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TMI Blog2024 (6) TMI 1391X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue are dismissed accordingly. Disallowance of interest u/s 36(1)(iii) in respect of loans - AO held that the assessee is paying interest at an average rate of 12.41% and on the other hand the assessee has not charged any interest on the advances given to the Joint Ventures - HELD THAT:- With regard to loans which have been continued from earlier years the Tribunal has held that no disallowance u/s 36(1)(iii) is warranted. With respect to the loans extended during the year we noticed that the own funds of the assessee for year ended 31.03.2010 is Rs. 60833.05 lacs and therefore, there is merit in the submission of the ld. AR that when own funds are available for extending advances no disallowance under section 36(1)(iii) is warranted. Thus, no disallowance towards interest u/s 36(1)(iii) is warranted for the year under consideration and accordingly we see no reason to interfere with the decision of the CIT(A). Ground No.5 6 raised by the Revenue in this regard are dismissed. Disallowance of depreciation on the written down value of Speed Boat - HELD THAT:- We notice that this is a recurring issue and that Coordinate Bench in assessee's case for AY 2009-10 [ 2023 (12) TM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects in the infrastructure sector for construction of roads, bridges, railways, jetties, transport terminals, tunnels, dams, etc. in India and abroad. For the year under consideration, the assessee filed the return of income on 25.09.2010 declaring a total income of Rs. 54,61,68,234/- which was subsequently revised to Rs. 23,92,94,596/- and a book profit under section 115JB of the Income Tax Act, 1961 (the Act) of Rs. 76,40,58,837/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. Since the assessee had international transactions a reference was made to Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) of the international transactions, the assessee has entered into with its Associated Enterprises (AE). The TPO proposed a TP Adjustment of Rs. 1,49,91,287/-. The Assessing Officer (AO) passed an assessment order wherein besides the TP Adjustment the AO made various other additions/disallowances and assessed the income of the assessee at Rs. 29,63,66,311/-. Aggrieved the assessee filed appeal before the CIT(A). The CIT(A) gave partial relief to the assessee towards the TP Adjustment and deleted most of the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res % age of profit 2008-09 31.19 0.30 99.05% 0.95% 2009-10 89.89 9.56 90.39% 9.61% (c). The AE has awarded contract to the AFCONS India for a total amount of AED 14,80,00,000. As the assessee himself was executing part contract, therefore assessee is not required to charge performance guarantee from the . 5. The TPO after considering the submissions of the assessee held that in a third party scenario the guarantor would expect a return for the risk undertaken by the third party and in the given case since the First Gulf Bank has charged the lesser rate of interest only because of the guarantee given by the assessee, the benefit accruing to the assessee should be added as TP Adjustment. The TPO further held that the First Gulf Bank has charged 0.5% lesser interest based on the guarantee given by the assessee and therefore, 0.5% is the benefit derived by the AE. Accordingly, the TPO applied 0.5% on the various guarantees given by the assessee to make a TP Adjustment of Rs. 1,48,64,959/-. 6. Before the CIT(A) the assessee reiterated the submissions made before the TPO justifying why no fees should be charged towards the guarantee given by the assessee to the AE. The assessee made an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Rs.210.28 Crores was sub-contracted to the assessee company. The balance work has been performed by Afcons Midcast solely relying on the infrastructure in the form of the man-power, machines, technology, project management skills and organisational support provided by the assessee. In effect contract work performed by Afcons Midcast was done by assessee through its own support services. That is the reason, the assessee has earned profits at Rs.31.19 crores whereas Afcons Mideast has only earned Rs.30 lakhs. The entire profit earned by the assessee as a sub-contractor and for providing support services was Rs. 130.05 crores while Afcons Mideast earned only Rs. 10.86 crores from execution of the said project. Thus, 92.29% of the profits had accrued to the assessee as a sub-contractor and for the support services. Even for the balance 7.71% of the profits accruing to Afcons Mideast, then again 80% of such profits belonged to the assessee company as its share of profit. In substance, the assessee company has earned 99.10% of the profits. This factual background is very important to understand the impugned transaction of performance guarantee on which adjustment has been made by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ergo, it is to be seen whether such transaction is having a bearing on the profits, income, losses or assets or any kind of a mutual agreement or arrangement for the allocation or apportionment or contribution to any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided. Thus, the transaction or the arrangement should have the bearing of profit or income or any kind of benefit or facility. Here providing of performance guarantee or corporate guarantee did not gave benefit to the AE, albeit on the facts of the case the entire benefit for giving such guarantee is only to