TMI Blog2020 (4) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... had treated ₹ 35 crores as Interest only. The action of AO in taxing ₹ 3,33,00,000/- is confirmed. These grounds of appeal are dismissed. Treatment of interest earned as Income from other sources - During the course of appellate proceedings, the AR of the appellant filed written submission. I have considered the findings given by the AO and written submission filed by the AR of the appellant. The AO has added ₹ 3,33,00,000/- as income from other sources. The appellant has submitted that the learned AO has erred in treating the interest earned including proportionate compensation under the head income from other sources against the business income a claimed by the appellant. The learned AO has failed to appreciate the fact that the Interest of ₹ 1.69 crores was earned from the Inter Corporate Deposits made to Indus City Scapes Construction Pvt. Ltd. The AO observed that the appellant s income consists of rental Income and interest Income only. Therefore, the AO has correctly taxed ₹ 3,33,00,000/- under the head income from Other Sources . Addition u/s 40(a)(ia) - transaction was a colourable device to reduce taxable income - if at all the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r assessment year 2010-11 and ITA Nos. 1417 1421/Chny/2016 against the order of the Commissioner of Income Tax (Appeals)-15, Chennai in ITA Nos. 375 381/CIT(A)-15/13-14, dated 09.02.2016 for assessment year 2008-09, respectively. The assessee and the Revenue filed its Cross appeals in 1040/Chny/2014; ITA No. 1075/Chny/2014 CO No. 51/Chny/2014 against the order of the DRP, Chennai in F.No. DIT/CHE/DRP/49/2013 dated 20.12.2013, for the assessment year 2009-10. 2. Some of these appeals are pending more than 5 years. The assessee filed an adjournment petition which is rejected and the appeals are taken for the hearing. Since, none was present for the assessee, we required the Ld. DR to present the cases and on the basis of the Ld. DR s submissions and the material available on the record, the above appeals are being disposed as under: Grounds of appeal in ITA No.1392/2016 A Y 2007-08 1. The order passed by the Commissioner of Income-tax Appeals [ CIT(A) j under section 250(6) of the Income-tax Act, 1961 ( the Act ) confirming the order of the Assessing Officer ( AO ) passed is not in accordance with law, contrary to the facts and circumstances of the present case a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2 The learned CIT(A) and AO have failed to appreciate the fact that the interest of ₹ 1.69 crores was earned from inter-corporate deposits made to Indus Cityscope Constructions Pvt. Ltd., ignoring the decisions of appellate authorities which held that interest should be treated as business income. 3.3 The learned CIT(A) and AO have erred in not considering the matching concept where in order to earn an income, certain amount of expenses need to be spent, thereby, erred in not allowing any expense against the income determined. The appellant craves leave to add, substitute, amend, delete, or otherwise modify any of the grounds of appeal stated hereinabove before commencement of or at the time of hearing. 3. Since none represented the assesssee, we required the ld DR to present the case . The Ld DR invited our attention to the relevant portion of the order of the ld CIT(A) , and submitted that the assesseee , V S Net limited , subsequently merged with M/s Siva Industries and Holdings Limited ( SIHL or the appellant ) is engaged in the business of Strategic Investments in the real estate space and having objective to invest in large projects both in commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land that was agreed to be sold to the appellant. Post a prolonged discussion, SICCL agreed to compensate the appellant for loss of business opportunity due to failure to execute the project and settled at a compensation of ₹ 35 crores for breach via an agreement dated April 06, 2017. Pursuant to which, SICCL paid the compensation to the appellant which is nothing but a capital receipt in the assessee s hand and hence it is not taxable . After seeking further details and information and after considering the assessee s reply etc, the A O held , inter alia, that the assessee (lender) had entered into an agreement dated 26.12.2006 with M/s Sahara India Commercial Corporation Ltd. as the borrower and 16 other parties as guarantors. The A O after going through the agreement has held , inter alia, that the assessee has not recognized any revenue on account of the agreement dated 29.12.2006 and treated ₹ 35 crores as the capital receipt. Restated