TMI Blog2018 (1) TMI 1573X X X X Extracts X X X X X X X X Extracts X X X X ..... s to subsidiary and group company - AO pointed out that the advance given to the subsidiary companies as sister concern cannot be treated as incurred for the purpose of the business of the assessee - HELD THAT:- During the assessment year under consideration, the assessee advanced ₹ 4,79,630/- to Taida Trading and Industries Ltd. and ₹ 18,42,036/- to KTC Hotels Ltd. Since, this issue has been dealt with by the coordinate Bench in assessee s own case for the A.Ys. 2003-04 and 2004-05, we respectfully following the decision of the coordinate Bench partly allow this ground of appeal and set aside the impugned order passed by the Ld. CIT (A) in respect of advance given to M/s Taida Trading and Industries Ltd. and uphold the order deleting the disallowance made by AO in respect of advance given to M/s KTC Hotels Ltd. AO is directed to compute the disallowance of interest in terms of the said order. Disallowance of interest on share application money pending allotment - HELD THAT:- As decided in own case [2014 (4) TMI 1097 - ITAT MUMBAI] there being no diversion of interest bearing funds for non-business purpose as alleged by the A.O., there was no justification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en as per AS-11 as rightly held by the learned CIT (Appeals). We, therefore, find no infirmity in the impugned orders of the learned CIT (Appeals) deleting the additions made by the AO on this issue. Addition being adjustment on account of interest charged on loan given by the assessee to its associate enterprise M/s Taj International Hongkong Ltd - HELD THAT:- This issue has already been decided in favour of the assessee in the assessee s own case for the A.Y. 2003-04 and 2004-05 aforesaid by the ITAT holding that the LIBOR is acceptable arm s length interest rate, we respectfully following the decision of the coordinate Bench decide this issue in favour of the assessee and dismiss this ground of appeal of the revenue. Non charging guarantee fees from AEs by providing letter of comfort to the Bank for the loan granted to the AE - HELD THAT:- Since the assessee has not bond itself for repaying the loans in the event of default by the AEs, the issue is covered by the law laid down by the Hon ble Karnataka High Court in the case of United Braveries Holdings Ltd. [ 2011 (8) TMI 1331 - KARNATAKA HIGH COURT] . Moreover, the Chennai Bench of the ITAT in TVS Logistics Services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act ₹ 12,66,57,377/- b. Disallowance out of interest on account of advances given to group companies without interest of at concessional rate of interest ₹ 23,21,666/- c. Disallowance of interest on share application ₹ 92,800/- money d. Expenditure on replacement of carpets treated as Capital Expenditure ₹ 1,00,87,545/- e. Expenditure on replacement of linen treated as capital expenditure ₹ 3,65,88,495/- f. Disallowance u/s ₹ 6,74,22,061/- g. Expenses on 1% foreign currency convertible bonds ₹ 3,42,44,307/- h. Prorata premium on 1% foreign currency convertible bonds. ₹ 8.59,34,837/- i. Interest u/s 244A of the Act ₹ 1,24,86,746/- j Disallowance u/s 43B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend in such cases is incidental. 5. Without prejudice to Ground No. 1 and in the alternative and on the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) has legally erred in upholding the action of the Assessing Officer in not considering the working for calculation of disallowance u/s 14A and applying Rule 8D mechanically. 4. The sole ground of appeal pertains to disallowance of ₹ 6,74,22,061/- u/s 14A of the Act. The Ld. counsel for the assessee submitted that the Ld. CIT (A) has erred in upholding the action of the AO in sustaining the disallowance of ₹ 6,74,22,061/- ignoring that the appellant has made suo moto disallowance of ₹ 1,48,05,348/- u/s 14A of the Act. The Ld. CIT (A) has further ignored the fact that no administrative expenses were actually incurred in relation to exempt income. The investments are strategic in nature, therefore, should not be considered for disallowance u/s 14A. The Ld. counsel without prejudice to the above grounds and in alternative submitted that the Ld. CIT (A) has erred in upholding the action of AO in not considering the working for calculation of disallowance u/s 14A an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that the suo moto disallowance made by the AO in the assessment year under consideration, which is 10% of the exempt dividend income is reasonable. We therefore, set aside the order of the Ld. CIT (A) and direct the AO to delete the disallowance confirmed by the Ld. CIT (A) and accept the suo moto disallowance made by the assessee u/s 14A of the Act. We accordingly allow the sole ground of appeal of the assessee. ITA No. 841/MUM/2010 (Assessment Year: 2005-06) Vide ITA No. 841/Mum/2010, the revenue has challenged the impugned order on the following effective grounds: 1. The order of the CIT (A) is opposed to law and facts of the case. 2. (a) On the facts and in the circumstance of the case and in law the Ld. CIT (A) erred in deleting the disallowance of interest of ₹ 2321666 made by the A.O. as assessee utilized the borrowed funds for giving concessional interest advance to group companies. (b) On the facts and in the circumstance of the case and in law the CIT (A) erred in ignoring the fact that the Deptt. has filed the appeals to the ITAT against the CIT (A) s orders for the A.Ys. 1998-99, 99-2000, 2003-04 and 2004-05. 3. (a) On the facts and in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n law the Ld. CIT (A) erred in deleting the addition of ₹ 577008/- made by the A.O. on account of non charging of guarantee fee by the assessee from its AE s by providing letter of comfort to the bank s for the loans granted to the AE s and thus providing a benevolent advantage to the AE s. (b) On the facts and in the circumstances of the case and in law the CIT (A) erred in ignoring the fact that the Deptt. has filed appeals to the ITAT against the CIT (A) s orders for the A.Ys. 2003-04 2004-05. 9. For these and other grounds that may be urged at the time of hearing, the decision of the CIT (A) may be set aside and that of the AO restored. 2. Ground No. 1 of the Department s appeal is general in nature hence, the same does not require separate adjudication. 