Appeal details
Counselvise Citation
[2024] 101 COUNSELVISE.COM (IT) 8080 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 4 month(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-03-2024
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
H
Next Hearing Date
18-01-2024
Assessment Year
2014-2015
Appeal Filed On
31-10-2021
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL “H” BENCH, MUMBAI BEFORE SHRI B R BASKARAN, AM AND MS. KAVITHA RAJAGOPAL, JM I TA N o. 202 5/ M u m / 20 21 ( A s s e ss me nt Y ea r: 20 1 4- 15 ) a nd CO N o . 55 /M u m/ 20 22 (A ri s i n g ou t o f IT A N o. 22 33/ M u m/ 2 02 1) ( A s s e ss me nt Y ea r: 20 1 4- 15 ) Shapoorji Pallonji and Company Private Limited 1 st Floor, 41/44, S P Centre, Minoo Desai Marg, Colaba, Mumbai-400 005 V s. Dy. CIT, Circle-3(3)(1) Mumbai P A N / G I R N o. AA A CS 69 9 4 C (Assessee) : (Revenue) I TA N o. 223 3/ M u m / 20 21 ( A s s e ss me nt Y ea r: 20 1 4- 15 ) Dy. CIT, Circle-3(3)(1) Mumbai V s. Shapoorji Pallonji and Company Private Limited 1 st Floor, 41/44, S P Centre, Minoo Desai Marg, Colaba, Mumbai-400 005 P A N / G I R N o. AA A CS 69 9 4 C (Revenue) : (Assessee) Assessee by : Shri Rajan Vora & Nikhil Tiwari Revenue by : Shri H M Bhatt D a te o f H e a r i n g : 19.01.2024 D ate of P ro n ou n ce me n t : 28.03.2024 O R D E R Per Kavitha Rajagopal, J M: The Revenue and the assessee are in cross appeal and the assessee has also filed cross objection challenging the order of the learned Commissioner of Income Tax (Appeals) (‘ld.CIT(A) for short), passed u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2014-15 on various grounds. 2 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited 2. The brief facts of the case are that the assessee is a domestic company and is engaged in the business of civil construction, real estate, trading of construction material and construction related services. The assessee had filed its return of income dated 28.11.2014, declaring loss at Rs.10,83,63,227/- under the normal provisions and book profit u/s. 115JB of the Act at Rs.85,05,38,143/- and the same was processed u/s. 143(1) of the Act. The assessee’s case was selected for scrutiny and the assessment order dated 15.06.2017 was passed u/s. 143(3) r.w.s. 144C(3) of the Act where the A.O. determined the total income at Rs.21,73,79,550/- under the normal provisions and Rs.92,66,70,763/- u/s. 115JB of the Act after making various additions/disallowances. 3. The assessee was in appeal before the first appellate authority, challenging the impugned order and the ld. CIT(A) had partly allowed the appeal filed by the assessee on various grounds. Both the Revenue as well as the assessee are in appeal and the assessee has also filed the cross objection challenging the order of the ld. CIT(A). 4. Ground No. 1 of the Revenue’s appeal is on the disallowance made u/s. 14A of the Act where the ld. CIT(A) has restricted the said disallowance to Rs.10 lacs as against Rs.6,83,36,620/- disallowed by the Assessing Officer ('A.O.' for short). The facts of this grounds are that the assessee has claimed exempt income u/s. 10 of the Act amounting to Rs.84,20,83,084/- which are tabulated as below: Sr. No. Particulars Amount (in Rs.) 1 Dividend 17,25,20,478 2 Income from partnership firm 4,26,45,913 3 Long term capital gain 62,69,16,693 Total 84,20,83,084 5. It is observed that the assessee has suo moto made a disallowance of Rs.5 lacs u/s.14A of the Act being the expenses attributable to the earning of the above mentioned 3 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited exempt income as per Annexure 9 of the audit report furnished by the assessee. The A.O. during the assessment proceeding was not satisfied with the submissions made by the assessee pertaining to the disallowance made by the assessee for the reason that the assessee has failed to compute the expenditure as per Rule 8D of the I. T. Rules which amounts to 0.5% of the average investment as per Rule 8D(2)(iii). The A.O. further stated that the computation under Rule 8D would be applicable from A.Y. 2008-09 onwards and relied on the decision of the Hon'ble Jurisdictional High Court in the case of Godrej & Boyce Mfg.Co.Ltd. Mumbai vs Dy. Commissioner Of Income Tax (in Writ Petition No. 785 of 2010 and ITA No. 626 of 2010 vide order dated 12.08.2010) and also the Special Bench decision of the co-ordinate bench in the case of Daga Capital & Management Co. Pvt. Ltd. (in ITA No. 8057/Mum/2003 vide order dated 20.10.2008). The