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2017 (5) TMI 208 - ITAT HYDERABAD

2017 (5) TMI 208 - ITAT HYDERABAD - TMI - Transfer pricing adjustment - Corporate guarantee addition - Held that:- The difference in interest charged on the loan cannot be considered as a guarantee commission fee as the parameter for obtaining a loan at a particular interest rate is different from providing Corporate guarantee. Thus there is no basis for determining @ 6% by the DRP. In the above referred case of Asian Paints Ltd [2014 (5) TMI 880 - ITAT MUMBAI], after analyzing the various guara .....

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visions of Sec. 14A of the IT Act does not apply to these investments. AO is directed to delete the disallowance on the above issue - Addition towards excise duty on closing stock - Held that:- We are of the opinion that the A.O has not followed the directions of the DRP stating that the contentions of the Assessee appears to be correct and if such contentions are correct there is no double deduction of Excise duty in view of the above submission of the Assess, the A.O is directed to verify .....

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mount confirmed by the DRP stands deleted. - Addition on Reimbursement of Expenditure - Held that:- No ALP adjustments can be made to the reimbursement expenditure, which is only reimbursement of traveling and other miscellaneous expenditures and is not charged to profit and loss account. Accordingly grounds of the Assessee on this issue are allowed. - Disallowance of expenditure on sales promotion, office maintenance, corporate expenses and site maintenance - Held that:- A.O is correct .....

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93,27,915/- does not require any modification. The grounds are accordingly considered partly allowed. - ITA No. 220/HYD/2015, ITA No. 458/HYD/2016 - Dated:- 3-5-2017 - SHRI B RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER For The Assessee : Shri P. Murali Mohan Rao For The Revenue : Smt U. Mini Chandran ORDER PER B. RAMAKOTAIAH, A.M.: These two appeals are by Assessee against orders of A.O u/s 143(3) r.w.s 144C of the IT Act. Since common issues are involved in these two .....

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enterprises of Assessee. The transactions were analyzed in respective A.Ys under transfer pricing provisions and there are additions made under the transfer pricing provisions as well as the other provisions of the Act. A.Y 2010-11 ITA No. 220/Hyd/2015 3. In this year Assessee had international transactions with its associate enterprises which were accepted by the Transfer Pricing Officer (TPO) after due analysis. However, as assessee has given corporate guarantee to its AE Aster Infrastructure .....

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er, after noticing that in A.Y 2009-10 the bank has given loan to A.E @ 12%, although the provisional interest rate in Afghanistan was around 18%, noted that 6% can be considered as fee for Corporate guarantee. Accordingly same was directed to be restricted to 6% of the loan amount outstanding as on 01-04-2009. 3.1 Assessee is aggrieved and raised the grounds that the Corporate guarantee does not fall under the Transfer Pricing Provisions and the transaction is entered out of shareholders obliga .....

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tion that Corporate guarantee does not fall under the Transfer Pricing Previsions, in view of the amendment brought to the provisions, was not pressed by Ld. Counsel and agreed for restricting for the same to 0.25%, which was considered by the Coordinate Bench in the case of Asian Paints Ltd., Vs ACIT (supra). The difference in interest charged on the loan cannot be considered as a guarantee commission fee as the parameter for obtaining a loan at a particular interest rate is different from prov .....

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ly allowed. 5. The next issue for consideration is the disallowance of ₹ 21,35,456/- u/s 14A of the Income Tax Act. On the reason that Assessee has made investments in sister concerns, Ld. AO invoked provisions of Sec. 14A of the I.T. Act and determined the disallowance @ 21,35,456 u/s 14A of the IT Act r.w. rule 8D. The DRP has upheld the addition under 14A of the IT Act, in spite of the objections from Assessee. It was submitted that Assessee has not derived any exempt income during the .....

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disallowance on the above issue. The grounds are accordingly considered as allowed. 7. The next issue for consideration is the addition of ₹ 68,42,242/- towards excise duty on closing stock. It is observed by A.O that Assessee has debited excise duty from the sales of finished goods. But Assessee was also debiting the Excise duty on finished goods to the Profit and Loss account under the head administrative expenses. The A.O was not convinced with the explanation of Assessee that the Excis .....

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g more than the receipt, the Excise duty which was paid during the year was an allowable deduction. It was submitted that there is no claim of double deduction of Excise duty on finished goods. The DRP has considered the contentions and allowed as under: 13. We have gone through the submissions of the Assessee and the order of the A.O, the contentions of the Assessee appears to be correct and if such contentions are correct there is no double deduction of Excise duty in view of the above submiss .....

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d not consider the same. It was the submission that issue can be remitted to the A.O to examine and delete. 7.2 After considering the rival contentions, we are of the opinion that the A.O has not followed the directions of the DRP. A.O is directed to examine the details furnished by Assessee and if the contentions are found correct as stated by the DRP the amount has to be deleted. With these observations the ground is considered allowed for statistical purposes. 8. Even though in the original g .....

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re claim u/s 37(1) of the IT Act. Corporate Guarantee Fee: 11. The TPO has proposed addition towards fees for Corporate guarantee at ₹ 93,09,761/- on total Corporate guarantee given for ₹ 32,83,56,740/-. The DRP has restricted the Corporate guarantee @ 6%, 2.25% and 2% to various AE s. Assessee is contesting the same. 12. Since the issue is similar to the one considered in earlier A.Y, arguments being similar, we direct A.O to accept 0.25% of the corporate guarantee given and outstan .....

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to ₹ 2,09,500. It was the submission that the loan was taken in foreign currency outside India and LIBOR rate should be taken as the basis for calculating the interest. Assessee has already charged 8% on the loan, which is higher than the LIBOR rate and accordingly no ALP adjustment is required to be made. On verification of the facts on record and the orders of DRP, we are of the opinion that the loan was given in foreign currency outside India and accordingly the LIBOR rate should be the .....

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operating expenditure. The TPO has made an addition of ₹ 63,56,971/- being 10% of the reimbursement amount, as fees on the transactions. The DRP has restricted the fees for reimbursement 5% and addition was restricted to 31,78,485/-. It was the submission that the reimbursement of expenditure was made on cost to cost basis and does not part of profit and loss account of Assessee, therefore no adjustment is warranted. It was also submitted that this was not a revenue generating transaction .....

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Cognizant Technology Solutions India Pvt. Ltd Vs AC IT , 114 & 2100 (Mds) / 2011. 14.1 Considering the above facts of the case and the principles laid down by the Coordinate Bench, we are of the opinion that no ALP adjustments can be made to the reimbursement expenditure, which is only reimbursement of traveling and other miscellaneous expenditures and is not charged to profit and loss account. Accordingly grounds of the Assessee on this issue are allowed. Corporate Maters: 15. Disallowance .....

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cessary for the purpose of business. It was further submitted that books of accounts are audited and tax audit report has not reported any discrepancies. The DRP has considered the same as under: Having considered the submissions, though the assessee has taken additional grounds towards disallowance of expenditure which was made by the A.O during the course of assessment proceedings @ 10% of expenses on sales promotion, off ice maintenance and out of pocket and 5% on site maintenance. The AO has .....

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