TMI Blog2019 (5) TMI 411X X X X Extracts X X X X X X X X Extracts X X X X ..... of different High Courts cited supra, we uphold the decision of the learned Commissioner (Appeals) on the issue in allowing claim - decided against revenue Disallowance of interest on borrowed funds - AO disallowed a part of interest expenditure on the reasoning that investments made by the assessee in sister concerns are not for the purpose of business - HELD THAT:- While deciding dispute arising out of similar disallowance made by the Assessing Officer in the assessment year 2001 02, the Tribunal in [2016 (4) TMI 583 - ITAT MUMBAI] has decided the issue in favour of the assessee by holding that the investment of funds in sister concerns are for the purpose of business. The same view was reiterated by the Tribunal while deciding the issue in assessment year 2006 07 [2016 (10) TMI 1037 - ITAT MUMBAI] , and for the assessment year 2011 12 . [2017 (4) TMI 862 - ITAT MUMBAI] . Disallowance on account of interest attributable to interest free loan to the sister concern and director - HELD THAT:- Assessing Officer has computed notional interest on certain amounts shown as receivable from a sister concern and one of the directors. Commissioner (Appeals) after verifying t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and the AE clearly establish that the payment of marketing fee is not linked to sales. Therefore, benchmarked separately. Moreover, the assessee is following the aforesaid method of benchmarking all the transactions separately consistently over the years. It is also fact on record that the Department has accepted the benchmarking done by the assessee in all other years except the impugned assessment year. Therefore, there being no material difference in facts, following the rule of consistency also assessee s benchmarking has to be accepted Disallowance for provision of doubtful debts - added back to the income computed under the normal provisions - no adjustment while computing the book profit u/s 115JB - HELD THAT:- As could be seen, the Assessing Officer has added back the provision for doubtful debt taking recourse to Explanation-1(c) to section 115JB(2), as it is not set out for meeting any ascertained liability. However, the facts on record reveal that the amount in dispute is not a liability but debt receivable by the assessee. That being the case, Explanation-1(c) to section 115JB would not apply. The order passed by the learned Commissioner (Appeals) on the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the addition made on account of transfer pricing adjustment is unsustainable. Assessee has also not properly benchmarked the transaction, we are inclined to restore the issue to the Assessing Officer for determining the arm's length price of the international transaction relating to purchase of moulds by applying any one of the prescribed methods. In this context, the Assessing Officer should consider assessee s claim of determination of arm's length price by applying entity level TNMM. - ITA no. 4777/Mum./2016, ITA no. 4778/Mum./2016, ITA no. 4598/Mum./2016, ITA no. 4780/Mum./2016, ITA no. 4599/Mum./2016, ITA no. 4779/Mum./2016, ITA no. 4600/Mum./2016 - - - Dated:- 30-4-2019 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER For the Appellant : Shri Ronak Doshi a/w Shri Hardik Nirmal and Shri Shreeja Gangwal For the Respondent : Shri S.K. Jha ORDER PER BENCH The aforesaid appeals, four by the Revenue and three by the assessee, are filed against separate orders passed by the learned Commissioner (Appeals) 56, Mumbai, pertaining to the assessment years 2005 06, 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orised Representative submitted, assessee s alternative claim of depreciation on non compete fee as an intangible asset has been accepted by the Tribunal in assessment year 2001 02, 2006 07 and 2011 12. In this context, he drew our attention to the respective orders of the Tribunal. Further, he relied upon the decision of the Hon ble Madras High Court in Pentasoft Technologies Ltd. v/s DCIT, [2014] 222 taxman 209 (Mad.) and the decision of the Hon ble Karnataka High Court in CIT v/s Ingersoll Rand International Industry Ltd., 48 taxmann.com 349. 8. We have considered rival submissions and perused material on record. The issue before us is, whether assessee s claim of depreciation on non compete fee @ 25% by treating it as an intangible asset is acceptable or not. As could be seen, this is a recurring dispute between the parties since the assessment year 1999 2000. Though, while deciding the issue in the assessment year 1999 2000, vide ITA no.4842/Mum./2004, dated 5th April 2013, the Tribunal has disallowed assessee s claim of depreciation on non compete fee by treating it as an intangible asset, however, while deciding assessee s appeal in assessment year 2001 02 in IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer, however, he fairly submitted that the issue has been decided in favour of the assessee in the preceding assessment years. 