A.O. held that the suo moto disallowance of Rs.5 lacs offered by the assessee was under Rule 8D(2)(i) of the Rules and computed the administrative expenses under Rule 8D(2)(iii) at Rs.6,93,36,620/-. The ld. CIT(A), on the other hand, has held that the A.O. has failed to record dissatisfaction pertaining to the correctness of the claim of the assessee and has not given cogent reason for disregarding the suo moto disallowance made by the assessee and relied on a plethora of decisions of the High Courts and the co-ordinate benches. The ld. CIT(A) also stated that in assessee’s case for earlier years, the administrative expenditure towards earning of the exempt income was upheld to Rs.10 lacs and the same was also upheld by the Hon'ble Jurisdictional High Court in assessee’s case. The ld. CIT(A) restricted the disallowance u/s. 14A r.w.s. Rule 8D to Rs.10 lacs. The Revenue has challenged the order of the ld. CIT(A) on this ground as being contrary to the CBDT Circular No. 5/2014 dated 11.02.2014 which states that there is no criterion to have 4 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited earned exempt income during the year under consideration for the purpose of making the disallowance u/s. 14A r. w. Rule D. The assessee in its cross objection has also challenged the disallowance of Rs.10 lacs as against the suo moto disallowance of Rs.5 lacs made by the assessee for the reason that the ld. CIT(A) has not considered the fact that the ld. A.O. has not recorded the reasons for non satisfaction of the assessee’s suo moto disallowance. 6. The learned Authorised Representative ('ld. AR' for short) for the assessee contended that the A.O. has not recorded his dissatisfaction to the assessee’s claim prior to applying Rule 8D where the suo moto disallowance made by the assessee was not considered by the ld.A.O. The ld. AR further stated that the major amount of dividend income was received from the group concern of the assessee and has also made investments mostly in the group companies. The ld. AR contended that the lower authorities and the co-ordinate bench has restricted the disallowance to Rs.10 lacs in assessee’s case for A.Ys. 2008-09, 2009-10 and 2010-11 and the same has been upheld by the Hon'ble High Court. The ld. AR relied on various decisions which are in support of the assessee. 7. The learned Departmental Representative ('ld.DR' for short), on the other hand, controverted the said fact and stated that the ld. A.O. in para 5.5 of the assessment order has recorded dissatisfaction and the ld. CIT(A) has failed to consider the same. The ld. DR relied on the order of the Hon'ble Delhi High Court in the case of Indiabulls Financial Services Ltd. vs. Dy. CIT [2016] 76 taxmann.com 268 (Del) and Devarsons Industries (P.) Ltd. vs. Asst. CIT (OSD) [2017] 84 taxmann.com 244 (Guj). The ld. DR also relied on the order of the ld. A.O. 5 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited 8. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee has earned exempt income during the year under consideration for which the assessee has suo moto made a disallowance of Rs.5 lacs on account of the expenses incurred for earning of the exempt income. The assessee has contended that the A.O. has not recorded his dissatisfaction with regard to the correctness of the claim of the assessee which is warranted in accordance with Rule 8D of the I T Rules. The assessee further contended that the dissatisfaction recorded by the A.O. should also be done with cogent reasons and communicated to the assessee prior to the application of Rule 8D. The assessee also further to this stated that the A.O. should have determined the expenditure pertaining to the exempt income under Rule 8D(2) only after the above mentioned requirement is complied with and that the A.O.’s action in applying Rule 8D is said to be mechanic. The first appellate authority has also dealt with this issue only on the aspect that the A.O. has failed to record his dissatisfaction as to the correctness of the claim of the assessee and deleted the disallowance of Rs.6,93,36,620/- on this ground. 9. Upon consideration of the above facts and the findings of the A.O., we are of the view that the above said finding of the ld. A.O. would amount to recording of dissatisfaction along with the reasons for rejecting the assessee’s claim. The assessee has made only adhoc disallowance of Rs.5 lacs without any scientific working. Hence, the ld. A.O. based on tax audit report has taken the view that the above disallowance was related to Rule 8D(2)(i) of the I. T. Rules. Since, no disallowance was made under Rule 8D(2)(ii) or 8D(2)(iii) of the I. T. Rules, the ld. A.O. has rightly recorded his dissatisfaction in this 6 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited context. It is also observed that the ld. CIT(A) has failed to considered this issue on the merits of the claim made by the assessee. Further to this, it is also pertinent to point out that the assessee has relied on the following decisions: • PCIT vs. Moonstar Securities Trading and Finance Co. (P.) Ltd. [2019] 105 taxamann.com 275 (SC) • Maxopp Investment Ltd. vs. CIT [2018] 402 ITR 640 (SC) • Godrej Boycee Manufacturing Company Ltd. vs. DCIT (Civil Appeal No. 7020 of 2011) • PCIT vs. Bombay Stock Exchange Ltd. [2020] 113 taxmann.com 303 (Bom) • PCIT vs. Bajaj Finance Ltd. [2019] IT Appeal No. 237 & 485 of 2017 (Bom) • Pr. CIT vs. Vedanta Ltd. [2019] 102 taxmann.com 95 (Del) • Eicher Motors Ltd. vs. CIT [2017] 398 ITR 51 (Del) and various other decisions to hold the proposition that the ld. A.O. is casted upon the onus to explain with cogent reason for the dissatisfaction in the assessee’s claim. These decisions relied upon by the assessee and the first appellate authority does not support the assessee’s case for the facts and circumstances of this case. We hereby reject the assessee’s plea of non recording of dissatisfaction by the A.O. 10. The ld. AR has relied on the order of the Tribunal in assessee’s case for A.Y. 2010-11 on identical issue. The Tribunal has upheld the disallowance on administrative expenses to Rs.10 lacs. It is observed that during A.Y. 2010-11, the assessee has declared dividend income amounting to Rs.2.33 crores out of interest expenditure and Rs.1 lacs as administrative expenses. The A.O. computed the administrative expenses under Rule 8D(2)(iii) of the Act and Rs.2,48,71,110/- which was restricted by the ld. CIT(A) to Rs.10 lacs. It is also observed that in that year, the A.O. has failed to record his dissatisfaction as to the correctness of the assessee’s claim. The facts of the present case are not identical with that of the A.Y. 2010-11 where the dividend earned during the impugned year amounts to Rs.17,25,20,478/- for which the assessee had made a suo moto 7 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited disallowance of Rs.5 lacs. We do not find any justification in determining the suo moto disallowance of Rs.5 lacs nor do we find any basis in the ld. CIT(A) restricting the said disallowance to Rs.10 lacs by relying on the decision of the Tribunal in A.Y. 2010-11. It is also a settled preposition of law that even the investment made in sister concern has to be taken into consideration for computing the disallowance u/s. 14A of the Act as per the Special Bench decision of Ahmedabad in the case of Shri Vishnu Anant Mahajan vs. Asst. CIT (in ITA No. 3002/Ahd/2009 vide order dated 21.09.2012). It is also pertinent to point out that after the introduction of Rule 8D in the Income Tax Rules vide Notification No. 45/2008 w.e.f. 24.03.2008, no arbitrary disallowance u/s. 14A was to be done by the ld. A.O. and the ld. A.O. was to compute the disallowance in accordance with section 14A read with Rule 8D of the Rules. In this note, we deem it fit to remand this issue back to the file of the ld. CIT(A) to decide the grounds of disallowance made u/s. 14A on the merits of the case in accordance with the provision of the Act after duly considering the submission of the assessee. Hence, ground no. 1 of the Revenue’s appeal and ground no. 8 of the assessee’s cross objection is allowed for statistical purpose. 11. Ground no. 2 of the Revenue’s appeal and ground nos. 4, 5 and 6 of the assessee’s cross objection pertain to the adjustment of the book profit u/s. 115JB of the Act in relation to the expenditure relatable to earning income. It is observed that the assessee while computing its book profits u/s. 115JB of the Act had suo moto added Rs.5 lacs towards administrative cost for earning of dividend income. The assessee contends that it has erroneously adopted the provision of section 14A of the Act while computing the book profits u/s. 115JB of the Act. The A.O. had added Rs.6,93,36,620/- u/s. 14A while computing income u/s. 115JB of the Act by relying on the decision of the co-ordinate 8 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited bench in the case of Dy. CIT vs. Viraj Profile Ltd. [2015] 65 taxmann.com 52 (Mum- Trib). The assessee contended that for computing income u/s. 115JB of the Act only the adjusted book profit should be the basis for computation and not the income computed under the normal provisions of the Act. The assessee had relied on catena of judgments for the proposition that section 14A read with Rule 8D is not applicable for computing the profit u/s. 115JB of the Act. The ld. CIT(A) by relying on the decision of the Special Bench of the Tribunal in the case of ACIT vs. Vireet Investment (P). Ltd. [2017] 82 taxmann.com 415 (Delhi-Trib)(SB) had held that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without adopting disallowance u/s.14A read with Rule 8D and restricted to the suo moto disallowance amounting to Rs.5 lacs made by the assessee. Both the Revenue and the assessee has challenged this ground. 12. We have heard the rival submissions and perused the materials available on record. It is observed that the A.O. made addition of Rs.6,93,36,620/- u/s. 14A read with Rule 8D and had added the said amount while computing the book profits in accordance with the clause (f) of Explanation 1 to section 115JB(2) of the Act by placing reliance on the Tribunal’s decision in the case of Viraj Profile Ltd. (supra) and the same was restricted to the extent to Rs.5 lacs being the suo moto disallowance made by the first appellate authority by placing reliance on the Special Bench decision of Vireet Investment (P). Ltd. (supra). The assessee had relied on the decision of the Tribunal in assessee’s case for A.Y. 2010-11 where on identical facts, the impugned addition was deleted and the same was upheld by the Hon'ble Jurisdictional High Court and subsequently the SLP filed by the Revenue before the Hon'ble Apex Court was dismissed, meaning to say that the issue had attained finality. As this issue has already been decided by the Special 9 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited Bench of the Tribunal in the case of Vireet Investment (P.) Ltd. (supra) which has held that for computation under clause (f) of Explanation 1 to section 115JB(2) of the Act restart to computation u/s. 14A r.w. Rule 8D should not be made where there is a separate mechanism available for adjustment to the book profit of such expenditure incurred. As these issues are identical and covered by various decisions including the decision in assessee’s case, we deem it fit to allow the grounds raised by the assessee in its cross objection and dismiss the grounds raised by the Revenue. Therefore, ground no. 2 of the Revenue’s appeal is dismissed and ground nos. 4, 5 and 6 of the assessee’s cross objection are allowed. 13. Ground no. 3 of the Revenue’s appeal and ground nos. 7, 8 and 9 of the assessee’s cross objection pertains to the disallowance of Rs.19,81,00,000/- made u/s. 36(1)(iii) of the Act. The facts of this ground are that the assessee had appointed Shri Nilesh Janardan Thakkar to identify, assist and aggregate lands in Panvel, Alibaug, Pen and Raigharh area vide appointment letter dated 16.07.2007 and the same was accepted by Shri Nilesh Janardan Thakkar vide letter dated 19.07.2007 who was a proprietor of M/s. PRS Enterprises and M/s. Acecard Infrasol Pvt. Ltd. The assessee is said to have transferred funds to M/s. PRS Enterprises and M/s. Acecard Infrasol Pvt. Ltd. towards land aggregating which was related to the business activities out of the own funds of the assessee. The A.O. disallowed the interest u/s. 36(1)(iii) of the Act for the reason that the said advance was not for business activities. The ld. CIT(A), on the other hand, deleted the impugned addition for the reason that on identical issues for A.Ys. 2008-09 to 2011- 12, the Tribunal had decided this issue in favour of the assessee and the same was upheld by the Hon'ble Jurisdictional High Court. 10 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited 14. The Revenue is in appeal before us, challenging the order of the ld. CIT(A). 15. The ld. DR has contended that the said transaction is a colorable device and there was no genuine business transaction with and M/s. PRS Enterprises. Further, the ld. DR stated that there are Investigation Wing reported against Shri Nilesh Janardan Thakkar and his group concerns during A.Ys. 2008-09 and 2009-10. The ld. DR further stated that Rs.141.50 crores was not adopted by the assessee in its P & L account as expenses and the same was also not included in the work in progress and remains his advance for land purchase under the current assets. The ld. DR stated that these advances are not for the business activities of the assessee and that the A.O. has rightly disallowed the interest income of Rs.19.81 crores. The ld. DR relied on the order of the A.O. 16. The ld. AR, on the other hand, controverted the said fact and had stated that these advances are from assessee’s own fund and not from borrowed funds. The ld. AR further stated that the A.O. had computed a net interest of 14% on the total advances of Rs.141.50 crores. The ld. AR stated that the Tribunal in assessee’s case for earlier years has allowed the said claim of the assessee, pertaining to the interest income received from Shri Nilesh Janardan Thakkar. The ld. AR relied on the order of the Tribunal in assessee’s case for earlier years and also the order of the ld. CIT(A). 17. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee has earned an advance amount of Rs.516.50 crores under the head ‘current assets’ (as advance towards land purchase) and Rs.141.50 crores as being advance to Shri Nilesh Janardan Thakkar and his company M/s. Acecard Infrasol Pvt. Ltd. in various installments between A.Ys. 2008-09 to 2010-11 for acquiring 11 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited land and delivering the land to the assessee company. The said amount has been shown as advances earned under the schedule loan and advance of the balance sheet of the assessee and that the A.O. has rejected the said advance for the reason that it was not utilized for business purposes. The assessee further contended that the A.O. has not given any justification to prove that it was a non genuine transaction and has merely stated that the said person has being reported by the Investigation Wing for various allegations. It is pertinent to point out that the transaction with Shri Nilesh Janardan Thakkar has been carried out by the assessee since A.Y. 2008-09 for its business purposes and the Tribunal has held that the assessee’s interest free funds are in excess of the advances given to the said parties. The Tribunal by placing reliance on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Reliance Utilities & Power Ltd. [2009] 313 ITR 340 (Bom) has deleted the addition on the ground that if the interest free funds of the assessee are in excess of the loans advance then it can be presumed that the funds invested by the said entities are not out of the borrowed funds. The ld. AR for the assessee vide his submission has furnished the statement of the assessee’s interest free funds where it is observed that the interest free funds are more than the investment and the advances made by the assessee. We, therefore, find no infirmity in the order of the ld. CIT(A) and ground no. 3 raised by the Revenue is dismissed and ground nos. 7, 8 and 9 of the assessee’s cross objection are allowed. 18. Ground no. 4 of the Revenue’s appeal and the ground nos. 10 and 11 of the assessee’s cross objection pertains to the addition of Rs.67,96,000/- towards unexplained money with respect to the sale of immovable property during the year under consideration. The facts of this ground are that the assessee vide its Memorandum of 12 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited Agreement (MOA for short) dated 08.03.1999 entered into with Siemens for sale of property for a consideration of Rs.1,85,000/- received in March, 1999 and the possession of the said property was handed over to Siemens in the year 1999. The assessee contended that since the transfer of property had taken place in March, 1999 relevant to F.Y. 1998-99, the same cannot be taxed during the year under consideration. The assessee further stated that it had inadvertently denied the said transaction during the assessment proceeding and the A.O. based on the Transaction Statement (ITS) had made an addition of Rs.67,96,000/- u/s. 69A of the Act by valuing the immovable property at Rs.67.96 lacs. It is also observed that the A.O. had made an addition of the said amount while computing the book profit u/s. 115JB of the Act. The ld. CIT(A) deleted the impugned addition on the ground that the additional evidence furnished by the assessee pertains to the original agreement entered into in the year 1999 for which consideration was also received and possession handed over during 1999. The ld. CIT(A) further held that the agreement was registered during the impugned year for Rs.67,96,000/- but the transaction pertain to the year during F.Y. 1998-99. 