60% 0.56% (1.16- 0.60) Rs.7,04,167 do 7. Abu Dhabi Commercial Bank Fund based working capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed till date without there being any revision. The bench observed that the corporate guarantee is reviewed every year or atleast once in three years. The corporate guarantee cannot be same which was given in the A.Y.2011-12. The Ld.AR prayed that the rule of consistence may be followed. 9. On the other hand, Ld. DR relied on the orders of lower authorities and prayed that the corporate guarantee rate determined by the lower authorities may be sustained. 10. Considered the rival submissions and material placed on record, the Coordinate Bench considered the same issue in the earlier Assessment Years in ITA.No. 33/Mum/2022 dated 31.05.2023 and observed as under:- 29. As regards the balance 3 corporate guarantees, we find that same were given by the Assessee on behalf of its AEs to banks for the purpose of availing loans. In respect of the aforesaid three corporate guarantees that the CIT(A) has held as under: 7. Now I consider benchmarking of 3 transactions of Corporate guarantees Details are as under (i) Corporate guarantee given to National Bank of Oman on behalf of KEC Global FZ LLC RasUI Khaimah of OMR 52,60,323/-: As per the order of the TPO. this corporate guarantee was given in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te guarantee are from that of the bank guarantee and that high rate of commission in case of corporate guarantee issued by holding company for subsidiary is not justified. It is submitted without prejudice that Appellant has charged guarantee commission @ 0.6% to AES. The said rate is based on rate mentioned under the facility letter issued by the assessee's bank. It is claimed that this rate is most direct comparable uncontrolled transaction to benchmark the rate of guarantee commission Lastly, the Appellant has relied on ITAT's decision in its case for AY 2012-13. by reproducing Para 7.11 of the order (already reproduced in Para 6.7 1 above) and submitted that benchmarking be done @ 0.2% 7.2 I have considered the order and submissions of the Appellant. The transaction of issue of corporate guarantee is covered under the definition of International Transaction' u/s 92B rw. Explanation. As per Explanation (1) (c) of 92B (inserted with retrospective effect from 01.04.2002 by Finance Act 2012), 'guarantee' has been specifically clarified to be an international transaction. The legislature is aware that there are some conditions to be satisfied under section 92B fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issued by the Assessee to ICICI, UK on behalf of its AE KEC US LLC and KEC Transmission LLC, was for the ultimate benefit of the Assessee. The CIT(A) pointed out that the 3 guarantees under consideration were given for the purpose of availing of regular credit facilities whereas credit facilities from ICICI, UK benchmarked at the rate of 0.2% was for the ultimate benefit of the Assessee itself. The CIT(A) noted that the Assessee had already recovered the guarantee fee at the rate of 0.6% from the AEs on the basis of letter issued to the Appellant by its bank for similar facility. Perusal of the order passed by TPO shows that the TPO had determined arm s length guarantee fee at the rate of 2% by way of estimation. During the course of hearing, it was pointed out by the Learned Authorised Representative for Assessee that the corporate guarantee was given for working capital loan facility granted to the AE in which the Assessee was 50% partner, and therefore, there was no default risk. Further, repayment of loan was secured by way of charge against the receivables from Saudi Electric Company, a Government Undertaking and a client of the Assessee s AE and therefore, the Assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the submissions of the assessee Ld. DRP partly allowed the objections raised by the assessee with the following observations: - 7.3 The assessee has submitted copies of Service Tax Returns filed by it in respect of its Gurgaon and Mumbai offices, copies of which have also been submitted before the assessing officer on September 29, 2021. It is seen from the returns that for different classification of services, there is specific columns (part B2) which gives details of gross turnover etc. in respect of Service Receiver under reverse charge mechanism. On perusal copies of the returns it is seen that the following gross amounts are shown in part B2, pertaining to service receivers SI Service Gurgaon Office Mumbai Office 1 Works Contract Services 36,63,00,073 23,00,440 2 Other Taxable Services 0 4,39,31,444 3 Information Technology Software Services 0 15,72,500 4 Legal Consultancy Services 51,37,755 1,75,59,938 5 Goods Transport Agency Services 14,66,51,556 27,39,05,041 6 Manpower Supply Agency Services 3,52,67,213 12,31,09,327 7 Rent a Cab Scheme Operator Services 6,23,34,930 71,41,951 8 Security Agency Services 2,65,64,423 0 9 Banking and Financial Services 1,84,62,704 0 66,07,18, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the receipts in its books as income is transparent, and also in accordance with the percentage completion method. Hence, it is not possible to return a finding that the amount of Rs. 43,42,52,923/- is advance received from customers. This part of the objection is accordingly rejected. 15. In this regard, Ld. AR of the assessee submitted that amount aggregating to ₹.43,42,62,923/- is 'amount of advance from customers' is also clearly reflected in the service tax return filed by the Assessee. Copy of the relevant extracts of service tax return are as under: Sr. No. Service Tax Reg. No. Amount (Rs.) Reference 1 AACCK5599HST003 36,72,24,482 SI No. B1.2 on Pg 2 of Annexure 1-A (Refer page No 27 of the FPB filed on March 8, 2022) 2 AACCK5599HST002 6,70,38,441 SI No. B1.2 on Pg 16 of Annexure 1- B (Refer page No 73 of the FPB filed on March 8, 2022) Total 43,42,62,923 Thus, the service tax returns itself substantiates the claim of the Assessee that the amount aggregating to ₹.43,42,62,923/- is in the nature of 'advance' which the Assessing Officer has inadvertently treated as 'turnover and added to the total income of the Assessee. 16. Further, Ld. AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ork performed but not yet paid by the customer are included in the balance sheet under trade receivables Liquidated damages/penalties are accounted as per the contract terms wherever there is a delayed delivery attributable to the Company. 17. Ld. AR of the assessee submitted that in construction projects, generally, on entering into agreement, the Assessee receives mobilization advances from its customers which is a percentage of total contract value. For example, if the total contract value is say ₹.100 and the agreed mobilisation advance in the agreement is say 15% of the contract value, the Assessee receives ₹.15 as mobilisation advance. Subsequently, as and when the Assessee works on the project, it raises invoices on the customer from time to time based on the milestones and Bill of Quantities (BOQ) as per the contract terms. The assessee account for the revenue percentage of completion of the project in lines with the accounting policy as discussed above. In the invoice, mobilisation advance is adjusted from the bill amount on proportionate basis. Say in the instant example, as per the contract, Assessee will raise invoice for 20% of the contact value, in such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly shows that these payments were received by the assessee only as advances. Therefore, the above said amount cannot be treated as revenue for the current Assessment Year. We observe that Ld.CIT(A) has considered the issue in a different dimension wherein he has gone with the notion of Percentage of completion of the project, without considering the fact that assessee has to declare the revenue to the extent of services provided by it but not for the services which is pending to be performed. Therefore, we are not inclined to accept the findings of the Ld.CIT(A). Accordingly, ground raised by the assessee is accordingly, allowed. 21. With regard to Ground Nos. 4,5,6 and 7 of grounds of appeal, these grounds are raised for the first time during this assessment year before the Assessing Officer and Ld. DRP. In our view, as held in the case of Goetze (India) Ltd., v. CIT [284 ITR 232 (SC)], the appellate authorities can entertain the fresh claim for deduction otherwise than by revised return of income. After considering the overall merits on the submissions made by the assessee, we are inclined to remit these issues back to the file of Assessing Officer with a direction to verif ..... X X X X Extracts X X X X X X X X Extracts X X X X
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