TMI Blog2015 (10) TMI 2053X X X X Extracts X X X X X X X X Extracts X X X X ..... orked out on a reasonable basis as per the decision of Godrej & Boyce Mfg. Co. Ltd (2010 (8) TMI 77 - BOMBAY HIGH COURT) and since major part of investments has been brought forward from the earlier years, in our view, the disallowance made by AO does not call for interference. Accordingly, we set aside the order of Ld CIT(A) on this issue and sustain the disallowance of ₹ 10.00 lakhs made by the AO. - Decided against assessee. Disallowance of foreign travel expenses - Held that:- This issue has been decided against the issue by the Tribunal in the assessee's own case, vide its order for AY-2004-05 - Decided against assessee. Assessment of rental income of house property and service charges as income from house property - Held that:- This issue has been decided in the assessee's own case CIT(A) confirmed the assessment of proper rental income as income from house property and recovery of service charges as income from other sources. The CIT(A) accordingly, directed the AO to allow the deduction of the expenses incurred for earning the income from service charges as directed earlier by the Tribunal in the assessment year 1990-91. So following the same, the CIT(A) has sus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would result that the payments made to AE was at ALP. Further, it is not the case that the assessee was paying higher purchase price to its AE year after year in the months of Jan to March. In subsequent years, the assessee has gained by paying lower purchase prices. In view of the foregoing, we are of the view that the assessee should be considered as having paid the purchase price to its AE at ALP only and hence there is no necessity to make adjustments. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the addition. - Decided in favour of assessee. Addition u/s 92CA in respect of Corporate Guarantee fee - Held that:- Rate of 0.50% is consistently followed in many of the cases by the Tribunal. In fact, in the case of Everest Kanto Cylinder Ltd, [2015 (5) TMI 395 - BOMBAY HIGH COURT ] has determined the rate at 0.50% and the same has not been disturbed by the Hon'ble Bombay High Court. Accordingly, we modify the order of Ld CIT(A) on this issue and direct the AO to compute the addition by adopting the rate of 0.50%. Eligibility of the assessee to claim deduction u/s 80IA allowed to assessee. Since the assessee is eligible to claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional ground no.3 is related to addition made in respect of Corporate Guarantee fee listed as (f) above. 4. Facts of the case are stated in brief. The assessee is engaged in the business of manufacture and sale of aluminium metal, copper metal, precious metals, certain chemicals including DAP/NPK and is also engaged in the generation of power, extraction of alumina, reduction of alumina into aluminium by electrolytic process, manufacture of Aluminium semi-fabricated products, Aluminium Foils etc. 5. The first issue relates to the disallowance made u/s 14A / 36(1)(iii) of the Act. The AO noticed that the assessee has made investment in shares, Tax free bonds, GOI stock and Mutual Funds (Dividend Scheme). The AO noticed that the assessee has also borrowed funds for the purpose of business and paid interest thereon. Hence, the AO took the view that the assessee has used the interest bearing borrowed funds for making the above investments. Accordingly he worked out the interest attributable to said investments at ₹ 27.93 crores and added the same to the total income of the assessee. In the appellate proceedings, the ld. CIT(A) enhanced the interest disallowance by 0.22 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R submitted that the availability of own funds should be examined as on the date of making investment and not on Balance Sheet date. He further submitted that the disallowance of administrative expenses is tune with magnitude of investments made and dividend received by the assessee. 8. We heard the parties on this issue and perused the record. We find that the similar issue had come up before the Tribunal in the assessee‟s own case and the Tribunal has taken the view that the assessee has not used borrowed funds for the purpose of making investments. The assessee has furnished a copy of its Annual report before us. A perusal of the Balance sheet shows that the assessee had held own funds of ₹ 6857.9 and ₹ 7666.5 crores respectively as on 31.3.2004 and 31.3.2005, as against investments of ₹ 3377.2 and ₹ 3702.1 crores respectively on those dates. Hence, in our view, the decision rendered by Hon‟ble Bombay High Court in the case of HDFC Bank (supra) shall apply to the facts of the instant case. Accordingly, consistent with the view taken by the co-ordinate bench in the assessee‟s own case in the earlier years, we hold that the interest dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty and the service charges as income under the head income from other sources. The Ld CIT(A) confirmed the same. 13. The Ld A.R fairly admitted that identical issue was considered by the Tribunal in the assessee‟s own case in ITA No.5468/Mum/2001 (AY-1997-98) and the Tribunal, vide its order dated 6.7.2007, has held as under: 25. .the CIT(A) confirmed the assessment of