TMI Blog2018 (5) TMI 1256X X X X Extracts X X X X X X X X Extracts X X X X ..... g the mercantile system of accounting and the interest accrues only when the debt falls due and the same is remained unpaid. Since the debt do not fall due in the impugned Assessment year, we hold that the interest is neither accrued nor crystalised in the year under consideration. Accordingly, the same is deleted - The department has not made out case of systematic planning of allowing the undue credit to the AE - the revenue has not made out case of disallowance of notional interest on delayed payments and accordingly, we set aside the orders of the authorities below and delete the addition - Decided in favour of assessee Sponsorship expenses - allowable business expenses - Held that:- There is no need to have direct nexus of the assessee’s business with the sponsorship linked events. Even indirect benefit is sufficient to sponsor the sports or social or economic events. We are of the considered view that the social events, sports events and the business events which involves the participation of various institutions would have direct or indirect impact on the assessee’s business and the expenditure incurred on such events is business expenditure.Therefore, we hold that the sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernational transaction with it s Associated Enterprise(AE) M/s G.V.K. Coal Developers (Singapore) PTE Limited, (in short GVK Singapore) and extended Corporate guarantee of INR 2814,32,00,000/- as on 31st March, 2013 and has charged commission to it s A.E. amounting to ₹ 25,25,67,213/-. The A.O. referred the International transaction u/s 92CA(1) of the Income Tax Act, 1961 (hereinafter called as 'the Act') to Transfer Policy Officer (TPO) for determination of Arms Length Price (ALP) of the tax payer company. The commission charged by the tax payer for corporate guarantee has worked out to 0.90%. The assessee has made the transfer pricing (TP) study and adopted the Comparable Uncontrolled Price ( CUP ) method as most appropriate method for bench marking the transaction of corporate guarantee. The assessee in it s Transfer pricing documentation has conducted the search using the Bloomberg database to identify the market yield on debt securities with credit ratings. The assessee has used the US Industrial Bond Yield Curve to determine the bench mark of guarantee fee range. The assessee has considered the one year US Industrial Yield Curve as bench mark for the market in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged by the independent companies. The assessee also argued that the A.O. has not brought on record the terms and conditions of the comparable transaction of guarantee of State Bank of India which has charged the bank guarantee commission @ 1.30% for the assessment year 2013-14. The assessee argued before the A.O. that as per the decision of Hon ble Bombay High Court in the case of Everest Kanto Cylinders Limited and other Tribunals the corporate guarantee commission charged from 0.25% to 0.53% is considered to be appropriate for issuance of corporate guarantees. The assessee placed reliance on the following decisions of various Tribunals: Sl. No. Name of the Case Law Assessment Year Guarantee Fees 1. Everest Kanto Cylinder Limited High Court ITA No.1165 No.2013 ITAT ITA No.542/Mum/2012 AY 2007-08 0.53% 2. Foursoft Limited ITA No.1903/HYD/2011 AY 2007-08 0.53% 3. Prolifice Corporation Limited ITA No.237/HYD/2014 ITA No.1646 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o bench mark the corporate guarantee. The Ld. DRP considered the submissions made by the assessee and observed that the assessee failed to show as to how the US Bond rate is more applicable than the bank rates adopted by the TPO. Further, it was also observed that if 0.53% would be the ALP rate in 2007-08, then the rate at 1.30% for the subject year would not be unreasonable and accordingly rejected the objections raised by the assessee. The A.O. passed the assessment order u/s 143(3) r.w.s. 92CA(3) of the Act and u/s 144C(13) of the Act on 29.9.2017 making the upward adjustment of ₹ 11,32,94,387/- on account of adjustment of corporate guarantee. 4. Aggrieved by the order of the A.O/DRP, the assessee carried the matter to the Tribunal. During the appeal hearing, the Ld. A.R. argued that the assessee has conducted transfer pricing study and adopted the US Bond Yielding Curve method to bench mark the transaction for guarantee commission for corporate guarantee. The assessee s A.E. M/s. GVK Coal to borrow USG Denominated loan of US D$ 1.25 Billion for which the assessee has provided the corporate guarantee to third party lender i.e. Consortium of ICICI Bank, Bank of India, Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lower authorities and argued that the bank guarantee commission is comparable and hence no interference is called for in the order of the AO/DRP. 6. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. In this case, the assessee has conducted Transfer Pricing study and arrived at ALP rate of 0.89% based on US Industrial bond yield curve. The assessee has extended the corporate guarantee to the third party lender banks for providing credit facilities. The primary security given by the Associated Enterprises is mortgage of land, securities, mining tenements and other fixed assets of the target company and all shares owned by the GVK Coal. We agree with the argument of the Ld.AR that the bank guarantee and the corporate guarantees are issued on different approaches and with different motivations. In corporate guarantee, the risk factor is lesser since the credit facilities granted by the bank was firstly covered by the assets of the borrowing company, whereas in the bank guarantee, the risk factor is more since immediate monetary transaction is involved. Therefore, the commission charged in bank guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Glenmark Pharmaceuticals Ltd. (supra) relied upon by the assessee, Hon ble Bombay High Court held that bank guarantee commission is not a comparable transaction for transaction to determine the ALP. However, Hon ble Supreme Court has granted SLP in this case. Therefore, in the assessee s case, the primary securities offered by the assessee was the assets of the GVK Coal and corporate guarantee was extended to third party lender. As per the decisions referred in this order of various Tribunals and High Courts, the corporate guarantee commission charged @ 0.25% to 0.53% is considered to be reasonable in the facts and circumstances of the assessee s case. The Ld. D.R. did not place any other judgement or order of the High Court or any other court to controvert the decision cited (supra). In the assessee s case the corporate guarantee commission charged by the assessee was 0.90% which is more than the corporate guarantee commission of 0.25% to 0.53% approved by various judicial forums. Therefore, respectfully following the view taken by the coordinate benches, we hold that the corporate guarantee commission charged by the assessee company is at ALP and no adjustment is required. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee and relied on the decision of Hon ble ITAT in the case of Bechtel (supra). Further, on the argument of Ld. A.R. that no interest could be imputed when the assessee has no finance cost the Tribunal negated the claim of the assessee placing reliance on ITAT Delhi in the case of Bechtel (supra). With regard to the hypothetical or notional interest, the DRP relied on the decision of ITAT Delhi in the case of Techbrook International Pvt. Ltd. in ITA No.240/Del/2015/Asst.year 2010-11 dated 6.7.2015 and rejected the assessee s objection. Placing reliance on the above decisions and the explanation to section 92B by Finance Act, 2012, the DRP held that the differed receivables would constitute international transaction and interest has to be bench marked for delay beyond the allowable credit period and accordingly directed the A.O. to determine the ALP. However, the DRP was of the view that the adjustment proposed by the TPO @14.45% is unreasonable and directed the TPO to adopt the adjustment taking the domestic term deposit rates of SBI. Accordingly, the assessing officer made the adjustment of ₹ 22,44,330/- towards the notional interest on outstanding amounts receiva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notional interest does not accrue or arise in the year ending 31.3.2013. 11. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. In this case on 3 occasions, there was a delay in receivables received by the assessee beyond the due date. The details of date of invoice, date of receipt of receivables are as under: Date of Invoice Amount billed in INR Dt. on which Amount received Amount billed in INR Credit Period Credit Period allowed Period of delay in days Interest adjustment 31 Mar 2013 645,113,554 02 Dec 2013 64,373,109 60 246 186 4,740,154 31 Mar 2013 8,924,356 02 May 2013 1,341,500 60 32 - - 31 Mar 2013 21 Aug 2013 7,582,856 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted by the TPO to be at arm s length, except, payment of interest on loan. The authorities below have treated the delayed payment beyond 30 days as loans. In fact, no loan have been extended by the assessee. It was the amount due against the A.Es as well as non A.E on which interest have been charged by considering the deemed loans. Therefore, the decision of ITAT, Delhi Bench in the case of M/s. Kusum Healthcare Pvt. Ltd., (supra) squarely apply in the case of the assessee, since the assessee earned significantly higher margin than the comparable companies, which have been accepted by the TPO, therefore, there was no justification to charge interest on outstanding. The decision of Hon ble jurisdictional Delhi High Court in the case of Pr. CIT Vs. Kusum Healthcare Pvt. Ltd. (supra) squarely apply to the facts and circumstances of the case. The assessee also explained that there are similar delays in collection of outstanding receivables from both A.Es and non AEs which is due to business and commercial reasons. Therefore, there is uniformity in act of assessee in not charging interest from AEs and non AEs. Therefore, the decision of the Hon ble Bombay High court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The appeal of the assessee on this ground is allowed. 