VIRAJ PROFILES LTD., MUMBAI V. DY CIT-CC-3(2), MUMBAI

ITA 775/MUM/2021

AI Insights

The case involves multiple appeals by both the assessee, M/s. Viraj Profiles Limited, and the revenue against the orders of the Commissioner of Income Tax (Appeals) concerning the assessment years 2011-12 and 2013-14. The primary issues revolved around the transfer pricing adjustments on corporate guarantee fees and the treatment of non-compete fees. The Tribunal examined the precedents and statutory provisions applicable to transfer pricing and the deductibility of non-compete fees, ultimately deciding in favor of the assessee on both counts.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123750 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: J
• Next Hearing Date: 22-02-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 11-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: COMPANY
• Keywords: Bogus purchase; Capital asset; Depreciation; Transfer pricing; Business expenditure; International transaction; Earning of tax free income; Revenue expenditure; Capital expenditure; TDS; Rule 8D; Set aside; Capital Gains
• Section: 92C; 92F; 133A; 14A; 133(6); 37(1); 10B; 43; 48; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “J”, MUMBAI BEFORE SHRI ABY T. VARKEY, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NOs. 776 & 775/MUM/2021 (A.Y. 2011-12 & 2013-14) M/s. Viraj Profiles Limited 1 st Floor, Viraj Towers JN of Andheri Kurla Road W.E. Highway, Andheri (E) Mumbai- 400069 PAN: AABCV1740N v. DCIT, Central Circle 3(2) Room No. 402, 4 th Floor Aayakar Bhavan Mumbai - 400020 (Appellant) (Respondent) ITA NO.2098 & 2097/MUM/2021 (A.Y: 2011-12 & 2013-14) DCIT, Central Range – 3(2) Central Range - 3 Room No. 1913, Air India Building Nariman Point, Mumbai - 400021 v. M/s. Viraj Profiles Limited 1 st Floor, Viraj Tower JN of Andheri Kurla Road W.E. Highway, Andheri (E) Mumbai- 400069 PAN: AABCV1740N (Appellant) (Respondent) Assessee Represented by : Shri Mani Jain & Shri Prateek Jain Department Represented by Shri Manoj Kumar Date of Hearing : 23.02.2023 Date of Pronouncement : 12.05.2022 ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 2 O R D E R PER S. RIFAUR RAHMAN (AM) 1. These appeals are filed by assessee and revenue against different orders of the Learned Commissioner of Income Tax (Appeals)-58, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 16.03.2021 for the A.Y. 2011-12 and 2013-14 in partly sustaining the action of the Assessing Officer. 2. Since the issues raised in all these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeals relating to A.Y. 2011-12 as a lead Assessment Year. ASSESSMENT YEAR 2011-12 ITA.No. 2097/MUM/2021 (REVENUE APPEAL) & ITA.NO. 776/MUM/2021 (ASSESSEE APPEAL) 3. At the outset, we proceed to deal with the appeal of the revenue in ITA.No. 2098/Mum/2021 for the A.Y. 2011-12. Revenue has raised following grounds in its appeal: - 1. Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in directing to restrict the TP adjustment of corporate guarantee fee to 0.50% as against of 1.50% charged ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 3 by the TPO without discussing the facts of the case and deciding the issue on the merits of the case? 2. Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in relying on decisions in the cases of CIT v. Everest Kanto Cylinders Ltd. [2015] 58 taxmann.com 254/232 Taxman 307/378 ITR 57 Bom) in arriving the 0.50% rate of corporate guarantee fees for A.Y 2013-14, which is in violation of provisions of Rule 10B(4) of IT Rules as the determinants of corporate guarantee fee like the credit rating. interest rate and FAR analysis etc., differ case to case and year on year and so a rate arrived at in a particular case and for particular assessment year cannot be blindly adopted in every case and in every assessment year which also violates Rule 10B(4) of the I.T. Rules? 3. Whether on the facts and circumstances of the case and in low, the CIT(A) is correct in relying on decisions in the cases of Everest Kanto Cylinders Ltd (EKC) of Hon'ble Bombay High Court without appreciating certain important facts having bearing on the benchmarking such as: (i) The quotation obtained by the Everest Kanto Cylinders Ltd. India (EKC India) was in respect of transaction of a guarantee obtained by the Indian entity having strong financials and asset base and not in respect of Everest Kento Dubai - the foreign entity with weaker financial strength and thereby impacting the comparability in view of difference in credit rating of entities which admittedly form basis for guarantee rates/quotations. (ii) And not appreciating the fact that the EKC rulings (34 Taxmann.com 19(Mum Tribunal) dated 23.11.2012 and ITA No. 1165 of 2013 dated 08.05.2015 for A.Y 2007-08) ignored the fact that entity obtaining loan in foreign jurisdiction for which EKC India stood as guarantor had lower credit rating. (iii) That the starting point for benchmarking in the case of EKC was obtaining of bank guarantee quote by the EKC India, which was used for benchmarking corporate guarantee and therefore, it was not appropriate to hold ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 4 that bank guarantee and corporate guarantee are different. (iv) That decision in the case of Everest Kanto Cylinders Ltd., cannot be standard for every assessee as benchmarking for different assessee's is a factual exercise dependent upon number of factors including credit rating, financial strength, country of AE, attendant risks etc. (v) That recently the Hon'ble ITAT Kolkata in the case of DCIT Vs. National Energy ITA No. 986 and 987/Kol/17 has held that the decision in Everest Kanto Cylinders Ltd cannot be a standard for every case. (vi) That the Tribunal failed to fully appreciate that the corporate guarantee transaction acts as important function for the AEs consequently enabling the AEs to raise funds generally at a favorable rates and enhance their asset base simultaneously exposing the guarantor to risk in the event of failure of AE to repay or service loan which is always contingent in nature. 4. Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in holding that the fee for the guarantee issued by the assessee for the loans availed by the AE from banks should be charged at 0.50%, without realizing the fact that the transfer pricing study is highly facts-based and it differs from case to case and that all the factors in Rule 10B have to be considered for every case and every year independently and that a rate decided in a different case for different set of facts and for different year cannot be adopted as such to the instant assessee, which would be violation of the specific provisions in Rule 10B? 5. Whether on the facts and circumstance of the case and in law, the CIT(A) is correct in arriving at the ad hoc rate of 0.50%, without adopting any of the methods prescribed in Section 92C which is violation of law. 6. Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in failing to recognize the facts of the case that the assessee has given corporate guarantee to its AEs, thereby exposing itself to a 'lending business' risk as well as the 'single customer' risk by not at all charging fee for such guarantee which ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 5 the assessee would have done, had it stood guarantee to any third party in uncontrolled conditions as in section 92F(ii)? 7. Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in failing to see that AE had no credit- worthiness and financial capacity to service its own loan and in such a situation assessee standing guarantee for the loan, it had to be remunerated at arm's length as per section 92F(ii)? 8. Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in failing to recognize the fact that the assessee has not charged any guarantee fees and also not discharged its onus and has not provided any comparable to benchmark the transaction and as a result, the TPO is forced to benchmark the transaction based on average bank guarantee rate with an appropriate downward adjustment as held by the ITAT in Glenmark Pharmaceuticals Ltd. In ITA No. 5031/Mum/2012. 9. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting the disallowance made u/s 14A r.w. Rule 8D (ii) of the Act ignoring the fact that the disallowance under section 14A is warranted even if no exempt income is earned during the year and even if no fresh investments are made during the year and also ignoring the judgment of the Hon'ble ITAT, Mumbai dated 11.01.2013 in the case of Stream International Services Private Limited?" 10. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting the disallowance made u/s 36(1)(iii) of the Act ignoring the fact that the interest expenses have been substantially increased from Rs.95.40 cr to Rs.193.22 cr in the financial year under consideration, which clearly shows that the borrowed funds have been utilized for giving interest free advances and also ignoring the judgment of the Hon'ble Madras High Court in the case of CIT VS MS Venkateswaran reported at 222 ITR 163?" 11. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting the disallowance of interest expenditure on late payment of TDS ignoring the fact that the interest paid was for committing a default in respect of a statutory liability in payment of taxes and the said expenditure is in no way connected with preserving or promoting the business of the assessee ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 6 and therefore this cannot be considered as an expenditure incurred within the meaning of section 37(1) of the Act?" 12. "Whether on the facts and circumstances of the case and in law, the Ld.CIT(A)is justified in deleting the disallowance of interest expenditure on late payment of TDS without following the judgment of Honorable Madras High Court in the case of Chennai properties and Investments Limited, 239 ITR 435, on identical situations. 13. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting the disallowance of loss of Marked to Market ignoring the fact that the assessee has not made any sale/ conclusion / settlement of the contract in the year under consideration and the relief allowed by the Ld CIT(A) is in contradiction to the CBDT Circular No. 3 of 2010 dated 23.03.2010. 14. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting the disallowance of purchases ignoring the fact that the findings during the course of search action depicts that the assessee indulged in making bogus purchases and the relief allowed by the Ld CIT(A) is without conducting any factual verification of the transactions of purchases?" 