the assessee because the guarantee was given to carry out the work which was done de-facto by assessee. Even the work performed by the Afcons Mideast was totally done by the support service through infrastructure and man power and the organizational support of the assessee company only and that s the reason why the entire reward and profit went to the assessee Once, the entire benefit and the profits belong to the assessee, and then it cannot be held that assessee has given any kind of benefit by providing corporate guarantee to Afcons Mideast. Here, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oans at Rs. 23644.36 lacs and unsecured loans as Rs. 30232.08 lacs. The AO further noticed that the assessee has disclosed the following under the head Loans Advances to its Joint Ventures Name of the party Rs. In lakh Afcons Pauling Joint Venture 699.57 Afcons Pauling Joint Venture 127.24 Afcons Pauling Joint Venture 1724.47 Total 2551.28 12. The AO held that the assessee is paying interest at an average rate of 12.41% and on the other hand the assessee has not charged any interest on the advances given to the Joint Ventures. Therefore, the AO made a disallowance under section 36(1)(iii) towards interest paid by the assessee to the tune of Rs.316.61 by applying 12.41% on the advances given by the assessee to the Joint Ventures. The CIT(A) deleted the disallowance by holding that 12. I have considered the A.O's order as well as the Appellant A.R's submissions. I have also taken note of the judicial pronouncements cited by the appellant's A.R. in its submissions extracted as above. Besides this, I have also taken note to the judgment of the Bombay High Court in the appellant's own case for A.Yrs. 1998-99, 1999-2000 and 2000-01 wherein the Hon'ble Bombay High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se for AY 2009-10 would be applicable for year under consideration also. With regard to the additional advances given during the year under consideration to Afcons Starbag AG and Afcons Gunanusa Joint Venture as detailed below, the ld. AR submitted that the own funds for year ended 31.03.2010 is more than sufficient to cover these advances and therefore no disallowance is warranted. Particulars Advance given during the financial year 2008-09 (Rs. In lakhs) (A) Advance given during the financial year 2009-10 (Rs. In lakhs) (B) Balance as on 31 March 2010 (Rs. In lakhs) (A+B) i. Afcons Starbag AG 17.62 109.62 127.24 ii. Afcons Gunanusa Joint Venture 53.77 1,670.70 1,724.47 Total 71.39 1,780.32 1,851.71 15. We heard the parties and perused the material on record. We noticed that the Co-ordinate Bench while considering the disallowance of interest under section 36(1)(iii) towards interest free advance given to JV has held that 21. In Revenue s appeal, the first issue is disallowance of interest u/s. 36(1)(iii) in respect of loans to Afcons Pauling Joint Venture. The ld. AO from the perusal of the balance sheet as on 31/03/2009 revealed that assessee had shown interest bearing secured l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r years the Tribunal has held that no disallowance under section 36(1)(iii) is warranted. With respect to the loans extended during the year to the tune of Rs. 1780.32 lacs as tabulated above, we noticed that the own funds of the assessee for year ended 31.03.2010 is Rs. 60833.05 lacs and therefore, there is merit in the submission of the ld. AR that when own funds are available for extending advances no disallowance under section 36(1)(iii) is warranted. In view of these discussion and considering the decision of the Co-ordinate Bench, we hold that no disallowance towards interest under section 36(1)(iii) is warranted for the year under consideration and accordingly we see no reason to interfere with the decision of the CIT(A). Ground No.5 6 raised by the Revenue in this regard are dismissed. Disallowance of depreciation of Rs. 0.64 lacs on the written down value of Speed Boat of Rs. 4.27 lacs Ground No. 7 17. We heard the parties. We notice that this is a recurring issue and that Coordinate Bench in assessee's case for AY 2009-10 while considering the issues has held that 23. In so far as disallowance of depreciation of Rs.25,000/- and written down value of speed boat, it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of arbitration award and therefore, same was for the business of the assessee. Secondly, assessee was justified in claiming the said amount as expenditure in its profit and loss account and lastly, the Tribunal declined the observation of the ld. AO that since the income from arbitration award is excluded from the total income, therefore, professional fees incurred in this should be disallowed. This exact observation of the ld. AO as made in the present assessment year also has been rejected and accordingly, the ground raised by the Revenue is dismissed. 21. We notice from the above extracted observations of AO that the reason for disallowance during the year under consideration is simply to follow the earlier year disallowance and to keep the issue alive. The AO for the year under consideration also has not disputed the fact that the professional fee is incurred for the purposes of business. Therefore, respectfully following the decision of the Coordinate Bench, we hold that the CIT(A) has rightly deleted the disallowance made by the AO. Accordingly this ground raised by the Revenue is dismissed. C.O. No. 1/Mum/2024 22. The assessee has raised cross objections with regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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