TMI Blog2020 (3) TMI 799X X X X Extracts X X X X X X X X Extracts X X X X ..... noted that co-ordinate bench in SIRO Clinpharm P. Ltd ( 2016 (5) TMI 633 - ITAT MUMBAI) held that amendment in Explanation to section 92B by Finance Act, effective from 01.04.2002 is to be treated as effective at the best from A.Y. 2013-14. Thus, in view of the aforesaid discussion, we do not find any illegality or infirmity in the order passed by ld. CIT(A). Disallowance u/s 14A - HELD THAT:- In assessee s own case on identical issues have been considered by Tribunal from A.Y. 2000-01 to 2002-03 and 2004-05 wherein the Assessing Officer is directed to compute the disallowance under section 14A at 5% of the exempt income. No material change in the fact is brought to our notice for the year under consideration. Therefore, following the order of Tribunal for A.Y. 2000-01 to 2002-03, which was followed in A.Y. 2004-05, hence, we direct the Assessing Officer to compute the disallowance under section 14A at 5% of exempt income. In the result, this ground of appeal is partly allowed. - ITA No. 4376/Mum/2010, ITA No. 4451/Mum/2010, Cross Objection No. 223/Mum/2013 in ITA No. 4451/Mum/2010 - - - Dated:- 29-1-2020 - Shri Pawan Singh, Judicial Member And Shri S. Rifaur Rahman, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in any case, the foreign investments made by the appellant have to be excluded in computing the disallowance under Section 14A of the Act as the dividend in respect of the same is liable to tax under the Act. 3.5 The CIT(A) erred in not appreciating that the appellant's old investments pertaining to period prior to 31st March, 1999 were not required to be considered for the purpose of computing disallowance under Section 14A of the Income Tax Act, 1961 (the Act). 3.6 The CIT(A) ought to have held that all investments which did not yield any tax free income in the form of dividend were required to be excluded from the average value of the investments for computing disallowance under Section 14A of the Act. 3.7 Without prejudice to the each of the earlier grounds, the CIT(A) erred in not holding that in any case, even if one were to accept the method followed by the Revenue in computing the disallowance the weighted average cost of investments aggregating to ₹ 2,981.90 lacs was required to be excluded being the investments received by the appellant upon amalgamation of Cameo Investment and Finance Limited, it's erstwhile subsidiary. 3.8 Without prejudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garded as an 'international transaction' under section 92B of the Act 10. That the assessment order dated 24.03.2008 passed by the Additional Commissioner of Income-tax under section 143(3) of the Act is without jurisdiction, and hence, is illegal and bad in law. 11. Assuming without admitting that the AD was justified in making a disallowance under section 14A of the Act in respect of the interest expenditure, he ought to have excluded strategic investments that is investments in subsidiaries/associates/joint venture companies for the purposes of making any disallowance. ADDITIONAL GROUNDS DT. 20.03.2018 12. Assuming without admitting that the Additional Commissioner of Income tax was justified in exercising jurisdiction over the Appellant to pass the assessment order for the current year, then, the assessment proceedings would be illegal and bad in law as the jurisdictional notice under section 143(2) of the Act has been issued by the Deputy Commissioner of Income tax who could not simultaneously have the same jurisdiction. 13. Assuming without admitting that a disallowance of interest expenditure could be made under section 14A of the Act, interest pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evasion. 1.1.2 On the facts and in the circumstances of the case, a Transfer Pricing Adjustment cannot be made without arriving at the finding that the intention of the assessee was to evade tax and shift profits outside of India. Further, such finding of tax evasion and of shifting of profits constitutes a condition precedent for making the Transfer Pricing Adjustment. 1.1.3 The Transfer Pricing Adjustment made by the Assessing Officer is bad in law, illegal, without jurisdiction and contrary to and / or beyond and in excess of the express statutory provisions of the Act including sections 4,5,9,92, 92C, 92CA, etc. The approval of the CIT under section 92CA(1) is also not in accordance with law and hence the adjustment must be quashed. 4. The assessee vide application 27.01.2016 has raised additional ground no. 5 to 8, vide application dated 10.05.2016 the assessee has raised the additional ground of appeal vide Ground No. 9, 10 11 and further, vide application dated 20.03.2018, the additional Ground No. 12 13 was raised. The ld. AR of the assessee submits that for adjudication of additional ground of appeal, no new facts are necessary to be brought on record. All th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... An identical issue was considered by the Tribunal in A.Y. 2003-04 in ITA No. 3016/Mum/07 and at para-8 and 8.1 the Tribunal has followed the earlier order of the Tribunal for A.Yrs 2000-01, 2001-02 and 2002-03. Respectfully following the orders of the Co-ordinate Bench in assessee s own case, the disallowance made by the AO is deleted. These grounds are accordingly allowed. 12. Considering the order of Tribunal on similar ground on similar set of fact and respectfully following the order of co-ordinate bench in assessee s own case, the disallowance made by Assessing Officer is deleted. Hence, this ground of appeal is allowed. 