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TMI Blog2017 (4) TMI 862X X X X Extracts X X X X X X X X Extracts X X X X ..... on 30/11/2011 declaring 'Nil' income which was picked up for scrutiny assessment u/s 143(3). Since transfer pricing issues were involved, the same was referred to Transfer Pricing Officer-II(2) [TPO] u/s 92CA(1) for determination of Arm's Length Price [ALP] of these transactions. The TPO finalized its order on 16/10/2014 and following the same, draft assessment order dated 31/03/2015 was finalized by AO and sent to DRP for its directions. The assessee raised objection before DRP on 28/04/2015 and after hearing the same, DRP finalized its directions vide order dated 16/10/2015. Lastly, final assessment order was passed by AO u/s 143(3) r.w.s. 144C(13) of the Income Tax Act on 30/11/2015 determining total income at Rs. 1,15,32,71,020/- under normal provisions and Rs. 1,09,85,13,266/- under MAT provisions. 3. The assessee has assailed various issues arising out of AO's final order by raising eighteen grounds of appeal out of which Ground Nos. 1, 3 4 & 5 are not pressed during proceedings before us. Ground No. 18 is general in nature. Hence, we are left with Ground Nos. 2 & 6 to 17 which are taken one by one in the succeeding paragraphs. 4. Ground No. 2 is related with application of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 186.52 crores was apportioned over various assets and liabilities on fair basis. These values were arrived at on the basis of Technical estimates made by the management in accordance with Accounting Standard-10. The assessee claimed depreciation u/s 32 on values recorded in the books of assessee Company. In the alternative, the assessee claimed depreciation @25% on non-compete fees being 'intangible assets'. But DRP following Tribunal's order in assessee's own case for earlier years, decided both the alternatives against assessee. The Ld. Counsel for Assessee [AR] has fairly conceded that depreciation on fixed assets have not been allowed in earlier years. Even the claim of 25% depreciation on non-compete fees paid by him was also not allowed by Tribunal in AY 1999- 2000. But thereafter, Tribunal in AY 2001-02, relying upon the judgment of Madras High Court in Pentasoft Technologies Ltd. V DCIT 222 Taxmann 209 & Karnataka High Court in CIT Vs Ingersoll Rand International Ltd. 227 Taxmann 176 and Mumbai Tribunal in Shreya Life Science ITA No. 7071/Mum/2010, allowed the claim of 25% depreciation on noncompete fees being 'intangible assets'. Further, the issue was again settled in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve grounds qua interest disallowance u/s 36(1)(iii) for Rs. 353.79 Lacs. AO noted that the assessee claimed interest expenditure of Rs. 44.82 crores u/s 36(1)(iii) whereas had made following share investments in subsidiary companies:- No. Name of the Concern Nature of Investment Amount (Rs. in Lacs) 1. Piramal Glass Ceylon PLC, Sri Lanka Share Capital 3480.90 2. Gujarat Glass International Inc. USA Share Capital 12.10 3. Gujarat Glass USA Inc. Share Capital 2276.10 4. Piramal Glass (UK) Ltd. Share Capital 115.90 5. Piramal Glass Europe SARL Share Capital 31.30 6. Other Investments Share Capital 10.00 Total 5926.30 AO computed estimated cost of borrowing @5.98% on share capital investment which came to Rs. 353.79 Lacs and disallowed the same u/s 36(1)(iii) on the ground that the same was not used for business purpose. Before DRP, the assessee contended that investment formed integral part of its business activity and assessee derived various benefits viz. Dividend, royalty, technical / management fees, sale of goods out of said investments which have duly been offered to tax over several years. Reliance was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against Share Holders' funds of Rs. 437.248 crores, the impugned investments stood at Rs. 59.263 crores and hence owned funds are sufficient to cover the said investments. It is well settled by catena of judgments that in such a scenario, it is to be presumed that the investment made in subsidiary were out of own funds and not out of borrowed funds. Further, the assessee has derived varied incomes by way of dividend, royalty, technical fees, management fees, sale of goods etc. out of these investments. These were primarily old investments which can be gauged from the fact that investment as on 31/03/2010 stood at Rs. 58.95 crores as against Rs. 59.26 crores as on 31/03/2011. We find that on identical set of facts, the issue has been decided by Tribunal in assessee's favor for AY 2006-07. Moreover, Hon'ble Bombay High Court in CIT Vs Phil Corp. Ltd. 14 Taxmann.com 58 has taken a view that investment in subsidiary company for acquisition of shares form integral part of assessee's business and hence interest thereupon is allowable. Keeping all these factors in mind, we are inclined to delete impugned additions. Ground No. 10 relating to allowability of interest u/s 36(1)(iii) is allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has earned following income during the year from CGPL:- No. Head Amount (Rs. in crores) 1. Project Fees / Management Fees 8.38 2. Sale of finished Goods 2.12 Total 10.50 Crores It can be observed that as against the income of Rs. 10.50 crores earned by assessee during the year, the outstanding receivables are at a much higher figure of Rs. 12.35 crores, which prima facie reveals that the receivables represent outstanding for more than one year. Further, clause (i)(c) of explanation to Section 92B covers 'receivables' as international transaction w.e.f. 01.04.2002. Therefore, we are of the view that benchmarking of the same could have been done by comparing credit period allowed by assessee for other receivables i.e. internal CUP could have been used to benchmark this transaction. The assessee has relied upon the order of Tribunal in assessee's own case for 2006-07, ITA No. 8360/Mum/2010 order dated 16/12/2016. But a perusal of paragraphs 20 to 25 of the said order reveals that Tribunal has relied firstly upon order for AY 2001-02 and secondly upon the fact that TP adjustment qua these transactions was already made by the TPO and disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scientifically calculates the applicable interest rate and mark up. We have heard the rival contentions. In principal it is agreed that LIBOR rate plus some mark-up shall apply to the transaction. To calculate the appropriate mark-up on the same, as per contentions of Ld. DR, we deem it fit to restore the matter back to the file of AO for limited purposes of calculation of appropriate mark up with the help of the said data base. The ground is allowed for statistical purposes. Corporate Guarantee The assessee provided Corporate Guarantee of USD 83 million to one of its USA AE. Treating the same as international transaction, TPO benchmarked the same @3% by applying bps mark up of 1.25% on SBI bank guarantee rate of 1.75%. Applying the same on outstanding balance at each quarter end, TP adjustment thus got worked out to Rs. 7.35 Crores. Before DRP, the assessee contested that guarantee is not international transaction and without prejudice, contested the benchmarked rate of 3% and relying upon various judicial pronouncements, pleaded to restrict the same to maximum of 0.5%. But rejecting the same, DRP confirmed the said benchmarked rate. Before us, Ld. AR raised similar contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not brought anything on record to substantiate its stand and relied merely upon entries in Form 26AS. It appears that the same is erroneous and has crept in due to quoting of wrong PAN by the Bank in their TDS returns and therefore, at least addition, in such a scenario, in the hands of assessee could not be in made. Thus, we are inclined to delete the impugned addition. The bench was informed that similar entries are appearing in Form 26AS of the assessee for other assessment years also. Therefore, the assessee is directed to pursue the correction thereof forthwith with due diligence. The revenue is also directed to scrutinize the TDS return of 'Bank of America' and enable to Bank to take steps in rectifying the impugned errors. 11. Ground No. 15 is related with foreign exchange gains of Rs. 37.12 Lacs arising out of loans given to subsidiaries. The assessee stood benefitted to the extent of Rs. 37.12 Lacs on account of reinstatement of foreign currency loan at year end advanced to its subsidiary companies. It treated the same as capital in nature and reduced it from the profit in computation of income. Relying upon the decision of Bombay High Court in Solid Containers Ltd. Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, due to oversight, did not reduced an amount of Rs. 6.88 crores as provision for bad and doubtful debts written back from book profits. The said amount represented reversal of provision for bad and doubtful debts made by debiting profit & loss account in earlier years but added back to compute book profits for those years. Although, AO accepted the factual matrix, yet relying upon apex court decision in Goetz India Ltd. Vs CIT 284 ITR 323, did not entertain the claim of the assessee on the premises that the same could be admissible only by way of filing the revised return of income. The assessee took support of CBDT circular No. 14 (XL-35) dated 11/04/1955 to assert that it was the duty of AO to grant the admissible reliefs, although not claimed by the assessee due to oversight / inadvertent mistake. AO was duty bound to assess the correct income of the assessee. But DRP and AO rejected the same relying upon Apex Court decision in Goetz India Ltd. Vs CIT(Supra). Before us, the Ld. AR has raised similar contentions. As the factual matrix is not in dispute and the lower authorities, in principal, agreed with the claim of the assessee, the issue is decided in favor of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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