proper rental income as income from house property and recovery of service charges as income from other sources. The CIT(A) accordingly, directed the AO to allow the deduction of the expenses incurred for earning the income from service charges as directed earlier by the Tribunal in the assessment year 1990-91. So following the same, the CIT(A) has sustained the assessment of rental income as income from property and the income from service charges under the head income from other sources and directed the AO to grant deduction of expenses incurred for earning from service charges. This view is consistent to the view taken by the Tribunal for the earlier years. This ground is rejected Consistent with the view taken by the co-ordinate bench of Tribunal in the earlier years, we confirm the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he award cannot become contingent liability, even if the assessee has challenged the arbitration award in the High Court. In this regard, the Ld A.R placed reliance on the decision rendered by the Hon‟ble Gujarat High Court in the case of Navijan Roller Flour and Pulse Mills Ltd Vs. Dy. CIT reported in 315 ITR 190. He also referred to the commentary given by Kanga Palkhiwala in page 943 of its latest edition. On the contrary, the Ld D.R submitted that the assessee has not accepted the arbitration award and hence it has filed appeal challenging the same before the Hon‟ble High Court. Accordingly he submitted that the arbitration award cannot be considered to have been finally settled during the year under consideration. He submitted that the Tribunal, in AY 2003-04, has held that the claim of the assessee shall be allowable in the year in which the dispute got finally settled. 17. We have heard rival contentions on this issue and perused the record. The Hon‟ble Gujarat High Court had an occasion to consider an identical issue in the case of Navijan Roller Flour and Pulse Mills Ltd Vs. Dy. CIT (supra). The assessee therein placed an order with an Australian Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to restore this matter to the file of the AO with the direction to examine the arbitration order and take appropriate decision in accordance with the law, after affording necessary opportunity of being heard to the assessee. 18. The next issue relates to the addition of ₹ 6,03,07,020/- made u/s 92CA of the Act in respect of purchases made from the Associated Enterprises (AE) of the assessee. The facts relating to the issue are that the assessee‟s subsidiary company named M/s Birla Mt. Gordon Pty Ltd, Australia owned a mine in Australia. The assessee purchased copper concentrates from this subsidiary company. The assessee had purchased copper concentrates from unrelated parties also. The prices of copper concentrates are determined on the basis of prices of Copper quoted in London Metal Exchange (LME) less the processing charges towards smelting, refining and margin for the seller. From the value so arrived at, a further reduction towards Treatment charges/refining charges (TC/RC) are allowed. The TC/RC is determined by Japanese buyers of concentrates, normally in the beginning of the calendar year and the price so determined is considered to be the industry average. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that it so happened that the TC/RC charges deductible from prices paid to non-AEs was higher during the year under consideration resulting in payment of higher prices to the AE. He submitted that the assessee has paid lower prices to its AE in the subsequent years due to deduction of higher TC/RC charges vis- -vis the payments made to non-AEs. In this regard, the Ld A.R invited our attention to a chart placed at page 221 of the paper book. He further submitted that the assessee has explained before the AO about the practice consistently followed by the assessee. However, the AO has not addressed the same. He further submitted that the Ld CIT(A) has also appreciated the fact that the assessee is determining the rate with AE on financial year basis by observing that the same may be alright for administrative convenience. 21. The Ld A.R further submitted that the tax authorities have to compare the long term contracts entered with AEs with similar kind of long term contracts entered with non-AEs. He submitted that the assessee has pointed out this principle at page 12 of its TP study (page 172 of paper book). The parties also enter into No holiday contract with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O/TPO is liable to be rejected. Further, there is no difference between AE and non-AE with regard to the methodology adopted for determining the prices of copper concentrates, viz., (a) ascertain the price quoted for copper metal in LME. (b) ascertain the TC/RC charges fixed by Japanese smelters annually on calendar year basis. (c) reduce the TC/RC charges from the price of copper and (d) adjust the price so arrived at for freight differentials. The difference in prices has occurred only due to the fact that the non-AEs have synchronized the reduction of TC/RC charges with the Japanese rates, i.e., they have changed the TC/RC charges on calendar year basis. However, the AE has followed financial year basis for effecting such kind of change, i.e., the AE has given effect to the modified TC/RC charges from 1st April of every year, even though the modified rates were announced in the month of January itself. The effect of this practice is that the non-AEs shall adopt new rate of TC/RC charges for January to March every year, while the AE shall adopt old rates for that period. The natural effect of this practice is that there is bound to be price difference between the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odology adopted by AE and non-AE for determining the price. The difference has occurred due to following financial year basis‟ for AE, where as the non-AEs have followed calendar year basis. Since the assessee is following a particular pattern for its AEs year after year, we find merits in the contentions of the Ld A.R that the temporary price difference occurring due to fluctuations in TC/RC charges should be ignored. These submissions brings out the exact reason for the price difference and in our view, the said reasons are reasonable and need to be factored in, i.e., adjustments should be permitted, in which case it would result that the payments made to AE was at ALP. Further, it is not the case that the assessee was paying higher purchase price to its AE year after year in the months of Jan to March. In subsequent years, the assessee has gained by paying lower purchase prices. In view of the foregoing, we are of the view that the assessee should be considered as having paid the purchase price to its AE at ALP only and hence there is no necessity to make adjustments. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the addition. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) also confirmed the same. 31. Before us, the Ld A.R placed reliance on the decision dated 08-05-2015 rendered by Hon‟ble jurisdictional Bombay High Court in the case of CIT Vs. M/s Everest Kento Cylinders Ltd (ITA No.1165 of 2013), wherein the High Court has held that the consideration which applied for issuance of Corporate guarantee are distinct and separate from that of bank guarantee. Accordingly he contended that the tax authorities are not justified in adopting the rate quoted by a bank for giving bank guarantee to the case of the assessee. 32. The ld D.R, on the contrary, submitted that the assessee has not given any bench mark and hence the TPO/AO was constrained to adopt the rate charged by the banks. Accordingly he submitted that this matter may be restored back to the file of the AO for fresh consideration. 33. We have heard rival contentions and perused the record. We notice that the assessee has also referred to the decision dated 25.3.2015 rendered by the co-ordinate bench in the case of Manugraph India Ltd (ITA No.4761/Mum/2013), wherein the co-ordinate bench has determined a rate of 0.50% for guarantee given. We further notice that the rate of 0.50% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3852/Mum/2006 relating to AY 2004-05, vide its Order dated 4.8.2009. The relevant discussions are available in para 12 and 13 of the order; The claim of the assessee for Renu power unit No.6 to 9 was allowed by the Tribunal in AY 2004-05 (supra) also, by following earlier years‟ orders of the Tribunal. Since the decision rendered by Ld CIT(A) on this issue is in accordance with the decision taken by the Tribunal, we do not find any infirmity in his order on this issue. 36. The next issue relates to eligibility of the assessee to claim deduction u/s 80IA of the Act in respect of Co-Generation Plant-1. Both the parties agreed that this issue is covered in favour of the assessee by the order of Tribunal rendered for AY 1999-2000 in the assessee‟s own case in ITA No.4775/Mum/2003 (referred supra). It was further submitted that the order passed for AY 1999-2000 was followed by the Tribunal in AY 2004-05 also. Since the decision rendered by Ld CIT(A) on this issue is in accordance with the decision taken by the Tribunal, we do not find any infirmity in his order on this issue. 37. The next issue relates to the eligibility of the assessee to claim deduction u/s 80I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal in AY 2003-04 in ITA No.4336/Mum/05 in its order dated 28-11-2008 and it was decided in favour of the assessee. It was submitted that the order of AY 2003-04 was followed in AY 2004-05. Accordingly, we are of the view that the Ld CIT(A) was justified in allowing deduction u/s 80IA of the Act in respect of Birla copper power plant Unit I II. 41. The last issue relates to the claim for exemption u/s 10(23G) on the gross amount of interest received from Dahej Harbour and Infrastructure Limited (DHIL). The assessee claimed exemption u/s 10(23G) of the Act on the gross interest receipts. However, the AO noticed that the assessee is also paying interest to DHIL. Accordingly, the AO allowed exemption u/s 10(23G) of the Act on the net interest. In the appellate proceedings, the ld. CIT(A) by following the decision of Tribunal rendered in the assessee‟s own case for the assessment year 2003-04 and 2004-05 held that the assessee is eligible to claim exemption on gross interest receipts. It was brought to our notice that the decision rendered by the Tribunal for AY 2003-04 has since been upheld by the Hon‟ble Bombay High Court, vide its order dated 16-08-2012 rendered i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
