×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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Both these appeals are filed by the Re enue directed against separate orders of the Commissioner of Income Tax (Appeals)-22, Kolkata [‘CIT(A)’ for short] dated 01.02.2017 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’ for short).
2. As the appeal pertains to the same assessee, they are heard together and disposed off by way of this common order.
3. Facts in brief. The assessee is a company and is engaged in the business of manufacture and sale of Low Ash Metallurgical Coke, billets, ingots, TMT bars and other rolled steel products as well as in generation of wind power. For Assessment Year (‘AY’ for short) 2008-09, it filed its return of income on 30.09.2008, declaring total income of Rs. 124,67,87,030/-. The Assessing Officer (‘AO’ for short) passed an order u/s 144C r.w.s. 143(3) of the Act on 27.02.2012 determining the total income of the assessee at Rs. 132,40,54,628/- inter alia may be transfer pricing adjustments on account of interest on loan, interest on bond and fees for providing guarantee (Guarantee Commission). The AO carried the matter in appeal. The ld. first appellate authority allowed the appeal of the assessee for the AY 2008-09.
4. Aggrieved, the Revenue is before us challenging the deletion of adjustment made u/s 92CA(3) of the Act on account of interest on loan and on account of corporate guarantees.
5. For the AY 2010-11, the assessee filed a return of income on 13.10.2010 declaring nil income. The AO completed the assessment u/s 143(3) on 30.04.2014 determining the total income at Rs. 29,41,27,197/- inter alia disallowing the claim of additional depreciation on electrical installations, disallowing deduction of PF contribution by employees, making an adjustment on account of bank guarantee commission u/s 92CA(3) of the Act and an adjustment on loan advanced to AE u/s 92CA(3) of the Act. The AO also denied relief by computing profits u/s 115JB of the Act on disallowance u/s 14A r.w. Rule 8D of the Act.
6. Aggrieved, the assessee carried the matter in appeal and ld. CIT(A) has granted relief. Further aggrieved the Revenue has filed an appeal
7. We have heard Dr. P.K. Srihari, the ld. CIT(DR) on behalf of Revenue and Sri Ravi Tulsiyan, ld. Counsel for the assessee. Paper books were filed running into 297 and 94 pages along with written submissions We have carefully considered rival contentions, perused the paper on record and the orders of the authorities below as well as case laws cited and held as follows.
8. We first take up appeal in ITA No. 1150/Kol/2017 for the AY 2008-09.
9. The first issue is regarding the transfer pricing adjustment made u/s 92CA(3) of the Act on account of Guarantee Commission fees. The ld. CIT(A) brought out the facts relating to the fee paid for providing guarantee (Guarantee Commission) at page 36 of his order. Some portions are extracted for ready reference:
“Fee for providing Guarantee (Guarantee Commission)
33. During the course of the Transfer Pricing proceedings u/s 92CA(2), it is seen from the documents furnished by the assessee that state Bank of India, Sydney Branch (SBI) Sydney) has sanctioned to INML (Same as GNAL /GNCCL/GNML) a working capital credit facility having maximum limit of AUD36,400,000 vide their letter dated 7th September, 2006. This include:
i. A pre-shipment overdraft facility up to a maximum of AUD5,400,000
ii. bill discounting facility up to a maximum of AUD 20,000,000 and
iii. A bank guarantee facility up to a maximum of AUD11,000,000
34. Para 9 of the sanction letter referred above mentions that the security package would include, apart from 'first ranking fixed and floating charge over all the assets and liabilities: of INML (then Gujarat NRE Australia Pty Limited), a guarantee and indemnity by the assessee in favour of the lender in a form acceptable to it and a deed of priority between the assessee and the lender. The details of this guarantee and the Deed of Priority have already been discussed above.
35. It is also seen that the assessee has a high credit rating of "AA" issued by Credit Analysis Research Ltd. (CARE) for the purpose of a proposed Non-Convertible Debenture issue. It was observed that the guarantee provided by the assessee to SBI Sydney in favour of INML was not reflected in Form 3CEB filed by the assessee along with its return of income for A. Y. 2007-08. Further, the assessee did not charge any amount from INML for the service provided to the by way of this guarantee.
36. Further, it is also seen that the SBI, Sydney Branch has also provided a loan and bar guarantee facility to M/s NRE FCGL Pty Ltd, Australia ( hereinafter GNFL), another AE of the assessee vide sanction letter dated 03.07.2007. For this credit facility also, the assessee has stood guarantee. A guarantee and indemnity bond has been signed between SBI, Sydney Branch (as financier) and the assessee (as the guarantor) on 12.10.2007. In the agreement GNFL has been mentioned as the "Debtor". However, Clause 1 of the agreement mentioned that
The Guarantor unconditionally and irrevocably guarantees (as principal debtor) the due and punctual payment of the guaranteed money to the Financier. If the Debtor does not pay the guaranteed money then the Guarantor must pay the Guaranteed money to the Financier on demand. The Financier may make this demand at any time whether or not a demand has been made by the Financier of the debtor. Thus, in the eyes of the Lender, the assessee is considered as the principal debtor and the unconditional guarantee requires the assessee to pay the guaranteed money even when no demand has been placed on the actual debtor. Clause 2 of the agreement mentions that
The Guarantor unconditionally and irrevocably indemnifies the Financier....against all loss, damages, liabilities, costs charges, expenses....of any kind or nature suffered or incurred by the Financier..... Clause 4 mentions that…
This guarantee and indemnity is a continuous security and extends to the whole of the Guaranteed money. The Guarantor waives any right of first requiring the financier to proceed against or enforce any other right, power, remedy or security, or claim payment from the debtor or any other person before claiming from the Guarantor.
Clause 9.1.3 stipulates that the Guarantor warrants that "it has fully disclosed in writing to the Financier all the facts relating to it, this deed and anything in connection with it reasonably believes to be material to the assessment of the nature and amount of risk undertaken by the Financier in entering into any transaction relating to this guarantee...." These stipulations clearly demonstrate that in effect, the credit facility has been advanced by taking into account the creditworthiness of the assessee itself. Based on such guarantee, the Bank has advanced the loan at the price of 6 month USD BBA LIBOR plus 2% per annum.”
10. The ld. CIT(A) has considered the arguments of the assessee and at para 16 page 50 followed his order for the AY 2007-08 and concluded that the transaction in question, is not an international transaction as defined u/s 92B of the Act, as it then