9911796707
TMI Blog2025 (2) TMI 1128X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out on yearly basis, we find that the TPO has failed to follow this approach and had rejected the ALP determined by the Assessee for the AY 2016-2017 by following the DRP order for the AY 2015-2016. We decline to interfere with the order passed by the CIT(A) deleting the transfer pricing addition. Disallowance u/s 14A r.w.r. 8D - Assessee has earned exempt dividend income during the relevant previous year by investing its surplus funds in units of Liquid Mutual Funds - CIT(A) was justified in restricting the disallowance to the suomoto disallowance made by the assessee - HELD THAT:- It is admitted position that there is no change in the facts and circumstances of the present case. We note that the AO has proceeded to invoke provisions contained in Rule 8D of the IT Rules without recording his dissatisfaction regarding the computation/methodology adopted by the Assessee to arrive at the suo moto disallowance u/s 14A of the Act. CIT(A) had granted relief to the Assessee by following the decisions of the Tribunal in the case of the Assessee for earlier Assessment Years [2021 (10) TMI 822 - ITAT MUMBAI], [2023 (10) TMI 1180 - ITAT MUMBAI],[2022 (12) TMI 1464 - ITAT MUMBAI], ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in view of difference in the credit rating of the entitles which admittedly form basis for guarantee rates/quotations. (ii) Ignoring the facts that the EKC rulings (34 Taxmann.com 19 (Mum Trib) dtd. 23.11.2012 and (ITA No. 1165 of 2013 dated 08.05.2015 (Bom HC)] ignored the fact that entity obtaining loan in foreign jurisdiction for which EKC India stood as guarantor had lower credit rating. (iii) That the starting point for benchmarking in the case of EKC case was obtaining of bank guarantee quote by the EKC India, which was used for benchmarking corporate guarantee and therefore, it was not appropriate to hold that bank guarantee and corporate guarantee are different. (iv) That decision in the case of Everest Kanto Cylinders Ltd. cannot be standard for every assessee as benchmarking for different assessees is a factual exercise dependent upon number of factors including credit rating, financial strength, country of AE, attendant risks etc. (v) That recently the Ld. CIT(A) Kolkata in the case of DCIT vs. National Engineering ITA 986 and 987/Kol/17 has held that decision in Everest Kanto Cylinders Limited cannot be a standard for every case. (vi) That the CIT(A) fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and under the circumstances of the case and in Law, the CIT(A) is justified in restricting the disallowance u/s 14A of the Income Tax Act, 1961 to the suomoto disallowance of Rs. 9,93,001/-made by the assessee thereby overlooking the computational procedure laid down in Rule 8D of the IT Rules, 1962 which has to be necessarily followed whenever a disallowance u/s 14A has to be made? 9. The appellant prays that the order of the CIT(A)-56, Mumbai on the grounds be set aside and confirm the order of the AO. 10. The appellant craves leaves to add, amend or alter all or any of the grounds of appeal." 3. Brief facts of the case are that the Assessee is a shipping company, provides offshore oilfield services. The Assessee operates a fleet of offshore support vessels and jack-up rigs for providing marine logistics and drilling services to its clients for supporting their offshore oil & gas exploration and production services. 4. The Assessee filed its return of income for the Assessment Year 2016-17 on 30/11/2016 declaring total income of INR 241,87,61,850/-. The case of the Assessee was selected for scrutiny. During the assessment proceedings, the Assessing Officer noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and disallowance of INR 9,93,001/- under Section 14A read with Rule 8D of the IT Rules. 9. Being aggrieved by the above relief granted by the CIT(A), the Revenue has preferred the present appeal before the Tribunal raising the grounds reproduced in paragraph 2 above. Ground No.1 to 5 10. Ground No. 1 to 5 raised by the Revenue are directed against the order of the CIT(A) deleting the transfer pricing additions of INR.14,35,86,295/- made by the Assessing Officer. 11. We have heard both the sides on this issue and have perused the material on record. The Learned Departmental Representative relied upon the order passed by the TPO and the Assessing Officer while the Learned Authorised Representative of the Assessee supported the order passed by the CIT(A) and placed reliance upon the orders passed by the Tribunal in the case of the Assessee wherein identical issues had come up for consideration before the Tribunal. 12. We note that during the assessment proceedings the Assessee was asked to show cause why Transfer Pricing Adjustment in Guarantee Commission in the preceding Assessment Year 2015-2016 should not be repeated in the Assessment Year 2016-2017. In response the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determination of ALP of the corporate guarantee given by the assessee to the bank in order to facilitate raising of loan by its AE i.e on the basis of the aforesaid Internal CUP applied by the assessee. In its aforesaid order the Tribunal had observed as under: "17. We have carefully considered the rival submissions. In the present case, the assessee has made a suo-motto transfer pricing adjustment on Corporate Guarantee fee @0.55% from its AE, and such transaction has been considered as an ''international transaction‟ within the meaning of Sec. 92B of the Act. Accordingly, the arm's length price of such transaction has been determined by the TPO at 3.00% which has resulted in enhancement of assessee's income, and the same was restricted by the DRP at 1.50%. The issue before us is restricted to whether the arm's length rate of the Corporate Guarantee is to be taken at 0.55%, which has been suo-motto taken as transfer pricing adjustment by the assessee, or the rate of 1.50% determined by the income-tax authorities. Notably, the TPO has benchmarked the instant transaction of provision of Corporate Guarantee on the basis of respective abilities of the assessee and AE to rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsumer Products Ltd. (supra), wherein the arm‟ length rate of 0.5% has been approved in the matter of benchmarking Guarantee commission fee chargeable from AE. Thus, considering the entirety of the facts and circumstances of the case, in our view, Corporate Guarantee fee charged by the assessee @0.55% is well-founded and does not require any Transfer Pricing Adjustment. Thus, we set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition of Rs. 42,97,821/-. Thus, Ground of appeal nos. 6 to 9 are allowed." As the Tribunal in its aforesaid order passed in the assessee's own case for the preceding years had approved the determining of ALP of corporate guarantee provided by the assessee to a foreign bank for facilitating raising of loan by its AE by applying of Internal CUP by the assessee i.e the guarantee commission paid by the assessee to a bank for guarantee stood by it on behalf of the assessee for a third party thus, we respectfully follow the view therein taken. Accordingly, we find no infirmity in the adoption of internal CUP i.e the average guarantee fees that was paid by the assessee to, viz. RBS (formerly known as ABN Amro Bank); Kotak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducts Ltd. Vs. Addl. CIT 41 taxmann.com 386 (Mum) .5% 6 Nimbus Communications Limited Vs. Addl. CIT (2014) 149 ITD 0508 (Mumbai) .5% 7 Hindalco Industries Ltd. Vs. Addl. CIT (62 taxmann.com 181)(Mum) .5% 8 Manugraph India Ltd. Vs. DCIT (2015) 43 CCH 348 (Mum) .5% 9 Prolific Corporation Ltd. Vs. DCIT (55 taxmann.com)(Hyd) .5% 10 Glenmark Pharmaceuticals Ltd. Vs. Addl. CIT Addl. CIT Vs. Glenmark Pharmaceuticals Ltd. (43 taxmann.com 191)(Mum) .5% 11 Thomas Cook (India) Limited (2016) 47 CCH 0162 (Mum) .5% Accordingly, in terms of our aforesaid observations we find no reason to dislodge the ALP of corporate guarantee determined by the assessee at 0.43% p.a by adopting Internal CUP method. In the backdrop of our aforesaid observations we are unable to persuade ourselves to subscribe to the determination of the ALP of the corporate guarantee at 2% p.a by the A.O/TPO. We, thus, uphold the ALP of corporate guarantee as determined by the assessee at 0.43% p.a and direct the A.O/TPO to vacate the upward transfer pricing adjustment of Rs. 28,69,70,745/- made in the hands of the assessee. The Grounds of appeal Nos. 1 to 7 are allowed in terms of our aforesaid observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act read with Rule 8D of the Income Tax Rules 1962 (for short 'the Rules'). 16. The relevant facts in brief are that the Assessee has earned exempt dividend income of INR.1,38,67,351/- during the relevant previous year by investing its surplus funds in units of Liquid Mutual Funds. In its return of income the Respondent has suo-moto disallowed expenditure of INR.21,69,499/- under Section 14A of the Act as under in terms of the following computation: Total income from Investments of surplus funds Amount (INR) Interest Income (taxable) 1,84,72,287/- Exempt Dividend income 1,38,67,351/- Gain on redemption of units of mutual funds 3/- Total 3,23,39,641/- Percentage of Exempted Income to Total Income from Investments 42.88% Total Cost allocated to treasury function Staff Cost 35,51,141/- Other Expenses 15,08,284/- Total 50,59,425/- Suo moto disallowance u/s. 14A 21,69,499/- (42.88% of total cost allocated to treasury function) 17. On perusal of record, we find that during the assessment proceedings, the Assessee was asked to show-cause why disallowance should not be made under Section 14A of the Act in the case of the Assessee. The Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployees of the assessee company were allocated between tonnage and non-tonnage activity in the operating revenue 33 (tonnage): 67 (non- tonnage). The statement of segmental profit and loss account is enclosed marked Annexure 6. * The employee costs and common administration expenses which are allocated in the aforesaid manner to non-tonnage activity have been further bifurcated between Treasury and Drilling activity. * The expenses allocated to Treasury activity on the above basis aggregate to Rs. 50,59,425/- whereas the Treasury Income comprises of dividend income, interest on term deposits, interest on inter-company loans, gain on sale of mutual funds and other miscellaneous income * The assessee company has suo-moto disallowed pro-rata expenditure of Rs. 21,69,499/-out of the total expenditure relating to the treasury activity of Rs. 50,59,425/- (being percentage of exempt income to the total income from investments i.e. income earned by the Treasury department). Working of disallowance under section 14A forms part of the Tax Audit Report. Relevant annexure of the Tax Audit Report is enclosed marked Annexure 7 for your reference. The assessee company submits that Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of Rule 8D of the Income Tax Rules, 1962, cannot be accepted. As a result the working of disallowance u/s 14A of the Income Tax Act, 1961 is made in accordance with the provisions of Rule 8D of the Income Tax Rules, 1962 xx xx 5.5. In view of the above, it is held that the amount disallowable under section 14A r.w.r.8D works out to Rs. 31,62,500/-. The assessee has already made a disallowance of Rs. 21,69,499/- Therefore, a further disallowance of Rs. 9,93,001/- (31,62,500-21,69,499) is made u/s. 14A of the Income Tax Act, 1961 read with the provisions of Rule 8D of the Income Tax Rules, 1962 and the same is added to the total income of the assessee." 19. In appeal preferred by the Assessee on this issue, the Learned CIT(A) granted relief by deleting the disallowance made under Section 14A of the Act by placing reliance on the decisions in the case of the Assessee for the Assessment Year 2011-2012 [ITA No.1457/Mum2015 & ITA No.1563/Mum/2016 dated 31/08/2021], Assessment Year 2015-2016 [ITA No.7001/Mum/209 dated 27/06/2022], Assessment Year 2017-2018 [ITA No.650/Mum/2022 dated 07/12/2022] and Assessment Year 2018-2019 [ITA No.2422/Mum/2022 dated 20/06/2023] hol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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