TMI Blog2023 (10) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... cal manner based upon conjecture/surmise and has recorded dissatisfaction without having regard to the accounts of the Appellant and/or the computation of suo moto disallowance made by the Appellant under Section 14A of the Act. The general hypothesis made by the Assessing Officer fails to meet the mandate of Section 14A(2) of the Act in view of the methodical computation of disallowance furnished by the Appellant taking into the account the actual expenditure incurred by the Appellant. Accordingly, we delete the addition. Computation of book profit making adjustment on account of addition made in respect of guarantee commission and disallowance made u/s 14A r.w Rule 8D by the assessing officer - HELD THAT:- We find that AO has neither made any discussion nor proposed any addition in the draft assessment order pertaining to making adjustment in the book profit u/s 115JB of the Act and also made no discussion or addition in the final assessment order. Therefore, following the decision of Sanmina SCI India (P) Ltd. ( 2017 (8) TMI 663 - MADRAS HIGH COURT ) and decision of Woco Motherson Advances Rubber Technologies Ltd. [ 2017 (4) TMI 660 - GUJARAT HIGH COURT] . We have alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to appreciate that the internal CUP method has been consistently followed by the Appellant and accepted by the income- tax Appellate Tribunal in the preceding Assessment Years. 9. Without prejudice to Ground Nos. 1 to 8, the AO/TPO/ DRP erred in computing the arm's length price of the financial guarantees given by the Appellant on behalf of its AEs in an arbitrary manner 10. The AO/DRP erred in holding that suo moto disallowance of expenditure u/s 14A of Rs. 10,42,637 for earning exempt dividend income of Rs. 1,92,00,113 was incorrect and on the lower side. 11. The AO DRP failed to appreciate that the suo moto disallowance of expenditure u/s 14A of Rs. 10,42,637/-has been determined by the Appellant as per consistently followed method accepted by the AO in the past. 12. The AO/DRP erred in disallowing further expenses of Rs. 38,51,576/- under Section 14A read with Rule 8D(2)(ii). 13. The AO/DRP erred in invoking Rule 8D without recording an objective satisfaction that having regard to the accounts of the Appellant, the suo-moto disallowance of expenses of Rs. 10,42,637/- by the Appellant under section 14A was incorrect. 14. The AO erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The assessee has filed objections before the Dispute Resolution Panel against the addition disallowances proposed by the assessing officer in the draft assessment order. The Dispute Resolution Panel issued directions u/s 144C(5) of the Act on 12.06.2022. The ld. DRP has rejected both the objections filed by the assessee against the aforesaid two addition disallowance proposed by the assessing officer in the draft assessment order. Thereafter the assessing officer has passed final assessment order u/s 143(3) r.w.s 144C(3) of the Act on 31.07.2022 and assessed the total income of the assessee at Rs. 147,44,27,500/- after making above referred additions in respect of transfer pricing adjustment u/s 92CA(3) of Rs. 2,81,85,587/- and disallowance of Rs. 38,51,576/- u/s 14A r.w. Rule 8D of the I.T. Rule. 4. During the course of appellate proceedings before us the ld. Counsel submitted that TPO has erred in making a transfer pricing adjustment of Rs. 2,81,85,587/- on account of guarantee commission (1.25 per annum). The further facts of the case are discussed while adjudicating the ground of appeal filed by the assessee. Ground No. 1 to 9: Making transfer Pricing Adjustment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of Tribunal is reproduced as under: 13. We note that, in appeal filed by the Appellant against the order of DRP for Assessment Year 2012-13 (ITA No. 1287/Mum/2017) 2014-15 (ITA No. 6083/Mum/2018), the Tribunal accepted the ALP for corporate guarantee determined by the Appellant and deleted the transfer pricing addition. The relevant extract of the decision of the Tribunal for read as under: 9. We have heard.....................................................In fact, involving identical facts the Tribunal in the assessee s own case for A.Y 2008- 09, ITA No. 7673/Mum/2012 and A.Y 2009-10, ITA No. 1703/Mum/2014, vide a consolidated order dated 21.06.2019 had approved the determination of ALP of corporate guarantee provided by the assessee to a foreign bank for facilitating raising of loans by its foreign AE on the basis of the Internal CUP i.e guarantee commission that was paid by the assessee to a bank for standing guarantee on its behalf for a third party. Further, the Tribunal after drawing support from the order of the Hon ble High Court of Bombay in the case of CIT Vs. Everest Kanto Cylinders Ltd. (2015) 378 ITR 57 (Bom), had approved the determination of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons which apply for issuance of Corporate Guarantee were distinct and separate from that of Guarantee provided by the banks and, therefore, the two transactions were incomparable. In our considered opinion, similar parity of reasoning is applicable in the present case too because the considerations which weigh for raising of bonds, that too in Indian market, are quite distinct and incomparable with the instance of providing of Corporate Guarantee to a bank abroad in connection with raising of loan from such bank by the AE of assessee outside India. Therefore, in our considered opinion, the exercise carried out by the TPO to arrive at the impugned arm s length rate suffers from an inherent misconception as the benchmarking has been done between two incomparable situations. Therefore, we are unable to uphold the stand of the income-tax authorities. 18. Insofar as the adequacy of 0.55% rate charged by the assessee is concerned, we find enough reasonableness in the same. In this context, the learned representative for the assessee referred to various decisions of the Tribunal, viz. Hindalco Industries Ltd. (supra), Thomas Cook (India) Ltd. (supra) and Godrej Consumer Products Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lingness to give guarantee on behalf of the AEs at a commission rate of 0.40% p.a/0.50% p.a. In the backdrop of the aforesaid fact, we find substantial force in the claim of the ld. A.R that the aforesaid credit sanction letter too would constitute a CUP for benchmarking the transaction of providing of corporate guarantee by the assessee to the banks for facilitating raising of loans by its AEs. Be that as it may, the adequacy of the ALP of corporate guarantee fee at 0.43% can also safely be gathered by drawing support from the following judicial pronouncements as had been relied upon by the assessee before the lower authorities as well as before us: Accordingly, in terms of our aforesaid observations we find no reason to dislodge the ALP of corporate guarantee determined by the assessee at 0.43% p.a by adopting Internal CUP method. In the backdrop of our aforesaid observations we are unable to persuade ourselves to subscribe to the determination of the ALP of the corporate guarantee at 2% p.a by the A.O/TPO. We, thus, uphold the ALP of corporate guarantee as determined by the assessee at 0.43% p.a and direct the A.O/TPO to vacate the upward transfer pricing adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t during the course of assessment, assessee has given the relevant working of expenditure disallowed u/s 14A of the Act, however, the AO without disproving the working of the assessee company has computed disallowance arbitrarily without any basis. The ld. Counsel also submitted that similar issue on identical facts has been adjudicated by the ITAT in the case of the assessee itself in the preceding assessment year. On the other hand, the ld. D.R supported the order of lower authorities. 12. Heard the rival contention and perused the material no record. In the return of income the assessee has suo moto disallowed expenses amounting to Rs. 10,42,637/- u/s 14A relating to expenditure incurred for earning exempt income. The assessee has also filed detailed working of the suo moto disallowance after allocating cost of treasury function towards earning exempt income. The assessee has methodologically allocated the common administration expenditure (including salaries paid to employees of finance accounts, HR department etc.) between tonnage and non-tonnage activities. However, the assessing officer has not contrary disproved the allocation of expenditure made by the assessee. With ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance of INR 6,55,409/- which was disallowed suo-moto by the Appellant. All relevant information and details were provided to the Assessing Officer. 20. However, the Assessing Officer had rejected the computation/statements furnished by the Appellant. The satisfaction recorded by the Assessing Officer in paragraph 5.3.3 of the Final Assessment Order read as under: 5.3.3 Recording of satisfaction The AO is satisfied that the assessee has incurred more expenditure on account of maintaining/acquiring/selling investments then already disallowed by assessee, due to the following reasons: It is seen that there is substantial amount of new investment in mutual funds to the tune of Rs 221 crores and ale of same to the tune of Rs 238 crores made during FY 2017-18. This investment had led company to earn exempt income of Rs 90.47.692as dividend on Mutual Funds. It follows that such huge investment and trading decisions are not taken casually in any business. It entails research, deliberations, large funds and engagement of personnel at various levels, especially at the managerial level, to make such decisions, such decisions assume significance for the business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyee benefit expenses, interest expenses, travelling and communication expenses) which should also have been apportioned towards earning of the exempt income. The reasoning given by the Assessing Officer is based upon presumption as the Assessing Officer has failed to point out any infirmity in the computation furnished by the Appellant. The Assessing Officer has incorrectly stated that the Appellant had disallowed certain percentage of employees cost and other expenses without giving details. We note that all the details were furnished by the Appellant vide letter dated 13.02.2021 and 10.04.2021. The letter dated 13.02.2021 was accompanied by computation calculation of disallowance, and statement of segmental Profit Loss Account. Vide letter dated 10.04.2021 (placed at page 101 to 111 of the paper-book) the Appellant had also provided statement giving details of allocation of salary and common administration over head expenses of dedicated employees. It was explained by the Appellant that the investments were in the nature of temporary investment wherein surplus funds have been parked for short duration which did not require time an effort of the top management. All the aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n recorded, however, the same is not in accordance with mandate of Section 14A(2) of the Act as the Assessing Officer has acted in a mechanical manner based upon conjecture/surmise and has recorded dissatisfaction without having regard to the accounts of the Appellant and/or the computation of suo moto disallowance made by the Appellant under Section 14A of the Act. The general hypothesis made by the Assessing Officer fails to meet the mandate of Section 14A(2) of the Act in view of the methodical computation of disallowance furnished by the Appellant taking into the account the actual expenditure incurred by the Appellant. Accordingly, we delete the addition of INR 10,67,893/- made by the Assessing Officer under Section 14A of the Act read with Rule 8D of the Rules. Thus, Ground No. 10 to 13 raised by the Appellant are allowed. 13. Considering the decision of the ITAT as supra, we find that the issue raised before the Tribunal in this year is similar to the preceding assessment year. Since, identical issue was dealt by the Tribunal in the earlier years as cited supra in the assessee s own case, following the principle of consistency we direct the AO to delete the impugned ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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