agreement dated 15.02.2007 was entered into in a stamp paper purchased on 02.04.2007 (purchased much after the so called re-stated agreement). The stamp vendor, Mr. K.Muniappan , Madurai, in his statement stated that though the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, it is a clear case of an afterthought of the assessee to avoid tax. 5. Considering the facts of the case, the assessee s submissions and on perusal of all the agreements and the AO s remand report, the ld CIT(A) held , inter alia, that the receipt of ₹ 35 crores is nothing but interest on the money given to M/s Sahara India Commercial Corporation Ltd. Compensation received is not of capital nature especially in view of the fact that ₹ 35 crores was received on 09.04.2007 merely five days after such the so called agreement was entered into. It is pertinent to note that the principle amount of ₹ 400 crores was received on 25.05.2007. M/s Sahara India Commercial Corporation Ltd itself had treated ₹ 35 crores as interest only. Therefore, the ld CIT(A) confirmed the action of AO in taxing ₹ 30,10,00,000/-. 6. With regard to the treatment of interest earned as income from other sources at ₹ 1,69,88,132/-, the appellant has submitted before the ld CIT(A) that the learned AO has failed to appreciate the fact that the interest of ₹ 1.69 crores was earned from the Inter Corporate Deposits made to Indus City Scapes Construction Pvt. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing fee paid to bank under section 37at INR 13,70,90,436 Disallowance of escrow fee paid to bank under section 37 at INR 201,663 Transfer Pricing adjustment: INR 42,45,31,144 and thus a total additions of INR 65,52,97,718 was made in the assessee s case. Aggrieved, the assessee filed an appeal before the CIT(A) . The ld CIT(A) partly allowed the appeal . Against that order, the assessee as well as Revenue filed appeals . Let us first take the assessee s appeal. 9.2 Since there was none present for the assesssee, we required the Ld DR to present the case. The ld DR taken us through the relevant portion of the order of the ld CIT(A) and on the issue of disallowance under section 14A, the ld DR submitted from the assessee s following submissions that The Learned Commissioner of Income Tax (Appeals) [ CIT(A) ] directed the Learned AO to recalculate disallowance under section 14A after excluding the disallowance of an amount which is not directly attributable to any particular income or receipt. However, such an order giving effect to the CIT(A) s order has not yet been passed. , it appears that the AO has not given effect to the order of the ld CIT(A) , therefore the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant in ground no.4. This appeal is dismissed. and submitted that in the light of the above , the assessee s pleadings, that The Learned CIT(A) disregarded the contention of the appellant as no details were furnished to substantiate as to how such expenditure incurred for the appellant s benefit and ruled against the appellant without specifically pointing out how and on which material , the ld CIT(A) findings are wrong etc, these grounds are vague and hence the ld DR submitted they may be dismissed. 11. We heard the submissions and find merit in the submissions. Since the assessee has not specifically pointing out how and on which material , the ld CIT(A) findings are wrong etc, we find that the assessee s corresponding grounds are vague and hence we dismiss them . 12. The assessee also filed an additional ground during the pendency of the proceedings before this tribunal pleading that it has inadvertently omitted to raise an alternate ground in the above appeal viz on the facts and circumstances of the case and in law , the appellant prays that the AO be directed to allow the consultancy fee paid by the appellant as cost of acquisition under section 48 read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td 22.07.2007 USD 150 million Zero percent Suzlon Energy Ltd 21.09.2007 USD 200 million Zero percent Firstsource Ltd 07.11.2007 USD 275 million Zero percent Sharon Bio-medicine Ltd 27.11.2007 USD 15 million Zero percent As against the above, SVL has charged an interest of 2 percent on the investment made in OFCD. Thus, it is apparent that the interest earned by SVL on the investment in OFCD issued by its overseas subsidiaries is at arm's length price. Since, investments in equity instruments would not require any earning of interest, a nil rate of interest charged on OFCDs will also be at arm's length. As against this, the assessee charged interest at 2 percent and accordingly, there should not be any further adjustment under section 92 of the Act. 5.4.1 The DRP in the aforesaid order has held that In all the international financial transactions, the rate of interest is to be considered at LIBOR rates and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case and in law, ld. CIT(A) was correct and justified in deleting the disallowance u/s 14A being expenditure incurred to earn exempt income while computing the profits u/s 115JB? 5. Whether ld. CIT(A) erred in deleting the addition to book profits overlooking Expl. 1(f) to sec. 11 5JB and the decision of ITAT, Bangalore bench in DCIT Vs M/s Sobha Developers. 