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2016 (11) TMI 367 - AT - Income TaxDepreciation on intangible assets - Held that:- Assessee is eligible for the claim of depreciation u/s 32(1)(ii) on the amount of intangible assets acquired by it as per Business Transfer Agreement, and thus action of lower authorities was not factually or legally justified while making disallowance of the depreciation on the intangible assets. The AO is directed to grant the benefit of depreciation in terms of section 32(1)(ii) upon the intangible assets acquired by the assessee Disallowance made u/s 14A in respect of interest expenditure - Held that:- Factually speaking, the learned representative for the assessee had referred to the Balance-sheet to point out that the Share capital plus Reserves and Surplus amounts to ₹ 318.21 crores as against investment of ₹ 41.65 crores, to point out that sufficient interest-free funds are available to cover the level of investments in question. Under these circumstances, in our view, the disallowance of ₹ 4,55,230/- out of interest expenses by applying the provisions of Rule 8D(2)(ii) of the Rules is unjustified and is hereby set-aside. Thus, on this aspect, order of the CIT(A) is set-aside and Assessing Officer is directed to delete the addition made u/s 14A of the Act. Transfer Pricing adjustment in respect of corporate guarantee given by assessee on behalf of its Associated Enterprise (AE) to the Bank of Bhutan - arm’s length rate of 3.35% determined by the income-tax authorities for determining the Transfer Pricing adjustment - Held that:- considerations which apply for issuance of Corporate Guarantee were distinct and separate from that of Guarantee provided by the banks and, therefore, the two transactions were incomparable. In our considered opinion, similar parity of reasoning is applicable in the present case too because the considerations which weigh for raising of Bonds, that too in Indian market, are quite distinct and incomparable with the instance of providing of Corporate Guarantee to a bank abroad in connection with raising of loan from such bank by the AE of assessee outside India. Therefore, in our considered opinion, the exercise carried out by the TPO to arrive at the arm’s length rate of 3.35% suffers from an inherent misconception as the benchmarking has been done between two incomparable situations. Therefore, we are unable to uphold the said stand of the income-tax authorities. Insofar as the adequacy of 1% rate charged by the assessee is concerned, we find enough reasonableness in the same. It can be safely inferred that providing of Corporate Guarantee was not a ‘critical mass’, which enabled the AE to raise term loan from Bank of Bhutan Ltd. Moreover, the savings to the assessee-company in the shape of lower production costs on procurement of material from the AE is also a relevant factor. Thus, considering the entirety of the facts and circumstances of the case, in our view, Corporate Guarantee fee charged by the assessee @ 1% is well-founded and does not require any Transfer Pricing adjustment. Thus, we set-aside the order of CIT(A) and direct the Assessing Officer to delete the addition
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