Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2014 (5) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (5) TMI 880 - AT - Income TaxTransfer pricing adjustment Guarantee charges for guarantee to AE Held that:- The TPO had noted that the assessee has given corporate guarantee aggregating to Rs.86.45 crores on the loans given by the banks to the A.E. in Singapore and Australia - The assessee has charged / offered 0.20% of the guarantee commission from the A.E. The TPO has held that such guarantee fee / commission is an international transaction which has to be bench marked with external comparables - there is a huge risk involved in giving the guarantee on the loan taken by the subsidiary and also it gives huge advantage and benefit to the A.E. in getting the loans, which otherwise would have been difficult on such terms and conditions - There could be instances, where on the evaluation of various parameters, of financial credibility and stakes of the client, the bank may not charge any guarantee commission which completely depends upon its evaluation, of a particular client. No charges have been paid on account of guarantee commission as has been submitted by the assessee - Simply relying upon certain data from the market without carrying out any comparability analysis of the actual transactions undertaken, such an application of guarantee commission rate cannot be applied in a blanket manner in all the cases - when there was an internal CUP in the form of bank guarantee charges, charged by the bank from the assessee, the same ought to have been first analysed and examined wherein the guarantee commission charged ranged between 0.25% to 0.35% - in the earlier years, the Tribunal has deleted the similar addition and no question of law on this score has been raised by the Department - no upward adjustment in the ALP in relation to charging of guarantee commission over and above 0.20% can be made and, accordingly, the adjustment so made by the TPO / A.O. is hereby set aside Decided in favour of Assessee. Disallowance of notional interest free loans Held that:- The AO and the as well as the material available on record - it cannot be held that the assessee has given advance / loan to the subsidiary company directly out of interest bearing funds - The disallowance so made by the AO cannot be sustained - the advance / loan given to subsidiary was solely for the purpose of assessees business - the assessee has huge interest free funds with it at the time of giving such advance Relying upon SA BUILDERS LTD. Versus COMMISSIONER OF INCOME-TAX [2006 (12) TMI 82 - SUPREME COURT] - such a disallowance of interest is uncalled for Decided in favour of Assessee. Disallowance of professional fees paid as capital expenses Held that:- The entire agreement goes to show that it is for providing intellectual property / proprietary information in the form of technical knowhow to the assessee which is permanent and has huge enduring value and benefit to the assessee in creating an asset - It is not merely a technical consultancy for day-to-day running of the manufacturing process or business but the whole package of technical knowhow which will have enduring benefit to the assessee company and will go to create an intangible asset - is definitely in the nature of capital expenditure the findings of the AO as well as the DRP to this extent, are factually and legally correct - the directions of the DRP to the extent of Rs. 1.20 crores is upheld, which was a lump-sum payment, is in the nature of capital expenditure, whereas, the balance sum of Rs.36 lakhs which was on account of monthly remuneration - the addition made by the AO would be restricted to Rs.1.20 lakhs Decided partly in favour of Assessee. Disallowance towards advertisement expenses as capital expenses Held that:- If any advertisement does not give the details of the product this does not ipso-facto means that it is not for the promotion of product - The product in the market is known by its brand which is owned by the company which creates the product - The brand building of the corporate in such advertisement is inherent and it cannot be inferred that such an advertisement goes to create a fixed capital - advertisement creates on impression of the brand and product in the mind of the consumer and if there is no frequent advertisement of brand or the product, it is very difficult to push sales in the market - The advertisement on the TV, whether be it for the brand or the product, only goes to enhance the sales and profitability of the assessee company it to be held as revenue in nature - such an expenditure incurred on advertisement on TV has to be allowed as revenue expenditure Decided in favour of Assessee. Disallowance u/s 14A r.w. rule 8D of the Act Held that:- Provisions of rule 8D cannot be held to be applicable for the AY 2006-07 Relying Godrej & Boyce Mfg. Co. Ltd. v/s DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] the matter is remitted back to the AO for fresh adjudication Decided in favour of Assessee.
|