13. The learned Authorised Representative submitted, the issue has been consistently decided in favour of the assessee by the Tribunal in assessment years 2001 02, 2006 07 and 2011 12. He drew our attention to the respective orders of the Tribunal. Further, he submitted, since the subsidiaries in which investments were made are in the same line of business, the investment is for the purpose of business, hence, no disallowance of interest expenditure can be made. In this contest, he relied upon the decision of the Hon'ble Supreme Court in S.A. Builders v/s CIT, 288 ITR 001 (SC). Without prejudice to the aforesaid submission, the learned Authorised Representative submitted, since the assessee was having sufficient surplus funds to make the investment, no disallowance under section 36(1)(iii) of the Act can be made. In support of such contention, he relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities And Power Ltd., [2009] 313 ITR 340 (Bom.). 14. We have considered rival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. The learned Departmental Representative relied upon the observations of the Assessing Officer. 18. The learned Authorised Representative submitted, issue has been decided consistently in favour of the assessee by the Tribunal in the preceding assessment years. In this context, he drew our attention to the respective orders of the Tribunal. 19. We have considered rival submissions and perused material on record. Undisputedly, the Assessing Officer has computed notional interest on certain amounts shown as receivable from a sister concern and one of the directors. However, the learned Commissioner (Appeals) after verifying the facts on record has found that the amount receivable from the sister concern is not in the nature of loan and the loan advanced to one of the directors is out of surplus fund. The aforesaid factual finding of learned Commissioner (Appeals) remains uncontroverted. Further, the Tribunal while deciding the issue in the preceding assessment years, in the orders referred to above, has deleted similar disallowance made by the Assessing Officer. In view of the aforesaid, we uphold the decision of learned Commissioner (Appeals) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted therein, the Transfer Pricing Officer was of the view that the lower margin of the company was due to the payment of marketing fee and accordingly proposed an adjustment of ₹ 1.58 crore. The Assessing Officer made the addition on the basis of transfer pricing adjustment proposed by the Transfer Pricing Officer. While deciding assessee s appeal on the issue of transfer pricing adjustment, learned Commissioner (Appeals) held that the Transfer Pricing Officer was wrong in holding that the marketing fees are related to sales. He observed, as per the material on record, irrespective of the volume of sales made to the AE, marketing fee does not vary. He observed, sale of glass bottles and payment of marketing fee are separate transactions, hence, cannot be benchmarked together. Thus, ultimately, he accepted assessee s separate benchmarking of transaction of sales and marketing fee and ultimately deleted the addition made on account of transfer pricing adjustment. 25. The learned Departmental Representative relying upon the observations of the Transfer Pricing Officer submitted, since the marketing fee is linked to the sales, the Transfer Pricing Officer was justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid method of benchmarking all the transactions separately consistently over the years. It is also fact on record that the Department has accepted the benchmarking done by the assessee in all other years except the impugned assessment year. Therefore, there being no material difference in facts, following the rule of consistency also assessee s benchmarking has to be accepted. The ratio laid down by the Hon'ble Jurisdictional High Court in PCIT v/s Vishay Components India Pvt. Ltd., in ITA no.1643/2016, dated 18th February 2019, supports this view. Even, the Hon'ble Supreme Court in CIT v/s Kargill Foods India Ltd., judgment dated 24th October 2016. has also expressed similar view. In the aforesaid view of the matter, we uphold the decision of the learned Commissioner (Appeals) on the issue. 28. In ground no.6, the Department has challenged the deletion of disallowance for provision of doubtful debts amounting to ₹ 2,31,79,785. 29. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee has debited an amount of ₹ 2,31,79,785, to the Profit Loss Account towards provisions for doubtful debts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA no.4778/Mum./2016 Revenue s Appeal A.Y. 2007 08 36. Ground no.1 relates to depreciation on non compete fee. This ground is identical to ground no.1 of ITA no.4777/Mum./ 2016. Following our decision in Para 8 of the order, we uphold the decision of the learned Commissioner (Appeals). 37. Ground no.2 relates to deletion of disallowance of interest expenditure under section 36(1)(iii) of the Act. This ground is identical to ground no.2 of ITA no.4777/Mum./ 2016. Following our decision in Para 14 of the order, we uphold the decision of the learned Commissioner (Appeals). 