TMI Blog2017 (4) TMI 862X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.52 crores. In the absence of specific values being ascribed to the various assets while arriving at the above sale consideration, the net slump purchase consideration of ₹ 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 [2013 (11) TMI 1057 - MADRAS HIGH COURT ] & CIT Vs Ingersoll Rand International Ltd. [2014 (6) TMI 934 - KARNATA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GH COURT] 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. Additions of proportionate interest on borrowed funds qua ‘receivables’ from subsidiary companies - Held that:- No TP adjustment has been made for the impugned transaction and secondly the outstanding amount represent ‘receivables’ on account of debtors for sales / technical fees as per the contention of the assessee. Therefore, on the facts and circumstances of the case, we deem it fit to restore this issue back to the file of AO for fresh adjudication in proper perspective including benefits derived by AE on account of receivables vis-à-vis normal debtors of the business. The assessee is directed to cooperate with the lower authorities forthwith to substantiate its claim forthwith falling which the AO shall be at liberty to adjudicate the same on the basis of material available on record. TP adjustments against loan transaction and corporate guarantee - Interest Free Loan to Subsidiaries - Held that:- In principal it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e computation of income treating it as capital in nature. Therefore, on the facts and circumstances of the case, we are inclined to dismiss this ground of assessee’s appeal. Adjustment of provision for bad and doubtful debts from book profits u/s 115JB - Held that:- 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 [2006 (3) TMI 75 - SUPREME Court] 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 factua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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 ₹ 1,15,32,71,020/- under normal provisions and ₹ 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 correct rate of surcharge on dividend distribution tax [DDT]. The assessee proposed dividend in the accounts for the year ended 31/03/2011. The same got approved in Annual General Meeting on 12/08/2011. The corresponding Dividend Distribution Tax was paid on 24/08/2011 at the following rates specified by Finance Act, 2011:- Particulars Rate Tax 15% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 10 11 are alternative grounds qua interest disallowance u/s 36(1)(iii) for ₹ 353.79 Lacs. AO noted that the assessee claimed interest expenditure of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he stand lower authorities. We have heard various contentions and perused relevant material including cited case laws. After analyzing the various judicial pronouncements, we find strength in the various arguments of Ld. AR. The perusal of Net worth statements reveals that as on 31/03/2011, the assessee s capital structure stood as follows:- Liabilities Amount (Rs. in Crores) Assets Amount (Rs. in Crores) Shareholders Fund 437.248 Fixed Assets 652.646 Loan Funds 577.339 Investments 59.263 Deferred Tax Liabilities 13.516 Net Current Assets 316.194 TOTAL 1028.103 1028.103 It can be observed that against Share Holders funds of ₹ 437.248 crores, the impugned investments stood at ₹ 59.263 crores and hence owned funds are sufficient to cover the said inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 73,87,875/- Qua party No. 1, AO noted that these amounts were pending since a long time and details like outstanding period, the terms of contract and credit period etc. could not be submitted by assessee which justified impugned additions. No adjustment was required against Party No.2 as the funds were interest bearing and also against Party No. 3 as TP adjustment thereof was already made by TPO. DRP upheld the same on the premises that sufficient details to justify the same could not be adduced by the assessee. Before us, the Ld. AR has contended that the assessee earned certain incomes by way of royalty / technical fees / dividend income amounting to ₹ 12.35 Crores from its subsidiary namely M/s Ceylon Glass Co. Ltd , Sri Lanka [CGCL] which stood outstanding as receivable at year end. AO treated the same as interest free loans to sister concerns and disallowed proportionate interest thereupon @5.98% which amounted to ₹ 73.87 lacs. Our attention has been drawn to P-284 of the paper-book to show the details / nature of income earned by assessee out of transactions undertaken with CGPL. Moreover, ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its derived by AE on account of receivables vis- -vis normal debtors of the business. The assessee is directed to cooperate with the lower authorities forthwith to substantiate its claim forthwith falling which the AO shall be at liberty to adjudicate the same on the basis of material available on record. 9. Ground No.13 is related with TP adjustments of ₹ 18,02,730/- ₹ 7,35,50,404/- against loan transaction and corporate guarantee respectively. These two transactions were reported by assessee in Form 3CEB and TPO suggested TP adjustment of ₹ 7,86,52,228/- against the same. We take up the same one by one. Interest Free Loan to Subsidiaries The assessee advanced interest free loans to one of its subsidiary namely M/s Piramal Glass UK Ltd. for ₹ 5.10 Crores. The assessee contended that the advances have been made to meet working capital requirements of the AE and with a view to expand its operations in foreign markets. Applying internal CUP of USA AE, TPO determined the ALP rate of interest @10% and made TP addition of ₹ 51.01 Lacs. Before DRP, assessee raised similar contentions and relied upon Apex Court judgment in S.A.Builders s CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (supra) has observed that issuance of a corporate guarantee are distinct and separate from that of bank guarantee and therefore, no TP adjustment can be made in respect of guarantee commission by making comparison between guarantees issued by commercial banks as against a corporate guarantee issued by holding company for benefits of its AE, a subsidiary company. Further, in the said case, the Hon ble court has affirmed guarantee adjustment of 0.50% upheld by the Tribunal. Therefore, respectfully following the same, we restrict TP adjustment against bank guarantee to 0.50%. This ground is partly allowed. 10. Ground No. 14 is related with addition on account of certain interest income. The AO noted that Form 26AS of the assessee reflected receipt of interest income from Bank of America for ₹ 57,817/- but it was nowhere shown in the financial statements of the assessee. The assessee contended that it has not placed any FDRs with Bank of America and these entries do not belong to assessee and erroneously being reflected in Form 26AS. It also stated that it has requested the Bank of America to rectify their TDS returns vide letters dated 26/11/2012 and 18/11/2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 116 ITR 1 to contend that gain / loss on foreign exchange held on Capital Account is capital in nature and held in revenue account is revenue in nature. Per contra, Ld. DR contended that when assessee made suomoto disallowance of exchange loss in 2010-11 then the benefit of the same could not be given by AO as he had no power to reduce the income of the assessee. We have heard the rival contentions and perused the relevant material including cited case laws. We find that foreign exchange gain or loss on acquisition of assets is covered by Section 43A whereas all the other foreign exchange gains / losses are covered by general accounting principles. Further, the assessee all along has assailed TP adjustment and interest adjustment u/s 36(1)(iii) on the ground that transactions with subsidiary companies are out of commercial expediency and with a view to derive varied revenue benefits from these investments whereas on the contrary, this ground has been assailed on the premises that loans to subsidiaries are on capital account. It is also noted that the said transaction is reported in Tax Audit Report as follows:- 13. Amounts not credited to the Profit Loss Account, be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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