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TMI Blog2024 (8) TMI 1428X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's account and the assessee has capitalized it in its books of account.Ground raised by the Revenue is dismissed. Addition out of professional fees paid for arbitration awarded - HELD THAT:- The reason for disallowance during the year under consideration is simply to follow the earlier year disallowance and to keep the issue alive. 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 Co-ordinate Bench AY 2010-11 [ 2024 (6) TMI 1391 - ITAT MUMBAI] we hold that the CIT(A) has rightly deleted the disallowance made by the AO. Exclusion of tax on ESOP in computing the book profit u/s 115JB - HELD THAT:- Any any tax payment made by the employer on behalf of the employee is not covered under the definition of income tax. In fact, Section 40(a)(v) of the Act disallows such payments by the employer on behalf of the employee. Considering the definition of Income tax in Clause (a) of Explanation 1 to Section 115JB of the Act, we do not find any reason to interfere with the findings of the ld. CIT(A). This Ground is accordingly dismissed. - Shri N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work, guarantee was provided by FGB for provision of banking facilities to Afcons Mideast which in the F.Y. 2008-09 was of Rs. 824 Crores. During the year four types of facilities were provided as noted above which mostly consist of letters of credit, letters of guarantee and letters of advance payment, performance bond and letter. By way of security for providing these facilities FGB required the assessee to execute irrevocable and unconditional corporate guarantee and accordingly, performance guarantee was given by FGB in favour of Road Transport Authority, Dubai. It was only a guarantee that Afcons Mideast would not suspend or delay repayment of the advance of AED 108 million. The assessee had not charged any guarantee fee from Afcons Mideast on the ground that effectively guarantee has been given for its own performance of the contract or a guarantee given for repayment of advance which would also only arise in the case of a non-performance of the contract by the assessee. Thus, we agree with the contention of the ld. Senior Counsel that giving the performance of the corporate guarantee was to execute the work which in effect was carried out by the assessee itself for which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... man power, management, technological support, organizational support, etc. all has been done by the assessee. The function of the AE in the execution of work was only on paper and as a legal entity to comply with the domestic laws. In substance there is negligible function performed by the AE. Apart from that, even the assets deployed belonged to the assessee. The entire risk lied upon the assessee that is the risk assumed for executing the contract and carrying out the entire work solely belonged to the assessee. Ergo the rewards of the risks were also entirely reaped by the assessee in the form of 99% profit. Thus, even if one does FAR analysis of the performance guarantee given by the assessee to FGB for execution of the contract where entire risk and rewards and the benefit was of the assessee only, then where is the question of making any adjustment of ALP in the hands of the assessee that any benefit has been passed on to the AE. 16. Even if it is reckoned as international transaction, then also on FAR analysis and looking to fact that the reward or profit to the AE is almost negligible, i.e. the ultimate profit is not even 1%, the adjustment if at all would also be negligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the written down value of the same asset during the year under consideration and therefore, the above decision of the Coordinate Bench is clearly applicable for the year under consideration also. Accordingly, we see no infirmity in the order of the CIT(A). 10. Respectfully following the same, we decline to interfere. Accordingly, Ground No. 5 is dismissed. 11. Ground No. 6 relates to the deletion of the addition out of professional fees paid for arbitration awarded. This issue was also considered by the Co-ordinate Bench in AY 2010-11 (supra). The relevant findings read as under:- 19. During the year under consideration the assessee has incurred Professional Fee of Rs. 64,26,858/- for Arbitration. The AO disallowed the said expenditure by following the earlier years for the reason that the assessee has not offered the corresponding arbitration award income for taxation. The relevant observations of the AO are extracted below: 5. Professional Fees for Arbitration Awards: 5.1 During the year, the assessee company has incurred professional fees of Rs. 64,26,858/- for arbitration. In earlier A.Yrs, such expenses were disallowed as the assessee had not offered the corresponding arbitrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, the assessee has added the amount to the income and offered it to tax. However, the same was not added to the book profits computed u/s 115JB of the Act. Accordingly, assessee was asked to explain as to why the tax payment on ESOP should not be added back to the book profit u/s 115JB of the Act. The assessee filed a detailed reply which reads as under:- During the F.Y. 2006-07, the assessee company had allotted certain shares to its employees under the ESOP. As per the said scheme, the employees under were allotted shares of the assessee company at a concessional rate a compared to their market price on the relevant date. During the FY 2011-12. 33 employees exercised their option for 1,30,770/- shares. As per the terms of agreement between the assessee company and its employees, the Income tax on such perquisite has been borne by the assessee, Accordingly, the assessee deposited an amount of Rs. 37,98,345/- to the credit of the Central Government towards income tax paid on behalf of employees in respect of perquisite values of shares allotted to them. The aforesaid amount of Rs. 37,98,345/- being an expenditure in the hands of the assessee was debited to the profit and loss a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 1 lists down various items that are required to be added back to the net profits in computing the book profits under section 115JB of the Act. If the statute required a similar disallowance to be made under section 115JB as well, it would have specifically provided for the same. In the absence of such provision, no adjustment in this regard ought to be made under section 115JB of the Act. (vi) The assessee also invites your goodself's attention to Explanation 2 to section 115JB of the Act. As may be noted from therein, the said explanation provides for specific inclusions to the term 'income-tax' for the purpose of clause (a) to Explanation 1: any tax on distributed profits under section 115-0 or on distributed income under section 115R; any interest charged under this Act; surcharge, if any, as levied by the Central Acts from time to time; Education Cess on income-tax, if any, as levied by Central Acts form time to time; Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time. Hence, it is submitted that any payment not covered by the above explanation cannot be added back while computing book profits under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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