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2022 (12) TMI 712 - AT - Income TaxTP adjustment towards interest on issue of NCD [Non-Convertible Debentures (NCD)] - HELD THAT:- In assessee’s case the NCDs are issued in INR and the interest is also paid in INR and considering the ratio laid in M/s Praxair India Pvt. Ltd [2021 (12) TMI 1167 - ITAT BANGALORE] and the Master Directions issued by RBI, we are in agreement with the contention of the ld AR that the interest rate by the assessee is justified when benchmarked with the SBI Prime Lending Rate on the date of issue debenture. We therefore hold that the interest charged by the assessee on the unsecured non-convertible debentures issued to the AE is within arm’s length and TP adjustment stands deleted. Protective and substantive disallowance of depreciation - HELD THAT:- With regard to the protective and the substantive disallowance made by the AO, on perusal of financial statements of the assessee we notice that the impugned amounts have not been capitalized and is accounted a capital work in progress for the year under consideration. We therefore agree with the contention of ld AR that when there is no capitalization of the impugned payment and any depreciation claim towards the same, the disallowance of depreciation is not tenable. Since there is no charge of depreciation during the year. AO has made the disallowance without examining the details submitted by the assessee in this regard and has done the disallowance merely based on the statement of Mr.Subramanya which according to ld AR is subsequently retracted. In the light of these discussions we delete the protective and substantive disallowance of depreciation. Disallowance of salary cost debited to the P&L account u/s.40(a)(ia) - On perusal of materials on record it is clear that the amount paid by the assessee to VEPRPL is only a reimbursement of the salary cost and not to carry out any work as defined in section 194C of the Act or provide any technical / consultancy services to the Assessee as defined under section 194J of the Act. Further there is no element of income in the salary cost reimbursed by the assessee to VEPRPL. We notice that in the case of Kalyani Steels Ltd [2018 (5) TMI 152 - KARNATAKA HIGH COURT] has held that there cannot be a TDS on the reimbursement since there was no ‘income’ element. The salary cost which is paid by VEPRPL to the employees has already been tax deducted and therefore the amount reimbursed by the assessee is only on a cost to cost basis cannot be subject to TDS under 194C / 194J. In view of the above discussion we hold that the salary cost paid by the assessee to VEPRPL cannot be disallowed u/s.40(a)(ia). Disallowance of depreciation on pre-operative expenses - HELD THAT:- We have considered the issue of disallowance of depreciation where the amount is not capitalized but is accounted as capital work in progress in para 25 of this order. Considering the fact that the preoperative expenses are not capitalized and no depreciation is claimed for the year under consideration we delete the disallowance of depreciation on pre-operative expenses.
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