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TMI Blog2025 (1) TMI 1003X X X X Extracts X X X X X X X X Extracts X X X X ..... ant, which was in excess of the amount quantified by the DSIR - further disallowing the same u/s 37(1) - whether AO has not examined the aspect of differential amount being for the purpose of business only? - HELD THAT:- We are of the considered view that section 37 of the Act is the primary basis for consideration of an expense debited in the books before being considered for a disallowance u/s 35(2AB) of the Act and the fact that a part of the expenditure stands allowed on the basis of Form 3CL as capital expenditure. The remaining should be allowed as revenue expenditure and both the tax authorities have fallen in error in not considering the same. Accordingly, these grounds are also allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... kin to a bank guarantee. It was submitted that the SBLC was issued to the foreign AE to enable it to further expand the Appellant's business in the United States of America, such that the foreign AE may avail of a loan to acquire a manufacturing unit. Had the SBLC not been issued, the Appellant would have had to do a cash infusion of USD 12 million, into the funds of AE. >5. Thus, what we find is that appellant does not dispute that issuance of SBLC is an international transaction. The limited issue before us, as argued, is determination of the arm's length price of the SBLC. >5.1 The Ld. Counsel of appellant submits that the adjustment proposed by the TPO should be capped at 0.5% per annum of the value of the SBLC in light of following judicial precedents cited before us; >Everest Kanto Cylinder Ltd. v. DCIT - [2013] 34 taxmann.com 19 (Mumbai - Trib.); Micromax Informatics Ltd. v. DCIT - [2015] 56 taxmann.com 203 (Delhi - Trib.); Havells India Ltd. v. ACIT - [2022] 140 taxmann.com 576 (Delhi - Trib.) >5.2 It was further submitted that in any case the Appellant paid 0.5% commission fee per annum to HDFC Bank for the issuance of SBLC which is an internal CUP. During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he excess revenue expenditure u/s 37(1) of the Act. >9. The case of assessee before us is that the AO ought to have allowed the excess revenue expenditure of the differential amount Rs. 20,82,229(2,88,44,229 - 2,67,62,000) under S.37(1) of the Act as the same has been incurred exclusively for the purpose of business undertaken by the Appellant. It was submitted that this is undisputed fact that this expenditure was incurred wholly for business purposes and is revenue in nature. The AO/DRP has not challenged the revenue nature of the expenditure. Ld. Counsel has relied decision in Auto Ignition Ltd. v. ACIT- ITA No. 3248/Del/2017 and M/s. BEML Limited v. DCIT - ITA No. 222/Bang/2023 (Bangalore Tribunal). >10. Ld. DR has submitted that AO did not have opportunity to examine the fact of expenses being for the purposes of business. >11. We have given thoughtful consideration to the matter on record. Taking ground Nos.5 to 7, we are of the view that in common parlance, there is no difference between a Bank Guarantee and an SBLC in regards to their intended purpose however they may be governed by different rules and local laws with regard to their enforceability. However, for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd. [2015] 58 taxmann.com 254 (Bombay), the Hon'ble High Court has dealt with this issue with the following relevant observations in para 10 of the order:- >"10. …….. Furthermore, having considered the fact that a sum of Rs. 4,47,649/- was not conceded in the return but was adhoc acceptance during the course of assessment, the assessee could not be bound by it. The Tribunal as the second fact finding authority had gone into factual aspects in great detail and therefore having interpreted the law as it stood on the relevant date the order passed cannot be faulted. In the matter of guarantee commission, the adjustment made by the TPO were based on instances restricted to the commercial banks providing guarantees and did not contemplate the issue of a Corporate Guarantee. No doubt these are contracts of guarantee, however, when they are Commercial banks that issue bank guarantees which are treated as the blood of commerce being easily encashable in the event of default, and if the bank guarantee had to be obtained from Commercial Banks, the higher commission could have been justified. In the present case, it is assessee company that is issuing Corporate Guarantee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble High Court of Bombay in the case of CIT Vs Thomas Cook (India) Ltd. in ITA No. 712 of 2017 order dated 26.08.2019. Keeping in view, the judgments of the Hon'ble Bombay High Court and in the absence of any other judgment contrarily brought to our notice, we hereby direct that the adjustment in respect of corporate guarantee provided to AEs be determined at date of 0.5% instead of 1.3% determined by the revenue." >16. Here in case before us, we find that the assessee's bank has charged 0.50% per annum for the period after 17.06.2018 till 17.06.2022 and before that assessee was charged @ 1% for the period 17.06.2016 to 17.06.2018. Thus, in the financial year 2016-17 assessee had paid 1% as the cost of extending the SBLC to AE, for which assessed should have been compensated by the AE. Therefore, we are inclined hold that Ld. AO/TPO shall consider rate of 1%, to be ALP for this international transaction and accordingly we allow the grounds No.5-7. Further as per the provisions of Rule 115 of the Income-tax Rules, 1962, the TPO will apply the correct conversion rate for which assessee may also be given opportunity of hearing. >17. In regard to grounds No.9-12, the only c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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