15. The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal, if need be.” 4. With regard to Ground Nos. 1 to 8 which are in respect of directing the Assessing Officer to restrict the TP adjustment of corporate guarantee fee to 0.5% as against of 1.5% charged by the TPO. 5. On perusal of the record, we observe that the assessee has filed appeal challenging the order of the Ld.CIT(A) in respect of confirming the action of Ld. TPO in making an adjustment u/s 92CA(3) on account of ad- hoc commission on corporate guarantee given to associated enterprises ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 7 to the extent of 0.5%. Assessee has raised sole ground for the A.Y.2011-12 which is reproduced below: - 1. On the facts and circumstances of the appellant’s case and in law the Ld. CIT(A) erred in confirming the action of Ld. TPO in making an adjustment u/s 92CA(3) on account of ad-hoc commission on corporate guarantee given to associated enterprises to the extent of 0.5%, for the reasons stated in the impugned order or otherwise. 6. At the time of hearing, Ld. AR submitted that assesse challenges the addition on account of commission on corporate guarantee to the extent of 0.5% and is required to be deleted. During the year under consideration, assessee had provided Corporate Guarantee to its AEs. The Corporate Guarantee given by was ₹.817,98,77,459/-the break-up of the same is tabulated as below:- Sr. No. Particulars Currency Equivalent Amount in INR 1. Gold Matrix Resource Pte. Ltd. USD 89,22,00,000 2. Sirio Investment Global Limited USD 9,69,30,711 3. INOX Service Centre GmBH Euro 70,31,06,000 4. Gold Matrix Resources, Singapore USD 2,02,62,12,049 5. Gold Matrix Resources, Singapore SGD 2,21,04,74,552 6. Gold Matrix Resources, Singapore USD 2,25,09,54,147 Total 8,17,98,77,459 7. Further, it is submitted that Ld. TPO in the transfer pricing order passed by him, contended that the assessee has not charged any fee from ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 8 its AEs against the Corporate Guarantee given by it. Accordingly, TPO made an adjustment of 1.5% being corporate guarantee commission on the guarantee given to the AEs. In the appellate order, Ld. CIT (A) reduced the commission to 0.5% following the earlier order of ITAT in the assessee own case for the A.Y.2010 11 and A.Y.2012-13. Copy of the order of ITAT is placed at Pg. no. 1-28 (Para 30, Page 25) & 29-36 (Para 5, Page 33) of the paper book. 8. In this regard, Ld. AR submitted that the corporate guarantee is a shareholder activity and does not involve any cost. Therefore, no adjustment is required on account of corporate guarantee commission. 9. Further, Ld. AR of the assessee submitted that the assessee had duly submitted letter from the bank obtained in the case of Associated Enterprises wherein the bench marking of 0.5% was done. However, Assessing Officer has made a markup of 1% which is without any basis. Further, similar letter was submitted by the assessee in the assessment proceedings for earlier as well as subsequent years. Following the above bench marking, Tribunal has passed the order in the assessee’s own case for immediate preceding year i.e. AY 2010-11 and immediate subsequent year i.e. AY 2012-13. Facts of the case are identical to the present appeal. ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 9 Accordingly, it was submitted that the ground of the department may kindly be dismissed. 10. Ld. AR brought to our notice that similar ground which assessee has raised before the Coordinate Bench for the A.Y.2010-11 and 2012-13 and Coordinate Bench has considered and adjudicated the issue in favour of the assessee by directing Assessing Officer to adopt 0.5% commission on total corporate guarantee availed by the AE. 11. On the other hand, Ld. DR relied on the order of the Assessing Officer. 12. Considered the rival submissions and material placed on record, we observed that similar issue was considered and adjudicated by the Coordinate Bench in assessee’s own case for the A.Y. 2012-13 in ITA.No. 5700/Mum/2017 dated 27.09.2019 and directed the Assessing Officer to adopt 0.5% commission on total corporate guarantee availed by the AE. While holding so the Coordinate Bench held as under: - “4. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. This issue has been decided by the Tribunal in assessee's own case for AY 2007-08 and 2010-11 in ITA No. 1370 and 1371/Mum/2017, where under identical set of facts, the Tribunal directed the AO to adopt 0.5% commission on corporate guarantee issued by the ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 10 assessee. We further noted that the Tribunal has further, directed AO to compute corporate guarantee fee, in respect of actual amount of corporate guarantee availed by the AE, instead of total guarantee given by the assessee to bank on behalf of AE. The relevant findings of the Tribunal are as under- 30 We have heard both parties, perused the material available on record and gone through the orders of authorities below. First of all, there is no merit in the argument of the Ld. AR for the assessee that corporate guarantee is shareholder activity and there is no involvement of any monetary benefit or cost, therefore, the question of charging guarantee commission does not arise when assessee give corporate guarantee to its AE for availing loans and other finance facilities from banks, because the issue has been settled by the Hon'ble Bombay High Court in the case of CIT vs Everest Canto Cylinders Ltd. (2015) 378 IR 57 (Bom), whore at was categorically held that corporate guarantee given to AE is international transactions which required to be bench marked as per TP provisions of the Act. Having said so, let us, examine what is the appropriate rate of commission in case of corporate guarantee is given by the assessee to its AE The Hon'ble Bombay High Court in the case of CIT vs Everest Canto Cylinders Ltd. (supra) had considered identical issue and hold that issuance of a corporate guarantee are distinct and separate from those in case of bank guarantee and accordingly, the commission charged could not be called in question in the matter of Transfer pricing officer had done. The commission was not between transactions but between the guarantees issued by the commercial banks as against corporate guarantee issued by holding company for the benefit of its AE, a subsidiary company, therefore, no transfer pricing could be made in respect of commission charged. The Hon'ble High Court of Bombay in yet another case in CIT vs Glenmark Pharmaceuticals Ltd. held that ALP of corporate Guarantee could not be determined on the basis of comparables with the bank guarantee The Hon'ble Supreme Court has dismissed SLP filed by the Revenue against the order of the Hon'ble Bombay High Court in the case of M/s Glenmark Pharmaceuticals Ltd (supra), therefore, the issue is now settled and accordingly corporate guarantee given to AE for international transaction, but it cannot be bench marked by taking into account the bank guarantee commission charged by banks. Further, when it comes to the rate of commission where the Court have taken different view and upheld from 0.2% to 0.5%. In this case, the assessee has not charged any commission on corporate guarantee given to its ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 11 AE. The AO has applied 1.5% rate of commission on the basis of bank guarantee commission charged by Indian Overseas Bank, Singapore Branch which is at 0.5% and on which the TPO has also made mark up of 100 BPS to determine 1.5% commission on corporate guarantee The Hon'ble Bombay High Court has considered an identical issue in case of Asian Paints Ltd vs ACIT and had upheld commission rate of 0.25% to 0.35% Similarly, the Hon'ble Bombay High Court in the case CIT vs Everest Canto Cylinders Ltd (supra) has approved rate of commission determined by the ITAT @ 0.5% on total corporate guarantee issued by the assessee to its AE Though, there are divergent view expressed by the Court in respect of rate of commission on corporate guarantee, but the jurisdictional Court of Bombay in two cases has uniformly approved 0.5% commission charged on corporate guarantee. Therefore, we are of the considered view that the AO was incorrect in charging 1.5% commission on corporate guarantee. The Ld. CIT(A) has also not appreciated the fact in right perspective while applying 0.75% rate of commission, though the assessee has placed various records to prove that the prevailing rate of commission is at 0.5% on the basis of letter issued by Indian Overseas Bank, Singapore Branch. Therefore, considering overall facts and circumstances of the case and also respectfully following the decision of the Hon'ble Bombay High Court in the case of M/s Glenmark Pharmaceuticals Ltd. (supra), which has been further approved by the Hon'ble Supreme Court in Civil No. 12632/2017, we are of the considered view that it would be appropriate to charge 0.5% commission on corporate guarantee issued by the assessee to its AE. Therefore, we direct the AO/TPO to charge 0.5% commission on corporate guarantee issued by the assessee. However, while computing the guarantee commission, the TPO is directed to consider actual amount on corporate guarantee availed by AE instead of total guarantee given by the assessee to bank on behalf of its AE. We ordered accordingly. 5. Facts remain unchanged. The Tribunal has decided the issue in light of decision of Hon'ble Bombay High Court, in the case of CIT vs Glenmark Pharmaceuticals Ltd. (2017) 398 ITR 439 (Bom), where the Hon'ble High Court has upheld 0.5% commission on corporate guarantee. Further, the Hon'ble Supreme Court has dismissed SLP filed by the revenue in Civil Appeal No. 12632/2017, vide order dated 11/12/2018. Thus, the issue is being finally settled by the Hon'ble Supreme Court. The revenue fails to bring on record any contrary decision to supports its case. Therefore, considering the facts and circumstances of this case and also, consistent with view taken by the ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 12 Co-ordinate Bench in assessee's own case, we direct the AO to adopt 0.5% commission on total corporate guarantee availed by the AE.” 13. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee’s own case for the A.Y. 2012-13, we direct the Assessing Officer to adopt 0.5% commission on total corporate guarantee actually availed by the A.E. Accordingly, ground raised by the revenue as well as assessee are dismissed. 14. With regard to Ground No. 9 which is in respect of deleting the disallowance made u/s. 14A r.w. Rule 8D(ii), Ld. DR relied on the order of the Assessing Officer. 15. On the other hand, Ld. AR of the assessee brought to our notice that the issue in appeal has been considered by the Co-ordinate Bench of this tribunal in assessee’s own case for the A.Y. 2010-11 in ITA No. 1371/Mum/2017 dated 19.06.2019. Ld. AR brought to our notice Para No. 31, 32 and 33 of the Tribunal order. 16. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2010-11. While deciding the issue in favour of the ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 13 assessee the Coordinate Bench of the Tribunal in ITA.No. 1371/Mum/2017 dated 19.06.2019 held as under: - “31. The next issue that came up for our consideration from Revenue's appeal, is disallowances of expenses incurred in relation to exempt income. The AO has determined disallowance of Rs.59,22,023/- @ 0.5% of the average value of investment under rule 8D(2)(iii) of the Rules. It is contention of the assessee that when there is no exempt income which do not form part of total income of the year, then no disallowance can be made in respect of expenditure incurred in relation to exempt income u/s 14A r.w.r. 8D(2). In this regard, the Ld. AR for the assessee relied upon the decision of Hon'ble Bombay High court in the case of Pr. CIT vs M/s Rivian International (P) Ltd. in Income Tax Appeal No.693 of 2015. 32. We have heard both parties and perused the material available on record. There is no dispute with regard to the fact that the assessee has not earned any exempt income. In fact, the AO as well as the Ld. CIT(A) has recorded categorical fact that there is no exempt income for the year under consideration. The AO has determined disallowance contemplated u/s 14A by applying prescribed method provided under Rule 8D(2) and held that from AY 2008-09 onwards disallowance contemplated u/s 14A shall be determined in accordance with prescribed method provided under Rule-8D whether or not any exempt income is earned for the year. We find that this issue of disallowance of expenditure contemplated u/s 14A when there is not exempt income cared for the year under consideration is no longer res-integra Hon'ble Bombay High Court in the case of Pr. CIT vs M/s Rivian International (P) Ltd. had considered identical issue in light of Nil exempt income and by following the decision of Delhi High Court in the case of CIT vs Holcim India (P.) Ltd. and the decision of the Hon'ble Allahabad High Court in the case of Shivam Motors (P) Ltd. held that during the relevant year if the assessee has not earned any tax free or any exempt income the corresponding expenditure cannot be taken into consideration for disallowance. The relevant findings of the court are as under- "3. We have given careful consideration to the submissions. On facts, it appears from the impugned judgment that the ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 14 assessee had made investment in shares of closely held companies which did not declare any dividend. On facts, there is no dispute that the assessee has not earned any exempt income during the year under consideration. After consideration of Section 14A, the Delhi High Court followed decisions of certain other High Courts. Section 14A of the said Act provides that for the purpose of computing the total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not found part of the total income under the said Act. In other words, Section 14A provides that if there is an income which does not form a part of the total income under the said Act, the expenditure which is incurred for earning the income is not an allowable deduction. Therefore, during the relevant year, if the assessee has not earned any tax-free income, the corresponding expenditure incurred cannot be taken into consideration for dis- allowance. 4. We respectfully concur with the view taken by the Delhi High Court as the said view can always be taken on fair reading of Section 14A of the said Act. A Division Bench of Allahabad High Court has also taken a similar view in the case of Commissioner of Income Tax v. Shivam Motors (P) Ltd. (supra). Hence, in our view, no fault can be found with the impugned judgment of the Appellate Tribunal whereby disallowance. No substantial question of under Section 14A was ordered to be deleted law arises Appeal is, accordingly, dismissed" 33. In this view of the matter and also respectfully following the decision of the Hon'ble Bombay High Court in the case of Pr. CIT vs M/s Rivian International (P.) Ltd., we direct the AO to delete additions made towards disallowance of expenditure incurred in relation to exempt income u/s 14A of the Act.” 17. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 2010-11 is respectfully followed, accordingly, ground raised by the revenue is dismissed. ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 15 18. With regard to Ground No. 10 which is in respect of deleting the disallowance made u/s. 36(1)(iii) of the Act, Ld. DR relied on the order of the Assessing Officer. 19. On the other hand, Ld. AR of the assessee brought to our notice that the issue in appeal has been considered by the Co-ordinate Bench of this tribunal in assessee’s own case for the A.Y. 2012-13 in ITA No. 5700/Mum/2017 dated 27.09.2019. Ld. AR brought to our notice Para No. 6,7, 8 & 9 of the Tribunal order. 20. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2012-13. While deciding the issue in favour of the assessee the Coordinate Bench of the Tribunal in ITA.No. 5700/Mum/2017 dated 27.09.2019 held as under: - “6. The next issue that came up for our consideration from assessee appeal is additions towards interest on loans and advances given to group companies. The Ld. AO has estimated 12% interest on total amount of loans and advances given to three parties, on the ground that the assessee has diverted interest bearing funds for non business purposes. Therefore, corresponding interest on such loans, which had been given for non business purpose cannot be allowed as deduction and accordingly, made additions of Rs. 30 Lacs, being 12% of Rs. 2,50,00,000/- u/s 36(1)(iii) of the I.T. Act, 1961. ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 16 7. The Ld. AR for the assessee, at the time of hearing, submitted that the assesee has filed necessary evidence to prove that its own funds in form of share capital and reserves is much more than, the amount of loans and advances given to group companies, therefore, the question of disallowance of interest u/s 36(1)(iii) does not arise. In this regard, he relied upon the decision of Hon'ble Bombay High court, in the case of CIT vs Reliance Utility and Power Limited (2009) 313 ITR 340 (Bom.). 8. The Ld. DR, on the other hand, strongly supporting order of the Ld.CIT(A) submitted that the assesee has failed to file necessary evidences before the lower authorities to prove that loans and advances given to group companies are for business purposes and also, it has sufficient own funds in excess of loans and advances. Therefore, the Ld.CIT(A) was rightly upheld additions made by the AO and his order should be upheld. 9. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. There is no doubt with regard to the fact that the assessee has given loans and advances to three parties for non business purpose. But, the main argument of the assessee is that when, own funds is in excess of amount of loans and advances, then a presumption would arise that loans and advances give would be out of interest free fund available with the assesse, consequently no disallowance could be made u/s 36(1)(ii) of the I.T.Act, 1961. We find that the assesee has filed financial statements to prove availability of own funds in form of share capital and reserves, in excess of loans and advances. As per the financial statements for the year ending 31/03/2012, the assessee had Rs.961.68 Crores share capital and reserves as against this, it has given interest free loans and advances to group companies amounting to Rs. 2.5 crores. If, there are funds available both, interest free and overdraft and /or loans are taken, then presumption would arise that investment would be out of the interest free fund generated or available with the company, if the interest free funds are sufficient to meet the investments. This legal proposition has been supported by the decision of Hon'ble Bombay High Court in the case of CIT vs Reliance Utility and Power Limited (2009) 313 ITR 340, where a similar proposition has been laid down by the Hon'ble Bombay High Court. This legal proposition is further supported by the decision of Hon'ble Bombay High court in number ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 17 of decisions, including the decision in case of PCIT vs Midday Multi media Ltd. (2018) 89 taxmann.com184 (Bom), where, similar proposition has been laid down by the Hon'ble Jurisdictional High Court. In this case, on perusal of facts available on record, we find that the assessee has demonstrated availability of own funds in excess of loans and advances with evidences. Therefore, we are of the considered view that the Ld. AO, as well as the Ld.CIT(A) were erred in confirming additions made towards interest on unsecured loans given to group companies u/s 36(1)(iii) of the I.T.Act, 1961. Hence, we direct the AO to delete the additions made towards interest disallowance u/s 36(1)(iii) of the I.T.Act, 1961.” 21. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 2012-13 is respectfully followed, accordingly, ground raised by the revenue is dismissed. 22. With regard to Ground No. 11 and 12 raised by the revenue, which are in respect of deleting the disallowance of interest expenditure on late payment of TDS, Ld.DR relied on the order of the Assessing Officer and further relied on the decision Hon'ble Bombay High Court in the case of M/s. Ferro Alloys Corpn. Ltd. vs. CIT (196 ITR 406). 23. Ld. AR of the assessee submitted that during the year, Assessing Officer observed that assesse has paid interest of ₹.2,84,839/-on account of late payment of TDS. It is also held that this interest is penal in nature and hence, the Assessing Officer made the disallowance of interest ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 18 amounting to ₹.2,84,839/-. The ld. CIT(A) deleted the disallowance of interest expenditure amounting to ₹. 2,84,839/-, following the decision of Hon'ble Kolkata Tribunal in case of DCIT v. Narayani Ispat Pvt. Ltd vide ITA No.2127/Kol/2014. It is submitted that the TDS amount does not represent tax of assesse but it was tax of third party, on whose behalf it was deducted and paid to the Government. Thus, it cannot be held as the part of the Income tax liability of the assesse and consequently, interest expense claimed by the assesse is not penal in nature but compensatory in nature. 24. Further, Ld. AR of the assessee placed reliance on the decision of coordinate bench in the case of Resolve Salvage & Fire India (P.) Ltd. reported in 139 taxmann.com 196 wherein it was held that interest paid on delayed payment of TDS under section 201(1A) would be compensatory in nature and thus was to be allowed as deduction. In view of the above, it is submitted that this issue is covered in the favor of assessee which has also been as rightly allowed by Ld.CIT(A). Accordingly, it is submitted that ground raised by the revenue be dismissed. ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 19 25. In the rejoinder, Ld. AR of the assessee submitted that the facts in the case of M/s. Ferro Alloys Corpn. Ltd. vs. CIT (196 ITR 406) are distinguishable and further submitted that the facts in the above decision have already been distinguish by the coordinate bench in the case of M/s.Resolve Salvage & Fire India (P) Ltd. v. DCIT reported in 139 taxmann.com 196. Copy of the order is placed on record. 