TMI Blog2022 (11) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... to be recorded under the provisions of section 14A of the Act is not limited to merely disagreeing with the submission of the assessee and requires that the AO should also provide the basis for reaching such conclusion, after having regard to the accounts of the assessee. However, it is evident from the record that in the present case the AO merely disagreed with the suo moto disallowance offered by the assessee u/s 14A and straightaway computed the impugned disallowance by applying the provisions of Rule 8D. Thus, respectfully following the order passed by the coordinate bench of the Tribunal in assessee s own case cited supra, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, ground No. 3 raised in Revenue s appeal is dismissed. - ITA No.1515/Mum./2022 - - - Dated:- 21-11-2022 - Shri Prashant Maharishi, Accountant Member And Shri Sandeep Singh Karhail, Judicial Member For the Assessee : Shri Sukhsagar Syal For the Revenue : M/s. Vatsalaa Jha ORDER PER SANDEEP SINGH KARHAIL, J.M. The present appeal has been filed by the Revenue challenging the impugned order dated 31/03/2022 passed under section 250 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benchmarking corporate guarantee and therefore, it was not appropriate to hold that bank guarantee and corporate guarantee are different. iv) Tat decision in the case of Everest Kanto Cylinders Ltd., cannot be standard for every assessee as benchmarking for different assessee's is a factual exercise dependent upon number of factors including credit rating, financial strength, country of AE attendant risks, etc. (v) That recently the Hon'ble ITAT Kolkata in the case of DCIT Vs. National Energy ITA No. 986 and 987/Kol/17 has held that the decision in Everest Kanto Cylinders Ltd cannot be a standard for every case. (vi) That the Tribunal failed to fully appreciate that the corporate guarantee transaction acts as important function for the AEs consequently enabling the AEs to rise funds generally at a favourable rates and enhance their asset base simultaneously exposing the guarantor to risk in the event of failure of AE to repay or service loan which is always contingent in nature. 1.5 Whether on the facts and circumstances of the case and in law, the Id. CIT(A) is correct in holding that the fee for the financial guarantee issued by the assessee for the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) was justified in deleting the disallowance made by the AO for Rs.45,30,80.094/- without appreciating the fact that the proportionate claim of the premium on ZCCBs written off during the tenure of Zero Coupon Convertible Bonds was is in the nature of interest? 2.1 Whether on the facts and under the circumstances of the case and in Law, the Id. CIT(A) was justified in deleting the disallowance without appreciating the fact that the claim of provision of proportionate premium of Redemption of ZCCB is a contingent liability? 2.2 Whether on the facts and under the circumstances of the case and in Law, the Id. CIT(A) was justified in deleting the disallowance without appreciating the fact that the assessee is treating provision of proportionate premium of Redemption of ZCCB as capital expenses.? 2.3 Whether on the facts and under the circumstances of the case and in Law, the ld. CIT(A) was justified in deleting the disallowance without appreciating the fact that the claim of premium/ interest cannot be allowed u/s 40(a)(ia) since tax was not deducted at source? 3. Whether on the facts and under the circumstances of the case and in Law, the Id. CIT(A), Mumbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, guarantee fee is not chargeable. The TPO vide order dated 08/01/2014 passed under section 92CA(3) of the Act computed the arm s length rate of corporate guarantee at 2.5% and accordingly computed the transfer pricing adjustment on account of corporate guarantee fee at INR 1,49,83,713. 6. The learned CIT(A), vide impugned order decided this issue following the decision of the coordinate bench of the Tribunal rendered in assessee s own case for assessment year 2009 10 and directed the AO/TPO to compute the guarantee amount chargeable to the associated enterprise at 0.5% in respect of corporate guarantees given to Deusche Bank AG Singapore, DBS Bank and Societe Generale. Further, in respect of the corporate guarantee given to HSBC Bank, the learned CIT(A) restricted the guarantee fee to the amount which was claimed to have been charged by HSBC India to the assessee and which was recovered by the assessee from the associated enterprise. Being aggrieved, the Revenue is in appeal before us. 7. During the hearing, the learned Departmental Representative ( learned DR ) objected to the application of 0.5% for benchmarking the transaction of corporate guarantee fees. 8. On the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, following the precedent, we direct that disallowance should be restricted @0.5%. 10. Thus, respectfully following the decision of the Hon ble Jurisdictional High Court in CIT vs. Everest Kento Cylinders Ltd., [2015] 378 ITR 57 (Bom.), which has also been followed in assessee s own case in the preceding assessment year, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, ground No. 1 raised in Revenue s appeal is dismissed. 11. The issue arising in ground No. 2, raised in Revenue s appeal, is pertaining to the deletion of disallowance made on account of interest on payment of Zero Coupon Convertible Bonds. 12. The brief facts of the case pertaining to this issue are: During the course of assessment proceedings, it was found that the assessee has claimed a deduction on account of interest/premium payable on maturity of Zero Coupon Convertible Bonds raised by the company in financial year 2006 07 to the extent of INR 45,30,80,094 as per revised return of income filed on 29/11/2011. The assessee has claimed such amount as a deduction on the ground that the liability of payment has already crystallised on accrual basis and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CBDT circular No. 56 has been referred for proposition that the provision for amortization is not intended to supersede any other provision in the income tax law under which the expenditure is allowable as a deduction against profits. Certain case laws have been referred for the proposition that interest/premium can be claimed in the respective year on pro-rata basis. The decision relied upon are as under:- i) Madras Industrial Investment Corporation Ltd. vs CIT 225 ITR 802(SC); ii) National Engineering Industries Ltd. vs. CIT 1236 ITR 577(Cal); iii) CIT vs Tungabhadra Industries Ltd. 207 ITR 553; iv) Taparia Tools, 260 ITR 102 (Bom). Further the submission, as regards the different treatment in books of accounts and income tax computation is that entries made by the assessee in books of accounts are not determinative of the question whether the assessee has earned any profit or suffered any loss. In his regard, decision of Hon ble Supreme Court in the case of Suttej Cotton Mills (supra) and Kedarnath Jute Manufacturing Co.Ltd. (supra) have been referred. Further, it has been pleaded that provision of Companies Act as well as Income tax Act have been duly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. ITA NO. 8614/Mum/2011, 08.06.2018 have been referred. 