13. Ground No.3 is related to the sponsorship expenses of ₹ 10,68,138/-. During the course of assessment proceedings, the A.O. found that the assessee has claimed ₹ 10,68,138/- as a sponsorship expenses. Since there was no nexus between the nature of expenses incurred and the business of the assessee company, the A.O. proposed to disallow the expenditure under the head sponsorship fee amounting to ₹ 10,68,138/-. Against the draft assessment order, the assessee filed objections before the DRP and the Ld. DRP held that these expenses cannot be said to be incurred wholly and exclusively for the purpose of business, accordingly, upheld the action of the A.O. The A.O. passed the assessment order making the addition of ₹ 10,68,138/- relating to sponsorship expenses. 14. Aggrieved by the order of the A.O., the assessee is in appeal before us. During the appeal hearing, the Ld. A.R. taken our attention to the document of objections filed before the DRP in form No.35A. In annexure 5, the assessee has furnished the details of sponsorship expenses and submitted its explanation as under: During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. counsel for the assessee and the case laws relied upon. In this case, the Assessing Officer has disallowed the expenditure observing that these are not incidental to the business of the assessee. However, there is no discussion about the nature of expenditure by the Assessing Officer, whereas the assessee has submitted details in respect of expenditure incurred by it for sponsorship of events. Now-a-days it is common to sponsor some sports or events to advertise the products of the company or the company's corporate image itself it is not in dispute that the assessee had also incurred the expenditure by sponsorship of events/sports for the purpose of advertising its product/corporate image. Such expenditure is the revenue expenditure incurred jot the purpose of business. The Assessing Officer has not given any cogent reason for disallowing such expenditure. Hon'ble Delhi High Court in the case of Delhi Cloth General Mills Co. (supra) has upheld the order of the Tribunal allowing the expenditure on Football tournament incurred by the assessee. No contrary decision is referred to by the revenue. in view of the above, considering the facts of the case and the arguments of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenditure was incurred to promote the public awareness of the company, hence the expenditure is in the nature of business expenditure and requested to allow the same. 17. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The assessee has incurred the expenses for conducting various events that have taken place as mentioned above, to promote the public awareness of the company and the expenditure was incidental to the assessee s business. Merely because the assessee company is engaged in Power and Infrastructure, the argument of the assessee that such an event would promote the public awareness would not be brushed aside. It is common to sponsor some events to advertise the products of the company or to build the corporate image. The Young Indian National Summit held in Delhi would create awareness and promote the assessee s company among the public. There is no need to have direct nexus of the assessee s business with the sponsorship linked events. Even indirect benefit is sufficient to sponsor the sports or social or economic events. We are of the considered view that the social events, sports ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the materials available on record and gone through the orders of the authorities below. The case of the assessee is the expenditure incurred in this case is revenue expenditure, which required to be allowed, since the expenses were incurred for conducting feasibility studies, due diligence, geo technical studies for development of Okha Port and the Study for Development report and field work of soil testing. The assessee argued that the assessee is expanding its business activities and for the purpose of expansion the assessee had incur the expenses, which are revenue nature. The Ld. A.R. further submitted that on the similar facts and circumstances the Hon ble Tribunal of this bench allowed the appeal of the assessee and accordingly, the issue squarely covered by the ITAT s order in the case of assessee in ITA No.292/Vizag/2014 dated 5.5.2017 for the assessment year 2010-11.The ld DR supported the orders of the lower authorities. 21. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. On the similar facts, in the assessee s own case, for the AY 2010-11, the Tribunal has allowed the legal and professi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saying that the expenditure incurred by the assessee is not for the business of the assessee and it is for the subsidiaries. The ld.CIT(A) raised one more objection to disallow these expenditure that the subsidiaries or its associate companies may or may not get the project, but the assessee undertakes technical studies for the business purpose, therefore, it cannot be allowed. We find that the ld. CIT(A) not correct in holding that the expenditure incurred by the assessee cannot be allowed for following reasons. The business of the assessee is that to identify the project and to study the feasibility of the project by obtaining various reports from the technical experts and to participate in the bid. If assessee is successful in the bid, it may keep project or may allocate it to subsidiaries or others. But it is not sure that all the time bid is successful, whether bid is successful or not, the assessee has to incur the expenditure in respect of legal and professional fee. The assessee undertakes project studies through various technical experts and has to decide whether project is feasible or not? The assessee has come to a conclusion that the project is feasible, it participates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and, therefore, it has to be allowed under section 37 of the Act. 22. Since the expenses incurred are similar nature respectfully following the view taken by this Tribunal, we hold that the expenditure incurred for the purpose of Okha Project in connection with the field study as discussed above is a business expenditure and allowable u/s 37(1) of I.T.Act. Accordingly, we set aside the orders of the authorities below and allow the appeal of the assessee. 23. Ground No.5 is related to the disallowance u/s 14A of the Act. The assessee in this case filed a return of income disallowing the expenditure u/s 14A of the Act as under: Add: Disallowance u/s 14A (Refer {17(1)} of Form 3CD): - Payment made to Pinakini for Investment Maintenance charges - 953,512 - Interest expenditure - 493,133,474 - Processing fees paid for obtaining loans - 27,633,193 24. Subsequently, the assessee filed a letter during the pendency of assessment proceedings st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate authorities are not barred from entertaining the fresh claim during the appellate proceedings. For the sake of clarity, we extract relevant part of the order of the Hon ble Kolkata Tribunal in para No.5 and 8 to 8.1 which reads as under: 8. Having heard Ld. D.R. and also gone through the orders of the Authorities Below and the case laws relied upon before us by the assessee. The issue in the instant case before us is that assessee has claimed deduction u/s 80IC of the Act by way of filing a letter to A.O. at the time of assessment proceedings but A.O. rejected the same on the ground that he cannot entertain the claim of deduction as the assessee failed to claim the same in its return of income. However, Ld. CIT(A) observed that the appellant authority are entitled to admit the claim of assessee which was not made in the income tax return. Now the limited issue before us for our adjudication arises so as to whether the assessee can make a fresh claim during the assessment proceedings which was not claimed in the return of income. On this issue the law is fairly settled by the judgement of Hon ble Supreme Court in the case of Goetze (India) Ltd. (supra) wherein it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A of the Act on it s own, but there was no exempt income earned by the assessee during the year. The assessee is of the view that if there is no exempt income no disallowance is called for u/s 14A of the Act. The assessee relied on various case laws in the submissions made before the A.O. The assessing officer has neither examined the issue nor given any findings on the facts and the legal position of the assessee s claim. It is settled issue that the assessee required to pay the tax on true and correct income. Though A.O. is not permitted to entertain the additional claim of the assessee without the revised return of income, the appellate authorities are not barred to entertain the additional claim of the assessee during the appellate proceedings. This view is supported by the case laws relied upon by the assessee as well as the decision of Hon ble Supreme Court in the case of Goetz India Ltd. Vs. CIT 284 ITR 323. In the assessee s case the assessee has made disallowance of expenditure u/s 14A of the Act, but there was no exempt income as claimed by the assessee. Therefore, in the interest of justice, we are of the view that the issue required to be remitted back to the file of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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