GVR Power & Infrastructure Limited, Kadiyam V. ACIT, Circle - 2(1), Rajahmundry

ITA 530/VIZ/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3941 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 10-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DEBAKUMAR SONOWAL
• Keywords: Transfer pricing; Business expenditure; International transaction; Earning of tax free income; Retrospective amendment; Question of law; Notional interest; Revised return; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 92B; 14A; 37(1); 37

Judgement Text

ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . .. . . . . . ' , % BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NO.530/VIZAG/2017 ( / ASSESSMENT YEAR: 2013-14) GVK POWER & INFRASTRUCTURE LTD JEGURUPADU ACIT, CIRCLE - 2(1), RAJAMAHENDRAVARAM [PAN NO. AAACJ5599A ] ( ' / APPELLANT) ( ()' / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI DEBA KUMAR SONOWAL, DR / DATE OF HEARING : 09.05.2018 / DATE OF PRONOUNCEMENT : 18.05.2018 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE DISPUTE RESOLUTION PANEL-1 (DRP), BENGALURU VIDE F. NO.241/DRP- 1/BNG/2016-17 DATED 18.8.2017 FOR THE ASSESSMENT YE AR 2013-14. 2. GROUND NO.1 IS RELATED TO THE TRANSFER PRICING A DJUSTMENT OF RS.11,32,94,387/-. THE ASSESSEE M/S. GVK POWER & I NFRASTRUCTURE LIMITED IN SHORT (GVKPIL) IS INCORPORATED ON 28.4.2 005 IS FLAGSHIP ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 2 COMPANY OF GVK GROUP. THE ASSESSEE HAS DIVERSIFIED ITS BUSINESS IN THE FIELDS OF POWER, AIRPORTS, ROADS AND ALSO OWN THE E QUITY STAKE IN DOMESTIC COAL MINES FOR CAPTIVE PURPOSES AND HAS EN TERED INTO AN OIL AND GAS EXPLORATION BUSINESS JOINTLY WITH BHP BILLI TON. THE ASSESSEE HAS ENTERED INTO AN INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISE(AE) M/S G.V.K. COAL DEVELOPERS (SINGAPO RE) PTE LIMITED, (IN SHORT GVK SINGAPORE) AND EXTENDED CORPORATE GUARANT EE OF INR 2814,32,00,000/- AS ON 31 ST MARCH, 2013 AND HAS CHARGED COMMISSION TO ITS A.E. AMOUNTING TO RS.25,25,67,213/-. THE A. O. REFERRED THE INTERNATIONAL TRANSACTION U/S 92CA(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') TO TRANSFER POLIC Y OFFICER (TPO) FOR DETERMINATION OF ARMS LENGTH PRICE (ALP) OF THE TAX PAYER COMPANY. THE COMMISSION CHARGED BY THE TAX PAYER FOR CORPORA TE GUARANTEE HAS WORKED OUT TO 0.90%. THE ASSESSEE HAS MADE THE TRA NSFER PRICING (TP) STUDY AND ADOPTED THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD AS MOST APPROPRIATE METHOD FOR BENCH MARKING THE TRANSACTION OF CORPORATE GUARANTEE. THE ASSESSEE IN ITS TRANS FER PRICING DOCUMENTATION HAS CONDUCTED THE SEARCH USING THE B LOOMBERG DATABASE TO IDENTIFY THE MARKET YIELD ON DEBT SECUR ITIES WITH CREDIT RATINGS. THE ASSESSEE HAS USED THE US INDUSTRIAL BOND YIELD CURVE TO DETERMINE THE BENCH MARK OF GUARANTEE FEE RANGE. T HE ASSESSEE HAS ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 3 CONSIDERED THE ONE YEAR US INDUSTRIAL YIELD CURVE A S BENCH MARK FOR THE MARKET INTEREST RATES, SINCE THE DURATION FOR THE T RANSACTION OF LOANS IS LESS THAN OR EQUAL TO ONE YEAR. BASED ON THE ANALY SIS OF US INDUSTRIAL BOND YIELD CURVE FOR THE PERIOD UNDER CONSIDERATION , THE ASSESSEE HAS HELD THAT THE TRANSACTION OF GUARANTEE FEE CHARGED TO ITS A.E. IS AT ARMS LENGTH. THE TPO CONSIDERED THE ISSUE OF CORPORATE GUARANTEE COMMISSION CHARGED BY THE ASSESSEE IS LESS THAN THE COMPARABLE FEE BASED ON THE GUARANTEE COMMISSION CHARGED BY THE BA NKS AND ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY FEE @ 1 .30% SHOULD NOT BE CHARGED ON THE CORPORATE GUARANTEE EXTENDED AND THEREBY PROPOSING AN ADJUSTMENT U/S 92CA OF THE ACT. THE ASSESSEE FI LED EXPLANATIONS STATING THAT THE BANK GUARANTEE AND CORPORATE GUARA NTEES ARE NOT SIMILAR AND THE SAME ARE NOT COMPARABLE. BANK GUAR ANTEES AND CORPORATE GUARANTEES ARE GIVEN UNDER DIFFERENT MOTI VATIONS. WHILE THE CORPORATE GUARANTEES ARE ISSUED IN ORDER TO SUPPORT THE A.ES, BANK GUARANTEES ARE ISSUED BY BANKS IN THE NORMAL COURSE OF BUSINESS, THUS, THE COMMERCIAL CONSIDERATIONS IN THE TWO CASES WITH DIFFERENT APPROACHES. IN THE CASE OF CORPORATE GUARANTEE, TH E PURPOSE IS TO SUPPORT THE A.E. AND DERIVE A LONG TERM BENEFIT WHI LE IN THE BANK GUARANTEES, THE SERVICE IS RENDERED IN THE GENERAL COURSE OF ITS BUSINESS AND THE BENEFIT TOWARDS THE BANK IS THE PROFIT ELEM ENT ASSOCIATED WITH ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 4 THE SERVICES RENDERED. THE LD. A.R. FURTHER SUBMIT TED BEFORE THE A.O., THAT FOR COMPARABILITY, THE NECESSARY ADJUSTMENTS M UST BE MADE TO ACCOUNT FOR THE DIFFERENCE IN THE FUNCTIONAL NATURE OF THE GUARANTEES AS WELL AS FOR THE TERMS AND CONDITIONS AND THE RISKS OF THE TESTED TRANSACTION. SINCE THE BANK GUARANTEE AND CORPORAT E GUARANTEE ARE TWO DIFFERENT TRANSACTIONS, THE RATES CANNOT BE COMPARE D. THE NAKED BANK QUOTES ON A WEBSITE ARE GENERIC IN NATURE, NOT SPEC IFIC TO ANY OTHER BY TRANSACTION THAT HAS BEEN CARRIED OUT. THUS, NOT O NLY THEY ARE NEGOTIABLE, THEY ALSO VARY DEPENDING ON THE TERMS A ND CONDITIONS OF THE TRANSACTIONS AND THE RELATIONSHIP BETWEEN THE BANKS AND CUSTOMERS. THE ASSESSEE FURTHER SUBMITTED THAT THERE ARE VARIO US DIFFERENCES BETWEEN THE BANK GUARANTEE AND CORPORATE GUARANTEE AND THERE ARE MULTIPLE FACTORS, WHICH NEEDS TO BE ANALYSED AND AP PROPRIATE ADJUSTMENTS ARE WARRANTED AS PROVIDED UNDER RULE 10 B OF THE INCOME TAX RULES, 1962 BEFORE COMPARING THE RATE CHART BY VARIOUS BANKS AS GUARANTEE FEE WITH GUARANTEE FEE CHARGED BY THE IND EPENDENT COMPANIES. THE ASSESSEE ALSO ARGUED THAT THE A.O. HAS NOT BROUGHT ON RECORD THE TERMS AND CONDITIONS OF THE COMPARABLE T RANSACTION OF GUARANTEE OF STATE BANK OF INDIA WHICH HAS CHARGED THE BANK GUARANTEE COMMISSION @ 1.30% FOR THE ASSESSMENT YEAR 2013-14. THE ASSESSEE ARGUED BEFORE THE A.O. THAT AS PER THE DECISION OF HONBLE BOMBAY HIGH ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 5 COURT IN THE CASE OF EVEREST KANTO CYLINDERS LIMITE D AND OTHER TRIBUNALS THE CORPORATE GUARANTEE COMMISSION CHARGED FROM 0.2 5% TO 0.53% IS CONSIDERED TO BE APPROPRIATE FOR ISSUANCE OF CORPO RATE GUARANTEES. THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING DECISIONS OF VARIOUS TRIBUNALS: SL. NO. NAME OF THE CASE LAW ASSESSMENT YEAR GUARANTEE FEES 1. EVEREST KANTO CYLINDER LIMITED HIGH COURT ITA NO.1165 NO.2013 ITAT ITA NO.542/MUM/2012 AY 2007-08 0.53% 2. FOURSOFT LIMITED ITA NO.1903/HYD/2011 AY 2007-08 0.53% 3. PROLIFICE CORPORATION LIMITED ITA NO.237/HYD/2014 ITA NO.1646/HYD/2014 AY 2009-10 AY 2010-11 0.53% 4. GLENMARK PHARMACEUTICALS LIMITED ITA NO.5031/MUM/2012 AY 2008-09 0.535 5. ASIAN PAINTS LIMITED ITA NO.7801/MUM/2010 AY 2005-06 0.25% TO 0.35% 6. RELIANCE INDUSTRIES LIMITED ITA NO.4475/MUM/2007 AY 2003-04 0.38% 7. NIMBUS COMMUNICATION LIMITED ITA NO.3664&2359/MUM/2010 ITA NO.6816 & 7105/MUM/2010 AY 2005-06 AY 2006-07 AY 2007-08 0.50% 3. THE TRANSFER PRICING OFFICER NOT BEING CONVINCED WITH THE EXPLANATION OF THE ASSESSEE HELD THAT THE INTERNATI ONAL TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS A.E. IS NOT AT ARMS LENGTH PRICE AND HELD THAT CORPORATE GUARANTEE COMMISSION @ 1.30 % CHARGED BY THE STATE BANK OF INDIA FOR ITS GUARANTEE HELD TO BE CO MPARABLE AND AT ARMS LENGTH PRICE. THEREFORE, SUGGESTED FOR UPWARD ADJU STMENT OF RS. 11,32,94,387/- DIFFERENCE BEING THE CORPORATE G UARANTEE CHARGES WORKED OUT @ 1.30% AND CHARGED BY THE ASSESSEE U/S 92CA OF THE ACT. ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 6 THE A.O. ISSUED THE DRAFT ASSESSMENT ORDER ON 16.11 .2016 PROPOSING TO MAKE THE ADJUSTMENTS AS SUGGESTED BY THE TPO AND TH E ASSESSEE APPROACHED THE DISPUTE RESOLUTION PANEL (DRP) U/S 1 44C(2) OF THE ACT AND RAISED THE GROUNDS OBJECTING FOR CHARGING THE S ERVICE CHARGES @ 1.30% ON THE BASIS OF THE GUARANTEE COMMISSION C HARGED BY THE STATE BANK OF INDIA AND ARGUED THAT COMMISSION CHAR GED @ 0.25% TO 0.53% HELD TO BE REASONABLE AS PER THE ORDERS OF TH E VARIOUS TRIBUNALS RELIED UPON BY THE ASSESSEE. THE ASSESSEE ALSO EXP LAINED THE DIFFERENCE BETWEEN THE BANK GUARANTEE COMMISSION CHARGED BY TH E BANKS AND THE CORPORATE GUARANTEE. THE ASSESSEE REITERATED THE S UBMISSIONS MADE BEFORE THE TRANSFER PRICING OFFICER AND ALSO RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. E VEREST KENTO CYLINDERS LTD. (ITA NO.1165/MUM/2013), WHEREIN IT W AS HELD THAT CORPORATE GUARANTEE CANNOT BE COMPARED WITH THE BAN K GUARANTEE FOR TRANSFER PRICING PURPOSES. THE ASSESSEE ALSO RELIE D ON THE DECISION OF GLENMARK PHARMACEUTICALS LTD. (2014) 43 TAXMANN.COM 191 WHEREIN ITAT HELD THAT THE BANK GUARANTEE COMMISSION PRICES CANNOT BE COMPARABLE FOR EXTERNAL CUP TO BENCH MARK THE CORPO RATE GUARANTEE. THE LD. DRP CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE AND OBSERVED THAT THE ASSESSEE FAILED TO SHOW AS TO HOW THE US BOND RATE IS MORE APPLICABLE THAN THE BANK RATES ADOPTED BY THE TPO. FURTHER, IT ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 7 WAS ALSO OBSERVED THAT IF 0.53% WOULD BE THE ALP RA TE IN 2007-08, THEN THE RATE AT 1.30% FOR THE SUBJECT YEAR WOULD NOT BE UNREASONABLE AND ACCORDINGLY REJECTED THE OBJECTIONS RAISED BY THE A SSESSEE. THE A.O. PASSED THE ASSESSMENT ORDER U/S 143(3) R.W.S. 92CA( 3) OF THE ACT AND U/S 144C(13) OF THE ACT ON 29.9.2017 MAKING THE UPW ARD ADJUSTMENT OF RS.11,32,94,387/- ON ACCOUNT OF ADJUSTMENT OF CORPO RATE GUARANTEE. 4. AGGRIEVED BY THE ORDER OF THE A.O/DRP, THE ASSES SEE CARRIED THE MATTER TO THE TRIBUNAL. DURING THE APPEAL HEARING, THE LD. A.R. ARGUED THAT THE ASSESSEE HAS CONDUCTED TRANSFER PRICING ST UDY AND ADOPTED THE US BOND YIELDING CURVE METHOD TO BENCH MARK THE TRA NSACTION FOR GUARANTEE COMMISSION FOR CORPORATE GUARANTEE. THE ASSESSEES A.E. M/S. GVK COAL TO BORROW USG DENOMINATED LOAN OF US D$ 1.25 BILLION FOR WHICH THE ASSESSEE HAS PROVIDED THE CORPORATE G UARANTEE TO THIRD PARTY LENDER I.E. CONSORTIUM OF ICICI BANK, BANK OF INDIA, BANK OF BARODA, CANARA BANK AND KOTAK MAHINDRA BANK. WITH T HIS BORROWING, GVK COAL ACQUIRED HOLDINGS IN CERTAIN COAL COMPANIE S IN AUSTRALIA TOWARDS THE SAID LOAN AND GVK COAL HAS GIVEN ITS AS SETS, SECURITIES AND MINING TENEMENTS AND OTHER FIXED ASSETS OF THE TARG ET COMPANY AND ADDITIONAL SECURITY IN THE FORM OF ALL SHARES OWNED BY GVK COAL, AND THE ASSESSEE HAS EXTENDED ITS CORPORATE GUARANTEE TO TH E THIRD PARTY LENDERS. THE LD. A.R. FURTHER ARGUED THAT THE PRIM ARY SECURITIES ARE THE ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 8 STOCKS, THE ASSETS AND THE MINING TENEMENTS OF THE ASSOCIATED ENTERPRISES AND THE CORPORATE GUARANTEE IS AN ADDIT IONAL SECURITY. HENCE, ARGUED THAT THE RISK FACTOR INVOLVED IN THE BANK GUARANTEE AND THE CORPORATE GUARANTEE IS COMPLETELY DIFFERENT. I N THE BANK GUARANTEE, THE DIRECT MONETARY TRANSACTIONS ARE INVOLVED, IN C ASE OF DEFAULT, THE BANK HAS TO HONOUR THE GUARANTEE IMMEDIATELY. IN T HE CASE CORPORATE GUARANTEE, THE ASSESSEE HAS TO MAKE THE PAYMENT IN CASE THE AE FAILED TO REPAY THE LOAN AND IT INVOLVES LEGAL PROCESS TO LIQUIDATE THE PRIMARY SECURITIES, COLLATERAL SECURITIES AND THEN THE CORP ORATE GUARANTEES ARE INVOKED. THEREFORE, RISK FACTOR INVOLVED IN CORPOR ATE GUARANTEE IS DIFFERENT AND MINIMAL AGAINST THE MAXIMUM RISK INVO LVED IN CASE OF BANK GUARANTEES. FURTHER, THE LD. A.R. ARGUED THAT IN T HE CASE OF CORPORATE GUARANTEE IT IS EXTENDED TO ITS AES IN THE COMMERC IAL INTEREST OF THE COMPANY FOR DERIVING THE LONG TERM BENEFIT. WHEREAS IN THE CASE OF BANK GUARANTEE, THE SERVICES ARE RENDERED FOR PROFI T AND THE COMMISSION IS CHARGED DEPENDING ON TERMS AND CONDITIONS OF THE GUARANTEE AND THE SECURITIES OFFERED AND MARGIN MONEY ETC. THE LD. A .R. FURTHER SUBMITTED THAT THE ASSESSEE HAS RELIED ON NUMBER OF DECISIONS AND THE A.O. DID NOT BRING ANY OTHER COMPARABLE CASE OR DECISION OF THE TRIBUNAL/ OR HIGH COURT TO FORTIFY THE ARGUMENT THAT BANK GUARANTEE C OMMISSION CHARGED BY THE BANK IS COMPARABLE AND AT ARMS LENGTH PRICE. SINCE THE DECISION ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 9 OF HONBLE BOMBAY HIGH COURT AND THE DECISIONS OF T RIBUNALS SUPPORTS THE ASSESSEES CASE AND HELD THAT THE CORPORATE GUA RANTEE COMMISSION CHARGED @ 0.25% TO 0.53% IS CONSIDERED TO BE REASON ABLE AND THE ASSESSEE HAS CHARGED COMMISSION AT 0.90% WHICH IS H IGHER THAN THE COMPARABLE CASES, THE LD AR ARGUED THAT CORPORATE G UARANTEE COMMISSION IS AT ALP AND NO ADJUSTMENT IS WARRANTE D. 5. ON THE OTHER HAND, THE LD. D.R. SUPPORTED THE OR DERS OF THE LOWER AUTHORITIES AND ARGUED THAT THE BANK GUARANTEE COMM ISSION IS COMPARABLE AND HENCE NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE AO/DRP. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. IN THIS CASE, THE ASSESSEE HAS CONDUCTED TRANSFER PRICING S TUDY AND ARRIVED AT ALP RATE OF 0.89% BASED ON US INDUSTRIAL BOND YIELD CURVE. THE ASSESSEE HAS EXTENDED THE CORPORATE GUARANTEE TO TH E THIRD PARTY LENDER BANKS FOR PROVIDING CREDIT FACILITIES. THE PRIMARY SECURITY GIVEN BY THE ASSOCIATED ENTERPRISES IS MORTGAGE OF LAND, SECURIT IES, MINING TENEMENTS AND OTHER FIXED ASSETS OF THE TARGET COMPANY AND AL L SHARES OWNED BY THE GVK COAL. WE AGREE WITH THE ARGUMENT OF THE LD. AR THAT THE BANK GUARANTEE AND THE CORPORATE GUARANTEES ARE ISSUED O N DIFFERENT ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 10 APPROACHES AND WITH DIFFERENT MOTIVATIONS. IN CORPO RATE GUARANTEE, THE RISK FACTOR IS LESSER SINCE THE CREDIT FACILITIES G RANTED BY THE BANK WAS FIRSTLY COVERED BY THE ASSETS OF THE BORROWING COMP ANY, WHEREAS IN THE BANK GUARANTEE, THE RISK FACTOR IS MORE SINCE IMMED IATE MONETARY TRANSACTION IS INVOLVED. THEREFORE, THE COMMISSION CHARGED IN BANK GUARANTEE WOULD BE MORE THAN THE CORPORATE GUARANTE E TO COVER THE RISKS AND THE PROFITS. FURTHER IN CASE OF BANK GUA RANTEE, THE BANK GUARANTEES ARE UNDERTAKEN WITH A PROFIT ELEMENT, W HEREAS, IN THE CASE OF CORPORATE GUARANTEE MUTUAL COMMERCIAL INTEREST A ND LONG TERM BENEFITS ARE PRIME FACTORS. FURTHER, THOUGH THE LD . A.O. ADOPTED THE BANK GUARANTEE COMMISSION AS A COMPARABLE AND AT AL P, THE TERMS AND CONDITIONS OF THE BANK GUARANTEE AND THE TERMS AND CONDITIONS OF THE CORPORATE GUARANTEE WERE NOT BROUGHT ON RECORD AND DID NOT ALLOW THE NECESSARY ADJUSTMENTS TO VARIOUS RISKS. IF THE A.O . IS TAKING ANY OF THE COMPARABLE CASES FOR TRANSFER PRICING STUDY, THE R ISK FACTORS INVOLVED, THE TERMS AND CONDITIONS OF THE GUARANTEE, THE PROF ITS, ETC. REQUIRE SUITABLE ADJUSTMENTS. IN THIS CASE, THE A.O. HAS N OT MADE ANY SUCH ADJUSTMENTS AND BRUSHED ASIDE THE ENTIRE ARGUMENT A DVANCED BY THE ASSESSEE BEFORE THE A.O. AS WELL AS THE DRP. THE D RP ALSO BRUSHED ASIDE THE ARGUMENT OF THE ASSESSEE SIMPLY STATING T HAT THE ASSESSEE DID NOT DEMONSTRATE HOW THE US BOND RATE IS MORE APPLIC ABLE THAN THE BANK ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 11 RATES ADOPTED BY THE TPO. NEITHER THE A.O. NOR THE DRP STUDIED THE ISSUE HOW THE US BOND RATE IS MORE APPLICABLE THAN THE BANK RATE AND THERE WAS NO ANALYSIS OF DATA WITH RISK FACTORS, FI NANCIAL FACTORS, COMMERCIAL INTEREST, PROFITS, ETC., WHILE MAKING T HE TRANSFER PRICING STUDY. THE ASSESSEE HAS BROUGHT ON RECORD THE NUMB ER OF CASE LAWS RELIED UP ON, BUT THE REVENUE DID NOT MAKE OUT A CA SE FOR REJECTION OF THE COMMISSION @ 0.25% TO 0.53%, WHICH IS HELD TO B E REASONABLE. NEITHER THE A.O. NOR DRP BROUGHT ON RECORD ANY DECI SION, WHICH IS HELD TO BE MORE FAVOURABLE TO THE REVENUE AND NO OTHER J UDGEMENT WAS BROUGHT ON RECORD CONTROVERTING THE DECISIONS RELIE D UPON BY THE LD. A.R. IN THE CASE OF VIDEOCON INDUSTRIES LTD. VS. D CIT RANGE -3(3)(2), MUMBAI REPORTED IN 79 TAXMANN.COM 216 BY ITAT K B ENCH, MUMBAI HELD THAT WHERE THE LOAN FOR WHICH ASSESSEE HAD GIV EN CORPORATE GUARANTEE, PRIMARILY COVERED BY PLEDGE OF SECURITIE S HYPOTHECATION OF DEBTORS BALANCES AND OTHER ASSETS OF AE, CORPORATE GUARANTEE COMMISSION AROUND 0.5% WOULD BE ACCEPTABLE AS ALP. FURTHER, THE ITAT MUMBAI K BENCH IN THE CASE OF NIMBUS COMMUNI CATIONS LTD. VS. ACIT (11)(1) MUMBAI (2017) 85 TAXMANN.COM 237, AGAI NST THE GUARANTEE COMMISSION ADJUSTMENT MADE BY THE ASSESSE E @ 3% HELD THAT 0.5% IS REASONABLE AND AT ALP. IN THE CASE OF GLENMARK PHARMACEUTICALS LTD. (SUPRA) RELIED UPON BY THE ASS ESSEE, HONBLE ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 12 BOMBAY HIGH COURT HELD THAT BANK GUARANTEE COMMISSI ON IS NOT A COMPARABLE TRANSACTION FOR TRANSACTION TO DETERMINE THE ALP. HOWEVER, HONBLE SUPREME COURT HAS GRANTED SLP IN THIS CASE. THEREFORE, IN THE ASSESSEES CASE, THE PRIMARY SECURITIES OFFERED BY THE ASSESSEE WAS THE ASSETS OF THE GVK COAL AND CORPORATE GUARANTEE WAS EXTENDED TO THIRD PARTY LENDER. AS PER THE DECISIONS REFERRED IN TH IS ORDER OF VARIOUS TRIBUNALS AND HIGH COURTS, THE CORPORATE GUARANTEE COMMISSION CHARGED @ 0.25% TO 0.53% IS CONSIDERED TO BE REASONABLE IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE. THE LD. D.R. DID NOT PLACE ANY OTHER JUDGEMENT OR ORDER OF THE HIGH COURT OR ANY O THER COURT TO CONTROVERT THE DECISION CITED (SUPRA). IN THE ASSE SSEES CASE THE CORPORATE GUARANTEE COMMISSION CHARGED BY THE ASSES SEE WAS 0.90% WHICH IS MORE THAN THE CORPORATE GUARANTEE COMMISSI ON OF 0.25% TO 0.53% APPROVED BY VARIOUS JUDICIAL FORUMS. THEREFO RE, RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE COORDINATE BENCHES, WE HOLD THAT THE CORPORATE GUARANTEE COMMISSION CHARGED BY THE ASSES SEE COMPANY IS AT ALP AND NO ADJUSTMENT IS REQUIRED. ACCORDINGLY, WE DELETE THE ADDITION MADE BY THE A.O. AND ALLOW THE APPEAL OF THE ASSESS EE. 7. GROUND NO.2 IS RELATED TO THE TRANSFER PRICING A DJUSTMENT MADE BY THE A.O. AMOUNTING TO RS.2 2,44,330/- BY IMPUTING NOTIONAL INTEREST ON OUTSTANDING AMOUNTS FROM A.E.. THE TRANSFER PRIC ING OFFICER FOUND ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 13 THAT THE ASSESSEE HAS RECEIVABLES OF RS. 7,32,97,465/- AS AT THE END OF THE YEAR. THE TPO REQUESTED THE ASSESSEE TO SUBMIT THE DETAILS OF RAISING THE INVOICE AND SUBSEQUENT RECEIPT OF THE A MOUNT AND ALSO CALLED FOR AN EXPLANATION AS TO WHY NOTIONAL INTERE ST SHOULD NOT BE CHARGED @ 14.45% ON RECEIVABLES WHICH WAS NOT REPAI D BY THE AES AFTER THE DUE DATE OF PAYMENT. THE A.O. FOUND THE AMOUNTS WERE OUTSTANDING FOR MORE THAN 60 DAYS ALLOWABLE CREDIT PERIOD, HENCE, CHARGED THE INTEREST @ 14.5% WHICH WORKED OUT TO RS .49,89,329/- AND PROPOSED FOR UPWARD ADJUSTMENT ON ACCOUNT OF NOTION AL INTEREST U/S 92CA(3) OF THE ACT. ON RECEIPT OF THE DRAFT ASSESS MENT ORDER FROM THE A.O., THE ASSESSEE APPROACHED THE DRP AND FILED THE IR OBJECTIONS BEFORE THE HONBLE DRP AND ARGUED THAT THE RECEIVAB LES SHOULD NOT BE CONSIDERED AS A SEPARATE INTERNATIONAL TRANSACTION AND THERE BY PROPOSING TO LEVY NOTIONAL INTEREST. FURTHER, ARGU ED THAT WHILE DETERMINING THE ALP, THE INTEREST FOR DELAY IS CON SIDERED, HENCE THE DIFFERED RECEIVABLES OR DELAY IN RECEIVABLES WOULD NOT CONSTITUTE A SEPARATE INTERNATIONAL TRANSACTION. THE DIFFERED RE CEIVABLES ARE NOT IN THE NATURE OF CAPITAL FINANCING EVEN AS PER THE AME NDED PROVISIONS. FURTHER, ARGUED THAT RECEIVABLES ARE CLOSELY LINKED TO THE PRINCIPAL TRANSACTION OF PROVISION OF SERVICE AND NOT AN INTE RNATIONAL TRANSACTION, HENCE, RECHARACTERISING THE TRANSACTION AS INTERNAT IONAL TRANSACTION IS ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 14 NOT PERMISSIBLE. THE LD. DRP AFTER CONSIDERING THE OBJECTIONS RAISED BY THE ASSESSEE HELD THAT AFTER INSERTION OF EXPLANATI ON TO SECTION 92B WITH RETROSPECTIVE EFFECT FROM 1.4.2002 DIFFERED RECEIVA BLES OR THE RECEIVABLES OR ANY OTHER DEBT ARISING DURING THE CO URSE OF BUSINESS WOULD AMOUNT TO INTERNATIONAL TRANSACTION AND RELIE D ON THE DECISION OF ITAT, DELHI IN THE CASE OF BECHTEL INDIA PVT. LTD. IN ITA NO.6530/DEL/2016 DATED 16.5.2017. FURTHER, WITH RE GARD TO THE ARGUMENT OF THE ASSESSEE THAT RECEIVABLE IS AN INDE PENDENT TRANSACTION AND THAT THE ALLOWANCE OF WORKING CAPITAL ADJUSTMEN T WOULD TAKE CARE OF THE IMPACT OF PROFITABILITY, THE DRP NEGATED THE CLAIM OF THE ASSESSEE AND RELIED ON THE DECISION OF HONBLE ITAT IN THE CASE OF BECHTEL (SUPRA). FURTHER, ON THE ARGUMENT OF LD. A .R. THAT NO INTEREST COULD BE IMPUTED WHEN THE ASSESSEE HAS NO FINANCE C OST THE TRIBUNAL NEGATED THE CLAIM OF THE ASSESSEE PLACING RELIANCE ON ITAT DELHI IN THE CASE OF BECHTEL (SUPRA). WITH REGARD TO THE HYPOTH ETICAL OR NOTIONAL INTEREST, THE DRP RELIED ON THE DECISION OF ITAT DE LHI IN THE CASE OF TECHBROOK INTERNATIONAL PVT. LTD. IN ITA NO.240/DEL /2015/ASST.YEAR 2010-11 DATED 6.7.2015 AND REJECTED THE ASSESSEES OBJECTION. PLACING RELIANCE ON THE ABOVE DECISIONS AND THE EXPLANATION TO SECTION 92B BY FINANCE ACT, 2012, THE DRP HELD THAT THE DIFFERED R ECEIVABLES WOULD CONSTITUTE INTERNATIONAL TRANSACTION AND INTEREST H AS TO BE BENCH ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 15 MARKED FOR DELAY BEYOND THE ALLOWABLE CREDIT PERIOD AND ACCORDINGLY DIRECTED THE A.O. TO DETERMINE THE ALP. HOWEVER, T HE DRP WAS OF THE VIEW THAT THE ADJUSTMENT PROPOSED BY THE TPO @14.45 % IS UNREASONABLE AND DIRECTED THE TPO TO ADOPT THE ADJU STMENT TAKING THE DOMESTIC TERM DEPOSIT RATES OF SBI. ACCORDINGLY, T HE ASSESSING OFFICER MADE THE ADJUSTMENT OF RS.22,44,330/- TOWARDS THE N OTIONAL INTEREST ON OUTSTANDING AMOUNTS RECEIVABLE FROM AE. 8. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE IS IN APPEAL BEFORE US. DURING THE APPEAL HEARING, THE LD. A.R. ARGUED THAT THE TRANSACTIONS WERE ENTERED INTO BY THE ASSESSEE AT T HE END OF THE YEAR AND THERE WAS MARGINAL DELAY IN REALIZING THE RECEI VABLES FROM THE A.E. THE ASSESSEE HAS NOT ENGAGED IN THE ORGANIZED ACTIV ITY OF REALIZING THE RECEIVABLES BEYOND THE DUE DATE PROVIDED IN THE INV OICE. ON COUPLE OF OCCASIONS, THERE WAS A DELAY, HENCE, ARGUED THAT TH ERE IS NO CASE FOR CHARGING NOTIONAL INTEREST. THE ASSESSEE RELIED ON THE DECISION OF MOTHERSON SUMI INFOTECH & DESIGNS LIMITED VS. DCIT REPORTED IN (2018) 52 CCH 0122 DELHI. THE LD. A.R. ARGUED THAT IN THE INSTANT CASE, THERE IS NO REASON TO CHARGE THE NOTIONAL INT EREST SINCE THE SAME WAS NOT A REGULAR PRACTICE OF THE ASSESSEE TO MAKE THE DELAY OF RECEIVABLES. ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 16 9. ON THE OTHER HAND, THE LD. D.R. ARGUED THAT THE ISSUE WITH REGARD TO CHARGING OF NOTIONAL INTEREST ON DIFFERED PAYMEN T OR DIFFERED RECEIVABLES WOULD CONSTITUTE SEPARATE INTERNATIONAL TRANSACTION OR NOT? WAS CONSIDERED IN DETAIL BY THE DRP AND AFTER CONSI DERING THE DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL IN THE CASE OF TECHBROOK INTERNATIONAL PVT. LTD. AND BECHTEL LTD. , HELD THAT THE DELAY IN PAYMENT OF DIFFERED RECEIVABLES WOULD CONSTITUT E AN INTERNATIONAL TRANSACTION, WHICH REQUIRE TO BE BENCH MARKED FOR A LP. THE LD.DR FURTHER ARGUED THAT AS PER THE INSERTION OF EXPLANA TION TO 92B BY FINANCE ACT 2012 WITH RETROSPECTIVE EFFECT THE NOTI ONAL INTEREST ON DIFFERED RECEIVABLES IS AN INTERNATIONAL TRANSACTIO N. THE LD. DRP ALSO CONSIDERED THE ISSUE OF RATE OF INTEREST ON DIFFERE D RECEIVABLES AND SCALED DOWN THE RATE INTEREST ADJUSTMENT PROPOSED B Y THE TPO. THEREFORE, ARGUED THAT NO FURTHER ADJUSTMENT IS REQ UIRED AND ADDITION MADE BY THE A.O. HAS TO BE UPHELD. 10. IN THE REJOINDER, THE LD. A.R. SUBMITTED THAT T HE DATE OF INVOICE IN THIS CASE WAS 31.3.2013 AND THE ASSESSMENT YEAR INV OLVED IS 2013-14, WHICH SHOWS THAT THE TRANSACTION WAS ENTERED AT THE END OF THE YEAR. FOR THE IMPUGNED ASSESSMENT YEAR THE TIME LIMIT ALL OWED BY THE ASSESSEE WOULD NOT FALL DUE IN THE IMPUGNED ASSESSM ENT YEAR AND MATURITY DATE FALLS BEYOND THE FINANCIAL YEAR ENDIN G THE RELEVANT AY, ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 17 HENCE EVEN IF IT IS PRESUMED THAT NOTIONAL INTEREST REQUIRED TO BE CHARGED, THE SAME SHOULD NOT BE CHARGED FOR THE ASS ESSMENT YEAR UNDER CONSIDERATION SINCE NOTIONAL INTEREST DOES NO T ACCRUE OR ARISE IN THE YEAR ENDING 31.3.2013. 11. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. IN THIS CASE ON 3 OCCASIONS, THERE WAS A DELAY IN RECEIVABL ES RECEIVED BY THE ASSESSEE BEYOND THE DUE DATE. THE DETAILS OF DATE O F INVOICE, DATE OF RECEIPT OF RECEIVABLES ARE AS UNDER: DATE OF INVOICE AMOUNT BILLED IN INR DT. ON WHICH AMOUNT RECEIVED AMOUNT BILLED IN INR CREDIT PERIOD CREDIT PERIOD ALLOWED PERIOD OF DELAY IN DAYS INTEREST ADJUSTMENT 31 MAR 2013 645,113,554 02 DEC 2013 64,373,109 60 246 186 4,740 ,154 31 MAR 2013 8,924,356 02 MAY 2013 1,341,500 60 32 - - 31 MAR 2013 21 AUG 2013 7,582,856 60 143 83 249,164 TOTAL 4,989,318 SINCE THE INVOICES WERE RAISED ON 31.3.2013 AND C REDIT PERIOD ALLOWED WAS 60 DAYS, WE AGREE WITH THE LD. A.RS AR GUMENT THAT THE NOTIONAL INTEREST DOES NOT ACCRUE OR ARISE IN THE Y EAR UNDER CONSIDERATION, THEREFORE, THE ADDITION MADE BY THE A.O. ON ACCOUNT OF NOTIONAL INTEREST IS UNSUSTAINABLE AS PER THE SYSTE M OF ACCOUNTING ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 18 FOLLOWED BY THE ASSESSEE. THE ASSESSEE IS FOLLOWIN G THE MERCANTILE SYSTEM OF ACCOUNTING AND THE INTEREST ACCRUES ONLY WHEN THE DEBT FALLS DUE AND THE SAME IS REMAINED UNPAID. SINCE THE DEB T DO NOT FALL DUE IN THE IMPUGNED ASSESSMENT YEAR, WE HOLD THAT THE I NTEREST IS NEITHER ACCRUED NOR CRYSTALISED IN THE YEAR UNDER CONSIDERA TION. ACCORDINGLY, THE SAME IS DELETED. 12. EVEN OTHERWISE AS OBSERVED FROM THE ORDER OF TH E TPO ON THREE OCCASIONS, THERE WAS A DELAY OF RECEIVABLES AND PO INTED OUT BY THE LD. A.R. THE ASSESSEE IS NOT INDULGED IN ANY SYSTEMATIC OR ORGANIZED ACTIVITY OF ALLOWING THE UNDUE CREDIT TO THE AES. T HE ASSESSEE RELIED ON THE DECISION OF MOTHERSON SUMI INFOTECH & DESIGNS L IMITED VS. DCIT REPORTED IN (2018) 52 CCH 0122 DELHI, AND HONBLE I TAT DELHI HELD AS UNDER: WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERUS ED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS GIVEN SEVERAL REASONS TO EXPLAIN THAT IT BEING A BUSINESS TRANSACTION, COMMERCIAL CO NSIDERATION SHOULD HAVE BEEN CONSIDERED BY THE AUTHORITIES BELOW. IT WAS EXPLAINED THAT THE LONG TERM BUSINESS RELATION WITH THE CUSTOMER A ND A.E. PREDICATE WAIVER OF THIS RIGHT. THE INTERST IS ONLY ASSOCIAT ED WITH THE LOANS AND NOT SERVICES. IT WAS EXPLAINED THAT PAYMENTS ARE RECEI VED ONLY AFTER SATISFACTION OF THE CUSTOMER AND THEREFORE, THERE W AS DELAY IN RECEIVING THE PAYMENTS. THE ASSESSEE ALSO EXPLAINED BEFORE T .P. AUTHORITIES BELOW THAT AVERAGE OUTSTANDING DAYS FOR RECOVERING SALES DUES WAS 57 DAYS IN THE CASE OF A.ES, WHEREAS, IN THE CASE OF NON A.E., IT WAS 66 DAYS. IT WAS ALSO EXPLAINED THAT NON CHARGING OF INTEREST FR OM A.E.S AS WELL AS NON A.E. ON INTEREST RECEIVABLES WAS THAT IT BEING PREDOMINANTLY INVOLVED IN THE PROVISION OF SERVICES TO ITS A.ES AS WELL A S THIRD PARTIES. THE CONTENTION OF THE ASSESSEE HAVE NOT BEEN DISPUTED B Y THE AUTHORITIES BELOW. IT MAY ALSO BE NOTED HERE THAT ALL INTERNAT IONAL TRANSACTIONS WERE ACCEPTED BY THE TPO TO BE AT ARMS LENGTH, EXCEPT, PAYMENT OF INTEREST ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 19 ON LOAN. THE AUTHORITIES BELOW HAVE TREATED THE DE LAYED PAYMENT BEYOND 30 DAYS AS LOANS. IN FACT, NO LOAN HAVE BEE N EXTENDED BY THE ASSESSEE. IT WAS THE AMOUNT DUE AGAINST THE A.ES AS WELL AS NON A.E ON WHICH INTEREST HAVE BEEN CHARGED BY CONSIDERING THE DEEMED LOANS. THEREFORE, THE DECISION OF ITAT, DELHI BENCH IN THE CASE OF M/S. KUSUM HEALTHCARE PVT. LTD., (SUPRA) SQUARELY APPLY IN THE CASE OF THE ASSESSEE, SINCE THE ASSESSEE EARNED SIGNIFICANTLY HIGHER MARG IN THAN THE COMPARABLE COMPANIES, WHICH HAVE BEEN ACCEPTED BY T HE TPO, THEREFORE, THERE WAS NO JUSTIFICATION TO CHARGE INT EREST ON OUTSTANDING. THE DECISION OF HONBLE JURISDICTIONAL DELHI HIGH C OURT IN THE CASE OF PR. CIT VS. KUSUM HEALTHCARE PVT. LTD. (SUPRA) SQUARELY APPLY TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE ALSO E XPLAINED THAT THERE ARE SIMILAR DELAYS IN COLLECTION OF OUTSTANDING REC EIVABLES FROM BOTH A.ES AND NON AES WHICH IS DUE TO BUSINESS AND COMMERCIAL REASONS. THEREFORE, THERE IS UNIFORMITY IN ACT OF ASSESSEE I N NOT CHARGING INTEREST FROM AES AND NON AES. THEREFORE, THE DECISION OF T HE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDO AMERICAN JEW ELLERY LTD. (SUPRA) SQUARELY APPLY TO THE FACTS OF THE CASE. 5.1 CONSIDERING THE NATURE OF BUSINESS OF ASSESSEE AND THE FACTS EXPLAINED ABOVE, WE ARE OF THE VIEW THAT THERE WAS NON JUSTIFICATION FOR THE AUTHORITIES BELOW TO MAKE ADJUSTMENT TO THE INC OME DECLARED BY ASSESSEE. RECENTLY, THE ITAT, I-2 BENCH IN THE CAS E OF TERRADATA INDIA PVT. LTD. VS. ACIT IN ITA NO.7855/DEL/2017 VIDE ORD ER DATED 21 ST FEBRUARY, 2018, FOLLOWING THE ORDER IN THE CASE OF SAME ASSESSEE, IN WHICH THE DECISION OF HONBLE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF PR. CIT VS. M/S. KUSUM HEALTHCARE PVT. LTD. (SUP RA) HAVE BEEN RELIED UPON, ALLOWED THE APPEAL OF ASSESSEE ON THE SIMILAR GROUND. IN VIEW OF THE ABOVE DISCUSSION AND IN THE LIGHT OF VARIOUS DE CISIONS ABOVE AND FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE ADJUSTMENT TO THE INCOME OF THE ASSESSEE IS WHOLLY UNJUSTIFIED ON ACCOUNT OF INTERE ST ON RECEIVABLES. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIE S BELOW AND DELETE THE ENTIRE ADDITION. THE DEPARTMENT HAS NOT MADE OUT CASE OF SYSTEMATIC PLANNING OF ALLOWING THE UNDUE CREDIT TO THE AE. FURTHER LD.AR RELIED ON THE DECISION OF PR.CIT VS B.C.MANAGEMENT SERVICES (P) L TD, (2018) 164 DTR (DEL)299 WHERE IN HOBLE DELHI HIGH COURT HELD THAT DELAYED PAYMENT MADE BY AE CANNOT BE TREATED AS PART OF INC OME. FOR READY ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 20 REFERENCE WE EXTRACT THE RELEVANT PART OF THE ORDER OF THE HONBLE DELHI HIGH COURT WHICH READS AS UNDER: 9. WITH RESPECT TO THE TREATMENT OF NOTIONAL INTER EST BY THE TPO/AO, THE COURT IS OF THE OPINION THAT NO QUESTION OF LAW ARISES. IN A N IDENTICAL SITUATION, IN BECHTEL INDIA (P.) LTD. (SUPRA), THE COURT HAD HELD THAT SU CH NOTIONAL INCOME ON ACCOUNT OF DELAYED PAYMENT MADE BY THE AO CANNOT BE TREATED AS PART OF THE INCOME AND MADE THE SUBJECT MATTER OF THE ADJUSTMENTS. THE QUE STION NO. 2 AND 3 THEREFORE DOES NOT ARISE FOR CONSIDERATION. WHILE RENDERING THE JUDGEMENT THE HONBLE HIGH COUR T HAS CONSIDERED THE DECISION IN THE CASE OF BECHTEL INDI A (P) LTD. THEREFORE, PLACING RELIANCE ON THE DECISION OF MOTHERSON SUMI INFOTECH & DESIGNS LIMITED VS. DCIT (SUPRA) AND THE DECISION IN THE CA SE OF B.C.MANAGEMENT SERVICES (P) LTD WE HOLD THAT THE RE VENUE HAS NOT MADE OUT CASE OF DISALLOWANCE OF NOTIONAL INTEREST ON DELAYED PAYMENTS AND ACCORDINGLY, WE SET ASIDE THE ORDERS O F THE AUTHORITIES BELOW AND DELETE THE ADDITION. THE APPEAL OF THE A SSESSEE ON THIS GROUND IS ALLOWED. 13. GROUND NO.3 IS RELATED TO THE SPONSORSHIP EXPEN SES OF RS. 10,68,138/-. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE A.O. FOUND THAT THE ASSESSEE HAS CLAIMED RS.10,68,1 38/- AS A SPONSORSHIP EXPENSES. SINCE THERE WAS NO NEXUS BET WEEN THE NATURE OF EXPENSES INCURRED AND THE BUSINESS OF THE ASSESS EE COMPANY, THE A.O. PROPOSED TO DISALLOW THE EXPENDITURE UNDER THE HEAD SPONSORSHIP FEE AMOUNTING TO RS.10,68,138/-. AGAINST THE DRAFT ASSESSMENT ORDER, ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 21 THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP AND TH E LD. DRP HELD THAT THESE EXPENSES CANNOT BE SAID TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, ACCORDINGLY, UPHELD THE AC TION OF THE A.O. THE A.O. PASSED THE ASSESSMENT ORDER MAKING THE ADD ITION OF RS. 10,68,138/- RELATING TO SPONSORSHIP EXPENSES. 14. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSE E IS IN APPEAL BEFORE US. DURING THE APPEAL HEARING, THE LD. A.R. TAKEN OUR ATTENTION TO THE DOCUMENT OF OBJECTIONS FILED BEFORE THE DRP IN FORM NO.35A. IN ANNEXURE 5, THE ASSESSEE HAS FURNISHED THE DETAILS OF SPONSORSHIP EXPENSES AND SUBMITTED ITS EXPLANATION AS UNDER: D URING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEA R UNDER CONSIDERATION, THE ASSESSEE HAS INCURRED AN AMOUNT OF INR 10,68,138/- INCURRED TOWARDS SPONSORSHIP. THE BREAK-UP OF SUCH EXPENSES IS SUMMA RIZED IN THE TABLE BELOW: - THE LD. AO DISALLOWED THE SAID EXPENSES ON GROUND THAT THERE IS NO NEXUS BETWEEN SUCH EXPENDITURE AND THE BUSINESS OF THE AS SESSEE. - IN THIS REGARD, THE ASSESSEE WOULD LIKE TO SUBMIT THAT SAID EXPENSES WERE INCURRED TO SPONSOR VARIOUS EVENTS THAT HAVE TAKEN PLACE WHEREIN HOARDING OF SL.NO. NAME OF PARTY NATURE OF EVENT AMOUNT 1 THE FINANCIAL TIMES LIMITED SPONSORSHIP FEE PAID FOR CONDUCTING THE 2 ND FINANCIAL TIMES YES BANK INTERNATIONAL BANKING SUMMIT HELD IN MUMBAI 9,06,338 2 YOUNG INDIAN NATIONAL SUMMIT ACTING AS CO-SPONSOR FOR CONDUCTING 9 TH YOUNG INDIAN NATIONAL SUMMIT HELD IN DELHI 1,61,800 TOTAL 10,68,138 ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 22 THE ASSESSEE ARE DISPLAYED, THE SENIOR MANAGEMENT P EOPLE OF THE ASSESSEE ARE INVITED TO ADDRESS THE FORUM. IT MAY BE NOTED T HAT THE ADVERTISEMENTS THROUGH SPONSORSHIP OF EVENTS ARE INCIDENTAL TO THE BUSINESS OF ASSESSEE TO PROMOTE CREATE PUBLIC AWARENESS OF THE COMPANY AND, THEREFORE, SUCH EXPENDITURES ARE INCIDENTAL TO THE BUSINESS AND HAV E BEEN INCURRED TO PROMOTE THE COMPANY. FURTHER, NOW-A-DAYS IT IS COMM ON TO SPONSOR SOME EVENTS TO ADVERTISE THE PRODUCTS OF THE COMPANY OR THE COMPANY'S CORPORATE IMAGE ITSELF. THEREFORE, SUCH EXPENDITURE SHOULD BE ALLOWED AS REVENUE EXPENDITURE. THE COURTS AND TRIBUNALS HAVE HELD THE SAME ON VARIOUS OCCASIONS. IN THIS REGARD, RELIANCE CAN BE PLACED O N FOLLOWING DECISIONS: JCITVS.- ITC LIMITED (2008) 112 LTD 57(KOL.)(SB) THE HON'BLE KOLKATA TRIBUNAL (SPECIAL BENCH) HELD T HAT THE EXPENDITURE INCURRED BY ASSESSEE ON SPONSORSHIP OF EVENTS/SPORT S FOR PURPOSE OF ADVERTISING ITS PRODUCT/CORPORATE IMAGE IS ALLOWABL E AS REVENUE EXPENDITURE. RELEVANT EXTRACT IS REPRODUCED BELOW: 30. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS MADE BEFORE US AND HAVE PERUSED THE ORDERS OF TAX AUTHOR ITIES. WE HAVE ALSO CONSIDERED THE PAPER BOOK FILED BY THE ID. COUNSEL FOR THE ASSESSEE AND THE CASE LAWS RELIED UPON. IN THIS CASE, THE ASSESSING OFFICER HAS DISALLOWED THE EXPENDITURE OBSERVING THAT THESE ARE NOT INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. HOWEVER, THERE IS NO DISCUSSION ABOUT THE NATURE OF EXPENDITURE BY THE ASSESSING OFFICER, WHEREAS THE ASSESSEE HAS SUB MITTED DETAILS IN RESPECT OF EXPENDITURE INCURRED BY IT FOR SPONSORSHIP OF EV ENTS. NOW-A-DAYS IT IS COMMON TO SPONSOR SOME SPORTS OR EVENTS TO ADVERTIS E THE PRODUCTS OF THE COMPANY OR THE COMPANY'S CORPORATE IMAGE ITSELF IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD ALSO INCURRED THE EXPENDITURE BY SPONS ORSHIP OF EVENTS/SPORTS FOR THE PURPOSE OF ADVERTISING ITS PRODUCT/CORPORAT E IMAGE. SUCH EXPENDITURE IS THE REVENUE EXPENDITURE INCURRED JOT THE PURPOSE OF BUSINESS. THE ASSESSING OFFICER HAS NOT GIVEN ANY COGENT REASON F OR DISALLOWING SUCH EXPENDITURE. HON'BLE DELHI HIGH COURT IN THE CASE O F DELHI CLOTH & GENERAL MILLS CO. (SUPRA) HAS UPHELD THE ORDER OF THE TRIBU NAL ALLOWING THE EXPENDITURE ON FOOTBALL TOURNAMENT INCURRED BY THE ASSESSEE. NO CONTRARY DECISION IS REFERRED TO BY THE REVENUE. IN VIEW OF THE ABOVE, CONSIDERING THE FACTS OF THE CASE AND THE ARGUMENTS OF BOTH THE SID ES, IN OUR OPINION, THE CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE OF EXPE NDITURE ON SPONSORSHIP OF THE EVENTS MADE BY THE ASSESSING OFFICER. WE UPHOLD THE ORDER OF THE CIT(A) IN THIS REGARD AND REJECT GROUND NO. 5 OF THE REVEN UE APPEAL. TORRENT POWER LIMITED VS.- DCIT 120131 33 TAXMANN. COM 287 (AHMEDABAD TRIB.) THE HON'BLE TRIBUNAL HELD THAT THE AMOUNT PAID BY A SSESSEE AS CONTRIBUTION FOR CONSTRUCTION OF COLLECTOR'S OFFICE WAS ALLOWABL E AS BUSINESS EXPENDITURE. CIT -VS.- DELHI CLOTH & GENERAL MILLS CO. 119991 24 0 ITR 9 (DELHI) ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 23 THE HON'BLE DELHI HIGH COURT IN THIS CASE HELD THAT EXPENDITURE INCURRED BY ASSESSEE COMPANY FOR RUNNING A FOOTBALL TOURNAMENT IS ALLOWABLE AS REVENUE EXPENDITURE. CIT -VS.