26. Considered the rival submissions and material placed on record, we observe that assessee has paid interest on late remittance of TDS and the assessee has relied on the decision of M/s. Resolve Salvage & Fire India (P) Ltd. v. DCIT (supra). At the same time, Ld.DR relied on the decision of M/s. Ferro Alloys Corpn. Ltd. v. CIT (supra). After considering the facts of both the case, we observe that in the case of M/s. Ferro Alloys Corpn. Ltd. vs. CIT (supra) the assessee has remitted advance tax with delay. The interest charged on such delayed payment of advanced tax is nothing but income tax. Whereas the issue involved in the present case is remittance of TDS which is not to be considered as Income-tax. It is recovery of TDS on behalf of service provider, the delay in deposit and the relevant interest are to be considered as compensatory in nature and not penal in nature. Therefore, by relying on the decision of the ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 20 Coordinate Bench we are inclined to dismiss the ground raised by the revenue. 27. With regard to Ground No. 13 which is in respect of disallowance of Mark to market expenditure, at the time of hearing, Ld.DR relied on the order of the Assessing Officer. Ld.DR submitted that assessee has not made any sale/conclusion / settlement of the contract in the year under consideration and the relief granted by the Ld.CIT(A) is in contradiction to the CBDT Circular No. 3 of 2010 dated 23.03.2010. 28. On the other hand, Ld. AR submitted that during the assessment proceedings, Assessing Officer observed that assesse has debited ₹.9,03,17,764/- on account of "loss on forward exchange contracts marked to market" under the head manufacturing and other expenses. Further, Assessing Officer also relied on circular no. 03/2010 dated 23.03.2010, where CBDT issued the instruction that mark to market loss is a notional loss as no actual sale or settlement takes place, as discussed on Pg 8.2 of the assessment order. Accordingly, Assessing Officer made the addition of ₹.9,03,17,764/- in the assessee's case. ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 21 29. The Ld. CIT(A) deleted the disallowance made amounting to ₹.9,03,17,764/- on account that the assesse is required to enter into forward contract in respect of export realizations which will be received in future. The fact that the assesse has carried out huge exports in the relevant year is also verified from the balance sheet as discussed in para 12.3, Pg.33 of the CIT (A) order. 30. Further, Ld. AR of the assessee submitted that ld. CIT(A) has placed its reliance on the decision of Hon'ble Supreme court in the case of Woodward Governor India (P.) Ltd (312 ITR 254) where mark to market loss has been allowed and the extract of the relevant judgment is reproduced in para 12.4, pg 24 of the CIT(A) order. It is submitted that the assesse engaged in the business of manufacturing and export of steel products. In the business of exports, it is a practice to enter into forward contract against the receivable amount from the other party, to hedge the currency fluctuation. It is stated that to recognize the unrealized contracts standing as on 31 March, the accounting of the same is prescribed under AS-11 by ICAI. Under the AS-11, it stated that the contract which remained unrealized at the end of year, the profit or loss on income or expense is to be recognized taking into account the specified exchange rate. It is submitted that the assesse also has made its books of accounts ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 22 complying all the accounting standard as applicable to give a true and fair view in books of account. In support of the above contentions, Ld. AR relied on the following case law: -  Hon'ble Bombay High Court in the case of CIT vs. D. Chetan Co. 75 taxmann.com 300  Pricewaterhouse Coopers (P) Ltd., v. ACIT [127 taxmann.com 825 31. Ld. AR of the assessee further submitted that during the year under consideration assessee has incurred net Mark to Market loss of ₹.9,03,17,764/-. It is submitted that the said sum is a net figure which comprises of both Profit as well as Loss on forward exchange contract which are Marked to Market as on 31.03.2011. The break-up of this figure is placed on record. Further, it is submitted that the net mark to market has resulted into profit in the next two financial years are as below: - A.Y. Amount (₹.) 2012-13 5,38,12,175/- 2013-14 2,06,20,065/- 32. Ld. AR further submitted that the above two income has been duly taxed by Assessing Officer and no dispute whatsoever has been raised on the same. Thus, the Assessing Officer himself has taken contradictory stand in different years. Further, it is submitted that the assessee was ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 23 engaged in the business of manufacturing of stainless steel products. The manufacture goods were majorly exported. About 85% & 87% of the total sales of the assessee are exported for AY 2012-13 and 2013-14 respectively. The details of export sales of the assessee are tabulated as below: - AY Amount 2011-12 3599,86,57,871/- 2012-13 4163,64,63,672/- 2013-14 4100,12,10,978/- 33. Considered the rival submissions and material placed on record, we observe that assessee has regular export business and in order to mitigate the forex exposure, it has booked the forward contract. At the end of the year, assessee has accounted for mark to market loss and profit in the pending forward contracts. In this year, assessee has incurred net loss. It is also observed that in the subsequent Assessment Years the assessee has accounted the net profit and the same was accepted by the revenue and charged to tax. The assessee is consistently following the method of accounting. Therefore, the net loss accounted by the assessee is supported by the export business carried on by the assessee. Therefore, in our view the loss claimed by the assessee is for the purpose of business and allowable business loss. The Coordinate Bench of the Tribunal in the ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 24 case of DCIT v. M/s. Viraj Profile Ltd., in ITA.No. 1370 & 13714/Mum/2017 dated 19.06.2019 held as under: - “30. We have heard both parties, perused the material available on record and gone through the orders of authorities below. First of all, there is no merit in the argument of the Ld. AR for the assessee that corporate guarantee is shareholder activity and there is no involvement of any monetary benefit or cost, therefore, the question of charging guarantee commission does not arise when assessee give corporate guarantee to its AE for availing loans and other finance facilities from banks, because the issue has been settled by the Hon'ble Bombay High Court in the case of CIT vs Everest Canto Cylinders Ltd. (2015) 378 IR 57 (Bom.), where it was categorically held that corporate guarantee given to AE is international transactions which required to be bench marked was per TP provisions of the Act. Having said so, let us, examine what is the appropriate rate of commission in case of corporate guarantee is given by the assessee to its AE. The Hon'ble Bombay High Court in the case of CIT vs Everest Canto Cylinders Ltd. (supra) had considered identical issue and held that issuance of a corporate guarantee are distinct and separate from those in case of bank guarantee and accordingly, the commission charged could not be called in question in the matter of Transfer pricing officer had done. The commission was not between transactions but between the guarantees issued by the commercial banks as against corporate guarantee issued by holding company for the benefit of its AE, a subsidiary company. therefore, no transfer pricing could be made in respect of commission charged. The Hon'ble High Court of Bombay in yet another case in CIT vs Glenmark Pharmaceuticals Ltd. held that ALP of corporate Guarantee could not be determined on the basis of comparables with the bank guarantee. The Hon'ble Supreme Court has dismissed SLP filed by the Revenue against the order of the Hon'ble Bombay High Court in the case of M/s Glenmark Pharmaceuticals Ltd. (supra), therefore, the issue is now settled and accordingly corporate guarantee given to AE for international transaction, but it cannot be bench marked by taking into account the bank guarantee commission charged by banks. Further, when it comes to the rate of commission where the Court have taken different view and upheld from 0.2% to 0.5%. In this case. the assessee has not charged any commission on corporate guarantee ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 25 given to its AE The AO has applied 1.5% rate of commission on the basis of bank guarantee commission charged by Indian Overseas Bank, Singapore Branch which is at 0.5% and on which the TPO has also made mark up of 100 BPS to determine 1.5% commission on corporate guarantee. The Hon'ble Bombay High Court has considered an identical issue in case of Asian Paints Ltd. vs ACIT and had upheld commission rate of 0.25% to 0.35%. Similarly, the Hon'ble Bombay High Court in the case CIT vs Everest Canto Cylinders Ltd.(supra) has approved rate of commission determined by the ITAT @ 0.5% on total corporate guarantee issued by the assessee to its AE. Though, there are divergent view expressed by the Court in respect of rate of commission on corporate guarantee, but the jurisdictional Court of Bombay in two cases has uniformly approved 0.5% commission charged on corporate guarantee. Therefore, we are of the considered view that the AO was incorrect in charging 1.5% commission on corporate guarantee. The Ld. CIT(A) has also not appreciated the fact in right perspective while applying 0.75% rate of commission, though the assessee has placed various records to prove that the prevailing rate of commission is at 0.5% on the basis of letter issued by Indian Overseas Bank, Singapore Branch. Therefore, considering overall facts and circumstances of the case and also respectfully following the decision of the Hon'ble Bombay High Court in the case of M/s Glenmark Pharmaceuticals Ltd. (supra), which has been further approved by the Hon'ble Supreme Court in Civil No. 12632/2017, we are of the considered view that it would be appropriate to charge 0.5% commission on corporate guarantee issued by the assessee to its AE. Therefore, we direct the AO/TPO to charge 0.5% commission on corporate guarantee issued by the assessee. However, while computing the guarantee commission, the TPO is directed to consider actual amount on corporate guarantee availed by AE instead of total guarantee given by the assessee to bank on behalf of its AE. We ordered accordingly.” 34. Respectfully following the above said decision in assessee’s own case and also considering the facts on record, the ground raised by the revenue is dismissed. ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 26 35. With regard to Ground No. 14, which is in respect of disallowance of purchase expenses, brief facts relevant to the above ground are, during the course of assessment proceedings, in order to verify the genuineness of purchase expenses, Assessing Officer issued the notice u/s 133(6) of the Act to the suppliers. However, certain parties did not reply to the same. Also, Assessing Officer observed that there were difference in the purchase shown by one party as compared to that of the assessee. On the above accounts, Assessing Officer treated it as bogus purchase and made the addition amounting to ₹.16,24,05,038/-. 36. Aggrieved with the same, the assesse preferred an appeal before Ld. CIT (A). The Ld. CIT(A) deleted the disallowance made amounting to ₹.16,24,05,038/- observing that the Assessing Officer sent the notice u/s133A of the Act to the purchase parties as late as 20.03.2015 through postal authorities, in which the reply was to be made as on 25.03.2015 and to furnish the details for A.Y.2007-08 to 2011-12. Therefore, he observed that it was impractical to compile the old data in such a short span of time. Further, Ld.CIT(A) observed that the said parties have given the response on the same in April' 2015. He also observed that the notices u/s 133(6) issued by the AO contained certain errors which confused the parties. He also observed that no show cause notice was ever issued to ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 27 the assessee in relation to the proposed disallowance during the assessment proceedings. He accordingly, held that no fault can be attributed to the assessee. 37. Further, Ld.CIT(A) observed that the assesse has duly explained the difference in purchase data between the two parties. He observes that the purchases of March 2010 were accounted by the assessee in April 2010 as the bills are issued between 27.03.2010 and 31.03.2010 and the material was received in next year, as discussed in para 13.3, Pg.37 of the appellate order. Accordingly, Ld. CIT(A) deleted the addition made by the Assessing Officer. 38. Aggrieved with the above order, revenue is in appeal before us. 39. Ld.DR vehemently supported the order of the Assessing Officer. 40. On the other hand, Ld. AR of the assessee submitted that the assesse is engaged in manufacturing of steel products on a very large scale and is one of the largest manufacturer in the country and achieved the turnover during the year amounting to ₹.4106 crores. Further, the assesse has submitted the party wise detail in para 13.2 on pg 35 of the CIT(A) order, in respect of difference between the amounts of purchase ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 28 as shown by the party vis-à-vis the assessee books. In this respect, it is stated that the most of parties have replied on the notice u/s 133(6) of the Act except the seven parties. It is submitted that, the assesse cannot compel anyone to file the response on the same. It is important to note that, it is not the case that the assesse has purchase the material from these parties first time, the purchases have been made from these parties in previous years as well as in succeeding years. 41. The Ld.AR submitted that, Assessing Officer has not doubted the genuineness of the transaction nor has brought any material on record to show non-genuineness of the transaction. Reliance was placed on the decision of Hon'ble Gujarat High Court in case of CIT v. Nangalia Fabrics Pvt ltd wherein it is held that, on account on non-response of the notice u/s 133(6) of the Act issued by the department, the transaction cannot be held as illegitimate as discussed on Pg 36-37 of the order. 42. Further, submitted that the assesse also submitted the separate confirmation letters supporting the above purchases. Therefore, relying on the above decision and discussion, Ld. AR submitted that the purchase cannot be held as non-genuine only on account of non- response of reply ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 29 u/s 133(6) of the Act without bringing on record any cogent material and hence, the ground of revenue deserves to be deleted. 43. Considered the rival submissions and material placed on record, in order to verify the purchases, Assessing Officer has issued notice at the fag end of the assessment proceedings. Since there is no response from the parties and due to shortage of time assessee also could not substantiate the same. The Assessing Officer made the addition without even giving any notice to the assessee. However, the assessee has submitted all the information relating to these transactions before the Ld.CIT(A). The Ld.CIT(A) having co-terminus power to verify and modify the assessment order has verified the relevant documents and found that the purchases are genuine and the assessee has confirmed to purchase goods from the same parties in the subsequent Assessment Years. Considering the reputation and quantum of transaction and no material brought on record by the revenue that these are bogus or the parties are non-existing, we are inclined to accept the findings of the Ld.CIT(A). Accordingly, ground raised by the revenue is dismissed. 44. In the result, appeal filed by the Revenue as well as appeal filed by the assessee are dismissed. ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 30 ASSESSMENT YEAR 2013-14 ITA.No. 2097/MUM/2021 (REVENUE APPEAL) 45. Revenue has raised following grounds in its appeal: - “1. Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in directing to restrict the TP adjustment of corporate guarantee fee to 0.50% as against of 1.50% charged by the TPO without discussing the facts of the case and deciding the issue on the merits of the case? 2. Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in relying on decisions in the cases of CIT v. Everest Kanto Cylinders Ltd.[2015] 58 taxmann.com 254/232 Taxman 307/378 ITR 57 (Bom) in arriving the 0.50% rate of corporate guarantee fees for A.Y 2013-14, which is in violation of provisions of Rule 10B(4) of IT Rules as the determinants of corporate guarantee fee like the credit rating, interest rate and FAR analysis etc., differ case to case and year on year and so a rate arrived at in a particular case and for particular assessment year cannot be blindly adopted in every case and in every assessment year which also violates Rule 10B(4) of the I.T. Rules? 3. Whether on the facts and circumstances of the case and in law. the CIT(A) is correct in relying on decisions in the cases of Everest Kanto Cylinders Ltd (EKC) of Hon'ble Bombay High Court without appreciating certain important facts having bearing on the benchmarking such as: (i) The quotation obtained by the Everest Kanto Cylinders Ltd.. India (EKC India) was in respect of transaction of a guarantee obtained by the Indian entity having strong financials and asset base and not in respect of Everest Kento Dubai - the foreign entity with weaker financial strength and thereby impacting the comparability in view of difference in credit rating of entities which admittedly form basis for guarantee rates/quotations. (ii) And not appreciating the fact that the EKC rulings(34 Taxmann.com 19(Mum Tribunal dated 23.11.2012 and ITA ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 31 No. 1165 of 2013 dated 08.05.2015 for A.Y 2007-08) ignored the fact that entity obtaining loan in foreign jurisdiction for which EKC India stood as guarantor had lower credit rating. (ii) That the starting point for benchmarking in the case of EKC was obtaining of bank guarantee quote by the EKC India, which was used for benchmarking corporate guarantee and therefore, it was not appropriate to hold that bank guarantee and corporate guarantee are different. (iv) That decision in the case of Everest Kanto Cylinders Ltd.. cannot be standard for every assessee as benchmarking for different assessee's is a factual exercise dependent upon number of factors including credit rating, financial strength. country of AE, attendant risks etc. (v) That recently the Hon'ble ITAT Kolkata in the case of DCIT Vs. National Energy ITA No. 986 and 987/Kol/17 has held that the decision in Everest Kanto Cylinders Ltd cannot be a standard for every case. (vi) That the Tribunal failed to fully appreciate that the corporate guarantee transaction acts as important function for the AES consequently enabling the AEs to raise funds generally at a favorable rates and enhance their asset base simultaneously exposing the guarantor to risk in the event of failure of AE to repay or service loan which is always contingent in nature. 4. Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in holding that the fee for the guarantee issued by the assessee for the loans availed by the AE from banks should be charged at 0.50%, without realizing the fact that the transfer pricing study is highly facts-based and it differs from case to case and that all the factors in Rule 10B have to be considered for every case and every year independently and that a rate decided in a different case for different set of facts and for different year cannot be adopted as such to the instant assessee. which would be violation of the specific provisions in Rule 10B? 5. Whether on the facts and circumstances of the case and in law. the CIT(A) is correct in arriving at the ad hoc rate of 0.50%, without adopting any of the methods prescribed in Section 92C which is violation of law? ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 32 6. Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in failing to recognize the facts of the case that the assessee has given corporate guarantee to its AES thereby exposing itself to a 'lending business risk as well as the 'single customer' risk by not at all charging fee for such guarantee which the assessee would have done, had it stood guarantee to any third party in uncontrolled conditions as in section 92F(ii) 7. Whether on the facts and circumstances of the case and in law. the CIT(A) is correct in failing to see that AE had no credit worthiness and financial capacity to service its own loan and in such a situation assessee standing guarantee for the loan, it had to be remunerated at arm's length as per section 92F (ii) 8. Whether on the facts and circumstances of the case and in law. the CITIA) is correct in failing to recognize the fact that the assessee has not charged any guarantee fees and also not discharged its onus and has not provided any comparable to benchmark the transaction and as a result, the TPO is forced to benchmark the transaction based on average bank guarantee rate with an appropriate downward adjustment as held by the ITAT in Glenmark Pharmaceuticals Ltd. in ITA No. 5031/Mumbai/20129 9. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting the disallowance made u/s 36(1)(iii) of the Act ignoring the fact that the loans were advanced by the assessee company without any business exigency, and not for the purpose of business and also ignoring the judgment of the Hon'ble Madras High Court in the case of CIT Vs MS Venkateswaran reported at 222 ITR 163? 10. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting the disallowance of non- compete fee ignoring the fact that the payment made by the assessee company on account of non compete fee conferred a capital advantage of enduring value and such expenditure is 'capital' in nature? 46. Ground Nos. 1 to 8 are similar to Ground Nos. 1 to 8 of grounds of appeal raised by the revenue for the A.Y. 2011-12 and the decision taken ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 33 therein shall apply mutatis-mutandis to the appeal for the A.Y. 2013-14. We order accordingly. 47. With regard to Ground No. 9, this ground is similar to Ground No.10 of grounds of appeal raised by the revenue for the A.Y. 2011-12 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y. 2013-14. We order accordingly. 48. With regard to Ground No. 10 which is in respect of deleting the disallowance of non-compete fee, on perusal of the record, we observe that assessee has also challenged the disallowance of non-compete fee ₹.18,50,00,000/-. The ground raised by the assessee in Ground No. 2 is reproduced below: - “2. On the facts and circumstances of the appellant’s case and in law the Ld. CIT(A) erred in holding that the benefit of payment of non-compete fee amounting to Rs. 18,50,00,000/- made by the appellant would accrue over a period of seven years in-spite of treating the same as revenue in nature.” 49. At the time of hearing, Ld. AR of the assessee submitted that assessee challenges disallowances of non-compete fee ₹.18,50,00,000/-. The Ld.CIT(A) held the same as revenue in nature and allowed it to be amortized for the period of 7 years as deferred revenue expenditure. ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 34 50. Brief facts relating to the ground are, during the year consideration, one of the director of assesses company Mr. Rahul Suri desired to resign from his position. The assesse company agreed to relieve Mr. Suri of his responsibilities on a condition that he shall be restrained from carrying on similar line of business for a period of 7 years subject to the payment of non-compete fee. Accordingly, an agreement dated 16.08.2011 was made whereby Mr. Suri agreed not to carry on the same business for the period of 7 years. The assesse claimed the said non-compete fee as revenue expenditure. The Assessing Officer disallowed the non-compete fee as capital expenditure relying on the various judgments as mentioned in para 5.2 of the assessment order. Relevant para of AO order 7.3 & 7.4. 51. On appeal the Ld. CIT(A) in the appellate order, held the non-compete fees to be revenue in nature; however, he held that said expenditure to be amortized over period of seven years as benefit of the said expenditure will accrue to assessee over a period of 7 years [para 7.13 of CIT(A) order]. 52. Aggrieved with the above order, department as well as assessee are in appeal before us. ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 35 53. At the time of hearing, Ld. AR of the assessee submitted that Mr. Rahul Suri was director of the company for last many years. He was looking after key business operations. Payment was made to restrain him from continuing similar business. Such payment made to him; however, would not go to increase profitability, market presence of the company. Further, it will also not enhance company's future efficiency. Such payment has only safeguard assessee's business interest. Accordingly, it was revenue in nature. Therefore, the action of holding the expenditure as revenue in nature is correct. The relevant decision in this identical issue have been duly considered by Ld. CIT(A) in his order at Page No.35 to 37 of order.  Reliance placed on decision of Madras High Court in case of Hatsun Agro Product Ltd. vs. JCIT 99 taxmann.com 220  Decision of Madras High Court in case of Asianet Communication Ltd. vs. CIT 96 taxmann.com 399  Decision of Gujrat High Court in the case of ITO vs. Smartchem Technologies Ltd. ITA No. 128 of 2006 dated 13.07.2016  Decision of Hon'ble Andhra Pradesh High Court in the case of CIT vs. Andhra Fuels (P.) Ltd. 70 taxmann.com 271 54. Ld. AR submitted that the action of Ld.CIT(A) in allowing deferment of revenue expenses is incorrect. It is to be noted that there is no provision in the Income Tax Act to defer the expenses. Moreover, all the above ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 36 decisions have allowed the expenses in the same year and no deferment of such expenses has been allowed. Accordingly, the entire expenses of ₹.18.50 Crores may kindly be allowed in the current year. 55. On the other hand, Ld. DR submitted that the payment made by the assessee on account of non-compete fee confers a capital advantage of enduring value and such expenditure is “capital” in nature. On the other hand, Ld. DR relied on the order of the Assessing Officer. 56. Considered the rival submissions and material placed on record, Mr.Rahul Suri was a director in the assessee company and who was controlling the key business operations. During this assessment year he preferred to resign the position held by him over the years. Assessee company agreed to relieve Mr. Rahul Suri of his responsibilities and in order to restrain from carrying on similar line of business for a period of seven years and without the condition of restrain he may be possible threat to the existence of the company by floating a new venture in the similar line of business., accordingly, assessee has entered into non- compete agreement dated 16.08.2011 with him. The assessee has placed copy of the non-compete agreement in the Paper Book it clearly indicates that Mr. Rahul Suri has accepted and signed the agreement with the ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 37 covenant of non-compete with proper compensation for the same. It clearly indicates that the assessee has made the payments to an individual who had experience in the financials and construction and who has wide experience in the similar line of business, therefore, not to engaged himself in similar kind of business and activities for the period of seven years. It is also fact that such consideration is independent and settlement is based on the non-compete agreement. This view of allowing the non-compete fees as revenue expenditure is upheld by the Coordinate Bench in the case of Pricewaterhouse Coopers (P.) Ltd. v. ACIT [2021] 127 taxmann.com 825, relevant ratio is reproduced below: - “13.1. The ld. Counsel for the assessee submitted that, the entire reasoning for confirming this addition by the ld. CIT(A) was based upon the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Shiv Raj Gupta [(2014) 52 taxmann.com 425)] . This judgment was overruled by the Hon’ble Supreme Court. The ld. Counsel for the assessee also placed reliance on the following judgments, which we discuss hereinafter:- a) The Hon’ble High Court of Madras in the case of Hatsun Agro Products Ltd. vs. JCIT [(2018 407 ITR 674 (Madras)] wherein the assessee was engaged in business of manufacture, marketing and distribution of ice cream and dairy based frozen products, made payment of non-compete fee, to two of its directors. The Hon’ble High Court held that the advantage of restraining individuals from engaging in competition was in field of facilitating assessee's own business and rendering it more profitable and there was no increase in fixed capital, and hence the payment in question was to be allowed as revenue expenditure. The Hon’ble Supreme Court later dismissed the SLP filed by the Revenue against this judgment in JCIT vs. Hatsun Agro Products Ltd. [(2020) 114 taxmann.com 172/269 Taxman 462]. ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 38 (b) In the case of CIT vs. Andhra Fuels (P.) Ltd [(2016) 240 Taxman 280 (Andhra Pradesh)] non-competition agreement was entered into by the assessee which is engaged in setting up power projects, to prevent rival company from establishing power plant in the State, for a period of three years. It was held that such restrictive covenant eliminated competition in business only for a while and it was neither permanent nor the advantage derived by assessee was enduring in nature and as such the expenditure could not be held to be capital expenditure and same had to be allowed as revenue expenditure. (c) The Hon’ble Madras High Court in the case of Carborandum Universal Ltd. vs. JCIT [26 taxmann.com 268] on similar set of facts, held that the payment of noncompete fees, made for protecting business interest is revenue expenditure. Relevant extracts of the judgment are reproduced below: “19. It is not denied by the Revenue that U. Mohanrao was the Chairman and Managing Director of some of the companies which got merged with the assessee company. The said U. Mohanrao had access to all information starting from manufacturing process, knowhow to the clientele and the products, including the pricing of the products. By a process of amalgamation, the assessee had acquired the business of the amalgamating companies. However, for the fruitful exercise of its business as a business proposition, the assessee thought it fit to enter into a non-compete agreement with a person who had the knowledge of the entire operations, so as to get the full yield of the amalgamated company's business. In that context, rightly, the assessee took a commercial decision to pay non-compete fee to U. Mohanrao and going by the decision of the Apex Court, particularly the decision in Coal Shipments (P.) Ltd.'s case (supra), that the payment was in respect of the performing of the business of the assessee, we have no hesitation in holding that the expenditure is only on revenue account and not on capital account. In the circumstances, we accept the case of the assessee, set aside the order of the Tribunal and allow the Tax Case.” The Mumbai Tribunal in the case of DCIT vs. Intervet (India) Ltd. [ITA No. 315/Hyd/2003, order dt. 19 October 2012], , on similar facts and following the ratio laid by the Madras High Court in the case of Carborandum Universal Ltd. (supra), has held the payment of non- compete fee to be an allowable revenue expenditure. The ITAT held as follows:- ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 39 “28. From the facts of the aforesaid case and also the ratio and decision given by the High Court, we find that the assessee’s case is squarely covered by the aforesaid decision. We, thus, hold that, in the present case, the entire payment of Rs. ₹ 4,00,00,000 paid by the assessee to Dr. Vijay Datla and Dr. Renuka Datla, towards the non-compete fee is revenue expenditure. Once the payment has been made in this year, the entire expenditure is to be allowed. Accordingly, the finding of the Commissioner (Appeals) that it is a revenue expenditure is upheld. However, to the extent that the said expenditure is to be deferred for a period of five years cannot be sustained and is set aside. Consequently, the grounds raised by the assessee in its cross objection stands allowed, whereas, the grounds raised by the Revenue in its appeal, consequently, is dismissed.” The Mumbai Tribunal has further observed as under: “19. The Hon'ble Supreme Court in CIT v/s Coal Shipments Pvt. Ltd., [1971] 82 ITR 902 (SC), has held that the period for which the restrictive covenant should be in operation to make it a revenue expenditure is a matter of judgment and such a judgment should be exercised having regard to the facts and circumstances of each individual case. If the restrictive covenant is for a indefinite period or for a very large portion, then technically, it can be said that the advantage is for enduring character and, hence, it can be termed as "Capital Expenditure". Now the question is whether the restrictive convenient which is operative only for a period of five years can be said to be of enduring in nature. This aspect of the matter has been decided by the Madras High Court in CIT v/s Late G. Naidu & ORs., [1957] 165 ITR 63 (Mad.), wherein Their Lordships observed and held as under: "Held, that so far as the cash compensation paid by the new partners referable to the assets and goodwill of the firm was concerned, the cash took the place of the assets of the partnership and the compensation paid for restrictive covenant not to carry on similar business for a period of five years was in the nature of a separate transaction unconnected with the business of the assets of the partnership. The Tribunal was right in its view that the total compensation paid by the firms to the old partners was for (a) the share in the assets, (b) the share of the goodwill, and (c) for the restrictive covenant and that the part of the amount referable to the acquisition of the share in the assets and the share of the goodwill would be on capital account as it was in the nature ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 40 of an initial outgoing and the payment towards the restrictive covenant was on revenue account and it would not amount to an acquisition of an advantage of an enduring nature. The Tribunal was also right in its view that the amount received by the recipients was not liable to tax either as income or capital gains. No question of any liability to penalty would also arise in the instant case, because the assesses were merely contending for a particular position contrary to the view taken by the Income-tax Officer which would not call for any penalty." In view of the aforesaid decision, it can be straight-away held that if the restrictive covenant given in the non-compete agreements is for a period of five years, then it is on the revenue account.” Similar propositions of law has also been laid down by the Hon’ble Madras High Court in the case of Asianet Communications Ltd. CIT [(2018) 96 taxmann.com 399)] – On similar facts, the Hon’ble Delhi High Court has observed as under: “46. ...... Any contractual term that imposes restraint on a contracting party from engaging in any business for a reasonable term must be backed by consideration. Therefore, the non-compete compensation is but a consideration paid to the party who is kept out of competing business during the term of the contract. 47. The non-compete compensation, from the stand point of the payee of such compensation, is so paid in anticipation that absence of a competition from the other party to the contract may secure a benefit to the party paying the compensation. There is no certainty that such benefit would accrue. In other words, inspite of the fact that a competitor is kept out of the competition, one may still suffer loss. If it were to be a capital expenditure whether or not, an assessee makes a business profit, the character and value of the capital assets will, subject to depreciation, remain unaltered. 48. Thus, the facts clearly disclose that on account of the payment of non-compete fee, the assessee has not acquired any new business, profit making apparatus has remained the same, the assets used to run the business remained the same and there is no new business or no new source of income, which accrue to the assessee on account of the payment of non-compete fee.....”. ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 41 The same view has been taken by the Hon’ble Delhi High Court in the case of CIT vs. Eicher Ltd. [(2008) 302 ITR 249]. In the said case, the assessee (engaged in the business of manufacturing and marketing two wheelers) entered into a non-compete agreement with a third party which restrained the said third party from carrying out any business with regard to two-wheelers. The assessee's claim of the said expenditure as revenue expenditure was upheld by the Hon'ble High Court which concurred with the views of the Tribunal that the payment is to protect the assessee's business interests, its market position and profitability. No new asset is created thereby nor is the assessee's profit making apparatus expanded or increased. The assessee does not suffer any loss or diminution or erosion in its capital assets. The Court pointed out that the payment of non- compete fees is merely to eliminate competition in the two- wheeler business, for a while. Though there were no records to indicate the duration of the restrictive covenant, but it was neither permanent nor ephemeral. In that sense, the advantage was not of an enduring nature. The Hon'ble Supreme Court dismissed the SLP filed by the Department against the decision of the Hon'ble Delhi High Court (312 ITR(st.) 333). In view of the above discussion, if the non-compete payment does not result in bringing into existence of any capital asset or an advantage which is of enduring nature, then such payment would be revenue in nature. 14. The Assessing Officer relied on the judgment in the case of Pitney Bowes India Pvt. Ltd. vs. CIT (2012) 204 Taxmann 333(Del), and ld. CIT(A) has relied on the judgments in the case of Sharp Business System v. DCIT [2011] 15 taxmann.com 144 (Delhi) and Tecumesh India (P.) Ltd. v. Addl. CIT [2010] 127 ITD 1 (Delhi) (SB). We find that these cases are distinguishable on facts :- Pitney Bowes (Supra): In this case, the taxpayer had acquired going concern on lumpsum consideration. Under the Business Transfer Agreement, there was no bifurcation of the consideration for non- compete and other tangible and intangible assets so acquired. Thus, the taxpayer had bifurcated the total consideration paid for acquisition of business based upon valuation done by the independent auditor. Based upon such valuation, the taxpayer claims the amount of non-compete, being revenue expenditure as quantified by the Independent Valuer as deductible expenditure. The ITAT/High Court denied the claim of such allowance on the ground that the amount in question being non-compete is part of purchase consideration of going concern business, thus, is to be treated as capital expenditure being consideration paid for acquisition of business. It is also relevant that the consideration of non-compete fee is paid to owner of such business and not the ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 42 employees/directors of the company. Hence, the facts of the above case are clearly distinguishable. Sharp Business System (Supra): In this case, L&T had sold its business to taxpayer under the agreement. In addition to the above, the taxpayer also paid separate consideration for non- compete fee to L&T under the same business transfer agreement. On account of the above, the ITAT held that the amount in question is part of acquisition of business and thus non-compete fee ought to be treated as capital expenditure. As stated, in this case also, the compensation of non-compete is part of the business transfer agreement and is paid to shareholder of the company. Hence, the facts of the above case are clearly distinguishable. Tecumesh India (supra): In this case also, the non-compete clause is part of the business transfer agreement, and such consideration was being paid to the shareholders. Hence, this case is also clearly distinguishable. 15. Coming to the facts in the present case, it is undisputed fact that the consideration is paid to individuals who had experience in the business of consultancy for not to engage themselves in similar kind of business and activities for a period of 3 years. It is also not disputed that such consideration is independent and not part of the cost of acquisition of business paid to shareholders. It is also an admitted fact that both the Share Transfer Agreement and Non- Compete Agreement are separate agreements with different parties, though entered on the same date. 15.1 Hence reliance on above decisions by the ld. AO/CIT(A) is misplaced, as the above cases are clearly distinguishable on facts as well as the point of law involved. The cases relied upon by the assessee above are squarely applicable on the facts of the assessee’s case, Thus, the payment in question is revenue in character and hence allowable as an expenditure. 16. In view of the above discussion, we delete the disallowance made on account of compete fee.” 57. Respectfully following the above said decision, we are also of the view that in the above decision the director is shareholder as well as agreed to not to engage in any competition. However, in the given case ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 43 the assessee is not a shareholder, however, he has wide experience in the field of finance and construction and agreed to not to engage in any similar activities for a period of seven years. Therefore, it does not give any enduring capital benefit to the assessee and there is no creation of any capital asset. Accordingly, we hold that non-compete fees is an allowable business expenditure. However, we observe that Ld.CIT(A) has agreed with the fact that this is an allowable expenditure. However, he proceeded to view the allowability of expenditure considering the fact that Mr. Rahul Suri is constrained not to compete for a period of seven years and he held that benefits provided to the assessee for a period of seven years. Accordingly, he allowed the claim of the expenses for a period of seven years as differed revenue expenditure. This finding is misplaced considering the fact that no capital asset is created and the courts have held that non-compete fees is a revenue expenditure allowable in the years of settlement. Accordingly, we direct the Assessing Officer to allow the claim of the assessee during the current Assessment Year. Accordingly, ground raised by the revenue is dismissed and ground raised by the assessee is allowed. 58. In the result, appeal filed by the revenue is dismissed. ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 44 ITA.NO. 775/MUM/2021 (ASSESSEE APPEAL) 59. Assessee has raised following grounds in its appeal: - “1. On the facts and circumstances of the appellant’s case and in law the Ld. CIT(A) erred in confirming the action of Ld. TPO in making an adjustment u/s. 92CA(3) on account of ad-hoc commission on corporate guarantee given to associated enterprises to the extent of 0.5%, for the reasons stated in the impugned order or otherwise. 2. On the facts and circumstances of the appellant’s case and in law the Ld. CIT(A) erred in holding that the benefit of payment of non-compete fee amounting to Rs. 18,50,00,000/- made by the appellant would accrue over a period of seven years in-spite of treating the same as revenue in nature. 3. On the facts and circumstances of the appellant’s case and in law the Ld. CIT(A) erred in confirming the action of Ld.AO is disallowing a sum of Rs. 6,60,00,000/- on account of professional fees paid for the reasons stated in the impugned order or otherwise. 4. The appellant craves leaves to alter, amend, withdraw or substitute any ground or grounds or to add any new ground or ground of appeal on or before the hearing.” 60. Ground No. 1 is similar to Ground No. 1 of grounds of appeal raised by the assessee for the A.Y. 2011-12 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y. 2013-14. We order accordingly. 61. With regard to Ground No. 2, as we have adjudicated this ground while adjudicating the Ground No. 10 of the revenue, accordingly, this ground is allowed. ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 45 62. Ground No. 3 is in respect of Ld.CIT(A) confirming the action of the Assessing Officer in disallowing a sum of ₹.6,60,00,000/- on account of professional fees paid. Ld. AR submitted that assesse challenges the disallowance of sum of ₹.6,60,00,000/- on account of professional fees paid treating the same as non-genuine, requires to be deleted. 63. Ld. AR submitted that Assesse company has paid professional fees to the following persons: Sr. No. Name of the payee Amount (Rs.) 1. Rahul Suri 3,00,00,000 2. Shibani Suri 2,40,00,000 3. Jitendra Suri 1,20,00,000 Total 6,60,00,000 64. A survey action u/s 133A was conducted in assessee case on 27.03.2014 wherein statement of Mr. Raman Kumar Jain was recorded wherein he stated that the above persons did not hold adequate qualification for such payment. (Relevant part of the statement is reproduced at page no. 7 of AO order). On the basis of said statement, it was alleged by Assessing Officer that amount paid as professional fees was not allowable as business expenses. Assessing Officer stated that these persons do not hold professional qualification to earn such professional fees and disallowed the entire amount. on appeal Ld. CIT(A) ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 46 confirmed the findings of the Assessing Officer [Para no. 8.6-8.9 of the CIT(A) order]. Being aggrieved, assessee is in appeal before us. 65. At the time of hearing, Ld. AR submitted that amount paid to Mrs.Shibani Suri & Mr. Jatinder Suri is on account of professional services rendered to the appellant company. Mrs. Shibani Suri was a customer- relationship manager and was handling customer grievances. On the other hand, Mr. Jatinder Suri was advising HR department. Further professional fees were paid to Mr. Rahul Suri on account of professional services rendered as he was earlier associated as director of the assessee company. He was well qualified to provide professional service which is in line with the business activity and the same was the reason for payment of non-compete fees to him. Further to the above, it is to be noted that these payments were duly made through proper banking channels after deducting TDS which is not doubted by Assessing Officer. Thus, there is no tax evasion on the same as the said income would eventually be taxed in their hands. However, no doubt on the veracity of the expenses has been raised by the Assessing Officer. 66. It was submitted, the disallowance has been made on the basis of the statement of Shri Raman Kumar Jain as explained above. Here, it is ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 47 to be noted even after the statement of Raman Kumar Jain, no cross question were made from the Suri family either at the survey or during the assessment proceedings. No independent inquiry was made by Assessing Officer but he has merely relied on the statement of Mr. Raman Kumar Jain. It is submitted that statement recorded during survey has no evidentiary value and any admission made during such statement cannot be basis of addition. In this regard, reliance is placed on the decision of Hon'ble Supreme Court in the case CIT vs. S. Khader Khan Son reported 352 ITR 480. Further, on perusal of the statement of Mr. Raman Kumar Jain, Ld. AR submitted that he has only given his opinion on issue related to professional fees, therefore it cannot be considered as conclusive. Moreover, it is to be noted that no evidence has been found during survey that cash has been received back from the said payment being made to Suri family. 67. Further, Mr. Rahul Suri has provided service to Assessee Company which has been accepted by Mr. Raman Kumar Jain in his statement; therefore, no doubt can be raised on the same. Further, it is also submitted that even if the statement of Mr. Raman Kumar Jain is relied, it is submitted that in the same statement, he had mentioned that payments of Professional Fees were made as part of settlement ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 48 agreement. Therefore, as far as the assessee is considered, the payment of professional fees is a valid expenditure and that the same cannot be doubted. This proves that the payment of professional fees of ₹.6,60,00,000/- is an allowable business expenditure in the hands of assessee company. 68. Without prejudice to the above, it is also brought to our notice that even if the statement of Mr. Raman Kumar Jain is relied, it is submitted that in the same statement he had mention that payments of Professional Fees were made as a part of settlement agreement i.e. these payments can be considered to be extended part of the settlement agreement of non-compete fees of ₹.18.5 crore. Once the Non-compete fee is held to be allowable revenue expenditure to the assessee as per ground no 2 above, professional payment being extended part of settlement agreement would be allowable on that count also. For assessee, company non-compete fees & professional fees both are expenditures. If one of the expenditure is allowable the other expenditure (even though recorded in the books of accounts with some other head) however the same being in the nature of the business expenditure, is also allowable. Accordingly, the Professional fees is an allowable business expenditure in the hands of the assessee company. ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 49 69. On the other hand, Ld.DR relied on the order of the Ld.CIT(A) and submitted that the expenditure cannot be allowed without there being any services rendered. 70. Considered the rival submissions and material placed on record, we observe from the record that the assessee has paid professional fees to Mr. Rahul Suri, Mrs. Shibani Suri and Mr. Jitinder Suri to the extent of ₹.6.6 crores. It is fact on record that Mr. Rahul Suri has resigned from the position of the Director and entered into an agreement with the assessee company for non-compete and received a settlement for the same. During the assessment year, Mr. Rahul Suri has received an amount of ₹.3 Crores as professional fee and it is proved beyond doubt that he has proper qualification and capable of providing services to the assessee. Therefore, disallowance of the same is not called for. It is also agreed by Mr. Raman Kumar Jain in his statement that Mr.Rahul Suri has provided the required services to the assessee company. Therefore, we direct the Assessing Officer to allow the professional fees paid to Mr.Rahul Suri to the extent of ₹.3 crores. 71. Coming to the professional fees paid to Mrs. Shibani Suri and Mr.Jitinder Suri it is fact on record both these persons are relatives to the ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 50 Mr. Rahul Suri and as per statement recorded by Mr. Raman Kumar Jain he has agreed that they are relatives of Mr. Rahul Suri and they do not have the required capacity to provide professional services. However, at the same time we observe that the payment made to Mrs. Shibani Suri and Mr. Jitinder Suri are part and parcel of the settlement made to Mr.Rahul Suri and Mr. Raman Kumar Jain has not made any adverse comment on settlement of the same and it is between management and Mr. Rahul Suri for a package of settlement and accordingly, Mr. Rahul Suri has preferred to take part of the additional non-compete fee through Mrs. Shibani Suri and Mr. Jitinder Suri. As far as the assessee company is concerned they have entered into agreement with Mr. Rahul Suri for proper compensation by way of entering into non-compete agreement and also with mutual agreement to make settlement to Mr. Rahul Suri for a sum of ₹.18.5 crores and ₹.6.6 cores respectively. As far as the settlement made directly to Mr. Rahul Suri we have already decided the issue in the above paragraphs and with regard to other settlements through Mrs. Shibani Suri and Mr. Jitinder Suri, it is fact on record that it is an additional settlement made by the assessee company to Mr. Rahul Suri. Therefore, it can be treated as a settlement to Mr. Rahul Suri hence it is an allowable expenditure in the hands of the assessee and may be ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 51 assessee has recorded the same in a different nomenclature. However, as far as assessee is concerned assessee has agreed to settle the Mr. Rahul Suri on a mutual terms. Therefore, it is an allowable expenditure in the hands of the assessee. However, the revenue may treat the same as total settlement in the hands of the Mr. Rahul Suri and however, this is not the issue which is contested before us. Therefore, we are refrain from adjudication of other issues or implication with settlement in the hands of Mr. Rahul Suri. We are restrained to decide the issue relating to the ground raised by the assessee and accordingly, the issue is decided in favour of the assessee and ground raised by the assessee is allowed. 72. In the result, appeal filed by the assessee is allowed. 73. To sum-up, appeal filed by the revenue is dismissed and appeal filed by the assessee is partly allowed. Order pronounced in the open court on 12 th May, 2023. Sd/- Sd/- (ABY T. VARKEY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 12/05/2023 Giridhar, Sr.PS ITA NOs. 775, 776, 2097 & 2098/MUM/2021 (A.Y. 2013-14 & 2011-12) M/s. Viraj Profiles Limited Page No. | 52 Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum