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2020 (5) TMI 669 - AT - Income TaxTP Adjustment - Guarantee Fees - rate of the guarantee commissions - no dispute about the various types of corporate guarantee(s) extended by assessee to various banks on behalf of its AEs - HELD THAT:- DRP granted relief in restricting the guarantee commissions with regard to stand by letter of credit (SBLC), by directing the AO/TPO to consider 0.5% in additions of reimbursement of 1.25% and 1.40% which is already received by the assessee. Rest of the adjustments suggested by the TPO is affirmed by ld. DRP. As assessee has not made any specific submission against affirming the commission @ 0.5% with regards to SBLC, which we affirmed. We find merit in the alternative submissions of the assessee that Hon’ble Bombay High Court in CIT Vs Everest Kanto Cylinders Ltd [2015 (5) TMI 395 - BOMBAY HIGH COURT] held that 0.5% of guarantee commissions is at arm’s length price. Thus, we accept the alternative submission of the ld. AR for the assessee and direct the AO/TPO to recompute the adjustment on account of other guarantee commissions @ 0.5% in additions to the commissions already charged by the assessee. We also accept the submission of learned AR of the assessee that guarantee commission on the operating lease must be computed on the basis of lease rental outstanding only, and not on the aggregate of all future lease rentals. Needless to direct that before fresh computation the TPO /AO shall grant a fair and proper hearing to the assessee. The assessee is also directed to provide the necessary details to the TPO/AO. In the result ground No. 1 of the appeal is partly allowed. Disallowance under section 14A read with Rule (rwr) 8D - assessee has made huge investment in equity/preference shares - HELD THAT:- AO nowhere identified/recorded that assessee earned any exempt income during the relevant financial year. Further, we have noted that the dividend income earned by the assessee from foreign subsidiaries has been offered to tax. It is now settled law that in absence of any exempt income no disallowance under section 14A is attracted. See assessee own case [2018 (1) TMI 398 - ITAT MUMBAI], [2018 (12) TMI 1132 - ITAT MUMBAI] and [2017 (9) TMI 726 - ITAT MUMBAI] - Decided in favour of assessee. Disallowance of interest under section 36 (1)(iii) - DRP while confirming the interest disallowance under section 14A [Rule 8D (2)(ii)] held that in any case the interest computed by AO is disallowable under section 36(1)(iii) - HELD THAT:- As the reserve and surplus funds with the assessee are in far excess than the investment made for subsidiaries. Therefore, respectfully following judgment of Hon’ble Bombay High Court in the case of Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] it would have to be presumed that the investment made by the assessee would be out of the interest-free funds available with the assessee. Hence, we direct the AO even to delete the disallowance under section 36(1)(iii). In the result this grounds of appeal is allowed. Addition on account of CENVAT credit in valuation of closing stock - HELD THAT:- As relying own case [2017 (9) TMI 726 - ITAT MUMBAI] addition is to be deleted. Disallowance of interest under section 36(1)(iii) - HELD THAT:- As decided in own case [2018 (1) TMI 398 - ITAT MUMBAI] the assesse’s has incurred expenses on behalf of certain foreign subsidiaries and Indian subsidiary and shown them under the head Advances Recoverable. The assessee has not made any non business advance to the these companies, but these amount represents various debits in the nature of sale of spares, royalty receivable, service charges and the expenses incurred on their behalf such as traveling expenses, establishment expenses, financial guarantees, communications expenses, etc. The assessee does not have system of charging interest on such debits of expenses incurred on their behalf. Such advances did not attract any adjustment in Transfer Pricing order also. However, the Ld. AO considered these debit balances as advances without interest and disallowed out of interest u/s 36(1)(iii). We do not find any merit for the disallowance so made by the AO
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