Income Tax Appellate Tribunal - Mumbai
Mahindra Intertrade Ltd, Mumbai vs Dcit Cir 2(2), Mumbai on 15 March, 2017
आयकर अपील य अ धकरण, "ds" खंडपीठ मुंबई
INCOME TAX APPELLATE TRIBUNAL,MUMBAI - 'K' BENCH
सव ी राजे , लेखा सद य एवं iou संह, या यक सद य
Before S/Sh. Rajendra, Accountant Member & Pawan Singh, Judicial Member
आयकर अपील सं/.ITA No. 269/Mum/2014, नधा रण वष /Assessment Year-2008-09
M/s Mahindra Intertrade Ltd. DCIT , Circle 2(2)
Mahindra Towers, 6th Floor, बनाम Aayakar Bhavan, M.K. Road,
Worli, Mumbai-400018. Vs. Mumbai-400020.
PAN: AACCM4745P
(अपीलाथ /Appellant) ( यथ / Respondent)
नधा रती क! ओर से/ Assessee by : Shri Bhavin Shah with
Ms. Vaibhavi Patel (AR)
राज व ओर से / Revenue by : Shri Saurabh Deshpande (DR)
सन
ु वाई क" तार ख/ Date of Hearing : 08-03-2017
घोषणा क! तार(ख / Date of Pronouncement : 15-03-2017
आयकर अ ध नयम, 1961 क" धारा 254(1) के अ#तग त आदे श
Order u/s.254(1)of the Income-tax Act,1961(Act)
Per Pawan Singh, J.M. या यक सद य iou संह के अनुसार:
1. This appeal by assessee u/s. 253 of the Income-tax Act (the Act) is directed against the order of ld. Commissioner of Income-tax (Appeals)-15, Mumbai (for short the CIT(A) dated 25.10.2013 for Assessment Year (AY) 2008-09. The assessee has raised the following grounds of appeal:
(i) The ld. CIT(A) erred in confirming the addition of Rs. 2,16,986/- on corporate guarantee given to Associated Enterprise (AE).
(ii) The ld. CIT(A) erred in not accepting the claim of depreciation of Rs. 11,90,285/- on intangible assets acquired in earlier year.
(iii) The ld. CIT(A) erred in confirming the disallowance of expenses amounting to Rs.
1,56,87,826/- u/s 14A r.w.Rule 8D(iii).
(iv) The ld. CIT(A) erred in confirming the disallowance of Rs. 71,99,65/- in respect of provision for 'post retirement medical scheme' treating a contingent liability.
(v) The ld. CIT(A) erred in confirming the disallowances of Rs. 5,24,659/- as prior period expenses.
2. Brief facts of the case are that the assessee-company is engaged in the business of export/import of Alumina/Aluminium, Ferro Alloys, Steel, Machine Tools etc., filed its return of income for relevant AY on 29.09.2008. The Assessing Officer (AO) while framing the assessment order noticed that assessee has entered into international transaction with its AE. Thus, reference u/s 92CA(3) was made to the Transfer Pricing Officer (TPO) for computation of Arms Length Price (ALP) in relation to international transaction with its AE. The ld. TPO after giving opportunity of hearing to the assessee submitted its 2 ITA No. 269/M/2014 M/s Mahindra Intertrade Ltd.
report/order dated 20.01.2011 to the AO. The ld. TPO determined the ALP of international transaction relating to cost of guarantee for Rs. 2,16,986/-. On the basis of order passed u/s 92CA(3) of the Act by TPO, the AO added Rs. 2,16,986/- on account of corporate guarantee. The AO further disallowed a sum of Rs. 1,56,87,826/- u/s 14A, disallowed the depreciation on intangible assets amounting to Rs. 11,90,285/- and Rs. 7,19,695/- in respect of provision for post retirement medical scheme and Rs. 5,24,659/- on account of prior period expenses. On appeal before the ld. CIT(A), the adjustment on account of corporate guarantee as well as disallowance was sustained. Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
3. We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. First ground of appeal relates to Transfer Pricing Adjustment of Rs. 2,16,986/- on account of commission on corporate guarantee. The ld. AR of the assessee argued that this ground of appeal is covered in favour of assessee by a number of decision by the Tribunal including the decision of of Everest Kanto Cylinder Ltd. It was further argued by ld. AR of the assessee that the Tribunal in case of Everest Kanto Cylinder Ltd. vs. ACIT upheld the guarantee commission rate by .5% which has been confirmed by Hon'ble Jurisdictional High Court in Everest Kanto Cylinder Ltd. (2012) 34 taxman 19. On the other hand, ld. DR for the Revenue argued that each and every case has to be adjudged on its own case and there are various corporate guarantee commissions @ 2 to 3% have been accepted.
4. We have considered the rival contention of the parties. Before the TPO while considering the adjustment of ALP observed that assessee had given a corporate guarantee for the benefit of its AE in United Arab Amirat which prima-facie qualified as an international transaction. The assessee however, had not considered the same to be an international transaction. The TPO further observed that assessee has given a corporate guarantee of Rs. 5.5 Crore to M/s Mahindra Middle East Services Centre (FZC). The ld. TPO called the information from the Union Bank of India. The Union Bank of India furnished its reply and disclosed that Bank Guarantee was given for import of L.C. of Rs. 5.5 Crore and the Bank Guarantee was enforced from 01.04.2009 to 24.04.2007. The assessee further asked to establish the Arms Length nature of Bank Guarantee. The assessee further filed its reply and contended that the guarantee does not fall within the ambit of international transaction of Hyderabad Tribunal in case of M/s Four Soft Ltd. The contention of assessee was not accepted by TPO. The TPO concluded that providing of corporate guarantee is an international transaction. The assessee has not any kind of bench mark, the TPO concluded 3 ITA No. 269/M/2014 M/s Mahindra Intertrade Ltd.
that assessee has not discharged his primary onus of bench marking for transaction and proceeded to determine the ALP. The TPO further concluded that during the relevant year, the bank rate was 6% and for the week ended on 28.09.2007 upto 05.10.2007, the rate was 6% while average PLR rate for this period was in between 12.75 to 13.25% and worked out the ALP on CUP Method of Rs. 2,16,986/-. The TPO suggested the upward adjustment of Rs. 2,16,984/-. On appeal before the ld. CIT(A), the adjustment was sustained holding that rate of 6% adopted by TPO is quite reasonable.
5. We have seen that recently the similar ground of appeal came up consideration before the co-ordinate bench of this Tribunal in Videocon Industries vs. DCIT in ITA No. 1310/Mum/2016 and the Tribunal vide order dated 24.02.2017 passed the following order:
"10. However, we are not entering into semantics of this argument as to whether corporate guarantee is an 'International Transaction' or not, because before us, the Ld. counsel Mr. Sonde has mainly raised the issue that, benchmarking if at all is required to be done, then same should be done by taking the corporate guarantee commission rate between 0.25% and 0.50% and in support of which he relied on various decisions. He has not stressed on this issue, whether corporate guarantee is an international transaction or not. Whence assessee before us is not pursuing the matter, we are also not inclined to adjudicate the issue. On merits, Ld. CIT DR tried to justify the charging of Taxpundit.org ITA No.1310/M/2016 M/s. Videcon Industries Ltd. 11 corporate guarantee commission @ 3% and submitted that there are various decisions wherein corporate guarantee commission of 2% to 3% have been accepted.
11. After considering the rival submissions and on perusal of the impugned orders, we find that it is an undisputed fact that the assessee has given corporate guarantees to financial institution/banks in respect of loan or credit facilities extended to its two AEs and letter of undertaking to the lenders in the case of another AE. For providing such corporate guarantee it has recovered 0.25% as guarantee commission. In support of charging of 0.25%, the assessee, first of all, contended that the loans for which the assessee has given guarantee are primarily covered by pledged securities, hypothecation of debtors' balances and other assets of the AE, therefore, it cannot be said that the entire security of the loan was based on corporate guarantee given by the assessee. The details of loans vis-à-vis the security thereof had already been reproduced above. It has also been brought on record that State Bank of India has charged bank guarantee commission to assessee by giving 50% concession on the rate of 1.75% which works out to approximately 0.875%. If various factors and risk involved are evaluated which is quite normal under the foreign guarantee like, country risk, currency risk and entity risk etc., then charging of corporate guarantee commission would fall down below 0.5%. Thus, this constitutes a kind of internal CUP available to the assessee to benchmark the transaction of giving corporate guarantee/letter of undertaking. Moreover, there are catena of decisions wherein this Tribunal has held that corporate guarantee commission around 0.50% can be accepted as ALP. Accordingly, we hold that the corporate guarantee commission fee which is to be recovered from AE should be 0.50% which would meet the arms length requirement. Thus, under the facts and circumstances of the case, we direct the TPO/Assessing Officer to take the corporate guarantee fee @ 0.50% and make the adjustment accordingly. Thus, the issue of corporate guarantee as raised vide ground nos. 1.1 to 1.5 is treated as partly allowed."
Considering the decision of co-ordinate bench on similar issue, we direct the AO to exceed the corporate guarantee fees @ .5% and made the adjustment accordingly. Thus, Ground 4 ITA No. 269/M/2014 M/s Mahindra Intertrade Ltd.
No.1 is partly allowed.
6. Ground No.2 relates to disallowance of depreciation of Rs. 11,90,285/- on intangible assets.
The ld. AR of the assessee fairly conceded that this Ground of Appeal is covered against the assessee in assessee's own case for AY 2009-10 in ITA No. 1822/Mum/2013 dated 31.07.2015. The ld. DR for the Revenue confirmed the contention of ld. AR of the assessee. Considering the contention of ld. AR of the assessee, the Ground No.2 raised by assessee is dismissed.
7. Ground No.3 relates to the disallowance of Rs. 1,56,87,826/- u/s 14A r.w. Rule 8D(iii) of the Act. The ld. AR of the assessee argued that this ground of appeal is covered in favour of assessee by the decision of Tribunal in assessee's own case for AY 2009-10 in ITA No. 1822/Mum/2013 dated 31st July 2015. It was further argued that assessee has opening share capital on free reserve of Rs. 9011.3 Lakhs as against the investment of Rs. 0.01 Lakhs only and closing share capital and free reserve of Rs. 12389.88 Lakhs as per page 9-14 of Paper Book (PB). On the other hand, ld. DR for the Revenue supported the order of authorities below. We have considered the rival contention of the parties and gone through the orders of authorities below
8. We have considered the rival contentions of the parties and noticed that the similar issue was adjudicated by the Tribunal for AY 2009-10 in ITA No. 1310/M/2013 and in cross appeal of Revenue vide ITA No.1822/M/2013 decided on 31.07.2015. Hence, we restore this ground of appeal to the file of AO to decide the issue afresh in accordance with the direction of Tribunal in order dated 31.07.2015. Before, passing order the AO shall grant opportunity to the assessee to provide necessary information and evidences in their possession. In the result this ground of appeal is allowed for statistical purpose.
9. Ground No.4 relates to disallowance of Rs. 7,19,965/- on account of provisions for post retirement medical scheme. The ld. AR of the assessee argued that this issue is covered against the assessee in assessee's own case for Ay 2009-10 in ITA No. 1822/Mum/2013 dated 31.07.2015. The ld. DR for the Revenue not disputed the contention of ld. AR of the asessee. We have considered the rival contention of the parties and seen that similar disallowance was made against the assessee in the AY 2009-10 and the same was upheld by the co-ordinate bench of this Tribunal holding as under:
"6. The third issue in this appeal is with regard to an amount of Rs. 9,46,480/- which represented liability towards post retirement medical claim for the employees. The AO as well as the Ld. CIT(A) declined the claim for deduction on the ground that it was a contingent liability whose outcome was dependent on contingent factors of future obligations. The Ld. CIT(A) further noticed that the impugned amount was neither paid to the employees during the year and nor it was set apart in a separate fund and, 5 ITA No. 269/M/2014 M/s Mahindra Intertrade Ltd.
therefore, it was an unascertained liability.
6.1 Before us the Ld. Representative for the assessee fairly conceded that similar issue came before the Tribunal in the case of the group concern M/s. Mahindra &Mahindra Ltd. for assessment year 2007-08 and vide order dated 8/6/2012 in ITA No.7999/Mum/2011, similar liability has been held to be an unascertained liability which was not allowable as a deduction under section 37(1) of the Act. Following the aforesaid precedent, we hereby affirm the stand of the Lower Authorities in deciding the issue against the assessee. Thus, on this aspect also assessee fails."
10. Considering the decision of co-ordinate bench in assessee's own case for AY 2009-10, wherein order of AY 2007-08 was followed. Thus, following the preceding year, this ground of appeal is dismissed.
11. Ground No.5 relates to disallowance of prior period expenses. The ld. AR of the assessee argued that prior period expenses were related with service tax covered u/s 43B and is allowable expenses in the year when payment was made. On the other hand, ld. DR for the Revenue relied upon the orders of authorities below.
12. We have considered the rival contention of the parties and gone through the order of authorities below. The AO during the assessment observed from the Tax Audit Report (TAR) that assessee has claimed service tax expenses of Rs. 5,24,659/- under the prior period expenses. The assessee was asked to give explanation with regard to the said expenses, the assessee filed its reply and contended that although the statutory expenses relates to prior years when those were adopted to P & L A/c of FY 2007-08 and crystallizes in the order under reference. It was further contended that these expenses are regular in nature and cannot be disallowed as expenses for this year. The AO not accepted the contention of the assessee holding that assessee is following the mercantile system of accounting and the amount is inadmissible as it does not pertain to the period for which income is being assessed. The ld. CIT(A) while considering this Ground of Appeal concluded that assessee contended that this amount has been paid on 07.05.2007 and claimed deduction u/s 43B of the Act. However, the assessee has not brought on record the evidence that this expenditure was debited to the P & L A/c on preceding year and confirmed the action of AO.
13. We have noticed that assessee has not filed any documentary evidence even before us to substantiate his claim or the payment receipt with regard to service tax for claiming exemption u/s 43B of the Act. However, considering the contention of ld. AR of the assessee, we restore this ground of appeal to the file of AO to examine the issue afresh, if the claim of the assessee is covered by the prevision of section 43B of the Act and passed the order in accordance with law. Needless to say that the AO shall provide sufficient opportunity to the assessee before passing the order. The assessee is also directed to file the 6 ITA No. 269/M/2014 M/s Mahindra Intertrade Ltd.
complete/details information and evidence with regard to admissibility of claim before the AO. Thus, this Ground of Appeal is allowed for statistical purpose.
14. As a result, appeal filed by assessee is partly allowed.
Order pronounced in the open court on 15th March 2017.
आ दे श क! घोषणा खुले यायालय म, -दनांक15 ekpZ,2017 को क! गई ।
Sd/- Sd/-
(राजे / RAJENDRA (iou संह / PAWAN SINGH))
लेखा सद(य / ACCOUNTANT MEMBER #या यक सद(य / JUDICIAL MEMBER
मंब
ु ई/Mumbai,-दनांक/Date: 15.03.2017
SK
आदे श क" ) त*ल+प अ,े+षत/Copy of the Order forwarded to :
1. Assessee /अपीलाथ 2. Respondent / यथ
3.The concerned CIT(A)/संब4ध अपील(य आ यकर आ यु6त, 4.The concerned CIT /संब4ध आ यकर आ यु6त
5. DR "K" Bench, ITAT, Mumbai /7वभागीय त न9ध ds खंडपीठ,आ .अ. याया.मुंबई
6. Guard File/गाड फाईल स या7पत /True Copy// आ दे शानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आ यकर अपील(य अ9धकरण, मंब ु ई /ITAT, Mumbai