16. In our considered opinion, adverse inference cannot be taken for non deduction of TDS as reasons submitted by the assessee are cogent. As submitted above, these bonds are listed on Singapore Stock Exchange and till redemption on maturity, the beneficiary of the premium is not known. In such circumstances in absence of the identification of recipient and TDS deduction cannot be given credit for. Further, though not directly on this issue the CBDT circular on deep discount bond referred above also provides that on similar issue, TDS has to be deducted on the point of redemption. Furthermore as submitted, at the time of redemption tax was deducted at source in accordance with the provisions of the Act. This submission has not been disputed. Hence, this reasoning for rejection is also not sustainable. 17. Another claim of the authorities is below is that liability is contingent as it depends whether the bonds are converted in equity or not. In this regard, the claim of the assessee is that merely because bonds could be converted into shares in certain specified circumstances, it cannot be said that liability to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ras Industrial Investment Corporation Ltd. v. CIT where facts of the case are different from those of Supreme Court's decision? Facts 2. During the assessment year in question, the assessee-company had issued zero interest unsecured redeemable convertible debentures of Rs. 100 each redeemable after 10 years at a premium of 100 per cent. These debentures are redeemable after 10 years from the date of allotment at a premium of 100 per cent. Assessee claimed before the AO a spread over, Assessee claimed that the premium payable by it was Rs. 5,47,50,000 after expiry of 10 years. However, the assesses claimed deduction of Rs. 54,75,000 per annum. The said amount was debited to the P L a/c for the accounting year ending 31st March, 1995. In the annual report, a footnote was added that premium on zero interest unsecured redeemable debentures of Rs. 100 each was redeemable after 10 years at a premium of 100 per cent. The AO disallowed the assessee's claim for deduction of Rs. 54,75,000. He added back that figure to the income of the assessee on the ground that the liability was not ascertainable during the accounting year ending 31st March, 1995. That, it was a continge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o discard this note of the auditor. Even in the assessment order, no reasons have been given by the AO for discarding this note of the auditors. Lastly, we may point out that even assuming for the sake of argument that the borrower had a discretion to change the terms of the issued debentures, there is nothing in the record to show that during the assessment year in question the borrower had exercised such a discretion. In the absence of factual matrix; we have no option but to confirm the judgment of the Tribunal. In our view, the judgment of this Court in the case of Taparia Tools Ltd. v. Jt CIT (supra) is applicable to this case. In our view, the judgment of the Supreme Court in the case of Madras Industrial Investment Corporation v. CIT (supra) is also applicable. Order In the circumstances, we answer the above quoted question in the affirmative i.e., in favour of the assessee and against the Department. 6. Accordingly, both the above appeals are disposed of with no order as to costs. 19. We note that in the above case Hon ble Jurisdictional High Court has duly taken note of Hon ble Supreme Court decision in the case of Madras Industrial Investment Corporation ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal in assessee s own case cited supra, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, ground No. 2 raised in Revenue s appeal is dismissed. 18. The issue arising in ground No. 3, raised in Revenue s appeal, is pertaining to disallowance under section 14 A of the Act. 19. The brief facts of the case pertaining to this issue are: The assessee in its return of income made disallowance of an amount of INR 51,68,657 under section 14A(1). The assessee provided the basis of working of disallowance out of actual expenses incurred and also identified the other expenses which were incurred to earn the exempt income. The assessee also provided details of interest expenditure and corresponding income for which such interest expenses were incurred. During the course of assessment proceedings, the assessee was asked to explain why the disallowance should not be made under section 14A read with Rule 8D of the Income Tax Rules, 1962. The AO vide order passed under section 144C (3) r/w section 143 (3) of the Act did not agree with the submissions of the assessee and computed the disallowance of INR 3,53,99,792 under section 14A r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to the sou motu disallowances claimed by the assessee in the context of its accounts. It is only thereafter, the occasion to apply rule 8D of the Rules for apportionment of expenses can arise. In the present facts, the Tribunal has correctly come to the conclusion that nonsatisfaction as recorded by the Assessing Officer for rejecting the sou motu disallowances claimed by the assessee is not done as required under section 14A(2) of the Act. On facts, the view taken by the Tribunal is a possible view and calls for no interference. 28. We find that facts in the present case are identical and following the precedent, we set aside the order of authorities below. This ground is allowed. 24. The satisfaction as required to be recorded under the provisions of section 14A of the Act is not limited to merely disagreeing with the submission of the assessee and requires that the AO should also provide the basis for reaching such conclusion, after having regard to the accounts of the assessee. However, it is evident from the record that in the present case the AO merely disagreed with the suo moto disallowance offered by the assessee under section 14A of the Act and straight ..... X X X X Extracts X X X X X X X X Extracts X X X X
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