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TMI Blog2025 (5) TMI 1302X X X X Extracts X X X X X X X X Extracts X X X X ..... y under CASS. The AO referred the case to TPO for determining the Arm length price of international transactions. Thereafter, the draft assessment order under Section 143(3) r.w.s. 144C(1) was issued and served upon on 30.12.2016. When the assessee informed the AO that it will file appeal before CIT(A) challenging the additions / disallowances proposed, the AO passed the final assessment order u/s 143(3) r.w. Section 144(C)(3)(b) of the Act on 22.02.2017, where the total income of the assessee was assessed Rs. 171,40,04,530/- by making various additions and disallowances, which includes the TPO adjustment of Rs. 5,16,73,139/- towards interest on outstanding receivables from AE, disallowance u/s 14A at Rs. 78,420/- and disallowance u/s 40(a)(ia) at Rs. 30,60,074/- for non- deduction of tax at source on bank guarantee commission. 3. Aggrieved by the assessment order, assessee preferred appeal before the ld. CIT(A) which stood partly allowed in terms of the impugned order dt. 28.02.2018 passed by CIT(A) 44, New Delhi. Against such order the revenue is in appeal before the Tribunal. In form 36 assessee has taken grounds which were later revised by filing the revised Form No. 36. The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is legally justified in allowing relief to the assessee on the basis of its earlier order in the assessee's own case despite the fact that principal of res-judicata is not applicable to Income Tax proceedings as each assessment year is a separate year? 7. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds of appeal at any time before or during the hearing of this appeal." 4. Grounds of appeal Nos. 1 & 2 are in relation to the deletion of the addition made on account of transfer price adjustment made towards interest on outstanding receivable from AE at Rs. 5,16,73,139/- thus they are taken together for consideration. 5. The TPO re-characterised the delay in receipt of receivables as interest free unsecured loans advanced to the AE and treated the receivables from AE as international transaction in the nature of capital funding. Accordingly, the TPO has made adjustment on notional interest computed @ 12.86% (SBI PLR of 9.86 Plus 300 basis points) and proposed adjustment of Rs. 5,16,73,139/- which was made by AO in final order. The ld. CIT(A) by ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arified that- (i) the expression "international transaction" shall include- (a) the purchase, sale, transfer, lease or use of tangible property including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing; (b) the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know-how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar nature; (c) capital financing, including any type of long-term or short- term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business; 9. The above explanation clarifies and also justifies the adjustment made by the TPO towards interest on receivables, which is well within the definition of international transaction. Therefore, we are in agreement wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 237 considered the decision of coordinate bench in the case of Kusum Healthcare and held that, the allowing working capital adjustment in the international transaction of rendering services can have no impact on the determination of ALP of the international transaction of interest on receivables from AEs. 14. The Hon'ble Delhi High Court, while dismissing the appeal of the revenue against the order of Tribunal in the case of Pr. CIT v. Kusum Healthcare(P.) Ltd. 2017] 398 ITR 66, held as under: (i) The inclusion in the Explanation to Section 92B of the Act of the expression "receivables" does not mean that de hors the context every item of "receivables" appearing in the accounts of an entity, which may have dealings with foreign AEs would automatically be characterized as an international transaction, and (ii) With the Assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and re-characterized the transaction. 15. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the confirmation of the order of ld. CIT(A) in this regard. 21. We have considered the rival submissions and perused the material available on record. Admittedly, in the instant case it was decided in earlier years that the assessee had made investments out of its own interest free funds thus the AO has made the disallowance of only administrative and management expenses. The assessee after identifying the direct and indirect expenses allocable to investments having exempt income, made disallowance @ 20% of the said expenditures for purpose of section 14A of the Act. This view was fully supported by the judgements of Hon'ble Jurisdictional High Court in assessee's own case, wherein it is held that burden is on the revenue to ascertain the correctness of the su-motto disallowance made by the assessee. 22. However, from AY 2009-10, Rule 8D was inserted which provides the method of determining the amount of expenditure in relation to income not includible in total income. Since this amendment was made by the IT (Fifth Amdt.) Rules, 2008 and become applicable from AY 2009-10thus it was before the hon'ble court in earlier years. The after AO satisfying himself that the method adopte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n so as to attract the provision Section 194H of the Act. Against such deletion, the Revenue is in appeal before us. 26. Before us, ld. CIT DR reiterated the same facts as were observed by the AO in para 6 of the order and requested for the restoration of the disallowance made by AO. 27. Per contra, ld. AR of the assessee also relied upon the judgement of ld. CIT(A) and further submitted that hon'ble jurisdictional high court in the case of CIT Vs. JDC Apparels Pvt. Ltd. reported in 370 ITR 454 has held that the amount charged by bank as a fee for rendering banking services to its clients could not be treated as a commission or brokerage u/s 194H and requested for the confirmation of the order of ld. CIT(A). 28. We have perused the material available and the arguments advanced by both the parties. The ld., CIT(A) while deleting the disallowance has held as under: "6.10 Ground No 11 pertains to the contention of the appellant that the AO had erred in disallowing bank guarantee charges amounting to Rs. 30,60.074 u/s. 40(a)(ia) of the Act on the ground that tax has not been deducted on such payment made to bank by the appellant. The AO referred to the Notification No. 56/2012 dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommission or brokerage 'Explanation to section 194H is quite in harmony with this approach as it only provides that "any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities" is includible in the scope of meaning of 'commission or brokerage. Therefore, what the inclusive definition really contains is nothing but normal meaning of the expression 'commission or brokerage'. When inclusive definition contains ordinary normal connotations of an expression, even an inclusive definition has to be treated as exhaustive. That is the situation in the instant case as well. Even as definition of expression 'commission or brokerage', in Explanation to section 194H, is stated to be exclusive, it does not really mean anything other than what has been specifically stated in the said definition. Therefore, principal-agent relationship is a sine qua non for invoking the provisions of section 194H. In the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, from the nature of payments made by the assessee being guarantee commission, it appears that as per AO, assessee has violated the provisions of section 194H of the Act. For the application of the provisions of section 194H, there must exists principal and agent relationship between the payer and payee i.e. the assessee and banker in the instant case. Further such transaction must be for the services rendered or for any services in the course of buying or selling of goods. As observed by ld. CIT(A) while deleting the disallowance, no such Principal - Agent relationship existed and thus the payment of guarantee commission to the bank is not in the nature of commission so as to attract provisions of section 194H of the Act.
30. In view of the above, in our considered view the order of ld. CIT(A) in holding that the provisions of section 194H are not applicable to the facts of the present case needs no interference and accordingly the order of ld. CIT(A) on this issue is upheld. The grounds of appeal No. 5 & 6 of the revenue are dismissed.
31. In the result appeal of the assessee is partly allowed.
Order pronounced on 29th April, 2025. X X X X Extracts X X X X X X X X Extracts X X X X
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