19. The Revenue is in appeal, challenging the order of the ld. CIT(A). The ld. AR for the assessee contended that only on the request of the buyer namely Siemens, the agreement for sale of the property was registered with the stamp authorities during the year consideration and the same mentioned as Rs.67,96,000/- which was not the amount received by the assessee. The ld. AR further stated that the assessee had received only Rs.1,85,000/- vide cheque dated 05.03.1999 and the original documents were handed over to the buyer while executing the MOA. The ld. AR further stated that as per section 50C of the Act, the date of agreement should be considered for the stamp duty valuation 13 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited in case where the date of registration is different. The ld. AR further stated that the provision of section 50C was inserted by Finance Act, 2002 which was not applicable for A.Y. 1999-2000 and, hence, the stamp duty valuation will not be applicable in the present case. The ld. AR stated that the assessee will not be liable to tax in the impugned year for these reasons. 20. The ld. DR, on the other hand, controverted the said facts and stated that the assessee should be taxed during the year consideration and further to this, the ld. DR stated that section 50C would be applicable in the present case as the same is a deeming provision. The ld. DR also contended that the assessee has failed to furnish any documentary evidences in support of its claim to show the actual sale consideration and also the date of the agreement and the date of sale. The ld. DR relied on the order of the A.O. 21. We have heard the rival submissions and perused the materials available on record. It is observed that from the ITS data, the assessee has registered the sale for a consideration of Rs.67,96,000/- and the same has been duly reported by Joint Sub Registrar in the AIR. The assessee’s contention that the sale actually took place in 1999 for a consideration of Rs.1,85,000/- and handed over the possession to the buyer in the same year along with all the original documents, was not accepted by the A.O. for the reason that the assessee has failed to furnished the evidences and the other supporting documents to establish its claim. It is observed that the assessee has furnished additional evidence before the ld. CIT(A) establishing the fact that the original agreement was executed in 1999 for which the assessee has paid consideration and the possession of the 14 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited property was also handed over in the year 1999 while entering into in Memorandum of Agreement with Siemens. The ld. CIT(A) has sought for the remand report from the ld. A.O. on these facts and held that it was only the registration of the said agreement that had taken place during the year under consideration which was valued at Rs.67,96,000/-. The ld. CIT(A) had deleted the impugned addition made by the ld. A.O. on this ground. On considering both the rival submissions, we find no infirmity in the order of the ld. CIT(A) and we, therefore, dismiss ground no. 4 of the Revenue’s appeal and allow ground nos. 10 & 11 of the assessee’s cross objection. 22. Ground Nos. 5 to 12 of the Revenue’s appeal and the ground no.1 of the assessee’s appeal pertains to the transfer pricing adjustment made by the ld. A.O./TPO and partly allowed by the ld. CIT(A). 23. Both the Revenue and the assessee are in appeal, challenging the order of the ld. CIT(A). 24. The facts of these cases are that the assessee had issued letter of comfort, performance guarantee and corporate guarantee on behalf of its AE’s to various banks/creditors which are in the nature of international transactions. During the assessment proceeding, the ld. A.O. had referred the international transactions reported in Form No. 3CEB by the assessee to which the ld. TPO vide letter dated 28.11.2016 u/s. 92CA of the Act for computation of the arm's length price ('ALP' for short) of the international transaction as well as specific domestic transactions carried out by the assessee and the ld. TPO vide order dated 19.05.2017 passed u/s. 92CA(3) of the Act proposed an upward adjustment of Rs.5,08,94,539/- to the international transactions carried out by the assessee to its AE’s during the year under consideration in the nature of 15 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited guarantee commission. The ld. A.O. passed the draft assessment order u/s. 143(3) r.w.s. 144C(1) of the Act dated 08.06.2017 on the basis of the proposed transfer pricing adjustment made by the ld. TPO. The assessee vide letter dated 12.06.2017 intimated to the ld. A.O. to opt for filing the appeal to the ld. CIT(A). The ld. A.O. then passed the final assessment order dated 15.06.2017 u/s. 143(3) r.w.s. 144C(3) of the Act, determining the ALP of the international transaction at Rs.5,08,94,539/-. 25. Aggrieved the assessee was in appeal before the ld. CIT(A), challenging the TP adjustment made by the ld. A.O./TPO along with the other non corporate grounds. The details of the international transactions in the nature of issuance of letter of comfort/guarantee are summarized hereunder for ease of ready reference: Sr. No. Bank/Company which LOC/Guarantee issued AE in respect of which LOC/Guarantee issued Type of document Commission amount adjusted 1. ICICI Bank, Bahrain Shapoorji Pallonji M East LLC Letter of Comfort USD 59,000,000= Rs.320,69,45,000 2 Emirates NBD Bank PJS Shapoorji Pallonji M East LLC Letter of Comfort SAR 97,000,000 Rs.1,404,026,500 3. Barwa City Real Estate Company, WLL Shapoorji Pallonji Qa WLL Performance Guarantee Rs.1,112,459,400* 4. Exim Bank, India Natural Oil Venture Co. Ltd. Financial Guarantee Rs.419,405,000 26. It is observed that the ld. TPO had proposed the following adjustment pertaining to guarantee commission which is summarized as below: Sr. No. AE Amount Arm’s Length Guarantee Margin Amount of Adjustment 1. Shapoorji Pallonji Mid East LLC AED =59,000,000 Rs.3,206,945,000 0.75% 24,052,088 2. Shapoorji Pallonji Mid East LLC AED = 97,000,000 Rs.1,404,026,500 0.95% 13338252 3. Shapoorji Pallonji Mid Qatar WLL 1,112,459,400 0.95% 10,568,364 4. Natural Oil Ventures Co. Ltd. 419,405,000 0.70% 2,935,835 Total (INR) 6,142,835,900 5,08,94,539 16 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited It is observed that the ld. TPO had determined the Arm’s Length Guarantee Margin (ALGM) as 0.75% for guarantee commission for letter of comfort and 1.5% guarantee commission on issuance of performance and financial guarantee. The ld. A.O./TPO determined the ALP at Rs.5,08,94,539/- for issuance of letter of comfort guarantee and financial guarantee. The ld. TPO also proposed an additional adjustment of Rs.2,40,52,088/- for issuance of letter of comfort through rectification notice dated 21.07.2017 u/s. 154 of the Act. 27. The ld. CIT(A) in the appeal preferred by the assessee had restricted the ALP for corporate guarantee at 0.5% by relying on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Everest Kento Cylinder [2015] 378 ITR 57 (Bom). With regard to the performance guarantee, it is observed that the assessee has stated that the performance guarantee stood expired in January, 2013 and has been inadvertently included in the submission made to the ld. TPO. The ld. CIT(A) deleted the addition on account of performance guarantee for the reason that the same got expired during the year consideration. With regard to the issue of letter of comfort, the ld. CIT(A) had restricted the guarantee commission @ 0.2% on the value of the assessee’s investment, thereby determining the guarantee commission on the issuance of letter of comfort at Rs.19,05,080/- and deleted the balance addition made by the ld. A.O/TPO. 28. The Revenue and the assessee has challenged the order of the ld. CIT(A) before us. 29. The ld. AR for the assessee contended that these guarantee commissions issued to the banks on behalf of the AE’s does not fall under the category of international 17 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited transaction and more specifically the letter of comfort will not tantamount to an international transaction. The ld. AR relied on the decision of the Asian Paints Ltd. vs. Addl. CIT (in ITA No. 2754/Mum/2014) and The Indian Hotels Co. Ltd. vs. Addl. CIT (in ITA No. 371/Mum/2010 & others) (ITAT-Mum). The ld. AR further stated that Explanation C to section 92B does not include letter of comfort within the expression of International Transaction. The ld.AR further stated that Rule 10A of the I. T. Rules does not include Letter of Comfort as per the amended provision for the purpose of determining the ALP of the international transactions. The ld. AR further stated that Rules 10A clause (c) of the I. T. Rules defined ‘corporate guarantee’ and the explanation to clause (c) excludes Letter of Comfort from the corporate guarantee. The ld. AR contended that Letter of Comfort issued by the assessee to its AE’s does not come under the purview of International Transaction. The ld. AR further stated that performance guarantee stood expired in January, 2013 and that the ld. CIT(A) has rightly deleted the addition pertaining to the ALP determined for the performance guarantee. The ld. AR on the issue of financial guarantee relied on the decision of the Hon'ble Jurisdictional High Court in the case of Everest Kento Cylinder (supra) where 0.5% on financial guarantee has been approved by the Hon'ble High Court. The ld. AR relied on the order of the Hon'ble High Court and the ld. CIT(A)’s order. 30. The ld. DR, on the other hand, contended that the issue of whether Letter of Comfort is an international transaction or not has been a settled proposition of law by various decisions. It is observed that the assessee in its Letter of Comfort has given various undertakings such as it will own atleast 49% of the AE’s equity: 1. The assessee will continue to own at least 49% of AE’s equity 18 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited 2. They will not transfer, assign, dispose off, place, charge or create any lien on these shareholdings. 3. They will furnish details in agreed format every year. 4. The bank can inspect the records of the assessee. This undertaking of the assessee protects the investments made by the assessee in the AE’s by not divesting its share holding in the AE. This creates a liability on the assessee for the advances lent to its AE’s. This indirectly holds the assessee liable to the extent of 49% of the equity, therefore, covering the loans advanced by the banks to its AE’s. The ld. CIT(A) has restricted it to 0.2% of the assessee’s investment as on 31.03.2012 being 49% of the equity amounting to Rs.95,25,39,847/- determining the ALP at Rs.19,05,080/-. It is observed that neither the assessee nor the lower authorities have adopted any of the prescribed methods for determining the ALP of the international transactions for the reason that the assessee has not considered the same to be an international transaction and the ld. TPO has also not applied any of the prescribed method as being the most appropriate method for determination of the ALP. The ld. CIT(A) has also not determined the ALP for financial guarantee by applying MAP. As the transaction of issuance of corporate guarantee to its AE given by the assessee on behalf of its AE is held to be an international transaction, the same has to be determined at ALP by bench marking the said transaction by applying any of the method prescribed under the provisions of the Act. The determination of the ALP in the case of another assessee or that because in assessee’s case for other years cannot be a detrimental factor for determining the ALP, as the provision is clear that TP adjustments has to be made as per the provisions of the Act in case of each assessee for every year. It is also pertinent to point out that various decisions of the Hon'ble Jurisdictional High Court relied upon by the ld. AR has held tha the letter of comfort given by the assessee on behalf of its AE 19 ITA Nos. 2 0 2 5 & 2 2 3 3 / M / 2 0 2 1 a n d C O N o . 5 5 / M / 2 0 2 2 Shapoorji Pallonji and Company Private Limited does not come under the purview of an international transaction and the provision also clearly excludes letter of comfort within the expression of ‘international transaction’. Having stated so, there is no necessity for determining the ALP for the said transaction. 31. From the above observation, we are of the considered view that the matter should be remanded back to the file of the ld. TPO for the purpose of applying any of the prescribed methods for determining the ALP of the international transactions only to the extent of the finance guarantee given by the assessee on behalf of its AEs. As the performance guarantee has already expired in 2013, there would not be any necessity to determine the ALP and, hence, we confirm the deletion made by the ld. CIT(A) on this ground. Hence, Ground Nos. 5 to 12 of the Revenue’s appeal and the ground no.1 of the assessee’s appeal are allowed for statistical purpose. 32. In the result, the appeal and cross objection filed by the assessee and the appeal filed by the Revenue are all partly allowed. Order pronounced in the open court on 28.03.2024. Sd/- Sd/- (B R Baskaran) (Kavitha Rajagopal) Accountant Member Judicial Member Mumbai; Dated : 28.03.2024 Roshani , Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT - concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai
