TMI Blog2024 (2) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... alternative arguments raised by the assessee. As far as disallowance of 0.5% on average investment is concerned, it is found there is no specific finding or working has been done by the AO and Ld. DRP, hence same need not be sustained here also. In view of the above, ground no. 2 raised by the assessee is allowed and AO is directed to delete the same. TP Adjustment - transaction of providing Letter of Comfort would fall within the ambit of the term 'international transaction' u/s. 92B or not? - HELD THAT:- As decided in assessee own case [ 2020 (3) TMI 799 - ITAT MUMBAI] held that Letter of Comfort merely indicates the appellant's assurance that respondent would comply with the term of financial transaction without guaranteeing performance in the event of default. The co- ordinate bench of Tribunal in India Hotels Co. Ltd. ( 2019 (9) TMI 1340 - ITAT MUMBAI] on similar ground of appeal held that Letter of Comfort does not constitute international transaction. So far as contention of Id. DR for the revenue that after amendment in Explanation to section 92B is concerned, we have noted that co- ordinate bench in SIRO Clinpharm P. Ltd. ( 2016 (5) TMI 633 - ITAT MUMBAI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the file of the jurisdictional AO for verification and to examine the nature of payment made i.e. payment is not in the nature of penalty and the same is allowable as per law. In the result, this ground of assessee is allowed for statistical purposes. Disallowing expenditure by way of professional charges paid - HELD THAT:- It is found that assessee is substantially failed to adduce any evidence of services rendered in the category of professional fee. We have gone through the contents of agreement reproduced nowhere it looks like an agreement for rendering professional services. Assessee s argument that for earlier 2 years, the same expense was allowed and they are relying on the decision of Radhasoami Satsang [ 1991 (11) TMI 2 - SUPREME COURT] is not applicable here based on the facts of the case. Principle of consistency should have been followed as far as possible and permitted by the facts of the case, but as the concept of res-judicata is also there, to be considered before any adjudication. Hence, in the present situation we also asked the AR of the assessee to substantiate the claim by placing on record any cogent evidence which confirms delivery of service by M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Panel [ AO-DRP ] erred in disallowing expenditure aggregating 3,74,855 by way of payments made to clubs. 2. This ground raised by the assessee is covered by the decision of Coordinate Bench of ITAT Mumbai in assessee's own case for AY 2005-06 in ITA 4376/Mum/2010. The operative portion of the order of Coordinate Bench of ITAT is as under:- 13. Ground no.2 relates to disallowance out of payment made to club. The ld. AR of the assessee submits that this ground of appeal is also covered by Hon ble Bombay High Court and decision of various benches of Tribunal in Otis Elevator (195 ITR 682). The ld. AR of the assessee submits that the assessee claimed total expenses of Rs. 3,52,200/- out of which, the Assessing Officer allowed Rs. 52,000/- paid to Devas Office and rest of the amount of Rs. 2,99,500/- for subscription fees, annual contribution and membership of various club and other expenses paid on club were disallowed. The ld. CIT (A) granted part relief restricting the disallowance to Rs. 2,65,000/-. The ld. AR of the assessee submits that the issue is stand covered by the decision of jurisdictional High Court in Otis Elevator (supra). 14. On the other hand, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant's total Investments in shares (₹ 133.67 Crores), the AO-DRP ought to have held - (a) That such Investments had been made from the Appellant's Own Funds and not from any part of the Appellant's borrowed funds, (b) that, therefore, the borrowed funds had been utilised, not for the purpose of making investment in shares, but for the other purposes of the Appellant's business and (c) That, accordingly, the Interest of Rs. 1,65,35,000/- was allowable under Section 36(1) (iii) of the Act. The Appellant submits that the learned AO-DRP erred in this respect in not following the binding order of this Hon'ble Tribunal in the Appellant's own case for the Assessment Years 2000-01 to 2002-03, viz., the Order dated 8 th June, 2012 of the Hon'ble Mumbai Bench 'E', in I.T.A. Nos. 3957, 3958 3959 / M um / 2006 2.4. without prejudice to the foregoing grounds, the Appellant submits that, in making their determinations in respect of the disallowance under Section 14-A, the learned AO-DRP erred in the following respects: (1) The learned AO-DRP erred in holding that the amount disallowed under Section 14-A was not al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds, the Appellant submits that, assuming (whilst denying) that the provisions of Rule 8-D were properly applied to its case, the learned AO-DRP erred in the following respects in such application, viz.: (1) The learned AO-DRP erred in rejecting the Appellant's alternative claim to the effect that the learned AO-DRP ought to have excluded the average cost of such of the Appellant's investments as were made on or before 31 March, 1999 ( Old Investments ). (2) The learned AO-DRP erred in rejecting the Appellant's further alternative claim to the effect that the learned AO-DRP ought to have excluded the average cost of such of the Appellant's investments as had not yielded any dividends during the year under consideration ( Non Dividend Yielding Investments ). (3) The findings of the learned DRP [in paragraph 19 (at page 6) and paragraph 20 (at page 7) of its Directions] to the effect that there is expenditure incurred in respect of the Appellant's investments by way of costs involving decision-making, direct supervision and funding, are based on conjectures and surmises and are unsupported by any evidence on record and, consequently, are per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted no disallowance should be made in respect of interest expenditure. The appellant places reliance on the following judicial pronouncements, wherein it has been held that where the Appellant's own funds are in excess of investments then it should be presumed that the investments are made from the Own Funds and not from Borrowings, consequently disallowance u/s. 14A of the Act in respect of interest expenditure ought to be deleted. (i) South Indian Bank Ltd vs. Commissioner of Income Tax 438 ITR 1 (SC) (09- 09-2021) (Para 27 Page 51) (Page 45 to 51) (ii) CIT vs. Reliance Utilities Power Ltd [2009] 313 ITR 340 (Bom) (Page 52 to 55) (iii) HDFC Bank Ltd vs. DCIT 383 ITR 529 (Bom. HC) (Page 56 to 68) 8. Alternatively and without prejudice to the above, it is submitted that interest expense of Rs. 1144.02 Lakhs includes interest aggregating to Rs. 1041.99 Lakhs which is in relation to (EPC) Export Packing Credit and Pre Shipment Credit in Foreign Currency incurred for the purpose of export/ import business of the appellant. The appellant is prohibited, under Reserve Bank of India's Regulations, from using any part of such credit for any purpose other than th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO-DRP as recoverable by the Appellant from its concerned AEs ought to have been computed, (1) not with reference to the value of the relevant LOC, but with reference to the sanctioned credit limit actually utilised by the concerned AE and, (iii) in any event, at least with reference to the sanctioned credit limit. 3.3. The Appellant submits, without prejudice to the foregoing ground, and assuming whilst denying that any Transfer Pricing Adjustment was required to be made to the Total Income returned by the Appellant in respect of the Appellant's non-recovery of any fees or commission from its concerned AEs, that bank guarantee commission is not the appropriate benchmarking tool for determining the arm's length price of the Income accruing to the Appellant from the issue of each of the LOCs aforesaid. 3.4. without, prejudice to the foregoing grounds, and assuming whilst denying (1) that any Transfer Pricing Adjustment was required to be made to the Total Income returned by the Appellant in respect of the Appellant's non-recovery of any fees or commission from its concerned AEs and (i) that the rates of bank guarantee commission charged to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aper Book Volume -2. 13. This issue is covered in favour of the Appellant by the decision of the Hon'ble ITAT in its own case for the A.Y. 2005-06 (bearing ITA No. 4376/Mum/2010 dated 29 January 2020). A copy of the said decision was submitted before the Bench during the course of hearing on 24 January 2024 (refer para Nos. 19 to 24 on page nos. 31 to 36 of the order) and is enclosed herewith at page 21 to 38 for ease of reference. The relevant extracts of the said decision are reproduced hereunder: The Id. CIT(A) after considering the submission of assessee concluded that by issuing Letter of Comfort to the Bankers of AE, the assessee did not incurred any cost. The issuance of Letter of Comfort by assessee have no bearing on the profit, income or loss as the assessee did not incur any cost or expenditure for issuing such Letter of Comfort and it does not constitute international transaction under section 92B of the Act. The Id. CIT (A) concluded that there is a fundamental gap between guarantee and Letter of Comfort. Guarantee is a legally enforceable; however, Letter of Comfort is not. We have noted that Hon'ble Karnataka High Court in United Braveries (Holding) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO and proposed no further adjustment to the value of arm's length price of international transactions benchmarked by the appellant in its TP documentation. In respect of the LOCs issued by the appellant to its AEs, the TPO selected Comparable Uncontrolled Price method ( CUP ) as the most appropriate method for determining the arm's length price of this transaction and in determining the price, the TPO mentioned that Indian bank charged a fee ranging from 0.25% to 15% of the value of guarantee given to its customers depending upon the risk involved. The TPO proceeded to determine the arm's length commission to be 50% of 1.5% at 0.75%. Based on this the TPO proposed an adjustment of Rs. 5, 75, 38,800/- be made to the total income of the appellant. The adjustment was computed on the value of the LOCs issued by the appellant to its AE's as against the actual draw down of funds from the bank by the AE's. ii. The AO under Section 143(3) of the Act passed the assessment order in conformity with the addition proposed by the TPO incorporating the proposed addition of Rs. 5,75,38,800/- to the returned income of the appellant. iii. The appellant has file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oup's attributes that positively enhances the profit-making potential of particular members of the group. Each case must be determined according to its own facts and circumstances. vi. Appellant vide its letter dated 23.08.2012 has submitted that it does not press ground No. 6C(ii) which is in respect of comparable data for benchmarking and accordingly the appellant would not like to press ground No. 6C(ii) of appeal However in view of the position above such letter filed by the appellant becomes in consequential vii. In view of the facts of the case, discussion herein above and consistent with the decision taken by my predecessor for A.Y. 2005-06 and by me for A.Y 2006-07 in the appellant's case, the adjustment of Rs. 5,75,38,800/- is therefore deleted. viii Thus, this ground of appeal is allowed. 12. We find that the Tribunal in A.Y.2005-06 has decided this issue in favour of the assessee after observing as under:- Ground No.6 to 9 relates to Transfer Pricing Adjustment with respect to issuance of Letter of Comfort . This issue is interconnected with the grounds of appeal raised by revenue in its cross appeal. The Id. AR of the assessee sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Tribunal in case of The India Hotel Company Ltd. vs. DCIT in ITA No. 9087/Mum/2010 dated 06.09.2019, wherein similar ground of appeal was considered and by following the decision of earlier years in that assessee and decision of Hon'ble Karnataka High Court in United Braveries Holding Ltd. Karnataka State Industrial Investment and Development Corporation Ltd. (M.F.A. No. 4234 of 2007 (SFC), wherein it was held that Letter of Comfort merely indicates the parties assurance that respondent would comply with the term of financial transaction without guaranteeing performance in the event of default. 13. since in the earlier year this precise issue has been decided in favour of the assessee, therefore, as precedence, following the aforesaid decision, we uphold the order of the ld. CIT (A) and consequently grounds raised by the Revenue are dismissed. 15. Since in the earlier assessment years namely 2005-06, 2006-07 and 2007-08 issue has been discussed and examined by the Coordinate Benches and revenue is not able to bring anything adverse on record to deviate from the earlier views, we respectfully follow the decisions of Coordinate Benches in earlier years and allow th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in Indian currency and cannot be applied to amounts outstanding in foreign currency. The average LIBOR rate for the captioned year considered by the Appellant works out to 4.74% (refer page Nos. 18 to 31 of the paperbook-volume 2 filed on 15 November 2023) and the rate of interest charged by the Appellant is 6%, which is higher than the said LIBOR rate. 18. The dispute here is applicability of interest rate on amounts due from AEs is to be calculated based on PLR rate declared by RBI (being Central Bank of India where assessee is based) or LIBOR rate (as AE is based outside India). It s a legal issue and precisely the same issue has been dealt in by the Hon ble Delhi High Court in the case of CIT-I vs. Cotton Naturals (I) (P) Ltd. [2015] 231 Taxmann 401 (Del.) and held as under: The question whether the interest rate prevailing in India should be applied, for the lender was an Indian company/assessee, or the lending rate prevalent in the United States should be applied, for the borrower was a resident and an assessee of the said country, must be answered by adopting and applying a commonsensical and pragmatic reasoning. The interest rate should be the market determined i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the average or mid-point between the two should be taken. However, others like Klaus Vogel have suggested that economic purpose and substance of the debt-claim or debt for which granting of credit calls for the lending rate would be determinative. Thus, in case of a capital investment, the borrowing rate will apply, whereas in case of credit allowed to a customer on sale of goods, the lending rate would apply. We do not deem it necessary to enter into this controversy and express our view as regards the same. [Para 43] 19. As the identical situation was there and analysed by the Hon ble High Court (supra) and there is no argument advanced by the revenue to counter the same, we respectfully follow the same and confirmed the treatment on this issue given by the assessee . In view of above, ground raised by the assessee is allowed and AO is directed to delete the addition made on this count. 5. the Learned AO-DRP in disallowing expenditure aggregating Rs. 1, 74,544/-, by way of payments made to the Tata Public School, Devas Madhya Pradesh. 20. This ground of appeal is not pressed by the AR of the assessee, hence the same is dismissed. 6. the learned AO-DRP erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance of amount of Rs. 36,32,000/- paid by the appellant to M/s. Vaishnavi Corporate Communications Pvt. Ltd. During the year under reference the appellant made payment to M/s. Vaishnavi Corporate Communications Pvt. Ltd. in terms of agreement entered into by and between the appellant and M/s. Vaishnavi Corporate Communications Pvt. Ltd. for rendering Public Relations and Media related services. The appellant also submitted the invoices raised by the said party. However, the AO disallowed said expenditure for want of proof of services rendered. 25. The appellant had entered into an agreement with M/s Vaishnavi Corporate Communications Pvt Ltd. A copy of said agreement is placed at Page 73 to 83 of the Paper Book (Corporate Ground). Annexure A attached to said agreement (Page 83) describes the scope of work. In terms of the said agreement following services have been rendered to the appellant: (i) Public Relation services in India from its various office locations across the country like Delhi, Mumbai, Chennai Kolkata. (ii) A contact person was made available to address all day-to-day matters and serve appellant's needs, interact with the Company's key person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy Services Ltd. Tata Teleservices Limited including Tata Teleservices (Maharashtra) Ltd., Videsh Sanchar Nigam Limited Rallis India Limited Tata Elxsi Limited. Voltas Ltd. Tata Coffee Ltd. Trent Ltd. Titan Industries Ltd. CMC Limited Tata International Limited Tata Autocomp Systems Ltd. Page 21 of the order: Since, the assessee having made investments in various group companies would certainly like to have a unified media focus for the entire Tata group and since VCCPL is a company which has got the necessary expertise of providing such services, the assessee had entered into the agreement dated 21/11 / 2006 with them and has made payments of Rs. 12.66 Cores towards media relation agency fees. We also find that similar services were rendered by VCCPL to the assessee in earlier years as well as in subsequent years which were duly allowed as deduction by the Revenue as under: Para 7.8 of the order: Hence, in view of the aforesaid observations and applying the principle of consistency as has been held by the Hon'ble Supreme Court in the case of Radhasoami Satsang reported in 193 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation to assessee. (i) Public Relation services in India from its various office locations across the country like Delhi, Mumbai, and Chennai Kolkata. (ii) A contact person was made available for addressing all the day to day matters and serves our needs; interact with the Company's key personnel. (iii) Responsibilities for public relations including proactive strategy session for image building and product market related public relations. (iv) Responsibilities for our output to the media / external audiences. The submissions of the assessee were considered. On perusal thereof, it was seen that the assessee has failed to establish rendering of service to VCCPL for which the amount in question was paid to it. In spite of repeated reminders, Assessee Company did not produce any supporting papers of evidencing the rendering of the service by them to the assessee. M/s. VCCPL In view of this, it was held that the assessee has failed to establish the business connection of the service involved and rendering of the service itself so as to claim the same by way of expenditure in the books of accounts maintained for the year. DRP's Directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso from the terms of the Assessee's Media Public Relations Services Agreement with VCCPL. (iii) The Assessee submits that it has furnished to the Id AO, supporting documents by way of its Media Public Relations Services Agreement with VCCPL and its submissions extracted above. (iv) The Assessee submits that the documents and particulars furnished by it to the Id AO as aforesaid, cogently establish both the business connection of the service involved, as well as the rendering of the service itself. Directions: 33. We have considered the submissions of the assessee, views of the AO and the material on record. The assessee has not submitted any substantial evidence regarding the services rendered. The only evidence is some reports which have been periodically received from the assessee. Simply because there is a contract does not mean that services have been rendered proportionate to the payment that has been made. Further, the assessee is a star trading house whose activity is mainly from exports. It is neither a consumer company, nor a hotel where public relation services are of significant importance, like the other group companies, viz. Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -D of Rs. 1, 65,35,000/-. The appellant's case is covered by the decision of Hon'ble Special Bench in case of ACIT vs. Vireet Investment Pvt. Ltd. (SB) (2017) 165 ITD 27 wherein, it has been held that the computation under clause (f) of Explanation 1 to section 115JB (2) of the Act is to be made without resorting to the computation as contemplated u/s. 14A of the Act read with Rule 8D of the Rules. 33. In view of the above, it is hold that no addition under clause (f) of Explanation 1 to section 115JB (2) of the Act is warranted and as hold (supra) that the appellant has not incurred any expenditure towards earning exempt income addition otherwise also cannot be made. In view of this AO is directed to delete the addition of Rs. 1, 65, 35,000/- made u/s. 115JB of the Act. Ground raised by the assessee is allowed. 9. The learned AO erred in charging from the Appellant, an amount of 2,77,01,822/-, as Amount already refunded , having regard to the fact that no amount whatsoever has ever been refunded to the Appellant in respect of the year under consideration. 10. The learned AO erred in charging from the Appellant, an amount of 67,32,000, as Additional Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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