3. Ground No. 2 pertains to disallowance of interest of ₹ 23,21,666/- on advances to subsidiary and group company. The Ld. DR relying on the assessment order submitted that the Ld. CIT(A) has wrongly deleted the disallowance made by AO as the assessee utilized the borrowed funds for giving concessional interest advances to group companies. The AO has rightly pointed out that the advance given to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest in terms of the said order. 6. Ground No. 3 pertains to disallowance of interest on share application money pending allotment. The Ld. DR relying on the assessment order submitted that the AO has disallowed interest only share application money in earlier years in view of the facts that it is not for the share application but the borrowed funds were diverted for non-business purposes. Hence, the findings of the Ld. CIT (A) are liable to be set aside. 7. On the other hand, the Ld. counsel for the assessee submitted that this issue has been decided by the ITAT in favour of the assessee in the assessee s own case for the A.Ys. 2003-04 and 2004-05. Therefore, there is no merit in the ground of appeal of the revenue. 8. We notice that the coordinate Bench has decided this issue in favour of the assessee in assessee s own case for the A.Y. 2003-04, ITA No. 6712/Mum/2008 and A.Y. 2004-05, ITA No. 2678/Mum/2009. The findings of the coordinate Bench are reproduced as under:- 8. We have heard the arguments of both the sides and also perused the relevant material placed on record. As agreed by the ld. Representative of both the sides, this issue is squarely covered in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t rendered in CIT vs. Lake Place Hotels and Motel Pvt. Ltd. 258 ITR 562 (Raj.). Since, this issue has already been decided in favour of the assessee, we respectfully following the decision of the coordinate Bench uphold the findings of the Ld. CIT (A) and dismiss this ground of appeal of the revenue. 13. Ground No. 5 pertains to expenditure on replacement of linen the Ld. Departmental Representative (DR) submitted that the Ld. CIT (A) has wrongly deleted the expenditure of ₹ 3,65,88,495/- incurred on replacement of linen as the expenditure give enduring benefits to the assessee and the same cannot be treated as revenue expenditure. 14. On the other hand, the Ld. counsel for the assessee submitted that since the ITAT has decided this issue in favour of the assessee in assessee s own case ITA No. 3530/Mum/1996 for A.Y. 1992-93, ITA No. 2527/Mum/2002 for the A.Y. 1995-96, ITA NO. 6712/Mum/2008 for the A.Y. 2003-04 and ITA No. 2678/Mum/2009 for the A.Y. 2004-05, there is no merit in the contention of the revenue. Apart from the decisions of the ITAT, the Ld. counsel relied upon the decision of Hon ble Bombay High Court passed in Income Tax application (L) No. 43 of 2002 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounts held on capital account, such as, fixed assets, investment in shares etc. In the present case, the shareholders deposit represented the amount held by the assessee on capital account inasmuch as it was convertible into equity shares within a period of 10 years and if not so converted, it was liable to be refunded to the assessee company only after a period of 10 years. In our opinion, the said amount thus was in the nature of non-monetary item which was required to be reported/recognized at the exchange rate prevailing on the date of relevant transaction even as per AS-11 as rightly held by the learned CIT (Appeals). We, therefore, find no infirmity in the impugned orders of the learned CIT (Appeals) deleting the additions made by the AO on this issue and upholding the same, we dismiss relevant grounds of the Revenue s appeals. 19. Since, this issue has already been decided in favour of the assessee in the assessee s own cases aforesaid, we dismiss this ground of appeal of the revenue by respectfully following the decision of coordinate Bench in assessee s own cases for the assessment years mentioned above. 20. Ground No. 7 of the revenue s appeal is against the actio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on has to be adopted as arm s length rate. Respectfully following this decision of the co-ordinate Bench of this Tribunal, we uphold the impugned order of the ld. CIT (A) deleting the addition made by the A.O./TPO in respect of international transaction involving interest charged by the assessee on outstanding interest from its AE. 23. Since, this issue has already been decided in favour of the assessee in the assessee s own case for the A.Y. 2003-04 and 2004-05 aforesaid by the ITAT holding that the LIBOR is acceptable arm s length interest rate, we respectfully following the decision of the coordinate Bench decide this issue in favour of the assessee and dismiss this ground of appeal of the revenue. 24. Ground No. 8 pertains to non charging guarantee fees from AEs by providing letter of comfort to the Bank for the loan granted to the AE. The Ld. Departmental Representative relying on the assessment order submitted that AO has rightly confirmed the order of TPO that the transaction of giving undertaking i.e. letter of comfort to the banks for loans granted to AEs is an international transaction. The Ld. CIT (A) has wrongly held that the appellant has no intention of taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of foreign exchange on deposit placed with the Appellant s wholly owned subsidiary viz. Taj International (Hong Kong) Limited due to appreciation of the rupee, though there was no change in facts compared to earlier years. 2. On the facts and in the circumstances of the case, the Learned CIT (A) has legally erred in not adjudicating the following without prejudice grounds on allowability of depreciation on expenses incurred for replacement of carpet and linen: 5. Without prejudice to and in the alternative to ground nos. 3 and 4 above, and on the facts and in the circumstances of the case the Addl. CIT has legally erred in granting depreciation on replacement of linen and carpets at the rate applicable to furniture and fixtures, thereby allowing depreciation only @ 15%, instead of treating linen and carpets as income earning apparatus eligible for depreciation @ 25%. 6. Without prejudice to and in the alternative to ground nos. 3 and 4 above, and on the facts and in the circumstances of the case the Addl. CIT has legally erred in granting depreciation on the opening WDV of replacement of linen and carpets at the rate applicable to furniture and fixtures, thereby a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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