38. Ground no.3 is on the issue of deletion of addition of interest on interest free loan advanced to sister concern. This ground is identical to ground no.3 of ITA no.4777/Mum./2016. Following our decision in Para 19 of the order, we uphold the decision of the learned Commissioner (Appeals). 39. Gorund no.4, relates to deletion of disallowance made on account of delayed payment of employees contribution to P.F. and pension fund. 40. This ground is identical to ground no.4 of ITA no.4777/Mum./ 2016. Following our decision in Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervations of the Transfer Pricing Officer. 45. The learned Authorised Representative, on the other hand, submitted, arm's length price of the interest on interest free loan advanced to the AE may be charged at LIBOR plus 200 basis points. As regards corporate guarantee commission, learned Authorised Representative though submitted that provision of corporate guarantee does not come within the purview of international transaction under section 92B of the Act, however, he supported the determination of arm's length price of guarantee commission at 0.5% as was done by learned Commissioner (Appeals). 46. We have considered rival submissions and perused material on record. We are unable to accept the contention of the learned Authorised Representative that transfer pricing provision would not apply to the loan transaction with the AE. In our considered opinion, the provision of interest free loan to the AE comes within the purview of international transaction under section 92B of the Act, hence, transfer pricing provisions will apply. Moreover, since by provision of interest free loan, a benefit has accrued to the AE which may not have been the case if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed. 55. In ground no.2, the Revenue has challenged deletion of disallowance of interest expenditure under section 36(1)(iii) of the Act. This ground is identical to ground no.2 of ITA no.4777/Mum./2016. Following our decision in para 14 of the order, we dismiss the ground raised. 56. In ground no.3, Revenue has challenged the deletion of addition made on account of disallowance of interest charged on interest free loans to the sister concern. 57. This ground is identical to ground no.3, of ITA no.4777/Mum./ 2016. Following our decision in Para 19 of this order, we dismiss the ground raised. 58. In grounds no.4 and 5, the Revenue has challenged the partial relief granted to the assessee on account of transfer pricing adjustment on interest on interest free loan to the AE and provision of corporate guarantee to the AE 59. These grounds are identical to ground no.5 of ITA no.4778/ Mum./2016. Following our decision in Para 46 of the order, we dismiss the grounds raised. 60. In ground no.6, the Revenue has challenged deletion of addition made to the book profit on account of disallowance of provision of non m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer Pricing Officer has not followed any prescribed method and has determined the arm's length price on the basis of ad hoc estimation. Thus, he submitted, the adjustment made by the Transfer Pricing Officer is unsustainable. In support of such contention, he relied upon the following decisions: i) CLSA India Pvt. Ltd. v/s DCIT, [2019] 101 taxmann.com 388 (Mum.); and ii) ITO v/s Intertoll ICS India Pvt. Ltd., [2016] 180 TTJ 41 (Mum.); 69. Without prejudice to the aforesaid submissions, the learned Authorised Representative submitted, the Assessing Officer be directed to determine the arm's length price by applying entity level transactional net margin method (TNMM) like other international transactions. 70. The learned Departmental Representative, though, relied upon the observations of learned Commissioner (Appeals) and the Transfer Pricing Officer, however, he submitted that the issue may be restored back to the Assessing Officer for determining the arm's length price by applying any prescribed method. 71. We have considered rival submissions and perused material on record. Undisputedly, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78. This ground is identical to ground no.3 of ITA no.4777/Mum./ 2016. Following our decision in Para 19 of this order, we dismiss the ground raised. 79. Grounds no.4 and 5 are on the issue of partial relief granted by the learned Commissioner (Appeals) with regard to adjustment made to the arm's length price of interest on interest free loan to AE Piramal Glass Ltd. and guarantee commission on corporate guarantee. 80. These grounds are identical to ground no.5 of ITA no. 4778/Mum./2016. Following our decision in Para 46 of this order, we dismiss the grounds raised. 81. In the result, Revenue s appeal is dismissed. ITA no.4600/Mum./2016 Assessee s Appeal for A.Y. 2009 10 82. The grounds raised by the assessee are in relation to determination of arm's length price of interest on interest free loans advanced to the AE and guarantee commission on corporate guarantee provided to the AE. 83. We have dealt with these issues while deciding corresponding grounds, being ground no.4 and 5 in Revenue s appeal in ITA no.4779/Mum./2016. Accordingly, these grounds are decided in terms of our ..... X X X X Extracts X X X X X X X X Extracts X X X X
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