9911796707
TMI Blog2024 (6) TMI 1391X X X X Extracts X X X X X X X X Extracts X X X X ..... 64.33 lacs paid for Arbitration Award - Ground No.8 2. The assessee is part of Shapoorji Pallonji Group which is the third largest construction group in India. The assessee is engaged in the business of executing a large and complex civil engineering projects in the infrastructure sector for construction of roads, bridges, railways, jetties, transport terminals, tunnels, dams, etc. in India and abroad. For the year under consideration, the assessee filed the return of income on 25.09.2010 declaring a total income of Rs. 54,61,68,234/- which was subsequently revised to Rs. 23,92,94,596/- and a book profit under section 115JB of the Income Tax Act, 1961 (the Act) of Rs. 76,40,58,837/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. Since the assessee had international transactions a reference was made to Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) of the international transactions, the assessee has entered into with its Associated Enterprises (AE). The TPO proposed a TP Adjustment of Rs. 1,49,91,287/-. The Assessing Officer (AO) passed an assessment order wherein besides the TP Adjustment the AO made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip structure is 49:51 but the profit sharing ratio is 80: 20 respectively between assessee and the JV partner due to technical and financial support provided by the assessee. The profit earned by the assessee vis-a vis the AE is as under. FY Afcon India JV/AE Afcon India JV/AE Amount in crores % age of profit 2008-09 31.19 0.30 99.05% 0.95% 2009-10 89.89 9.56 90.39% 9.61% (c). The AE has awarded contract to the AFCONS India for a total amount of AED 14,80,00,000. As the assessee himself was executing part contract, therefore assessee is not required to charge performance guarantee from the ΑΕ. 5. The TPO after considering the submissions of the assessee held that in a third party scenario the guarantor would expect a return for the risk undertaken by the third party and in the given case since the First Gulf Bank has charged the lesser rate of interest only because of the guarantee given by the assessee, the benefit accruing to the assessee should be added as TP Adjustment. The TPO further held that the First Gulf Bank has charged 0.5% lesser interest based on the guarantee given by the assessee and therefore, 0.5% is the benefit deri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be held by local sponsorer. Despite the shareholding structure, the share capital of Afcons Mideast stood at Rs.42,62,400/- and it was agreed that the shareholders of the assessee company would be entitled to 80% of the profits of Afcons Mideast. Afcons Mideast was awarded contract amounting to Rs. 1,546.56 Crores and part of the work amounting to Rs.210.28 Crores was sub-contracted to the assessee company. The balance work has been performed by Afcons Midcast solely relying on the infrastructure in the form of the man-power, machines, technology, project management skills and organisational support provided by the assessee. In effect contract work performed by Afcons Midcast was done by assessee through its own support services. That is the reason, the assessee has earned profits at Rs.31.19 crores whereas Afcons Mideast has only earned Rs.30 lakhs. The entire profit earned by the assessee as a sub-contractor and for providing support services was Rs. 130.05 crores while Afcons Mideast earned only Rs. 10.86 crores from execution of the said project. Thus, 92.29% of the profits had accrued to the assessee as a sub-contractor and for the support services. Even for the balance 7.71% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises." 15. Ergo, it is to be seen whether such transaction is having a bearing on the profits, income, losses or assets or any kind of a mutual agreement or arrangement for the allocation or apportionment or contribution to any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided. Thus, the transaction or the arrangement should have the bearing of profit or income or any kind of benefit or facility. Here providing of performance guarantee or corporate guarantee did not gave benefit to the AE, albeit on the facts of the case the entire benefit for giving such guarantee is only to the assessee because the guarantee was given to carry out the work which was done de-facto by assessee. Even the work performed by the Afcons Mideast was totally done by the support service through i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guarantee. These grounds raised by the Revenue are dismissed accordingly. Disallowance of interest under section 36(1)(iii) in respect of loans to Afcons Pauling JV, Afcons Strabag AG, and Afcons Gunanusa JV - Ground Nos. 5&6. 