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TMI Blog2017 (1) TMI 1519X X X X Extracts X X X X X X X X Extracts X X X X ..... alized its order on 29/01/2014 and following the same, draft assessment order dated 19/02/2014 was finalized by DCIT and sent to DRP for its directions. The assessee raised objection before DRP on 27/03/2014 and after hearing the same, DRP finalized its directions vide order dated 22/10/2014. Lastly, final assessment order was passed by DCIT u/s 143(3) r.w.s. 144C(13) of the Income Tax Act on 27/11/2014 determining total loss at Rs. 10,07,49,043/- under normal provisions and Rs. 19,75,98,787/- under MAT provisions. The main disallowance suffered by assessee were interest u/s 36(1)(iii) for Rs. 4,92,15,062/- and TP adjustment of Rs. 1,71,18,150/- as suggested by TPO with respect to 'Corporate Guarantee' [CG] which are the main subject matter of this appeal. 3. Ground No. 1 is general ground. Ground Nos. 2 to 13 assails TP adjustment with regard to Corporate Guarantee [CG]. Ground Nos. 14 to 16 are related with interest disallowance u/s 36(1)(iii) and Ground Nos. 17 & 18 are related with grant of TDS and refund. Ground No. 19 is related with initiation of penalty u/s 271(1)(c). We take up the issues one by one in the succeeding paragraphs. 4. Corporate Guarantee 4.1 The assessee g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction but fairly conceded that in view of amendment in Section 92B and jurisdictional Bombay High Court judgment in CIT Vs. Everest Kento Cylinders Ltd. 378 ITR 57, the said transaction constitutes international transaction. On merit, is was stated that the CG has been provided to its AE under overall financing structuring arrangement where over and above the share capital invested, funds were provided and CG was also given. Moreover, the assessee was not in the business of financing / giving guarantees and the same has been given solely for its own benefit to protect its goodwill, reputation and expand its business operations abroad and to safeguard its economic and strategic business relationship with its AE. Hence, CG without charging commission was at Arm's Length considering overall financing arrangement. Further, the credit rating of both the entities was similar and hence, no adjustment was called for in these circumstances. Moreover, the benchmarking done by TPO was erroneous by taking 5 years average annualized yield whereas the guarantee given by assessee was for a shorter period of less than 4 years. In number of judgments, the rate ranging from 0.20% to 0.50% has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Airport Media Pvt. Ltd. 3979.36 Total 10202.27 Lacs DCIT further noted that Secured Loans and Unsecured Loans stood at Rs. 6423.22 Lacs on which interest expenditure of Rs. 690.95 Lacs has been claimed in the Profit & Loss Account and since interest bearing funds were used to make interest free loans, the same called for full disallowance u/s 36(1)(iii). Before DRP, Assessee contended that the assessee and its AE, being in the same line of business, the said loans are out of commercial expediency and business interest of the assessee. Further, these loans were quasi-equity in nature as out of Rs. 102.02 crores, an amount of Rs. 69.14 crores was finally converted into equity investment in subsidiary companies in subsequent year. Further, the assessee contended that sufficient interest free own funds were at the disposal of the assessee to make these interest free investments. Rejecting the same, DRP allowed part relief to the assessee qua interest on term loans amounting to Rs. 20.59 crores but upheld the disallowance qua interest against working capital loan of Rs. 42.40 crores. Following the same, DCIT provided relief to the extent of Rs. 198.80 Lacs being in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial pronouncements. Also, on the principle of commercial expediency the interest cannot be disallowed as the loans to subsidiaries are for business purposes. Further, disallowance against working capital loan of Rs. 42.40 crores has been made but the working capital loans were meant to carry out day to day operations of the company and as per sanctioned terms, the same could not be used for the purpose of granting of loans to subsidiaries. Thus, the impugned loans were out of own funds and there was clear nexus between funds advanced to subsidiaries and free funds internally generated by assessee and hence impugned additions deserves to be deleted. Reliance has been placed upon following judicial pronouncements for various contentions:- i. S.A.Builders Vs. CIT [Supreme Court 288 ITR 1] ii. Hero Cycles Pvt. Ltd. Vs. CIT [Supreme Court] [Civil Appeal No. 514 of 2008] iii. CIT Vs Reliance Communication Infrastructure [207 Taxmann 219 Bombay High Court] iv. CIT Vs Reliance Utilities [313 ITR 340 Bombay High Court] v. CIT Vs Ashok Commercial Enterprises [Bombay High Court] [ITA-L No. 2985 of 2009)] vi. CIT Vs. HDFC Bank Ltd [Bombay High Court][ITA No, 330 of 2012] Per Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. Further, the expression 'for the purpose of business' is wider in scope than the expression 'for the purpose of earning profits'. Once it is established that there was nexus between the expenditure and the purpose of the business which need not necessarily be the business of the assessee itself, the revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the Board of Directors and assume the role to decide how much s reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profits. The IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look the matter from their own viewpoint but that of a prudent businessman. 5.6 Keeping all these factors in mind and on the facts and circumstances of the case, we are inclined to delete impugned additions. The ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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