13. Ground no.2 relates to disallowance out of payment made to club. The ld. AR of the assessee submits that this ground of appeal is also covered by Hon ble Bombay High Court and decision of various benches of Tribunal in Otis Elevator (195 ITR 682). The ld. AR of the assessee submits that the assessee claimed total expenses of ₹ 3,52,200/- out of which, the Assessing Officer allowed ₹ 52,000/- paid to Devas Office and rest of the amount of ₹ 2,99,500/- for subscription fees, annual contribution and membership of various club and othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king disallowance under section 14A. 17. On the other hand, the ld. DR for the revenue relied upon the order of lower authorities. 18. We have considered the submission of both the parties, perused the record. We have noted that in assessee s own case on identical issues have been considered by Tribunal from A.Y. 2000-01 to 2002-03 and 2004-05 wherein the Assessing Officer is directed to compute the disallowance under section 14A at 5% of the exempt income. No material change in the fact is brought to our notice for the year under consideration. Therefore, following the order of Tribunal for A.Y. 2000-01 to 2002-03, which was followed in A.Y. 2004-05, hence, we direct the Assessing Officer to compute the disallowance under section 14A at 5% of exempt income. In the result, this ground of appeal is partly allowed. 19. Ground No.6 to 9 relates to Transfer Pricing Adjustment with respect to issuance of Letter of Comfort . This issue is interconnected with the grounds of appeal raised by revenue in its cross appeal. The ld. AR of the assessee submits that ld. CIT(A) deleted the adjustment against which the revenue has filed its cross appeal. The ld. AR of the assessee subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal was considered and by following the decision of earlier years in that assessee and decision of Hon ble Karnataka High Court in United Braveries Holding Ltd. Karnataka State Industrial Investment and Development Corporation Ltd. (M.F.A. No. 4234 of 2007 (SFC), wherein it was held that Letter of Comfort merely indicates the parties assurance that respondent would comply with the term of financial transaction without guaranteeing performance in the event of default. 20. On the other hand, the ld. DR for the revenue supported the order of Assessing Officer/TPO. The ld. DR submits that the assessee rendered services to its AE by issuing Letter of Comfort to the lender of its AE and therefore, the issuance of Letter of Comfort is an international transaction as held by Hon ble Bombay High Court in CIT vs. in Everest Kento Cylinders Ltd. [378 ITR 57]. The ld. DR further submits that after amendment in Explanation in Section 92B, any capital financing, lending on guarantee have become international transaction. 21. In the rejoinder submission, the ld. AR of the assessee submits that in Everest Kento Cylinders Ltd. there was no question before the Hon ble High Court, if giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AE to the assessee would fall within the definition in term of international transaction 92B of the Act. The TPO made adjustment of ₹ 8.70 crore on account of issuance of Letter of Comfort. The TPO proceeded to determine Arms Length Price (ALP) of such guarantee commission and selected Comparable Uncontrolled Price Method (CUP) as most appropriate method. The TPO noted that HSBC Bank charged fees ranging from .15% to 3% of the value of guarantee given to its customer depending upon risk involved. The TPO determined Arms Length Commission @ 50% of 3% and arrived at the figure of 1.5% and proposed adjustment of ₹ 8,70,62,438/-. The TPO made the adjustment in the following manner: Summary of letter of comfort/awareness issued with corresponding utilization by AE as of 31/03/2005 S. No. LOC issued by TIL to name of bank AE Value of LOC issued for US $ Mill Exchange rate 1US$= ₹ 43,805 Commission rate @ 1.5% 1 Standard Chartered Bank Tata South East Asia Ltd. , Hongkong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arantee is a legal enforceable; however, Letter of Comfort is not. We have noted that Hon ble Karnataka High Court in United Braveries (Holding) Ltd. vs. Karnataka State Industrial Investment and Development Corporation (supra) held that Letter of Comfort merely indicates the appellant s assurance that respondent would comply the term of financial transaction without guaranteeing performance in the event of default. The co-ordinate bench of Tribunal in India Hotels Co. Ltd. (supra) on similar ground of appeal by following the decision of Hon ble Karnataka High Court held that Letter of Comfort does not constitute international transaction. So far as contention of ld. DR for the revenue that after amendment in Explanation to section 92B is concerned, we have noted that co-ordinate bench in SIRO Clinpharm P. Ltd. (supra) held that amendment in Explanation to section 92B by Finance Act, effective from 01.04.2002 is to be treated as effective at the best from A.Y. 2013-14. Thus, in view of the aforesaid discussion, we do not find any illegality or infirmity in the order passed by ld. CIT(A). In the result, Ground No. 6 to 9 (additional ground) of assessee s appeal are allowed and conse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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