11. On perusal of Schedules 3 & 4 to the balance-sheet as on 21.03.2010 the AO noticed that the assessee has shown interest bearing secured loans at Rs. 23644.36 lacs and unsecured loans as Rs. 30232.08 lacs. The AO further noticed that the assessee has disclosed the following under the head Loans & Advances to its Joint Ventures Name of the party Rs. In lakh Afcons Pauling Joint Venture 699.57 Afcons Pauling Joint Venture 127.24 Afcons Pauling Joint Venture 1724.47 Total 2551.28 12. The AO held that the assessee is paying interest at an average rate of 12.41% and on the other hand the assessee has not charged any interest on the advances given to the Joint Ventures. Therefore, the AO made a disallowance under section 36(1)(iii) towards interest paid by the assessee to the tune of Rs.316.61 by applying 12.41% on the advances given by the assessee to the Joint Ventures. The CIT(A) deleted the disallowance by holding that "12. I have considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1355.60 701.69 700.95 700.37 699.57 NIL 14. The ld. AR submitted that the Co-ordinate Bench in assessee's own case for AY 2009-10 has considered the disallowance of interest towards advance given to the joint ventures and deleted the disallowance made by the AO. Since the loan is a continuation from previous year the ld. AR submitted that the ratio laid down by the Tribunal in assessee's own case for AY 2009-10 would be applicable for year under consideration also. With regard to the additional advances given during the year under consideration to Afcons Starbag AG and Afcons Gunanusa Joint Venture as detailed below, the ld. AR submitted that the own funds for year ended 31.03.2010 is more than sufficient to cover these advances and therefore no disallowance is warranted. Particulars Advance given during the financial year 2008-09 (Rs. In lakhs) (A) Advance given during the financial year 2009-10 (Rs. In lakhs) (B) Balance as on 31 March 2010 (Rs. In lakhs) (A+B) i. Afcons Starbag AG 17.62 109.62 127.24 ii. Afcons Gunanusa Joint Venture 53.77 1,670.70 1,724.47 Total 71.39 1,780.32 1,851.71 15. We heard the parties and perused the materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 31/03/1996. Once the position from the earlier years has been settled that the opening balance of the loan is to be excluded for making the loans, then we do not find any infirmity in the directions of the ld. DRP which is in accordance with the direction of the Tribunal in earlier year. Therefore, the ground raised by the Revenue is dismissed." 16. From the above findings it is clear that with regard to loans which have been continued from earlier years the Tribunal has held that no disallowance under section 36(1)(iii) is warranted. With respect to the loans extended during the year to the tune of Rs. 1780.32 lacs as tabulated above, we noticed that the own funds of the assessee for year ended 31.03.2010 is Rs. 60833.05 lacs and therefore, there is merit in the submission of the ld. AR that when own funds are available for extending advances no disallowance under section 36(1)(iii) is warranted. In view of these discussion and considering the decision of the Co-ordinate Bench, we hold that no disallowance towards interest under section 36(1)(iii) is warranted for the year under consideration and accordingly we see no reason to interfere with the decision of the CIT(A). Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. However, second appeal on this issue has been pending before Hon'ble ITAT for earlier years. Hence, to keep the issue alive, addition of Rs 64,26,858/- is disallowed and added to the income of the assessee." 20. We heard the rival submissions and perused the material on record. We notice that the similar issue has been considered by the Tribunal for AY 2009-10 where it has been held that "27. The Tribunal in A.Y.2005-06 has held that, firstly, the professional fees was incurred in respect of arbitration award and therefore, same was for the business of the assessee. Secondly, assessee was justified in claiming the said amount as expenditure in its profit and loss account and lastly, the Tribunal declined the observation of the ld. AO that since the income from arbitration award is excluded from the total income, therefore, professional fees incurred in this should be disallowed. This exact observation of the ld. AO as made in the present assessment year also has been rejected and accordingly, the ground raised by the Revenue is dismissed." 21. We notice from the above extracted observations of AO that the reason for disallowance during the year under consideration is s ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
