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2020 (11) TMI 741 - AT - Income TaxRelief u/s 90 - Disallowance u/s 40(a)(ii) - payment of “State Taxes” - HELD THAT:- In Reliance Infrastructure Ltd. [2016 (12) TMI 1293 - BOMBAY HIGH COURT] has held that the assessee was entitled to deduction for foreign taxes paid on income accrued or arisen in India in computing its income, to the extent that such tax was not entitled to the benefit of section 91 of the Act. Facts being identical, we follow the said judgement and also the above order of the Co-ordinate Bench and direct the AO to verify whether the State taxes paid by the assessee overseas are eligible for any relief u/s 90 of the Act and if it is not found to be so, assessee’s claim of deduction should be allowed. Disallowance u/s 40(a)(ia) - business expenditure being deduction towards interest, which is compensatory in nature, paid on account of delayed payment / shortfall of overseas taxes - HELD THAT:- A perusal of the records indicate that the assessee has not filed the details with supporting documents on the penal interest. It is not possible to decipher whether the penal interest is compensatory in nature or not. In view of the above, we set aside the order of the Ld. CIT(A) on the above ground and restore it to the file of the AO for deciding it afresh. TDS u/s 195 - payment to non-resident vendors for purchasing standard software products - HELD THAT:- We hold that the Ld. CIT(A), following the order of the Tribunal in assessee’s own case for AY 2005-06, has rightly held that the expenditure on software acquired for internal use is a capital expenditure and the assessee is entitled to depreciation on this amount. In the context of payments made on software for resale, having examined the relevant documents and rival submissions, we arrive at a finding that the facts in the impugned year on the above matter are identical to the AY 2009-10 in assessee’s own case [2019 (11) TMI 408 - ITAT MUMBAI]. Facts being identical, we follow the above order of the Co-ordinate Bench and restore the matter to the file of the AO for fresh adjudication in terms of the observations made therein. The AO would decide the issue after providing reasonable opportunity of being heard to the assessee. Disallowing foreign tax relief as per the provisions of section 90(1)(a)(ii) of the Act read with provisions of the applicable Double Tax Avoidance Agreements - income taxes paid in overseas jurisdiction in relation to income eligible for deduction under section 10A/10AA - HELD THAT:- Foreign tax credit would be available to the assessee in view of treaties India is having with USA, Denmark, Hungary, Norway, Oman, Saudi Arabia and Taiwan. The assessee is directed to file before the AO the relevant provisions of India- South Africa Treaty. TP Adjustment - PLI determination - HELD THAT:- As relying on own case [2019 (11) TMI 408 - ITAT MUMBAI]affirmed the order of the Ld.CIT(A) on the matter that GP/sales is the appropriate PLI, . Commissioner (Appeals) has taken pains to examine in detail the alternative benchmarking done by the assessee with foreign comparables and after detailed analysis has shortlisted the final comparables to be considered for comparability analysis. No convincing argument or evidence has been brought on record by the learned Departmental Representative to persuade us to disturb the finding of learned Commissioner (Appeals) on these issues. Interest free loans outstanding/provided during the year by the appellant to its AEs - whether not at ALP? - whether the loans given by the appellant are in substance “quasi-equity” in nature and as a part of shareholder’s activity on which returns are not expected in the form of interest? - HELD THAT:- In assessee’s own case [2019 (11) TMI 408 - ITAT MUMBAI] primary contention of the assessee that the advance made to the AEs is in the nature of quasi equity and falls within shareholder's activity has not been properly addressed by the Departmental Authorities keeping in view the ratio laid down in the relevant case laws. It also requires deliberation whether it can be considered as an international transaction under section 92B r/w Explanation-1(c). Since, the aforesaid legal and factual aspects have not been considered properly, we are inclined to restore the issue to the file of the Assessing Officer for de novo adjudication after due opportunity of being heard to the assessee. Guarantees by the appellant to third parties on behalf of its AEs - international transactions or not? - upward adjustment - HELD THAT:- As relying on own case [2019 (11) TMI 408 - ITAT MUMBAI] we direct the AO to charge guarantee commission @0.5% per annum both on performance / lease guarantee as well as financial guarantee. In this context , we direct the AO to examine the contentions of the assessee that (i)part of the activity with respective performance guarantee, was performed by the assessee itself, while the remaining services are rendered by the AE and thus, if the performance guarantee is treated a chargeable services, the charges should be levied only on the component of services performed by the AE (ii) part of the premises i.e. 40% during the year under consideration was occupied by the assessee and thus, if lease guarantee is treated as chargeable services, the charge should be levied only for the balance i.e. 60% during the year under consideration. Adopt guarantee fee rate @0.5% per annum for the performance guarantee. Addition u/s 40(a)(ia) on education cess - HELD THAT:- It is held in Sesa Goa Limited v. JCIT [2020 (3) TMI 347 - BOMBAY HIGH COURT] that “education cess and higher and secondary education cess are liable for deduction in computing income chargeable under the head ‘profits and gains of business or profession.
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