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2021 (5) TMI 816 - AT - Income TaxDisallowance on depreciation claimed on assets of transmission business - slump sale of demerger - AO was of the view that the transaction was nothing but a demerger u/s 2(19AA) of the Act , hence the assessee was entitled to claim depreciation on the WDV of the block of assets and not on the inflated value arrived after revaluation - HELD THAT:- As decided in own case [2019 (9) TMI 437 - ITAT MUMBAI] AO failed to explicate as to how the transfer would fall within the meaning of demerger as given under section 2(19AA) and as how all the condition specified under section 2(19AA) of the Act were satisfied. Revenue has not disputed the findings of the first appellate authority that the transfer in question is a case of slump sale and not a case of demerger. The valuation has also not been disputed. Under these circumstances, for the reasons noted in the assessee's appeal, we have to necessarily uphold the order of the first appellate authority and dismiss ground of the revenue. Disallowance of mark-to-market loss - assessee had debited a sum on account of foreign exchange gain/loss in the Profit & Loss account for the year under consideration - AO was of the view that unrealized forex loss was neither an accrued loss nor an actual loss and it does not fit into any of the criteria prescribed for allowability of an expenditure or loss as per the provisions of the Act - HELD THAT:- As decided in own case [2019 (9) TMI 437 - ITAT MUMBAI] Loss claimed by the assessee on account of fluctuation in the rate of foreign exchange as on the date of balance-sheet is allowable as expenditure under section 37(1). Appellant has been actually providing for such MTM losses in its Books of Account in accordance with the applicable Accounting Standards and accordingly, even for this reason, the deduction would be allowable to the Appellant while computing its taxable income.Appellant prays that the MTM losses arising on account of forward contracts entered into by the Appellant be considered as an accrued loss to the Appellant and thereby allowed as deduction while computing the taxable income. Addition of performance guarantees for its AEs - HELD THAT:- As decided in own case [2019 (9) TMI 437 - ITAT MUMBAI] when internal comparable uncontrolled price is available that should be considered as the most direct and reliable way to apply the arm’s length principle. In any case, there is absolutely no loss to the assessee and no bearing on the profits or losses as the entire cost of 0.93% has been duly recovered by the assessee from its AE. Hence, the action of the CIT(A) in holding no further adjustment to ALP is required in respect of the subject mentioned guarantee commission transaction and consequently directing the deletion of addition confirmed. Bank guarantee and corporate guarantee provided to Chadian Company for Water and Electricity (CCWE) - HELD THAT:- This guarantee was required by CCWE, who had given contract to the AE, before giving any advance to the AE. In effect, this bank guarantee was issued to CCWE for securing the advance payment from CCWE by the AE. It was the contentions of the assessee before the TPO that bank had charged 0.93% as the guarantee commission and there was no formal guarantee agreement entered in this regard ; that the credit rating issued by CARE is A+ and credit rating of the AE was not done; no benchmarking was done by the assessee as executing guarantee in favour of a bank on behalf of the AE was not an international transaction. Also the assessee explained to the TPO that the corporate bond rates for United Arab Emirates (UAE) were not available; however, the rate of interest on borrowings made in the country in which the AE is situated is quite low in comparison with bond rate prevailing in India; therefore, Indian Corporate Bond Rates should not be applied for benchmarking ; the bank had charged the assessee 0.93% for issuing this bank guarantee to CCWE on behalf of its AE for securing the advance payment for executing contract. Thus the submission of the assessee is that this guarantee fee of 0.93% has been duly recovered by it from its AE and hence, there is no impact and profit or loss of the assessee. As decided in own case [2019 (9) TMI 437 - ITAT MUMBAI] the findings given hereinabove in respect of performance guarantee to CCWE by us would hold good for this bank guarantee also. Accordingly, we hold that the finding of the ld. CIT(A) and consequently deletion of adjustment on account of bank guarantee. Corporate guarantee provided to ICICI Bank on behalf of KEC USA LLC and Transmission LLC USA - HELD THAT:- As relying on own case [2020 (9) TMI 1101 - ITAT MUMBAI] direct the TPO/AO to re-compute the arm’s length of the guarantee commission @ 0.20%.
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