- LAKE PLACE HOTELS & MOTELS (P) LTD. 12007 1 293 ITR 281 (RAJ) THE HON'BLE HIGH COURT AFFIRMED THE VIEW OF TRIBUNA L WHEREIN IT WAS HELD THAT EXPENSES INCURRED BY THE ASSESSEE FOR SPONSORI NG THE TROPHY HAD THE INGREDIENT OF ADVERTISEMENT OF ITS BUSINESS AND, CO NSEQUENTLY, THE ASSESSEES CLAIM TO DEDUCTION AS EXPENSES WHOLLY AND EXCLUSIVE LY INCURRED FOR THE PURPOSE OF ITS BUSINESS IS JUSTIFIED. IN VIEW OF THE ABOVE, THE ASSESSEE WOULD LIKE TO SU BMIT THAT THE DISALLOWANCE MADE BY LD. A.O. IS WITHOUT CONSIDERING THE FACTS A ND IS PURELY BASED ON ASSUMPTION/PRESUMPTIONS/CONJECTURES AND SURMISES AN D HENCE SHOULD BE DELETED. 15. DURING THE APPEAL HEARING THE LD.AR ARGUED THAT EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS AND REITERATED THE SUBMISSIONS MADE BEFORE THE DRP. ON THE OTHER HAND, THE LD. D.R . RELIED ON THE ORDERS OF THE AUTHORITIES BELOW AND SUPPORTED THE A DDITION MADE BY THE A.O. 16. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ASSESSEE HAS INCURRED THE AMOUNT OF RS.10,68,138/- TOWARDS SPONSORSHIP EXPENSES AND GENUINENESS OF EXPENSES WA S NOT DISPUTED BY THE A.O. AS PER THE DETAILS FURNISHED BY THE AS SESSEE THE SPONSORSHIP FEE WAS PAID TO FINANCIAL TIMES AND FOR CONDUCTING THE SECOND FINANCIAL TIMES -YES BANK INTERNATIONAL BANK ING SUMMIT HELD IN MUMBAI AND YOUNG INDIAN NATIONAL SUMMIT HELD IN DEL HI AND SUBMITTED IN THE EVENTS THAT ARE TAKEN PLACE, THE HOARDINGS O F THE ASSESSEE ARE ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 24 DISPLAYED, THE SENIOR MANAGEMENT PEOPLE OF THE ASSE SSEE WERE INVITED TO ADDRESS THE FORUM. THEREFORE, ARGUED THAT THE E XPENDITURE WAS INCURRED TO PROMOTE THE PUBLIC AWARENESS OF THE COM PANY, HENCE THE EXPENDITURE IS IN THE NATURE OF BUSINESS EXPENDITUR E AND REQUESTED TO ALLOW THE SAME. 17. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ASSESSEE HAS INCURRED THE EXPENSES FOR CONDUCTING V ARIOUS EVENTS THAT HAVE TAKEN PLACE AS MENTIONED ABOVE, TO PROMOTE THE PUBLIC AWARENESS OF THE COMPANY AND THE EXPENDITURE WAS IN CIDENTAL TO THE ASSESSEES BUSINESS. MERELY BECAUSE THE ASSESSEE C OMPANY IS ENGAGED IN POWER AND INFRASTRUCTURE, THE ARGUMENT OF THE AS SESSEE THAT SUCH AN EVENT WOULD PROMOTE THE PUBLIC AWARENESS WOULD NOT BE BRUSHED ASIDE. IT IS COMMON TO SPONSOR SOME EVENTS TO ADVE RTISE THE PRODUCTS OF THE COMPANY OR TO BUILD THE CORPORATE IMAGE. T HE YOUNG INDIAN NATIONAL SUMMIT HELD IN DELHI WOULD CREATE AWARENES S AND PROMOTE THE ASSESSEES COMPANY AMONG THE PUBLIC. THERE IS NO NE ED TO HAVE DIRECT NEXUS OF THE ASSESSEES BUSINESS WITH THE SPONSORSH IP LINKED EVENTS. EVEN INDIRECT BENEFIT IS SUFFICIENT TO SPONSOR THE SPORTS OR SOCIAL OR ECONOMIC EVENTS. WE ARE OF THE CONSIDERED VIEW THAT THE SOCIAL EVENTS, SPORTS EVENTS AND THE BUSINESS EVENTS WHICH INVOLVE S THE PARTICIPATION ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 25 OF VARIOUS INSTITUTIONS WOULD HAVE DIRECT OR INDIRE CT IMPACT ON THE ASSESSEES BUSINESS AND THE EXPENDITURE INCURRED ON SUCH EVENTS IS BUSINESS EXPENDITURE. THE CASE LAWS RELIED UPON BY THE ASSESSEE IN THE CASE OF JCIT VS. ITC LIMITED 112 ITD 57 (KOLKATA) ( SPECIAL BENCH) AND CIT VS.LAKE PLACE HOTELS AND MOTORS PVT. LTD. 293 I TR 281 (RAJ) HAVE ALSO TAKEN THE SIMILAR VIEW. THEREFORE, WE HOLD THAT THE SPONSORSHIP AMOUNT IS A BUSINESS EXPENDITURE, WHICH REQUIRED TO BE ALLOWED AS DEDUCTION AND ACCORDINGLY, WE DELETE THE ADDITION M ADE BY THE A.O. AND ALLOW THE APPEAL OF THE ASSESSEE. 18. GROUND NO.4 IS RELATED TO THE LEGAL AND PROFESS IONAL CHARGES OF RS. 2,41,47,303/-. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. FOUND THAT THE ASSESSEE HAD INCURRED LEGAL AND PROFESSION AL CHARGES AS UNDER: NAME OF THE PARTY NATURE OF EXPENDITURE AMOUNT IN RS. AECOM INDIA (P) LTD. FEE FOR CONDUCTING FEASIBILITY STUDIES FOR OKA PORT 98,47,869 BECKETT RANKINE INDIA P LTD. FOR DUE DILIGENCE OF O KHA PORT 32,67,800 COASTAL MARINE CONSTRUCTION & ENGINEERING LTD. GEOTECHNICAL STUDIES FOR DEVELOPMENT OF OKHA PORT 81,16,901 DELOITTE TOUCH TOHMATSU INDIA P LTD. TRAFFIC STUDY FOR DEVELOPMENT OF OKHA PORT 19,30,250 M.K. SOIL TESTING LABORATORY FIELD WORK OF SOIL TESTING FOR DEVELOPMENT OF OKHA PORT 9,84,483 TOTAL 2,41,47,303 ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 26 19. A.O. WAS OF THE VIEW THAT THE EXPENDITURE IS CA PITAL IN NATURE, HENCE, PROPOSED TO DISALLOW THE SAME. AGAINST THE P ROPOSAL FOR DISALLOWANCE OF EXPENDITURE THE ASSESSEE FILED OBJE CTIONS BEFORE THE DRP U/S 144C(2) OF THE ACT. THE LD. DRP HELD THAT THE EXPENSES CANNOT BE SAID TO BE INCURRED IN RELATION TO OR FOR DERIVING THE INCOME ADMITTED IN ITS P&L ACCOUNT AND DO NOT PARTAKE THE CHARACTER OF REVENUE EXPENDITURE. THEREFORE, JUSTIFIED THE PROP OSED DISALLOWANCE OF THE A.O., ACCORDINGLY, THE A.O. PASSED THE ASSESSME NT ORDER MAKING THE ADDITION OF RS. 2,41,47,303/-. 20. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE CASE OF THE ASSESSEE IS THE EXPENDITURE INCURRED IN THIS CASE IS REVENUE EXPENDITURE, WHICH REQUIRED TO BE ALLOWED, SINCE TH E EXPENSES WERE INCURRED FOR CONDUCTING FEASIBILITY STUDIES, DUE DI LIGENCE, GEO TECHNICAL STUDIES FOR DEVELOPMENT OF OKHA PORT AND THE STUDY FOR DEVELOPMENT REPORT AND FIELD WORK OF SOIL TESTING. THE ASSESSE E ARGUED THAT THE ASSESSEE IS EXPANDING ITS BUSINESS ACTIVITIES AND F OR THE PURPOSE OF EXPANSION THE ASSESSEE HAD INCUR THE EXPENSES, WHIC H ARE REVENUE NATURE. THE LD. A.R. FURTHER SUBMITTED THAT ON THE SIMILAR FACTS AND CIRCUMSTANCES THE HONBLE TRIBUNAL OF THIS BENCH AL LOWED THE APPEAL OF THE ASSESSEE AND ACCORDINGLY, THE ISSUE SQUARELY CO VERED BY THE ITATS ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 27 ORDER IN THE CASE OF ASSESSEE IN ITA NO.292/VIZAG/2 014 DATED 5.5.2017 FOR THE ASSESSMENT YEAR 2010-11.THE LD DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 21. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. ON THE SIMILAR FACTS, IN THE ASSESSEES OWN CASE, FOR THE AY 2010-11, THE TRIBUNAL HAS ALLOWED THE LEGAL AND PROFESSIONAL CHA RGES, FEASIBILITY EXPENSES AFTER HOLDING THAT THE EXPENDITURE IS WHOL LY INCURRED FOR THE PURPOSE OF BUSINESS. FOR READY REFERENCE, WE EXTRA CT RELEVANT PART OF THE ORDER OF THIS TRIBUNAL (SUPRA) WHICH READS AS U NDER: 14. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSIN ESS OF OPERATION AND MAINTENANCE OF POWER PLANTS. FROM THE OBJECTS OF T HE MEMORANDUM OF ASSOCIATION, WE FIND THAT THE ASSESSEE IS CARRYING ON VARIOUS ACTIVITIES SUCH AS PROMOTER, SPONSOR, DEVELOPER, ADVISOR, OPERATOR OR OTHERWISE, ALONE OR IN CONSORTIUM WITH OTHERS, WITHIN OR OUTSIDE THE GROUP COMPANIES AND TO DO ALL SUCH ACTS AS ARE REQUIRED TO PARTICIPATE FLOAT, OR ACQUIRE THROUGH BIDDING OR NEGOTIATE PROCESS FOR PROMOTING, DEVELOPING IMPLEME NTING AND OPERATIONS ALL KINDS OF PROJECTS SUCH AS INFRASTRUCTURE AND ALSO U NDERTAKE DEVELOPMENT EXECUTE AND IMPLEMENT VARIOUS PROJECTS FOR ITSELF O R FOR OTHERS INCLUDING SUBSIDIARIES. 