TMI Blog2022 (12) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... gned issue of treatment of capital expenditure and revenue expenditure of the assessee, the Ld.AO is hereby directed to decide this issue in the light of decision given by this Tribunal for A.Ys 2011-12 to 2013-14 [ 2020 (6) TMI 564 - ITAT MUMBAI] - Ground 1 raised by the assessee is partly allowed for statistical purpose. Provision for warranties - provision in respect of warranty pertaining to certain products - contingent liability OR ascertained liability - disallowance of provision for warranties treating the same as a contingent liability and not an ascertained liability - HELD THAT:- It is observed that the co-ordinate bench in assessee s case for AYs 2011-12 to 2013-14 has allowed the expenditure towards provision for warranty [ 2020 (6) TMI 564 - ITAT MUMBAI] . Assessee ground 2 is allowed. Disallowance u/s 40A(9) - actual expense incurred and contribution to Mahindra Academy - addition of expenditure on employee welfare fund and Rs.18 lakhs paid to Mahindra Academy under section 40A(9) on the ground that the same was not for business purpose - HELD THAT:- We are of the view that as this issue has already been covered by the decision of the co-ordinate bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions on the pretext that the liability for deduction of TDS arises in subsequent year as and when the bill of the party is booked, as per Form 3CD - HELD THAT:- Having considered the rival submissions and perused the materials on record and also the order of the Tribunal for A.Y. 2012-13 [ 2020 (6) TMI 564 - ITAT MUMBAI] , we respectfully following the above cited order of the Tribunal, allow this ground of appeal filed by the assessee and delete the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act. Weighted deduction u/s 35(2AB) on scientific expenditure - non-receipt of form 3CL from DSIR - Claim restriction as allowed by DSIR in Form 3CL instead of granting deduction under section 35(2AB) of the Act based on the claim made by the assessee in its return of income - HELD THAT:- Issue decided in favour of assessee as relying on the case of Glennmark Pharmaceuticals Ltd. [ 2019 (8) TMI 1649 - ITAT MUMBAI] and the Pune Bench of the Tribunal in the case of Cummins India Ltd [ 2018 (5) TMI 1314 - ITAT PUNE] as directed to allow the claim for deduction u/s.35(2AB) as non-receipt of form 3CL from DSIR is not determinative of the issue. - Decided in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on has to be made under section 28 and not under section 23. The assessee has duly shown the income received / accrued from Ridge Business Centre as business income, then any further rent realized by Ridge Business Centre form the third party cannot be said to have been earned / received or accrued to the assessee company. Thus, we are inclined to agree with the contention of the learned Counsel for the assessee that no further income can be attributed to the assessee once the rental income has been assessed as business income and not from the income from house property. Claim for deduction of gain on difference in exchange - gain on difference in exchange arising out of the repayment of foreign currency loans / revaluation of foreign currency loans as on 31/03/2010 - HELD THAT:- As in assessee s case for A.Y. 2013-14 [ 2020 (6) TMI 564 - ITAT MUMBAI] where the Assessing Officer is directed to allow depreciation on exchange difference. Disallowance of deduction u/s 80IC - assessee had made detailed submission with regard to the methodology adopted for calculation of deduction under section 80IC and that the assessee has provided the basis of allocation of overheads - HEL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he A.Y.2009-10 in para 21 had specifically directed to consider only LIBOR rate at the relevant time and determined the ALP of the said transaction accordingly. Respectfully following the said judicial precedent, we direct the Id. AO accordingly. Adjustment made by the TPO in respect of receipt of technical services - HELD THAT:- We are of the view that the assessee has furnished the complete details of foreign AE as tested party as being less complex entity. The assessee further to this, has given a plausible explanation as to why the assessee requires the technical service in order to develop its export market with the support of its AE to design the vehicles for markets outside the country. We are convinced with the submission of the assessee that the AE is a high end service provider for manufacture, designing, style, prototyping and other technical service and it also was assisting the assessee in launching successful modes like Xylo Refresh, Bolero Refresh, Quanto and Genio. The allegation that since assessee has its own R D centre at Nasik and hence it will not be in need of third party service is not acceptable, in our view. From the above observation, we are of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was subsequently transferred to DRP-IV, Mumbai. It was observed that the assessee had entered into international transactions including supply of medical and spares, rendering of services, provisions of loans and corporate guarantee on investment in equity shares with its AEs. Subsequent to this, assessee s case was transferred to the TPO who had made an adjustment of Rs. 31, 74, 04, 647/- and the AO had also proposed various other additions such as, on premium payable on FCCBs, provision for warranty, disallowance under section 14A, addition under section 40(a)(ia), weighted deduction under section 35 (2AB), dealer incentive and service coupon under section 40(a)(ia), disallowance under section 80IC and octroi incentive thereby proposing to assess the income at Rs. 25,07, 36,09,270/-. Aggrieved by the final assessment order both the assessee and the revenue appeal before us on various grounds mentioned herein after. ITA No .1676/MUM/2015 (Assessee s appeal) 3. This appeal filed by the assessee challenges the assessment order on various grounds which are dealt in as below; GROUND 1 : EXPENDITURE DEBITED TO PROFIT LOSS ACCOUNT RS.7,89,91,917/- 4. Ground 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22,11,856 Professional fees for Project Spray 70,00,000 Professional fees for CHINA Project 1,01,77,643 1,1963,89,499 E CHAKAN Foreign Tour Expenses 61,58,046 Professional fees 15,24,460 76,82,506 F Mahindra Defence Services Professional fees paid in relation to JV agreement due diligence 25,71,248 25,71,248 TOTAL 7,89,91,917 5. It is observed that the AO has considered the above mentioned expenses as capital investments in nature which include legal expenses incurred on entering into joint venture with Renault S.A.France and Rs. 27 lakhs towards legal and professional charges in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udice to the above ground for allowing the expenditure to be in the nature of revenue has claimed for depreciation on the impugned expenditure. The assessee has claimed depreciation on treating the same as capital asset whether tangible or intangible as per the provisions of section 32 of the I.T.Act. The Ld.DRP has held that the assessee has failed to show what capital asset has come into existence on incurring of the impugned expenses and further to this, the Ld.DRP has stated that the depreciation under section 32 of the Act can be claimed only when the capital asset comes into existence and for which definite cost of acquisition of such asset is determined. This pre-requisite for claiming depreciation has not been satisfied in assessee s case and that the co-ordinate bench of this Tribunal has decided in favour of the Revenue on similar issue pertaining to AYs 2006-07 2007-08. However, the AO / DRP has allowed the expenses to be treated as addition to cost of investment and has disallowed the expenses which were claimed by the assessee as revenue expenses. The assessee is in appeal before us as against the order of the AO / DRP. 7. The Ld.AR for the assessee contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to be capital in nature (para 14). In Para 20 the High Court has referred to the order of the SC in the case of Madras Auto Services (P) Ltd. (233 ITR 468) in which certain expenditure was held to be revenue in nature because no capital asset was generated by spending the amount in question. Concluding the issue in para 23 and applying the ratio in the case of Madras Auto (supra), the High Court held that the subject expenditure could not be directly related with the acquisition of any capital asset (because no capital asset resulted from the said expenditure). In the assessee's case also, since no acquisitions actually happened, no capital asset resulted as a result of the expenditure and hence the expenditure was not capital in nature. (ii) Further, in A.Y. 1999-2000, in the assessee's own case, expenses of consultancy fees, preparation of plans, drawings and design for the setting-up of foundry was allowed by the Tribunal as business expenditure even though the foundry project was abandoned subsequently (ITA No 2344/Mum/200E), Page 3-5, para 2) . The Hon'ble Jurisdictional High Court dismissed the Department's appeal (ITA 450 of 2017) in Para 7 there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E2 pertaining to foreign tour expenses and professional fees are to be allowed as revenue expenditure as the same was incurred for the purpose of upgradation or for the development of existing products. The Ld.AR further stated that the same should be treated as revenue in nature as it forms part of the existing business of the assessee company. The Ld.AR relied on the decision in the case of Tejas Networks India Pvt Ltd vs CIT 52 taxmann.com 513 (Kar). 10. The Ld.DR, on the other hand, controverted the same and relied on the decision of Assessing Officer. 11. Having heard both the rival submissions and perused the materials on record, it is evident that the impugned expenditure claimed by the assessee company are mostly recurring in nature which has existed even in the earlier years wherein the co-ordinate bench has decided the said expenditure to be capital in nature and shall form part of cost of investment in which the assessee was at liberty to claim the same at the time of sale of investment. It is pertinent to point out that the impugned expenditure are found to be part of cost of investment through various subsidiaries, viz. Zippaero Pty Ltd, Aero Star, Australia Pt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year i.e. Provision for i.e. A.Y. 2009-10 A.Y. 2010-11 Warranty Automotive Division 8349.23 11879.42 3530.19 Tractor Division 5257.38 5739.48 482.10 Swaraj Division 138.37 341.74 203.37 Total 13744.98 17960.65 4215.67 13. It is observed that the assessee has made the said provision for warranty based on the actual expenses incurred on settlement of warranty claims incurred for earlier years on specific models of vehicles / tractors, which according to the assessee has facilitated in determining the average rate of warranty expenditure incurred on each of such model. This data has been used by the assessee for impugned year to calculate the warranty expenditure for the year under consideration. The assessee further stated that to determine the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable opening balance of provision for warranties, a sum of Rs.216.34 Crores had been settled / utilised during the year which worked out to 80% of the opening provision. We also find from the accounts of the assessee with regard to the provision for warranty, that the sum of Rs.30.56 Crores has been reversed towards provision by the assessee during the year. It is not in dispute that the sale of vehicles were carried out on a daily basis and incurrence of warranty expenditure thereon was also carried out on a daily basis. Hence, it could be safely concluded that the assessee making provision for warranty is done on a regular basis year on year in respect of vehicle/tractor sold during each year; such claims getting settled / utilised during each year as and when the warranty clause is enforced by the buyers pointing out specific defects contained in the warranty clause within the warranty period and wherever the existing provision already made requires reversal due to the fact that the claim is made beyond the warranty period or the claim is not covered within the warranty clause etc, the same is reversed. This scientific exercise of making provision for warranty clause for each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. In the result ground 2 is allowed. Ground 3 : Disallowance u/s 40A(9) Rs.2,59,650/- representing the actual expense incurred and Rs.18 lakhs being contribution to Mahindra Academy. 18. The assessee company has challenged the disallowance of deduction of Rs.2,59,650/- being actual expenditure on employee welfare fund and Rs.18 lakhs paid to Mahindra Academy under section 40A(9) on the ground that the same was not for business purpose. The assessee has stated that the assessee company has claimed Rs.2,59,650/- as amount spent from an internal fund created by the assessee by means of transfer entry which the company has claimed as deductible expenditure incurred out of the employee welfare fund account. It is observed that Rs.3,42,870/- has been shown as disallowable as company s contribution to employee benefit fund as per the tax audit report for which the assessee has contended that it was a mere transfer of entry of a specific earmarked sum to a separate ledger account for employee welfare of the tractor division (at Kandivli) of the company. The assessee further stated that the impugned amount of Rs.2,59,650/- is deduction for the amount spent from the said fund ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decision of the co-ordinate bench of ITAT in assessee s own case in ITA No.8597/Mum/2020 for the A.Y.2008-09 where the ITAT has set aside the issue to the file of the Assessing Officer and in the second round of litigation the Ld.CIT(A) has allowed the claim. The Ld.DRP has accepted the claim in AY 2011-12 and no disallowance was made thereafter. 23. The Ld.DR objected to the contention of the assessee and relied upon the order of the lower authorities. 24. Having considered the rival submissions and perused the materials on record, we are in agreement with the Ld.AR of the assessee that the issue is squarely covered by the earlier decisions of the Tribunal and even the Ld.DRP has accepted the claim of the assessee for A.Y. 2008-09. Therefore, consistent with the precedents, we decide the issue in favour of the assessee. This ground of appeal is allowed. GROUND 4 : EXPENSES ON EMPLOYEES STOCK OPTION RS.4,50,62,836/- 25. Ground 4 pertains to expenses on employees stock option. This ground of appeal challenges the disallowance of deduction of Rs.4,50,62,837/- in respect of stock option granted to employees under the ESOP scheme. It is observed that the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved that employees stock option will give enduring benefit to the assessee company from the employees who have availed the scheme. The ld. AO by placing reliance on the decision of Hon ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd., reported in 225 ITR 792 and Brooke Bond India Ltd., reported in 225 ITR 798 held that the said expenditure would be capital in nature. This action was upheld by the ld. DRP. We find that this issue is now settled by the Special Bench of the Bangalore Tribunal in the case of Biocon Ltd., in favour of the assessee, wherein it has been held that the deduction is to be allowed for the difference between the exercise price of the option and the market price at the time of exercise of the option. We find that in the return of income, the assessee had claimed deduction for the difference between the exercise price and the market price on the date of grant of option. This Tribunal while rendering the decision for the A.Y.2009-10 in assessee s own case had restored this issue to the file of the ld. AO to consider the claim of deduction in the light of the Special Bench decision in the case of Biocon Ltd., We find that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and arrive at the disallowance in the sum of Rs.39,21,14,000/- which was confirmed by the ld. DRP. At the time of hearing, both the parties before us fairly agreed that only those investments which had actually yielded exempt income during the year to the assessee are to be considered for the purpose of working out the disallowance made in the third limb of Rule 8D(2) of the Rules. This issue is now very well settled by the decision of the Hon ble Supreme Court and accordingly, we direct the ld. AO to consider only those investments which had actually yielded exempt income during the year while working out the disallowance under third limb of Rule 8D(2) of the Rules. Accordingly, the concise ground No.3 raised by the assessee is partly allowed for statistical purposes. 30. The Ld.AR for the assessee further submitted that the assessee had computed the disallowance on its own a sum of Rs.672 lakhs including interest of Rs.513 lakhs and other expenses of Rs.159 lakhs. The Ld.AR also stated the the disallowance of interest has been computed on a proportionate basis whereas the other expenses / funds computed to be total salary and other expenses incurred which are related to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mahindra Overseas Investment Co. (Mauritius) Ltd (MOICML) for the purpose of obtaining loan from Standard Chartered Bank (Mauritius) Ltd for the purpose of acquiring shares and to make investment in companies. The total corporate guarantee was for USD 20 lakhs with further enhancement of USD 75 lakhs. The assessee s contention was that the said guarantee was in the nature of shareholder activity and does not amount to an international transaction. The said guarantee was given to facilitate the Associated Entertprise (AE)to avail term loan from Standard Chartered Bank (Mauritius) Ltd for which the Transfer Pricing Officer ((TPO) found that the assessee had not charged any amount for providing corporate guarantee. Based on the guarantee provided by the assessee company, term loan was advanced to AE at a subsidised rate of LIBOR + 50 base points per annum by the Standard Chartered Bank (Mauritius) Ltd. The TPO arrived at 3% by relying on various decisions of the Tribunal wherein it was held that corporate guarantee fees should be less than 3% thereby determining the value of guarantee adjustment of Rs.1,27,73,700/-. The assessee has controverted the same by stating that the same does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tically credits the party s account, on matching principles. The Assessing Officer disallowed the same on this ground. The Ld.DRP upheld the AO s action even for preceding years, i.e. AYs 2008-09 and 2009-10. The AO further state that if the assessee has actually paid any such amount before the due date for filing the return of income, then that amount will be allowed as deduction and the amount which remain unpaid till the due date of filing of return is, liable to be disallowed. 39. The Ld.AR for the assessee relied on the decision of the Tribunal in assessee s case for A.Y. 2012-13 ITA No.1449/Mum/2016 Ors wherein it has been held as under:- 7.3. This action of the ld. AO was upheld by the ld. DRP. We find that this Tribunal in assessee s own case for the A.Y.2009-10 vide para 23 had deleted the disallowance made u/s.40(a)(ia) of the Act. The copy of the order was placed on record by the ld. AR. The ld. DR submitted that the assessee has not submitted the break-up of Rs.33.78 Crores being year end provision made for various expenses. But we find that the entire break-up had been duly submitted by the assessee before the lower authorities and the same are enclosed in pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DSIR is the approved authority for adjudging the research activity of the assessee and also the cost on the activity. Ld.DRP upheld the action of the AO. Aggrieved, the assessee is in appeal before us. 42. The Ld.AR contended that the AO / DRP restricted the claim for weighted deduction under section 35(2AB) on scientific expenditure allowed by DSIR in Form 3CL instead of granting deduction under section 35(2AB) as claimed by the assessee. The Ld.AR relied on the decision of the co-ordinate bench in the case of Glennmark Pharmaceuticals Ltd vs ACIT in ITA 5651/Mum/2017 and the Pune Bench of the Tribunal in the case of Cummins India Ltd TS 250 ITAT 2018 (Pune). The Ld.AR further stated that this issue is covered in favour of the assessee by the decision of the Tribunal for the earlier assessment years. 43. The Ld.DR, on the other hand, controverted the same and relied on the decision of the AO. 44. Having considered the rival submissions and perused the materials on record and also the order of the Tribunal. The relevant portion of the order of the Tribunal is as follows:- 24. On this issue the disallowance was made on the ground that form 3CL has not been furnished. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee sells the vehicle and a subsequent sale executed by the dealer is not on behalf of the company, but for the dealer. The assessee further stated that the dealer is not a commission agent and was not acting on behalf of the assessee company for the services rendered thereby indicating the contention that dealer incentive will be covered under section 194C of the Act. This contention of the assessee was not accepted by the Assessing Officer on the ground that service coupon commission are covered by the provisions of section 194C in which the assessee has given a contract of doing free services of the vehicles to the ultimate customer on behalf of the assessee company to the dealers. The Assessing Officer has rejected the assessee s contention that the relationship with the assessee and the dealer is on principal to principal basis. The Assessing Officer has categorically classified the said transaction as a contract on rendering free service of the vehicles to the end-user by the dealer on behalf of the assessee company. The Assessing Officer had disallowed the same on the above mentioned reasons. 47. The Ld.AR relied on the proposition that no disallowance under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id to them. As the Tribunal had principally found favour with the aforesaid claim of the assessee, therefore, it had restored the matter to the file of the A.O, therefore, in all fairness we direct him to also consider the aforesaid claims of the assessee in the course of the set aside proceedings viz.(i) that, no disallowance under Sec.40(a)(ia) could be made after the expiry of the time for passing of order under Sec.201 of the Act; and (ii) that, in case the disallowance is sustained, the same is liable to be restricted to the extent of 30% of the total amount of service coupons. Needless to say, the A.O shall afford a reasonable opportunity of being heard to the assessee in the course of the 'set aside' proceedings, wherein the latters shall remain at a liberty to substantiate its claim on the basis of fresh documentary evidence. On the basis of the aforesaid observations our order passed while disposing off the appeal of the assessee i.e Mahindra Mahindra Ltd. Vs, DCIT. Range 2(2), Mumbai in ITA 382/Mum/2017, dated 14,05.2019 is modified to the said extent. 50. As the issue of the assesse is squarely covered by the decision of the Tribunal, we respectfully fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of Maharashtra for moving industries to certain backward areas of Maharashtra in order to develop the under developed and developing areas of the state. The Ld.AR further stated that under this scheme, the assessee company was entitled to refund of octroi payable / paid to the local authority on import of all the items required by the eligible units. And that it was entitled to the maximum loan of 100% of the fixed capital expenditure. The Ld.AR relied on the decision of the co-ordinate bench in assessee s case for A.Y. 2013-14 in ITA 1449/Mum/2016, ITA No.719/Mum/2017 and ITA No.7382/Mum/2017 which deleted the said disallowance of similar addition under the package scheme of incentives 2001 2007 by treating the same as capital receipt. The Ld.AR also relied on the decision of the Tribunal for A.Y. 1996-97 in ITA No.3173/Mum/2001. The relevant extract of the said decision is as below:- 10.3. We find that the ld. AO placed reliance on the decision of Hon ble Supreme Court in the case of Sahney Steel and Press Ltd., reported in 228 ITR 253 and the decision of Hon ble Punjab and Haryana High Court in the case of Abhishek Industries Ltd., reported in 286 ITR 1 and rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital receipt. We thereby allow this ground of appeal filed by the assessee. GROUND 11 : RENTAL INCOME ON PROPERTY LET OUT TO RIDGE BUSINESS CENTRE P. LTD AMOUNTING TO RS.11.38 CRORES. 54. It is observed that the assessee had let out certain properties to its group enterprises, M/s Ridge Business Centre P. Ltd for an annual rent of Rs.97.13 lakhs. The said property was sublet for a total consideration of Rs.12.35 crores per annum. This income from letting out was shown as business income of the assessee and not as rental income. The Assessing Officer determined the difference in both the consideration i.e. Rs.12.35 crores (-) Rs.0.97 crores and determined Rs.11.38 crores and added the same as rent received from third parties. The assessee submitted that the said income was accepted as income from business in the preceding years by the department and was not treated as rental income and the assessee also contended that the rent received from third parties of M/s Ridge Business Centre P. Ltd is not to be considered as income earned by the assessee. This contention of the assessee was rejected by the Assessing Officer on the ground that the said property was let out to the si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rising out of the repayment of foreign currency loans / revaluation of foreign currency loans as on 31/03/2010 totalling to Rs.13,872.40 lakhs. The assessee states that the assessee has been following the same since A.Y. 2009-10 during which the assessee claimed revenue expenditure as there was loss on difference in exchange and that as per Accounting Standard 11 which deals with accounting treatment for effects of changes in foreign exchange rates. It is also observed that the claim of the assessee in A.Y. 2009-10 has been disallowed by treating the same as capital expenditure. The Assessing Officer has rejected the claim of the assessee on the ground that the gain or loss on re-statement at the year end is notional and the real gain or loss occurs only when the actual remittance is made. The Assessing Officer further held that the assessee has not furnished details to substantiate whether such gain or loss is revenue or capital in nature. The Assessing Officer has relied on the decision of Hon ble Supreme Court in the case of Goetze India Ltd vs CIT (2006) 284 ITR 323 (SC). 58. The Ld.AR contended that as the revenue has held the loss in A.Y. 2009- 10 to be capital in nature a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter, the same should be allowed as revenue expenditure. (b) Foreign exchange loss attributable to other monetary items debited to FCMITA as per AS 11 of ICAI should be allowed as revenue expenditure. Accordingly, the concise ground No.10 raised by the assessee is disposed off in the aforesaid manner. 60. Respectfully following the precedent we hereby allow (dispose off) this ground of appeal raised by the assesse in the aforesaid manner. GROUND 13 : DISALLOWANCE OF DEDUCTION UNDER SECTION 80IC RUDRAPUR UNIT 61. The assessee has submitted that the assessee had made detailed submission with regard to the methodology adopted for calculation of deduction under section 80IC of the Act and that the assessee has provided the basis of allocation of overheads. It is observed that the claim of deduction under 80IC for Rudrapur unit has been fully disallowed in A.Y. 2009-10 for the reason that the DRP has concluded that the profits of Rudrapur unit were inflated due to variation in cost, variation in sale price, defective allocation of expenses, etc. The DRP has rejected the unit-wise accounts prepared by the assessee company on the ground that they do not disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer to verify the claim of TDS raised by the assessee and allow credit of the same after due verification for the impugned year. This ground of appeal is allowed for statistical purpose. ADDITIONAL GROUND OF APPEAL: 68. The additional ground raised by the assessee pertains to interest on tax free bonds amounting to Rs.1,05,99,342/-. The assessee submitted that the assessee company has inadvertently included the impugned interest income in its return of income under the head Income from other sources . The assessee further submitted that the said interest pertains to tax free bonds which were offered to tax inadvertently and which ought to be excluded as interest income from Income from other sources . The Ld.AR relied on the decision of the Tribunal in assessee s case for A.Ys 2011-12 to 2013-14 in ITA No.1449/Mum/2016 and ITA 719/Mum/2017. The Ld.DR relied on the order of the AO. 69. Having heard both the rival submissions and perused the materials on record, it is evident that the Tribunal has dealt with the issue in A.Ys 2011-12 o 2013-14. The relevant portion of the decision of the co-ordinate bench is reproduced below:- 26.1. We have heard rival s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity shares or GDRs at initial conversion price of Rs.922.04 per share with fixed exchange rate of Rs.44.42 per dollar at the option of bond holders accessible any time on or after 7th May, 2006 and before 7th March, 2011. The assessee further submits that the bond may be redeemed any time on or after 13/04/2008 at the option of the issuer. The bond shall be redeemed @128.03% of its principal value on maturity but unless they are prematurely redeemed / converted / purchased / cancelled on maturity. The claim of deduction of priority premium payable on such redemption of bonds by the assessee was disallowed by the Assessing Officer for the reason that the said bonds are convertible into shares and cannot be treated as borrowing and that the holder of bonds on option of redemption and in the preceding years such bonds have been converted into shares by the assessee company. The Assessing Officer further held that the liability of premium is uncertain until the date of redemption. The Assessing Officer held the same to be capital expenditure for the reason that it enhances the capital base of the assessee company. The Assessing Officer relied on the decision of Apex Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tius) Ltd and Mahindra USA Ltd. The TPO has determined the ALP of interest at 14.73% per annum for the imputed bond yield for (BB) grade bonds thereby making an addition of Rs.16,61,82,663/- for the incremental interest being 8.73% (14.73% - 6%). In an objection raised by the assessee, the Ld.DRP allowed the claim of the assessee on the ground that the co-ordinate bench for A.Y. 2007-08 held that the Libor would be the ALP thereby deleting the additional interest determined by the TPO. 76. The Ld.DR relied on the TPOs determination of ALP interest @14.73% per annum. The Ld.AR relied on the order of the DRP. 77. Having heard the rival submissions and perused the materials on record, it is evident that the co-ordinate bench has decided this issue in favour of the assessee on similar facts. The relevant portion of the order in ITA No.1449/Mum/2016 is as under:- 6.1. We have heard rival submissions and perused the materials available on record. We find that assessee company had given loans to Bristlecone UK Ltd., Mahindra Overseas Investment Company (Mauritius) Ltd, Mahindra Gears International Ltd, at the rate of 6%, 6.20-6.6%, 9% and 6.25%, as the case may be. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbling activities. The assessee has treated the foreign AE as tested party and selected comparables accordingly. The TPO objected to the tested parties selected by the assessee for the reason that the AE was incurring losses and the comparables were earning high margin. The relevant submission of the assessee and the observation of the TPO alongwith direction of DRP are as under:- 13.3.0. Objection No. 7(a)(iii) is in respect of receipt of Technical Services for which adjustment of Rs. 13,84,48,2847- is made by TPO. 13.3.1. The TPO noted that the tax payer had claimed to have availed technical services from its AE, Mahindra Graphic Research Design S.r.l. (MGRD) Italy for which payment of Rs. 18.45 crores was made. The assessee explained that it is an Indian Multinational Company and to develop its export market it had availed of research and development from its AE to design the vehicles for the export market. The AE had expertise in automobiles and industrial vehicle design. The AE is incurring heavy losses and there is no question of shifting of profits. The assessee has availed the technical services from its AE such as style feasibility, engineering feasibility, det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the TPO and placed reliance on certain case laws placed before the TPO and contended that the TPO had no jurisdiction to Question tangible benefits arising out of the services rendered by Mahindra Graphic Design. The average 3 years (F.Y. 2008-2010) net cost + margin of the 9 comparables was computed at 9.34% as against the AEs NCP of (-) 21.05%. The Database used is an authentic Database. The foreign AE was selected as tested party since it was the less complex party in the transaction. The revenue of the AE is controlled whereas the cost base is uncontrolled. Therefore, OP/TC was selected as PLI for the transaction. It is the assessee's business decision to avail of technical services for design of vehicles which it plans to launch in the European market as a part of its expansion strategy. It relied on the case laws for the proposition that TPO is not competent to hold whether the expenditure incurred by the assessee has resulted into benefit to the assessee or not. Directions of DRP 13.3.6. MGRD was incorporated on 12/02/2008. The assessee in FY 2007-08, through Mahindra Overseas Investment Co (Mauritius) Ltd., a wholly owned subsidiary of the assessee, had e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it will not be necessary or it is precluded from seeking technology or design services from others. Italy is known for design innovation. Indian companies have usually taken collaboration with and technology assistance from European, Japanese and American companies in the automobile sector. The assessee has furnished contemporaneous records of services sought and services received from MGRD /AE. While it is difficult to establish the value of benefit received, in the facts of the present case, it is not in doubt that services were received. The TPO has substituted his own estimate by allowing a part of the expenditure claimed. While he has stated that he considers 20% of fees paid to be at arm's length, he has actually computed 75% as not to be at arm's length. However, it is only a subjective estimate with no basis to support the adhoc percentage applied. The only relevant number available is the hourly rate considered for invoicing which is Euro 42 per hour. Considering that this is a technical service, the rate is not unreasonable. Further, comparing it to bid based on Euro 48 per hour to assessee before it became an AE, suggests that it is reasonable. The adjustment m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. The relevant extract of the decision is as follows:- 9.1. We have heard rival submissions and perused the materials available on record. We find that the limited issue involved herein is whether provisions of 194 H are applicable in respect of dealer incentives in the form of discounts / rebates paid by the assessee to the dealers on meeting certain criteria. We find that the assessee had contended that the transaction between the dealer and the assessee manufacturer is of a sale of the vehicle on a principal to principal basis, whereas the revenue had been holding that the dealers are agents of the assessee, who had rendered services in the course of buying and selling of goods. According to the revenue, since the dealer is merely an intermediary between the assessee and final customer, the provisions of Section 194H of the Act are applicable and since the assessee had failed to deduct the tax at source, disallowance u/s.40(a)(ia) of the Act need to be made in respect of dealer incentive. The said action of the Id. AO was upheld by the Id. DRP. We find that this issue has been consistently decided in favour of the assessee by this Tribunal in its own case in various asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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