58 taxmann.com 107 (Bang), Dabur India Ltd. Vs ACIT (ITAT, Mum) 145 lTD 175 and CIT Vs Goetze (India) Ltd. (Del) 97 DTR 169? 6. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored on the above issues. 16. The ld DR assailed the order of Learned CIT(A) on the above lines and pleaded to allow the Revenue s appeal. Since none was present for the assessee , we have gone through the relevant portion of the order of the ld CIT(A), which is extracted as under : 5.3 Ground No.4 raised by the appellant is against addition of uncharged guarantee commission of ₹ 42,45,31,144/-. The AO in the assessment order held that the learned JCIT, Transfer Pricing, after due consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted by TPO is incorrect; As your good self would agree that the issue of guarantee commission being an international transaction and percentage of commission on such guarantee to be charged, has evolved very recently within last 3 years. It is by way of Finance Act 2012, clarified that guarantee commission is an international transaction within the meaning of Transfer Pricing provisions. Similarly, there is no clarity on the percentage on the commission to be charged since it is very fact specific. However, there are certain decision of Tribunal has emerged where these issues are dealt in detail and the Tribunal has given some indicator to determine the rate to be charged on guarantee commission. The Tribunal in the following cases held that the TPO cannot adopt blanket rates from bank websites as they are not appropriate comparable's. M/s Godrej Household Products Ltd. vs. ACIT and Glenmark Pharmaceuticals Ltd. vs. Additional CIT Further, we would like to submit that the Hon'ble Dispute Resolution Panel in the appellant's own case for the AY 2009-10 has upheld a guarantee commission adjustment of 1%. We humbly request if your good self to take into consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of appeal is allowed. .. 5.7 Additional ground No.8 raised by the appellant is against computation of book profit u/s 115JB of the IT Act. The AO in his remand report has stated as under: In the view of the assessee, the assessing officer has erred in considering the disallowance made u/s. 14A r.w.r. 8D in MAT computation hence lowering the MAT credit. According to the assessee the disallowance u/s.14A r.w.r.8D is a notional one not debited to P L Act. However the argument made by the assessee is not justified and hence not acceptable. By considering the line of thought of the assessee income derived by way of MAT Computation u/s. 115JB ought to be considered as also notional one. Hence the assessee also should have been objected the validity of MAT provision also. Further the assessee is fully aware that the amounts as expenditure incurred towards earning exempted income debited in P L Acct only to be taken for addition during computation of MAT u/s. 115JB. Hence there is no voluntary disclosure of- interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Assessing Officer is not prohibited from making the disallowance U/s.14A. However, the Special Bench, supra, held that the Assessing Officer can make disallowance without resorting to explanation to clause (f) of Explanation 1 to section 115JB(2). Therefore, this issue is remitted back to the Assessing Officer for making appropriate disallowance U/s.14A r w s 115JB, if the total income has to be determined and to be assessed u/s 115JB . Therefore, this issue is remitted to the AO for a fresh examination on the above lines. The corresponding grounds raised by the Revenue are treated as partly allowed for statistical purposes. Assessee s appeal in ITA No.1391/2016 for A Y 2008-09 the Revenue s cross appeal in ITA No. 1421/2016 20. For the Assessment Year ( AY ) 2008-09, the assessee filed its return of income on September 29, 2008 declaring a total income of INR 146,63,29,522. On a reference to the Transfer Pricing Officer ( TPO ), the TPO found ,inter alia , that the assessee entered into international transactions with its Associated Enterprises ( AE ) M/s Daleworld Limited, Cyprus by way of subscribing to the OFCDs issued by Daleworld Limited, Cyprus at the rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to substantiate the commercial expediency of those expense and disallowed them said expenses and failed to appreciate that the appellant derived business advantage enabling it to take decisions which are feasible, strategic on account of advisory services provided by SCB in respect of the above claim of the appellant and passed an order confirming the levy of penalty under section 274. The Learned CIT(A) has also disregarded the contention of the appellant as no details were furnished to substantiate as to how such expenditure incurred for the appellant s benefit and ruled against the appellant. Therefore, the assessee filed this appeal. 22. Since none was present for the assessee , we required the ld DR to present the case . The ld DR took us through the order of Learned CIT(A) and supported that order, the relevant portion of the order of the ld CIT(A), which is extracted as under : 5.1 All the grounds raised by the appellant are against levy of penalty u/s 271(1)(c) of the IT Act to the tune of ₹ 19,64,65,267/-. The AO in the assessment order held that the undersigned satisfied himself in the final assessment order that this action of the assessee would amount to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... added to the income of the assessee. Neither during the assessment proceedings nor during the penalty proceedings, the assessee gave any explanation why these expenses were debited in its books. For this reason, the undersigned has satisfied in the assessment order that this act of assessee comes under the purview of explanation 1(B) to sec 271(1)(c) of the income Tax Act, 1961. Therefore penalty is levied on this addition. On perusal of the Escrow Agreement dated 24.12.2007, it was found that agreement was between J B Ugland Holdings AS (Norway), BB Shipping AS(Norway) and Daleworld Limited ( A wholly owned subsidiary of SVL). These three parties have appointed M/S. Standard Chartered Bank, London as the Escrow Agent. (An Escrow Agent is a third party who agrees to hold fund or assets in Escrow. The escrow agent provides this service to two parties in a transaction until certain conditions are filled). The escrow agent holds the assets until the transaction is finalized and then gives them to the appropriate party. However, the second para of the above said agreement showed that the assessee, SVL was the purchaser of the shares of J B Ugland Holdings AS, (Norway) and BB shippi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces does not lead to imposition of penalty. It has relied upon the decision of Hon ble ITAT Ahmedabad in the case of M/s Cadilla Health Care Ltd. vide ITA No.2430/Ahd/2012 Co.No.242/Ahd/2012 dated 11.10.2013 for A.Y 2008-09 wherein it is held that Notional Interest can be added only if Optionally Fully Convertible loan was not converted into Equity within the prescribed time as specified in the Agreement. Since the OFCD was converted into Equity within the prescribed time there is no question of taxing notional interest. The appellant has submitted that the learned AO has disallowed the above expenses on the basis that it is not direct subsidiary of the company and levied penalty on the same. The very fact that the above amount is expended to SCB for the advisory services to acquire JB Ugland AS, through its wholly owned subsidiary Avis Ventures Limited (Mauritius) which has invested in Daleworld (Cyprus). The Hon ble High Court of Delhi in the case of CIT v Mahanagar Telephone Nigam Ltd. has held that, a mere erroneous claim made by an assessee, though under a bonafide belief that, it was a claim which was maintenable in law, cannot lead to an imposition of pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be set aside and that of the Assessing Officer restored. 24. The ld DR assailed the order of learned CIT(A) on the above lines and pleaded to allow the Revenue s appeal. Since none was present for the assessee, we have gone through the relevant portion of the order of the ld CIT(A) , which is already extracted in para 22, supra , wherein the assessee s appeal was dealt with. 25. From the above , it is clear that the assessee has submitted that addition/disallowances are made on a subjective interpretation and there was no concealment of facts or furnishing inaccurate particulars of income and has relied upon the decision of Hon ble Supreme Court in the case of Reliance Petroproducts P. Ltd. 230 ITR 320. It has also relied upon the decision of Hon ble ITAT Chennai in its own case vide ITA No.120/Mds/2014 dated 21.03.2014 for AY 2007-08 wherein it is held that: We hold that even the estimated disallowance u/s 14A has been made only on the basis of particulars furnished and not otherwise. In these circumstances, we observe that present is a case of mere estimated addition made in view of the overall circumstances of the case and not based on the particulars of income, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO passed the assessment order . Aggrieved, the assessee filed this appeal with following grounds. 1. The assessment order passed by the AO under section 143(3) read with section 144C of the Income-tax Act, 1961 ( Act ) is not in accordance with the law, contrary to the facts and circumstances of the present case and is in violation of principle of equity and natural justice. Validity of the Assessment Proceedings 2. The AO erred in passing the assessment order in the name of a non-existent company and hence, the order passed by the learned AO is bad in law and liable to be quashed. Disallowance under section 14A 3. The Honourable DRP/AO have erred in law and on facts by disallowing ₹ 8,22,89,728 under section 14A of the Act read with Rule 8D of the Rules. 4. The Honourable DRP/AO have erred in law and on facts by applying the provisions of under section 14A of the Act read with Rule 8D of the Rules, without any satisfaction on record to prove that the claim of the appellant is incorrect. 5. The Honorable DRP/AO have erred in law and on facts by not considering the favorable decision of the Honorable Tribunal of Chennai in the appellant s own case for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the actual expenditure incurred by the appellant. Transfer Pricing Adjustment OFCD Interest: 15. The Honorable DRP has erred in law and on facts, in holding that the transactions between the appellant and its AE were not at arm s length and in upholding the adjustment of ₹ 11,23,02,003 made to the interest income of the appellant. 16. The Honorable DRP, TPO and the AC erred in law and on facts in not considering the valuation report provided by a professional, which proves that the effective rate of interest annualized yield on the investment in OFCDs is higher than the arm s length rate of interest on a lending in foreign currency. 17. The Honorable DRP, TPO and the AC erred in law and on facts in not appreciating the fact that the investments in OFCDs are quasi-equity investments, since OFCDs have an inherent option to convert into equity shares and further, not appreciating the fact that part of the investments in OFCDs were actually converted into equity in the AY 2010-11. 18. The Honorable DRP, TPO and the AC erred in rejecting zero percent Fully and Compulsorily Convertible Bonds ( FCCBs) issued by third parties as Comparable Uncontrolled Price ( CUP ) trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 27. The learned AC has erred in not giving the TDS credit of ₹ 1,96,79,460 while computing the tax payable. 28. The earned AC has erred in not giving the MAT credit of ₹ 26,35,58,884 while computing the tax payable. 29. The Learned AC has erred in wrongly adding an additional tax amount of ₹ 1,51,00,445 without any basis. Interest under section 234B 30. The learned AC has erred in computing the interest under section 234B. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds, at any time before or at the time of hearing of the appeal Each of the above grounds is independent and without prejudice to the other grounds preferred by the Appellant. Revenue s Ground of appeal in ITA No.1075/2014 A Y 2009-10 1. The order of the Id. DRP is contrary to law and facts of the case. 2.1 The Ld. DRP erred in directing the Transfer Pricing Officer (TPO) to adopt 1% as guarantee commission rate instead of 3.5% adopted by TPO. 2.2 The Id. DRP erred in directing the Transfer Pricing Officer to verify the domestic transactions in the case of guarantee offered by IDBI bank Ltd charging 1 % guarantee commission to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of Income-tax. The assessee has submitted that during the year it had earned dividend income of ₹ 2.70 crores from Mutual Funds and the investments in Mutual funds were made out of internal accruals and not out of borrowed funds etc . After examining and considering assessee s submissions and the observations of the AO, the DRP held , inter alia, that the A O however, found that the entire interest of ₹ 28 crores relates to loan amount borrowed and squared up during the period under consideration. The assessee , therefore, needed to establish through a cash now statement the utilization of these borrowings during the year. Since this has not been done, the claim of the assessee that interest payments are not for mutual fund investment cannot be accepted. Even if the assessee s claim that the loans were utilised for making strategic investment for wholly owned subsidiary companies outside India is accepted, the fact remains in such a case also, the investment is for earning exempt income by way of dividends and therefore, section 14A would come into play etc and decided the issue against the assessee . Aggrieved against it , the assessee filed this appeal with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 2% where the LIBOR as mentioned by the assessee is 2.8 percent. Further spread that takes care of other expenses, risks and other incidental the investor incurs is also considered necessary by this Panel. Therefore, this Panel finds the interest rate identified by the TPO as proper as per TP provisions in the Act. The objection raised by the assessee therefore is rejected. 31. We heard the above submissions and gone through the relevant material . Since the assessee has not specifically pointing out how and on which material , the findings of the DRP are wrong etc, the assessee s corresponding grounds of the assessee are dismissed . 32. On the issue of transfer pricing adjustment in respect of Corporate Guarantee issued on behalf of AEs, the ld DR submitted that the Transfer Pricing Officer ( TPO ) has made an adjustment of ₹ 50,79,18,950 at the rate of 3.5 percent, being guarantee commission on the outstanding guarantees of ₹ 12,91,64,90,000 extended by the assessee to its overseas subsidiaries during earlier years. Aggrived the assessee filed its objections before the DRP. After duly considering the assessee s submissions , the DRP issued its directions an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are correct or not and if found correct to allow the due credit . Grounds of appeal in ITA No.1393/2016 A Y 2008-09 143 rw 147 1. The order passed by the Commissioner of Income-tax Appeals [ CIT(A) j under section 250(6) of the Income-tax Act, 1961 ( the Act ) confirming the order of the Assessing Officer ( AO ) passed is not in accordance with law, contrary to the facts and circumstances of the present case and is in violation of principles of equity and natural justice. 2. Reopening of assessment 2.1 The learned AO has erred in initiating re-assessment proceedings under section 147 of the Act, without appreciating the facts of the case. 2.2 The learned AO has erred in reopening and assessment in the absence of any fresh or tangible material to have reason to believe that the income has escaped assessment. 2.3 The AO has erred in reopening the assessment in the absence of any failure on the part of the assesse to furnish return of income or disclose fully and truly all material facts. 3. Treatment of compensation as interest income 3.1 The learned CIT(A) and AO failed to appreciate that the real intent of the agreement entered by the appellant with Saha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant craves leave to add, substitute, amend, delete, or otherwise modify any of the grounds of appeal stated hereinabove before commencement of or at the time of hearing. 36. Since none represented the assesssee , we required the ld DR to present the case . The Ld DR invited our attention to the relevant portion of the order of the ld CIT(A) , which is extracted as under : 5.2.1 I have considered the findings of the AO. The AO has reopened the assessment u/s 148, which was originally accepted u/s 143(1). The reason for reopening was that the compensation received from SICCL to the extent of ₹ 35 crores was in the nature of Interest against the advance made to SICCL and not in the nature of capital. Therefore, the income earned is to be treated as Income from Other Sources. The learned AO further relied on the fact that tax has been deducted at source u/s 194A of the Act which substantiate the fact that the compensation was in the nature of interest. The appellant has objected to the reopening. The AO had reason to believe that income had escaped assessment. He has reopened the assessment by duly recording the reason. The action of AO in reopening the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan facility arrangements. f. It was clearly spelt about the return on the Loan facility (Clause 5), and agreed for an annual Return of ₹ 135 awes far ₹ 400 crores loan or in proportion to the Disbursed loans, pro-ratted return shall be payable by the Borrower to the Lender. Further, it was stated that the return shell be calculated on the basis of number of days elapsed from Drawdown Date. g. The non-payment of the facility and the appropriate return accrued will result in unrestricted right to the lender to transfer or sell the securities offered that too without the intervention of court (Clause 6.1.2). h. The details of all securities to be offered in favour of loan facility is inclusive of the Deposit of the Title Deeds of the Immovable Properties (Clause -7). i. Further, the Borrower covenants with the Lender that, it shall utilize the amounts borrowed under the Facility onlf for the business purpose of the Borrower. (Clause- 10) j. The conditions under clause 13.4 further assurances and undertakings do not vitiate the loan facility and in fact it is in the nature of an additional protective clause to protect the loan facility. He concluded t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion received is of capital nature especially in view of the fact that ₹ 35 crores was received on 09.04.2007 merely five days after such and so called agreement was entered into. It is pertinent to note that principle amount of ₹ 400 crores was received on 25.05.2007. M/s Sahara India Commercial Corporation Ltd. itself had treated ₹ 35 crores as Interest only. The action of AO in taxing ₹ 3,33,00,000/- is confirmed. These grounds of appeal are dismissed. 5.4 Ground No.4 raised by the appellant is against treatment of interest earned as Income from other sources. During the course of appellate proceedings, the AR of the appellant filed written submission. I have considered the findings given by the AO and written submission filed by the AR of the appellant. The AO has added ₹ 3,33,00,000/- as income from other sources. The appellant has submitted that the learned AO has erred in treating the interest earned including proportionate compensation under the head income from other sources against the business income a claimed by the appellant. The learned AO has failed to appreciate the fact that the Interest of ₹ 1.69 crores was earned from the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FSL, factoring charges amounting to ₹ 7,82,68,493 upfront. The AO disallowed ₹ 7,82,68,493 under section 40(a)(ia) of the Act stating that the transaction was a colourable device to reduce taxable income and if at all the transaction was in accordance with commercial necessity, the expense was in the nature of interest expense and the assessee was liable to deduct TDS. Aggrieved the filed an appeal before the Commissioner of Income-tax (Appeals) who upheld the order passed by the AO. Aggrieved, the appellant has filed this appeal The Ld DR invited our attention to the relevant portion of the order of the ld CIT(A) , which is extracted as under : 5.2 Ground No.3 raised by the appellant is against addition of ₹ 48,00,00,000/- as interest under the head Income from Other Sources . A survey u/s.133A was carried out on 22.7.2010 in the business premises of the appellant, wherein original agreements were found regarding memorandum of understanding (MU) with M/s Unitech Ltd., dt.15.1.2009, supplement agreement dt.31.1.2009 and termination letter dt.18.4.2009 and the appellant had not recognized any revenue account of this transaction. The Assessing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs 3i Infotech Ltd (TD 417 THE ITAT 2013) (Mum. ITAT) It has been further submitted that mere deduction of tax at source by the payer does not alter the character of the receipt in the hands of the payee. It relied upon the decision of Honourable Supreme Court in the case of M/s State Bank of India and Anr. Vs Mula Sahakari Sakhar Karkhana Ltd., dt.6.7.2006. 5.22 The so called agreements entered into by the appellant and M/s Unitech Ltd., were made in fact to disguise the loan transaction in the garb of joint project development. Both the parties had not even started the duties assigned to them. M/s Unitech Ltd neither identified the land nor prepared a project plan. The appellant neither prepared a marketing strategy not tried to make any sale. No expenditure was shown to have been incurred by the appellant in trying to execute his part of the agreement. The project plans were not supplied inspite of giving adequate opportunity to the appellant. It is worthwhile to note both parties to the agreement have neither done an iota of work nor communicated regarding the execution/non execution of the said plan. The very fact that M/s Unitech Ltd., has shown the payment of compens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nks and a financial institutions have specialized division to handle the factoring (bill discounting), For both export and domestic supply/service sectors b. Factoring/bill discounting are structured transaction wherein the receivables are transferred to the bank/financing institution at a value lower to the realizable value c. Through factoring, neither a debt is incurred nor is money borrowed. There is only a change in the ownership of the receivable at a price lower to its realizable value d. This is also not covered by the definition of interest given under section 2(28A) which reads as under: Reliance was placed on the following decisions: a) M.K.J Enterprises Ltd., Kolkatta Vs Department of Income tax - ITAT Kolkatta b) Director of Income tax, International Taxation-I, New Delhi Vs Cargil TSF PTE Ltd 212 Taxmann 16 (Delhi High Court)(2013) c) Commissioner of Income tax Vs Cargil Global Trading P Ltd., 335 ITR 94 (Delhi High Court) d) Board Circular No.22/68-IT(B) (F.No.12/23/68-IT(B) (F.No.12/23/68- IT(B)) dt.28-3/13.5.1968 5.3.1 The Assessing Officer has observed that the transactions are between M/s Siva Ventures (Holding Co.,) to the appellant (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght of the judicial pronouncement, and as well as facts and circumstance of the case. The referred transaction was dealt in a manner to reduced the taxable income, by way of netting off the interest income under the nomenclature factoring charges and distinguished the case laws and circular no.48 relied upon the appellant. 5.3.3 The appellant has not produced the copies of factoring agreement and bills of exchange in support of its contention. The appellant has relied upon the judgment of ITO Vs MKJ Enterprise Ltd., by Honourable ITAT Kolkatta wherein it is held that The term interest relates to a pe-existing debt, which implies a debtor creditor relationship. Unpaid consideration gives rise to a lien over goods sold and for money lent as held in Bombay Steam Navigation Co. Pvt. Ltd Vs CIT (1963) 561TR 52 (SC) where interest on unpaid purchase price was not treated as interest on loan. It is clear from the definition that before any amount paid is construed as interest. It has been established that the same is payable in respect of any money borrowed of debt incurred. According to us, discounting charges of Bills of Exchange or factoring charges of sale cannot be termed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in any manner in respect of any money borrowed or debt incurred (including a deposit, claim or other similar right of obligation) and includes any service fee or other charge in respect of the moneys borrowed or debit incurred or in respect of any credit facility which has not been utilized. From this definition it is clear that before amount paid is construed as interest, it has to be established that the same in respect of any money borrowed or debt incurred. 5.3.5 There is a difference between discount allowed and interest paid. In the case of the appellant as there was no purchase or delivery of goods or bills raised as held earlier, there cannot be any discount allowed. The amount of ₹ 7,82,68,493/- cannot be termed as discounting charges and is in the nature of interest paid on money borrowed wherein receivable from subsidiary company might have acted as security or a loan of ₹ 100 Cr. As interest is liable for TDS, the action of AO is adding ₹ 7,82,68,493/- u/s. 40(a)(ia) is confirmed. This ground of appeal is dismissed. 41. The Ld. DR supported the order of the Ld. CIT(A), supra, and pleaded that in the absence of specific error being pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be set aside and that of the Assessing Officer restored. 44. The ld DR presented the case on the above lines and pleaded to allow the appeal. Since none represented the assessee, we have gone through the relevant portion of the order of the DRP, which is extracted as under : 3.1.7. The next issue of transfer pricing is the determination of the ALP of the service charges / commission on extending corporate guarantee to the AEs. The assessee is found to have extended corporate guarantees to its AEs during the year. However, the assessee has not received any service charges / commission from the said AEs. Hence, the TPO considered 2% of the corporate guarantee as service charges / commission and determined the ALP accordingly. The total commission / service charges so determined by the TPO is ₹ 24,75,78,358/- and accordingly, proposed an upward adjustment of ₹ 24,75,78,358/-. The details of the corporate guarantee and the adjustment proposed by the TPO are as under: The ALP computation of of corporate guarantee: Sl.no Name of the AE Outstanding Amount in Rs. Guarantee Commission 2% ..... X X X X Extracts X X X X X X X X Extracts X X X X
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