15. THE ASSESSEE TO CARRY OUT THE ABOVE ACTIVITIES HAS TO INDENTIFY THE PROJECT, THEREAFTER, CONDUCT FEASIBILITY STUDY OF THE PROJECT. FURTHER FOR THAT PURPOSE ASSESSEE HAS TO CONSULT VARIOUS TECHNICAL E XPERTS SUCH AS HOK INTERNATIONAL LTD., ZEN ENERGY CONSULTANTS PVT. LTD. AND CONSULTING ENGINEERS GROUP LTD. ETC AND AFTER OBTAINING THE REPORTS, IT HAS TO PARTICIPATE IN THE BID. FURTHER FOR THIS PURPOSE, ASSESSEE HAS INCURRED LEG AL AND PROFESSIONAL FEES. THE ASSESSING OFFICER AND LD. CIT(A) WERE OF THE OP INION THAT IT IS CAPITAL IN NATURE. THE LD. CIT(A) HAS OBSERVED THAT THE EXPEN DITURE INCURRED BY THE ASSESSEE PRIOR TO PARTICIPATION IN THE BID AND ALLO TMENT OF PROJECT TO ENABLE ITS SUBSIDIARIES/ASSOCIATE COMPANIES TO BID IN THE PROJ ECTS. THE ASSESSEE DO NOT BID FOR THE PROJECT, THEREFORE, THE LD. CIT(A) WAS OF THE OPINION THAT IT HAD NOT INCURRED FOR THE PURPOSE OF BUSINESS, BUT GENUINENE SS OF THE EXPENDITURE INCURRED BY THE ASSESSEE HAS NOT BEEN DOUBTED BY TH E AUTHORITIES BELOW. IT IS ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 28 ALSO A FACT THAT ASSESSEE HAS INCURRED THESE EXPEND ITURE. FROM THE PAPER BOOK AT PAGE NO. 26, IT IS CLEAR THAT THE ASSESSEE HAS RECEIVED VARIOUS FEES FOR SERVICES RENDERED, PARTICULARLY, FEE FOR RENDERING SERVICES, REIMBURSEMENT OF EXPENSES, PAYMENT FOR SERVICES RENDERED. THE ASSES SEE HAS INCURRED THE ABOVE EXPENDITURE ON BEHALF OF ITS SUBSIDIARIES, WH ICH HAS BEEN RECEIVED FROM ITS SUBSIDIARIES FOR ALL KINDS OF SERVICES RENDERED . THEREFORE, THE LD.CIT(A) IS NOT CORRECT IN SAYING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT FOR THE BUSINESS OF THE ASSESSEE AND IT IS FOR THE SUBS IDIARIES. THE LD.CIT(A) RAISED ONE MORE OBJECTION TO DISALLOW THESE EXPENDI TURE THAT THE SUBSIDIARIES OR ITS ASSOCIATE COMPANIES MAY OR MAY NOT GET THE P ROJECT, BUT THE ASSESSEE UNDERTAKES TECHNICAL STUDIES FOR THE BUSINESS PURPO SE, THEREFORE, IT CANNOT BE ALLOWED. WE FIND THAT THE LD. CIT(A) NOT CORRECT IN HOLDING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE ALLO WED FOR FOLLOWING REASONS. THE BUSINESS OF THE ASSESSEE IS THAT TO IDENTIFY TH E PROJECT AND TO STUDY THE FEASIBILITY OF THE PROJECT BY OBTAINING VARIOUS REP ORTS FROM THE TECHNICAL EXPERTS AND TO PARTICIPATE IN THE BID. IF ASSESSEE IS SUCCESSFUL IN THE BID, IT MAY KEEP PROJECT OR MAY ALLOCATE IT TO SUBSIDIARIES OR OTHERS. BUT IT IS NOT SURE THAT ALL THE TIME BID IS SUCCESSFUL, WHETHER B ID IS SUCCESSFUL OR NOT, THE ASSESSEE HAS TO INCUR THE EXPENDITURE IN RESPECT OF LEGAL AND PROFESSIONAL FEE. THE ASSESSEE UNDERTAKES PROJECT STUDIES THROUGH VAR IOUS TECHNICAL EXPERTS AND HAS TO DECIDE WHETHER PROJECT IS FEASIBLE OR NO T? THE ASSESSEE HAS COME TO A CONCLUSION THAT THE PROJECT IS FEASIBLE, IT PA RTICIPATES IN BID/TENDER. THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE IS VERY MUCH NECESSARY FOR THE PURPOSE OF CARRYING OUT THE BUSINESS, THERE FORE, IT HAS TO BE ALLOWED. THE LD.CIT(A) ALSO OBSERVED THAT THE EXPENSES INCUR RED BY THE ASSESSEE IS NOT RELATING TO DERIVING INCOME ADMITTED IN THE PROFIT & LOSS ACCOUNT. AS IT ALREADY MENTIONED ABOVE, THE ASSESSEE IS RENDERING SERVICES TO THE SUBSIDIARIES AND INCURRING VARIOUS EXPENSES AND ALSO RECEIVING INCOM E, TOWARDS RENDERING SERVICES, REIMBURSEMENT OF EXPENSES, PAYMENTS FOR S ERVICES RENDERED, THEREFORE, LD. CIT(A) IS NOT CORRECT IN SAYING THAT THERE IS NO RELATION BETWEEN THE EXPENDITURE INCURRED AND THE INCOME OF THE ASSE SSEE. AFTER CAREFUL CONSIDERATION OF THE BUSINESS ACTIVITIES CARRIED OU T BY THE ASSESSEE AND THE EXPENSES INCURRED BY THE ASSESSEE, WE ARE OF THE OP INION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND IT HAS TO BE ALLOWED UNDER SECTION 37 OF THE ACT. 16. SO FAR AS CASE-LAWS RELIED UPON BY THE LEARNED COUN SEL FOR THE ASSESSEE IS CONCERNED, IN THE CASE OF TAMILNADU INDUSTRIAL DEVELOPMENT CORPORATION LTD., (SUPRA), THE HON'BLE MADRAS HIGH COURT HAS OBSERVE D THAT THE ASSESSEE CORPORATION HAVING BEEN FORMED WITH TH E MAIN OBJECT TO FINANCE AND PROMOTE INDUSTRIAL DEVELOPMENT THROUGH PARTNERS HIP WITH PRIVATE ENTERPRISES, PRE-PROJECT EXPENSES WRITTEN OFF BY TH E ASSESSEE IN RESPECT OF PROJECTS BEING PROMOTED BY IT ARE ALLOWABLE AS DEDU CTION. 17. IN THE CASE OF KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD . (SUPRA) THE HON'BLE KERALA HIGH COURT HAS HELD TH AT THE EXPENDITURE INCURRED IN INVESTIGATION, RESEARCH AND FEASIBILITY STUDIES ARE ONLY REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE. IN THE CAS E OF TATA ROBINS FRASER LTD. (SUPRA), THE HON'BLE JHARKHAND HIGH COURT HAS HELD THAT IF THE ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 29 EXPENDITURE HAS BEEN INCURRED FOR SETTING UP A NEW UNIT WHICH WAS SUBSEQUENTLY ABANDONED, THEN THE AFORESAID EXPENDIT URE WILL BE TREATED AS REVENUE IN NATURE AS NO NEW INDUSTRIAL ASSET CAME I N EXISTENCE AND THE MATCHING PRINCIPLES REFERRED BY THE LD.CIT(A) HAVE NO APPLICATION. 18. KEEPING IN VIEW OF THE ABOVE AND BY CONSIDERIN G THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO BY FOLLOWING THE JUDICIAL PRECEDENTS, WE ARE OF THE OPINION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND, THEREF ORE, IT HAS TO BE ALLOWED UNDER SECTION 37 OF THE ACT. 22. SINCE THE EXPENSES INCURRED ARE SIMILAR NATURE RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THIS TRIBUNAL, WE HOLD THAT THE EXPENDITURE INCURRED FOR THE PURPOSE OF OKHA PROJECT IN CONNECT ION WITH THE FIELD STUDY AS DISCUSSED ABOVE IS A BUSINESS EXPENDITURE AND ALLOWABLE U/S 37(1) OF I.T.ACT. ACCORDINGLY, WE SET ASIDE THE ORD ERS OF THE AUTHORITIES BELOW AND ALLOW THE APPEAL OF THE ASSESSEE. 23. GROUND NO.5 IS RELATED TO THE DISALLOWANCE U/S 14A OF THE ACT. THE ASSESSEE IN THIS CASE FILED A RETURN OF INCOME DISALLOWING THE EXPENDITURE U/S 14A OF THE ACT AS UNDER: ADD: DISALLOWANCE U/S 14A (REFER {17(1)} OF FORM 3C D): - PAYMENT MADE TO PINAKINI FOR INVESTMENT MAINTENANCE CHARGES - 953,512 - INTEREST EXPENDITURE - 493,133,474 - PROCESSING FEES PAID FOR OBTAINING LOANS - 27,633,193 24. SUBSEQUENTLY, THE ASSESSEE FILED A LETTER DURIN G THE PENDENCY OF ASSESSMENT PROCEEDINGS STATING THAT THE ASSESSEE HA S NO EXEMPT ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 30 INCOME EARNED DURING THE YEAR, HENCE, NO DISALLOWAN CE IS CALLED FOR U/S 14A OF THE ACT. THE ASSESSEE ALSO RELIED ON VARIOU S JUDICIAL PRONOUNCEMENTS AS UNDER: RAINY INVESTMENT PVT. LTD. VS. ACIT (ITA NO.549/MUM /2011)(MUMBAI ITAT) T&T MOTORS LIMITED VS. ACIT (ITA NO.5096/DEL/2011) (DELHI ITAT) ITO VS. M/S. LGW LIMITED (ITA NO.267/KOL/2013) (KO LKATA ITAT) CHEMINVEST LIMITED VS. CIT (ITA 749/DEL/2014)(DELH I HC) CIT VS. ORIENTAL STRUCTURAL ENGINEERS (P) LTD. ITA NO.605/DEL/2012) (DELHI HC) ANRIYA PROJECT MANAGEMENT SERVICES PVT. LTD. VS. D CIT (ITA NO.1799/BANG/2013) 25. THE ASSESSING OFFICER PASSED THE ASSESSMENT ORD ER WITHOUT CONSIDERING THE REQUEST OF THE ASSESSEE. AGGRIEVED BY THE DRAFT ASSESSMENT OF THE A.O., THE ASSESSEE FILED OBJECTIO N BEFORE THE DRP. THE DRP REJECTED THE OBJECTION OF THE ASSESSEE STAT ING THAT THE ASSESSEE ON ITS OWN MADE THE DISALLOWANCE U/S 14A O F THE ACT AND OFFERED TO TAX, BUT DURING THE ASSESSMENT PROCEEDIN GS, THE ASSESSEE SOUGHT TO WITHDRAW THE INCOME OFFERED OTHERWISE THA N BY REVISED RETURN WHICH IS IMPERMISSIBLE. THE A.O. WOULD NOT BE IN A POSITION TO ENTERTAIN A REVISED CLAIM TO REDUCE THE INCOME OFFE RED TO TAX WITHOUT REVISED RETURN. ACCORDINGLY, REJECTED THE OBJECTIO N OF THE ASSESSEE, AND CONSEQUENT TO THE DRPS ORDER, THE A.O. PASSED THE ASSESSMENT ORDER WITHOUT ALLOWING THE REQUEST OF THE ASSESSEE. ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 31 26. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSE E IS IN APPEAL BEFORE THIS TRIBUNAL. 27. DURING THE APPEAL HEARING, THE LD. A.R. ARGUED THAT THE ASSESSEE DID NOT GET ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. HENCE, NO EXPENDITURE REQUIRED TO BE DISALLOWED AS PER THE JUDICIAL PRECEDENTS. DURING THE PENDENCY OF ASSESSMENT PROC EEDINGS, THE ASSESSEE HAS MADE THE CLAIM BEFORE THE A.O. BUT TH E A.O. NEITHER CONSIDERED THE REQUEST NOR DID HE GIVE ANY REASON F OR REJECTING THE ASSESSEES CLAIM. THE LD. A.R. ARGUED THAT THOUGH THE ASSESSING OFFICER IS NOT PERMITTED TO ENTERTAIN THE CLAIM OF THE ASSE SSEE OTHER THAN BY REVISED RETURN, APPELLATE AUTHORITIES ARE NOT BARRE D FROM TAKING UP THE FRESH CLAIM MADE BY THE ASSESSEE DURING THE APPELLA TE PROCEEDINGS. THE ASSESSEE RELIED ON THE DECISION OF DCIT VS. IND IA GLYCOLS LTD. (2017) (KOLKATA TRIBUNAL) 51 CCH 0089 WHERE IN ITAT HELD WITH REGARD TO THE CLAIM OF THE ASSESSEE U/S 80IC OF THE ACT, T HAT THE APPELLATE AUTHORITIES ARE NOT BARRED FROM ENTERTAINING THE FR ESH CLAIM DURING THE APPELLATE PROCEEDINGS. FOR THE SAKE OF CLARITY, WE EXTRACT RELEVANT PART OF THE ORDER OF THE HONBLE KOLKATA TRIBUNAL IN PAR A NO.5 AND 8 TO 8.1 WHICH READS AS UNDER: 8. HAVING HEARD LD. D.R. AND ALSO GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAWS RELIED UPON BEF ORE US BY THE ASSESSEE. THE ISSUE IN THE INSTANT CASE BEFORE US I S THAT ASSESSEE HAS ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 32 CLAIMED DEDUCTION U/S 80IC OF THE ACT BY WAY OF FIL ING A LETTER TO A.O. AT THE TIME OF ASSESSMENT PROCEEDINGS BUT A.O. REJECTE D THE SAME ON THE GROUND THAT HE CANNOT ENTERTAIN THE CLAIM OF DEDUCT ION AS THE ASSESSEE FAILED TO CLAIM THE SAME IN ITS RETURN OF INCOME. HOWEVER, LD. CIT(A) OBSERVED THAT THE APPELLANT AUTHORITY ARE ENTITLED TO ADMIT THE CLAIM OF ASSESSEE WHICH WAS NOT MADE IN THE INCOME TAX RETUR N. NOW THE LIMITED ISSUE BEFORE US FOR OUR ADJUDICATI ON ARISES SO AS TO WHETHER THE ASSESSEE CAN MAKE A FRESH CLAIM DURING THE ASSESSMENT PROCEEDINGS WHICH WAS NOT CLAIMED IN THE RETURN OF INCOME. ON THIS ISSUE THE LAW IS FAIRLY SETTLED BY THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA) WHEREIN I T WAS HELD AS UNDER:- :4. THE DECISION IN QUESTION IS THAT THE POWER OF THE TRIBUNAL UNDER SECTION 254 OF THE INCOME-TAX ACT, 1961, IS TO ENTE RTAIN FOR THE FIRST TIME A POINT OF LAW PROVIDED THE FACT ON THE BASIS OF WH ICH THE ISSUE OF LAW CAN BE RAISED BEFORE THE TRIBUNAL. THE DECISION DO ES NOT IN ANY WAY RELATE TO THE POWER OF THE ASSESSING OFFICER TO ENT ERTAIN A CLAIM FOR DEDUCTION OTHERWISE THAN BY FILING A REVISED RETURN . IN THE CIRCUMSTANCES OF THE CASE, WE DISMISS THE CIVIL APPEAL. HOWEVER, WE MAKE IT CLEAR THAT THE ISSUE IN THIS CASE IS LIMITED TO THE POWER OF T HE ASSESSING AUTHORITY AND DOES NOT IMPINGE ON THE POWER OF THE INCOME TAX APPELLATE TRIBUNAL UNDER SECTION 254 OF THE INCOME TAX ACT, 1961. THE RE SHALL BE NO ORDER AS TO COSTS. FROM THE ABOVE PRECEDENT, WE FIND THAT HONBLE SUPR EME COURT HAS PROHIBITED THE ASSESSING OFFICER TO ENTERTAIN ANY C LAIM/DEDUCTION OF THE ASSESSEE OTHERWISE THAN CLAIMING IN THE RETURN/REVI SED RETURN. HOWEVER, THIS RESTRICTION WAS NOT IMPOSED BY HONBLE SUPREME COURT IN THE CASE OF APPELLANT AUTHORITY. THUS, IT CAN BE CONCLUDED THA T THE APPELLANT AUTHORITY ARE VERY MUCH ENTITLED TO ADMIT THE FRESH CLAIM OF THE ASSESSEE WHICH WAS NOT MADE IN THE INCOME TAX RETURN. 8.1 WE ALSO FIND THAT ASSESSEE IS ENTITLED TO RAISE ADDITIONAL CLAIM WHICH WAS NOT MADE IN ITS RETURN OF INCOME IN TERMS OF JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF JUTE CORPORATI ON OF INDIA LTD. (SUPRA) WHERE IN IT WAS HELD THAT THE ADDITIONAL CL AIM OF ASSESSEE CAN BE ADMITTED BY THE APPELLANT AUTHORITY THOUGH THE SAME WAS NOT MADE IN THE INCOME TAX RETURN. IN THE INSTANT CASE, THE DE DUCTION WAS OMITTED TO BE CLAIMED BY THE ASSESSEE IN ITS INCOME TAX RETURN FILED ELECTRONICALLY INADVERTENTLY. THE A.O. HAS NOT BROUGHT ANYTHING O N RECORD SHOWING ANY INFIRMITY IN THE AMOUNT OF DEDUCTION CLAIM BY THE A SSESSEE BY WAY OF FILING A SEPARATE LETTER DURING THE COURSE OF ASSES SMENT PROCEEDINGS. IN THE BACKGROUND OF THE ABOVE DISCUSSIONS AND PRECEDE NT WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A0 AND ACCORD INGLY WE UPHOLD THE SAME. THIS GROUND OF REVENUES APPEAL IS DISMISSED . 28. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW AS WELL ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 33 AS THE CASE LAWS RELIED UPON BY THE ASSESSEE. IN T HIS CASE, THE ASSESSEE DISALLOWED THE EXPENDITURE RELATABLE TO U/ S 14A OF THE ACT ON ITS OWN, BUT THERE WAS NO EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR. THE ASSESSEE IS OF THE VIEW THAT IF THERE IS NO EXEMPT INCOME NO DISALLOWANCE IS CALLED FOR U/S 14A OF THE ACT. THE ASSESSEE RELIED ON VARIOUS CASE LAWS IN THE SUBMISSIONS MADE BEFORE THE A.O. THE ASSESSING OFFICER HAS NEITHER EXAMINED THE ISSU E NOR GIVEN ANY FINDINGS ON THE FACTS AND THE LEGAL POSITION OF THE ASSESSEES CLAIM. IT IS SETTLED ISSUE THAT THE ASSESSEE REQUIRED TO PAY THE TAX ON TRUE AND CORRECT INCOME. THOUGH A.O. IS NOT PERMITTED TO EN TERTAIN THE ADDITIONAL CLAIM OF THE ASSESSEE WITHOUT THE REVISE D RETURN OF INCOME, THE APPELLATE AUTHORITIES ARE NOT BARRED TO ENTERTA IN THE ADDITIONAL CLAIM OF THE ASSESSEE DURING THE APPELLATE PROCEEDI NGS. THIS VIEW IS SUPPORTED BY THE CASE LAWS RELIED UPON BY THE ASSES SEE AS WELL AS THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GO ETZ INDIA LTD. VS. CIT 284 ITR 323. IN THE ASSESSEES CASE THE ASSESS EE HAS MADE DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT, BUT THERE WAS NO EXEMPT INCOME AS CLAIMED BY THE ASSESSEE. THEREFORE , IN THE INTEREST OF JUSTICE, WE ARE OF THE VIEW THAT THE ISSUE REQUI RED TO BE REMITTED BACK TO THE FILE OF THE A.O. TO CONSIDER THE DISALL OWANCE U/S 14A OF THE ACT ON THE FACTS AND MERITS OF THE CASE. ACCORDING LY, WE REMIT THE ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 34 MATTER BACK TO THE FILE OF THE A.O. TO CONSIDER THE ISSUE AFRESH ON MERITS. THE APPEAL FILED BY THE ASSESSEE ON THIS G ROUND IS ALLOWED FOR STATISTICAL PURPOSES. 29. GROUND NO.6 IS RELATED TO CHARGING OF INTEREST U/S 234 B &C, WHICH IS CONSEQUENTIAL IN NATURE AND MANDATORY. HE NCE, THIS GROUND OF APPEAL FILED BY THE ASSESSEE IS DISMISSED. 30. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 18 TH MAY18. SD/- SD/- ( . ) ( . .. . . . . . ' ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 18.05.2018 VG/SPS ITA NO.530 /VIZAG/2017 GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU 35 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT GVK POWER & INFRASTRUCTURE LIMITE D, 5-48, GVK POWER PLANT, JEGURUPADU, KADIYAM MANDAL, EAST GODAVARI, A NDHRA PRADESH-533 126 2. / THE RESPONDENT THE ACIT, CIRCLE-2(1),RAJAMAHEN DRAVARAM 3. THE OFFICE OF THE DISPUTE RESOLUTION PANEL-1, B ENGALORU-560034. 4. + ( ) / THE CIT (A), VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM