TMI Blog2024 (1) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted by the assessee relating to IDBI bank and ICICI bank we observe that assessee has received the above said quotes from IDBI bank and ICICI bank based on actual utilization of bank guarantee by the assessee. Since assessee has also passed on the above burden to its AE. Therefore, Internal CUP is already available in this transaction. It is unwarranted to rely on External CUP by Transfer Pricing Officer which were not based on actual exposure. In our considered view, ALP adjustment proposed by the Transfer Pricing Officer is not proper. Accordingly, Ground No. 1 raised by the assessee is allowed. Addition of premia income on forward contracts to the total income of the Appellant - Gain/loss on settlement of the transaction - whether the said amount represents income already taxed in earlier years? - HELD THAT:- No doubt assessee has followed method of accounting to declare the gain / loss in the above said POS[Principal Only Swap] transaction. However, mere submission of financial records and computation of income does not give clear picture for the Assessing Officer to verify the same. In our considered view assessee has to submit the relevant contract notes and wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stical purpose. Disallowance u/s 14A - suo moto addition made by assessee - mandation of recording satisfaction - HELD THAT:- We observe from the record that Assessing Officer while passing the final assessment order made a small clerical error of determining the net disallowance of ₹. 60,35,270/- instead of ₹. 6,35,270/- after adjusting the suomoto disallowance made by the assessee. Since the mistake is apparent on record we direct the Assessing Officer to make the disallowance of ₹. 6,35,270/- only. With regard to the objections raised by the assessee on the non-recording of satisfaction by the Assessing Officer we are not inclined to accept the above submissions. Accordingly, Ground No. 7 raised by the assessee is dismissed and Ground No. 8 raised by the assessee is allowed. Addition u/s 69C - unexplained sales - non-reporting of export sales of products - HELD THAT:- it is brought to our notice that assessee is re-exporting the goods after providing the services. Therefore, these goods re-exported are nothing but the goods imported by the assessee and after providing the services same goods were being re-exported. He agreed that certain documents wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act ). 2. Aggrieved with the above order, Assessee preferred appeal before us raising following grounds in its appeal: - TRANSFER PRICING ISSUES 1. The learned Dispute Resolution Panel ( DRP hereinafter) erred in confirming the action of the Transfer Pricing Officer in respect of the corporate guarantee given to the Associated Enterprise by the Appellant Company and in determining the arm's length rate of guarantee commission at 1.85% per annum as against 0.65% per annum charged by the Appellant Company as guarantee commission. NON-TRANSFER PRICING ISSUES 2. The Assessing Officer erred in adding the premia income on forward contracts to the total income of the Appellant without appreciating the fact that the premia income had already been offered to tax in the earlier years. 3. Without prejudice to Ground No.2, the Assessing Officer erred in adding an amount of Rs. 49,39,00,893 as the premia income without realising that the said amount represents income already taxed in earlier years and that he ought to have added only Rs. 43,61,51,550 (as he did in the draft assessment order) being the amount claimed as deduction in the return of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome in India. 11. The Assessing Officer erred in ignoring a challan evidencing the payment of Dividend Distribution tax (DDT) amounting to Rs. 8,30,52,816 and thereby granting credit of DDT of Rs. 8,32,63,338 as against the credit claimed by the Appellant of Rs. 16.63,16,153. 12. Without prejudice to the above grounds, the appellant submits that the Assessing Officer erred in not granting DIT relief commensurate with the taxable income as per the Assessment Order. 13. The Appellant craves leave to add to, alter or amend the above Grounds of Appeal as and when advised. 3. Assessee has raised Ground No. 1 in relation to international transaction and other grounds of appeal raised by the assessee are relating to corporate issues. We proceed to deal with the issues raised by the assessee ground wise. 4. With regard to Ground No. 1, brief facts of the case are, assessee filed the original Return of Income for A.Y.2018-19 on 30.11.2018 declaring total income of ₹. 380,18,41,390/- and subsequently revised the return of income on 27.03.2019 declaring a total income of ₹. 379,96,10,620/-. The case was selected for scrutiny based on the various reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business opportunities, hence it is in nature of quasi capital or shareholder activity, thus outside the ambit of international transaction under section 92B(1) of the Act. 9. Alternatively, assessee also submitted that ALP of corporate guarantee should be considered 0.5% on the basis of the Hon ble Bombay High Court decision in the case of Everest Kanto Cylinders Ltd. v. DCIT and various other case law. 10. After considering the submissions of the assessee Transfer Pricing Officer dismissed the submissions of the assessee and he observed that the assessee has not discharged its onus and has not provided any comparable to benchmark the transactions and in the absence of any valid comparable in the public domain, he is constrained to benchmark this transaction using the rates applicable to bank guarantee. Further, he observed that the Hon ble Bombay High Court in the case of Everest Kanto Cylinders Ltd. v. DCIT (supra) and Mumbai ITAT Decision in the case of Glenmark Pharmaceuticals Ltd., (in ITA No. 5031/MUM/2012 dated 13.11.2013 for the A.Y. 2008-09), a downward adjustment to the naked quotes of the rates of bank guarantee has been done in this year. Accordingly, he made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into international transactions of giving corporate guarantee to its AE s. It is fact on record that assessee has collected guarantee commission from its AE @0.65% at the same time we also observe that assessee was given a sanction facility by IDBI bank and ICICI bank which has quoted the average bank guarantee fee of 0.65%. However, Transfer Pricing Officer has collected information regarding guarantee commission from HDFC bank and SBI bank. Since Transfer Pricing Officer has collected the above said information by issuing notice under section 133(6) of the Act it is normal for the banks to give card rate of charges without considering the financials of the tested parties. Since Transfer Pricing Officer has collected this information through show cause notice under section 133(6) of the Act without giving specific financials of tested parties the rates given by those banks cannot be considered as proper quotes for analysis. It is not clear from the order of the Transfer Pricing Officer that assessee s as well as AE s exposure were shared with those banks. It is fact on record that the assessee has received the quote of sanction of credit facility as well as bank guarantee facilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act. W.e.f 01.04.2016, the company was mandated to follow Ind-AS, the entity was required to recognize the changes in fair values and the derivative hedge instrument. As a result of this, the fair value gain on outstanding contracts, whose premia income was already taxed to profit and loss account under erstwhile accounting standard has been re-accounted in F.Y. 2017-18. 19. During the year, a Principal Only Swap (POS) whose effective date commenced from 10.04.2012 was terminated on 10.04.2017 i.e., current assessment year. The POS is an exchange of Principal in two currencies on specific dates with an exchange of fixed interest payments in the two currencies on specific dates. The product is used by customers wishing to cover exchange rate risk on a series of foreign currency cash flows beyond one year. The assessee has submitted the details of income offered to tax over the period for tax periods as under: - Year Amount FY12-13 7,31,08,449 FY 13-14 -1,53,59,107 FY14-15 26,55,84,580 FY 15-16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has declared the POS income and exchanged gain / losses in the respective assessment years. He has filed the computation of income for the A.Y.2015-16 and 2016-17 in the form of Paper Book to submit that assessee has already submitted all this information before Assessing Officer. He prayed that the claim of the assessee may be entertained. 23. On the other hand, Ld. DR supported the findings of the Assessing Officer and he submitted that assessee has not provided any information before Assessing Officer to verify the same. Therefore, without proper verification Assessing Officer cannot allow the claim of the assessee. 24. Considered the rival submissions and material placed on record, we observe from the record that assessee has booked certain derivative transactions having impact more than one assessment years. The relevant derivative was matured on April 2017 and as per the method of accounting adopted by the assessee prior to this assessment year, assessee has declared profit or loss in the POS transactions. As per the information submitted by the assessee before us clearly shows that assessee has declared FOREX loss / gain in A.Y.2015-16 and 2016-17 and assessee has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r observed that the assessee has not been able to provide one to one correlation of the provisions of doubtful debts disallowed and the amount claimed on reversal in the current year. Since assessee has not submitted one to one correlation the Assessing Officer sustained the additions made in the draft assessment order. 28. Aggrieved assessee is in appeal before us. At the time of hearing, Ld.AR of the assessee submitted that the assessee has reversed the provision made in the year in which it was created and assessee has not claimed any provision for doubtful debts during the current assessment year. It is only a reversal of the old provisions. Based on the submissions of the assessee, Ld. DRP gave a clear direction to the Assessing Officer to verify the same and after verification it may be allowed. 29. Ld.AR of the assessee submitted that assessee has submitted the relevant profit and loss account and computation of income before Assessing Officer and also he has filed the same in the form of Paper Book before us and he took us through Page No. 284, 290 of the Paper Book to demonstrate that in the financial year end 31.03.2015 and 31.03.2016 assessee has reversed the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer to verify the claim of the assessee in detail and allow the same after due verification. Assessee shall cooperate with the proceedings before the Assessing Officer without taking unnecessary adjournments. Needless to say that the Assessing Officer shall provide adequate opportunity of being heard to the assessee. Accordingly, Ground No. 6 is allowed for statistical purpose. 33. With regard to Ground No. 7 and 8 relating to disallowance under section 14A of the Act, the relevant facts are during the year assessee has earned dividend income from mutual funds investment amounting to ₹. 738,31,926/- in the return of income. The assessee has suomoto disallowed the expenses of ₹. 1,64,33,279/- in relation to exempt income under section 14A of the Act. 34. During the course of assessment proceedings, Assessing Officer observed that provision of section 14A of the Act are applicable in this case as per sub section (2) of section 14A of the Act, Assessing Officer is required to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the Act. Since Assessing Officer has not satisfied with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the annual average investment is ₹. 1,70,36,849/- and after adjusting the suomoto disallowance made by the assessee and the net difference is ₹. 6,35,270/- only. Therefore, Assessing Officer has made the clerical error by making the disallowance of ₹. 60,35,270/- instead of ₹. 6,35,270/-. 39. On the other hand, Ld. DR objected the submissions of the assessee on no satisfaction, he submitted that Assessing Officer at Page No. 7 of the draft assessment order has properly recorded the satisfaction. Further, he submitted that the courts have held that express satisfaction is not required, it is enough to demonstrate that the provision under section 14A is applicable in the case. 40. Considered the rival submissions and material placed on record, we observe from the record that Assessing Officer while passing the final assessment order made a small clerical error of determining the net disallowance of ₹. 60,35,270/- instead of ₹. 6,35,270/- after adjusting the suomoto disallowance made by the assessee. Since the mistake is apparent on record we direct the Assessing Officer to make the disallowance of ₹. 6,35,270/- only. With regard to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the customer and thus they do not form part of sales when they are sent back to the customer. The sample copy of invoice/packing list was submitted in Annexure wherein re-exports were mentioned in the description. We also clarified that no custom duty is paid on import of such goods when they are imported merely for the purpose of re- exports as we operate from SEZ units. The company also submitted sample copy of Guaranteed Remittance waiver certificate from the commercial bank evidencing that there is no inward foreign remittance for re-exports undertaken by us. Copy enclosed in Annexure. 1. The product exports are restricted to prototypes and demo that support the engineering deliverables. The products exported include hardware components, electronic components, lab equipment, IT assets, etc. ranging from cables, motor jigs, power test jig etc. In our response dated 24.09.2021, we clarified that company being an engineering service company, the operational revenues are included in revenue from operations of the company. The company has reported a turnover of Rs. 3506,55,10,924 during the year, while the NFAC without appreciating the details of exports and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted the order of the Assessing Officer and submitted that Assessing Officer has duly considered the documents submitted by the assessee and only disallowed the difference which assessee failed to substantiate before him. However, he agreed that in case the bench accepts the additional evidences it may be remitted back to the file of the Assessing Officer. 46. Considered the rival submissions and material placed on record, it is brought to our notice that assessee is re-exporting the goods after providing the services. Therefore, these goods re-exported are nothing but the goods imported by the assessee and after providing the services same goods were being re-exported. He agreed that certain documents were filed before Assessing Officer. However, he submitted that additional evidences will prove the nature of transactions. Considering the importance of these documents we deem it fit and proper to admit the additional evidences and remit this issue back to the file of the Assessing Officer to verify the same and after due verification if found proper the claim of the assessee may be allowed. Assessee shall cooperate with the proceedings before the Assessing Officer without taki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax suffered by it has to be given credit based on the income declared by the assessee and the relevant tax paid by the assessee. Before us, assessee has filed Form 67 which requires verification. Accordingly, we direct the Assessing Officer to verify the above Form 67 and claim of the assessee and after due verification as per law. Assessee shall cooperate with the proceedings before the Assessing Officer without taking unnecessary adjournments. Needless to say that the Assessing Officer shall provide adequate opportunity of being heard to the assessee. Accordingly, Ground No. 10 raised by the assessee is allowed for statistical purpose. 52. With regard to Ground No. 11, this issue is relating to payment of dividend distribution tax amounting to ₹. 8,30,52,816/- and granting credit of DDT of ₹. 8,32,63,338/- as against the credit claimed by the assessee ₹. 16,63,16,153/- 53. Before us, Ld.AR of the assessee submitted evidences of remittance at Page No. 292 and 293 of the Paper Book these evidences are against the credit of dividend distribution tax claimed by the assessee. We deem it fit and proper to remit these evidences to the file of the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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